Genesee & Wyoming Inc. 2014 Annual Report
2014 Annual Report 3
Genesee &Wyoming Inc.* 2014
North American Operations
Pacific
Region
RCPE
Midwest
Region
Mountain West
Region
Central
Region
Canada
Region
Northeast
Region
GNWR
Ohio Valley
Region
Coastal
Region
Railroads
Dashed lines indicate trackage rights
Contract Coal Loading
Industrial Switching
Port Operations
Southern
Region
Coastal
Region
Europe Region
Port Operations
Shunting Contracts
Rotterdam Rail Feeding
Belgium Rail Feeding
Australia
Region
Port Pirie
As of December 31, 2014:
Genesee & Wyoming Inc.* (G&W) owns short line
and regional freight railroads in the United States,
Australia, Canada, the Netherlands and Belgium.
In addition, G&W Australia operates the 1,400-mile
Tarcoola to Darwin rail line, which links the Port
of Darwin with the interstate rail network in South
Australia. Operations include 113 railroads organized
in 11 regions, with more than 15,000 miles of owned
and leased track, 5,200 employees and over 2,000
customers. G&W subsidiaries provide rail service at
37 ports in North America, Australia and Europe and
perform contract coal loading and railcar switching
for industrial customers.
* Unless the context otherwise requires,
when used in this Annual Report, the
terms “Genesee&Wyoming,” “G&W,” the
“Company,” “we,” “our” and “us” refer to
Genesee&Wyoming Inc. and its subsidiaries.
Financial Highlights
(In thousands, except per share amounts)
Statement of Operations Data
Operating revenues
Income from operations
Net income
Years Ended December 31
2014
2013
2012
2011
2010
$1,639,012
$1,568,643
$874,916
$829,096
$630,195
421,571
380,188
190,322
191,779
130,410
261,006
272,091
52,433
48,058
119,484
119,484
81,260
81,260
Net income available to common stockholders
260,755
269,157
Diluted earnings per common share attributable
to Genesee & Wyoming Inc. common stockholders:
Diluted earnings per common share (EPS)
4.58
4.79
1.02
2.79
1.94
Weighted average shares - Diluted
56,972
56,679
51,316
42,772
41,889
Balance Sheet Data as of Period End
Total assets
Total debt
Equity
Operating Revenues
($ In Millions)
Income from Operations
($ In Millions)
421.62
421.61
1,639.0
1,568.6
$400
394.12
380.21
350
300
250
200
150
141.12
130.41
211.2 2
191.8 1
189.5 2
190.3 1
874.9
829.1
630.2
100
50
0
2010 2011 2012 2013 2014
$1,600
1,400
1,200
1,000
800
600
400
200
0
$5,595,753
$5,319,821
$5,226,115
$2,294,157
$2,067,560
1,615,449
1,624,712
1,858,135
2,357,980
2,149,070
1,500,462
626,194
960,634
578,864
817,240
Net Income
($ In Millions)
Diluted Earnings
Per Common Share
$275
250
225
200
175
150
125
100
75
50
25
0
272.11
$5.00
261.01
233.5 2
214.7 2
129.7 2
119.5 1
105.62
52.41
81.3 1
77.7 2
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
4.791
3.782
4.581
4.102
2.791
2.47 2
2.532
1.941
1.86 2
1.021
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
2010 2011 2012 2013 2014
(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 21-24.
2014 Annual Report 1
From the Chairman
Mortimer B. Fuller III
The success of G&W is sustained by the quality of our people and the shared culture and values
that govern our interactions. Our core purpose is to be the safest and most respected rail service
provider in the world. This is cited frequently in meetings throughout the organization and posted
on walls and bulletin boards in all of our regions and corporate offices.
“Safest” comes first in our core purpose and in our company culture. Our goal is zero injuries:
for all employees to return home safely at the end of their workday. At the workplace, personnel
engage in on-site safety training and job safety briefings. All company meetings begin with a
safety briefing. To continuously enhance the safety of our operations, many operating employees,
management and members of the G&W Board of Directors attend DuPont safety training, which
focuses on the relentless elimination of unsafe conditions and behaviors from the workplace.
The integration of the former RailAmerica employees into our safety culture was the most
complex that G&W has undertaken, due to the sheer number of employees and the breadth of
our expanded North American footprint. We believe safety performance is an indication of an
integration’s success. We measure our safety by our injury frequency rate (IFR) per 200,000
man-hours as reported to the U.S. Federal Railroad Administration. G&W’s overall IFR for 2011
and 2012 was 0.53 and 0.48, respectively; however, it increased to 0.80 in 2013, our first full year
of ownership of the RailAmerica railroads. While still better than any Class I railroad and more
than three times safer than the short line industry average, this result was not up to our standard.
We continued our safety training programs and conducted numerous safety “blitzes” in which
cross-functional teams visit the railroad operations and spread best practices. In 2014, G&W’s
IFR improved to 0.60, an indication that our safety culture has taken hold at the 45 new railroads
and across our expanded North American regions.
The annual Chairman’s Award and President’s Award acknowledge the safest G&W operating
region and the region with the most improved injury rate, respectively. Two G&W regions,
Ohio Valley and Southern, won the Chairman’s Award for completing 2014 with zero injuries.
Each has been injury-free for three of the last five years. The President’s Award went to both the
Pacific Region and the Southern Region for reducing their injury rates by 1.04 per 200,000 hours.
Local events are held to celebrate the awards in each region. This year, the Ohio Valley Region’s
event was attended by 680 employees and loved ones, more than three times the number at any
previous Chairman’s Award celebration. Likewise, the Southern Region had record attendance
at its celebration. These turnouts are indicative of our employee commitment to safety as the
keystone of G&W’s culture.
2014 Annual Report 3
Customer satisfaction is an important indication of the “most respected” aspect of our core
purpose. We measure customer satisfaction with a biennial survey conducted by an independent
firm and use the feedback to continuously improve our service. The last survey was in 2013.
Though we still outperformed the trucking industry and the overall railroad industry, our results
declined from the 2011 survey. A score of 8.0 out of 10 equates to a strong probability that cus-
tomers will either maintain or grow their business levels with the service provider. While G&W’s
same railroad results for 2013 improved to 7.9, the RailAmerica roads scored 7.1. Corrective
action plans were immediately developed and implemented by those railroads, and their customers
were resurveyed in 2014 with significantly improved results. All of our customers will be surveyed
again in 2015.
The decades spent working toward our core purpose underpin G&W’s positive reputation.
This reputation was an important factor in both of our acquisitions announced in 2014:
■ The Pinsly Arkansas acquisition was similar to many we’ve made: a rail business that expands
our presence in an existing region, purchased from a long-time owner whom we’ve known
and worked with for years on rail industry issues and who recognized our commitment to
safety, customer service and stewardship of vital infrastructure assets upon which the local
economy depends.
■ The Rapid City, Pierre & Eastern Railroad’s acquisition of 670 miles of track from Canadian
Pacific drew considerable attention in light of its importance to South Dakota. After telephone
conferences with at least 10 different states’ departments of transportation to understand
G&W’s operating record in those states, South Dakota Governor Dennis Daugaard informed
the Surface Transportation Board, “I have learned that the G&W has a very good reputation
across the United States. G&W leads the rail industry in safety and customer service, and
the G&W prides itself on supporting the local communities it services.” After closing the
transaction, RCP&E employees garnered respect by quickly expanding their operating plan
to accommodate a record grain harvest.
Looking ahead, G&W is well-positioned. The U.S. rail industry’s infrastructure is in the best
condition of any transportation industry. G&W has the most diversified, balanced commodity
and geographic mix in its history. Our most recent, strategic acquisition of the Freightliner Group
gives us a solid position in important new markets. Our 11 regions worldwide have the support
of outstanding senior management and continue demonstrating their operating capabilities to
deliver safe, efficient rail service to our customers.
On behalf of our Board and as a shareholder, my thanks to all G&W employees for their
commitment to achieving our core purpose, which has served us well and, I am confident,
will guide us to continued success.
Mortimer B. Fuller III
Chairman
March 26, 2015
4 Genesee & Wyoming Inc.
6 Genesee & Wyoming Inc.
From the CEO
John C. Hellmann
President and Chief Executive Officer
To Our Shareholders:
2014 was another successful year in the growth and evolution of G&W. We reported record revenue
of $1.64 billion, record adjusted diluted earnings per share of $4.10 and record free cash flow of
$296 million before new business investments.(1) Our reportable injuries to the Federal Railroad
Administration (FRA) improved 25%, and our safety performance led the rail industry for the sixth
consecutive year with 102 G&W railroads injury-free. We successfully integrated a $219 million
transaction, the Rapid City, Pierre & Eastern Railroad in South Dakota, and we announced a $40
million tuck-in acquisition of three railroads in Arkansas, which closed in January 2015. Finally,
soon after reporting our year-end results in February 2015, we signed an agreement to acquire
London-based Freightliner Group Ltd. (Freightliner) for approximately US$733 million and closed
the transaction on March 25, 2015. The Freightliner acquisition makes G&W the second largest
freight rail operator in the United Kingdom and also adds operations in Australia and the
Netherlands that are each an excellent strategic fit with existing G&W businesses.
In 2014, G&W also withstood some significant business challenges. First, we experienced
extraordinarily severe winter weather in the first quarter of 2014, which shut down many of our
North American railroads and negatively impacted our profitability. Second, our iron ore mining
customers in Australia and Canada experienced a 50%+ decline in the global price of iron ore due
to surging global supply and a relative slowdown in Asian demand. As a result, several of our cus-
tomers either closed iron ore mines or announced plans to close mines in 2015. These closures began
to adversely impact G&W’s iron ore business in 2014 and will continue to do so in 2015, particularly
in Australia. Despite these challenges, the breadth of G&W’s geographic and commodity diversity
enables us to absorb these business downturns and continue to execute our growth strategy. Our
railroads generate strong cash flow, we maintain prudent levels of debt and we are well-positioned
for long-term growth.
Most importantly, my fellow employees at G&W continue to rise to any challenge – whether
safely digging out trains in a relentless series of snow storms or executing the start-up of a 670-mile
freight railroad in South Dakota – and I want to extend my deep appreciation for their hard work
and accomplishments.
(1) Adjusted diluted EPS, free cash flow, adjusted income from operations, adjusted operating ratio,
EBITDA 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 21-24.
2014 Annual Report 7
From the CEO, continued
Safety
My number one priority as CEO is to ensure that each G&W employee arrives home safely to his
or her family and loved ones after each shift. This commitment to safety reflects our deep respect
for all of our employees around the world and fosters a work environment of intense discipline, high
morale and unwavering dedication that yields outstanding results in our rail operations. In 2014,
G&W’s overall injury frequency rate (IFR) of 0.60 per 200,000 man-hours was better than any Class I
railroad for the sixth consecutive year and five times safer than the average of our peers in the short
line industry. With a 25% improvement in our IFR in 2014, we returned to the same level of perform-
ance that we achieved prior to acquiring 45 new railroads from RailAmerica at the end of 2012.
As illustrated in the chart below, G&W’s culture of safety has delivered exceptional results, even
as we have more than doubled our employee base. Over the past decade, we have reduced our IFR
by 70% while expanding from 2,000 employees in 2004 to more than 5,000 employees in 2014.
With the addition of 2,500 new colleagues from Freightliner, we will embrace the challenge of
instilling our zero-injury safety culture yet again in 2015.
Injury Frequency
Rate per 200,000
Man-Hours
2.5
2.0
1.5
1.0
0.5
0.0
G&W’s Culture of Safety
6,000
Employees
5,000
4,000
3,000
2,000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Financial Results
After experiencing severe winter weather in the first quarter, G&W’s income before income taxes
increased 17% over the final nine months of 2014, which included a 2% negative impact from the net
depreciation of foreign currencies relative to the U.S. dollar. In 2014 overall, G&W achieved record
financial results in operating revenues, adjusted income from operations, adjusted diluted earnings
per common share and free cash flow before new business investments.(1)
Operating Revenues increased 4.5% from $1.57 billion in 2013 to $1.64 billion in 2014.
Adjusted Income from Operations increased 7.0% from $394.1 million in 2013 to $421.6
million in 2014;(1) Reported Income from Operations increased 10.9% from $380.2 million
in 2013 to $421.6 million in 2014.
Adjusted Operating Ratio (adjusted operating expenses divided by operating revenues)
improved from 74.9% in 2013 to 74.3% in 2014;(1) Reported Operating Ratio improved
from 75.8% in 2013 to 74.3% in 2014.
Adjusted Diluted Earnings per Common Share (EPS) increased 8.5% from $3.78 in 2013
(with 56.7 million average shares outstanding) to $4.10 in 2014 (with 57.0 million average shares
outstanding);(1) Reported Diluted EPS decreased from $4.79 in 2013 (with 56.7 million average
shares outstanding) to $4.58 in 2014 (with 57.0 million average shares outstanding).
Free Cash Flow Before New Business Investments increased from $251.8 million in 2013
to $295.9 million in 2014.(1) Free Cash Flow decreased from $217.6 million in 2013 to
$203.1 million in 2014.
8 Genesee & Wyoming Inc.
12014
A Relentless Winter
The first quarter of 2014 was dominated by a series
of snowstorms and frigid temperatures across four
G&W operating regions that represent 35% of total
revenues. Drifts buried Canada Region locomotives
(far left), ice made several Northeast Region tunnels
impassable (near left), some Midwest Region locations
received more than 17 feet of snow, and significant
congestion around Chicago, which had its coldest
winter in 142 years, affected our Ohio Valley Region
and North American rail network fluidity.
Creating a New Regional Railroad
On January 2, 2014, G&W announced that its new subsidiary, the
Rapid City, Pierre & Eastern Railroad (RCPE), had agreed to
purchase the 670-mile west end of Canadian Pacific’s Dakota,
Minnesota & Eastern line. This purchase included only the track,
buildings, inventory, vehicles, right of way and some commercial
contracts. All other resources necessary to operate the railroad had
to be identified, built, purchased or created in five months to meet
a June 1 launch date. RCPE planning included the hiring and train-
ing of more than 180 employees and assembling a fleet of 50
locomotives and 2,500 railcars.
(Above) 20 inbound locomotives en route to join the new RCPE fleet
(Front cover) Newly branded RCPE locomotives at Belle Fourche, South Dakota
U.S. Rail Industry
2006-2014 Safety Performance
FRA Group 3 (Avg)
Short Line Railroads
FRA Group 2 (Avg)
Regional Railroads
Class I (Avg)
G&W Railroads (Avg)
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
0.70
0.53
2006 2007 2008 2009 2010 2011 2012 2013 2014
Recognizing Outstanding Safety Performance
In March 2014, the American Short Line and Regional Railroad Association
(ASLRRA) recognized 72 G&W railroads with the Jake Award With Distinction,
which is presented to member railroads that complete the year with perfect
safety records. The winners represented more than 75 percent of G&W’s
eligible railroads.
G&W railroads won two ASLRRA President’s Awards for best safety rate
in their man-hour categories:
150,000 to 250,000 man-hours: Missouri & Northern Arkansas Railroad
50,000 to 150,000 man-hours: Ohio Central Railroad
Susie Klinger, Operations Manager of G&W’s Tomahawk Railroad, was named
ASLRRA Safety Person of the Year. The Tomahawk has been injury-free since
2004, and Klinger stresses the importance of observing and testing crews,
performing an average of 100 efficiency tests per month. She also serves as
state coordinator for Operation Lifesaver in Wisconsin. Klinger’s award came
one year after Tyrone James, G&W Senior Vice President of Safety and
Compliance, was named ASLRRA Safety Professional of the Year.
Driving More Traffic to Rail
In January and February 2014, as part of leveraging G&W’s expanded
U.S. footprint, new transload sales-training programs were launched on our
Coastal Region and Pacific Region railroads. The region-specific programs
include detailed account segmentation, call planning and market analysis
for generating new business via transferring shipments from truck to rail
and vice versa (right). As an immediate result, these two regions generated
three to four times the typical number of new business opportunities in the
first quarter of 2014, as tracked by G&W’s customer relationship manage-
ment (CRM) system. By year-end, the program resulted in four new transload
facilities generating 6,000 carloads of new business on the regions’ railroads.
The program is rolling out to other G&W regions throughout 2015.
2
2014
South Dakota Wheat Harvest
2013
2014
77,680,500
bushels produced
131,280,000
bushels produced
.
Source: South Dakota Wheat, an agricultural nonprofit organization
Rapid City, Pierre & Eastern (RCPE)
Commences Service Amidst ‘Perfect Storm’
On June 1, 2014, following 24 hours of employee safety training and
orientation, freight service commenced on the RCPE. Faced with an existing
backlog of grain from the 2013 harvest, along with the expected challenges
of starting a new railroad company from scratch, RCPE was immediately
tasked with expanding an already aggressive operating plan to handle a
record-breaking 2014 South Dakota wheat harvest that quickly exceeded the
capacity of local grain elevators. Freight car availability in many areas was
approximately half of historical norms, due in part to lasting effects of the
severe winter on rail operations across the Midwest. Faced with this “perfect
storm,” the RCPE team established daily calls with Canadian Pacific to
coordinate efforts, including a review of train forecasts, freight car supply,
loading schedules and locomotive cycles – all of which were shared on
weekly update calls with the U.S. Surface Transportation Board and the
South Dakota governor’s staff. RCPE hired additional train and engine
employees and added locomotives and railcars to increase the fluidity of
the rail line. Weekly grain carloads increased from 322 shipped in the first
week to nearly 950 per week by mid-October.
Frac Sand
Capitalizing on its Texas location at the edge of one of the largest U.S. oil fields,
the Rockdale, Sandow & Southern Railroad (right) created a transload terminal
(above) that has increased the railroad’s frac sand business five-fold and made
it a key player in the area's frac sand market.
Security Threat Preparedness
In June 2014, the U.S. Transportation Security
Administration conducted a multi-jurisdictional
security exercise on G&W’s Ohio Central Railroad
in which the Ohio National Guard (right), along
with other key federal, state and local organiza-
tions, were familiarized with railroad assets and
operations.
North American Shale Formations
Powder River
Basin
Niobrara Basin
Piceance
Basin
Paradox Basin
San Juan
Basin
San Joaquin
Basin
Williston
Basin
Antrim
Basin
Michigan
Basin
Illinois
Basin
Forest City
Basin
Appalachian
Basin
Adadarko Basin
Arkoma Basin
Palo Duro Basin
Ardmore Basin
Black Warrior Basin
Permian
Basin
Ft. Worth
Basin
Marfa
Basin
TX-LA-MS
Salt Basin
G&W Railroads
G&W Port Operations
From the CEO, continued
On a same railroad basis, G&W’s freight revenues were up 2.9% in 2014. Excluding the impact
of foreign currency, our freight revenues increased 4.9%, as the depreciation of the Australian and
Canadian currencies versus the U.S. dollar partially masked the growth of our business. Coal and
Coke revenues were up $15.5 million (+14.0%), led by stronger steam coal shipments in our Midwest
and Ohio Valley regions. Minerals and Stone revenues were up $8.5 million (+8.8%), primarily due
to increases in sand destined for shale oil and gas wells, higher levels of rock salt shipments in our
Northeast Region to customers replenishing inventories after the extreme winter weather, and higher
levels of construction aggregates shipments in our Central and Coastal regions. Petroleum Products
revenues were relatively flat in 2014, as increased shipments of liquefied petroleum gases (LPGs)
originating in our Ohio Valley Region were offset by declining crude oil shipments to destination
terminals in our Pacific and Southern regions as well as to a Canadian refinery. Same railroad
revenues across most other commodity groups increased in 2014, including Food & Kindred Prod-
ucts (+8.6%), Pulp & Paper (+4.1%), Lumber & Forest Products (+3.9%), Chemicals & Plastics
(+3.4%), Agricultural Products (+2.7%) and Metals (+2.3%), primarily driven by solid growth
in the U.S. economy.
Strong Free Cash Flow
In 2014, we generated record free cash flow of $296 million prior to capital expenditures to support
new business.(1) The strength of this cash flow was underpinned by a highly diverse geographic
base (41 U.S. states, four Canadian provinces, Australia and the Netherlands/Belgium), a diverse
commodity base (no single commodity group represented more than 9.4% of total revenues in 2014)
and a diverse customer base (no single customer represented more than 6% of revenue in 2014).
This business diversity allows us to withstand any single customer or commodity downturn while
continuing to generate strong cash flow across our 120 railroads.
For nearly two decades now, we have used our free cash flow to pay down debt and strengthen
our balance sheet until we find attractive new rail investments. The past few years have provided
good illustrations of this cycle of investment and de-leveraging. In 2013, following the $2 billion
acquisition of RailAmerica (financed with debt and equity), we temporarily increased our leverage
to 3.8x debt/EBITDA(1) (adjusted to exclude integration/acquisition costs) and then used our
free cash flow to de-lever to 3.1x debt/EBITDA(1) by the end of that same year. In 2014, with the
$219 million addition of the Rapid City, Pierre & Eastern Railroad (100% debt-financed), we
increased our leverage to approximately 3.3x debt/EBITDA(1) in June and de-leveraged to 2.8x
debt/EBITDA(1) by year-end. In 2015, following the $733 million acquisition of Freightliner
(100% debt-financed), we are leveraged at 3.5x debt/EBITDA(1) and are once again targeting
3.0x debt/EBITDA(1) by year-end. Given the significant pipeline of rail investment opportunities
that we see today, we expect this pattern of investment and de-leveraging to continue as long as
target valuations remain attractive.
Organizational Evolution
After a period of significant change in 2013 following the RailAmerica acquisition, our organiza-
tional structure was generally stable in 2014 as our senior management team hit its stride over the
course of the year. As a result, we focused our time and resources expanding our leadership and
development training for new railroad managers, particularly the 25+ new railroad general managers
and regional vice presidents of transportation who were placed and/or promoted in 2013.
2014 Annual Report 11
From the CEO, continued
At the same time, we completed three important changes in our senior management team in 2014,
primarily due to retirements (see sidebars). First, in our Midwest Region, Spencer White retired after
26 years with G&W and was succeeded by Gary Long as Regional Senior Vice President, based in
Springfield, Illinois. Second, in our Canada Region, Mario Brault retired after 14 years with G&W
and was succeeded by Louis Gravel as President of Genesee & Wyoming Canada, based in Montreal,
Quebec. Third, in our Northeast Region, Ray Goss was succeeded by Dave Ebbrecht as Regional
Senior Vice President, based in Rochester, New York. Ray, in turn, succeeded Scott Linn as our Senior
Vice President of Engineering so that Scott could relocate to Australia in order to enhance our newly
insourced engineering and mechanical functions. Succession planning, recruiting and retention
remain our top priorities in human resources, with a constant focus on hiring and/or promoting
operating employees into key roles that are essential to support our significant growth.
Commercial Development
Our corporate commercial team based in Jacksonville, Florida, is composed of three groups –
industrial development, real estate and transload – all of which are designed to support our regional
sales teams in driving business to our railroads. Given our broad national (and international) footprint,
our corporate team also provides a single point of contact for customers that we serve in multiple
geographies. This centralized expertise along with the entrepreneurial drive of our regional operating
model has helped to elevate our commercial results. A few highlights from 2014:
Real Estate: In 2014, our real estate revenue increased 21% to $22.6 million, led by growing
income from easements along our rights of way. In addition, our real estate team completed the
development and rollout of a geographic information system (GIS) for all of our U.S. railroads
that better enables us to manage our real estate assets and target new industrial customers in
the geographies that we serve.
Industrial Development: In 2014, our industrial development team maintained an active pipeline
of approximately 200 projects, representing more than 450,000 carloads of new business potential.
Our goal is to sustain this pipeline level in order to maximize the probability of landing new
projects. In 2014, we closed 35 projects that are expected to contribute over 30,000 carloads and
more than $18 million in annual revenue once these new facilities commence operations. In total,
these 35 industrial development projects represent more than $2 billion in customer investment
along our railroads.
Distribution Services (Transload): Our wide geographic reach, combined with strong customer
relationships, has provided a platform for us to extend our reach to non-rail served customers
through the development of transload facilities. These facilities allow us to develop truck-to-rail
and rail-to-truck solutions that provide customers with the flexibility of truck service combined
with the favorable economics of rail transportation. In 2014, our distribution services group
successfully developed four new transload facilities that generated more than 10,000 carloads
of new traffic and $7 million of annual revenues. We currently have approximately 250 active
transload projects representing over 80,000 carloads of potential new business.
12 Genesee & Wyoming Inc.
3
2014
Midwest Region Leadership
In July 2014, Spencer White (near right) retired as Senior Vice President of
G&W’s Midwest Region railroads. His 26 years of service to G&W ranged
from Chief Engineer of the Buffalo & Pittsburgh Railroad to Director of G&W’s
former track infrastructure company in Western Australia to President of the
Illinois & Midland Railroad and head of G&W’s former Illinois Region, which
was a six-time winner of the annual G&W Chairman’s Award for best safety
performance of any region. Spencer is succeeded by Gary Long (far right),
previously President & CEO of OmniTRAX, whose 35 years of transportation
industry experience includes work with rail, motor carriers, ports, maritime
shipping, intermodal terminals, transload and industrial switching companies.
Challenges of Iron Ore
Business
The global price of iron ore dropped
precipitously from US$120s to US$60s
per ton over the course of 2014. In
August 2014, G&W announced the first
two of three customer mine closures in
Australia (left) and one in Canada’s
Labrador Trough (right), with no expec-
tation that they will reopen at current
iron ore prices. All G&W operations are
therefore cutting costs to maximize
efficiency.
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2014 G&W Freight Revenue* by Commodity
G&W’s well-diversified mix of business helps offset weakness
in specific commodity groups.
Auto & Auto Parts
2%
2% Other
Waste 1%
Food & Kindred Products 3%
10% Coal & Coke
Intermodal 7%
Metallic Ores 10%
Petroleum Products 5%
Lumber & Forest 7%
Products
Chemicals & Plastics 11%
10% Minerals & Stone
12% Agricultural
Products
11% Metals
9%
Pulp & Paper
*Freight revenue is 76% of total revenues
Canada Region
Leadership
In September 2014, after 14 years
with G&W and 22 years with Canadian
National Railway, Mario Brault (far left)
retired as President of Genesee &
Wyoming Canada. He led the Canada
Region’s transformation from two rail-
roads to eight and more than tripled
revenues while the region became one
of the safest in G&W. He is succeeded
by Louis Gravel (near left), who previ-
ously led the Quebec North Shore
and Labrador Railway and Canadian
port operations at Rio Tinto/Iron Ore
Company of Canada and brings a
strong operating, commercial and
leadership background.
Industrial Development
Available Industrial
Development Locations
Leveraging G&W’s expanded North American footprint, the third quarter of 2014 saw
two illustrative examples of our increased focus on industrial development opportunities:
■ The first shipments of LPGs departed from a new rail yard at a billion-dollar processing
and fractionation plant near Evans City, Pennsylvania, on the Buffalo & Pittsburgh
Railroad. The ability of G&W subsidiaries to provide industrial development, rail design,
rail construction and rail service convinced the customer − the leading midstream
player in the Utica/Marcellus Shale − to invest in expanding its rail facilities.
■ A new grain transload facility in Chadron, Nebraska, became the Rapid City, Pierre &
Eastern Railroad’s first industrial development win in only its first quarter of operations.
The customer initiated this project based on its positive relationship with other G&W
railroads, and the RCPE worked quickly with the customer to develop and implement
a transload solution in time for the fall harvest.
42014
M
A
S
C
K
A
M
B
N
S
F
FSR
UP
P
U
UP
A R S
K C S
Little Rock
AKMD
Galloway
AKMD
LRPA
P
U
Mountain Pine
P
U
AKMD
Malvern
DOE
C
V
Y
R
UP
U P
F
S
N
B
N
C
T
X
S
C
NS
B
N
S
F
P
U
B
N
S
F
Memphis
N
C
N
C
U
P
Lexa
AKMD
Helena
Port of Helena
M
S
D
R
AKMD
U
P
PNW
Prescott
UP
W
N
L
P
U
E
A
C
H
U
P
D W
E
H
C
U
O
&E
N
P
U
TNER
K
C
S
S
E
P
C
KCS
Cypress
Bend
McGehee
AKMD
Dermott
R
S
D
P
U
R
T
G
C A G Y
WSR
V
M S
N
C
N
C
Out of Service
Pinsly Arkansas
Other G&W Railroads
N
C
KCS
See Tracks? Think Train
Vehicles at grade crossings and pedestri-
ans walking on tracks account for 95% of
rail-related deaths. In 2014, as Operation
Lifesaver launched its new awareness
campaign, 42 employee volunteers from
G&W railroads made 277 Operation Life-
saver presentations to more than 37,000
school children, school bus and truck
drivers, law enforcement personnel, first
responders and other individuals to
discuss the importance of rail-crossing
safety.
O P E R A T I O N
L I F E S A V E R®
Rail Safety Education
Northeast Region and
Engineering Leadership
In October 2014, Scott Linn (far left) became Senior Vice President
of Engineering & Mechanical at G&W Australia in order to focus
on the integration and capital planning of these newly insourced
functions there. He is succeeded as G&W’s Senior Vice President
of Engineering by Ray Goss (middle left), whose 30 years of
engineering and leadership experience likewise make him one
of G&W’s senior track experts. Succeeding Ray as leader of G&W’s Northeast
Region railroads is David Ebbrecht (near left), who was previously Executive Vice
President and Chief Operating Officer at Kansas City Southern.
