Genesee & Wyoming Inc. 2013 Annual Report
Genesee &Wyoming Inc.
North American Operations
Pacific
Region
RCPE*
Midwest
Region
Mountain West
Region
Central
Region
Canada
Region
Northeast
Region
Ohio Valley
Region
Rail Link
Region
Railroads
Dashed lines indicate trackage rights
Contract Coal Loading
Industrial Switching
Port Operations
* Subject to U.S. Surface Transportation Board acquisition approval
and the satisfaction of certain closing conditions
Genesee & Wyoming Inc. (G&W)
owns and operates short line and
regional freight railroads in the
United States, Australia, Canada,
the Netherlands and Belgium.
In addition, G&W operates the
1,400-mile Tarcoola to Darwin rail
line, which links the Port of Darwin
with the Australian interstate rail
network in South Australia. Opera-
tions currently include 111 railroads
organized in 11 regions, with nearly
15,000 miles of owned and leased
track, 4,600 employees and over
2,000 customers. We provide rail
service at 37 ports in North America,
Australia and Europe and perform
contract coal loading and railcar
switching for industrial customers.
Port Operations
Southern
Region
Rail Link
Region
Australia
Region
Port Pirie
Europe Region
Port Operations
Shunting Contracts
Rotterdam Rail Feeding
Belgium Rail Feeding
Financial Highlights
(In thousands, except per share amounts)
Years Ended December 31
Income Statement Data
Operating revenues
Income from operations
Net income
Net income available to common stockholders
Diluted earnings per common share attributable
to Genesee & Wyoming Inc. common stockholders:
2013
2012
2011
2010
2009
$1,569,011
$874,916
$829,096
$630,195
$544,866
380,188
190,322
191,779
130,410
272,091
269,157
52,433
48,058
119,484
119,484
81,260
81,260
99,322
61,473
61,327
Diluted earnings per common share (EPS)
4.79
1.02
2.79
1.94
1.57
Weighted average shares - Diluted
56,679
51,316
42,772
41,889
38,974
Balance Sheet Data as of Period End
Total assets
Total debt
Equity
$5,319,821
$5,226,115
$2,294,157
$2,067,560
$1,697,032
1,624,712
1,858,135
2,149,070
1,500,462
626,194
960,634
578,864
817,240
449,434
688,877
Operating Revenues
($ In Millions)
Income from Operations
($ In Millions)
Net Income
($ In Millions)
Diluted Earnings
Per Common Share
1,569.0
$400
394.12
$275
272.11
$5.00
350
300
250
200
150
100
50
0
380.21
250
225
200
175
150
125
100
75
50
25
0
216.12
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
129.7 2
119.5 1
105.62
81.3 1
61.51
77.7 2
49.52
52.41
211.2 2
191.8 1
189.5 2
190.3 1
141.12
130.41
103.6 2
99.31
2009
2010 2011 2012 2013
2009
2010 2011 2012 2013
874.9
829.1
630.2
544.9
2009
2010 2011 2012 2013
4.791
3.802
2.791
2.47 2
2.532
1.021
1.941
1.571
1.86 2
1.27 2
2009
2010 2011 2012 2013
$1,600
1,400
1,200
1,000
800
600
400
200
0
(1) As Reported
(2) Adjusted income from operations, adjusted net income and adjusted diluted EPS are non-GAAP financial measures and are not intended to replace
income from operations, net income and diluted EPS, their most directly comparable GAAP measures. The information required by Item 10(e) of the
Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 (Item 10(e) ) and Regulation G under the Securities Exchange
Act of 1934, including a reconciliation of non-GAAP financial measures to their most directly comparable U.S. GAAP measures, is included on pages 18-23.
2013 Annual Report 1
From the CEO
John C. Hellmann
President and Chief Executive Officer
To Our Shareholders:
In 2013, Genesee &Wyoming completed its first year of operations following our $2 billion acquisition
of RailAmerica, a transaction that added 45 new railroads and doubled the size of our business
in North America. While the successful integration of RailAmerica was a significant achievement in
2013, the year was marked by several other important accomplishments. First, we led the rail industry
in safety for the fifth consecutive year, which is remarkable in a year that we welcomed 2,000 new
employees to our organization. Second, our financial performance was strong as we increased
adjusted diluted earnings per share by 50% and used record free cash flow to pay down more
than $200 million of debt, reducing our leverage to less than 3.0x debt to adjusted EBITDA.(1)
Third, our Australian operating team seamlessly implemented a major expansion of our iron ore
service, hauling a record 11 million tons of iron ore to a customer’s port facility in South Australia
for export primarily to China. Fourth, with our newly expanded company performing well, we
focused on investment and acquisition opportunities, culminating in our January 2014 agreement
with Canadian Pacific Railway to purchase a 670-mile railroad located in South Dakota, Minnesota,
Wyoming and Nebraska for $210 million. Our newly formed Rapid City, Pierre & Eastern Railroad
(RCP&E) is one of the largest proposed Class I spinoffs in recent history and, following expected
approval by the U.S. Surface Transportation Board (STB), we are excited about its anticipated
contribution to G&W’s long-term growth.
Safety
In 2013, G&W’s overall injury frequency rate of 0.80 per 200,000 man-hours was once again
better than any Class I railroad and more than three times safer than the short line industry average.
Although our 2013 results were impressive in the context of our industry, we fell short of our target
of 0.45. Nonetheless, we are confident in our ability to continuously improve our safety performance
and have established our 2014 target once again at 0.45. It is noteworthy that 91 of our 111 railroads
worldwide did not have a reportable injury in 2013, so our ultimate objective of being an injury-free
company is also in reach. Visit any of our operations – from Corpus Christi to Labrador City, from
the Port of Rotterdam to Australia’s Northern Territory – and you will find the same language and
culture of safety that binds the entirety of G&W.
(1) Adjusted diluted EPS, free cash flow and adjusted EBITDA are non-GAAP financial measures
and are not intended to replace diluted EPS, cash provided by operating activities and net income,
their most directly comparable GAAP measures. The information required by Item 10(e) of
Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 (Item
10(e)) and Regulation G under the Securities Exchange Act of 1934 (Regulation G), including
a reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measures,
is included on pages 18-23.
2013 Annual Report 3
From the CEO, continued
Financial Results
In 2013, G&W achieved record financial results in operating revenues, adjusted income from
operations, adjusted diluted earnings per common share and free cash flow.(2) Highlights include:
Operating Revenues increased 79.3% from $874.9 million in 2012 to $1.57 billion in 2013.
Assuming G&W had controlled and consolidated RailAmerica for the full year of 2012,
which we refer to as the “Combined Company” basis, our 2013 revenues increased 7.4%.(2)
Adjusted Operating Ratio (adjusted operating expenses divided by operating revenues) improved
from 75.9% in 2012 to 74.9% in 2013;(2) Reported Operating Ratio improved from 78.2% in 2012
to 75.8% in 2013.
Adjusted Income from Operations increased 86.6% from $211.2 million in 2012 to $394.1 million
in 2013;(2) Reported Income from Operations increased 99.8% from $190.3 million in 2012
to $380.2 million in 2013.
Adjusted Diluted Earnings per Common Share (EPS) increased 50% from $2.53 in 2012
(with 51.3 million average shares outstanding) to $3.80 in 2013 (with 56.7 million average shares
outstanding);(2) Reported Diluted EPS increased from $1.02 in 2012 (with 51.3 million average shares
outstanding) to $4.79 in 2013 (with 56.7 million average shares outstanding).
Free Cash Flow increased from $33.2 million in 2012 to $217.6 million in 2013. Before
investments in equipment and facilities to support new business, free cash flow increased
from $135.0 million in 2012 to $251.8 million in 2013.(2)
While our growth metrics were strong due to the absolute size of the RailAmerica acquisition, in
order to better understand trends in our business, it is also useful to analyze our same railroad revenue
trends for 2013 versus the prior year. The following discussion highlights our revenue trends on
a Combined Company, same railroad basis as though the RailAmerica railroads were owned by G&W
during 2012. G&W’s Combined Company same railroad freight revenues were up 10.1% in 2013,
driven by a 5.8% increase in carloads and a 4.2% increase in average freight revenues per carload.
(2) To provide comparative context for 2013 consolidated operating revenues and traffic volumes,
G&W is providing “Combined Company” comparisons for those items as though the RailAmerica
railroads were owned by G&W during 2012. In doing so, G&W has amended RailAmerica’s 2012
information to conform with G&W’s reporting methodology. Combined Company operating revenues
include both RailAmerica and G&W operating revenues for 2012. Combined Company operating
revenues, adjusted operating ratio, adjusted income from operations, adjusted diluted EPS and free
cash flow are non-GAAP financial measures and are not intended to replace operating revenues,
operating ratio, income from operations, diluted EPS and net cash provided by operating activities,
their most directly comparable GAAP measures. The information required by Item 10(e) of Regula-
tion S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 (Item 10(e))
and Regulation G under the Securities Exchange Act of 1934 (Regulation G), including a reconcili-
ation of non-GAAP measures to their most directly comparable U.S. GAAP measures, is included
on pages 18-23.
4 Genesee & Wyoming Inc.
Highlights of 2013
Industry-Leading Safety
G&W’s 2013 consolidated injury frequency rate (IFR)
led the rail industry for the fifth consecutive year –
remarkable in a year that we welcomed 2,000 new
employees and 45 railroads to our organization.
We did not achieve our internal target in 2013;
however, by instilling the G&W safety culture, we
have improved the combined company’s IFR vs. 2012.
Of our 111 railroads, 91 had no injuries in 2013,
so our objective of being an injury-free company
is in reach.
Injury Frequency Rate per 200,000 Man-Hours
as reported to the Frederal Railroad Administration (FRA)
FRA Group 3 (Avg)
Short Line Railroads
FRA Group 2 (Avg)
Regional Railroads
Class I (Avg)
G&W
2013 Safety Performance
3.0
2.9
1.8
1.1 1.1 1.1 1.1
0.9 0.8 0.7
“
Safety is the No.1 priority at G&W,
and the safety goal is as simple as it is
important: Work Injury Free Every Day.
That goal may also apply to other
railroads or companies in other
industries. What sets G&W apart is
the passion with which that goal
is pursued at our company.”
Tyrone C. James, Senior Vice President
Safety and Compliance
F R A Gro u p 2
F R A Gro u p 3
K C S
U P
Cla ss I
N S
B N S F
C S X
G &
G &
1
W
W R ailro a d s
1 Includes non-railroad businesses (e.g., construction and transload ).
2006-2013 Safety Performance
5.0
4.0
3.0
2.0
1.0
0.0
1.95
1.67
1.33
0.74
0.51
0.53
0.48
0.7
2006 2007 2008 2009 2010 2011 2012 2013
Cultural Changes in Safety
2.0
1.95
1.75
1.0
0.0
0.48
0.7
G&W
2006
G&W
2012
RailAmerica
2012
G&W
Railroads
2013
2013 Annual Report 5
Highlights of 2013
Successful Integration
of RailAmerica
During 2013, the 45 former RailAmerica railroads were
instilled with the G&W safety culture, improved with
investments in track and facilities, and rebranded
with new logos and freshly painted locomotives.
“
On behalf of the Board of Directors,
I want to welcome the 2,000 new
employees of Genesee & Wyoming
who joined the company in 2013.
We look forward to working together
to achieve our Core Purpose: to be the
safest and most respected rail service
provider in the world.
I want to acknowledge and thank
the Mountain West and Central regions
for working injury-free in 2013 and
setting the example for all of G&W
and its goal to be injury-free.
I also want to thank our senior
executives for their leadership and
acknowledge the extra time, effort and
personal sacrifice made by many to
accomplish the successful integration
of RailAmerica into G&W.”
Mortimer B. Fuller III
Chairman of the Board of Directors
6 Genesee & Wyoming Inc.
A few of the 45 rebranded company logos
From the CEO, continued
Metallic Ores revenues were up $44.4 million (+54.5%) led by the start-up of a new iron ore mine
in South Australia. Metals revenues were up $13.2 million (+11.6%) primarily in North America
where increased auto production and increased demand for steel pipe in the energy sector helped
drive strong output at several steel mills served by G&W. Petroleum Products revenues were up
$11.6 million (+21.8%) led by increased shipments to destination crude oil terminals in our Pacific
and Southern regions and increased shipments of liquefied petroleum gas (LPG) originating
in our Ohio Valley Region. It was also good to see freight revenues for Coal & Coke up 8.7%,
Lumber & Forest Products up 9.4% and Pulp & Paper up 6.8% after years of limited or negative
growth, which bodes well for the general economy. Finally, it is worth noting that our freight
revenues would have been even stronger; however, the depreciation of the Australian and Canadian
currencies versus the U.S. dollar in 2013, down 14.2% and 6.5% respectively, negatively impacted
the translation of our foreign revenues into U.S. dollars.
Strong Free Cash Flow
We generated free cash flow of more than $250 million in 2013, prior to capital expenditures
to support new business. The strength of G&W’s free cash flow is derived from a customer base
that is unique in its diversity by commodity and geography. In 2013, no single customer represented
more than 6% of our total revenues, and no single commodity group represented more than
9% of our total revenues. Meanwhile, our revenue base spans more than 2,000 customers in
39 U.S. states, four Canadian provinces, Australia, the Netherlands and Belgium.
As demonstrated in 2013, our longstanding philosophy has been to use free cash flow to pay
down debt and strengthen our balance sheet until we identify attractive new investment opportuni-
ties. In some years, such as the period of aggressive institutional lending that preceded the global
financial crisis in 2008, we made no acquisitions because we concluded that valuations were
unreasonably high. In other years, when valuations have been attractive to us, we have made
multiple acquisitions. Over my 14 years at G&W, I have seen an almost steady pipeline of potential
transactions and believe this will continue, especially given our wider geographic coverage.
Nevertheless, we will remain patient and disciplined in our approach to acquisitions and will
only deploy capital where we anticipate significant long-term benefits to our shareholders.
Organizational Evolution
The company I joined in 2000, with 21 railroads and $175 million in revenues, was dramatically
different in size and geographic reach than today’s G&W, with 111 railroads and $1.6 billion in
revenues. Although each of our operating regions now has a larger number of railroads (10 railroads
on average), it is remarkable how little our organizational structure has changed over the years.
Each operating region is under the leadership of a Regional Senior Vice President who has his
own regional management team and operates an independent business unit with direct accountability
for safety and business results. Within the region, each discrete railroad has a General Manager
who reports to regional management and is responsible for the safety and efficiency of daily
operations and the quality of customer service. The essence of G&W’s regional structure is to
be as close as possible to our customers and to cultivate a local culture of service, cost control
and entrepreneurship that has characterized the success of the short line industry.
2013 Annual Report 7
From the CEO, continued
Although the independence of our regional organizational design has been unchanged as we have
grown larger, we also have added or enhanced specialized corporate functions such as industrial
development, customer service, track and structure engineering and mechanical to provide central-
ized support and expertise to the operating regions. As the regions are fully accountable for their
business performance, they draw upon the specialized knowledge within these corporate functions
to maximize performance.
To illustrate how we have continued to strengthen the G&W senior management team, I would
like to highlight some of the key changes that we made among our Regional Senior Vice Presidents
over the past 12 months:
■ Joel Haka, formerly Chief Operating Officer of Florida East Coast Railway and CMA CGM
North America (container shipping), joined us as Senior Vice President of G&W’s Pacific Region.
■ Jim Irvin, formerly Senior Vice President of our Oregon Region as well as Vice President
of New Business Operations in Australia, returned from Adelaide and is now Senior Vice
President of our Rail Link Region.
■ Bill Jasper, formerly Senior Vice President and 25-year veteran of our Rail Link Region,
was named Senior Vice President of our Southern Region.
■ Gary Long, formerly President of Omnitrax, joined us as President of our Atlas Railroad
Construction subsidiary.
■ Greg Pauline, formerly Executive Director of Development and Corporate Affairs of Lend Lease
Group’s Infrastructure Services business, joined us as Managing Director of Genesee &Wyoming
Australia, our largest operating region.
■ Dewayne Swindall, formerly Vice President of Transportation of our Southern Region,
was promoted to Senior Vice President of our Central Region.
The list of personnel appointments above is merely a snapshot of the hiring, development and
succession planning that takes place at all levels of G&W. In order to ensure that we continue
to attract and develop great people, we hired an outstanding Chief Human Resource Officer,
Mary Ellen Russell. As an executive recruiter, Mary Ellen previously helped place several senior
executives at G&W and demonstrated a perfect understanding of the right people for G&W’s
business culture. She also brings deep human resource experience from her previous background
in the container shipping and trucking industries. Building on the success of the transportation
training centers that we have developed in both Jacksonville, Florida, and Adelaide, South Australia,
Mary Ellen is also spearheading new education and training initiatives for all disciplines within G&W.
8 Genesee & Wyoming Inc.
Highlights of 2013
Customer Satisfaction
In November 2013, we conducted our biennial
survey of our 2,000 customers worldwide.
Good news: same railroad customers scored
our overall service 7.9 out of 10, ever closer to
our target of 8.0. Bad news: our overall score
declined slightly to 7.5, mainly due to former
RailAmerica railroads scoring 7.1. We view this
as an opportunity to improve service, earn the
trust of customers and increase future carloads.
Of two dozen G&W attributes rated by customers,
commitment to safety scores highest, followed
by the professionalism and availability of customer
service personnel.
November 2013 Survey by a
Leading Customer-Satisfaction
Research Firm
Overall Customer Satisfaction with Genesee & Wyoming
vs. Other Transportation Service Providers
Former RA Railroads 7.1 G&W 7.5
7.9
G&W Same Railroad
Trucking Industry
7.3
Railroad Industry
6.6
5.0
6.0
7.0
8.0
9.0
10.0
Genesee & Wyoming’s Top Three
Highest Rated Attributes by Customers:
Operating personnel
demonstrate a clear
commitment to safety
Professionalism of customer
service personnel
Availability of customer
service personnel
8.6
8.4
8.0
5.0
6.0
7.0
8.0
9.0
10.0
“
The ultimate goal of customer
service is to build trusting,
long-lasting relationships
that help grow our customers’
businesses, because if they
grow, we’ll grow.”
Andrew T. Chunko, Senior Vice President
Customer Service
2013 Annual Report 9
Highlights of 2013
Expanded Iron Ore Service
In 2013, Genesee & Wyoming Australia (GWA)
expanded a customer’s narrow-gauge iron ore
service to 8 million tons annually and ramped up
a new standard-gauge service hauling 3 million
tons of iron ore annually from the customer’s
Peculiar Knob mine to its Whyalla port facility.
Since 2011, GWA has invested over A$130 million
to support this business, purchasing five new
narrow-gauge DC locomotives and 11 new AC
4,400-horsepower standard-gauge locomotives
and constructing a standard-gauge rolling-stock
maintenance facility. The standard-gauge service
operates in distributed power configuration with
electronically controlled pneumatic (ECP) braking,
utilizes in-line fueling and required the hiring and
extensive training of more than 30 new employees.
“
10 Genesee & Wyoming Inc.
The planning, procurement, hiring
and training for this service expansion
was an immense undertaking, executed
with outstanding teamwork by GWA.
It is a perfect example of our ability
to make investments in support
of customer growth projects.”
David A. Brown, Chief Operating Officer,
Genesee & Wyoming Inc. and Director,
Genesee & Wyoming Australia Pty Ltd
From the CEO, continued
Commercial Development
One of the most important changes to G&W since the acquisition of RailAmerica has been the
creation of a strong corporate commercial team under the leadership of our Chief Commercial
Officer, Michael Miller. We believe that we can generate additional revenue growth in our regions
with the support of centralized commercial expertise that includes:
■ Industrial Development: Our objective is to be the first company anyone calls when seeking
to locate a new industrial facility on a railroad in North America. To achieve this, we hired
Mike Peters, who has a deep background in logistics, real estate development, railroads and
siting industrial plants, as our Senior Vice President, Real Estate & Industrial Development.
■ Real Estate: Our objective is to maximize the value of our right-of-way and other properties.
Under Mike Peters’ leadership, we are developing a comprehensive Geographic Information
System and a team that will ensure the best use of our real estate assets and also support the
needs of our industrial development team.
■ Transload: Our objective is to efficiently transfer freight shipments from other modes of trans-
portation to and from our railroads. As a result, we hired Mike Webb, who spent 14 of his 24
years at Norfolk Southern as a transload expert, to add new distribution facilities at select
locations on our national footprint and to extend our reach to non-rail-served industries.
Mike joined us as Senior Vice President, Distribution Services.
Another addition to our commercial capabilities is our Atlas Railroad Construction subsidiary,
acquired as part of the RailAmerica transaction. Under the leadership of Gary Long, we are now
able to offer a turnkey solution for customers whereby Atlas builds and we operate rail infrastructure
for new mines and industrial plants. By bundling Atlas’ track construction expertise with G&W’s
safety and service excellence, we have developed an offering that we believe will be attractive
to customers in multiple industries.
Our ability to increase the growth rate of our railroads is ultimately dependent on the quality
of our rail service. In November 2013, we conducted our biennial survey of our 2,000 customers
worldwide. The good news is that our same railroad customers scored our overall service 7.9 out
of 10, ever closer to our target of 8.0. The bad news is that our overall customer service score
declined slightly to 7.5. The main reason for the decline was that the former RailAmerica railroads
scored 7.1, an outcome that we view as an opportunity to improve service, earn the trust of customers
and increase future carloads. For those railroads with lower scores, our regions are executing specific
plans to address customer concerns, and we intend to re-survey these customers in the near future.
In reviewing our commercial outlook, it is important to note that we continue to see considerable
upside for the company from further improvement in the North American economy. For perspective,
in 2013, our Combined Company, same railroad carloads were still down 14% versus 2008. Given
the potential benefit from economic recovery, the scope of our new commercial capabilities and
the ongoing opportunity to improve service at the former RailAmerica railroads, we are confident
in our ability to increase G&W’s long-term rate of growth.
2013 Annual Report 11
From the CEO, continued
Rapid City, Pierre & Eastern Railroad
While still subject to approval by the U.S. Surface Transportation Board, we hope to close the
RCP&E acquisition in the second quarter of 2014. The railroad is initially expected to generate
approximately $65 million in annual revenues for G&W, serving two of the largest bentonite mines
and one of the largest ethanol facilities in North America, a major cement producer and major agri-
cultural producers throughout South Dakota. South Dakota is one of the top 10 states in the pro-
duction of many crops, including wheat, soy beans, corn and seeds and, subject to Mother Nature,
we expect long-term volume will continue to rise from a combination of increasing crop yields
and greater demand from Asian markets.
Canadian Pacific’s spinoff of the railroad is a classic short line opportunity. From CP’s perspective,
the transaction allows them to sell off a lighter density line that was isolated at the western end of their
U.S. network but still permits them to compete for a majority of the originating traffic for the longer
haul. By selling to an operator with G&W’s experience, CP is also protecting its business by reducing
the operating risk of a large start-up. For G&W, similar to most Class I spinoffs, we expect to unlock
latent customer demand due to increased local service and intense local marketing. The fact that the
RCP&E will interchange with three Class I railroads – Canadian Pacific, BNSF and Union Pacific –
should enhance our carload conversion opportunity, and we expect all connecting Class I carriers
to benefit relative to the status quo. In addition, thanks to the significant investments that CP made
in the rail line over the past few years, the track infrastructure is positioned well for the long term.
Having spent considerable time on the ground in South Dakota with customers, potential
employees and government officials, our integration team is rapidly advancing preparations for the
start-up. We expect to hire approximately 180 new employees, primarily from the existing employee
base, and we are working closely with Canadian Pacific and the State of South Dakota to ensure
a smooth transition following STB approval.
BNSF
OTVR
DMVW
CPR
94
BNSF
BNSF
B
90
90
B
N
S
F
N
S
F
29
F
S
N
B
T
C
W
R
B
N
S
F
35
F
S
N
B
CPR
94
BNSF
Minneapolis
Minneapolis
94
Saint Paul
Saint Paul
UP
35
C
TCWR
MPLI
CPR
F
S
N
B
MSWY
90
DME/C
I
A
N
R
U
U P
UP
N
C
I
R
C
IAIS
IAIS
B
N
S
F
UP
{
25
F
S
N
B
U
P
U
P
BNSF
12 Genesee & Wyoming Inc.
BNSF
29
R
I
A
D
NENE
CPR
CN
UP
Highlights of 2013
Organizational Evolution
G&W in 1999, with 21 railroads and $175 million
in revenues, was dramatically different in size
and geographic reach than today’s G&W, with
111 railroads and $1.6 billion in revenues. Yet it is
remarkable how little our organizational structure
has changed. The essence of our regional structure
is to be as close as possible to customers and
to cultivate a local culture of service, cost control
and entrepreneurship that has characterized the
success of the short line industry.
G&W Revenues
$1,569
3
1
0
u 2
r
h
O t
o m I P
r
9 % f
1
~
R
G
A
C
$ in Millions
1,500
1,000
500
$78
1996 _ ____________________________ 2013
Regional Operating Structure: Designed to be Close to Customers
G&W Railroad Services, Inc.
Safety & Compliance (cid:129) Finance (cid:129) Legal (cid:129) HR (cid:129) IT (cid:129) M&A (cid:129) Commercial
Communications (cid:129) Engineering (cid:129) Gov’t. Affairs (cid:129) Mechanical (cid:129) Purchasing (cid:129) Operations
↕
G&W Mountain West Region
Safety (cid:129) Finance (cid:129) HR (cid:129) IT (cid:129) Marketing/Sales (cid:129) Transportation (cid:129) Mechanical (cid:129) Engineering
↕
Mountain West Region Railroads
“
Centralized
Corporate
Support
Regional
Leadership
Intense
Customer
Focus
↕
Customers
Achieving our Core Purpose requires
living our Core Values: focus, integrity,
respect and excellence. Those may
sound clichéd, but here they’re very
real. That’s how G&W has maintained
its culture through the acquisition
of 110 railroads.”
Mary Ellen Russell, Chief Human Resource Officer
2013 Annual Report 13
From the CEO, continued
Update on the North American Energy Market
In last year’s letter to shareholders, I wrote about the dramatic evolution of the North American
energy market and promised an update on how it is impacting our business. The extraction of oil
and natural gas from shale formations through hydraulic fracking technology, the development
of oil sands in Canada and the relative decline in the use of coal for power generation in the U.S.
have each had a direct impact on our rail shipments, and we have been seeking to optimize our
position as long-term shipment patterns become clearer. As powerful market forces continue
to transform the North American energy market, it is important to recognize that the long-term
outcome for G&W also will be significantly influenced by non-market forces including federal
and local politics and/or legislation, environmental and safety regulations, political conditions in
other energy rich nations, as well as weather patterns that powerfully impact energy consumption.
Now turning to some details for G&W:
■ Coal: In 2013, our Combined Company same railroad coal revenues were up 8.7% to $110.8
million, due to investments in emissions controls at several of our coal-fired power plant customers
as well as more favorable weather conditions for electricity consumption.(3) This growth followed
a 14.8% decline in our coal revenue in 2012, as declining natural gas prices, increased environ-
mental regulation and specific facility maintenance negatively impacted our coal business. As
of today, higher natural gas prices and a cold U.S. winter have reduced utility coal stockpiles
to low levels that should result in strong coal shipments for G&W in 2014.
■ Petroleum Products: In 2013, our Combined Company same railroad petroleum products
revenues were up 21.8% to $65.0 million. Of this increase, two-thirds was crude oil, primarily
to destination terminals, and one-third was LPG traffic in the western United States.
− Utica Shale: Our Ohio Valley Region has the geological good fortune of sitting on
top of much of the Utica Shale. We expect to benefit primarily from outbound LPG traffic
as new natural gas liquids processing and fractionation plants are constructed at locations
served by our railroads, and also from increased inbound sand and pipe as drilling in the
region continues to ramp up. In August 2013, a $900 million natural gas liquids fractiona-
tion hub in Scio, Ohio, commenced operations with the first of three planned fractionation
units, and we expect to ship between 10,000 and 15,000 carloads per year when the three
units are fully operational. The second and third fractionating units are currently under
construction, and both are expected to be operational by the end of 2014. Some of the out-
bound natural gas liquids that we carry are destined for Canada for use as a diluent in the
processing of heavy crude oil that is subsequently exported to the United States.
(3) Adjusted free cash flow and Combined Company freight revenues are non-GAAP financial
measures and are not intended to replace cash provided by operating activities and freight revenues,
their most directly comparable GAAP measures. The information required by Item 10(e) of Regula-
tion S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 (Item 10(e)) and
Regulation G under the Securities Exchange Act of 1934 (Regulation G), including a reconciliation
of non-GAAP measures to their most directly comparable U.S. GAAP measures, is included on
pages 18-23.
14 Genesee & Wyoming Inc.
− Marcellus Shale: Our Northeast Region, which includes western New York and western
Pennsylvania, is focused primarily on the natural gas producing Marcellus Shale and was
our first region to benefit from the energy revolution, initially with sand and pipe traffic.
Although drilling activity moved west from the Marcellus to the Utica Shale over the past
few years, higher natural gas prices could lead to increased Marcellus drilling activity and
an associated increase in frac sand traffic. Also, as natural gas liquids production in the
Marcellus Shale increases, we expect to increase our propane traffic in the Northeast.
− Crude Oil: While G&W does not originate meaningful amounts of crude oil, customers
have developed destination terminals to receive crude oil on our railroads, and we also
serve some refineries directly. In 2013, we handled approximately 37,000 carloads of
crude oil largely due to growth at two major terminals: (i) Genesis Energy increased traffic
to its recently constructed destination crude oil terminal on our Alabama & Gulf Coast
Railroad in Walnut Hill, Florida, where it transfers the crude oil into a pipeline to serve
Gulf Coast refineries, and (ii) Global Partners purchased a dormant crude oil and ethanol
facility located on the Columbia River in Oregon and served by our Portland & Western
Railroad. The facility receives inbound crude via rail, which is then barged to West Coast
locations that are not accessible by pipeline.
The level of crude oil traffic carried by rail is heavily influenced by the relative price
differences, or “spreads,” between crude oil produced in different regions (e.g., Brent crude
oil produced in Europe versus West Texas Intermediate crude oil) and the relative transporta-
tion costs to deliver the crude oil to market (e.g., rail versus pipeline). Fluctuations in these
price spreads contributed to volatility in levels of crude oil traffic that we handled in 2013,
and we expect these fluctuations to impact our crude oil rail traffic in the future.
The increase in crude oil being shipped by the rail industry in North America has been extraordi-
nary, with approximately 400,000 carloads shipped in 2013 versus 9,500 in 2008. Even with the
eventual construction of new pipelines to handle surging crude oil supply, rail is expected to
play an important long-term role in the crude oil supply chain, particularly east-west across
the continent. The shipment flexibility of the rail network combined with the continued commitment
of the rail industry and G&W to strict operating procedures and tighter standards for tank cars
will further enhance the safety of rail transportation for this vital energy resource.
Outlook for 2014
We expect our positive business momentum to continue in 2014, although the year is starting slowly
due to severe winter weather impacting our business across most of North America. As a result
of multiple snowstorms and extremely cold temperatures, our first quarter shipment levels will
be lower than normal due to service disruptions on our railroads and congestion across the entire
North American rail network. In addition, our costs will be higher than normal due in part to snow
clearing costs, overtime expense and higher locomotive fuel consumption. We hope to recover
a portion of our lost traffic in March, weather permitting, and the general sentiment among
our customers is for good economic growth this year.
2013 Annual Report 15
From the CEO, continued
In 2014, we expect growth from most of our commodity groups including, (i) crude oil and
LPG shipments in the United States as several new projects come on line; (ii) iron ore shipments
in Australia, where we commenced a major new contract in 2013, and in Canada, where we expect
to start service on a rail line that we are constructing to a new iron ore mine in Labrador; (iii) steam
coal shipments in the United States where the severe winter has led to the significant depletion
of stock piles at electric utilities; (iv) salt shipments in the United States where the extreme winter
weather has depleted stockpiles of road salt for highway de-icing; and (v) shipments on the RCP&E
following acquisition approval by the STB. Partially offsetting our favorable outlook is the expected
negative impact of the weaker Canadian and Australian dollars, which will reduce the translation
of our revenues from foreign operations into U.S. dollars.
As we enter 2014, G&W has five main priorities. First, we are focused on achieving our safety
target of 0.45 on the way to becoming an injury-free company. Second, we are targeting 20% growth
in pre-tax income and to de-lever our business to 2.5x debt/EBITDA after the purchase of the
RCP&E (absent attractive new investment opportunities). Third, we are preparing for a successful
integration of the RCP&E and solidifying the G&W culture within the former RailAmerica railroads.
Fourth, we are focused on building congressional support for another renewal of the U.S. short line
tax credit, which provides approximately $26 million of benefit to our track improvement programs
and has strong bipartisan support in both the House and Senate. Fifth, we will continue to pursue new
acquisition and investment opportunities within the broad international footprint of G&W railroads.
Special Recognition
Reflecting upon 2013, I would like to thank my fellow employees at G&W for the intense focus
and dedication that enabled us to successfully integrate the largest acquisition in our history while
simultaneously positioning us for future growth. Whether in local railroad operations or corporate
staff functions, the entire G&W team has been imparting the business culture that has underpinned
our success for many decades: unwavering commitment to safety, intense commercial energy,
entrepreneurial spirit, local accountability and professionalism.
One of my colleagues deserves special recognition for his contributions.
Over the past 36 years, Mark Hastings has been a tireless architect of G&W’s
growth from one railroad to 111 railroads, serving as Chief Financial Officer,
as Executive Vice President of Corporate Development and most recently
as Executive Vice President of International Business Development based
in South Australia. While not fully retiring, Mark is now returning to
the United States and will work for us on select projects. His leadership,
integrity, business acumen, respect for others and tremendous work ethic
have been essential in building G&W. On behalf of the Board of Directors
and all of our employees, I would like to thank Mark for his immeasurable
contributions to G&W. The value created for shareholders during Mark’s
tenure has been extraordinary, and our entire team is committed to delivering
similar shareholder value in the years to come.
Mark W. Hastings, Executive Vice
President, International Business
Development
Jack Hellmann
President and Chief Executive Officer
March 19, 2014
16 Genesee & Wyoming Inc.
Adjusted Income from Operations and Adjusted Operating Ratio Description and Discussion
Management views its Income from Operations, calculated as Operating Revenues less Operating Expenses,
and Operating Ratio, calculated as Operating Expenses divided by Operating Revenues, as important meas-
ures of G&W’s operating performance. Because management believes this information is useful for investors
in assessing G&W’s financial results compared with the same period in prior years, the Income from Opera-
tions and Operating Ratio for the year ended December 31, 2009 used to calculate Adjusted Income from
Operations and Adjusted Operating Ratio are presented excluding net gain/(loss) on sale and impairment
of assets, gain on insurance recoveries, legal expense associated with resolution of an arbitration proceeding
and restructuring charges. The Income from Operations and Operating Ratio for the year ended December
31, 2010 used to calculate Adjusted Income from Operations and Adjusted Operating Ratio are presented
excluding net gain on sale of assets, gain on legal settlement, FreightLink acquisition-related costs and the
reversal of restructuring charges. The Income from Operations and Operating Ratio for the year ended
December 31, 2011 used to calculate Adjusted Income from Operations and Adjusted Operating Ratio are
presented excluding business development and financing costs, net gain/(loss) on sale and impairment
of assets, gain on insurance recoveries and Edith River derailment costs. The Income from Operations and
Operating Ratio for the year ended December 31, 2012 used to calculate Adjusted Income from Operations
and Adjusted Operating Ratio are presented excluding RailAmerica integration and acquisition-related costs,
business development and financing costs, net gain on sale of assets, gain on insurance recoveries and
contract termination expense in Australia. The Income from Operations and Operating Ratio for the year
ended December 31, 2013 used to calculate Adjusted Income from Operations and Adjusted Operating Ratio
are presented excluding RailAmerica integration and acquisition-related costs, business development and
financing costs and net gain on sale of assets. The Adjusted Income from Operations and Adjusted Operating
Ratios presented excluding these effects are not intended to represent, and should not be considered more
meaningful than, or as an alternative to, the Income from Operations and Operating Ratios calculated using
amounts in accordance with GAAP. Adjusted Income from Operations and Adjusted Operating Ratio may
be different from similarly titled non-GAAP financial measures used by other companies.
In accordance with Regulation G, the following table sets forth a reconciliation of G&W’s Income
from Operations and Operating Ratio calculated using amounts determined in accordance with GAAP to the
Adjusted Income from Operations and Adjusted Operating Ratios as described above for the years ended
December 31, 2009, 2010, 2011, 2012 and 2013 ($ in millions):
Operating revenues
Operating expenses
Income from operations
Operating ratio
Operating expenses
RailAmerica integration/acquisition costs
Business development and financing costs
Net gain/(loss) on sale and impairment of assets
Gain on legal settlement
Gain on insurance recoveries
Contract termination expense in Australia
FreightLink acquisition-related costs
Legal expense associated with resolution
of an arbitration proceeding
Restructuring charges
Edith River derailment costs
Adjusted operating expenses
2009 2010 2011
$ 544.9
445.5
$ 99.3
81.8%
$ 630.2
499.8
$ 130.4
79.3%
$ 829.1
637.3
$ 191.8
76.9%
$ 445.5
$ 499.8
$ 637.3
- - -
- -
6.4
(4.0)
-
8.7 -
3.1 -
- - -
-
(2.6)
5.7
1.1
2012
$ 874.9
684.6
$ 190.3
78.2%
$ 684.6
(29.5)
(2.3)
11.2
-
0.8
(1.1)
2013
$ 1,569.0
1,188.8
$ 380.2
75.8%
$ 1,188.8
(17.0)
(1.6)
4.7
-
-
-
-
(28.2) - -
(1.1) - -
(2.3)
- -
- - -
- - (1.8) - -
2.3
$ 441.3
$ 489.0
$ 639.6
$ 663.7
$ 1,174.9
Adjusted income from operations
Adusted operating ratio
$ 103.6
81.0%
$ 141.1
77.6%
$ 189.5
77.1%
$ 211.2
75.9%
$ 394.1
74.9%
18 Genesee & Wyoming Inc.
Adjusted Net Income and Adjusted Diluted Earnings per Common Share
Management views its Net Income and Diluted Earnings Per Common Share (EPS) as important measures
of G&W’s operating performance. Because management believes this information is useful for investors in
assessing G&W’s financial results compared with the same period in prior years, Net Income and Diluted
EPS for the year ended December 31, 2009 used to calculate Adjusted Net Income and Adjusted Diluted
EPS are presented excluding net gain/(loss) on sale and impairment of assets, gain on insurance recoveries,
legal expense associated with the resolution of an arbitration proceeding, restructuring charges, gain on sale
of investment and the short line tax credit for 2009. Net Income and Diluted EPS for the year ended Decem-
ber 31, 2010 used to calculate Adjusted Net Income and Adjusted Diluted EPS are presented excluding net
gain on sale of assets, gain on legal settlement, FreightLink acquisition-related costs, the reversal of restruc-
turing charges, financing-related costs, discontinued operations gain from insurance and the short line tax
credit for 2010. Net Income and Diluted EPS for the year ended December 31, 2011 used to calculate
Adjusted Net Income and Adjusted Diluted EPS are presented excluding acquisition-related income tax
benefits, gain on insurance recoveries, net (gain)/loss on sale and impairment of assets, Edith River derailment
costs, business/corporate development costs, short line tax credit for 2011 and gain on sale of investment.
Net Income and Diluted EPS for the year ended December 31, 2012 used to calculate Adjusted Net Income
and Adjusted Diluted EPS are presented excluding RailAmerica integration and acquisition-related costs,
business development and financing costs, acquisition costs incurred by RailAmerica, gain on insurance
recoveries, net gain on sale of assets, contract termination expense in Australia and contingent forward sale
contract mark-to-market expense. Net Income and Diluted EPS for the year ended December 31, 2013 used
to calculate Adjusted Net Income and Adjusted Diluted EPS are presented excluding RailAmerica integration
and acquisition-related costs, business development and financing costs, net gain on sale of assets, the
retroactive short line tax credit for 2012 and foreign tax credit valuation allowance and are further adjusted
to exclude the 2013 short line tax credit. The Adjusted Net Income and Adjusted Diluted EPS presented
excluding these effects are not intended to represent, and should not be considered more meaningful than,
or as an alternative to, Net Income and Diluted EPS calculated using amounts in accordance with GAAP.
Adjusted Net Income and Adjusted Diluted EPS may be different from similarly titled non-GAAP financial
measures used by other companies.
In accordance with Regulation G, the following table sets forth a reconciliation of G&W’s Net Income
and Diluted EPS calculated using amounts determined in accordance with GAAP to the Adjusted Net Income
and Adjusted Diluted EPS as described above for the years ended December 31, 2009, 2010, 2011, 2012 and
2013 (in millions except per share amounts):
Year Ended December 31, 2009
As reported
Add back certain items, net of tax:
Net (gain)/loss on sale and impairment of assets
Gain on insurance recoveries
Legal expense associated with resolution
of an arbitration proceeding
Restructuring charges
Gain on sale of investment
Short line tax credit for 2009
As adjusted
Net Income
Diluted shares
Diluted Earnings/(Loss)
Per Common
Share Impact
$
61.5
39.0 $
1.57
0.06
(0.05)
2.2
(2.0)
0.7
1.4
(2.8)
(11.4)
$ 49.5
0.02
0.04
(0.07)
(0.29)
39.0 $ 1.27
2013 Annual Report 19
Year Ended December 31, 2010
As reported
Add back certain items, net of tax:
Net gain on sale of assets
Gain on legal settlement
FreightLink acquisition-related costs
Reversal of restructuring charges
Financing-related costs
Discontinued operations gain from insurance
Short line tax credit for 2010
As adjusted
Year Ended December 31, 2011
As reported
Add back certain items, net of tax:
Acquisition-related income tax benefits
Gain on insurance recoveries
Net (gain)/loss on sale/impairment of assets
Edith River derailment costs
Business development and financing costs
Short line tax credit for 2011
Gain on sale of investment
Net Income
$
81.3
Diluted shares
41.9
Diluted Earnings/(Loss)
Per Common
Share Impact
$ 1.94
(0.10)
(0.12)
0.46
(0.04)
0.03
(0.07)
(0.24)
$ 77.7 41.9 $ 1.86
(4.3)
(5.1)
19.2
(1.5)
1.1
(2.8)
(10.2)
Net Income
Diluted shares
Diluted Earnings/(Loss)
Per Common
Share Impact
$
119.5
42.8
$ 2.79
(1.9)
(0.7)
(3.9)
1.3
2.3
(10.2)
(0.8)
105.6
(0.04)
(0.02)
(0.09)
0.03
0.05
(0.24)
(0.02)
$ 2.47
42.8
As adjusted
$
Year Ended December 31, 2012
As reported
Add back certain items, net of tax:
RailAmerica integration/acquisition costs
Business development and financing costs
Acquisition costs incurred by RailAmerica
Gain on insurance recoveries
Net gain on sale of assets
Contract termination expense in Australia
Contingent forward sale contract mark-to-market expense
As adjusted
Year Ended December 31, 2013
As reported
Add back certain items, net of tax:
RailAmerica integration/acquisition costs
Business development and financing costs
Net gain on sale of assets
Retroactive short line tax credit for 2012
FTC valuation allowance
As adjusted
Impact of 2013 short line tax credit
As adjusted (excluding the short line tax credit)
Net Income
Diluted shares
Diluted Earnings/(Loss)
Per Common
Share Impact
$
52.4
21.0
11.0
3.5
(0.5)
(8.6)
0.8
50.1
$ 129.7
51.3
$ 1.02
0.41
0.21
0.07
(0.01)
(0.17)
0.02
0.98
$ 2.53
51.3
Net Income
Diluted shares
Diluted Earnings/(Loss)
Per Common
Share Impact
$
272.1
56.7 $ 4.79
10.7
1.4
(3.2)
(41.0)
2.0
242.0
(25.9)
$ 216.1
0.19
0.03
(0.06)
(0.72)
0.03
4.26
(0.46)
3.80
56.7
56.7 $
20 Genesee & Wyoming Inc.
Free Cash Flow Description and Discussion
Management views Free Cash Flow as an important financial measure of how well G&W is managing its
assets. Subject to the limitations discussed below, Free Cash Flow is a useful indicator of cash flow that may
be available for discretionary use by G&W. Free Cash Flow is defined as Net Cash Provided by Operating
Activities less Net Cash Used in Investing Activities, excluding net cash used for acquisitions/divestitures.
Key limitations of the Free Cash Flow measure include the assumptions that G&W will be able to refinance
its existing debt when it matures and meet other cash flow obligations from financing activities, such as
principal payments on debt. Free Cash Flow is not intended to represent, and should not be considered more
meaningful than, or as an alternative to, measures of cash flow determined in accordance with GAAP. Free
Cash Flow may be different from similarly titled non-GAAP financial measures used by other companies.
In accordance with Regulation G, the following table sets forth a reconciliation of G&W’s Net Cash
Provided by Operating Activities to G&W’s Free Cash Flow ($ in millions):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used for acquisitions/divestitures (a)
Free cash flow
New business investments
Adjusted free cash flow
2012
$ 170.7
(2,101.7)
1,964.2
33.2
101.9
$ 135.0
2013
$ 413.5
(208.7)
12.9
217.6
34.2
$ 251.8
(a) The 2012 period included $1.9 billion in net cash paid for the acquisition of RailAmerica, Inc.
as well as $38.9 million in cash paid for incremental expenses related to the purchase, integration
and financing of the acquisition. The 2013 period included $12.9 million in cash paid for incremental
expenses related to the integration of RailAmerica, Inc.
EBITDA and Adjusted EBITDA Description and Discussion
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA are widely
used non-GAAP financial measures of operating performance. They are presented as supplemental informa-
tion that management believes is useful to investors in assessing G&W’s financial results. EBITDA is calcu-
lated by adding back to Net Income provision for income taxes; other income, net; interest expense; interest
income and depreciation and amortization expense. Adjusted EBITDA is calculated by adding back to Net
Income provision for income taxes; other income, net; interest expense; interest income; depreciation and
amortization expense; non-cash compensation expense related to equity awards; RailAmerica integration and
acquisition-related costs; business development and financing costs and net gain on sale of assets. EBITDA
and Adjusted EBITDA should not be considered as substitutes either for Net Income, as an indicator of
G&W’s operating performance, or for cash flow, as a measure of G&W’s liquidity. EBITDA and Adjusted
EBITDA may be different from similarly titled non-GAAP financial measures used by other companies.
In accordance with Regulation G, the following table sets forth a reconciliation of G&W’s Net Income
calculated using amounts determined in accordance with GAAP to EBITDA and to Adjusted EBITDA
each as described above for the year ended December 31, 2013 ($ in millions):
Net income - as reported
Add back:
Provision for income taxes
Other income, net
Interest expense
Interest income
Depreciation and amortization expense
EBITDA
Add back certain items:
Non-cash compensation expense related to equity awards
RailAmerica integration/acquisition costs
Business development and financing costs
Net gain on sale of assets
Adjusted EBITDA
2013
$ 272.1
46.3
(2.1)
67.9
(4.0)
141.6
$ 521.8
17.0
17.0
1.6
(4.7)
$ 552.7
2013 Annual Report 21
Combined Company Operating Revenues Description and Discussion
Management views Operating Revenues as an important financial measure of G&W’s operating perform-
ance. Because management believes this information is useful for investors in assessing G&W’s financial
results, compared with the same period in the prior year, the 2012 Combined Company Operating Revenues
are presented excluding non-freight revenues earned during the year ended December 31, 2012 by a sub-
sidiary of RailAmerica for work performed for various subsidiaries of G&W and including reclassifications
of certain revenues of RailAmerica to align with G&W’s accounting policies. Likewise, the 2013 Combined
Company Same Railroad Operating Revenues are presented excluding operating revenues through the
one-year anniversary of operations from Marquette Rail, LLC, which RailAmerica acquired on May 1, 2012,
and Columbus & Chattahoochee Railroad, Inc. (CCH), which G&W commenced operations on July 1, 2012.
Certain revenues of RailAmerica have been reclassified to align with G&W’s accounting policies. The
Combined Company Operating Revenues and the Combined Company Same Railroad Operating Revenues
excluding these effects are not intended to represent, and should not be considered more meaningful than,
or as an alternative to, Operating Revenues calculated using amounts in accordance with GAAP. Combined
Company Operating Revenues and Combined Company Same Railroad Adjusted Operating Revenues may
be different from similarly titled non-GAAP financial measures used by other companies.
In accordance with Regulation G, the following tables set forth a reconciliation of Operating Revenues
to the Combined Company Adjusted Operating Revenues as described above for the year ended December
31, 2012 and Operating Revenues to the Combined Company Same Railroad Adjusted Operating Revenues
for freight revenues and certain commodity groups within freight revenues as described above for the year
ended December 31, 2013 ($ in millions):
Year Ended December 31, 2012
G&W As Reported
Freight revenues
Non-freight revenues
Operating revenues
$ 624.8
250.1
$ 874.9
RailAmerica As
Reported
$ 447.6
158.5
$ 606.0
Eliminations/
Adjustments (a)
$
(8.7)
(10.8)
$ (19.5)
Combined
Company
$ 1,063.6
397.7
$ 1,461.4
(a) Includes the elimination of non-freight revenues earned during the year ended December 31, 2012 by a subsidiary
of RailAmerica for work performed for various subsidiaries of G&W and reclassifications of certain revenues of
RailAmerica
Year Ended December 31, 2013
G&W As Reported
G&W New
Operations (a)
RailAmerica New
Operations (a)
Combined
Company Same
Railroad
Freight revenues
Coal and coke revenues
Petroleum products revenues
$ 1,177.4
$ 110.8
$ 65.2
$
$
$
(3.5)
-
(0.2)
$
$
(2.6)
-
(0.1)
$
$
1,171.3
110.8
65.0
Year Ended December 31, 2012
G&W As Reported
Freight revenues
Coal and coke revenues
Petroleum products revenues
$ 624.8
$ 70.1
25.3
$
RailAmerica
As Reported
$ 447.6
$ 31.8
$ 25.1
Adjustments (b)
$
$
$
(8.7)
0.1
3.0
Combined
Company
$ 1,063.6
102.0
$
53.4
$
(a) G&W New Operations: Columbus & Chattahoochee Railroad, Inc. (CCH); RailAmerica New Operations:
Marquette Rail, LLC (MQT)
(b) Includes the reclassifications of certain revenues of RailAmerica to align with G&W’s accounting policies
22 Genesee & Wyoming Inc.
Combined Company Average Revenues per Carload Description and Discussion
Management views Average Revenues per Carload as an important financial measure of G&W’s operating
performance. Because management believes this information is useful for investors in assessing G&W’s
financial results, compared with the same period in the prior year, the Average Revenues per Carload for the
year ended December 31, 2012 used to calculate Combined Company Average Revenues per Carload are
presented including adjustment of carloads and reclassifications of certain revenues of RailAmerica to align
with G&W’s accounting policies. The Combined Company Average Revenues per Carload presented includ-
ing these effects are not intended to represent, and should not be considered more meaningful than, or as an
alternative to, Average Revenues per Carload calculated using amounts in accordance with GAAP. Combined
Company Average Revenues per Carload amounts may be different from similarly titled non-GAAP financial
measures used by other companies.
In accordance with Regulation G, the following table sets forth a reconciliation of Average Revenues
per Carload calculated using amounts determined in accordance with GAAP to Combined Company Average
Revenues per Carload as described above for the year ended December 31, 2012 ($ in millions, except average
freight revenues per carload):
Year Ended December 31, 2012
G&W As Reported
RailAmerica
As Reported
Adjustments (a)
Combined
Company
Freight revenues
Carloads
Average revenues per carload
$ 1,063.6
1,768,711
$
601
(a) Includes adjustments of carloads and reclassifications of certain revenues of RailAmerica to align with G&W’s
$ 624.8
927,094
$ 674
$ 447.6
864,136
518
(8.7)
(22,519)
$
$
accounting policies
2013 Annual Report 23
24 Genesee & Wyoming Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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. 001-31456
GENESEE & WYOMING INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
20 West Avenue, Darien, Connecticut
(Address of principal executive offices)
06-0984624
(I.R.S. Employer Identification No.)
06820
(Zip Code)
(203) 202-8900
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Class A Common Stock, $0.01 par value
5.00% Tangible Equity Units
Name of each exchange on which registered
NYSE
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
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
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.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant 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, a non-accelerated filer, or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange
Act).
Yes
No
Aggregate market value of Class A Common Stock held by non-affiliates based on the closing price as reported by the
New York Stock Exchange on the last business day of the registrant’s most recently completed second fiscal quarter:
$4,272,642,511. Shares of Class A Common Stock held by each executive officer and director 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 20, 2014:
Class
Class A Common Stock
Class B Common Stock
Number of Shares Outstanding
51,985,422
1,608,989
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 ended December 31, 2013 in connection with the Annual Meeting to be held on May 21, 2014 are
incorporated by reference in Part III hereof and made a part hereof.
DOCUMENTS INCORPORATED BY REFERENCE
Genesee & Wyoming Inc.
FORM 10-K
For The Fiscal Year Ended December 31, 2013
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
Mine Safety Disclosures
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 and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Signatures
Index to Exhibits
Index to Financial Statements
PAGE NO.
4
17
31
32
36
36
37
38
40
77
80
80
80
82
82
82
82
82
82
83
84
85
F-1
2
Unless the context otherwise requires, when used in this Annual Report on Form 10-K (Annual Report), the
terms “Genesee & Wyoming,” “G&W,” the “Company,” “we,” “our” and “us” refer to Genesee & Wyoming Inc.
and its subsidiaries. All references to currency amounts included in this Annual Report, including the financial
statements, are in United States dollars unless specifically noted otherwise.
Cautionary Statement Regarding Forward-Looking Statements
The information contained in this 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 (Exchange Act), regarding future events and future performance of G&W. Words such as “anticipates,”
“intends,” “plans,” “believes,” “should,” “seeks,” “expects,” “estimates,” “trends,” “outlook,” 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.
The areas in which there is risk and uncertainty are further described in “Part I Item 1A. Risk Factors” in this
Annual Report, 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 our 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 or incorporated by
reference in this Annual Report not to occur.
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 Annual Report.
Our forward-looking statements speak only as of the date of this Annual Report or as of the date they are
made, and 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.
Information set forth in “Part I Item 1. Business” and in “Part II Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” should be read in conjunction with the risk factors set
forth in Item 1A. in this Annual Report.
3
ITEM 1. Business.
PART I
OVERVIEW
We own and operate short line and regional freight railroads and provide railcar switching and other rail-
related services in the United States, Australia, Canada, the Netherlands and Belgium. In addition, we operate a
longer-haul railroad that runs approximately 1,400 miles between Tarcoola in South Australia and Darwin in the
Northern Territory of Australia. As of December 31, 2013, we operated in 39 states in the United States, four
Australian states, one Australian territory and four Canadian provinces and provided rail service at 35 ports in North
America, Australia and Europe. As of December 31, 2013, we operated over approximately 14,700 miles of owned,
jointly owned or leased track (inclusive of the Tarcoola to Darwin rail line operated under a concession agreement)
and approximately 3,300 additional miles under other contractual track access arrangements.
GROWTH STRATEGY
Since our initial public offering in 1996 through December 31, 2013, our revenues increased at a compound
annual growth rate of 19.3%, from $77.8 million in 1996 to $1.6 billion in 2013. Over the same period, our diluted
earnings per common share (EPS) increased at a compound annual growth rate of 17.9%, from $0.29 (adjusted for
stock splits) in 1996 to $4.79 in 2013. We have achieved these results primarily through the disciplined execution of
our growth strategy, which has two main drivers: (1) our operating strategy and (2) our acquisition and investment
strategy.
Operating Strategy
Our railroads operate under strong local management teams, with centralized administrative, commercial and
operational support and oversight. As of December 31, 2013, our operations were organized as 11 regions. In the
United States, we have eight regions: Rail Link (which includes industrial switching and port operations), Pacific,
Mountain West, Central, Southern, Midwest, Ohio Valley and Northeast. Outside the United States, we have three
regions: Australia, Canada (which includes a contiguous railroad located in the United States) and Europe (which
consists of operations in the Netherlands and Belgium).
In each of our regions, we seek to encourage the entrepreneurial drive, local knowledge, customer service and
safety culture that we view as critical to achieving our financial goals. Our regional managers continually focus on
increasing our return on invested capital, earnings and cash flow through the disciplined execution of our operating
strategy. At the regional level, our operating strategy consists of the following four principal elements:
• Continuous Safety Improvement. We believe that a safe work environment is essential for our employees,
our customers and the communities in which we conduct business. Each year, we establish stringent safety
targets as part of our safety program. In 2013, G&W achieved a consolidated Federal Railroad Association
(FRA) reportable injury frequency rate of 0.80 per 200,000 man-hours worked. Through the
implementation of our safety program, we have reduced our injury frequency rate by 59% since 2006,
when it was 1.95 injuries per 200,000 man-hours worked. For comparative purposes, from January 2013
through November 2013, the most recent month for which FRA data is publicly available, the United States
short line average reportable injury frequency rate was 2.9 injuries per 200,000 man-hours worked, and the
United States regional railroad average was 2.9 injuries per 200,000 man-hours worked. Based on these
results, in 2013, G&W was more than three times safer than the short line and regional railroad averages,
and also safer than any United States Class I railroad.
• Outstanding Customer Service. We are committed to providing exceptional service to our customers and
each of our local railroads are intently focused on exceeding customer expectations. This customer
commitment results not only in traffic growth, but also customer loyalty and new business development
opportunities. Periodically, we engage a leading independent customer-satisfaction research firm to conduct
a comprehensive customer satisfaction survey. The survey results are used to measure our performance and
develop continuous improvement programs.
4
• Focused Regional Marketing. We generally build and operate each of our regions on a base of large
customers and seek to grow rail traffic through intensive marketing efforts to new and existing customers.
As a result of the acquisition of RailAmerica, Inc. (RailAmerica) in 2012, we believe that our expanded
North American footprint provides us with greater visibility to new commercial and industrial development
opportunities in North America that should help increase the success of our marketing efforts. We also
pursue additional sources of revenue by providing ancillary rail services such as 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. Separately, in Australia and Europe, where there are open
access regimes, we are able to compete for new business opportunities with customers at most locations on
the open access rail networks.
