Genesee & Wyoming Inc.
Annual Report 2015

Plain-text annual report

Genesee & Wyoming Inc. 2015 Annual Report a c i r e m A h t r o N a i l a r t s u A e p o r u E / . K U. Genesee & Wyoming owns or leases 120 freight railroads worldwide that are organized in 11 operating regions with 7,500 employees and more than 2,800 customers. Financial Highlights (In thousands, except per share amounts) Statement of Operations Data Operating revenues Income from operations Net income Net income available to common stockholders Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders: Diluted earnings per common share (EPS) Weighted average shares - Diluted Balance Sheet Data as of Period End 2015 2014 2013 2012 2011 Years Ended December 31 $2,000,401 $1,639,012 $1,568,643 $874,916 $829,096 384,261 225,037 225,037 421,571 260,755 260,755 380,188 271,296 269,157 190,322 52,433 48,058 191,779 119,484 119,484 3.89 57,848 4.58 56,972 4.79 56,679 1.02 51,316 2.79 42,772 Total assets Total debt Equity $6,795,604 $5,595,753 $5,319,821 $5,226,115 $2,294,157 2,305,259 2,519,461 1,615,449 2,357,980 1,624,712 2,149,070 1,858,135 1,500,462 626,194 960,634 Operating Revenues ($ In Millions) Income from Operations ($ In Millions) 421.61,2 Net Income ($ In Millions) Diluted Earnings Per Common Share $2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2,000.4 $400 394.12 380.21 401.62 384.31 1,639.0 1,568.6 874.9 829.1 350 300 250 211.2 2 200 191.8 1 189.5 2 190.3 1 150 100 50 0 2011 2012 2013 2014 2015 $275 250 225 200 175 150 129.7 2 125 119.5 1 100 105.62 75 50 25 0 52.41 271.31 260.81 $5.00 233.32 225.01 212.92 213.9 2 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 4.791 4.581 4.102 3.891 3.782 3.682 2.791 2.47 2 2.532 1.021 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 (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 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, including a reconciliation of non-GAAP financial measures to their most directly comparable U.S. GAAP measures, is included on pages 16-20. 2015 Annual Report 1 “ The addition of Freightliner in 2015 created an unmatched global rail footprint, and our long-term outlook is not solely dictated by economic cycles, but also by our disciplined capital allocation and ability to structure good transactions for our shareholders.” On the Cover Top:Marquette Rail, Newaygo, Michigan Middle:Genesee & Wyoming Australia, Mallala, South Australia Bottom:Freightliner, Kings Sutton, U.K. Back Cover:Puget Sound & Pacific Railroad, Aberdeen, Washington This Page Right: Arizona Eastern Railway, Lordsburg, New Mexico Below: Freightliner, Southampton, U.K. From the CEO John C. Hellmann President and Chief Executive Officer To Our Shareholders: Of my sixteen years at G&W, 2015 proved to be the most challenging. A global freight rail recession drove our adjusted diluted earnings per share down 10.2% in 2015,(1) with weak shipments in most operating regions and our same railroad carloads down 11%. The decline in our rail traffic was driven by three overarching trends: i) the collapse in the prices of global commodities such as iron ore, copper, manganese and crude oil, which reduced or eliminated shipments from multiple customers, ii) the rapid shift of U.S. and U.K. power generation away from coal to cheaper natural gas, as well as other renewable alternatives, which significantly reduced our coal shipments, and iii) a strong U.S. dollar which made our U.S. industrial customers, such as steel manufacturers, as well as our U.S. agricultural customers, less competitive in global markets. In the face of these difficult trends, we continued to focus on enhancing the efficiency of our operations and responded quickly and decisively to the weakened business climate. Several positive developments are worth highlighting in 2015. Our safety performance led the rail industry for the seventh consecutive year. We completed the acquisition of London- headquartered Freightliner Group, adding important geographic and commodity diversity to our global rail operations. We made significant cost reductions in each of our eleven operating regions and have been reducing our investments in plant and equipment to be consistent with lower traffic levels. We created an in-house engineering and track-construction team in North America whose productivity has surpassed our expectations. Coupled with our significant past investments in our infrastructure, this highly efficient engineering team enables us to lower our track capital spending without sacrificing service levels to our customers. We remain intensely focused on cost reductions and efficiencies and, despite continued pressure on our earnings, are well positioned for a strong increase in our free cash flow in 2016.(1) I want to extend my deep appreciation to all of my fellow G&W employees, who have risen to the challenge of protecting the intrinsic value of our railroads and positioning us for improving trends in the future. Whether in the United States, Canada, Australia, the United Kingdom or Continental Europe, we have outstanding people and rail expertise that ultimately translates into an abundance of commercial opportunities worldwide. (1) Adjusted diluted EPS, free cash flow, adjusted income from operations, adjusted operating ratio, adjusted incremental margins, EBITDA and adjusted EBITDA are non-GAAP financial measures and are not intended to replace financial measures calculated in accordance with U.S. GAAP. The information required by 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, including a reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measures, is included on pages 16-20. 2015 Annual Report 3 From the CEO, continued Safety The safety of our people is an essential part of G&W’s culture and a common thread that ties together our worldwide operations. Our safety culture is underpinned by the shared belief that all injuries are preventable and that we need to continuously improve our processes and performance. This culture significantly contributes to our ability to run each of our 120 railroads efficiently for our customers and our shareholders. We have found that attention to detail in safety translates into attention to detail in all aspects of our operations and customer service, a natural byproduct of which is strong customer satisfaction (see sidebar below). In 2015, G&W’s same railroad injury-frequency rate (IFR) per 200,000 hours was 0.51, which was a 15% improvement over 2014 and safer than any Class I railroad. Our railroads continue to be more than five times safer than the U.S. short line peer group average. Our Chairman’s Safety Award for 2015, which is awarded to the G&W operating region with the lowest IFR, was won by our Australia Region for working injury-free. I would like to recognize the extraordinary achieve- ment of my Australian colleagues who worked 950,000 hours without an injury, a feat that was all the more impressive amidst a highly challenging business environment and the recent addition of over 100 employees after the insourcing of our track and equipment maintenance functions. In its first nine months under G&W ownership, Freightliner reported an IFR of 2.1. While this performance is industry-leading for much of Europe, we have been working with our new colleagues to set the bar higher, and the Freightliner team is building momentum as they integrate our safety culture into their operations. In fact, we are already seeing the emergence of new safety measures e c i v r e S & y t e f a S in the U.K. and Europe that will be shared across G&W as best practices. I am confident that Freightliner’s focus on safety will yield significant improvements in 2016. Financial Results G&W’s consolidated financial results for 2015 were as follows: Operating Revenues increased 22.0% from $1.6 billion in 2014 to $2.0 billion in 2015. Adjusted Income from Operations decreased 4.8% from $421.6 million in 2014 to $401.6 million in 2015; (1) Reported Income from Operations decreased 8.9% from $421.6 million in 2014 to $384.3 million in 2015. Adjusted Operating Ratio (adjusted operating expenses divided by operating revenues) increased from 74.3% in 2014 to 79.9% in 2015; (1) Reported Operating Ratio increased from 74.3% in 2014 to 80.8% in 2015. Adjusted Diluted Earnings per Common Share (EPS) decreased 10.2% from $4.10 in 2014 (with 57.0 million weighted average shares outstanding) to $3.68 in 2015 (with 57.8 million weighted average shares outstanding); (1) Reported Diluted EPS decreased 15.1% from $4.58 in 2014 (with 57.0 million weighted average shares outstanding) to $3.89 in 2015 (with 57.8 million weighted average shares outstanding). Free Cash Flow Before New Business Investments decreased from $295.9 million in 2014 to $258.7 million in 2015; Free Cash Flow decreased from $203.1 million in 2014 to $193.0 million in 2015.(1) Industry-Leading Safety Injury-Frequency Rate Comparison per 200,000 Man-Hours as reported to the Federal Railroad Administration (FRA) 2015 Safety Performance Injury-Frequency Rate Comparison per 200,000 Man-Hours 2.77 2.11 1.91 Short Lines Class I G&W 1.06 1.05 0.95 0.92 0.88 0.51 2007 2008 2009 2010 2011 2012 2013 2014 2015 FRA Freightliner KCS Class I NS G&W Average Same BNSF CSX UP Railroad Group 3 (Short Lines) Industry-Leading Customer Satisfaction Biennial Survey by Leading Customer-Satisfaction Research Firm G&W’s Highest Rated Attributes by Customers November 2015 Survey by Leading Customer-Satisfaction Research Firm 8.0 = G&W Target G&W Trucking Railroads Commitment to Safety Professionalism of Customer Service Personnel Availability of Customer Service Personnel 8.7 8.5 8.1 2007 2009 2011 2013 2015 Satisfaction (1-10 scale) 1 2 3 4 5 6 7 8 9 10 5 4 3 2 1 0 10 9 8 7 6 5 Our Core Purpose is to be the safest and most respected rail service provider in the world. G&W’s same railroad employee injury-frequency rate was safer than any Class I railroad for the seventh consecutive year and more than five times safer than our peer-group average. In our fifth biennial customer- satisfaction survey, G&W again outscored the overall trucking and railroad industries. Eight of our operating regions achieved our target, and the three that did not have used the customer feedback to implement specific improvement plans, which are the survey’s primary objective. After a concerted effort to create a customer service culture on par with our safety culture, it is gratifying that G&W’s top-rated customer- satisfaction attributes are safety and customer service. 2015 Annual Report 5 From the CEO, continued The clearest way to understand our 2015 financial results is to discuss each of our three business segments: North America (approximately 80% of operating income), Australia (approximately 10% of operating income) and the U.K./Europe (approximately 10% of operating income). North America: In 2015, our total North American revenues declined 4.8% to $1.24 billion, while our same railroad revenues (excluding the acquisition of Pinsly Arkansas) declined 8.2% to $1.2 billion. Of the $107 million decline in same railroad revenues, $16.1 million was due to the depreciation of the Canadian dollar relative to the U.S. dollar, and the remaining same railroad revenue decline was $90.9 million. The four main drivers of the decline in North American same railroad revenues were: i) Coal & Coke, which declined $32.4 million, or 25.7% (constant currency), due to decreased demand for steam coal as a result of competition from natural gas generation, ii) Metals, which declined $26.3 million, or 20.4% (constant currency), due to weaker shipments of steel and scrap resulting primarily from competition from imported steel, iii) Agricultural Products, which declined $9.7 million, or 8.1% (constant currency), due to weaker grain prices and the strong U.S. dollar, and iv) Minerals & Stone, which declined $8.4 million, or 7.4% (constant currency), due to decreased shipments of frac sand and proppants that are used in the extraction of oil and natural gas from shale formations through hydraulic fracturing. In 2015, our adjusted operating income in North America declined 7% to $311.3 million.(1) With same railroad revenue down $90.9 million (constant currency) and our adjusted same a c i r e m A h t r o N Pacific Region Midwest Region Mountain West Region Central Region Canada Region Northeast Region Ohio Valley Region Coastal Region Railroads Port Operations Dashed lines indicate trackage rights Southern Region Coastal Region railroad operating income down $32 million (constant currency), our lost margin impact was roughly 35% (constant currency).(1) Given the high fixed cost nature of our rail operations, we typically anticipate a 50% margin loss (or gain) on traffic variances, so our North American financial results were better than we would have expected, primarily due to successful cost cutting measures by our regions (also partly helped by lower winter expenses in 2015 vs. 2014). Australia: In 2015, our total Australian revenues declined 22.4% to $243 million, while our same railroad revenues (excluding the acquisition of Freightliner Australia) declined 34% to $206.9 million. Of the $106.4 million decline in same railroad revenues, $52.3 million was due to the depreciation of the Australian dollar versus the U.S. dollar, and the remaining same railroad revenue decline was $54.1 million. The main driver of the decline in Australian same railroad revenues was a $46.9 million (constant currency) decline in Metallic Ores traffic, which was due to decreased iron ore and manganese shipments as a result of multiple mine closures. The collapse of iron ore and manganese shipments mirrored a collapse in the global prices of those commodities, as a result of reduced steel demand in China and a surge of global iron ore supply from new lower cost mines in Australia and Brazil. In 2015, our adjusted operating income in Australia declined 36% to $57.6 million.(1) Due to strong cost controls, our adjusted same railroad lost margin impact of around 35% (constant currency) was once again better than the 50% margin loss that we would have G&W’s North American Operations serve 41 U.S. states and four Canadian provinces and include 113 short line and regional freight railroads with more than 13,000 track-miles. 2015 G&W North America Total Operating Revenues: $1.24 billion Freight Revenues Other Commodities 2% Waste 1% Pulp & Paper 9% Petroleum Products 5% Minerals & Stone 9% Metals 8% 18% Freight-Related Revenues 5% All Other Revenues 10% Ag Products Metallic Ores 2% Lumber & Forest Products 6% Food & Kindred Products 3% 8% Coal & Coke 1% Autos & Auto Parts 11% Chemicals & Plastics North American Segment 2015 Snapshot 4,500 Employees 60% of G&W 0.60.6 Employee injuries Employee injuries per 200,000 hours per 200,000 hours 7.6 10 Customer - Satisfaction Rating 28 Served Ports 967 Locomotives 22,600 Railcars 2015 Annual Report 7 From the CEO, continued typically expected, but the $34 million overall decline in adjusted same railroad operating income was obviously a significant reduction.(1) As we enter 2016, we serve several active iron ore mines in South Australia; however, the sustained low price of iron ore places significant pressure on our customers, and further revenue and income losses are anticipated. U.K./Europe: The acquisition of Freightliner’s business in the United Kingdom and Continental Europe significantly expanded G&W’s European presence, where historically we only had a small operation based in the Port of Rotterdam. Our European business is now led by a strong U.K. franchise serving intermodal and bulk customers, a heavy haul operation in Poland/ eastern Germany, and an intermodal business serving deep sea ports in northern Germany and the Netherlands. Our U.K./European segment generated $515.6 million of revenues in 2015, the main components of which were $227.5 million of intermodal (primarily in the U.K.), $52.6 million of minerals and stone (primarily aggregates in the U.K. and Poland), $23.9 million of coal (primarily in the U.K. and Poland), and $182.7 million of freight-related revenues (primarily infrastructure services in the U.K., trucking drayage related to our U.K. intermodal, and port switching and hook and pull services in Continental Europe). Our U.K./European segment generated operating income of $31.9 million in 2015. Note that our U.K./European segment’s 93.7% adjusted operating ratio in 2015 is structurally higher than our North American adjusted operating ratio of 74.9% and our Australian adjusted operating ratio of 76.3%.(1) The U.K./Europe uses primarily leased equipment and operates Katherine Tennant Creek Peculiar Knob Kevin a i l a r t s u A 8 Genesee & Wyoming Inc. in an open access rail environment where track is largely government-owned and track access is a variable expense. The integration of Freightliner into G&W has been progressing well thanks to highly compatible business cultures. The one portion of the Freightliner business that has been under- performing, however, is U.K. coal shipments. This is a low margin business that we originally expected to fade through 2022 due to U.K. energy policy, but the pace of the fade has been faster than expected primarily due to imports of cheap natural gas. As a result, we are proactively restructuring the coal business in the first half of 2016, which will require reducing the number of train drivers and exiting leases for certain coal-related equipment. At the same time, we have been deploying excess locomotives to serve new market segments such as aggregates in the U.K. and Poland. When the restructuring is complete, we expect a substantial increase in our operating income in the second half of 2016. Organizational Evolution The evolution of the G&W organization has been significant over the past decade. We retain many of the attributes that have underpinned our past success: a flat and lean organizational structure that is designed to be close to our customers, strong local accountability, careful and rigorous capital allocation, and a personal safety culture that creates a highly motivated workforce. Our regional operating structure ensures that we never lose the local touch that characterizes the entrepreneurial spirit of short line railroads. G&W’s Australian Operations provide rail freight services in New South Wales, the Northern Territory and South Australia and operate the 1,400-mile Tarcoola-to-Darwin rail line. 2015 G&W Australia Total Operating Revenues: $243 million Petroleum Products 1% Minerals & Stone 3% Freight Revenues Metallic Ores 18% 36% Freight-Related Revenues Intermodal 29% 4% All Other Revenues 9% Ag Products Australian Segment 2015 Snapshot 500 Employees 7% of G&W 0.00.0 Employee injuries Employee injuries per 200,000 hours per 200,000 hours 8.4 10 Customer - Satisfaction Rating 6 Served Ports 95 Locomotives 1,100 Railcars 2015 Annual Report 9 From the CEO, continued At the same time, we have added corporate organizational capabilities that enable G&W to operate on a global scale. In business development, major capital investments are evaluated by an international team that coordinates across three time zones with senior management in the U.S., the U.K. and Australia. In our legal department, we have a dedicated team that supports contracts, regulatory requirements and all manner of legal matters in more than seven countries (and multiple languages) with support from local counsel. Similarly, our accounting team orchestrates financial planning, analysis and reporting on a global basis, while adhering to a rigorous system of internal controls, as well as handling the complexities of tax and currency in multiple jurisdictions. In our operations department, we have experts with distinguished careers at Class I railroads who benchmark best practices in safety, service design, track and bridge maintenance, and rolling stock across all of our railroads. And our commercial department not only guides significant industrial development and transloading business in North America, but also works with our overseas commercial teams to support multinational customers who are seeking rail expertise globally. One example of our global capabilities is embodied by a small contract that we currently operate for Saudi Arabian Railways (SAR). With on-the-ground personnel from the U.K., the U.S. and Australia, we provide technical expertise to support the operation of a new heavy haul railway that handles unit trains of phosphate and bauxite in some of the world’s most challenging desert terrain. e p o r u E / . K U. Board of Directors G&W’s organization and shareholders are supported by an independent, engaged and very capable Board of Directors. In 2015, we added three new Directors who will stand for election in May 2016 to fill the vacancies created by the retirement of two of our most dedicated, longest serving Directors in accordance with G&W’s Corporate Governance Principles. The resulting G&W Board will have eleven Directors following our May 2016 annual meeting. In February 2016, Robert M. Melzer retired from the G&W Board after 19 years. As a long- serving Chairman of G&W’s audit committee, a champion of our safety programs and an expert on deal structuring, Bob’s contributions have been exceptional. In May 2016, Philip J. Ringo will be retiring from the G&W Board after 38 years. Phil has helped guide the evolution of G&W from a 14-mile railroad in upstate New York to a global rail operator and has been a leader on every G&W Board committee (including Australia). Phil’s immensely positive impact on the business culture and management of G&W are deeply rooted in our organization. Joining the G&W Board are three new Directors with extensive experience in transportation and commodities: Albert J. Neupaver, Joseph H. Pyne and Hunter C. Smith. ■ Mr. Neupaver serves as executive chairman of the board for Wabtec Corporation (NYSE: WAB), a supplier of value-added, technology-based products and services for rail, transit and other global industries. He joined Wabtec in 2006 as president and CEO before being named chairman and CEO in 2013 and executive chairman in 2014. Under his G&W’s U.K./European Operations are led by Freightliner, the U.K.’s largest rail maritime intermodal operator and second-largest rail freight company, and also include heavy-haul in Poland and Germany and cross-border intermodal services connecting Northern European seaports with key industrial regions throughout the continent. 2015 G&W U.K./Europe Total Operating Revenues: $516 million Other Commodities 2% Freight Revenues Minerals & Stone 10% 35% Freight-Related Revenues Intermodal 44% 5% All Other Revenues 5% Coal & Coke U.K./European Segment 2015 Snapshot 2,500 Employees 33% of G&W 2.12.1 Employee injuries Employee injuries per 200,000 hours per 200,000 hours 7.9 10 Customer - Satisfaction Rating 11 Served Ports 282 Locomotives 5,600 Railcars 2015 Annual Report 11 From the CEO, continued leadership, Wabtec has more than tripled its revenues and significantly expanded its presence worldwide. ■ Mr. Pyne serves as executive chairman of the board of Kirby Corporation (NYSE: KEX), the largest inland and offshore tank barge fleet operator in the United States, as well as a leading diesel engine service provider. Since 1984, he has served in various roles for Kirby, including CEO, president, executive vice president and director. During his tenure, Kirby’s revenues and earnings have grown more than 15% per year, and its market capitalization has increased from $100 million to $4.5 billion. ■ Mr. Smith serves as vice president of finance for Celgene Corporation’s (NYSE: CELG) Inflammation and Immunology business unit, which has grown from 60 people in two countries to 550 people in 14 countries in two years’ time. During a 14-year tenure at Bunge Limited (NYSE: BG), a global agribusiness and food company, he held roles including chief financial officer of two business units, corporate treasurer and chief risk officer. We believe that bringing together individuals with diverse backgrounds and points of view will continue to foster open debate, ensure a culture of continuous improvement and support a vibrant organization that is best positioned to maximize shareholder value. Outlook for 2016 As we enter 2016, global commodity prices remain low, the outlook for steam coal remains weak and the U.S. dollar remains strong. As a result, we are expecting another challenging year, with adjusted diluted EPS expected to decline roughly 10% in 2016.(1) In North America, we expect operating income to be down slightly in 2016 for two main reasons. First, we expect North American coal revenue to decline 15-20% due to natural gas competition and the mild winter. Second, we expect the strong U.S. dollar to continue to adversely impact our volumes due to cheaper imports of commodities such as steel, and less competitive exports of commodities such as paper and agricultural products. Meanwhile, we expect that solid core price increases and our cost saving initiatives should offset a significant portion of these traffic declines. Please note that recently enacted tariffs to counter the dumping of foreign steel into the United States may enhance certain segments of our steel shipments as the year progresses. In Australia, we expect our operating income to be down roughly 25% in 2016, driven by weaker iron ore and manganese shipments due to mine closures as well as the income translation of a weaker Australian dollar. We continue to implement cost reductions in Australia as well as to pursue major new commercial opportunities, but the collapse of global commodity prices remains a significant challenge for our customers. In the U.K./Europe, we expect operating income to be flat overall in 2016, but with significant growth in the second half of the year after we have restructured the U.K. coal business. While our earnings are expected to be lower, G&W’s free cash flow in 2016 is expected to increase 10%, prior to capital for new business investments.(1) The positive cash flow outlook is testament to both the tremendous efforts of our operating regions as well as the intrinsically strong cash flow of our railroads. Finally in 2016, we expect to deleverage from 3.7x net debt/adjusted EBITDA to 3.4x net debt/adjusted EBITDA, assuming no share repurchases, acquisitions or investments.(1) 12 Genesee & Wyoming Inc. “As we face difficult economies in all of our served geographies, I would like to recognize the professionalism and commitment of our employees, best exemplified by our Australia Region – hardest hit by the global commodities downturn – working nearly a million hours in 2015 without an employee injury. Indeed, 97 G&W railroads were injury-free in 2015. The focus that this performance requires is what will see our operations through the current business conditions. G&W has weathered economic downturns in the past, always emerging as a stronger organization positioned for growth. The team at G&W is the most capable in our long history, and on behalf of the Board of Directors, I thank our 7,500 employees for our progress toward G&W’s Core Purpose: to be the safest and most respected rail service provider in the world.” Mortimer B. Fuller III Chairman of the Board of Directors 2015 Annual Report 13 From the CEO, continued Our key priorities for 2016 are consistent with past years. Our first priority is the safety of our people and our railroads. We continue to make advancements in our culture of safety and expect significant progress from Freightliner over the course of 2016. Our second priority is to maximize our operating efficiency and generate strong free cash flow. Our third priority is commercial growth. Despite the challenging economic environment, we are bidding on a number of major new contracts in four countries. Our fourth priority is an extension of the U.S. short line tax credit that expires in 2016. After receiving a two-year extension in late 2015, legislation has recently been introduced in the House and Senate that would make the short line tax credit permanent. Despite strong bipartisan support for infrastructure investment, the unusual U.S. political environment makes it difficult to predict our likelihood of success. Our fifth priority is acquisitions and investments. We will use our unique global rail platform to identify the best opportunities for investment amidst economic dislocation worldwide. We remain confident that significant new opportunities will continue to emerge and that we will be able to capitalize on them. In the face of short-term adversity, we remain focused on long-term opportunity. While certain challenges such as global iron ore markets and U.S. and U.K. coal volumes do not support near-term optimism, many of our other commodity groups are likely to see future improvements over the economic cycle. Moreover, the addition of Freightliner in 2015 created an unmatched global rail footprint, and our long-term outlook is not solely dictated by economic cycles, but also by our disciplined capital allocation and ability to structure good transactions for our shareholders. In this environment, G&W has been focusing intently on increasing free cash flow and identifying unique opportunities to augment our global capabilities. I am confident we have the team and the tenacity to achieve these twin goals. Jack Hellmann President and Chief Executive Officer March 23, 2016 2015 Annual Report 15 Reconciliations of 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; adjusted incremental margins; earnings before interest, taxes, depreciation and amortization (EBITDA); adjusted EBITDA and net debt to 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, as an important financial measure of how well G&W is managing its assets and as a useful indicator 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 measure include the assumptions that G&W will be able to refinance its existing debt when it matures and meet other cash flow obligations from financing activities, such as principal payments on debt. 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). 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 insurance recoveries Contract termination expense in Australia Freightliner acquisition-related costs Edith River derailment costs Adjusted operating expenses Years Ended December 31, 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 2015 $ 2,000.4 1,616.1 $ 384.3 76.9% 78.2% 75.8% 74.3% 80.8% $ 637.3 - (2.6) 5.7 1.1 - - (1.8) $ 684.6 (29.5) (2.3) 11.2 0.8 (1.1) $ 1,188.5 (17.0) (1.6) 4.7 - - - - - - $ 1,217.4 $ 1,616.1 - (5.2) 5.1 - - - - - (7.0) 2.3 - - (12.6) - $ 639.6 $ 663.7 $ 1,174.5 $ 1,217.4 $ 1,598.8 Adjusted income from operations Adjusted operating ratio $ 189.5 77.1% $ 211.2 $ 394.1 $ 421.6 $ 401.6 75.9% 74.9% 74.3% 79.9% 16 Genesee & Wyoming Inc. Adjusted Income from Operations and Adjusted Operating Ratio by Segment Year Ended December 31, 2015 Operating revenues Operating expenses Income from operations Operating ratio Operating expenses Business development and related costs Net gain/(loss) on sale of assets Freightliner acquisition-related costs Adjusted operating expenses North American Operations $ 1,241.8 944.3 $ 297.5 Australian Operations $ 243.0 188.1 $ 54.8 U.K./ European Operations $515.6 483.7 $ 31.9 Total $ 2,000.4 1,616.1 $ 384.3 76.0% 77.4% 93.8% 80.8% $ 944.3 (3.2) 2.0 (12.6) $ 930.5 $ 188.1 (2.7) - - $ 185.4 $ 483.7 (1.1) 0.2 - $ 482.9 $ 1,616.1 (7.0) 2.3 (12.6) $ 1,598.8 Adjusted income from operations Adjusted operating ratio $ 311.3 74.9% $ 57.6 76.3% $ 32.7 $ 401.6 93.7% 79.9% Year Ended December 31, 2014 Operating revenues Operating expenses Income from operations Operating ratio Operating expenses Business development and related costs Net gain/(loss) on sale of assets Adjusted operating expenses $ 1,304.8 971.6 $ 333.2 $ 313.3 222.9 $ 90.4 74.5% 71.1% $21.0 23.0 $ (2.0) 109.6% $ 1,639.0 1,217.4 $ 421.6 74.3% $ 971.6 (4.9) 4.6 $ 971.3 $ 222.9 (0.3) 0.4 $ 223.0 $ 23.0 - 0.1 $ 23.1 $ 1,217.4 (5.2) 5.1 $ 1,217.3 Adjusted income from operations Adjusted operating ratio $ 333.5 74.4% $ 90.3 71.2% $ (2.1) 110.0% $ 421.7 74.3% Adjusted Net Income and Adjusted Diluted Earnings Per Common Share 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/ (Loss) Per Common Share Impact $ 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/ (Loss) Per Common Share Impact $ 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 2015 Annual Report 17 Adjusted Net Income and Adjusted Diluted Earnings Per Common Share Continued 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 foreign tax credit 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 Year Ended December 31, 2015 As reported Add back certain items, net of tax: Business development and related costs Freightliner acquistion-related costs Net gain on sale of assets Loss on settlement of Freightliner acquistion-related foreign currency forward purchase contracts Impact of reduction in U.K. effective tax rate 2015 Short Line Tax Credit As adjusted Free Cash Flow 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 Net Income Diluted Earnings/ (Loss) Per Common Share Impact $ 271.3 $ 4.79 10.7 1.4 (3.2) (41.0) (25.9) 2.0 (1.4) $ 213.9 0.19 0.03 (0.06) (0.72) (0.46) 0.03 (0.02) $ 3.78 Net Income Diluted Earnings/ (Loss) Per Common Share Impact $ 260.8 $ 4.58 3.2 2.9 (3.5) (27.0) (3.9) 0.7 $ 233.3 0.06 0.05 (0.06) (0.47) (0.07) 0.01 $ 4.10 Net Income Diluted Earnings/ (Loss) Per Common Share Impact $ 225.0 $ 3.89 5.6 9.5 (1.7) 11.6 (9.7) (27.4) $ 212.9 0.10 0.16 (0.03) 0.20 (0.17) (0.47) $ 3.68 2014 2015 $ 491.5 (509.8) 221.5 203.1 92.9 $ 295.9 $ 475.1 (1,074.3) 792.2 193.0 65.6 $ 258.7 (a) The 2014 period primarily consisted of cash paid for the Rapid City, Pierre & Eastern Railroad, Inc. acquisition. The 2015 period consisted of net cash paid for the acquisitions of Freightliner and Pinsly Arkansas as well as $33.2 million in cash paid for incremental expenses related to the purchase and integration of the Freightliner acquisition. 18 Genesee & Wyoming Inc. Adjusted Incremental Margins Year Ended December 31, Operating revenues Operating expenses Income from operations Same railroad incremental margin Revenue adjustements: Foreign currency Adjusted same railroad operating revenues Same railroad operating expenses Business development and related costs Net gain/(loss) on sale of assets Freightliner acquisition-related costs Adjusted same railroad operating expenses Foreign currency Adjusted same railroad operating expenses excluding foreign currency Adjusted same railroad income from operations Adjusted same railroad income from operations excluding foreign currency Adjusted same railroad incremental margin excluding foreign currency North American Operations 2015 2014 Total $ 1,241.8 944.3 $ 297.5 New Operations $ 44.0 31.9 $ 12.1 Existing Operations $ 1,197.8 912.4 $ 285.4 Total $ 1,304.8 971.6 $ 333.2 $ 1,197.80 $ 912.4 (3.2) 2.0 (12.6) $ 898.6 (16.1) $ 1,288.6 $ 971.6 (4.9) 4.6 - $ 971.3 (13.5) Variance $ (107.0) 59.1 $ (47.8) 45% 16.1 $ (90.9) $ 59.1 (1.7) 2.6 12.6 $ 72.6 (13.5) $ 898.6 $ 957.8 $ 59.1 $ 299.2 $ 333.5 $ (34.3) $ 299.2 $ 330.9 $ (31.7) Year Ended December 31, Operating revenues Operating expenses Income from operations Same railroad incremental margin Australian Operations 2015 New Operations $ 36.1 34.6 $ 1.5 Existing Operations $ 206.9 153.5 $ 53.3 2014 Total $ 313.3 222.9 $ 90.4 Total $ 243.0 188.1 $ 54.8 Revenue adjustements: Foreign currency Adjusted same railroad operating revenues Same railroad operating expenses Business development and related costs Net gain/(loss) on sale of assets Adjusted same railroad operating expenses Foreign currency Adjusted same railroad operating expenses excluding foreign currency Adjusted same railroad income from operations Adjusted same railroad income from operations excluding foreign currency Adjusted same railroad incremental margin excluding foreign currency 35% Variance $ (106.4) 69.3 $ (37.1) 35% 52.3 $ (54.1) $ 69.3 (2.4) 0.5 $ 72.2 $ 206.85 $ 153.5 (2.7) - $ 150.8 (52.3) $ 260.97 $ 222.9 (0.3) 0.4 $ 223.0 (37.2) (37.2) $ 150.8 $ 185.8 $ 35.0 $ 56.0 $ 90.3 $ (34.3) $ 56.0 $ 75.2 $ (19.1) 35% 2015 Annual Report 19 EBITDA, Adjusted EBITDA and Net Debt to Adjusted EBITDA Twelve Months Ended December 31, 2015 Acquisition LTM* Combined Company LTM Net income Add back: Provision for income taxes Other income, net Interest expense Interest income Depreciation and amortization expense EBITDA Add back certain items Non-cash compensation cost related to equity awards Loss on settlement of Freightliner acquisition-related foreign currency forward purchase contracts Freightliner acquisition-related costs Net gain on sale of assets $ 225.0 75.9 (1.9) 67.1 (0.5) 188.5 $ 554.1 $ 14.6 18.7 16.8 (2.3) $ 19.5 $ 573.6 Adjusted EBITDA $ 602.0 $ 19.5 $ 621.5 Net debt Net debt/adjusted EBITDA ratio * Last twelve months (LTM) includes Freightliner - 1/1/2015 - 3/24/2015 and other investments Net income Add back: Provision for income taxes Other income, net Interest expense Interest income EBIT Depreciation and amortization expense EBITDA Add back certain items: Non-cash compensation cost related to equity awards Adjusted EBITDA Net debt Net debt/adjusted EBITDA ratio $ 2,269 3.7 : 1.0 2016 (Outlook) $ 215 90 - 75 - $ 380 204 $ 584 16 600 $ $ 2,023 3.4 : 1.0 20 Genesee & Wyoming Inc. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 or o 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 06-0984624 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 20 West Avenue, Darien, Connecticut (Address of principal executive offices) 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 Name of each exchange on which registered 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. þ 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 þ 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. þ 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). þ 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 þ Accelerated filer Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act). ¨ Yes þ 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: $3,955,294,015. 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 19, 2016: Class Class A Common Stock Class B Common Stock Number of Shares Outstanding 56,949,310 793,138 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, 2015 in connection with the Annual Meeting to be held on May 17, 2016 are incorporated by reference in Part III hereof and made a part hereof. DOCUMENTS INCORPORATED BY REFERENCE Genesee & Wyoming Inc. FORM 10-K For The Fiscal Year Ended December 31, 2015 INDEX PAGE NO. 4 20 33 34 38 39 40 41 44 84 86 86 86 88 88 88 88 88 88 90 91 92 F-1 Business PART I ITEM 1. ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. ITEM 3. ITEM 4. Mine Safety Disclosures Properties Legal Proceedings PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data ITEM 6. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ITEM 9. ITEM 9A. Controls and Procedures ITEM 9B. Other Information PART III ITEM 10. Directors, Executive Officers and Corporate Governance ITEM 11. Executive Compensation ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 13. Certain Relationships and Related Transactions, and Director Independence ITEM 14. Principal Accounting Fees and Services PART IV ITEM 15. Exhibits, Financial Statement Schedules Signatures Index to Exhibits Index to Financial Statements 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," "could," "should," "seeks," "expects," "estimates," "trends," "outlook," "goal," "will," "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 or developments 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. 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 "Part I Item 1A. Risk Factors" in this Annual Report. 