The ‘First and Last Mile’ in Arkansas
In a transaction announced in November 2014 and closed in January 2015, the
acquisition of three Arkansas short lines from Pinsly Railroad Company gives G&W nine
railroads in the state – another illustration of building a regional presence over time
through contiguous and nearby acquisitions. The Arkansas railroads are managed
within G&W’s Central Region under Senior Vice President Dewayne Swindall.
Track Investments Support Volume Growth
As a result of investments completed in 2014, traffic volume on G&W’s Kiamichi
Railroad (KRR) is up 30% over the past 18 months. Acquired in late 2012, KRR had
been underinvested in track, underpowered in locomotives and understaffed. It scored
6.1 in G&W’s 2013 customer satisfaction survey, with 8.0 recognized as the meas-
ure of a loyal customer. Working closely with customers, KRR invested in track and
locomotive upgrades to improve service, increasing its customer satisfaction score
to 7.6 in a 2014 survey and earning significantly more business.
P
U
WFEC
T O & E
B
N
S
F
U
P
F
S
N
B
K
C
S
TNER
K C S
F
S
N
B
S
C
K
B L R
T
E
X
U
K
C
S
U P
T N
U P
F
U
P
U P
P
U
D O E
C
V
Y
R
AKMD
U
P
PNW
Prescott
P
U
TNER
UP
W
N
L
P
U
Kiamichi Railroad (KRR)
Other G&W Railroads
From the CEO, continued
Our commercial ability to increase the growth rate of our railroads is dependent upon providing
safe, reliable rail transportation and world-class customer service. Over the past two-and-a-half
years, we have been particularly focused on providing exceptional customer service and proactively
addressing customer needs. In 2014, as part of our continuous improvement efforts, we launched an
online service-exception tool called “Back-On-Track” that enables customers and G&W employees
to report service problems immediately. Once a service exception is reported, it is closely monitored
until the exception is resolved. This tool has given us real-time visibility to our service, allowing
us to develop corrective action plans and quickly drive improved customer satisfaction.
North American Energy Markets
In 2014, G&W’s energy-related revenues represented approximately 13% of our total revenues,
or $216 million, with component parts including utility coal ($126 million) and petroleum products
($63 million) as well as sand ($19 million) and pipe ($8 million) that are inputs used in the extrac-
tion of oil and natural gas from shale formations through hydraulic fracturing. In last year’s annual
report, we noted that powerful market forces such as the shale energy revolution in the United
States, the development of oil sands in Canada and the relative decline in the use of coal for power
generation were directly impacting our rail shipments. We further noted that non-market forces such
as federal and local public policy decisions, environmental and safety regulations, political conditions
in other energy rich nations and weather patterns would also significantly impact our energy ship-
ments. If there is a single theme that emerged from G&W’s 2014 experience, it was that many or all
of these variables did impact our shipment patterns, causing significant fluctuations in our energy
traffic. The impact of some variables was positive for us (e.g., higher shipments of utility coal due
to cold weather and higher natural gas prices), the impact of other variables was negative (e.g.,
lower crude oil shipments to the Gulf Coast due to tighter spreads) and the impact of other variables
(e.g., the 50% drop in the price of crude oil) are still rippling through our business (e.g., reduced
drilling should reduce input shipments such as sand and pipe to certain geographies). Some high-
lights of G&W’s energy-related business are noted below:
Coal (8% of G&W revenue): The main variables impacting G&W’s coal shipments include:
i) weather, as hot summers and cold winters generally increase our coal shipments, ii) the relative
price of competing natural gas, as higher gas prices make coal consumption more attractive
for electricity generation and iii) stricter environmental regulations, which will ultimately make
older coal-fired power plants obsolete but may cause more efficient coal-fired power plants to
increase coal consumption. In 2014, G&W’s same railroad coal revenue increased 14% to
$126.4 million. The same “Polar Vortex” winter that adversely impacted our overall rail opera-
tions in the first quarter actually supported our coal business over the course of the year, as utility
customers’ coal stock piles were drawn lower by high electricity consumption during the cold
weather while the price of natural gas spiked higher. Based on early 2015 market dynamics,
lower natural gas prices now seem more likely to put pressure on our coal shipments, although
a hot summer and/or an increase in natural gas prices could quickly alter utility coal demand
and our related rail shipments.
2014 Annual Report 15
From the CEO, continued
Petroleum Products (4% of G&W revenue): In 2014, our same railroad petroleum products
revenue remained flat at $63 million compared to the prior year. Beneath this apparent stability,
however, were a number of offsetting trends:
■ Utica Shale: Shipments of liquefied petroleum gases (LPGs) originating in the Utica
Shale in our Ohio Valley Region increased throughout 2014, led by outbound shipments
of propane, butane and natural gas liquids (NGLs). With new NGL processing and fraction-
ation plants continuing to come on-line in the Utica Shale, we expect this positive trend to
continue in 2015. In addition, our Ohio Valley Region has benefitted from inbound sand
and pipe for drilling. Thus far, we have been fortunate that drilling activity in the Utica
Shale has not been as adversely impacted by lower energy prices compared to other shale
formations such as the Bakken.
■ Marcellus Shale: Gas production and drilling were generally flat in the Marcellus Shale
in 2014, but in the specific area served by our Northeast Region, we saw a slight increase
in drilling activity that led to modestly higher inbound sand and pipe shipments. However,
given the current low prices for natural gas, it is unlikely that we will see increased drilling
activity in 2015. Meanwhile, the expansion of a natural gas liquids processing and frac-
tionating plant in our Northeast Region in late 2014 should lead to increasing outbound
shipments of LPGs and NGLs.
■ Crude Oil: Our crude oil revenue declined in 2014, primarily due to lower shipments to
destination terminals in our Pacific and Southern regions as well as to a Canadian refinery.
In last year’s annual report, we noted that our crude oil traffic is heavily influenced by
the relative price differences, or spreads, between crude oil produced in different regions
(e.g., Brent crude produced in Europe versus West Texas Intermediate (WTI) crude).
In 2014, the collapse of the Brent-WTI spread all but dried up southbound shipments
of Bakken crude oil to our destination railroad serving the Gulf Coast. At the same time,
our east-west crude oil shipments were stronger, and we expect these flows to play a
long-term role in the crude oil supply chain due to the lack of a competing pipeline.
Acquisitions
In addition to G&W’s strengths as a railroad operating company, we also have an outstanding team
dedicated to making new railroad acquisitions. We are disciplined in our approach and evaluate
many investments before focusing on those opportunities that we believe will create the greatest
shareholder value. Having analyzed and valued hundreds of railroads around the world, we are
readily able to identify the most attractive investments and quickly mobilize the necessary resources
for comprehensive due diligence. Over the past 12 months, we have completed or announced
acquisitions that represent three of our traditional sources of acquisitions: carve-outs from Class I
railroads (the RCP&E in South Dakota), tuck-ins of contiguous or nearby short line railroads
(Pinsly Arkansas) and international investments (Freightliner Group).
Rapid City, Pierre & Eastern Railroad (RCP&E): On June 1, 2014, following a 24-hour stand-
down for employee safety training and orientation, freight service commenced on our new, 670-mile
RCP&E Railroad. The track was purchased from Canadian Pacific Railway (CP), having been
carved out from the western end of CP’s Dakota, Minnesota & Eastern (DM&E) operations in
South Dakota, Minnesota, Wyoming and Nebraska. After interviewing and hiring approximately
16 Genesee & Wyoming Inc.
From the CEO, continued
180 new employees, primarily individuals displaced from the DM&E, our RCP&E team created
and executed a comprehensive start-up plan that was successfully launched on June 1. Faced
with a record South Dakota wheat harvest, a backlog of 2013 grain still in elevators and lingering
congestion in the North American rail network, the RCP&E team worked closely with customers
and connecting railroads to achieve consistent cycling of locomotives and railcars to meet the strong
demand. We finished 2014 with RCP&E revenue well above plan and an appreciative customer base
that is eager to expand rail shipments.
Pinsly Arkansas: In a transaction announced in November 2014 and closed in January 2015,
we acquired three short line railroads in Arkansas from Pinsly Railroad Company – the Arkansas
Midland Railroad, Prescott & Northwestern Railroad and Warren & Saline River Railroad.
The new operations are composed of 137 miles of owned and leased track, 77 employees and
16 locomotives serving a diverse customer base in industries including aluminum, forest products,
aggregates and carton board. The new railroads have been folded into our Central Region under the
leadership of Dewayne Swindall and give us a total of nine railroads serving the state of Arkansas.
As a result of our ability to consolidate overhead expenses and share assets with sister railroads,
we expect the financial benefit of the acquisition to be attractive.
Freightliner Group: Most recently, on March 25, 2015, we completed the purchase of approximately
94% of the shares of London-based Freightliner Group Limited for £492 million (or approximately
US$733 million). Freightliner’s principal business is located in the United Kingdom, where it is the
second largest freight rail operator, providing intermodal and heavy haul service throughout England,
Scotland and Wales. In addition, Freightliner has operations in New South Wales, Australia, and
Continental Europe, including heavy haul operations in Poland and intermodal operations serving
deep sea ports in Northern Europe.
U N I T E D
K I N G D O M
Coatbridge
U N I T E D
KINGDOM
Key Container Origination
and Destination Points
Freightliner
Teesport
Leeds
Ports
Intermodal Terminals (Owned)
Intermodal Terminals (Third-Party)
Manchester
Liverpool
Ditton
Scunthorpe
Doncaster
Hams Hall
Daventry
Birmingham
Cardiff
Bristol
Southampton
Felixstowe
London Gateway
Tilbury
Freightliner
Heavy Haul
Key Commodities
Coal
Aggregates
Cement
Waste
2014 Annual Report 17
From the CEO, continued
S W E D E N
LAT
L I T H UAN I A
North Sea
North Sea
DENMARK
Lübeck
Hamburg
Bremerhaven
Rostock
NETHERLANDS
Amsterdam
Rotterdam
Berlin
POLAN D
Poznan
Warsaw
Antwerp
BELG IUM
GERMANY
CZECH
REPUBLIC
FRANCE
S LOVA K I A
SWITZERLAND
AUS T R I A
ITA LY
S LOVE N I A
C ROAT I A
Continental Europe
Operations
HUNGARY
Freightliner PL
ERS Railways
Rotterdam Rail Feeding
ROMANI A
Belgium Rail Feeding
Shunting Operations
BOSNI A AN D
H E R Z E G OVI NA
SERB I A
The acquisition of Freightliner is an excellent strategic fit for G&W. First, we are adding
a world-class intermodal and heavy haul franchise in the U.K. that will be the foundation of our
U.K./European Region. Second, we are adding operations on the east coast of Australia, where
we currently have no presence. Third, we are expanding in Continental Europe, with the addition
of a small Polish rail operation as well as an intermodal business that overlaps with our existing
operations in Rotterdam. Fourth, the acquisition adds to G&W’s diversity by customer, commodity
and geography, which is particularly noteworthy in the intermodal segment, where we currently
have limited traffic outside Australia. Finally, we are pleased to be joined by the highly talented
management team that has successfully built Freightliner over the past two decades. Working
together, we expect to build the existing business and unlock a range of rail investment
opportunities worldwide.
Following the Freightliner acquisition, G&W will be best understood by looking at three
business segments. The first will be our traditional North American short line and regional railroad
operations, expected to contribute approximately 77% of annual pro forma operating income, where
we will continue to execute on our long-term plan of commercial growth across our coast-to-coast
rail footprint as well as acquisition growth from further consolidation of the short line rail industry.
The second segment will be our Australian Operations, expected to contribute approximately 12%
of annual pro forma operating income, where our above-rail and below-rail operations in South
Australia and the Northern Territory will be operated with Freightliner’s above-rail business in
New South Wales. The third segment will be our U.K./European Operations, expected to contribute
approximately 11% of annual pro forma operating income, with Freightliner’s U.K. business as
the cornerstone that also will lead the development of our business in Continental Europe. Given
the above-rail nature of Freightliner’s operations with limited ownership of track, our U.K./European
segment will have a relatively high operating ratio (approximately 90%) due to its lower capital
intensity as well as the prevalence of rolling stock under operating leases.
18 Genesee & Wyoming Inc.
From the CEO, continued
Outlook for 2015
The outlook for G&W’s business in 2015 varies by region. In the United States, the economy
has generally been good, and we are optimistic about the contributions from our recent RCP&E
and Pinsly Arkansas acquisitions. At the same time, however, we are cautious about the impact of
the strengthening U.S. dollar, rising steel imports and lower natural gas prices, as well as energy
and commodity market volatility and how these variables may ripple through our North American
business. In Australia, business conditions remain difficult, and we expect our profits to contract
in 2015, as the low price of iron ore results in the closure or mothballing of several customer mines.
In the U.K./Europe, we are focused on the successful integration of Freightliner and anticipate a
strong financial contribution from this large transaction.
In addition to the integration of our recent acquisitions, G&W’s key priorities in 2015 are as
follows:
■ First, we expect to build on our strong safety results in 2014 and to concentrate on instilling
our safety culture in more than 2,500 new employees.
■ Second, we are targeting mid-teens percentage growth in our same railroad pretax income,
plus the additional positive contribution from Freightliner.
■ Third, we are focused on enhancing growth across our U.S. footprint where both the economy
and our commercial opportunities are most attractive.
■ Fourth, we are focused on cutting costs and running our Australian business as efficiently
as possible in a challenging economic environment.
■ Fifth, we will pursue another extension of the U.S. Short Line Tax Credit, legislation that
has been an important contributor to significant upgrades of our track infrastructure over
the past decade.
■ Finally, with the recently completed expansion of our senior credit facility, we expect
to retain $475 million of revolver capacity that will support our ability to fund other potential
acquisition and investment opportunities worldwide.
Our results for 2014 and our outlook for 2015 underscore the strength of G&W’s business
and our ability to absorb external shocks such as severe winter weather and collapsing commodity
and energy prices. Not only have we sustained our long track record of earnings growth and gener-
ated record free cash flow, but also we have executed transactions such as Freightliner that unlock
new opportunities to propel our long-term growth. On behalf of our Board of Directors and all
of my 7,700 colleagues, I want to express our deep commitment to work tirelessly to maximize
the value of your investment in G&W.
Jack Hellmann
President and Chief Executive Officer
March 26, 2015
2014 Annual Report 19
20 Genesee & Wyoming Inc.
(1) Reconciliation of Non-GAAP Financial Measures
Non-GAAP Financial Measures
This Annual Report contains references to adjusted income from operations, adjusted operating
ratio, adjusted net income, adjusted diluted earnings per common share, free cash flow, free cash
flow before new business investments, earnings before interest, taxes, depreciation and amortiza-
tion (EBITDA) and adjusted EBITDA, which are “non-GAAP financial measures” as this term
is defined in Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities
Exchange Act of 1934 and Regulation G under the Securities Exchange Act of 1934. In accordance
with these rules, G&W has reconciled these non-GAAP financial measures to their most directly
comparable U.S. GAAP measures.
Management views these non-GAAP financial measures as important measures of G&W’s
operating performance or, in the case of free cash flow and free cash flow before new business
investments, important financial measures of how well G&W is managing its assets and useful
indicators of cash flow that may be available for discretionary use by G&W. Management also
views these non-GAAP financial measures as a way to assess comparability between periods.
Key limitations of the free cash flow and free cash flow before new business investments measures
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.
These non-GAAP financial measures are not intended to represent, and should not be consid-
ered more meaningful than, or as an alternative to, their most directly comparable GAAP measures.
These non-GAAP financial measures may be different from similarly-titled non-GAAP financial
measures used by other companies.
The following tables set forth reconciliations of each of these non-GAAP financial measures
to their most directly comparable GAAP measure (in millions, except percentages and per share
amounts).
Reconciliations of Non-GAAP Financial Measures
Adjusted Income from Operations and Adjusted Operating Ratios
Operating revenues
Operating expenses
Income from operations
Operating ratio
Operating expenses
RailAmerica integration/acquisition costs
Business development and related 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
Reversal of restructuring charges from 2009
Edith River derailment costs
Adjusted operating expenses
Years Ended December 31,
2010
$ 630.2
499.8
$ 130.4
2011
$ 829.1
637.3
$ 191.8
2012
$ 874.9
684.6
$ 190.3
2013
$ 1,568.6
1,188.5
$ 380.2
2014
$ 1,639.0
1,217.4
$ 421.6
79.3%
76.9%
78.2%
75.8%
74.3%
$ 499.8
$ 637.3
-
(2.6)
5.7
-
-
6.4
8.7 -
-
-
(28.2)
2.3
-
$ 684.6
(29.5)
(2.3)
11.2
-
0.8
1.1
(1.1)
-
-
-
-
-
(1.8) -
$ 663.7
$ 1,188.5
(17.0)
(1.6)
4.7
-
-
-
-
-
-
$ 1,174.5
$ 639.6
$ 489.0
$ 1,217.4
-
(5.2)
5.1
-
-
-
-
-
-
$ 1,217.4
Adjusted income from operations
Adjusted operating ratio
$ 141.1
77.6%
$ 189.5
77.1%
$ 211.2
$ 394.1
$ 421.6
75.9%
74.9%
74.3%
2014 Annual Report 21
(1) Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income and Adjusted Diluted Earnings Per Common Share
Year Ended December 31, 2010
As reported
Add back certain items, net of tax:
FreightLink acquisition-related costs
Financing-related costs
Net gain on sale of assets
Gain on legal settlement
Reversal of restructuring charges from 2009
Discontinued operations gain from insurance
2010 Short Line Tax Credit
As adjusted
Year Ended December 31, 2011
As reported
Add back certain items, net of tax:
Business development and related costs
Edith River derailment costs
Net (gain)/loss on sale/impairment of assets
Gain on sale of investment
Gain on insurance recoveries
Acquisition-related income tax benefits
2011 Short Line Tax Credit
As adjusted
Year Ended December 31, 2012
As reported
Add back certain items, net of tax:
RailAmerica integration/acquisition costs
Business development and related costs
Acquisition costs incurred by RailAmerica
Net gain on sale of assets
Gain on insurance recoveries
Contract termination expense in Australia
Contingent forward sale contract mark-to-market expense
As adjusted
Net Income
Diluted Earnings
Per Common Share
$ 81.3
$
1.94
19.2
1.1
(4.3)
(5.1)
(1.5)
(2.8)
(10.2)
$ 77.7
$
0.46
0.03
(0.10)
(0.12)
(0.04)
(0.07)
(0.24)
1.86
Net Income
Diluted Earnings
Per Common Share
$ 119.5
$ 2.79
2.3
1.3
(3.9)
(0.8)
(0.7)
(1.9)
(10.2)
$ 105.6
0.05
0.03
(0.09)
(0.02)
(0.02)
(0.04)
(0.24)
2.47
$
Net Income
Diluted Earnings
Per Common Share
$ 52.4
$
1.02
21.0
11.0
3.5
(8.6)
(0.5)
0.8
50.1
$ 129.7
0.41
0.21
0.07
(0.17)
(0.01)
0.02
0.98
$ 2.53
22 Genesee & Wyoming Inc.
Year Ended December 31, 2013
As reported
Add back certain items, net of tax:
RailAmerica integration/acquisition costs
Business development and related costs
Net gain on sale of assets
Retroactive Short Line Tax Credit for 2012
2013 Short Line Tax Credit
Valuation allowance on FTC
Adjustment for tax returns from previous fiscal year
As adjusted
Year Ended December 31, 2014
As reported
Add back certain items, net of tax:
Business development and related costs
Credit facility refinancing-related costs
Net gain on sale of assets
2014 Short Line Tax Credit
RailAmerica-related tax benefit
Adjustment for tax returns from previous fiscal year
As adjusted
Net Income
Diluted Earnings
Per Common Share
$
272.1
$
4.79
10.7
1.4
(3.2)
(41.0)
(25.9)
2.0
(1.4)
$ 214.7
0.19
0.03
(0.06)
(0.72)
(0.46)
0.03
(0.02)
$ 3.78
Net Income
Diluted Earnings
Per Common Share
$ 261.0
$
4.58
3.2
2.9
(3.5)
(27.0)
(3.9)
0.7
$ 233.5
$
0.06
0.05
(0.06)
(0.47)
(0.07)
0.01
4.10
Free Cash Flow and Free Cash Flow Before New Business Investments
Net cash provided by operating activities
Net cash used in investing activities
Net cash used for acquisitions (a)
Free cash flow
New business investments
Free cash flow before new business investments
Years Ended December 31,
2013
2014
$ 413.5
(208.7)
12.9
217.6
34.2
$ 251.8
$
491.5
(509.8)
221.5
203.1
92.9
$ 295.9
(a) The 2013 period included $12.9 million in cash paid for incremental expenses related to the integration
of RailAmerica, Inc. The 2014 period included $221.5 million in cash paid for acquisitions, predominately
for the RCP&E acquisition.
2014 Annual Report 23
(1) Reconciliation of Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
G&W net income - as reported
Add back:
Provision for income taxes
Other income, net
Interest expense
Interest income
Depreciation and amortization expense
G&W EBITDA
RailAmerica net income - as reported
Add back:
Provision for income taxes
Other (income)/expense, net
Interest expense
Depreciation and amortization expense
RailAmerica EBITDA
Combined Company net income
Add back:
Provision for income taxes
Other (income)/expense, net
Interest expense
Interest income
Depreciation and amortization expense
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2012-
Q1 2013
$ 36.4
$
(19.6)
$ 13.4
$ 82.7
$ 112.9
$
0.4
(0.4)
36.8
(1.0)
18.5
$ 67.6
$ (24.9)
(0.7)
20.1
(1.0)
34.2
$ 110.4
$9.2
(2.0)
74.3
(3.9)
90.0
$ 280.5
$ 18.4
-
8.6
(1.0)
18.3
$ 80.8
$ 11.4
$ 7.2
5.5
10.3
11.6
$ 46.0
$ 15.3
(0.9)
8.8
(0.9)
19.0
$ 21.7
$
$
5.9
7.8
(0.4)
8.8
11.3
$ 33.3
$ 47.8
$ (13.6)
$ 13.4
$ 82.7
$ 25.7
5.5
18.9
(1.0)
29.9
$ 23.1
(1.3)
17.6
(0.9)
30.2
$
0.4
(0.4)
36.8
(1.0)
18.5
$ (24.9)
(0.7)
20.1
(1.0)
34.2
$
$
130.3
24.2
3.1
93.4
(3.9)
112.9
Combined Company EBITDA
$ 126.8
$ 55.0
$ 67.6
$ 110.4
$
359.8
Add back certain items:
Contingent forward sale contract mark-to-market expense
RailAmerica integration/acquisition costs
Non-cash compensation expense related to equity awards
Combined Company Adjusted EBITDA
$
50.1
42.2
23.6
$
475.7
Net income - as reported
Add back:
Provision for income taxes
Other income, net
Interest expense
Interest income
Depreciation and amortization expense
EBITDA
Net income - as reported
Add back:
Provision for income taxes
Other income, net
Interest expense
Interest income
Depreciation and amortization expense
Years Ended December 31,
2013
2014
$ 272.1
$
261.0
$
46.3
(2.1)
67.9
(4.0)
141.6
$ 521.8
$ 107.1
(1.3)
56.2
(1.4)
157.1
$ 578.7
Q3 2013
Q4 2013
Q1 2014
Q2 2014
$
$
66.2
22.2
(1.8)
16.0
(1.0)
37.3
$
$
58.1
23.8
(0.6)
14.5
(1.0)
35.9
$
$
39.6
22.9
(0.3)
13.6
(1.0)
37.6
$
$
60.9
32.6
(0.9)
17.8
(0.2)
38.2
Q3 2013-
Q2 2014
$
$
224.8
101.5
(3.6)
62.0
(3.3)
149.1
EBITDA
$ 139.1
$
130.8
$ 112.5
$
148.3
$
530.6
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, 2014
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)
Smaller reporting company
Accelerated filer
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: $5,399,103,465. 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 18, 2015:
Class
Class A Common Stock
Class B Common Stock
Number of Shares Outstanding
52,953,492
1,020,485
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year ended December 31, 2014 in connection with the Annual Meeting to be held on May 12, 2015 are incorporated by reference in Part
III hereof and made a part hereof.
Genesee & Wyoming Inc.
FORM 10-K
For The Fiscal Year Ended December 31, 2014
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
37
38
40
42
79
82
82
82
84
84
84
84
84
84
85
86
87
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," "goal," "budget,"
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. We currently operate in 41 states in the United States, four Australian states, one
Australian territory and four Canadian provinces and provide rail service at 37 ports in North America, Australia and
Europe. We operate over approximately 15,600 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, 2014, our revenues have increased at a
compound annual growth rate of 17.4%, from $77.8 million in 1996 to $1.6 billion in 2014. Over the same period,
our diluted earnings per common share (EPS) increased at a compound annual growth rate of 15.6%, from $0.29
(adjusted for stock splits) in 1996 to $4.58 in 2014. 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, 2014, our operations were organized as 11 regions. In the
United States, we have eight regions: Central, Coastal (which includes industrial switching and port operations),
Midwest, Mountain West, Northeast, Ohio Valley, Pacific and Southern. 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 five 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 2014, G&W operations achieved a consolidated Federal Railroad
Association (FRA) reportable injury frequency rate of 0.60 per 200,000 man-hours worked. Through the
implementation of our safety program, we have reduced our injury frequency rate by 69% since 2006,
when it was 1.95 injuries per 200,000 man-hours worked. For comparative purposes, from January 2014
through November 2014, the most recent month for which FRA data is publicly available, the United States
short line average reportable injury frequency rate was 3.0 injuries per 200,000 man-hours worked, and the
United States regional railroad average was 3.2 injuries per 200,000 man-hours worked. Based on these
results, in 2014, G&W operations were more than five times safer than the short line and regional railroad
averages and 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 is intently focused on exceeding customer expectations. This customer
commitment results not only in traffic growth, but also customer loyalty and new business development
opportunities. To ensure the needs of our customers are addressed promptly, we employ technology-based
service exception tools to monitor service information, communicate issues and track corrective actions.
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 based on the local
customer base within our operating geographies 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 railroad relationship management. Our operations
department assists with implementing our safety culture and training programs, leveraging our scale in 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 added 98 railroads through execution of our acquisition and investment strategy. Historically, our acquisition,
investment and long-term lease opportunities have been from the following five sources:
• Acquisitions of additional short line and regional railroads in the United States and Canada, such as our
acquisitions of Pinsly Railroad Company's Arkansas Division (Pinsly Arkansas) in January 2015,
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, 2013, there are currently approximately
460 short line and regional railroads in the United States not owned by us;
•
Investments in track and/or rolling stock to support growth in new or existing areas of operations, such as
the purchase of railcars in the United States in 2014 and our upgrade of the Chicago, Fort Wayne and
Eastern Railroad to enhance Class I traffic flow east of Chicago;
• 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;
• Acquisitions or long-term leases of branch lines of Class I railroads, such as our acquisition of the assets
comprising the western end of the Dakota Minnesota & Eastern Railroad Corporation (DM&E) from
Canadian Pacific (CP) in 2014; and
5
• Acquisitions of rail lines from 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. In some cases,
however, the best way to maximize the value of an investment is to increase expenditures at a new acquisition, such
as for track upgrades, in order to improve customer service and drive additional revenue growth.
We also believe that our footprint of railroads in North America provides opportunities to make contiguous
short line railroad 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
made a number of important railroad investments in North America and 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 138,400 miles of
track. As described in the table below, the United States Surface Transportation Board (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
$467.1 million or more
95,264
10,355 At least $20 million and 350 or more miles operated or
$37.4 million to $467.1 million
32,858 Less than $37.4 million and less than 350 miles operated
138,477
(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 2014 Railroad Facts Book
Class I railroads operate across many different states and concentrate largely, though not exclusively, on long
haul, high density and 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 railroad 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. We refer to local railroads as short line railroads. Typically, local, or
short line railroads, serve as branch lines connecting customers with Class I railroads. Short line railroads generally
have more predictable and straightforward operations as they largely perform point-to-point, light density service
over shorter distances, versus the complex networks associated with the Class I railroads or larger regional railroads.
A significant portion of regional and short line railroad traffic is 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.
6
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 railroads to minimize incremental capital
expenditures, concentrate traffic density, improve operating efficiency and avoid traffic losses associated with rail
line abandonment.
We operate two regional and 103 local (short line) railroads in the United States over approximately 14,500
miles of track.
Canada
According to Rail Trends 2014, published by The Railway Association of Canada (RAC), there are 27,270
miles of track operated by railroads in Canada.
We operate eight local (short line) railroads in Canada over approximately 1,500 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.
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 access rules generally include pricing principles and standards of use, and
are established by the applicable state or Commonwealth government. The Australian freight 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 despite the open access environment.
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. The open access nature of the Australian freight rail 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.