•
Low Cost Structure. We focus on running cost effective railroad operations and historically have been able
to operate acquired rail lines more efficiently than they were operated prior to our acquisition. 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 that
meet the needs of customers. At the same time, we seek to improve our return on invested capital by
focusing on cost effective capital programs. For example, in our short haul and regional operations in North
America, we typically rebuild older locomotives rather than purchase new ones and invest in track at levels
appropriate for our traffic type and density. In addition, because of the importance of certain of our
customers and railroads to their regional economies, we are able, in some instances, to obtain state,
provincial and/or federal grants to upgrade track. Typically, we seek government funds to support
investments that otherwise would not be economically viable for us to fund on a stand-alone basis.
To assist our local management teams, we provide administrative, commercial and operational support from
corporate staff groups where there are benefits to be gained from centralized expertise. Our commercial group
assists local management by providing assistance with regional pricing, origin and destination offerings across the
Company, managing real estate revenue (including from land leases and crossing and access rights), industrial
development project expertise, 24/7 customer service and Class I relationship management. Our operations
department assists with implementing our safety culture and training programs, leveraging our scale purchasing rail
and rail-related equipment, ensuring efficient equipment utilization and service design, and providing mechanical,
locomotive and bridge engineering expertise. In addition, we maintain other traditional, centralized functions, such
as accounting, finance, legal, corporate development, government and industry affairs, human resources and
information technology.
Acquisition and Investment Strategy
Our acquisition and investment strategy includes the acquisition or long-term lease of existing railroads, as
well as investment in rail equipment and/or track infrastructure to serve new and existing customers. Since 2000, we
have acquired 92 railroads and made several significant rail equipment and track investments to serve customers
that are developing natural resource projects, such as iron ore mines. Historically, our acquisition, investment and
long-term lease opportunities have been from the following five sources:
• Acquisitions of other regional railroads or short line railroads in the United States and Canada, such as our
acquisitions of RailAmerica in 2012, Arizona Eastern Railway Company (AZER) in 2011, CAGY
Industries, Inc. in 2008, the Ohio Central Railroad System in 2008 and Rail Management Corporation in
2005. Based on Association of American Railroads (AAR) data, as of December 31, 2012, there were
approximately 470 short line and regional railroads in the United States not owned by us;
•
Investments in track and/or rolling stock to support new industrial or mineral development in new or
existing areas of operations, such as our expansion of two existing rail haulage contracts to transport export
iron ore in South Australia;
• Acquisitions of international railroads, such as our acquisitions of FreightLink Pty Ltd (FreightLink) in
Australia in 2010 and Rotterdam Rail Feeding (RRF) in the Netherlands in 2008. We believe that there are
additional acquisition and investment opportunities in Australia, Europe and other international markets;
5
• Acquisitions or long-term leases of branch lines of Class I railroads, such as our proposed acquisition of
the assets comprising the western end of the Dakota Minnesota & Eastern Railroad Corporation (DM&E)
from Canadian Pacific (CP), which includes 670 miles of CP's current operations between Tracy,
Minnesota and Rapid City, South Dakota; north of Rapid City to Colony, Wyoming; south of Rapid City to
Dakota Junction, Nebraska; and connecting branch lines as well as trackage from Dakota Junction to
Crawford, Nebraska, currently leased to the Nebraska Northwestern Railroad (NNW), which acquisition
was announced in January 2014. The asset acquisition is expected to close by mid-2014, subject to
approval of the United States Surface Transportation Board (STB) and the satisfaction of other customary
closing conditions; and our lease from Norfolk Southern Railway Company (NS) of the Columbus &
Chattahoochee Railroad, Inc., a 26-mile segment of NS track that runs from Girard, Alabama to Mahrt,
Alabama in 2012; and
• Acquisitions of rail lines of industrial companies, such as our acquisition of railroads owned by Georgia-
Pacific Corporation in 2003.
When we make acquisitions, we seek to increase revenues and reduce costs wherever possible and to
implement best practices to increase the value of our investment, which is frequently accomplished through the
elimination of duplicative overhead costs, implementation of our safety culture, improvements to operating plans,
more efficient equipment utilization and enhanced customer service and marketing initiatives. For instance, with the
acquisition of RailAmerica we eliminated duplicative corporate overhead costs and general administrative expenses
during 2013.
We also believe that our footprint of railroads in North America will provide future opportunities to make
contiguous short line acquisitions due to a higher number of touchpoints with other railroads. On a global basis, we
believe that our scale and financial resources improve our ability to invest in rail opportunities worldwide. We have
played a significant role in the consolidation of the short line industry in North America and have made a number of
important railroad investments in international markets, and we expect to continue to pursue our acquisition and
investment strategy while adhering to our disciplined valuation approach.
North America
United States
INDUSTRY
According to the AAR, there are 574 freight railroads in the United States operating over 138,700 miles of
track. As described in the table below, the STB classifies railroads operating in the United States into one of three
categories based on the amount of an individual railroad's operating revenues (adjusted for inflation).
The following table shows the breakdown of freight railroads in the United States by classification:
Classification of Railroads
Class I (1)
Regional or Class II
Local or Class III
Total
Number
Aggregate
Miles
Operated
Revenues and Miles Operated
7
21
546
574
$452.7 million or more
95,264
10,592 At least $20 million and 350 or more miles operated or
$36.2 to $452.7 million
32,858 Less than $36.2 million and less than 350 miles operated
138,714
(1) CSX Corp, BNSF Railway Co., Norfolk Southern Corp., Kansas City Southern Railway Co., Union Pacific Railroad Co.,
Canadian National Railway Co. and Canadian Pacific Railway Limited.
Source: AAR 2013 Railroad Facts Book
6
Class I railroads operate across many different states and concentrate largely, though not exclusively, on long
haul, high density, intercity traffic lanes. The primary function of the Regional and Local railroads is to provide
local service to rail customers and communities not located on the Class I networks. Regional railroads typically
operate 400 to 650 miles of track and provide service to selected areas of the country, mainly connecting
neighboring states and/or economic centers. Typically, short line (or local) railroads serve as branch lines connecting
customers with Class I railroads. Short line railroads have more predictable and straightforward operations as they
generally perform point-to-point, light density service over shorter distances, versus the complex networks
associated with the large Class I railroads.
Regional and short line railroad traffic is largely driven by carloads that are interchanged with other carriers.
For example, a Class I railroad may transport freight hundreds or thousands of miles from its origination point and
then pass the railcar to a short line railroad, which provides the final step of service directly to the terminating
customer.
The railroad industry in the United States has undergone significant change since the passage of the Staggers
Rail Act of 1980 (Staggers Act), which effectively deregulated certain 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 short line railroads, whose smaller scale and more cost-efficient operations allowed them
to commit the resources necessary to meet the needs of customers located on those lines. Divestiture of branch lines
spurred the growth in the short line railroad industry and enabled Class I carriers to minimize incremental capital
expenditures, concentrate traffic density, improve operating efficiency and avoid traffic losses associated with rail
line abandonment.
We operate one regional and 100 local (short line) railroads in the United States over approximately 9,500
miles of track.
Canada
According to Rail Trends 2013, published by The Railway Association of Canada (RAC), there are 26,923
miles of track operated by railroads in Canada.
We operate seven local (short line) railroads in Canada over approximately 1,200 miles of track.
Australia
Australia has approximately 25,000 miles (approximately 40,000 kilometers) of both publicly and privately
owned track that link major capital cities and key regional centers together and also connect key mining regions to
ports. The Australian rail network comprises three track gauges: broad, standard and narrow gauge. There are three
major interstate rail segments in Australia: the east-west corridor (Sydney, New South Wales to Perth, Western
Australia); the east coast corridor (Brisbane, Queensland to Melbourne, Victoria); and the north-south corridor
(Darwin, Northern Territory to Adelaide, South Australia). In addition, there are a number of intrastate rail freight
networks servicing major agricultural and mining regions in Queensland, New South Wales, Western Australia and
South Australia.
Through our Australian subsidiaries, we manage approximately 2,900 miles (approximately 4,700 kilometers)
of track in South Australia and the Northern Territory, which includes approximately 1,400 miles (approximately
2,200 kilometers) of track between Darwin and Tarcoola that we manage pursuant to a concession agreement that
expires in 2054, unless canceled due to our failure to meet our commitments under the concession agreement.
7
The Australian rail freight industry is largely open access, which means that network owners and managers
must provide access to the rail network to all accredited rail service providers, subject to the rules and negotiation
framework of each applicable access regime. We are an accredited rail service provider in all mainland Australian
states and in the Northern Territory. The rules generally include pricing principles and standards of use, and are
established by the applicable state or Commonwealth government. The Australia rail industry is structured around
two components: train operations for freight haulage services (above rail) and rail track access operation and
management (below rail). This contrasts with the North American freight rail industry where railroad operators
almost always have exclusive use of the track they own or lease. Through our concession agreements, we have long-
term economic ownership of the primary tracks that we manage in South Australia and the Northern Territory, and
we receive below rail access fees when other rail operators use the track we manage. Our economic ownership of
the tracks we manage, combined with our above rail operations, makes our Australian operations more similar to a
typical North American railroad.
Because Australian rail customers have access to multiple rail carriers under “open access” regimes, all rail
carriers face possible competition on their above-rail business from other rail carriers, as well as from competing
modes of transportation, such as trucks for above rail business. The open access nature of the Australian rail freight
industry enables rail operators to develop new business and customer relationships in areas outside of their current
operations, and there are limited barriers to entry that preclude any rail operator from approaching a customer to
seek new business. However, shipments of bulk commodities in Australia are generally handled under long-term
agreements with dedicated equipment that may include take-or-pay provisions and/or exclusivity arrangements,
which make capturing new business from an existing rail operator difficult.
Netherlands
According to ProRail, the entity responsible for a substantial majority of the Dutch rail infrastructure, there
are approximately 4,350 miles of track under its control on the Dutch rail network. As a result of the country's open
access regime, this track may be accessed by any admitted and licensed rail operator. According to the trade
association, Rail Cargo Information Netherlands, there are currently 16 rail operators that provide freight rail
services in the Netherlands.
Belgium
According to Infrabel, the Belgian railways infrastructure manager, there are approximately 2,225 miles of
track under its control on the Belgian rail network and 12 rail operators certified for freight transport in Belgium. As
a result of the country's open access regime, this track may be accessed by any operator admitted and licensed to
provide freight transport in the country.
OPERATIONS
As of December 31, 2013, through our subsidiaries, we owned or leased 111 freight railroads. Of these, 109
are short line railroads and one is a regional freight railroad with a total of approximately 13,300 miles of track in
the United States, Australia, Canada, the Netherlands and Belgium. We also operated one longer-haul, 1,400-mile
railroad that links the Port of Darwin to the Australian interstate rail network in South Australia, pursuant to a
concession agreement. Also, through various track access arrangements, we operate over approximately 3,300
additional miles of track that is owned or leased by others.
Freight Revenues
We generate freight revenues from the haulage of freight by rail. Freight revenues represented 75.0%, 71.4%
and 70.3% of our total revenues in the years ended December 31, 2013, 2012 and 2011, respectively.
Non-Freight Revenues
We generate non-freight revenues primarily from the following activities:
• Railcar switching - revenues generated from industrial switching (the movement of railcars within
industrial plants and their related facilities), port terminal switching (the movement of customer railcars
from one track to another track on the same railroad, primarily at United States ports) and contract coal
loading;
• Car hire and rental services - charges paid by other railroads for the use of our railcars;
8
• Demurrage and storage - charges to customers for holding or storing their railcars;
• Car repair services - charges for repairing railcars owned by others, either under contract or in accordance
with AAR rules;
• Other operating income - primarily revenues from providing crewing services and track access and
management fees, real estate holdings, and from providing access to passenger operations, such as from
Amtrak's use of the New England Central Railroad;
• Railroad construction - revenues earned by Atlas Railroad Construction, LLC (Atlas) for railroad
engineering, construction, maintenance and repair, primarily in the midwestern, northeastern and
southeastern United States, for short line and regional railroads and industrial customers; and
•
Fuel sales to third-parties - revenues earned by Genesee & Wyoming Australia Pty Ltd (GWA) in South
Australia from the sale of diesel fuel to other rail operators; GWA sold its third-party fuel operation in
Cook, South Australia in the third quarter of 2012.
Non-freight revenues represented 25.0%, 28.6% and 29.7% of our total operating revenues in the years ended
December 31, 2013, 2012 and 2011, respectively. Railcar switching represented 41.3%, 54.0% and 52.1% of our
total non-freight revenues in the years ended December 31, 2013, 2012 and 2011, respectively.
Customers
As of December 31, 2013, our operations served more than 2,000 customers. Revenues from our 10 largest
customers accounted for approximately 24%, 31% and 29% of our operating revenues in the years ended
December 31, 2013, 2012 and 2011, respectively. Three of our 10 largest customers in 2013 were located in
Australia.
In North America, 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
generally ranging from less than one year to 10 years. These contracts establish a price or, in the case of longer term
contracts, a methodology for determining a price, but do not typically obligate the customer to move any particular
volume. Freight rates and volumes are not directly linked to the prices of the commodities being shipped. In
Australia, we generally handle freight pursuant to transportation contracts directly with our customers. These
contracts generally contain a combination of fixed and variable pricing, with the fixed portion linked to our invested
capital and the variable portion based on the volumes shipped.
Commodities
Our railroads transport a wide variety of commodities. For a comparison of freight revenues, carloads and
average freight revenues per carload by commodity group for the years ended December 31, 2013, 2012 and 2011,
see the discussion under “Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
Commodity Group Descriptions
The intermodal commodity group consists of various commodities shipped in trailers or containers on flat
cars.
The coal and coke commodity group consists primarily of shipments of coal to power plants and industrial
customers.
The agricultural products commodity group consists primarily of wheat, barley, corn and other grains as well
as soybean meal.
The pulp and paper commodity group consists primarily of outbound shipments of container board and
finished papers and inbound shipments of wood pulp.
The metallic ores commodity group consists primarily of manganese ore, iron ore, copper concentrate and ore,
alumina and nickel ore.
The metals commodity group consists primarily of finished steel products such as coils, pipe, slabs and ingots
as well as scrap metal and pig iron.
9
The minerals and stone commodity group consists primarily of cement, gypsum, salt used in highway ice
control, sand used in fracking oil and gas wells, roofing granules, clay and limestone.
The chemicals and plastics commodity group consists primarily of sulfuric acid and other chemicals used in
manufacturing, particularly in the paper industry.
The lumber and forest products commodity group consists primarily of export logs, finished lumber, wood
pellets and wood chips used in paper manufacturing.
The petroleum products commodity group consists primarily of liquefied petroleum gas, crude oil, asphalt and
diesel fuel.
The food or kindred products commodity group consists primarily of canned fruits and vegetables.
The waste commodity group consists primarily of municipal solid waste and construction and demolition
debris.
The autos and auto parts commodity group consists primarily of finished automobiles and stamped auto parts.
The other commodity group consists of all freight not included in the commodity groups set forth above.
Segment and Geographic Information
For financial information with respect to each of our segment and geographic areas, see Note 18, Segment and
Geographical Area Information, to our Consolidated Financial Statements set forth in “Part IV Item 15. Exhibits,
Financial Statement Schedules” of this Annual Report.
Traffic
Rail traffic shipped on our rail lines can be categorized either as interline or local traffic. Interline traffic
passes over the lines of two or more rail carriers. It can originate or terminate with customers located along a rail
line, or it can pass over the line from one connecting rail carrier to another without the traffic originating or
terminating on the rail line (referred to as overhead traffic). Local traffic both originates and terminates on the same
rail line and does not involve other carriers. Unlike overhead traffic, originating, terminating and local traffic in
North America provides us with a more stable source of revenues 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 2013, revenues generated from originating, terminating and/or local traffic in North
America constituted approximately 94% of our North American freight revenues. In Australia, the distinction
between interline or local traffic is less relevant, as the open access regime in Australia permits all participants in the
above rail industry to compete for new and existing traffic and for new business development opportunities.
Seasonality of Operations
Some of the commodities we carry have peak shipping seasons, either as a result of the nature of the
commodity or its demand cycle. For instance, certain agricultural and food products, such as winter wheat in
Canada, ship only during certain months each year.
Seasonality is also reflected in our results of operations as a result of weather patterns. See Note 19, Quarterly
Financial Data (unaudited), to our Consolidated Financial Statements included elsewhere in this Annual Report.
Typically, we experience relatively lower revenues in North America 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 conditions, we may also experience reduced shipments as
a result of weather-related network disruptions and also tend to incur higher operating costs. We typically initiate
capital projects in North America in the second and third quarters when weather conditions are more favorable. In
addition, we experience relatively lower revenues in Australia in the first quarter of each year as a result of the wet
season (e.g., monsoonal rains in the Northern Territory).
10
Employees
As of December 31, 2013, our railroads and railcar switching locations had approximately 4,800 full time
employees. Of this total, approximately 1,800 employees were union members. Our railroads have 76 contracts with
unions. We are currently engaged in negotiations with respect to 18 of those agreements. We are also a party to
employee association agreements covering an additional 68 employees who are not represented by a national labor
organization. GWA has a collective enterprise bargaining agreement covering the majority of its employees. In the
Netherlands, RRF is not party to any collective bargaining agreements, but it is party to a collective bargaining
agreement in Belgium.
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. The Canada Labour Code and the relevant provincial
labor laws govern the labor relations of employers and employees engaged in the railroad industry in Canada. The
Federal Fair Work Act governs the labor relations of employers and employees engaged in the railroad industry in
Australia. The RLA and foreign labor regulations contain detailed procedures that must be exhausted before a lawful
work stoppage may occur.
We believe we maintain positive working relationships with our employees.
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. In order to continuously improve our safety results, we also focus on
additional safety metrics, such as human factor incidents, that are instrumental in reducing our FRA reportable
injuries. G&W's consolidated FRA reportable injury frequency rate, as defined by the FRA as reportable injuries per
200,000 man-hours worked, was 0.80 for the year ended December 31, 2013. On a pro forma basis, G&W's FRA
reportable injury frequency rate combined with RailAmerica was 1.13 for the year ended December 31, 2012. The
average injuries per 200,000 man-hours worked for all United States short line railroads in the rail industry was 2.9
in 2013 (through November) and 3.2 in 2012.
Our employees also strive to heighten awareness of rail safety in the communities where we operate through
participation in governmental and industry sponsored safety programs, like Operation Lifesaver, a non-profit
organization that provides public education programs to prevent collisions, injuries and fatalities on and around
railroad tracks and highway-rail grade crossings. During 2013, employees of our railroads made more than 200
Operation Lifesaver presentations focused on the dangers associated with highway-rail grade crossings and
trespassing on railroad property. We also participate in safety committees of the AAR and the American Short Line
and Regional Railroad Association.
INSURANCE
We maintain liability and property insurance coverage to mitigate the financial risk of providing rail and rail-
related services. On August 1, 2013, we renewed these annual insurance policies, which now cover all of our
operations under one insurance program. Incidents involving entities previously owned by RailAmerica that
occurred prior to this renewal would be considered under RailAmerica’s legacy liability and property insurance
policies.
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Our primary liability policies currently have self-insured retentions of up to $1.0 million per occurrence.
RailAmerica's prior primary liability policies’ self-insured retentions were as high as $4.0 million per occurrence.
The liability policies cover third-party claims and damages associated with sudden releases of hazardous materials,
including hazardous commodities transported by rail, and expenses related to evacuation as a result of a railroad
accident. Personal injuries associated with grade crossing accidents are also covered under our liability policies. Our
property damage policies have various self-insured retentions, which vary based on the type and location of the
incident, that are currently up to $1.0 million per occurrence except in Australia where our self-insurance retention
for property damage due to a cyclone or flood is A$2.5 million. RailAmerica's primary property damage policies
previously had self-insured retentions up to $1.5 million per occurrence. The property damage policies also provide
business interruption insurance arising from covered events. The self-insured retentions under our policies may
change with each annual insurance renewal depending on our loss history, the size and make-up of our company and
general insurance market conditions.
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 policies. Employees of our industrial switching
and railroad construction businesses are covered under workers’ compensation policies.
Employees of our Canadian railroads are covered by the applicable provincial workers’ compensation policy.
Employees of our Australian operations are covered by the respective state-based workers’ compensation legislation
in Australia. Employees of our European operations are covered by the workers’ compensation legislation of the
Netherlands and Belgium, as applicable.
COMPETITION
The unique and difficult to replicate infrastructure associated with railroads is a key benefit of the industry as
compared to other modes of transportation, such as trucking (which uses public highways, toll roads, etc.) and
shipping (which uses river systems and ports). However, railroads compete directly with other modes of
transportation, principally highway competition from trucks and, on some routes, ships, barges and pipelines.
Competition is based primarily upon the rate charged and the transit time required, as well as the quality and
reliability of the service provided.
In North America, a railroad typically is the only rail carrier directly serving a customer on its line, which is a
key differentiating factor versus trucking and shipping. Most freight is interchanged between railroads prior to
reaching its final destination. To the extent that highway competition is involved, the degree of that competition is
affected by government policies with respect to fuel and other taxes, highway tolls and permissible truck sizes and
weights.
In Australia, the Netherlands and Belgium, our customers have access to other rail carriers under open access
regimes so we face competition from other rail carriers in addition to competition from competing modes of
transportation.
To a lesser degree, we also face competition from similar products made in other areas where we are not
located, 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 as compared to its paper plants in other locations. In some instances, we face “product
competition,” where commodities we transport are exposed to competition from substitutes (e.g., coal we transport
can compete with natural gas as a fuel source for electricity generation).
In acquiring rail properties and making rail equipment and/or track infrastructure investments in projects, we
generally compete with other railroad operators and with various financial institutions, including infrastructure and
private equity firms, operating in conjunction with rail operators. Competition for rail properties and investment
projects 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 long-term operator of rail
properties, our managerial and financial resources, as well as our commitment to safety and the communities in
which we operate, positions us well in a competitive acquisition and investment environment.
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United States
REGULATION
In addition to environmental laws, securities laws, state and local laws and regulations generally applicable to
many businesses, our United States railroads are subject to regulation by:
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STB;
FRA;
federal agencies, including the United States Department of Transportation (DOT), Occupational Safety
and Health Administration (OSHA), Pipeline and Hazardous Material Safety Administration (PHMSA),
Mine Safety and Health Administration (MSHA) and Transportation Security Administration (TSA), which
operates under the Department of Homeland Security (DHS);
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 the 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, DOT, OSHA and PHMSA have
jurisdiction over certain aspects of safety, which includes the regulation of equipment standards, track maintenance,
handling of hazardous shipments, locomotive and railcar inspection, repair requirements, operating practices and
crew qualifications. The TSA has broad authority over railroad operating practices that have implications for
homeland security. Additionally, various state and local agencies have jurisdiction over disposal of hazardous waste
and seek to regulate movement of hazardous materials in ways not preempted by federal law.
In 2013, the STB continued various proceedings on whether to expand rail regulation. The STB continues to
evaluate the impact of “access” regulation that would impact railroads' ability to limit the access of other rail service
providers to their rail infrastructure. During the past several legislative sessions, bills have been introduced in
Congress that would expand the regulatory authority of the STB and could include new antitrust provisions that alter
the regulatory structure of the railroad industry. Additionally, a two-year DOT study on the impacts of a possible
increase in federal truck size and weight limits, which commenced in 2012, could result in subsequent federal
legislation. The majority of the actions under consideration and pending are directed at Class I railroads; however,
we continue to monitor these proposed bills. The outcome of these initiatives could impact regulation of railroad
operations and prices for our rail services, which could undermine the economic viability of certain of our railroads,
as well as threaten the service we are able to provide to our customers.
In 2010, the FRA issued rules governing the installation of positive train control (PTC) by the end of 2015.
Although still under development, PTC is a collision avoidance technology intended to override locomotive controls
and stop a train before an accident. Certain of our railroads may be required to install PTC or PTC-related
equipment by the end of 2015. We do not expect that our compliance with the final rules governing the installation
of PTC will give rise to any material financial expenditures.
Canada
St. Lawrence & Atlantic Railroad (Quebec) and Ottawa Valley Railway are federally regulated railroads that
fall under the jurisdiction of the Canada Transportation Agency (CTA) and Transport Canada (TC) and are 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.
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Quebec Gatineau Railway and Cape Breton & Central Nova Scotia Railway are subject to the jurisdiction of
the provincial governments of Quebec and Nova Scotia, respectively. In addition, Huron Central Railway, Goderich-
Exeter Railway and Southern Ontario Railway are subject to the jurisdiction of the provincial government of
Ontario. Provincially regulated railways operate only within one province and hold a Certificate of Fitness delivered
by a provincial authority. In the Province of Quebec, the Fitness Certificate is delivered by the Ministère des
Transports du Quebec, while in Ontario, under the Shortline Railways Act, 1995, a license must be obtained from
the Registrar of Shortline Railways. Construction, operation and discontinuance of operation are regulated, as are
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 Canada’s Competition Act, 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. Our Australian assets are subject to the regulatory regimes governing safety in each of the
states and the one territory in which we operate. Regulation of track access is governed by federally legislated
guidelines that are implemented by the states. The state access regimes are required to be certified by the Australian
Competition and Consumer Commission. As a result, with respect to rail infrastructure access, our Australian
subsidiaries are subject to the state-based access regimes. In addition, certain new acquisitions in Australia will also
be subject to review by the Foreign Investment Review Board and the Australian Competition and Consumer
Commission.
Europe
In the European Union (EU), several directives have been issued concerning the transportation of goods by
rail. These directives generally cover the development of railways, allocation of railway infrastructure capacity and
the levying of charges for the use of railway infrastructure and the licensing of railway undertakings. The EU
legislation also sets a framework for a harmonized approach towards railway safety. Every railway company must
obtain a safety certification before it can run trains on the European network and EU Member States must set up
national railway safety authorities and independent accident investigation bodies. These directives have been
implemented in Dutch railway legislation such as the Railways Act and in Belgian railway legislation such as the
Law on Railway Safety.
In the Netherlands, we are subject to regulation by the Ministry of Infrastructure and Environment; the Living
Environment and Transport Inspectorate; the Dutch railways infrastructure manager, ProRail; and Keyrail (the
Dutch railways infrastructure manager for the Betuweroute, a dedicated freight railway connecting the Port of
Rotterdam to the German border and within the Port of Rotterdam). All railways in the Netherlands must have a
license and a safety certificate issued by the regulator, the Human Environment and Transport Inspectorate, part of
the Netherlands Ministry of Infrastructure and Environment. A rail operator must also have a license from ProRail
and/or Keyrail, the Dutch rail infrastructure authorities, to use the rail infrastructure. The Dutch Competition
Authority is charged with the supervision of compliance with the European Community's directives on the
development of the railways, the allocation of railway infrastructure capacity and the levying of charges for the use
of railway infrastructure.
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In Belgium, we are subject to regulation by the Federal Public Service (FPS) Mobility and Transport, the
Regulatory Service for Railway Transport and for Brussels Airport Operations, which is currently hosted by FPS
Mobility and Transport, and the Belgian railways infrastructure manager, Infrabel. Rail service providers based in
Belgium must obtain a rail operator license from the Federal Minister for Mobility and Transport. Rail service
providers that wish to operate in Belgium must obtain a safety certificate, which is comprised of Parts A and B. Part
A must be obtained from the Railway Safety and Interoperability Service (SSICF) if the rail service provider is
based in Belgium. Part B must be obtained from SSICF regardless of where the rail service provider is based. In
Belgium, the Belgium Competition Authority is responsible for promoting and safeguarding active competition in
Belgium.
Both the Dutch Competition Authority and the Belgium Competition Authority work together with other
competition authorities and are part of the European Competition Network, the European Competition Authorities
and the International Competition Network.
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 United States Environmental Protection Agency (EPA) 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. The primary laws affecting our
operations are the Resource Conservation and Recovery Act, regulating the management and disposal of solid and
hazardous wastes, the Clean Air Act, regulating air emissions, and the Clean Water Act, regulating water discharges.
We are also indirectly affected by environmental laws that impact the operations of our customers. In Canada,
environmental laws and regulations are administered at the federal level by Environment Canada and by the
Ministry of Transport and comparable agencies at the provincial 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 the Netherlands, European, national and local laws regulating the protection of the environment are
administered by the Ministry of Infrastructure and Environment and authorities at the provincial and municipal
level, whereas laws regulating the transportation of hazardous goods are primarily administered by the Ministry of
Infrastructure and Environment. European, national and local environmental policies are administered by the FPS
Health, Food Chain Safety and Environment in Belgium.
The Commonwealth of Australia has acknowledged that certain portions of the leasehold and freehold land
that we acquired from them and used by our Australian operations contain contamination arising from activities
associated with previous operators. Consequently, the Commonwealth has carried out certain remediation work to
meet existing South Australia environmental standards. Noncompliance with applicable laws and regulations may
result in the imposition of fines, temporary or permanent shutdown of operations or other injunctive relief, criminal
prosecution or the termination of our concession in Australia.
We believe our railroads operate in compliance with current environmental laws and regulations and agency
agreements. 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. We cannot predict the effect, if
any, that unidentified environmental matters or the adoption of additional or more stringent environmental laws and
regulations would have on our results of operations, financial condition or liquidity.
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 Class A common stock has been listed on the New York Stock Exchange
(NYSE) under the symbol GWR. Our principal executive offices and corporate headquarters are located at 20 West
Avenue, Darien, Connecticut 06820, and our telephone number is (203) 202-8900.
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Our Internet website 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 Securities and Exchange Commission (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 Internet website. Our Internet website also contains
charters for each of the committees of our Board of Directors, our corporate governance guidelines and our Code of
Ethics and Conduct.
The information regarding our Internet website and its content is for your convenience only. From time to
time, we may use our website as a channel of distribution of material company information. Financial and other
material information regarding the Company is routinely posted on and accessible at www.gwrr.com/investors. In
addition, you may automatically receive email alerts and other information about us by enrolling your email address
in the “E-mail Alerts” section of www.gwrr.com/investors.
The information contained on or connected to our Internet 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 that may be identified in future documents that are filed or furnished with the
SEC.
GENERAL RISKS ASSOCIATED WITH OUR BUSINESS
Adverse global macroeconomic and business conditions could negatively impact our business.
Slower growth, an economic recession, or significant changes in commodity prices or regulation that affects
the countries where we operate or their imports and exports, could negatively impact our business. For instance, in
Australia, a portion of the commodities we transport are supporting economic growth and industrial development in
Asian countries, particularly China. A sustained slowdown in such countries could impact us. Slower growth in
China, and the resulting impact on demand for, and lower prices of, natural resources could be a factor influencing
decisions to delay and cancel certain mining projects in Australia. In addition, we anticipate benefiting from
development of oil, natural gas and natural gas liquids from shale regions in the United States, but low natural gas
prices or additional regulations impacting the energy sector could reduce such development and the benefit we could
realize.
In addition, we are required to assess for potential impairment of non-current assets whenever events or
changes in circumstances, including economic circumstances, indicate that the respective asset's carrying amount
may not be recoverable. Given the asset intensive nature of our business, weakness in the general economy
increases the risk of significant asset impairment charges. A decline in current macroeconomic and financial
conditions or commodity demand from economic activity and industrialization could have a material adverse effect
on our results of operations, financial condition and liquidity.
Our results of operations and rail infrastructure are susceptible to severe weather conditions and other natural
occurrences.
We are susceptible to adverse weather conditions, including floods, fires, hurricanes (or cyclones), tornadoes,
droughts, earthquakes and other natural occurrences. For example, bad weather and natural disasters, such as
blizzards in the United States or Canada and hurricanes (or cyclones) in the United States or Australia, and resulting
floods, could cause a shutdown, derailment or other substantial disruption of operations, which could have a
material adverse effect on our results of operations, 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. For example:
• Our minerals and stone freight revenues may be reduced by mild winters in the northeastern United States,
which lessen demand for road salt.
• Our coal and coke freight revenues may be reduced by mild winters in the United States, which lessen
demand for coal.
• Our revenues generated by our Australian operations are susceptible to the impact of drought conditions on
the South Australian grain harvest and the impact of heavy rains and flooding in the Northern Territory.
Furthermore, our expenses could be adversely impacted by such weather conditions, including, for example,
higher track maintenance and overtime costs in the winter at our railroads in the United States and Canada related to
snow removal and mandated work breaks. Such weather conditions could also cause our customers or connecting
carriers to reduce or suspend their operations, which could have a material adverse effect on our results of
operations, financial condition and liquidity.
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If we are unable to consummate additional acquisitions or investments or manage our growth effectively, then we
may not be able to implement our growth strategy successfully.
Our growth strategy is based in part on the selective acquisition and development of, and investment in, rail
operations, both in new regions and in regions in which we currently operate. The success of this strategy will
depend on, among other things:
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the availability of suitable opportunities;
the level of competition from other companies;
our ability to value acquisition and investment opportunities accurately and negotiate acceptable terms for
those acquisitions and investments;
our ability to identify and enter into mutually beneficial relationships with partners; and
the receipt of government approvals and financial constraints or other restrictions that may be specific to
the particular company or asset to be acquired.
We have experienced significant growth in the past, partially due to the acquisition of additional railroads.
Effective management of rapid growth presents challenges, including the availability of management resources to
oversee the integration and operation of the new businesses effectively, the need to expand our management team
and staff when necessary, the need to enhance internal operating systems and controls and the ability to consistently
achieve targeted returns on capital. These challenges are more pronounced when we experience growth in numerous
geographies and on a larger scale. We may not be able to maintain similar rates of growth in the future or manage
our growth effectively.
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 may not be able to integrate acquired businesses successfully. Integrating acquired businesses, including
our pending acquisition of the assets comprising the western end of the DM&E, could also result in significant
unexpected costs. Further, the process of integrating businesses may be disruptive to our existing business and may
cause an interruption or reduction of our business as a result of the following factors, among others:
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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 safety or quality of services that have historically been provided;
inability to hire or recruit qualified employees;
failure to effectively integrate employees of rail lines acquired from other entities into our regional railroad
culture;
unanticipated environmental or other liabilities;
failure to coordinate geographically dispersed 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, synergies,
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 results of operations, financial condition and liquidity.
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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, synergies, revenue enhancements or other benefits that we may have expected at
the time of acquisition. We may be unable to realize these savings or other benefits in the time frame that we expect
or at all. Expected savings and benefits are frequently based on due diligence results and on extensive analyses that
involve assumptions as to future events, including general business and industry conditions, the longevity of specific
customer plants and factories served, the ability to negotiate acceptable contractual arrangements, including
renewals of leases with Class I railroads, operating costs, competitive factors and the ongoing cost of maintaining
track infrastructure, many of which are beyond our control and difficult to predict. There is no guarantee that the due
diligence results will be accurate or that the Company will not discover unanticipated liabilities. Further, while we
believe these analyses and their underlying assumptions are 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 benefits from these acquisitions may be offset by
unexpected costs incurred in integrating the companies, increases in other expenses or problems in the business
unrelated to these acquisitions. For example, if key employees of acquired companies depart because of issues
relating to the uncertainty and difficulty of integration or a desire not to become our employees, our ability to realize
the anticipated benefits of such acquisitions could be reduced or delayed. Accordingly, you should not place undue
reliance on our anticipated synergies.
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 our 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. Generally, the
representations made by the sellers, other than certain representations related to fundamental matters, such as
ownership of capital stock, expire within several years of the closing. A material liability associated with an
acquisition, especially where there is no right to indemnification, could adversely affect our results of operations,
financial condition and liquidity.
We may need additional capital to fund our acquisitions and investments. If we are unable to obtain this capital
at a reasonable cost, then we may forego potential opportunities, which would impair the execution of our growth
strategy.
We intend to continue to review acquisition and investment opportunities and potential purchases of railroad
assets and to attempt to acquire companies and assets that meet our investment criteria. As in the past, we expect
that we will pay cash for some or all of the purchase price of acquisitions and purchases that we make. In addition,
from time to time we may make investments in equipment and assets to support our customers. Depending on the
number of acquisitions and investments and funding requirements, we may need to raise substantial additional
capital. To the extent we raise additional capital through the sale of equity, equity-linked or convertible debt
securities, the issuance of such securities could result in dilution to 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 forego potential acquisitions, which could impair the execution of our growth
strategy.
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The loss of important customers or contracts may adversely affect our results of operations, financial condition
and liquidity.
Our operations served more than 2,000 customers in 2013. Revenues from our 10 largest customers accounted
for approximately 24% of our operating revenues in 2013. Three of our 10 largest customers in 2013 were located in
Australia and accounted for approximately 10.1% of our operating revenues. In 2013, our largest customer was a
company in the metallic ores industry and represented approximately 5.9% of our operating revenues. In North
America, 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 the price, but do not typically obligate
the customer to move any particular volume. Under these contracts, freight rates and volumes are not directly linked
to changes in the prices of the commodities being shipped. A number of our customer contracts, predominately in
Australia, contain a combination of fixed and variable pricing, with the variable portion based on the volumes
shipped. Substantial reduction in business with, or loss of, important customers or contracts could have a material
adverse effect on our results of operations, financial condition and liquidity.
Because we depend on Class I railroads and other connecting carriers for a significant portion of our operations
in North America, our results of operations, financial condition and liquidity may be adversely affected if our
relationships with these carriers deteriorate.
The railroad industry in the United States and Canada is dominated by seven Class I carriers that have
substantial market control and negotiating leverage. In 2013, approximately 85% of our total carloads in the United
States and Canada were interchanged with Class I carriers. A decision by any of these Class I carriers to cease or re-
route certain freight movements could have a material adverse effect on our results of operations, financial condition
and liquidity. The quantitative impact of such a decision would depend on which of our routes and freight
movements were affected. In addition, 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.
Our ability to provide rail service to customers in the United States and Canada depends in large part upon our
ability to maintain cooperative relationships with connecting carriers with respect to lease arrangements, 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 could have a material adverse effect on our results of operations, financial condition and
liquidity.
We are dependent on lease agreements with Class I railroads and other third parties for our operations, strategy
and growth.
In North America, our rail operations are dependent, in part, on lease agreements with Class I railroads and
other third parties that allow us to operate over certain segments of track critical to our operations. We lease several
railroads from Class I carriers and other third parties under lease arrangements with varied expirations, which
railroads collectively accounted for approximately 9% of our 2013 total revenues. We also own several railroads that
lease portions of the track or right-of-way upon which they operate from Class I railroads and other third parties.
Our ability to provide comprehensive rail services to our customers on the leased lines depends in large part upon
our ability to maintain and extend these lease agreements. Leases from Class I railroads and other third parties that
are subject to expiration in each of the next 10 years represent less than 2% of our annual revenues in the year of
expiration based on our operating revenues for the year ended December 31, 2013. For example, our revenues
associated with leases from Class I railroads and other third parties subject to expiration in each of the next five
years would represent approximately 1.2%, 1.5%, 0.0%, 1.8% and 1.6% of our operating revenues in each of those
years, respectively, based on our operating revenues for the year ended December 31, 2013. Expiration or
termination of these leases or the failure of our railroads to comply with the terms of these leases could result in the
loss of operating rights with respect to those rail properties and could have a material adverse effect on our results of
operations, financial condition and liquidity.
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Certain of our capital projects may be impacted by our inability to obtain government funding.
Certain of our existing capital projects are, and certain of our future capital projects may be, partially or
completely funded through government grant programs. During 2013, we obtained government funding for 28 new
projects that were partially or completely funded by United States and Canadian federal, state, provincial and
municipal agencies. The spending associated with these grant-funded projects represented approximately 6% of our
total capital expenditures during 2013. Government funding for projects is limited, and there is no guarantee that
budget pressure at the federal, state, provincial and local level or changing governmental priorities will not eliminate
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. If we are unable to
obtain adequate government funding, we may have to defer or forgo certain capital projects, incur additional debt or
use additional cash.
As a common carrier by rail, we are required to transport hazardous materials, regardless of cost or risk.
We transport certain hazardous materials and other materials, including crude oil and toxic/poisonous
inhalation hazard (TIH/PIH) materials, such as chlorine, that pose certain risks in the event of a release or
combustion. Additionally, United States laws impose common carrier obligations on railroads that require us to
transport certain hazardous materials regardless of risk or potential exposure to loss. A rail accident or other incident
or accident on our railroads, at our facilities, or at the facilities of our customers involving the release or combustion
of hazardous materials could create catastrophic losses in terms of personal injury, property damage and
environmental remediation costs and compromise critical parts of our railroads. In addition, insurance premiums
charged for some or all of the coverage currently maintained by us could increase dramatically or certain coverage
may not be available to us in the future if there is a catastrophic event related to rail transportation of these
commodities. Also, federal regulators have previously prescribed regulations governing railroads’ transportation of
hazardous materials and have the ability to put in place additional regulations. For instance, existing legislation
requires pre-notification for hazardous materials shipments. Such legislation and regulations could impose
significant additional costs on railroads. Additionally, regulations adopted by the DOT and the DHS 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. Such
ordinances could require the re-routing of hazardous materials shipments, with the potential for significant
additional costs. Increases in costs associated with the transportation of hazardous materials could have a material
adverse effect on our results of operations, financial condition and liquidity.
21
The occurrence of losses or other liabilities that are either not covered by insurance or that exceed our insurance
limits could materially adversely affect our results of operations, financial condition and liquidity.
We have insurance coverage for losses arising from personal injury and for property damage in the event of
derailments or other accidents or occurrences. Unexpected or catastrophic circumstances associated with
derailments of valuable lading, accidents involving passenger trains or spillage of hazardous materials or other
incidents involving our operations could cause our losses to exceed our insurance coverage limits or sub-limits. In
addition, on certain of the rail lines over which we operate, freight trains are operated over the same track as
passenger trains. For instance, in Oregon, our Portland & Western Railroad operates certain passenger trains for the
Tri-County Metropolitan Transportation District of Oregon and our New England Central Railroad is also used by
Amtrak for passenger service in New England. Further, we operate excursion trains on behalf of third parties on
certain of the rail lines over which we operate. Derailments, collisions or other incidents involving us and passenger
or excursion trains could give rise to losses that exceed our insurance coverage. Moreover, certain third-party freight
and excursion train operators have contractual trackage rights to operate over certain of our rail lines. These third-
party operators generally are required to maintain minimum levels of insurance coverage, but there can be no
assurance that such insurance coverage will be sufficient to cover all of the losses arising from an incident involving
such operators on our rail lines. Also, insurance is available from only a very limited number of insurers, and we
may not be able to obtain insurance protection at current levels or at all or obtain it on terms acceptable to us.
Deteriorating insurance market conditions caused by global property casualties, as well as subsequent adverse
events directly and indirectly attributable to us, including such things as derailments, accidents, discharge of toxic or
hazardous materials, or other like occurrences in the industry, may result in additional increases in our insurance
premiums and/or our self-insured retentions, volatility in our claims' expenses and limitations to the coverage under
our existing policies and could have a material adverse effect on our results of operations, financial condition and
liquidity. In addition, we are subject to the risk that one or more of our insurers may become insolvent and would be
unable to pay a claim that may be made in the future. Even with insurance, if any catastrophic interruption of
service occurs, we may not be able to restore service without a significant interruption to our operations, which
could have a material adverse effect on our results of operations, financial condition and liquidity.
We are subject to significant governmental regulation of our railroad operations. The failure to comply with
governmental regulations or changes to the legislative and regulatory environment could have a material adverse
effect on our results of operations, financial condition and liquidity.
We are subject to governmental regulation with respect to our railroad operations and to a variety of health,
safety, security, labor, environmental and other matters by a significant number of federal, state and local regulatory
authorities. In the United States, these agencies include the STB, DOT, FRA of the DOT, MSHA, OSHA, PHMSA,
EPA, DHS and other federal and state agencies. New rules or regulations mandated by these agencies could increase
our operating costs. For example, in 2010, the FRA issued rules governing the implementation of an interoperable
positive train control system (PTC), which generally is to be completed by December 31, 2015. The FRA’s rule
contains certain exceptions to these PTC requirements as they apply to Class II or Class III railroads, including but
not limited to, excepting the PTC requirements to trains traveling less than 20 miles on PTC-required track, and
providing Class II and Class III railroads until 2020 to employ PTC-equipped locomotives. However, certain of our
railroads may be required to install PTC or PTC-related equipment. While we do not expect that our compliance
with PTC requirements will give rise to any material financial expenditures, non-compliance with these and other
applicable laws or regulations could undermine public confidence in us and subject us to fines, penalties and other
legal or regulatory sanctions.
In Australia, we are subject to both Commonwealth and state regulations. In Canada, we are subject to
regulation by the CTA, TC and the regulatory departments of the provincial governments of Quebec, Ontario and
Nova Scotia. In the Netherlands, we are subject to regulation by the Ministry of Transport, Public Works and Water
Management, the Transport, Public Works and Water Management Inspectorate and the Dutch railways managers,
ProRail and Keyrail. In Belgium, we are subject to regulation by the Federal Public Service (FPS) Mobility and
Transport, the Regulatory Service for Railway Transport and for Brussels Airport Operations, which is currently
hosted by FPS Mobility and Transport, and the Belgian railways infrastructure manager, Infrabel. See “Part I Item 1.
Business – Regulation” for a discussion of these regulations. Our failure to comply with applicable laws and
regulations could have a material adverse effect on our results of operations, financial condition and liquidity.
22
There are various legislative and regulatory actions that have been considered in the United States in recent
years to modify the regulatory oversight of the rail industry. In addition, various proceedings have been initiated by
the STB related to rail competition, interchange commitments and competitive “access.” A two-year DOT study on
the impacts of a possible increase in federal truck size and weight limits also commenced in 2012, and could result
in subsequent federal legislation. The majority of the actions under consideration and pending are directed at Class I
railroads; however, specific initiatives being considered by Congress and the STB could expand regulation of
railroad operations and prices for our rail services, which could undermine the economic viability of certain of our
railroads, as well as threaten the service we are able to provide to our customers. The cost of compliance with the
proposed rules and regulations could also be significant. In the other geographies in which we operate, federal, state,
provincial and local regulatory authorities could change the regulatory framework (including the access regimes) or
take actions without providing us with any recourse for the adverse effects that the changes or actions could have on
our business, including, without limitation, regulatory determinations or rules regarding dispute resolution and
business relationships with our customers and other railroads. Significant legislative or regulatory activity could
expand regulation of railroad operations and prices for rail services, which could reduce capital spending on our rail
network, facilities and equipment and have a material adverse effect on our results of operations, financial condition
and liquidity.
Our Senior Secured Syndicated Facility Agreement (the Credit Agreement) contains numerous covenants that
impose certain restrictions on the way we operate our business.
Our Credit Agreement contains numerous covenants that impose restrictions on our ability to, among other
things:
incur additional indebtedness;
pay dividends on capital stock or redeem, repurchase or retire capital stock or indebtedness;
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engage in certain transactions with affiliates;
create liens;
sell assets, including capital stock of any of our subsidiaries;
consolidate or merge;
enter into sale leaseback transactions;
change the business conducted by us and the guarantors;
change our fiscal year; and
enter into certain agreements containing negative pledges and upstream limitations.
Our Credit Agreement also contains financial covenants that require us to meet financial ratios and tests. Our
failure to comply with the obligations in our Credit Agreement and other debt agreements could result in an increase
in our interest expense and could give rise to events of default under the Credit Agreement or other debt agreements,
as applicable, which, if not cured or waived, could permit lenders to accelerate our indebtedness and foreclose on
the assets securing such debt, if any.
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our
obligations under such indebtedness.
We have a significant amount of indebtedness. As of December 31, 2013, we had a total indebtedness of $1.6
billion, and we had unused commitments of $406.0 million under our Credit Agreement (after giving effect to $3.1
million of undrawn letters of credit that reduces such availability). We expect to use a portion of the availability
under our Credit Agreement to fund the pending acquisition of the assets comprising the western end of the DM&E.
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Subject to the limits contained in the Credit Agreement and our other debt instruments, we may be able to
incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions,
or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high
level of debt could have important consequences, including the following:
• making it more difficult to satisfy our obligations with respect to our outstanding debt;
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limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions or
other general corporate requirements;
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other
purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures,
acquisitions and other general corporate purposes;
increasing our vulnerability to general adverse economic and industry conditions;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under
the Credit Agreement, are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a disadvantage compared to other, less leveraged competitors; and
increasing our cost of borrowing.
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In addition, the Credit Agreement contains restrictive covenants that will limit our ability to engage in
activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an
event of default which, if not cured or waived, could result in the acceleration of all our debt and foreclosure on the
assets securing such debt, if any.
We are exposed to the credit risk of our customers and counterparties, and their failure to meet their financial
obligations could adversely affect our business.
Our business is subject to credit risk. There is a risk that customers or counterparties, which include
government entities related to grants and financial institutions related to derivative transactions, will fail to meet
their obligations when due. Customers and counterparties that owe us money have defaulted and may continue to
default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. For
interline traffic, one railroad typically invoices a customer on behalf of all railroads participating in the route. The
invoicing railroad then pays the other railroads their portion of the total amount invoiced on a monthly
basis. Therefore, when we are the invoicing railroad we are exposed to customer credit risk for the total amount
invoiced and we are required to pay the other railroads participating in the route even if we are not paid by the
customer. We have procedures for reviewing our receivables and credit exposures to specific customers and
counterparties; however, default risk may arise from events or circumstances that are difficult to detect or foresee.
Certain of our risk management methods depend upon the evaluation of information regarding markets, customers
or other matters. This information may not, in all cases, be accurate, complete, up-to-date or properly evaluated. In
addition, we may make substantial investments in equipment and assets to support our customers, in particular those
in the mining and natural resources industry, before the customer commences operations. In those cases, we may be
exposed to start-up risks that we would not be exposed to in respect of customers with active operations. As a result,
unexpected credit exposures or start-up delays could have a material adverse effect on our results of operations,
financial condition and liquidity.
We face competition from numerous sources, including those relating to geography, substitute products, other
types of transportation and other rail operators.
In North America, each of our railroads is typically the only rail carrier directly serving our customers. In
certain circumstances, including under the open access regimes in Australia, the Netherlands and Belgium, our
customers have direct access to other rail carriers. In addition, our railroads also compete directly with other modes
of transportation, principally trucks and, on some routes, ship, barge and pipeline operators. Transportation
providers such as trucks and barges utilize public rights-of-way that are built and maintained by governmental
entities, while we must build and maintain our own network infrastructure. Competition for our services could
increase if other rail operators build new rail lines to access certain of our customers or if legislation is passed that
provides materially greater latitude for trucks with respect to size or weight restrictions.
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We are also subject to geographic and product competition. A customer could shift production to a region
where we do not have operations. Also, commodities that are not transported by rail could be substituted for another
commodity that we transport by rail. For example, natural gas can compete with coal we transport as a fuel source
for electricity generation. In either case, we could lose a source of revenues.
The extent of 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 a significant portion of our carloads in the
United States and Canada involve interchange with another carrier, we have only limited control over the total price,
transit time or quality of such service. 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. However, changes to the competitive landscape could have a material
adverse effect on our results of operations, financial condition and liquidity.
For information on the competition associated with the open access regimes in Australia and Europe, see
“Additional Risks Associated with our Foreign Operations.”
Changes in commodity prices could decrease demand for the commodities we transport, which could adversely
affect our results of operations, financial condition and liquidity.
Changes in the price of commodities that we transport could decrease demand for the transport of such
commodities, which could reduce our revenues or have other adverse effects. For example, a decline in the price of
corn that we transport may result in lower revenues for us if farmers decide to store such commodities until the
prices for such commodities increase. In such instances, we could experience reduced revenues and increased
operating costs associated with the storage of locomotives, rail cars and other equipment, labor adjustments and
other related activities, which could negatively impact our results of operations, financial condition and liquidity.
Market and regulatory responses to climate change could adversely affect our operating costs.
Market and regulatory responses to climate change, as well as its physical impacts, could materially affect us.
For example, federal, state and local laws, regulations, restrictions, caps, taxes or other controls on emissions of
greenhouse gases, including diesel exhaust, could significantly increase our operating costs to comply with these
laws and regulations to the extent they apply to our diesel locomotives, equipment, vehicles and machinery or our
rail yards.
Market and regulatory responses to climate change, including the closure of coal-fired power plants we serve,
climate change litigation and climate change itself could decrease demand for the commodities we transport and
adversely affect our results of operations, financial condition and liquidity.
Restrictions on emissions could affect our customers that use commodities that we carry to produce energy,
that use significant amounts of energy in producing or delivering the commodities we carry, or that manufacture or
produce goods that consume significant amounts of energy or burn fossil fuels, including, for example, coal mining
operations, natural gas developers and producers, coal-fired power plants, chemical producers, farmers and food
producers and automakers and other manufacturers. Significant cost increases, government regulation, or changes in
consumer preferences for goods or services relating to alternative sources of energy or emissions reductions could
materially affect the markets for the commodities we carry, such as by resulting in the closure of coal-fired power
plants that we serve, which in turn could have a material adverse effect on our results of operations, financial
condition and liquidity. Government incentives encouraging the use of alternative sources of energy could also
affect certain of our customers and the markets for certain of the commodities we carry in an unpredictable manner
that could alter our traffic patterns, including, for example, the impacts of ethanol incentives on farming and ethanol
producers. Finally, we could face increased costs related to defending and resolving legal claims and other litigation
related to climate change including claims alleging impact of our operations on climate change. Any such market or
regulatory responses or litigation, as well as physical impacts attributed to climate change and global warming, such
as floods, rising sea levels and increasingly frequent and intense storms, individually or in conjunction with one or
more of the impacts discussed above or other unforeseen impacts of climate change, could have a material adverse
effect on our results of operations, financial condition and liquidity.
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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 federal, state, local and foreign
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 materials
(including lading) or petroleum releases. We generate and transport hazardous and non-hazardous waste in our
operations. We may incur environmental liability from conditions or practices at properties previously owned or
operated by us, properties leased by us and other properties owned by third parties (for example, properties at which
hazardous substances or wastes for which we are responsible have been treated, stored, spilled or disposed), as well
as at properties currently owned or operated by us. Under some environmental statutes, such liability may be found
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, 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 personal injury or death, and/or by
governmental authorities seeking to remedy environmental conditions or to enforce environmental obligations.
While we maintain insurance for certain environmental damages and claims, environmental requirements and
liabilities could obligate us to incur significant costs and expenses to investigate and remediate environmental
contamination that may or may not be covered by our insurance, which could have a material adverse effect on our
results of operations, financial condition and liquidity.
Exposure to market risks, particularly changes in interest rates and foreign currency exchange rates, and
hedging transactions entered into to mitigate these and other risks could adversely impact our results of
operations, financial condition and liquidity.
We are exposed to various market risks, including interest rate and foreign currency exchange rate risks. It is
impossible to fully mitigate all such exposure and higher interest rates and unfavorable fluctuations in foreign
currency exchange rates could have an adverse effect on our results of operations, financial condition and liquidity.
From time to time, we may use various financial instruments to reduce our exposure to certain market risks. For
instance, we have entered into interest rate swaps to mitigate the risk associated with the floating interest rate
payments under our Credit Agreement. While these financial instruments reduce our exposure to market risks, the
use of such instruments may ultimately limit our ability to benefit from lower interest rates or favorable foreign
currency exchange rate fluctuations due to amounts fixed at the time of entering into the hedge agreement and may
have significant costs associated with early termination, which could have a material adverse effect on our results of
operations, financial condition and liquidity.
We may be adversely affected by diesel fuel supply constraints resulting from disruptions in the fuel markets and
increases in diesel fuel costs.
In 2013, we consumed 43.5 million gallons of diesel fuel. Fuel availability could be affected by any limitation
in the fuel supply or by any imposition of mandatory allocation or rationing regulations. If a severe fuel supply
shortage arose from production curtailments, disruption of oil imports, disruption of domestic refinery production,
damage to refinery or pipeline infrastructure, political unrest, war or otherwise, diesel fuel may not be readily
available and may be subject to rationing regulations.
In addition, diesel fuel costs constitute a significant portion of our total operating expenses. Currently, we
receive fuel surcharges and other rate adjustments to offset fuel prices. However, if Class I railroads change their
policies regarding fuel surcharges, the compensation we receive for increases in fuel costs may decrease and could
have a negative effect on our profitability. Costs for fuel used in operations were approximately 12% and 13% of
our operating expenses for the years ended December 31, 2013 and 2012, respectively.
If diesel fuel prices increase dramatically from production curtailments, a disruption of oil imports or
otherwise, these events could have a material adverse effect on our results of operations, 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, property damage and other matters. For example, United States job-
related personal injury claims by our railroad employees are subject to 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 the actual costs of claims being
very different from the liability recorded.
Any material changes to current litigation trends or a catastrophic rail accident or series of accidents involving
material freight loss or property damage, personal injury and environmental liability against us that is not covered
by insurance could have a material adverse effect on our results of operations, financial condition and liquidity.
Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our results of
operations, financial condition and liquidity.
We are a party to 76 collective bargaining agreements with various labor unions in the United States,
Australia, Canada and Belgium. We are currently engaged in negotiations with respect to 18 of those agreements.
Approximately 1,800 of our approximately 4,800 full time employees are union members. We have also entered into
employee association agreements with an additional 68 employees who are not represented by a national labor
organization. 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. A substantial majority of the employees of the Class I railroads with which we
interchange are unionized. If such Class I railroads were to have a work stoppage or strike, the national rail network
and our operations would be adversely affected. Additional unionization of our workforce could result in higher
employee compensation and restrictive working condition demands that could increase our operating costs or
constrain our operating flexibility.
If we are unable to employ a sufficient number of qualified workers, or attract and retain senior leadership, our
results of operations, financial condition and liquidity may be materially adversely affected.
We believe that our success and our growth depend upon our ability to attract and retain skilled workers who
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 and
remote conditions, resulting in a high employee turnover rate when compared to many other industries. The
challenge of attracting and retaining the necessary workforce is increased by the expected retirement of an aging
workforce, training requirements and significant competition for specialized trades. Within the next five years, we
estimate that approximately 16% of our current workforce will become eligible for retirement. Many of these
workers hold key operating positions, such as conductors, engineers and mechanics. In addition, the demand for
workers with the types of skills we require 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. In addition, if key
employees of acquired companies depart because of issues relating to the uncertainty and difficulty of integration or
a desire not to become our employees, our ability to realize the anticipated benefits of such acquisitions could be
reduced or delayed.
Finally, there can be no assurance that we will be able to attract and retain senior leadership necessary to
manage and grow our business. Our performance significantly depends upon the continued contributions of our
executive officers and key employees, both individually and as a group, and our ability to retain and motivate them.
Our officers and key personnel have many years of experience with us and in our industry and it may be difficult to
replace them. Further, the loss of any executive officers or key employees could require the remaining senior
leadership to divert immediate and substantial attention to seeking a replacement. The loss of the services of any of
our senior leadership, and the inability to find a suitable replacement, could adversely affect our operating,
acquisition and investment strategies.