3 ITEM 1. Business. PART I OVERVIEW We own and operate 120 freight railroads worldwide that are organized in 11 operating regions with 7,500 employees and more than 2,800 customers. The financial results of our 11 operating regions are reported in the following three distinct segments: • • • Our North American Operations segment includes nine operating regions that serve 41 U.S. states and four Canadian provinces. This segment includes 113 short line and regional freight railroads with more than 13,000 track-miles. Our North American Operations segment represents approximately 80% of our annual income from operations. Our Australian Operations segment provides rail freight services in South Australia, the Northern Territory and New South Wales. Included in the Australian Operations segment is our operation of the 1,400-mile Tarcoola-to-Darwin rail line, which is the sole north-south rail corridor outside the coasts and primarily carries intermodal and commodity freight. Our Australian Operations segment represents approximately 10% of our annual income from operations. Our U.K./European Operations segment includes the majority of the operations of Freightliner Group Limited (Freightliner), which we acquired in March 2015. Freightliner is the United Kingdom's (U.K.) largest rail maritime intermodal operator and the U.K.'s second-largest rail freight company. Our U.K./ European Operations segment also includes heavy-haul freight operations in Poland and Germany and cross-border intermodal services connecting Northern European seaports with key industrial regions throughout the continent. The U.K./European Operations segment represents approximately 10% of our annual income from operations. GROWTH STRATEGY Since our initial public offering in 1996, our revenues have increased at a compound annual growth rate of 18.6%, from $77.8 million in 1996 to $2.0 billion in 2015. Over the same period, our diluted earnings per common share (EPS) increased at a compound annual growth rate of 14.3%, from $0.29 (adjusted for stock splits) in 1996 to $3.89 in 2015. 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 regional management teams, supported by centralized administrative, commercial and operational support and oversight. As of December 31, 2015, our operations were organized in 11 regions. In the United States, we have eight regions: Central, Coastal (which includes industrial switching and port operations), Midwest, Mountain West (which includes industrial switching operations), Northeast, Ohio Valley, Pacific and Southern. Outside the United States, we have three regions: Canada (which includes a contiguous railroad located in the United States and is reported within our North American Operations), Australia and U.K./ Europe (which consists of operations in Belgium, Germany, the Netherlands, Poland and the U.K.). 4 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 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 and that the attention to detail necessary to eliminate employee injuries translates into efficient, well-run operations. Each year, we establish stringent safety targets as part of our safety program. In 2015, G&W operations, excluding our recently acquired Freightliner operations, achieved a consolidated Federal Railroad Association (FRA) reportable injury frequency rate of 0.51 per 200,000 man-hours worked. Through the implementation of our safety program, we have reduced our injury frequency rate by 74% since 2006, when it was 1.95 injuries per 200,000 man-hours worked. For comparative purposes, from January 2015 through November 2015, the most recent month for which FRA data is publicly available, the United States short line average reportable injury frequency rate was 2.80 injuries per 200,000 man-hours worked, and the United States regional railroad average was 3.04 injuries per 200,000 man-hours worked. Based on these results, in 2015, G&W operations, excluding our Freightliner operations, were more than five times safer than the short line and regional railroad averages and safer than any United States Class I railroad. Following the guidelines set out by the FRA, Freightliner's consolidated reportable injury frequency rate was 2.11 for the period from March 25, 2015 through December 31, 2015 and we remain focused on improving Freightliner's safety results. Outstanding Customer Service. We are committed to providing exceptional service to our customers and each of our local railroads is focused on exceeding customer expectations. This customer commitment supports not only 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. We engage a leading independent customer-satisfaction research firm to conduct a biennial, comprehensive customer satisfaction survey. The survey results are used to measure our performance and develop continuous improvement programs. Over the past seven years, we have outscored the trucking industry and all other railroads on each of our biennial customer satisfaction surveys. 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 and Freightliner in 2015, we believe that our expanded North American, Australian and European footprint provides us with greater visibility of new commercial and industrial development opportunities in these geographies 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 customers and Class I carriers to move freight more easily and cost-effectively. Separately, in Australia, the U.K. and Continental Europe, where there are open access regimes in the various countries in which we operate, we compete for new business opportunities 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 through our regional structure, consolidating equipment and in-sourcing track maintenance, 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. 5 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 scale efficiencies and 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, conducting 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 102 railroads through the 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 issued in 2015, there were 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 2015 and our upgrade of the Chicago, Ft. Wayne & Eastern Railroad to enhance Class I traffic flow east of Chicago; Acquisitions of international railroads, such as our acquisitions of London-based Freightliner in 2015, 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 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 satisfaction and drive additional revenue growth. In North America, we believe that our footprint of railroads 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, international experience and financial resources enhance our ability to compete for 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. 6 North American Operations United States INDUSTRY According to the AAR, there were 574 freight railroads in the United States operating over 138,400 miles of track. As described in the table below, the AAR classifies railroads operating in the United States into one of three categories based on an individual railroad's operating revenues (adjusted for inflation) and track miles operated. 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 $475.75 million or more 95,264 10,355 At least $20 million and 350 or more miles operated or $40 million to $475.75 million 32,858 Less than $40 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 2015 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. 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 or leased 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 approximately 27,270 miles of track operated by railroads in Canada. Similar to the United States railroad industry, freight railroads in Canada are also categorized as Class I railroads, regional railroads and short line railroads. In Canada, there are two Class I railroads that are largely transcontinental carriers in Canada, with significant United States operations as well, several regional operators and approximately 50 short line railroads. We operate eight local (short line) railroads in Canada over approximately 1,500 miles of track. 7 Australian Operations 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 and also connect key mining regions to ports. The Australian rail network comprises three track gauges: broad, narrow and standard 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, South Australia and Victoria. 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. 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 that they own or lease. We are an accredited rail service provider in all mainland Australian states and in the Northern Territory. Since 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. Through our Australian subsidiaries, we manage approximately 2,900 miles (4,700 kilometers(km)) of track in South Australia and the Northern Territory, which includes approximately 1,400 miles (2,200 km) of track between Darwin and Tarcoola that we manage pursuant to a concession agreement that expires in 2054. We also have a concession agreement for approximately 800 additional miles (1,300 km) of track in South Australia that expires in 2047. Through our concession agreements, we have long-term economic ownership of the tracks that we manage in South Australia and the Northern Territory, and we receive below rail access access fees when other rail operators use the track we manage. In South Australia and the Northern Territory, 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. In addition, through our acquisition of Freightliner, we also have above rail operations in New South Wales. 8 U.K./European Operations United Kingdom According to Network Rail, the authority responsible for Great Britain’s railway network, there are approximately 20,000 miles (32,000 km) of track owned and managed by it and there are seven rail operators licensed for freight transport in Great Britain. Great Britain’s rail network is also open access, which means rail lines can be utilized by any licensed rail operator with an appropriate track access agreement in place. In the U.K.'s open access framework, the infrastructure managers must provide access to the rail infrastructure to all accredited rail service providers, subject to the rules and framework of each applicable access regime. As a result, U.K. rail freight customers have access to multiple rail carriers under the open access regime and our operations face competition from both other rail freight carriers and other modes of transportation, such as road and water. In Great Britain in 2014, 12% of all freight goods were moved by rail, while over the same period, 73% and 15% of goods were moved via road and water, respectively. Through our acquisition of Freightliner, we are the largest rail participant in the U.K. intermodal market (deep sea maritime containers) and when combined with Freightliner's bulk haulage operations, including coal, aggregates, cement and infrastructure services, we are the second largest rail freight company in the U.K. Belgium According to Infrabel, the Belgian railways infrastructure manager, there are approximately 2,233 miles (3,594 km) of track owned and managed by it on the Belgian rail network and currently there are 12 rail operators licensed 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. In Belgium, our subsidiary, Belgium Rail Feeding, operates mainly in the Port of Antwerp. Germany The German rail network is composed of approximately 21,000 miles (33,800 km) of track. There are approximately 385 rail operators certified for freight transport in Germany. In Germany, as well as other Continental European markets, the leading rail freight operators are often state controlled, such as DB Schenker in Germany. As a result of Germany's open access regime, the rail infrastructure may be accessed by any licensed rail operator. In Germany, our subsidiary, ERS Railways, operates intermodal routes from the Ports of Hamburg and Bremerhaven, among others. Our subsidiary, Freightliner Poland, operates on the open-access rail system within Germany with some cross-border traffic into Poland. Netherlands According to ProRail, the entity responsible for the Dutch rail infrastructure, there are approximately 4,370 miles (7,033 km) of track owned and managed by it on the Dutch rail network. As a result of the Netherland'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 20 rail operators that provide freight rail services in the Netherlands. In the Netherlands, our subsidiary, Rotterdam Rail Feeding, operates mainly in the Port of Rotterdam. Our subsidiary, ERS Railways, operates intermodal routes from the Port of Rotterdam. 9 Poland According to the Office of Rail Transport, the railways regulator in Poland, there are approximately 66 rail operators certified for freight transport in Poland operating over approximately 11,500 miles (18,000 km) of track. As a result of Poland’s open access regime, this rail infrastructure may be accessed by any admitted and licensed rail operator. In Poland, our subsidiary, Freightliner Poland, operates on the open access rail system within Poland with some cross-border traffic into other neighboring countries. OPERATIONS Through our subsidiaries, we own or lease 120 freight railroads, including 103 short line railroads and two regional freight railroads in the United States, eight short line railroads in Canada, three railroads in Australia, one in the U.K, one in Poland and two in the Netherlands. Our subsidiaries provide rail service at more than 40 major ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial customers. 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. Also, through various track access arrangements, we operate over approximately 5,700 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 70.2%, 76.4% and 75.1% of our total operating revenues for the years ended December 31, 2015, 2014 and 2013, respectively. 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, 2015, 2014 and 2013, see the discussion under "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 10 We group the commodities we carry as follows: Commodity Description Finished automobiles and stamped auto parts Shipments of coal to power plants and industrial customers Fruits, vegetables and food oils Commodity Group Agricultural Products Wheat, barley, corn, and other grains as well as soybean meal Autos & Auto Parts Chemicals & Plastics Sulfuric acid, ethanol and other chemicals used in manufacturing Coal & Coke Food and Kindred Products Intermodal Lumber & Forest Products Metallic Ores Metals Minerals & Stone Various commodities shipped in trailers or containers on flat cars Finished lumber, wood pellets, export logs and wood chips Manganese ore, iron ore, copper concentrate and ore, alumina and nickel ore Finished steel products and copper, as well as scrap metal and pig iron Construction aggregates, gypsum, salt used in highway ice control, limestone and frac sand Petroleum Products Pulp & Paper Waste Other Liquefied petroleum gases, crude oil, asphalt, diesel fuel and gasoline Outbound shipments of container board and finished papers and inbound shipments of wood pulp Municipal solid waste and construction and demolition debris Freight not included in the commodity groups set forth above 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 2015, revenues generated from originating, terminating and local traffic in North America constituted approximately 93% of our North American freight revenues. In Australia, the U.K. and Continental Europe, railroads generally serve from origin to destination with few, if any, interline movements. Freight-Related Revenues We generate freight-related revenues primarily from port terminal railroad operations and industrial switching (where we operate trains on a contract basis in facilities we do not own), as well as demurrage, storage, car hire, track access rights, transloading, crewing services, traction service (or hook and pull service that requires us to provide locomotives and drivers to move a customers' train between specified origin and destination points), and other ancillary revenues related to the movement of freight. Freight-related revenues represented 24.9%, 17.7% and 18.3% of our total operating revenues for the years ended December 31, 2015, 2014 and 2013, respectively. All Other Revenues We generate all other revenues primarily from revenues from third-party railcar and locomotive repairs, property rentals, railroad construction and other ancillary revenues not directly related to the movement of freight. All other revenues represented 4.9%, 5.9% and 6.6% of our total operating revenues for the years ended December 31, 2015, 2014 and 2013, respectively. 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. In addition, our Australian and U.K./European intermodal businesses have peak seasons late in the third quarter and early in the fourth quarter of each year. 11 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 set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of 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). Segment and Geographic Information For financial information with respect to each of our segments 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. Customers As of December 31, 2015, our operations served more than 2,800 customers. Revenues from our 10 largest customers accounted for approximately 22%, 24% and 24% of our operating revenues for the years ended December 31, 2015, 2014 and 2013, respectively. Two of our 10 largest customers in 2015 were located in Australia, one of which was in our metallic ores (iron ore) commodity group and the other of which was in our agricultural products commodity group. 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 the invested capital associated with the freight movement and the variable portion based on the actual volumes shipped. In the U.K. and Continental Europe, we typically handle freight pursuant to transportation contracts between us and the customer. These contracts are in accordance with industry norms and vary in duration from one to 12 years in the U.K. and one to two years in Poland. These contracts establish a price or a methodology to calculate the price. In some cases, the contracts provide for a minimum volume commitment by the customer and certain business is also conducted on a spot basis. Our contracts will typically provide for a price adjustment to reflect any changes to particular elements of our cost base, such as fuel and track access charges. Employees There are various labor laws governing the countries in which we operate. As of December 31, 2015, we had approximately 7,500 full-time employees. Of this total, approximately 4,100 employees were union members or have employment terms and conditions determined by a labor agreement or negotiated by a labor union or works council. Our railroads have 81 labor agreements with unions. We are currently engaged in negotiations with respect to 14 of those agreements. We are also a party to employee association agreements covering an additional 84 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. In Great Britain, Freightliner has collective bargaining agreements with four recognized unions covering the majority of its employees. We have no collective bargaining agreements in the Netherlands or Poland, and we have one collective bargaining agreement in Belgium. We believe that we maintain positive working relationships with our employees. 12 The following table sets forth an approximation of union and non-union employees as of the year ended December 31, 2015: North America Australia U.K./Europe Total Union/ Represented (1) 1,600 300 2,200 4,100 Non-Union/ Non-Represented 2,800 200 400 3,400 (1) Also includes employees that have employment terms and conditions determined by a labor agreement or negotiated by a labor union or works council. SAFETY Our safety program involves all employees and focuses on the prevention of train accidents and personal injuries. Operating personnel are trained and certified in train operations, the transportation of hazardous materials, safety and operating rules and governmental rules and regulations. Our safety program was implemented across the Freightliner group of companies following our acquisition in March 2015. In order to continuously improve our safety results, we utilize and measure various safety metrics, such as human factor incidents, that are instrumental in reducing our FRA reportable injuries. Following the guidelines set out by the FRA, G&W operations, excluding Freightliner, achieved a consolidated reportable injury frequency rate, as defined by the FRA as reportable injuries per 200,000 man-hours worked, of 0.51 and 0.60 for the years ended December 31, 2015 and 2014, respectively. The average injuries per 200,000 man-hours worked for all United States short line railroads was 2.8 in 2015 (through November) and 3.1 in 2014 (through December). Based on these results, in 2015, 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. Following the guidelines set out by the FRA, Freightliner's consolidated reportable injury frequency rate was 2.11 for the period from March 25, 2015 through December 31, 2015. Freightliner has made significant progress in integrating the G&W safety culture into its operations. Our safety program also focuses on the safety and security of our train operations, and we continue to utilize technology to analyze our track so as to prevent track-caused derailments. In addition, our information technology staff routinely assesses 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 2015, employees of our railroads made more than 570 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. 13 INSURANCE We maintain global liability and property insurance coverage to mitigate the financial risk of providing rail and rail-related services. Our liability policies cover railroad employee injuries, personal injuries associated with grade crossing accidents and other third-party claims associated with our operations. 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 are also covered under our liability policies. Our liability policies currently have self-insured retentions of up to $2.5 million per occurrence. Our property policies cover property and equipment that we own, as well as property in our care, custody and control. Our property policies currently 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. The property policies also provide business interruption insurance arising from covered events. The self-insured retentions under our insurance 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. We also maintain ancillary insurance coverage for other risks associated with rail and rail-related services, including insurance for employment practices, directors’ and officers’ liability, workers’ compensation, pollution, auto claims, crime and road haulage liability, among others. COMPETITION Railroads compete directly with other modes of transportation, principally highway competition from trucks and, on some routes, ships, barges and pipelines. Competition is based primarily upon the rate charged and the transit time required, as well as the quality and reliability of the service provided. In North America, 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 U.K. and Continental Europe, 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). We also face import competition, where commodities we transport face competition from less expensive imported products. In addition, some of the products we transport are exported and face competition on a global basis. 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, position us well in a competitive acquisition and investment environment. 14 North American Operations 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: • • • • • United States Surface Transportation Board (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 operate 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 2015, 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 DOT study on the impacts of a possible increase in federal truck size and weight limits commenced in 2012. The results of the DOT study were released in 2015, but data limitations are expected to hinder any near term changes to the federal truck size and weight limits. 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. In 2010, the FRA issued rules governing the implementation of an interoperable positive train control system (PTC), which, following the passage by Congress of an extension in October 2015, generally is to be completed as early as December 31, 2018. PTC is a collision avoidance technology intended to override locomotive controls and stop a train before an accident. 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 2018. 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. 15 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 is subject to the jurisdiction of the provincial government of Ontario and Goderich-Exeter Railway is subject to the jurisdiction of the Federal government of Canada. 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 2015, the Canadian Minister of Transport adopted enhanced rules concerning the transportation of crude oil, amending the Canada Transportation Act, the Railway Safety Act and the Transportation of Dangerous Goods Act, as well as associated regulations. The effective date for the new rules has not yet been determined. The enhanced rules include mandatory insurance requirements, with insurance levels established based on the nature of the commodities being moved on a railway line as well as a per ton levy on the transportation of crude oil and other designated goods by a railway company. In addition, all federally regulated railway companies and local railway companies must obtain a Railway Operating Certificate before January 1, 2017 in order to operate in Canada. All necessary applications for Railway Operating Certificates are pending for our Canadian railroads. Australian Operations 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. 16 U.K./European Operations 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 or will be implemented in legislation passed in each of the European countries in which we operate. Each of the countries in which we operate in our U.K./European Operations segment is a member of the EU and each one has adopted a similar regulatory regime consistent with European legislation. EU law requires each member state to establish an overarching regulatory body for rail, independent in its organization, legal structure, funding and decision making that is also independent from any infrastructure manager. The regulatory body ensures fair and non-discriminatory access to the rail infrastructure network and will often be responsible for monitoring competition in the rail services market, the licensing of rail operators and rail safety. The rail infrastructure is owned and managed by the infrastructure manager who is responsible for maintaining and renewing the infrastructure as well as enhancements to the rail network. Access to the network is granted by the infrastructure manager through track access arrangements with licensed rail operators, with oversight by the regulatory body in certain EU countries. Currently, all of the infrastructure managers in the European countries in which we operate are owned or controlled by the respective governments in each country. The governments of each member state have ministries or departments dedicated to transport who are responsible for the long-term strategy, planning and funding of the transport infrastructure, including rail. These departments are also responsible for implementing European directives into domestic legislation. Country Belgium Regulatory Body The Regulatory Service for Railway Transport and for Brussels Airport Operations Infrastructure Manager Infrabel Government Ministry Federal Public Service for Mobility and Transport Competition Regulator(s) Belgium Competition Authority Germany Bundesnetzagentur DB Netz AG Federal Ministry of Transport Building and Urban Development (BMVBS) The Netherlands The Human Environment and Transport Inspectorate ProRail The Ministry of Infrastructure and Environment Poland Office of Rail and Transport PKP PLK S.A. Ministry of Economic Development United Kingdom Office of Road and Rail Network Rail Department for Transport Transport Scotland The enforcement of German competition law primarily lies with the Federal Cartel Office (Bundeskartellamt) and in certain circumstances with the respective regional competition authorities (Landeskartellbehörden) The Netherlands Authority for Consumers and Markets Office of Rail Transport The President of the Office of Competition and Consumer Protection Office of Road and Rail 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. 17 North American Operations 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. 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. 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. The cleanup associated with this derailment is substantially complete. 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. Australia Operations In Australia, environmental laws and regulations are administered primarily by the Department of Environment at the federal level and by environmental protection agencies at the state and territories level. 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. U.K./European Operations In the U.K., European, national and local laws regulating the protection of the environment are administered by the Environment Agency, along with local authorities and other related bodies. Regulations relating to the transportation of hazardous goods are administered and enforced by the Health and Safety Executive, the Office of Rail and Road (ORR) and the Department for Transport (DfT). In Belgium, European, national and local environmental policies are administered by the FPS Health, Food Chain Safety and Environment. There is no principal environmental regulator in Germany. State authorities (usually district or county authorities), guided by their respective State Environmental Ministry, carry out day-to-day operational activities. Regulations relating to the transportation of hazardous goods are administered by the Federal Railway Office. 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. The principal body responsible for environmental policy and law in Poland is the Ministry of the Environmental Protection, while the principal enforcement authority is the regional inspector for environmental protection. Regulations relating to the transportation of hazardous goods are administered by the President of the Rail Transport Office. 18 We believe our railroads operate in compliance with current environmental laws and regulations and agency agreements in all material respects. 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. 19 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 economic growth, an economic recession, significant changes in global commodity prices or changes in government regulation could negatively impact our business. For instance, lower prices of commodities, such as iron ore, coal and manganese, could be a factor influencing decisions to delay, cancel or suspend certain mining projects in Australia and elsewhere, which could reduce the demand for our services. If we experience significant decline in demand for our services with respect to one or more commodities or products, we may experience lower revenues, increased operating costs, workforce adjustments and other related activities, which could have a material adverse effect on our results of operations, financial condition and liquidity. 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 an 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. 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 be required to 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. Instability or disruptions in the capital markets, including credit markets, or the deterioration of our financial condition due to internal or external factors, could restrict or prohibit access to the capital markets and could also increase our cost of 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 at a reasonable cost, we may be required to forego potential acquisitions, which could impair the execution of our growth strategy. 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: • • • • • 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. 20 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. The loss of important customers or contracts may adversely affect our results of operations, financial condition and liquidity. Our operations served more than 2,800 customers in 2015. Revenues from our 10 largest customers accounted for approximately 22% of our operating revenues in 2015. One of our 10 largest customers in 2015, Arrium Limited (Arrium), a mining and materials company located in Australia, accounted for approximately 3% of our operating revenues. GWA's operations serve two of Arrium's mining assets, one of which, the Southern Iron mine, was mothballed in the second quarter of 2015 as a result of the significant decline in the price of iron ore, while the Whyalla-based operations, which include the Middleback Range iron ore mines and the Whyalla Steelworks, continued to operate. During 2015, GWA carried approximately 8,300 carloads of iron ore from the Southern Iron mine and, in total, generated approximately A$83 million in freight and freight-related revenues (or approximately $62 million, at the average exchange rate for the year ended December 31, 2015) under the fixed and variable payment structure that is customary in large contracts in Australia. We expect to receive only the fixed portion of the revenue following the mothballing of the Southern Iron mine and both the fixed and variable portion from the Whyalla-based operations. We could lose some or all of this revenue if Arrium continues to suffer from declines in commodity prices or other economic and financial conditions. In February 2016, Arrium announced a recapitalization plan with GSO Capital Partners LP. The recapitalization plan is subject to a variety of closing conditions, including approval by Arrium’s existing lenders, as well as regulatory and other approvals. 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. 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. In 2015, several of our mining and metals customers instituted insolvency proceedings. 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 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. In addition, we may make substantial investments in equipment and assets to support our customers, in particular for those in the mining and natural resources industry. We usually enter into long-term contracts with these customers that include fixed and variable payment terms. Under these contracts the customers pay a fixed payment independent of actual volume shipped as well as a variable rate per ton shipped, with the fixed payment often representing the majority of the total contract payments. Under these arrangements, we are exposed to start-up and ongoing operational risks, including exposure to mine shutdowns, that may reduce the variable payments, as well as customer insolvency risk that could impact our ability to collect our fixed payments. 21 We have procedures for reviewing our receivables and evaluating 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. As a result, unexpected credit exposures 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 2015, approximately 84% 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 traditionally have 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 many of our railroads from Class I carriers and other third parties under lease arrangements with varied expirations, which railroads collectively accounted for approximately 7% of our 2015 total operating revenues. We also own several railroads that lease portions of the track or right-of-way upon which they operate from Class I railroads and other third parties. Our ability to provide comprehensive rail services to our customers on the leased lines depends in large part upon our ability to maintain and extend these lease agreements. Leases from Class I railroads and other third parties that are subject to expiration in each of the next 10 years represent less than 2% of our annual revenues in the year of expiration based on our operating revenues for the year ended December 31, 2015. 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 (2016 - 2020) would represent approximately 0.8%, 0.5%, 1.9%, 0% and 0.4% of our operating revenues in each of those years, respectively, based on our operating revenues for the year ended December 31, 2015. 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. 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, washout 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 or the U.K., which lessen demand for electricity, which in turn lessons the 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 the South Australian grain harvest is also susceptible to the impact of heavy rains and flooding in the Northern Territory. 22 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. Changes in commodity prices could decrease demand for the transport of such commodities, 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 2015, the rapid and significant decline in the price of iron ore and manganese negatively impacted the operations of several of our large customers. As a result, several of our customers' mines have closed. Agricultural commodity prices are also inherently 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, which could negatively impact our results of operations, financial condition and liquidity. 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: • • • • • • • • 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 or improve 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 and safety cultures; 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. 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. 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, commodity trends, the longevity of specific customer plants and factories served, the ability to negotiate acceptable contractual arrangements, including renewals of leases with Class I railroads or extensions of government subsidies, 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. 23 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. Our Second Amended and Restated Senior Secured Syndicated Facility Agreement dated March 20, 2015, as amended by Amendment No. 1 dated September 30, 2015 (Credit Agreement), contains numerous covenants that impose certain restrictions on the way we operate our business. Our Credit Agreement contains numerous covenants that impose restrictions on our ability to, among other things: incur additional indebtedness; pay dividends on capital stock or redeem, repurchase or retire capital stock or indebtedness; • • • make investments, loans, advances and acquisitions; • • • • • • • • engage in certain transactions with affiliates; create liens; sell assets, including capital stock of any of our subsidiaries; consolidate or merge; enter into sale-leaseback transactions; change the business conducted by us and the guarantors; change our fiscal year; and enter into certain agreements containing negative pledges and upstream limitations. Our Credit Agreement also contains financial covenants that require us to meet financial ratios and tests. Our failure to comply with the obligations in our Credit Agreement and other debt agreements could result in an increase in our interest expense and could give rise to events of default under the Credit Agreement or other debt agreements, as applicable, which, if not cured or waived, could permit lenders to accelerate our indebtedness and foreclose on the assets securing such debt, if any. Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under such indebtedness. We have a significant amount of indebtedness. As of December 31, 2015, we had a total indebtedness of $2.3 billion, and we had unused commitments of $575.7 million under our Credit Agreement (after giving effect to $4.5 million of undrawn letters of credit that reduces such availability). Subject to the limits contained in our 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; • limiting our ability to draw down on amounts available under our Credit Agreement or 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 our 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. • • • • • • 24 Market and regulatory responses to climate change, changes in the dynamics of global energy markets, 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 producers, coal-fired power plants, chemical producers, farmers and food producers, automakers and other manufacturers. Significant cost increases, government regulation, changes in market dynamics 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. For instance, over the past few years, production of natural gas in the United States has increased dramatically, which has resulted in lower natural gas prices. As a result of sustained low natural gas prices, coal-fired power plants have been displaced by natural gas-fired power generation facilities. If natural gas prices were to remain low, additional coal-fired plants could be displaced, which could further reduce our coal volumes and revenues, 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 changes to our operations and decreased revenues associated with climate change. We may also experience increased costs related to defending and resolving legal claims and other litigation related to climate change, including claims alleging that our operations have a negative impact 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, increasingly frequent and intense storms and any alteration of trade patterns, 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. 