7
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 19 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 currently there are 13 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
Through our subsidiaries, we own or lease 116 freight railroads, including 103 short line railroads and two
regional freight railroads located in the United States, eight short line railroads located in Canada, one railroad
located in Australia and one railroad located in the Netherlands and Belgium, with a total of approximately 14,200
miles of track. We also operate 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 76.4%, 75.1%
and 71.4% of our total revenues in the years ended December 31, 2014, 2013 and 2012, 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 income - charges paid by other railroads for the use of our railcars and properties;
• Demurrage and storage - charges paid by customers for holding or storing their railcars;
• Car repair services - charges paid to us for repairing railcars owned by others, either under contract or in
accordance with AAR rules;
• Railroad construction - primarily 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
• Other operating income - primarily revenues for providing crewing services and track access and
management fees, the use of our real estate holdings, and for providing access to passenger operations,
such as for Amtrak's use of the New England Central Railroad's track.
Non-freight revenues represented 23.6%, 24.9% and 28.6% of our total operating revenues in the years ended
December 31, 2014, 2013 and 2012, respectively. Railcar switching represented 44.0%, 41.3% and 54.0% of our
total non-freight revenues in the years ended December 31, 2014, 2013 and 2012, respectively.
Customers
As of December 31, 2014, our operations served more than 2,000 customers. Revenues from our 10 largest
customers accounted for approximately 24%, 24% and 31% of our operating revenues in the years ended
December 31, 2014, 2013 and 2012, respectively. Two of our 10 largest customers in 2014 were located in Australia,
one of which was in our metallic ores (iron ore) commodity segment and the other of which was in our agricultural
products commodity segment.
8
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. Generally, our 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 based upon 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, 2014, 2013 and 2012,
see the discussion under "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Commodity Group Descriptions
The agricultural products commodity group consists primarily of wheat, barley, corn and other grains, as well
as soybean meal.
The chemicals and plastics commodity group consists primarily of sulfuric acid, ethanol and other chemicals
used in manufacturing, particularly in the paper industry.
The metals commodity group consists primarily of finished steel products and copper, as well as scrap metal
and pig iron.
The metallic ores commodity group consists primarily of manganese ore, iron ore, copper concentrate and ore,
alumina and nickel ore.
The coal and coke commodity group consists primarily of shipments of coal to power plants and industrial
customers.
The minerals and stone commodity group consists primarily of cement, gypsum, salt used in highway ice
control, sand used in hydraulic fracturing of oil and gas wells, roofing granules, clay and limestone.
The pulp and paper commodity group consists primarily of outbound shipments of container board and
finished papers and inbound shipments of wood pulp.
The intermodal commodity group consists of various commodities shipped in trailers or containers on flat
cars.
The lumber and forest products commodity group consists primarily of finished lumber, wood pellets, export
logs and wood chips used in paper manufacturing.
The petroleum products commodity group consists primarily of liquefied petroleum gas, natural gas liquids,
crude oil, asphalt and diesel fuel.
The food and kindred products commodity group consists primarily of canned fruits and vegetables and food
oils.
The autos and auto parts commodity group consists primarily of finished automobiles and stamped auto parts.
The waste commodity group consists primarily of municipal solid waste and construction and demolition
debris.
The other commodity group consists of all freight not included in the commodity groups set forth above.
9
Segment and Geographic Information
For financial information with respect to each of our segment and geographic areas, see Note 18, Segment and
Geographic 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 2014, revenues generated from originating, terminating and local traffic in North
America constituted approximately 93% of our North American freight revenues. In Australia, railroads generally
serve from origin to destination with few, if any, interline movements.
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 (i.e., monsoonal rains in the Northern Territory).
Employees
As of December 31, 2014, we had approximately 5,200 full-time employees. Of this total, approximately
1,900 employees were union members. Our railroads have 76 labor agreements with unions. We are currently
engaged in negotiations with respect to 10 of those agreements. We are also a party to employee association
agreements covering an additional 72 employees who are not represented by a national labor organization. In
Australia, Genesee & Wyoming Australia Pty Ltd (GWA) has a collective enterprise bargaining agreement covering
the majority of its employees. RRF is not party to any collective bargaining agreements in the Netherlands, 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.
10
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 utilize various
safety metrics, such as human factor incidents, that are instrumental in reducing our FRA reportable injuries. G&W
operations achieved a consolidated FRA reportable injury frequency rate, as defined by the FRA as reportable
injuries per 200,000 man-hours worked, of 0.60 and 0.80 for the years ended December 31, 2014 and 2013,
respectively. The average injuries per 200,000 man-hours worked for all United States short line railroads in the rail
industry was 3.0 in both 2014 (through November) and 2013 (through December). Based on these results, in 2014,
G&W operations were more than five times safer than the short line and regional railroad averages and safer than
any United States Class I railroad.
Our safety program also focuses on the safety and security of our train operations, and we continue to enhance
the use of technology to analyze our track so as to prevent track-caused derailments. In addition, our information
technology staff also routinely assess the security of our computer networks from cyber attacks. To date, we have
not experienced any material disruptions of our networks or operations due to cyber attacks.
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, such as 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 2014, employees of our railroads made more than 275
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. Incidents involving entities previously owned by RailAmerica that occurred prior to our August 1,
2013 insurance renewal are insured under RailAmerica's legacy liability and property insurance policies.
Our primary liability policies currently have self-insured retentions of up to $2.5 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 policies cover property and equipment that we own, and property in our care, custody and control and 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-insured retention for property damage due to a
cyclone or flood is A$2.5 million. RailAmerica's property damage policies previously had self-insured retentions up
to $1.5 million per occurrence. The property 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,
transloading 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.
11
COMPETITION
Railroads' unique and private ownership and control of infrastructure is difficult to replicate 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 do 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, there normally is only one rail carrier directly serving a customer on its line, while most
freight is interchanged with other 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.
12
United States
REGULATION
In addition to federal, state and local laws and regulations generally applicable to many businesses, our United
States railroads are subject to regulation by:
•
•
•
•
•
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 include 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 may regulate movement of hazardous materials in ways not preempted by federal law.
In 2014, 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 and has held hearings to assess the impact of changes to the access regime in the
United States. 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 but has not yet been released, could result in subsequent federal
legislation following completion and review. The majority of the actions under consideration and pending are
directed at Class I railroads; however, we continue to monitor these initiatives. 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.
Also in 2014, the PHMSA issued proposed rules concerning the transportation of certain flammable liquids,
which includes the transportation of crude oil. The proposed rules include a variety of possible measures including
enhanced tank car standards, speed restrictions, braking system requirements, community notification and other
operating restrictions. Our railroad operations and those of the entire railroad industry could be impacted depending
on the outcome of the final rules. We will continue to monitor this rulemaking process.
In 2010, the FRA issued regulations mandating the installation of positive train control (PTC) systems and
technology on certain railroads as early as the end of 2015. PTC is a collision avoidance technology intended to
override locomotive controls and stop a train before an accident. However, the United States rail industry publicly
stated it does not believe that PTC can be fully implemented by the end of 2015 due to issues with interoperability.
As a consequence, members of the rail industry are seeking an extension of the 2015 deadline. Certain of our
railroads may be required to install PTC-related equipment by the end of 2015. We are working with the Class I
railroads to finalize our implementation plans and are monitoring the implementation deadline, though we do not
expect that our compliance with the final rules governing the installation of PTC will give rise to any material
financial expenditures.
13
Canada
Railroads that operate in more than one province are subject to extensive federal laws, regulations and rules
and the jurisdiction of the federal government. St. Lawrence & Atlantic Railroad (Quebec), Ottawa Valley Railway,
Southern Ontario Railway and Knob Lake & Timmins Railway are federally regulated railroads that fall under the
jurisdiction of the Canadian 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.
Railways operating only within one province are regulated by that province and must hold a Certificate of
Fitness delivered by the appropriate provincial authority. 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 and Goderich-Exeter Railway are subject to the jurisdiction of the
provincial government of Ontario. Generally, construction, operation and discontinuance of operation are regulated
by the provincial authorities, 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.
In early 2015, the Canadian Minister of Transport issued proposed legislation concerning the transportation of
crude oil, which includes mandated insurance levels and changes to the liability regime for railroad accidents
involving crude oil. Our railroad operations could be impacted depending on the outcome of the final legislation.
Australia
In Australia, regulation of rail safety is predominately governed by national legislation and administered by
the Office of the National Rail Safety Regulator or under a service level agreement with various 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, the 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.
14
In the Netherlands, we are subject to regulation by the Ministry of Infrastructure and Environment; the Human
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.
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 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 (DVIS) if the rail service provider is based in Belgium. Part B must be obtained from DVIS
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. These regulations have the effect of increasing the costs, risks and liabilities
associated with rail operations, which frequently involve transporting hazardous materials. We are also indirectly
affected by environmental laws that impact the operations of our customers. In the United States, these
environmental laws and regulations, which are administered and 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 Comprehensive
Environmental Response, Compensation, and Liability Act, regulating the cleanup of contaminated properties; the
Clean Air Act, regulating air emissions and the Clean Water Act, regulating water discharges.
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 Environment at the federal level and by environmental protection
agencies at the state and territories 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.
In the United States, we received a notice in November 2014 from the EPA requesting information under the
Clean Water Act related to the discharge of crude oil as a result of a derailment of one of our trains in November
2013 in the vicinity of Aliceville, Alabama. As a result of our operations, we receive notices from time to time from
the EPA and state environmental agencies alleging we may be liable under federal or state environmental laws for
remediation costs at various sites throughout the United States.
15
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.
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.
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.
16
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, significant changes in global commodity prices or government 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, cancel and suspend certain mining projects in Australia. In addition, we anticipate
benefiting from development of crude oil, natural gas and natural gas liquids from shale regions in the United States, but
low natural gas, natural gas liquids or crude oil 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 changing patterns of economic activity 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 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 our operations and those of the entire freight rail network,
which could have a material adverse effect on our results of operations, financial condition and liquidity. Weather
impacts or other conditions that do not directly affect our operations can still 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 from the transportation of agricultural products in North America and Australia are
susceptible to the impact of drought conditions and our South Australian grain harvest is also susceptible to the
impact of heavy rains and flooding in the Northern Territory.
Furthermore, our expenses could be adversely impacted by weather conditions, including, for example, higher
track maintenance, overtime and diesel fuel costs in the winter at our railroads in the United States and Canada related to
snow removal, mandated work breaks and locomotive idling. Weather conditions could also cause our customers or
connecting carriers to reduce or suspend their operations. Adverse weather conditions that disrupt the entire freight rail
network can also cause traffic diversions, prolonged delays and equipment shortages that impact our ability to serve our
customers, all of which could have a material effect on our results of operations, financial condition and liquidity.
17
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 2014. Revenues from our 10 largest customers accounted for
approximately 24% of our operating revenues in 2014. Two of our 10 largest customers in 2014 were located in Australia
and accounted for approximately 8% of our operating revenues. One of these customers, Arrium Limited, recently
announced its intention to mothball its Southern Iron mine, which is served by GWA, citing the significant decline in the
price of iron ore. During 2014, GWA carried approximately 26,000 carloads of iron ore from the Southern Iron mine,
generating approximately A$65 million in freight revenues (or approximately $52 million, at current exchange rates of
A$1.00 = US$0.80) in revenue under a fixed and variable payment structure that is customary in large contracts in
Australia. As a result of the Arrium announcement, we expect to receive only the fixed portion of the revenue following
the mothballing of the Southern Iron mine, which is anticipated by June of 2015. In North America, we typically handle
freight pursuant to transportation contracts between us, our connecting carriers and the customer. All of our 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. As a consequence, there is rarely a guarantee that past volumes or revenues will continue in the future. Further,
under these contracts, freight rates and volumes are not directly linked to changes in the prices of the commodities being
shipped, and there is no customary contractual protection in the event of a bankruptcy or insolvency of a customer.
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 2014, approximately 83% 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 financial 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 2014 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 3% of our annual revenues in the year of expiration based on
our operating revenues for the year ended December 31, 2014. 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 (2015 - 2019) would represent
approximately 1.9%, 0.0%, 0.7%, 2.1% and 0.0% of our operating revenues in each of those years, respectively, based
on our operating revenues for the year ended December 31, 2014. 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.
18
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. In 2014, the rapid and significant decline in
the price of iron ore has negatively impacted the operations of several of our large customers. As a result of surging
global iron ore supply, weaker global iron ore demand, and government subsidies of certain high-cost iron ore mines in
other countries, several of our customers' mines have become unprofitable. Agricultural commodities are also susceptible
to fluctuation. 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 corn until the price increases. In such instances, we could experience reduced revenues and
unexpected costs associated with the storage of locomotives, railcars and other equipment, labor adjustments and other
related activities, which could negatively impact our results of operations, financial condition and liquidity.
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 potential buyers;
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 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, customers or contracts;
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 we 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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As a common carrier by rail, we are required to transport hazardous materials, regardless of cost or risk, which could
result in material losses.
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, or the self-insured retention
associated with, 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.
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 2014, we obtained partial or complete funding by United
States and Canadian federal, state, provincial and municipal agencies for 25 new projects. The spending associated with
these grant-funded projects represented approximately 5% of our total capital expenditures during 2014. 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 or require us to accept onerous
contractual obligations. 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.
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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 purchase insurance coverage for losses arising from personal injury and for property damage in the event of
derailments, grade crossing accidents, collisions or other incidents or occurrences. Unexpected or catastrophic
circumstances associated with derailments of valuable lading, grade crossing accidents, collisions or other incidents
involving passenger trains or spillage of hazardous materials or other accidents involving our operations could cause our
losses to exceed our insurance coverage limits or sub-limits or give rise to losses or penalties that are not covered by our
insurance. 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. In Australia, The Ghan passenger train is operated by a third party over
the track of GWA (North) Pty Ltd between Adelaide and Darwin. 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 or rail liability losses, 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, 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 as early as December 31, 2015. The FRA's rule contains certain exceptions to
these PTC requirements for Class II and Class III railroads, including but not limited to, excepting from the PTC
requirements 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. Notwithstanding these exceptions, certain of our railroads may be
required to install PTC-related equipment by the end of 2015. While we do not expect that our compliance with these
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.
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In addition, 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. 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 but has not yet been released, and
could result in subsequent federal legislation following completion and review. Further, in 2014 PHMSA issued
proposed rules concerning the transportation of certain flammable liquids, which includes the transportation of crude oil.
The proposed rules include a variety of possible measures that could impact our ability to transport flammable liquids.
Many of the actions under consideration and pending are directed at Class I railroads; however, specific initiatives being
considered by Congress, the STB or other regulators could expand regulation of our railroad operations and 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. Expanded regulation of
our railroad operations will increase the cost of providing 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.
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 Infrastructure and Environment, the Human Environment
and Transport Inspectorate and the Dutch railways infrastructure 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 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.
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 also 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.
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Our Senior Secured Syndicated Credit Facility Agreement dated October 1, 2012, as amended by Amendment No. 1,
dated March 28, 2013, as further amended and restated by Amendment No. 2 on May 27, 2014 (Amended and
Restated Credit Agreement) contains numerous covenants that impose certain restrictions on the way we operate our
business.
Our Amended and Restated 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 Amended and Restated Credit Agreement also contains financial covenants that require us to meet financial
ratios and tests. Our failure to comply with the obligations in our Amended and Restated 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
Amended and Restated 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, 2014, we had a total indebtedness of $1.6
billion, and we had unused commitments of $579.2 million under our Amended and Restated Credit Agreement (after
giving effect to $2.6 million of undrawn letters of credit that reduces such availability).
Subject to the limits contained in the Amended and Restated 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, investments or
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,
investments or 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
Amended and Restated 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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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, insolvency, lack of liquidity, shutdowns, operational failures 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. Also, when we are
not the invoicing railroad, we are exposed to credit risk at the customer and invoicing railroad levels.
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 grant to other rail carriers access rights to our rail lines or if legislation is
passed that provides materially greater latitude for trucks with respect to size or weight restrictions.
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."
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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 adversely affect our operating costs, decrease demand for the
commodities we transport and adversely affect our results of operations, financial condition and liquidity.
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.
Further, 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,
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 the 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.
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
Amended and Restated 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 2014, we consumed 47.1 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 or domestic oil production, 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% of our operating expenses
for the years ended December 31, 2014 and 2013.
If diesel fuel prices increase dramatically from production curtailments, a disruption of oil imports or domestic oil
production 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, environmental contamination, 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 10 of those agreements. Approximately
1,900 of our approximately 5,200 full time employees are union members. We have also entered into employee
association agreements with an additional 72 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 14% 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 more
generous 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.
27
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. 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:
•
•
•
•
•
•
•
•
•
•
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.
28
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 19%, 7% and 1% of our consolidated operating
revenues, respectively, for the year ended December 31, 2014. 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.
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.
29
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, 2014, we had tax benefits totaling approximately $74.8 million of Section 45G tax credit
carryforwards related to the RailAmerica acquisition. 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 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, 2014. As a result, our effective tax rate in 2015 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 December 19,
2014, the Short Line Tax Credit (which had previously expired on December 31, 2013) was extended for 2014. The most
recent extension of the Short Line Tax Credit only extended the credit through December 31, 2014. 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.
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 $305.2 million as of December 31, 2014. 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.
30
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.
We rely on the stability and availability of our technology systems to operate our business.
We rely on information technology in all aspects of our business. The performance and reliability of our technology
systems is critical to our ability to operate and compete safely and effectively. A cyber security attack, which is a
deliberate theft of data or impairment of information technology systems, or other significant disruption or failure, could
result in a service interruption, train accident, misappropriation of confidential information, process failure, security
breach or other operational difficulties. Such an event could result in increased capital, insurance or operating costs,
including security costs to protect our infrastructure. A disruption or compromise of our information technology systems,
even for short periods of time, could have a material adverse effect on our results of operations.
ITEM 1B. Unresolved Staff Comments.
None.
31
ITEM 2.
Properties.
Genesee & Wyoming, through our subsidiaries, currently has interests in 116 freight railroads, including 103
short line railroads and two regional freight railroads located in the United States, eight short line railroads located
in Canada, one railroad located in Australia and one railroad 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 15,600 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 3% of our annual revenues in the year of expiration, based on our operating revenues for
the year ended December 31, 2014. 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 1,940 miles of sidings and yards, which includes
1,710 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 Amended and Restated Credit Agreement. See "Part I Item 1A. Risk
Factors" for additional information on our Amended and Restated Credit Agreement.
The following table sets forth certain information 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
Corpus Christi Terminal Railroad, Inc.
(CCPN) Texas
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
1899
1985
1986
1987
1988
1992
1993
1993
1995
1996
1996
1996
1996
1997
32
27
8
58
86
368
128
4
178
288
108
97
24
2
42
Owned
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Leased
RAILROAD AND LOCATION
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
Luxapalila Valley Railroad, Inc.
(LXVR) Alabama, Mississippi
YEAR
ACQUIRED
TRACK
MILES
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
2008
33
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
34
STRUCTURE
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
Owned
RAILROAD AND LOCATION
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
Grand Rapids Eastern Railroad
(GR) Michigan
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
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
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
62
68
281
13
23
168
26
22
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
Owned
RAILROAD AND LOCATION
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
(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
Rapid City, Pierre & Eastern Railroad
(RCPE) Minnesota, North Dakota, Nebraska, Wyoming
Arkansas Midland Railroad
(AKMD) Arkansas
Prescott & Northwestern Railroad
(PNW) Arkansas
Warren & Saline River Railroad
(WSR) Arkansas
CANADA:
Huron Central Railway Inc.
(HCRY) Ontario
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
2014
2015
2015
2015
STRUCTURE
Owned/Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Owned
Owned
320
469
166
231
505
126
3
4
87
483
324
53
54
14
135
Owned/Leased
4
1
Owned
Leased
297
Owned/Leased
47
67
34
Owned
Leased
Owned
207
Owned/Leased
9
35
20
651
126
6
5
Leased
Leased
Owned
Owned
Owned/Leased
Owned
Owned
1997
173
Owned/Leased
35
RAILROAD AND LOCATION
Quebec Gatineau Railway Inc.
(QGRY) Québec
St. Lawrence & Atlantic Railroad (Québec) Inc.
(SLQ) Québec
Cape Breton & Central Nova Scotia Railway Limited
(CBNS) Nova Scotia
Goderich-Exeter Railway Company Limited
(GEXR) Ontario
Ottawa Valley Railway
(OVR) Ontario, Québec
Southern Ontario Railway
(SOR) Ontario
Kérail Inc.
(KERY) Québec
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
1997
2002
2012
2012
2012
2012
2014
2008
2006
2010
STRUCTURE
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Leased
Owned
Open Access
303
95
242
184
157
46
10
—
791
1,395
Leased/
Open Access
Leased/Open
Access
As of December 31, 2014, our rolling stock consisted of 1,094 locomotives, of which 932 were owned and
162 were leased, and 24,141 railcars, of which 5,558 were owned and 18,583 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
Gondolas
Covered hoppers
Tank cars
Maintenance of way
Crew cars
Other
Owned
Leased
Total
1,199
1,247
784
390
1,816
12
67
13
30
5,558
8,283
1,176
1,500
2,517
4,990
116
—
1
—
18,583
9,482
2,423
2,284
2,907
6,806
128
67
14
30
24,141
ITEM 3.
Legal Proceedings.
From time to time, we are a defendant in certain lawsuits resulting from our operations in the ordinary course
as the nature of our business exposes us to the potential for various claims and litigation related to property damage,
personal injury, freight loss, labor and employment, environmental and other matters. As described in Note 2,
Significant Accounting Policies, to our Consolidated Financial Statements included elsewhere in this Annual Report,
we maintain insurance policies to mitigate the financial risk associated with such claims.
36
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 or other claims against us that
are not covered by insurance could have a material adverse effect on our results of operations, financial condition
and liquidity.
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.
37
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 in the last two years as reported by the NYSE. Our Class
B Common Stock is not publicly traded.
Year Ended December 31, 2014
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Year Ended December 31, 2013
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Number of Holders
High
Low
$
$
$
$
$
$
$
$
100.89
105.47
105.51
99.89
High
101.77
94.84
92.60
94.14
$
$
$
$
$
$
$
$
Low
83.33
93.82
93.37
87.19
91.66
84.78
79.84
79.72
On February 18, 2015, there were 164 Class A Common Stock record holders and 14 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, 2014 and 2013. 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 Amended and Restated 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 of Preferred Stock dividends in 2013. 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.
38
Issuer Purchases of Equity Securities
2014
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)
$
325
161
1,141
1,627
$
97.03
98.83
97.55
97.57
(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 1,627 shares acquired in the three months ended December 31, 2014 represent Class A Common Stock acquired by
us from our employees who surrendered shares in lieu of cash to either fund their exercise of stock options or to pay
taxes on stock-based awards made under our Second Amended and Restated 2004 Omnibus Incentive Plan.
39
ITEM 6.
Selected Financial Data.
The following selected financial data was derived from the consolidated statements of operations and
consolidated balance sheets of Genesee & Wyoming as of and for the years ended December 31, 2014, 2013, 2012,
2011 and 2010. 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.
STATEMENT OF OPERATIONS DATA:
Operating revenues
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
and income from equity investment
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
2014 (1)
For the Year Ended December 31,
2012 (3)
(In thousands, except per share amounts)
2013 (2)
2011 (4)
2010 (5)
$ 1,639,012
1,217,441
421,571
—
1,445
(56,162)
$ 1,568,643
1,188,455
380,188
—
3,971
(67,894)
$ 874,916
684,594
190,322
—
3,725
(62,845)
$ 829,096
637,317
191,779
907
3,243
(38,617)
$ 630,195
499,785
130,410
—
2,397
(23,147)
—
1,259
—
2,122
368,113
(107,107)
—
261,006
—
261,006
—
251
$ 260,755
318,387
(46,296)
—
272,091
—
272,091
2,139
795
$ 269,157
$
(50,106)
2,182
83,278
(46,402)
15,557
52,433
—
52,433
4,375
—
48,058
—
703
158,015
(38,531)
—
119,484
—
119,484
—
—
$ 119,484
$
—
(827)
108,833
(30,164)
—
78,669
2,591
81,260
—
—
81,260
$
$
$
$
4.71
$
5.00
$
1.13
$
2.99
$
2.02
— $
— $
— $
— $
55,305
53,788
42,693
39,912
0.07
38,886
4.58
$
4.79
$
1.02
$
2.79
$
1.88
— $
— $
— $
— $
56,972
56,679
51,316
42,772
0.06
41,889
$ 5,595,753
$ 5,319,821
$ 5,226,115
$ 2,294,157
$ 2,067,560
$ 1,548,051
$
$ 2,357,980
— $
$ 1,540,346
$ 2,149,070
$ 1,770,566
— $ 399,524
$ 1,500,462
$ 569,026
$
$ 960,634
— $
$ 475,174
—
$ 817,240
(1) On May 30, 2014, our new subsidiary, Rapid City, Pierre and Eastern Railroad, Inc. (RCP&E), purchased the assets of the
western end of CP's DM&E rail line for a cash purchase price of $218.6 million, including the purchase of materials and
supplies, railcars, equipment and vehicles.
40
(2) 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. In addition, we incurred $17.0 million of integration and acquisition-related costs
associated with RailAmerica during 2013.
(3) 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. In addition,
we incurred $30.0 million of integration and acquisition-related costs associated with RailAmerica during 2012.
(4) On September 1, 2011, we acquired the stock of AZER with net assets of $90.3 million.
(5) 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.
41
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).
Outlook for 2015
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 six years and our goal for 2015 is an injury frequency ratio of 0.45
reportable injuries per 200,000 man-hours.
Agreement to Acquire Freightliner
On February 24, 2015, we announced our entry into an agreement to acquire approximately 95% of the shares of
Freightliner Group Limited (Freightliner) for cash consideration of approximately £490 million (or approximately $755
million at current exchange rates) and to assume approximately £8.5 million (or approximately $13 million at current
exchange rates) in net debt and capitalized leases. Members of the existing Freightliner management team will retain an
approximate 5% ownership interest, and we expect to own 100% of Freightliner by mid-2020. The acquisition is expected to
close during the first quarter of 2015. We plan to finance the acquisition of Freightliner through an amendment to our
Amended and Restated Senior Secured Syndicated Credit Facility Agreement (Amended and Restated Credit Agreement),
with approximately $650 million from the issuance of new term loans and the remainder from funds drawn on our existing
revolving credit facility.
Headquartered in London, England, Freightliner is an international freight rail operator with operations in the United
Kingdom (U.K.), Poland, Germany, the Netherlands and Australia. Freightliner's principal business is located in the U.K.
where it is the second largest freight rail operator, providing intermodal and heavy haul service throughout England, Scotland
and Wales. Freightliner operates in open access rail freight markets and therefore has limited ownership of track assets. Its
fleet of primarily leased equipment includes approximately 250 standard gauge locomotives (mostly diesel-electric) as well
as 5,500 wagons. Freightliner employs over 2,500 people worldwide.
Financial Expectations
Excluding the anticipated benefits from the Freightliner acquisition, we expect our revenues to decrease slightly in 2015
as strong growth in North America is expected to be offset by three significant factors: (1) a decline in iron ore traffic in
Australia, (2) the negative currency translation impact of the weaker Australian and Canadian dollars and the Euro relative to
the United States dollar and (3) lower fuel surcharge revenues. Fuel surcharges are expected to be lower due to a lower
average price for diesel fuel in 2015 compared with 2014. The growth in North America is expected from: (1) a less severe
winter in 2015 compared with 2014, (2) revenues from the Pinsly Arkansas Division (Pinsly Arkansas), which we acquired
on January 5, 2015, and the full-year impact of the Rapid City, Pierre & Eastern Railroad, Inc. (RCP&E), which began
operations on June 1, 2014, and (3) carload growth and rate increases in our same railroad operations. Despite our
expectation of a slight decrease in revenues, we expect our income from operations to increase as the growth in North
America will only be partially offset by lower income from operations in Australia and the negative impact of foreign
currency translation.
Capital Plan
Excluding the anticipated capital requirements of Freightliner, we expect to make capital investments totaling $277
million in 2015. Of this total, $190 million is planned for ongoing railroad track and equipment capital, $21 million is
planned for matching capital spending associated with government grant funded projects in seven operating regions in the
United States and $29 million is planned for specific 2015 infrastructure upgrade projects. In addition, we expect to spend
$37 million on business development related capital related to known projects, split equally between track projects and
equipment purchases. Our capital plan excludes acquisitions and new business development projects that arise during the
year.
42
United States Short Line Tax Credit
The United States Short Line Tax Credit, from which we have benefited since 2005, expired on December 31,
2014. Without an extension to the tax credit, we expect our income tax rate to increase significantly in 2015. While the Short
Line Tax Credit has been extended on four separate occasions in the past with retroactive benefits, we are unable to predict
the outcome of the United States legislative process. If legislation extending the Short Line Tax Credit were enacted during
2015, we expect it would increase our earnings by approximately $27 million based on our current railroad ownership.
Corporate and Business Development
While we have completed two acquisitions in the past 12 months and expect to close the acquisition of Freightliner
during the first quarter of 2015, we continue to evaluate a number of potential projects located in all of the geographic
markets in which we currently operate and elsewhere around the world.
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 116 railroads organized into 11 regions, with approximately15,600 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 37
ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial
customers.
On January 5, 2015, we completed the acquisition of certain subsidiaries that constitute Pinsly Arkansas from Pinsly
Railroad Company for approximately $40 million in cash, subject to adjustment for final working capital. We funded the
acquisition with borrowings under our Amended and Restated Credit Agreement. For additional information regarding the
agreement, see "Liquidity and Capital Resources—Credit Agreement" below.