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Our operations are dependent on our ability to obtain railcars, locomotives and other critical railroad items from
suppliers.
Due to the capital intensive nature and industry-specific requirements of the rail industry, there are high
barriers to entry for potential new suppliers of core railroad items such as railcars, locomotives and track
materials. If the number of available railcars is insufficient or if the cost of obtaining these railcars either through
lease or purchase increases, we might not be able to obtain railcars on favorable terms, or at all, and shippers may
seek alternate forms of transportation. For example, in the event of additional government regulations affecting tank
cars, there is no guarantee that a sufficient number of tank cars will be available to support the demand for transport
of petroleum products in North America. As of January 1, 2014, according to the AAR, approximately 18% of the
North American railcar fleet was in storage. In some cases we use third-party locomotives to provide transportation
services to our customers and such locomotives may not be available. Without these third-party locomotives, we
would need to invest additional capital in locomotives. Even if purchased, there is no guarantee that locomotives
would be available for delivery without significant delay. For example, in Australia the availability of new
locomotives is limited, with long lead times for delivery. Additionally, we compete with other industries for
available capacity and raw materials used in the production of certain track materials, such as rail and ties. Changes
in the competitive landscapes of these limited-supplier markets could result in equipment shortages that could have
a material adverse effect on our results of operations, financial condition and liquidity in a particular year or quarter
and could limit our ability to support new projects and achieve our growth strategy.
We may be affected by acts of terrorism or anti-terrorism measures.
Our rail lines, port operations and other facilities and equipment, including railcars 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 results of operations, 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 have a material adverse effect on our results of operations, financial condition and liquidity.
ADDITIONAL RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We are subject to the risks of doing business in foreign countries.
Some of our subsidiaries transact business in foreign countries, namely in Australia, Canada, the Netherlands
and Belgium. 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:
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adverse changes or greater volatility in the economies of those countries;
adverse currency movements that make goods produced in those countries that are destined for export
markets less competitive;
adverse effects due to changes in the eurozone membership;
adverse changes to the regulatory environment or access regimes of those countries;
adverse changes to the tax laws and regulations of those countries;
restrictions on the withdrawal of foreign investment, or a decrease in the value of repatriated cash flows;
a decrease in the value of foreign sourced income as a result of exchange rate changes;
the actual or perceived failure by us to fulfill commitments under concession agreements;
the ability to identify and retain qualified local managers; and
the challenge of managing a culturally and geographically diverse operation.
Any of the risks above could have a material adverse effect on our results of operations, financial condition
and liquidity.
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Because some of our 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, exchange rate fluctuations may
adversely affect us and may affect the comparability of our results between financial periods.
Our operations in Australia, Canada and Europe accounted for 21%, 9%, and 1% of our consolidated
operating revenues, respectively, for the year ended December 31, 2013. The results of operations of our foreign
entities are maintained in the local currency (the Australian dollar, the Canadian dollar and the Euro) and then
translated into United States 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 United States dollar can
impact our results of operations. The financial statements of the Company’s foreign subsidiaries are prepared in the
local currency of the respective subsidiary and translated into United States dollars based on the exchange rate at the
end of the period for balance sheet items and, for the statement of operations, at the average rate for the statement
period. The exchange rates between these currencies and the United States dollar have fluctuated significantly in
recent years and may continue to do so in the future.
We may not be able to manage our exchange rate risks effectively, and the volatility in currency exchange
rates may have a material adverse effect on our results of operations, financial condition and liquidity. In addition,
because our financial statements are stated in United States dollars, such fluctuations may affect our results of
operations and financial condition and may affect the comparability of our results between financial periods.
Our concession and/or lease agreements in Australia could be canceled, and there is no guarantee these
agreements will be extended beyond their terms.
Through our subsidiaries in Australia, we have entered into long-term concession and/or lease agreements
with governmental authorities in the Northern Territory and South Australia. Our concession agreement for the
Tarcoola to Darwin rail line expires in 2054 and our lease agreement for our other South Australia rail lines expires
in 2047. If our concession or lease agreements expire, we will no longer act as the below rail access provider, but
will still be permitted to participate in the above rail market. These concession and lease agreements are subject to a
number of conditions, including those relating to the maintenance of certain standards with respect to 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, which may require capital
expenditures that are in excess of our projections. Our failure to meet these commitments under the long-term
concession and lease agreements could result in the termination of those concession or lease agreements. The
termination of any concession or lease agreement could result in the loss of our investment relating to that
concession or lease agreement. Further, the expiration of these agreements and the end of their term would result in
the loss of the associated revenues and income. Either of these events could have a material adverse effect on our
results of operations, financial condition and liquidity.
Open access regimes in Australia and Europe could lead to additional competition for rail services and decreased
revenues and profit margins.
The legislative and regulatory framework in Australia allows third-party rail operators to gain access to our
Australian railway infrastructure and also governs our access to track owned by others. The Netherlands and
Belgium also have open access regimes that permit third-party rail operators to compete for the business of RRF,
our subsidiary in the Netherlands. There are limited barriers to entry to preclude a current or prospective rail
operator from approaching our customers and seeking to capture their business. The loss of our customers to
competitors could result in decreased revenues and profit margins, which could have a material adverse effect on
our results of operations, financial condition and liquidity.
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Changes to the open access regimes in Australia and Europe could have a significant impact on our operations.
Access fees paid for our access onto the track of other companies and access fees we charge under state and
federal regimes are subject to change. Where we pay access fees to others, if those fees were increased, our
operating margins could be negatively affected. In Australia, if the federal government or respective state regulators
were to alter the regulatory regime or determine that access fees charged to current or prospective third-party rail
freight operators by our Australian railroads did not meet competitive standards, our income from those fees could
decline. In addition, when we operate over track networks owned by others, the owners of the networks 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 tracks in satisfactory condition. Therefore, in areas where we operate over tracks owned
by others, our operations are subject to train scheduling set by the owners as well as the risk that the network will
not be adequately maintained.
Revocation of our safety accreditations could result in a loss of revenue and termination of our concession.
Our operating subsidiaries in Australia, the Netherlands and Belgium hold safety accreditations that are
required in order for them to provide freight rail services. Continued maintenance of our safety accreditation in
Australia is a requirement under our concession deeds and some customer contracts. These safety accreditations are
essential for us to conduct our business and are subject to removal. Following significant derailments, the
government entities responsible for oversight of rail safety frequently perform investigations. Any loss of, failure to
maintain or inability to renew, rail safety accreditations necessary to carry on rail operations in any jurisdiction, or
any changes in government policy and legal or regulatory oversight, including changes to the rail safety regulatory
regime, could have a material adverse effect on our business, results of operations, financial condition and liquidity.
RISKS RELATED TO TAXATION
Our ability to use RailAmerica's Section 45G tax credit carryforwards may be subject to limitation due to a
change in the ownership of its stock.
As of December 31, 2013, RailAmerica had tax benefits totaling approximately $106.9 million of Section 45G
tax credit carryforwards. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the
Code, if a corporation undergoes an “ownership change,” the corporation's ability to use its pre-change tax attribute
carryforwards to offset its post-change income tax may be limited and may result in a partial or full write down of
the related deferred tax assets. An ownership change is defined generally for these purposes as a greater than 50%
change in ownership over a three-year period, taking into account shareholders that own 5% or more by value of our
common stock. While we currently believe it is more likely than not that we will be able to utilize these tax
attributes, our ability to use RailAmerica's net operating loss carryforwards and other tax attributes to reduce our
future tax liabilities may be limited.
The United States Short Line Tax Credit expired on December 31, 2013. As a result, our effective tax rate in 2014
will be higher if the credit is not extended.
Since 2005, we have benefited from the effects of the United States Short Line Tax Credit, which is an
income tax credit for Class II and Class III railroads to reduce 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 Class 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. On January 2, 2013, the Short Line Tax Credit (which had previously expired on December 31,
2011) was extended for 2012 and 2013. The most recent extension of the Short Line Tax Credit only extended the
credit through December 31, 2013. If the Short Line Tax Credit is not extended for additional tax years, the loss of
the credit will increase our tax rate and reduce our earnings per share.
30
If the earnings of our controlled foreign subsidiaries were required to be distributed, our effective tax rate could
be higher.
We file a consolidated United States federal income tax return that includes all of our United States
subsidiaries. Each of our foreign subsidiaries files income tax returns in each of its respective countries. No
provision is made for the United States income taxes applicable to the undistributed earnings of our controlled
foreign subsidiaries. The amount of those earnings was $268.9 million as of December 31, 2013. Although it is our
current intention to fully utilize those earnings in the operations of our controlled foreign subsidiaries, if the
earnings were to be distributed in the future, those distributions may be subject to United States income taxes
(appropriately reduced by available foreign tax credits) and withholding taxes payable to various foreign countries,
and could result in a higher effective tax rate for us, thereby reducing our earnings. See “Part II Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Cash Repatriation” for additional information.
Non-U.S. holders who own or owned more than a certain ownership threshold may be subject to United States
federal income tax on gains realized on the disposition of the shares of our Class A common stock.
It is possible that we are a United States real property holding corporation currently or will become one in the
future for United States federal income tax purposes. If we are or become a United States real property holding
corporation, so long as our Class A common stock continues to be regularly traded on an established securities
market, only a non-U.S. holder (i.e., a holder that is not a United States citizen or resident, a corporation or
partnership organized under the laws of the United States or any state thereof and certain trusts and estates) who
holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holder's
holding period) more than 5% of our Class A common stock will be subject to United States federal income tax on
the disposition of our Class A common stock. Non-U.S. holders should consult their own tax advisors concerning
the consequences of disposing of shares of our Class A common stock.
ITEM 1B. Unresolved Staff Comments.
None.
31
ITEM 2.
Properties.
Genesee & Wyoming, through our subsidiaries, currently has interests in 111 freight railroads. Of these, 109
are short line railroads and one is a regional freight railroad, including 101 located in the United States, seven
located in Canada, one located in Australia and one located in the Netherlands and Belgium. We also operate the
Tarcoola to Darwin rail line, which links the Port of Darwin to the Australian interstate rail network in South
Australia. These rail properties typically consist of the track and the underlying land. Real estate adjacent to the
railroad rights-of-way is generally owned by others, and our holdings of such real estate are not material. Similarly,
sellers typically retain 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 or the underlying land.
Our railroads operate over approximately 14,700 miles of track that is owned, jointly owned or leased by us,
which includes the Tarcoola to Darwin rail line that we manage under a concession agreement that expires in 2054.
Several of our railroads are operated pursuant to lease agreements that will expire in the next few years and may not
be extended. Leases from Class I railroads and other third parties that could expire in each of the next 10 years
would represent less than 2% of our annual revenues in the year of expiration, based on our operating revenues for
the year ended December 31, 2013. For additional information on these lease expirations see “Part I. Item 1A. Risk
Factors” of this Annual Report. We also operate, through various trackage and operating rights agreements, over
approximately 3,300 additional miles of track that are owned or leased by others under contractual track access
arrangements. The track miles listed below exclude approximately 1,750 miles of sidings and yards, which includes
1,520 miles in the United States, 160 miles in Canada and 70 miles in Australia. Track miles owned by others, but
available to us, under open access regimes in Australia, the Netherlands and Belgium are also excluded. During
2013, we recorded mortgages on many of the owned properties described in the table below as additional security
for our outstanding obligations under our Credit Agreement. See “Part I Item 1A. Risk Factors” for additional
information on our Credit Agreement.
The following table sets forth certain information as of December 31, 2013, with respect to our railroads:
RAILROAD AND LOCATION
NORTH AMERICAN AND EUROPEAN OPERATIONS
UNITED STATES:
Genesee and Wyoming Railroad Company
(GNWR) New York (1)
The Dansville and Mount Morris Railroad Company
(DMM) New York (1)
Rochester & Southern Railroad, Inc.
(RSR) New York (1)
Louisiana & Delta Railroad, Inc.
(LDRR) Louisiana
Buffalo & Pittsburgh Railroad, Inc.
(BPRR) New York, Pennsylvania (2) (3) (4)
Allegheny & Eastern Railroad, LLC
(ALY) Pennsylvania (2)
Bradford Industrial Rail, Inc.
(BR) Pennsylvania (3)
Willamette & Pacific Railroad, Inc.
(WPRR) Oregon
Portland & Western Railroad, Inc.
(PNWR) Oregon
Pittsburg & Shawmut Railroad, LLC
(PS) Pennsylvania (4)
Illinois & Midland Railroad, Inc.
(IMRR) Illinois
Commonwealth Railway, Incorporated
(CWRY) Virginia
Talleyrand Terminal Railroad Company, Inc.
(TTR) Florida
32
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
1899
1985
1986
1987
1988
1992
1993
1993
1995
1996
1996
1996
1996
27
8
58
86
368
128
4
178
288
108
97
24
2
Owned
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
RAILROAD AND LOCATION
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, Vermont
York Railway Company
(YRC) Pennsylvania
Utah Railway Company
(UTAH) Utah
Salt Lake City Southern Railroad Company, Inc.
(SLCS) Utah
Chattahoochee Industrial Railroad
(CIRR) Georgia
Arkansas Louisiana & Mississippi Railroad Company
(ALM) Arkansas, Louisiana
Fordyce and Princeton R.R. Co.
(FP) Arkansas
Tazewell & Peoria Railroad, Inc.
(TZPR) Illinois
Golden Isles Terminal Wharf
(GITW) Georgia
First Coast Railroad Inc.
(FCRD) Florida, Georgia
AN Railway, L.L.C.
(AN) Florida
Atlantic & Western Railway, Limited Partnership
(ATW) North Carolina
The Bay Line Railroad, L.L.C.
(BAYL) Alabama, Florida
East Tennessee Railway, L.P.
(ETRY) Tennessee
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, LLC
(RSOR) Georgia
Tomahawk Railway, Limited Partnership
(TR) Wisconsin
Valdosta Railway, L.P.
(VR) Georgia
Western Kentucky Railway, L.L.C.
(WKRL) Kentucky
Wilmington Terminal Railroad, Limited Partnership
(WTRY) North Carolina
Chattahoochee Bay Railroad, Inc.
(CHAT) Alabama, Georgia
Maryland Midland Railway, Inc.
(MMID) Maryland
Chattooga & Chickamauga Railway Co.
(CCKY) Georgia
33
YEAR
ACQUIRED
TRACK
MILES
1997
1998
1998
2001
2002
2002
2002
2002
2003
2003
2003
2004
2004
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2006
2007
2008
42
13
18
54
143
42
41
2
15
53
57
24
6
32
96
10
108
4
39
171
69
79
147
18
6
10
—
17
26
70
49
STRUCTURE
Leased
Owned/Leased
Leased
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Owned
Owned/Leased
Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Leased
RAILROAD AND LOCATION
Luxapalila Valley Railroad, Inc.
(LXVR) Alabama, Mississippi
Columbus and Greenville Railway Company
(CAGY) Mississippi
The Aliquippa & Ohio River Railroad Co.
(AOR) Pennsylvania
The Columbus & Ohio River Rail Road Company
(CUOH) Ohio
The Mahoning Valley Railway Company
(MVRY) Ohio
Ohio Central Railroad, Inc.
(OHCR) Ohio
Ohio and Pennsylvania Railroad Company
(OHPA) Ohio
Ohio Southern Railroad, Inc.
(OSRR) Ohio
The Pittsburgh & Ohio Central Railroad Company
(POHC) Pennsylvania
The Warren & Trumbull Railroad Company
(WTRM) Ohio
Youngstown & Austintown Railroad Inc.
(YARR) Ohio
The Youngstown Belt Railroad Company
(YB) Ohio
Georgia Southwestern Railroad, Inc.
(GSWR) Alabama, Georgia
Arizona Eastern Railway Company
(AZER) Arizona, New Mexico
Hilton & Albany Railroad, Inc.
(HAL) Georgia
Columbus & Chattahoochee Railroad, Inc.
(CCH) Alabama
Alabama & Gulf Coast Railway LLC
(AGR) Alabama, Mississippi, Florida
Arizona & California Railroad Company
(ARZC) Arizona, California
Bauxite & Northern Railway Company
(BXN) Arkansas
California Northern Railroad Company
(CFNR) California
Carolina Piedmont Railroad
(CPDR) South Carolina
Cascade and Columbia River Railroad Company
(CSCD) Washington
Central Oregon & Pacific Railroad, Inc.
(CORP) Oregon, California
The Central Railroad Company of Indiana
(CIND) Indiana, Ohio
Central Railroad Company of Indianapolis
(CERA) Indiana
Chesapeake and Albermarle Railroad
(CA) North Carolina, Virginia
Chicago, Fort Wayne & Eastern Railroad
(CFE) Indiana, Ohio
Conecuh Valley Railway, L.L.C.
(COEH) Alabama
Connecticut Southern Railroad, Inc.
(CSO) Connecticut
Dallas, Garland & Northeastern Railroad, Inc.
(DGNO) Texas
Eastern Alabama Railway, LLC
(EARY) Alabama
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2011
2011
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
34
151
6
247
6
70
3
18
35
4
5
14
231
200
56
26
283
190
5
210
28
131
305
82
43
68
281
13
23
168
26
Owned
Owned
Owned
Owned/Leased
Owned
Owned/Leased
Owned
Owned
Owned
Leased
Leased
Owned
Owned/Leased
Owned
Leased
Leased
Owned/Leased
Owned
Owned
Leased
Owned
Owned
Owned/Leased
Owned
Owned/Leased
Leased
Owned/Leased
Owned
Owned/Leased
Owned/Leased
Owned
34
RAILROAD AND LOCATION
Grand Rapids Eastern Railroad
(GR) Michigan
Huron and Eastern Railway Company, Inc.
(HESR) Michigan
Indiana & Ohio Railway Company
(IORY) Indiana, Ohio, Michigan
Indiana Southern Railroad, LLC
(ISRR) Indiana
Kiamichi Railroad Company L.L.C.
(KRR) Oklahoma, Arizona, Texas
Kyle Railroad Company
(KYLE) Colorado, Kansas
Marquette Rail LLC
(MQT) Michigan
The Massena Terminal Railroad Company
(MSTR) New York
Michigan Shore Railroad, Inc.
(MS) Michigan
Mid-Michigan Railroad, Inc.
(MMRR) Michigan
Missouri & Northern Arkansas Railroad Company, Inc.
(MNA) Arizona, Missouri, Kansas
New England Central Railroad, Inc.
(NECR) Vermont, New Hampshire, Massachusetts, Connecticut
North Carolina & Virginia Railroad Company L.L.C.
(NCVA) North Carolina, Virginia
Otter Tail Valley Railroad Company, Inc.
(OTVR) Minnesota
Point Comfort & Northern Railway Company
(PCN) Texas
Puget Sound & Pacific Railroad
(PSAP) Washington
Rockdale, Sandow & Southern Railroad Company
(RSS) Texas
San Diego & Imperial Valley Railroad Company, Inc.
(SDIY) California
San Joaquin Valley Railroad Co.
(SJVR) California
South Carolina Central Railroad Company, LLC
(SCRF) South Carolina
Texas Northeastern Railroad
(TNER) Texas
Three Notch Railway, L.L.C.
(TNHR) Alabama
Toledo, Peoria & Western Railway Corp.
(TPW) Illinois, Indiana
Ventura County Railroad Company
(VCRR) California
Wellsboro & Corning Railroad, LLC
(WCOR) Pennsylvania, New York
Wiregrass Central Railway, L.L.C.
(WGCR) Alabama
CANADA:
Huron Central Railway Inc.
(HCRY) Ontario
Quebec Gatineau Railway Inc.
(QGRY) Quebec
St. Lawrence & Atlantic Railroad (Quebec) Inc.
(SLQ) Quebec
Cape Breton & Central Nova Scotia Railway Limited
(CBNS) Nova Scotia
35
YEAR
ACQUIRED
TRACK
MILES
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
1997
1997
2002
2012
STRUCTURE
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Owned
Owned
22
306
469
166
264
505
128
3
4
82
483
324
53
67
14
135
Owned/Leased
4
1
Owned
Leased
297
Owned/Leased
47
67
34
Owned
Leased
Owned
178
Owned/Leased
9
35
20
173
303
95
242
Leased
Leased
Owned
Owned/Leased
Owned/Leased
Owned
Owned
RAILROAD AND LOCATION
Goderich-Exeter Railway Company Limited
(GEXR) Ontario
Ottawa Valley Railway
(OVR) Ontario, Quebec
Southern Ontario Railway
(SOR) Ontario
EUROPE:
Rotterdam Rail Feeding, B.V. (RRF)
AUSTRALIAN OPERATIONS
AUSTRALIA:
Genesee & Wyoming Australia Pty Ltd (GWA)
GWA (North) Pty Ltd (GWA North)
(1) The GNWR and DMM are now operated by RSR
(2) ALY merged with BPRR in January 2004
(3) BR merged with BPRR in January 2004
(4) PS merged with BPRR in January 2004
YEAR
ACQUIRED
TRACK
MILES
2012
2012
2012
184
157
46
STRUCTURE
Owned/Leased
Leased
Leased
2008
—
Open Access
2006
2010
791
1,395
Leased/
Open Access
Leased/Open
Access
As of December 31, 2013, our rolling stock consisted of 1,041 locomotives, of which 941 were owned and
100 were leased, and 21,622 railcars, of which 3,904 were owned and 17,718 were leased. A breakdown of the types
of railcars owned and leased by us is set forth in the table below:
EQUIPMENT
Railcars by Car Type:
Box
Hoppers
Flats
Covered hoppers
Gondolas
Tank cars
Maintenance of way
Crew cars
Other
Owned
Leased
Total
970
1,212
854
341
295
17
161
13
41
3,904
8,545
3,734
1,333
2,329
1,659
117
—
1
—
17,718
9,515
4,946
2,187
2,670
1,954
134
161
14
41
21,622
ITEM 3.
Legal Proceedings.
From time to time, we are a defendant in certain lawsuits resulting from our operations in the ordinary course.
Management believes there are adequate provisions in the financial statements for any probable liabilities that may
result from disposition of the pending lawsuits. Based upon currently available information, we do not believe it is
reasonably possible that any such lawsuit or related lawsuits would be material to our results of operations or have a
material adverse effect on our financial position or liquidity.
ITEM 4. Mine Safety Disclosures.
Not applicable.
36
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our Class A common stock publicly trades on the NYSE under the trading symbol “GWR.” The tables below
present quarterly information on the price range of our Class A common stock. This information indicates the high
and low closing sales prices for each recent fiscal quarter reported by the NYSE. Our Class B common stock is not
publicly traded.
Year Ended December 31, 2013
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Year Ended December 31, 2012
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Number of Holders
High
Low
$
$
$
$
$
$
$
$
101.77
94.84
92.60
94.14
High
76.28
67.92
58.15
66.09
$
$
$
$
$
$
$
$
Low
91.66
84.78
79.84
79.72
67.32
52.27
48.08
54.56
On February 20, 2014, there were 170 Class A common stock record holders and 18 Class B common stock
record holders.
Dividends
We did not pay cash dividends to our Class A or Class B common stockholders in the years ended
December 31, 2013 and 2012. We do not intend to pay cash dividends to our common stockholders for the
foreseeable future and intend to retain earnings, if any, for future operation and expansion of our business. Any
determination to pay dividends to our common stockholders in the future will be at the discretion of our Board of
Directors and subject to applicable law and any restrictions contained in our Credit Agreement.
In connection with the funding of the RailAmerica acquisition in 2012, we sold $350.0 million of Series A-1
Preferred Stock with an effective 5% coupon (Preferred Stock) to affiliates of Carlyle Partners V, L.P. (collectively,
Carlyle). We paid $2.1 million and $4.4 million of Preferred Stock dividends in 2013 and 2012, respectively. On
February 13, 2013, we converted all of the outstanding Preferred Stock issued to Carlyle into 5,984,232 shares of
our Class A common stock. In November 2013, Carlyle sold all of these outstanding shares of our Class A common
stock in a public offering.
For more information on contractual restrictions on our ability to pay dividends, see “Part II Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Credit Agreement.”
Securities Authorized for Issuance Under Equity Compensation Plans
See “Part III Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” for information about securities authorized for issuance under our equity compensation plan.
Recent Sales of Unregistered Securities
None.
37
Issuer Purchases of Equity Securities
2013
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
(a) Total Number
of Shares
(or Units)
Purchased (1)
(b) Average Price
Paid per Share
(or Unit)
1,708
$
75
1,017
2,800
$
94.74
94.63
95.41
94.98
(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 or
Programs
—
—
—
—
(1) The 2,800 shares acquired in the three months ended December 31, 2013 represent Class A common stock acquired by
us from our employees who surrendered shares in lieu of cash to pay taxes on equity awards made under our Second
Amended and Restated 2004 Omnibus Incentive Plan.
ITEM 6.
Selected Financial Data.
The following selected consolidated income statement and consolidated balance sheet data of Genesee &
Wyoming as of and for the years ended December 31, 2013, 2012, 2011, 2010 and 2009, are derived from our
consolidated financial statements. All of the information should be read in conjunction with the consolidated
financial statements and related notes included in “Part IV Item 15. Exhibits, Financial Statement Schedules” and
“Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this
Annual Report.
Because of variations in the structure, timing and size of acquisitions and dispositions, our results of
operations in any reporting period may not be directly comparable to our results of operations in other reporting
periods. For financial information with respect to our principles of consolidation and basis of presentation, see
Note 2, Significant Accounting Policies, to our Consolidated Financial Statements, and for a complete description of
our most recent acquisitions and dispositions, see Note 3, Changes in Operations, to our Consolidated Financial
Statements, in each case, included within “Part IV Item 15. Exhibits, Financial Statement Schedules” of this Annual
Report.
38
INCOME STATEMENT DATA:
Operating revenues
Operating expenses:
RailAmerica acquisition-related costs
RailAmerica integration costs
All other operating expenses
Income from operations
Gain on sale of investments
Interest income
Interest expense
Contingent forward sale contract mark-to-market
expense
Other income/(expense), net
Income from continuing operations before income taxes
Provision for income taxes
Income from equity investment in RailAmerica, net
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
Less: Series A-1 Preferred Stock dividend
Less: Net income attributable to noncontrolling interest
Net income available to common stockholders
Basic earnings per common share attributable to
Genesee & Wyoming Inc. common stockholders:
Basic earnings per common share from continuing
operations
Basic earnings per common share from
discontinued operations
Weighted average shares—Basic
Diluted earnings per common share attributable to
Genesee & Wyoming Inc. common stockholders:
Diluted earnings per common share from
continuing operations
Diluted earnings per common share from
discontinued operations
Weighted average shares—Diluted
BALANCE SHEET DATA AT YEAR-END:
Total assets
Long-term debt and capital leases (excluding portion
due within one year)
Series A-1 Preferred Stock
Total equity
2013 (1)
Year Ended December 31,
2011 (3)
(In thousands, except per share amounts)
2010 (4)
2012 (2)
2009 (5)
$ 1,569,011
$ 874,916
$ 829,096
$ 630,195
$ 544,866
360
16,675
1,171,788
380,188
—
3,971
(67,894)
—
2,122
318,387
(46,296)
—
272,091
—
272,091
2,139
795
$ 269,157
$
18,592
11,452
654,550
190,322
—
3,725
(62,845)
(50,106)
2,182
83,278
(46,402)
15,557
52,433
—
52,433
4,375
—
48,058
—
—
637,317
191,779
907
3,243
(38,617)
—
703
158,015
(38,531)
—
119,484
—
119,484
—
—
$ 119,484
$
—
—
499,785
130,410
—
2,397
(23,147)
—
(827)
108,833
(30,164)
—
78,669
2,591
81,260
—
—
81,260
$
$
$
$
5.00
$
1.13
$
2.99
$
2.02
— $
— $
— $
53,788
42,693
39,912
0.07
38,886
4.79
$
1.02
$
2.79
$
1.88
— $
— $
— $
56,679
51,316
42,772
0.06
41,889
—
—
445,544
99,322
391
1,065
(26,902)
—
2,115
75,991
(15,916)
—
60,075
1,398
61,473
—
146
61,327
1.66
0.04
36,146
1.54
0.04
38,974
$
$
$
$
$
$ 5,319,821
$ 5,226,115
$ 2,294,157
$ 2,067,560
$ 1,697,032
$ 1,540,346
$
$ 2,149,070
$ 1,770,566
— $ 399,524
$ 1,500,462
$ 569,026
$
$ 960,634
$ 475,174
— $
— $
$ 817,240
$ 421,616
—
$ 688,877
(1) On February 13, 2013, we exercised our option to convert all of the outstanding Series A-1 Preferred Stock issued to Carlyle
in conjunction with the RailAmerica acquisition into 5,984,232 shares of our Class A common stock. On the conversion
date, we also paid to Carlyle cash in lieu of fractional shares and all accrued and unpaid dividends on the Series A-1
Preferred Stock totaling $2.1 million.
(2) On October 1, 2012, we acquired 100% of RailAmerica for approximately $2.0 billion (equity purchase price of
approximately $1.4 billion, or $27.50 per share, plus the payoff of RailAmerica's debt of $659.2 million). The shares of
RailAmerica were held in a voting trust while the STB considered our control application, which application was approved
with an effective date of December 28, 2012. Accordingly, we accounted for the earnings of RailAmerica using the equity
method of accounting while the shares were held in the voting trust and our preliminary determination of fair values of the
acquired assets and assumed liabilities were included in our consolidated balance sheet at December 31, 2012.
(3) On September 1, 2011, we acquired the stock of AZER with net assets of $90.3 million.
(4) On December 1, 2010, we acquired $320.0 million of net assets from FreightLink. In 2010, we incurred $28.2 million of
acquisition-related expenses charged to earnings related to this transaction. In addition, we reversed $2.3 million of accrued
restructuring expense related to our Huron Central Railway Inc. (HCRY).
(5) In 2009, we acquired the 12.6% interest in Maryland Midland Railway, Inc. that we did not already own for $4.4 million. In
addition, with respect to HCRY, we recorded a non-cash write-down of non-current assets of $6.7 million and $2.3 million
of restructuring expense, which were partially offset by a tax benefit of $3.6 million.
39
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. Our consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP). G&W acquired RailAmerica on October 1,
2012. Because of the significance of charges related to the RailAmerica acquisition and other matters described herein, in
addition to disclosing results for the years ended December 31, 2013, 2012 and 2011, respectively, that are determined in
accordance with U.S. GAAP, we also disclose non-GAAP financial measures that exclude these charges from net income,
diluted earnings per share, income from operations and operating ratio. We are presenting non-GAAP financial measures
excluding these items because we believe it is useful for investors in assessing our financial results compared with the same
period in the prior year. Within the text, in connection with each non-GAAP financial measure presented, we have presented
the most directly comparable financial measure calculated in accordance with U.S. 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 U.S. GAAP.
Outlook for 2014
Safety
Operating a safe railroad benefits our employees, our customers, our shareholders and the communities we serve. We
have led the railroad industry in safety for the past five years and our goal for 2014 is an injury frequency ratio of 0.45
reportable injuries per 200,000 man hours.
Financial Expectations
We expect growth in our revenues and income due to increases in traffic across most of our commodity groups. In
particular, we anticipate growth in petroleum products traffic due to higher volumes of crude oil and liquefied petroleum gas
and the full year impact of an Australian iron ore project that ramped up during 2013. We also expect growth in our income
from the pending acquisition of the assets comprising the western end of the DM&E and from the full year impact of
RailAmerica operating cost synergies that were partially realized in 2013 as the company was being integrated. We expect
that this growth in our revenues and income will be partially offset by the negative currency translation impact of the weaker
Canadian and Australian dollars on the results of our operations in those countries. We expect our free cash flow in 2014 to
increase primarily from an increase in cash from operations.
Capital Plan
We expect to make capital investments totaling $267 million in 2014. Of this total, $168 million is planned for ongoing
railroad track and equipment capital, $15 million is planned for matching capital spending associated with government grant
funded projects in seven operating regions (Pacific, Northeast, Canada, Ohio Valley, Southern, Midwest and Rail Link) and
$31 million is planned for specific 2014 projects, including certain track upgrades and locomotive lease buyouts. In addition,
we expect to spend $53 million on business development related capital, primarily the construction of a new rail spur in
Canada and track improvements in Australia associated with a long-term contract extension.
United States Short Line Tax Credit
The United States Short Line Tax Credit, from which we have benefited since 2005, expired on December 31,
2013. Without an extension to the tax credit, we expect our income tax rate to increase significantly in 2014. While the Short
Line Tax Credit has been extended on three separate occasions in the past with retroactive benefits, and there is significant
bipartisan support for another extension in 2014, we are unable to predict the outcome of the United States legislative
process.
Corporate and Business Development
We continue to work on a number of potential projects located across the geographic markets in which we currently
operate. For example, in Australia, we will continue to work on additional bulk minerals export projects. In the United States,
with the expanded rail footprint provided by the RailAmerica acquisition, our industrial development is focused on the goal
of adding new customers and/or facilities to our railroads. Specific areas of focus will be on shale oil and gas related projects,
as well as, other growth sectors such as agriculture, natural resources and bio-energy.
40
Overview
We own and operate short line and regional freight railroads and provide railcar switching and other rail-related services
in the United States, Australia, Canada, the Netherlands and Belgium. In addition, we operate the Tarcoola to Darwin rail
line, which links the Port of Darwin to the Australian interstate rail network in South Australia. Our operations currently
include 111 railroads organized into 11 regions, with approximately14,700 miles of owned, jointly owned or leased track and
approximately 3,300 additional miles under contractual track access arrangements. In addition, we provide rail service at 35
ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial
customers.
On January 2, 2014, we and Canadian Pacific (CP) jointly announced our entry into an agreement pursuant to which we
will purchase the assets comprising the western end of CP's Dakota, Minnesota & Eastern (DM&E) rail line for a cash
purchase price of approximately $210 million, subject to certain adjustments including the purchase of materials and
supplies, equipment and vehicles. We intend to fund the acquisition with borrowings under our existing Credit Agreement.
The acquisition is more fully described in Note 21, Subsequent Events, to our Consolidated Financial Statements included
elsewhere in this Annual Report.
The asset acquisition is expected to close by mid-2014, subject to approval of the STB and the satisfaction of other
customary closing conditions. Upon closing, our new railroad will be named Rapid City, Pierre & Eastern Railroad. We
expect to hire approximately 180 employees to staff the new railroad and anticipate these employees will come primarily
from those currently working on the rail line.
The western end encompasses approximately 670 miles of CP's current operations between Tracy, Minnesota and Rapid
City, South Dakota; north of Rapid City to Colony, Wyoming; south of Rapid City to Dakota Junction, Nebraska; and
connecting branch lines as well as trackage from Dakota Junction to Crawford, Nebraska, currently leased to the Nebraska
Northwestern Railroad (NNW). Customers on the line ship approximately 52,000 carloads annually of grain, bentonite clay,
ethanol, fertilizer and other products. The new rail operation will have the ability to interchange with CP, Union Pacific,
BNSF and NNW.
On October 1, 2012, we completed the acquisition of RailAmerica for $2.0 billion (equity purchase price of $1.4 billion
plus net debt of $659.2 million). The shares of RailAmerica were held in a voting trust while the STB considered our control
application, which application was approved with an effective date of December 28, 2012. Accordingly, we accounted for the
earnings of RailAmerica using the equity method of accounting while the shares were held in the voting trust and our
preliminary determination of fair values of the acquired assets and assumed liabilities were included in our consolidated
balance sheet at December 31, 2012. The first quarter of 2013 was the first full reporting period in which we controlled the
former RailAmerica railroads. For additional information regarding RailAmerica, see “Changes in Operations—United States
—RailAmerica” below.
Net income in the year ended December 31, 2013 was $272.1 million, compared with net income of $52.4 million in
the year ended December 31, 2012. Excluding the impact of the significant items listed in the table below of $30.1 million for
the year ended December 31, 2013 and $77.3 million for the year ended December 31, 2012, net income in the year ended
December 31, 2013 would have been $242.0 million, compared with net income of $129.7 million in the year ended
December 31, 2012.
Included in our net income for the year ended December 31, 2013 was a $41.0 million benefit associated with the
retroactive extension of the United States Short Line Tax Credit for fiscal year 2012, which was signed into law on January 2,
2013. Excluding the $41.0 million retroactive benefit, our provision for income tax was $87.2 million for the year ended
December 31, 2013, which represented 27.4% of income before income taxes. Included in our income before income taxes
for the year ended December 31, 2012 was a $50.1 million mark-to-market expense associated with a contingent forward sale
contract, which is a non-deductible expense for income tax purposes. See Note 10, Derivative Financial Instruments, to our
Consolidated Financial Statements included elsewhere in this Annual Report for further details on the contingent forward sale
contract. Excluding the $50.1 million mark-to-market expense, our provision for income tax was $46.4 million for the year
ended December 31, 2012, which represented 34.8% of income before taxes. The decrease in the effective income tax rate for
the year ended December 31, 2013 as compared with the year ended December 31, 2012 was primarily attributable to the
renewal of the United States Short Line Tax Credit through December 31, 2013. The extension of the United States Short
Line Tax Credit produced book income tax benefits of $25.9 million (or $0.46 per share) and $41.0 million (or $0.72 per
share) for fiscal years 2013 and 2012, respectively. Since the extension became law in 2013, the 2012 impact was recorded in
the first quarter of 2013.
41
Our diluted EPS attributable to our common stockholders in the year ended December 31, 2013 were $4.79 with 56.7
million weighted average shares outstanding, compared with diluted EPS attributable to our common stockholders of $1.02
with 51.3 million weighted average shares outstanding in the year ended December 31, 2012. Excluding the impact of the
significant items listed in the table below of $0.53 for the year ended December 31, 2013 and $1.51 for the year ended
December 31, 2012, adjusted diluted EPS for the year ended December 31, 2013 was $4.26 with 56.7 million weighted
average shares outstanding, compared with adjusted diluted EPS of $2.53 with 51.3 million weighted average shares
outstanding for the year ended December 31, 2012. Excluding the impact of the significant items listed in the table below of
$0.53 as well as the $0.46 benefit from the United States Short Line Tax Credit for fiscal year 2013, adjusted diluted EPS for
the year ended December 31, 2013 would have been $3.80.
Our results in the years ended December 31, 2013 and 2012 included certain significant items that are set forth below
(dollars in millions, except per share amounts):
2013
RailAmerica integration/acquisition costs
Business development and financing costs
Net (gain)/loss on sale and impairment of assets
Retroactive Short Line Tax Credit for 2012
Impact of 2013 Short Line Tax Credit
Valuation allowance on FTC
2012
RailAmerica integration/acquisition costs
Business development and financing costs
Acquisition/integration costs incurred by RailAmerica
Gain on insurance recoveries
Net (gain)/loss on sale and impairment of assets
Contract termination expense in Australia
Contingent forward sale contract mark-to-market expense
Income/(Loss)
Before Taxes
Impact
After-Tax Net
Income/(Loss)
Impact
Diluted Earnings/
(Loss) Per
Common Share
Impact
$
$
$
$
$
$
$
$
$
$
$
$
$
(17.0) $
(2.2) $
$
4.7
— $
— $
— $
(29.5) $
(18.1) $
— $
0.8
11.2
$
$
(1.1) $
(50.1) $
(10.7) $
(1.4) $
$
3.2
41.0
$
25.9
$
(2.0) $
(21.0) $
(11.0) $
(3.5) $
0.5
8.6
$
$
(0.8) $
(50.1) $
(0.19)
(0.03)
0.06
0.72
0.46
(0.03)
(0.41)
(0.21)
(0.07)
0.01
0.17
(0.02)
(0.98)
Operating revenues increased $694.1 million, or 79.3%, to $1.6 billion in the year ended December 31, 2013, compared
with $874.9 million in the year ended December 31, 2012. The increase in our operating revenues included $635.2 million in
revenues from new operations and a $58.9 million, or 6.7%, increase in revenues from existing operations. When we discuss
a change in existing operations or same railroad, we are referring to the period-over-period change associated with operations
that we managed in both periods (i.e., excluding the impact of businesses acquired/initiated, such as those railroads acquired
in the RailAmerica acquisition).
Our traffic in the year ended December 31, 2013 was 1,886,012 carloads, an increase of 958,918 carloads, or 103.4%,
compared with the year ended December 31, 2012. The traffic increase included 909,768 carloads from new operations.
Existing operations increased 49,150 carloads, or 5.3%. To provide comparative context for 2013 consolidated traffic
volumes, we are providing a “Combined Company” comparison as though the RailAmerica railroads were owned by us
during 2012. In doing so, we have reclassified RailAmerica's 2012 information to conform with our presentation. On a
Combined Company basis, traffic increased 117,301 carloads, or 6.6%, compared with traffic in the year ended December 31,
2012. Carloads from existing operations increased by 103,174 carloads, or 5.8%, and new operations contributed 14,127
carloads. The same railroad traffic increase was principally due to increases of 26,943 carloads of petroleum products traffic
(primarily in the Pacific Region), 20,620 carloads of metallic ores traffic (primarily in the Australia Region), 16,209 carloads
of coal and coke traffic (primarily in the Midwest Region), 7,534 carloads of lumber and forest products traffic (primarily in
the Pacific and Northeast regions), 7,177 carloads of metals traffic (primarily in the Northeast and Southern regions), 6,960
carloads of intermodal traffic (primarily in the Australia and Canada regions) and 5,168 carloads of autos and auto parts
traffic (primarily in the Ohio Valley and Pacific regions). All remaining traffic increased by a net 12,563 carloads.
42
Income from operations in the year ended December 31, 2013 increased $189.9 million, or 99.8%, to $380.2 million,
compared with $190.3 million in the year ended December 31, 2012. Excluding the impact of the significant items listed in
the previous table of $13.9 million and $20.9 million in the years ended December 31, 2013 and 2012, respectively, adjusted
income from operations for the year ended December 31, 2013 was $394.1 million, compared with adjusted income from
operations of $211.2 million in the year ended December 31, 2012. Our operating ratio was 75.8% in the year ended
December 31, 2013, compared with an operating ratio of 78.2% in the year ended December 31, 2012. Excluding the impact
of the significant items listed in the table above, our adjusted operating ratio was 74.9% in the year ended December 31,
2013, compared with an adjusted operating ratio of 75.9% in the year ended December 31, 2012.
During the year ended December 31, 2013, we generated $413.5 million in cash flows from operating activities. During
the same period, we purchased $249.3 million of property and equipment, including $34.2 million for new business
investments. These payments were partially offset by $33.9 million in cash received from government grants and other
outside parties for capital spending and $6.7 million in proceeds from the disposition of property and equipment. We also
repaid $209.3 million of outstanding debt.
Changes in Operations
United States
RailAmerica, Inc.: On October 1, 2012, we acquired 100% of RailAmerica's outstanding shares for cash at a price of
$27.50 per share and, in connection with such acquisition, we repaid RailAmerica's term loan and revolving credit facility.
The calculation of the total consideration for the RailAmerica acquisition is presented below (in thousands, except per share
amount):
RailAmerica outstanding common stock as of October 1, 2012
Cash purchase price per share
Equity purchase price
Payment of RailAmerica's outstanding term loan and revolving credit facility
Cash consideration
Impact of pre-acquisition share-based awards
Total consideration
$
$
49,934
27.50
1,373,184
659,198
2,032,382
9,400
$
2,041,782
We financed the $1.4 billion cash purchase price for RailAmerica's common stock, the refinancing of $1.2 billion of
G&W's and RailAmerica's outstanding debt prior to the acquisition as well as transaction and financing-related expenses with
$1.9 billion of debt from a new five-year Senior Secured Syndicated Credit Facility Agreement (the Credit Agreement) (see
Note 9, Long-Term Debt, to our Consolidated Financial Statements included elsewhere in this Annual Report), $475.5
million of gross proceeds from the public offerings of our Class A common stock and Tangible Equity Units (TEUs) (see
Note 4, Earnings Per Common Share, to our Consolidated Financial Statements included elsewhere in this Annual Report)
and $350.0 million through a private issuance of Preferred Stock to Carlyle. (See Note 4, Earnings Per Common Share, and
Note 10, Derivative Financial Instruments, to our Consolidated Financial Statements included elsewhere in this Annual
Report).
Commencing on October 1, 2012, the shares of RailAmerica were held in an independent voting trust while the STB
considered our control application, which application was approved with an effective date of December 28, 2012.
Accordingly, we accounted for the earnings of RailAmerica using the equity method of accounting while the shares were held
in the voting trust and our acquisition date fair values of the acquired assets and assumed liabilities have been included in our
consolidated balance sheets since December 28, 2012. The results from RailAmerica's operations are included among the
various line items in our consolidated statement of operations for the year ended December 31, 2013 and are included in our
North American & European Operations segment.
In accordance with U.S. GAAP, a new accounting basis was established for RailAmerica on October 1, 2012 for its
stand-alone financial statements. Condensed consolidated financial information for RailAmerica as of and for the period
ended December 28, 2012 is included in Note 8, Equity Investment, to our Consolidated Financial Statements included
elsewhere in this Annual Report.
43
During the year ended December 31, 2012, as discussed more fully under Contingent Forward Sale Contract in Note 10,
Derivative Financial Instruments, to our Consolidated Financial Statements included elsewhere in this Annual Report, we
recorded a $50.1 million non-cash mark-to-market expense related to an investment agreement governing the sale of the
Series A-1 Preferred Stock to Carlyle in connection with the funding of the RailAmerica acquisition (the Investment
Agreement). The expense resulted from the significant increase in G&W's share price between July 23, 2012 (the date we
entered into the Investment Agreement) and September 28, 2012 (the last trading date prior to issuing the Preferred Stock).
On February 13, 2013, we exercised our option to convert all of the outstanding Series A-1 Preferred Stock into 5,984,232
shares of our Class A common stock.
We also incurred $17.0 million and $30.0 million of RailAmerica integration and acquisition-related costs during the
years ended December 31, 2013 and 2012, respectively. We recognized $15.6 million of net income from our equity
investment in RailAmerica during the three months ended December 31, 2012. The income from our equity investment
included $3.5 million of after-tax acquisition/integration costs incurred by RailAmerica in the three months ended December
31, 2012.
Headquartered in Jacksonville, Florida with approximately 2,000 employees, RailAmerica owned and operated 45 short
line freight railroads in North America with approximately 7,100 miles of track in 28 U.S. states and three Canadian
provinces as of the October 1, 2012 acquisition date.
Columbus & Chattahoochee Railroad, Inc.: In April 2012, our newly formed subsidiary, Columbus &
Chattahoochee Railroad, Inc. (CCH), signed an agreement with Norfolk Southern Railway Company (NS) to lease and
operate a 26-mile segment of NS track that runs from Girard, Alabama to Mahrt, Alabama. Operations commenced on July 1,
2012. CCH interchanges with NS in Columbus, Georgia where our Georgia Southwestern Railroad, Inc. also has operations.
The results from CCH’s operations have been included in our consolidated statements of operations since July 1, 2012 and
are included in our North American & European Operations segment.
Hilton & Albany Railroad, Inc.: In November 2011, our newly formed subsidiary, Hilton & Albany Railroad, Inc.
(HAL), signed an agreement with NS to lease and operate a 56-mile segment of NS track that runs from Hilton, Georgia to
Albany, Georgia. Operations commenced on January 1, 2012. HAL handles primarily overhead traffic between NS and our
following railroads: The Bay Line Railroad, L.L.C.; Chattahoochee Bay Railroad, Inc.; Chattahoochee Industrial Railroad;
and Georgia Southwestern Railroad, Inc. In addition, HAL serves several local agricultural and aggregate customers in
southwest Georgia. The results from HAL’s operations have been included in our consolidated statements of operations since
January 1, 2012 and are included in our North American & European Operations segment.
Arizona Eastern Railway Company: On September 1, 2011, we acquired all of the capital stock of AZER. We paid the
seller $89.5 million in cash at closing, which included a reduction to the purchase price of $0.6 million based on the
estimated working capital adjustment. Following the final working capital adjustment, we recorded an additional $0.8 million
of purchase price in December 2011, which was paid to the seller in January 2012. We incurred $0.6 million of acquisition
costs related to this transaction through December 31, 2011, which were expensed as incurred. The results from AZER’s
operations have been included in our consolidated statements of operations since September 1, 2011, and are included in our
North American & European Operations segment.
Headquartered near Miami, Arizona, with 43 employees and 10 locomotives, AZER owned and operated two rail lines
totaling approximately 200 track miles in southeast Arizona and southwest New Mexico connected by 52 miles of trackage
rights over the Union Pacific Railroad as of the September 1, 2011 acquisition date. The largest customer on AZER is
Freeport-McMoRan Copper & Gold Inc. (Freeport-McMoRan). AZER provides rail service to Freeport-McMoRan’s largest
North American copper mine and its North American smelter, hauling copper concentrate, copper anode, copper rod and
sulfuric acid. In conjunction with the transaction, AZER and Freeport-McMoRan entered into a long-term operating
agreement.
Determination of Fair Value
We accounted for the RailAmerica and AZER acquisitions using the acquisition method of accounting under U.S.
GAAP. Under the acquisition method of accounting:
• The assets and liabilities of RailAmerica were recorded at their respective acquisition-date preliminary fair values by
RailAmerica as of October 1, 2012, which is referred to as the application of push-down accounting, and were
included in G&W's consolidated balance sheet in a single line item following the equity method of accounting as of
that date (see RailAmerica as of October 1, 2012 column in the following table).
44
• Upon approval by the STB for us to control RailAmerica, our preliminary determination of fair values of the
acquired assets and assumed liabilities were consolidated with our assets and liabilities as of December 28, 2012
(see RailAmerica as of December 28, 2012 Preliminary column in the following table). Between October 1, 2012
and December 28, 2012, we recognized income from our equity investment in RailAmerica of $15.6 million and
other comprehensive loss of $2.0 million, primarily resulting from foreign currency translation adjustments. In
addition, we recognized $21.8 million, representing the change in RailAmerica's cash and cash equivalents from
October 1, 2012 to December 28, 2012, as a reduction in net cash paid for the acquisition.
•
In 2013, we finalized our determination of fair values of RailAmerica's assets and liabilities (see RailAmerica as of
December 28, 2012 Final column in the following table). The measurement period adjustments to the fair values
were as follows: 1) property and equipment increased $10.7 million, 2) intangible assets decreased $29.9 million, 3)
deferred income tax liabilities, net decreased $16.0 million, 4) noncontrolling interest decreased $5.0 million, 5) all
other assets, net increased $1.3 million and 6) goodwill decreased $3.1 million as an offset to the above-mentioned
changes. This resulted in additional annualized depreciation and amortization expense of approximately $4 million.
We do not consider these adjustments material to our consolidated financial statements taken as a whole and as such,
prior periods were not retroactively adjusted.
• The assets and liabilities of AZER were recorded at their respective acquisition-date fair values and were
consolidated with those of G&W as of the September 1, 2011 acquisition date (see AZER column in the following
table).
The fair values assigned to the acquired net assets of RailAmerica and AZER were as follows (dollars in thousands):
Cash and cash equivalents
Accounts receivable
Materials and supplies
Prepaid expenses and other
Deferred income tax assets
Property and equipment
Goodwill
Intangible assets
Other assets
Total assets
Accounts payable and accrued expenses
Long-term debt
Deferred income tax liabilities, net
Other long-term liabilities
Noncontrolling interest
Net assets
Australia
As of
October 1, 2012
86,102
$
104,839
6,406
15,146
49,074
RailAmerica
As of December 28, 2012
Preliminary
Final
AZER
As of
September 1,
2011
$
107,922
$
107,922
$
91,424
7,325
14,815
49,074
90,659
7,325
15,801
56,998
—
3,096
—
2,319
—
1,579,321
1,588,612
1,599,282
90,129
474,115
451,100
116
474,115
446,327
116
471,028
416,427
116
2,766,219
2,779,730
2,765,558
143,790
12,158
542,210
20,754
5,525
135,117
12,010
551,856
19,618
5,525
140,160
12,010
535,864
21,439
481
—
—
—
95,544
5,212
—
—
—
—
$
2,041,782
$
2,055,604
$
2,055,604
$
90,332
Arrium Limited: In July 2012, our subsidiary, Genesee & Wyoming Australia Pty Ltd (GWA), announced that it had
expanded two existing rail haulage contracts with Arrium Limited (formerly OneSteel) to transport additional export iron ore
in South Australia. To support the increased shipments under the two contracts, during the year ended December 31, 2012,
GWA invested A$52.1 million (or $54.1 million at the exchange rate on December 31, 2012) to purchase narrow gauge
locomotives and railcars as well as to construct a standard gauge rolling-stock maintenance facility in order to support the
increased shipments under the two contracts. During the year ended December 31, 2013, GWA spent an additional A$22.3
million (or $19.9 million at the exchange rate on December 31, 2013) on these projects and does not expect to invest any
additional capital in these projects in 2014.
45
Alice Springs and Cook: In May 2012, GWA entered into an agreement with Asciano Services Pty Ltd (AIO), a
subsidiary of Asciano Pty Ltd, whereby GWA agreed to purchase an intermodal and freight terminal in Alice Springs,
Northern Territory from AIO and GWA agreed to sell AIO certain assets in the township of Cook, South Australia that
included GWA's third-party fuel-sales business. GWA completed the purchase of the Alice Springs intermodal and freight
terminal in June 2012 for A$9.0 million (or $9.2 million at the exchange rate on June 30, 2012) plus A$0.5 million (or $0.6
million at the exchange rate on June 30, 2012) tax liability for stamp duty (an Australian asset transfer tax). Previously, GWA
had leased the facility from AIO. The sale of the assets in Cook closed in September 2012. We received A$4.0 million (or
$4.1 million at the exchange rate on September 30, 2012) in pre-tax cash proceeds from the sale and recognized an after-tax
book gain of A$1.3 million (or $1.3 million at the exchange rate on September 30, 2012).
Canada
Tata Steel Minerals Canada Ltd.: In August 2012, we announced that our newly formed subsidiary, KeRail Inc.
(KeRail), entered into a long-term agreement with Tata Steel Minerals Canada Ltd. (TSMC), for KeRail to provide rail
transportation services to the direct shipping iron ore mine TSMC is developing near Schefferville, Quebec in the Labrador
Trough (the Mine). In addition, KeRail plans to construct an approximately 21-kilometer rail line that will connect the Mine
to the Tshiuetin Rail Transportation (TSH) interchange point in Schefferville. Operated as part of our Canada Region, KeRail
is expected to haul unit trains of iron ore from its rail connection with the Mine, which will then travel over three privately
owned railways to the Port of Sept-Îles for export primarily to Tata Steel Limited's European operations. The agreement and
construction are contingent on certain conditions being met, including the receipt of necessary governmental permits and
approvals. Once the track construction has commenced, the rail line is expected to be completed three to six months
thereafter, weather conditions permitting.
Results from Operations
When comparing our results from operations from one reporting period to another, it is important to consider that we
have historically experienced fluctuations in revenues and expenses due to acquisitions, changing economic conditions,
competitive forces, changes in foreign currency exchange rates, one-time freight moves, fuel price fluctuations, customer
plant expansions and shut-downs, sales of property and equipment, derailments and weather-related conditions, such as
hurricanes, cyclones, tornadoes, droughts, heavy snowfall, unseasonably warm or cool weather, freezing and flooding. In
periods when these events occur, our results of operations are not easily comparable from one period to another. Finally,
certain of our railroads have commodity shipments that are sensitive to general economic conditions, such as steel products,
paper products and lumber and forest products as well as product specific economic conditions, such as the availability of
lower priced alternative sources of power generation (coal). Other shipments are relatively less affected by economic
conditions and are more closely affected by other factors, such as inventory levels maintained at customer plants (coal),
winter weather (salt and coal) and seasonal rainfall (agricultural products). As a result of these and other factors, our results
of operations in any reporting period may not be directly comparable to our results of operations in other reporting periods.
Year Ended December 31, 2013 Compared with Year Ended December 31, 2012
Operating Revenues
Overview
Operating revenues were $1.6 billion in the year ended December 31, 2013, compared with $874.9 million in the year
ended December 31, 2012, an increase of $694.1 million, or 79.3%. The $694.1 million increase in operating revenues
consisted of $635.2 million in revenues from new operations and a $58.9 million, or 6.7%, increase in revenues from existing
operations. New operations are those that were not included in our consolidated financial results for a comparable period in
the prior year. The $58.9 million increase in revenues from existing operations included an increase of $67.9 million in
freight revenues, partially offset by a decrease of $9.0 million in non-freight revenues.
46
The following table breaks down our operating revenues and total carloads into new operations and existing operations
for the years ended December 31, 2013 and 2012 (dollars in thousands):
2013
2012
Increase in Total
Operations
Increase/(Decrease)
in Existing Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
Freight revenues
$ 1,177,364
$ 484,691
$ 692,673
$ 624,809
$ 552,555
88.4% $ 67,864
10.9 % $ (16,481)
Non-freight revenues
391,647
150,516
241,131
250,107
141,540
56.6%
(8,976)
(3.6)%
(4,456)
Total operating revenues
$ 1,569,011
$ 635,207
$ 933,804
$ 874,916
$ 694,095
79.3% $ 58,888
6.7 % $ (20,937)
Carloads
1,886,012
909,768
976,244
927,094
958,918
103.4%
49,150
5.3 %
Freight Revenues
The following table compares freight revenues, carloads and average freight revenues per carload for the years ended
December 31, 2013 and 2012 (dollars in thousands, except average freight revenues per carload):
Freight Revenues
Carloads
2013
2012
2013
2012
Average Freight
Revenues Per
Carload
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
2013
2012
$ 130,577
11.1% $ 59,378
9.5%
240,840
12.8% 96,734
10.4% $ 542
$ 614
125,928
10.7%
75,188
12.0%
72,366
3.8% 41,918
4.5% 1,740
1,794
128,935
127,769
112,663
110,836
96,771
98,759
11.0%
10.9%
9.6%
9.4%
8.2%
8.4%
55,146
62,129
65,696
70,052
48,023
94,735
8.8%
9.9%
10.5%
11.2%
7.7%
15.2%
163,123
175,636
169,708
323,500
8.7% 68,999
9.3% 94,621
9.0% 101,588
17.2% 168,574
7.4%
10.2%
11.0%
18.2%
790
727
664
343
219,163
11.6% 130,602
14.1%
442
799
657
647
416
368
73,666
3.9% 66,706
7.2% 1,341
1,420
79,035
6.7%
34,839
5.7%
133,649
7.1% 70,896
7.6%
591
65,223
5.5%
25,293
4.1%
108,901
5.8% 26,907
2.9%
599
31,982
22,750
26,415
19,721
2.7%
1.9%
2.2%
1.7%
5,230
13,622
8,313
7,165
0.8%
2.2%
1.3%
1.1%
55,084
43,166
36,510
70,700
2.9% 11,011
2.3% 21,676
1.9% 10,148
3.7% 16,714
1.2%
2.3%
1.2%
1.8%
$1,177,364
100.0% $624,809
100.0% 1,886,012
100.0% 927,094
100.0%
581
527
724
279
624
491
940
475
628
819
429
674
Commodity Group
Agricultural
Products
Metallic Ores*
Chemicals &
Plastics
Metals
Pulp & Paper
Coal & Coke
Minerals &
Stone
Intermodal**
Lumber &
Forest Products
Petroleum
Products
Food or
Kindred
Products
Waste
Autos & Auto
Parts
Other
Total
* Carload amounts include carloads and intermodal units
** Carload amounts represent intermodal units
Total freight traffic increased 958,918 carloads, or 103.4%, in 2013 compared with 2012. Carloads from existing
operations increased by 49,150 carloads, or 5.3%, and new operations contributed 909,768 carloads. The existing traffic
increase was principally due to increases of 20,601 carloads of metallic ores traffic, 12,577 carloads of petroleum products
traffic, 7,676 carloads of metals traffic, 6,958 carloads of intermodal traffic and 5,625 carloads of agricultural products traffic,
partially offset by a 4,250 carload decrease in pulp and paper traffic. All remaining traffic decreased by a net 37 carloads.