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 toxic/poisonous inhalation hazard (TIH/ PIH) materials, such as chlorine, crude oil and other dangerous substances 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 materials. 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. 25 We may be impacted by our inability to obtain government funding for capital projects or to benefit from revenue support grants. 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 2015, we obtained partial or complete funding by United States and Canadian federal, state, provincial and municipal agencies for 49 new projects. The net spending associated with these grant-funded projects represented approximately 3% of our net capital expenditures during 2015. 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. Freightliner benefits from the U.K. Government administered Mode Shift Revenue Support Scheme (MSRS), which supports the movement of freight away from road, particularly in the container market. While the U.K. Government has confirmed its continued funding of MSRS for England, the amount of the funding available for the period 2016 to 2020 will be less than for the period 2010 to 2015. The basis on which the reductions should be applied remains subject to review and may result in reduced grants in 2016 and in subsequent years. Reduced grants may have a material adverse effect on our results of operations, financial condition and liquidity. 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 and 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, our New England Central Railroad is also used by Amtrak for passenger service in New England and our Connecticut Southern Railroad operates over Amtrak trackage in Connecticut. In Australia, The Ghan passenger train is operated by a third party over the track of GWA (North) Pty Ltd between Tarcoola and Darwin. Further, we operate excursion trains on behalf of third parties on certain of the rail lines over which we operate. In the U.K. and Continental Europe, freight trains are primarily operated over the same track as passenger trains and will also regularly pass through passenger stations. 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 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. 26 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. 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, following the passage by Congress of an extension in October 2015, generally is to be completed as early as December 31, 2018. 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 2018. 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. 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 DOT study on the impacts of a possible increase in federal truck size and weight limits also commenced in 2012. The results of the DOT study were released in 2015, but data limitations are expected to hinder any near term changes to the federal truck size and weight limits. 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. Currently, there are ongoing governmental reviews into the structure, roles and functions of both the ORR and Network Rail. The results of these reviews may affect our operations and increase our operating costs. 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. 27 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 fully covered by our insurance, which 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 and Europe, 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 that we transport as a fuel source for electricity generation. In either case, we could lose a source of revenues. In addition, we are subject to import competition, where commodities that we transport face competition from less expensive imported products. Some of the products that we transport are exported and face competition on a global basis. 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 risks related to competition associated with the open access regimes in Australia and Europe, see "Additional Risks Associated with our Foreign Operations." Exposure to market risks, particularly changes in interest rates and foreign currency exchange rates, and hedging transactions entered into to mitigate these and other risks could adversely impact our results of operations, financial condition and liquidity. We are exposed to various market risks, including interest rate and foreign currency exchange rate risks. It is impossible to fully mitigate all such exposure and higher interest rates and unfavorable fluctuations in foreign currency exchange rates could have an adverse effect on our results of operations, financial condition and liquidity. From time to time, we may use various financial instruments to reduce our exposure to certain market risks. For instance, we have entered into interest rate swaps to mitigate the risk associated with the floating interest rate payments under our Credit Agreement. While these financial instruments reduce our exposure to market risks, the use of such instruments may ultimately limit our ability to benefit from lower interest rates or favorable foreign currency exchange rate fluctuations due to amounts fixed at the time of entering into the hedge agreement and may have significant costs associated with early termination, which could have a material adverse effect on our results of operations, financial condition and liquidity. We may be adversely affected by diesel fuel supply constraints resulting from disruptions in the fuel markets and increases in diesel fuel costs. In 2015, we consumed 63.3 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, terrorist attack or otherwise, diesel fuel may not be readily available and may be subject to rationing regulations. 28 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, although there may be a significant delay in our recovery of fuel costs based on the terms of the fuel surcharge program. However, if Class I railroads change their policies regarding fuel surcharges, the compensation we receive for increases in fuel costs may decrease, which could have a negative effect on our profitability. Costs for fuel used in operations were approximately 8% and 12% of our operating expenses for the years ended December 31, 2015 and 2014, respectively. 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. 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 the Federal Employers' Liability Act (FELA) which is applicable only to railroads. FELA's fault-based tort system produces results that are unpredictable and inconsistent as compared with a no-fault worker's compensation system. The variability inherent in this system could result in 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 81 collective bargaining agreements with various labor unions in the United States, Australia, Canada and Europe. We are currently engaged in negotiations with respect to 14 of those agreements. Approximately 4,100 of our approximately 7,500 full time employees are either union members or have employment terms and conditions determined by a labor agreement or negotiated by a labor union or works council. We also have entered into employee association agreements with an additional 84 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 slowdown or strike, the national rail network and our operations would be adversely affected. In the U.K., our operations are reliant on the rail infrastructure provided by Network Rail. A majority of Networks Rail’s employees are unionized, and if Network Rail were to have a work stoppage or strike, the U.K. 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. 29 The execution of our growth strategy, in particular our acquisition and investment strategy, is substantially dependent on our senior management team. We rely on our senior management team to execute our growth strategy. Our growth strategy is different than the strategy of many other railroads because of our acquisition and investment focus. 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, as well as our results of operations, financial condition and liquidity. 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. 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. 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 business and results of operations. 30 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 U.K., Belgium, Germany, the Netherlands and Poland. 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; foreign currency fluctuations; adverse effects due to changes in the European Union (EU) or eurozone membership, including risks associated with the U.K.'s potential exit from the EU; adverse effects due to the migration of people into the EU; 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. 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 account for approximately 10%, 2% and 10%, respectively, of our consolidated income from operations. The results of operations of our foreign entities are maintained in the local currency (the British pound, the Australian dollar, the Canadian dollar, the Euro and the Polish zloty) and then 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 exchange rate for the statement period. As a result, any appreciation or depreciation of these currencies against the United States dollar can impact our consolidated results of operations. 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 consolidated 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. 31 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. European countries in which our subsidiaries operate also have open access regimes that permit third-party rail operators to compete for the business of our subsidiaries that operate in such countries. 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 the U.K., if the ORR were to change the access regime, even if we were able to pass any increased fees onto customers, we may be less competitive and our revenues 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. Changes to the open access regimes could have a material adverse effect on our business, results of operations, financial condition and liquidity. Revocation of our safety accreditations could result in a loss of revenue and termination of our concession. Our operating subsidiaries in Australia and Europe hold safety accreditations that are required in order for them to provide freight rail services. 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. Freightliner has significant pension funding obligations. Freightliner provides a defined benefit pension program for its U.K. employees through a standalone shared cost arrangement within the Railways Pension Scheme (Pension Program). The Pension Program has more than 300,000 active and retired employees, and participation by more than 150 rail companies with assets under management in excess of £20 billion. There are six discrete sections within the Pension Program and participating employers may set up more than one arrangement in the program. There is no cross-subsidy or funding obligation between the discrete sections of the Pension Program or between the discrete arrangements of any participating employers. The Pension Program is managed and administered by a professional pension administration company and is overseen by trustees with professional advice from independent actuaries and other advisers. The Freightliner section of the Pension Program is a shared cost arrangement with required contributions shared between Freightliner and its employees with Freightliner contributing 60% and the remaining 40% contributed by active employees. The Pension Program's assets are subject to market fluctuation, and its assets and liabilities are formally valued on an independent actuarial basis every three years. A key element of the valuation process is an assessment of the creditworthiness of the participating employer. Less creditworthy employers are encouraged to invest in lower risk assets, with on average lower returns, which impacts the assessment of the pension liabilities and any underlying deficit. In the event that the Freightliner section of the Pension Program is underfunded on an actuarial basis at any valuation point, the shared cost nature of the program means that Freightliner is responsible for paying 60% of any deficit contributions, with active employees contributing the remaining 40%, in each case over a recovery period agreed with the trustees. If the Freightliner section of the Pension Program is terminated and wound up, any deficit would fall entirely on Freightliner and would not be shared with active employees. Equally, if all active employees were to leave the Freightliner section, Freightliner would have full responsibility for funding any deficits. As of December 31, 2015, there 32 were approximately 1,700 active Freightliner employees in the Freightliner section of the Pension Program. Freightliner’s pension expense and funding of its section of the Pension Program may increase in the future and, as a result, could have a material adverse effect on our 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, 2015, we had tax benefits totaling approximately $63.2 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 tax credit carryforwards and other tax attributes to reduce our future tax liabilities may be limited. The United States Short Line Tax Credit expires on December 31, 2016. As a result, our effective tax rate in 2017 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 its tax year. On December 18, 2015, the Short Line Tax Credit (which had previously expired on December 31, 2014) was extended for 2015 and 2016. The most recent extension of the Short Line Tax Credit only extended the credit through December 31, 2016. 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 their 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 $322.5 million as of December 31, 2015. 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, which could result in a higher effective tax rate for us, thereby reducing our earnings. See "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Cash Repatriation" for additional information. Non-U.S. holders who own or owned more than a certain ownership threshold may be subject to United States federal income tax on gains realized on the disposition of the shares of our Class A Common Stock. It is possible that we are a United States real property holding corporation currently or will become one in the future for United States federal income tax purposes. If we are or become a United States real property holding corporation, so long as our Class A Common Stock continues to be regularly traded on an established securities market, only a non-U.S. holder (i.e., a holder that is not a United States citizen or resident, a corporation or partnership organized under the laws of the United States or any state thereof and certain trusts and estates) who holds or held (at any time during the shorter of the five-year period preceding the date of disposition or the holder's holding period) more than 5% of our Class A Common Stock will be subject to United States federal income tax on the disposition of our Class A Common Stock, by reason of our status as a United States real property holding corporation. Non-U.S. holders should consult their own tax advisors concerning the consequences of disposing of shares of our Class A Common Stock. ITEM 1B. Unresolved Staff Comments. None. 33 ITEM 2. Properties. Genesee & Wyoming, through our subsidiaries, currently has interests in 120 freight railroads, including 103 short line railroads and two regional freight railroads in the United States, eight short line railroads in Canada, three railroads in Australia, one in the U.K, one in Poland and two in the Netherlands. The rail properties that we own and operate in North America 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. Further, unless we own the rail properties outright, we do not normally control mineral rights or the ability to grant fiber optic and other easements in the properties. 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. Further, under open access regimes as more fully described under "Part I Item 1. Business," the track may be accessed by any operator admitted and licensed to provide freight transport in the country. 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 2% of our annual revenues in the year of expiration, based on our operating revenues for the year ended December 31, 2015. 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 5,700 additional miles of track that are owned or leased by others under contractual track access arrangements. The track miles listed below exclude approximately 1,995 miles of sidings and yards (1,765 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, Belgium, the Netherlands, Poland and the U.K. are also excluded. We have recorded mortgages on many of the owned properties located in the United States and described in the table below as additional security for our outstanding obligations under our Credit Agreement. See "Part I Item 1A. Risk Factors" for additional information on our Credit Agreement. The following table sets forth certain information with respect to our railroads as of December 31, 2015: RAILROAD AND LOCATION NORTH AMERICAN 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 YEAR ACQUIRED TRACK MILES STRUCTURE 1899 1985 1986 1987 1988 1992 1993 1993 1995 1996 1996 1996 1996 27 8 58 86 368 128 4 178 288 108 98 24 2 Owned Owned Owned Owned/Leased Owned/Leased Owned Owned Leased Owned/Leased Owned Owned Owned/Leased Leased 34 RAILROAD AND LOCATION Corpus Christi Terminal Railroad, Inc. (CCPN) Texas Golden Isles Terminal Railroad, Inc. (GITM) Georgia Savannah Port Terminal Railroad, Inc. (SAPT) Georgia South Buffalo Railway Company (SB) New York St. Lawrence & Atlantic Railroad Company (SLR) Maine, New Hampshire, Vermont York Railway Company (YRC) Pennsylvania Utah Railway Company (UTAH) Utah Salt Lake City Southern Railroad Company, Inc. (SLCS) Utah Chattahoochee Industrial Railroad (CIRR) Georgia Arkansas Louisiana & Mississippi Railroad Company (ALM) Arkansas, Louisiana Fordyce and Princeton R.R. Co. (FP) Arkansas Tazewell & Peoria Railroad, Inc. (TZPR) Illinois Golden Isles Terminal Wharf (GITW) Georgia First Coast Railroad Inc. (FCRD) Florida, Georgia AN Railway, L.L.C. (AN) Florida Atlantic & Western Railway, Limited Partnership (ATW) North Carolina The Bay Line Railroad, L.L.C. (BAYL) Alabama, Florida East Tennessee Railway, L.P. (ETRY) Tennessee Galveston Railroad, L.P. (GVSR) Texas Georgia Central Railway, L.P. (GC) Georgia KWT Railway, Inc. (KWT) Kentucky, Tennessee Little Rock & Western Railway, L.P. (LRWN) Arkansas Meridian & Bigbee Railroad, L.L.C. (MNBR) Alabama, Mississippi Riceboro Southern Railway, LLC (RSOR) Georgia Tomahawk Railway, Limited Partnership (TR) Wisconsin Valdosta Railway, L.P. (VR) Georgia Western Kentucky Railway, L.L.C. (WKRL) Kentucky Wilmington Terminal Railroad, Limited Partnership (WTRY) North Carolina Chattahoochee Bay Railroad, Inc. (CHAT) Alabama, Georgia Maryland Midland Railway, Inc. (MMID) Maryland Chattooga & Chickamauga Railway Co. (CCKY) Georgia YEAR ACQUIRED TRACK MILES 1997 1998 1998 2001 2002 2002 2002 2002 2003 2003 2003 2004 2004 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2006 2007 2008 42 13 18 54 143 42 41 2 15 62 57 25 6 32 96 10 108 4 39 171 69 79 147 18 6 10 — 17 26 70 49 STRUCTURE Leased Owned/Leased Leased Owned/Leased Owned Owned Owned Owned Owned Owned Owned Leased Owned Leased Leased Owned Owned Owned/Leased Leased Owned/Leased Owned Owned Owned/Leased Leased Owned Owned Owned Leased Owned Owned Leased 35 RAILROAD AND LOCATION Luxapalila Valley Railroad, Inc. (LXVR) Alabama, Mississippi Columbus and Greenville Railway Company (CAGY) Mississippi The Aliquippa & Ohio River Railroad Co. (AOR) Pennsylvania The Columbus & Ohio River Rail Road Company (CUOH) Ohio The Mahoning Valley Railway Company (MVRY) Ohio Ohio Central Railroad, Inc. (OHCR) Ohio Ohio and Pennsylvania Railroad Company (OHPA) Ohio Ohio Southern Railroad, Inc. (OSRR) Ohio The Pittsburgh & Ohio Central Railroad Company (POHC) Pennsylvania The Warren & Trumbull Railroad Company (WTRM) Ohio Youngstown & Austintown Railroad Inc. (YARR) Ohio The Youngstown Belt Railroad Company (YB) Ohio Georgia Southwestern Railroad, Inc. (GSWR) Alabama, Georgia Arizona Eastern Railway Company (AZER) Arizona, New Mexico Hilton & Albany Railroad, Inc. (HAL) Georgia Columbus & Chattahoochee Railroad, Inc. (CCH) Alabama Alabama & Gulf Coast Railway LLC (AGR) Alabama, Mississippi, Florida Arizona & California Railroad Company (ARZC) Arizona, California Bauxite & Northern Railway Company (BXN) Arkansas California Northern Railroad Company (CFNR) California Carolina Piedmont Railroad (CPDR) South Carolina Cascade and Columbia River Railroad Company (CSCD) Washington Central Oregon & Pacific Railroad, Inc. (CORP) Oregon, California The Central Railroad Company of Indiana (CIND) Indiana, Ohio Central Railroad Company of Indianapolis (CERA) Indiana Chesapeake and Albermarle Railroad (CA) North Carolina, Virginia Chicago, Fort Wayne & Eastern Railroad (CFE) Indiana, Ohio Conecuh Valley Railway, L.L.C. (COEH) Alabama Connecticut Southern Railroad, Inc. (CSO) Connecticut Dallas, Garland & Northeastern Railroad, Inc. (DGNO) Texas Eastern Alabama Railway, LLC (EARY) Alabama YEAR ACQUIRED TRACK MILES STRUCTURE 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2011 2011 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 34 151 6 247 6 70 3 18 35 4 5 14 231 200 56 26 283 190 5 210 28 131 306 82 43 68 281 13 23 168 26 Owned Owned Owned Owned/Leased Owned Owned/Leased Owned Owned Owned Leased Leased Owned Owned/Leased Owned Leased Leased Owned/Leased Owned Owned Leased Owned Owned Owned/Leased Owned Owned/Leased Leased Owned/Leased Owned Owned/Leased Owned/Leased Owned 36 RAILROAD AND LOCATION Grand Rapids Eastern Railroad (GR) Michigan Huron and Eastern Railway Company, Inc. (HESR) Michigan Indiana & Ohio Railway Company (IORY) Indiana, Ohio, Michigan Indiana Southern Railroad, LLC (ISRR) Indiana Kiamichi Railroad Company L.L.C. (KRR) Oklahoma, Arizona, Texas Kyle Railroad Company (KYLE) Colorado, Kansas Marquette Rail LLC (MQT) Michigan The Massena Terminal Railroad Company (MSTR) New York Michigan Shore Railroad (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, Inc. (RCPE) Minnesota, South Dakota, Nebraska, Wyoming Arkansas Midland Railroad, Inc. (AKMD) Arkansas The Prescott & Northwestern Railroad Company (PNW) Arkansas Warren & Saline River Railroad Company (WSR) Arkansas 37 YEAR ACQUIRED TRACK MILES 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2014 2015 2015 2015 STRUCTURE Owned Owned/Leased Owned/Leased Owned Owned Owned/Leased Leased Owned Owned Owned/Leased Owned/Leased Owned Owned Owned Owned 22 330 469 165 231 505 128 3 4 78 483 324 53 54 14 135 Owned/Leased 4 1 Owned Leased 297 Owned/Leased 47 67 34 Owned Leased Owned 180 Owned/Leased 9 35 20 651 114 6 1 Leased Leased Owned Owned Owned/Leased Owned Owned RAILROAD AND LOCATION CANADA: Huron Central Railway Inc. (HCRY) Ontario 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 U.K./EUROPEAN OPERATIONS: Rail Feeding (Rotterdam and Antwerp) Freightliner U.K. Freightliner Poland ERS Railways AUSTRALIAN OPERATIONS Genesee & Wyoming Australia Pty Ltd (GWA) GWA (North) Pty Ltd (GWA North) Freightliner Australia Pty Ltd (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 STRUCTURE 1997 1997 2002 2012 2012 2012 2012 2014 2008 2015 2015 2015 2006 2010 2015 173 301 95 242 184 157 46 10 — — — — 791 1,395 — Owned/Leased Owned/Leased Owned Owned Owned/Leased Leased Leased Owned Open Access Open Access Open Access Open Access Leased/ Open Access Leased/Open Access Open Access As of December 31, 2015, our rolling stock consisted of 1,344 locomotives, of which 1,011 were owned and 333 were leased, and 29,225 railcars, of which 7,406 were owned and 21,819 were leased. A breakdown of the types of railcars owned and leased by us as of December 31, 2015 is set forth in the table below: EQUIPMENT Railcars by Car Type: Box Hoppers Flats Gondolas Covered hoppers Tank cars Containers Maintenance of way Crew cars Other Owned Leased Total 1,288 1,272 1,718 563 2,419 12 — 81 13 40 7,406 8,009 3,556 2,549 2,186 4,823 116 335 — — 245 21,819 9,297 4,828 4,267 2,749 7,242 128 335 81 13 285 29,225 38 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 set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report, we maintain 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 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. See "Part I Item 1A. Risk Factors" for additional information. ITEM 4. Mine Safety Disclosures. Not applicable. 39 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, 2015 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Year Ended December 31, 2014 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Number of Holders High Low $ $ $ $ $ $ $ $ 72.54 75.84 97.34 105.15 High 100.89 105.47 105.51 99.86 $ $ $ $ $ $ $ $ Low 50.28 57.51 76.18 82.15 83.33 93.82 93.37 87.19 On February 19, 2016, there were 353 Class A Common Stock record holders and 11 Class B Common Stock record holders. Dividends We did not pay cash dividends to our Class A or Class B common stockholders for the years ended December 31, 2015 and 2014. We do not intend to pay cash dividends to our common stockholders for the foreseeable future and intend to retain earnings, if any, for future operation and expansion of our business. Any determination to pay dividends to our common stockholders in the future will be at the discretion of our Board of Directors and subject to applicable law and any restrictions contained in our Credit Agreement. 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. 40 Issuer Purchases of Equity Securities 2015 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) — $ 189 218 407 $ — 69.71 68.08 68.84 (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs — $ — — (d) Maximum Number of Shares (or Units) (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (2) 300,000,000 300,000,000 300,000,000 — $ 300,000,000 (1) The 407 shares acquired in the three months ended December 31, 2015 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 Third Amended and Restated 2004 Omnibus Incentive Plan. (2) In conjunction with Amendment No. 1 to the Credit Agreement, the Board authorized the repurchase of up to $300.0 million of our Class A Common Stock and appointed a special committee of the Board to review and approve repurchases proposed by management. 41 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, 2015, 2014, 2013, 2012 and 2011. 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 Loss on forward contracts Other income, net Income from continuing operations before income taxes and income from equity investment Provision for income taxes Income from equity investment in RailAmerica, net Net income 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: Basic earnings per common share Weighted average shares—Basic Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders: Diluted earnings per common share 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 2015 (1) For the Year Ended December 31, 2013 (3) (In thousands, except per share amounts) 2014 (2) 2012 (4) 2011 (5) $ 2,000,401 1,616,140 384,261 — 481 (67,073) (18,686) 1,948 $ 1,639,012 1,217,441 421,571 — 1,445 (56,162) — 1,008 $ 1,568,643 1,188,455 380,188 — 3,971 (67,894) — 1,327 $ 874,916 684,594 190,322 — 3,725 (62,845) (50,106) 2,182 $ 829,096 637,317 191,779 907 3,243 (38,617) — 703 300,931 (75,894) — 225,037 — $ 225,037 367,862 (107,107) — 260,755 — $ 260,755 317,592 (46,296) — 271,296 2,139 $ 269,157 $ $ $ $ 3.97 56,734 3.89 57,848 $ $ 4.71 55,305 4.58 56,972 5.00 53,788 4.79 56,679 83,278 (46,402) 15,557 52,433 4,375 48,058 158,015 (38,531) — 119,484 — $ 119,484 $ $ 1.13 42,693 1.02 51,316 2.99 39,912 2.79 42,772 $ $ $ $ 6,795,604 $ 5,595,753 $ 5,319,821 $ 5,226,115 $ 2,294,157 $ 2,223,306 $ $ 2,519,461 $ 1,548,051 $ 1,540,346 — $ — $ $ 2,357,980 $ 2,149,070 $ 1,770,566 — $ 399,524 $ 1,500,462 $ 569,026 — $ $ 960,634 (1) On January 5, 2015, we completed the acquisition of Pinsly Arkansas for $41.3 million in cash. On March 25, 2015, we acquired all of the outstanding share capital of RailInvest Holding Company Limited, the parent company of London-based Freightliner, for total consideration of £516.3 million (or $769.1 million at the exchange rate on March 25, 2015). In addition, we incurred $12.6 million of acquisition costs and $2.6 million of integration costs associated with Freightliner during 2015 and recorded a loss of $18.7 million on the settlement of foreign currency forward purchase contracts during 2015, which were entered into in contemplation of the Freightliner acquisition. (2) On May 30, 2014, our new subsidiary, Rapid City, Pierre & 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. (3) 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 affiliates of Carlyle Partners V, L.P. (Collectively, Carlyle) cash in lieu of fractional shares and all 42 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. (4) 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. We also recorded a $50.1 million non-cash mark-to-market expense in 2012 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. (5) On September 1, 2011, we acquired the stock of AZER with net assets of $90.3 million. 43 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 set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). When comparing our results of 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 shutdowns, sales of property and equipment, derailments and weather-related conditions, such as hurricanes, cyclones, tornadoes, high winds, droughts, heavy snowfall, unseasonably hot or cold weather, freezing and flooding, among other factors. 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, global commodity prices and foreign exchange rates, such as steel products, iron ore, paper products, lumber and forest products and agricultural 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. Outlook for 2016 Financial Expectations We expect our revenues to be flat year over year as the full year impact of the Freightliner acquisition is offset by four significant factors: (1) the negative currency translation impact of the weaker Australian and Canadian dollars, the British pound and the Euro relative to the United States dollar, (2) a decline in coal traffic in the United States and the United Kingdom due to competition from low-priced natural gas, (3) a decline in traffic from mining customers in Australia due to mine closures in 2015 and (4) lower fuel surcharge revenues. Fuel surcharges are expected to be lower due to a lower average price for diesel fuel in 2016 compared with 2015. We expect our income from operations to decline as the negative impact of the lower coal and Australia mining customer revenues, lower fuel surcharges and the impact of currency translation will only be partially offset by pricing increases, expense reductions and the full year impact of the Freightliner acquisition. Capital Plan We expect to make capital investments totaling $225 million in 2016. Of this total, $175 million is planned for ongoing railroad track and equipment capital and $15 million is planned for matching capital spending associated with government grant funded projects in the United States. In addition, we expect to spend $35 million on new business investments, which include track projects, equipment purchases and investments in new facilities. Our capital plan excludes acquisitions and new business development projects that arise during the year. United States Short Line Tax Credit The United States Short Line Tax Credit, from which we have benefited since 2005, will expire on December 31, 2016. Without an extension to the tax credit, we expect our income tax rate to increase significantly in 2017. While the Short Line Tax Credit has been extended on five separate occasions in the past, we are unable to predict the outcome of the United States legislative process. The Short Line Tax Credit will provide a net tax benefit of approximately $27 million in 2016 based on our current railroad ownership. Corporate and Business Development 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. 44 Overview We own and operate 120 freight railroads worldwide that are organized in 11 operating regions with 7,500 employees and more than 2,800 customers. The financial results of our 11 operating regions are reported in the following three distinct segments: • • • Our North American Operations segment includes nine operating regions that serve 41 U.S. states and four Canadian provinces. This segment includes 113 short line and regional freight railroads with more than 13,000 track-miles. Our Australian Operations segment provides rail freight services in South Australia, the Northern Territory and New South Wales. Included in the Australian Operations segment is our operation of the 1,400-mile Tarcoola-to-Darwin rail line, which is the sole north-south rail corridor outside the coasts and primarily carries intermodal and commodity freight. Our U.K./European Operations segment includes the majority of the operations of Freightliner Group Limited (Freightliner), which we acquired in March 2015. Freightliner is the United Kingdom's (U.K.) largest rail maritime intermodal operator and the U.K.'s second-largest rail freight company. Our U.K./European Operations segment also includes heavy-haul freight operations in Poland and Germany and cross-border intermodal services connecting Northern European seaports with key industrial regions throughout the continent. Our subsidiaries provide rail service at more than 40 major ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial customers. As more fully described in 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, the results of operations of the foreign entities are maintained in the respective local currency 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 our results of operations. On March 25, 2015, we completed the acquisition of all of the outstanding share capital of RailInvest Holding Company Limited, the parent company of London-based Freightliner, pursuant to the terms of a Share Purchase Agreement dated February 24, 2015. Certain former management shareholders of Freightliner (Management Shareholders) retained an approximate 6% economic interest in Freightliner in the form of deferred consideration. We expect to settle the deferred consideration by the end of 2020. For additional information regarding the deferred consideration, see Note 3, Changes in Operations, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. We funded the acquisition with borrowings under our Second Amended and Restated Senior Secured Syndicated Credit Facility Agreement, as amended (the Credit Agreement), and available cash, see "Liquidity and Capital Resources—Credit Agreement" below. The foreign exchange rate used to translate the total consideration to United States dollars was $1.49 for one British pound (GBP). For additional information regarding this purchase, see "Changes in Operations—Europe— Freightliner Group Limited" below. The calculation of the total consideration for the Freightliner acquisition is presented below (amounts in thousands): Cash consideration Deferred consideration Total consideration GBP USD £ £ 492,083 24,200 516,283 $ $ 733,006 36,048 769,054 45 The results of operations from Freightliner have been included in our consolidated statements of operations since the March 25, 2015 acquisition date. We incurred $12.6 million of acquisition costs and $2.6 million of integration costs associated with Freightliner for the year ended December 31, 2015, which were included within other expenses in our consolidated statements of operations. In addition, we recorded a loss of $18.7 million on the settlement of foreign currency forward purchase contracts for the year ended December 31, 2015. The foreign currency forward purchase contracts were entered into to fix £307.1 million of the purchase price for Freightliner to $475.0 million and £84.7 million of the purchase price to A$163.8 million (see Note 9, Derivative Financial Instruments, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report) and were settled on March 23, 2015. The results of Freightliner's U.K. and Continental Europe operations are included in our U.K./European Operations segment and the results of Freightliner's Australia operations are included in our Australian Operations segment (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). On January 5, 2015, we completed the acquisition of certain subsidiaries that constitute Pinsly Arkansas from Pinsly Railroad Company for $41.3 million in cash. We funded the acquisition with borrowings under our Amended and Restated Senior Secured Syndicated Credit Facility (the Prior 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. Consolidated Annual Results Our operating revenues increased $361.4 million, or 22.0%, to $2.0 billion for the year ended December 31, 2015, compared with $1.6 billion for the year ended December 31, 2014. Income from operations for the year ended December 31, 2015 was $384.3 million, compared with $421.6 million for the year ended December 31, 2014. Our operating ratio, defined as operating expenses divided by operating revenues, was 80.8% for the year ended December 31, 2015, compared with 74.3% for the year ended December 31, 2014. The increase in our operating ratio was primarily driven by lower operating margins from Freightliner, which operates in an open access environment using primarily leased equipment. Our same railroad operating ratio for the year ended December 31, 2015 was 76.2%, compared with 74.2% for the year ended December 31, 2014. When we discuss either operating ratios from existing operations or same railroad operating ratios, we are referring to the change in our operating ratio, period-over-period, associated with operations that we managed in both periods (excluding the impact of acquisitions). Our net income for the year ended December 31, 2015 was $225.0 million, compared with net income of $260.8 million for the year ended December 31, 2014. Our diluted EPS for the year ended December 31, 2015 were $3.89 with 57.8 million weighted average shares outstanding, compared with diluted EPS of $4.58 with 57.0 million weighted average shares outstanding for the year ended December 31, 2014. Our effective income tax rate for the year ended December 31, 2015 was 25.2%, compared with 29.1% for the year ended December 31, 2014. During the year ended December 31, 2015, we generated $475.1 million in cash flows from operating activities. During the same period, we purchased $371.5 million of property and equipment, including $65.6 million for new business investments, partially offset by $41.7 million in cash received from government grants and other outside parties for capital spending and $4.0 million in cash proceeds from the sale of property and equipment. We also paid $740.2 million for the acquisitions of Freightliner and Pinsly Arkansas and $18.7 million for the settlement of foreign currency forward purchase contracts related to the acquisition of Freightliner. In addition, we received net proceeds of $576.6 million primarily related to borrowings from the refinancing of our Credit Agreement in conjunction with our acquisition of Freightliner. Our unused borrowing capacity for the year ended December 31, 2015 was $575.7 million. 