Headquartered in Jones Mills, Arkansas, Pinsly Arkansas serves the Hot Springs and Little Rock areas, as well as the
southwestern and southeastern portions of Arkansas and includes (1) the Arkansas Midland Railroad (AKMD), which is
comprised of seven non-contiguous branch lines; (2) the Prescott & Northwestern Railroad (PNW); (3) the Warren & Saline
River Railroad (WSR); and (4) the two Arkansas transload operations of Pinsly's Railroad Distribution Services subsidiary.
Operations are composed of 137 miles of owned and leased track, 77 employees and 16 locomotives. The railroads currently
haul approximately 35,000 carloads per year and serve a diverse customer base in industries including aluminum, forest
products, aggregates, energy and carton board.
On May 30, 2014, our new subsidiary, RCP&E, purchased the assets comprising the western end of Canadian Pacific
Railway Limited's (CP) Dakota, Minnesota & Eastern Railroad Corporation (DM&E) rail line for a cash purchase price of
$218.6 million, including the purchase of materials and supplies, railcars, equipment and vehicles. RCP&E commenced
freight service on the line on June 1, 2014. For additional information regarding this purchase, see "Changes in Operations—
United States—Rapid City, Pierre & Eastern Railroad" below. The acquisition was financed with borrowings under our
Amended and Restated Credit Agreement.
Net income in the year ended December 31, 2014 was $261.0 million, compared with net income of $272.1 million in
the year ended December 31, 2013. Our diluted earnings per common share (EPS) attributable to our common stockholders
in the year ended December 31, 2014 were $4.58 with 57.0 million weighted average shares outstanding, compared with
diluted EPS attributable to our common stockholders of $4.79 with 56.7 million weighted average shares outstanding in the
year ended December 31, 2013.
43
Our effective income tax rate for the year ended December 31, 2014 was 29.1%. In December 2014, the United States
Short Line Tax Credit (which had previously expired on December 31, 2013) was extended for fiscal year 2014. During the
three months ended December 31, 2014, we recorded a tax benefit of $27.0 million associated with the extension of the Short
Line Tax Credit. 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 and income from equity investment. The
increase in the effective income tax rate for the year ended December 31, 2014 compared with the year ended December 31,
2013 was primarily attributable to changes in the mix of income among tax jurisdictions, particularly an increase in United
States earnings which were at a higher marginal tax rate.
Our results in the years ended December 31, 2014 and 2013 included certain items affecting comparability between the
periods that are set forth below (dollars in millions, except per share amounts):
Income/(Loss)
Before Income
Taxes Impact
After-Tax Net
Income/(Loss)
Impact
Diluted Earnings/
(Loss) Per
Common Share
Impact
2014
Business development and related costs
Credit facility refinancing-related costs
Net gain on sale of assets
2014 Short Line Tax Credit
RailAmerica-related tax benefit
Adjustments for tax returns from previous fiscal year
2013
Business development and related costs
RailAmerica integration/acquisition costs
Net gain on sale of assets
Retroactive Short Line Tax Credit for 2012
2013 Short Line Tax Credit
Valuation allowance on foreign tax credits
Adjustment for tax returns from previous fiscal year
$
$
$
$
$
$
$
$
$
$
$
$
$
(5.2) $
(4.7) $
5.1
$
— $
— $
— $
(17.0) $
(2.2) $
4.7
$
— $
— $
— $
— $
(3.2) $
(2.9) $
3.5
27.0
$
$
3.9
$
(0.7) $
(10.7) $
(1.4) $
3.2
41.0
25.9
$
$
$
(2.0) $
1.4
$
(0.06)
(0.05)
0.06
0.47
0.07
(0.01)
(0.19)
(0.03)
0.06
0.72
0.46
(0.03)
0.02
Operating revenues increased $70.4 million, or 4.5%, to $1,639.0 million in the year ended December 31, 2014,
compared with $1,568.6 million in the year ended December 31, 2013. The increase in our operating revenues included $45.1
million in revenues from RCP&E and a $25.2 million, or 1.6%, increase in revenues from existing operations. The increase in
our revenues from existing operations was partially offset by a $29.4 million decrease from the depreciation of foreign
currencies relative to the United States dollar. Excluding the impact from foreign currency depreciation, same railroad
operating revenues, which exclude revenues from RCP&E, increased $54.6 million, or 3.5%. When we discuss either
revenues from existing operations or same railroad revenues, we are referring to the change in our revenues, period-over-
period, associated with operations that we managed in both periods (i.e., excluding the impact of acquisitions).
Our traffic in the year ended December 31, 2014 was 2,007,051 carloads, an increase of 121,039 carloads, or 6.4%,
compared with the year ended December 31, 2013. The traffic increase included 84,145 carloads, or 4.5%, from existing
operations and 36,894 carloads from RCP&E. The increase from existing operations was principally due to increases of
32,248 carloads of coal and coke traffic (primarily in the Midwest and Ohio Valley regions), 19,508 carloads of minerals and
stone traffic (across most of our regions), 17,397 carloads of other commodity group traffic (primarily overhead Class I
shipments), 8,253 carloads of metals traffic (primarily in the Ohio Valley and Southern regions) and 6,299 carloads of
metallic ores traffic (primarily in the Australia and Mountain West regions). All remaining traffic increased by a net 440
carloads.
44
Income from operations in the year ended December 31, 2014 increased $41.4 million, or 10.9%, to $421.6 million,
compared with $380.2 million in the year ended December 31, 2013. Our operating ratio, defined as operating expenses
divided by operating revenues, was 74.3% in the year ended December 31, 2014, compared with 75.8% in the year ended
December 31, 2013.
During the year ended December 31, 2014, we generated $491.5 million in cash flows from operating activities. During
the same period, we purchased $331.5 million of property and equipment, including $92.9 million for new business
investments, partially offset by $28.0 million in cash received from government grants and other outside parties for capital
spending and $7.1 million in cash proceeds from the sale of property and equipment. We also paid $221.5 million for
acquisitions.
Changes in Operations
United States
Rapid City, Pierre & Eastern Railroad, Inc.: On May 30, 2014, our new subsidiary, RCP&E, purchased the assets
comprising the western end of CP's DM&E rail line for a cash purchase price of $218.6 million, including the purchase of
materials and supplies, railcars, equipment and vehicles. RCP&E commenced freight service on the line on June 1, 2014. The
results of operations from RCP&E have been included in our statement of operations since the acquisition date within our
North American & European Operations segment.
RCP&E operates approximately 670 miles of rail line 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 Inc. (NNW).
Customers on the RCP&E ship approximately 63,000 carloads annually of grain, bentonite clay, ethanol, fertilizer and other
products. RCP&E has the ability to interchange with CP, Union Pacific Railroad, BNSF Railway Company and NNW.
RCP&E has approximately 180 employees, most of whom were hired from the DM&E operations.
We accounted for the acquisition as a business combination using the acquisition method of accounting under U.S.
GAAP. The following acquisition-date fair values were assigned to the acquired net assets (dollars in thousands):
Materials and supplies
Prepaid expenses and other
Property and equipment
Deferred income tax assets
Total assets
Current portion of long-term debt
Accounts payable and accrued expenses
Long-term debt, less current portion
Net assets
$
$
3,621
116
217,032
325
221,094
1,121
108
1,260
218,605
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
45
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
approximately $1.9 billion of debt from our Amended and Restated 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 the operations acquired from RailAmerica are
included among the various line items in our consolidated statement of operations for the years ended December 31, 2014
and 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.
During the year ended December 31, 2013, 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. In November 2013, Carlyle sold all of these outstanding shares of our Class A
Common Stock in a public offering.
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.
We accounted for the RailAmerica acquisition 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).
• 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.
46
•
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 fair values assigned to the acquired net assets of RailAmerica 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
RailAmerica
As of
October 1, 2012
As of December 28, 2012
Preliminary
Final
$
86,102
$
107,922
$
107,922
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
$
2,041,782
$
2,055,604
$
2,055,604
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), including Arrium's Southern Iron
mine and its Whyalla-based operations, 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.
In January 2015, Arrium Limited announced that it is redesigning its mining business and expects to mothball its
Southern Iron mine by June of 2015, citing the significant decline in the price of iron ore. During 2014, GWA carried
approximately 26,000 carloads of iron ore from the Southern Iron mine, generating approximately A$65 million in freight
revenues (or approximately $52 million, at current exchange rates of A$1.00 = US$0.80), under a fixed and variable payment
structure. As a result of the announcement, we expect to receive only the fixed portion of the payments under the rail haulage
agreement after the mine is mothballed. GWA also provides switching services to Arrium's Whyalla-based operations serving
several of its iron mines located in the Middleback Range on the Eyre Peninsula, which services are not expected to be
materially impacted by the announcement. As a result of the announcement by Arrium Limited, we evaluated our Australian
Operations' long-lived assets for potential impairment and concluded there was no impairment as of December 31, 2014.
47
Canada
Tata Steel Minerals Canada Ltd.: In August 2012, we announced that our newly formed subsidiary, Kérail Inc. (Kérail),
entered into a long-term agreement with Tata Steel Minerals Canada Ltd. (TSMC), for Kérail 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 June 2014, Kérail completed construction of an approximately 25-kilometer rail line that connects the Mine to the
Tshiuetin Rail Transportation interchange point in Schefferville. Upon receipt of the necessary permits from the Canadian and
provincial governments, we commenced shipments in the fourth quarter of 2014. Shipments, as anticipated, ceased in the
winter and are expected to restart once the weather permits. Operated as part of our Canada Region, Kérail hauls unit trains of
iron ore from its rail connection with the Mine, and then travels over three privately owned railways to the Port of Sept-Îles
for export primarily to Tata Steel Limited's European operations.
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,
commodity prices, competitive forces, changes in foreign currency exchange rates, rail network congestion, 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 hot or cold
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 market
conditions, such as the availability of lower priced alternative sources of power generation (coal) and energy commodity
price differentials (crude oil). Other shipments are relatively less affected by economic conditions and are more closely
affected by other factors, such as winter weather (salt) 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, 2014 Compared with Year Ended December 31, 2013
Operating Revenues
Overview
Operating revenues were $1,639.0 million in the year ended December 31, 2014, compared with $1,568.6 million in the
year ended December 31, 2013, an increase of $70.4 million, or 4.5%. The $70.4 million increase in operating revenues
consisted of $45.1 million in revenues from new operations and a $25.2 million, or 1.6%, 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 $25.2 million increase in revenues from existing operations included an increase of $34.2 million in
freight revenues, partially offset by a decrease of $9.0 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, 2014 and 2013 (dollars in thousands):
2014
2013
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
Freight revenues
$1,251,941
$ 40,328
$1,211,613
$1,177,364
$ 74,577
6.3 % $ 34,249
2.9 % $ (22,410)
Non-freight revenues
387,071
4,812
382,259
391,279
(4,208)
(1.1)%
(9,020)
(2.3)%
(6,983)
Total operating
revenues
Carloads
$1,639,012
$ 45,140
$1,593,872
$1,568,643
$ 70,369
4.5 % $ 25,229
1.6 % $ (29,393)
2,007,051
36,894
1,970,157
1,886,012
121,039
6.4 %
84,145
4.5 %
48
Freight Revenues
The following table compares freight revenues, carloads and average freight revenues per carload for the years ended
December 31, 2014 and 2013 (dollars in thousands, except average freight revenues per carload):
Freight Revenues
Carloads
2014
2013
2014
2013
Average Freight
Revenues Per
Carload
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
2014
2013
$ 153,268
12.2% $ 130,577
11.1%
264,500
13.2%
240,840
12.8% $
579
$
542
136,492
131,161
127,234
126,377
121,920
117,299
92,285
10.9%
10.5%
10.2%
10.0%
9.7%
9.4%
7.4%
128,935
127,769
125,928
110,836
96,771
112,663
98,759
11.0%
10.9%
10.7%
9.4%
8.2%
9.6%
8.4%
169,160
184,264
78,665
8.4%
9.2%
3.9%
163,123
175,636
72,366
8.7%
9.3%
807
712
790
727
3.8% 1,617
1,740
355,762
17.7%
323,500
17.2%
355
247,742
174,942
66,917
12.4%
8.7%
3.4%
219,163
169,708
73,666
11.6%
9.0%
492
671
3.9% 1,379
1,341
343
442
664
82,271
6.6%
79,035
6.7%
136,768
6.8%
133,649
7.1%
602
64,498
5.2%
65,223
5.5%
104,958
5.2%
108,901
5.8%
615
35,534
2.8%
31,982
2.7%
60,741
3.0%
55,084
2.9%
585
23,619
18,449
21,534
1.9%
1.5%
1.7%
26,415
22,750
19,721
2.2%
1.9%
1.7%
34,470
39,994
88,168
1.7%
2.0%
4.4%
36,510
43,166
70,700
1.9%
2.3%
3.7%
$ 1,251,941
100.0% $ 1,177,364
100.0% 2,007,051
100.0% 1,886,012
100.0%
685
461
244
624
591
599
581
724
527
279
624
Commodity
Group
Agricultural
Products
Chemicals &
Plastics
Metals
Metallic Ores*
Coal & Coke
Minerals &
Stone
Pulp & Paper
Intermodal**
Lumber &
Forest Products
Petroleum
Products
Food and
Kindred
Products
Autos & Auto
Parts
Waste
Other
Total
* Carload amounts include carloads and intermodal units
** Carload amounts represent intermodal units
Total freight traffic increased 121,039 carloads, or 6.4%, in 2014 compared with 2013. Carloads from existing
operations increased by 84,145 carloads, or 4.5%, and new operations contributed 36,894 carloads. The existing traffic
increase was principally due to increases of 32,248 carloads of coal and coke traffic, 19,508 carloads of minerals and stone
traffic, 17,397 carloads of other commodity group traffic, 8,253 carloads of metals traffic and 6,299 carloads of metallic ores
traffic. All remaining traffic increased by a net 440 carloads.
Average freight revenues per carload were $624 in 2014 and 2013. Average freight revenues per carload from existing
operations decreased 1.4% to $615. The depreciation of the Australian and Canadian dollars relative to the United States dollar
and changes in the commodity mix decreased average freight revenues per carload from existing operations by 1.9% and
1.4%, respectively, while changes in fuel surcharges increased average freight revenues per carload from existing operations
by 0.1%. Other than the impacts from these factors, average freight revenues per carload from existing operations increased by
1.8%. Average freight revenues per carload were also negatively impacted by the changes in mix of customers within certain
commodity groups, primarily other commodity group traffic and waste traffic.
49
The following table sets forth freight revenues by commodity group for the years ended December 31, 2014 and 2013
(dollars in thousands):
2014
2013
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$ 153,268
$
19,115
$ 134,153
$ 130,577
$ 22,691
17.4 % $
3,576
2.7 % $
(3,211)
136,492
131,161
127,234
126,377
121,920
117,299
92,285
82,271
64,498
35,534
23,619
18,449
21,534
3,146
397
—
24
16,640
—
—
172
11
788
—
—
35
133,346
130,764
127,234
126,353
105,280
117,299
92,285
82,099
64,487
34,746
23,619
18,449
21,499
128,935
127,769
125,928
110,836
96,771
112,663
98,759
79,035
65,223
31,982
26,415
22,750
19,721
7,557
3,392
1,306
15,541
25,149
4,636
(6,474)
5.9 %
2.7 %
1.0 %
14.0 %
26.0 %
4.1 %
(6.6)%
4,411
2,995
1,306
3.4 %
2.3 %
1.0 %
15,517
14.0 %
8,509
4,636
8.8 %
4.1 %
(6,474)
(6.6)%
3,236
(725)
4.1 %
(1.1)%
3,064
(736)
3.9 %
(1.1)%
3,552
11.1 %
2,764
8.6 %
(2,796)
(10.6)%
(2,796)
(10.6)%
(4,301)
(18.9)%
(4,301)
(18.9)%
1,813
9.2 %
1,778
9.0 %
(953)
(948)
(6,984)
(231)
(894)
(1,202)
(6,175)
(325)
(762)
(92)
(451)
(21)
(161)
$ 1,251,941
$
40,328
$ 1,211,613
$ 1,177,364
$ 74,577
6.3 % $ 34,249
2.9 % $ (22,410)
Commodity Group
Agricultural
Products
Chemicals &
Plastics
Metals
Metallic Ores
Coal & Coke
Minerals & Stone
Pulp & Paper
Intermodal
Lumber & Forest
Products
Petroleum Products
Food and Kindred
Products
Autos & Auto Parts
Waste
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 and changes in foreign currency exchange rates, as well as changes in the mix of customer traffic within a
commodity group.
Agricultural products revenues increased $3.6 million, or 2.7%. Agricultural products traffic increased 1,986 carloads, or
0.8%, which increased revenues by $1.1 million, and average freight revenues per carload increased 1.8%, which increased
revenues by $2.5 million. The carload increase was primarily due to increased shipments in North America, partially offset by
decreased shipments in Australia. The increase in average freight revenues per carload included a 2.5%, or $3.2 million,
negative impact due to the depreciation of the Australian and Canadian dollars relative to the United States dollar.
Chemicals and plastics revenues increased $4.4 million, or 3.4%. Chemicals and plastics average freight revenues per
carload increased 2.7%, which increased revenues by $3.3 million, and traffic volume increased 1,352 carloads, or 0.8%,
which increased revenues by $1.1 million. The carload increase was primarily due to increased shipments in the western
United States.
Metals revenues increased $3.0 million, or 2.3%. Metals traffic volume increased 8,253 carloads, or 4.7%, which
increased revenues by $5.9 million, while average freight revenues per carload decreased 2.2%, which decreased revenues by
$2.9 million. The carload increase was primarily due to increased shipments of steel in the United States.
Metallic ores revenues increased $1.3 million, or 1.0%. Metallic ores traffic volume increased 6,299 carloads, or 8.7%,
which increased revenues by $10.2 million, while average freight revenues per carload decreased 7.1%, and included a 5.5%,
or $7.0 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 iron ore, manganese and copper ore shipments in Australia and
copper concentrate in the western United States.
50
Coal and coke revenues increased $15.5 million, or 14.0%. Coal and coke traffic volume increased 32,248 carloads, or
10.0%, which increased revenues by $11.5 million, and average freight revenues per carload increased 3.5%, which increased
revenues by $4.1 million. The carload increase was primarily due to increased demand for steam coal in the midwestern
United States, partially offset by decreased coal shipments in the western United States.
Minerals and stone revenues increased $8.5 million, or 8.8%. Minerals and stone traffic volume increased 19,508
carloads, or 8.9%, which increased revenues by $8.6 million. The carload increase was primarily due to increased shipments of
rock salt, frac sand, cement, construction aggregates and industrial minerals in North America, partially offset by decreased
shipments of limestone in Australia.
Pulp and paper revenues increased $4.6 million, or 4.1%. Pulp and paper traffic volume increased 5,234 carloads, or
3.1%, which increased revenues by $3.5 million, and average freight revenues per carload increased 1.1%, which increased
revenues by $1.1 million. The carload increase was primarily due to increased shipments of container board in the United
States, partially offset by decreased shipments of finished papers and wood pulp in Canada. The increase in average freight
revenues per carload included a 1.0%, or $1.2 million, negative impact due to the depreciation of the Canadian dollar relative
to the United States dollar.
Intermodal revenues decreased $6.5 million, or 6.6%. Effective December 1, 2013, the classification of a North
American customer's traffic changed from intermodal to other commodity groups, resulted in a 3,575 carload decrease.
Otherwise, intermodal traffic volume decreased 3,174 carloads, or 4.5%, and revenues decreased $6.1 million, or 6.2%. The
decrease in revenues included a $6.2 million negative impact due to the depreciation of the Australian and Canadian dollar
relative to the United States dollar. The carload decrease was primarily due to weaker shipments from our customers in
Australia and Canada.
Lumber and forest products revenues increased $3.1 million, or 3.9%. Lumber and forest products traffic volume
increased 2,974 carloads, or 2.2%, which increased revenues by $1.8 million, and average freight revenues per carload
increased 1.7%, which increased revenues by $1.3 million. The carload increase was primarily due to increased shipments of
wood pellets, wood chips and finished lumber in the southeastern United States, partially offset by decreased shipments in
Canada.
Waste revenues decreased $4.3 million, or 18.9%, primarily due to the closure of a waste facility in the fourth quarter of
2013 that we served in the midwestern United States.
Freight revenues from all remaining commodity groups combined increased by $1.0 million.
Non-Freight Revenues
The following table compares non-freight revenues for the years ended December 31, 2014 and 2013 (dollars in
thousands):
Railcar switching
Car hire and rental income
Demurrage and storage
Car repair services
Construction revenues
Other non-freight revenues
Total non-freight revenues
2014
2013
Amount
% of Total
Amount
% of Total
$
$
170,267
44,466
56,653
27,776
23,156
64,753
387,071
44.0% $
11.5%
14.6%
7.2%
6.0%
16.7%
100.0% $
161,942
34,721
58,312
21,078
41,677
73,549
391,279
41.3%
8.9%
14.9%
5.4%
10.7%
18.8%
100.0%
51
The following table sets forth non-freight revenues by new operations and existing operations for the years ended
December 31, 2014 and 2013 (dollars in thousands):
Railcar switching
Car hire and rental income
Demurrage and storage
Car repair services
Construction revenues
Other non-freight revenues
Total non-freight revenues
2014
2013
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$ 170,267
$
121
$ 170,146
$ 161,942
$
8,325
5.1 % $
8,204
5.1 % $ (3,170)
44,466
56,653
27,776
23,156
64,753
2,601
145
703
—
1,242
41,865
56,508
27,073
23,156
63,511
34,721
58,312
21,078
9,745
28.1 %
7,144
20.6 %
(1,659)
(2.8)%
(1,804)
(3.1)%
6,698
31.8 %
5,995
28.4 %
41,677
(18,521)
(44.4)% (18,521)
(44.4)%
(437)
(677)
(128)
—
73,549
(8,796)
(12.0)% (10,038)
(13.6)%
(2,571)
$ 387,071
$
4,812
$ 382,259
$ 391,279
$ (4,208)
(1.1)% $ (9,020)
(2.3)% $ (6,983)
Total non-freight revenues from existing operations declined $9.0 million in the year ended December 31, 2014
compared with the year ended December 31, 2013 and were partially offset by $4.8 million in non-freight revenues from new
operations. The decrease from existing operations was principally due to an $18.5 million decrease in low margin construction
revenues, a $7.5 million decrease in other non-freight revenues and a $7.0 million decrease from the impact of foreign
currency depreciation, partially offset by an $11.4 million increase in railcar switching, primarily due to higher narrow gauge
iron ore shipments in Australia and a new customer in Europe, a $7.6 million increase in car hire and rental income, primarily
due to easement contracts in the northeastern United States and the purchase of a new fleet of railcars in the United States, and
a $6.1 million increase in car repair services, primarily related to increased railcar maintenance for customers in Australia and
revenues from our new car repair shop in the midwestern United States. We expect construction revenues to further decline in
2015 as we intend to focus our construction business on internal capital work and select industrial development projects.
Operating Expenses
Overview
Total operating expenses for the year ended December 31, 2014 included $33.2 million from new operations and an
increase of $17.1 million from existing operations compared with the year ended December 31, 2013. The increase from
existing operations was primarily due to increases of $27.7 million in labor and benefits expense, $14.0 million in
depreciation and amortization expense, $4.1 million in trackage rights expense and $3.4 million in casualties and insurance
expense, partially offset by decreases of $23.3 million in purchased services and $8.5 million in other expenses. The
depreciation of the Australian and Canadian dollars relative to the United States dollar resulted in a $21.4 million decrease in
operating expenses from existing operations.
Operating Ratio
Our operating ratio, defined as total operating expenses divided by total operating revenues, was 74.3% in the year
ended December 31, 2014, compared with 75.8% in the year ended December 31, 2013. Income from operations in the year
ended December 31, 2014 included business development and related costs of $5.2 million, partially offset by a $5.1 million
net gain on sale of assets. Income from operations in the year ended December 31, 2013 included business development and
related costs of $1.6 million and $17.0 million of RailAmerica integration and acquisition-related costs, partially offset by a
$4.7 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.
52
The following table sets forth a comparison of our operating expenses in the years ended December 31, 2014 and 2013
(dollars in thousands):
2014
2013
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Casualties and insurance
Materials
Trackage rights
Net gain on sale of assets
Other expenses
Total operating expenses
Amount
471,713
82,730
98,704
157,081
149,047
41,568
78,624
53,783
(5,100)
89,291
1,217,441
$
$
% of
Operating
Revenues
28.8 % $
5.0 %
6.0 %
9.6 %
9.1 %
2.5 %
4.8 %
3.3 %
(0.3)%
5.5 %
74.3 % $
Amount
441,312
77,595
122,584
141,644
147,172
38,564
76,454
50,911
(4,677)
96,896
1,188,455
% of
Operating
Revenues
Currency Impact
28.1 % $
4.9 %
7.8 %
9.0 %
9.4 %
2.5 %
4.9 %
3.2 %
(0.3)%
6.3 %
75.8 % $
(7,076)
(1,023)
(3,733)
(2,856)
(3,097)
(891)
(574)
(1,292)
133
(959)
(21,368)
Labor and benefits expense was $471.7 million in the year ended December 31, 2014, compared with $441.3 million in
the year ended December 31, 2013, an increase of $30.4 million, or 6.9%. The increase in labor and benefits expense
consisted of $20.6 million from existing operations and $9.8 million from new operations. The increase from existing
operations was primarily due to an increase in the average number of employees, partially offset by a decrease of $7.1 million
due to the depreciation of the Australian and Canadian dollars relative to the United States dollar. Our average number of
employees increased for our existing operations primarily as a result of insourcing equipment maintenance activities in
Australia and the midwestern United States and an increase in transportation employees as a result of higher traffic levels.
Equipment rents expense was $82.7 million in the year ended December 31, 2014, compared with $77.6 million in the
year ended December 31, 2013, an increase of $5.1 million, or 6.6%. The increase in equipment rents expense consisted of
$0.9 million from existing operations and $4.3 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, railcars and other equipment, as well as contract labor costs for crewing services,
was $98.7 million in the year ended December 31, 2014, compared with $122.6 million in the year ended December 31,
2013, a decrease of $23.9 million, or 19.5%. The decrease in purchased services consisted of $27.0 million from existing
operations, partially offset by $3.2 million from new operations. The decrease from existing operations was primarily
attributable to the insourcing of equipment maintenance activities in Australia, as well as a reduction in the level of
construction projects at Atlas and $3.7 million due to the depreciation of the Australian and Canadian dollars relative to the
United States dollar.
Depreciation and amortization expense was $157.1 million in the year ended December 31, 2014, compared with
$141.6 million in the year ended December 31, 2013, an increase of $15.4 million, or 10.9%. The increase consisted of an
$11.2 million increase from existing operations and $4.3 million from new operations. The increase from existing operations
was primarily due to additional capital expenditures, including new business development projects, partially offset by a
decrease of $2.9 million due to the depreciation of the Australian and Canadian dollars relative to the United States dollar.
The cost of diesel fuel used in operations was $149.0 million in the year ended December 31, 2014, compared with
$147.2 million in the year ended December 31, 2013, an increase of $1.9 million, or 1.3%. The increase consisted of $6.0
million from new operations, partially offset by a decrease of $4.1 million from existing operations. The decrease from
existing operations was composed of $6.4 million due to a 4.3% decrease in average fuel costs and a decrease of $3.1 million
due to the depreciation of the Australian and Canadian dollars relative to the United States dollar, partially offset by $5.4
million due to a 3.7% increase in diesel fuel consumption.
53
Casualties and insurance expense was $41.6 million in the year ended December 31, 2014, compared with $38.6
million in the year ended December 31, 2013, an increase of $3.0 million, or 7.8%. The increase was primarily due to three
severe weather-related incidents including a washout in Canada during the spring thaw, a bridge failure in the midwestern
United States due to ice damage during the first quarter of 2014 and a washout in the southeastern United States due to heavy
rain from a severe thunderstorm in the second quarter of 2014.
Materials expense, which primarily consists of the costs of materials purchased for use in repairing and maintaining our
track property, locomotives, railcars and other equipment, as well as costs for general tools and supplies used in our business,
was $78.6 million in the year ended December 31, 2014, compared with $76.5 million in the year ended December 31, 2013,
an increase of $2.2 million, or 2.8%. The increase consisted of $3.4 million from new operations, partially offset by a $1.2
million decrease from existing operations. The decrease from existing operations was due to a reduction in the level of
construction projects at Atlas, partially offset by an increase in materials purchased from the insourcing of our equipment
maintenance activities in Australia.
Trackage rights expense was $53.8 million in the year ended December 31, 2014, compared with $50.9 million in the
year ended December 31, 2013, an increase of $2.9 million, or 5.6%. The increase was primarily attributable to a new
customer in Europe and expanded services for an iron ore customer in South Australia that moves over a segment of track
owned by a third party.
Other expenses were $89.3 million in the year ended December 31, 2014, compared with $96.9 million in the year
ended December 31, 2013, a decrease of $7.6 million, or 7.8%. The decrease from existing operations was primarily due to
RailAmerica integration costs incurred in 2013.