47
Average freight revenues per carload decreased 7.4% to $624 in 2013 compared with 2012. Average freight revenues per
carload from existing operations increased 5.3% to $710. Changes in the commodity mix and fuel surcharges increased
average freight revenues per carload from existing operations by 4.8% and 0.5%, respectively, partially offset by the
depreciation of the Australian and Canadian dollars relative to the United States dollar, which decreased average freight
revenues per carload from existing operations by 2.9%. Other than the impacts from these factors, average freight revenues per
carload from existing operations increased by 2.9%. Average freight revenues per carload were also positively impacted by the
changes in the mix of customers within certain commodity groups, primarily metallic ores.
The following table sets forth freight revenues by commodity group segregated into new operations and existing
operations for the years ended December 31, 2013 and 2012 (dollars in thousands):
2013
2012
Increase in Total
Operations
Increase/(Decrease) in
Existing
Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$ 130,577
$ 72,704
$ 57,873
$ 59,378
$ 71,199
125,928
6,608
119,320
75,188
50,740
119.9% $ (1,505)
67.5% 44,132
(2.5)% $ (2,383)
(5,166)
58.7 %
128,935
127,769
112,663
110,836
96,771
98,759
72,356
57,599
43,531
40,442
46,029
2
56,579
70,170
69,132
70,394
50,742
98,757
55,146
62,129
65,696
70,052
48,023
94,735
73,789
65,640
46,967
40,784
48,748
4,024
133.8%
105.7%
71.5%
58.2%
101.5%
4.2%
1,433
8,041
3,436
342
2,719
4,022
2.6 %
12.9 %
5.2 %
0.5 %
5.7 %
4.2 %
(188)
(352)
(319)
(19)
(827)
(6,744)
79,035
42,103
36,932
34,839
44,196
126.9%
2,093
6.0 %
(82)
65,223
34,926
30,297
25,293
39,930
157.9%
5,004
19.8 %
(191)
31,982
22,750
26,415
19,721
26,788
8,821
18,637
14,145
5,194
13,929
5,230
13,622
26,752
511.5%
9,128
67.0%
(36)
307
(0.7)%
2.3 %
7,778
5,576
8,313
7,165
18,102
12,556
217.8%
175.2%
(535)
(1,589)
(6.4)%
(22.2)%
(7)
(4)
(163)
(36)
$1,177,364
$ 484,691
$ 692,673
$ 624,809
$ 552,555
88.4% $ 67,864
10.9 % $(16,481)
Commodity Group
Agricultural
Products
Metallic Ores
Chemicals &
Plastics
Metals
Pulp & Paper
Coal & Coke
Minerals & Stone
Intermodal
Lumber & Forest
Products
Petroleum
Products
Food or Kindred
Products
Waste
Autos & Auto
Parts
Other
Total freight
revenues
The following information discusses the significant changes in freight revenues from existing operations by commodity
group. Changes in average freight revenues per carload in a commodity group can be impacted by changes in customer rates,
fuel surcharges, changes in foreign currency exchange rates, as well as changes in the mix of customer traffic within a
commodity group.
Agricultural products revenues decreased $1.5 million, or 2.5%. Agricultural products average freight revenues per
carload decreased 8.0%, which decreased revenues by $4.7 million, while traffic volumes increased 5,625 carloads, or 5.8%,
which increased revenues by $3.2 million. The decrease in average freight revenues per carload included a 3.9%, or $2.4
million, negative impact due to the depreciation of the Australian and Canadian dollars relative to the United States dollar. The
carload increase was primarily due to increased export grain traffic in Australia, partially offset by lower volumes of Canadian
winter wheat shipments. Because rates for Australian grain traffic have both a fixed and a variable component, the increase in
Australian grain traffic resulted in lower average freight revenues per carload.
48
Metallic ores revenues increased $44.1 million, or 58.7%. Metallic ores traffic volume increased 20,601 carloads, or
49.1%, which increased revenues by $39.3 million, and average freight revenues per carload increased 6.4%, which increased
revenues by $4.8 million. The increase in volume and average freight revenues per carload was primarily due to a new iron ore
contract in South Australia, which began in the fourth quarter of 2012. The increase in average freight revenues per carload
included a 7.9%, or $5.2 million, negative impact due to the depreciation of the Australian and Canadian dollars relative to the
United States dollar.
Metals revenues increased $8.0 million, or 12.9%. Metals traffic volume increased 7,676 carloads, or 8.1%, which
increased revenues by $5.3 million, and average freight revenues per carload increased 4.4%, which increased revenues by
$2.8 million. The carload increase was primarily due to increased shipments in the northeastern and southern United States.
Pulp and paper revenues increased $3.4 million, or 5.2%. Average freight revenues per carload increased 9.7%, which
increased revenues by $6.5 million, while traffic volumes decreased 4,250 carloads, or 4.2%, which decreased revenues by
$3.0 million. For the year ended December 31, 2013, as a result of the RailAmerica acquisition, 6,494 carloads of pulp and
paper traffic originating on a RailAmerica railroad that is contiguous to a legacy G&W railroad were reported as new
operations. Otherwise, pulp and paper traffic volume increased 2,244 carloads, or 2.2%, and average freight revenues per
carload increased 3.0%.
Minerals and stone revenues increased $2.7 million, or 5.7%. Average freight revenues per carload increased 3.3%,
which increased revenues by $1.6 million, and traffic volume increased 2,986 carloads, or 2.3%, which increased revenues by
$1.1 million. The increase in volume was primarily related to increased rock salt shipments due to severe winter weather in the
United States, partially offset by reduced traffic in Australia.
Intermodal revenues increased $4.0 million, or 4.2%. Intermodal traffic volume increased 6,958 carloads, or 10.4%,
which increased revenues by $9.3 million, while average freight revenues per carload decreased 5.6%, which decreased
revenues by $5.3 million. The carload increase was primarily due to new business converted to rail from road in Australia and
new business in Canada. The decrease in average freight revenues per carload included a 7.3%, or $6.7 million, negative
impact due to the depreciation of the Australian and Canadian dollars relative to the United States dollar.
Petroleum products revenues increased $5.0 million, or 19.8%. Petroleum products traffic volume increased 12,577
carloads, or 46.7%, which increased revenues by $9.7 million, while average freight revenues per carload decreased 18.4%,
which decreased revenues by $4.6 million. The carload increase was primarily due to a new crude oil customer in the Pacific
Northwest. The decrease in the average freight revenues per carload was due to customer mix.
Freight revenues from all remaining commodities combined increased by $2.0 million.
Non-Freight Revenues
The following table compares non-freight revenues for the years ended December 31, 2013 and 2012 (dollars in
thousands):
Railcar switching
Car hire and rental income
Fuel sales to third parties
Demurrage and storage
Car repair services
Construction revenues
Other non-freight revenues
Total non-freight revenues
2013
2012
Amount
% of Total
Amount
% of Total
$
$
161,942
34,721
386
58,312
21,078
41,677
73,531
391,647
41.3% $
8.9%
0.1%
14.9%
5.4%
10.6%
18.8%
100.0% $
134,929
21,280
11,868
26,125
7,934
—
47,971
250,107
54.0%
8.5%
4.7%
10.4%
3.2%
—%
19.2%
100.0%
49
The following table sets forth non-freight revenues by new operations and existing operations for the years ended
December 31, 2013 and 2012 (dollars in thousands):
2013
2012
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing
Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$ 161,942
$ 20,528
$ 141,414
$ 134,929
$ 27,013
20.0 % $
6,485
4.8 % $ (1,805)
34,721
18,250
16,471
21,280
13,441
63.2 %
(4,809)
(22.6)%
(502)
386
58,312
21,078
41,677
73,531
30,537
12,455
41,677
27,069
—
386
11,868
(11,482)
(96.7)% (11,482)
(96.7)%
27,775
26,125
32,187
123.2 %
1,650
8,623
7,934
13,144
165.7 %
—
—
41,677
100.0 %
689
—
6.3 %
8.7 %
— %
—
(116)
(22)
—
46,462
47,971
25,560
53.3 %
(1,509)
(3.1)%
(2,011)
$ 391,647
$ 150,516
$ 241,131
$ 250,107
$ 141,540
56.6 % $ (8,976)
(3.6)% $ (4,456)
Railcar switching
Car hire and rental income
Fuel sales to third parties
Demurrage and storage
Car repair services
Construction revenues
Other non-freight revenues
Total non-freight revenues
Total non-freight revenues increased $141.5 million, or 56.6%, to $391.6 million in the year ended December 31, 2013,
compared with $250.1 million in the year ended December 31, 2012. The increase was attributable to $150.5 million from new
operations, including construction revenues of $41.7 million from Atlas, a rail construction business acquired in the
RailAmerica acquisition, partially offset by a decrease of $9.0 million from existing operations. The decrease in non-freight
revenues from existing operations was principally due to a $11.5 million decrease in fuel sales to third parties as a result of the
sale of our fuel-sales business in South Australia in the third quarter of 2012 and a $4.5 million decrease due to the net
depreciation of the Australian and Canadian dollars and the Euro relative to the United States dollar, partially offset by higher
railcar switching revenues of $6.5 million primarily due to new and expanded customer contracts in Australia and the United
States.
Operating Expenses
Overview
Operating expenses were $1.2 billion in the year ended December 31, 2013, compared with $684.6 million in the year
ended December 31, 2012, an increase of $504.2 million, or 73.7%. Labor and benefits increased $188.3 million in the year
ended December 31, 2013, primarily related to the addition of employees from the acquisition of RailAmerica and wage and
benefit increases for existing employees. Of the remaining $316.0 million increase in operating expenses, $304.3 million was
from new operations and $36.9 million was from existing operations, partially offset by a decrease in RailAmerica integration
and acquisition-related costs of $13.0 million and a $12.3 million decrease due to the net depreciation of the Australian and
Canadian dollars and Euro relative to the United States dollar. The increase in operating expenses from existing operations
was driven primarily by lower net gain on the sale of assets and insurance recoveries, as well as increases in trackage rights
expense, depreciation and amortization expense, other operating expenses and materials expense in the year ended
December 31, 2013, partially offset by a decrease in diesel fuel sold to third parties, primarily due to the sale of our fuel-sales
business in South Australia in the third quarter of 2012.
Operating Ratio
Our operating ratio, defined as total operating expenses divided by total operating revenues, was 75.8% in the year
ended December 31, 2013 compared with 78.2% in the year ended December 31, 2012. Income from operations in the year
ended December 31, 2013 included $17.0 million of RailAmerica integration and acquisition-related costs, partially offset by
a $4.7 million net gain on the sale of assets. Income from operations in the year ended December 31, 2012 included $30.0
million of RailAmerica integration and acquisition-related costs, partially offset by an $11.2 million net gain on sale of assets.
Changes in foreign currency exchange rates can have a material impact on our operating revenues and operating expenses.
However, the net impact of these foreign currency translation effects should not have a material impact on our operating ratio.
50
The following table sets forth a comparison of our operating expenses in the years ended December 31, 2013 and 2012
(dollars in thousands):
2013
2012
Amount
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Currency Impact
$
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel sold to third parties
Casualties and insurance
Materials
Trackage rights
Net (gain)/loss on sale and
impairment of assets
Gain on insurance recoveries
Other expenses
RailAmerica acquisition-
related costs
RailAmerica integration costs
Total operating expenses
$
441,318
77,825
120,871
141,644
147,172
368
40,781
78,243
50,911
(4,677)
(1,465)
78,797
360
16,675
1,188,823
28.1 % $
5.0 %
7.7 %
9.0 %
9.4 %
— %
2.6 %
5.0 %
3.2 %
(0.3)%
(0.1)%
5.1 %
— %
1.1 %
75.8 % $
257,618
37,322
80,572
73,405
88,399
11,322
24,858
25,240
28,250
(11,225)
(5,760)
44,549
18,592
11,452
684,594
29.5 % $
4.3 %
9.2 %
8.4 %
10.1 %
1.3 %
2.8 %
2.9 %
3.2 %
(1.3)%
(0.7)%
5.1 %
(4,579)
(734)
(3,804)
(1,689)
—
—
(611)
(178)
(670)
238
368
(656)
2.1 %
1.3 %
78.2 % $
—
—
(12,315)
Labor and benefits expense was $441.3 million in the year ended December 31, 2013, compared with $257.6 million in
the year ended December 31, 2012, an increase of $183.7 million, or 71.3%. The increase consisted of $176.8 million due to
an increase in the average number of employees, $8.6 million due to annual wage increases and $2.9 million due to an
increase in benefit expenses (primarily health care costs), partially offset by $4.6 million due to the net depreciation of the
Australian and Canadian dollars and the Euro relative to the United States dollar. Our average number of employees during
the year ended December 31, 2013 increased by approximately 2,060 over the prior year, primarily as a result of the
RailAmerica acquisition.
Equipment rents expense was $77.8 million in the year ended December 31, 2013, compared with $37.3 million in the
year ended December 31, 2012, an increase of $40.5 million, or 108.5%. The increase primarily resulted from the newly
acquired RailAmerica railroads.
Purchased services expense, which consists of the costs of services provided by outside contractors for repairs and
maintenance of track property, locomotives, freight cars and other equipment as well as contract labor costs for crewing
services, was $120.9 million in the year ended December 31, 2013, compared with $80.6 million in the year ended
December 31, 2012, an increase of $40.3 million, or 50.0%. The increase was primarily attributable to the newly acquired
RailAmerica railroads.
Depreciation and amortization expense was $141.6 million in the year ended December 31, 2013, compared with $73.4
million in the year ended December 31, 2012, an increase of $68.2 million, or 93.0%. The increase was attributable to $62.6
million from new operations, primarily driven by the newly acquired RailAmerica railroads, and an increase of $5.6 million
from existing operations, primarily due to depreciation expense related to new locomotives and railcars purchased in
Australia in 2012.
The cost of diesel fuel used in operations was $147.2 million in the year ended December 31, 2013, compared with
$88.4 million in the year ended December 31, 2012, an increase of $58.8 million, or 66.5%. The increase was primarily
driven by the newly acquired RailAmerica railroads.
The cost of diesel fuel sold to third parties was $0.4 million in the year ended December 31, 2013, compared with $11.3
million in the year ended December 31, 2012, a decrease of $11.0 million. The decrease was primarily due to the sale of our
third-party fuel-sales business in South Australia in the third quarter of 2012.
51
Casualties and insurance expense was $40.8 million in the year ended December 31, 2013, compared with $24.9
million in the year ended December 31, 2012, an increase of $15.9 million, or 64.1%. The increase primarily resulted from
the newly acquired RailAmerica railroads, as well as an increase in derailment expense and insurance premiums in Australia.
Materials expense, which primarily consists of the costs of materials purchased for use in repairing and maintaining our
track property, locomotives, rail cars and other equipment as well as costs for general tools and supplies used in our business,
was $78.2 million in the year ended December 31, 2013, compared with $25.2 million in the year ended December 31, 2012,
an increase of $53.0 million. The increase was attributable to $47.3 million from new operations, including $19.3 million
from Atlas, and a $5.7 million increase from existing operations. The increase from existing operations was due to increased
track property and locomotive repairs in the year ended December 31, 2013.
Trackage rights expense was $50.9 million in the year ended December 31, 2013, compared with $28.3 million in the
year ended December 31, 2012, an increase of $22.7 million, or 80.2%. The increase was primarily attributable to $11.4
million from new operations, primarily driven by the newly acquired RailAmerica railroads, and an $11.3 million increase in
existing operations, primarily due to new traffic from an iron ore customer in South Australia that moves over a segment of
track owned by a third party.
Net gain on sale of assets was $4.7 million in the year ended December 31, 2013, compared with $11.2 million in the
year ended December 31, 2012.
Gain on insurance recoveries of $1.5 million and $5.8 million for the years ended December 31, 2013 and 2012,
respectively, related primarily to a business interruption claim associated with the Edith River Derailment (described in Note
5, Accounts Receivable and Allowance For Doubtful Accounts, to our Consolidated Financial Statements included elsewhere
in this Annual Report).
Other expenses were $78.8 million in the year ended December 31, 2013, compared with $44.5 million in the year
ended December 31, 2012, an increase of $34.2 million, or 76.9%. The increase was primarily attributable to the newly
acquired RailAmerica railroads.
RailAmerica acquisition-related costs of $0.4 million and $18.6 million for the years ended December 31, 2013 and
2012 consisted of acquisition and financing-related expenses from the RailAmerica acquisition.
RailAmerica integration costs of $16.7 million and $11.5 million for the years ended December 31, 2013 and 2012,
respectively, consisted primarily of RailAmerica employee severance arrangements.
Other Income (Expense) Items
Interest Income
Interest income was $4.0 million in the year ended December 31, 2013, compared with $3.7 million in the year ended
December 31, 2012.
Interest Expense
Interest expense was $67.9 million in the year ended December 31, 2013, compared with $62.8 million in the year
ended December 31, 2012. The increase in interest expense was primarily due to a higher debt balance resulting from the
acquisition of RailAmerica.
Contingent Forward Sale Contract
In conjunction with our announcement on July 23, 2012 of our plan to acquire RailAmerica, we entered into the
Investment Agreement with Carlyle in order to partially fund the acquisition of RailAmerica. Pursuant to the Investment
Agreement, Carlyle agreed to purchase a minimum of $350.0 million of Preferred Stock, which Preferred Stock was
convertible into our Class A common stock in certain circumstances. The conversion price of the Preferred Stock was set at
approximately $58.49, which was a 4.5% premium to our stock price on the trading day prior to the announcement of the
RailAmerica acquisition. For the period between July 23, 2012 and September 30, 2012, this instrument was accounted for as
a contingent forward sale contract with mark-to-market non-cash income or expense included in our consolidated financial
results and the cumulative effect represented as an asset or liability. Our closing price was $66.86 on September 28, 2012,
which was the last trading day prior to issuing the Preferred Stock, and, accordingly, we recorded a $50.1 million non-cash
mark-to-market expense related to the Investment Agreement for the year ended December 31, 2012.
52
On February 13, 2013, we exercised our option to convert all of the outstanding Preferred Stock issued to Carlyle in
conjunction with the RailAmerica acquisition into 5,984,232 shares of our Class A common stock. On the conversion date,
we also paid to Carlyle all accrued and unpaid dividends on the Preferred Stock of $2.1 million, as well as cash in lieu of
fractional shares. In November 2013, Carlyle sold all of these outstanding shares of our Class A common stock in a public
offering.
Provision for Income Taxes
Included in our net income for the year ended December 31, 2013 was a $41.0 million benefit associated with the
retroactive extension of the United States Short Line Tax Credit for fiscal year 2012, which was signed into law on January 2,
2013. Excluding the $41.0 million retroactive benefit, our provision for income tax was $87.2 million for the year ended
December 31, 2013, which represented 27.4% of income before income taxes other than the retroactive benefit. Included in
our income before income taxes for the year ended December 31, 2012 was a $50.1 million mark-to-market expense
associated with a contingent forward sale contract, which is a non-deductible expense for income tax purposes. See Note 10,
Derivative Financial Instruments, to our Consolidated Financial Statements included elsewhere in this Annual Report for
further details on the contingent forward sale contract. Excluding the $50.1 million mark-to-market expense, our provision
for income tax was $46.4 million for the year ended December 31, 2012, which represents 34.8% of income before taxes. The
decrease in the effective income tax rate for the year ended December 31, 2013 as compared with the year ended
December 31, 2012 was primarily attributable to the renewal of the United States Short Line Tax Credit through December
31, 2013. The extension of the United States Short Line Tax Credit produced book income tax benefits of $25.9 million and
$41.0 million for fiscal years 2013 and 2012, respectively. Since the extension became law in 2013, the 2012 impact was
recorded in the first quarter of 2013.
Net Income and Earnings Per Share Attributable to G&W Common Stockholders
Net income was $272.1 million in the year ended December 31, 2013, compared with net income of $52.4 million in
the year ended December 31, 2012. Our net income in the year ended December 31, 2012 included the $50.1 million mark-
to-market expense associated with the contingent forward sale contract. Our basic EPS were $5.00 with 53.8 million
weighted average shares outstanding in the year ended December 31, 2013, compared with basic EPS of $1.13 with 42.7
million weighted average shares outstanding in the year ended December 31, 2012. Our diluted EPS in the year ended
December 31, 2013 were $4.79 with 56.7 million weighted average shares outstanding, compared with diluted EPS in the
year ended December 31, 2012 of $1.02 with 51.3 million weighted average shares outstanding.
The following table sets forth the increase in our weighted average basic shares outstanding for the years ended
December 31, 2013 and 2012 as a result of our 2012 public offering of Class A common stock, the shares issuable upon
settlement of the prepaid stock purchase contract component of the TEUs based on the market price of our Class A common
stock at December 31, 2013 and 2012, respectively, and from the February 13, 2013 conversion of the Preferred Stock into
our Class A common stock (see Note 4, Earnings Per Common Share, to our Consolidated Financial Statements included
elsewhere in this Annual Report):
Class A common stock offering
Shares issuable upon settlement of the prepaid stock purchase contract component of
the TEUs
Conversion of Preferred Stock
Segment Information
2013
3,791,004
2,841,650
5,262,845
2012
1,066,867
850,773
—
Our various railroad lines are organized into 11 operating regions. All of the regions have similar economic and other
characteristics; however, we present our financial information as two reportable segments — North American & European
Operations and Australian Operations.
The results of operations of our foreign entities are maintained in the respective local currency (the Australian dollar,
the Canadian dollar and the Euro) and then translated into United States 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 United
States dollar can impact our results of operations.
53
The following table sets forth our North American & European Operations and Australian Operations for the years
ended December 31, 2013 and 2012 (dollars in thousands):
Revenues:
Freight
Non-freight
Fuel sales to third parties
Total revenues
Operating expenses:
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel sold to third parties
Casualties and insurance
Materials
Trackage rights
Net (gain)/loss on sale and
impairment of assets
Gain on insurance recoveries
Other expenses
RailAmerica acquisition-
related costs
RailAmerica integration costs
Total operating expenses
2013
2012
North
American &
European
Operations
Australian
Operations
Total
Operations
North
American &
European
Operations
Australian
Operations
Total
Operations
$ 917,971
$ 259,393
$1,177,364
$ 412,839
$ 211,970
$ 624,809
325,876
—
65,385
386
391,261
173,054
386
—
65,185
11,868
1,243,847
325,164
1,569,011
585,893
289,023
374,935
67,297
68,632
114,542
116,204
—
28,937
75,742
29,595
(4,491)
—
71,297
360
16,675
959,725
66,383
10,528
52,239
27,102
30,968
368
11,844
2,501
21,316
(186)
(1,465)
7,500
—
—
441,318
77,825
120,871
141,644
147,172
368
40,781
78,243
50,911
(4,677)
(1,465)
78,797
360
16,675
197,407
26,298
26,330
50,156
56,298
—
16,244
23,569
17,643
(9,178)
—
35,695
18,592
11,452
60,211
11,024
54,242
23,249
32,101
11,322
8,614
1,671
10,607
(2,047)
(5,760)
8,854
—
—
229,098
1,188,823
470,506
214,088
684,594
238,239
11,868
874,916
257,618
37,322
80,572
73,405
88,399
11,322
24,858
25,240
28,250
(11,225)
(5,760)
44,549
18,592
11,452
Income from operations
$ 284,122
$
96,066
$ 380,188
$ 115,387
$
74,935
$ 190,322
Operating ratio
Interest expense
Interest income
Contingent forward sale contract
mark-to-market expense
Provision for income taxes
Income from equity investment in
RailAmerica, net
Carloads
Expenditures for additions to
property & equipment, net of grants
from outside parties
77.2%
70.5%
75.8%
80.3%
74.1%
78.2%
$
$
$
$
$
52,740
3,631
$
$
15,154
340
$
$
67,894
3,971
$
$
45,996
3,219
— $
— $
— $
50,106
24,038
$
22,258
$
46,296
$
28,451
— $
— $
— $
15,557
$
$
$
$
$
16,849
506
$
$
62,845
3,725
— $
50,106
17,951
$
46,402
— $
15,557
1,649,914
236,098
1,886,012
723,448
203,646
927,094
$ 163,545
$
51,860
$ 215,405
$
69,636
$ 122,426
$ 192,062
54
Revenues from our North American & European Operations were $1.2 billion in the year ended December 31, 2013,
compared with $585.9 million in the year ended December 31, 2012, an increase of $658.0 million, or 112.3%. The increase
in revenues from our North American & European Operations consisted of a $505.1 million increase in freight revenues and a
$152.8 million increase in non-freight revenues, in each case, primarily due to the newly acquired RailAmerica railroads.
Operating expenses from our North American & European Operations were $959.7 million in the year ended
December 31, 2013, compared with $470.5 million in the year ended December 31, 2012, an increase of $489.2 million. In
total, labor and benefits increased $177.5 million in the year ended December 31, 2013, primarily related to the newly
acquired RailAmerica railroads and wage and benefit increases for existing employees. The remaining $311.7 million
increase in operating expenses was primarily driven by the newly acquired RailAmerica railroads, including $17.0 million of
RailAmerica integration and acquisition-related expenses.
Revenues from our Australian Operations were $325.2 million in the year ended December 31, 2013, compared with
$289.0 million in the year ended December 31, 2012, an increase of $36.1 million, or 12.5%. The increase in revenues
included a $47.4 million increase in freight revenues, partially offset by an $11.5 million decrease in fuel sales to third
parties. The $47.4 million increase in freight revenues consisted of $35.7 million due to a 32,452, or 15.9%, carload increase
and an $11.8 million, or 5.6%, increase in average freight revenues per carload. The increase in average freight revenues per
carload and volume was primarily driven by the expansion of iron ore shipments and the resumption of traffic in 2013 that
had been halted due to the Edith River Bridge outage in 2012. The $11.5 million decrease in fuel sales to third parties was
primarily due to the sale of our fuel-sales business in South Australia in the third quarter of 2012. The depreciation of the
Australian dollar relative to the United States dollar in the year ended December 31, 2013 compared with the year ended
December 31, 2012 resulted in a $19.4 million decrease in revenues.
Operating expenses from our Australian Operations were $229.1 million in the year ended December 31, 2013,
compared with $214.1 million in the year ended December 31, 2012, an increase of $15.0 million, or 7.0%. The increase in
operating expenses included increased labor expense, trackage rights expense and additional expenses for fuel and for
maintenance of property and equipment, primarily resulted from the expansion of iron ore shipments in South Australia.
Operating expenses in the year ended December 31, 2013 also included additional depreciation expense resulting from the
purchase of new equipment and an increase in casualties and insurance expense due to an increase in derailment expense and
higher insurance premiums, partially offset by an $11.0 million decrease in diesel fuel sold to third parties, primarily as a
result of the sale of our fuel-sales business in South Australia. Operating expenses included a gain on insurance recoveries of
$1.5 million and $5.8 million in the years ended December 31, 2013 and 2012, respectively, primarily related to a business
interruption claim associated with the 2011 Edith River Derailment (described in Note 5, Accounts Receivable and
Allowance For Doubtful Accounts, to our Consolidated Financial Statements included elsewhere in this Annual Report). The
depreciation of the Australian dollar relative to the United States dollar in the year ended December 31, 2013 compared with
the year ended December 31, 2012 resulted in an $11.5 million decrease in operating expenses.
55
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Operating Revenues
Overview
Operating revenues were $874.9 million in the year ended December 31, 2012, compared with $829.1 million in the year
ended December 31, 2011, an increase of $45.8 million, or 5.5%. The $45.8 million increase in operating revenues consisted
of $22.7 million in revenues from new operations and a $23.1 million, or 2.8%, increase in revenues from existing operations.
New operations are those that were not included in our consolidated financial results for a comparable period in the prior year.
The $23.1 million increase in revenues from existing operations included increases of $20.8 million in freight revenues and
$2.3 million in non-freight revenues.
The following table breaks down our operating revenues and total carloads into new operations and existing operations
for the years ended December 31, 2012 and 2011 (dollars in thousands):
2012
2011
Increase/(Decrease) in
Total
Operations
Increase/
(Decrease) in Existing
Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
Freight revenues
$ 624,809
$ 21,105
$ 603,704
$ 582,947
$ 41,862
7.2 % $ 20,757
3.6 % $
(257)
Non-freight revenues
250,107
1,625
248,482
246,149
3,958
1.6 %
2,333
0.9 %
(1,257)
Total operating revenues
$ 874,916
$ 22,730
$ 852,186
$ 829,096
$ 45,820
5.5 % $ 23,090
2.8 % $ (1,514)
Carloads
927,094
20,781
906,313
997,048
(69,954)
(7.0)% (90,735)
(9.1)%
56
Freight Revenues
The following table compares freight revenues, carloads and average freight revenues per carload for the years ended
December 31, 2012 and 2011 (dollars in thousands, except average freight revenues per carload):
Freight Revenues
Carloads
2012
2011
2012
2011
Average Freight
Revenues Per
Carload
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
2012
2011
$ 59,378
9.5% $ 63,394
10.9% 96,734
10.4% 116,443
11.7% $ 614
$ 544
75,188
12.0%
56,150
9.7% 41,918
4.5% 32,682
3.3% 1,794
1,718
55,146
62,129
65,696
70,052
48,023
94,735
8.8%
9.9%
10.5%
11.2%
7.7%
15.2%
47,836
51,410
61,793
82,244
48,214
87,657
8.2% 68,999
7.4% 65,137
8.8% 94,621
10.2% 90,088
10.6% 101,588
11.0% 97,018
14.1% 168,574
8.3% 130,602
18.2% 248,460
14.1% 138,076
6.6%
9.1%
9.7%
24.9%
13.8%
799
657
647
416
368
734
571
637
331
349
15.0% 66,706
7.2% 61,986
6.2% 1,420
1,414
34,839
5.7%
31,469
5.4% 70,896
7.6% 64,875
6.5%
491
25,293
4.1%
22,948
3.9% 26,907
2.9% 24,474
2.5%
940
5,230
13,622
8,313
7,165
0.8%
2.2%
1.3%
1.1%
4,574
12,012
7,826
5,420
0.8% 11,011
1.2% 10,075
2.1% 21,676
2.3% 21,246
1.3% 10,148
1.2% 10,425
0.9% 16,714
1.8% 16,063
1.0%
2.1%
1.0%
1.6%
$ 624,809
100.0% $ 582,947
100.0% 927,094
100.0% 997,048
100.0%
475
628
819
429
674
485
938
454
565
751
337
585
Commodity Group
Agricultural
Products
Metallic Ores*
Chemicals &
Plastics
Metals
Pulp & Paper
Coal & Coke
Minerals & Stone
Intermodal**
Lumber & Forest
Products
Petroleum
Products
Food or Kindred
Products
Waste
Autos & Auto
Parts
Other
Total
* Carload amounts include carloads and intermodal units in the 2012 period
** Carload amounts represent intermodal units
Total freight traffic decreased by 69,954 carloads, or 7.0%, in 2012 compared with 2011. Carloads from existing
operations decreased by 90,735 carloads, or 9.1%, and new operations contributed 20,781 carloads. The existing traffic
decrease was principally due to decreases of 79,886 carloads of coal and coke traffic, 20,618 carloads of agricultural products
traffic and 10,890 carloads of minerals and stone traffic, partially offset by increases of 6,242 carloads of metallic ores traffic,
5,756 carloads of lumber and forest products traffic and 4,720 carloads of intermodal traffic. All remaining traffic increased by
a net 3,941 carloads.
Average freight revenues per carload increased 15.2% to $674 in 2012 compared with 2011. Average freight revenues
per carload from existing operations increased 13.8% to $666. Changes in the commodity mix and higher fuel surcharges
increased average freight revenues per carload from existing operations by 5.9% and 0.5%, respectively, partially offset by the
net depreciation of the Australian and Canadian dollars relative to the United States dollar, which decreased average freight
revenues per carload from existing operations by 0.2%. Other than the impacts from these factors, average freight revenues per
carload from existing operations increased by 7.6%. Average freight revenues per carload were also positively impacted by the
changes in the mix of customers within certain commodity groups, primarily coal and coke traffic, metals traffic, waste traffic
and other commodities.
57
The following table sets forth freight revenues by commodity group segregated into new operations and existing
operations for the years ended December 31, 2012 and 2011 (dollars in thousands):
2012
2011
(Decrease)/Increase in
Total
Operations
(Decrease)/Increase
in Existing
Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$
59,378
$
354
$
59,024
$
63,394
$ (4,016)
(6.3)% $ (4,370)
(6.9)% $
75,188
4,252
70,936
56,150
19,038
33.9 %
14,786
26.3 %
55,146
62,129
65,696
70,052
48,023
94,735
34,839
25,293
5,230
13,622
8,313
7,165
5,463
3,874
2,880
432
2,762
—
479
426
5
89
—
89
49,683
58,255
62,816
69,620
45,261
94,735
47,836
51,410
61,793
82,244
48,214
87,657
7,310
10,719
3,903
15.3 %
20.9 %
6.3 %
1,847
6,845
1,023
3.9 %
13.3 %
1.7 %
(12,192)
(14.8)% (12,624)
(15.3)%
(191)
(0.4)%
(2,953)
7,078
8.1 %
7,078
(6.1)%
8.1 %
34,360
31,469
3,370
10.7 %
2,891
9.2 %
24,867
22,948
2,345
10.2 %
1,919
8.4 %
5,225
13,533
8,313
7,076
4,574
12,012
7,826
5,420
656
1,610
14.3 %
13.4 %
487
6.2 %
1,745
32.2 %
651
1,521
487
1,656
14.2 %
12.7 %
6.2 %
30.6 %
23
(8)
(64)
(80)
(158)
(9)
(2)
124
(13)
(13)
(2)
1
(61)
5
$
624,809
$
21,105
$
603,704
$
582,947
$ 41,862
7.2 % $ 20,757
3.6 % $
(257)
Commodity Group
Agricultural
Products
Metallic Ores
Chemicals &
Plastics
Metals
Pulp & Paper
Coal & Coke
Minerals & Stone
Intermodal
Lumber & Forest
Products
Petroleum
Products
Food or Kindred
Products
Waste
Autos & Auto
Parts
Other
Total freight
revenues
The following information discusses the significant changes in freight revenues by commodity group from existing
operations. Changes in average freight revenues per carload in a commodity group can be impacted by changes in customer
rates, fuel surcharges, net depreciation of the Australian and Canadian dollars relative to the United States dollar, as well as
changes in the mix of customer traffic within a commodity group.
Agricultural products revenues decreased $4.4 million, or 6.9%. Agricultural products traffic volume decreased 20,618
carloads, or 17.7%, which decreased revenues by $12.7 million, while average revenues per carload increased 13.2%, which
increased revenues by $8.3 million. The carload decrease was primarily due to a mechanical failure at an export grain terminal
in Australia and a modal shift from rail to truck in the southern United States. Because rates for Australian grain traffic have
both a fixed and a variable component, the decrease in Australian grain traffic resulted in higher average freight revenues per
carload.
Metallic ores revenues increased $14.8 million, or 26.3%. Effective January 1, 2012, a metallic ores customer in
Australia switched its mode of transportation from using railcars to using containers. As a result, our metallic ores traffic count
increased 6,048 carloads for an equivalent volume of product shipped. Otherwise, metallic ores traffic volume increased 194
carloads, or 0.6%, and average freight revenues per carload increased 25.6%. The carload increase was primarily due to a new
iron ore contract in Australia, partially offset by a decrease in traffic in Canada. The increase in average freight revenues per
carload was primarily driven by higher fuel surcharges and an increase in long-haul iron ore shipments in Australia.
Metals revenues increased $6.8 million, or 13.3%. Average freight revenues per carload increased 11.0%, which
increased revenues by $5.7 million, and metals traffic volume increased 1,773 carloads, or 2.0%, which increased revenues by
$1.1 million. The carload increase was primarily due to the expansion of a plant we serve in the southern United States. The
increase in average freight revenues per carload was primarily due to a change in the mix of customer traffic.
58
Coal and coke revenues decreased $12.6 million, or 15.3%. Coal and coke traffic volume decreased 79,886 carloads, or
32.2%, which decreased revenues by $33.0 million, while average freight revenues per carload increased 24.8%, which
increased revenues by $20.4 million. The decrease in traffic was largely driven by a decline in coal haulage traffic and
customer-specific circumstances (such as temporary plant shut-downs, high inventory and a plant closing) as well as by
warm winter weather, low natural gas prices and lower levels of export coal. The increase in average freight revenues per
carload was primarily due to the change in mix of customer traffic.
Minerals and stone revenues decreased $3.0 million, or 6.1%. Minerals and stone traffic volume decreased 10,890
carloads, or 7.9%, which decreased revenues by $3.9 million, while average freight revenues per carload increased 2.0%,
which increased revenues by $0.9 million. The carload decrease was primarily due to a decrease in rock salt shipments due
to high stockpiles as a result of mild 2011-2012 winter weather in the northeastern United States.
Intermodal revenues increased $7.1 million, or 8.1%. Intermodal traffic volume increased 4,720 carloads, or 7.6%,
which increased revenues by $6.7 million. The carload increase was primarily due to increased traffic in Australia and a new
customer in the southern United States.
Lumber and forest products revenues increased $2.9 million, or 9.2%. Lumber and forest products traffic volume
increased 5,756 carloads, or 8.9%, which increased revenues by $2.8 million. The carload increase was primarily due to an
increase in United States housing starts.
Waste revenues increased $1.5 million, or 12.7%. The increase was primarily due to an 11.5% increase in average
freight revenues per carload, which increased revenues by $1.4 million. The increase in average freight revenues per carload
was primarily due to the change in mix of customer traffic.
Other freight revenues increased $1.7 million, or 30.6%. The increase was primarily due to a 26.7% increase in average
freight revenues per carload, which increased revenues by $1.4 million. The increase in average freight revenues per carload
was primarily due to the change in mix of customer traffic.
Freight revenues from all remaining commodities combined increased by $5.9 million.
Non-Freight Revenues
The following table compares non-freight revenues for the years ended December 31, 2012 and 2011 (dollars in
thousands):
Railcar switching
Car hire and rental income
Fuel sales to third parties
Demurrage and storage
Car repair services
Other non-freight revenues
Total non-freight revenues
2012
2011
Amount
% of Total
Amount
% of Total
$
$
134,929
21,280
11,868
26,125
7,934
47,971
250,107
54.0% $
8.5%
4.7%
10.4%
3.2%
19.2%
100.0% $
128,326
21,851
18,002
22,136
8,224
47,610
246,149
52.1%
8.9%
7.3%
9.0%
3.3%
19.4%
100.0%
59
The following table sets forth non-freight revenues by new operations and existing operations for the years ended
December 31, 2012 and 2011 (dollars in thousands):
2012
2011
Increase/
(Decrease) in
Total Operations
Increase/
(Decrease) in
Existing
Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
Railcar switching
$ 134,929
$
Car hire and rental income
Fuel sales to third parties
Demurrage and storage
Car repair services
Other non-freight revenues
21,280
11,868
26,125
7,934
47,971
732
290
—
346
251
6
$ 134,197
$ 128,326
$
6,603
5.1 % $
5,871
4.6 % $ (1,165)
20,990
11,868
25,779
7,683
21,851
18,002
22,136
8,224
47,965
47,610
(571)
(2.6)%
(861)
(3.9)%
(6,134)
(34.1)%
(6,134)
(34.1)%
3,989
(290)
361
18.0 %
(3.5)%
0.8 %
3,643
(541)
355
16.5 %
(6.6)%
0.7 %
4
—
(28)
(15)
(53)
Total non-freight revenues
$ 250,107
$
1,625
$ 248,482
$ 246,149
$
3,958
1.6 % $
2,333
0.9 % $ (1,257)
Non-freight revenues increased $4.0 million, or 1.6%, to $250.1 million in the year ended December 31, 2012, compared
with $246.1 million in the year ended December 31, 2011. The increase in non-freight revenues was attributable to $2.3
million from existing operations and $1.6 million from new operations. The increase in existing operations was principally due
to higher railcar switching revenues of $5.9 million due to new and expanded customer service contracts in Australia and the
United States, an increase in demurrage and storage revenues of $3.6 million due to an increase in the number of third-party
railcars being stored in the United States and Canada, partially offset by a $6.1 million decrease in fuel sales to third parties
due to the sale of our fuel-sales business in South Australia in the third quarter of 2012 and a $1.3 million decrease due to the
net depreciation of foreign currencies relative to the United States dollar.
Operating Expenses
Overview
Operating expenses were $684.6 million in the year ended December 31, 2012, compared with $637.3 million in the
year ended December 31, 2011, an increase of $47.3 million, or 7.4%. The increase in operating expenses was attributable to
$33.9 million from existing operations and $13.4 million from new operations. The increase in existing operations was
primarily due to $18.6 million of acquisition-related expenses from the RailAmerica acquisition, $11.5 million of severance
costs and expenses from the acceleration of stock-based compensation of RailAmerica employees and a $17.9 million increase
in labor and benefits, partially offset by a $7.8 million decrease in equipment rents, a $5.6 million increase in net gain on sale
of assets and a $4.7 million increase in gain on insurance recoveries. In addition, the net depreciation of foreign currencies
relative to the United States dollar resulted in a $0.8 million decrease in operating expenses from existing operations.
Operating Ratio
Our operating ratio, defined as total operating expenses divided by total operating revenues, was 78.2% in the year
ended December 31, 2012 compared with 76.9% in the year ended December 31, 2011. Included in our operating ratio
calculation for the year ended December 31, 2012 were $30.0 million of acquisition and integration-related costs associated
with the acquisition of RailAmerica and severance costs and expenses from the acceleration of stock-based compensation of
RailAmerica employees. Changes in foreign currency exchange rates can have a material impact on our operating revenues
and operating expenses. However, the net impact of these foreign currency translation effects should not have a material
impact on our operating ratio.
60
The following table sets forth a comparison of our operating expenses in the years ended December 31, 2012 and 2011
(dollars in thousands):
2012
2011
Amount
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Currency Impact
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel sold to third parties
Casualties and insurance
Materials
Trackage rights
Net (gain)/loss on sale and
impairment of assets
Gain on insurance recoveries
Other expenses
RailAmerica acquisition-related
costs
RailAmerica integration costs
$
257,618
29.5 % $
236,152
28.5 % $
37,322
80,572
73,405
88,399
11,322
24,858
25,240
28,250
(11,225)
(5,760)
44,549
18,592
11,452
4.3 %
9.2 %
8.4 %
10.1 %
1.3 %
2.8 %
2.9 %
3.2 %
(1.3)%
(0.7)%
5.1 %
2.1 %
1.3 %
43,885
78,741
66,481
88,499
16,986
22,469
26,419
23,066
(5,660)
(1,061)
41,340
—
—
5.3 %
9.5 %
8.0 %
10.7 %
2.0 %
2.7 %
3.2 %
2.8 %
(0.7)%
(0.1)%
5.0 %
— %
— %
Total operating expenses
$
684,594
78.2 % $
637,317
76.9 % $
(437)
(22)
(160)
(75)
—
—
44
(69)
(64)
(16)
59
(52)
—
—
(792)
Labor and benefits expense was $257.6 million in the year ended December 31, 2012, compared with $236.2 million in
the year ended December 31, 2011, an increase of $21.5 million, or 9.1%, of which $17.5 million was from existing operations
and $4.0 million was from new operations. The increase from existing operations consisted of $8.2 million due to an increase
in the average number of employees, $5.9 million from annual wage increases and $3.8 million of benefit increases (primarily
health care costs), partially offset by $0.4 million due to the net depreciation of the Australian and Canadian dollars and the
Euro relative to the United States dollar. Our average number of employees during the year ended December 31, 2012
increased by 50 employees compared with our average number of employees during the year ended December 31, 2011.
Equipment rents expense was $37.3 million in the year ended December 31, 2012, compared with $43.9 million in the
year ended December 31, 2011, a decrease of $6.6 million, or 15.0%. The decrease was primarily due to the replacement of
leased locomotives in Australia with new owned units and a decrease in freight car rents in the United States, which was
partially offset by $1.3 million from new operations.
Purchased services expense, which consists of the costs of services provided by outside contractors for repairs and
maintenance of track property, locomotives, freight cars and other equipment as well as contract labor costs for crewing and
drayage services, was $80.6 million in the year ended December 31, 2012, compared with $78.7 million in the year ended
December 31, 2011, an increase of $1.8 million, or 2.3%. The increase was primarily related to increased use of contract
services for repairs and maintenance of the locomotive and railcar fleets in Australia, partially offset by the decrease in
expense related to the sale of our drayage business in 2011.
Depreciation and amortization expense was $73.4 million in the year ended December 31, 2012, compared with $66.5
million in the year ended December 31, 2011, an increase of $6.9 million, or 10.4%. The increase was attributable to a $4.9
million increase from existing operations, primarily due to new locomotives and railcars in Australia, and $2.0 million from
new operations.
The cost of diesel fuel used in operations was $88.4 million in the year ended December 31, 2012, compared with $88.5
million in the year ended December 31, 2011, a decrease of $0.1 million. The decrease was attributable to a $2.6 million
decrease in existing operations, partially offset by a $2.5 million increase in new operations. The decrease from existing
operations was composed of $5.7 million due to a 6.3% decrease in diesel fuel consumption, primarily related to a 9.1%
decrease in carloads, partially offset by $3.1 million from a 3.5% increase in average fuel cost per gallon.
61
The cost of diesel fuel sold to third parties was $11.3 million in the year ended December 31, 2012, compared with
$17.0 million in the year ended December 31, 2011, a decrease of $5.7 million, or 33.3%. The decrease was primarily due to
the sale of our third-party fuel-sales business South Australia in the third quarter of 2012.
Net gain on sale of assets was $11.2 million in the year ended December 31, 2012, compared with $5.7 million in the
year ended December 31, 2011. The increase was primarily attributable to a $5.3 million gain on sale of land and track in
Canada and a $1.8 million gain on sale of certain assets in South Australia in the third quarter of 2012.
Gain on insurance recoveries in the year ended December 31, 2012 of $5.8 million was related primarily to a business
interruption claim associated with the Edith River Derailment (described in Note 5, Accounts Receivable and Allowance For
Doubtful Accounts, to our Consolidated Financial Statements included elsewhere in this Annual Report). Gain on insurance
recoveries in the year ended December 31, 2011 of $1.1 million related to a business interruption claim associated with
Cyclone Carlos.
Other expenses were $44.5 million in the year ended December 31, 2012, compared with $41.3 million in the year ended
December 31, 2011, an increase of $3.2 million, or 7.8%. The increase was primarily attributable to an increase in property tax
expenses and $0.9 million from new operations.
RailAmerica acquisition-related costs in the year ended December 31, 2012 of $18.6 million consisted of acquisition and
financing-related expenses from the RailAmerica acquisition.
RailAmerica integration costs in the year ended December 31, 2012 of $11.5 million consisted primarily of severance
costs and expenses from the acceleration of stock-based compensation of RailAmerica employees.
Other Income (Expense) Items
Interest Income
Interest income was $3.7 million in the year ended December 31, 2012, compared with $3.2 million in the year ended
December 31, 2011.
Interest Expense
Interest expense was $62.8 million in the year ended December 31, 2012, compared with $38.6 million in the year ended
December 31, 2011. The increase in interest expense was primarily due to our Credit Agreement entered into in conjunction
with the acquisition of RailAmerica, including a $12.6 million make-whole payment resulting from the redemption of pre-
existing senior notes, the write-off of $0.5 million of debt issuance costs and higher outstanding debt due to the acquisition.
Contingent Forward Sale Contract
In conjunction with our announcement on July 23, 2012 of our plan to acquire RailAmerica, we entered into the
Investment Agreement with Carlyle in order to partially fund the acquisition of RailAmerica. Pursuant to the Investment
Agreement, Carlyle agreed to purchase a minimum of $350.0 million of Preferred Stock, which Preferred Stock was
convertible into our Class A common stock in certain circumstances. The conversion price of the Preferred Stock was set at
approximately $58.49, which was a 4.5% premium to our stock price on the trading day prior to the announcement of the
RailAmerica acquisition. For the period between July 23, 2012 and September 30, 2012, this instrument was accounted for as
a contingent forward sale contract with mark-to-market non-cash income or expense included in our consolidated financial
results and the cumulative effect represented as an asset or liability. Our closing price was $66.86 on September 28, 2012,
which was the last trading day prior to issuing the Preferred Stock, and, accordingly, we recorded a $50.1 million non-cash
mark-to-market expense related to the Investment Agreement for the year ended December 31, 2012. See Note 10, Derivative
Financial Instruments, to our Consolidated Financial Statements included elsewhere in this Annual Report for further details
on the contingent forward sale contract and Note 4, Earnings Per Common Share, to our Consolidated Financial Statements
included elsewhere in this Annual Report for details regarding the conversion of the Preferred Stock.
62
Provision for Income Taxes
The $50.1 million mark-to-market expense associated with the contingent forward sale contract included in our income
before income taxes for the year ended December 31, 2012 is a non-deductible expense for income tax purposes. As a result,
our provision for income tax was $46.4 million for the year ended December 31, 2012, which represents 34.8% of income
before income taxes other than the mark-to-market expense. Our effective income tax rate was 24.4% in the year ended
December 31, 2011. The increase in the effective income tax rate for the year ended December 31, 2012 was primarily
attributable to the expiration of the United States Short Line Tax Credit on December 31, 2011. On January 2, 2013, the United
States Short Line Tax Credit was extended for 2012 and 2013. The extension of the United States Short Line Tax Credit
produced book income tax benefits of $41.0 million for fiscal year 2012 and was recorded in the first quarter of 2013 when the
extension became law.
Net Income and Earnings Per Share Attributable to G&W Common Stockholders
Net income was $52.4 million in the year ended December 31, 2012, compared with net income of $119.5 million in the
year ended December 31, 2011. Our net income in the year ended December 31, 2012 included the $50.1 million mark-to-
market expense associated with the contingent forward sale contract. Our basic EPS were $1.13 with 42.7 million weighted
average shares outstanding in the year ended December 31, 2012, compared with basic EPS of $2.99 with 39.9 million
weighted average shares outstanding in the year ended December 31, 2011. Our diluted EPS in the year ended December 31,
2012 were $1.02 with 51.3 million weighted average shares outstanding, compared with diluted EPS in the year ended
December 31, 2011 of $2.79 with 42.8 million weighted average shares outstanding. The weighted average shares outstanding
in the year ended December 31, 2012 included 1,066,867 shares as a result of the public offering of Class A common stock and
850,773 shares as a result of the public offering of TEUs, which both took place in September of 2012.
Segment Information
Our various railroad lines are organized into 11 operating regions. Since all of the regions have similar characteristics,
they previously had been aggregated into one reportable segment. Beginning January 1, 2011, we decided to present our
financial information as two reportable segments — North American & European Operations and Australian Operations.
The results of operations of our foreign entities are maintained in the respective local currency (the Australian dollar, the
Canadian dollar and the Euro) and then translated into United States 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 United
States dollar can impact our results of operations.
63
The following table sets forth our North American & European Operations and Australian Operations for the years
ended December 31, 2012 and 2011 (dollars in thousands):
Revenues:
Freight
Non-freight
Fuel sales to third parties
Total revenues
Operating expenses
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel sold to third parties
Casualties and insurance
Materials
Trackage rights
Net (gain)/loss on sale and
impairment of assets
Gain on insurance recoveries
Other expenses
RailAmerica acquisition-related
costs
RailAmerica integration costs
2012
2011
North
American &
European
Operations
Australian
Operations
Total
Operations
North
American &
European
Operations
Australian
Operations
Total
Operations
$ 412,839
$ 211,970
$ 624,809
$ 388,797
$ 194,150
$ 582,947
173,054
—
65,185
11,868
585,893
289,023
238,239
11,868
874,916
168,824
—
59,323
18,002
557,621
271,475
228,147
18,002
829,096
197,407
26,298
26,330
50,156
56,298
—
16,244
23,569
17,643
(9,178)
—
35,695
18,592
11,452
60,211
11,024
54,242
23,249
32,101
11,322
8,614
1,671
10,607
(2,047)
(5,760)
8,854
—
—
257,618
186,467
37,322
80,572
73,405
88,399
11,322
24,858
25,240
28,250
(11,225)
(5,760)
44,549
18,592
11,452
26,460
27,911
47,218
57,394
—
14,710
24,138
14,368
(5,167)
(43)
34,519
—
—
49,685
17,425
50,830
19,263
31,105
16,986
7,759
2,281
8,698
(493)
(1,018)
6,821
—
—
236,152
43,885
78,741
66,481
88,499
16,986
22,469
26,419
23,066
(5,660)
(1,061)
41,340
—
—
Total operating expenses
470,506
214,088
684,594
427,975
209,342
637,317
Income from operations
$ 115,387
$
74,935
$ 190,322
$ 129,646
$
62,133
$ 191,779
Operating ratio
Interest expense
Interest income
Contingent forward sale mark-to-
market expense
Provision for income taxes
Income from equity investment in
RailAmerica, net
Carloads
Expenditures for additions to
property & equipment, net of grants
from outside parties
80.3%
74.1%
78.2%
76.8%
77.1%
76.9%
$
$
$
$
$
45,996
3,219
50,106
28,451
15,557
723,448
$
$
$
$
$
16,849
506
$
$
62,845
3,725
— $
50,106
17,951
$
46,402
— $
15,557
$
$
$
$
$
23,171
2,950
$
$
15,446
$ 38,617
293
$
3,243
— $
— $
—
26,181
$
12,350
$ 38,531
— $
— $
—
203,646
927,094
785,377
211,671
997,048
$
69,636
$ 122,426
$ 192,062
$
59,383
$
96,643
$ 156,026
64
Revenues from our North American & European Operations were $585.9 million in the year ended December 31, 2012,
compared with $557.6 million in the year ended December 31, 2011, an increase of $28.3 million, or 5.1%. The $28.3 million
increase in revenues from our North American & European Operations included a $24.0 million increase in freight revenues
and a $4.2 million increase in non-freight revenues. The $24.0 million increase in freight revenues consisted of an increase of
$2.9 million from existing operations and $21.1 million from new operations.
Operating expenses from our North American & European Operations were $470.5 million in the year ended
December 31, 2012, compared with $428.0 million in the year ended December 31, 2011, an increase of $42.5 million, or
9.9%. The $42.5 million increase in operating expenses from our North American & European Operations included $29.1
million from existing operations and $13.4 million from new operations. The $29.1 million increase in operating expenses
from existing operations was primarily due to an increase of $18.6 million of RailAmerica acquisition-related costs and $11.5
million of RailAmerica integration expenses, partially offset by a $1.3 million decrease due to the depreciation of the
Canadian dollar and the Euro relative to the United States dollar.
Revenues from our Australian Operations were $289.0 million in the year ended December 31, 2012, compared with
$271.5 million in the year ended December 31, 2011, an increase of $17.5 million. The increase in revenues included a $17.8
million increase in freight revenues and a $5.9 million increase in non-freight revenues, partially offset by a $6.1 million
decrease in fuel sales to third parties. The $17.8 million increase in freight revenues was primarily driven by a new iron ore
contact in South Australia which began in October 2012. The $5.9 million increase in non-freight revenues was primarily
driven by an increased level of activity with existing customers. The $6.1 million decrease in fuel sales to third parties was
primarily due to the sale of our third-party fuel-sales business in South Australia in the third quarter of 2012.
Operating expenses from our Australian Operations were $214.1 million in the year ended December 31, 2012,
compared with $209.3 million in the year ended December 31, 2011, an increase of $4.7 million. The increase in operating
expenses primarily resulted from the additional resources required to support a new iron ore contract in South Australia,
including approximately 50 new employees and additional depreciation expense resulting from the purchase of new
equipment, as well as an increase in other operating expenses primarily due to increased trackage rights and property tax
expenses, partially offset by higher insurance recoveries in 2012 primarily related to a business interruption claim associated
with the Edith River Derailment (described in Note 5, Accounts Receivable and Allowance For Doubtful Accounts, to our
Consolidated Financial Statements included elsewhere in this Annual Report) and a decrease in equipment rents due to the
replacement of leased locomotives with new owned units.
Liquidity and Capital Resources
We had cash and cash equivalents on hand of $62.9 million and $64.8 million at December 31, 2013 and 2012,
respectively. Based on current expectations, we believe our cash and other liquid assets, anticipated future cash flows,
availability under our Credit Agreement, access to debt and equity capital markets and sources of available financing will be
sufficient to fund expected operating, capital and debt service requirements and other financial commitments for the
foreseeable future. During 2014, we expect to fund the pending acquisition of the assets comprising the western end of the
DM&E with borrowings under our Credit Agreement.
At December 31, 2013, we had long-term debt, including current portion, of $1.6 billion, which comprised 43.1% of
our total capitalization, and $406.0 million of unused borrowing capacity. At December 31, 2012, we had long-term debt,
including current portion, totaling $1.9 billion, which comprised 49.5% of our total capitalization and $396.3 million of
unused borrowing capacity.