46 Our results for the year ended December 31, 2015 and 2014 included certain items affecting comparability between the periods that are set forth below (dollars in millions, except per share amounts): Year Ended December 31, 2015 Loss on settlement of Freightliner acquisition-related foreign currency forward purchase contracts Freightliner acquisition-related costs Business development and related costs Net gain on sale of assets 2015 Short Line Tax Credit Impact of reduction in U.K. statutory tax rate Year Ended December 31, 2014 Business development and related costs Credit facility refinancing costs Net gain on sale of assets 2014 Short Line Tax Credit RailAmerica-related tax benefit Adjustment for tax returns from previous fiscal year Income/(Loss) Before Taxes Impact After-Tax Net Income/(Loss) Impact Diluted Earnings/ (Loss) Per Common Share Impact $ $ $ $ $ $ $ $ $ $ $ $ (18.7) $ (12.6) $ (9.1) $ 2.3 $ — $ — $ (5.2) $ (4.7) $ 5.1 $ — $ — $ — $ (11.6) $ (9.5) $ (5.6) $ 1.7 27.4 9.7 $ $ $ (3.2) $ (2.9) $ 3.5 27.0 $ $ 3.9 $ (0.7) $ (0.20) (0.16) (0.10) 0.03 0.47 0.17 (0.06) (0.05) 0.06 0.47 0.07 (0.01) In December 2015, the United States Short Line Tax Credit (which had previously expired on December 31, 2014) was extended for fiscal years 2015 and 2016. In the fourth quarter of 2015, G&W recorded a tax benefit of $27.4 million associated with the extension of the Short Line Tax Credit, as well as a tax benefit of $9.7 million associated with a prospective change in U.K. tax rates enacted during the fourth quarter of 2015. In December 2014, the Short Line Tax Credit (which had previously expired on December 31, 2013) was extended for fiscal year 2014. In the fourth quarter of 2014, G&W recorded a tax benefit of $27.0 million associated with the extension of the Short Line Tax Credit, as well as a tax benefit of $3.9 million 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 acquisition of RailAmerica, Inc. (RailAmerica). For the year ended December 31, 2015, our results also included Freightliner acquisition-related costs of $12.6 million, loss on settlement of foreign currency forward purchase contracts related to the Freightliner acquisition of $18.7 million, business development and related costs of $9.1 million and net gain on sale of assets of $2.3 million. For the year ended December 31, 2014, our results also included business development and related costs of $5.2 million, credit facility refinancing costs of $4.7 million and net gain on sale of assets of $5.1 million. Annual Results by Segment Operating revenues from our North American Operations decreased $62.9 million, or 4.8%, to $1,241.8 million for the year ended December 31, 2015, compared with $1,304.8 million for the year ended December 31, 2014. Excluding $44.0 million of revenues from new operations and a $16.1 million decrease from the impact of foreign currency depreciation, our North American Operations same railroad revenues decreased $90.9 million, or 7.1%, primarily due to declines in coal and metals shipments. When we discuss our same railroad revenues, we are referring to the change in our revenues, period-over- period, associated with operations that we managed in both periods (excluding the impact of acquisitions). 47 North American Operations traffic decreased 134,757 carloads, or 7.6%, to 1,644,400 carloads for the year ended December 31, 2015. Excluding 59,552 carloads from new operations, same railroad traffic decreased 194,309 carloads, or 10.9%, for the year ended December 31, 2015, compared with the year ended December 31, 2014. The same railroad decrease was principally due to 88,517 carloads of coal and coke traffic (primarily utility coal in the Midwest, Central and Ohio Valley regions), 52,249 carloads of metals traffic (primarily steel and scrap in the Southern, Ohio Valley and Northeast regions), 19,552 carloads of other traffic (primarily overhead Class I traffic in the Central Region), 10,098 carloads of agricultural products traffic (primarily in the Ohio Valley and Mountain West regions), 7,398 carloads of minerals and stone traffic (primarily frac sand in the Midwest, Southern, Northeast and Central regions), 6,732 carloads of autos and auto parts traffic (primarily in the Pacific and Ohio Valley regions), 5,960 carloads of lumber and forest products traffic (primarily in the Southern and Pacific regions) and 2,325 carloads of petroleum products traffic (primarily in the Pacific and Ohio Valley regions), partially offset by an increase of 2,549 carloads of metallic ores traffic (primarily in the Mountain West Region). All remaining traffic decreased by a net 4,027 carloads. Income from operations from our North American Operations for the year ended December 31, 2015 was $297.5 million, compared with $333.2 million for the year ended December 31, 2014. The operating ratio from our North American Operations for the year ended December 31, 2015 was 76.0%, compared with 74.5% for the year ended December 31, 2014. Operating revenues from our Australian Operations decreased $70.3 million, or 22.4%, to $243.0 million for the year ended December 31, 2015, compared with $313.3 million for the year ended December 31, 2014. Excluding $36.1 million of revenues from our newly acquired Freightliner Australia operations and a $52.3 million decrease from the impact of foreign currency depreciation, our Australian Operations same railroad operating revenues decreased by $54.1 million, or 20.7%, primarily due to a decrease in freight revenues resulting from a decline in iron ore and manganese shipments. Australian Operations traffic decreased 26,989 carloads, or 11.8%, to 200,905 carloads for the year ended December 31, 2015, compared with the year ended December 31, 2014. The traffic was entirely from existing operations, as Freightliner Australia revenues are all freight-related. The decrease was principally due to decreases of 29,627 carloads of metallic ores traffic, 2,650 carloads of agricultural products traffic and 1,816 carloads of intermodal traffic, partially offset by an increase of 7,083 carloads in minerals and stone traffic. All remaining traffic increased by a net 21 carloads. Income from operations from our Australian Operations for the year ended December 31, 2015 was $54.8 million, compared with $90.4 million for the year ended December 31, 2014. The operating ratio from our Australian Operations for the year ended December 31, 2015 was 77.4%, compared with an operating ratio of 71.1% for the year ended December 31, 2014. Operating revenues from our U.K./European Operations increased $494.7 million to $515.6 million for the year ended December 31, 2015, compared with $21.0 million for the year ended December 31, 2014. Excluding $495.2 million of revenues from our newly acquired Freightliner U.K./European Operations and a $3.5 million decrease from the impact of foreign currency depreciation, our U.K./European Operations same railroad revenues increased by $2.9 million, or 16.4%. U.K./European Operations traffic consisted of 896,125 carloads for the year ended December 31, 2015, which was entirely related to traffic from our newly acquired Freightliner U.K./European Operations. Income from operations from our U.K./European Operations for the year ended December 31, 2015 was $31.9 million with an operating ratio of 93.8%. The prior year is not comparable because over 95% of the 2015 revenues and income from operations were generated from the recently acquired Freightliner business. Changes in Operations Europe Freightliner Group Limited: On March 25, 2015, we completed the acquisition of all of the outstanding share capital of RailInvest Holding Company Limited, the parent company of London-based Freightliner, pursuant to the terms of a Share Purchase Agreement dated February 24, 2015. Management Shareholders retained an approximate 6% economic interest in Freightliner in the form of deferred consideration. We expect to settle the deferred consideration by the end of 2020. 48 Headquartered in London, England, Freightliner is an international freight rail operator with operations in the U.K., Poland, Germany, the Netherlands and Australia. Freightliner's principal business is located in the U.K., where it is the largest maritime intermodal operator and the second largest freight rail operator, providing 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. As of the acquisition date, Freightliner employed approximately 2,500 people worldwide and had a fleet of primarily leased equipment of approximately 250 standard gauge locomotives, including approximately 45 electric locomotives, and 5,500 railcars. We funded the acquisition with borrowings under the Credit Agreement (see Note 8, Long-Term Debt, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report) and available cash. The foreign exchange rate used to translate the total consideration to United States dollars was $1.49 for one British pound, the exchange rate on March 25, 2015. The calculation of the total consideration for the Freightliner acquisition is presented below (amounts in thousands): Cash consideration Deferred consideration Total consideration GBP USD £ £ 492,083 24,200 516,283 $ $ 733,006 36,048 769,054 For additional information regarding the acquisition of Freightliner, see Note 3, Changes in Operations, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. United States Pinsly's Arkansas Division: On January 5, 2015, we completed the acquisition of certain subsidiaries of Pinsly that constituted Pinsly Arkansas for $41.3 million in cash. We funded the acquisition with borrowings under our Prior Credit Agreement. The results of operations from Pinsly Arkansas have been included in our consolidated statement of operations since the acquisition date within our North American Operations segment. For additional information regarding Pinsly Arkansas, see Note 3, Changes in Operations, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Rapid City, Pierre & Eastern Railroad, Inc.: 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. The results of operations from RCP&E have been included in our consolidated statement of operations since the acquisition date within our North American Operations segment. For additional information regarding RCP&E, see Note 3, Changes in Operations, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Australia Arrium Limited: Between 2011 and 2014, our subsidiary, Genesee & Wyoming Australia Pty Ltd (GWA), invested a total of A$78.0 million (or $77.7 million at the exchange rates on the dates the spending occurred) to purchase locomotives and railcars, as well as to construct a standard gauge rolling-stock maintenance facility to support iron ore shipments from Arrium's Southern Iron mine and Whyalla-based operations, which include the Middleback Range iron ore mines and the Whyalla steelworks. 49 Arrium mothballed its Southern Iron mine in April 2015, citing the significant decline in the price of iron ore, while the mines in the Middleback Range continued to operate. During 2015, GWA carried approximately 8,300 carloads of iron ore from the Southern Iron mine and, in total, generated approximately A$83 million in freight and freight-related revenues (or approximately $62 million, at the average exchange rate for the year ended December 31, 2015) under the fixed and variable payment structure that is customary in large contracts in Australia. We expect to receive only the fixed portion of the revenue following the mothballing of the Southern Iron mine and both the fixed and variable portion from the Whyalla-based operations. We could lose some or all of this revenue if Arrium continues to suffer from declines in commodity prices or other economic and financial conditions. In February 2016, Arrium announced a recapitalization plan with GSO Capital Partners LP. The recapitalization plan is subject to a variety of closing conditions, including approval by Arrium’s existing lenders, as well as regulatory and other approvals. Year Ended December 31, 2015 Compared with Year Ended December 31, 2014 Consolidated Operating Results Operating Revenues The following table breaks down our operating revenues and total carloads into new operations and existing operations for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 2014 Increase in Total Operations Increase/(Decrease) in Existing Operations Total Operations New Operations Existing Operations Total Operations Amount % Amount % Currency Impact Freight revenues $1,405,114 $ 345,687 $1,059,427 $1,251,941 $ 153,173 12.2% $ (192,514) (15.4)% $ (51,583) Freight-related revenues All-other Total operating revenues Carloads Operating Expenses 497,516 204,398 293,118 290,787 206,729 71.1% 2,331 0.8 % (16,696) 97,771 25,269 72,502 96,284 1,487 1.5% (23,782) (24.7)% (3,551) $2,000,401 $ 575,354 $1,425,047 $1,639,012 $ 361,389 22.0% $ (213,965) (13.1)% $ (71,830) 2,741,430 955,677 1,785,753 2,007,051 734,379 36.6% (221,298) (11.0)% Total operating expenses for the year ended December 31, 2015 increased $398.7 million, or 32.7%, to $1,616.1 million, compared with $1,217.4 million for the year ended December 31, 2014. The increase included $530.0 million from new operations, partially offset by a decrease of $131.3 million from existing operations. When we discuss expenses from existing operations, we are referring to the change in our expenses, period-over-period, associated with operations that we managed in both periods (excluding the impact of acquisitions). The decrease from existing operations was primarily due to a decrease of $54.4 million from the depreciation of foreign currencies relative to the United States dollar and decreases of $54.8 million in diesel fuel used in train operations, $11.4 million in materials, $10.7 million in purchased services, $10.2 million in trackage rights and $9.0 million in equipment rents, partially offset by increases of $13.1 million in depreciation and amortization and $8.2 million in other expenses. 50 The following table sets forth our total operating expenses for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 2014 % of Operating Revenues Amount % of Operating Revenues Amount Increase/ (Decrease) Currency Impact 2014 Constant Currency Increase/ (Decrease) (Constant Currency) Labor and benefits $ 614,967 30.7 % $ 469,503 28.7 % $ 145,464 $ (18,314) $ 451,189 $ 163,778 Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses 149,825 186,905 7.5 % 9.3 % 82,730 100,108 5.0 % 6.1 % 67,095 86,797 (2,726) (7,137) 80,004 92,971 69,821 93,934 188,535 9.4 % 157,081 9.6 % 31,454 (7,239) 149,842 38,693 132,149 6.6 % 149,047 9.1 % (16,898) (6,614) 142,433 (10,284) 13,714 42,494 95,248 78,140 (2,291) 116,454 0.7 % 2.1 % 4.9 % 3.9 % (0.1)% 5.8 % 1,058 41,552 78,366 53,783 (5,100) 89,313 0.1 % 2.5 % 4.8 % 3.3 % (0.3)% 5.4 % 12,656 942 16,882 24,357 2,809 27,141 (179) (2,475) (2,467) (4,170) 277 (3,327) 879 39,077 75,899 49,613 (4,823) 85,986 12,835 3,417 19,349 28,527 2,532 30,468 Total operating expenses $ 1,616,140 80.8 % $ 1,217,441 74.3 % $ 398,699 $ (54,371) $1,163,070 $ 453,070 Income from Operations/Operating Ratio Income from operations was $384.3 million for the year ended December 31, 2015, compared with $421.6 million for the year ended December 31, 2014. Income from operations for the year ended December 31, 2015 included acquisition- related costs associated with Freightliner of $12.6 million, business development and related costs of $7.0 million and net gain on sale of assets of $2.3 million. Income from operations for the year ended December 31, 2014 included business development and related costs of $5.2 million and net gain on sale of assets of $5.1 million. Our operating ratio was 80.8% for the year ended December 31, 2015, compared with 74.3% for the year ended December 31, 2014. The increase in our operating ratio was primarily driven by lower operating margins from Freightliner, as our U.K./European Operations primarily use leased equipment. Our same railroad operating ratio in the year ended December 31, 2015 was 76.2%, compared with 74.3% for the year ended December 31, 2014. Interest Expense Interest expense was $67.1 million for the year ended December 31, 2015, compared with $56.2 million for the year ended December 31, 2014. The increase in interest expense was primarily due to a higher debt balance resulting from the acquisition of Freightliner. Provision for Income Taxes Our income tax provision for the year ended December 31, 2015 was $75.9 million, which represented 25.2% of income before income taxes. Our provision for income taxes for the year ended December 31, 2015 included a $27.4 million tax benefit from the United States Short Line Tax Credit, which had previously expired on December 31, 2014 and was extended in December 2015 for fiscal years 2015 and 2016, and a $9.7 million tax benefit associated with a prospective change in U.K. tax rates enacted during the fourth quarter of 2015. Our income tax provision for the year ended December 31, 2014 was $107.1 million, which represented 29.1% of income before income taxes. Our provision for income taxes for the year ended December 31, 2014 included a $27.0 million tax benefit associated with the United States Short Line Tax Credit and a $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. For additional information regarding the United States Short Line Tax Credit, see Note 13, Income Taxes, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. 51 The United States Short Line Tax Credit is an income tax track maintenance credit for Class II and Class III railroads to reduce their federal income tax based on qualified railroad track maintenance expenditures. 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 its tax year. The United States Short Line Tax Credit was in existence from 2005 through 2014 and was further extended in December 2015 for fiscal years 2015 and 2016. Net Income and Earnings Per Common Share Net income for the year ended December 31, 2015 was $225.0 million, compared with $260.8 million for the year ended December 31, 2014. Our basic EPS were $3.97 with 56.7 million weighted average shares outstanding for the year ended December 31, 2015, compared with basic EPS of $4.71 with 55.3 million weighted average shares outstanding for the year ended December 31, 2014. Our diluted EPS for the year ended December 31, 2015 were $3.89 with 57.8 million weighted average shares outstanding, compared with diluted EPS of $4.58 with 57.0 million weighted average shares outstanding for the year ended December 31, 2014. Our results for the years ended December 31, 2015 and 2014 included certain items affecting comparability between the periods as previously presented in the "Overview." Operating Results by Segment The following tables set forth our North American Operations, Australian Operations and U.K./European Operations for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 North American Operations Australian Operations U.K./European Operations Total Operations $ 949,028 227,154 65,633 $ 1,241,815 $ $ 146,850 87,616 8,486 242,952 $ $ 309,236 182,746 23,652 515,634 $ 1,405,114 497,516 97,771 $ 2,000,401 397,911 65,918 63,986 141,814 75,630 — 29,574 57,808 24,601 (2,001) 89,088 944,329 297,486 76.0% 39,651 16,374 69,552 266,548 1,644,400 $ $ $ $ $ 67,947 12,298 19,560 27,425 21,150 — 8,498 11,408 13,234 (48) 6,638 188,110 54,842 77.4% 8,976 2,312 12,890 31,179 200,905 $ $ $ $ $ 149,109 71,609 103,359 19,296 35,369 13,714 4,422 26,032 40,305 (242) 20,728 483,701 31,933 93.8% 17,965 614,967 149,825 186,905 188,535 132,149 13,714 42,494 95,248 78,140 (2,291) 116,454 1,616,140 384,261 80.8% 66,592 $ $ — $ $ (6,548) 18,686 75,894 32,035 896,125 $ 329,762 2,741,430 Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Operating expenses: Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses Income from operations Operating ratio Interest expense, net Loss on settlement of foreign currency forward purchase contracts Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties Carloads $ $ $ $ $ 52 North American Operations $ $ 1,008,236 214,388 82,137 1,304,761 $ $ 390,755 70,150 62,826 127,421 120,729 — 30,124 69,840 28,928 (4,582) 75,376 971,567 333,194 74.5% 41,732 86,363 277,725 1,779,157 $ $ $ $ 2014 Australian Operations U.K./European Operations Total Operations 243,705 55,461 14,104 313,270 71,216 9,973 34,092 28,095 26,346 — 10,899 7,656 22,095 (432) 12,934 222,874 90,396 71.1% 12,152 23,443 24,930 227,894 $ $ $ $ $ $ — $ 20,938 43 20,981 $ 1,251,941 290,787 96,284 1,639,012 7,532 2,607 3,190 1,565 1,972 1,058 529 870 2,760 (86) 1,003 23,000 (2,019) 109.6% 833 (2,699) 864 — $ $ $ $ 469,503 82,730 100,108 157,081 149,047 1,058 41,552 78,366 53,783 (5,100) 89,313 1,217,441 421,571 74.3% 54,717 107,107 303,519 2,007,051 Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Operating expenses: Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses Income/(loss) from operations Operating ratio Interest expense, net Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties Carloads $ $ $ $ North American Operations Operating Revenues The following table sets forth our North American Operations operating revenues and carloads by new operations and existing operations for the years ended December 31, 2015 and 2014 (dollars in thousands): Total Operations $ 949,028 Freight revenues 227,154 Freight-related revenues All other revenues 65,633 Total operating revenues $1,241,815 1,644,400 Carloads 2015 New Operations $ 36,451 5,947 1,613 $ 44,011 59,552 Existing Operations $ 912,577 221,207 64,020 $1,197,804 1,584,848 2014 Total Operations $1,008,236 214,388 82,137 $1,304,761 1,779,157 Increase/(Decrease) in Total Operations Increase/ (Decrease) in Existing Operations Amount $ (59,208) 12,766 (16,504) $ (62,946) (134,757) Amount % (5.9)% $ (95,659) 6,819 6.0 % (20.1)% (18,117) (4.8)% $(106,957) (7.6)% (194,309) Currency Impact % (9.5)% $(10,861) (3,994) 3.2 % (22.1)% (1,196) (8.2)% $(16,051) (10.9)% Freight Revenues 53 The following table sets forth our North American Operations freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2015 and 2014, assuming the 2015 foreign currency exchange rates were applicable to both periods (dollars in thousands, except average freight revenues per carload): Freight Revenues Carloads 2015 2014* 2015 2014 Commodity Group Amount % of Total Amount % of Total Amount % of Total Amount % of Total Average Freight Revenues Per Carload 2015 2014* Agricultural Products $ 123,116 13.0% $ 120,197 12.1% 216,500 13.2% 210,316 11.8% $ 569 $ 572 Autos & Auto Parts Chemicals & Plastics Coal & Coke Food & Kindred Products Intermodal Lumber & Forest Products Metallic Ores Metals Minerals & Stone Petroleum Products Pulp & Paper Waste Other Total 17,313 140,400 93,541 34,899 9 80,209 19,756 103,898 116,537 67,584 113,830 18,078 19,858 1.8% 14.8% 9.9% 3.7% —% 8.4% 2.1% 10.9% 12.3% 7.1% 12.0% 1.9% 2.1% 23,051 134,803 125,901 35,412 350 81,775 17,340 129,239 112,614 61,994 115,151 18,403 21,145 2.3% 13.5% 12.6% 3.6% —% 8.2% 1.7% 13.0% 11.3% 6.2% 11.6% 1.8% 2.1% 27,738 179,002 267,258 61,145 107 137,009 24,812 133,915 209,957 102,759 176,543 38,927 68,728 1.7% 10.9% 16.3% 3.7% —% 8.3% 1.5% 8.1% 12.8% 6.2% 10.7% 2.4% 4.2% 34,470 169,160 355,762 60,741 3,442 136,768 22,123 184,264 194,335 104,672 174,942 39,994 88,168 1.9% 9.5% 20.0% 3.4% 0.2% 7.7% 1.2% 10.5% 10.9% 5.9% 9.8% 2.2% 5.0% 624 784 350 571 84 585 796 776 555 658 645 464 289 669 797 354 583 102 598 784 701 579 592 658 460 240 $ 949,028 100.0% $ 997,375 100.0% 1,644,400 100.0% 1,779,157 100.0% $ 577 $ 561 * Amounts adjusted to reflect the impact of 2015 foreign currency exchange rates. The following table sets forth the changes in our North American Operations freight revenues by commodity group segregated into new operations and existing operations for the year ended December 31, 2015, compared with the year ended December 31, 2014 (dollars in thousands): Year Ended December 31, Commodity Group 2015 2014 Increase/ (Decrease) in Total Operations New Operations Currency Impact 2014 Constant Currency Increase/ (Decrease) in Existing Operations Constant Currency Agricultural Products $ 123,116 $ 121,265 $ 1,851 $ 12,600 $ (1,068) $ 120,197 $ Autos & Auto Parts Chemicals & Plastics Coal & Coke Food & Kindred Products Intermodal Lumber & Forest Products Metallic Ores Metals Minerals & Stone Petroleum Products Pulp & Paper Waste Other 17,313 140,400 93,541 34,899 9 80,209 19,756 103,898 116,537 67,584 113,830 18,078 19,858 23,619 136,492 126,377 35,534 390 82,271 17,795 131,161 112,999 63,051 117,299 18,449 21,534 (6,306) 3,908 (32,836) (635) (381) (2,062) 1,961 (27,263) 3,538 4,533 (3,469) (371) (1,676) — 5,236 24 471 — 3,971 44 976 12,276 187 574 48 44 (568) (1,689) (476) (122) (40) (496) (455) (1,922) (385) (1,057) (2,148) (46) (389) 23,051 134,803 125,901 35,412 350 81,775 17,340 129,239 112,614 61,994 115,151 18,403 21,145 (9,681) (5,738) 361 (32,384) (984) (341) (5,537) 2,372 (26,317) (8,353) 5,403 (1,895) (373) (1,331) Total freight revenues $ 949,028 $ 1,008,236 $ (59,208) $ 36,451 $ (10,861) $ 997,375 $ (84,798) 54 Total traffic from our North American Operations decreased 134,757 carloads, or 7.6%, for the year ended December 31, 2015, compared with the same period in 2014. The decrease consisted of a decrease of 194,309 carloads, or 10.9%, from existing operations, partially offset by 59,552 carloads from new operations. The decrease in traffic from existing operations was principally due to decreases of 88,517 carloads of coal and coke traffic, 52,249 carloads of metals traffic, 19,552 carloads of other commodity traffic, 10,098 carloads of agricultural products traffic, 7,398 carloads of minerals and stone traffic, 6,732 carloads of autos and auto parts traffic, 5,960 carloads of lumber and forest products traffic and 2,325 carloads of petroleum products traffic, partially offset by an increase of 2,549 of metallic ores traffic. All remaining traffic decreased by a net 4,027 carloads. The following information discusses the significant changes in our North American Operations freight revenues from existing operations by commodity group excluding the impact of foreign currency. Changes in average freight revenues per carload in a commodity group can be impacted by changes in customer rates and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Average freight revenues per carload from our North American Operations increased 2.9% to $577 for the year ended December 31, 2015, compared with the year ended December 31, 2014. Average freight revenues per carload from existing operations increased 2.7% to $576. The increase in average freight revenues per carload from existing operations was impacted by a change in mix, which increased average freight revenues per carload 1.7%, partially offset by lower fuel surcharges, which decreased average freight revenues per carload 4.8%. Excluding these factors, average freight revenues per carload from existing operations increased 5.8%. Agricultural products revenues decreased $9.7 million, or 8.1%. Agricultural products traffic volume decreased 10,098 carloads, or 4.8%, which decreased revenues by $5.6 million, and average freight revenues per carload decreased 3.5%, which decreased revenues by $4.1 million. The carload decrease was primarily due to decreased shipments in the midwestern and western United States due to weaker grain prices. Autos and auto parts revenues decreased $5.7 million, or 24.9%. Autos and auto parts traffic volume decreased 6,732 carloads, or 19.5%, which decreased revenues by $4.2 million, and average freight revenues per carload decreased 6.7%, which decreased revenues by $1.5 million. The carload decrease was primarily due to decreased export shipments in the western United States and weather-related delays which impacted car supply in the midwestern United States in early 2015. Coal and coke revenues decreased $32.4 million, or 25.7%. Coal and coke traffic volume decreased 88,517 carloads, or 24.9%, which decreased revenues by $31.0 million, and average freight revenues per carload decreased 1.1%, which decreased revenues by $1.4 million. The carload decrease was primarily due to decreased demand for steam coal as a result of competition from natural gas power generation. Lumber and forest products revenues decreased $5.5 million, or 6.8%. Lumber and forest products traffic volume decreased 5,960 carloads, or 4.4%, which decreased revenues by $3.5 million, and average freight revenues per carload decreased 2.5%, which decreased revenues by $2.0 million. The carload decrease was primarily due to decreased shipments to the west coast housing market and decreased shipments in the southern United States. Metallic ores revenues increased $2.4 million, or 13.7%. Metallic ores traffic volume increased 2,549 carloads, or 11.5%, which increased revenues by $2.0 million, and average freight revenues per carload increased 1.9%, which increased revenues by $0.3 million. The increase in carloads was primarily due to increased copper concentrate shipments in the western United States. Metals revenues decreased $26.3 million, or 20.4%. Metals traffic volume decreased 52,249 carloads, or 28.4%, which decreased revenues by $40.7 million, while average freight revenues per carload increased 11.3%, which increased revenues by $14.4 million. The carload decrease was driven by weaker shipments of steel and scrap resulting primarily from competition from imported steel. The increase in average freight revenues per carload was primarily driven by a change in the mix of business. Minerals and stone revenues decreased $8.4 million, or 7.4%. Minerals and stone average freight revenues per carload decreased 3.6%, which decreased revenues by $4.3 million, and traffic volume decreased by 7,398 carloads, or 3.8%, which decreased revenues by $4.1 million. The decrease in carloads was primarily due to decreased shipments of frac sand and proppants in the midwestern and southern United States. 55 Other commodity group revenues decreased $1.3 million, or 6.3%. Other traffic decreased 19,552 carloads, or 22.2%, which decreased revenues by $5.6 million, while average freight revenues per carload increased 20.4%, which increased revenues by $4.3 million. The change was primarily due to decreased overhead Class I traffic in the central United States. Petroleum products increased $5.4 million, or 8.7%. Petroleum products average freight revenues per carload increased 11.3%, which increased revenues by $6.9 million, while traffic volume decreased 2,325 carloads, or 2.2%, which decreased revenues by $1.5 million. Average revenues per carload increased primarily due to the change in mix of business, which resulted from a decrease in crude oil shipments in Canada and the western and southern United States and increased shipments of liquid petroleum gas and natural gas liquids in the midwestern and northeastern United States. Freight revenues from all remaining commodities combined decreased by a net $3.2 million. Freight-Related Revenues Excluding a $4.0 million decrease due to the impact from foreign currency depreciation, freight-related revenues from our North American Operations, which includes revenues from railcar switching, track access rights, crewing services, storage and other ancillary revenues related to the movement of freight, increased $16.8 million, or 8.0%, to $227.2 million for the year ended December 31, 2015. The increase in freight-related revenues consisted of $10.8 million from existing operations and $5.9 million from new operations. The increase in freight-related revenues from existing operations was primarily due to an increase in demurrage and storage revenues and an increase in trackage rights revenues due to a new customer contract. All Other Revenues Excluding a $1.2 million decrease due to the impact of foreign currency depreciation, all other revenues from our North American Operations, which includes revenues from third-party car and locomotive repairs, property rentals, railroad construction and other ancillary revenues not directly related to the movement of freight, decreased $15.3 million, or 18.9%, to $65.6 million for the year ended December 31, 2015. The decrease in all other revenues consisted of $16.9 million from existing operations, partially offset by $1.6 million from new operations. The decrease in all other revenues from existing operations was primarily due to a decrease in construction revenues as a result of fewer third-party projects in 2015, which resulted from our previously disclosed decision to focus our construction resources on internal projects, and a decrease in rental revenues. Operating Expenses Total operating expenses from our North American Operations decreased $27.2 million, or 2.8%, to $944.3 million for the year ended December 31, 2015, compared with $971.6 million for the year ended December 31, 2014. The decrease included $59.1 million from existing operations, partially offset by an increase of $31.9 million from new operations. The decrease from existing operations was primarily due to a $46.5 million decrease in fuel costs and the depreciation of the Canadian dollar relative to the United States dollar, which resulted in a $13.5 million decrease in operating expenses from existing operations. 56 The following table sets forth operating expenses from our North American Operations for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 2014 % of Operating Revenues Amount % of Operating Revenues Amount Increase/ (Decrease) Currency Impact 2014 Constant Currency Increase/ (Decrease) (Constant Currency) $ 397,911 32.0 % $ 390,755 29.9 % $ 7,156 $ (5,165) $ 385,590 $ 12,321 Labor and benefits Equipment rents Purchased services 65,918 63,986 5.3 % 5.1 % 70,150 62,826 Depreciation and amortization 141,814 11.4 % 127,421 Diesel fuel used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses 75,630 29,574 57,808 24,601 (2,001) 89,088 6.1 % 2.4 % 4.7 % 2.0 % (0.2)% 7.2 % 120,729 30,124 69,840 28,928 (4,582) 75,376 5.4 % 4.8 % 9.8 % 9.3 % 2.3 % 5.4 % 2.2 % (0.4)% 5.8 % (4,232) 1,160 14,393 (631) (1,153) (2,320) 69,519 61,673 125,101 (3,601) 2,313 16,713 (45,099) (1,926) 118,803 (43,173) (550) (12,032) (4,327) 2,581 13,712 (488) (956) (29) 205 (1,035) 29,636 68,884 28,899 (4,377) 74,341 (62) (11,076) (4,298) 2,376 14,747 Total operating expenses $ 944,329 76.0 % $ 971,567 74.5 % $ (27,238) $ (13,498) $ 958,069 $ (13,740) The following information discusses the significant changes in operating expenses from our North American Operations, excluding a decrease of $13.5 million due to the impact from foreign currency depreciation. Labor and benefits expense was $397.9 million for the year ended December 31, 2015, compared with $385.6 million for the year ended December 31, 2014, an increase of $12.3 million, or 3.2%. The increase consisted of $11.9 million from new operations and $0.4 million from existing operations. The increase from existing operations was primarily due to annual wage and benefit increases, partially offset by a decrease in the average number of employees. Equipment rents expense was $65.9 million for the year ended December 31, 2015, compared with $69.5 million for the year ended December 31, 2014, a decrease of $3.6 million, or 5.2%. The decrease consisted of $6.3 million from existing operations, partially offset by $2.7 million from new operations. The decrease from existing operations was primarily the result of the purchase of railcars in the western United States. Purchased services expense was $64.0 million for the year ended December 31, 2015, compared with $61.7 million for the year ended December 31, 2014, an increase of $2.3 million, or 3.8%. The increase consisted of $3.6 million from new operations, partially offset by a decrease of $1.3 million from existing operations. The decrease from existing operations was primarily due to a reduction in the level of third-party construction projects. Depreciation and amortization expense was $141.8 million for the year ended December 31, 2015, compared with $125.1 million for the year ended December 31, 2014, an increase of $16.7 million, or 13.4%. The increase consisted of $11.8 million from existing operations and $4.9 million from new operations. The increase from existing operations was primarily attributable to capital expenditures in 2014. The cost of diesel fuel used in train operations was $75.6 million for the year ended December 31, 2015, compared with $118.8 million for the year ended December 31, 2014, a decrease of $43.2 million, or 36.3%. The decrease consisted of $46.5 million from existing operations, partially offset by $3.4 million from new operations. The decrease from existing operations was primarily attributable to a 36.2% decrease in average fuel cost per gallon. Materials expense was $57.8 million for the year ended December 31, 2015, compared with $68.9 million for the year ended December 31, 2014, a decrease of $11.1 million, or 16.1%. The decrease consisted of $14.3 million from existing operations, partially offset by $3.3 million from new operations. The decrease from existing operations was primarily attributable to a reduction in the level of car repairs and construction projects in 2015. Trackage rights expense was $24.6 million for the year ended December 31, 2015, compared with $28.9 million for the year ended December 31, 2014, a decrease of $4.3 million, or 14.9%. The decrease consisted of $4.3 million from existing operations primarily attributable to reduced traffic for a metals customer in the southern United States and reduced coal traffic due to a maintenance outage at a power plant we serve. 