Interest Income
Interest income was $1.4 million in the year ended December 31, 2014, compared with $4.0 million in the year ended
December 31, 2013. The decrease in interest income is primarily related to the repayment and termination of our cross-
currency swap agreements. See Note 10, Derivative Financial Instruments, to our Consolidated Financial Statements included
elsewhere in this Annual Report for further details on the repayment and termination of our cross-currency swap agreements.
Interest Expense
Interest expense was $56.2 million in the year ended December 31, 2014, compared with $67.9 million in the year
ended December 31, 2013. The decrease in interest expense was primarily due to lower borrowing costs consistent with our
reduced leverage, the expiration of various interest rate swap agreements, the termination of our cross-currency swap
agreements and reduced amortization of deferred financing fees resulting primarily from the refinancing of our credit
agreement in May 2014. Interest expense in the year ended December 31, 2014 included the write-off of deferred financing
fees of $4.6 million associated with the refinancing of our credit agreement.
Provision for Income Taxes
Our income tax provision for the year ended December 31, 2014 was $107.1 million, which represented 29.1% of
income before income taxes and income from equity investment. Our provision for income taxes for the year ended
December 31, 2014 included a $3.9 million tax benefit as a result of receiving consent from the United States Internal
Revenue Service (IRS) to change a tax accounting method retroactively for companies acquired as a result of the
RailAmerica acquisition.
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. Since the extension became law in 2013,
the 2012 impact was recorded in the first quarter of 2013. Excluding the $41.0 million retroactive benefit, our 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.
54
The United States track maintenance credit is an income tax credit for Class II and Class III railroads, as defined by the
STB, 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 fiscal years 2012 and 2013 on January 2, 2013 and further extended on December 19, 2014 for fiscal year 2014.
Net Income and Earnings Per Share Attributable to G&W Common Stockholders
Net income was $261.0 million in the year ended December 31, 2014, compared with net income of $272.1 million in
the year ended December 31, 2013. Our basic EPS were $4.71 with 55.3 million weighted average shares outstanding in the
year ended December 31, 2014, compared with basic EPS of $5.00 with 53.8 million weighted average shares outstanding in
the year ended December 31, 2013. Our diluted EPS in the year ended December 31, 2014 were $4.58 with 57.0 million
weighted average shares outstanding, compared with diluted EPS in the year ended December 31, 2013 of $4.79 with 56.7
million weighted average shares outstanding. On February 13, 2013, we converted all of our outstanding Series A-1 Preferred
Stock into 5,984,232 shares of our Class A Common Stock. The conversion resulted in an increase in our weight average
basic shares outstanding of 5,984,232 and 5,262,845 for the years ended December 31, 2014 and 2013, respectively.
Segment Information
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.
55
The following table sets forth our North American & European Operations and Australian Operations for the years
ended December 31, 2014 and 2013 (dollars in thousands):
Revenues:
Freight
Non-freight
2014
2013
North
American &
European
Operations
Australian
Operations
Total
Operations
North
American &
European
Operations
Australian
Operations
Total
Operations
$1,008,236
$ 243,705
$1,251,941
$ 917,971
$ 259,393
$1,177,364
317,594
69,477
387,071
325,876
65,403
391,279
Total operating revenues
1,325,830
313,182
1,639,012
1,243,847
324,796
1,568,643
Operating expenses:
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Casualties and insurance
Materials
Trackage rights
Net gain on sale of assets
Other expenses
400,497
72,757
64,696
128,986
122,701
30,669
70,968
31,688
(4,668)
76,976
71,216
9,973
34,008
28,095
26,346
10,899
7,656
22,095
(432)
12,315
471,713
374,935
82,730
98,704
157,081
149,047
41,568
78,624
53,783
(5,100)
89,291
67,296
70,339
114,542
116,204
28,185
73,724
29,595
(4,491)
89,396
66,377
10,299
52,245
27,102
30,968
10,379
2,730
21,316
(186)
7,500
441,312
77,595
122,584
141,644
147,172
38,564
76,454
50,911
(4,677)
96,896
Total operating expenses
995,270
222,171
1,217,441
959,725
228,730
1,188,455
Income from operations
Operating ratio
Interest expense
Interest income
Provision for income taxes
Carloads
Expenditures for additions to
property & equipment, net of grants
from outside parties
$ 330,560
75.1%
$
$
$
43,722
1,157
83,664
$
$
$
$
91,011
$ 421,571
$ 284,122
70.9%
74.3%
77.2%
12,440
288
$
$
56,162
1,445
23,443
$ 107,107
$
$
$
52,740
3,631
24,038
$
$
$
$
96,066
$ 380,188
70.4%
75.8%
15,154
340
22,258
$
$
$
67,894
3,971
46,296
1,779,157
227,894
2,007,051
1,649,914
236,098
1,886,012
$ 280,657
$
25,064
$ 305,721
$ 163,545
$
51,860
$ 215,405
Revenues from our North American & European Operations were $1,325.8 million in the year ended December 31,
2014, compared with $1,243.8 million in the year ended December 31, 2013, an increase of $82.0 million, or 6.6%. The
$82.0 million increase in revenues from our North American & European Operations consisted of a $90.3 million increase in
freight revenues, partially offset by an $8.3 million decrease in non-freight revenues. The $90.3 million increase in freight
revenues consisted of an increase of $49.9 million from existing operations and $40.3 million from new operations. The
$49.9 million increase from existing operations was primarily related to increased demand for steam coal in the midwestern
United States, increased agricultural products shipments and increased shipments of rock salt, frac sand, cement, construction
aggregates and industrial minerals in North America. The $8.3 million decrease in non-freight revenues consisted of a $13.1
million decrease from existing operations, partially offset by $4.8 million from new operations. The decrease from existing
operations was primarily related to a decrease in low margin construction revenues at Atlas and a decrease in other non-
freight revenues, partially offset by an increase in railcar switching revenues resulting from a new customer in Europe, an
increase in car hire and rental income in the United States and an increase in car repair services from a new car repair shop in
the midwestern United States.
56
Operating expenses from our North American & European Operations were $995.3 million in the year ended
December 31, 2014, compared with $959.7 million in the year ended December 31, 2013, an increase of $35.5 million, or
3.7%. The increase in operating expenses consisted of $33.2 million from new operations and $2.3 million from existing
operations. The increase from existing operations was primarily related to an $18.5 million increase from labor and benefits
expense, primarily as a result of an increase in the average number of employees; an $11.2 million increase in depreciation
and amortization expense, primarily related to capital expenditures in 2013 including new business development projects; a
$2.2 million increase in casualties and insurance expense, primarily resulting from severe weather related incidents in North
America and a $2.0 million increase in trackage rights expense. These increases were partially offset by a $13.8 million
decrease in other expenses, primarily resulting from RailAmerica integration costs recorded in 2013; an $8.4 million decrease
in purchased services and a $5.8 million decrease in materials expense, both of which were primarily related to a reduction in
the level of construction projects at Atlas and a decrease of $6.7 million due to the depreciation of the Canadian dollar
relative to the United States dollar. Our average number of employees increased primarily as a result of insourcing our
equipment maintenance activities in the midwestern United States and due to an increase in transportation employees as a
result of higher traffic levels.
Revenues from our Australian Operations were $313.2 million in the year ended December 31, 2014, compared with
$324.8 million in the year ended December 31, 2013, a decrease of $11.6 million, or 3.6%. The decrease in revenues included
a $15.7 million decrease in freight revenues, partially offset by a $4.1 million increase in non-freight revenues. The $15.7
million decrease in freight revenues consisted of $16.4 million due to the depreciation of the Australian dollar relative to the
United States dollar and $8.8 million due to an 8,024, or 3.5%, carload decrease, partially offset by $9.5 million due to a
3.9% increase in average freight revenues per carload. The decrease in carloads was primarily due to decreased shipments of
agricultural products and limestone, partially offset by an increase in shipments of iron ore, manganese and copper ore. The
$4.1 million increase in non-freight revenues was primarily attributable to an increase in railcar switching revenues due to
higher narrow gauge iron ore shipments and increased railcar maintenance for customers in Australia, partially offset by the
loss of track access income from an iron ore mine that ceased operations.
Operating expenses from our Australian Operations were $222.2 million in the year ended December 31, 2014,
compared with $228.7 million in the year ended December 31, 2013, a decrease of $6.6 million, or 2.9%. The decrease in
operating expenses was primarily related to $14.9 million from purchased services expense resulting from insourcing
equipment maintenance activities and $14.7 million due to the decrease of the Australian dollar relative to the United States
dollar. These decreases were partially offset by increases of $9.2 million from labor and benefit expenses and $5.1 million of
materials expense, both of which were primarily related to the insourcing of equipment maintenance activities; $2.8 million
in depreciation and amortization expense primarily resulting from capital expenditures in 2013 including new business
development projects; and $2.0 million in trackage rights expense, primarily due to expanded services for an iron ore
customer that moves over a segment of track owned by a third party.
57
Year Ended December 31, 2013 Compared with Year Ended December 31, 2012
Operating Revenues
Overview
Operating revenues were $1,568.6 million in the year ended December 31, 2013, compared with $874.9 million in the
year ended December 31, 2012, an increase of $693.7 million, or 79.3%. The $693.7 million increase in operating revenues
consisted of $635.2 million in revenues from new operations and a $58.5 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 $58.5 million increase in revenues from existing operations included an increase of $67.9 million in freight
revenues, partially offset by a decrease of $9.3 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, 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
391,279
150,516
240,763
250,107
141,172
56.4%
(9,344)
(3.7)%
(4,872)
Total operating revenues
$1,568,643
$ 635,207
$ 933,436
$ 874,916
$ 693,727
79.3% $ 58,520
6.7 % $ (21,353)
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
Commodity
Group
Agricultural
Products
Metallic Ores*
Chemicals &
Plastics
Metals
Pulp & Paper
Coal & Coke
Minerals & Stone
Intermodal**
Lumber & Forest
Products
Petroleum
Products
Food and
Kindred Products
Waste
Autos & Auto
Parts
Other
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
2013
2012
$ 130,577
11.1% $
59,378
125,928
10.7%
75,188
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
9.5%
12.0%
8.8%
9.9%
10.5%
11.2%
7.7%
15.2%
240,840
72,366
163,123
175,636
169,708
323,500
219,163
73,666
12.8%
3.8%
8.7%
9.3%
9.0%
17.2%
11.6%
3.9%
96,734
41,918
10.4% $
542
$ 614
4.5% 1,740
1,794
68,999
94,621
101,588
168,574
130,602
66,706
7.4%
10.2%
11.0%
18.2%
14.1%
790
727
664
343
442
799
657
647
416
368
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%
2.3%
1.9%
3.7%
11,011
21,676
10,148
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
* Carload amounts include carloads and intermodal units
** Carload amounts represent intermodal units
58
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.
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
119.9% $ (1,505)
(2.5)% $ (2,383)
125,928
6,608
119,320
75,188
50,740
67.5%
44,132
58.7 %
(5,166)
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
7,778
5,576
5,230
13,622
8,313
7,165
26,752
511.5%
9,128
67.0%
(36)
307
(0.7)%
2.3 %
18,102
12,556
217.8%
175.2%
(535)
(6.4)%
(1,589)
(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 and 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 and 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.
59
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 commodity groups 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
—
58,312
21,078
41,677
73,549
391,279
41.3% $
8.9%
—%
14.9%
5.4%
10.7%
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%
60
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
Railcar switching
$ 161,942
$ 20,528
$141,414
$ 134,929
$ 27,013
20.0 % $
6,485
4.8 % $ (1,805)
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
Car hire and rental income
Fuel sales to third parties
Demurrage and storage
Car repair services
Construction revenues
Other non-freight revenues
34,721
18,250
16,471
—
58,312
21,078
41,677
73,549
—
30,537
12,455
41,677
27,069
—
27,775
8,623
—
21,280
11,868
26,125
13,441
63.2 %
(4,809)
(22.6)%
(11,868)
(100.0)% (11,868)
(100.0)%
32,187
123.2 %
1,650
7,934
13,144
165.7 %
—
41,677
100.0 %
689
—
6.3 %
8.7 %
— %
(502)
(416)
(116)
(22)
—
46,480
47,971
25,578
53.3 %
(1,491)
(3.1)%
(2,011)
Total non-freight revenues
$ 391,279
$ 150,516
$240,763
$ 250,107
$ 141,172
56.4 % $ (9,344)
(3.7)% $ (4,872)
Total non-freight revenues in the year ended December 31, 2013 included $150.5 million from new operations, including
construction revenues of $41.7 million from Atlas, a rail construction business acquired in the RailAmerica acquisition, which
were partially offset by a decrease of $9.3 million from non-freight revenues from existing operations compared with the year
ended December 31, 2012. The decrease from existing operations was principally due to a $11.9 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 $4.9
million decrease from the impact of foreign currency depreciation, 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 $1,188.5 million in the year ended December 31, 2013, compared with $684.6 million in the
year ended December 31, 2012, an increase of $503.9 million, or 73.6%. 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 $315.6 million increase in operating expenses, $304.3 million
was from new operations and $39.5 million was from existing operations, partially offset by a decrease in other expenses
related to RailAmerica integration and acquisition-related costs of $13.0 million and a $15.2 million decrease due to the net
depreciation of the Australian and Canadian dollars relative to the United States dollar. The increase in operating expenses
from existing operations was driven primarily by lower net gain on 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 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.
61
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 on sale of assets
Gain on insurance recoveries
Other expenses
441,312
77,595
122,584
141,644
147,172
—
38,564
76,454
50,911
(4,677)
—
96,896
28.1 % $
257,615
29.5 % $
4.9 %
7.8 %
9.0 %
9.4 %
— %
2.5 %
4.9 %
3.2 %
(0.3)%
— %
6.3 %
37,077
80,559
73,405
88,399
11,322
24,858
25,485
28,250
(11,225)
(5,760)
74,609
4.3 %
9.2 %
8.4 %
10.1 %
1.3 %
2.8 %
2.9 %
3.2 %
(1.3)%
(0.7)%
8.5 %
Total operating expenses
$
1,188,455
75.8 % $
684,594
78.2 % $
(4,579)
(718)
(3,789)
(1,689)
(2,374)
(406)
(611)
(211)
(670)
240
368
(760)
(15,199)
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 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 $77.6 million in the year ended December 31, 2013, compared with $37.1 million in the
year ended December 31, 2012, an increase of $40.5 million, or 109.3%. 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, railcars and other equipment as well as contract labor costs for crewing services,
was $122.6 million in the year ended December 31, 2013, compared with $80.6 million in the year ended December 31, 2012,
an increase of $42.0 million, or 52.2%. 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 decrease in cost of diesel fuel sold 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.
Casualties and insurance expense was $38.6 million in the year ended December 31, 2013, compared with $24.9 million
in the year ended December 31, 2012, an increase of $13.7 million, or 55.1%. The increase primarily resulted from the newly
acquired RailAmerica railroads, as well as an increase in derailment expense and insurance premiums in Australia.
62
Materials expense, which primarily consists of the costs of materials purchased for use in repairing and maintaining our
track property, locomotives, railcars and other equipment as well as costs for general tools and supplies used in our business,
was $76.5 million in the year ended December 31, 2013, compared with $25.5 million in the year ended December 31, 2012,
an increase of $51.0 million. The increase was attributable to $47.3 million from new operations, including $19.3 million from
Atlas, and a $3.7 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 $5.8 million for the year ended December 31, 2012 was primarily related to a business
interruption claim associated with a derailment in Australia in December 2011.
Other expenses were $96.9 million in the year ended December 31, 2013, compared with $74.6 million in the year ended
December 31, 2012, an increase of $22.3 million, or 29.9%. The increase was primarily attributable to the newly acquired
RailAmerica railroads.
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.
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.
63
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 and income from equity investment. Included in
our 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, 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 and income from equity investment. 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) (in thousands):
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
2012
3,791
2,842
5,263
1,067
851
—
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.
64
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 on sale of assets
Gain on insurance recoveries
Other expenses
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
65,403
391,279
173,054
—
—
—
—
65,185
11,868
1,243,847
324,796
1,568,643
585,893
289,023
374,935
67,296
70,339
114,542
116,204
—
28,185
73,724
29,595
(4,491)
—
89,396
959,725
66,377
10,299
52,245
27,102
30,968
—
10,379
2,730
21,316
(186)
—
7,500
441,312
77,595
122,584
141,644
147,172
—
38,564
76,454
50,911
(4,677)
—
96,896
197,407
26,298
26,314
50,156
56,298
—
16,244
23,569
17,643
(9,178)
—
65,755
60,208
10,779
54,245
23,249
32,101
11,322
8,614
1,916
10,607
(2,047)
(5,760)
8,854
238,239
11,868
874,916
257,615
37,077
80,559
73,405
88,399
11,322
24,858
25,485
28,250
(11,225)
(5,760)
74,609
Income from operations
$ 284,122
$ 96,066
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
$
$
$
$
$
228,730
1,188,455
470,506
214,088
684,594
77.2%
70.4%
52,740
$ 15,154
3,631
$
340
$
$
$
380,188
$ 115,387
75.8%
80.3%
67,894
3,971
$
$
45,996
3,219
— $
— $
— $
50,106
24,038
$ 22,258
$
46,296
$
28,451
— $
— $
— $
15,557
$
$
$
$
$
$
74,935
$ 190,322
74.1%
78.2%
16,849
$ 62,845
506
$
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
Revenues from our North American & European Operations were $1,243.8 million 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.
65
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 $324.8 million in the year ended December 31, 2013, compared with
$289.0 million in the year ended December 31, 2012, an increase of $35.8 million, or 12.4%. The increase in revenues
included a $47.4 million increase in freight revenues, partially offset by an $11.9 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 a bridge outage in 2012 as a result of a derailment in December 2011. The $11.9 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 $19.8 million decrease in revenues.
Operating expenses from our Australian Operations were $228.7 million in the year ended December 31, 2013,
compared with $214.1 million in the year ended December 31, 2012, an increase of $14.6 million, or 6.8%. 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 $11.3 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 gain on insurance recoveries of $5.8
million in the year ended December 31, 2012 related to a business interruption claim associated with a derailment in
December 2011. 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 $14.2 million decrease in operating expenses.
Liquidity and Capital Resources
We had cash and cash equivalents on hand of $59.7 million and $62.9 million at December 31, 2014 and 2013,
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.
At December 31, 2014, we had long-term debt, including current portion, of $1,615.4 million, which comprised 40.7%
of our total capitalization, and $579.2 million of unused borrowing capacity. In January 2015, we funded the acquisition of
the Pinsly Arkansas Division for approximately $40 million in cash with borrowings under our Amended and Restated Credit
Agreement. On February 24, 2015, we announced our entry into an agreement to acquire Freightliner, which we plan to
finance through an amendment to our Amended and Restated Credit Agreement, with approximately $650 million from the
issuance of new term loans and the remainder from funds drawn on our existing revolving credit facility.
At December 31, 2013, we had long-term debt, including current portion, totaling $1,624.7 million, which comprised
43.1% of our total capitalization and $406.0 million of unused borrowing capacity. Our long-term debt is more fully
described under Credit Agreement below.
During 2014, 2013 and 2012, we generated $491.5 million, $413.5 million and $170.7 million, respectively, of cash
from operating activities. Changes in working capital decreased net cash flows from operating activities by $3.8 million,
$26.9 million and $30.9 million in 2014, 2013 and 2012, respectively. The 2013 period included $12.9 million in cash paid
for expenses related to the integration of RailAmerica. The 2012 period 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 a derailment in
Australia in December 2011.
66
During 2014, 2013 and 2012, our cash used in investing activities was $509.8 million, $208.7 million and $2.1 billion,
respectively. For 2014, primary drivers of cash used in investing activities were $221.5 million of cash paid for acquisitions,
predominately for RCP&E's acquisition, $331.5 million of cash used for capital expenditures, including $92.9 million for
new business investments, partially offset by $28.0 million in cash received from grants from outside parties for capital
spending, $7.1 million in cash proceeds from the sale of property and equipment and $8.0 million of insurance proceeds for
the replacement of assets. 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.
During 2014, our cash provided by financing activities was $15.2 million, compared with cash used in financing
activities in 2013 of $205.9 million. During 2012, our cash provided by financing activities was $2.0 billion. For 2014,
primary drivers of cash provided by financing activities were a net increase in outstanding debt of $5.3 million and net cash
inflows of $13.9 million from exercises of stock-based awards, partially offset by $3.9 million of debt amendment costs. 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.
Subsequent Event - Agreement to Acquire Freightliner
On February 24, 2015, we announced our entry into an agreement to acquire approximately 95% of the shares of
Freightliner for cash consideration of approximately £490 million (or approximately $755 million at current exchange rates)
and to assume approximately £8.5 million (or approximately $13 million at current exchange rates) in net debt and
capitalized leases. Members of the existing Freightliner management team will retain an approximate 5% ownership interest,
and we expect to own 100% of Freightliner by mid-2020. The acquisition is expected to close during the first quarter of 2015.
We plan to finance the acquisition of Freightliner through an amendment to our Amended and Restated Credit Agreement,
with approximately $650 million from the issuance of new term loans and the remainder from funds drawn on our existing
revolving credit facility.
Headquartered in London, England, Freightliner is an international freight rail operator with operations in the United
Kingdom (U.K.), Poland, Germany, the Netherlands and Australia. Freightliner's principal business is located in the U.K.
where it is the second largest freight rail operator, providing intermodal and heavy haul service throughout England, Scotland
and Wales. In Continental Europe, Freightliner Poland primarily serves aggregates and coal customers in Poland. In addition,
Freightliner's ERS subsidiary, based in Rotterdam, provides cross-border intermodal services connecting the northern
European ports of Rotterdam, Bremerhaven and Hamburg to key cities in Germany, Poland, Italy and beyond. In Australia,
Freightliner currently transports coal and containerized agricultural products for its customers in New South Wales.
Freightliner's fleet of primarily leased equipment includes approximately 250 standard gauge locomotives (mostly
diesel-electric) as well as 5,500 wagons. Freightliner employs over 2,500 people worldwide.
Acquisition of Pinsly's Arkansas Division
On January 5, 2015, we completed the acquisition of certain subsidiaries that constitute Pinsly's Arkansas Division
(Pinsly Arkansas) from Pinsly Railroad Company for approximately $40 million in cash, subject to adjustment for final
working capital. We funded the acquisition with borrowings under our Amended and Restated Credit Agreement.
Headquartered in Jones Mills, Arkansas, Pinsly Arkansas serves the Hot Springs and Little Rock areas, as well as the
southwestern and southeastern portions of Arkansas and includes (1) the Arkansas Midland Railroad (AKMD), which is
comprised of seven non-contiguous branch lines; (2) the Prescott & Northwestern Railroad (PNW); (3) the Warren & Saline
River Railroad (WSR); and (4) the two Arkansas transload operations of Pinsly's Railroad Distribution Services subsidiary.
67
Operations are composed of 137 miles of owned and leased track, 77 employees and 16 locomotives. The railroads
currently haul approximately 35,000 carloads per year and serve a diverse customer base in industries including aluminum,
forest products, aggregates, energy and carton board.
RailAmerica Acquisition and Related Financings
On October 1, 2012, we announced the closing of our acquisition of RailAmerica and entered into the Senior Secured
Syndicated Credit Facility Agreement (the Credit 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 (or $25.0 million at the exchange rate on October 1,
2012) Canadian term loan and an A$202.9 million (or $210.0 million at the exchange rate on October 1, 2012) Australian
term loan and a maturity date of October 1, 2017.
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 $1.6 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.
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, 2014, the Amortizing Notes had an aggregate principal amount of $11.2 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.
68
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, 2014, we had cash and cash equivalents totaling $59.7 million, of which $10.0 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 practicable to determine. The amount of undistributed earnings of our controlled foreign subsidiaries as of December 31,
2014 was $305.2 million.
Credit Agreement
On May 27, 2014, we entered into Amendment No. 2 to the Senior Secured Syndicated Credit Facility Agreement
(Amendment No. 2), dated October 1, 2012, as amended by Amendment No. 1, dated March 28, 2013, pursuant to which our
Senior Secured Syndicated Credit Facility Agreement was amended and restated (Amended and Restated Credit Agreement).
The credit facilities under the Amended and Restated Credit Agreement are comprised of a $1,520.0 million United States
term loan, an A$216.8 million (or $200.3 million at the exchange rate on May 27, 2014) Australian term loan and a $625.0
million revolving credit facility. Amendment No. 2 also extended the maturity date of each of our credit facilities to May 31,
2019. The revolving credit facility includes borrowing capacity for letters of credit and swingline loans.
The $625.0 million revolving credit facility under the Amended and Restated Credit Agreement includes flexible sub-
limits for revolving loans denominated in United States dollars, Australian dollars, Canadian dollars and Euros, with the
ability to reallocate commitments among the sub-limits, provided that the total amount of all Australian dollar, Canadian
dollar and Euro sub-limits cannot exceed a combined $400.0 million. In addition, under the Amended and Restated Credit
Agreement, the existing swingline credit facility portion of the revolving credit facility available under the United States
dollar-denominated revolving credit facility increased to $50.0 million.
The Amended and Restated Credit Agreement provides that borrowings under the revolving credit facility may be
denominated in United States dollars, Australian dollars, Canadian dollars and Euros. At our election, at the time of entering
into specific borrowings, interest on borrowings is calculated under a "Base Rate" or "LIBOR/BBSW/BA Rate." LIBOR is
the London Interbank Offered Rate. BBSW is the Bank Bill Swap Reference Rate within Australia, which we believe is
generally considered the Australian equivalent to LIBOR. BA is the bankers' acceptance CDOR rate, which we believe is
generally considered the Canadian equivalent to LIBOR. The applicable borrowing spread for the Base Rate loans was
initially 0.75% over the base rate, and, following our first quarterly compliance certificate ranges from 0.0% to 1.0%
depending upon our total leverage ratio. The applicable borrowing spread for LIBOR/BBSW Rate loans, was initially 1.75%
over the LIBOR or BBSW, and, following our first quarterly compliance certificate ranges from 1.0% to 2.0% depending
upon our total leverage ratio.
In addition to paying interest on any outstanding borrowings under the Amended and Restated Credit Agreement, we
are required to pay a commitment fee on the unutilized portion of the commitments under the revolving credit facility. The
commitment fee rate was initially 0.3%, and, following our first quarterly compliance certificate ranges from 0.2% to 0.3%
depending upon our total leverage ratio.
69
In connection with the Amended and Restated Credit Agreement, we wrote-off $4.6 million of unamortized deferred
financing fees and capitalized an additional $3.7 million of new fees. Deferred financing costs are amortized as additional
interest expense over the terms of the related debt using the effective-interest method for the term loan debt and the straight-
line method for the revolving credit facility.
Since entering into Amendment No. 2, we made prepayments on our United States term loan of $113.0 million and
prepayments on our Australian term loan of A$53.0 million (or $47.0 million at the exchange rates on the dates the payments
were made). As of December 31, 2014, we had outstanding term loans of $1.4 billion with an interest rate of 1.67% and
A$163.8 million (or $133.9 million at the exchange rate on December 31, 2014) with an interest rate of 4.19%.
The United States dollar-denominated and Australian dollar-denominated term loans will amortize in quarterly
installments commencing with the quarter ending September 30, 2015, with the remaining principal balance payable upon
maturity, as set forth below (dollars in thousands):
Quarterly Payment Date
United States:
September 30, 2015 through June 30, 2017
September 30, 2017 through March 31, 2019
Maturity date - May 31, 2019
Australia:
September 30, 2015 through June 30, 2017
September 30, 2017 through March 31, 2019
Maturity date - May 31, 2019
Principal Amount
of Each Quarterly
Installment
$
$
$
A$
A$
A$
19,000
38,000
989,000
2,710
5,420
104,180
As of December 31, 2014, our usage under our $625.0 million revolving credit facility consisted of $43.2 million in
borrowings, $2.6 million in letter of credit guarantees and $579.2 million of unused borrowing capacity. As of December 31,
2014, we had outstanding revolving loans of $11.0 million in United States dollar-denominated borrowings with an interest
rate of 1.67%, A$8.0 million in an Australian dollar-denominated swingline loan (or $6.5 million at the exchange rate on
December 31, 2014) with an interest rate of 6.44%, which was subsequently paid in January 2015, C$24.0 million in
Canadian dollar-denominated borrowings (or $20.7 million at the exchange rate on December 31, 2014) with an interest rate
of 2.79% and €4.1 million in Euro-denominated borrowings (or $5.0 million at the exchange rate on December 31, 2014)
with an interest rate of 1.51%.
The Amended and Restated Credit Agreement contains a number of customary affirmative and negative covenants,
which are substantially consistent with the terms of the credit agreement prior to giving effect to Amendment No. 2, with
respect to which we must maintain compliance. Those covenants, 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 Amended and Restated 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. Under the Amended
and Restated Credit Agreement, we may not exceed specified maximum total leverage ratios which were modified by
Amendment No. 2, as described in the following table:
Period
May 27, 2014 through June 30, 2015
July 1, 2015 through June 30, 2016
July 1, 2016 through May 31, 2019
Maximum Total
Leverage Ratio
4.25 to 1.00
3.75 to 1.00
3.50 to 1.00
As of December 31, 2014, we were in compliance with the covenants under the Amended and Restated Credit
Agreement, including the maximum total leverage covenant noted above.
70
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 Amended and Restated Credit Agreement is collateralized by a substantial portion of our
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.