During 2013, 2012 and 2011, we generated $413.5 million, $170.7 million and $173.5 million, respectively, of cash
from operating activities. Changes in working capital decreased net cash flows from operating activities by $25.5 million,
$30.9 million and $36.8 million in 2013, 2012 and 2011, respectively. The $25.5 million change for 2013 was attributable to
a $44.5 million increase in accounts receivable, partially offset by a $16.4 million increase in accounts payable and accrued
expenses. The 2013 period included $12.9 million in cash paid for expenses related to the integration of RailAmerica. Of the
$30.9 million change in working capital for 2012, $30.1 million was due to a reduction in accounts payable and accrued
expenses, which included $9.1 million associated with the settlement of a cross-currency swap that matured in December
2012 and $6.3 million in net cash payments related to the December 2011 Edith River derailment. Of the $36.8 million
change in working capital for 2011, $25.6 million was due to a reduction in accounts payable and accrued expenses and $12.3
million was due to an increase in accounts receivable driven by an increase in business in 2011. The $25.6 million reduction
in accounts payable and accrued expenses included $13.0 million associated with the payment of Australian stamp duty for
the acquisition of FreightLink in Australia and $10.5 million due to the timing of the payment of Australian income taxes.
65
During 2013, 2012 and 2011, our cash used in investing activities was $208.7 million, $2.1 billion and $235.1 million,
respectively. For 2013, primary drivers of cash used in investing activities were $249.3 million of cash used for capital
expenditures, including $34.2 million for new business investments, partially offset by $33.9 million in cash received from
grants from outside parties for capital spending and $6.7 million in cash proceeds from the sale of property and equipment.
For 2012, primary drivers of cash used in investing activities were $1.9 billion of net cash paid for acquisitions, primarily
related to the acquisition of RailAmerica, and $231.7 million of cash used for capital expenditures, including $101.9 million
for new business investments in Australia, partially offset by $39.6 million in cash received from grants from outside parties
and $15.3 million in cash proceeds from the sale of property and equipment. For 2011, primary drivers of cash used in
investing activities were $178.7 million of cash used for capital expenditures, including $78.2 million for new business
investments in Australia, and $89.9 million in net cash paid for acquisitions, primarily related to the acquisition of AZER,
partially offset by $22.6 million in cash received from grants from outside parties and $9.5 million in proceeds from the
disposition of property and equipment.
During 2013, our cash used in financing activities was $205.9 million, compared with cash provided by financing
activities in 2012 and 2011 of $2.0 billion and $62.0 million, respectively. For 2013, primary drivers of cash used in
financing activities were a net decrease in outstanding debt of $209.3 million, $2.8 million of debt amendment costs and $2.1
million of dividends paid to Preferred Stockholders, partially offset by net cash inflows of $8.3 million from exercises of
stock-based awards. For 2012, primary drivers of cash provided by financing activities were a net increase in outstanding
debt of $1.2 billion, net proceeds of $234.3 million from the sale of our Class A common stock, net proceeds of $222.9
million from the sale of our TEUs, net proceeds of $349.4 million from the issuance of our Preferred Stock and net cash
inflows of $20.3 million from exercises of stock-based awards, partially offset by $38.8 million of debt amendment costs. For
2011, primary drivers of cash provided by financing activities were a net increase in outstanding debt of $47.9 million and net
cash inflows of $18.9 million from exercises of stock-based awards, partially offset by $4.7 million of debt amendment costs.
Purchase of Assets Comprising Western End of Canadian Pacific's Dakota, Minnesota & Eastern Rail Line
On January 2, 2014, we and Canadian Pacific (CP) jointly announced our entry pursuant to an agreement under which
we will purchase the assets comprising the western end of CP's Dakota, Minnesota & Eastern Railroad (DM&E) rail line for
a cash purchase price of approximately $210 million, subject to certain adjustments including the purchase of materials and
supplies, equipment and vehicles. We intend to fund the acquisition with borrowings under our existing credit facilities.
The asset acquisition is expected to close by mid-2014, subject to approval of the STB and the satisfaction of other
customary closing conditions. Upon closing, our new railroad will be named Rapid City, Pierre & Eastern Railroad. We
expect to hire approximately 180 employees to staff the new railroad and anticipate these employees will come primarily
from those currently working on the rail line.
The western end encompasses approximately 670 miles of CP's current operations between Tracy, Minnesota and Rapid
City, South Dakota; north of Rapid City to Colony, Wyoming; south of Rapid City to Dakota Junction, Nebraska; and
connecting branch lines as well as trackage from Dakota Junction to Crawford, Nebraska, currently leased to the Nebraska
Northwestern Railroad (NNW). Customers on the line ship approximately 52,000 carloads annually of grain, bentonite clay,
ethanol, fertilizer and other products. The new rail operation will have the ability to interchange with CP, Union Pacific,
BNSF and NNW.
RailAmerica Acquisition and Related Financings
On October 1, 2012, we announced the closing of our acquisition of RailAmerica and entered into the Credit
Agreement, which was comprised of $1.9 billion in term loans and a $425.0 million revolving credit facility. We financed the
$1.4 billion cash purchase price for RailAmerica's shares, the refinancing of $1.2 billion of our and RailAmerica's debt, as
well as transaction and financing-related expenses, with $1.8 billion of debt from our Credit Agreement, $475.5 million of
gross proceeds from our public offerings of Class A common stock and TEUs and $350.0 million of gross proceeds through
the private issuance of Preferred Stock to Carlyle, as more fully described in Note 3, Changes in Operations, and Note 9,
Long-Term Debt, to our Consolidated Financial Statements included elsewhere in this Annual Report.
On October 1, 2012, in connection with the RailAmerica acquisition, we repaid in full all outstanding loans, together
with interest and all other amounts due under our previously outstanding credit agreement. In addition, we repaid in full our
outstanding Series B senior notes on October 1, 2012, along with an aggregate $12.6 million make-whole payment. In
connection with such repayment, we wrote off $3.2 million of unamortized debt issuance costs.
66
As part of the financing for the RailAmerica acquisition, on October 1, 2012, we completed the issuance of 350,000
shares of Preferred Stock at an issuance price of $1,000.00 per share for $349.4 million, net of issuance costs, to Carlyle
pursuant to the Investment Agreement. Dividends on the Preferred Stock were cumulative and payable quarterly in arrears in
an amount equal to 5.00% per annum of the issuance price per share. Each share of the Preferred Stock was convertible at
any time, at the option of the holder, into approximately 17.1 shares of Class A common stock, subject to customary
conversion adjustments. The Preferred Stock was also mandatorily convertible into the relevant number of shares of Class A
common stock on the second anniversary of the date of issuance, subject to the satisfaction of certain conditions.
Furthermore, we had the ability to convert some or all of the Preferred Stock prior to the second anniversary of the date of
issue of the Preferred Stock if the closing price of our Class A common stock on the New York Stock Exchange exceeded
130% of the conversion price (or $76.03) for 30 consecutive trading days, subject to the satisfaction of certain conditions.
The conversion price of the Preferred Stock was set at approximately $58.49, which was a 4.5% premium to our stock price
prior to the announcement of the RailAmerica acquisition.
As of February 12, 2013, the closing price of our Class A common stock had exceeded $76.03 for 30 consecutive
trading days. On February 13, 2013, we exercised our option to convert all of the outstanding Preferred Stock issued to
Carlyle into 5,984,232 shares of our Class A common stock. On the conversion date, we also paid to Carlyle all accrued and
unpaid dividends on the Preferred Stock of $2.1 million, as well as cash in lieu of fractional shares. In November 2013,
Carlyle sold all of these outstanding shares of our Class A common stock in a public offering.
In connection with the funding of the RailAmerica acquisition described above, on September 19, 2012, we issued
2,300,000 5.00% TEUs. Each TEU initially consisted of a prepaid stock purchase contract (Purchase Contract) and a senior
amortizing note due October 1, 2015 (Amortizing Note) issued by us, which had an initial principal amount of $14.1023 per
Amortizing Note. As of December 31, 2013, the Amortizing Notes had an aggregate principal amount of $21.9 million. On
each January 1, April 1, July 1 and October 1, we are required to pay holders of Amortizing Notes equal quarterly
installments of $1.25 per Amortizing Note (except for the January 1, 2013 installment payment, which was $1.4167 per
Amortizing Note), which cash payments in the aggregate will be equivalent to a 5.00% cash payment per year with respect to
each $100 stated amount of the TEUs. Each installment constitutes a payment of interest (at an annual rate of 4.50%) and a
partial repayment of principal on the Amortizing Note. The Amortizing Notes have a scheduled final installment payment
date of October 1, 2015. If we elect to settle the Purchase Contracts early, holders of the Amortizing Notes will have the right
to require us to repurchase such holders' Amortizing Notes, except in certain circumstances as described in the indenture
governing the Amortizing Notes.
Unless settled or redeemed earlier, each Purchase Contract will automatically settle on October 1, 2015 (subject to
postponement in certain limited circumstances) and we will deliver a number of shares of our Class A common stock based
on the applicable market value of our Class A common stock, as defined in the Purchase Contract, which will be between
1.2355 shares and 1.5444 shares (subject to adjustment) per each $100 stated amount of the TEUs based on our share price at
the time of settlement. Each TEU may be separated into its constituent Purchase Contract and Amortizing Note after the
initial issuance date of the TEU, and the separate components may be combined to create a TEU. The Amortizing Note
component of the TEU is recorded as debt and the Purchase Contract component of the TEU is recorded in equity as
additional paid-in capital. On September 19, 2012, we recorded $197.6 million, the initial fair value of the Purchase
Contracts, as additional paid-in capital, which was partially offset by $6.1 million of underwriting discounts and commissions
and offering expenses.
Our basic and diluted earnings per share calculations reflect the weighted average shares issuable upon settlement of the
Purchase Contract component of the TEUs. For purposes of determining the number of shares included in the calculation, we
used the market price of our Class A common stock at the period end date.
Cash Repatriation
At December 31, 2013, we had cash and cash equivalents totaling $62.9 million, of which $26.1 million was held in our
foreign subsidiaries. We file a consolidated United States federal income tax return that includes all of our United States
subsidiaries. Each of our foreign subsidiaries files income tax returns in each of its respective countries. No provision is made
for the United States 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 United States income taxes (appropriately reduced by available
foreign tax credits) and withholding taxes payable to various foreign countries; however, the amount of the tax and credits is
not practically determinable. The amount of undistributed earnings of our controlled foreign subsidiaries as of December 31,
2013 was $268.9 million.
67
Credit Agreement
As of October 1, 2012, the Credit Agreement included a $425.0 million revolving credit facility, a $1.6 billion United
States term loan, a C$24.6 million ($25.0 million at the exchange rate on October 1, 2012) Canadian term loan and an
A$202.9 million ($210.0 million at the exchange rate on October 1, 2012) Australian term loan. The revolving credit facility
also includes borrowing capacity for letters of credit and for borrowings on same-day notice, referred to as swingline loans.
The Credit Agreement has a maturity date of October 1, 2017.
The Credit Agreement allows for borrowings under the revolving credit facility in United States dollars, Euros,
Canadian dollars and Australian dollars. Under the revolving credit facility, the applicable borrowing spread for the United
States base rate loans and Canadian base rate loans under the Credit Agreement initially were 1.50% over the base rate
through December 31, 2012 and ranged from 0.50% to 1.75% over the base rate depending upon our total leverage ratio
through March 27, 2013. The applicable borrowing spread in the case of the United States, Canadian and European loans is
the London Interbank Offered Rate (LIBOR) and the Australian loans is the Bank Bill Swap Reference Rate (BBSW), which
were initially 2.50% over the LIBOR and BBSW rate through December 31, 2012 and ranged from 1.50% to 2.75% over
these rates depending upon our total leverage ratio through March 27, 2013. BBSW is the wholesale interbank reference rate
within Australia, which we believe is generally considered the Australian equivalent to LIBOR. On March 28, 2013, we
entered into Amendment No. 1 (the Amendment) to the Credit Agreement. As a result of the Amendment, the applicable
borrowing spread for the United States and Canadian base rate loans under the revolving credit facility were reduced to
0.25% to 1.50% over the base rate and the applicable borrowing spread for the United States, Canadian, European and
Australian term loans were reduced to 1.25% to 2.50% over the respective LIBOR and BBSW rates depending upon our total
leverage ratio.
The existing term loans and loans under the revolving credit facility are guaranteed by substantially all of our United
States subsidiaries for the United States guaranteed obligations and by substantially all of our foreign subsidiaries for the
foreign guaranteed obligations. The Credit Agreement is collateralized by a substantial portion of the real and personal
property assets of our domestic subsidiaries that have guaranteed the United States obligations under the Credit Agreement
and a substantial portion of the personal property assets of our foreign subsidiaries that have guaranteed the foreign
obligations under the Credit Agreement.
During the three months ended December 31, 2012, we made prepayments on our United States term loan of $47.5
million, prepayments on our Canadian term loan of C$10.0 million (or $10.0 million at the exchange rate on the date it was
paid) and prepayments on our Australian term loan of A$18.0 million (or $18.6 million at the exchange rate on the date it was
paid). We also made scheduled quarterly principal payments of $16.4 million on our United States term loan, C$0.2 million
(or $0.2 million at the average exchange rate during the period in which paid) on our Canadian term loan and A$2.0 million
(or $2.1 million at the average exchange rate during the period in which paid) on our Australian term loan during the three
months ended December 31, 2012.
In March 2013, we prepaid in full the remaining balance on our Canadian term loan, which resulted in the write-off of
unamortized deferred financing costs of $0.5 million. In addition, during the year ended December 31, 2013, we made
prepayments of $79.0 million and scheduled quarterly principal payments totaling $63.7 million on our United States term
loan. During the year ended December 31, 2013, we made prepayments of A$24.0 million (or $23.6 million at the average
exchange rates during the periods in which paid) and scheduled quarterly principal payments totaling A$8.1 million (or $7.7
million at the average exchange rates during the periods in which paid) on our Australian term loan.
As of December 31, 2013, we had outstanding term loans of $1.4 billion in the United States with an interest rate of
1.92% and A$150.8 million in Australia (or $134.4 million at the exchange rate on December 31, 2013) with an interest rate
of 4.40%. As of December 31, 2013, we had outstanding revolving credit facilities of $11.0 million in the United States with
an interest rate of 1.92% and €3.6 million in Europe (or $4.9 million at the exchange rate on December 31, 2013) with an
interest rate of 1.97%.
In addition to paying interest on any outstanding borrowings under the Credit Agreement, we are required to pay a
commitment fee in respect of the unutilized portion of the commitments under the revolving credit facility. The commitment
fee rate initially was 0.50% per annum through December 31, 2012 and will range from 0.25% to 0.50% depending upon our
total leverage ratio thereafter. We also pay customary letter of credit and agency fees.
68
The Credit Agreement also includes (a) a $45.0 million sub-limit for the issuance of standby letters of credit and
(b) sub-limits for swingline loans including (i) up to $30.0 million under the United States revolving credit facility, (ii) up to
$15.0 million under each of the Canadian revolving credit facility and the Australian revolving credit facility and (iii) up to
$10.0 million under the Euro revolving credit facility.
The Credit Agreement contains a number of customary affirmative and negative covenants that, among other things,
limit or prohibit our ability, subject to certain exceptions, to incur additional indebtedness; create liens; make investments;
pay dividends on capital stock or redeem, repurchase or retire capital stock; consolidate or merge or make acquisitions or
dispose of assets; enter into sale and leaseback transactions; engage in any business unrelated to the business currently
conducted by us; sell or issue capital stock of any of our restricted subsidiaries; change our fiscal year; enter into certain
agreements containing negative pledges and upstream limitations and engage in certain transactions with affiliates. Under the
Credit Agreement, we may not have an interest coverage ratio less than 3.50 to 1.00 as of the last day of any fiscal quarter. In
addition, we may not exceed specified maximum total leverage ratios as described in the following table:
Period
Closing Date through September 30, 2013
October 1, 2013 through September 30, 2014
October 1, 2014 through September 30, 2015
October 1, 2015 and thereafter
Maximum Total
Leverage Ratio
4.75 to 1.00
4.25 to 1.00
3.75 to 1.00
3.50 to 1.00
As of December 31, 2013, we were in compliance with the covenants under our Credit Agreement. As of December 31,
2013, our $425.0 million revolving credit facility consisted of $15.9 million of outstanding debt, subsidiary letters of credit
guarantees of $3.1 million and $406.0 million of unused borrowing capacity. Subject to maintaining compliance with the
covenants under the Credit Agreement, the $406.0 million of unused borrowing capacity as of December 31, 2013 is
available for working capital, capital expenditures, permitted investments, permitted acquisitions, refinancing existing
indebtedness and general corporate purposes. We expect to use a portion of the availability under our Credit Agreement to
fund the pending acquisition of the assets comprising the western end of the DM&E.
On July 29, 2011, we entered into the Third Amended and Restated Revolving Credit and Term Loan Agreement (Prior
Credit Agreement), which replaced our credit agreement then in effect. The Prior Credit Agreement had a borrowing capacity
of $750.0 million and a maturity date of July 29, 2016. The Prior Credit Agreement included a $425.0 million revolving
credit facility, a $200.0 million United States term loan, an A$92.2 million ($100.0 million at the July 29, 2011 exchange
rate) Australian term loan and a C$23.6 million ($25.0 million at the July 29, 2011 exchange rate) Canadian term loan. As
described above, in connection with the RailAmerica acquisition, on October 1, 2012, we repaid in full all outstanding loans,
together with interest and all other amounts due under the Prior Credit Agreement. No penalties were due in connection with
such repayments. In connection with the repayment of the Prior Credit Agreement, we wrote off $2.9 million of unamortized
debt issuance costs and incurred $0.5 million of legal expenses during the year ended December 31, 2012.
Senior Notes
In 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 bore interest at 5.36% and were due in July 2015. On October 1, 2012, we repaid the
$100.0 million of outstanding Series B senior notes, along with an aggregate $12.6 million make-whole payment, with
proceeds from the Credit Agreement. The Series C senior notes had a borrowing rate of three-month LIBOR plus 0.70% and
were repaid in July 2012 through borrowings under the Prior Credit Agreement. In addition, we wrote off $0.3 million of
unamortized debt issuance costs associated with our senior notes during the year ended December 31, 2012.
69
TEUs
As discussed above in “RailAmerica Acquisition and Related Financing,” each TEU consists of an Amortizing Note
due October 1, 2015, with an initial principal amount of $14.1023 per note. As of December 31, 2013, the Amortizing Notes
had an aggregate principal amount of $21.9 million. On each January 1, April 1, July 1 and October 1, we are required to pay
holders of Amortizing Notes equal quarterly installments of $1.25 per Amortizing Note (except for the January 1, 2013
installment payment, which was $1.4167 per Amortizing Note), which cash payments in the aggregate will be equivalent to a
5.00% cash payment per year with respect to each $100 stated amount of the TEUs. Each installment constitutes a payment
of interest (at an annual rate of 4.50%) and a partial repayment of principal on the Amortizing Note. The Amortizing Notes
have a scheduled final installment payment date of October 1, 2015. If we elect to settle the Purchase Contracts early, holders
of the Amortizing Notes will have the right to require us to repurchase such holders' Amortizing Notes, except in certain
circumstances as described in the indenture governing the Amortizing Notes.
Non-Interest Bearing Loan
In 2010, as part of the acquisition of FreightLink, we assumed debt with a carrying value of A$1.8 million (or $1.7
million at the exchange rate on December 1, 2010), which represented the fair value of an A$50.0 million (or $48.2 million at
the exchange rate on December 1, 2010) non-interest bearing loan due in 2054. As of December 31, 2013, the carrying value
of the loan was A$2.3 million (or $2.0 million at the exchange rate on December 31, 2013) with a non-cash imputed interest
rate of 8.0%.
Equipment and Property Leases
We enter into operating leases for railcars, locomotives and other equipment as well as real property. We also enter into
agreements with other railroads and other third parties to operate over certain sections of their track and pay a per car fee to
use the track or an annual lease payment. The costs associated with operating leases are expensed as incurred.
The number of railcars and locomotives leased by us, including 8,004 railcars and 175 locomotives acquired from
RailAmerica in 2012, as of December 31, 2013 and 2012 was as follows:
Railcars
Locomotives
December 31,
2013
2012
17,718
100
18,311
182
Our operating lease expense for equipment and real property leases and expense for the use of other railroad and other
third parties' track for the years ended December 31, 2013, 2012 and 2011 was as follows (2012 excludes lease expense
related to RailAmerica's equipment and real property leases and trackage rights expense included in equity earnings for the
period from October 1, 2012 to December 28, 2012) (dollars in thousands):
Equipment
Real property
Trackage rights
2013
2012
2011
$
$
$
32,050
8,062
50,911
$
$
$
13,386
5,055
28,250
$
$
$
19,328
4,632
23,066
We are party to several lease agreements with Class I carriers and other third parties to operate over various rail lines in
North America, with varied expirations. Certain of these lease agreements have annual lease payments. Revenues from
railroads we lease from Class I carriers and other third parties accounted for approximately 9% of our 2013 total revenues.
Leases from Class I railroads and other third parties that are subject to expiration in each of the next 10 years represent less
than 2% of our annual revenues in the year of expiration based on our operating revenues for the year ended December 31,
2013.
70
Shelf Registration
We have an effective shelf registration statement on file with the SEC for an indeterminate number of securities that is
effective for three years (expires September 12, 2015), after which time we expect to be able to file an automatic shelf
registration statement that would become immediately effective for another three-year term. Under this universal shelf
registration statement, we have the capacity to offer and sell from time to time securities, including common stock, debt
securities, preferred stock, warrants and units.
Grants from Outside Parties
Our railroads have received a number of project grants from federal, provincial, state and local agencies and other
outside parties (e.g., customers) for upgrades and construction of rail lines and upgrades of locomotives. 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 upgraded or constructed. We believe the levels of service and
improvements required under the grants are reasonable. However, we can offer no assurance that grants from outside parties
will continue to be available or that even if available, our railroads will be able to obtain them.
Insurance and Third-Party Claims
Accounts receivable from insurance and other third-party claims was $33.0 million and $25.0 million as of
December 31, 2013 and 2012, respectively. Accounts receivable from insurance and other third-party claims at December 31,
2013 included $16.8 million from our Australian Operations and $14.8 million from our North American & European
Operations. The balance from our Australian Operations resulted predominately from a derailment in Australia’s Northern
Territory (the Edith River Derailment) in December 2011. The balance from our North American & European Operations
resulted predominately from a derailment in Alabama (the Aliceville Derailment) in November 2013. We received proceeds
from insurance totaling $11.1 million, $21.8 million and $0.6 million for the years ended December 31, 2013, 2012 and 2011,
respectively, and recorded related gains on insurance recoveries totaling $1.5 million, $5.8 million and $1.1 million for the
years ended December 31, 2013, 2012 and 2011, respectively.
2014 Budgeted Capital Expenditures
The following table sets forth our budgeted capital expenditures for the year ending December 31, 2014 (dollars in
thousands):
Budgeted Capital Expenditures:
Track and equipment, self-funded
Track and equipment, subject to third-party funding
New business development
Grants from outside parties
Net budgeted capital expenditures
2014
199,000
73,000
53,000
(58,000)
267,000
$
$
Our budgeted capital expenditures for the year ending December 31, 2014 include $47 million of capital expenditures
for our Australian Operations, including $25 million in capital expenditures for new business development.
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
new investments. We believe our cash flow from operations will enable us to meet our liquidity and capital expenditure
requirements relating to ongoing operations for at least the duration of the Credit Agreement.
Contractual Obligations and Commercial Commitments
Based on our assessment of the underlying provisions and circumstances of our material contractual obligations and
commercial commitments as of December 31, 2013, 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.
71
The following table represents our obligations and commitments for future cash payments under various agreements as
of December 31, 2013 (dollars in thousands):
Contractual Obligations:
Long-term debt obligations (1)
Interest on long-term debt (2)
Derivative instruments (3)
Capital lease obligations
Operating lease obligations
Purchase obligations (4)
Other long-term liabilities (5)
Total
$
$
Total
1,657,374
159,639
838
11,142
235,401
14,469
31,312
2,110,175
$
$
Payments Due By Period
Less than 1
year
1-3 years
3-5 years
More than 5
years
83,490
35,151
—
876
32,414
14,469
2,609
169,009
$
$
216,671
62,286
838
1,758
38,949
—
2,112
322,614
$
$
1,312,638
20,581
—
8,324
26,807
—
750
1,369,100
$
$
44,575
41,621
—
184
137,231
—
25,841
249,452
(1) Includes an A$50.0 million (or $44.6 million at the exchange rate on December 31, 2013) non-interest bearing loan
due in 2054 assumed in the acquisition of FreightLink with a carrying value of A$2.3 million (or $2.0 million at the
exchange rate on December 31, 2013).
(2) Assumes no change in variable interest rates from December 31, 2013.
(3) Includes the fair value of our interest rate swaps of $0.8 million.
(4) Includes purchase commitments for future capital expenditures among our existing operations. Excludes the pending
purchase of assets on the western end of CP's DM&E line of approximately $210 million (which is subject to STB
approval and the satisfaction of other closing conditions), which was announced in January 2014.
(5) Includes estimated casualty obligations of $11.4 million, deferred compensation of $11.2 million and certain other
long-term liabilities of $8.8 million. In addition, the table includes estimated post-retirement medical and life
insurance benefits of $6.9 million and our 2014 estimated contributions of $0.8 million to our pension plans.
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 as of December 31, 2013 consisted of operating lease obligations, which are
included in the contractual obligations table above.
Impact of Foreign Currencies on Operating Revenues and Expenses
When comparing the effects on revenues of average foreign currency exchange rates in effect during the year ended
December 31, 2013 versus the year ended December 31, 2012, foreign currency translation had an overall negative impact on
our consolidated operating revenues due to the weakening of the Australian and Canadian dollars relative to the United States
dollar, partially offset by the strengthening of the Euro relative to the United States dollar in the year ended December 31,
2013. Currency effects related to operating revenues and expenses are presented within the discussion of these respective
items included within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to use judgment and to
make estimates and assumptions that affect business combinations, 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.
72
Business Combinations
We account for businesses we acquire using the acquisition method of accounting. Under this method, all acquisition-
related costs are expensed as incurred. We record the underlying net assets at their respective acquisition-date fair values. As
part of this process, we identify and attribute values and estimated lives to property and equipment and 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 affect the amount of
depreciation and amortization expense recognized in future periods. The results of operations of acquired businesses are
included in our consolidated statements of operations beginning on the respective business’s acquisition date.
Property and Equipment
We record property and equipment at cost. We capitalize major renewals or improvements, but routine maintenance and
repairs are expensed when incurred. We incur maintenance and repair expenses to keep our operations safe and fit for existing
purpose. Major renewals or improvements to property and equipment, however, are undertaken to extend the useful life or
increase the functionality of the asset, or both.
When assessing spending for classification among capital or expense, we evaluate the substance of the respective
spending. For example, costs incurred to modify a railroad bridge, either through individual projects or pre-established multi-
year programs, which substantially upgrade the bridge’s capacity to carry increased loads and/or to allow for a carrying speed
beyond the original or existing capacity of the bridge, are capitalized. However, costs for replacement of routinely wearable
bridge components, such as plates or bolts, are expensed as incurred. Other than a de minimis threshold under which costs are
expensed as incurred, we do not apply pre-defined capitalization thresholds when assessing spending for classification among
capital or expense.
Unlike the Class I railroads that operate over extensive contiguous rail networks, our short line and regional railroads
are generally geographically dispersed businesses that transport freight over relatively short distances. As a result, we
typically incur minimal spending on self-constructed assets and, instead, the vast majority of our capital spending relates to
purchased assets installed by professional contractors. We also generally do not incur significant rail grinding or ballast
cleaning expenses. However, if and when such costs are incurred, they are expensed.
The following table sets forth our total net capitalized major renewals and improvements versus our total maintenance
and repair expense for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):
Gross capitalized major renewals and improvements
Grants from outside parties
Net capitalized major renewals and improvements
Total repairs and maintenance expense
2013
2012
2011
$
$
$
220,529
33,913
186,616
328,991
$
$
$
116,222
39,632
76,590
180,282
$
$
$
107,419
22,642
84,777
172,396
We depreciate our property and equipment on the straight-line method over the useful lives of the property and
equipment. The following table sets forth the estimated useful lives of our major classes of property and equipment:
Property:
Buildings and leasehold improvements (subject to term of lease)
Bridges/tunnels/culverts
Track property
Equipment:
Computer equipment
Locomotives and railcars
Vehicles and mobile equipment
Signals and crossing equipment
Track equipment
Other equipment
73
Estimated Useful Life (in Years)
Minimum
2
20
5
Maximum
40
50
50
2
2
2
4
2
2
7
30
10
30
10
20
We continually evaluate whether events and circumstances have occurred that indicate that the carrying amounts of 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 of 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. Losses from impairment of assets are charged to net (gain)/loss on sale and impairment of
assets within operating expenses.
Gains or losses on sales, including sales of assets removed during track and equipment upgrade projects, or losses
incurred through other dispositions, such as unanticipated retirement or destruction, are credited or charged to net (gain)/loss
on sale and impairment of assets within operating expenses. Gains are recorded when realized if the sale value exceeds the
remaining carrying value of the respective property and equipment. If the estimated salvage value is less than the remaining
carrying value, we record the loss incurred equal to the respective asset’s carrying value less salvage value. There were no
material losses incurred through other dispositions from unanticipated or unusual events in the years ended December 31,
2013, 2012 or 2011.
Grants from Outside Parties
Grants from outside parties are recorded as long-term liabilities and are amortized as a reduction to depreciation
expense over the same period during which the associated assets are depreciated.
Goodwill and Indefinite-Lived Intangible Assets
We review the carrying values of goodwill and identifiable intangible assets with indefinite lives at least annually to
assess impairment since these assets are not amortized. If the carrying amount of the asset exceeds its fair value, an
impairment loss shall be recognized in an amount equal to that excess. We perform our annual impairment test as of
November 30 of each year, and no impairment was recognized for the years ended December 31, 2013, 2012 and 2011, as a
result of our annual impairment test. Additionally, we review the carrying value of any intangible asset or goodwill whenever
events or changes in circumstances indicate that its carrying amount may not be recoverable. The determination of fair value
involves significant management judgment including assumptions about operating results, business plans, income
projections, anticipated future cash flows and market data. Impairments are expensed when incurred.
Amortizable Intangible Assets
We perform an impairment test on amortizable intangible assets when specific impairment indicators are present. We
have amortizable intangible assets valued primarily as service agreements, customer contracts or relationships and track
access agreements. These intangible assets are generally amortized on a straight-line basis over the expected economic
longevity of the facility served, the customer relationship, or the length of the contract or agreement including expected
renewals.
Derailment and Property Damages, Personal Injuries and Third-Party Claims
We maintain liability and property insurance coverage to mitigate the financial risk of providing rail and rail-related
services. On August 1, 2013, we renewed these annual insurance policies, which now cover all of our operations under one
insurance program. Incidents involving entities previously owned by RailAmerica that occurred prior to this renewal would
be considered under RailAmerica’s legacy liability and property insurance policies. Our primary liability policies currently
have self-insured retentions of up to $1.0 million per occurrence. RailAmerica's prior primary liability policies’ self-insured
retentions were as high as $4.0 million per occurrence. With respect to the transportation of hazardous commodities, our
liability policy covers third-party claims and damages associated with sudden releases of hazardous materials, including
expenses related to evacuation, as a result of a railroad accident. Personal injuries associated with grade crossing accidents
are also covered under our liability policies. Our property damage policies currently have various self-insured retentions,
which vary based on type and location of the incident, of up to $1.0 million per occurrence except in Australia where our self-
insurance retention for property damage due to a cyclone or flood is A$2.5 million. RailAmerica's primary property damage
policies previously had self-insured retentions of up to $1.5 million per occurrence. The property damage policies also
provide business interruption insurance arising from covered events. The self-insured retentions under our policies may
change with each annual insurance renewal depending on our loss history, the size and make-up of our company and general
insurance market conditions.
74
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 policies. Employees of our industrial switching and railroad construction
businesses are covered under workers' compensation policies.
Accruals for FELA claims by our railroad employees and third-party personal injury or other claims 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.
Stock-Based Compensation
The Compensation Committee of our Board of Directors (Compensation Committee) has discretion to determine
grantees, grant dates, amounts of grants, vesting and expiration dates for stock-based compensation awards to our employees
under our Second Amended and Restated 2004 Omnibus Incentive Plan (the Omnibus Plan). The Omnibus Plan permits the
issuance of stock options, restricted stock, restricted stock units and any other form of award established by the
Compensation Committee, in each case consistent with the Omnibus Plan’s purpose. Under the terms of the awards, equity
grants for employees generally vest over three years and equity grants for directors vest over their respective remaining terms
as directors.
The grant date fair value of non-vested shares, less estimated forfeitures, is recorded to compensation expense on a
straight-line basis over the vesting period. 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 is recorded over the requisite service
period of the grant. Two assumptions in the Black-Scholes pricing model require management judgment: the life of the option
and the volatility of the stock over the life of the option. The assumption for the life of the option is based on historical
experience and is estimated for each grant. The assumption for the volatility of the stock is based on a combination of
historical and implied volatility. The fair value of our restricted stock and restricted stock units is based on the closing market
price of our Class A common stock on the date of grant.
For the year ended December 31, 2013, compensation cost from equity awards was $11.7 million. We also recorded an
additional $5.1 million of costs from the acceleration of equity awards for certain terminated employees related to the
integration of RailAmerica. As of December 31, 2013, the compensation cost related to non-vested awards not yet recognized
was $14.6 million, which will be recognized over the next 3 years with a weighted average period of 1.3 years. The total
income tax benefit recognized in the consolidated statement of operations for equity awards, including the benefit recognized
from the acceleration of equity awards related to the integration of RailAmerica, was $5.3 million for the year ended
December 31, 2013.
For the year ended December 31, 2012, compensation cost from equity awards was $7.9 million. We also recorded an
additional $4.1 million of costs from the acceleration of equity awards for certain terminated employees related to the
integration of RailAmerica. The total income tax benefit recognized in the consolidated statement of operations for equity
awards, including the benefit recognized from the acceleration of equity awards related to the integration of RailAmerica,
was $4.5 million for the year ended December 31, 2012.
For the year ended December 31, 2011, compensation cost from equity awards was $7.7 million. The total income tax
benefit recognized in the consolidated statement of operations for equity awards was $2.6 million for the year ended
December 31, 2011.
Income Taxes
We account for income taxes under a balance sheet approach for the financial accounting and reporting of deferred
income taxes. Deferred income taxes reflect the tax effect of temporary differences between the book and tax basis of assets
and liabilities, as well as available income tax credits and capital and net operating loss carryforwards. In our consolidated
balance sheets, these deferred obligations or benefits 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 that is not related to an asset or
liability for financial reporting, including deferred income tax assets related to tax credit and loss carryforwards, is classified
according to the expected reversal date of the temporary difference as of the end of the year. We evaluate on a quarterly basis
whether, based on all available evidence, our deferred income tax assets will be realizable. Valuation allowances are
established when it is estimated that it is more likely than not that the tax benefit of a deferred tax asset will not be realized.
75
No provision is made for the United States 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 United States income taxes
(appropriately reduced by available foreign tax credits) and withholding taxes payable to various foreign countries.
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 “Part I. Item 1A. Risk Factors” in this Annual Report.
Management believes that full consideration has been given to all relevant circumstances to which we may be currently
subject, and the consolidated financial statements accurately reflect management’s best estimate of our results of operations,
financial condition and cash flows for the years presented.
Recently Issued Accounting Standards
See Note 20, Recently Issued Accounting Standards, to our Consolidated Financial Statements included elsewhere in
this Annual Report.
76
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 such instruments with the objective of earning financial gains from interest
rate or exchange rate fluctuations, nor do we use such instruments where there are no 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
financial 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 & Risk Sensitivity
Our interest rate risk results from variable interest rate debt obligations, where an increase in interest rates would result in
lower earnings and increased cash outflows. The following table presents principal cash flows from our debt obligations, related
weighted average annual interest rates by expected maturity dates and estimated fair values as of December 31, 2013 (dollars in
thousands):
2014
2015
2016
2017
2018
Thereafter
Total
Fair Value
Fixed rate debt:
Tangible Equity Units
$ 10,694
$ 11,184
$
— $
— $
— $
— $
21,878
$
Other debt (1)
1,548
6,070
1,446
8,698
319
44,759
62,840
21,698
18,996
Average annual
interest rate
Variable rate debt:
Revolving credit
facility:
Europe
United States
Term loans:
Australia
United States
Average annual
interest rate
7.0%
7.4%
7.9%
8.0%
8.0%
8.0%
7.7%
—
—
—
—
—
—
4,948
11,000
7,840
64,284
9,649
79,119
12,062
98,899
104,885
1,191,112
—
—
—
—
—
—
—
—
4,948
11,000
4,959
10,997
134,436
135,491
1,433,414
1,429,204
2.4%
3.0%
4.2%
5.0%
0.0%
0.0%
4.7%
Total
$ 84,366
$106,022
$112,407
$ 1,320,643
$
319
$ 44,759
$ 1,668,516
$ 1,621,345
(1) Includes an A$50.0 million (or $44.6 million at the exchange rate on December 31, 2013) non-interest bearing loan due in 2054 assumed in the acquisition
of FreightLink with a carrying value of A$2.3 million (or $2.0 million at the exchange rate on December 31, 2013) with a non-cash imputed interest rate of
8.0%.
The variable interest rates presented in the table above are based on the implied forward rates in the yield curve for
borrowings denominated using United States LIBOR, Australia BBSW and Euro LIBOR (as of December 31, 2013). The
borrowing margin is composed of a weighted average of 1.75% for United States, Australian and European borrowings under
our Credit Agreement. To the extent not mitigated by interest rate swap agreements, 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 $2.8 million. Furthermore, if we were to refinance all of our debt obligations in the current environment, we
believe we would incur interest rates no worse, and potentially better, than our current rates.
Fair Value of Financial Instruments
We apply the following three-level hierarchy of valuation inputs as a framework for measuring fair value:
• Level 1 – Quoted prices for identical assets or liabilities in active markets that we have the ability to access at the
measurement date.
• Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable
market data.
77
• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
Since our long-term debt is not quoted, fair value was estimated using a discounted cash flow analysis based on Level 2
valuation inputs, including borrowing rates we believe are currently available to us for loans with similar terms and maturities.
Primary inputs into the model that will cause the fair value of our debt to fluctuate period-to-period include the fixed interest
rates, the future interest rates, credit risk and the remaining time to maturity of the debt obligations.
We use interest rate swap agreements to manage our exposure to changes in interest rates of our variable rate debt. These
swap agreements are recorded in the consolidated balance sheets at fair value. To value the interest rate swaps, a discounted
cash flow model is utilized. Primary inputs into the model that will cause the fair value to fluctuate period-to-period include the
fixed interest rates, LIBOR implied forward interest rates, credit risk and the remaining time to maturity of the interest rate
swaps. Management’s intention is to hold the interest rate swaps to maturity. Changes in the fair value of the agreements are
recorded in net income or other comprehensive income/(loss), based on whether the agreements are designated as part of a
hedge transaction and whether the agreements are effective in offsetting the change in the value of the interest payments
attributable to our variable rate debt.
The following table summarizes the terms of our outstanding interest rate swap agreements entered into to manage our
exposure to changes in interest rates on its variable rate debt (dollars in thousands):
Effective Date
9/30/2013
Expiration Date
9/29/2014
9/30/2014
9/29/2015
9/30/2015
9/30/2016
9/30/2016
9/30/2016
9/30/2016
9/30/2026
9/30/2026
9/30/2026
Notional Amount
Date
9/30/2013
12/31/2013
3/31/2014
6/30/2014
9/30/2014
12/31/2014
3/31/2015
6/30/2015
9/30/2015
9/30/2026
9/30/2026
9/30/2026
Amount
1,350,000
1,300,000
1,250,000
1,200,000
1,150,000
1,100,000
1,050,000
1,000,000
350,000
100,000
100,000
100,000
Pay Fixed Rate
0.35%
Receive Variable Rate
1-month LIBOR
0.35%
0.35%
0.35%
0.54%
0.54%
0.54%
0.54%
0.93%
2.79%
2.79%
2.80%
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
3-month LIBOR
3-month LIBOR
3-month LIBOR
On November 9, 2012, we entered into multiple 10-year forward starting interest rate swap agreements to manage our
exposure to changes in interest rates on our variable rate debt. On the date of the hedge designation, September 30, 2016, it is
probable that we will either issue $300.0 million of fixed-rate debt or have $300.0 million of variable-rate debt under our
commercial banking lines. The forward starting interest swap agreements are expected to settle in cash on September 30, 2016.
We expect any gains or losses on settlement will be amortized over the life of the respective swaps.
The following table summarizes our interest rate swap agreements that expired during 2013 (dollars in thousands):
Effective Date
10/6/2008
10/4/2012
Expiration Date
9/30/2013
9/30/2013
Notional Amount
Date
10/6/2008
10/4/2012
1/1/2013
4/1/2013
7/1/2013
$
$
$
$
$
Amount
120,000
1,450,000
1,350,000
1,300,000
1,250,000
Paid Fixed Rate
3.88%
0.25%
0.25%
0.25%
0.25%
Receive Variable Rate
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
78
The fair value of the interest rate swap agreements were estimated based on Level 2 inputs. Our effectiveness testing
during the year ended December 31, 2013 resulted in no amount of gain or loss reclassified from accumulated other
comprehensive income/(loss) into earnings due to ineffectiveness. During the year ended December 31, 2013, $4.1 million of
net losses were realized and recorded as interest expense in the consolidated statement of operations. Based on our fair value
assumptions as of December 31, 2013, we expect to realize $1.6 million of net losses that are reported in accumulated other
comprehensive income into earnings within the next 12 months. See Note 16, Accumulated Other Comprehensive Income, to
our Consolidated Financial Statements included elsewhere in this Annual Report, for additional information regarding our cash
flow hedges.
Foreign Currency Exchange Rate Risk
As of December 31, 2013, $142.1 million of third-party debt related to our foreign operations was denominated in the
currencies in which our subsidiaries operate, including the Australian dollar, Canadian dollar and Euro. The debt service
obligations associated with this foreign currency debt are generally funded directly from those operations. As a result, foreign
currency risk related to this portion of our debt service payments is limited. However, in the event the foreign currency debt
service is not paid from our foreign operations, we may face exchange rate risk if the Australian or Canadian dollar or Euro
were to appreciate relative to the United States dollar and require higher United States dollar equivalent cash.
We are also exposed to foreign currency exchange rate risk related to our foreign operations, including non-functional
currency intercompany debt, typically from our United States operations to our foreign subsidiaries, and any timing difference
between announcement and closing of an acquisition of a foreign business to the extent such acquisition is funded with United
States dollars. To mitigate currency exposures related to non-functional currency denominated intercompany debt, cross-
currency swap contracts may be entered into for periods consistent with the underlying debt. In determining the fair value of the
derivative contract, the significant inputs to valuation models are quoted market prices of similar instruments in active markets.
To mitigate currency exposures of non-United States dollar denominated acquisitions, we may enter into foreign exchange
forward contracts. Although these derivative contracts do not qualify for hedge accounting, we believe that such instruments are
closely correlated with the underlying exposure, thus reducing the associated risk. The gains or losses from changes in the fair
value of derivative instruments that are not accounted for as hedges are recognized in current period earnings within other
income, net.
To mitigate the foreign currency exchange rate risk related to a non-functional currency intercompany loan between our
United States and Australian entities, we entered into an Australian dollar/United States dollar floating to floating cross-
currency swap agreement (the Swap), effective as of December 1, 2010, which effectively converted the A$105.0 million
intercompany loan receivable in the United States into a $100.6 million loan receivable. As a result of the quarterly net
settlement payments associated with this swap, we realized a net expense of $4.4 million within interest (expense)/income for
the year ended December 31, 2012. In addition, we recognized $0.6 million within other income, net related to the settlement of
the derivative agreement and the underlying intercompany debt instrument to the exchange rate for the year ended
December 31, 2012. The Swap expired on December 1, 2012 and was settled for $9.1 million.
On November 29, 2012, simultaneous with the termination of the previous swap, we entered into two new 2-year
Australian dollar/United States dollar floating to floating cross-currency swap agreements (the Swaps), effective December 3,
2012. These agreements expire on December 1, 2014. The Swaps effectively convert the A$105.0 million intercompany loan
receivable in the United States into a $109.6 million loan receivable. The Swaps require us to pay Australian dollar BBSW plus
3.25% based on a notional amount of A$105.0 million and allow us to receive United States LIBOR plus 2.82% based on a
notional amount of $109.6 million on a quarterly basis. BBSW is the wholesale interbank reference rate within Australia, which
we believe is generally considered the Australian equivalent to LIBOR. As a result of these quarterly net settlement payments,
we realized a net expense of $2.7 million within interest (expense)/income for the year ended December 31, 2013. In addition,
we recognized $0.4 million within other income, net related to the settlement of the derivative agreement and the underlying
intercompany debt instrument to the exchange rate for the year ended December 31, 2013.
79
The following table summarizes the impact of these foreign currency financial instruments on our statement of operations
for the years ended December 31, 2013 and 2012 (dollars in thousands):
Quarterly settlement under cross-currency swap
Mark-to-market of intercompany debt
Mark-to-market of cross-currency swap
Location of Amount
Recognized in Earnings
Interest (expense)/income
Other (expense)/income, net
Other income/(expense), net
Amount Recognized in Earnings
2013
2012
$
$
(2,696) $
(15,517)
15,944
(2,269) $
(4,638)
2,053
(1,750)
(4,335)
The following table presents our financial instruments that are carried at fair value using Level 2 inputs at December 31,
2013 and 2012 (dollars in thousands):
Financial liabilities carried at fair value using Level 2 inputs:
Interest rate swap agreements
Cross-currency swap agreements
Total financial assets carried at fair value
Interest rate swap agreements
Cross-currency swap agreements
Total financial liabilities carried at fair value
Sensitivity to Diesel Fuel Prices
2013
2012
$
$
$
36,987
16,056
53,043
2,439
—
2,439
$
$
$
4,227
255
4,482
4,659
143
4,802
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, 2013, fuel costs for fuel used in operations represented 12.4% of
our total expenses. As of December 31, 2013, we had not entered into any hedging transactions to manage this diesel fuel risk.
We receive fuel surcharges and other rate adjustments that partially offset the impact of higher fuel prices. As of December 31,
2013, each one percentage point increase in the price of diesel fuel would result in a $1.6 million increase in our annual fuel
expense to the extent not offset by higher fuel surcharges and/or rates.
ITEM 8.
Financial Statements and Supplementary Data.
The financial statements and supplementary financial data required by this item are listed under Part IV. Item 15
following the signature page hereto and are incorporated by reference herein.
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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC’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 our disclosure controls and procedures as of December 31, 2013. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2013 to accomplish their objectives at the reasonable assurance level.
There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2013 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
80
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) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. 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 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 Inc.;
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 the
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, 2013.
Management based this assessment on criteria for effective internal control over financial reporting described in the Internal
Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s internal controls over financial reporting, established and maintained by management, are under the general
oversight of the Company’s Audit Committee. 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.
Based on this assessment, management determined that, as of December 31, 2013, we maintained effective internal
control over financial reporting.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, which has audited and reported on the
consolidated financial statements contained in this Annual Report on Form 10-K, has audited the effectiveness of the
Company’s internal control over financial reporting as stated in their report which is included herein under “Part IV. Item 15.
Exhibits, Financial Statements and Schedules.”
81
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 filed
within 120 days after the end of our fiscal year in connection with the Annual Meeting of the Stockholders of G&W
to be held on May 21, 2014, under “Proposal One: Election of Directors,” “Executive Officers,” and “Corporate
Governance.”
We have adopted a Code of Ethics and Conduct that applies to all directors, officers and employees, including
our Chief Executive Officer, our Chief Financial Officer, and our Chief Accounting Officer and Global Controller.
The Code of Ethics and Conduct is available on the Governance page of the Company’s Internet website at
www.gwrr.com. We will post any amendments to the Code of Ethics and Conduct and any waivers that are required
to be disclosed by the rules of either the SEC or the NYSE on our Internet website within the required time period.
ITEM 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to our proxy statement to be filed
within 120 days after the end of our fiscal year in connection with the Annual Meeting of the Stockholders of G&W
to be held on May 21, 2014, under “Executive Compensation”, including the “Compensation Discussion and
Analysis,” “Compensation Committee Report,” and “Summary Compensation Table” sections, and “2013 Director
Compensation.”
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The following table sets forth all of our securities authorized for issuance under our equity compensation
plans as of December 31, 2013:
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(a)
Number of Securities
to be Issued upon
Exercise of
Outstanding Options
(b)
Weighted Average
Exercise Price of
Outstanding Options
(c)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (a))
969,332
$
—
969,332
$
54.32
—
54.32
2,174,314
—
2,174,314
The remaining information required by this Item is incorporated herein by reference to our proxy statement to
be filed within 120 days after the end of our fiscal year in connection with the Annual Meeting of the Stockholders
of G&W to be held on May 21, 2014, under “Security Ownership of Certain Beneficial Owners and Management.”
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 filed
within 120 days after the end of our fiscal year in connection with the Annual Meeting of the Stockholders of G&W
to be held on May 21, 2014, under “Corporate Governance” and “Related Person Transactions.”
ITEM 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to our proxy statement to be filed
within 120 days after the end of our fiscal year in connection with the Annual Meeting of the Stockholders of G&W
to be held on May 21, 2014, under “Proposal Three: Ratification of the Selection of Independent Auditors.”
82
ITEM 15. Exhibits, Financial Statement Schedules.
PART IV
(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, 2013 and 2012
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013,
2012 and 2011
Consolidated Statements of Changes in Equity for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Separate Financial Statements of Subsidiaries Not Consolidated and 100 Percent Owned:
RailAmerica, Inc. and Subsidiaries Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 28, 2012
Consolidated Statement of Operations for the Period October 1, 2012 (acquisition date) through
December 28, 2012
Consolidated Statement of Comprehensive Income for the Period October 1, 2012
(acquisition date) through December 28, 2012
Consolidated Statement of Changes in Equity for the Period October 1, 2012 (acquisition date)
through December 28, 2012
Consolidated Statements of Cash Flows for the Period October 1, 2012 (acquisition date)
through December 28, 2012
Notes to Consolidated Financial Statements
(b) EXHIBITS—See INDEX TO EXHIBITS filed herewith immediately following the signature page hereto,
and which is incorporated herein by reference
(c) NONE
83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date:
February 27, 2014
GENESEE & WYOMING INC.
By:
/S/ JOHN C. HELLMANN
John C. Hellmann
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Date
Title
Signature
February 27, 2014
Chairman of the Board of Directors
/S/ MORTIMER B. FULLER III
February 27, 2014
Chief Executive Officer, President and
Director (Principal Executive Officer)
February 27, 2014
Chief Financial Officer
(Principal Financial Officer)
February 27, 2014
Chief Accounting Officer (Principal
Accounting Officer)
February 27, 2014
Director
February 27, 2014
Director
February 27, 2014
Director
February 27, 2014
Director
February 27, 2014
Director
February 27, 2014
Director
February 27, 2014
Director
February 27, 2014
Director
84
Mortimer B. Fuller III
/S/ JOHN C. HELLMANN
John C. Hellmann
/S/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
/S/ CHRISTOPHER F. LIUCCI
Christopher F. Liucci
/S/ RICHARD H. ALLERT
Richard H. Allert
/S/ RICHARD H. BOTT
Richard H. Bott
/S/ ØIVIND LORENTZEN III
Øivind Lorentzen III
/S/ ROBERT M. MELZER
Robert M. Melzer
/s/ MICHAEL NORKUS
Michael Norkus
/S/ ANN N. REESE
Ann N. Reese
/s/ PHILIP J. RINGO
Philip J. Ringo
/s/ MARK A. SCUDDER
Mark A. Scudder
INDEX TO EXHIBITS
The agreements and other documents filed as exhibits to this report are not intended to provide factual
information or other disclosure, other than with respect to the terms of the agreements or other documents
themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made
by us in these agreements or other documents were made solely within the specific context of the relevant
agreement or document and may not describe the actual state of affairs as the date they were made or at any other
time.
(1)
1.1
Plan of acquisition, reorganization, arrangement, liquidation or succession
Agreement and Plan of Merger, dated as of July 23, 2012, by and among Genesee & Wyoming Inc.,
Jaguar Acquisition Sub Inc. and RailAmerica, Inc., is incorporated herein by reference to Exhibit 2.1
to the Registrant's Current Report on Form 8-K filed on July 23, 2012 (File No. 001-31456).
(3)
(i) Articles of Incorporation
The Exhibits referenced under 4.1 and 4.4 hereof are incorporated herein by reference.
3.1
(4)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
(ii) By-laws
Amended By-laws, effective as of August 19, 2004, is incorporated herein by reference to
Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 9, 2004 (File No.
001-31456).
Instruments defining the rights of security holders, including indentures
Restated Certificate of Incorporation is incorporated herein by reference to Annex II to the
Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 15, 2011 (File No.
001-31456).
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. 333-03972) filed on June 12, 1996.
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. 333-03972) filed on June 7, 1996.
Series A-1 Preferred Stock Certificate of Designations dated as of September 28, 2012, is
incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed
on October 3, 2012 (File No. 001-31456).
Purchase Contract Agreement, dated as of September 19, 2012, among Genesee & Wyoming Inc.
and Wilmington Trust, National Association, as Purchase Contract Agent and as attorney-in-fact for
the holders of the Purchase Contracts from time to time and Wilmington Trust, National Association,
as Trustee, is incorporated herein by reference to Exhibit 4(p) to the Registrant's Current Report on
Form 8-K filed on September 19, 2012 (File No. 001-31456).
Form of Unit (included in Exhibit 4.5 hereof), is incorporated herein by reference to Exhibit 4(q) to
the Registrant's Current Report on Form 8-K filed on September 19, 2012 (File No. 001-31456).
Form of Purchase Contract (included in Exhibit 4.5 hereof), is incorporated herein by reference to
Exhibit 4(r) to the Registrant's Current Report on Form 8-K filed on September 19, 2012 (File No.
001-31456).
First Supplemental Indenture, dated as of September 19, 2012, between Genesee & Wyoming Inc.
and Wilmington Trust, National Association, as Trustee, is incorporated herein by reference to
Exhibit 4(s) to the Registrant's Current Report on Form 8-K filed on September 19, 2012 (File No.
001-31456).
Form of Amortizing Note (included in Exhibit 4.8 hereof), is incorporated herein by reference to
Exhibit 4(t) to the Registrant's Current Report on Form 8-K filed on September 19, 2012 (File No.
001-31456).
85
4.10
Indenture, dated as of September 19, 2012, between Genesee & Wyoming Inc. and Wilmington
Trust, National Association, as Trustee, is incorporated herein by reference to Exhibit 4(u) to the
Registrant's Current Report on Form 8-K filed on September 19, 2012 (File No. 001-31456).
(10)
Material Contracts
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
The Exhibit referenced under 4.3 hereof is incorporated herein by reference.
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 Annual Report on Form 10-K filed on March 31, 1998 (File No. 000-20847).
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 Current Report on Form 8-K filed on December 12, 2001
(File No. 000-20847).
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 Current Report on Form 8-K filed on June 1, 2005 (File No. 001-31456).
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 Current Report on Form 8-K filed on February 17, 2006 (File No.
001-31456).
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 Current
Report on Form 8-K filed on February 17, 2006 (File No. 001-31456).
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
Registration Statement on Form S-8 (Registration No. 333-09165) filed on November 3, 2006. **
Form of Senior Executive Continuity Agreement by and between Genesee & Wyoming Inc. and the
Company Senior Executives is incorporated herein by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q filed on November 8, 2007 (File No. 001-31456). **
Form of Executive Continuity Agreement by and between Genesee & Wyoming Inc. and the
Company Executives is incorporated herein by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q filed on November 8, 2007 (File No. 001-31456). **
Amended and Restated Stock Purchase Agreement by and among Summit View, Inc., Jerry Joe
Jacobson and Genesee & Wyoming Inc. dated as of September 10, 2008, is incorporated herein by
reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 7,
2008 (File No. 001-31456).
Genesee & Wyoming Inc. Amended and Restated 2004 Deferred Compensation Plan for highly
compensated employees and directors dated as of December 31, 2008 is incorporated herein by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 7, 2009
(File No. 001-31456).**
Employment Agreement dated as of May 30, 2007, and as amended and restated December 30,
2009, by and between Genesee & Wyoming Inc. and Mortimer B. Fuller III, together with Exhibit A
(Waiver and General Release Agreement), is incorporated herein by reference to Exhibit 10.21 to the
Registrant’s Annual Report on Form 10-K filed on February 26, 2010 (File No. 001-31456). **
Business Sale Agreement dated June 9, 2010, by and among Freight Link Pty Ltd (Receivers and
Managers Appointed), Asia Pacific Transport Pty Ltd (Receivers and Managers Appointed)
(“APT”), other APT joint venture sellers, GWA (North) Pty Limited and Genesee & Wyoming Inc.,
is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-
Q filed on August 6, 2010 (File No. 001-31456).
86
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
Amendment Deed to Business Sale Agreement by and among Asia Pacific Transport Pty Ltd
(Receivers and Managers Appointed), Freight Link Pty Ltd (Receivers and Managers Appointed),
GWA (North) Pty Limited and Genesee & Wyoming Inc. dated October 27, 2010, is incorporated
herein by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K filed on
February 25, 2011 (File No. 001-31456).
Deed of Amendment and Acknowledgement to the Business Sale Agreement by and among Asia
Pacific Transport Pty Ltd (Receivers and Managers Appointed), Freight Link Pty Ltd (Receivers and
Managers Appointed), GWA (North) Pty Limited and Genesee & Wyoming Inc. dated November 24,
2010, is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed on December 1, 2010 (File No. 001-31456).
Sale Consent Deed by and among GWA (North) Pty Ltd., The Northern Territory of Australia, The
Crown in right of the State of South Australia, The AustralAsia Railway Corporation, Asia Pacific
Transport Pty Limited (Receivers and Managers Appointed) dated November 19, 2010, is
incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on November 24, 2010 (File No. 001-31456).
Guarantee and Indemnity (GWA) by and between Genesee & Wyoming Australia Pty Ltd and The
AustralAsia Railway Corporation dated November 19, 2010, is incorporated herein by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010 (File No.
001-31456).