57 Other expenses were $89.1 million for the year ended December 31, 2015, compared with $74.3 million for the year ended December 31, 2014, an increase of $14.7 million, or 19.8%. The increase consisted of $13.1 million from existing operations and $1.6 million from new operations. The increase from existing operations was primarily attributable to an increase in acquisition and integration costs as a result of the Freightliner acquisition. Income from Operations/Operating Ratio Income from operations from our North American Operations was $297.5 million for the year ended December 31, 2015, compared with $333.2 million for the year ended December 31, 2014. Income from operations for the year ended December 31, 2015 included $12.6 million of acquisition costs and $2.6 million of integration costs associated with Freightliner, business development related costs of $0.6 million and net gain on sale of assets of $2.0 million. Income from operations for the year ended December 31, 2014 included business development and related costs of $4.9 million and net gain on sale of assets of $4.6 million. The operating ratio was 76.0% for the year ended December 31, 2015, compared with 74.5% for the year ended December 31, 2014. Australian Operations Operating Revenues The following table sets forth our Australian Operations operating revenues and carloads by new operations and existing operations for the years ended December 31, 2015 and 2014 (dollars in thousands): Total Operations 2015 New Operations Existing Operations 2014 Total Operations Increase/(Decrease) in Total Operations Decrease in Existing Operations Amount % Amount % Currency Impact Freight revenues $ 146,850 $ — $ 146,850 $ 243,705 $ (96,855) (39.7)% $ (96,855) (39.7)% $ (40,722) Freight-related revenues All other revenues Total operating revenues Carloads 87,616 8,486 36,098 — 51,518 8,486 55,461 14,104 32,155 58.0 % (3,943) (7.1)% (5,618) (39.8)% (5,618) (39.8)% (9,252) (2,348) $ 242,952 $ 36,098 $ 206,854 $ 313,270 $ (70,318) (22.4)% $ (106,416) (34.0)% $ (52,322) 200,905 — 200,905 227,894 (26,989) (11.8)% (26,989) (11.8)% 58 Freight Revenues The following table sets forth our Australian Operations freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2015 and 2014, assuming the 2015 foreign currency exchange rates were applicable to both periods (dollars in thousands, except average freight revenues per carload): Average Freight Revenues Per Carload 2015 2014* Freight Revenues Carloads 2015 2014* 2015 2014 Commodity Group Amount % of Total Amount Agricultural Products $ 22,614 15.4% $ 26,804 Intermodal Metallic Ores Minerals & Stone Petroleum Products 71,429 44,204 7,306 1,297 48.6% 30.1% 5.0% 0.9% 76,480 91,076 7,420 1,203 % of Total 13.2% 37.6% 44.9% 3.7% 0.6% Amount 51,534 61,659 26,915 60,490 307 % of Total 25.6% 30.7% 13.4% 30.1% 0.2% Amount % of Total 54,184 63,475 56,542 53,407 23.8% $ 439 $ 495 27.9% 1,158 24.8% 1,642 23.4% 121 1,205 1,611 139 286 0.1% 4,225 4,206 Total $ 146,850 100.0% $ 202,983 100.0% 200,905 100.0% 227,894 100.0% $ 731 $ 891 * Amounts adjusted to reflect the impact of 2015 foreign currency exchange rates. The following table sets forth the changes in our Australian Operations freight revenues by commodity group for the year ended December 31, 2015, compared with the year ended December 31, 2014 (dollars in thousands): Commodity Group Agricultural Products Intermodal Metallic Ores Minerals & Stone Petroleum Products Total freight revenues 2015 2014 Increase/ (Decrease) Currency Impact 2014 Constant Currency Increase/ (Decrease) Constant Currency $ 22,614 $ 32,003 $ (9,389) $ (5,199) $ 26,804 $ 71,429 44,204 7,306 1,297 91,895 109,439 8,921 1,447 (20,466) (65,235) (1,615) (150) (15,415) (18,363) (1,501) (244) 76,480 91,076 7,420 1,203 (4,190) (5,051) (46,872) (114) 94 $ 146,850 $ 243,705 $ (96,855) $ (40,722) $ 202,983 $ (56,133) Total traffic from our Australian Operations decreased 26,989 carloads, or 11.8%, to 200,905 carloads for the year ended December 31, 2015, compared with the year ended December 31, 2014. The traffic was entirely from existing operations, as Freightliner Australia revenues are all freight-related. The decrease was principally due to decreases of 29,627 carloads of metallic ores traffic, 2,650 carloads of agricultural products traffic and 1,816 carloads of intermodal traffic, partially offset by a 7,104 carload increase primarily due to an increase in minerals and stone traffic. The following information discusses the significant changes in our Australian Operations freight revenues from existing operations by commodity group excluding the impact of foreign currency. Changes in average freight revenues per carload in a commodity group can be impacted by changes in customer rates and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Average freight revenues per carload from our Australian Operations decreased 18.0% to $731 for the year ended December 31, 2015, compared with the year ended December 31, 2014. The decrease in average freight revenues per carload was impacted by a change in mix, which decreased average freight revenues per carload 15.4%, and lower fuel surcharges, which decreased average freight revenues per carload 2.6%. Agricultural products revenues decreased $4.2 million, or 15.6%. Agricultural products average freight revenues per carload decreased 11.3%, which decreased revenues by $3.0 million, and traffic volume decreased 2,650 carloads, or 4.9%, which decreased revenues by $1.2 million. The decrease in average freight revenues per carload was primarily attributable to a change in the mix of business. Intermodal revenues decreased $5.1 million, or 6.6%. Intermodal average freight revenues per carload decreased 3.9%, which decreased revenues by $3.0 million, and traffic volume decreased 1,816 carloads, or 2.9%, which decreased revenues by $2.1 million. The decrease in average freight revenues per carload was primarily due to lower fuel surcharges. 59 Metallic ores revenues decreased $46.9 million, or 51.5%. Metallic ores traffic decreased 29,627 carloads, or 52.4%, which decreased revenues by $48.7 million, while average freight revenues per carload increased 1.9%, which increased revenues by $1.8 million. The carload decrease was primarily due to decreased iron ore and manganese shipments as a result of multiple customer mine closures. Freight revenues from all remaining commodities combined decreased by less than $0.1 million. Freight-Related Revenues Excluding a $9.3 million decrease due to the impact of foreign currency depreciation, freight-related revenues from our Australian Operations, which includes revenues from railcar switching, track access rights, crewing services, storage and other ancillary revenues related to the movement of freight, increased $41.4 million, or 89.6%, to $87.6 million for the year ended December 31, 2015. The increase in freight-related revenues consisted of $36.1 million from new operations and $5.3 million from existing operations. The increase in freight-related revenues from existing operations was primarily due to $15.1 million of fixed payments received under a customer contract following discontinuation of carload shipments due to a mine closure, partially offset by an $8.1 million decrease in crewing revenue and a $2.0 million decrease in trackage rights. All Other Revenues Excluding a $2.3 million decrease due to the impact of foreign currency depreciation, all other revenues from our Australian Operations, which includes revenues from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight, decreased $3.3 million, or 27.8%, to $8.5 million for the year ended December 31, 2015. The decrease was primarily due to a reduction in third-party construction activities in 2015. Operating Expenses Total operating expenses from our Australian Operations for the year ended December 31, 2015 decreased $34.8 million, or 15.6%, to $188.1 million, compared with $222.9 million for the year ended December 31, 2014. The decrease consisted of $69.3 million from existing operations, partially offset by $34.6 million from new operations. The decrease from existing operations was primarily due to a $37.2 million decrease from the depreciation of the Australian dollar relative to the United States dollar. The following table sets forth operating expenses from our Australian Operations for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 2014 % of Operating Revenues Amount % of Operating Revenues Amount Increase/ (Decrease) Currency Impact 2014 Constant Currency Increase/ (Decrease) (Constant Currency) $ 67,947 28.0% $ 71,216 22.7 % $ (3,269) $ (12,000) $ 59,216 $ Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses 12,298 19,560 27,425 21,150 8,498 11,408 13,234 (48) 6,638 5.1% 8.0% 11.3% 8.7% 3.5% 4.7% 5.4% —% 2.7% 9,973 34,092 28,095 26,346 10,899 7,656 22,095 (432) 12,934 3.1 % 2,325 10.9 % (14,532) 9.0 % (670) 8.4 % 3.5 % 2.4 % 7.1 % (0.1)% 4.1 % (5,196) (2,401) 3,752 (8,861) 384 (1,667) (5,442) (4,661) (4,362) (1,914) (1,364) (3,693) 8,306 28,650 23,434 21,984 8,985 6,292 18,402 59 (373) (6,296) (2,134) 10,800 (4,162) 8,731 3,992 (9,090) 3,991 (834) (487) 5,116 (5,168) 325 Total operating expenses $ 188,110 77.4% $ 222,874 71.1 % $ (34,764) $ (37,178) $ 185,696 $ 2,414 60 The following information discusses the significant changes in operating expenses of our Australian Operations excluding a $37.2 million decrease due to the impact from foreign currency depreciation. Labor and benefits expense was $67.9 million for the year ended December 31, 2015, compared with $59.2 million for the year ended December 31, 2014, an increase of $8.7 million, or 14.7%. The increase consisted of $12.4 million from new operations, partially offset by a decrease of $3.7 million from existing operations. The decrease from existing operations was primarily due to decreased headcount as a result of changes made to the operating plans in Australia associated with mine closures, partially offset by severance costs and increased headcount due to the insourcing of equipment maintenance activities. Equipment rents expense was $12.3 million for the year ended December 31, 2015, compared with $8.3 million for the year ended December 31, 2014, an increase of $4.0 million, or 48.1%. The increase consisted of $6.9 million from new operations, partially offset by a decrease of $2.9 million from existing operations. The decrease from existing operations was primarily the result of the purchase of previously leased railcars and the termination of a rail car lease following a customer mine closure. Purchased services expense was $19.6 million for the year ended December 31, 2015, compared with $28.7 million for the year ended December 31, 2014, a decrease of $9.1 million, or 31.7%. The decrease consisted of $10.1 million from existing operations, partially offset by $1.0 million from new operations. The decrease from existing operations was primarily attributable to the insourcing of equipment maintenance activities. Depreciation and amortization was $27.4 million for the year ended December 31, 2015, compared with $23.4 million for the year ended December 31, 2014, an increase of $4.0 million, or 17.0%. The increase consisted of $2.8 million from new operations and $1.2 million from existing operations. The increase from existing operations was primarily attributable to capital expenditures in 2014. The cost of diesel fuel used in train operations was $21.2 million for the year ended December 31, 2015, compared with $22.0 million for the year ended December 31, 2014, a decrease of $0.8 million, or 3.8%. The decrease consisted of $8.0 million from existing operations, partially offset by $7.2 million from new operations. The decrease from existing operations consisted of $6.5 million due to a 29.2% decrease in average fuel cost per gallon and $1.6 million due to a 10.4% decrease in diesel fuel consumption. Materials expense was $11.4 million for the year ended December 31, 2015, compared with $6.3 million for the year ended December 31, 2014, an increase of $5.1 million, or 81.3%. The increase consisted of $2.8 million from existing operations and $2.3 million from new operations. The increase from existing operations was primarily attributable to the insourcing of equipment maintenance activities. Trackage rights expense was $13.2 million for the year ended December 31, 2015, compared with $18.4 million for the year ended December 31, 2014, a decrease of $5.2 million, or 28.1%. The decrease consisted of $6.1 million from existing operations, partially offset by $1.0 million from new operations. The decrease from existing operations was primarily attributable to decreased shipments as a result of an iron ore customer mine closure in South Australia that moves over a segment of track owned by a third party. Other expenses were $6.6 million for the year ended December 31, 2015, compared with $10.8 million for the year ended December 31, 2014, a decrease of $4.2 million, or 38.5%. The decrease consisted of $4.8 million from existing operations, partially offset by $0.6 million from new operations. The decrease from existing operations was primarily attributable to reduced costs associated with third-party track projects in 2015. Income from Operations/Operating Ratio Income from operations from our Australian Operations was $54.8 million for the year ended December 31, 2015, compared with $90.4 million for the year ended December 31, 2014. Included in the decrease from income from operations is a $15.1 million net decrease due to the impact from foreign currency depreciation. Income from operations for the year ended December 31, 2015 and 2014 included $2.7 million and $0.3 million, respectively, of business development and related costs. The operating ratio was 77.4% for the year ended December 31, 2015, compared with 71.1% for the year ended December 31, 2014. The higher operating ratio was primarily driven by lower iron ore freight revenues. 61 U.K./European Operations Operating Revenues The following table sets forth our U.K./European Operations operating revenues and carloads by new operations and existing operations for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 2014 Increase in Total Operations Total Operations New Operations Existing Operations Total Operations Amount % Currency Impact Freight revenues $ 309,236 $ 309,236 $ — $ — $ 309,236 NM (1) $ — Freight-related revenues All other revenues 182,746 23,652 162,353 23,652 20,393 20,938 — 43 161,808 23,609 Total operating revenues $ 515,634 $ 495,241 $ 20,393 $ 20,981 $ 494,653 Carloads (1) Not meaningful Freight Revenues 896,125 896,125 — — 896,125 (3,450) (7) $ (3,457) NM NM NM NM The following table sets forth our U.K./European Operations freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2015 and 2014 (dollars in thousands, except average freight revenues per carload): Freight Revenues Carloads 2015 2014 2015 2014 Average Freight Revenues Per Carload Commodity Group Amount % of Total Amount Agricultural Products $ 520 0.2% $ Coal & Coke Intermodal Minerals & Stone Other Total 23,896 227,526 52,596 4,698 7.7% 73.6% 17.0% 1.5% $ 309,236 100.0% $ — — — — — — % of Total —% —% Amount 610 60,873 —% 692,304 —% 133,656 —% 8,682 % of Total 0.1% 6.8% 77.2% 14.9% 1.0% —% 896,125 100.0% Amount % of Total 2015 2014 — — — — — — —% $ 852 $ — —% —% —% —% 393 329 394 541 — — — — —% $ 345 $ — The freight revenues from our U.K./European Operations were comprised entirely of our Freightliner U.K./European Operations for the year ended December 31, 2015. Freight revenues from our U.K./European Operations primarily consisted of intermodal traffic, minerals and stone traffic, which includes construction aggregates, and coal. There were no freight revenues from our U.K./European Operations for 2014, as all of our U.K./European Operations revenues were freight-related in 2014. Freight-Related Revenues Freight-related revenues from our U.K./European Operations includes port switching as well as traction service (or hook and pull service that requires us to provide locomotives and drivers to move a customer's train between specified origin and destination points). Freight-related revenues from our U.K./European Operations also include infrastructure services, where we operate work trains for the track infrastructure owner, drayage and other ancillary revenues related to the movement of freight. With the exception of infrastructure services, which are primarily in the U.K., freight-related revenues from our U.K./European Operations are primarily associated with the Continental European intermodal business. Excluding a $3.5 million decrease due to the impact of foreign currency depreciation, freight-related revenues from our U.K./European Operations increased $165.3 million to $182.7 million for the year ended December 31, 2015, primarily due to our new Freightliner operations. 62 All Other Revenues All other revenues from our U.K./European Operations, which includes revenues from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight, consisted of $23.7 million for the year ended December 31, 2015, as a result of our new Freightliner operations. Operating Expenses Total operating expenses from our U.K./European Operations were $483.7 million for the year ended December 31, 2015, compared with $23.0 million for the year ended December 31, 2014, an increase of $460.7 million. The increase included $463.6 million from new operations, partially offset by a decrease of $2.9 million from existing operations. The overall net decrease from existing operations was primarily due to the depreciation of the Euro relative to the United States dollar. The following table sets forth operating expenses from our U.K./European Operations for the years ended December 31, 2015 and 2014 (dollars in thousands): 2015 2014 Amount % of Operating Revenues Amount % of Operating Revenues Increase/ (Decrease) Currency Impact 2014 Constant Currency Increase/ (Decrease) Constant Currency Labor and benefits Equipment rents Purchased services $ 149,109 28.9% $ 71,609 103,359 13.9% 20.0% Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses 19,296 35,369 13,714 4,422 26,032 40,305 (242) 20,728 3.7% 6.9% 2.7% 0.9% 5.0% 7.8% —% 4.0% 7,532 2,607 3,190 1,565 1,972 1,058 529 870 2,760 (86) 1,003 35.9 % $ 141,577 $ (1,149) $ 6,383 $ 142,726 12.4 % 69,002 15.2 % 100,169 7.5 % 9.4 % 5.0 % 2.5 % 4.1 % 13.2 % (0.4)% 17,731 33,397 12,656 3,893 25,162 37,545 (156) 4.8 % 19,725 (428) (542) (258) (326) (179) (73) (147) (448) 13 (158) 2,179 2,648 1,307 1,646 879 456 723 2,312 (73) 845 69,430 100,711 17,989 33,723 12,835 3,966 25,309 37,993 (169) 19,883 Total operating expenses $ 483,701 93.8% $ 23,000 109.6 % $ 460,701 $ (3,695) $ 19,305 $ 464,396 Equipment rents expense consists primarily of costs associated with Freightliner's predominately leased locomotive and railcar fleet. Purchased services expense consists primarily of costs associated with the use of contract drivers and outsourced traction service in Europe, as well as port and terminal handling expenses in the U.K. Electricity used in train operations represents the cost of powering the electric locomotive fleet in the U.K. and Continental Europe. Trackage rights expense represents payments made to track owners under open access regimes. Income/(Loss) from Operations/Operating Ratio Income from operations from our U.K./European Operations was $31.9 million for the year ended December 31, 2015, compared with a $2.0 million loss from operations for the year ended December 31, 2014. The loss for the year ended December 31, 2014 included costs associated with the start-up of a significant new long-term customer contract that commenced in early 2014 to provide shuttle service between Rotterdam and the German border. The operating ratio was 93.8% for the year ended December 31, 2015. The prior year is not comparable because over 95% of the revenue and income from operations was generated from the recently acquired Freightliner business. Our U.K./European Operations operate in an open access environment using primarily leased equipment. 63 Year Ended December 31, 2014 Compared with Year Ended December 31, 2013 Consolidated Operating Results Operating Revenues The following table sets forth our operating revenues by 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) Freight-related revenues 290,787 All-other revenues 96,284 3,766 1,046 287,021 95,238 287,811 103,468 2,976 1.0 % (790) (0.3)% (7,184) (6.9)% (8,230) (8.0)% (5,984) (999) Total operating revenues Carloads Operating Expenses $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 % Total operating expenses for the year ended December 31, 2014 increased $29.0 million, or 2.4%, to $1,217.4 million, compared with $1,188.5 million for the year ended December 31, 2013. The increase consisted of $35.6 million from new operations, partially offset by a decrease of $6.6 million from existing operations. The decrease from existing operations was primarily due to a $21.6 million decrease from the depreciation of foreign currencies relative to the United States dollar and decreases of $23.1 million in purchased services, $10.8 million in other expenses, $1.6 million in materials and $1.0 million in diesel fuel used in train operations, partially offset by increases of $27.5 million in labor and benefits, $14.0 million in depreciation and amortization, $4.1 million in trackage rights and $3.4 million in casualties and insurance. The following table sets forth operating expenses for the year ended December 31, 2014 and 2013 (dollars in thousands): 2014 2013 Amount $ 469,503 82,730 100,108 % of Operating Revenues Amount 28.7 % $ 439,117 77,595 5.0 % 123,822 6.1 % % of Operating Revenues 28.0 % 4.9 % 7.9 % Increase/ (Decrease) 30,386 5,135 (23,714) Currency Impact 2013 Constant Currency (6,934) $ 432,183 76,572 (1,023) 120,002 (3,820) $ Increase/ (Decrease) (Constant Currency) 37,320 $ 6,158 (19,894) 157,081 9.6 % 141,644 9.1 % 15,437 (2,856) 138,788 18,293 149,047 9.1 % 147,172 9.4 % 1,875 (3,097) 144,075 4,972 1,058 41,552 78,366 53,783 (5,100) 89,313 $1,217,441 66 0.1 % 38,564 2.5 % 77,204 4.8 % 50,911 3.3 % (4,677) (0.3)% 5.4 % 97,037 74.3 % $1,188,455 — % 2.5 % 4.9 % 3.2 % (0.3)% 6.2 % 75.8 % 992 2,988 1,162 2,872 (423) (7,724) 28,986 2 (891) (628) (1,292) 133 (1,151) 68 37,673 76,576 49,619 (4,544) 95,886 $ (21,557) $1,166,898 $ 990 3,879 1,790 4,164 (556) (6,573) 50,543 Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses Income from Operations/Operating Ratio Income from operations was $421.6 million for the year ended December 31, 2014, compared with $380.2 million for the year ended December 31, 2013. Income from operations for the year ended December 31, 2014 included business development and related costs of $5.2 million and net gain on sale of assets of $5.1 million. Income from operations for the year ended December 31, 2013 included $17.0 million of RailAmerica integration and acquisition-related costs and $1.6 million of business development and related costs, partially offset by net gain on sale of assets of $4.7 million. 64 Our operating ratio was 74.3% for the year ended December 31, 2014 compared with 75.8% for the year ended December 31, 2013. While changes in foreign currency exchange rates can have a material impact on our operating revenues and operating expenses, the impact of these foreign currency translation effects should not have a material impact on our operating ratio. Interest Income Interest income was $1.4 million for the year ended December 31, 2014, compared with $4.0 million for the year ended December 31, 2013. The decrease in interest income was primarily related to the repayment and termination of our cross- currency swap agreements, see Note 9, Derivative Financial Instruments, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report, for further details on the repayment and termination of our cross-currency swap agreement. Interest Expense Interest expense was $56.2 million for the year ended December 31, 2014, compared with $67.9 million for 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 for 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. 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 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. Net Income and Earnings Per Common Share Net income for the year ended December 31, 2014 was $260.8 million, compared with net income of $271.3 million for the year ended December 31, 2013. Our basic EPS were $4.71 with 55.3 million weighted average shares outstanding for the year ended December 31, 2014, compared with basic EPS of $5.00 with 53.8 million weighted average shares outstanding for the year ended December 31, 2013. Our diluted EPS for the year ended December 31, 2014 were $4.58 with 57.0 million weighted average shares outstanding, compared with diluted EPS for 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 weighted average basic shares outstanding of 5,984,232 and 5,262,845 for the years ended December 31, 2014 and 2013, respectively. 65 Operating Results by Segment The following tables set forth our North American Operations, Australian Operations and U.K./European Operations for the years ended December 31, 2014 and 2013 (dollars in thousands): North American Operations Australian Operations U.K./European Operations Total Operations 2014 $ 1,008,236 214,388 82,137 $ 1,304,761 $ $ 243,705 55,461 14,104 313,270 $ $ — $ 1,251,941 290,787 96,284 $ 1,639,012 20,938 43 20,981 390,755 70,150 62,826 127,421 120,729 — 30,124 69,840 28,928 (4,582) 75,376 971,567 333,194 74.5% 41,732 86,363 277,725 1,779,157 $ $ $ $ 71,216 9,973 34,092 28,095 26,346 — 10,899 7,656 22,095 (432) 12,934 222,874 90,396 71.1% 12,152 23,443 24,930 227,894 $ $ $ $ 7,532 2,607 3,190 1,565 1,972 1,058 529 870 2,760 (86) 1,003 23,000 (2,019) 109.6% 833 (2,699) 864 — 469,503 82,730 100,108 157,081 149,047 1,058 41,552 78,366 53,783 (5,100) 89,313 1,217,441 421,571 74.3% 54,717 107,107 303,519 2,007,051 $ $ $ $ Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Operating expenses: Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses Income/(loss) from operations Operating ratio Interest expense, net Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties Carloads $ $ $ $ 66 North American Operations $ $ 917,971 215,302 95,899 1,229,172 $ $ 367,073 66,055 67,900 113,155 114,770 — 28,208 73,993 28,415 (4,309) 87,748 943,008 286,164 76.7% 48,483 24,446 163,157 1,649,914 $ $ $ $ 2013 Australian Operations U.K./European Operations Total Operations 259,393 57,834 7,569 324,796 66,377 10,299 52,218 27,102 30,968 — 10,379 2,730 21,316 (186) 8,577 229,780 95,016 70.7% 14,814 22,258 51,860 236,098 $ $ $ $ $ $ — $ 14,675 — 14,675 $ 1,177,364 287,811 103,468 1,568,643 5,667 1,241 3,704 1,387 1,434 66 (23) 481 1,180 (182) 712 15,667 (992) 106.8% 626 (408) 388 — $ $ $ $ 439,117 77,595 123,822 141,644 147,172 66 38,564 77,204 50,911 (4,677) 97,037 1,188,455 380,188 75.8% 63,923 46,296 215,405 1,886,012 Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Operating expenses: Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses Income/(loss) from operations Operating ratio Interest expense, net Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties Carloads $ $ $ $ North American Operations Operating Revenues The following table sets forth our North American Operations operating revenues and carloads by 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 $1,008,236 New Operations 40,328 $ Existing Operations $ 967,908 Total Operations $ 917,971 Amount $ 90,265 Amount % 9.8 % $ 49,937 Currency Impact % 5.4 % $ (5,973) 214,388 82,137 3,766 1,046 210,622 81,091 215,302 95,899 (914) (13,762) (0.4)% (14.4)% (4,680) (14,808) (2.2)% (15.4)% (2,272) (543) $1,304,761 1,779,157 $ 45,140 36,894 $1,259,621 1,742,263 $1,229,172 1,649,914 $ 75,589 129,243 6.1 % $ 30,449 92,349 7.8 % 2.5 % $ (8,788) 5.6 % Freight revenues Freight-related revenues All other revenues Total operating revenues Carloads 67 Freight Revenues The following table sets forth our North American Operations freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2014 and 2013, assuming the 2014 foreign currency exchange rates were applicable to both periods (dollars in thousands, except average freight revenues per carload): Freight Revenues Carloads 2014 2013* 2014 2013 Amount % of Total Amount % of Total Amount % of Total Amount % of Total Average Freight Revenues Per Carload 2014 2013* $ 121,265 12.0% $ 89,774 9.8% 210,316 11.8% 179,083 10.9% $ 577 $ 501 23,619 2.4% 25,964 2.9% 34,470 1.9% 36,510 2.2% 685 136,492 126,377 13.6% 12.5% 127,982 110,605 14.0% 12.1% 169,160 355,762 9.5% 20.0% 163,123 323,500 9.9% 19.6% 35,534 390 3.5% —% 31,890 848 3.5% 0.1% 60,741 3,442 3.4% 0.2% 55,084 8,518 3.3% 0.5% 807 355 585 113 82,271 8.2% 78,710 8.6% 136,768 7.7% 133,649 8.1% 602 17,795 131,161 1.8% 13.0% 16,358 126,821 1.8% 13.9% 22,123 184,264 1.2% 10.4% 20,231 175,636 1.2% 10.7% 804 712 112,999 11.2% 86,446 9.5% 194,335 10.9% 162,401 9.8% 581 63,051 6.3% 62,851 6.9% 104,672 5.9% 108,605 6.6% 602 711 785 342 579 100 589 809 722 532 579 117,299 18,449 21,534 $1,008,236 11.6% 1.8% 2.1% 111,460 22,729 19,560 100.0% $ 911,998 12.2% 2.5% 2.2% 174,942 39,994 88,168 100.0% 1,779,157 9.8% 2.3% 5.0% 169,708 43,166 70,700 100.0% 1,649,914 10.3% 2.6% 4.3% 671 461 244 100.0% $ 567 657 527 277 $ 553 Commodity Group Agricultural Products Autos & Auto Parts Chemicals & Plastics Coal & Coke Food & Kindred Products Intermodal Lumber & Forest Products Metallic Ores Metals Minerals & Stone Petroleum Products Pulp & Paper Waste Other Total * Amounts adjusted to reflect the impact of 2014 foreign currency exchange rates. 68 The following table sets forth the changes in our North American Operations freight revenues by commodity group segregated into new operations and existing operations for the year ended December 31, 2014, compared with the year ended December 31, 2013 (dollars in thousands): Year Ended December 31, 2014 2013 Increase/ (Decrease) in Total Operations New Operations Currency Impact 2013 Constant Currency Increase/ (Decrease) in Existing Operations Constant Currency $ 121,265 $ 90,272 $ 30,993 $ 19,115 $ (498) $ 89,774 $ 12,376 23,619 26,415 (2,796) 136,492 126,377 128,935 110,836 7,557 15,541 35,534 390 82,271 17,795 131,161 31,982 871 79,035 16,602 127,769 3,552 (481) 3,236 1,193 3,392 — 3,146 24 788 — 172 — 397 112,999 86,627 26,372 16,640 (451) (953) (231) (92) (23) (325) (244) (948) (181) 63,051 117,299 18,449 21,534 63,493 112,663 22,750 19,721 (442) 4,636 (4,301) 1,813 11 — — 35 (642) (1,203) (21) (161) 25,964 (2,345) 127,982 110,605 5,364 15,748 31,890 848 78,710 16,358 126,821 86,446 62,851 111,460 22,729 19,560 2,856 (458) 3,389 1,437 3,943 9,913 189 5,839 (4,280) 1,939 $ 1,008,236 $ 917,971 $ 90,265 $ 40,328 $ (5,973) $ 911,998 $ 55,910 Commodity Group Agricultural Products Autos & Auto Parts Chemicals & Plastics Coal & Coke Food & Kindred Products Intermodal Lumber & Forest Products Metallic Ores Metals Minerals & Stone Petroleum Products Pulp & Paper Waste Other Total freight revenues Total traffic from our North American Operations increased 129,243 carloads, or 7.8%, for the year ended December 31, 2014, compared with the year ended December 31, 2013. The increase consisted of 92,349 carloads, or 5.6%, from existing operations and 36,894 carloads from new operations. The increase in traffic from existing operations was principally due to increases of 32,248 carloads of coal and coke traffic, 22,863 carloads of minerals and stone traffic, 17,397 carloads of other commodity traffic, 9,559 carloads of agricultural products traffic, 8,253 carloads of metals traffic, 5,234 carloads of pulp and paper traffic and 4,804 carloads of food and kindred products traffic. The following information discusses the significant changes in our North American Operations freight revenues from existing operations by commodity group excluding the impact of foreign currency. Changes in average freight revenues per carload in a commodity group can be impacted by changes in customer rates, fuel surcharges as well as changes in the mix of customer traffic within a commodity group. Average freight revenues per carload from our North American Operations increased 2.5% to $567 for the year ended December 31, 2014, compared with the year ended December 31, 2013. Agricultural products revenues increased $12.4 million, or 13.8%. Average freight revenues per carload increased 8.2%, which increased revenues by $7.2 million, and traffic volume increased 9,559 carloads, or 5.3%, which increased revenues by $5.2 million. The increase in carloads was primarily due to increased shipments in the midwestern and western United States. 69 Autos and auto parts revenues decreased $2.3 million, or 9.0%. Autos and auto parts traffic volume decreased 2,040 carloads, or 5.6%, which decreased revenues by $1.4 million, and average freight revenues per carload decreased 3.7%, which decreased revenues by $0.9 million. The decrease in carloads was primarily due to reduced railcar supply in the midwestern United States and Canada. Chemicals and plastics revenues increased $5.4 million, or 4.2%. Chemicals and plastics average freight revenues per carload increased 3.3%, which increased revenues by $4.3 million, and traffic volume increased 1,352 carloads, which increased revenues by $1.1 million. The increase in carloads was primarily due to increased chemical shipments to a mine in the western United States. Coal and coke revenues increased $15.7 million, or 14.2%. 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 3.8%, which increased revenues by $4.3 million. The increase in carloads 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. Food and kindred products revenues increased $2.9 million, or 9.0%. Food and kindred products traffic volume increased 4,804 carloads, or 8.7%, which increased revenues $2.8 million. The increase in carloads was primarily due to increased shipments in the western and midwestern United States. Lumber and forest products revenues increased $3.4 million, or 4.3%. 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 2.0%, which increased revenues by $1.6 million. The carload increase was primarily due to increased shipments of wood pellets, wood chips and finished lumber in the southern United States, partially offset by decreased shipments in Canada. Metallic ores revenues increased $1.4 million, or 8.8%. Metallic ores traffic volume increased 1,892 carloads, or 9.4%, which increased revenues by $1.5 million. The increase in carloads was primarily due to increased shipments of copper concentrate in the western United States. Metals revenues increased $3.9 million, or 3.1%. Metals traffic volume increased 8,253 carloads, or 4.7%, which increased revenues by $5.8 million, while average freight revenues per carload decreased 1.5%, which decreased revenues by $1.9 million. The increase in carloads was primarily due to increased shipments of steel in the midwestern and southern United States. Minerals and stone revenues increased $9.9 million, or 11.5%. Minerals and stone traffic volume increased 22,863 carloads, or 14.1%, which increased revenues by $11.9 million, while average freight revenues per carload decreased 2.3%, which decreased revenues by $2.0 million. The increase in carloads was primarily due to increased shipments of rock salt, frac sand, cement, construction aggregates and industrial minerals in North America. Pulp and paper revenues increased $5.8 million, or 5.2%. 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 2.1%, which increased revenues by $2.3 million. The increase in carloads was primarily due to increased shipments of container board in the United States, partially offset by decreased shipments of finished paper and wood pulp in Canada. Waste revenues decreased $4.3 million, or 18.8%. Waste revenues average freight revenues per carload decreased 12.5%, which decreased revenues by $2.8 million, and traffic volume decreased 3,172 carloads, or 7.3%, which decreased revenues by $1.5 million. The decrease in carloads was primarily due to the closure of a waste facility in the midwestern United States. Other revenues increased $1.9 million, or 9.9%. Other revenues traffic volume increased 17,397, or 24.6%, which increased revenues by $4.3 million, while average freight revenues per carload decreased 11.9%, which decreased revenues by $2.3 million. The increase in carloads was primarily due to increased overhead Class I traffic in the central United States. Freight revenues from all remaining commodities combined decreased by a net $0.3 million. 70 Freight-Related Revenues Excluding a $2.3 million decrease due to the impact of foreign currency depreciation, freight-related revenues from our North American Operations, which includes revenues from railcar switching, track access rights, crewing services, storage and other ancillary revenues related to the movement of freight, increased $1.4 million, or 0.6%, to $214.4 million for the year ended December 31, 2014. The increase in freight-related revenues consisted of $3.8 million from new operations, partially offset by a decrease of $2.4 million from existing operations. All Other Revenues Excluding a $0.5 million decrease due to the depreciation of foreign currency, all other revenues from our North American Operations, which includes revenues from third-party car and locomotive repairs, property rentals, railroad construction and other ancillary revenues not directly related to the movement of freight, decreased $13.2 million, or 13.9%, to $82.1 million in the year ended December 31, 2014. The decrease in all other revenues consisted of $14.3 million from existing operations, partially offset by $1.0 million from new operations. The decrease in all other revenues from existing operations was primarily due to a decrease in construction revenues as a result of fewer third-party projects in 2014, which resulted from our previously disclosed decision to focus our construction resources on internal projects. Operating Expenses Total operating expenses from our North American Operations for the year ended December 31, 2014 increased $28.6 million, or 3.0%, to $971.6 million, compared with $943.0 million for the year ended December 31, 2013. The increase included $35.6 million from new operations, partially offset by a decrease of $7.0 million from existing operations. The decrease from existing operations was primarily due to the depreciation of the Canadian dollar relative to the United States dollar. The following table sets forth operating expenses from our North American Operations for the years ended December 31, 2014 and 2013 (dollars in thousands): 2014 2013 % of Operating Revenues Amount 29.9 % $ 367,073 66,055 5.4 % 67,900 4.8 % % of Operating Revenues 29.9 % 5.4 % 5.5 % Increase/ (Decrease) 23,682 4,095 (5,074) Amount $ 390,755 70,150 62,826 Currency Impact 2013 Constant Currency $ (2,588) $ 364,485 65,707 67,394 (348) (506) Increase/ (Decrease) (Constant Currency) $ 26,270 4,443 (4,568) 127,421 9.8 % 113,155 9.2 % 14,266 (1,070) 112,085 15,336 120,729 9.3 % 114,770 30,124 69,840 28,928 (4,582) 75,376 $ 971,567 28,208 2.3 % 73,993 5.4 % 28,415 2.2 % (4,309) (0.4)% 5.8 % 87,748 74.5 % $ 943,008 9.4 % 2.3 % 6.0 % 2.3 % (0.4)% 7.1 % 76.7 % 5,959 (1,120) 113,650 7,079 1,916 (4,153) 513 (273) (12,372) 28,559 (172) (450) (20) 84 (569) 28,036 73,543 28,395 (4,225) 87,179 $ (6,759) $ 936,249 2,088 (3,703) 533 (357) (11,803) $ 35,318 Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses The following information discusses the significant changes in operating expenses of our North American Operations excluding a decrease of $6.8 million due to the impact from foreign currency depreciation. Labor and benefits expense was $390.8 million for the year ended December 31, 2014, compared with $364.5 million for the year ended December 31, 2013, an increase of $26.3 million, or 7.2%. The increase consisted of $16.5 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. Our average number of employees increased for our existing operations primarily as a result of insourcing equipment maintenance activities in the midwestern United States and an increase in transportation employees as a result of higher traffic levels. 71 Equipment rents expense was $70.2 million for the year ended December 31, 2014, compared with $65.7 million for the year ended December 31, 2013, an increase of $4.4 million, or 6.8%. The increase was primarily from new operations. Purchased services expense was $62.8 million for the year ended December 31, 2014, compared with $67.4 million for the year ended December 31, 2013, a decrease of $4.6 million, or 6.8%. The decrease consisted of $7.7 million from existing operations, partially offset by $3.2 million from new operations. The decrease from existing operations was primarily due to a reduction in the level of third-party construction projects. Depreciation and amortization expense was $127.4 million for the year ended December 31, 2014, compared with $112.1 million for the year ended December 31, 2013, an increase of $15.3 million, or 13.7%. The increase consisted of $11.1 million from existing operations and $4.3 million from new operations. The increase from existing operations was primarily attributable to capital expenditures in 2013. The cost of diesel fuel used in train operations was $120.7 million for the year ended December 31, 2014, compared with $113.7 million for the year ended December 31, 2013, an increase of $7.1 million, or 6.2%. The increase consisted of $6.0 million from new operations and $1.1 million from existing operations. The increase from existing operations consisted of $6.2 million due to a 5.7% increase in diesel fuel consumption, partially offset by $5.1 million due to a 4.4% decrease in average fuel cost per gallon. Casualties and insurance expense was $30.1 million for the year ended December 31, 2014, compared with $28.0 million for the year ended December 31, 2013, an increase of $2.1 million, or 7.4%. The increase consisted of $1.6 million from existing operations and $0.5 million from new operations. Materials expense was $69.8 million for the year ended December 31, 2014, compared with $73.5 million for the year ended December 31, 2013, a decrease of $3.7 million, or 5.0%. The decrease consisted of $7.1 million from existing operations, partially offset by $3.4 million from new operations. The decrease from existing operations was primarily due to a reduction in the level of construction projects in 2014. Trackage rights expense was $28.9 million for the year ended December 31, 2014, compared with $28.4 million for the year ended December 31, 2013, a decrease of $0.5 million, or 1.9%. The decrease was primarily attributable to existing operations. Other expenses were $75.4 million for the year ended December 31, 2014, compared with $87.2 million for the year ended December 31, 2013, a decrease of $11.8 million, or 13.5%. The decrease consisted of $16.0 million from existing operations, partially offset by $4.2 million from new operations. The decrease from existing operations was primarily attributable to RailAmerica integration costs incurred in 2013. Income from Operations/Operating Ratio Income from operations from our North American Operations was $333.2 million for the year ended December 31, 2014, compared with $286.2 million for the year ended December 31, 2013. Income from operations for the year ended December 31, 2014 included business development and related costs of $4.9 million, partially offset by a $4.6 million net gain on sale of assets. Income from operations for the year ended December 31, 2013 included $17.0 million of RailAmerica integration and acquisition-related costs and $1.4 million of business development and related costs, partially offset by net gain on sale of assets of $4.3 million. The operating ratio was 74.5% for the year ended December 31, 2014, compared with 76.7% for the year ended December 31, 2013. 