On October 1, 2012, we entered into the Credit Agreement which included a $425.0 million revolving credit facility, a
$1.6 billion United States term loan, a C$24.6 million (or $25.0 million at the exchange rate on October 1, 2012) Canadian
term loan and an A$202.9 million (or $210.0 million at the exchange rate on October 1, 2012) Australian term loan with a
maturity date of October 1, 2017.
In March 2013, we 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, we 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, 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 the Australian term loan.
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 Amortizing Note. As of December 31, 2014, the
Amortizing Notes had an aggregate principal amount of $11.2 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 Pty Ltd, Asia Pacific Transport Pty Ltd and related corporate entities
(FreightLink Acquisition), 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, 2014, the carrying value of the loan was A$2.5
million (or $2.0 million at the exchange rate on December 31, 2014) with a non-cash imputed interest rate of 8.0%.
71
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 make an annual lease payment. The costs associated with operating leases are expensed as incurred.
The number of railcars and locomotives leased by us as of December 31, 2014 and 2013 was as follows:
Railcars
Locomotives
December 31,
2014
2013
18,583
162
17,718
100
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, 2014, 2013 and 2012 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
2014
2013
2012
$
$
$
29,462
8,361
53,783
$
$
$
32,050
8,062
50,911
$
$
$
13,386
5,055
28,250
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 2014 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 3% of our annual revenues in the year of expiration based on our operating revenues for the year ended December 31,
2014.
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), around 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.
72
Insurance and Third-Party Claims
Accounts receivable from insurance and other third-party claims was $26.9 million and $31.6 million as of
December 31, 2014 and 2013, respectively. Accounts receivable from insurance and other third-party claims at December 31,
2014 included $15.7 million from our North American & European Operations and $11.3 million from our Australian
Operations. The balance from our North American & European Operations resulted predominately from our anticipated
insurance recoveries associated with a derailment in Alabama (the Aliceville Derailment) in November 2013. The balance
from our Australian Operations resulted from our anticipated insurance recoveries associated with derailments in Australia in
2012. We received proceeds from insurance totaling $13.6 million, $11.1 million and $21.8 million for the years ended
December 31, 2014, 2013 and 2012, respectively. During the year ended December 31, 2012, we recorded gain on insurance
recoveries totaling $5.8 million primarily related to a business interruption claim related to a derailment in Australia in
December 2011.
2015 Budgeted Capital Expenditures
The following table sets forth our budgeted capital expenditures for the year ending December 31, 2015 (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
2015
219,000
98,000
37,000
(77,000)
277,000
$
$
Our budgeted capital expenditures for the year ending December 31, 2015 include $39 million of capital expenditures
for our Australian Operations, including $24 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 our Amended and Restated 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, 2014, 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.
73
The following table represents our obligations and commitments for future cash payments under various agreements as
of December 31, 2014 (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
1,642,794
115,339
4,711
12,095
219,920
19,417
23,973
2,038,249
$
$
Payments Due By Period
Less than 1
year
1-3 years
3-5 years
More than 5
years
65,496
29,699
2,249
1,996
30,570
19,417
1,093
150,520
$
$
213,214
54,316
2,462
9,907
41,644
—
3,113
324,656
$
$
1,323,224
31,307
—
49
26,237
—
642
1,381,459
$
$
40,860
17
—
143
121,469
—
19,125
181,614
(1) Includes an A$50.0 million (or $40.9 million at the exchange rate on December 31, 2014) non-interest bearing loan
due in 2054 assumed in the acquisition of FreightLink with a carrying value of A$2.5 million (or $2.0 million at the
exchange rate on December 31, 2014).
(2) Assumes no change in variable interest rates from December 31, 2014.
(3) Includes the fair value of our interest rate swaps of $4.7 million.
(4) Includes purchase commitments for future capital expenditures among our existing operations.
(5) Includes deferred compensation of $11.9 million, estimated casualty obligations of $5.0 million and certain other
long-term liabilities of $0.8 million. In addition, the table includes estimated post-retirement medical and life
insurance benefits of $5.8 million and our 2015 estimated contributions of $0.5 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, 2014 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, 2014 versus the year ended December 31, 2013, 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 in the year ended December 31, 2014. 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.
74
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, 2014, 2013 and 2012 (dollars in thousands):
Gross capitalized major renewals and improvements
Grants from outside parties
Net capitalized major renewals and improvements
Total repairs and maintenance expense
2014
2013
2012
$
$
$
205,360
(27,980)
177,380
334,848
$
$
$
220,529
(33,913)
186,616
328,991
$
$
$
116,222
(39,632)
76,590
180,282
We depreciate our 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 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
75
Estimated Useful Life (in Years)
Minimum
2
20
5
Maximum
40
50
50
2
2
2
4
2
2
10
30
10
30
20
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 or asset group may not be recoverable,
we use an estimate of the related undiscounted future cash flows over the remaining life of such asset or asset group 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,
2014, 2013 or 2012.
Grants from Outside Parties
Grants from outside parties are recorded as deferred revenue within deferred items - grants from outside parties, 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, 2014, 2013 and 2012, as a
result of our annual impairment test. Additionally, we review the carrying value of any indefinite-lived 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
and are charged to net (gain)/loss on sale and impairment of assets within operating expenses.
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. Incidents involving entities previously owned by RailAmerica that occurred prior to our August 1, 2013 insurance
renewal are insured under RailAmerica's legacy liability and property insurance policies. Our primary liability policies
currently have self-insured retentions of up to $2.5 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 policies cover 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 policies cover property and equipment that we own, and property
in our care, custody and control and 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-insured retention for property damage due to
a cyclone or flood is A$2.5 million. RailAmerica's property damage policies previously had self-insured retentions of up to
$1.5 million per occurrence. The property 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.
76
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, transloading 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 awarded 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. The grant date fair value of performance-based restricted stock units
is estimated on the date of grant using the Monte Carlo simulation model and straight-line amortization of compensation
expense is recorded over the requisite service period of the grant. Three assumptions in the Monte Carlo simulation model
require management judgment: volatility of our Class A Common Stock, volatility of the stock of the members of the two
peer groups and the correlation coefficients between our stock price and the stock price of the peer groups. Volatility is based
on a combination of historical and implied volatility. The correlation coefficients are calculated based upon the historical
price data used to calculate the volatilities.
For the year ended December 31, 2014, total compensation cost from stock-based awards was $12.7 million. As of
December 31, 2014, the compensation cost related to non-vested awards not yet recognized was $17.7 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 stock-based awards was $4.4 million for the year ended December 31, 2014.
For the year ended December 31, 2013, compensation cost from stock-based awards was $11.7 million. We also
recorded an additional $5.1 million of costs from the acceleration of stock-based awards for certain terminated employees
related to the integration of RailAmerica. The total income tax benefit recognized in the consolidated statement of operations
for stock-based awards was $5.3 million for the year ended December 31, 2013.
For the year ended December 31, 2012, compensation cost from stock-based awards was $7.9 million. The Company
also recorded an additional $4.1 million of costs from the acceleration of stock-based awards for terminated RailAmerica
employees. The total income tax benefit recognized in the consolidated statement of operations for stock-based awards was
$4.5 million for the year ended December 31, 2012.
77
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.
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 liquidity 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.
78
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 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 derivative instruments where there are no underlying exposures. Complex
instruments involving leverage or multipliers are not used. We manage our hedging positions and monitor the credit ratings of
counterparties and do not anticipate losses due to counterparty nonperformance. Management believes that our use of derivative
instruments to manage risk is in our best interest. However, our use of derivative financial instruments may result in short-term
gains or losses and increased earnings volatility.
Interest Rate Risk & 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, 2014 (dollars in
thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Fair Value
Fixed rate debt:
Tangible Equity Units
$ 11,184
$
— $
— $
— $
— $
— $
Other debt (1)
7,341
2,179
8,796
317
25
41,003
11,184
59,661
$
11,233
20,172
Average annual
interest rate
Variable rate debt:
Revolving credit
facility:
Australia
Canada
Europe
United States
Term loans:
Australia
United States
Average annual
interest rate
7.3%
7.9%
8.0%
8.0%
8.0%
8.0%
7.8%
$
6,538
$
— $
— $
— $
— $
— $
6,538
$
6,538
—
—
—
—
—
—
—
—
—
—
—
—
20,688
4,961
11,000
4,429
38,000
8,858
76,000
13,288
17,717
89,565
114,000
152,000
1,027,000
—
—
—
—
—
20,688
4,961
11,000
20,799
4,967
11,000
133,857
133,900
1,407,000
1,402,950
2.4%
3.3%
3.8%
3.9%
4.0%
0.0%
3.9%
Total
$ 67,492
$ 87,037
$136,084
$170,034
$ 1,153,239
$ 41,003
$ 1,654,889
$ 1,611,559
(1) Includes an A$50.0 million (or $40.9 million at the exchange rate on December 31, 2014) non-interest bearing loan due in 2054 assumed in the acquisition
of FreightLink with a carrying value of A$2.5 million (or $2.0 million at the exchange rate on December 31, 2014) with an 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, Canada BA, Australia BBSW and Euro LIBOR (as of December 31,
2014). The borrowing margin is composed of a weighted average of 1.50% for United States, Australian, Canadian 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 $4.8 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.
79
• 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
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 the changes in interest rates on our variable rate debt.
These swap agreements are recorded in the consolidated balance sheets at fair value. We estimated the fair value of our interest
rate swap agreements based on Level 2 valuation inputs, including fixed interest rates, LIBOR implied forward interest rates,
credit risk and the remaining time to maturity. 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 our variable rate debt. Interest payments accrued each reporting period for these interest rate swaps are recognized in
interest expense. We formally document our hedge relationships, including identifying the hedge instruments and hedged items,
as well as our risk management objectives and strategies for entering into the hedge transaction.
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 our variable rate debt (dollars in thousands):
Effective Date
Expiration Date
Date
Amount
Pay Fixed Rate
Receive Variable Rate
Notional Amount
9/30/2014
9/30/2015
9/30/2015
9/30/2016
9/30/2016
9/30/2016
9/30/2016
9/30/2026
9/30/2026
9/30/2026
9/30/2014
12/31/2014
3/31/2015
6/30/2015
9/30/2015
9/30/2026
9/30/2026
9/30/2026
$
$
$
$
$
$
$
$
1,150,000
1,100,000
1,050,000
1,000,000
350,000
100,000
100,000
100,000
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
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. It remains 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
rate 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 2014 and 2013 (dollars in
thousands):
Effective Date
Expiration Date
Date
Amount
Paid Fixed Rate
Receive Variable Rate
Notional Amount
10/6/2008
10/4/2012
9/30/2013
9/30/2013
9/30/2013
9/30/2014
3.88%
0.25%
0.25%
0.25%
0.25%
0.35%
0.35%
0.35%
0.35%
10/6/2008
10/4/2012
1/1/2013
4/1/2013
7/1/2013
9/30/2013
12/31/2013
3/31/2014
6/30/2014
$
$
$
$
$
$
$
$
$
120,000
1,450,000
1,350,000
1,300,000
1,250,000
1,350,000
1,300,000
1,250,000
1,200,000
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
1-month LIBOR
Our effectiveness testing during the years ended December 31, 2014, 2013 and 2012 resulted in no amount of gain or loss
reclassified from accumulated other comprehensive (loss)/income into earnings due to ineffectiveness. During the years ended
December 31, 2014, 2013 and 2012, $2.4 million, $4.1 million and $4.2 million, respectively, of existing net losses associated
with our interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. Based
on the fair value of these interest rate swaps as of December 31, 2014, we expect to reclassify $2.2 million of net losses that are
reported in accumulated other comprehensive (loss)/income into earnings within the next 12 months. See Note 10, Derivative
Financial Instruments, and Note 16, Accumulated Other Comprehensive Income/(Loss), 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, 2014, our foreign subsidiaries had $168.3 million of third-party debt denominated in the local
currencies in which our foreign 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 foreign 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 by our foreign operations and is paid by United States subsidiaries, we may face exchange rate risk if
the Australian dollar, Canadian dollar or the 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 subsidiaries, including non-functional
currency intercompany debt, typically associated with intercompany debt from our United States subsidiaries to our foreign
subsidiaries, associated with acquisitions and any timing difference between announcement and closing of an acquisition of a
foreign business. 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 cross-currency swap and foreign exchange forward derivative contracts used to mitigate exposures
on foreign currency intercompany debt 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 do not qualify for hedge accounting 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 the
United States and Australian entities, on November 29, 2012, we entered into two Australian dollar/United States dollar floating
to floating cross-currency swap agreements (the Swaps), effective December 3, 2012 and originally set to expire on December
1, 2014. On May 23, 2014, the intercompany loan was repaid and we terminated the Swaps. In connection with the termination,
we paid A$105.0 million and received $108.9 million. The Swaps required us to pay Australian dollar BBSW plus 3.25% based
on a notional amount of A$105.0 million and allowed us to receive United States LIBOR plus 2.82% based on a notional
amount of $109.6 million on a quarterly basis.
The following table summarizes the impact of these foreign currency financial instruments on our statement of operations
for the years ended December 31, 2014 and 2013 (dollars in thousands):
Settlements 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 income/(expense), net
Other (expense)/income, net
Amount Recognized in Earnings
2014
2013
(1,184) $
15,970
(16,056)
(1,270) $
(2,696)
(15,517)
15,944
(2,269)
$
$
81
The following table presents our financial instruments that are carried at fair value using Level 2 inputs at December 31,
2014 and 2013 (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
Total financial liabilities carried at fair value
Sensitivity to Diesel Fuel Prices
2014
2013
$
$
$
136
—
136
4,711
4,711
$
$
$
36,987
16,056
53,043
2,439
2,439
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, 2014, fuel costs for fuel used in operations represented 12.2% of
our total operating expenses. As of December 31, 2014, 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, 2014, each one percentage point change in the price of diesel fuel would result in a $1.3 million change in our
annual income from operations 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, 2014. 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, 2014 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, 2014 that have
materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
82
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, 2014.
Management based this assessment on criteria for effective internal control over financial reporting described in the Internal
Control-Integrated Framework (2013) 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, 2014, 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."
83
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 12, 2015, 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 12, 2015, under "Executive Compensation," including the "Compensation Discussion and
Analysis," "Compensation Committee Report," and "Summary Compensation Table" sections, and "2014 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, 2014:
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))
983,280
$
—
983,280
$
76.99
—
76.99
1,729,535
—
1,729,535
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 12, 2015, 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 12, 2015, 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 12, 2015, under "Proposal Three: Ratification of the Selection of Independent Auditors."
84
PART IV
ITEM 15. Exhibits, Financial Statement Schedules.
DOCUMENTS FILED AS PART OF THIS FORM 10-K
(a) FINANCIAL STATEMENTS
Genesee & Wyoming Inc. and Subsidiaries Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014,
2013 and 2012
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2013
and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
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) FINANCIAL STATEMENT SCHEDULES—NONE
85
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, 2015
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, 2015
Chairman of the Board of Directors
/S/ MORTIMER B. FULLER III
February 27, 2015
Chief Executive Officer, President and
Director (Principal Executive Officer)
February 27, 2015
Chief Financial Officer
(Principal Financial Officer)
February 27, 2015
Chief Accounting Officer (Principal
Accounting Officer)
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
86
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.
(3)
(i) Articles of Incorporation
The Exhibit referenced under 4.1 hereof is incorporated herein by reference.
(ii) By-laws
3.1
(4)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
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.
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).
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).
4.10
Certificate of Elimination of Mandatorily Convertible Perpetual Preferred Stock, Series A-1 of
Genesee & Wyoming Inc., dated as of May 27, 2014, is incorporated herein by reference to Exhibit
3.1 to the Registrant's Current Report on Form 8-K filed on May 30, 2014 (File No. 001-31456).
(10)
Material Contracts
The Exhibit referenced under 4.3 hereof is incorporated herein by reference.
87
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
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).
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).
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). **
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). **
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). **
Amendment No. 2, dated as of May 27, 2014, 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 May 30, 2014 (File No. 001-31456).
Form of Restricted Stock Award Notice for Directors under the Second Amended and Restated 2004
Omnibus Plan is incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q filed on August 6, 2014 (File No. 001-31456). **
Form of Restricted Stock Unit Award Notice for Directors under the Second Amended and Restated
2004 Omnibus Plan is incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q filed on August 6, 2014 (File No. 001-31456). **
Form of Restricted Stock Award Notice under the Second Amended and Restated 2004 Omnibus
Plan is incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form
10-Q filed on August 6, 2014 (File No. 001-31456). **
88
10.15
10.16
10.17
10.18
10.19
(11)
Form of Option Award Notice under the Second Amended and Restated 2004 Omnibus Plan is
incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q
filed on August 6, 2014 (File No. 001-31456). **
Form of Performance-Based Restricted Stock Unit Award Notice under the Second Amended and
Restated 2004 Omnibus Plan is incorporated herein by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q filed on August 6, 2014 (File No. 001-31456). **
Form of Restricted Stock Award Notice for CEO under the Second Amended and Restated 2004
Omnibus Plan is incorporated herein by reference to Exhibit 10.7 to the Registrant's Quarterly
Report on Form 10-Q filed on August 6, 2014 (File No. 001-31456). **
Form of Option Award Notice for CEO under the Second Amended and Restated 2004 Omnibus
Plan is incorporated herein by reference to Exhibit 10.8 to the Registrant's Quarterly Report on Form
10-Q filed on August 6, 2014 (File No. 001-31456).**
Form of Performance-Based Restricted Stock Unit Award Notice for CEO under the Second
Amended and Restated 2004 Omnibus Plan is incorporated herein by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q filed on August 6, 2014 (File No. 001-31456).**
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, 2014, formatted in XBRL includes: (i) Consolidated Balance
Sheets as of December 31, 2014 and 2013, (ii) Consolidated Statements of Operations for the Years
Ended December 31, 2014, 2013 and 2012, (iii) Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Changes in
Equity for the Years Ended December 31, 2014, 2013 and 2012, (v) Consolidated Statements of
Cash Flows for the Years Ended December 31, 2014, 2013 and 2012, 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.
89
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, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013
and 2012
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2013 and
2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
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-8
F-9
F-53
F-54
F-55
F-56
F-57
F-58
F-59
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, 2014 and 2013, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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,
2014, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2015
F-2
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2014 and 2013
(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
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
EQUITY:
Class A Common Stock, $0.01 par value, one vote per share; 180,000,000 shares
authorized at December 31, 2014 and 2013; 65,632,309 and 64,584,102 shares
issued and 52,938,267 and 51,934,137 shares outstanding (net of 12,694,042 and
12,649,965 shares in treasury) on December 31, 2014 and 2013, respectively
Class B Common Stock, $0.01 par value, ten votes per share; 30,000,000 shares
authorized at December 31, 2014 and 2013; 1,020,485 and 1,608,989 shares issued
and outstanding on December 31, 2014 and 2013, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss)/income
Treasury stock, at cost
Total Genesee & Wyoming Inc. stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
December 31,
2014
2013
$
59,727
357,278
30,251
24,176
76,994
548,426
3,788,482
628,815
587,663
2,500
39,867
$5,595,753
$
62,876
336,271
31,295
41,766
76,122
548,330
3,440,744
630,462
613,933
2,405
83,947
$5,319,821
$
67,398
290,746
106,094
464,238
1,548,051
908,852
279,286
37,346
$
84,366
242,010
130,132
456,508
1,540,346
863,051
267,098
43,748
656
646
10
1,333,353
1,319,639
(72,252)
(224,547)
2,356,859
1,121
2,357,980
$5,595,753
16
1,302,521
1,058,884
6,089
(220,361)
2,147,795
1,275
2,149,070
$5,319,821
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, 2014, 2013 and 2012
(in thousands, except per share amounts)
Years Ended December 31,
2014
$1,639,012
2013
$1,568,643
2012
$ 874,916
471,713
82,730
98,704
157,081
149,047
—
41,568
78,624
53,783
(5,100)
—
89,291
1,217,441
421,571
1,445
(56,162)
—
1,259
368,113
(107,107)
—
261,006
251
441,312
77,595
122,584
141,644
147,172
—
38,564
76,454
50,911
(4,677)
—
96,896
1,188,455
380,188
3,971
(67,894)
—
2,122
318,387
(46,296)
—
272,091
795
257,615
37,077
80,559
73,405
88,399
11,322
24,858
25,485
28,250
(11,225)
(5,760)
74,609
684,594
190,322
3,725
(62,845)
(50,106)
2,182
83,278
(46,402)
15,557
52,433
—
4,375
48,058
1.13
42,693
1.02
51,316
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 on sale of assets
Gain on insurance recoveries
Other expenses
Total operating expenses
INCOME FROM OPERATIONS
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
—
$ 260,755
2,139
$ 269,157
$
$
$
$
4.71
55,305
4.58
56,972
5.00
53,788
4.79
56,679
$
$
$
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, 2014, 2013 and 2012
(in thousands, except per share amounts)
NET INCOME
OTHER COMPREHENSIVE (LOSS)/INCOME:
Foreign currency translation adjustment
Net unrealized (loss)/income on qualifying cash flow hedges, net of
tax (benefit)/provision of ($15,649), $13,992 and $2,702,
respectively
Changes in pension and other postretirement benefit, net of tax
provision/(benefit) of $670, $208 and ($72), respectively
Other comprehensive (loss)/income
COMPREHENSIVE INCOME
Years Ended December 31,
2014
2013
2012
$ 261,006
$ 272,091
$
52,433
(56,059)
(62,532)
5,451
(23,473)
20,988
4,053
1,191
(78,341)
$ 182,665
362
(41,182)
$ 230,909
(128)
9,376
$
61,809
Less: Comprehensive income attributable to noncontrolling interest
251
795
—
COMPREHENSIVE INCOME ATTRIBUTABLE TO GENESEE &
WYOMING INC.
$ 182,414
$ 230,114
$
61,809
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, 2014, 2013 and 2012
(dollars in thousands)
G&W Stockholders
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
$ 385,473
$ 741,669
—
—
—
52,433
—
(4,375)
BALANCE, December 31, 2011
$
527
$
Net income
Other comprehensive income
Dividends paid on Series A-1
Preferred Stock
Value of stock issued for stock-
based compensation - 880,868
shares Class A Common Stock
Value of stock issued -
3,791,004 shares Class A
Common Stock
Value of TEU Purchase
Contracts issued - 2,300,000
units
RailAmerica acquisition
consideration for stock-based
awards
Conversion of 463,521 shares
Class B Common Stock to
Class A Common Stock
Compensation costs related to
stock-based compensation
included in income from equity
investment in RailAmerica
Compensation costs related to
stock-based compensation
Settlement of deferred stock
awards, 31,244 shares
Excess tax benefits from stock-
based compensation
Value of treasury stock
repurchased, 63,462 shares
Noncontrolling interest -
increase from RailAmerica
acquisition
—
—
—
9
38
—
—
5
—
—
—
—
—
—
BALANCE, December 31, 2012
$
579
$
22
—
—
—
—
—
—
—
—
—
—
17
19,311
—
234,302
—
191,428
—
15,400
(5)
—
2,816
12,151
933
4,795
—
—
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
—
234,340
—
191,428
—
—
—
—
—
—
—
15,400
—
2,816
12,151
933
4,795
(4,314)
—
5,525
5,525
—
—
—
—
—
—
—
—
—
—
—
$ 866,609
$ 789,727
$
47,271
$(209,266) $
5,525
$1,500,462
F-6
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 and 2012
(dollars in thousands)
G&W Stockholders
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(Loss)
Treasury
Stock
Non-
controlling
Interest
Total
Equity
$ 866,609
$ 789,727
$
47,271
$(209,266) $
5,525
$1,500,462
—
—
—
271,296
—
(2,139)
(1)
—
BALANCE, December 31, 2012
$
579
$
Net income
Other comprehensive loss
Dividends paid on Series A-1
Preferred Stock
Value of stock issued for stock-
based compensation - 600,949
shares Class A Common Stock
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
stock-based compensation
Excess tax benefits from stock-
based compensation
Value of treasury stock
repurchased, 126,606 shares
Settlement of deferred stock
awards, 4,859 shares
Noncontrolling interest - change
in fair value (see Note 3)
—
—
—
6
1
60
—
—
—
—
—
BALANCE, December 31, 2013
$
646
$
Net income
Other comprehensive loss
Value of stock issued for stock-
based compensation - 472,982
shares Class A Common Stock
Conversion of 588,504 shares
Class B Common Stock to
Class A Common Stock
Compensation cost related to
stock-based compensation
Excess tax benefits from stock-
based compensation
Value of treasury stock
repurchased, 44,077 shares
Cash distribution to non-
controlling interest
BALANCE, December 31, 2014
—
—
4
6
—
—
—
—
$
656
$
17
—
—
—
—
—
—
—
—
—
—
16
—
—
—
—
—
—
—
10
12,504
399,329
16,951
6,854
—
274
—
—
—
11,815
12,819
6,198
—
—
(6)
—
—
(41,182)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(11,095)
—
—
795
—
—
272,091
(41,182)
(2,139)
—
—
—
—
—
—
—
12,510
—
399,389
16,951
6,854
(11,095)
274
(5,045)
(5,045)
—
—
—
—
—
—
—
—
260,755
—
—
—
—
—
—
—
—
(78,341)
—
—
—
—
—
—
—
—
—
—
—
—
(4,186)
251
—
261,006
(78,341)
—
—
—
—
—
11,819
—
12,819
6,198
(4,186)
—
(405)
(405)
$1,333,353
$1,319,639
$
(72,252) $(224,547) $
1,121
$2,357,980
$1,302,521
$1,058,884
$
6,089
$(220,361) $
1,275
$2,149,070
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 and 2012
(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
Stock-based compensation
Excess tax benefit from share-based compensation
Deferred income taxes
Net gain on sale of assets
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 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 provided by/(used in) 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,
2013
2012
2014
$
261,006
$
272,091
$
52,433
—
157,081
12,858
(6,221)
70,131
(5,100)
—
5,527
—
(39,107)
2,600
17,451
14,703
535
491,464
(331,499)
27,980
(221,451)
8,029
7,096
(509,845)
(538,035)
543,300
(3,880)
—
—
—
—
11,819
6,221
(4,186)
15,239
(7)
(3,149)
62,876
—
141,644
16,951
(6,861)
10,229
(4,677)
—
11,053
—
(47,780)
(1,839)
3,304
16,383
3,006
413,504
(15,557)
73,405
12,151
(5,335)
29,926
(11,225)
(5,760)
21,479
50,106
(6,133)
(567)
487
(30,051)
5,320
170,679
(249,318)
33,913
(231,694)
39,632
— (1,925,296)
370
—
15,298
6,687
(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
64,772
$
59,727
$
62,876
$
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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. The
Company owns and operates short line and regional railroads and provides railcar switching and other rail-related
services 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 116 railroads organized into 11 regions, with
approximately 15,600 miles of owned and leased track, approximately 3,300 additional miles under contractual
track access arrangements, approximately 5,200 employees and more than 2,000 customers. The Company provides
rail service at 37 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%, 24% and 31% of the Company's operating revenues in 2014, 2013 and
2012, 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.
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.
F-9
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are recorded 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 to
property and equipment, 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 generally 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
10
30
10
30
20
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 or asset
group may not be recoverable, the Company uses an estimate of the related undiscounted future cash flows over the
remaining life of such asset or asset group 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 in the years ended December 31, 2014, 2013 or 2012.
Grants from Outside Parties
Grants from outside parties are recorded as deferred revenue within deferred items - grants from outside
parties, and are amortized as a reduction to depreciation expense over the same period during which the associated
assets are depreciated.
F-10
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2014, 2013 and 2012, as a result of our annual impairment test. Additionally, the Company
reviews the carrying value of any indefinite-lived 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 and are charged
to net (gain)/loss on sale and impairment of assets within operating expenses.
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. Incidents involving entities previously owned by RailAmerica, Inc. (RailAmerica) that
occurred prior to the Company's August 1, 2013 insurance renewal are insured under RailAmerica's legacy liability
and property insurance policies. The Company's primary liability policies currently have self-insured retentions of
up to $2.5 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 Company's liability
policies cover 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 policies cover property
and equipment that the Company owns, and property in the Company's care, custody and control and 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-insured retention for property damage due to a cyclone or flood is
A$2.5 million. RailAmerica's property damage policies previously had self-insured retentions of up to $1.5 million
per occurrence. The property 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, transloading and railroad construction businesses are covered
under workers' compensation policies.
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. 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 a deferred tax asset will not be realized.
F-11
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The grant date fair value of performance-based restricted stock units is estimated on the date of grant
using the Monte Carlo simulation model and straight-line amortization of compensation expense is recorded over
the requisite service period of the grant. Three assumptions in the Monte Carlo simulation model require
management judgment: volatility of the Company's Class A Common Stock, volatility of the stock of the members
of the two peer groups and the correlation coefficients between the Company's stock price and the stock price of the
peer groups. Volatility is based on a combination of historical and implied volatility. The correlation coefficients are
calculated based upon the historical price data used to calculate the volatilities.
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 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 period. Currency
translation adjustments are reflected within the equity section of the balance sheet and are included in other
comprehensive income. Upon complete or substantially complete liquidation of the underlying investment in the
foreign subsidiary, cumulative translation adjustments are recognized in the consolidated statement of operations.