Second Amended and Restated 2004 Omnibus Incentive Plan is incorporated herein by reference to
Annex I to the Registrant's Definitive Proxy Statement on Schedule 14A filed on April 15, 2011
(File No. 001-31456). **
Form of Option Award Notice under the Second Amended and Restated 2004 Omnibus Incentive
Plan is incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q filed on August 5, 2011 (File No. 001-31456).**
Form of Restricted Stock Award Notice under the Second Amended and Restated 2004 Omnibus
Incentive Plan is incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q filed on August 5, 2011 (File No. 001-31456).**
Form of Restricted Stock Unit Award Notice under the Second Amended and Restated 2004
Omnibus Incentive Plan is incorporated herein by reference to Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K filed on March 1, 2013 (File No. 001-31456). **
Investment Agreement, dated as of July 23, 2012, by and among Genesee & Wyoming Inc. and
Carlyle Partners V, L.P., is incorporated herein by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed on July 23, 2012 (File No. 001-31456).
Debt Commitment Letter, dated as of July 23, 2012, among Genesee & Wyoming Inc., Bank of
America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, is incorporated herein by
reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on July 23, 2012 (File
No. 001-31456).
First Amendment to the Investment Agreement, dated as of September 10, 2012, by and between
Genesee & Wyoming Inc. and Carlyle Partners V, L.P., is incorporated herein by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K filed on September 10, 2012 (File No.
001-31456).
Voting Trust Agreement, dated as of September 28, 2012, between Genesee & Wyoming Inc. and R.
Lawrence McCaffrey, is incorporated herein by reference to Exhibit 10.2 to the Registrant's Current
Report on Form 8-K filed on October 3, 2012 (File No. 001-31456).
87
10.25
10.26
10.27
10.28
10.29
Senior Secured Syndicated Facility Agreement dated as of October 1, 2012, among Genesee &
Wyoming Inc., RP Acquisition Company Two, Quebec Gatineau Railway Inc., Genesee & Wyoming
Australia Pty Ltd, Rotterdam Rail Feeding B.V., Bank of America, N.A., as administrative agent,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Citigroup
Global markets Inc., as co-lead arrangers and co-bookrunning managers, JPMorgan Chase Bank,
N.A. and Citigroup Global Markets Inc., as co-syndication agents, The Bank of Tokyo-Mitsubishi
UFJ, Ltd., Sumitomo Mitsui Banking Corporation, Sovereign Bank N.A., Branch Banking and Trust
Company, Fifth Third Bank, Royal Bank of Canada, TD Bank, N.A. and Wells Fargo Bank, National
Association, as co-documentation agents, and the lenders and certain guarantors party thereto from
time to time, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report
on Form 8-K filed on October 3, 2012 (File No. 001-31456).
Registration Rights Agreement dated as of October 1, 2012, among Genesee & Wyoming Inc.,
Carlyle Partners V GW, L.P., CP V GW AIV 1, L.P., CP GW AIV 2 .LP., CP V GW AIV 3, L.P., CPV
GW AIV 4, L.P., CP V Coinvestment A, L.P. and CP V Coinvestment B, L.P., is incorporated herein
by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on October 3,
2012 (File No. 001-31456).
Voting Agreement, dated as of July 23, 2012, by and between Genesee & Wyoming Inc. and RR
Acquisition Holding LLC, is incorporated herein by reference to Exhibit 99.1 to the Registrant's
Current Report on Form 8-K filed on July 23, 2012 (File No. 001-31456).
Acknowledgment and Agreement, dated as of February 7, 2013, by and among Genesee & Wyoming
Inc. and holders of the Series A-1 Preferred Stock party thereto is incorporated herein by reference
to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K filed on March 1, 2013 (File No.
001-31456).
Amendment No. 1, dated as of March 28, 2013, to the Senior Secured Syndicated Facility
Agreement, dated as of October 1, 2012, among Genesee & Wyoming Inc., RP Acquisition
Company Two, Quebec Gatineau Railway Inc., Genesee & Wyoming Australia Pty Ltd, Rotterdam
Rail Feeding B.V., Bank of America, N.A., as administrative agent, and the agents, lenders and
guarantors party thereto from time to time, is incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on April 2, 2013 (File No. 001-31456).
(11)
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
*(21.1)
Subsidiaries of the Registrant
*(23.1)
Consent of PricewaterhouseCoopers LLP
*(23.2)
Consent of PricewaterhouseCoopers LLP
*(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
*101
*
**
The following financial information from Genesee & Wyoming Inc.’s Annual Report on Form 10-K
for the year ended December 31, 2013, formatted in XBRL includes: (i) Consolidated Balance
Sheets as of December 31, 2013 and 2012, (ii) Consolidated Statements of Operations for the Years
Ended December 31, 2013, 2012 and 2011, (iii) Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 2013, 2012 and 2011, (iv) Consolidated Statements of Changes in
Equity for the Years Ended December 31, 2013 and 2012, (v) Consolidated Statements of Cash
Flows for the Years Ended December 31, 2013, 2012 and 2011, and (vi) the Notes to Consolidated
Financial Statements.
Exhibit filed or furnished with this Report.
Management contract or compensatory plan in which directors and/or executive officers are eligible
to participate.
88
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, 2013 and 2012
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012
and 2011
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Separate Financial Statements of Subsidiaries Not Consolidated and 100 Percent Owned:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 28, 2012
Consolidated Statement of Operations for the Period October 1, 2012 (acquisition date) through
December 28, 2012
Consolidated Statement of Comprehensive Income for the Period October 1, 2012 (acquisition date)
through December 28, 2012
Consolidated Statement of Changes in Equity for the Period October 1, 2012 (acquisition date)
through December 28, 2012
Consolidated Statement of Cash Flows for the Period October 1, 2012 (acquisition date) through
December 28, 2012
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-51
F-52
F-53
F-54
F-55
F-56
F-57
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Genesee & Wyoming Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, comprehensive income, cash flows and changes in equity present fairly, in all material respects, the
financial position of Genesee & Wyoming Inc. and its subsidiaries at December 31, 2013 and 2012, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2013, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
these financial statements, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal
Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these
financial statements and on the Company's internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included
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. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide 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.
/s/ PricewaterhouseCoopers, LLP
Rochester, New York
February 27, 2014
F-2
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2013 and 2012
(dollars in thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Materials and supplies
Prepaid expenses and other
Deferred income tax assets, net
Total current assets
PROPERTY AND EQUIPMENT, net
GOODWILL
INTANGIBLE ASSETS, net
DEFERRED INCOME TAX ASSETS, net
OTHER ASSETS, net
Total assets
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
Accounts payable
Accrued expenses
Deferred income tax liabilities, net
Total current liabilities
LONG-TERM DEBT, less current portion
DEFERRED INCOME TAX LIABILITIES, net
DEFERRED ITEMS - grants from outside parties
OTHER LONG-TERM LIABILITIES
COMMITMENTS AND CONTINGENCIES
SERIES A-1 PREFERRED STOCK
EQUITY:
Class A common stock, $0.01 par value, one vote per share; 180,000,000 shares
authorized at December 31, 2013 and 2012; 64,584,102 and 57,882,442 shares
issued and 51,934,137 and 45,359,083 shares outstanding (net of 12,649,965 and
12,523,359 shares in treasury) on December 31, 2013 and 2012, respectively
Class B common stock, $0.01 par value, ten votes per share; 30,000,000 shares
authorized at December 31, 2013 and 2012; 1,608,989 and 1,728,952 shares issued
and outstanding on December 31, 2013 and 2012, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost
Total Genesee & Wyoming Inc. stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
December 31,
2013
2012
$
62,876
325,453
31,295
52,584
76,122
548,330
3,440,744
630,462
613,933
2,405
83,947
$5,319,821
$
84,366
242,010
130,132
—
456,508
1,540,346
863,051
267,098
43,748
—
—
$
64,772
262,949
32,389
33,586
71,556
465,252
3,396,295
634,953
670,206
2,396
57,013
$5,226,115
$
87,569
232,121
93,971
3,083
416,744
1,770,566
862,734
228,579
47,506
—
399,524
646
579
16
1,302,521
1,058,884
6,089
(220,361)
2,147,795
1,275
2,149,070
$5,319,821
17
866,609
789,727
47,271
(209,266)
1,494,937
5,525
1,500,462
$5,226,115
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 and 2011
(in thousands, except per share amounts)
OPERATING REVENUES
OPERATING EXPENSES:
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel sold to third parties
Casualties and insurance
Materials
Trackage rights
Net (gain)/loss on sale and impairment of assets
Gain on insurance recoveries
Other expenses
RailAmerica acquisition-related costs
RailAmerica integration costs
Total operating expenses
INCOME FROM OPERATIONS
Gain on sale of investments
Interest income
Interest expense
Contingent forward sale contract mark-to-market expense
Other income, net
Income before income taxes and income from equity investment
Provision for income taxes
Income from equity investment in RailAmerica, net
Net income
Less: Net income attributable to noncontrolling interest
Less: Series A-1 Preferred Stock dividend
Net income available to common stockholders
Basic earnings per common share attributable to Genesee & Wyoming
Inc. common stockholders
Weighted average shares—Basic
Diluted earnings per common share attributable to Genesee & Wyoming
Inc. common stockholders
Weighted average shares—Diluted
Years Ended December 31,
2013
$1,569,011
2012
$ 874,916
2011
$ 829,096
441,318
77,825
120,871
141,644
147,172
368
40,781
78,243
50,911
(4,677)
(1,465)
78,797
360
16,675
1,188,823
380,188
—
3,971
(67,894)
—
2,122
318,387
(46,296)
—
272,091
795
2,139
$ 269,157
$
$
5.00
53,788
4.79
56,679
$
$
$
257,618
37,322
80,572
73,405
88,399
11,322
24,858
25,240
28,250
(11,225)
(5,760)
44,549
18,592
11,452
684,594
190,322
—
3,725
(62,845)
(50,106)
2,182
83,278
(46,402)
15,557
52,433
—
4,375
48,058
236,152
43,885
78,741
66,481
88,499
16,986
22,469
26,419
23,066
(5,660)
(1,061)
41,340
—
—
637,317
191,779
907
3,243
(38,617)
—
703
158,015
(38,531)
—
119,484
—
—
$ 119,484
$
$
1.13
42,693
1.02
51,316
2.99
39,912
2.79
42,772
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 and 2011
(dollars in thousands)
NET INCOME
OTHER COMPREHENSIVE (LOSS)/INCOME:
Foreign currency translation adjustment
Net unrealized income on qualifying cash flow hedges, net of tax
provision of $13,992, $2,702 and $759, respectively
Changes in pension and other postretirement benefit, net of tax
provision/(benefit) of $208, ($72) and ($24), respectively
Other comprehensive (loss)/income
COMPREHENSIVE INCOME
Less: Comprehensive income attributable to noncontrolling interest
COMPREHENSIVE INCOME ATTRIBUTABLE TO GENESEE &
WYOMING INC.
Years Ended December 31,
2013
$ 272,091
2012
52,433
2011
$ 119,484
$
(62,532)
5,451
(3,511)
20,988
4,053
1,334
362
(41,182)
$ 230,909
795
$
(128)
9,376
61,809
—
(42)
(2,219)
$ 117,265
—
$ 230,114
$
61,809
$ 117,265
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013 and 2012
(dollars in thousands)
G&W Stockholders
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
BALANCE, December 31, 2011
$
527
$
Net income
Other comprehensive income
Dividends paid on Series A-1
Preferred Stock
Proceeds from employee stock
purchases
Conversion of 273,021 shares
Class B common stock to
Class A common stock
Compensation cost related to
equity awards
Compensation costs related to
equity awards included in
income from equity investment
in RailAmerica
Tax benefits from share-based
compensation
Stock issuance proceeds, net of
stock issuance costs - 3,791,004
shares Class A common stock
TEU Purchase Contracts
issuance proceeds, net of
issuance costs - 2,300,000 units
RailAmerica acquisition
consideration for share-based
awards
Treasury stock acquisitions from
equity awards, 63,462 shares
Settlement of deferred stock
awards, 31,244 shares
Noncontrolling interest -
increase from RailAmerica
acquisition
—
—
—
9
5
—
—
—
38
—
—
—
—
—
BALANCE, December 31, 2012
$
579
$
Net income
Other comprehensive loss
Dividends paid on Series A-1
Preferred Stock
Proceeds from employee stock
purchases
Conversion of 119,963 shares
Class B common stock to
Class A common stock
Conversion of 5,984,232 shares
Series A-1 Preferred Stock to
Class A common stock
Compensation cost related to
equity awards
Tax benefits from share-based
compensation
Treasury stock acquisitions from
equity awards, 126,606 shares
Settlement of deferred stock
awards, 4,859 shares
Noncontrolling interest - change
in fair value (see Note 3)
BALANCE, December 31, 2013
—
—
—
6
1
60
—
—
—
—
—
$
646
$
Accumulated
Other
Comprehensive
Income/(Loss)
37,895
$
—
9,376
—
—
—
—
—
—
—
—
—
—
—
—
Treasury
Stock
Non-
controlling
Interest
Total
Equity
$(204,952) $
— $ 960,634
—
—
—
—
—
—
—
—
—
—
—
(4,314)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
52,433
9,376
(4,375)
19,320
—
12,151
2,816
4,795
234,340
191,428
15,400
(4,314)
933
5,525
5,525
$ 385,473
$ 741,669
—
—
—
19,311
—
12,151
2,816
4,795
234,302
191,428
15,400
—
933
—
52,433
—
(4,375)
—
—
—
—
—
—
—
—
—
—
—
(1)
—
$ 866,609
$ 789,727
$
47,271
$(209,266) $
5,525
$1,500,462
—
—
—
12,504
399,329
16,951
6,854
—
274
—
271,296
—
—
(41,182)
(2,139)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(11,095)
—
—
795
272,091
—
—
—
—
—
—
—
—
—
(41,182)
(2,139)
12,510
—
399,389
16,951
6,854
(11,095)
274
(5,045)
(5,045)
$1,302,521
$1,058,884
$
6,089
$(220,361) $
1,275
$2,149,070
22
—
—
—
—
(5)
—
—
—
—
—
—
—
—
—
17
—
—
—
—
—
—
—
—
—
—
16
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 and 2011
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Income from equity investment in RailAmerica, net
Depreciation and amortization
Compensation cost related to equity awards
Excess tax benefit from share-based compensation
Deferred income taxes
Net (gain)/loss on sale and impairment of assets
Gain on sale of investments
Gain on insurance recoveries
Insurance proceeds received
Contingent forward sale contract mark-to-market expense
Changes in operating 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
Other assets and liabilities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Grant proceeds from outside parties
Cash paid for acquisitions, net of cash acquired
Insurance proceeds for the replacement of assets
Proceeds from the sale of investments
Proceeds from disposition of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases
Proceeds from issuance of long-term debt
Debt amendment/issuance costs
Net proceeds from Class A common stock issuance
Net proceeds from TEU issuance
Net proceeds from Series A-1 Preferred Stock issuance
Dividends paid on Series A-1 Preferred Stock
Proceeds from employee stock purchases
Excess tax benefit from share-based compensation
Treasury stock acquisitions
Net cash (used in)/provided by financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
Years Ended December 31,
2012
2011
2013
$
272,091
$
52,433
$
119,484
—
141,644
16,951
(6,861)
10,229
(4,677)
—
(1,465)
11,053
—
(44,454)
(1,839)
(22)
16,383
4,471
413,504
(15,557)
73,405
12,151
(5,335)
29,926
(11,225)
—
(5,760)
21,479
50,106
(262)
(567)
(5,384)
(30,051)
5,320
170,679
(249,318)
33,913
(231,694)
39,632
— (1,925,296)
370
—
—
—
6,687
15,298
(2,101,690)
(208,718)
(471,957)
262,651
(2,773)
—
—
—
(2,139)
12,510
6,861
(11,095)
(205,942)
(740)
(1,896)
64,772
(1,013,166)
2,192,916
(38,839)
234,340
222,856
349,418
(4,375)
19,320
5,335
(4,314)
1,963,491
5,023
37,503
27,269
$
62,876
$
64,772
$
—
66,481
7,776
(2,820)
26,291
(5,660)
(907)
(1,061)
646
—
(12,307)
(1,206)
3,543
(25,556)
(1,235)
173,469
(178,668)
22,642
(89,935)
—
1,369
9,464
(235,128)
(533,544)
581,394
(4,742)
—
—
—
—
17,433
2,820
(1,326)
62,035
(524)
(148)
27,417
27,269
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND CUSTOMERS:
Unless the context otherwise requires, when used in these consolidated financial statements, the terms
“Genesee & Wyoming,” “G&W” and the “Company” refer to Genesee & Wyoming Inc. and its subsidiaries,
including RailAmerica, Inc. and its subsidiaries (RailAmerica). G&W acquired RailAmerica on October 1,
2012. However, the shares of RailAmerica were held in a voting trust while the United States Surface Transportation
Board (STB) considered the Company's control application, which application was approved with an effective date
of December 28, 2012. Accordingly, the Company accounted for the earnings of RailAmerica using the equity
method of accounting while the shares were held in the voting trust and the Company's determination of fair values
of the acquired assets and assumed liabilities has been included in its consolidated balance sheets since December
28, 2012. All references to currency amounts included in these consolidated financial statements are in United
States dollars unless specifically noted otherwise.
The Company owns and operates short line and regional railroads in the United States, Australia, Canada, the
Netherlands and Belgium. In addition, the Company operates the 1,400 mile Tarcoola to Darwin rail line, which
links the Port of Darwin with the Australian interstate rail network in South Australia. Operations currently include
111 railroads organized into 11 regions, with approximately 14,700 miles of owned and leased track, approximately
4,800 employees and more than 2,000 customers. The Company provides rail service at 35 ports in North America,
Australia and Europe and performs contract coal loading and railcar switching for industrial customers. See Note 3,
Changes in Operations, for descriptions of the Company’s changes in operations in recent years.
The Company's railroads transport a wide variety of commodities. Revenues from the Company’s 10 largest
customers accounted for approximately 24%, 31% and 29% of the Company’s operating revenues in 2013, 2012 and
2011, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and
its subsidiaries. The consolidated financial statements are presented in accordance with accounting principles
generally accepted in the United States (U.S. GAAP) as codified in the Financial Accounting Standards Board
(FASB) Accounting Standards Codification. 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 duration 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 and 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 primarily 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.
F-8
Business Combinations
The Company accounts for businesses it acquires using the acquisition method of accounting. Under this
method, all acquisition-related costs are expensed as incurred. The Company records the underlying net assets at
their respective acquisition-date fair values. As part of this process, the Company identifies and attributes values and
estimated lives to property and equipment and 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 affect the amount of depreciation and amortization
expense recognized in future periods. The results of operations of acquired businesses are included in the
consolidated statements of operations beginning on the respective business’s acquisition date.
Property and Equipment
Property and equipment are carried at cost. Major renewals or improvements to property and equipment are
capitalized, while routine maintenance and repairs are expensed when incurred. The Company incurs maintenance
and repair expenses to keep its operations safe and fit for existing purpose. Major renewals or improvements,
however, are undertaken to extend the useful life or increase the functionality of the asset, or both. Other than a de
minimis threshold under which costs are expensed as incurred, the Company does not apply pre-defined
capitalization thresholds when assessing spending for classification among capital or expense.
Unlike the Class I railroads that operate over extensive contiguous rail networks, the Company’s short line and
regional railroads are geographically dispersed businesses that transport freight over relatively short distances. As a
result, the Company typically incurs minimal spending on self-constructed assets and, instead, the vast majority of
its capital spending relates to purchased assets installed by professional contractors. In addition, the Company
generally does not incur significant rail grinding or ballast cleaning expenses. However, if and when such costs are
incurred, they are expensed.
The Company depreciates its property and equipment using the straight-line method over the useful lives of
the property and equipment. The following table sets forth the estimated useful lives of the Company’s major classes
of property and equipment:
Property:
Buildings and leasehold improvements (subject to term of lease)
Bridges/tunnels/culverts
Track property
Equipment:
Computer equipment
Locomotives and railcars
Vehicles and mobile equipment
Signals and crossing equipment
Track equipment
Other equipment
Estimated Useful Life (in Years)
Minimum
2
20
5
Maximum
40
50
50
2
2
2
4
2
2
7
30
10
30
10
20
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 an asset may
not be recoverable, the Company uses 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 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. Losses from impairment of assets are charged to net (gain)/
loss on sale and impairment of assets within operating expenses.
F-9
Gains or losses on sales, including sales of assets removed during track and equipment upgrade projects, or
losses incurred through other dispositions, such as unanticipated retirement or destruction, are credited or charged to
net (gain)/loss on sale and impairment of assets within operating expenses. Gains are recorded when realized if the
sale value exceeds the remaining carrying value of the respective property and equipment. If the estimated salvage
value is less than the remaining carrying value, the Company records the loss incurred equal to the respective asset’s
carrying value less salvage value. There were no material losses incurred through other dispositions from
unanticipated or unusual events in the years ended December 31, 2013, 2012 or 2011.
Grants from Outside Parties
Grants from outside parties are recorded as long-term liabilities and are amortized as a reduction to
depreciation expense over the same period during which the associated assets are depreciated.
Goodwill and Indefinite-Lived Intangible Assets
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. If the carrying amount of the asset
exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. The Company
performs its annual impairment test as of November 30 of each year. No impairment was recognized for the years
ended December 31, 2013 or 2012. Additionally, the Company reviews the carrying value of any intangible asset or
goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
The determination of fair value involves significant management judgment including assumptions about operating
results, business plans, income projections, anticipated future cash flows and market data. Impairments are expensed
when incurred.
Amortizable Intangible Assets
The Company performs an impairment test on amortizable intangible assets when specific impairment
indicators are present. The Company has amortizable intangible assets valued primarily as service agreements,
customer contracts or relationships and track access agreements. These intangible assets are generally amortized on
a straight-line basis over the expected economic longevity of the facility served, the customer relationship, or the
length of the contract or agreement including expected renewals.
Derailment and Property Damages, Personal Injuries and Third-Party Claims
The Company maintains liability and property insurance coverage to mitigate the financial risk of providing
rail and rail-related services. On August 1, 2013, the Company renewed these annual insurance policies, which now
cover all of the Company's operations under one insurance program. Incidents involving entities previously owned
by RailAmerica that occurred prior to this renewal would be considered under RailAmerica’s legacy liability and
property insurance policies. The Company’s primary liability policies currently have self-insured retentions of up to
$1.0 million per occurrence. RailAmerica's prior primary liability policies' self-insured retentions were as high as
$4.0 million per occurrence. With respect to the transportation of hazardous commodities, the liability policy covers
third-party claims and damages associated with sudden releases of hazardous materials, including expenses related
to evacuation, as a result of a railroad accident. Personal injuries associated with grade crossing accidents are also
covered under the Company’s liability policies. The Company’s property damage policies currently have various
self-insured retentions, which vary based on type and location of the incident, of up to $1.0 million per occurrence
except in Australia where the Company's self-insurance retention for property damage due to a cyclone or flood is
A$2.5 million. RailAmerica's primary property damage policies previously had self-insured retentions of up to $1.5
million per occurrence. The property damage policies also provide business interruption insurance arising from
covered events.
Employees of the Company's 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 the Company's liability policies.
Employees of the Company's industrial switching and railroad construction businesses are covered under workers'
compensation policies.
F-10
Accruals for FELA claims by the Company's railroad employees and third-party personal injury or other
claims 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.
Income Taxes
The Company files a consolidated United States federal income tax return, which includes all of its United
States subsidiaries. Each of the Company’s foreign subsidiaries files appropriate income tax returns in each of its
respective countries. No provision is made for the United States 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 a balance sheet approach. 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 is dependent upon the Company’s ability to generate sufficient taxable income. The
Company evaluates on a quarterly basis whether, based on all available evidence, the deferred income tax assets will
be 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.
Stock-Based Compensation
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 stock-based
compensation awarded to the Company’s employees under the Company’s Second Amended and Restated 2004
Omnibus Incentive Plan (the Omnibus Plan). The Omnibus Plan permits the issuance of stock options, restricted
stock, restricted stock units and any other form of award established by the Compensation Committee, in each case
consistent with the Omnibus Plan’s purpose. Under the terms of the awards, equity grants for employees generally
vest over three years and equity grants for directors vest over their respective remaining terms as directors.
The grant date fair value of non-vested shares, less estimated forfeitures, is recorded to compensation expense
on a straight-line basis over the vesting period. 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 is recorded over the
requisite service period of the grant. Two assumptions in the Black-Scholes pricing model require management
judgment: the life of the option and the volatility of the stock over the life of the option. The assumption for the life
of the option is based on historical experience and is estimated for each grant. The assumption for the volatility of
the stock is based on a combination of historical and implied volatility. The fair value of the Company's restricted
stock and restricted stock units is based on the closing market price of the Company’s Class A common stock on the
date of grant.
Fair Value of Financial Instruments
The Company applies the following three-level hierarchy of valuation inputs for measuring fair value:
• Level 1 – Quoted prices for identical assets or liabilities in active markets that the Company has the ability
to access at the measurement date.
• Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active; and model-derived valuations in which all
significant inputs are observable market data.
• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are
unobservable.
Foreign Currency
The consolidated financial statements of the Company’s foreign subsidiaries were prepared in the local
currency of the respective subsidiary and translated into United States dollars based on the exchange rate at the end
of the period for balance sheet items and, for the statement of operations, at the average rate for the statement
period. Currency translation adjustments are reflected within the equity section of the balance sheet and are included
in other comprehensive income. Cumulative translation adjustments are recognized in the consolidated statement of
operations upon substantial or complete liquidation of the underlying investment in the foreign subsidiary.
F-11
Management Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management
to use judgment and to make estimates and assumptions that affect business combinations, 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.
Risks and Uncertainties
Slower growth, an economic recession, or significant changes in commodity prices or regulation that affects
the countries where the Company operates or their imports and exports, could negatively impact the Company's
business. The Company is required to assess for potential impairment of non-current assets whenever events or
changes in circumstances, including economic circumstances, indicate that the respective asset’s carrying amount
may not be recoverable. A decline in current macroeconomic or financial conditions could have a material adverse
effect on the Company’s results of operations, financial condition and liquidity.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2013 presentation, most notably of which
was the break out of trackage rights expense on the Company's consolidated statements of operations that had
previously been included in other expenses.
3. CHANGES IN OPERATIONS:
United States
RailAmerica, Inc.: On October 1, 2012, the Company acquired 100% of RailAmerica's outstanding shares for
cash at a price of $27.50 per share, and in connection with such acquisition, the Company repaid RailAmerica's term
loan and revolving credit facility. The calculation of the total consideration for the RailAmerica acquisition is
presented below (in thousands, except per share amount):
RailAmerica outstanding common stock as of October 1, 2012
Cash purchase price per share
Equity purchase price
Payment of RailAmerica's outstanding term loan and revolving credit facility
Cash consideration
Impact of pre-acquisition share-based awards
Total consideration
$
$
49,934
27.50
1,373,184
659,198
2,032,382
9,400
$
2,041,782
The Company financed the $1.4 billion cash purchase price for RailAmerica's common stock, the refinancing
of $1.2 billion of the Company's and RailAmerica's outstanding debt prior to the acquisition as well as transaction
and financing-related expenses with approximately $1.9 billion of debt from a new five-year Senior Secured
Syndicated Credit Facility Agreement (the Credit Agreement) (see Note 9, Long-Term Debt), $475.5 million of
gross proceeds from the Company's public offerings of Class A common stock and Tangible Equity Units (TEUs)
(see Note 4, Earnings Per Common Share) and $350.0 million through a private issuance of mandatorily convertible
Series A-1 Preferred Stock to affiliates of Carlyle Partners V, L.P. (collectively, Carlyle) (see Note 4, Earnings Per
Common Share, and Note 10, Derivative Financial Instruments).
Commencing on October 1, 2012, the shares of RailAmerica were held in an independent voting trust while
the STB considered the Company's control application, which application was approved with an effective date of
December 28, 2012. Accordingly, the Company accounted for the earnings of RailAmerica using the equity method
of accounting while the shares were held in the voting trust and acquisition date fair values of the acquired assets
and assumed liabilities have been included in the Company's consolidated balance sheets since December 28, 2012.
The results from RailAmerica's operations are included among the various line items in the Company's consolidated
statement of operations for the year ended December 31, 2013 and are included in the Company's North American
& European Operations segment.
F-12
In accordance with U.S. GAAP, a new accounting basis was established for RailAmerica on October 1, 2012
for its stand-alone financial statements. Condensed consolidated financial information for RailAmerica as of and for
the period ended December 28, 2012 is included in Note 8, Equity Investment.
During the year ended December 31, 2012, as discussed more fully under Contingent Forward Sale Contract in
Note 10, Derivative Financial Instruments, the Company recorded a $50.1 million non-cash mark-to-market expense
related to an investment agreement governing the sale of the Series A-1 Preferred Stock to Carlyle in connection
with the funding of the RailAmerica acquisition (the Investment Agreement). The expense resulted from the
significant increase in the Company's share price between July 23, 2012 (the date the Company entered into the
Investment Agreement) and September 28, 2012 (the last trading date prior to issuing the Series A-1 Preferred
Stock). On February 13, 2013, the Company exercised its option to convert all of the outstanding Series A-1
Preferred Stock into 5,984,232 shares of the Company's Class A common stock.
The Company also incurred $17.0 million and $30.0 million of RailAmerica integration and acquisition-
related costs during the years ended December 31, 2013 and 2012, respectively. The Company recognized $15.6
million of net income from the equity investment in RailAmerica during the three months ended December 31,
2012. The income from equity investment included $3.5 million of after-tax acquisition/integration costs incurred by
RailAmerica in the three months ended December 31, 2012.
Headquartered in Jacksonville, Florida with approximately 2,000 employees, RailAmerica owned and
operated 45 short line freight railroads in North America with approximately 7,100 miles of track in 28 U.S. states
and three Canadian provinces as of the October 1, 2012 acquisition date.
Columbus & Chattahoochee Railroad, Inc.: In April 2012, the Company's newly formed subsidiary, Columbus
& Chattahoochee Railroad, Inc. (CCH), signed an agreement with Norfolk Southern Railway Company (NS) to
lease and operate a 26-mile segment of NS track that runs from Girard, Alabama to Mahrt, Alabama. Operations
commenced on July 1, 2012. CCH interchanges with NS in Columbus, Georgia where the Company's Georgia
Southwestern Railroad, Inc. also has operations. The results from CCH’s operations have been included in the
Company’s consolidated statements of operations since July 1, 2012 and are included in the Company’s North
American & European Operations segment.
Hilton & Albany Railroad, Inc.: In November 2011, the Company's newly formed subsidiary, Hilton & Albany
Railroad, Inc. (HAL), signed an agreement with NS to lease and operate a 56-mile segment of NS track that runs
from Hilton, Georgia to Albany, Georgia. Operations commenced on January 1, 2012. HAL handles primarily
overhead traffic between NS and the Company's following railroads: The Bay Line Railroad, L.L.C.; Chattahoochee
Bay Railroad, Inc.; Chattahoochee Industrial Railroad; and Georgia Southwestern Railroad, Inc. In addition, HAL
serves several local agricultural and aggregate customers in southwest Georgia. The results from HAL’s operations
have been included in the Company’s consolidated statements of operations since January 1, 2012 and are included
in the Company’s North American & European Operations segment.
Arizona Eastern Railway Company: On September 1, 2011, the Company acquired all of the capital stock of
Arizona Eastern Railway Company (AZER). The Company paid the seller $89.5 million in cash at closing, which
included a reduction to the purchase price of $0.6 million based on the estimated working capital adjustment.
Following the final working capital adjustment, the Company recorded an additional $0.8 million of purchase price
in December 2011, which was paid to the seller in January 2012. The Company incurred $0.6 million of acquisition
costs related to this transaction through December 31, 2011, which were expensed as incurred. The results from
AZER’s operations have been included in the Company’s consolidated statements of operations since September 1,
2011 and are included in the Company’s North American & European Operations segment.
Headquartered near Miami, Arizona, with 43 employees and 10 locomotives, AZER owned and operated two
rail lines totaling approximately 200 track miles in southeast Arizona and southwest New Mexico connected by 52
miles of trackage rights over the Union Pacific Railroad as of the September 1, 2011 acquisition date. The largest
customer on AZER is Freeport-McMoRan Copper & Gold Inc. (Freeport-McMoRan). AZER provides rail service to
Freeport-McMoRan’s largest North American copper mine and its North American smelter, hauling copper
concentrate, copper anode, copper rod and sulfuric acid. In conjunction with the transaction, AZER and Freeport-
McMoRan entered into a long-term operating agreement.
F-13
Determination of Fair Value
The Company accounted for the RailAmerica and AZER acquisitions using the acquisition method of
accounting under U.S. GAAP. Under the acquisition method of accounting:
• The assets and liabilities of RailAmerica were recorded at their respective acquisition-date preliminary fair
values by RailAmerica as of October 1, 2012, which is referred to as the application of push-down
accounting, and were included in the Company's consolidated balance sheet in a single line item following
the equity method of accounting as of that date (see RailAmerica as of October 1, 2012 column in the
following table).
• Upon approval by the STB for the Company to control RailAmerica, the preliminary determination of fair
values of the acquired assets and assumed liabilities were consolidated with the Company's assets and
liabilities as of December 28, 2012 (see RailAmerica as of December 28, 2012 Preliminary column in the
following table). Between October 1, 2012 and December 28, 2012, the Company recognized income from
its equity investment in RailAmerica of $15.6 million and other comprehensive loss of $2.0 million,
primarily resulting from foreign currency translation adjustments. In addition, the Company recognized
$21.8 million, representing the change in RailAmerica's cash and cash equivalents from October 1, 2012 to
December 28, 2012, as a reduction in net cash paid for the acquisition.
•
In 2013, the Company finalized its determination of fair values of RailAmerica's assets and liabilities (see
RailAmerica as of December 28, 2012 Final column in the following table). The measurement period
adjustments to the fair values were as follows: 1) property and equipment increased $10.7 million, 2)
intangible assets decreased $29.9 million, 3) deferred income tax liabilities, net decreased $16.0 million, 4)
noncontrolling interest decreased $5.0 million, 5) all other assets, net increased $1.3 million and 6)
goodwill decreased $3.1 million as an offset to the above-mentioned changes. This resulted in additional
annualized depreciation and amortization expense of approximately $4 million. The Company does not
consider these adjustments material to its consolidated financial statements taken as a whole and as such,
prior periods were not retroactively adjusted.
• The assets and liabilities of AZER were recorded at their respective acquisition-date fair values and were
consolidated with those of the Company as of the September 1, 2011 acquisition date (see AZER column in
the following table).
The fair values assigned to the acquired net assets of RailAmerica and AZER were as follows (dollars in
thousands):
Cash and cash equivalents
Accounts receivable
Materials and supplies
Prepaid expenses and other
Deferred income tax assets
Property and equipment
Goodwill
Intangible assets, net
Other assets
Total assets
Accounts payable and accrued expenses
Long-term debt
Deferred income tax liabilities, net
Other long-term liabilities
Noncontrolling interest
Net assets
As of
October 1, 2012
86,102
$
RailAmerica
As of December 28, 2012
Preliminary
Final
$
107,922
$
107,922
AZER
As of
September 1, 2011
—
$
104,839
6,406
15,146
49,074
91,424
7,325
14,815
49,074
90,659
7,325
15,801
56,998
1,579,321
1,588,612
1,599,282
474,115
451,100
116
474,115
446,327
116
471,028
416,427
116
2,766,219
2,779,730
2,765,558
143,790
12,158
542,210
20,754
5,525
135,117
12,010
551,856
19,618
5,525
140,160
12,010
535,864
21,439
481
3,096
—
2,319
—
90,129
—
—
—
95,544
5,212
—
—
—
—
$
2,041,782
$
2,055,604
$
2,055,604
$
90,332
F-14
Pro Forma Financial Results (unaudited)
The following table summarizes the Company’s unaudited pro forma operating results for the years ended
December 31, 2012 and 2011 as if the acquisition of RailAmerica had been consummated as of January 1, 2011. The
pro forma operating results do not include the impact of any potential operating efficiencies, savings from expected
synergies, costs to integrate the operations or costs necessary to achieve savings from expected synergies or the
impact of derivative instruments that the Company has entered into or may enter into to mitigate interest rate or
currency exchange rate risk (dollars in thousands, except per share amounts):
Operating revenues
Net income attributable to Genesee & Wyoming Inc.
Less: Series A-1 Preferred Stock dividend
Net income available to common stockholders
Basic earnings per common share attributable to Genesee & Wyoming Inc.
common shareholders
Diluted earnings per common share attributable to Genesee & Wyoming Inc.
common shareholders
2012
1,461,419
112,191
17,500
94,691
1.99
1.89
$
$
$
$
$
2011
1,365,804
128,122
17,500
110,622
2.34
2.21
$
$
$
$
$
The 2012 and 2011 unaudited pro forma operating results include the acquisition of RailAmerica adjusted, net
of tax, for depreciation and amortization expense resulting from the determination of fair values of the acquired
property and equipment and amortizable intangible assets, the inclusion of interest expense related to borrowings
used to fund the acquisition, the amortization of debt issuance costs related to amendments to the Company’s prior
credit agreement and the elimination of RailAmerica's interest expense related to debt not assumed in the
acquisition.
The unaudited pro forma statements of operations for the years ended December 31, 2012 and 2011 were
based upon the Company’s historical consolidated statements of operations for the years ended December 31, 2012
and 2011 and RailAmerica's consolidated statements of operations for the nine months ended September 30, 2012,
the three months ended December 28, 2012 and the year ended December 31, 2011. Since the pro forma financial
results for 2012 and 2011 assume the acquisition of RailAmerica was consummated on January 1, 2011, the 2011
results included $20.3 million, net of tax, of acquisition-related costs and expenses related to change of control
agreements incurred by the Company during the year ended December 31, 2012, $9.5 million, net of tax, of fees
associated with the funding of the acquisition and $12.9 million, net of tax, of acquisition-related costs incurred by
RailAmerica during the year ended December 31, 2012. The pro forma results for 2012 included approximately $55
million of costs incurred by RailAmerica associated with the redemption of senior secured notes in January 2012. In
addition, the 2012 pro-forma results have been revised to eliminate the Company's $50.1 million mark-to-market
expense related to the Investment Agreement in connection with the funding of the acquisition.
As a result of these charges, the numerator used in the calculation of pro forma diluted EPS attributable to
G&W common shareholders was reduced by the Series A-1 Preferred Stock dividend and the denominator excluded
approximately 6.0 million “if-converted” shares related to the Series A-1 Preferred Stock.
The pro forma financial information does not purport to be indicative of the results that actually would have
been obtained had the transactions been completed as of the assumed dates and for the periods presented and are not
intended to be a projection of future results or trends.
Australia
Arrium Limited: In July 2012, the Company's subsidiary, Genesee & Wyoming Australia Pty Ltd (GWA),
announced that it had expanded two existing rail haulage contracts with Arrium Limited (formerly OneSteel) to
transport additional export iron ore in South Australia. To support the increased shipments under the two contracts,
during the year ended December 31, 2012, GWA invested A$52.1 million (or $54.1 million at the exchange rate on
December 31, 2012) to purchase narrow gauge locomotives and railcars as well as to construct a standard gauge
rolling-stock maintenance facility in order to support the increased shipments under the two contracts. During the
year ended December 31, 2013, GWA spent an additional A$22.3 million (or $19.9 million at the exchange rate on
December 31, 2013) on these projects and does not expect to invest any additional capital in these projects in 2014.
F-15
Alice Springs and Cook: In May 2012, GWA entered into an agreement with Asciano Services Pty Ltd (AIO),
a subsidiary of Asciano Pty Ltd, whereby GWA agreed to purchase an intermodal and freight terminal in Alice
Springs, Northern Territory from AIO and GWA agreed to sell AIO certain assets in the township of Cook, South
Australia that included GWA's third-party fuel-sales business. GWA completed the purchase of the Alice Springs
intermodal and freight terminal in June 2012 for A$9.0 million (or $9.2 million at the exchange rate on June 30,
2012) plus A$0.5 million (or $0.6 million at the exchange rate on June 30, 2012) tax liability for stamp duty (an
Australian asset transfer tax). Previously, GWA had leased the facility from AIO. The sale of the assets in Cook
closed in September of 2012. The Company received A$4.0 million (or $4.1 million at the exchange rate on
September 30, 2012) in pre-tax cash proceeds from the sale and recognized an after-tax book gain of A$1.3 million
(or $1.3 million at the exchange rate on September 30, 2012).
Canada
Tata Steel Minerals Canada Ltd.: In August 2012, the Company announced that its newly formed subsidiary,
KeRail Inc. (KeRail), entered into a long-term agreement with Tata Steel Minerals Canada Ltd. (TSMC), for KeRail
to provide rail transportation services to the direct shipping iron ore mine TSMC is developing near Schefferville,
Quebec in the Labrador Trough (the Mine). In addition, KeRail plans to construct an approximately 21-kilometer
rail line that will connect the Mine to the Tshiuetin Rail Transportation (TSH) interchange point in Schefferville.
Operated as part of the Company's Canada Region, KeRail is expected to haul unit trains of iron ore from its rail
connection with the Mine, which will then travel over three privately owned railways to the Port of Sept-Îles for
export primarily to Tata Steel Limited's European operations. The agreement and construction are contingent on
certain conditions being met, including the receipt of necessary governmental permits and approvals. Once the track
construction has commenced, the rail line is expected to be completed three to six months thereafter, weather
permitting.
Results from Operations
When comparing the Company’s results from operations from one reporting period to another, it is important
to consider that the Company has historically experienced fluctuations in revenues and expenses due to acquisitions,
changing economic conditions, competitive forces, changes in foreign currency exchange rates, one-time freight
moves, fuel price fluctuations, customer plant expansions and shut-downs, sales of property and equipment,
derailments and weather-related conditions, such as hurricanes, cyclones, tornadoes, droughts, heavy snowfall,
unseasonably warm or cool weather, freezing and flooding. In periods when these events occur, the Company's
results of operations are not easily comparable from one period to another. Finally, certain of the Company’s
railroads have commodity shipments that are sensitive to general economic conditions, such as steel products, paper
products and lumber and forest products, as well as product specific economic conditions, such as the availability of
lower priced alternative sources of power generation (coal). Other shipments are relatively less affected by
economic conditions and are more closely affected by other factors, such as inventory levels maintained at customer
plants (coal), winter weather (salt and coal) and seasonal rainfall (agricultural products). As a result of these and
other factors, the Company’s results of operations in any reporting period may not be directly comparable to its
results of operations in other reporting periods.
F-16
4. EARNINGS PER COMMON SHARE:
Common shares issuable under unexercised stock options calculated under the treasury stock method,
weighted average Class B common shares outstanding and Series A-1 Preferred Stock were the only reconciling
items between the Company’s basic and diluted weighted average shares outstanding.
The following table sets forth the computation of basic and diluted earnings per common share for the years
ended December 31, 2013, 2012 and 2011 (in thousands, except per share amounts):
Numerators:
Net income attributable to Genesee & Wyoming Inc.
common stockholders
Less: Series A-1 Preferred Stock dividend
Net income available to common stockholders
Denominators:
Weighted average Class A common shares outstanding -
Basic
Weighted average Class B common shares outstanding
Dilutive effect of employee stock-based awards
Dilutive effect of Series A-1 Preferred Stock
Weighted average shares - Diluted
Earnings per common share attributable to Genesee &
Wyoming Inc. common stockholders:
Basic earnings per common share
Diluted earnings per common share
$
$
$
$
2013
2012
2011
271,296
2,139
269,157
$
$
52,433
4,375
48,058
$
$
119,484
—
119,484
53,788
1,675
494
722
56,679
42,693
2,038
601
5,984
51,316
39,912
2,257
603
—
42,772
5.00
4.79
$
$
1.13
1.02
$
$
2.99
2.79
The total number of options used to calculate weighted average share equivalents for diluted earnings per
common share as of December 31, 2013, 2012 and 2011, was as follows (in thousands):
Options used to calculate weighted average share
equivalents
2013
2012
2011
969
1,105
1,460
The following total number of shares of Class A common stock issuable under the assumed exercises and lapse
of stock-based awards computed based on the treasury stock method were excluded from the calculation of diluted
earnings per common share, as the effect of including these shares would have been anti-dilutive (in thousands):
Anti-dilutive shares
2013
2012
2011
105
143
126
The following table sets forth the increase in the Company's weighted average basic shares outstanding for the
years ended December 31, 2013 and 2012 as a result of the Company's public offering of Class A common stock in
September 2012, shares issuable upon settlement of the prepaid stock purchase contract component of the TEUs
issued in September 2012 based on the market price of the Company's Class A common stock at December 31, 2013
and 2012, respectively, and from the conversion of the Series A-1 Preferred Stock into the Company's Class A
common stock in February 2013:
Class A common stock offering
Shares issuable upon settlement of the prepaid stock purchase contract
component of the TEUs
Conversion of Series A-1 Preferred Stock
2013
3,791,004
2,841,650
5,262,845
2012
1,066,867
850,773
—
F-17
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 10 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, subject to the provisions of the Class B
Stockholders’ Agreement dated as of May 20, 1996. In addition, pursuant to the Class B Stockholders’ Agreement,
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 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 share of 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 its common stock in the foreseeable future.
Offerings
On September 19, 2012, the Company completed a public offering of 3,791,004 shares of Class A common
stock at $64.75 per share, which included 525,000 shares issued as a result of the underwriters' exercise of their
over-allotment option. The Company also completed a public offering of 2,300,000 TEUs, which included 300,000
TEUs issued as a result of the underwriters' exercise of their over-allotment option, with a stated amount of $100 per
unit on September 19, 2012.
Each TEU consists of a prepaid stock purchase contract (Purchase Contract) and a senior amortizing note due
October 1, 2015 (Amortizing Note) issued by the Company. Unless settled or redeemed earlier or extended, each
Purchase Contract will automatically settle on October 1, 2015. If the applicable market value (as defined in the
Purchase Contract) of the Company's Class A common stock is greater than or equal to $80.94, then the Company
will deliver 1.2355 shares per Purchase Contract and if the applicable market value is less than or equal to $64.75,
then the Company will deliver 1.5444 shares per Purchase Contract, with such share amounts subject to adjustment.
Otherwise, the Company will deliver a number of shares of its Class A common stock per Purchase Contract equal
to $100 divided by the applicable market value. Accordingly, for illustrative purposes, the following table provides
the calculated impact on the Company's weighted average diluted shares outstanding for the year ended
December 31, 2013 assuming the conversion of the Company's outstanding TEUs into Class A common stock based
on the assumptions for the Company's stock price stated in the table (in thousands, except per share amounts):
Minimum common stock equivalents
Middle of range of common stock equivalents
Maximum common stock equivalents
Assumed Market
Price of Class A
Common Stock
$
$
$
80.94
73.00
64.75
TEU Common
Stock Equivalents
2,842
3,151
3,552
Weighted Average
Diluted Shares
Outstanding
56,679
56,988
57,389
The Company's basic and diluted earnings per common share calculations reflect the weighted average shares
issuable upon settlement of the prepaid stock purchase contract component of the TEUs. For purposes of
determining the number of shares included in the calculation, the Company used the market price of its Class A
common stock at the period end date.
Series A-1 Preferred Stock Converted into Common Stock on February 13, 2013
On October 1, 2012, the Company completed the issuance of 350,000 shares of Series A-1 Preferred Stock at
an issuance price of $1,000.00 per share for $349.4 million, net of issuance costs, to Carlyle pursuant to an
Investment Agreement entered into by the Company and Carlyle in conjunction with the Company's announcement
on July 23, 2012 of its plan to acquire RailAmerica in order to partially fund the acquisition. On February 13, 2013,
the Company exercised its option to convert all of the outstanding Series A-1 Preferred Stock into 5,984,232 shares
of the Company's Class A common stock.
F-18
Dividends on the Series A-1 Preferred Stock were cumulative and payable quarterly in arrears in an amount
equal to 5.00% per annum of the issuance price per share. Each share of the Series A-1 Preferred Stock was
convertible at any time, at the option of the holder, into approximately 17.1 shares of Class A common stock, subject
to customary conversion adjustments. The Series A-1 Preferred Stock were also mandatorily convertible into the
relevant number of shares of Class A common stock on the second anniversary of the date of issuance, subject to the
satisfaction of certain conditions. The Company also had the ability to convert some or all of the Series A-1
Preferred Stock prior to the second anniversary of the date of issue of the Series A-1 Preferred Stock if the closing
price of the Company's Class A common stock on the New York Stock Exchange exceeded 130% of the conversion
price (or $76.03) for 30 consecutive trading days, subject to the satisfaction of certain conditions. The conversion
price of the Series A-1 Preferred Stock was set at approximately $58.49, which was a 4.5% premium to the
Company's stock price on the trading day prior to the announcement of the RailAmerica acquisition.
As of February 12, 2013, the closing price of the Company's Class A common stock had exceeded $76.03 for
30 consecutive trading days. As a result, on February 13, 2013, the Company exercised its option to convert all of
the Series A-1 Preferred Stock as described above into 5,984,232 shares of the Company's Class A common stock.
On the conversion date, the Company also paid to Carlyle cash in lieu of fractional shares and all accrued and
unpaid dividends on the Series A-1 Preferred Stock totaling $2.1 million. In November 2013, Carlyle sold all of
these outstanding shares of the Company's Class A common stock in a public offering.
For basic earnings per common share, the Company deducted the cumulative dividends on the Series A-1
Preferred Stock in calculating net income available to common stockholders (i.e., the numerator in the calculation of
basic earnings per common share) divided by the weighted average number of common shares outstanding during
each period. For diluted earnings per common share, the Company used the if-converted method when calculating
diluted earnings per share.
5. 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 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.
Accounts receivable consisted of the following at December 31, 2013 and 2012 (dollars in thousands):
Accounts receivable - trade
Accounts receivable - grants from outside parties
Accounts receivable - insurance and other third-party claims
Total accounts receivable
Less: allowance for doubtful accounts
Accounts receivable, net
Grants from Outside Parties
2013
2012
264,562
33,003
31,643
329,208
(3,755)
325,453
$
$
216,694
25,036
23,912
265,642
(2,693)
262,949
$
$
The Company periodically receives grants for the upgrade and construction of rail lines and upgrades of
locomotives from federal, provincial, state and local agencies and other outside parties (e.g., customers) in the
United States and Australia and provinces in Canada in which the Company operates. These grants typically
reimburse the Company for 50% to 100% of the actual cost of specific projects. In total, the Company received
grant proceeds of $33.9 million, $39.6 million and $22.6 million in the years ended December 31, 2013, 2012 and
2011, respectively, from such grant programs. The proceeds were presented as cash inflows from investing activities
within each of the applicable periods.
F-19
None of the Company’s grants represents 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 upgraded or new track
to certain standards and to make certain minimum capital improvements or ceases use of the locomotives within the
specified geographic area and time period, as defined in the respective agreements. As the Company intends to
comply with these agreements, the Company has recorded additions to track property and locomotives and has
deferred the amount of the grants. The amortization of deferred grants is a non-cash offset to depreciation expense
over the useful lives of the related assets. During the years ended December 31, 2013, 2012 and 2011, the Company
recorded offsets to depreciation expense from grant amortization of $9.3 million, $8.0 million and $7.9 million,
respectively.
Insurance and Third-Party Claims
Accounts receivable from insurance and other third-party claims at December 31, 2013 included $16.8 million
from the Company’s Australian Operations and $14.8 million from the Company’s North American & European
Operations. The balance from the Company’s Australian Operations resulted predominately from a derailment in
Australia’s Northern Territory (the Edith River Derailment) in December 2011. The balance from the Company’s
North American & European Operations resulted predominately from a derailment in Alabama (the Aliceville
Derailment) in November 2013. The Company received proceeds from insurance totaling $11.1 million, $21.8
million and $0.6 million for the years ended December 31, 2013, 2012 and 2011, respectively, and recorded related
gains on insurance recoveries totaling $1.5 million, $5.8 million and $1.1 million for the years ended December 31,
2013, 2012 and 2011, respectively.
Allowance for Doubtful Accounts
Activity in the Company’s allowance for doubtful accounts for the years ended December 31, 2013, 2012 and
2011 was as follows (dollars in thousands):
Balance, beginning of year
Provisions
Charges
Balance, end of year
2013
2012
2011
2,693
2,741
(1,679)
3,755
$
$
2,807
977
(1,091)
2,693
$
$
3,079
1,055
(1,327)
2,807
$
$
The Company’s business is subject to credit risk. There is a risk that a customer or counterparty will fail to
meet its obligations when due. Customers and counterparties who owe the Company money have defaulted and may
continue to default on their obligations to the Company due to bankruptcy, lack of liquidity, operational failure or
other reasons. For interline traffic, one railroad typically invoices a customer on behalf of all railroads participating
in the route. The invoicing railroad then pays the other railroads their portion of the total amount invoiced on a
monthly basis. When the Company is the invoicing railroad it is exposed to customer credit risk for the total amount
invoiced and is required to pay the other railroads participating in the route even if the Company is not paid by the
customer. Although the Company has procedures for reviewing its receivables and credit exposures to specific
customers and counterparties to address present credit concerns, default risk may arise from events or circumstances
that are difficult to detect or foresee. Some of the Company’s risk management methods depend upon the evaluation
of information regarding markets, customers or other matters that are not publicly available or otherwise accessible
by the Company and this information may not, in all cases, be accurate, complete, up-to-date or properly evaluated.
As a result, unexpected credit exposures could adversely affect the Company’s consolidated results of operations,
financial condition and liquidity.
F-20
6. PROPERTY AND EQUIPMENT AND LEASES:
Property and Equipment
Major classifications of property and equipment as of December 31, 2013 and 2012 were as follows (dollars
in thousands):
Property:
Land and land improvements
Buildings and leasehold improvements
Bridges/tunnels/culverts
Track property
Total property
Equipment:
Computer equipment
Locomotives and railcars
Vehicles and mobile equipment
Signals and crossing equipment
Track equipment
Other equipment
Total equipment
Construction-in-process
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
2013
2012
547,539
122,919
556,108
2,078,084
3,304,650
11,307
493,977
42,127
63,208
19,205
28,524
658,348
30,395
3,993,393
(552,649)
3,440,744
$
$
562,432
90,149
531,388
2,010,511
3,194,480
9,235
458,404
38,226
30,564
17,853
22,673
576,955
69,505
3,840,940
(444,645)
3,396,295
$
$
Construction-in-process consisted primarily of costs associated with equipment purchases and track and
equipment upgrades. Major classifications of construction-in-process as of December 31, 2013 and 2012 were as
follows (dollars in thousands):
Property:
Buildings and leasehold improvements
Bridges/tunnels/culverts
Track property
Equipment:
Locomotives and railcars
Other equipment
Total construction-in-process
2013
2012
$
$
92
937
21,912
6,657
797
30,395
$
$
93
3,500
24,252
39,291
2,369
69,505
Track property upgrades typically involve the substantial replacement of rail, ties and/or other track material.
Locomotive upgrades generally consist of major mechanical enhancements to the Company’s existing locomotive
fleet. Upgrades to the Company’s railcars typically include rebuilding of car body structures and/or converting to an
alternative type of freight car.
Depreciation expense for the years ended December 31, 2013, 2012 and 2011 totaled $119.2 million, $66.6
million and $59.7 million, respectively.
The Credit Agreement is collateralized by a substantial portion of the Company’s real and personal property
assets of its domestic subsidiaries that have guaranteed the United States obligations under the Credit Agreement
and a substantial portion of the personal property assets of its foreign subsidiaries that have guaranteed the foreign
obligations under the Credit Agreement. See Note 9, Long-Term Debt, for more information on the Company's
Credit Agreement.
F-21
Leases
The Company enters into operating leases for railcars, locomotives and other equipment as well as real
property. The Company also enters into agreements with other railroads and other third parties to operate over
certain sections of their track and pays a per car fee to use the track or an annual lease payment. The costs associated
with operating leases are expensed as incurred and are not included in the property and equipment table above.
The number of railcars and locomotives leased by the Company, including 8,004 railcars and 175 locomotives
acquired from RailAmerica in 2012, as of December 31, 2013 and 2012 was as follows:
Railcars
Locomotives
December 31,
2013
2012
17,718
100
18,311
182
The Company's operating lease expense for equipment and real property leases and expense for the use of
other railroad and other third parties' track for the years ended December 31, 2013, 2012 and 2011 was as follows
(2012 excludes lease expense related to RailAmerica's equipment and real property leases and trackage rights
expense included in equity earnings for the period from October 1, 2012 to December 28, 2012) (dollars in
thousands):
Equipment
Real property
Trackage rights
2013
2012
2011
$
$
$
32,050
8,062
50,911
$
$
$
13,386
5,055
28,250
$
$
$
19,328
4,632
23,066
The Company is a party to several lease agreements with Class I carriers and other third parties to operate
over various rail lines in North America, with varied expirations. Certain of these lease agreements have annual
lease payments, which are included in the operating lease section of the schedule of future minimum lease payments
shown below as well as the trackage rights expense in the table above. Revenues from railroads that the Company
leases from Class I carriers and other third parties collectively accounted for approximately 9% of the Company's
2013 total operating revenues. Leases from Class I railroads and other third parties that are subject to expiration in
each of the next 10 years represent less than 2% of the Company's annual revenues in the year of expiration based
on the Company's operating revenues for the year ended December 31, 2013.
The following is a summary of future minimum lease payments under capital leases and operating leases as of
December 31, 2013 (dollars in thousands):
2014
2015
2016
2017
2018
Thereafter
Total minimum payments
Capital
Operating
Total
876
877
881
8,297
27
184
11,142
$
$
32,414
21,644
17,305
14,387
12,420
137,231
235,401
$
$
33,290
22,521
18,186
22,684
12,447
137,415
246,543
$
$
F-22
7. INTANGIBLE ASSETS, OTHER ASSETS AND GOODWILL:
Intangible Assets
Intangible assets as of December 31, 2013 and 2012 were as follows (dollars in thousands):
Intangible assets:
Amortizable intangible assets:
Service agreements
Customer contracts and
relationships
Track access agreements
Total amortizable intangible assets
Non-amortizable intangible assets:
Perpetual track access agreements
Operating license
Total intangible assets, net
Intangible assets:
Amortizable intangible assets:
Service agreements
Customer contracts and
relationships
Track access agreements
Total amortizable intangible assets
Non-amortizable intangible assets:
Perpetual track access agreements
Operating license
Total intangible assets, net
2013
Gross
Carrying
Amount
Accumulated
Amortization
Intangible Assets,
Net
37,622
$
13,547
$
24,075
178,603
430,241
646,466
$
22,899
32,116
68,562
155,704
398,125
577,904
35,891
138
613,933
$
$
2012
Gross
Carrying
Amount
Accumulated
Amortization
Intangible Assets,
Net
37,622
$
12,214
$
25,408
150,532
492,494
680,648
$
17,421
16,830
46,465
133,111
475,664
634,183
35,891
132
670,206
$
$
$
$
$
$
Weighted
Average
Amortization
Period
(in Years)
28
36
43
40
Weighted
Average
Amortization
Period
(in Years)
28
35
44
41
The Company expenses costs incurred to renew or extend the term of its track access agreements.