72 Australian Operations Operating Revenues The following table sets forth our Australian Operations operating revenues for the years ended December 31, 2014 and 2013 (dollars in thousands): Freight revenues Freight-related revenues All other revenues Total operating revenues Carloads Freight Revenues 2014 2013 Amount % Increase/(Decrease) $ $ 243,705 $ 259,393 $ (15,688) 55,461 14,104 57,834 7,569 313,270 $ 324,796 $ 227,894 236,098 (2,373) 6,535 (11,526) (8,204) Currency Impact (16,437) (6.0)% $ (4.1)% 86.3 % (3,692) (456) (3.5)% $ (20,585) (3.5)% The following table sets forth our Australian Operations freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2014 and 2013, assuming the 2014 foreign currency exchange rates were applicable to both periods (dollars in thousands, except average freight revenues per carload): Freight Revenues Year Ended December 31, Carloads Year Ended December 31, 2014 2013* 2014 2013 Average Freight Revenues Per Carload Year Ended December 31, Commodity Group Agricultural Products Intermodal Metallic Ores Minerals & Stone Petroleum Products Total Amount $ 32,003 91,895 109,439 8,921 1,447 $ 243,705 Amount % of Total 13.1% $ 37.7% 44.9% 3.7% 0.6% 37,592 91,737 102,587 9,430 1,610 100.0% $ 242,956 % of Total 15.5% 37.7% 42.2% 3.9% 0.7% 100.0% Amount 54,184 63,475 56,542 53,407 286 227,894 % of Total 23.8% 27.9% 24.8% 23.4% 0.1% 100.0% Amount 61,757 65,148 52,135 56,762 296 236,098 % of 2014 Total 26.2% $ 591 27.6% 1,448 22.1% 1,936 24.0% 167 0.1% 5,059 100.0% $1,069 2013* $ 609 1,408 1,968 166 5,439 $1,029 *Amounts adjusted to reflect the impact of 2014 foreign currency exchange rates. The following table sets forth the changes in our Australian Operations freight revenues by commodity group for the year ended December 31, 2014, compared with the year ended December 31, 2013 (dollars in thousands): Commodity Group Agricultural Products Intermodal Metallic Ores Minerals & Stone Petroleum Products Year Ended December 31, 2014 2013 Increase/ (Decrease) Currency Impact 2013 Constant Currency Increase/ (Decrease) Constant Currency $ 32,003 $ 40,305 $ (8,302) $ (2,713) $ 37,592 $ (5,589) 91,895 109,439 8,921 1,447 97,888 109,326 10,144 1,730 (5,993) 113 (1,223) (283) (6,151) (6,739) (714) (120) 91,737 102,587 9,430 1,610 158 6,852 (509) (163) 749 Total freight revenues $ 243,705 $ 259,393 $ (15,688) $ (16,437) $ 242,956 $ Total traffic from our Australian Operations decreased 8,204 carloads, or 3.5%, for the year ended December 31, 2014, compared with the year ended December 31, 2013. The traffic was entirely from existing operations. The decrease was principally due to decreases of 7,573 carloads of agricultural products traffic, 3,355 carloads of minerals and stone traffic and 1,673 carloads of intermodal traffic, partially offset by a 4,407 carload increase in metallic ores traffic. 73 The following information discusses the significant changes in our Australian Operations freight revenues by commodity group excluding the impact of foreign currency. Changes in average freight revenues per carload in a commodity group can be impacted by changes in customer rates and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Average freight revenues per carload from our Australian Operations increased 3.9% to $1,069 for the year ended December 31, 2014, compared with the year ended December 31, 2013. Changes in commodity mix increased average freight revenues 4.0%. Agricultural products revenues decreased $5.6 million, or 14.9%. Agricultural traffic decreased 7,573 carloads, or 12.3%, which decreased revenues by $4.5 million, and average freight revenues per carload decreased 3.0%, which decreased revenues by $1.1 million. The decrease in carloads was primarily due to a late start to the harvest season. Metallic ores revenues increased $6.9 million, or 6.7%. Metallic ores traffic volume increased 4,407 carloads, or 8.5%, which increased revenues by $8.5 million, while average freight revenues per carload decreased 1.6%, which decreased revenues by $1.7 million. The increase in carloads was primarily due to increased shipments of iron ore, manganese and copper ore. Freight revenues from all remaining commodities combined decreased by $0.5 million. Freight-Related Revenues Excluding a $3.7 million decrease due to the impact of foreign currency depreciation, freight-related revenues from our Australian Operations, which includes revenues from railcar switching, track access rights, crewing services, storage and other ancillary revenues related to the movement of freight, increased $1.3 million, or 2.4%, to $55.5 million for the year ended December 31, 2014. The increase in freight-related revenues, which was entirely from existing operations, included an increase in railcar switching revenue due to higher narrow gauge iron ore shipments, partially offset by the loss of track access income from an iron ore mine that ceased operations. All Other Revenues Excluding a $0.5 million decrease due to the impact of foreign currency depreciation, all other revenues from our Australian Operations, which includes revenue from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight, increased $7.0 million, or 98.3%, to $14.1 million for the year ended December 31, 2014. The increase was primarily due to increased railcar maintenance for customers. Operating Expenses Total operating expenses from our Australian Operations for the year ended December 31, 2014 decreased $6.9 million, or 3.0%, to $222.9 million, compared with $229.8 million for the year ended December 31, 2013. The decrease included a $14.8 million decrease due to the depreciation of foreign currency. 74 The following table sets forth operating expenses from our Australian Operations for 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 train operations Casualties and insurance Materials Trackage rights Amount $ 71,216 9,973 34,092 28,095 26,346 10,899 7,656 22,095 Net gain on sale of assets (432) Other expenses Total operating expenses 12,934 $ 222,874 % of Operating Revenues Amount 22.7 % $ 66,377 3.1 % 10,299 10.9 % 9.0 % 52,218 27,102 2,730 30,968 10,379 8.4 % 3.5 % 2.4 % 7.1 % (0.1)% 4.1 % 8,577 71.1 % $ 229,780 21,316 (186) Increase/ (Decrease) 4,839 % of Operating Revenues 20.5 % 3.2 % (326) 16.1 % (18,126) 993 8.3 % Currency Impact 2013 Constant Currency $ (4,369) $ 62,008 9,635 (664) Increase/ (Decrease) (Constant Currency) $ 9,208 338 (3,309) (1,786) 48,909 25,316 (14,817) 2,779 9.5 % 3.2 % 0.8 % 6.6 % (0.1)% 2.6 % 70.7 % (4,622) (1,975) 28,993 (2,647) 520 4,926 779 (246) 4,357 (720) (176) 9,659 2,554 (1,259) 20,057 54 (565) (132) 8,012 (6,906) $(14,769) $ 215,011 1,240 5,102 2,038 (300) 4,922 $ 7,863 The following information discusses the significant changes in operating expenses from our Australian Operations excluding a $14.8 million decrease due to the impact from foreign currency depreciation. Labor and benefits expense was $71.2 million for the year ended December 31, 2014, compared with $62.0 million for the year ended December 31, 2013, an increase of $9.2 million, or 14.8%. The increase in labor and benefits expense was due to an increase in our average number of employees primarily related to the insourcing of equipment maintenance activities. Purchased services expense was $34.1 million for the year ended December 31, 2014, compared with $48.9 million for the year ended December 31, 2013, a decrease of $14.8 million, or 30.3%. The decrease in purchased services expense was primarily attributable to the insourcing of equipment maintenance activities. Depreciation and amortization was $28.1 million for the year ended December 31, 2014, compared with $25.3 million for the year ended December 31, 2013, an increase of $2.8 million, or 11.0%. The increase in depreciation and amortization expense was primarily due to capital expenditures in 2013. The cost of diesel fuel used in train operations was $26.3 million for the year ended December 31, 2014, compared with $29.0 million for the year ended December 31, 2013, a decrease of $2.6 million, or 9.1%. The decrease consisted of $1.3 million due to a 4.1% increase in average fuel cost per gallon and $1.3 million due to a 5.3% decrease in diesel fuel consumption. Casualties and insurance expense was $10.9 million for the year ended December 31, 2014, compared with $9.7 million for the year ended December 31, 2013, an increase of $1.2 million, or 12.8%. The increase was primarily due to an increase in derailment expense. Materials expense was $7.7 million for the year ended December 31, 2014, compared with $2.6 million for the year ended December 31, 2013, an increase of $5.1 million. The increase in materials expense was primarily attributable to the increase in materials purchased to support the insourcing of equipment maintenance activities. Trackage rights expense was $22.1 million for the year ended December 31, 2014, compared with $20.1 million for the year ended December 31, 2013, an increase of $2.0 million, or 10.2%. The increase in trackage rights expense was primarily attributable to expanded services for an iron ore customer that moves over a segment of track owned by a third party. Other expenses were $12.9 million for the year ended December 31, 2014, compared with $8.0 million for the year ended December 31, 2013, an increase of $4.9 million, or 61.4%, primarily resulting from third-party projects. 75 Income from Operations/Operating Ratio Income from operations from our Australian Operations was $90.4 million for the year ended December 31, 2014, compared with $95.0 million for the year ended December 31, 2013. The decrease was primarily due to the net impact from foreign currency depreciation. The operating ratio was 71.1% for the year ended December 31, 2014, compared with 70.7% for the year ended December 31, 2013. U.K./European Operations Operating Revenues The following table sets forth our U.K./European Operations operating revenues for the years ended December 31, 2014 and 2013 (dollars in thousands): Freight revenues Freight-related revenues All other revenues Total operating revenues Freight-Related Revenues 2014 2013 — $ 20,938 43 20,981 $ — $ 14,675 — 14,675 $ $ $ Increase/(Decrease) Amount % — 6,263 43 6,306 —% $ 42.7% NM 43.0% $ Currency Impact — (20) — (20) Prior to our acquisition of Freightliner in March of 2015, freight-related revenues from our U.K./European Operations consisted primarily of port switching. Freight-related revenues from our U.K./European Operations increased $6.3 million, or 42.7%, to $20.9 million for the year ended December 31, 2014, compared with $14.7 million for the year ended December 31, 2013. Operating Expenses Total operating expenses from our U.K./European Operations were $23.0 million for the year ended December 31, 2014, compared with $15.7 million for the year ended December 31, 2013, an increase of $7.3 million. The increase was entirely from existing operations and primarily related to an increase in business. The following table sets forth operating expenses from our U.K./European Operations for 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 train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses % of Operating Revenues Amount 35.9 % $ 5,667 % of Operating Revenues 38.6 % Increase/ (Decrease) 1,865 12.4 % 15.2 % 7.5 % 1,241 3,704 1,387 8.5 % 25.2 % 9.5 % Amount $ 7,532 2,607 3,190 1,565 Currency Impact 23 (11) (5) — 2013 Constant Currency 5,690 1,230 3,699 1,387 (2) 1,432 Increase/ (Decrease) (Constant Currency) $ 1,842 1,377 (509) 178 540 990 551 391 1,593 101 68 (22) 479 1,167 (187) 2 1 (2) (13) (5) (17) (29) 695 15,638 308 $ 7,362 1,366 (514) 178 538 992 552 389 1,580 96 291 7,333 1,972 9.4 % 1,434 9.8 % 1,058 529 870 2,760 (86) 5.0 % 2.5 % 4.1 % 13.2 % (0.4)% 66 (23) 481 1,180 0.4 % (0.2)% 3.3 % 8.0 % (182) (1.2)% 1,003 $ 23,000 4.8 % 712 109.6 % $ 15,667 4.9 % 106.8 % 76 Income/(Loss) from Operations Loss from operations from our U.K./European Operations was $2.0 million for the year ended December 31, 2014, compared with a $1.0 million loss from operations for the year ended December 31, 2013. The loss from our U.K./European Operations in 2013 included extra operating expenses incurred as a result of third party accidents, as well as higher staffing and training expenses incurred in preparation for a significant new long-term customer contract that commenced in early 2014 to provide shuttle service between Rotterdam and the German border. In 2014, the loss widened as expected during the ramp-up period of the new shuttle service. Liquidity and Capital Resources We had cash and cash equivalents on hand of $35.9 million and $59.7 million at December 31, 2015 and 2014, 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, 2015, we had long-term debt, including current portion, of $2,305.3 million, which comprised 47.8% of our total capitalization, and $575.7 million of unused borrowing capacity. At December 31, 2014, we had long-term debt, including current portion, totaling $1,615.4 million, which comprised 40.7% of our total capitalization. During the year ended December 31, 2015, we completed the acquisition of Freightliner for cash consideration of £492.1 million (or $733.0 million at the exchange rate on March 25, 2015). We financed the acquisition through a combination of available cash and borrowings under the Credit Agreement (see Credit Agreement below). During 2015, 2014 and 2013, we generated $475.1 million, $491.5 million and $413.5 million, respectively, of cash from operating activities. Changes in working capital decreased net cash flows from operating activities by $8.5 million, $3.6 million and $26.1 million in 2015, 2014 and 2013, respectively. The 2015 period included $33.2 million of cash used for Freightliner acquisition and integration costs. The 2013 period included $12.9 million in cash paid for expenses related to the integration of RailAmerica. During 2015, 2014 and 2013, our cash used in investing activities was $1,074.3 million, $509.8 million and $208.7 million, respectively. For 2015, primary drivers of cash used in investing activities were $740.2 million of cash paid for acquisitions, including the acquisitions of Freightliner and Pinsly Arkansas, $371.5 million of cash used for capital expenditures, including $65.6 million for new business investments and $18.7 million of net cash paid for the settlement of the foreign currency forward purchase contracts related to the acquisition of Freightliner, partially offset by $41.7 million in cash received from grants from outside parties for capital spending and $10.4 million of insurance proceeds for the replacement of assets. For 2014, primary drivers of cash used in investing activities were $331.5 million of cash used for capital expenditures, including $92.9 million for new business investments, $221.5 million of cash paid for acquisitions, predominately for the RCP&E acquisition, partially offset by $28.0 million in cash received from grants from outside parties for capital spending, $8.0 million of insurance proceeds for the replacement of assets and $7.1 million in cash proceeds from the sale of property and equipment. 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 and $6.7 million in cash proceeds from the sale of property and equipment. During 2015 and 2014, our cash provided by financing activities was $581.6 million and $15.2 million, respectively. During 2013, our cash used in financing activities was $205.9 million. For 2015, the primary driver of cash provided by financing activities was net proceeds of $586.2 million, which was predominately related to borrowings from the refinancing of the Credit Agreement in conjunction with our acquisition of Freightliner. For 2014, the primary driver of cash flows provided by financing activities was net cash inflows of $13.9 million from exercises of stock-based awards. For 2013, the primary driver of cash used in financing activities was a net decrease in outstanding debt of $209.3 million. 77 Cash Repatriation At December 31, 2015, we had cash and cash equivalents totaling $35.9 million, of which $28.3 million were held by 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, 2015 was $322.5 million. Credit Agreement In anticipation of our acquisition of Freightliner, we entered into the Credit Agreement on March 20, 2015. The credit facilities under the Credit Agreement are comprised of a $1,782.0 million United States term loan, an A$324.6 million (or $252.5 million at the exchange rate on March 20, 2015) Australian term loan, a £101.7 million (or $152.2 million at the exchange rate on March 20, 2015) U.K. term loan and a $625.0 million revolving credit facility. The revolving credit facility includes borrowing capacity for letters of credit and swingline loans. The maturity date of each of our credit facilities under the Credit Agreement is March 31, 2020. On September 30, 2015, we entered into Amendment No. 1 (the Amendment) to the Credit Agreement. The Amendment added a senior secured leverage ratio covenant that requires us to comply with maximum ratios of senior secured indebtedness, subject, if applicable, to netting of certain cash and cash equivalents to earnings before income taxes, depreciation and amortization (EBITDA). For additional information regarding our Credit Agreement, Credit Agreement Amendment and the Prior Credit Agreement, see Note 8, Long-Term Debt, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Tangible Equity Units (TEUs) 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. On each January 1, April 1, July 1 and October 1, we paid the 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 were equivalent to a 5.00% cash payment per year with respect to each $100 stated amount of the TEUs. On October 1, 2015, we settled the remaining balance of the amortizing note component of the TEUs for a total cash payment of $2.8 million. In addition, we settled the prepaid stock purchase contract component of the TEUs with the delivery of 3,539,240 shares of our Class A Common Stock. 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, 2015, the carrying value of the loan was A$2.7 million (or $1.9 million at the exchange rate on December 31, 2015) with a non-cash imputed interest rate of 8.0%. Equipment and Property Leases We enter into operating leases for railcars, locomotives and other equipment as well as real property. We also enter into agreements with other railroads and other third parties to operate over certain sections of their track, whereby we 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 increase in leased equipment in 2015 was attributable to our acquisition of Freightliner, which primarily relies upon leased railcars and locomotives. 78 The number of railcars and locomotives leased by us as of December 31, 2015 and 2014 was as follows: Railcars Locomotives December 31, 2015 2014 21,819 333 18,583 162 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, 2015, 2014 and 2013 was as follows (dollars in thousands): Equipment Real property Trackage rights 2015 2014 2013 $ $ $ 82,853 11,715 78,140 $ $ $ 29,462 8,361 53,783 $ $ $ 32,050 8,062 50,911 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 7% of our 2015 total revenues. Leases from Class I railroads and other third parties that are subject to expiration in each of the next 10 years represent less than 2% of our annual revenues for the year of expiration based on our operating revenues for the year ended December 31, 2015. 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 14, 2018), around which time we expect to file a replacement shelf registration statement. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time securities, including common stock, debt securities, preferred stock, warrants and units. Grants from Outside Parties Our railroads have received a number of project grants from federal, provincial, state and local agencies and other outside parties (e.g., customers) for upgrades and construction of rail lines and upgrades of locomotives. We use the grant funds as a supplement to our normal capital programs. In return for the grants, the railroads pledge to maintain various levels of service and improvements on the rail lines that have been upgraded or constructed. We believe the levels of service and improvements required under the grants are reasonable. However, we can offer no assurance that grants from outside parties will continue to be available or that, even if available, our railroads will be able to obtain them. Insurance and Third-Party Claims Accounts receivable from insurance and other third-party claims was $26.6 million and $26.9 million as of December 31, 2015 and 2014, respectively. Accounts receivable from insurance and other third-party claims at December 31, 2015 included $12.8 million from our North American Operations, $8.1 million from our Australian Operations and $5.7 million from our U.K./European Operations. The balance from our North American Operations resulted predominately from our anticipated insurance recoveries associated with a derailment in Alabama (the Aliceville Derailment) in November 2013 and a trestle fire in Oregon in August 2015. The balance from our Australian Operations resulted from our anticipated insurance recoveries associated with derailments in Australia in 2012. The balance from our U.K./European Operations resulted primarily from our anticipated insurance recoveries associated with a rail-related collision in Germany in 2014 that occurred prior to our acquisition of Freightliner. We received proceeds from insurance totaling $10.4 million, $13.6 million and $11.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. 79 2016 Budgeted Capital Expenditures The following table sets forth our budgeted capital expenditures by segment for the year ending December 31, 2016 (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 Year Ending December 31, 2016 North American Operations Australian Operations U.K./European Operations Total $ 133,000 $ 14,000 $ 28,000 $ 175,000 80,000 12,000 (65,000) $ 160,000 $ $ — 3,000 — — 20,000 — 17,000 $ 48,000 $ 80,000 35,000 (65,000) 225,000 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, 2015, there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur that would have a material adverse effect on our consolidated results of operations, financial condition or liquidity. The following table represents our obligations and commitments for future cash payments under various agreements as of December 31, 2015 (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 2,215,358 241,698 12,501 124,411 707,004 12,692 87,520 3,401,184 $ $ Payments Due By Period Less than 1 year 1-3 years 3-5 years More than 5 years 57,112 61,230 846 24,841 112,230 12,692 19,636 288,587 $ $ 271,545 112,764 — 29,333 175,232 — 1,504 590,378 $ $ 1,850,276 62,252 12 26,499 114,723 — 36,774 2,090,536 $ $ 36,425 5,452 11,643 43,738 304,819 — 29,606 431,683 (1) Includes an A$50.0 million (or $36.4 million at the exchange rate on December 31, 2015) non-interest bearing loan due in 2054 assumed in the acquisition of FreightLink with a carrying value of A$2.7 million (or $1.9 million at the exchange rate on December 31, 2015). (2) Assumes no change in variable interest rates from December 31, 2015. (3) Includes the fair value of our interest rate swaps of $12.5 million. (4) Includes purchase commitments for future capital expenditures among our existing operations. (5) Includes deferred compensation of $14.5 million, estimated casualty obligations of $10.3 million, deferred consideration related to the acquisition of Freightliner of $35.7 million and certain other long-term liabilities of $10.2 million. In addition, the table includes estimated post-retirement medical and life insurance benefits of $3.5 million and our 2016 estimated contributions of $13.4 million to our pension plans. 80 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, 2015 consisted of operating lease obligations, which are included in the contractual obligations table above, as well as credit/payment guarantees acquired from Freightliner. See Note 3, Changes in Operations, to our Consolidated Financial Statements included within "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Impact of Foreign Currencies on Operating Revenues and Expenses When comparing the effects of average foreign currency exchange rates on operating revenues and operating expenses during the year ended December 31, 2015 versus the year ended December 31, 2014, foreign currency translation had a negative impact on our consolidated operating revenues and a positive impact on our consolidated operating expenses due to the weakening of the Australian and Canadian dollars relative to the United States dollar for the year ended December 31, 2015. 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. The following critical accounting policies and use of estimates should be read in conjunction with Note 2, Significant Accounting Policies, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. 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. 81 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, 2015, 2014 and 2013 (dollars in thousands): Gross capitalized major renewals and improvements Grants from outside parties Net capitalized major renewals and improvements Total repairs and maintenance expense 2015 2014 2013 $ $ $ 285,593 (41,742) 243,851 463,654 $ $ $ 205,360 (27,980) 177,380 347,928 $ $ $ 220,529 (33,913) 186,616 328,991 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 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 for the years ended December 31, 2015, 2014 or 2013. Grants from Outside Parties Grants from outside parties are recorded 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. We perform our annual impairment test as of November 30 of each year. No impairment was recognized for the years ended December 31, 2015, 2014 and 2013, as a result of our annual impairment test. Additionally, we review the carrying value of goodwill and any indefinite-lived intangible assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. 82 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 second step measures the goodwill impairment loss as the excess of recorded goodwill over its implied fair value. For indefinite-lived intangible assets, 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 determination of fair value involves significant management judgment including assumptions about operating results, business plans, income projections, anticipated future cash flows and market data. Impairment losses are expensed when incurred and are charged to net (gain)/loss on sale and impairment of assets within operating expenses. Derailment and Property Damages, Personal Injuries and Third-Party Claims We maintain global liability and property insurance coverage to mitigate the financial risk of providing rail and rail- related services. Our liability policies cover railroad employee injuries, personal injuries associated with grade crossing accidents and other third-party claims associated with our operations. 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 are also covered under our liability policies. Our liability policies currently have self-insured retentions of up to $2.5 million per occurrence. Our property policies cover property and equipment that we own, as well as property in our care, custody and control. Our property policies currently 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. 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. We also maintain ancillary insurance coverage for other risks associated with rail and rail-related services, including insurance for employment practices, directors’ and officers’ liability, workers’ compensation, pollution, auto claims, crime and road haulage liability, among others. Accruals for 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. Recently Issued Accounting Standards See Note 20, Recently Issued Accounting Standards, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. 83 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. For additional information regarding our Derivative Financial Instruments, see Note 9, Derivative Financial Instruments, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Interest Rate Risk 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 payments on our debt obligations, related weighted average annual interest rates by expected maturity dates and estimated fair values as of December 31, 2015 (dollars in thousands): 2016 2017 2018 2019 2020 Thereafter Total Fair Value $ 715 $ 493 $ — $ — $ — $ 36,425 $ 37,633 $ 3,090 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Fixed rate debt: Other debt (1) Average annual interest rate Variable rate debt: Revolving credit facility: Australia Canada Europe United States Term loans: Australia United Kingdom United States Average annual interest rate $ $ $ $ $ $ 2,186 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 2,186 — $ 24,200 — $ 8,109 — $ 10,317 — $ 24,200 — $ 8,109 — $ 10,317 $ $ $ $ 2,186 24,258 8,151 10,238 5,912 3,748 $ 11,825 $ 17,737 $ 23,649 $ 151,870 $ 7,496 $ 11,244 $ 14,992 $ 112,439 $ 44,550 $ 89,100 $133,650 $178,200 $ 1,326,500 — $ 210,993 $ 210,128 — $ 149,919 $ 150,030 — $ 1,772,000 $ 1,750,040 $ $ $ $ $ $ 3.1% 3.6% 3.9% 4.1% 4.1% 0.0% 4.1% Total $ 57,111 $108,914 $162,631 $216,841 $ 1,633,435 $ 36,425 $ 2,215,357 $ 2,158,121 (1) Includes an A$50.0 million (or $36.4 million at the exchange rate on December 31, 2015) non-interest bearing loan due in 2054 assumed in the acquisition of FreightLink with a carrying value of A$2.7 million (or $1.9 million at the exchange rate on December 31, 2015) 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 Australia BBR, Canada BA, Euro LIBOR and United States LIBOR (as of December 31, 2015). BBR is the Bankers Buyer Rate within Australia, which we believe is generally considered the Australian equivalent to LIBOR. The borrowing margin is composed of a weighted average of 2.00% for Australian, Canadian, European and United States 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 $18.3 million. 84 Foreign Currency Exchange Rate Risk As of December 31, 2015, our foreign subsidiaries had $512.1 million of third-party debt denominated in the local currencies in which our foreign subsidiaries operate, including the Australian dollar, British pound, 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 of non-United States dollar-denominated acquisitions, we may enter into foreign currency forward purchase contracts. To mitigate currency exposures related to non-functional currency denominated intercompany debt, cross-currency swaps or foreign currency forward 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. However, cross-currency swap contracts and foreign currency forward contracts used to mitigate exposures on foreign currency intercompany debt may not qualify for hedge accounting. In cases where the cross-currency swap contracts and foreign currency forward contracts do not qualify for hedge accounting, we believe that such instruments are closely correlated with the underlying exposure, thus reducing the associated risk. The gains or losses from changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognized in current period earnings within other income, net. For additional information regarding our Derivative Financial Instruments, see Note 9, Derivative Financial Instruments, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report. Deferred Consideration On March 25, 2015, as part of the Freightliner acquisition, we recorded a contingent liability within other long-term liabilities of £24.2 million (or $36.0 million at the exchange rate on March 25, 2015). This contingent liability represents the aggregate fair value of the shares transferred to us by the Management Shareholders representing an economic interest of approximately 6% on the acquisition date at the Freightliner acquisition price per share, in exchange for the right to receive cash consideration for the representative economic interest in the future (deferred consideration). We will recalculate the estimated fair value of the deferred consideration in each reporting period until it is paid in full by using a contractual formula designed to estimate the economic value of the Management Shareholders' retained interest in a manner consistent with that used to derive the Freightliner acquisition price per share on the acquisition date. Accordingly, a change in the fair value of the deferred consideration could have a material effect on our results of operations for the period in which a change in estimate occurs. As of December 31, 2015, there was no change in the estimated fair value of the deferred consideration (see Note 10, Fair Value of Financial Instruments, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual Report), resulting in no change to the contingent liability. We expect to recognize future changes in the contingent liability for the estimated fair value of the deferred consideration through other expenses within our consolidated statement of operations. These future changes in the estimated fair value of the deferred consideration are not expected to be deductible for tax purposes. Each of the Management Shareholders may elect to receive one third of their respective deferred consideration valued as of March 31, 2018, 2019 and 2020. Any remaining portion of the deferred consideration will be valued as of March 31, 2020, and paid by the end of 2020. 85 The following table presents financial instrument carried at fair value using Level 3 inputs as of December 31, 2015 (amounts in thousands) Financial instrument carried at fair value using Level 3 inputs: Financial liabilities carried at fair value: Accrued deferred consideration Sensitivity to Diesel Fuel Prices 2015 GBP USD £ 24,200 $ 35,680 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. For the year ended December 31, 2015, fuel costs for fuel used in operations represented 8.2% of our total operating expenses. As of December 31, 2015, 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, 2015, each one percentage point change in the price of diesel fuel would result in a $1.4 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. Exhibits, Financial Statement Schedules," 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. Disclosure Controls and Procedures — We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) 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 Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015. Consistent with the guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management's report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of internal control over financial reporting related to Freightliner, whose total assets represented 18% of Genesee & Wyoming Inc.'s consolidated total assets at December 31, 2015. Freightliner's total revenues and income from operations for the period March 25, 2015 through December 31, 2015 represented 27% and 9%, respectively, of Genesee & Wyoming Inc.'s revenues and income from operations for the year ended December 31, 2015. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, the disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Internal Control Over Financial Reporting — On March 25, 2015, we completed the acquisition of Freightliner. We extended our oversight and monitoring processes that support our internal control over financial reporting, as appropriate, to include Freightliner's financial position, results of operations and cash flow into our consolidated financial statements from the March 25, 2015 date of acquisition through December 31, 2015. We are continuing to integrate the acquired operations of Freightliner into our overall internal control over financial reporting and related processes. Except as disclosed in this paragraph, there were no other changes in our internal control over financial reporting (as the term is defined in Rules 13a-15 (f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 86 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, 2015. 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. Consistent with the guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management's report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of internal control over financial reporting related to Freightliner. The Company acquired Freightliner in a business combination on March 25, 2015. Freightliner's total assets represented 18% of Genesee & Wyoming Inc.'s consolidated total assets as of December 31, 2015. Freightliner's total revenues and income from operations for the period March 25, 2015 through December 31, 2015 represented 27% and 9%, respectively, of Genesee & Wyoming Inc.'s income from operations for the year ended December 31, 2015. Based on this assessment, management determined that, as of December 31, 2015, 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." 87 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 17, 2016, 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 intend to 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 17, 2016, under "Executive Compensation," including the "Compensation Discussion and Analysis," "Compensation Committee Report" and "Summary Compensation Table" sections, and "Director Compensation." ITEM 12. Matters. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder The following table sets forth all of our securities authorized for issuance under our equity compensation plans as of December 31, 2015: Equity Compensation Plan I Information (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)) 1,203,035 $ — 1,203,035 $ 80.58 — 80.58 2,481,736 — 2,481,736 Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total 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 17, 2016, 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 17, 2016, under "Corporate Governance" and "Related Person Transactions." 88 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 17, 2016, under "Proposal Three: Ratification of the Selection of Independent Auditors." 89 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, 2015 and 2014 Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 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 90 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 26, 2016 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 26, 2016 Chairman of the Board of Directors February 26, 2016 Chief Executive Officer, President and Director (Principal Executive Officer) February 26, 2016 Chief Financial Officer (Principal Financial Officer) February 26, 2016 Chief Accounting Officer (Principal Accounting Officer) February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director February 26, 2016 Director 91 /S/ MORTIMER B. FULLER III 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/ ALBERT J. NEUPAVER Albert J. Neupaver /S/ MICHAEL NORKUS Michael Norkus /S/ JOSEPH H. PYNE Joseph H. Pyne /S/ ANN N. REESE Ann N. Reese /S/ PHILIP J. RINGO Philip J. Ringo /S/ MARK A. SCUDDER Mark A. Scudder /S/ HUNTER C. SMITH Hunter C. Smith 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 Exhibits referenced under 4.1 and 4.4 hereof are incorporated herein by reference. (ii) By-laws Amended By-laws, effective as of August 19, 2004, is incorporated herein by reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q filed on November 9, 2004 (File No. 001-31456). Instruments defining the rights of security holders, including indentures Restated Certificate of Incorporation is incorporated herein by reference to Annex II to the Registrant's Definitive Proxy Statement on Schedule 14A filed on April 15, 2011 (File No. 001-31456). Specimen stock certificate representing shares of Class A Common Stock is incorporated herein by reference to Exhibit 4.1 to Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-03972) filed on June 12, 1996. Form of Class B Stockholders' Agreement dated as of May 20, 1996, among the Registrant, its executive officers and its Class B Stockholders is incorporated herein by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-03972) filed on June 7, 1996. 