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.
F-12
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
3. CHANGES IN OPERATIONS:
United States
Rapid City, Pierre & Eastern Railroad, Inc.: On May 30, 2014, the Company's new subsidiary, Rapid City,
Pierre & Eastern Railroad, Inc. (RCP&E), purchased the assets comprising the western end of Canadian Pacific
Railway Limited's (CP) Dakota, Minnesota & Eastern Railroad Corporation (DM&E) rail line for a cash purchase
price of $218.6 million, including the purchase of materials and supplies, railcars, equipment and vehicles. RCP&E
commenced freight service on the line on June 1, 2014. The results of operations from RCP&E have been included
in the Company's consolidated statement of operations since the acquisition date within the Company's North
American & European Operations segment.
RCP&E operates approximately 670 miles of rail line 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 Inc. (NNW). Customers on the RCP&E ship approximately 63,000 carloads
annually of grain, bentonite clay, ethanol, fertilizer and other products. RCP&E has the ability to interchange with
CP, Union Pacific Railroad, BNSF Railway Company and NNW. RCP&E has approximately 180 employees, most
of whom were hired from the DM&E operations.
The Company accounted for the acquisition as a business combination using the acquisition method of
accounting under U.S. GAAP. The following acquisition-date fair values were assigned to the acquired net assets
(dollars in thousands):
Materials and supplies
Prepaid expenses and other
Property and equipment
Deferred income tax assets
Total assets
Current portion of long-term debt
Accounts payable and accrued expenses
Long-term debt, less current portion
Net assets
$
$
3,621
116
217,032
325
221,094
1,121
108
1,260
218,605
F-13
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the Company's 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 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 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 the operations acquired from RailAmerica
are included among the various line items in the Company's consolidated statement of operations for the years ended
December 31, 2014 and 2013 and are included in the Company's 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.
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. In November 2013, Carlyle sold
all of these outstanding shares of the Company's Class A Common Stock in a public offering.
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.
F-14
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accounted for the RailAmerica acquisition 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 fair values assigned to the acquired net assets of RailAmerica 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
RailAmerica
As of
October 1, 2012
As of December 28, 2012
Preliminary
Final
$
86,102
$
107,922
$
107,922
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
$
2,041,782
$
2,055,604
$
2,055,604
F-15
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Financial Results (unaudited)
The following table summarizes the Company's unaudited pro forma operating results for the year ended
December 31, 2012 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
stockholders
Diluted earnings per common share attributable to Genesee & Wyoming Inc. common
stockholders
2012
1,461,419
112,191
17,500
94,691
1.99
1.89
$
$
$
$
$
The unaudited pro forma operating results included 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 results were based upon the Company's historical consolidated statements of
operations for the year ended December 31, 2012 and RailAmerica's consolidated statements of operations for the
nine months ended September 30, 2012 and the three months ended December 28, 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 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 earnings per common
share (EPS) attributable to Genesee & Wyoming Inc. common stockholders 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),
including Arrium's Southern Iron mine and its Whyalla-based operations, 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.
F-16
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2015, Arrium Limited announced that it is redesigning its mining business and expects to mothball
its Southern Iron mine by June of 2015 citing the significant decline in the price of iron ore. During 2014, GWA
carried approximately 26,000 carloads of iron ore from the Southern Iron mine, generating approximately A$65
million in freight revenues (or approximately $52 million, at current exchange rates of A$1.00 = US$0.80), under a
fixed and variable payment structure. As a result of the announcement, the Company expects to receive only the
fixed portion of the payments under the rail haulage agreement after the mine is mothballed. GWA also provides
switching services to Arrium's Whyalla-based operations serving several of its iron mines located in the Middleback
Range on the Eyre Peninsula, which services are not expected to be materially impacted by the announcement. As a
result of the announcement by Arrium Limited, the Company evaluated its Australian Operations' long-lived assets
for potential impairment and concluded there was no impairment as of December 31, 2014.
Canada
Tata Steel Minerals Canada Ltd.: In August 2012, the Company announced that its newly formed subsidiary,
Kérail Inc. (Kérail), entered into a long-term agreement with Tata Steel Minerals Canada Ltd. (TSMC), for Kérail 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 June 2014, Kérail completed construction of an approximately 25-
kilometer rail line that connects the Mine to the Tshiuetin Rail Transportation interchange point in Schefferville.
Upon receipt of the necessary permits from the Canadian and provincial governments, the Company commenced
shipments in the fourth quarter of 2014. Shipments, as anticipated, ceased in the winter and are expected to restart
once the weather permits. Operated as part of the Company's Canada Region, Kérail hauls unit trains of iron ore
from its rail connection with the Mine, and then travels over three privately owned railways to the Port of Sept-Îles
for export primarily to Tata Steel Limited's European operations.
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, commodity prices, competitive forces, changes in foreign currency exchange rates,
rail network congestion, 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 hot or cold 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 market conditions,
such as the availability of lower priced alternative sources of power generation (coal) and energy commodity price
differentials (crude oil). Other shipments are relatively less affected by economic conditions and are more closely
affected by other factors, such as winter weather (salt) 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 the Company's results of operations in other reporting periods.
F-17
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER COMMON SHARE:
The following table sets forth the computation of basic and diluted earnings per common share (EPS) for the
years ended December 31, 2014, 2013 and 2012 (in thousands, except per share amounts):
2014
2013
2012
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
$
$
$
$
260,755
—
260,755
$
$
271,296
2,139
269,157
$
$
55,305
1,305
362
—
56,972
53,788
1,675
494
722
56,679
52,433
4,375
48,058
42,693
2,038
601
5,984
51,316
4.71
4.58
$
$
5.00
4.79
$
$
1.13
1.02
Weighted average Class B common shares outstanding, common shares issuable under the assumed exercise
of stock-based awards computed based on the treasury stock method and Series A-1 Preferred Stock were the only
reconciling items between the Company's basic and diluted weighted average shares outstanding.
The total potential issuable common shares outstanding, which include options, restricted stock units and
performance-based restricted stock units, used to calculate weighted average share equivalents for diluted EPS as of
December 31, 2014, 2013 and 2012, was as follows (in thousands):
Potential issuable common shares used to calculate
weighted average share equivalents
2014
2013
2012
1,063
1,063
1,400
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 EPS, as the effect of including these shares would have been anti-dilutive (in thousands):
Anti-dilutive shares
2014
2013
2012
319
105
143
The following table sets forth the increase in the Company's weighted average basic shares outstanding for the
years ended December 31, 2014, 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, 2014, 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 (in thousands):
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
2014
2013
2012
3,791
2,842
5,984
3,791
2,842
5,263
1,067
851
—
F-18
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2014 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
TEU Common
Stock
Equivalents
Weighted Average
Diluted Shares
Outstanding
$
$
$
80.94
73.00
64.75
2,842
3,151
3,552
56,972
57,281
57,682
The Company's basic and diluted EPS 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.
F-19
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 EPS for the years ended December 31, 2013 and 2012, 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 EPS) divided by the weighted average number of common shares outstanding
during each period. For the years ended December 31, 2013 and 2012, the Company used the if-converted method
when calculating diluted EPS.
5. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Accounts receivable are recorded at the invoiced amount and generally 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, 2014 and 2013 (dollars in thousands):
Accounts receivable - trade
Accounts receivable - grants from outside parties
Accounts receivable - insurance and other third-party claims
Total accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
2014
2013
$
$
304,087
32,076
26,941
363,104
(5,826)
357,278
$
$
275,380
33,003
31,643
340,026
(3,755)
336,271
F-20
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Grants from Outside Parties
The Company periodically receives grants for the upgrade and construction of rail lines and upgrades of
locomotives from federal, provincial, state and local agencies 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 $28.0 million, $33.9 million and
$39.6 million in the years ended December 31, 2014, 2013 and 2012, respectively, from such grant programs. The
proceeds were presented as cash inflows from investing activities within each of the applicable periods.
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, 2014, 2013 and 2012, the Company
recorded offsets to depreciation expense from grant amortization of $10.4 million, $9.3 million and $8.0 million,
respectively.
Insurance and Third-Party Claims
Accounts receivable from insurance and other third-party claims at December 31, 2014 included $15.7 million
from the Company's North American & European Operations and $11.3 million from the Company's Australian
Operations. The balance from the Company's North American & European Operations resulted predominately from
the Company's anticipated insurance recoveries associated with a derailment in Alabama (the Aliceville Derailment)
in November 2013. The majority of the balance from the Company's Australian Operations resulted from the
Company's anticipated insurance recoveries associated with derailments in Australia in 2012. The Company
received proceeds from insurance totaling $13.6 million, $11.1 million and $21.8 million for the years ended
December 31, 2014, 2013 and 2012, respectively. During the year ended December 31, 2012, the Company recorded
gain on insurance recoveries totaling $5.8 million primarily related to a business interruption claim related to a
derailment in Australia in December 2011.
Allowance for Doubtful Accounts
Activity in the Company's allowance for doubtful accounts for the years ended December 31, 2014, 2013 and
2012 was as follows (dollars in thousands):
Balance, beginning of year
Provisions
Charges
Balance, end of year
2014
2013
2012
3,755
5,191
(3,120)
5,826
$
$
2,693
2,741
(1,679)
3,755
$
$
2,807
977
(1,091)
2,693
$
$
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-21
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY AND EQUIPMENT AND LEASES:
Property and Equipment
Major classifications of property and equipment as of December 31, 2014 and 2013 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
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
Gross Book Value
2014
Accumulated
Depreciation
Net Book Value
$
$
582,383
126,860
636,605
2,350,647
3,696,495
13,997
531,948
54,419
65,581
27,073
29,532
722,550
42,974
4,462,019
$
— $
(22,719)
(60,771)
(357,969)
(441,459)
(8,352)
(145,073)
(31,209)
(22,408)
(9,019)
(16,017)
(232,078)
—
$
(673,537) $
582,383
104,141
575,834
1,992,678
3,255,036
5,645
386,875
23,210
43,173
18,054
13,515
490,472
42,974
3,788,482
Gross Book Value
2013
Accumulated
Depreciation
Net Book Value
$
547,163
$
— $
123,295
556,108
2,078,084
3,304,650
11,307
493,977
42,127
63,208
19,205
28,524
658,348
30,395
(19,834)
(46,162)
(297,207)
(363,203)
(5,967)
(118,544)
(27,112)
(16,746)
(7,277)
(13,800)
(189,446)
—
547,163
103,461
509,946
1,780,877
2,941,447
5,340
375,433
15,015
46,462
11,928
14,724
468,902
30,395
$
3,993,393
$
(552,649) $
3,440,744
F-22
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2014 and 2013 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
2014
2013
$
$
1,312
4,082
24,078
11,170
2,332
42,974
$
$
92
937
21,912
6,657
797
30,395
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 railcar.
Depreciation expense for the years ended December 31, 2014, 2013 and 2012 totaled $135.0 million, $119.2
million and $66.6 million, respectively.
The Company's 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.
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 makes 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 as of December 31, 2014 and 2013 was as
follows:
Railcars
Locomotives
December 31,
2014
2013
18,583
162
17,718
100
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, 2014, 2013 and 2012 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
2014
2013
2012
$
$
$
29,462
8,361
53,783
$
$
$
32,050
8,062
50,911
$
$
$
13,386
5,055
28,250
F-23
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2014 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 3% of the Company's annual revenues in the year of expiration based
on the Company's operating revenues for the year ended December 31, 2014.
The following is a summary of future minimum lease payments under capital leases and operating leases as of
December 31, 2014 (dollars in thousands):
2015
2016
2017
2018
2019
Thereafter
Total minimum payments
Capital
Operating
Total
1,996
1,612
8,295
24
25
143
12,095
$
$
30,570
23,124
18,520
14,912
11,325
121,469
219,920
$
$
32,566
24,736
26,815
14,936
11,350
121,612
232,015
$
$
F-24
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INTANGIBLE ASSETS, OTHER ASSETS AND GOODWILL:
Intangible Assets
Intangible assets as of December 31, 2014 and 2013 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
2014
Gross
Carrying
Amount
Accumulated
Amortization
Intangible Assets,
Net
37,622
$
(14,880) $
22,742
177,179
424,835
639,636
$
(26,738)
(46,367)
(87,985) $
$
2013
150,441
378,468
551,651
35,891
121
587,663
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
$
$
$
$
Weighted
Average
Amortization
Period
(in Years)
28
36
43
40
Weighted
Average
Amortization
Period
(in Years)
28
36
43
40
The Company expenses costs incurred to renew or extend the term of its track access agreements.
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.
F-25
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the years ended December 31, 2014, 2013 and 2012, the aggregate amortization expense associated with
intangible assets was $22.0 million, $22.5 million and $6.8 million, respectively. The Company estimates the future
aggregate amortization expense related to its intangible assets as of December 31, 2014 will be as follows for the
periods presented (dollars in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Other Assets
$
$
21,520
21,471
21,471
19,817
14,857
452,515
551,651
Other assets as of December 31, 2014 and 2013 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
2014
Gross
Carrying
Amount
Accumulated
Amortization
Other Assets, Net
27,158
16,970
44,128
$
$
(4,261) $
—
(4,261) $
22,897
16,970
39,867
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
$
$
$
$
Weighted
Average
Amortization
Period
(in Years)
Weighted
Average
Amortization
Period
(in Years)
4
0
4
0
In the years ended December 31, 2014, 2013 and 2012, the Company amortized $12.2 million, $10.2 million
and $7.0 million, respectively, 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 2014
amortization amount included $4.6 million associated with the write-off of deferred financing fees as a result of the
May 2014 refinancing of the Company's credit agreement, see Note 9, Long-Term Debt, for additional information
regarding the Company's credit agreement. 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 Company's
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.
F-26
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014, 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):
2015
2016
2017
2018
2019
Total
Goodwill
$
$
5,708
5,439
5,190
4,755
1,805
22,897
The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 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
2014
2013
$
$
630,462
2,409
295
(4,351)
628,815
$
$
634,953
—
(3,087)
(1,404)
630,462
The Company's goodwill for the years ended December 31, 2014 and 2013 was attributable to the Company's
North American & European operating segment.
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-27
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following condensed consolidated financial data of RailAmerica is based on U.S. GAAP:
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.
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
F-28
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
$
$
$
$
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT:
Long-term debt consisted of the following as of December 31, 2014 and 2013 (dollars in thousands):
Credit Agreement with variable interest rates (weighted average of 1.92% and
2.13% before impact of interest rate swaps at December 31, 2014 and 2013,
respectively) due 2019
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
$
2014
2013
$
1,584,044
$
1,583,798
11,184
21,878
20,221
1,615,449
67,398
1,548,051
$
19,036
1,624,712
84,366
1,540,346
Credit Agreement
On May 27, 2014, the Company entered into Amendment No. 2 to the Senior Secured Syndicated Credit
Facility Agreement (Amendment No. 2), dated October 1, 2012, as amended by Amendment No. 1, dated March 28,
2013, pursuant to which the Company's Senior Secured Syndicated Credit Facility Agreement was amended and
restated (Amended and Restated Credit Agreement). The credit facilities under the Amended and Restated Credit
Agreement are comprised of a $1,520.0 million United States term loan, an A$216.8 million (or $200.3 million at
the exchange rate on May 27, 2014) Australian term loan and a $625.0 million revolving credit facility. Amendment
No. 2 also extended the maturity date of each of the Company's credit facilities to May 31, 2019. The
revolving credit facility includes borrowing capacity for letters of credit and swingline loans.
The $625.0 million revolving credit facility under the Amended and Restated Credit Agreement includes
flexible sub-limits for revolving loans denominated in United States dollars, Australian dollars, Canadian dollars
and Euros, with the ability to reallocate commitments among the sub-limits, provided that the total amount of all
Australian dollar, Canadian dollar and Euro sub-limits cannot exceed a combined $400.0 million. In addition, under
the Amended and Restated Credit Agreement, the existing swingline credit facility portion of the revolving credit
facility available under the United States dollar-denominated revolving credit facility increased to $50.0 million.
The Amended and Restated Credit Agreement provides that borrowings under the revolving credit facility
may be denominated in United States dollars, Australian dollars, Canadian dollars and Euros. At the Company's
election, at the time of entering into specific borrowings, interest on borrowings is calculated under a "Base Rate" or
"LIBOR/BBSW/BA Rate." LIBOR is the London Interbank Offered Rate. BBSW is the Bank Bill Swap Reference
Rate within Australia, which the Company believes is generally considered the Australian equivalent to LIBOR. BA
is the bankers' acceptance CDOR rate, which we believe is generally considered the Canadian equivalent to LIBOR.
The applicable borrowing spread for the Base Rate loans was initially 0.75% over the base rate, and, following the
Company's first quarterly compliance certificate ranges from 0.0% to 1.0% depending upon the Company's total
leverage ratio. The applicable borrowing spread for LIBOR/BBSW Rate loans, was initially 1.75% over the LIBOR
or BBSW, and, following the Company's first quarterly compliance certificate ranges from 1.0% to 2.0% depending
upon the Company's total leverage ratio.
In addition to paying interest on any outstanding borrowings under the Amended and Restated Credit
Agreement, the Company is required to pay a commitment fee on the unutilized portion of the commitments under
the revolving credit facility. The commitment fee rate was initially 0.3%, and, following the Company's first
quarterly compliance certificate ranges from 0.2% to 0.3% depending upon the Company's total leverage ratio.
In connection with the Amended and Restated Credit Agreement, the Company wrote-off $4.6 million of
unamortized deferred financing fees and capitalized an additional $3.7 million of new fees. Deferred financing costs
are amortized as additional interest expense over the terms of the related debt using the effective-interest method for
the term loan debt and the straight-line method for the revolving credit facility.
F-29
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since entering into Amendment No. 2, the Company made prepayments on its United States term loan of
$113.0 million and prepayments on its Australian term loan of A$53.0 million (or $47.0 million at the exchange
rates on the dates the payments were made). As of December 31, 2014, the Company had outstanding term loans of
$1.4 billion with an interest rate of 1.67% and A$163.8 million (or $133.9 million at the exchange rate on
December 31, 2014) with an interest rate of 4.19%.
The United States dollar-denominated and Australian dollar-denominated term loans will amortize in quarterly
installments commencing with the quarter ending September 30, 2015, with the remaining principal balance payable
upon maturity, as set forth below (dollars in thousands):
Quarterly Payment Date
United States:
September 30, 2015 through June 30, 2017
September 30, 2017 through March 31, 2019
Maturity date - May 31, 2019
Australia:
September 30, 2015 through June 30, 2017
September 30, 2017 through March 31, 2019
Maturity date - May 31, 2019
Principal Amount
of Each Quarterly
Installment
$
$
$
A$
A$
A$
19,000
38,000
989,000
2,710
5,420
104,180
As of December 31, 2014, the Company's usage under its $625.0 million revolving credit facility consisted of
$43.2 million in borrowings, $2.6 million in letter of credit guarantees and $579.2 million of unused borrowing
capacity. As of December 31, 2014, the Company had outstanding revolving loans of $11.0 million in United States
dollar-denominated borrowings with an interest rate of 1.67%, A$8.0 million in an Australian dollar-denominated
swingline loan (or $6.5 million at the exchange rate on December 31, 2014) with an interest rate of 6.44%, which
was subsequently paid in January 2015, C$24.0 million in Canadian dollar-denominated borrowings (or $20.7
million at the exchange rate on December 31, 2014) with an interest rate of 2.79% and €4.1 million in Euro-
denominated borrowings (or $5.0 million at the exchange rate on December 31, 2014) with an interest rate of
1.51%.
The Amended and Restated Credit Agreement contains a number of customary affirmative and negative
covenants, which are substantially consistent with the terms of the credit agreement prior to giving effect to
Amendment No. 2, with respect to which the Company must maintain compliance. Those covenants, 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 the Company's fiscal year; enter into certain agreements containing negative pledges
and upstream limitations and engage in certain transactions with affiliates. Under the Amended and Restated 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. Under the Amended and Restated Credit Agreement, the Company may not exceed specified
maximum total leverage ratios which were modified by Amendment No. 2, as described in the following table:
Period
May 27, 2014 through June 30, 2015
July 1, 2015 through June 30, 2016
July 1, 2016 through May 31, 2019
Maximum Total
Leverage Ratio
4.25 to 1.00
3.75 to 1.00
3.50 to 1.00
As of December 31, 2014, the Company was in compliance with the covenants under the Amended and
Restated Credit Agreement, including the maximum total leverage covenant noted above.
F-30
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Amended and Restated 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.
On October 1, 2012, the Company entered into the Credit Agreement which included a $425.0 million
revolving credit facility, a $1.6 billion United States term loan, a C$24.6 million (or $25.0 million at the exchange
rate on October 1, 2012) Canadian term loan and an A$202.9 million (or $210.0 million at the exchange rate on
October 1, 2012) Australian term loan with a maturity date of October 1, 2017.
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.
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, 2014, the Amortizing Notes had an aggregate principal amount of $11.2 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, 2014,
the carrying value of the loan was A$2.5 million (or $2.0 million at the exchange rate on December 31, 2014) with a
non-cash imputed interest rate of 8.0%.
F-31
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2014 (dollars in thousands):
2015
2016
2017
2018
2019
Thereafter (1)
Total
$
$
67,492
87,037
136,084
170,034
1,153,239
41,003
1,654,889
(1) Includes the A$50.0 million (or $40.9 million at the exchange rate on December 31, 2014) non-interest bearing loan
due in 2054 assumed in the FreightLink Acquisition with a carrying value of A$2.5 million (or $2.0 million at the
exchange rate on December 31, 2014).
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 these risks. The Company uses derivatives only for
purposes of managing risk associated with underlying exposures. The Company does not trade or use derivative
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.
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 (loss)/income. As the hedged item is realized, the gain or loss included in accumulated other
comprehensive (loss)/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 period in which it no longer qualifies for hedge accounting.
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 using hedge accounting are
recognized in current period earnings within other income, net.
F-32
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Risk Management
The Company uses interest rate swap agreements to manage its exposure to the changes in interest rates on 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 (loss)/income,
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
Expiration Date
Date
Amount
Pay Fixed Rate
Receive Variable Rate
Notional Amount
9/30/2014
9/30/2015
9/30/2015
9/30/2016
9/30/2016
9/30/2016
9/30/2016
9/30/2026
9/30/2026
9/30/2026
9/30/2014
12/31/2014
3/31/2015
6/30/2015
9/30/2015
9/30/2026
9/30/2026
9/30/2026
$
$
$
$
$
$
$
$
1,150,000
1,100,000
1,050,000
1,000,000
350,000
100,000
100,000
100,000
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
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. It remains
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 rate 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 2014 and
2013 (dollars in thousands):
Effective Date
Expiration Date
Date
Amount
Paid Fixed Rate
Receive Variable Rate
Notional Amount
10/6/2008
10/4/2012
9/30/2013
9/30/2013
9/30/2013
9/30/2014
10/6/2008
10/4/2012
1/1/2013
4/1/2013
7/1/2013
9/30/2013
12/31/2013
3/31/2014
6/30/2014
$
$
$
$
$
$
$
$
$
120,000
1,450,000
1,350,000
1,300,000
1,250,000
1,350,000
1,300,000
1,250,000
1,200,000
3.88%
0.25%
0.25%
0.25%
0.25%
0.35%
0.35%
0.35%
0.35%
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
F-33
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the Company's interest rate swap agreements were estimated based on Level 2 inputs. The
Company's effectiveness testing during the years ended December 31, 2014, 2013 and 2012 resulted in no amount
of gain or loss reclassified from accumulated other comprehensive (loss)/income into earnings due to
ineffectiveness. During the years ended December 31, 2014, 2013 and 2012, existing net losses associated with the
Company's interest rate swaps of $2.4 million, $4.1 million and $4.2 million, respectively, were realized and
recorded as interest expense in the consolidated statements of operations. Based on the fair value of these interest
rate swaps as of December 31, 2014, the Company expects to reclassify $2.2 million of net losses reported in
accumulated other comprehensive (loss)/income into earnings within the next 12 months. See Note 16, Accumulated
Other Comprehensive Income/(Loss), for additional information regarding the Company's cash flow hedges.
Foreign Currency Exchange Rate Risk
As of December 31, 2014, the Company's foreign subsidiaries had $168.3 million of third-party debt
denominated in the local currencies in which the Company's foreign subsidiaries operate, including the Australian
dollar, Canadian dollar and the Euro. The debt service obligations associated with this foreign currency debt are
generally funded directly from those foreign 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
by the Company's foreign subsidiaries and is paid by United States subsidiaries, the Company may face exchange
rate risk if the Australian dollar, Canadian dollar or the 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 subsidiaries,
including non-functional currency intercompany debt, typically associated with intercompany debt from the
Company's United States subsidiaries to its foreign subsidiaries, associated with acquisitions and any timing
difference between announcement and closing of an acquisition of a foreign business. 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 cross-currency swap and foreign exchange forward
derivative contracts used to mitigate exposures on foreign currency intercompany debt 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 do not
qualify for hedge accounting 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 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. 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 Australian dollar/United States dollar floating to floating cross-currency swap agreements (the Swaps), effective
December 3, 2012 and originally set to expire on December 1, 2014. On May 23, 2014, the intercompany loan was
repaid and the Company terminated the Swaps. In connection with the termination, the Company paid A$105.0
million and received $108.9 million. The Swaps required the Company to pay Australian dollar BBSW plus 3.25%
based on a notional amount of A$105.0 million and allowed the Company to receive United States LIBOR plus
2.82% based on a notional amount of $109.6 million on a quarterly basis.
F-34
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The following table summarizes the fair value of the Company's derivative instruments recorded in the
consolidated balance sheets as of December 31, 2014 and 2013 (dollars in thousands):
Asset Derivatives:
Derivatives designated as hedges:
Interest rate swap agreements
Interest rate swap agreements
Total derivatives designated as hedges
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
Balance Sheet Location
2014
2013
Fair Value
Prepaid expenses and other
Other assets, net
Prepaid expenses and other
Accrued expenses
Other long-term liabilities
$
$
$
$
$
35
101
136
$
$
—
36,987
36,987
— $
16,056
2,249
2,462
4,711
$
$
1,601
838
2,439
The following table shows the effect of the Company's derivative instruments designated as cash flow hedges
for the years ended December 31, 2014, 2013 and 2012 in other comprehensive income/(loss) (OCI) (dollars in
thousands):
Total Cash Flow
Hedge OCI Activity,
Net of Tax
2014
2013
2012
Derivatives Designated as Cash Flow Hedges:
Effective portion of changes in fair value recognized in
OCI:
Interest rate swap agreement
$
(23,473) $
20,988
$
4,053
F-35
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the effect of the Company's derivative instruments not designated as hedges for the
years ended December 31, 2014, 2013 and 2012 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
2014
2013
2012
Amount Recognized in Earnings
Interest (expense)/
income
Other (expense)/
income, net
Contingent forward sale
contract mark-to-market
expense
$
$
(1,184) $
(2,696) $
(4,638)
(86)
427
303
—
(1,270) $
—
(2,269) $
(50,106)
(54,441)
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 sheets as either assets or liabilities measured at fair value. During the reporting period, 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, 2014 and 2013 (dollars in thousands):
Financial instruments carried at fair value using Level 2 inputs:
Financial assets carried at fair value:
Interest rate swap agreements
Cross-currency swap agreements
Total financial assets carried at fair value
Financial liabilities carried at fair value:
Interest rate swap agreements
Total financial liabilities carried at fair value
2014
2013
$
$
$
$
136
—
136
4,711
4,711
$
$
$
$
36,987
16,056
53,043
2,439
2,439
F-36
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2014 and 2013 (dollars in thousands):
Financial liabilities carried at
historical cost:
United States term loan
Australia term loan
Revolving credit facility
Amortizing Notes component of TEUs
Other debt
Total
2014
2013
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$
$
1,407,000
133,857
43,187
11,184
20,221
1,615,449
$
$
1,402,950
133,900
43,304
11,233
20,172
1,611,559
$
$
1,433,414
134,436
15,949
21,878
19,035
1,624,712
$
$
1,429,204
135,491
15,956
21,698
18,996
1,621,345
12. EMPLOYEE BENEFIT PROGRAMS:
Employee Bonus Programs
The Company has performance-based bonus programs that include a majority of non-union employees.
Approximately $15.8 million, $17.7 million and $14.2 million were awarded under the various performance-based
bonus plans in the years ended December 31, 2014, 2013 and 2012, respectively.
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, 2014, 2013 and 2012 were $4.4
million, $3.8 million and $1.8 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 $3,017 at the
December 31, 2014 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, 2014,
2013 and 2012, were $1.3 million, $1.3 million and $0.7 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 9.50%, 9.25% and 9.00% of an employee's base salary into a registered
superannuation fund in each of the years ended December 31, 2014, 2013 and 2012, respectively. Employees may
elect to make additional contributions either before or after tax. Company contributions were $4.7 million, $4.4
million and $4.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.
F-37
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2014, there were approximately 270 employees
participating under these plans. As of December 31, 2014, the Company's consolidated balance sheet included a
$3.2 million pension liability and a $0.1 million loss in accumulated other comprehensive (loss)/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, 2014,
there were approximately 65 employees participating under these plans. As of December 31, 2014, the Company's
consolidated balance sheet included a $5.9 million postretirement benefit liability and a $1.5 million gain in
accumulated other comprehensive (loss)/income related to these plans.