In its final determination of fair values of the assets acquired from RailAmerica, the Company assigned
$120.5 million to amortizable customer contracts and relationships and $300.7 million to amortizable track access
agreements, which were included in the Company's intangible assets as of December 31, 2013. In its preliminary
determination of fair values, the Company had assigned $92.6 million to amortizable customer contracts and
relationships and $358.5 million to amortizable track access agreements, which were included in the Company's
intangible assets as of December 31, 2012. Based on the Company's estimate of their expected economic life, these
intangibles are being amortized on a straight-line basis over a weighted average life of 42 years.
The perpetual track access agreements on one of the Company’s railroads have been determined to have an
indefinite useful life and, therefore, are not subject to amortization. However, these assets are tested for impairment
annually or in interim periods if events indicate possible impairment.
F-23
In the years ended December 31, 2013, 2012 and 2011, the aggregate amortization expense associated with
intangible assets was $22.5 million, $6.8 million and $6.8 million, respectively. The Company estimates the future
aggregate amortization expense related to its intangible assets as of December 31, 2013 will be as follows for the
periods presented (dollars in thousands):
2014
2015
2016
2017
2018
Thereafter
Total
Other Assets
$
$
22,227
22,158
22,109
22,109
20,303
468,998
577,904
Other assets as of December 31, 2013 and 2012 were as follows (dollars in thousands):
Other assets:
Deferred financing costs
Other assets
Total other assets, net
Other assets:
Deferred financing costs
Other assets
Total other assets, net
2013
Gross
Carrying
Amount
Accumulated
Amortization
Other Assets, Net
43,650
52,241
95,891
$
$
11,930
14
11,944
$
$
31,720
52,227
83,947
2012
Gross
Carrying
Amount
Accumulated
Amortization
Other Assets, Net
42,844
16,535
59,379
$
$
2,352
14
2,366
$
$
40,492
16,521
57,013
$
$
$
$
Weighted
Average
Amortization
Period
(in Years)
Weighted
Average
Amortization
Period
(in Years)
4
0
5
0
In the years ended December 31, 2013, 2012 and 2011, the Company amortized $10.2 million, $7.0 million
and $2.5 million of deferred financing costs as an adjustment to interest expense. 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 the straight-line method for the revolving credit facility portion of debt. The 2013 amortization
amount included $0.5 million associated with the write-off of deferred financing costs as a result of the prepayment
of the remaining balance on the Canadian term loan. The 2012 amortization amount included $3.2 million
associated with the write-off of deferred financing fees as a result of the October 2012 refinancing of the Company's
senior credit facility and senior notes. The 2011 amortization amount included $0.5 million associated with the
write-off of deferred financing fees as a result of the July 2011 refinancing of the Company's senior credit facility
then in effect.
As of December 31, 2013, the Company estimated the future interest expense related to amortization of its
deferred financing costs will be as follows for the periods presented (dollars in thousands):
2014
2015
2016
2017
Total
$
$
9,202
8,639
8,167
5,712
31,720
F-24
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 were as
follows (dollars in thousands):
Goodwill:
Balance at beginning of period
Goodwill acquired
Purchase accounting adjustments
Currency translation adjustment
Balance at end of period
2013
2012
$
$
634,953
—
(3,087)
(1,404)
630,462
$
$
160,277
474,115
—
561
634,953
The Company’s goodwill for the years ended December 31, 2013 and 2012 was attributable to the Company’s
North American & European operating segment. In its final determination of fair values of the assets and liabilities
acquired from RailAmerica, the Company reduced goodwill by $3.1 million during the year ended December 31,
2013. In the preliminary determination of fair values of the assets and liabilities acquired from RailAmerica, the
Company had assigned $474.1 million to goodwill as of December 31, 2012. Of the total amount of goodwill
acquired from the RailAmerica acquisition, approximately $30 million will be deductible for income tax purposes.
The Company tests its goodwill and other indefinite-lived intangibles for impairment annually or in interim periods
if events indicate possible impairment.
8. EQUITY INVESTMENT:
RailAmerica, Inc.
On October 1, 2012, the Company acquired 100% of RailAmerica's outstanding shares for cash at a price of
$27.50 per share and in connection with such acquisition, the Company repaid RailAmerica's term loan and
revolving credit facility (see Note 3, Changes in Operations). The shares of RailAmerica were held in a voting trust
while the STB considered the Company's control application, which application was approved with an effective date
of December 28, 2012. Accordingly, the Company accounted for the earnings of RailAmerica using the equity
method of accounting while the shares were held in the voting trust and the Company's preliminary determination of
fair values of the acquired assets and assumed liabilities were included in the Company's consolidated balance sheet
at December 31, 2012.
In accordance with U.S. GAAP, a new accounting basis was established for RailAmerica on October 1, 2012
for its stand-alone financial statements. The Company recognized $15.6 million ($15.8 million of net income
reported by RailAmerica less $0.2 million to eliminate activity between RailAmerica and G&W) of net income from
the equity investment in RailAmerica during the three months ended December 31, 2012, which was reported in the
Company's consolidated statements of operations under the caption Income from equity investment in RailAmerica,
net. The income from equity investment included $3.5 million of after-tax acquisition/integration costs incurred by
RailAmerica in the three months ended December 31, 2012.
F-25
The following condensed consolidated financial data of RailAmerica is based on U.S. GAAP:
RAILAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(dollars in thousands)
Assets
Current assets
Property and equipment, net
Goodwill
Intangible assets, net
Other assets, net
Total assets
Liabilities and equity
Current liabilities
Long-term debt, less current portion
Deferred income tax liabilities, net
Other long-term liabilities
Commitments and contingencies
Total RailAmerica, Inc. stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
RAILAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands)
Operating revenues
Operating expenses
Income from operations
Interest expense
Other income
Income before income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to RailAmerica. Inc.
F-26
December 28,
2012
270,560
1,588,612
474,115
446,327
116
2,779,730
136,717
10,410
551,856
19,618
—
2,055,604
5,525
2,061,129
2,779,730
Period from
October 1, 2012
(Acquisition) to
December 28,
2012
151,065
124,928
26,137
(90)
9
26,056
10,250
15,806
—
15,806
$
$
$
$
$
$
RAILAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income
Other comprehensive income/(loss):
Foreign currency translation adjustment
Actuarial gain associated with pension and postretirement benefit plans, net of tax provision
of $53
Other comprehensive loss
Comprehensive income
RAILAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Period from
October 1, 2012
(Acquisition) to
December 28,
2012
15,806
(2,150)
166
(1,984)
13,822
Period from
October 1, 2012
(Acquisition) to
December 28,
2012
41,897
(19,804)
(144)
(129)
21,820
86,102
107,922
$
$
$
$
9. LONG-TERM DEBT:
Long-term debt consisted of the following as of December 31, 2013 and 2012 (dollars in thousands):
Credit Agreement with variable interest rates (weighted average of 2.13% and
3.04% before impact of interest rate swaps at December 31, 2013 and 2012,
respectively) due 2017
Amortizing Notes component of TEUs with fixed interest rate of 5.00% due
2015
Other debt and capital leases with interest rates up to 10.00% and maturing at
various dates up to 2054
Long-term debt
Less: current portion
Long-term debt, less current portion
$
2013
2012
$
1,583,798
$
1,805,799
21,878
32,435
19,036
1,624,712
84,366
1,540,346
$
19,901
1,858,135
87,569
1,770,566
Credit Agreement
As of October 1, 2012, the Senior Secured Syndicated Credit Facility Agreement (the Credit Agreement)
included a $425.0 million revolving credit facility, a $1.6 billion United States term loan, a C$24.6 million ($25.0
million at the exchange rate on October 1, 2012) Canadian term loan and an A$202.9 million ($210.0 million at the
exchange rate on October 1, 2012) Australian term loan. The revolving credit facility also includes borrowing
capacity for letters of credit and for borrowings on same-day notice, referred to as swingline loans. The Credit
Agreement has a maturity date of October 1, 2017.
F-27
The Credit Agreement allows for borrowings under the revolving credit facility in United States dollars, Euros,
Canadian dollars and Australian dollars. Under the revolving credit facility, the applicable borrowing spread for the
United States base rate loans and Canadian base rate loans under the Credit Agreement initially were 1.50% over the
base rate through December 31, 2012 and ranged from 0.50% to 1.75% over the base rate depending upon the
Company's total leverage ratio through March 27, 2013. The applicable borrowing spread in the case of the United
States, Canadian and European loans is the London Interbank Offered Rate (LIBOR) and the Australian loans is the
Bank Bill Swap Reference Rate (BBSW), which were initially 2.50% over the LIBOR and BBSW rate through
December 31, 2012 and ranged from 1.50% to 2.75% over these rates depending upon the Company's total leverage
ratio through March 27, 2013. BBSW is the wholesale interbank reference rate within Australia, which the
Company believes is generally considered the Australian equivalent to LIBOR. On March 28, 2013, the Company
entered into Amendment No. 1 (the Amendment) to the Credit Agreement. As a result of the Amendment, the
applicable borrowing spread for the United States and Canadian base rate loans under the revolving credit facility
were reduced to 0.25% to 1.50% over the base rate and the applicable borrowing spread for the United States,
Canadian, European and Australian term loans were reduced to 1.25% to 2.50% over the respective LIBOR and
BBSW rates depending upon the Company’s total leverage ratio.
The existing term loans and loans under the revolving credit facility are guaranteed by substantially all of the
Company’s United States subsidiaries for the United States guaranteed obligations and by substantially all of its
foreign subsidiaries for the foreign guaranteed obligations. The Credit Agreement is collateralized by a substantial
portion of the Company’s real and personal property assets of its domestic subsidiaries that have guaranteed the
United States obligations under the Credit Agreement and a substantial portion of the personal property assets of its
foreign subsidiaries that have guaranteed the foreign obligations under the Credit Agreement.
During the three months ended December 31, 2012, the Company made prepayments on the United States
term loan of $47.5 million, prepayments on the Canadian term loan of C$10.0 million (or $10.0 million at the
exchange rate on the date it was paid) and prepayments on the Australian term loan of A$18.0 million (or $18.6
million at the exchange rate on the date it was paid). The Company also made scheduled quarterly principal
payments of $16.4 million on the United States term loan, C$0.2 million (or $0.2 million at the average exchange
rate during the period in which paid) on the Canadian term loan and A$2.0 million (or $2.1 million at the average
exchange rate during the period in which paid) on the Australian term loan during the three months ended December
31, 2012.
In March 2013, the Company prepaid in full the remaining balance on the Canadian term loan, which resulted
in the write-off of unamortized deferred financing costs of $0.5 million. In addition, during the year ended
December 31, 2013, the Company made prepayments of $79.0 million and scheduled quarterly principal payments
totaling $63.7 million on the United States term loan. During the year ended December 31, 2013, the Company
made prepayments of A$24.0 million (or $23.6 million at the average exchange rates during the periods in which
paid) and scheduled quarterly principal payments totaling A$8.1 million (or $7.7 million at the average exchange
rates during the periods in which paid) on the Australian term loan.
As of December 31, 2013, the Company had outstanding term loans of $1.4 billion in the United States with
an interest rate of 1.92% and A$150.8 million in Australia (or $134.4 million at the exchange rate on December 31,
2013) with an interest rate of 4.40%. As of December 31, 2013, the Company had outstanding revolving credit
facilities of $11.0 million in the United States with an interest rate of 1.92% and €3.6 million in Europe (or $4.9
million at the exchange rate on December 31, 2013) with an interest rate of 1.97%.
In addition to paying interest on any outstanding borrowings under the Credit Agreement, the Company is
required to pay a commitment fee in respect of the unutilized portion of the commitments under the revolving credit
facility. The commitment fee rate initially was 0.50% per annum through December 31, 2012 and will range from
0.25% to 0.50% depending upon the Company's total leverage ratio thereafter. The Company also pays customary
letter of credit and agency fees.
The Credit Agreement also includes (a) a $45.0 million sub-limit for the issuance of standby letters of credit
and (b) sub-limits for swingline loans including (i) up to $30.0 million under the United States revolving credit
facility, (ii) up to $15.0 million under each of the Canadian revolving credit facility and the Australian revolving
credit facility and (iii) up to $10.0 million under the Euro revolving credit facility.
F-28
The Credit Agreement contains a number of customary affirmative and negative covenants that, among other
things, limit or prohibit the Company's ability, subject to certain exceptions, to incur additional indebtedness; create
liens; make investments; pay dividends on capital stock or redeem, repurchase or retire capital stock; consolidate or
merge or make acquisitions or dispose of assets; enter into sale and leaseback transactions; engage in any business
unrelated to the business currently conducted by the Company; sell or issue capital stock of any of the Company's
restricted subsidiaries; change its fiscal year; enter into certain agreements containing negative pledges and
upstream limitations and engage in certain transactions with affiliates. Under the Credit Agreement, the Company
may not have an interest coverage ratio less than 3.50 to 1.00 as of the last day of any fiscal quarter. In addition, the
Company may not exceed specified maximum total leverage ratios as described in the following table:
Period
Closing Date through September 30, 2013
October 1, 2013 through September 30, 2014
October 1, 2014 through September 30, 2015
October 1, 2015 and thereafter
Maximum Total
Leverage Ratio
4.75 to 1.00
4.25 to 1.00
3.75 to 1.00
3.50 to 1.00
As of December 31, 2013, the Company was in compliance with the covenants under the Credit
Agreement. As of December 31, 2013, the Company's $425.0 million revolving credit facility consisted of $15.9
million of outstanding debt, subsidiary letters of credit guarantees of $3.1 million and $406.0 million of unused
borrowing capacity. Subject to maintaining compliance with the covenants under the Credit Agreement, the $406.0
million of unused borrowing capacity as of December 31, 2013 is available for working capital, capital
expenditures, permitted investments, permitted acquisitions, refinancing existing indebtedness and general corporate
purposes.
On July 29, 2011, the Company entered into the Third Amended and Restated Revolving Credit and Term
Loan Agreement (the Prior Credit Agreement), which replaced the Company's credit agreement then in effect. The
Prior Credit Agreement had a borrowing capacity of $750.0 million and a maturity date of July 29, 2016. The Prior
Credit Agreement included a $425.0 million revolving credit facility, a $200.0 million United States term loan, an A
$92.2 million ($100.0 million at the July 29, 2011 exchange rate) Australian term loan and a C$23.6 million ($25.0
million at the July 29, 2011 exchange rate) Canadian term loan. In connection with the RailAmerica acquisition, on
October 1, 2012, the Company repaid in full all outstanding loans, together with interest and all other amounts due
under the Prior Credit Agreement. No penalties were due in connection with such repayments. In connection with
the repayment of the Prior Credit Agreement, the Company wrote off $2.9 million of unamortized debt issuance
costs and incurred $0.5 million of legal expenses in the year ended December 31, 2012.
Senior Notes
In 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 bore interest at 5.36% and were due in July 2015. On
October 1, 2012, the Company repaid the $100.0 million of outstanding Series B senior notes, along with an
aggregate $12.6 million make-whole payment, with proceeds from the Credit Agreement. The Series C senior notes
had a borrowing rate of three-month LIBOR plus 0.70% and were repaid in July 2012 through borrowings under the
Prior Credit Agreement. In addition, the Company wrote off $0.3 million of unamortized debt issuance costs
associated with the senior notes during the year ended December 31, 2012.
F-29
TEUs
On September 19, 2012, the Company issued 2,300,000 5.00% TEUs. Each TEU initially consisted of a
prepaid stock purchase contract (Purchase Contract) and a senior amortizing note due October 1, 2015 (Amortizing
Note) issued by the Company, which had an initial principal amount of $14.1023 per Amortizing Note. As of
December 31, 2013, the Amortizing Notes had an aggregate principal amount of $21.9 million. On each January 1,
April 1, July 1 and October 1, the Company is required to pay holders of Amortizing Notes equal quarterly
installments of $1.25 per Amortizing Note (except for the January 1, 2013 installment payment, which was $1.4167
per Amortizing Note), which cash payments in the aggregate will be equivalent to a 5.00% cash payment per year
with respect to each $100 stated amount of the TEUs. Each installment constitutes a payment of interest (at an
annual rate of 4.50%) and a partial repayment of principal on the Amortizing Note. The Amortizing Notes have a
scheduled final installment payment date of October 1, 2015. If the Company elects to settle the Purchase Contracts
early, holders of the Amortizing Notes will have the right to require the Company to repurchase such holders'
Amortizing Notes, except in certain circumstances as described in the indenture governing the Amortizing Notes.
Non-Interest Bearing Loan
In 2010, as part of the acquisition of FreightLink Pty Ltd, Asia Pacific Transport Pty Ltd and related corporate
entities (FreightLink Acquisition), the Company assumed debt with a carrying value of A$1.8 million (or $1.7
million at the exchange rate on December 1, 2010), which represented the fair value of an A$50.0 million (or $48.2
million at the exchange rate on December 1, 2010) non-interest bearing loan due in 2054. As of December 31, 2013,
the carrying value of the loan was A$2.3 million (or $2.0 million at the exchange rate on December 31, 2013) with a
non-cash imputed interest rate of 8.0%.
Schedule of Future Payments Including Capital Leases
The following is a summary of the maturities of long-term debt, including capital leases, as of December 31,
2013 (dollars in thousands):
2014
2015
2016
2017
2018
Thereafter (1)
Total
$
$
84,366
106,022
112,407
1,320,643
319
44,759
1,668,516
(1) Includes the A$50.0 million (or $44.6 million at the exchange rate on December 31, 2013) non-interest bearing loan
due in 2054 assumed in the FreightLink Acquisition with a carrying value of A$2.3 million (or $2.0 million at the
exchange rate on December 31, 2013).
10. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and uses
derivative financial instruments to manage the impact of certain of these risks. The Company uses derivatives only
for purposes of managing risk associated with underlying exposures. The Company does not trade or use
instruments with the objective of earning financial gains on the interest rate or exchange rate fluctuations alone, nor
does the Company use derivative instruments where it does not have 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
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’s instruments are recorded in the consolidated balance sheets at fair value in prepaid expenses and other,
other assets, net, accrued expenses or other long-term liabilities.
F-30
The Company may designate derivatives as a hedge of a forecasted transaction or a hedge 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 used 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 other
comprehensive income. As 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 item as the hedged
item. The portion of the changes in the 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 in earnings on the same line item as the hedged item.
The Company matches the hedge instrument to the underlying hedged item (assets, liabilities, firm
commitments or forecasted transactions). At inception of the hedge 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 thereafter
are recognized in earnings during the periods it no longer qualifies as a hedge.
From time to time, the Company may enter into certain derivative instruments that may not be designated as
hedges for accounting purposes. For example, to mitigate currency exposures related to intercompany debt, cross-
currency swap contracts may be entered into for periods consistent with the underlying debt. The Company believes
such instruments are closely correlated with the underlying exposure, thus reducing the associated risk. The gains or
losses from the changes in the fair value of derivative instruments not accounted for as hedges are recognized in
current period earnings within other income, net.
Interest Rate Risk Management
The Company uses interest rate swap agreements to manage its exposure to changes in interest rates of the
Company’s variable rate debt. These swap agreements are recorded in the consolidated balance sheets at fair value.
Changes in the fair value of the swap agreements are recorded in net income or other comprehensive income/(loss),
based on whether the agreements are designated as part of a hedge transaction and whether the agreements are
effective in offsetting the change in the value of the future interest payments attributable to the underlying portion of
the Company’s variable rate debt. Interest payments accrued each reporting period for these interest rate swaps are
recognized in interest expense. 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.
The following table summarizes the terms of the Company's outstanding interest rate swap agreements entered
into to manage the Company's exposure to changes in interest rates on its variable rate debt (dollars in thousands):
Effective Date
9/30/2013
Expiration Date
9/29/2014
9/30/2014
9/29/2015
9/30/2015
9/30/2016
9/30/2016
9/30/2016
9/30/2016
9/30/2026
9/30/2026
9/30/2026
Notional Amount
Date
9/30/2013
12/31/2013
3/31/2014
6/30/2014
9/30/2014
12/31/2014
3/31/2015
6/30/2015
9/30/2015
9/30/2026
9/30/2026
9/30/2026
$
$
$
$
$
$
$
$
$
$
$
$
Amount
1,350,000
1,300,000
1,250,000
1,200,000
1,150,000
1,100,000
1,050,000
1,000,000
350,000
100,000
100,000
100,000
F-31
Pay Fixed Rate
0.35%
Receive Variable Rate
1-month LIBOR
0.35%
0.35%
0.35%
0.54%
0.54%
0.54%
0.54%
0.93%
2.79%
2.79%
2.80%
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
3-month LIBOR
3-month LIBOR
3-month LIBOR
On November 9, 2012, the Company entered into multiple 10-year forward starting interest rate swap
agreements to manage the exposure to changes in interest rates on the Company's variable rate debt. On the date of
the hedge designation, September 30, 2016, it is probable that the Company will either issue $300.0 million of
fixed-rate debt or have $300.0 million of variable-rate debt under the Company's commercial banking lines. The
forward starting interest swap agreements are expected to settle in cash on September 30, 2016. The Company
expects any gains or losses on settlement will be amortized over the life of the respective swaps.
The following table summarizes the Company's interest rate swap agreements that expired during 2013
(dollars in thousands):
Effective Date
10/6/2008
10/4/2012
Expiration Date
9/30/2013
9/30/2013
Notional Amount
Date
10/6/2008
10/4/2012
1/1/2013
4/1/2013
7/1/2013
$
$
$
$
$
Amount
120,000
1,450,000
1,350,000
1,300,000
1,250,000
Paid Fixed Rate
3.88%
Receive Variable Rate
1-month LIBOR
0.25%
0.25%
0.25%
0.25%
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
The fair value of the interest rate swap agreements were estimated based on Level 2 inputs. The Company’s
effectiveness testing during the year ended December 31, 2013 resulted in no amount of gain or loss reclassified
from accumulated other comprehensive income/(loss) into earnings due to ineffectiveness. During the year ended
December 31, 2013, $4.1 million of net losses were realized and recorded as interest expense in the consolidated
statement of operations. Based on the Company's fair value assumptions as of December 31, 2013, it expects to
realize $1.6 million of net losses that are reported in accumulated other comprehensive income into earnings within
the next 12 months. See Note 16, Accumulated Other Comprehensive Income, for additional information regarding
the Company's cash flow hedges.
Foreign Currency Exchange Rate Risk
As of December 31, 2013, $142.1 million of third-party debt related to the Company’s foreign operations was
denominated in the currencies in which its subsidiaries operate, including the Australian dollar, Canadian dollar and
Euro. The debt service obligations associated with this foreign currency debt are generally funded directly from
those operations. As a result, foreign currency risk related to this portion of the Company’s debt service payments is
limited. However, in the event the foreign currency debt service is not paid from the Company's foreign operations,
the Company may face exchange rate risk if the Australian or Canadian dollar or Euro were to appreciate relative to
the United States dollar and require higher United States dollar equivalent cash.
The Company is also exposed to foreign currency exchange rate risk related to its foreign operations,
including non-functional currency intercompany debt, typically from the Company’s United States operations to its
foreign subsidiaries, and any timing difference between announcement and closing of an acquisition of a foreign
business to the extent such acquisition is funded with United States dollars. To mitigate currency exposures related
to non-functional currency denominated intercompany debt, cross-currency swap contracts may be entered into for
periods consistent with the underlying debt. In determining the fair value of the derivative contract, the significant
inputs to valuation models are quoted market prices of similar instruments in active markets. To mitigate currency
exposures of non-United States dollar denominated acquisitions, the Company may enter into foreign exchange
forward contracts. Although these derivative contracts do not qualify for hedge accounting, the Company believes
that such instruments are closely correlated with the underlying exposure, thus reducing the associated risk. The
gains or losses from changes in the fair value of derivative instruments that are not accounted for as hedges are
recognized in current period earnings within other income, net.
F-32
To mitigate the foreign currency exchange rate risk related to a non-functional currency intercompany loan
between the United States and Australian entities, the Company entered into an Australian dollar/United
States dollar floating to floating cross-currency swap agreement (the Swap), effective as of December 1, 2010,
which effectively converted the A$105.0 million intercompany loan receivable in the United States into a $100.6
million loan receivable. As a result of the quarterly net settlement payments associated with this swap, the Company
realized a net expense of $4.4 million within interest (expense)/income for the year ended December 31, 2012. In
addition, the Company recognized $0.6 million within other income, net related to the settlement of the derivative
agreement and the underlying intercompany debt instrument to the exchange rate for the year ended December 31,
2012. The Swap expired on December 1, 2012 and was settled for $9.1 million.
On November 29, 2012, simultaneous with the termination of the previous swap, the Company entered into
two new 2-year Australian dollar/United States dollar floating to floating cross-currency swap agreements (the
Swaps), effective December 3, 2012. These agreements expire on December 1, 2014. The Swaps effectively convert
the A$105.0 million intercompany loan receivable in the United States into a $109.6 million loan receivable. The
Swaps require the Company to pay Australian dollar BBSW plus 3.25% based on a notional amount of A$105.0
million and allow the Company to receive United States LIBOR plus 2.82% based on a notional amount of $109.6
million on a quarterly basis. BBSW is the wholesale interbank reference rate within Australia, which we believe is
generally considered the Australian equivalent to LIBOR. As a result of these quarterly net settlement payments, the
Company realized a net expense of $2.7 million within interest (expense)/income for the year ended December 31,
2013. In addition, the Company recognized $0.4 million within other income, net related to the settlement of the
derivative agreement and the underlying intercompany debt instrument to the exchange rate for the year ended
December 31, 2013.
Contingent Forward Sale Contract
In conjunction with the Company's announcement on July 23, 2012 of its plan to acquire RailAmerica, the
Company entered into the Investment Agreement with Carlyle in order to partially fund the acquisition of
RailAmerica. Pursuant to the Investment Agreement, Carlyle agreed to purchase a minimum of $350.0 million of
Series A-1 Preferred Stock, which Series A-1 Preferred Stock was convertible into the Company's Class A common
stock in certain circumstances. The conversion price of the Series A-1 Preferred Stock was set at approximately
$58.49, which was a 4.5% premium to the Company's stock price on the trading day prior to the announcement of
the RailAmerica acquisition. For the period between July 23, 2012 and September 30, 2012, this instrument was
accounted for as a contingent forward sale contract with mark-to-market non-cash income or expense included in
the Company's consolidated financial results and the cumulative effect represented as an asset or liability. The
closing price of the Company's Class A common stock was $66.86 on September 28, 2012, which was the last
trading day prior to issuing the Series A-1 Preferred Stock, and, accordingly, the Company recorded a $50.1 million
non-cash mark-to-market expense related to the Investment Agreement for the year ended December 31, 2012. As
discussed in Note 4, Earnings Per Common Share, the Company converted the Series A-1 Preferred Stock into Class
A common stock on February 13, 2013.
F-33
The Company's derivative instruments are subject to master netting arrangements between the Company and
the respective counterparty. The Company presents its derivative instruments on a gross basis. As of December 31,
2013 and 2012, the differences between the gross values and net values under such master netting arrangements
were not significant. The following table summarizes the fair value of derivative instruments recorded in the
consolidated balance sheets as of December 31, 2013 and 2012 (dollars in thousands):
Balance Sheet Location
2013
2012
Fair Value
Asset Derivatives:
Derivatives designated as hedges:
Interest rate swap agreements
Derivatives not designated as hedges:
Cross-currency swap agreements
Liability Derivatives:
Derivatives designated as hedges:
Interest rate swap agreements
Interest rate swap agreements
Total derivatives designated as hedges
Derivatives not designated as hedges:
Other assets, net
Prepaid expenses and other
Accrued expenses
Other long-term liabilities
Cross-currency swap agreements
Other long-term liabilities
$
$
$
$
$
36,987
16,056
1,601
838
2,439
$
$
$
$
4,227
255
3,777
882
4,659
— $
143
The following table shows the effect of the Company’s derivative instrument designated as a cash flow hedge
for the years ended December 31, 2013, 2012 and 2011 in other comprehensive income/(loss) (OCI) (dollars in
thousands):
Total Cash Flow
Hedge OCI Activity,
Net of Tax
2013
2012
2011
Derivatives Designated as Cash Flow Hedges:
Effective portion of changes in fair value recognized in
OCI:
Interest rate swap agreement
$
20,988
$
4,053
$
1,334
The following table shows the effect of the Company’s derivative instruments not designated as hedges for the
years ended December 31, 2013, 2012 and 2011 in the consolidated statements of operations (dollars in thousands):
Derivative Instruments Not
Designated as Hedges:
Cross-currency swap
agreements
Cross-currency swap
agreements
Contingent forward sale
contract
Location of Amount
Recognized
in Earnings
2013
2012
2011
Amount Recognized in Earnings
Interest (expense)/
income
Other income, net
Contingent forward sale
contract mark-to-market
expense
$
$
(2,696) $
(4,638) $
(5,935)
427
303
246
—
(2,269) $
(50,106)
(54,441) $
—
(5,689)
F-34
11. 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:
•
•
Financial Instruments Carried at Fair Value: Derivative instruments are recorded on the consolidated
balance sheet as either assets or liabilities measured at fair value. As of December 31, 2013, the Company’s
derivative financial instruments consisted of interest rate swap agreements and cross-currency swap
agreements. The Company estimated the fair value of its interest rate swap agreements based on Level 2
valuation inputs, including fixed interest rates, LIBOR implied forward interest rates and the remaining
time to maturity. The Company estimated the fair value of its cross-currency swap agreements based on
Level 2 valuation inputs, including LIBOR implied forward interest rates, AUD BBSW implied forward
interest rates and the remaining time to maturity.
Financial Instruments Carried at Historical Cost: Since the Company’s long-term debt is not actively
traded, fair value was estimated using a discounted cash flow analysis based on Level 2 valuation inputs,
including borrowing rates the Company believes are currently available to it for loans with similar terms
and maturities.
The following table presents the Company’s financial instruments that are carried at fair value using Level 2
inputs at December 31, 2013 and 2012 (dollars in thousands):
Financial instruments carried at fair value using Level 2 inputs:
Interest rate swap agreements
Cross-currency swap agreements
Total financial assets carried at fair value
Interest rate swap agreements
Cross-currency swap agreements
Total financial liabilities carried at fair value
2013
2012
$
$
$
$
36,987
16,056
53,043
2,439
—
2,439
$
$
$
$
4,227
255
4,482
4,659
143
4,802
The following table presents the carrying value and fair value using Level 2 inputs of the Company’s financial
instruments carried at historical cost at December 31, 2013 and 2012 (dollars in thousands):
Financial liabilities carried at
historical cost:
Revolving credit facility
United States term loan
Canadian term loan
Australia term loan
Amortizing Notes component of TEUs
Other debt
Total
2013
2012
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$
$
15,949
1,433,414
—
134,436
21,878
19,035
1,624,712
$
$
15,956
1,429,204
—
135,491
21,698
18,996
1,621,345
$
$
25,153
1,576,100
14,446
190,100
32,435
19,901
1,858,135
$
$
25,222
1,562,385
14,353
191,057
31,484
19,759
1,844,260
12. EMPLOYEE BENEFIT PROGRAMS:
Employee Bonus Programs
The Company has performance-based bonus programs that include a majority of non-union employees.
Approximately $17.7 million, $14.2 million and $10.7 million were awarded under the various performance-based
bonus plans in the years ended December 31, 2013, 2012 and 2011, respectively.
F-35
Defined Contribution Plans
Under the Genesee & Wyoming Inc. 401(k) Savings Plan, the Company matches participants’ contributions up
to 4% of the participants’ salary on a pre-tax basis. Under the RailAmerica Employees' 401(k) Savings Plan, which
remained in effect in 2013 for legacy RailAmerica employees that were employees of the Company during 2013, the
Company made contributions to their plan at a rate of 50% of the employees’ contribution up to $2,500 for Railroad
Retirement employees and up to $5,000 for employees covered under the Federal Insurance Contributions Act. The
Company’s contributions to the plans in total for the years ended December 31, 2013, 2012 and 2011 were $3.8
million, $1.8 million and $1.7 million, respectively. The Company's contribution for the year ended December 31,
2012 does not include contributions made by RailAmerica to its 401(k) plan during the period while the shares of
RailAmerica were held in a voting trust.
The Company’s Canadian subsidiaries administer three different retirement benefit plans. The 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 one plan, the Company matches 6% of gross salary up to a maximum of C$3,500 (or $3,295 at the
December 31, 2013 exchange rate). Under the other two plans, the Company matches the employee’s contribution
up to a maximum of 5% of gross salary. Company contributions to the plans in the years ended December 31, 2013,
2012 and 2011, were $1.3 million, $0.7 million and $0.6 million, respectively. The Company's contribution for the
year ended December 31, 2012 does not include contributions made by RailAmerica to its retirement benefit plan
during the period while the shares of RailAmerica were held in a voting trust.
The Company’s Australian subsidiary administers a statutory retirement benefit plan. The Company was
required to contribute the equivalent of 9.25%, 9.00% and 9.00% of an employee’s base salary into a registered
superannuation fund in each of the years ended December 31, 2013, 2012 and 2011, respectively. Employees may
elect to make additional contributions either before or after tax. Company contributions were $4.4 million, $4.1
million and $2.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Defined Benefit Plans
The Company administers three United States noncontributory defined benefit plans for union and non-union
employees and one Canadian noncontributory defined benefit plan. 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 United States Employee Retirement Income Security Act (ERISA)
and Canada's Pension Benefits Standards Act. As of December 31, 2013, there were approximately 253 employees
participating under these plans. As of December 31, 2013, the Company’s consolidated balance sheet included a
$3.9 million pension liability and a $0.4 million loss in accumulated other comprehensive income related to these
plans.
The Company administers two plans which provide health care and life insurance benefits for certain retired
employees in the United States. The Company funds the plans on a pay-as-you-go basis. As of December 31, 2013,
there were approximately 69 employees participating under these plans. As of December 31, 2013, the Company’s
consolidated balance sheet included a $7.0 million postretirement benefit liability and $0.6 million in accumulated
other comprehensive income related to these plans.
F-36
13. INCOME TAXES:
Included in the Company's net income for the year ended December 31, 2013 was a $25.9 million benefit
associated with the extension of the United States Short Line Tax Credit for fiscal year 2013 and a $41.0 million
benefit associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2012.
Since the extension became law in 2013, the 2012 impact was recorded in the first quarter of 2013. The Company's
provision for income taxes was $87.2 million for the year ended December 31, 2013, which represented 27.4% of
income before income taxes and income from equity investment excluding the retroactive benefit. Included in the
Company's income before income taxes and income from equity investment for the year ended December 31, 2012
was a $50.1 million mark-to-market expense associated with a contingent forward sale contract, which is a non-
deductible expense for income tax purposes. See Note 10, Derivative Financial Instruments, for further details on
the contingent forward sale contract. As a result, the Company's provision for income taxes was $46.4 million for
the year ended December 31, 2012, which represents 34.8% of income before income taxes and income from equity
investment other than the mark-to-market expense. The decrease in the effective income tax rate for the year ended
December 31, 2013 as compared with the year ended December 31, 2012 was primarily attributable to the renewal
of the United States Short Line Tax Credit through December 31, 2013.
The components of income before income taxes and income from equity investment for the years ended
December 31, 2013, 2012 and 2011 were as follows (dollars in thousands):
United States
Foreign
Total
2013
2012
2011
$
$
211,889
106,498
318,387
$
$
5,598
77,680
83,278
$
$
98,041
59,974
158,015
The Company files a consolidated United States federal income tax return that includes all of its United States
subsidiaries. Each of the Company’s foreign subsidiaries files appropriate income tax returns in its respective
country. No provision is made for the United States 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 United
States income taxes (appropriately reduced by available foreign tax credits) and withholding taxes payable to
various foreign countries, however, the amount of the tax and credits is not practically determinable. The amount of
undistributed earnings of the Company’s controlled foreign subsidiaries as of December 31, 2013 was $268.9
million.
The components of the provision for income taxes for the years ended December 31, 2013, 2012 and 2011
were as follows (dollars in thousands):
United States:
Current
Federal
State
Deferred
Federal
State
Foreign:
Current
Deferred
Total
2013
2012
2011
$
$
$
6,571
6,031
$
3,582
3,752
62
4,890
17,554
22,697
6,045
28,742
46,296
$
17,382
906
25,622
9,907
10,873
20,780
46,402
$
5,652
3,686
12,578
1,535
23,451
6,488
8,592
15,080
38,531
F-37
The provision for income taxes differs from that which would be computed by applying the statutory United
States federal income tax rate to income before taxes. The following is a summary of the effective tax rate
reconciliation for the years ended December 31, 2013, 2012 and 2011:
Tax provision at statutory rate
Effect of acquisitions/divestitures
Effect of foreign operations
State income taxes, net of federal income tax benefit
Benefit of track maintenance credit
Other, net
Effective income tax rate
2013
2012
2011
35.0 %
— %
(2.1)%
2.2 %
(21.0)%
0.4 %
14.5 %
35.0 %
24.8 %
(7.7)%
3.8 %
— %
(0.3)%
55.6 %
35.0 %
(3.1)%
(2.9)%
2.3 %
(6.5)%
(0.4)%
24.4 %
The United States track maintenance credit is an income tax credit for Class II and Class III railroads to
reduce 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 Class 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 was in existence
from 2005 through 2011 and was extended for years 2012 and 2013 on January 2, 2013.
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 capital and net operating loss carryforwards. The components of
net deferred income taxes as of December 31, 2013 and 2012 were as follows (dollars in thousands):
Deferred tax assets:
Accruals and reserves not deducted for tax purposes until paid
Net operating loss carryforwards
Nonshareholder contributions
Deferred compensation
Postretirement benefits
Share-based compensation
Foreign tax credit
Track maintenance credit
Alternative minimum tax credit
Other
Valuation allowance
Deferred tax liabilities:
Interest rate swaps
Property basis difference
Other
Net deferred tax liabilities
$
2013
2012
$
20,183
14,577
3,185
2,974
811
6,348
1,964
221,278
1,592
119
273,031
(12,194)
15,824
52,863
4,799
2,175
2,328
11,328
1,964
129,486
1,356
451
222,574
(8,613)
(13,985)
(1,029,492)
(1,884)
(784,524) $
7
(1,003,990)
(1,843)
(791,865)
$
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 tax credit and loss carryforwards, are classified according to the expected reversal date
of the temporary difference as of the end of the year.
F-38
As of December 31, 2013, the Company had United States net operating loss carryforwards in various state
jurisdictions that totaled approximately $364.2 million and United States track maintenance credit carryforwards of
$221.3 million. Some of the Company's net operating loss and credit carryforwards are subject to Section 382
limitations of the Internal Revenue Code (Section 382). Section 382 imposes limitations on a corporation's ability to
utilize its net operating losses and credits if it experiences an “ownership change.” In general terms, an ownership
change results from transactions increasing the ownership of certain existing stockholders or new stockholders in
the stock of a corporation by more than 50% during a three year testing period. Any unused annual limitation may
be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to
reflect both recognized and deemed recognized “built-in gains” that occur during the sixty-month period after the
ownership change. The state net operating losses exist in different states and expire between 2014 and 2033. The
United States track maintenance credits expire between 2025 and 2033.
As of December 31, 2012, the Company had track maintenance credit carryforwards of $129.5 million. The
2012 tax credit carryforwards will expire between 2025 and 2032.
The Company maintains a valuation allowance on foreign tax credits and state net operating losses for which,
based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will
not be realized. It is management's belief that it is more likely than not that a portion of the deferred tax assets will
not be realized.
A reconciliation of the beginning and ending amount of the Company's valuation allowance is as follows (dollars
in thousands):
Balance at beginning of year
Increase for state net operating losses
Increase for foreign tax credits
Balance at end of year
2013
8,613
1,617
1,964
12,194
$
$
A reconciliation of the beginning and ending amount of the Company’s liability for uncertain tax positions is
as follows (dollars in thousands):
Balance at beginning of year
Increase for acquired subsidiary
Reductions for tax positions of prior years
Balance at end of year
2013
2012
2011
$
$
3,155
—
—
3,155
$
$
— $
3,370
(215)
3,155
$
—
—
—
—
At December 31, 2013 and 2012, there was $3.2 million of unrecognized tax benefits that if recognized would
affect the annual effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions
in its provision for income taxes.
As of December 31, 2013, the following tax years remain open to examination by the major taxing
jurisdictions to which the Company is subject:
Jurisdiction
United States
Australia
Canada
Mexico
Netherlands
Belgium
Open Tax Years
From
2001
2009
2009
2008
2012
2013
To
2013
2013
2013
2013
2013
2013
-
-
-
-
-
-
F-39
14. COMMITMENTS AND CONTINGENCIES:
From time to time, the Company is a defendant in certain lawsuits resulting from the Company's operations in
the ordinary course. Management believes there are adequate provisions in the financial statements for any probable
liabilities that may result from disposition of the pending lawsuits. Based upon currently available information, the
Company does not believe it is reasonably possible that any such lawsuit or related lawsuits would be material to the
Company's results of operations or have a material adverse effect on the Company's financial position or liquidity.
15. STOCK-BASED COMPENSATION PLANS:
In May 2011, the Company's shareholders approved a 2,500,000 share increase in the number of shares of
Class A common stock for awards which may be granted under the Omnibus Plan. As a result, the Omnibus Plan
allows for the issuance of up to 6,187,500 shares of Class A common stock for awards, which include stock options,
restricted stock, restricted stock units and any other form of award established by the Compensation Committee, in
each case consistent with the plan’s purpose. Stock-based awards generally have three-year requisite service periods
and five year contractual terms. Any shares of common stock available for issuance under the predecessor plans
(Amended and Restated 1996 Stock Option Plan, Stock Option Plan for Directors and Deferred Stock Plan for Non-
Employee Directors) as of May 12, 2004, plus any shares underlying awards that expire, are terminated or are
canceled, are deemed available for issuance or reissuance under the Omnibus Plan. In total, at December 31, 2013,
there remained 2,174,314 shares of Class A common stock available for future issuance under the Omnibus Plan.
A summary of option activity under the Omnibus Plan as of December 31, 2013 and changes during the year
then ended is presented below:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at end of year
Vested or expected to vest at end of year
Exercisable at end of year
Shares
1,105,411
199,209
(319,732)
(521)
(15,035)
969,332
967,559
569,450
$
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
42.61
90.30
35.88
39.08
63.19
54.32
54.26
40.17
2.5
2.5
1.6
$
$
$
40,458
40,440
31,822
The weighted average grant date fair value of options granted during the years ended December 31, 2013,
2012 and 2011 was $22.16, $16.25 and $15.76, respectively. The total intrinsic value of options exercised during the
years ended December 31, 2013, 2012 and 2011 was $17.6 million, $17.3 million and $14.9 million, respectively.
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 typically the closing
stock price on the date of grant. The assumption for expected future volatility is based on a combination of historical
and implied 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 United States 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 not paying cash dividends on its common stock. The Company uses historical data,
as well as management’s current expectations, to estimate forfeitures.
F-40
The following weighted average assumptions were used to estimate the grant date fair value of options
granted during the years ended December 31, 2013, 2012 and 2011 using the Black-Scholes option pricing model:
Risk-free interest rate
Expected dividend yield
Expected term (in years)
Expected volatility
2013
2012
2011
0.89%
0%
4.0
29%
0.52%
0%
4.0
33%
1.05%
0%
3.9
35%
As required under the RailAmerica acquisition agreement, on October 1, 2012, the Company converted
approximately 432,000 RailAmerica restricted stock awards and 775,000 RailAmerica restricted stock unit awards
into approximately 180,000 and 322,000 G&W restricted stock awards and restricted stock unit awards,
respectively, at a ratio of 0.4151 based upon the acquisition cash purchase price of $27.50 per share and the
Company's average 10-day closing stock price prior to the RailAmerica acquisition closing date of $66.26 per share.
The Company determines fair value of its restricted stock and restricted stock units based on the closing stock
price on the date of grant.
The following table summarizes the Company’s non-vested restricted stock outstanding as of December 31,
2013 and changes during the year then ended:
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
Shares
Weighted Average
Grant Date
Fair Value
270,724
55,019
(191,910)
(7,169)
126,664
$
$
59.54
90.12
59.05
64.88
73.25
The weighted average grant date fair value of restricted stock granted during the years ended December 31,
2013, 2012 and 2011 was $90.12, $65.70 and $56.03, respectively. The total fair value of restricted stock that vested
during the years ended December 31, 2013, 2012 and 2011 was $11.3 million, $7.8 million and $4.4 million,
respectively.
The following table summarizes the Company’s non-vested restricted stock units outstanding as of
December 31, 2013 and changes during the year then ended:
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
Shares
Weighted Average
Grant Date
Fair Value
294,635
27,857
(213,003)
(16,247)
93,242
$
$
66.86
89.44
66.97
70.24
72.78
The weighted average grant date fair value of restricted stock units granted during the years ended
December 31, 2013, 2012 and 2011 was $89.44, $67.43 and $56.17, respectively. The total fair value of restricted
stock units that vested during the years ended December 31, 2013, 2012 and 2011 was $14.3 million, $3.4 million
and $0.3 million, respectively.
For the year ended December 31, 2013, compensation cost from equity awards was $11.7 million. The
Company also recorded an additional $5.1 million of costs from the acceleration of equity awards for terminated
RailAmerica employees. Total compensation costs related to non-vested awards not yet recognized was $14.6
million as of December 31, 2013, which will be recognized over the next 3 years with a weighted average period of
1.3 years. The total income tax benefit recognized in the consolidated statement of operations for equity awards was
$5.3 million for the year ended December 31, 2013.
F-41
For the year ended December 31, 2012, compensation cost from equity awards was $7.9 million. The
Company also recorded an additional $4.1 million of costs from the acceleration of equity awards for terminated
RailAmerica employees. The total income tax benefit recognized in the consolidated statement of operations for
equity awards was $4.5 million for the year ended December 31, 2012.
For the year ended December 31, 2011, compensation cost from equity awards was $7.7 million. The total
income tax benefit recognized in the consolidated statement of operations for equity awards was $2.6 million for the
year ended December 31, 2011.
The total income tax benefit realized from the exercise of equity awards was $17.7 million, $10.9 million and
$5.0 million for the years ended December 31, 2013, 2012 and 2011, respectively.
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 on the date of
purchase. At December 31, 2013, 197,375 shares had been purchased under this plan. The Company recorded
compensation expense for the 10% purchase discount of approximately $0.1 million in each of the years ended
December 31, 2013, 2012 and 2011.
16. ACCUMULATED OTHER COMPREHENSIVE INCOME:
The following table sets forth accumulated other comprehensive income included in the consolidated balance
sheets as of December 31, 2013 and 2012, respectively (dollars in thousands):
Cumulative
Foreign
Currency
Translation
Adjustment
Defined Benefit
Plans
Net
Unrealized
Gain/(Loss) on
Cash Flow
Hedges
Accumulated
Other
Comprehensive
Income/(Loss)
Balance, December 31, 2011
$
42,394
$
(20) $
(4,479)
$
37,895
5,451
(128)
6,595
11,918
Other comprehensive income/(loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax benefit of $1,695
Change in 2012
—
5,451
Balance, December 31, 2012
$
47,845
$
Other comprehensive (loss)/income
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax benefit of $1,637
Change in 2013
Balance, December 31, 2013
(62,532)
—
(62,532)
$
(14,687) $
(a) Included in interest expense on the consolidated statements of operations.
—
(128)
(148) $
(2,542) (a)
4,053
(426)
$
(2,542)
9,376
47,271
362
—
362
214
23,443
(38,727)
(2,455) (a)
20,988
$
20,562
$
(2,455)
(41,182)
6,089
The foreign currency translation adjustments for the years ended December 31, 2013, 2012 and 2011 related
primarily to the Company’s operations with functional currencies of the Australian dollar and Canadian dollar.
17. SUPPLEMENTAL CASH FLOW INFORMATION:
Interest and Taxes Paid
The following table sets forth the cash paid for interest and income taxes for the years ended December 31,
2013, 2012 and 2011 (dollars in thousands):
Interest paid, net
Income taxes
2013
2012
2011
$
$
57,206
14,522
$
$
57,012
11,187
$
$
36,291
19,585
F-42
Significant Non-Cash Investing and Financing Activities
The Company had outstanding receivables from outside parties for the funding of capital expenditures of
$33.0 million, $25.0 million and $20.8 million as of December 31, 2013, 2012 and 2011, respectively. At
December 31, 2013, 2012 and 2011, $40.1 million, $22.6 million and $17.6 million, respectively, of purchases of
property and equipment had not been paid and, accordingly, were accrued in accounts payable in the normal course
of business.
18. SEGMENT AND GEOGRAPHIC AREA INFORMATION:
Segment Information
The Company’s various railroad lines are divided into 11 operating regions. Since all of the regions have
similar characteristics, they previously had been aggregated into one reportable segment. Beginning January 1,
2011, the Company decided to present its financial information as two reportable segments, North American &
European Operations and Australian Operations.
The results of operations of the foreign entities are maintained in the respective local currency (the Australian
dollar, the Canadian dollar and the Euro) and then translated into United States dollars at the applicable exchange
rates for inclusion in the consolidated financial statements. As a result, any appreciation or depreciation of these
currencies against the United States dollar will impact the Company's results of operations.
The Company acquired RailAmerica on October 1, 2012. However, the shares of RailAmerica were held in a
voting trust while the STB considered the Company's control application, which application was approved with an
effective date of December 28, 2012. Accordingly, the Company accounted for the earnings of RailAmerica using
the equity method of accounting while the shares were held in the voting trust and the Company's determination of
fair values of the acquired assets and assumed liabilities were included in its consolidated balance sheets since
December 28, 2012 and included within the Company's North American & European Operations segment.
F-43
The following tables set forth the Company's North American & European Operations and Australian
Operations for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):
Operating revenues
Income from operations
Depreciation and amortization
Interest expense
Interest income
Provision for income taxes
Expenditures for additions to property & equipment, net of
grants from outside parties
December 31, 2013
North American
& European
Operations
Australian
Operations
$
$
$
$
$
$
$
1,243,847
284,122
114,542
52,740
3,631
24,038
163,545
$
$
$
$
$
$
$
325,164
96,066
27,102
15,154
340
22,258
51,860
December 31, 2012
North American
& European
Operations
Australian
Operations
Total Operations
1,569,011
$
$
$
$
$
$
$
380,188
141,644
67,894
3,971
46,296
215,405
Total Operations
874,916
$
Operating revenues
Income from operations
Depreciation and amortization
Interest expense
Interest income
Contingent forward sale contract mark-to-market expense
Provision for income taxes
Income from equity investment in RailAmerica, net
Expenditures for additions to property & equipment, net of
grants from outside parties
$
$
$
$
$
$
$
$
$
585,893
115,387
50,156
45,996
3,219
50,106
28,451
15,557
69,636
$
$
$
$
$
$
$
$
$
289,023
74,935
23,249
16,849
506
$
$
$
$
— $
17,951
$
— $
190,322
73,405
62,845
3,725
50,106
46,402
15,557
122,426
$
192,062
Operating revenues
Income from operations
Depreciation and amortization
Interest expense
Interest income
Provision for income taxes
Expenditures for additions to property & equipment, net of
grants from outside parties
December 31, 2011
North American
& European
Operations
Australian
Operations
$
$
$
$
$
$
$
557,621
129,646
47,218
23,171
2,950
26,181
59,383
$
$
$
$
$
$
$
271,475
62,133
19,263
15,446
293
12,350
96,643
Total Operations
829,096
$
191,779
$
$
$
$
$
$
66,481
38,617
3,243
38,531
156,026
The following table sets forth the property and equipment recorded in the consolidated balance sheets as of
December 31, 2013 and 2012 (dollars in thousands):
Property & equipment, net
December 31, 2013
December 31, 2012
North
American &
European
Operations
$ 2,883,452
Australian
Operations
$ 557,292
Total
Operations
$ 3,440,744
F-44
North
American &
European
Operations
$ 2,766,693
Australian
Operations
$ 629,602
Total
Operations
$ 3,396,295
Geographic Area Information
Operating revenues for each geographic area for the years ended December 31, 2013, 2012 and 2011 were as
follows (dollars in thousands):
Operating revenues:
United States
Non-United States:
Australia
Canada
Europe
Total Non-United States
Total operating revenues
2013
2012
2011
Amount
% of Total
Amount
% of Total
Amount
% of Total
$ 1,083,773
69.1% $
489,157
55.9% $
478,511
57.7%
$
325,164
145,399
14,675
485,238
$
$ 1,569,011
20.7% $
9.3%
0.9%
30.9% $
100.0% $
289,023
81,948
14,788
385,759
874,916
33.0% $
9.4%
1.7%
44.1% $
100.0% $
271,475
64,155
14,955
350,585
829,096
32.7%
7.8%
1.8%
42.3%
100.0%
Property and equipment for each geographic area as of December 31, 2013 and 2012 were as follows (dollars
in thousands):
Property and equipment located in:
United States
Non-United States:
Australia
Canada
Europe
Total Non-United States
Total property and equipment, net
2013
2012
Amount
% of Total
Amount
% of Total
$ 2,602,640
75.7% $ 2,487,782
73.2%
$ 557,292
265,933
14,879
$ 838,104
$ 3,440,744
16.2% $ 629,602
263,828
7.7%
15,083
0.4%
24.3% $ 908,513
100.0% $ 3,396,295
18.5%
7.8%
0.5%
26.8%
100.0%
19. QUARTERLY FINANCIAL DATA (unaudited):
The following table sets forth the Company's quarterly results for the years ended December 31, 2013 and
2012 (dollars in thousands, except per share data):
2013
Operating revenues
Income from operations
Net income
Diluted earnings per common share
attributable to Genesee & Wyoming Inc.
common stockholders
2012
Operating revenues
Income from operations
Net income/(loss)
Diluted earnings/(loss) per common
share attributable to Genesee &
Wyoming Inc. common stockholders
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
375,208
76,200
82,728
$
$
$
400,741
107,417
65,050
$
$
$
401,388
101,741
66,225
$
$
$
391,674
94,830
58,088
1.46
$
1.14
$
1.16
$
1.03
207,436
41,314
22,241
$
$
$
217,419
62,473
36,363
$
$
$
222,745
$
227,316
52,875
$
(19,567) $
33,660
13,396
0.52
$
0.84
$
(0.47) $
0.18
F-45
The quarters shown were affected by the items below:
The first quarter of 2013 included (i) $41.0 million after-tax benefit, related to the retroactive extension of the
United States Short Line Tax Credit for fiscal year 2012, (ii) $1.3 million after-tax gain on sale of assets, (iii) $8.0
million after-tax RailAmerica integration costs and (iv) $0.5 million after-tax business development and financing
costs.
The second quarter of 2013 included (i) $0.7 million after-tax gain on sale of assets, (ii) $0.7 million after-tax
RailAmerica integration and acquisition-related costs and (iii) $0.2 million after-tax business development costs.
The third quarter of 2013 included (i) $0.5 million after-tax gain on sale of assets, (ii) $1.3 million after-tax
RailAmerica integration and acquisition-related costs and (iii) $1.3 million after-tax adjustment to depreciation and
amortization expense as a result of finalizing the determination of fair values of the assets and liabilities acquired
from RailAmerica.
The fourth quarter of 2013 included (i) $0.8 million after-tax gain on sale of assets, (ii) $2.0 million after-tax
valuation allowance on foreign tax credits generated in prior years, (iii) $0.7 million after-tax business development
and financing costs and (iv) $0.6 million after-tax RailAmerica integration and acquisition-related costs.
The first quarter of 2012 included (i) $0.8 million after-tax gain on sale of assets and (ii) $0.2 million after-tax
business development costs.
The second quarter of 2012 included (i) $5.2 million after-tax gain on sale of assets, (ii) $0.5 million after-tax
RailAmerica acquisition-related costs and (iii) $0.4 million after-tax business development costs.
The third quarter of 2012 included (i) $2.0 million after-tax gain on sale of assets, (ii) $50.1 million after-tax
non-cash contingent forward sale contract mark-to-market expense, (iii) $3.1 million after-tax RailAmerica
acquisition-related costs and (iv) $0.4 million after-tax business development costs.
The fourth quarter of 2012 included (i) $0.6 million after-tax gain on sale of assets, (ii) $17.7 million after-tax
RailAmerica integration and acquisition-related costs, (iii) $9.8 million after-tax business development and
financing costs, (iv) $3.5 million of acquisition and integration costs incurred by RailAmerica and (v) $0.8 million
after-tax contract termination expense in Australia.
20. RECENTLY ISSUED ACCOUNTING STANDARDS:
In December 2011, the FASB issued Accounting Standards Update (ASU) 2011-11, Balance Sheet (Topic
210): Disclosures about Offsetting Assets and Liabilities, which requires an entity to disclose information about
offsetting and related arrangements to enable users of financial statements to understand the effect of those
arrangements on its financial position. In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210):
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which narrows the scope of the
disclosure requirements to derivatives, securities borrowings and securities lending transactions that are either offset
or subject to a master netting arrangement. This guidance is effective for and was adopted by the Company in the
first quarter of 2013 and required additional disclosures, but otherwise did not have a material impact on the
Company's consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to disclose additional
information about reclassification adjustments, including changes in accumulated other comprehensive income by
component and significant items reclassified out of accumulated other comprehensive income. This guidance is
effective for and was adopted by the Company in the first quarter of 2013 and required additional disclosures, but
otherwise did not have a material impact on the Company's consolidated financial statements.
F-46
In July 2013, the FASB issued ASU 2013-10, Derivative and Hedging (Topic 815): Inclusion of the Fed Funds
Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes,
which permits the Fed Funds Effective Swap Rate (OIS) to be used as a United States benchmark interest rate for
hedge accounting purposes, in addition to Treasury obligations of the United States government (UST) and LIBOR.
The amendments also remove the restriction on using different benchmark rates for similar hedges. The
amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or
after July 17, 2013. The adoption of this guidance did not have an impact on the Company as of and for the year
ended December 31, 2013 but may impact the Company's evaluation of future risk management instruments.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which
clarifies when an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the
financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or
a tax credit carryforward. The amendments are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2013 and early adoption is permitted. The Company early adopted this guidance
effective July 2013. The adoption of this guidance did not have a material impact on the Company's consolidated
financial statements.