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). 3.1 (4) 4.1 4.2 4.3 4.4 (10) Material Contracts 10.1 10.2 10.3 10.4 10.5 The Exhibit referenced under 4.3 hereof is incorporated herein by reference. Memorandum of Lease between Minister for Transport and Urban Planning a Body Corporate Under the Administrative Arrangements Act, the Lessor and Australia Southern Railroad Pty Ltd., the Lessee, dated November 7, 1997, is incorporated herein by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed on March 31, 1998 (File No. 000-20847). 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). ** 92 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 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). Third 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 March 30, 2015 (File No. 001-31456). ** Amendment No. 1, dated as of March 20, 2015, to the Amended and Restated Senior Secured Syndicated Facility Agreement, dated as of May 27, 2014 among Genesee & Wyoming Inc., RP Acquisition Company Two, Quebec Gatineau Railway Inc., Genesee & Wyoming Australia Pty Ltd, GWI UK Acquisition Company Limited, 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 March 25, 2015 (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). ** 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).** Assignment Letter to Matthew O. Walsh, dated June 18, 2015, is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 22, 2015 (File No. 001-31456).** 93 10.21 Amendment No. 1, dated as of September 30, 2015, to the Second Amended and Restated Senior Secured Syndicated Facility Agreement, dated as of March 20, 2015, among Genesee & Wyoming Inc., RP Acquisition Company Two, Quebec Gatineau Railway Inc., Genesee & Wyoming Australia Pty Ltd, Rotterdam Rail Feeding B.V., ERS Railways B.V., GWI UK Acquisition Company Limited, 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 October 2, 2015 (File No. 001-31456). (11) Not included as a separate exhibit as computation can be determined from Note 2 to the financial statements included in this Report under Item 8 *(21.1) Subsidiaries of the Registrant *(23.1) Consent of PricewaterhouseCoopers LLP *(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, 2015, formatted in XBRL includes: (i) Consolidated Balance Sheets as of December 31, 2015 and 2014, (ii) Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013, (iv) Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 2014 and 2013, (v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013, 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. 94 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, 2015 and 2014 Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 Notes to Consolidated Financial Statements Page F-2 F-3 F-4 F-5 F-6 F-7 F-8 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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, 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. As described in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A, management has excluded Freightliner Group Limited from its assessment of internal control over financial reporting as of December 31, 2015 because it was acquired by the Company in a purchase business combination during 2015. We have also excluded Freightliner Group Limited from our audit of internal control over financial reporting. Freightliner Group Limited is a wholly-owned subsidiary whose total assets and total revenues represent 18% and 27%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2015. /s/ PricewaterhouseCoopers LLP Rochester, New York February 26, 2016 F-2 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 and 2014 (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, 2015 and 2014; 69,674,185 and 65,632,309 shares issued and 56,945,384 and 52,938,267 shares outstanding (net of 12,728,801 and 12,694,042 shares in treasury) on December 31, 2015 and 2014, respectively Class B Common Stock, $0.01 par value, ten votes per share; 30,000,000 shares authorized at December 31, 2015 and 2014; 793,138 and 1,020,485 shares issued and outstanding on December 31, 2015 and 2014, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost Total equity Total liabilities and equity December 31, 2015 2014 $ 35,941 382,458 45,790 43,197 69,174 576,560 4,215,063 826,575 1,128,952 2,110 46,344 $6,795,604 $ 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 $ 81,953 282,275 169,586 533,814 2,223,306 1,052,150 292,198 174,675 $ 67,398 290,746 106,094 464,238 1,548,051 908,852 279,286 37,346 697 656 8 1,355,345 1,544,676 (153,457) (227,808) 2,519,461 $6,795,604 10 1,334,474 1,319,639 (72,252) (224,547) 2,357,980 $5,595,753 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, 2015, 2014 and 2013 (in thousands, except per share amounts) OPERATING REVENUES OPERATING EXPENSES: Labor and benefits Equipment rents Purchased services Depreciation and amortization Diesel fuel used in train operations Electricity used in train operations Casualties and insurance Materials Trackage rights Net gain on sale of assets Other expenses Total operating expenses INCOME FROM OPERATIONS Interest income Interest expense Loss on settlement of foreign currency forward purchase contracts Other income, net Income before income taxes Provision for income taxes Net income Less: Series A-1 Preferred Stock dividend Net income available to common stockholders Basic earnings per common share attributable to Genesee & Wyoming Inc. common stockholders: Weighted average shares—Basic Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders: Weighted average shares—Diluted Years Ended December 31, 2015 $2,000,401 2014 $1,639,012 2013 $1,568,643 614,967 149,825 186,905 188,535 132,149 13,714 42,494 95,248 78,140 (2,291) 116,454 1,616,140 384,261 481 (67,073) (18,686) 1,948 300,931 (75,894) 225,037 — $ 225,037 469,503 82,730 100,108 157,081 149,047 1,058 41,552 78,366 53,783 (5,100) 89,313 1,217,441 421,571 1,445 (56,162) — 1,008 367,862 (107,107) 260,755 — $ 260,755 439,117 77,595 123,822 141,644 147,172 66 38,564 77,204 50,911 (4,677) 97,037 1,188,455 380,188 3,971 (67,894) — 1,327 317,592 (46,296) 271,296 2,139 $ 269,157 $ $ $ $ 3.97 56,734 3.89 57,848 $ $ 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, 2015, 2014 and 2013 (in thousands) 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 $2,558, $15,649 and ($13,992), respectively Changes in pension and other postretirement benefit obligations, net of tax (provision) of ($2,552), ($670) and ($208), respectively Other comprehensive loss COMPREHENSIVE INCOME Years Ended December 31, 2015 $ 225,037 2014 $ 260,755 2013 $ 271,296 (86,968) (56,059) (62,532) (3,837) (23,473) 20,988 9,600 1,191 362 (81,205) (78,341) (41,182) $ 143,832 $ 182,414 $ 230,114 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, 2015, 2014 and 2013 (dollars in thousands) Class A Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings $ 872,134 $ 789,727 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) Other — — — 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 Other — — 4 6 — — — — BALANCE, December 31, 2014 $ 656 $ Net income Other comprehensive loss Value of stock issued for stock- based compensation - 266,542 shares Class A Common Stock Conversion of 227,347 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, 34,759 shares TEU settlement of 3,539,240 shares Class A Common Stock Other — — 3 2 — — — 36 — BALANCE, December 31, 2015 $ 697 $ (1) — 17 — — — — — — — — — — — 16 — — — — — — — 10 — — — — — — — — 8 — — — 12,504 399,329 16,951 6,854 — 274 (5,045) 795 — — 11,815 12,819 6,198 — (154) — — 6,826 14,421 1,432 — (36) (1,772) (6) — (2) — Accumulated Other Comprehensive Income/(Loss) 47,271 $ — (41,182) — — — — — — — — — — Treasury Stock Total Equity $ (209,266) $ 1,500,462 — — — — — — — — 271,296 (41,182) (2,139) 12,510 — 399,389 16,951 6,854 (11,095) (11,095) — — — 274 (5,045) 795 271,296 — (2,139) — — — — — — — — — 260,755 — — — — — — — — (78,341) — — — — — — — — — — — — (4,186) — 260,755 (78,341) 11,819 — 12,819 6,198 (4,186) (154) 225,037 — — — — — — — — — (81,205) — — — — — — — — — — — — — 225,037 (81,205) 6,829 — 14,421 1,432 (3,261) (3,261) — — — (1,772) $ 1,334,474 $ 1,319,639 $ (72,252) $ (224,547) $ 2,357,980 $ 1,303,796 $ 1,058,884 $ 6,089 $ (220,361) $ 2,149,070 $ 1,355,345 $ 1,544,676 $ (153,457) $ (227,808) $ 2,519,461 The accompanying notes are an integral part of these consolidated financial statements. F-6 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013 (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation Excess tax benefit from share-based compensation Deferred income taxes Net gain on sale of assets Loss on settlement of foreign currency forward purchase contracts Insurance proceeds received 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 Net payment from settlement of foreign currency forward purchase contracts related to an acquisition 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 Dividends paid on Series A-1 Preferred Stock Proceeds from employee stock purchases Treasury stock acquisitions Excess tax benefit from share-based compensation Net cash provided by/(used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, beginning of year CASH AND CASH EQUIVALENTS, end of year Years Ended December 31, 2014 2013 2015 $ 225,037 $ 260,755 $ 271,296 188,535 14,649 (1,477) 40,477 (2,291) 18,686 — 28,905 (4,073) 7,462 (39,881) (882) 475,147 (371,504) 41,742 (740,237) (18,686) 10,394 4,018 (1,074,273) (675,430) 1,261,640 (9,622) — 6,829 (3,261) 1,477 581,633 (6,293) (23,786) 59,727 157,081 12,858 (6,221) 70,131 (5,100) — 5,527 (39,107) 2,600 17,451 14,703 786 491,464 (331,499) 27,980 (221,451) — 8,029 7,096 (509,845) (538,035) 543,300 (3,880) — 11,819 (4,186) 6,221 15,239 (7) (3,149) 62,876 $ 35,941 $ 59,727 $ 141,644 16,951 (6,861) 10,229 (4,677) — 11,053 (47,780) (1,839) 3,304 16,383 3,801 413,504 (249,318) 33,913 — — — 6,687 (208,718) (471,957) 262,651 (2,773) (2,139) 12,510 (11,095) 6,861 (205,942) (740) (1,896) 64,772 62,876 The accompanying notes are an integral part of these consolidated financial statements. F-7 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND CUSTOMERS: Unless the context otherwise requires, when used in these consolidated financial statements, the terms "Genesee & Wyoming," "G&W" and the "Company" refer to Genesee & Wyoming Inc. and its subsidiaries. The Company owns or leases 120 freight railroads worldwide that are organized in 11 operating regions with 7,500 employees and more than 2,800 customers. The financial results of our 11 operating regions are reported in the following three distinct segments: • The Company's North American Operations segment includes nine operating regions that serve 41 U.S. states and four Canadian provinces. This segment includes 113 short line and regional freight railroads with more than 13,000 track-miles. • The Company's Australian Operations segment provides rail freight services in South Australia, the Northern Territory and New South Wales. Included in the Australian Operations segement is the 1,400-mile Tarcoola-to-Darwin rail line, which is the sole north-south rail carrier outside the coasts and primarily corridor intermodal and commodity freight. • The Company's U.K./European Operations segment includes the majority of Freightliner Group Limited (Freightliner), which the Company acquired in March 2015 (see Note 3, Changes in Operations). Freightliner is the United Kingdom's (U.K.) largest rail maritime intermodal operator and the U.K.'s second-largest rail freight company. The Company's U.K./European Operations segment also includes heavy-haul freight operations in Poland and Germany and cross-border intermodal services connecting Northern European seaports with key industrial regions throughout the continent. The Company's subsidiaries provide rail service at more than 40 major ports in North America, Australia and Europe and perform 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 22%, 24% and 24% of the Company's operating revenues in 2015, 2014 and 2013, respectively. When comparing the Company's results of 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, high winds, droughts, heavy snowfall, unseasonably hot or cold weather, freezing and flooding, among other factors. 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, global commodity prices and foreign exchange rates, such as steel products, iron ore, paper products and lumber and forest products and agricultural 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-8 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 The Company generates freight revenues from the haulage of freight by rail based on a per car, per container or per ton basis. Freight revenues are recognized proportionally as shipments move from origin to destination, with related expenses recognized as incurred. The Company generates freight-related revenues from port terminal railroad operations and industrial switching (where the Company operates trains on a contract basis in facilities it does not own), as well as demurrage, storage, car hire, track access rights, transloading, crewing services, traction service (or hook and pull service that requires the Company to provide locomotives and drivers to move a customers' train between specified origin and destination points), and other ancillary revenues related to the movement of freight. Freight-related revenues are recognized as services are performed or as contractual obligations are fulfilled. The Company generates all other revenues from third-party railcar and locomotive repairs, property rentals, railroad construction and other ancillary revenues not directly related to the movement of freight. All other revenues are recognized as services are performed or as contractual obligations are fulfilled. Certain of the countries in which the Company operates have a tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer. The Company records these taxes on a net basis. 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 Maximum 2 20 5 2 2 2 4 2 2 40 50 50 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 for the years ended December 31, 2015, 2014 or 2013. 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. The Company performs its annual impairment test as of November 30 of each year. No impairment was recognized for the years ended December 31, 2015, 2014 and 2013, as a result of our annual impairment test. Additionally, the Company reviews the carrying value of goodwill and any indefinite-lived intangible assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. 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 second step measures the goodwill impairment loss as the excess of recorded goodwill over its implied fair value. For indefinite-lived intangible assets, 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 determination of fair value involves significant management judgment including assumptions about operating results, business plans, income projections, anticipated future cash flows and market data. Impairment losses 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 operational network rights, 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 global liability and property insurance coverage to mitigate the financial risk of providing rail and rail-related services. The Company's liability policies cover railroad employee injuries, personal injuries associated with grade crossing accidents and other third-party claims associated with the Company's operations. 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 are also covered under the liability policies. The Company's liability policies currently have self-insured retentions of up to $2.5 million per occurrence. The Company's property policies cover property and equipment that the Company owns, as well as property in the Company's care, custody and control. The Company's property policies currently 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 the Company's self-insured retention for property damage due to a cyclone or flood is A$2.5 million. The property policies also provide business interruption insurance arising from covered events. The self-insured retentions under the policies may change with each annual insurance renewal depending on the Company's loss history, the size and make-up of the Company and general insurance market conditions. The Company also maintains ancillary insurance coverage for other risks associated with rail and rail-related services, including insurance for employment practices, directors' and officers' liability, workers' compensation, pollution, auto claims, crime and road haulage liability, among others. Accruals for 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. F-11 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 Third 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 compensation expense is recorded over the requisite service period on a straight-line basis. Two assumptions in the Black-Scholes pricing model require management judgment: the life of the option and the volatility of the stock price 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. F-12 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Management Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to use judgment and to make estimates and assumptions that affect business combinations, reported assets, liabilities, revenues and expenses during the reporting period. Significant estimates using management judgment are made in the areas of recoverability and useful life of assets, as well as liabilities for casualty claims and income taxes. Actual results could differ from those estimates. Risks and Uncertainties Slower growth, an economic recession, 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: Europe Freightliner Group Limited: On March 25, 2015, the Company completed the acquisition of all of the outstanding share capital of RailInvest Holding Company Limited, the parent company of London-based Freightliner Group Limited (Freightliner), pursuant to the terms of a Share Purchase Agreement dated February 24, 2015. Certain former management shareholders of Freightliner (Management Shareholders) retained an approximate 6% economic interest in Freightliner in the form of deferred consideration. The Company expects to settle the deferred consideration by the end of 2020. Headquartered in London, England, Freightliner is an international freight rail operator with operations in the U.K., Poland, Germany, the Netherlands and Australia. Freightliner's principal business is located in the U.K., where it is the largest maritime intermodal operator and the second largest freight rail operator, providing 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. As of the acquisition date, Freightliner employed approximately 2,500 people worldwide and had a fleet of primarily leased equipment of approximately 250 standard gauge locomotives, including approximately 45 electric locomotives, and 5,500 railcars. The Company funded the acquisition with borrowings under the Company's Second Amended and Restated Senior Secured Syndicated Credit Facility Agreement, as amended (the Credit Agreement) (see Note 8, Long-Term Debt) and available cash. The foreign exchange rate used to translate the total consideration to United States dollars was $1.49 for one British pound (GBP), the exchange rate on March 25, 2015. The calculation of the total consideration for the Freightliner acquisition is presented below (amounts in thousands): Cash consideration Deferred consideration Total consideration GBP USD £ £ 492,083 24,200 516,283 $ $ 733,006 36,048 769,054 F-13 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of March 25, 2015, the Company recorded a contingent liability within other long-term liabilities of £24.2 million (or $36.0 million at the exchange rate on March 25, 2015). This contingent liability represents the aggregate fair value of the shares transferred to the Company by the Management Shareholders representing an economic interest of approximately 6% on the acquisition date at the Freightliner acquisition price per share, in exchange for the right to receive cash consideration for the representative economic interest in the future (deferred consideration). The Company will recalculate the estimated fair value of the deferred consideration in each reporting period until it is paid in full by using a contractual formula designed to estimate the economic value of the Management Shareholders' retained interest in a manner consistent with that used to derive the Freightliner acquisition price per share on the acquisition date. Accordingly, a change in the fair value of the deferred consideration could have a material effect on the Company's results of operations for the period in which a change in estimate occurs. As of December 31, 2015, there was no change in the estimated fair value of the deferred consideration (see Note 10, Fair Value of Financial Instruments), resulting in no change to the contingent liability. The Company expects to recognize future changes in the contingent liability for the estimated fair value of the deferred consideration through other expenses within the Company's consolidated statement of operations. These future changes in the estimated fair value of the deferred consideration are not expected to be deductible for tax purposes. Each of the Management Shareholders may elect to receive one third of their respective deferred consideration valued as of March 31, 2018, 2019 and 2020. Any remaining portion of the deferred consideration will be valued as of March 31, 2020 and paid by the end of 2020. The results of operations from Freightliner have been included in the Company's consolidated statement of operations since the March 25, 2015 acquisition date. The results of Freightliner's U.K. and Continental Europe operations are included in the Company's U.K./European Operations segment and the results of Freightliner's Australia operations are included in the Company's Australian Operations segment (see Note 18, Segment and Geographic Area Information). Freightliner contributed $531.3 million of total revenues and $33.4 million of income from operations to the Company's consolidated results since the March 25, 2015 acquisition date. The Company incurred $12.6 million of acquisition costs and $2.6 million of integration costs associated with Freightliner during the year ended December 31, 2015, which were included within other expenses in the Company's consolidated statement of operations. In addition, the Company recorded a loss of $18.7 million on the settlement of foreign currency forward purchase contracts during the year ended December 31, 2015, which were entered into in contemplation of the Freightliner acquisition (see Note 9, Derivative Financial Instruments). The Company accounted for the acquisition as a business combination using the acquisition method of accounting under U.S. GAAP. The acquired assets and liabilities of Freightliner were recorded at their acquisition- date fair values and were consolidated with those of the Company as of the acquisition date. The foreign exchange rate used to translate the balance sheet to United States dollars was $1.49 for one British pound. The following acquisition-date fair values were assigned to the acquired net assets (amounts in thousands): Cash and cash equivalents Accounts receivable Materials and supplies Prepaid expenses and other Property and equipment Goodwill Intangible assets Other assets Total assets Current portion of long-term debt Accounts payable and accrued expenses Long-term debt, less current portion Deferred income tax liabilities, net Other long-term liabilities Net assets F-14 GBP 30,030 55,530 9,740 19,156 198,730 145,190 392,233 179 850,788 17,119 105,531 67,057 82,137 62,661 516,283 $ $ USD 44,733 82,717 14,509 28,535 296,028 216,275 584,270 267 1,267,334 25,500 157,201 99,888 122,351 93,340 769,054 £ £ GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following acquisition-date fair values were assigned to the intangible assets (amounts in thousands): Operational network rights Customer relationships Trade names/trademarks Favorable operating leases Total intangible assets GBP USD 324,000 57,000 9,200 2,033 392,233 $ $ 482,630 84,907 13,704 3,029 584,270 £ £ Weighted Average Amortization Period (in years) 100 18 40 5 The amortizable operational network rights the Company acquired from Freightliner have remaining contractual terms spanning up to 123 years. In addition, the Company assigned £145.2 million (or $216.3 million at the exchange rate on March 25, 2015) to goodwill in its final allocation. The goodwill will not be deductible for tax purposes. Included in the £17.1 million (or $25.5 million at the exchange rate on March 25, 2015) current portion of long-term debt assumed was a £16.5 million (or $24.5 million at the exchange rate on March 25, 2015) capital lease liability assumed by the Company. In addition, the £67.1 million (or $99.9 million at the exchange rate on March 25, 2015) of long-term debt, less current portion, represents a long-term capital lease liability assumed by the Company. Freightliner enters into operating and capital leases for railcars, locomotives and other equipment as well as real property. In addition, the Company assumed bank guarantees of the acquired entities of €3.4 million (or $3.7 million at the exchange rate on March 25, 2015) and £2.5 million (or $3.6 million at the exchange rate on March 25, 2015) primarily associated with credit and payment guarantees. The Company assumed a net pension liability of £57.2 million (or $85.2 million at the exchange rate on March 25, 2015) as of the acquisition date, of which, £51.0 million (or $76.0 million at the exchange rate on March 25, 2015) was included in other long-term liabilities and £6.2 million (or $9.2 million at the exchange rate on March 25, 2015) was included in accounts payable and accrued expenses. See Note 11, U.K. Pension Plan, for additional information regarding the Company's U.K. pension program. Pro Forma Financial Results (Unaudited) The following table summarizes the Company's unaudited pro forma operating results for the years ended December 31, 2015 and 2014 as if the acquisition of Freightliner had been consummated as of January 1, 2014. The following pro forma financial information does not include the impact of any costs to integrate the operations or the impact of derivative instruments that the Company has entered into or may enter into to mitigate foreign currency or interest rate risk (dollars in thousands, except per share amounts): Operating revenues Net income Basic earnings per common share Diluted earnings per common share December 31, 2015 2,157,020 248,922 4.39 4.30 $ $ $ $ 2014 2,417,709 316,459 5.72 5.55 $ $ $ $ F-15 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The unaudited pro forma operating results include historical operating results of Freightliner adjusted, net of tax, for depreciation and amortization expense based on the 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 the Company's entry into the Credit Agreement and the elimination of Freightliner's interest expense related to debt not assumed in the acquisition. Since the pro forma financial results assume the acquisition was consummated on January 1, 2014, the 2015 unaudited pro forma operating results for the year ended December 31, 2015 excluded $12.6 million ($9.5 million, net of tax) of costs incurred by the Company related to the acquisition of Freightliner, $12.2 million ($9.1 million, net of tax) of transaction-related costs incurred by Freightliner and an $18.7 million ($11.6 million, net of tax) loss on settlement of foreign currency forward purchase contracts directly attributable to the acquisition of Freightliner. The 2014 unaudited pro forma operating results for the year ended December 31, 2014 included $12.6 million ($9.5 million, net of tax) of costs incurred by the Company related to the acquisition of Freightliner and $15.9 million ($11.9 million, net of tax) of transaction- related costs incurred by Freightliner. In addition, the 2014 unaudited pro forma operating results include $53.7 million ($48.8 million, net of tax) from a gain on disposal of lease rights by Freightliner that the Company does not believe qualifies for elimination under the treatment and presentation of pro forma financial results. Prior to the acquisition, Freightliner's fiscal year was based on a 52/53 week period ending on the nearest Saturday on or before March 31. Since Freightliner and the Company had different fiscal year end dates, the unaudited pro forma operating results were prepared based on comparable periods. The unaudited pro forma operating results for the year ended December 31, 2015 were based upon the Company's consolidated statement of operations for the twelve months ended December 31, 2015 and Freightliner's historical operating results for the 12 weeks ended March 28, 2015, adjusted for the five days already included in the Company's first quarter results. The foreign exchange rate used to translate Freightliner's historical operating results to United States dollars was $1.51 for one British pound (which was calculated based on average daily exchange rates during three month period ended March 31, 2015). The unaudited pro forma operating results for the year ended December 31, 2014 were based upon the Company's consolidated statement of operations for the twelve months ended December 31, 2014 and Freightliner's historical operating results for the 48 weeks ended December 5, 2014. The foreign exchange rate used to translate Freightliner's operating results to United States dollars was $1.58 for one British pound for the three months ended December 31, 2014, $1.67 for one British pound for the three months ended September 30, 2014, $1.68 for the three months ended June 30, 2014 and $1.66 for one British pound for the three months ended March 31, 2014 (which were calculated based on average daily exchange rates during each of the respective periods). 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 January 1, 2014 and for the periods presented and are not intended to be a projection of future results or trends. United States Pinsly's Arkansas Division: On January 5, 2015, the Company completed the acquisition of certain subsidiaries of Pinsly Railroad Company (Pinsly) that constituted Pinsly's Arkansas Division (Pinsly Arkansas) for $41.3 million in cash. The Company funded the acquisition with borrowings under the Company's Amended and Restated Senior Secured Syndicated Credit Facility Agreement (the Prior Credit Agreement). The results of operations from Pinsly Arkansas have been included in the Company's consolidated statements of operations since the acquisition date within the Company's North American Operations segment. Pinsly contributed $14.5 million of total revenues and $2.6 million of income from operations to the Company's consolidated results since the acquisition date. Headquartered in Jones Mill, Arkansas, Pinsly Arkansas serves the Hot Springs and Little Rock areas, as well as the southwestern and southeastern portions of Arkansas and includes: (1) Arkansas Midland Railroad Company, Inc. (AKMD), which is comprised of seven non-contiguous branch lines; (2) The Prescott and Northwestern Railroad Company (PNW); (3) Warren & Saline River Railroad Company (WSR); and (4) two Arkansas transload operations. Operations are comprised 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-16 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Operations segment. RCP&E contributed $69.9 million of total revenues and $17.2 million of income from operations to the Company's consolidated results since the acquisition date. 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 Australia Amount 3,621 116 217,032 325 221,094 1,121 108 1,260 218,605 $ $ Arrium Limited: Between 2011 and 2014, the Company's subsidiary, Genesee & Wyoming Australia Pty Ltd (GWA) invested a total of A$78.0 million (or $77.7 million at the exchange rates on the dates the spending occurred) to purchase locomotives and railcars, as well as to construct a standard gauge rolling-stock maintenance facility to support iron ore shipments from Arium's Southern Iron mine and Whyalla-based operations, which include the Middleback Range iron ore mines and the Whyalla steelworks. Arrium mothballed its Southern Iron mine in April 2015, citing the significant decline in the price of iron ore, while the mines in the Middleback Range continued to operate. During 2015, GWA carried approximately 8,300 carloads of iron ore from the Southern Iron mine and, in total, generated approximately A$83 million in freight and freight-related revenues (or approximately $62 million, at the average exchange rate for the year ended December 31, 2015) under the fixed and variable payment structure that is customary in large contracts in Australia. GWA expects to receive only the fixed portion of the revenue following the mothballing of the Southern Iron mine and both the fixed and variable portion from the Whyalla-based operations. GWA could lose some or all of this revenue if Arrium continues to suffer from declines in commodity prices or other economic and financial conditions. In February 2016, Arrium announced a recapitalization plan with GSO Capital Partners LP. The recapitalization plan is subject to a variety of closing conditions, including approval by Arrium’s existing lenders, as well as regulatory and other approvals. 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, 2015, 2014 and 2013 (in thousands, except per share amounts): Numerators: Net income attributable to Genesee & Wyoming Inc. common stockholders Less: Series A-1 Preferred Stock dividend Net income available to common stockholders Denominators: Weighted average Class A common shares outstanding - Basic Weighted average Class B common shares outstanding Dilutive effect of employee stock-based awards Dilutive effect of Series A-1 Preferred Stock Weighted average shares - Diluted Earnings per common share attributable to Genesee & Wyoming Inc. common stockholders: Basic earnings per common share Diluted earnings per common share $ $ $ $ 2015 2014 2013 225,037 — 225,037 $ $ 260,755 — 260,755 $ $ 271,296 2,139 269,157 56,734 884 230 — 57,848 55,305 1,305 362 — 56,972 3.97 3.89 $ $ 4.71 4.58 $ $ 53,788 1,675 494 722 56,679 5.00 4.79 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, 2015, 2014 and 2013, was as follows (in thousands): Potential issuable common shares used to calculate weighted average share equivalents 2015 2014 2013 1,280 1,063 1,063 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 Common Stock 2015 2014 2013 716 319 105 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. F-18 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Share Repurchase On September 29, 2015, the Company's Board of Directors (the Board) authorized the repurchase of up to $300.0 million of the Company's Class A Common Stock, subject to certain limitations. See Note 8, Long-Term Debt for additional information. During 2015, the Company repurchased no shares of Class A Common Stock under this authorization. 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 Tangible Equity Units (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 consisted of a prepaid stock purchase contract (Purchase Contract) and a senior amortizing note due October 1, 2015 (Amortizing Note) issued by the Company. On October 1, 2015, the Company settled the prepaid stock purchase contract component of the TEUs with the delivery of 3,539,240 shares of its Class A Common Stock. Accordingly, the 3,539,240 shares were included in the Company's weighted average Class A common shares outstanding - basic and diluted for the year ended December 31, 2015. In accordance with the original terms of the TEUs, the remaining balance of the amortizing note component of the TEUs was also settled on October 1, 2015 for a total cash payment of $2.8 million. The Company's basic and diluted EPS calculations for the years ended December 31, 2014 and 2013 included 2,841,650 shares to reflect the weighted average shares issuable upon settlement of the prepaid stock purchase contract component of the TEUs. For purposes of determining the number of shares included in the calculation, the Company used the market price of its Class A Common Stock at the period end date. Series A-1 Preferred Stock Converted into Common Stock on February 13, 2013 On October 1, 2012, the Company completed the issuance of 350,000 shares of Series A-1 Preferred Stock at an issuance price of $1,000.00 per share for $349.4 million, net of issuance costs, to affiliates of Carlyle Partners V, L.P. (collectively, 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. F-19 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 the year ended December 31, 2013, 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, 2015 and 2014 (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 2015 2014 339,100 22,997 26,574 388,671 (6,213) 382,458 $ $ 304,087 32,076 26,941 363,104 (5,826) 357,278 $ $ Included in accounts receivable, net as of December 31, 2015 was $95.5 million (or £64.8 million) of Freightliner's accounts receivable, based on the exchange rate at December 31, 2015. 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 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 $41.7 million, $28.0 million and $33.9 million for the years ended December 31, 2015, 2014 and 2013, 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, fails to make certain minimum capital improvements or ceases use of the locomotives within the specified geographic area and time period, in each case, as defined in the applicable grant agreement. As the Company intends to comply with the requirements of 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. The following table sets forth the offset to depreciation expense from the amortization of deferred grants recorded by the Company during the years ended December 31, 2015, 2014 and 2013 (dollars in thousands): Amortization of deferred grants 2015 2014 2013 10,691 10,364 9,343 F-20 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Insurance and Third-Party Claims Accounts receivable from insurance and other third-party claims at December 31, 2015 included $12.8 million from the Company's North American Operations, $8.1 million from the Company's Australian Operations and $5.7 million from the Company's U.K./European Operations. The balance from the Company's North American Operations resulted predominately from the Company's anticipated insurance recoveries associated with a derailment in Alabama (the Aliceville Derailment) in November 2013 and a trestle fire in Oregon in August 2015. 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 balance from the Company's U.K./ European Operations resulted primarily from the Company's anticipated insurance recoveries associated with a rail- related collision in Germany in 2014 that occurred prior to the Company's acquisition of Freightliner. The Company received proceeds from insurance totaling $10.4 million, $13.6 million and $11.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. Allowance for Doubtful Accounts Activity in the Company's allowance for doubtful accounts for the years ended December 31, 2015, 2014 and 2013 was as follows (dollars in thousands): Balance, beginning of year Provisions Charges Balance, end of year 2015 2014 2013 $ $ 5,826 7,512 (7,125) 6,213 $ $ 3,755 5,191 (3,120) 5,826 $ $ 2,693 2,741 (1,679) 3,755 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, 2015 and 2014 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 2015 Accumulated Depreciation Net Book Value $ $ 648,498 238,272 662,287 2,508,100 4,057,157 18,633 653,077 65,241 69,315 28,440 73,405 908,111 47,044 5,012,312 $ — $ (32,624) (85,040) (403,778) (521,442) (11,709) (173,214) (34,656) (30,754) (11,628) (13,846) (275,807) — $ (797,249) $ 648,498 205,648 577,247 2,104,322 3,535,715 6,924 479,863 30,585 38,561 16,812 59,559 632,304 47,044 4,215,063 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 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, 2015 and 2014 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 2015 2014 $ $ 2,097 39 24,962 12,875 7,071 47,044 $ $ 1,312 4,082 24,078 11,170 2,332 42,974 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, 2015, 2014 and 2013 totaled $159.1 million, $135.0 million and $119.2 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 8, Long-Term Debt, for more information on the Company's credit agreements. 