13. INCOME TAXES:
The United States track maintenance credit is an income tax credit for Class II and Class III railroads, as
defined by the STB, 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 fiscal years 2012 and 2013 on January 2,
2013 and further extended on December 19, 2014 for fiscal year 2014.
The Company's income tax provision for the year ended December 31, 2014 was $107.1 million, which
represented 29.1% of income before income taxes and income from equity investment. The Company's provision for
income taxes for the year ended December 31, 2014 included a $3.9 million tax benefit as a result of receiving
consent from the United States Internal Revenue Service (IRS) to change a tax accounting method retroactively for
companies acquired as a result of the RailAmerica acquisition.
Included in the Company's 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. Since the
extension became law in 2013, the 2012 impact was recorded in the first quarter of 2013. Excluding the $41.0
million retroactive benefit, 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.
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. Excluding the $50.1 million mark-to-market expense, 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.
The Company's effective income tax rates also included adjustments to reflect differences between book
income tax expense and final tax returns filed each year related to the previous fiscal year, which the Company does
not consider material.
The components of income before income taxes and income from equity investment for the years ended
December 31, 2014, 2013 and 2012 were as follows (dollars in thousands):
United States
Foreign
Total
2014
2013
2012
$
$
276,594
91,519
368,113
$
$
211,889
106,498
318,387
$
$
5,598
77,680
83,278
F-38
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 practicable to determine. The amount of
undistributed earnings of the Company's controlled foreign subsidiaries as of December 31, 2014 was $305.2
million.
The components of the provision for income taxes for the years ended December 31, 2014, 2013 and 2012
were as follows (dollars in thousands):
United States:
Current
Federal
State
Deferred
Federal
State
Foreign:
Current
Deferred
Total
2014
2013
2012
$
$
$
15,647
7,134
$
6,571
6,031
49,799
8,727
81,307
17,591
8,209
25,800
107,107
$
62
4,890
17,554
22,697
6,045
28,742
46,296
$
3,582
3,752
17,382
906
25,622
9,907
10,873
20,780
46,402
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, 2014, 2013 and 2012:
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
2014
2013
2012
35.0 %
— %
(1.7)%
2.8 %
(7.3)%
0.3 %
29.1 %
35.0 %
— %
(2.1)%
2.2 %
(21.0)%
0.4 %
14.5 %
35.0 %
24.8 %
(7.7)%
3.8 %
— %
(0.3)%
55.6 %
F-39
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the effect of temporary differences between the book and tax basis of assets and
liabilities as well as available income tax credit and net operating loss carryforwards. The components of net
deferred income taxes as of December 31, 2014 and 2013 were as follows (dollars in thousands):
Deferred tax assets:
Track maintenance credit
Net operating loss carryforwards
Accruals and reserves not deducted for tax purposes until paid
Stock-based compensation
Deferred revenue
Deferred compensation
Foreign tax credit
Nonshareholder contributions
Interest rate swaps
Alternative minimum tax credit
Postretirement benefits
Other
Valuation allowance
Deferred tax liabilities:
Property basis difference
Interest rate swaps
Other
Net deferred tax liabilities
$
2014
2013
$
227,102
16,008
11,027
6,954
3,652
2,810
1,964
1,871
1,664
1,592
425
457
275,526
(14,793)
221,278
14,577
19,848
6,348
1,216
2,974
1,964
2,304
—
1,592
811
119
273,031
(12,194)
(1,088,572)
—
(1,519)
(829,358) $
(1,029,492)
(13,985)
(1,884)
(784,524)
$
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.
As of December 31, 2014, the Company had United States net operating loss carryforwards in various state
jurisdictions that totaled approximately $387 million and United States track maintenance credit carryforwards of
$227.1 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 2015 and 2034. The
United States track maintenance credits expire between 2026 and 2034.
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.
F-40
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Balance at end of year
2014
12,194
2,599
14,793
$
$
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
Increase for tax positions related to the current year
Reductions for tax positions of prior years
Balance at end of year
2014
2013
2012
$
$
3,155
—
1,169
—
4,324
$
$
3,155
—
—
—
3,155
$
$
—
3,370
—
(215)
3,155
At December 31, 2014, 2013 and 2012, there was $4.3 million, $3.2 million and $3.2 million, respectively, 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, 2014, 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
2010
2010
2008
2013
2009
To
2014
2014
2014
2014
2014
2014
-
-
-
-
-
-
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 as the nature of the Company's business exposes it to the potential for various claims and
litigation related to property damage, personal injury, freight loss, labor and employment, environmental and other
matters. As described in Note 2, Significant Accounting Policies, the Company maintains insurance policies to
mitigate the financial risk associated with such claims.
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 or other claims against the
Company that are not covered by insurance could have a material adverse effect on the Company's results of
operations, financial condition and liquidity.
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.
F-41
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCK-BASED COMPENSATION PLANS:
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 related to awards that
terminate by expiration, forfeiture or cancellation are deemed available for issuance or reissuance under the
Omnibus Plan. In total, at December 31, 2014, there remained 1,729,535 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, 2014 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
969,332
358,469
(326,494)
(2,138)
(15,889)
983,280
980,480
442,575
$
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
54.32
98.31
32.67
42.44
89.82
76.99
76.94
58.91
3.1
3.1
1.9
$
$
$
15,941
15,940
13,836
The weighted average grant date fair value of options granted during the years ended December 31, 2014,
2013 and 2012 was $18.90, $22.16 and $16.25, respectively. The total intrinsic value of options exercised during the
years ended December 31, 2014, 2013 and 2012 was $20.9 million, $17.6 million and $17.3 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.
The following weighted average assumptions were used to estimate the grant date fair value of options
granted during the years ended December 31, 2014, 2013 and 2012 using the Black-Scholes option pricing model:
Expected volatility
Expected term (in years)
Risk-free interest rate
Expected dividend yield
2014
2013
2012
22%
4
1.20%
0%
29%
4
0.89%
0%
33%
4
0.52%
0%
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.
F-42
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2014 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
126,664
74,880
(73,974)
(3,331)
124,239
$
$
73.25
98.18
68.80
87.75
90.54
The weighted average grant date fair value of restricted stock granted during the years ended December 31,
2014, 2013 and 2012 was $98.18, $90.12 and $65.70, respectively. The total grant date fair value of restricted stock
that vested during the years ended December 31, 2014, 2013 and 2012 was $5.1 million, $11.3 million and $7.8
million, respectively.
The following table summarizes the Company's non-vested restricted stock units outstanding as of
December 31, 2014 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
93,242
37,007
(57,995)
(6,848)
65,406
$
$
72.78
98.24
75.94
80.73
83.55
The weighted average grant date fair value of restricted stock units granted during the years ended
December 31, 2014, 2013 and 2012 was $98.24, $89.44 and $67.43, respectively. The total grant date fair value of
restricted stock units that vested during the years ended December 31, 2014, 2013 and 2012 was $4.4 million, $14.3
million and $3.4 million, respectively.
During 2014, the Company's Compensation Committee started awarding performance-based restricted stock
units under the Omnibus Plan. These performance-based restricted stock units are typically granted once per year
and vest based upon the achievement of market performance criteria, ranging from 0% to 100%, as determined by
the Compensation Committee prior to the date of the award, and continued service during the performance period.
The performance period for these awards are generally three years. The performance-based restricted stock units
entitle the grantee to receive shares of Class A Common Stock based upon the Company's Relative Total
Shareholder Return as independently ranked against the components of the S&P 500 Index and the custom peer
group over the performance period with each discrete half of the award's payouts being measured independently and
then averaged together to find the final payout. The expense for these awards is recognized over the service period,
even if the market condition is never satisfied.
The following table summarizes the performance-based restricted stock units at the maximum award amounts
as of December 31, 2014 and changes during the year then ended. Actual shares that will vest depending on the
level of attainment of the performance-based criteria:
F-43
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
Shares
Weighted Average
Grant Date
Fair Value
— $
14,424
—
—
14,424
$
—
42.39
—
—
42.39
The Company determines the fair value of each performance-based restricted stock units on the date of grant
using the Monte Carlo valuation model. There are six input variables to the Monte Carlo valuation model: stock
price, volatility of the Company's Class A Common Stock, volatility of the two peer groups, correlation coefficients,
risk-free interest rate and dividend yield. The stock price is determined based upon the Company's closing stock
price on the day prior to the date of grant. Volatility is based on a combination of historical and implied volatility.
The correlation coefficients are calculated based upon the price data used to calculate the volatilities. The expected
risk-free rate is calculated using the United States Treasury bill over the expected term of the award. 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 expected term of the performance-based restricted stock units is derived from
the plan's performance period as of the grant date. The Company uses historical data, as well as management's
current expectations, to estimate forfeitures.
The following assumptions were used to estimate the grant date fair value of the performance-based restricted
stock units granted during the year ended December 31, 2014 using the Monte Carlo simulation model:
Volatility of the Company's common stock
Average volatility of peer group and S&P 500 companies
Average correlation coefficient of peer group and S&P 500 companies
Risk-free interest rate
Expected dividend yield
Expected term (in years)
2014
25%
29%
0.6
0.81%
0%
3
For the year ended December 31, 2014, total compensation costs from all of the Company's stock-based
awards was $12.7 million. Total compensation costs related to non-vested awards not yet recognized was $17.7
million as of December 31, 2014, which will be recognized over the next three years with a weighted average period
of 1.3 years. The total income tax benefit recognized in the consolidated statement of operations for stock-based
awards was $4.4 million for the year ended December 31, 2014.
For the year ended December 31, 2013, compensation costs from all of the Company's stock-based awards
was $11.7 million. The Company also recorded an additional $5.1 million of costs from the acceleration of stock-
based awards for terminated RailAmerica employees. The total income tax benefit recognized in the consolidated
statement of operations for stock-based awards was $5.3 million for the year ended December 31, 2013.
For the year ended December 31, 2012, compensation cost from stock-based awards was $7.9 million. The
Company also recorded an additional $4.1 million of costs from the acceleration of stock-based awards for
terminated RailAmerica employees. The total income tax benefit recognized in the consolidated statement of
operations for stock-based awards was $4.5 million for the year ended December 31, 2012.
The total income tax benefit realized from the exercise of stock-based awards was $11.0 million, $17.7
million and $10.9 million for the years ended December 31, 2014, 2013 and 2012, 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, 2014, 210,988 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, 2014, 2013 and 2012.
F-44
(2,455)
(41,182)
6,089
(76,922)
(1,419)
(78,341)
(72,252)
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS):
The following table sets forth accumulated other comprehensive income/(loss) included in the consolidated
balance sheets as of December 31, 2014 and 2013, 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, 2012
$
47,845
$
(148) $
(426)
$
47,271
Other comprehensive (loss)/income
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax benefit of $1,637
Change in 2013
(62,532)
—
(62,532)
Balance, December 31, 2013
$
(14,687) $
362
—
362
214
(2,455) (a)
20,988
$
20,562
$
23,443
(38,727)
(56,059)
1,191
(22,054)
Other comprehensive (loss)/income
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax benefit of $946
Change in 2014
Balance, December 31, 2014
$
(70,746) $
1,405
$
—
(56,059)
—
1,191
(1,419) (a)
(23,473)
(2,911)
$
(a) Existing net losses realized are recorded in interest expense on the consolidated statements of operations (see Note10,
Derivative Financial Instruments).
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,
2014, 2013 and 2012 (dollars in thousands):
Interest, net
Income taxes
2014
2013
2012
$
$
43,076
36,179
$
$
57,206
14,522
$
$
57,012
11,187
Significant Non-Cash Investing and Financing Activities
The Company had outstanding receivables from outside parties for the funding of capital expenditures of
$32.1 million, $33.0 million and $25.0 million as of December 31, 2014, 2013 and 2012, respectively. At
December 31, 2014, 2013 and 2012, $51.3 million, $40.1 million and $22.6 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. All of the regions have similar
characteristics; however, the Company presents 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.
F-45
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the Company's North American & European Operations and Australian Operations for
the years ended December 31, 2014, 2013 and 2012 (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
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
Operating revenues
Income from operations
Depreciation and amortization
Interest expense
Interest income
Provision for income taxes
Contingent forward sale contract mark-to-market expense
Income from equity investment from RailAmerica, net
Expenditures for additions to property & equipment, net of
grants from outside parties
December 31, 2014
North American
& European
Operations
Australian
Operations
Total Operations
$
$
$
$
$
$
$
1,325,830
330,560
128,986
43,722
1,157
83,664
280,657
$
$
$
$
$
$
$
313,182
91,011
28,095
12,440
288
23,443
25,064
$
$
$
$
$
$
$
1,639,012
421,571
157,081
56,162
1,445
107,107
305,721
December 31, 2013
North American
& European
Operations
Australian
Operations
Total Operations
$
$
$
$
$
$
$
1,243,847
284,122
114,542
52,740
3,631
24,038
163,545
$
$
$
$
$
$
$
324,796
96,066
27,102
15,154
340
22,258
51,860
$
$
$
$
$
$
$
1,568,643
380,188
141,644
67,894
3,971
46,296
215,405
December 31, 2012
North American
& European
Operations
Australian
Operations
Total Operations
$
$
$
$
$
$
$
$
$
585,893
115,387
50,156
45,996
3,219
28,451
50,106
15,557
69,636
$
$
$
$
$
$
$
$
$
289,023
74,935
23,249
16,849
506
17,951
$
$
$
$
$
$
— $
— $
874,916
190,322
73,405
62,845
3,725
46,402
50,106
15,557
122,426
$
192,062
The following table sets forth the property and equipment recorded in the consolidated balance sheets as of
December 31, 2014 and 2013 (dollars in thousands):
December 31, 2014
December 31, 2013
North
American &
European
Operations
Australian
Operations
Total
Operations
North
American &
European
Operations
Australian
Operations
Total
Operations
Property & equipment, net
$ 3,282,328
$ 506,154
$ 3,788,482
$ 2,883,452
$ 557,292
$ 3,440,744
F-46
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic Area Information
Operating revenues for each geographic area for the years ended December 31, 2014, 2013 and 2012 were as
follows (dollars in thousands):
Operating revenues:
United States
Non-United States:
Australia
Canada
Europe
Total Non-United States
Total operating revenues
2014
2013
2012
Amount
% of Total
Amount
% of Total
Amount
% of Total
$ 1,188,172
72.5% $ 1,100,334
70.2% $ 505,778
57.8%
$ 313,182
116,677
20,981
$ 450,840
$ 1,639,012
19.1% $ 324,796
128,838
7.1%
14,675
1.3%
20.7% $ 289,023
65,327
8.2%
14,788
0.9%
27.5% $ 468,309
100.0% $ 1,568,643
29.8% $ 369,138
100.0% $ 874,916
33.0%
7.5%
1.7%
42.2%
100.0%
Property and equipment for each geographic area as of December 31, 2014 and 2013 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
$
$
$
$
2014
2013
Amount
% of Total
Amount
% of Total
3,003,299
79.3% $
2,642,263
76.8%
506,154
266,305
12,724
785,183
3,788,482
13.4% $
7.0%
0.3%
20.7% $
100.0% $
557,292
226,310
14,879
798,481
3,440,744
16.2%
6.6%
0.4%
23.2%
100.0%
19. QUARTERLY FINANCIAL DATA (unaudited):
The following table sets forth the Company's quarterly results for the years ended December 31, 2014 and
2013 (dollars in thousands, except per share data):
2014
Operating revenues
Income from operations
Net income
Diluted earnings per common share
attributable to Genesee & Wyoming Inc.
common stockholders
2013
Operating revenues
Income from operations
Net income
Diluted earnings per common share
attributable to Genesee & Wyoming Inc.
common stockholders
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
376,279
74,875
39,634
$
$
$
414,563
110,109
60,889
$
$
$
432,543
123,116
72,852
$
$
$
415,627
113,471
87,631
0.70
$
1.07
$
1.27
$
1.53
374,950
76,200
82,728
$
$
$
400,648
107,417
65,050
$
$
$
401,377
101,741
66,225
$
$
$
391,668
94,830
58,088
1.46
$
1.14
$
1.16
$
1.03
F-47
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The quarters shown were affected by the items below:
The first quarter of 2014 included (i) $0.5 million after-tax gain on sale of assets and (ii) $0.7 million after-tax
business development and related costs.
The second quarter of 2014 included (i) $2.9 million after-tax credit facility refinancing-related costs, (ii) $1.0
million after-tax gain on sale of assets and (iii) $1.0 million after-tax business development and related costs.
The third quarter of 2014 included (i) $3.9 million tax benefit as a result of receiving consent from the United
States IRS to change a tax accounting method retroactively for companies acquired as a result of the RailAmerica
acquisition, (ii) $0.9 million after-tax gain on sale of assets, (iii) $0.7 million tax benefit related to differences
between book income tax expense and final tax returns filed related to the previous fiscal year and (iv) $0.5 million
after-tax business development and related costs.
The fourth quarter of 2014 included (i) $1.0 million after-tax gain on sale of assets, (ii) $19.6 million tax
benefit associated with the United States Short Line Tax Credit for first three quarters of 2014, (iii) $7.4 million tax
benefit associated with the United States Short Line Tax Credit for fourth quarter of 2014, (iv) $3.5 million tax
expense due to the application of the full year 2014 effective tax rate to the results of the first three quarters of 2014
and (v) $1.0 million after-tax business development and related costs.
The first quarter of 2013 included (i) $41.0 million tax benefit associated with the retroactive extension of the
United States Short Line Tax Credit for fiscal year 2012 that took place during first quarter of 2013, (ii) $4.0 million
tax benefit associated with the United States Short Line Tax Credit for first quarter of 2013, (iii) $8.0 million after-
tax RailAmerica integration costs, (iv) $1.3 million after-tax gain on sale of assets and (v) $0.4 million after-tax
business development and related costs.
The second quarter of 2013 included (i) $7.5 million tax benefit associated with the United States Short Line
Tax Credit, (ii) $0.7 million after-tax gain on sale of assets and (iii) $0.7 million after-tax business development and
related costs.
The third quarter of 2013 included (i) $6.8 million tax benefit associated with the United States Short Line Tax
Credit, (ii) $0.5 million after-tax gain on sale of assets, (iii) $1.3 million after-tax RailAmerica integration costs, (iv)
$1.7 million tax benefit related to differences between book income tax expense and the final tax returns filed in the
current year related to the previous fiscal year and (v) $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) $7.6 million tax benefit associated with the United States Short Line
Tax Credit, (ii) $0.8 million after-tax gain on sale of assets, (iii) $2.0 million tax valuation allowance on foreign tax
credits generated in prior years, (iii) $0.7 million after-tax business development and related costs and (iv) $0.6
million after-tax RailAmerica integration and acquisition-related costs.
20. RECENTLY ISSUED ACCOUNTING STANDARDS:
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(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 is effective for and
was adopted by the Company in the first quarter of 2014 and did not have a material impact on the Company's
consolidated financial statements.
F-48
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO 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 is effective for and was adopted by the Company in the first quarter of 2014 and did not have
an impact on the Company's consolidated financial statements. However, it could impact the accounting for
potential future sales of investments or changes in control of foreign entities.
In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown
Accounting, which provides that an acquired entity may elect to apply pushdown accounting in its separate financial
statements upon a change-in-control event in which an acquirer obtains control of the acquired entity. This guidance
is effective upon issuance of the standard and did not have an impact on the Company's consolidated financial
statements.
Accounting Standards Not Yet Effective
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.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property,
Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components
of an Entity, which changes the requirements for reporting discontinued operations by limiting discontinued
operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a
major effect on the entity's operations and financial results. This guidance should be applied prospectively and will
be effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual
periods beginning on or after December 15, 2014, and interim periods within those years, and for all businesses that,
on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15,
2014, and interim periods within those years. Earlier adoption is permitted, but only for disposals (or classifications
as held for sale) that have not been reported in financial statements previously issued or available for issuance. The
Company does not expect the adoption of this guidance to have a material impact on its consolidated financial
statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which
outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers and includes the specific steps for recognizing revenue and disclosure requirements. This guidance
should be applied retrospectively and will be effective for annual reporting periods beginning after December 15,
2016, including interim periods within those annual periods. The Company is currently assessing the impact of
adopting this guidance on its consolidated financial statements.
In June 2014, the FASB issued ASU 2014-12, Compensation — Stock Compensation (Topic 718): Accounting
for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period, which requires that a performance target that affects vesting and that could be
achieved after the requisite service period be treated as a performance condition. This guidance should be applied
either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with
performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial
statements and to all new or modified awards thereafter. The amendments in this guidance are effective for annual
reporting periods and interim periods within those annual periods beginning after December 15, 2015. Earlier
adoption is permitted. The Company does not expect the adoption of this guidance to have an impact on its
consolidated financial statements.
F-49
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining
Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or
to Equity, which clarifies how current GAAP should be interpreted in evaluating the economic characteristics and
risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The amendments in this
guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2015. 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 EVENTS:
Agreement to Acquire Freightliner Group Limited
On February 25, 2015, the Company announced its entry into an agreement to acquire approximately 95% of
the shares of Freightliner Group Limited (Freightliner) for cash consideration of approximately £490 million (or
approximately $755 million at current exchange rates) and to assume approximately £8.5 million (or approximately
$13 million at current exchange rates) in net debt and capitalized leases. Members of the existing Freightliner
management team will retain an approximate 5% ownership interest, and the Company expects to own 100% of
Freightliner by mid-2020. The acquisition is expected to close during the first quarter of 2015. The Company plans
to finance the acquisition of Freightliner through an amendment to its existing Amended and Restated Credit
Agreement, with approximately $650 million from the issuance of new term loans and the remainder from funds
drawn on its existing revolving credit facility.
Headquartered in London, England, Freightliner is an international freight rail operator with operations in the
United Kingdom (U.K.), Poland, Germany, the Netherlands and Australia. Freightliner's principal business is located
in the U.K. where it is the second largest freight rail operator, providing intermodal and heavy haul service
throughout England, Scotland and Wales. In Continental Europe, Freightliner Poland primarily serves aggregates
and coal customers in Poland. In addition, Freightliner's ERS subsidiary, based in Rotterdam, provides cross-border
intermodal services connecting the northern European ports of Rotterdam, Bremerhaven and Hamburg to key cities
in Germany, Poland, Italy and beyond. In Australia, Freightliner currently transports coal and containerized
agricultural products for its customers in New South Wales.
Freightliner's fleet of primarily leased equipment includes approximately 250 standard gauge locomotives
(mostly diesel-electric) as well as 5,500 wagons. Freightliner employs over 2,500 people worldwide.
Acquisition of Pinsly's Arkansas Division
On January 5, 2015, the Company completed the acquisition of certain subsidiaries that constitute Pinsly's
Arkansas Division (Pinsly Arkansas) from Pinsly Railroad Company for approximately $40 million in cash, subject
to adjustment for final working capital. The Company funded the acquisition with borrowings under the Company's
Amended and Restated Credit Agreement.
Headquartered in Jones Mills, Arkansas, Pinsly Arkansas serves the Hot Springs and Little Rock areas, as well
as the southwestern and southeastern portions of Arkansas and includes (1) the Arkansas Midland Railroad
(AKMD), which is comprised of seven non-contiguous branch lines; (2) the Prescott & Northwestern Railroad
(PNW); (3) the Warren & Saline River Railroad (WSR); and (4) the two Arkansas transload operations of Pinsly's
Railroad Distribution Services subsidiary. Operations are composed of 137 miles of owned and leased track, 77
employees and 16 locomotives. The railroads currently haul approximately 35,000 carloads per year and serve a
diverse customer base in industries including aluminum, forest products, aggregates, energy and carton board.
F-50
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-51
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-53
F-54
F-55
F-56
F-57
F-58
F-59
F-52
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-53
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-54
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-55
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-56
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-57
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-58
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-59
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-60
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-61
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-62
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-63
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-64
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-65
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-66
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-67
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-68
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-69
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-70
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-71
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-72
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-73
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-74
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-75
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-76
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, 2014, 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, 2014, 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 2014 and 2013.
YEAR ENDED DECEMBER 31, 2014: HIGH LOW
$ 83.33
4th Quarter
$93.82
3rd Quarter
$93.37
2nd Quarter
$87.19
1st Quarter
$100.89
$105.47
$105.51
$99.89
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
On February 18, 2015, there were 164 Class A common stock
record holders and 14 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, 2009, in stock or index, including reinvestment of dividends.
Years Ending 1
Genesee & Wyoming Inc.
S&P Midcap 400
S&P 1500 Railroads 100.00
2009
100.00
100.00
2010
162.22
126.64
138.30
2011
185.60
124.45
157.98
2012
233.09
146.69
171.59
2013
294.27
195.84
244.64
2014
275.49
214.97
321.46
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
Director and Vice Chairman, SEACOR Holdings Inc.
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
Self-employed Strategy Consultant and Director
Formerly Senior Strategic Advisor, Elemica
Chairman, Australia Committee
Member, Audit Committee
Member, Governance Committee
Mark A. Scudder
Chief Executive Officer and President,
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
Andrew T. Chunko
Senior Vice President
Customer Service
David J. Collins
Senior Vice President
Commercial Support
David R. Ebbrecht
Senior Vice President
Northest Region
Raymond A. Goss
Senior Vice President
Engineering
Louis Gravel
Senior Vice President
Canada Region
Joel N. Haka
Senior Vice President
Pacific Region
James E. Irvin
Senior Vice President
Coastal Region
Tyrone C. James
Senior Vice President
Safety and Compliance
William A. Jasper
Senior Vice President
Southern Region
Gary R. Long
Senior Vice President
Midwest Region
Michael T. Long
Senior Vice President
Compliance
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
Allen Dewayne Swindall
Senior Vice President
Central Region
Jerry E. Vest
Senior Vice President
Government and Industry Affairs
Michael A. Webb
Senior Vice President
Distribution Services
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 Railroad Services, Inc.
13901 Sutton Park Drive South, Suite 330A
Jacksonville, Florida 32224
904-596-1045
Regional Operations Support
Genesee & Wyoming Railroad Services, Inc.
13901 Sutton Park Drive South, Suite 180C
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
Knob Lake & Timmins Railway Company Inc. (KLTR)
9001, boul. de l’Acadie, Suite 600
Montréal, Québec H4N 3H5
Canada
514-948-6999
Canada Region continued
Ottawa Valley Railway (OVR)
445 Oak Street East
North Bay, Ontario P1B 1A3
Canada
705-472-6200
Québec Gatineau Railway Inc. (QGRY)
/ Chemins de fer Québec-Gatineau inc.
3690, Grande Allée
Boisbriand, Québec J7H 1M9
Canada
450-435-5151
Railcare Inc.
500 Sherman Avenue North, Unit 80
Hamilton, Ontario L8L 8J6
Canada
905-527-8238
Services Ferroviaires de L’Estuaire Inc. (SFE)
4800, rue John-Molson
Québec, Québec G1X 3X4
Canada
418-872-0418
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, Suite 201
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)
9001, boul. de l’Acadie, Suite 600
Montréal, Québec H4N 3H5
Canada
514-948-6999
Central Region
Arkansas Louisiana & Mississippi Railroad
Company (ALM)
P.O. Box 757
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9000
Arkansas Midland Railroad Company, Inc. (AKMD)
314 Reynolds Rd, Bldg 41
Malvern, Arkansas 72104
501-844-4444
Bauxite & Northern Railway Company (BXN)
P.O. Box 138
Bauxite, Arkansas 72011
501-557-2600
Central Region continued
Coastal Region continued
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.
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
417-358-8800
The Prescott and Northwestern Railroad Company (PNW)
314 Reynolds Rd, Bldg 41
Malvern, Arkansas 72104
501-844-4444
Texas Northeastern Railroad (TNER)
403 International Parkway, Suite 500
Richardson, Texas 75081
972-808-9800
Warren & Saline River Railroad Company (WSR)
314 Reynolds Rd, Bldg 41
Malvern, Arkansas 72104
501-844-4444
Coastal 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
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
Coastal Region continued
Midwest Region continued
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
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
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
Illinois & Midland Railroad, Inc. (IMRR)
1500 North Grand Avenue East
Springfield, Illinois 62702
309-694-8200
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)
301 Wesley Road
Creve Coeur, Illinois 61610
309-694-8200
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
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
Huron and Eastern Railway Company, Inc. (HESR)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Rail Link, Inc.
2200 Foothills Blvd., Suite B
Gillette, Wyoming 82716
307-682-5450
Rapid City, Pierre & Eastern Railroad, Inc. (RCPE)
246 Founders Park Drive, Suite 202
Rapid City, South Dakota 57701
605-877-3699
Mountain West Region continued
Ohio Valley Region continued
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
Ohio Valley Region
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
Pacific Region continued
Southern Region continued
Central Oregon & Pacific Railroad, Inc. (CORP)
333 S.E. Mosher
P.O. Box 1083
Roseburg, Oregon 97470
541-957-2504
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
360-807-4325
San Joaquin Valley Railroad Co. (SJVR)
221 North F Street
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
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
662-329-7736
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
850-747-4034
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
662-329-7736
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
Genesee & Wyoming Inc.
20 West Avenue
Darien, Connecticut 06820
Phone: 203-202-8900
Fax: 203-656-1092
www.gwrr.com
NYSE: GWR
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