Accounting Standards Not Yet Effective
In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint
and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date,
which specifies how an entity should measure obligations resulting from joint and several liability arrangements for
which the total amount of the obligation within the scope of the guidance is fixed at the reporting date and requires
entities to disclose the nature and amount of the obligation as well as other information about those obligations. This
guidance will be effective for annual reporting periods beginning on or after December 15, 2013, and the interim
periods within those annual periods. The Company does not expect the adoption of this guidance to have a material
impact on its consolidated financial statements.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting
for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets within a
Foreign Entity or of an Investment in a Foreign Entity, which provides clarification of when to release the
cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a
foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign
entity. This guidance will be effective for annual reporting periods beginning on or after December 15, 2013, and the
interim periods within those annual periods. The Company does not expect the adoption of this guidance to have a
material impact on its consolidated financial statements, but it will have an impact on the accounting in the event of
future sales of investments or changes in control of foreign entities.
In January 2014, the FASB issued ASU 2014-05, Service Concession Arrangements (Topic 853), which
specifies that an operating entity should not account for a service concession arrangement within the scope of this
ASU as a lease in accordance with Topic 840, Leases. This guidance will be effective for annual periods, and
interim periods within those annual periods, beginning after December 15, 2014, and should be applied on a
modified retrospective basis. Early adoption is permitted. The Company does not expect the adoption of this
guidance to have a material impact on its consolidated financial statements.
21. SUBSEQUENT EVENT:
On January 2, 2014, the Company and Canadian Pacific (CP) jointly announced their entry into an agreement
pursuant to which the Company will purchase the assets comprising the western end of CP's Dakota, Minnesota &
Eastern Railroad (DM&E) line for a cash purchase price of approximately $210 million, subject to certain
adjustments including the purchase of materials and supplies, equipment and vehicles. The Company intends to fund
the acquisition with borrowings under its existing Credit Agreement.
F-47
The asset acquisition is expected to close by mid-2014, subject to approval of the STB and the satisfaction of
other customary closing conditions. Upon closing, the Company's new railroad will be named Rapid City, Pierre &
Eastern Railroad (RCP&E). The Company expects to hire approximately 180 employees to staff the new railroad
and anticipates these employees will come primarily from those currently working on the rail line. The western end
encompasses approximately 670 miles of CP's current operations between Tracy, Minnesota and Rapid City, South
Dakota; north of Rapid City to Colony, Wyoming; south of Rapid City to Dakota Junction, Nebraska; and
connecting branch lines as well as trackage from Dakota Junction to Crawford, Nebraska, currently leased to the
Nebraska Northwestern Railroad (NNW).
F-48
RAILAMERICA, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 28, 2012 AND FOR THE
PERIOD OCTOBER 1, 2012 (ACQUISITION) TO
DECEMBER 28, 2012
F-49
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
RailAmerica, Inc. and Subsidiaries Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet — As of December 28, 2012
Consolidated Statement of Operations — For the period October 1, 2012 (Acquisition) to December
28, 2012
Consolidated Statement of Comprehensive Income — For the period October 1, 2012 (Acquisition)
to December 28, 2012
Consolidated Statement of Changes in Equity — For the period October 1, 2012 (Acquisition) to
December 28, 2012
Consolidated Statement of Cash Flows — For the period October 1, 2012 (Acquisition) to
December 28, 2012
Notes to Consolidated Financial Statements
Page
F-51
F-52
F-53
F-54
F-55
F-56
F-57
F-50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of RailAmerica, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of
comprehensive income, of changes in equity and of cash flows present fairly, in all material respects, the financial
position of RailAmerica, Inc. and its subsidiaries at December 28, 2012, and the results of their operations and their
cash flows for the period from October 1, 2012 (Acquisition) to December 28, 2012 in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit of these statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers, LLP
Stamford, Connecticut
March 1, 2013
F-51
RAILAMERICA, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December 28, 2012
(In thousands)
Current assets:
Cash and cash equivalents
Accounts and notes receivable, net
Current deferred tax assets
Materials and supplies
Other current assets
Total current assets
Property and equipment, net
Intangible assets
Goodwill
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Due to Genesee and Wyoming Inc.
Accounts payable and accrued expenses
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Equity:
Common stock, $0.01 par value, 1,000 shares authorized; 10 shares issued and outstanding
at December 28, 2012
Additional paid in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholder's equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
$
$
$
107,922
91,424
49,074
7,325
14,815
270,560
1,588,612
446,327
474,115
116
2,779,730
1,600
2,376
132,741
136,717
10,410
551,856
19,618
718,601
—
—
2,041,782
15,806
(1,984)
2,055,604
5,525
2,061,129
2,779,730
The accompanying notes are an integral part of these consolidated financial statements.
F-52
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
(In thousands)
$
151,065
48,607
9,518
10,493
14,205
5,645
6,804
2,832
12,548
14,276
124,928
26,137
(90)
9
26,056
10,250
15,806
—
15,806
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Operating revenue
Operating expenses:
Labor and benefits
Equipment rents
Purchased services
Diesel fuel
Casualties and insurance
Materials
Joint facilities
Other expenses
Depreciation and amortization
Total operating expenses
Operating income
Interest expense
Other income
Income before income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to the Company
$
The accompanying notes are an integral part of these consolidated financial statements.
F-53
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss):
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
(In thousands)
$
15,806
Foreign currency translation adjustments
Actuarial gain associated with pension and postretirement benefit plans, net of tax
provision of $53
Other comprehensive loss
Comprehensive income
Less: comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to the Company
$
(2,150)
166
(1,984)
13,822
—
13,822
The accompanying notes are an integral part of these consolidated financial statements.
F-54
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from October 1, 2012 (Acquisition) to December 28, 2012
Stockholder's Equity
Number
of
Shares
Issued
Par
Value
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Income (Loss)
Total
Stockholder's
Equity
Non
Controlling
Interest
Total
Equity
(In thousands)
Balance, October 1, 2012
(Acquisition)
Net lncome
Cumulative translation
adjustments
Actuarial gain associated with
pension and postretirement
benefit plans, net
Total comprehensive income
(loss)
— $
— $2,041,782
$
— $
— $
2,041,782
$
5,525
$2,047,307
—
—
—
—
—
—
—
—
—
—
—
—
15,806
—
15,806
—
—
(2,150)
(2,150)
166
166
15,806
(1,984)
13,822
—
—
—
—
15,806
(2,150)
166
13,822
Balance, December 28, 2012
— $
— $2,041,782
$ 15,806
$
(1,984) $
2,055,604
$
5,525
$2,061,129
The accompanying notes are an integral part of these consolidated financial statements.
F-55
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Equity compensation costs
Deferred income taxes and other
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Other current assets
Accounts payable and accrued expenses
Other assets and liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
Government grant reimbursement
Proceeds from sale of assets
Acquisitions, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt
Net cash used in financing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
(In thousands)
$
15,806
$
14,276
2,816
10,389
13,368
(658)
(12,023)
(2,077)
41,897
(20,442)
174
313
151
(19,804)
(144)
(144)
(129)
21,820
86,102
$
107,922
The accompanying notes are an integral part of these consolidated financial statements.
F-56
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
RailAmerica, Inc. (“RailAmerica” or the “Company”) is a leading owner and operator of short line freight railroads
in North America, operating a portfolio of 45 individual railroads with approximately 7,100 miles of track in 28 states
and three Canadian provinces. The Company's principal operations consist of rail freight transportation and ancillary
rail services.
On July 23, 2012, the Company and Genesee & Wyoming Inc. (G&W) jointly announced that they entered into
an agreement under which G&W would acquire 100% of the Company ("the Acquisition") for an all cash purchase
price of $27.50 per share plus the assumption of the Company's outstanding term loan, revolving credit facility and
share-based award liabilities (see Note 2). On October 1, 2012, G&W completed its previously announced acquisition
of the Company. Immediately following consummation of the acquisition, G&W transferred the stock of the Company
to a voting trustee to hold such shares of stock in an irrevocable independent voting trust while the United States Surface
Transportation Board (STB) considered G&W's application to control the Company's railroads. Accordingly, G&W
accounted for the earnings of the Company using the equity method of accounting while the shares were held in the
voting trust and G&W's initial allocation of the purchase price to RailAmerica's acquired assets and assumed liabilities
was included in the Company's consolidated balance sheet at December 28, 2012.
The STB approved G&W's application to control the Company's railroads with an effective date of December
28, 2012, on which date the voting trust was dissolved.
BASIS OF PRESENTATION
In accordance with Rule 3-09 of Regulation S-X, full financial statements of significant equity investments are
required to be presented in the annual report of the investor. For purposes of S-X 3-09, the investee's separate annual
financial statements should only include the period of the fiscal year in which it was accounted for by the equity method
by the investor. Accordingly, the accompanying consolidated financial statements have been prepared for the period
from October 1, 2012 (date of acquisition) to December 28, 2012, the period of equity accounting by the investor (the
"period”).
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of RailAmerica, all of its wholly-owned
subsidiaries and consolidated subsidiaries in which RailAmerica has a controlling interest. The consolidated financial
statements are presented in accordance with accounting principles generally accepted in the United States (U. S. GAAP)
as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification).
All intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling interest is the portion of equity, in a subsidiary or consolidated entity, not attributable, directly or
indirectly to the Company. Such noncontrolling interests are reported on the Consolidated Balance Sheet within equity,
but separately from stockholder's equity. On the Consolidated Statement of Operations, all of the revenues and expenses
from less-than-wholly-owned consolidated subsidiaries are reported in net income, including both the amounts
attributable to the Company and noncontrolling interest. The amounts of consolidated net income attributable to the
Company and to the noncontrolling interests (if any) are identified on the accompanying Consolidated Statement of
Operations and Comprehensive Income.
F-57
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP 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 purchase price allocation,
recoverability and useful life of assets, as well as liabilities for casualty claims and income taxes. Actual results could
differ from those estimates.
RISKS AND UNCERTAINTIES
While the global economy has recovered in recent years from the significant downturn in late 2008 and throughout
2009 that included widespread recessionary conditions, high levels of unemployment, significant distress of global
financial institutions, extreme volatility in security prices, severely diminished liquidity and credit availability, rating
downgrades of certain investments and declining valuations of others, the overall rate of global recovery experienced
during 2010, 2011 and 2012 has been uneven and uncertainty remains over the stability of the recovery. There can be
no assurance that any of the recent economic improvements will be broad-based and sustainable or that they will enhance
conditions in markets relevant to the Company. In addition, it is difficult to determine how the general macroeconomic
and business conditions will impact the Company's customers, suppliers and business in general. The Company is
required to assess for potential impairment of non-current assets whenever events or changes in circumstances, including
economic circumstances, indicate that the respective asset's carrying amount may not be recoverable. A decline in
current macroeconomic or financial conditions could have a material adverse effect on the Company's operating results,
financial condition and liquidity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents as reported in the accompanying consolidated balance sheet consists of amounts
held by the Company that are available for general corporate purposes. The Company considers all highly liquid
instruments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. The
Company maintains its cash in demand deposit accounts, which at times may exceed insurance limits.
Supplemental disclosure of cash flow information for the period follows (in thousands):
Non-cash transactions:
Capital expenditures included in accounts payable
Cash paid for income taxes
Cash paid for interest
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
$
$
$
1,507
1,638
23
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are recorded at the invoiced amount and do not bear interest. Allowances for doubtful accounts
are recorded by management based upon the Company's analysis of accounts receivable aging and specific identification
of customers in financial distress (e.g., bankruptcy or poor payment record). Management reviews material past due
balances 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.
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 charged to operations using
the average cost method.
F-58
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Major renewals or improvements to property and equipment are
capitalized, while routine maintenance and repairs are expensed when incurred. The Company incurs maintenance and
repair expenses to keep its operations safe and fit for existing purposes. Major renewals or improvements are undertaken
to extend the useful life or increase the functionality of the asset, or both. Other than a de minimis threshold under
which costs are expensed as incurred, the Company does not apply pre-defined capitalization thresholds when assessing
spending for classification among capital or expense.
Unlike the Class I railroads that operate over extensive contiguous rail networks, the Company's short line
railroads are geographically disparate businesses that transport freight over relatively short distances. As a result, the
Company typically incurs minimal spending on self-constructed assets and, instead, the vast majority of its capital
spending relates to purchased assets installed by professional contractors. In addition, the Company generally does
not incur significant rail grinding or ballast cleaning expenses. However, if and when such costs are incurred, they
are expensed.
Depreciation is provided on the straight-line method over the useful lives of the property and equipment. The
following table sets forth the estimated useful lives of the Company's major classes of property and equipment:
Property:
Buildings and leasehold improvements (subject to term of lease)
Bridges/tunnels/culverts
Track property
Equipment:
Computer equipment
Locomotives and rail cars
Vehicles and mobile equipment
Signals and crossing equipment
Track equipment
Other equipment
Estimated Useful Life
Minimum
3
20
5
Maximum
30
50
50
2
5
5
10
5
3
7
30
10
30
10
20
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. Losses from impairment of assets are charged to net (gain)/loss on sale and impairment
of assets within operating expenses.
Gains or losses on sales, including sales of assets removed during track and equipment upgrade projects, or losses
incurred through other dispositions, such as unanticipated retirement or destruction, are credited or charged to net (gain)/
loss on sale and impairment of assets within operating expenses. Gains are recorded when realized if the sale value
exceeds the remaining carrying value of the respective property and equipment. If the estimated salvage value is less
than the remaining carrying value, the Company records the loss incurred equal to the respective asset's carrying value
less salvage value. There were no material losses incurred through other dispositions from unanticipated or unusual
events during the period.
F-59
GOODWILL
The Company reviews the carrying values of goodwill at least annually to assess impairment since these assets
are not amortized. The Company performs its annual impairment review as of November 30 of each year. No impairment
was recognized during the period. Additionally, the Company reviews the carrying value of goodwill whenever events
or changes in circumstances indicate that its carrying amount may not be recoverable. The determination of fair value
involves significant management judgment. Impairments are expensed when incurred.
For goodwill, a two-step impairment model is used. The first step compares the fair value of a respective reporting
unit with its carrying amount, including goodwill. The estimate of fair value of the respective reporting unit is based
on the best information available as of the date of assessment, which primarily incorporates certain factors including
the Company's assumptions about operating results, business plans, income projections, anticipated future cash flows
and market data. Second, 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 its
implied fair value.
AMORTIZABLE INTANGIBLE ASSETS
The Company is required to perform an impairment test on amortizable intangible assets when specific impairment
indicators are present. The Company has amortizable intangible assets valued primarily as customer contracts and
relationships and track access agreements. These intangible assets are generally amortized on a straight-line basis over
the expected economic longevity of the facility served, customer relationship, or the length of the contract or agreement
including expected renewals.
DERAILMENT AND PROPERTY DAMAGES, PERSONAL INJURIES AND THIRD-PARTY CLAIMS
The Company maintains property and liability insurance coverage to mitigate the financial risk of providing rail
and rail-related services. The Company's primary liability policies have self-insured retentions of up to $1.0 million
per occurrence as of December 28, 2012, and prior self-insured retentions have been as high as $4.0 million per
occurrence. With respect to the transportation of hazardous commodities, the liability policy covers sudden releases of
hazardous materials, including expenses related to evacuation, as a result of a railroad accident. Personal injuries
associated with grade crossing accidents are also covered under the Company's liability policies. Accruals for Federal
Employment Liability Act (FELA) claims by the Company's railroad employees and third-party personal injury or other
claims 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. The Company's property damage policies have various self-insured
retentions, which vary based on type and location of the incident, of up to $1.5 million per occurrence.
INCOME TAXES
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes.
This method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are also established for
the future tax benefits of loss and credit carryovers. The asset and liability approach of accounting for deferred income
taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be realized.
REVENUE RECOGNITION
Railroad revenues are estimated and recognized as shipments initially move onto the Company's tracks, which,
due to the relatively short duration 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.
F-60
FOREIGN CURRENCY TRANSLATION
The financial statements and transactions of the Company's foreign operations are maintained in their local
currency, which is their functional currency. Where local currencies are used, assets and liabilities are translated at
current exchange rates in effect at the balance sheet date. Translation adjustments, which result from the process of
translating the financial statements into U.S. dollars, are accumulated in the cumulative translation adjustment account,
which is a component of accumulated other comprehensive income in stockholder's equity. Revenue and expenses are
translated at the average exchange rate for each period. Gains and losses from foreign currency transactions are included
in net income.
ACCOUNTING STANDARDS NOT YET EFFECTIVE
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to disclose additional
information about reclassification adjustments, including changes in accumulated other comprehensive income
balance by component and significant items reclassified out of accumulated other comprehensive income. This
guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012,
and is to be applied prospectively. Early adoption is permitted. The Company does not expect the adoption of this
guidance to have a material impact on its consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities, which requires an entity to disclose information about offsetting and related
arrangements to enable users of financial statements to understand the effect of those arrangements on its financial
position. This guidance is effective for annual reporting periods beginning on or after January 1, 2013, and the
interim periods within those annual periods, and should be applied retrospectively for all comparative periods
presented. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
2. ACQUISITIONS
G&W Acquisition of RailAmerica
As described in Note 1, Summary of Significant Accounting Policies, on July 23, 2012, the Company and G&W
jointly announced that they entered into an agreement under which G&W would acquire 100% of the Company for an
all cash purchase price of $27.50 per share, or approximately $1.4 billion. In addition, G&W repaid all of the outstanding
debt of the Company. The total value of the transaction, including the cash payments to stockholders, refinancing of
the existing debt, and value of pre-acquisition share-based awards, was approximately $2.0 billion.
The following table details the payments made for the Acquisition (in thousands) except per share amounts:
RailAmerica outstanding common stock as of October 1, 2012
Cash purchase price per share
Equity purchase price
Payment of RailAmerica's outstanding term loan and revolving credit facility
Cash consideration
Impact of pre-acquisition share-based awards
Total consideration
49,934
27.50
1,373,185
659,197
2,032,382
9,400
2,041,782
$
$
$
F-61
In accordance with Business Combinations Topic, ASC 805, the Acquisition was accounted for under the purchase
method of accounting. Under this method of accounting, assets acquired and liabilities assumed were recorded on the
Company's balance sheet at their estimated fair value. As a result of the Acquisition and the consideration paid, goodwill
was initially recorded on the Consolidated Balance Sheet of the Company. Of this amount, only approximately $25
million will be deductible for tax purposes. The final allocation of fair value to RailAmerica's assets and liabilities is
subject to completion of an assessment of the acquisition-date fair values of acquired non-current assets, deferred taxes
and other tax matters, and contingent liabilities. The preliminary fair values assigned to the acquired net assets of
RailAmerica were as follows (in thousands):
Cash
Accounts receivable
Deferred tax assets
Materials and supplies
Other current assets
Total current assets
Property and equipment
Goodwill
Intangible assets
Other assets
Total assets acquired
Current maturities of long-term debt
Accounts payable and accrued expenses
Total current liabilities
Long-term debt, less current maturities
Deferred income tax
Other long-term liabilities
Total liabilities assumed
Noncontrolling interest
Purchase price
$
86,102
104,839
49,074
6,406
15,146
261,567
1,579,321
474,115
451,100
116
2,766,219
1,585
143,790
145,375
10,573
542,210
20,754
718,912
5,525
$
2,041,782
The Company incurred approximately $3.5 million of after-tax acquisition/integration costs in connection with
the sale of RailAmerica which were expensed during the period.
Definite-lived intangible assets were assigned the following amounts and weighted average amortization periods
(dollars in thousands):
Customer contracts and relationships
Track access agreements
Value Assigned
92,600
358,500
$
$
Weighted Average
Life (Years)
39
44
F-62
3. STOCK-BASED COMPENSATION
As required under the RailAmerica acquisition agreement, on October 1, 2012, G&W converted approximately
432,000 RailAmerica restricted stock awards and 775,000 RailAmerica restricted stock units into approximately
180,000 and 322,000 G&W restricted stock awards and restricted stock units, respectively, at a ratio of 0.415 based
upon G&W's average 10-day closing stock price prior to the acquisition closing date of $66.26 per share and the
merger consideration of $27.50 per share. As a result of the proportional vesting of the awards at the time of
acquisition, the total consideration of the transaction included $9.4 million associated with these awards.
The Company recorded $2.8 million of stock compensation expense during the period.
4. OTHER BALANCE SHEET DATA
Accounts payable and accrued expenses consisted of the following as of December 28, 2012 (in thousands):
Accounts payable
Accrued bonus
Other accrued liabilities
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 28, 2012 (in thousands):
Land
Buildings and improvements
Railroad track and improvements
Locomotives, transportation and other equipment
Construction in progress
Less: accumulated depreciation
Depreciation expense for the period was $10.1 million.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill
2012
108,076
7,079
17,586
132,741
2012
406,743
12,272
1,096,767
81,952
1,597,734
1,037
(10,159)
1,588,612
$
$
$
$
Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets
associated with the acquisition of RailAmerica by G&W in October 2012.
F-63
The table below reflects the change in the carrying amount of goodwill for the period (in thousands):
Balance at October 1, 2012
Change during period
Balance at December 28, 2012
Definite-Lived Intangible Assets
2012
474,115
—
474,115
$
$
The following table provides the gross and net carrying amounts for each major class of intangible assets (in
thousands):
December 28, 2012
Gross Carrying
Amount
Accumulated
Amortization
Net Book Value
Weighted Average
Life (Years)
Amortizable intangible assets:
Customer contracts and relationships
Track access agreements
Total intangible assets
$
$
92,600
357,844
450,444
$
$
(587) $
(3,530)
(4,117) $
92,013
354,314
446,327
39
44
Amortization expense for the period was $4.1 million.
The following table sets forth the amortization expense over the next five years (in thousands):
2013
2014
2015
2016
2017
Thereafter
7. LONG-TERM DEBT AND LEASES
Long-term debt consists of the following as of December 28, 2012 (in thousands):
Other long-term debt (1)
State loans (Interest rates 3% to 10%, maturity dates 2016 - 2018)
Less: current maturities
Long-term debt, less current portion
$
$
16,606
16,606
16,606
16,606
16,606
363,297
446,327
December 28, 2012
10,157
$
1,853
12,010
1,600
10,410
$
(1) Other long term debt primarily consists of debt from a previous acquisition associated with the construction
of certain transload assets.
F-64
The aggregate annual maturities of long-term debt are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Leases
$
Total
1,600
1,618
1,638
1,659
5,202
293
$
12,010
The Company has several operating leases for equipment and locomotives. The Company also operates some of
its railroad properties under operating leases. The minimum annual lease commitments at December 28, 2012 are as
follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
Operating Leases
20,445
$
13,045
7,729
6,050
3,691
14,156
65,116
$
Rental expense under operating leases was approximately $7.6 million during the period.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
At December 28, 2012, accumulated other comprehensive income (loss) consisted of the following (in thousands):
Balance at October 1, 2012 (Acquisition)
Current period other comprehensive (loss) income
Balance at December 28, 2012
Foreign Currency
Translation
Adjustments
Pension and
Postretirement
Benefit Plans
Accumulated
Other
Comprehensive
Loss
$
$
— $
(2,150)
(2,150) $
— $
166
166
$
—
(1,984)
(1,984)
The foreign currency translation adjustments for the period related primarily to the Company's operations with
a functional currency in Canadian dollars.
F-65
9. INCOME TAX PROVISION
Income before income taxes for the period consisted of (in thousands):
Domestic
Foreign subsidiaries
The provision (benefit) for income taxes for the period consisted of (in thousands):
Federal income taxes:
Current
Deferred
State income taxes:
Current
Deferred
Foreign income taxes:
Current
Deferred
$
$
$
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
25,583
473
26,056
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
—
8,787
8,787
(153)
1,457
1,304
191
(32)
159
Total income tax provision
$
10,250
The difference between the U.S. federal statutory tax rate and the Company's effective tax rate for the period was
primarily attributable to state income taxes.
F-66
The components of deferred income tax assets and liabilities as of December 28, 2012 are as follows (in
thousands):
Deferred tax assets:
Net operating loss carryforward
Alternative minimum tax credit
General business credit carryovers
Customer advances
Accrued expenses
Other
Total deferred tax assets
Less: valuation allowance
Total deferred tax assets, net
Deferred tax liabilities:
Property and equipment
Intangibles
Total deferred tax liabilities
Net deferred tax liabilities
2012
51,478
1,356
94,819
1,864
16,172
441
166,130
(8,613)
157,517
(500,319)
(159,980)
(660,299)
(502,782)
$
$
The Company maintains a valuation allowance on net operating losses in jurisdictions for which, based on the
weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
It is management's belief that it is more likely than not that a portion of the deferred tax assets will not be realized. The
Company has established a valuation allowance of $8.6 million at December 28, 2012.
The following table summarizes the net operating loss carryforwards by jurisdiction as of December 28, 2012 (in
thousands):
U.S. — Federal
U.S. — State
Canada
Amount
Period
$
117,314
334,471
505
2021 - 2031
2013 - 2032
2014 - 2032
The following table summarizes credits available to the Company in the U.S. as of December 28, 2012 (in
thousands):
Track maintenance credit
Alternative minimum tax credit
GO Zone tax credit
Total credits
Amount
94,742
1,356
77
96,175
$
$
Expiration
Period
2025 - 2028
indefinite
2026
The Company's net operating loss carryforwards and general business credits for federal and state income tax
purposes are limited by Internal Revenue Code Section 382 and Internal Revenue Code Section 383, respectively.
United States income taxes have not been provided on $34.6 million of undistributed earnings of international
subsidiaries because of the Company's intention to reinvest those earnings indefinitely.
F-67
A reconciliation of the beginning and ending amount of unrecognized tax positions is as follows (in
thousands):
Balance at October 1, 2012
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with taxing authorities
Lapse of statute of limitations
Balance at December 28, 2012
$
3,370
—
—
—
—
(215)
3,155
$
At December 28, 2012, the Company's liability for uncertain tax positions was $3.2 million, $3.2 million of which
would reduce its effective tax rate if recognized. The Company does not anticipate the liability for uncertain tax positions
will change over the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax positions in its provision for income
taxes. During the period, the Company did not recognize any accrued interest or penalties. Additionally, the Company
did not have any accrued interest or penalties as of December 28, 2012.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various U.S. state
jurisdictions and foreign jurisdictions. With few exceptions, the Company or one of its subsidiaries is no longer subject
to U.S. federal, state and local, or non-U.S. income tax examinations by authorities for years before 2001.
10. PENSION AND OTHER BENEFIT PROGRAMS
Canadian Employees
The Company maintains a pension plan for a majority of its Canadian railroad employees, with both defined
benefit and defined contribution components.
DEFINED CONTRIBUTION COMPONENT - The defined contribution component applies to a majority of the
Company's Canadian railroad employees that are not covered by the defined benefit component. The Company
contributes 3% of a participating employee's salary to the plan. Pension expense for the period for the defined contribution
members was $0.1 million.
DEFINED BENEFIT COMPONENT - The defined benefit component applies to approximately 60 employees
who transferred employment directly from Canadian Pacific Railway (“CP”) to a subsidiary of the Company. The
defined benefit portion of the plan is a mirror plan of CP's defined benefit plan. The employees that transferred and
joined the mirror plan were entitled to transfer or buy back prior years of service. As part of the arrangement, CP
transferred to the Company the appropriate value of each employee's pension entitlement.
The assumed discount rate included below is based on rates of return on high-quality fixed-income investments
currently available and expected to be available during the period up to maturity of the pension benefits. A rate of 4.0%
was used as of December 28, 2012 to determine the benefit obligation. The assumed return on investments is
management's best estimate assumption. The basis for the assumed return on investments is the expected long term
return of the benchmark portfolio of 30% Canadian equity, 15% US equity, 15% international equity and 40% fixed
income.
U.S. Employees
The Company maintains a contributory profit sharing plan as defined under Section 401(k) of the Internal Revenue
Code. The Company makes contributions to this plan at a rate of 50% of the employees' contribution up to $2,500 for
Railroad Retirement employees and $5,000 for employees covered under the Federal Insurance Contributions Act. An
employee becomes 100% vested with respect to the employer contributions after completing four years of service.
Employer contributions during the period were approximately $0.4 million.
F-68
The Company maintains a pension and post retirement benefit plan for 43 employees who transferred employment
directly from Alcoa, Inc. ("Alcoa") to RailAmerica. The defined benefit portion of the plan is a mirror plan of Alcoa's
Retirement Plan II, Rule IIE defined benefit plan ("Alcoa Pension Plan"). The accrued benefits earned under the Alcoa
Pension Plan as of October 1, 2005 are an offset to the RailAmerica plan. No assets were transferred as part of the
arrangement. However, the Company assumed accrued post retirement benefits of $2.6 million as part of the Alcoa
Railroad acquisition in 2005.
The following chart summarizes the benefit obligations, assets, funded status and rate assumptions associated
with the defined benefit plans for the period (in thousands):
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at October 1, 2012 (Acquisition)
$
15,592
$
1,693
$
17,285
Canadian
2012
U.S.
2012
Total
2012
Service cost
Interest cost
Plan participants’ contributions
Actuarial gain
Benefits paid
Foreign currency exchange rate changes
Benefit obligation at end of period
CHANGE IN PLAN ASSETS
Fair value of plan assets at October 1, 2012 (Acquisition)
Actual return on plan assets
Employer contribution
Plan participants’ contributions
Benefits paid
Foreign currency exchange rate changes
Fair value of plan assets at end of period
Funded status — accrued benefit cost
ASSUMPTIONS
Discount rate
Expected return on plan assets
Rate of compensation increase
COMPONENTS OF NET PERIODIC BENEFIT COST IN
PERIOD
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net actuarial loss
Net periodic pension cost
44
158
18
(266)
(80)
(177)
15,289
10,522
212
1,576
18
(80)
(127)
12,121
(3,168)
$
$
$
$
4.00%
6.50%
3.25%
44
$
158
(171)
3
6,715
6,749
$
$
$
$
$
$
$
16
15
—
(25)
(23)
—
1,676
835
(2)
22
—
(22)
—
$
$
833
(843)
$
$
3.65%
6.00%
4.56%
16
15
(13)
—
—
18
$
$
60
173
18
(291)
(103)
(177)
16,965
11,357
210
1,598
18
(102)
(127)
12,954
(4,011)
N/A
N/A
N/A
60
173
(184)
3
6,715
6,767
F-69
Expected Employer Contribution in 2013
Expected Employee Contribution in 2013
Expected Benefit Payments in:
2013
2014
2015
2016
2017
2018-2021
Accumulated Other Comprehensive Income
Balance October 1, 2012 (Acquisition)
Actuarial gain in period
Total
Balance at December 28, 2012
Unamortized actuarial gain
Balance at December 28, 2012
Deferred tax
Balance at December 28, 2012, net of tax
(In thousands)
Canadian
U.S.
Total
153
$
104
$
$
69
325
373
420
477
547
3,583
$
—
72
85
91
93
104
516
257
69
397
458
511
570
651
4,099
(In thousands)
Canadian
U.S.
Total
— $
— $
$
266
266
266
266
266
72
194
$
11
11
11
11
11
4
7
$
$
—
277
277
277
277
277
76
201
$
$
$
$
$
Amounts in accumulated other comprehensive income expected to be recognized as components of net periodic
benefit cost over the next year are $0.0 million.
Plan Assets (Market Value) for the year ended December 28, 2012 for the Canadian defined benefit pension benefit
plan were as follows:
Integra Strategic Allocated Pool Fund
Fund holdings by class:
a) Equity securities
b) Debt securities
c) Other (including cash)
Total
Expected long-term rate of return on assets
Expected rate of return on equity securities
Expected rate of return on debt securities
December 28, 2012
Target Allocation
2013
100.00%
100.00%
60.00%
40.00%
—%
100.00%
57.70%
42.30%
—%
100.00%
6.50%
7.50%
5.50%
Plan assets relative to the U.S. pension plan were 100% allocated to cash at December 28, 2012.
F-70
The overall objective of the defined benefit portion of the Canadian plan is to fund its liabilities by maximizing
the long term rate of return through investments in a portfolio of money market instruments, bonds, and preferred and
common equity securities while being mindful of the yield, marketability and diversification of the investments. All
assets are currently invested in readily marketable investments to provide sufficient liquidity. Investments are not
permitted in derivative securities or in any asset class not listed below without the written approval of the Company.
The primary investment objective of the Canadian plan is to achieve a rate of return that exceeds the Consumer
Price Index by 4.0% over rolling four-year periods. The secondary investment objectives of the plan are to achieve a
rate of return that exceeds the benchmark portfolio by 0.7% before fees over rolling four-year periods and to rank above
the median manager in comparable funds over rolling four-year periods.
The initial limits of the proportion of the market value of the portfolio that may be invested in the following
classes of securities are:
Asset Mix Limits:
Canadian Equity
U.S. Equity
International Equity
Real Estate
Total Equity
Bonds
Mortgages
Short Term
Policy
Mix
Minimum
Limit
Maximum
Limit
30.00%
15.00%
15.00%
—%
60.00%
40.00%
—%
—%
20.00%
5.00%
5.00%
—%
25.00%
30.00%
—%
—%
40.00%
20.00%
20.00%
10.00%
70.00%
75.00%
10.00%
20.00%
75.00%
Total Fixed Income
40.00%
30.00%
F-71
The following chart summarizes the benefit obligations, assets, funded status and rate assumptions associated with
the Alcoa post retirement benefit obligation for the period (in thousands):
For the period from
October 1, 2012
(Acquisition) to
December 28, 2012
3,343
10
29
59
(23)
3,418
—
23
(23)
—
(3,418)
3.65%
N/A
10
29
—
39
December 28, 2012
—
(59)
(59)
(59)
(59)
24
(35)
$
$
$
$
$
$
$
$
$
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period
Service cost
Interest cost
Actuarial gain
Benefits paid
Benefit obligation at end of period
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period
Employer direct benefit payments
Direct benefit payments
Fair value of plan assets at end of period
Funded status — (accrued) benefit cost
ASSUMPTIONS
Discount rate
Current year health care cost trend rate (ultimate rate reached in 2006)
COMPONENTS OF NET PERIODIC BENEFIT COST IN PERIOD
Service cost
Interest cost
Amortization of net actuarial gain
Net periodic benefit cost
Accumulated Other Comprehensive Income
Balance October 1, 2012 (Acquisition)
Actuarial loss in period
Balance at December 28 ,2012
Unamortized actuarial loss
Balance at December 28, 2012
Deferred tax
Balance at December 28, 2012, net of tax
F-72
2013
2014
2015
2016
2017
2018 - 2022
$
Estimated Future
Benefit Payments
(In thousands)
179
194
199
206
229
1,178
11. COMMITMENTS AND CONTINGENCIES
In connection with G&W's acquisition of RailAmerica, five putative stockholder class action lawsuits were filed
in 2012, three in the Court of Chancery of the State of Delaware (Delaware Court) and two in the Circuit Court of the
Fourth Judicial Circuit for Duval County, Florida, Civil Division (Florida Circuit Court), against RailAmerica, the
RailAmerica directors and G&W.
The two lawsuits filed in the Florida Circuit Court alleged, among other things, that the RailAmerica directors
breached their fiduciary duties in connection with their decision to sell RailAmerica to G&W via an allegedly flawed
process and failed to obtain the best financial and other terms and that RailAmerica and G&W aided and abetted those
alleged breaches of duty. The complaints requested, among other relief, an order to enjoin consummation of the merger
and attorneys' fees. On July 31, 2012, plaintiffs in the Florida actions filed a motion to consolidate the two Florida
actions, appoint plaintiffs Langan and Sambuco as lead plaintiffs and appoint lead counsel in the proposed consolidated
action. Plaintiffs in the Florida actions also filed an emergency motion for expedited proceedings on August 7, 2012
and an amended complaint on August 8, 2012, which included allegations that the information statement filed by
RailAmerica on August 3, 2012, omitted material information about the proposed merger. On August 17, 2012, the
parties in the Florida actions submitted a stipulation for expedited proceedings, which the Florida Circuit Court ordered
on August 20, 2012.
The three lawsuits filed in Delaware Court named the same defendants, alleged substantially similar claims, and
sought similar relief as the Florida actions. The parties to the Delaware actions submitted orders of dismissal in November
2012, which the Delaware Court has granted.
On December 7, 2012, solely to avoid the costs, risks and uncertainties inherent in litigation, and without admitting
any liability or wrongdoing, the Company and the other parties to the Florida actions executed a Stipulation and
Agreement of Compromise, Settlement and Release to settle all related claims. The settlement is not material and is
subject to, among other things, final approval by the Florida Circuit Court. On January 28, 2013, the Florida Circuit
Court gave preliminary approval of the settlement and scheduled a hearing on final approval of the settlement for May
15, 2013.
From time to time, the Company is a defendant in certain lawsuits resulting from its operations in the ordinary
course. Management believes there are adequate provisions in the financial statements for any probable liabilities that
may result from disposition of the pending lawsuits. Based upon currently available information, the Company does
not believe it is reasonably possible that any such lawsuit or related lawsuits would be material to the Company's
operating results or have a material adverse effect on the Company's financial position or liquidity.
12. RELATED PARTY TRANSACTIONS
The Company's wholly-owned subsidiary, Atlas Construction Services, provides certain engineering and
construction services to G&W. During the period, the Company recorded revenues of $2.4 million, operating income
of $0.4 million and net income of $0.2 million related to these services.
F-73
13. SUBSEQUENT EVENTS
Management evaluated the activity of the Company through March 1, 2013, the date the financial statements
were issued, and concluded that no additional subsequent events have occurred that would require disclosure in the
Notes to the Consolidated Financial Statements.
F-74
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[THIS PAGE INTENTIONALLY LEFT BLANK]
STOCK REGISTRAR AND TRANSFER AGENT
Computershare
P.O. Box 30170
College Station, Texas 77842-3170
800-622-6757 (U.S., Canada, Puerto Rico)
781-575-4735 (non-U.S.)
www.computershare.com/investor
AUDITORS
PricewaterhouseCoopers LLP
1100 Bausch & Lomb Place
Rochester, New York 14604
585-232-4000
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, 2013, 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 May 30, 2013, he was
not aware of any violation by the Company of New York
Stock Exchange corporate governance listing standards.
CORPORATE HEADQUARTERS
Genesee & Wyoming Inc.
20 West Avenue
Darien, Connecticut 06820
203-202-8900
Fax 203-656-1092
www.gwrr.com
NYSE: GWR
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
closing sales prices for our Class A common stock
during each quarterly period of 2013 and 2012.
YEAR ENDED DECEMBER 31, 2013: HIGH LOW
$91.66
4th Quarter
$84.78
3rd Quarter
$79.84
2nd Quarter
$79.72
1st Quarter
$101.77
$94.84
$92.60
$94.14
YEAR ENDED DECEMBER 31, 2012: HIGH LOW
$67.32
4th Quarter
$52.27
3rd Quarter
$48.08
2nd Quarter
$54.56
1st Quarter
$76.28
$67.92
$58.15
$66.09
On February 20, 2014, there were 170 Class A common stock
record holders and 18 Class B common stock record holders.
The Company does not currently pay dividends on its
common stock, and the Company does not intend to pay
cash dividends for the foreseeable future.
STOCK PRICE PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return
Assumes $100 invested on December 31, 2008, in stock or index, including reinvestment of dividends.
Years Ending 1
Genesee & Wyoming Inc.
S&P Midcap 400
S&P 1500 Railroads 100.00
2008
100.00
100.00
2009
107.02
137.38
134.44
2010
173.61
173.98
185.92
2011
198.62
170.96
212.39
2012
249.44
201.53
230.74
2013
314.92
269.04
328.91
1 Fiscal year ending December 31.
Copyright© 2014 Standard & Poor’s, a division of The McGraw-Hill Companies Inc. All rights reserved.
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.
Mortimer B. Fuller III
John C. Hellmann
Richard H. Allert
Richard H. Bott
Øivind Lorentzen III
Robert M. Melzer
Michael Norkus
Ann N. Reese
Philip J. Ringo
Mark A. Scudder
BOARD OF DIRECTORS
Mortimer B. Fuller III
Chairman
John C. Hellmann
President and Chief Executive Officer
Richard H. Allert
Retired; formerly founder of Allert, Heard & Co.
Member, Audit Committee
Member, Australia Committee
Member, Compensation Committee
Richard H. Bott
Retired; formerly Vice Chairman, Institutional Securities Group,
Morgan Stanley
Member, Compensation Committee
Member, Governance Committee
Øivind Lorentzen III
Chief Executive Officer, SEACOR Holdings Inc.
President and CEO, Northern Navigation International Ltd.
Chairman, Governance Committee
Robert M. Melzer
Retired; formerly Chief Executive Officer
of Property Capital Trust
Member, Audit Committee
Member, Compensation Committee
Michael Norkus
Founder and President, Alliance Consulting Group
Member, Compensation Committee
Member, Governance Committee
Ann N. Reese
Co-Founder and Co-Executive Director,
Center for Adoption Policy
Formerly Chief Financial Officer of ITT Corporation
Chairman, Audit Committee
Member, Governance Committee
Philip J. Ringo
Senior Strategic Advisor, Elemica
Formerly Chairman and Chief Executive Officer,
RubberNetwork.com LLC
Chairman, Australia Committee
Member, Audit Committee
Member, Governance Committee
Mark A. Scudder
Chief Executive Officer, Scudder Law Firm, P.C., L.L.O.
Chairman, Compensation Committee
Member, Audit Committee
CORPORATE OFFICERS
John C. Hellmann
President and Chief Executive Officer
Timothy J. Gallagher
Chief Financial Officer
David A. Brown
Chief Operating Officer
Allison M. Fergus
General Counsel and Secretary
Christopher F. Liucci
Chief Accounting Officer
and Global Controller
Matthew O. Walsh
Senior Vice President
Corporate Development
SENIOR EXECUTIVES
Mark W. Hastings
Executive Vice President
International Business Development
Mario Brault
Senior Vice President
Canada Region
Andrew T. Chunko
Senior Vice President
Customer Service
David J. Collins
Senior Vice President
Business Technology
Gerald T. Gates
Senior Vice President
Operations
Raymond A. Goss
Senior Vice President
Northeast Region
Joel N. Haka
Senior Vice President
Pacific Region
James E. Irvin
Senior Vice President
Rail Link Region
Tyrone C. James
Senior Vice President
Safety and Compliance
William A. Jasper
Senior Vice President
Southern Region
M. Scott Linn
Senior Vice President
Engineering
Gary R. Long
President
Atlas Railroad Construction
Tony D. Long
Senior Vice President
Operations Support
Charles E. McBride
Senior Vice President
Ohio Valley Region
Michael M. Meyers
Senior Vice President
Information Technology
Michael O. Miller
Chief Commercial Officer
North America
J. Bradley Ovitt
Senior Vice President
Mountain West Region
Greg Pauline
Managing Director
Australia Region
Michael W. Peters
Senior Vice President
Real Estate and Industrial Development
Arnoud de Rade
Managing Director
Europe Region
Richard J. Regan Jr.
Senior Vice President
Mechanical
Mary Ellen Russell
Chief Human Resource Officer
Dewayne Swindall
Senior Vice President
Central Region
Michael A. Webb
Senior Vice President
Distribution Services
Spencer D. White
Senior Vice President
Midwest Region
Genesee & Wyoming Inc.
Corporate Headquarters
Genesee & Wyoming Inc.
20 West Avenue
Darien, Connecticut 06820
203-202-8900
Administrative Headquarters
Genesee & Wyoming Railroad Services, Inc.
200 Meridian Centre, Suite 300
Rochester, New York 14618
585-328-8601
Operations Headquarters
Genesee & Wyoming Inc.
13901 Sutton Park Drive South, Suite 330
Jacksonville, Florida 32224
904-596-1045
Regional Operations Support
Genesee & Wyoming Inc.
13901 Sutton Park Drive South, Suite 180
Jacksonville, Florida 32224
800-757-7387
Australia Region
Genesee & Wyoming Australia Pty Ltd (GWA)
Level 3, 33 Richmond Road
Keswick, South Australia 5035
+61-8-8343 5455
Canada Region
Cape Breton & Central Nova Scotia Railway Limited (CBNS)
121 King Street
P.O. Box 2240
Stellarton, Nova Scotia B0K 1S0
Canada
902-752-3357
Goderich-Exeter Railway Company Limited (GEXR)
101 Shakespeare Street, 2nd Floor
Stratford, Ontario N5A 3W5
Canada
519-271-4441
Huron Central Railway Inc. (HCRY)
30 Oakland Avenue
Sault Ste. Marie, Ontario P6A 2T3
Canada
705-254-4511
Ottawa Valley Railway (OVR)
445 Oak Street East
North Bay, Ontario P1B 1A3
Canada
519-271-4441
Québec Gatineau Railway Inc. (QGRY)
/ Chemins de fer Québec-Gatineau inc.
3690, Grande Allée
Boisbriand, Québec J7H 1M9
Canada
450-420-7965
Services Ferroviaires de L’Estuaire Inc. (SFE)
4800, rue John-Molson
Québec, Québec G1X 3X4
Canada
418-951-0501
Southern Ontario Railway (SOR)
241 Stuart Street West
Hamilton, Ontario L8R 3H2
Canada
905-777-1234
St. Lawrence & Atlantic Railroad Company (SLR)
225 First Flight Drive
Auburn, Maine 04210
207-782-5680
St. Lawrence & Atlantic Railroad (Québec) Inc. (SLQ)
/ Chemin de fer St-Laurent & Atlantique (Québec) inc.
605, rue Principal Nord
Richmond, Québec J0B 2H0
Canada
819-826-5460
Western Labrador Rail Services Inc. (WLRS)
210 Humber Avenue, 210-1
Labrador City, Newfoundland/Labrador A2V 2W8
Canada
709-944-6564
Central Region
Arkansas Louisiana & Mississippi Railroad
Company (ALM)
P.O. Box 757
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9000
Bauxite & Northern Railway Company (BXN)
P.O. Box 138
6232 Cyanamid Road
Bauxite, Arkansas 72011
501-557-2600
Dallas, Garland & Northeastern Railroad, Inc. (DGNO)
403 International Parkway, Suite 500
Richardson, Texas 75081
972-808-9800
Fordyce and Princeton R.R. Co. (FP)
P.O. Box 757
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9000
Kiamichi Railroad Company L.L.C. (KRR)
800 Martin Luther King Blvd.
P.O. Box 786
Hugo, Oklahoma 74743
508-916-7600
Kyle Railroad Company (KYLE)
38 Railroad Avenue
Phillipsburg, Kansas 67661
785-628-7700
Little Rock & Western Railway, L.P. (LRWN)
306 West Choctaw Avenue
Perry, Arkansas 72125
501-662-4878
Missouri & Northern Arkansas Railroad
Company, Inc. (MNA)
514 North Orner
P.O. Box 776
Carthage, Missouri 64836
417-359-3100
Texas Northeastern Railroad (TNER)
403 International Parkway, Suite 500
Richardson, Texas 75081
972-808-9800
Europe Region
Belgium Rail Feeding BVBA
Karveelstraat 5 B
2030 Antwerpen
Belgium
+32-(0)3- 543 06 72
Rotterdam Rail Feeding B.V.
Albert Plesmanweg 63
3088 GB Rotterdam
The Netherlands
+31-(0)88- 011 4200
Midwest Region
Central Railroad Company of Indianapolis (CERA)
1990 East Washington Street
East Peoria, Illinois 61611
309-698-2600
Grand Rapids Eastern Railroad (GR)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Huron and Eastern Railway Company, Inc. (HESR)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Illinois & Midland Railroad, Inc. (IMRR)
4440 Ash Grove Drive, Suite A
Springfield, Illinois 62711
217-793-7904
Indiana Southern Railroad, LLC (ISRR)
Ashby Yard, Illinois Street
P.O. Box 158
Petersburg, Indiana 47567
812-354-8080
Marquette Rail, LLC (MQT)
239 North Jebavy Drive
Ludington, Michigan 49431
231-845-9000
Michigan Shore Railroad, Inc. (MS)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Mid-Michigan Railroad (MMRR)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Otter Tail Valley Railroad Company, Inc. (OTVR)
200 North Mill Street
Fergus Falls, Minnesota 56537
218-736-6073
Tazewell & Peoria Railroad, Inc. (TZPR)
4440 Ash Grove Drive, Suite A
Springfield, Illinois 62711
309-694-8619
Toledo, Peoria & Western Railway Corp. (TPW)
1990 East Washington Street
East Peoria, Illinois 61611
309-698-2600
Tomahawk Railway, Limited Partnership (TR)
301 Marinette Street
Tomahawk, Wisconsin 54487
715-453-2303
Mountain West Region
Ohio Valley Region
Arizona & California Railroad Company (ARZC)
1301 California Avenue
Parker, Arizona 85344
928-669-6662
Arizona Eastern Railway Company (AZER)
5903 South Calle De Loma
Claypool, Arizona 85532
928-473-2447
San Diego & Imperial Valley Railroad
Company, Inc. (SDIY)
1501 National Avenue, Suite 200
San Diego, California 92113
928-669-6662
Utah Railway Company (UTAH)
1221 South Colorado Avenue
Provo, Utah 84606
801-221-7460
Ventura County Railroad Company (VCRR)
351 Warehouse Avenue
Oxnard, California 93030
559-592-4247
Northeast Region
Buffalo & Pittsburgh Railroad, Inc. (BPRR)
400 Meridian Centre, Suite 330
Rochester, New York 14618
585-785-6400
Connecticut Southern Railroad, Inc. (CSO)
440 Windsor Street
Hartford, Connecticut 06142
860-249-2006
The Massena Terminal Railroad Company (MSTR)
15 Depot Street
Massena, New York 13662
315-769-8608
New England Central Railroad, Inc. (NECR)
2 Federal Street, Suite 201
St. Albans, Vermont 05478
802-527-3500
Rochester & Southern Railroad, Inc. (RSR)
400 Meridian Centre, Suite 330
Rochester, New York 14618
585-785-6400
South Buffalo Railway Company (SB)
400 Meridian Centre, Suite 330
Rochester, New York 14618
585-785-6400
Wellsboro & Corning Railroad, LLC (WCOR)
400 Meridian Centre, Suite 330
Rochester, New York 14618
585-785-6400
The Aliquippa & Ohio River Railroad Co. (AOR)
123 Division Street Extension
Youngstown, Ohio 44510
740-622-8092
The Central Railroad Company of Indiana (CIND)
2856 Cypress Way
Cincinnati, Ohio 45212
513-860-1000
Chicago, Fort Wayne & Eastern Railroad (CFE)
2715 Wayne Trace
Ft. Wayne, Indiana 46803
260-267-9346
The Columbus & Ohio River Rail Road
Company (CUOH)
47849 Papermill Road
Coshocton, Ohio 43812
740-622-8092
Indiana & Ohio Railway Company (IORY)
2856 Cypress Way
Cincinnati, Ohio 45212
513-860-1000
The Mahoning Valley Railway Company (MVRY)
123 Division Street Extension
Youngstown, Ohio 44510
740-622-8092
Ohio Central Railroad, Inc. (OHCR)
47849 Papermill Road
Coshocton, Ohio 43812
740-622-8092
Ohio Southern Railroad, Inc. (OSRR)
47849 Papermill Road
Coshocton, Ohio 43812
740-622-8092
The Pittsburgh & Ohio Central Railroad
Company (POHC)
208 Islands Avenue
McKee’s Rocks, Pennsylvania 15136
740-622-8092
The Warren & Trumbull Railroad Company (WTRM)
123 Division Street Extension
Youngstown, Ohio 44510
740-622-8092
Youngstown & Austintown Railroad, Inc. (YARR)
123 Division Street Extension
Youngstown, Ohio 44510
740-622-8092
The Youngstown Belt Railroad Company (YB)
123 Division Street Extension
Youngstown, Ohio 44510
740-622-8092
Pacific Region
California Northern Railroad Company (CFNR)
1801 Hanover Drive, Suite D
Davis, California 95616
530-753-7826
Cascade and Columbia River Railroad
Company (CSCD)
901 Omak Avenue
Omak, Washington 98841
509-826-3752
Central Oregon & Pacific Railroad, Inc. (CORP)
333 S.E. Mosher
P.O. Box 1083
Roseburg, Oregon 97470
541-464-7002
Portland & Western Railroad, Inc. (PNWR)
3220 State Street, Suite 200
Salem, Oregon 97301
503-365-7717
Puget Sound & Pacific Railroad (PSAP)
1710 Midway Court
Centralia, Washington 98531
360-482-4994
San Joaquin Valley Railroad Co. (SJVR)
P.O. Box 937
Exeter, California 93221
559-592-1857
Willamette & Pacific Railroad, Inc. (WPRR)
3220 State Street, Suite 200
Salem, Oregon 97301
503-365-7717
Rail Link Region
Atlantic and Western Railway,
Limited Partnership (ATW)
311 Chatham Street
Sanford, North Carolina 27330
919-776-7521
Carolina Piedmont Railroad (CPDR)
268 East Main Street
Laurens, South Carolina 29360
843-398-9850
Chesapeake & Albemarle Railroad (CA)
214 Railroad Street North
Ahoskie, North Carolina 27910
252-332-2778
Commonwealth Railway, Incorporated (CWRY)
1136 Progress Road
Suffolk, Virginia 23434
757-538-1200
Corpus Christi Terminal Railroad, Inc. (CCPN)
P.O. Box 1541
Corpus Christi, Texas 78403
361-884-4010
Rail Link Region continued
East Tennessee Railway, L.P. (ETRY)
P.O. Box 1479
Johnson City, Tennessee 37605
423-928-3721
First Coast Railroad Inc. (FCRD)
404 Gum Street
Fernandina, Florida 32034
904-261-0888
Galveston Railroad, L.P. (GVSR)
P.O. Box 1108
Galveston, Texas 77553
409-762-5411
Georgia Central Railway, L.P. (GC)
186 Winge Road
Lyons, Georgia 30436
912-526-6165
Golden Isles Terminal Railroad, Inc. (GITM)
179 Penniman Circle
Brunswick, Georgia 31523
912-262-9885
Golden Isles Terminal Wharf (GITW)
P.O. Box 7358
Garden City, Georgia 31408
912-232-1762
Maryland Midland Railway, Inc. (MMID)
P.O. Box 1000
Union Bridge, Maryland 21791
410-775-7718
North Carolina & Virginia Railroad
Company, LLC (NCVA)
214 Railroad Street North
Ahoskie, North Carolina 27910
252-332-2778
Point Comfort & Northern Railway Company (PCN)
P.O. Box 247
Lolita, Texas 77971
361-874-4441
Rail Link, Inc.
13901 Sutton Park Drive South, Suite 125
Jacksonville, Florida 32224
904-223-1110
Riceboro Southern Railway, LLC (RSOR)
186 Winge Road
Lyons, Georgia 30436
912-884-2935
Rockdale, Sandow & Southern Railroad
Company (RSS)
P.O. Box 387
Rockdale, Texas 76567
512-446-3478
Savannah Port Terminal Railroad, Inc. (SAPT)
P.O. Box 7358
Garden City, Georgia 31408
912-964-9004
Rail Link Region continued
Southern Region continued
South Carolina Central Railroad Company, LLC (SCRF)
621 Field Pond Road
Darlington, South Carolina 29540
843-398-9850
Talleyrand Terminal Railroad Company, Inc. (TTR)
2700 Talleyrand Avenue
Jacksonville, Florida 32206
904-634-1884
Wilmington Terminal Railroad,
Limited Partnership (WTRY)
1717 Woodbine Street
Wilmington, North Carolina 28401
910-343-0461
York Railway Company (YRC)
2790 West Market Street
York, Pennsylvania 17404
717-771-1742
Southern Region
Alabama & Gulf Coast Railway LLC (AGR)
734 Hixon Road (Fountain)
Monroeville, Alabama 36460
251-575-8910
AN Railway, L.L.C. (AN)
190 Railroad Shop Road
Port St. Joe, Florida 32456
850-229-7442
The Bay Line Railroad, L.L.C. (BAYL)
2037 Industrial Drive
Panama City, Florida 32405
850-747-4034
Chattahoochee Bay Railroad, Inc. (CHAT)
700 South Range Street
Dothan, Alabama 36304
850-785-4609
Chattahoochee Industrial Railroad (CIRR)
P.O. Box 253
Georgia Highway 370
Cedar Springs, Georgia 39832
229-793-4546
Chattooga & Chickamauga Railway Co. (CCKY)
413 West Villanow Street
Lafayette, Georgia 30728
706-638-9552
Columbus and Greenville Railway Company (CAGY)
201 19th Street North
Columbus, Mississippi 39701
662-327-8663
Columbus & Chattahoochee Railroad, Inc. (CCH)
621 9th Avenue
Columbus, Georgia 31901
706-327-5464
Conecuh Valley Railway, L.L.C. (COEH)
812 North Main Street
Enterprise, Alabama 36330
334-347-6070
Eastern Alabama Railway, LLC (EARY)
2413 Hill Road
Sylacauga, Alabama 35151
256-249-1196
Georgia Southwestern Railroad, Inc. (GSWR)
78 Pulpwood Road
Dawson, Georgia 39842
229-698-2000
Hilton & Albany Railroad, Inc. (HAL)
78 Pulpwood Road
Dawson, Georgia 39842
229-698-2000
KWT Railway, Inc. (KWT)
908 Depot Street
Paris, Tennessee 38242
731-642-7942
Louisiana & Delta Railroad, Inc. (LDRR)
402 West Washington Street
New Iberia, Louisiana 70560
337-364-9625
Luxapalila Valley Railroad, Inc. (LXVR)
201 19th Street North
Columbus, Mississippi 39701
662-329-7730
Meridian & Bigbee Railroad, L.L.C. (MNBR)
119 22nd Avenue
Meridian, Mississippi 39301
601-693-4351
Three Notch Railway, L.L.C. (TNHR)
812 North Main Street
Enterprise, Alabama 36330
251-575-8910
Valdosta Railway, L.P. (VR)
5208 Madison Highway
Clyattville, Georgia 31601
229-559-7984
Wiregrass Central Railway, L.L.C. (WGCR)
812 North Main Street
Enterprise, Alabama 36330
251-575-8910
Atlas Railroad Construction, LLC
1370 Washington Pike, Suite 202
Bridgeville, Pennsylvania 15017
800-245-4980
Genesee & Wyoming Inc.
20 West Avenue
Darien, Connecticut 06820
Phone: 203-202-8900
Fax: 203-656-1092
www.gwrr.com
NYSE: GWR