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, 2015 and 2014 was as follows: Railcars Locomotives December 31, 2015 2014 21,819 333 18,583 162 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, 2015, 2014 and 2013 was as follows (dollars in thousands): Equipment Real property Trackage rights 2015 2014 2013 $ $ $ 82,853 11,715 78,140 $ $ $ 29,462 8,361 53,783 $ $ $ 32,050 8,062 50,911 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 7.4% of the Company's 2015 total operating revenues. Leases from Class I railroads and other third parties that are subject to expiration in each of the next 10 years represent less than 2% of the Company's annual revenues in the year of expiration based on the Company's operating revenues for the year ended December 31, 2015. The following is a summary of future minimum lease payments under capital leases and operating leases as of December 31, 2015 (dollars in thousands): 2016 2017 2018 2019 2020 Thereafter Total minimum payments Capital Operating Total 24,841 18,935 10,398 9,827 16,672 43,738 124,411 $ $ 112,230 93,761 81,471 64,122 50,601 304,819 707,004 $ $ 137,071 112,696 91,869 73,949 67,273 348,557 831,415 $ $ 7. INTANGIBLE ASSETS, OTHER ASSETS AND GOODWILL: Intangible Assets Intangible assets as of December 31, 2015 and 2014 were as follows (dollars in thousands): 2015 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Weighted Average Amortization Period (in Years) Intangible assets: Amortizable intangible assets: Operational network rights Track access agreements Customer contracts and relationships Service agreements Trade names/trademarks Favorable operating leases Total amortizable intangible assets Non-amortizable intangible assets: Perpetual track access agreements Operating license Total intangible assets, net $ $ 477,706 415,348 259,897 37,622 13,327 2,972 1,206,872 $ $ (3,693) $ (57,751) (35,405) (16,213) (268) (590) (113,920) $ $ 100 43 30 28 40 5 62 474,013 357,597 224,492 21,409 13,059 2,382 1,092,952 35,891 109 1,128,952 F-24 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangible assets: Amortizable intangible assets: Track access agreements Customer contracts and relationships Service 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 $ $ 424,835 177,179 37,622 639,636 $ $ (46,367) $ (26,738) (14,880) (87,985) $ $ 378,468 150,441 22,742 551,651 35,891 121 587,663 Weighted Average Amortization Period (in Years) 43 36 28 40 The Company expenses costs incurred to renew or extend the term of its track access agreements. In the purchase price allocation of Freightliner, the Company assigned the following fair values to amortizable intangible assets: £324.0 million to operational network rights, £57.0 million to customer contracts and relationships, £9.2 million to trademark/trade names and £2.0 million to amortizable favorable operating leases. See Note 3, Changes in Operations, for additional information on these amortizable intangible assets. 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. For the years ended December 31, 2015, 2014 and 2013, the aggregate amortization expense associated with intangible assets was $29.4 million, $22.0 million and $22.5 million, respectively. The Company estimates the future aggregate amortization expense related to its intangible assets as of December 31, 2015 will be as follows for the periods presented (dollars in thousands): 2016 2017 2018 2019 2020 Thereafter Total Other Assets Other assets as of December 31, 2015 and 2014 were as follows (dollars in thousands): Other assets: Deferred financing costs Other assets Total other assets, net 2015 Gross Carrying Amount Accumulated Amortization Other Assets, Net $ $ 28,248 22,836 51,084 $ $ (4,740) $ — (4,740) $ 23,508 22,836 46,344 F-25 Amount 31,028 30,894 29,466 25,112 24,755 951,697 1,092,952 $ $ Weighted Average Amortization Period (in Years) 4 0 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Weighted Average Amortization Period (in Years) 4 0 For the years ended December 31, 2015, 2014 and 2013, the Company amortized $7.6 million, $12.2 million and $10.2 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 2015 amortization amount included $2.0 million associated with the write-off of deferred financing fees as a result of the March 2015 refinancing of the Company's credit agreement. 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 8, 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. As of December 31, 2015, 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): 2016 2017 2018 2019 2020 Total Goodwill Amount 5,987 5,798 5,547 5,110 1,066 23,508 $ $ The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 were as follows (dollars in thousands): Balance at beginning of period Goodwill acquired Acquisition accounting adjustments Currency translation adjustment Balance at end of period December 31, 2015 North American Operations Australian Operations U.K./European Operations $ $ 615,403 920 (6,895) (4,194) 605,234 $ $ — $ 42,312 — (3,000) 39,312 $ 13,412 172,821 — (4,204) 182,029 Total Operations 628,815 $ 216,053 (6,895) (11,398) 826,575 $ December 31, 2014 North American Operations Australian Operations U.K./European Operations Balance at beginning of period Goodwill acquired Acquisition accounting adjustments Currency translation adjustment Balance at end of period $ $ 615,228 2,409 295 (2,529) 615,403 $ $ F-26 — $ — — — — $ 15,234 — — (1,822) 13,412 Total Operations 630,462 $ 2,409 295 (4,351) 628,815 $ GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The acquired goodwill for the year ended December 31, 2015 is related to the acquisition of Freightliner. See Note 3, Changes in Operations, for additional information regarding the Freightliner acquisition. 8. LONG-TERM DEBT: Long-term debt consisted of the following as of December 31, 2015 and 2014 (dollars in thousands): Credit agreement with variable interest rates (weighted average of 2.60% and 1.92% before impact of interest rate swaps at December 31, 2015 and 2014, respectively) due 2020 Amortizing Notes component of TEUs settled on October 1, 2015 Other debt and capital leases Long-term debt Less: current portion Long-term debt, less current portion Credit Agreement 2015 2014 $ 2,177,724 $ 1,584,044 — 127,535 2,305,259 81,953 2,223,306 $ 11,184 20,221 1,615,449 67,398 1,548,051 $ In anticipation of its acquisition of Freightliner, the Company entered into the Credit Agreement on March 20, 2015. The credit facilities under the Credit Agreement are comprised of a $1,782.0 million United States term loan, an A$324.6 million (or $252.5 million at the exchange rate on March 20, 2015) Australian term loan, a £101.7 million (or $152.2 million at the exchange rate on March 20, 2015) U.K. term loan and a $625.0 million revolving credit facility. The revolving credit facility includes borrowing capacity for letters of credit and swingline loans. The maturity date of each of the Company's credit facilities under the Credit Agreement is March 31, 2020. The $625.0 million revolving credit facility under the Credit Agreement includes flexible sub-limits for revolving loans denominated in United States dollars, Australian dollars, British pounds, Canadian dollars and Euros and provides for the ability to reallocate commitments among the sub-limits, provided that the total amount of all Australian dollar, Canadian dollar, British pound, Euro or other designated currencies sub-limits cannot exceed a combined $500.0 million. At the Company's election, at the time of entering into specific borrowings, interest on borrowings is calculated under a "Base Rate" or "LIBOR/BBR Rate." LIBOR is the London Interbank Offered Rate. BBR is the Bankers Buyers Rate, which the Company believes is generally considered the Australian equivalent to LIBOR. The applicable borrowing spread for the Base Rate loans ranges from 0.0% to 1.0% depending upon the Company's total leverage ratio as defined in the Credit Agreement. The applicable borrowing spread for LIBOR/BBR Rate loans ranges from 1.0% to 2.0% depending upon the Company's total leverage ratio as defined in the Credit Agreement. In addition to paying interest on any outstanding borrowings under the Credit Agreement, the Company is required to pay a commitment fee related to the unutilized portion of the commitments under the revolving credit facility. The commitment fee rate ranges from 0.2% to 0.3% depending upon the Company's total leverage ratio as defined in the Credit Agreement. Since entering into the Credit Agreement, the Company has made prepayments on its United States term loan of $10.0 million and Australian term loan of A$35.0 million (or $25.8 million at the exchange rates on the dates the payments were made). As of December 31, 2015, the Company had the following outstanding term loans (amounts in thousands, except percentages): United States dollar Australian dollar British pound Local currency $ A$ £ 1,772,000 289,627 101,681 United States dollar equivalent 1,772,000 $ 210,993 $ 149,919 $ Interest rate 2.42% 4.12% 2.51% F-27 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The United States dollar-denominated, Australian dollar-denominated and British pound-denominated term loans will amortize in quarterly installments commencing with the quarter ending September 30, 2016, with the remaining principal balance payable upon maturity, as set forth below (amounts in thousands): United States dollar: Australian dollar: British pound: Quarterly Payment Date September 30, 2016 through June 30, 2018 September 30, 2018 through December 31, 2019 Maturity date - March 31, 2020 September 30, 2016 through June 30, 2018 September 30, 2018 through December 31, 2019 Maturity date - March 31, 2020 September 30, 2016 through June 30, 2018 September 30, 2018 through December 31, 2019 Maturity date - March 31, 2020 Principal Amount Due on Each Payment Date $ $ $ A$ A$ A$ £ £ £ 22,275 44,550 1,326,500 4,058 8,116 208,470 1,271 2,542 76,261 The Company's availability to draw from the unused borrowing capacity is subject to covenant limitations as discussed below. As of December 31, 2015, the Company had the following unused borrowing capacity under its revolving credit facility (amounts in thousands): Composition Total available borrowing capacity Outstanding revolving loans Outstanding letter of credit guarantees Unused borrowing capacity December 31, 2015 625,000 44,812 4,535 575,653 $ $ $ $ As of December 31, 2015, the Company had the following outstanding revolving loans (amounts in thousands, except percentages): Australian dollar (swingline loan) British pound Canadian dollar Euro Local Currency 3,000 A$ 5,500 £ 33,500 C$ 9,500 € $ $ $ $ United States Dollar Equivalent Interest Rate 2,186 8,109 24,200 10,317 6.11% 2.51% 2.87% 2.00% The Credit Agreement contains a number of customary affirmative and negative covenants 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 certain 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. The existing term loans and revolving loans under the Credit Agreement are guaranteed by substantially all of the Company's United States subsidiaries and by substantially all of its foreign subsidiaries solely in respect of the foreign guaranteed obligations subject, in each case, to certain exceptions. The Credit Agreement is collateralized by certain real and personal property assets of the Company's domestic subsidiaries that have guaranteed the Company's obligations under the Credit Agreement and certain personal property assets of its foreign subsidiaries that have guaranteed the foreign obligations under the Credit Agreement. F-28 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In connection with entering into the Credit Agreement, the Company wrote-off $2.0 million of unamortized deferred financing fees and deferred $5.8 million of new fees during the year ended December 31, 2015. Credit Agreement Amendment On September 30, 2015, the Company entered into Amendment No. 1 (the Amendment) to the Credit Agreement. The Amendment added a senior secured leverage ratio covenant that requires the Company to comply with maximum ratios of senior secured indebtedness, subject, if applicable, to netting of certain cash and cash equivalents of the Company to earnings before interest, income taxes, depreciation and amortization (EBITDA), as defined in the Amendment, for the applicable periods set forth in the following table: Quarterly Periods Ending September 30, 2015 through June 30, 2016 September 30, 2016 through March 31, 2017 June 30, 2017 through September 30, 2017 December 31, 2017 through March 31, 2018 June 30, 2018 through March 31, 2020 Maximum Senior Secured Leverage Ratio 4.50 to 1.00 4.25 to 1.00 4.00 to 1.00 3.75 to 1.00 3.50 to 1.00 In addition, the Amendment established a maximum total leverage ratio covenant of 4.50 to 1.00 for the term of the Credit Agreement. If the Company’s total leverage ratio is greater than or equal to 4.00 to 1.00, the Amendment further provides for a 1.25% and 2.25% margin for floating rate and offered rate loans, respectively, under the Credit Agreement, with the remaining total-leverage ratio-dependent applicable margins remaining unchanged. The Amendment permits the Company, subject to certain limitations, to repurchase shares of the Company's Class A Common Stock with a value of up to $300.0 million during the period commencing on the date of the Amendment and ending on the maturity date under the Credit Agreement. The repurchases are subject to limitations requiring the Company’s total leverage ratio to not exceed 4.00 to 1.00 and the Company to maintain at least $150.0 million of cash and available revolving credit capacity (liquidity), in each case, on a pro forma basis. If the Company’s total leverage ratio after giving effect to such repurchases on a pro forma basis were less than 3.00 to 1.00, then the applicable share repurchase limit and liquidity restrictions do not apply, but other restrictions and limitations may apply. Following the approval of the Amendment by the Board on September 29, 2015, the Board authorized the repurchase of up to $300.0 million of the Company's Class A Common Stock and appointed a special committee of the Board to review and approve repurchases proposed by management. During 2015, the Company repurchased no shares of Class A Common Stock under this authorization. As of December 31, 2015, the Company was in compliance with the covenants under the Credit Agreement, as amended by the Amendment, including the maximum senior secured leverage ratio covenant noted above. The Company deferred $3.0 million of costs in connection with entering into the Amendment. Deferred financing costs are amortized as additional interest expense over the term 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 Prior Credit Agreement In May 2014, the Company entered into the Prior Credit Agreement, which included 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. Each of the credit facilities had a maturity date of May 31, 2019. As of December 31, 2014, the Company had the following outstanding revolving loans (amounts in thousands, except percentages): United States dollar Australian dollar Canadian dollar Euro Local Currency $ A$ C$ € 11,000 8,000 24,000 4,100 United States Dollar Equivalent 11,000 $ 6,538 $ 20,688 $ 4,961 $ Interest Rate 1.67% 6.44% 2.79% 1.51% As of December 31, 2014, the Company had the following unused borrowing capacity under its revolving credit facility (amounts in thousands): Composition Total available borrowing capacity Outstanding revolving loans Outstanding letter of credit guarantees Unused borrowing capacity December 31, 2014 $ $ $ $ 625,000 43,187 2,638 579,175 In connection with the Prior Credit Agreement, the Company wrote-off $4.6 million of unamortized deferred financing fees and capitalized an additional $3.7 million of new fees during the year ended December 31, 2014. 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. On each January 1, April 1, July 1 and October 1, the Company paid the 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 was equivalent to a 5.00% cash payment per year with respect to each $100 stated amount of the TEUs. On October 1, 2015, the remaining balance of the amortizing note component of the TEUs was settled for a total cash payment of $2.8 million. In addition, the Company settled the prepaid stock purchase contract component of the TEUs with the delivery of 3,539,240 shares of its Class A Common Stock. 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, 2015, the carrying value of the loan was A$2.7 million (or $1.9 million at the exchange rate on December 31, 2015) with a non-cash imputed interest rate of 8.0%. F-30 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, 2015 (dollars in thousands): 2016 2017 2018 2019 2020 Thereafter (1) Total $ Amount 81,953 127,849 173,029 226,668 1,650,107 80,163 $ 2,339,769 (1) Includes the A$50.0 million (or $36.4 million at the exchange rate on December 31, 2015) non-interest bearing loan due in 2054 assumed in the FreightLink Acquisition with a carrying value of A$2.7 million (or $1.9 million at the exchange rate on December 31, 2015). 9. 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 income. As the hedged item is realized, the gain or loss included in accumulated other comprehensive income/(loss) 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-31 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 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 9/30/2015 9/30/2016 9/30/2016 9/30/2016 Expiration Date 9/30/2016 9/30/2026 9/30/2026 9/30/2026 Notional Amount Date 9/30/2015 9/30/2026 9/30/2026 9/30/2026 $ $ $ $ Amount 350,000 100,000 100,000 100,000 Pay Fixed Rate 0.93% 2.79% 2.79% 2.80% Receive Variable Rate 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 2015, 2014 and 2013 (dollars in thousands): Effective Date Expiration Date 10/6/2008 10/4/2012 9/30/2013 9/30/2013 9/30/2013 9/30/2014 9/30/2014 9/30/2015 Notional Amount Date 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 9/30/2014 $ 12/31/2014 $ $ 3/31/2015 $ 6/30/2015 Amount 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 1,150,000 1,100,000 1,050,000 1,000,000 Paid Fixed Rate 3.88% 0.25% 0.25% 0.25% 0.25% 0.35% 0.35% 0.35% 0.35% 0.54% 0.54% 0.54% 0.54% Receive Variable Rate 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 1-month LIBOR 1-month LIBOR 1-month LIBOR 1-month LIBOR F-32 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, 2015, 2014 and 2013 resulted in no amount of gain or loss reclassified from accumulated other comprehensive income/(loss) into earnings due to ineffectiveness. During the years ended December 31, 2015, 2014 and 2013, existing net losses associated with the Company's interest rate swaps of $2.9 million, $2.4 million and $4.1 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, 2015, the Company expects to reclassify $0.8 million of net losses reported in accumulated other comprehensive income/(loss) 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, 2015, the Company's foreign subsidiaries had $512.1 million of third-party debt denominated in the local currencies in which the Company's foreign subsidiaries operate, including the Australian dollar, the British pound, the 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, the British pound, the 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 of non-United States dollar-denominated acquisitions, the Company may enter into foreign currency forward purchase contracts. To mitigate currency exposures related to non-functional currency denominated intercompany debt, cross-currency swaps or foreign currency forward 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. However, cross-currency swap contracts and foreign currency forward contracts used to mitigate exposures on foreign currency intercompany debt may not qualify for hedge accounting. In cases where the cross-currency swap contracts and foreign currency forward contracts do not qualify for hedge accounting, the Company believes that such instruments are closely correlated with the underlying exposure, thus reducing the associated risk. The gains or losses from changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognized in current period earnings within other income, net. On February 25, 2015, the Company announced its entry into an agreement to acquire all of the outstanding share capital of RailInvest Holding Company Limited, the parent company of Freightliner, for cash consideration of approximately £490 million (or approximately $755 million at the exchange rate on February 25, 2015). Shortly after the announcement of the acquisition, the Company entered into British pound forward purchase contracts to fix £307.1 million of the purchase price to US$475.0 million and £84.7 million of the purchase price to A$163.8 million. The subsequent decrease in value of the British pound versus the United States and Australian dollars between the dates the British pound forward purchase contracts were entered into and March 23, 2015, the date that the £391.8 million in funds were delivered, resulted in a loss on settlement of foreign currency forward purchase contracts of $18.7 million for the year ended December 31, 2015. F-33 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On March 25, 2015, the Company closed on the Freightliner transaction and paid cash consideration for the acquisition of £492.1 million (or $733.0 million at the exchange rate on March 25, 2015). The Company financed the acquisition through a combination of available cash and borrowings under the Company's Credit Agreement. A portion of the funds was transferred from the United States to the U.K. through an intercompany loan with a notional amount of £120.0 million (or $181.0 million at the exchange rate on the effective date of the loan) and accrued interest as of December 31, 2015 of £5.8 million (or $8.5 million at the exchange rate on December 31, 2015), each of which are expected to remain until maturity of the loan. To mitigate the foreign currency exchange rate risk related to this non-functional currency intercompany loan and the related interest, the Company entered into British pound forward contracts, which are accounted for as cash flow hedges. The fair values of the Company's British pound forward contracts were estimated based on Level 2 inputs. The Company's effectiveness testing during the year ended December 31, 2015 resulted in no amount of gain or loss reclassified from accumulated other comprehensive income/(loss) into earnings due to ineffectiveness. The following table summarizes the Company's outstanding British pound forward contracts (British pounds in thousands): Effective Date 3/25/2015 3/25/2015 6/30/2015 9/30/2015 12/31/2015 Settlement Date 3/31/2020 3/31/2020 3/31/2020 3/31/2020 3/31/2020 Notional Amount £60,000 £60,000 £2,035 £1,846 £1,873 Exchange Rate 1.51 1.50 1.57 1.51 1.48 On December 3, 2012, the Company entered into two Australian dollar/United States dollar floating to floating cross-currency swap agreements (the Swaps), to mitigate the foreign currency exchange rate risk related to a non-functional currency intercompany loan between the United States and Australian entities, originally set to expire on December 1, 2014, which did not qualify as hedges for accounting purposes. 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 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. As a result of the quarterly net settlement payments, the Company realized a net expense of $1.2 million within interest expense for the year ended December 31, 2014. In addition, for the year ended December 31, 2014, the Company recognized a net expense of $0.1 million, within other income, net related to the settlement of the derivative agreement and the mark-to-market of the underlying intercompany debt instrument to the exchange rate. The following table summarizes the fair value of the Company's derivative instruments recorded in the consolidated balance sheets as of December 31, 2015 and 2014 (dollars in thousands): Asset Derivatives: Derivatives designated as hedges: Interest rate swap agreements Interest rate swap agreements British pound forward contracts Total derivatives designated as hedges Liability Derivatives: Derivatives designated as hedges: Interest rate swap agreements Interest rate swap agreements Total derivatives designated as hedges Balance Sheet Location 2015 2014 Fair Value Prepaid expenses and other Other assets, net Other assets, net Accrued expenses Other long-term liabilities $ $ $ $ — $ — 1,530 1,530 $ 846 11,655 12,501 $ $ 35 101 — 136 2,249 2,462 4,711 F-34 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the effect of the Company's derivative instruments designated as cash flow hedges for the years ended December 31, 2015, 2014 and 2013 in other comprehensive income/(loss) (OCI) (dollars in thousands): Derivatives Designated as Cash Flow Hedges: Effective portion of changes in fair value recognized in OCI: Interest rate swap agreement British pound forward contracts Total Cash Flow Hedge OCI Activity, Net of Tax 2014 2013 2015 $ $ (4,749) $ 912 (3,837) $ (23,473) $ — (23,473) $ 20,988 — 20,988 The following table shows the effect of the Company's derivative instruments not designated as hedges for the years ended December 31, 2015, 2014 and 2013 in the consolidated statements of operations (dollars in thousands): Location of Amount Recognized in Earnings Amount Recognized in Earnings 2015 2014 2013 Derivative Instruments Not Designated as Hedges: Cross-currency swap agreements Cross-currency swap agreements British pound forward purchase contracts Interest (expense)/ income Other (expense)/ income, net Loss on settlement of foreign currency forward purchase contracts $ $ — $ (1,184) $ (2,696) — (86) 427 (18,686) (18,686) $ — (1,270) $ — (2,269) 10. 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 foreign currency forward contracts. 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 British pound forward contracts based on Level 2 valuation inputs, including LIBOR implied forward interest rates, British pound LIBOR implied forward interest rates and the remaining time to maturity. The Company's recurring fair value measurements using significant unobservable inputs (Level 3) relate solely to the Company's deferred consideration from the Freightliner acquisition. The fair value of the deferred consideration liability, which equals the representative share value on the acquisition date, was estimated by discounting, to present value, contingent payments expected to be made (see Note 3, Changes in Operations). 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. F-35 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the Company's financial instruments that are carried at fair value using Level 2 inputs at December 31, 2015 and 2014 (dollars in thousands): Financial instruments carried at fair value using Level 2 inputs: Financial assets carried at fair value: Interest rate swap agreements British pound forward contracts Total financial assets carried at fair value Financial liabilities carried at fair value: Interest rate swap agreements 2015 2014 $ $ $ — $ 1,530 1,530 12,501 $ $ 136 — 136 4,711 The following table presents the Company's financial instrument carried at fair value using Level 3 inputs as of December 31, 2015 (amounts in thousands): Financial instrument carried at fair value using Level 3 inputs: Financial liabilities carried at fair value: Accrued deferred consideration 2015 GBP USD £ 24,200 $ 35,680 The Company's recurring fair value measurements using significant unobservable inputs (Level 3) relate solely to the Company's deferred consideration from the Freightliner acquisition (see Note 3, Changes in Operations). As of December 31, 2015, there was no change in the estimated fair value of the deferred consideration resulting in no change to the contingent liability. 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, 2015 and 2014 (dollars in thousands): 2015 2014 Carrying Value Fair Value Carrying Value Fair Value $ $ 1,772,000 210,993 149,919 44,812 — 3,123 2,180,847 $ $ 1,750,040 210,128 150,030 44,833 — 3,090 2,158,121 $ $ 1,407,000 133,857 — 43,187 11,184 8,544 1,603,772 $ $ 1,402,950 133,900 — 43,304 11,233 8,523 1,599,910 Financial liabilities carried at historical cost: United States term loan Australia term loan U.K. term loan Revolving credit facility Amortizing notes component of TEUs Other debt Total 11. U.K. PENSION PLAN: In connection with the acquisition of Freightliner, the Company assumed a defined benefit pension plan for its U.K. employees through a standalone shared cost arrangement within the Railways Pension Scheme (Pension Program). The Pension Program is managed and administered by a professional pension administration company and is overseen by trustees with professional advice from independent actuaries and other advisers. The Pension Program is a shared cost arrangement with required contributions shared between Freightliner and its employees with Freightliner contributing 60% and the remaining 40% contributed by active employees. The Company engages independent actuaries to compute the amounts of liabilities and expenses relating to the Pension Program subject to the assumptions that the Company selects. F-36 GENESEE & WYOMING INC. AND SUBSIDIARIES The following table summarizes the funding obligations and assets of the Pension Program as of December 31, 2015 (dollars in thousands): Projected benefit obligation (100%) Fair value of plan assets (100%) Funded status (100%) Employees' share of deficit (40%) Net pension liability recognized in the balance sheet (60%) December 31, 2015 $ $ 580,054 462,177 (117,877) (47,152) (70,725) The following table presents the changes in the Company's portion of the benefit obligation and fair value of plan assets of the Pension Program since the March 25, 2015 acquisition date for the year ended December 31, 2015 and funded status as of December 31, 2015 (dollars in thousands): Change in benefit obligations: Benefit obligation at March 25, 2015 Service cost Interest cost Benefits paid Actuarial gain Exchange rate changes Benefit obligation at end of year Change in plan assets: Fair value of plan assets at March 25, 2015 Actual return on plan assets Benefits paid Employer contributions Exchange rate changes Fair value of plan assets at end of year Funded status, December 31, 2015 2015 359,941 10,911 8,475 (5,890) (21,731) (3,673) 348,033 274,787 1,609 (5,890) 9,606 (2,804) 277,308 (70,725) $ $ $ $ $ The following table presents the amounts recognized for the Pension Program in the consolidated balance sheet as of December 31, 2015 and in other comprehensive income/(loss) since the March 25, 2015 acquisition date for the year ended December 31, 2015 (dollars in thousands): Amounts recognized in the consolidated balance sheet: Accrued expenses Other long-term liabilities Total amount recognized in the consolidated balance sheet Amount recognized in other comprehensive income/(loss): Net actuarial gain December 31, 2015 $ $ $ (7,994) (62,731) (70,725) 13,198 F-37 GENESEE & WYOMING INC. AND SUBSIDIARIES The following table summarizes the components of the Pension Program related to the net benefit costs recognized in labor and benefits in the Company's consolidated statement of operations since the March 25, 2015 acquisition date for the year ended December 31, 2015 (dollars in thousands): Service cost Interest cost Expected return on plan assets Exchange rate changes Net periodic benefit cost December 31, 2015 $ $ 10,911 8,475 (12,029) 291 7,648 The following table presents the actuarial assumptions used to compute the funded status of the Pension Program as of December 31, 2015 and for the calculation of net periodic pension expense associated with the Pension Program since the March 25, 2015 acquisition date for the year ended December 31, 2015: Discount rate Price inflation (RPI measure) Pension increases (CPI measure) Salary increases Expected return on plan assets 3.2% 3.0% 1.7% 3.4% 5.9% The discount rates used by the actuaries are established by considering the yields on high quality corporate bonds having a similar duration as the expected liabilities under the Pension Program. As of December 31, 2015, each one percentage point change in the discount rate would result in a $69.3 million change in the pension liability. In addition, each one percentage point change in the retail price index (RPI) would result in a $69.3 million change in the pension liability. The assets of the Pension Program are held in a separate trustee administered fund operated by Railways Trustee Company Limited. The trustee is responsible for ensuring that investment strategies are in compliance with the Pension Program. The assets are invested through a number of pooled investment funds, each with a different risk and return profile. Only railways pension programs may invest in these pooled funds. Each railways pension program holds units in some or all of the pooled funds. The use of these pools enables each railways pension program to hold a broader range of investments more efficiently than may have been possible through direct ownership. The Pension Program's asset allocation policy states the assets should be allocated as follows: Asset category: Return-seeking assets Defensive/other assets Total Percentage 81% 19% 100% The expected return on assets represents the weighted average of long-term expected yields of the pooled investment funds. The expected returns on these pooled funds are not readily determinable from quoted market prices. However, the funds are actively managed by the trustee to achieve benchmark returns. Accordingly, the expected return for each pooled investment fund for purposes of the actuarial calculations was estimated using the respective pooled fund's benchmark return relative to the RPI. The following table provides the Pension Program's allocation of assets among the pooled investment funds and the expected return on assets for each pooled fund, net of expenses, as well as the weighted average expected return on assets used in the actuarial calculations as of December 31, 2015: Growth, private equity and infrastructure pooled funds Defensive and government bond pooled fund plus cash Expected return on plan assets F-38 Weighted Average Expected Yields 6.9% 2.3% Weighted Average Asset Allocation Weighted Average Expected Return on Plan Assets 81% 19% 5.6% 0.3% 5.9% GENESEE & WYOMING INC. AND SUBSIDIARIES The following table presents the fair value of the major categories of the Pension Program's assets segregated according to the hierarchy of valuation inputs for measuring fair value (see Note 2, Significant Accounting Policies) as of December 31, 2015 (dollars in thousands): Growth pooled fund (a) Private equity pooled fund (b) Government bond pooled fund (c) Infrastructure pooled fund (d) Cash Fair value of plan assets Quoted Prices in Active Markets for Identical Assets/(Liabilities) (Level 1) Significant Other Observable Inputs (Level 2) Total Fair Value of Assets $ $ — $ — — — 473 473 $ 182,224 — 52,463 — — 234,687 $ $ 182,224 31,237 52,463 10,911 473 277,308 (a) The growth pooled fund is comprised of global equities, emerging market bonds and hedge funds. Fair value is measured using the net asset value per share. (b) The private equity pooled fund is comprised of a series of sub funds, each representing a different vintage of private equity investment. Fair value is measured using the net asset value per share. (c) The government bond pooled fund is comprised of government debt for developed markets, global investment grade corporate bonds and the non-government bond pooled fund. Fair value is measured using the net asset value per share. (d) Infrastructure pooled fund is comprised of investments in facilities, structures and services required to facilitate the orderly operation of the economy. Fair value is measured using the net asset value per share. The Company expects to contribute $12.7 million to the Pension Program for the period ending December 31, 2016. The Pension Program's assets may undergo significant changes over time as a result of market conditions. In the event that the Pension Program's projected assets and liabilities reveal additional funding requirements, the shared cost arrangement generally means that the Company will be required to pay 60% of any additional contributions, with active members contributing the remaining 40%, in each case over an agreed recovery period. If the Pension Program was to be terminated and wound up, any deficit would fall entirely on the Company and would not be shared with active members. Currently, the Company has no intention of terminating the Pension Program. The following benefit payments are expected to be paid between 2016 and 2025 (dollars in thousands): 2016 2017 2018 2019 2020 2021 - 2025 Amount 8,010 8,171 8,333 8,500 8,671 45,553 $ $ $ $ $ $ 12. OTHER EMPLOYEE BENEFIT PROGRAMS: Employee Bonus Programs The Company has performance-based bonus programs that include a majority of non-union employees. Approximately $13 million, $17 million and $19 million were awarded under the various performance-based bonus plans for the years ended December 31, 2015, 2014 and 2013, respectively. Defined Contribution Plans Under the Genesee & Wyoming Inc. 401(k) Savings Plan in the United States, the Company matches participants' contributions up to 4% of the participants' salary on a pre-tax basis. 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, 2015 exchange rate). Under the other two plans, the Company matches the employee's contribution up to a maximum of 5% of gross salary. F-39 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's Australian subsidiary administers a statutory retirement benefit plan. The Company was required to contribute the equivalent of 9.50%, 9.50% and 9.25% of an employee's base salary into a registered superannuation fund in each of the years ended December 31, 2015, 2014 and 2013, respectively. Employees may elect to make additional contributions either before or after tax. Company contributions to defined contribution plans in total for the years ended December 31, 2015, 2014 and 2013 were as follows (dollars in thousands): Company contributions to defined contribution plans $ 9,532 $ 10,400 $ 9,460 2015 2014 2013 North American Operations 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, 2015, there were approximately 270 employees participating under these plans. As of December 31, 2015, the Company's consolidated balance sheet included a $2.0 million pension liability and a $0.4 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, 2015, there were approximately 65 employees participating under these plans. As of December 31, 2015, the Company's consolidated balance sheet included a $6.7 million postretirement benefit liability and a $1.0 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 its 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, extended on December 19, 2014 for fiscal year 2014 and further extended on December 18, 2015 for fiscal years 2015 and 2016. The Company's income tax provision for the year ended December 31, 2015 was $75.9 million, which represented 25.2% of income before income taxes. 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. 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. F-40 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 for the years ended December 31, 2015, 2014 and 2013 were as follows (dollars in thousands): United States Foreign Total 2015 2014 2013 $ $ 236,613 64,318 300,931 $ $ 276,343 91,519 367,862 $ $ 211,094 106,498 317,592 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, 2015 was $322.5 million. The components of the provision for income taxes for the years ended December 31, 2015, 2014 and 2013 were as follows (dollars in thousands): United States: Current Federal State Deferred Federal State Foreign: Current Deferred Total 2015 2014 2013 $ $ $ 12,003 8,181 $ 15,647 7,134 41,975 5,383 67,542 11,031 (2,679) 8,352 75,894 $ 49,799 8,727 81,307 17,591 8,209 25,800 107,107 $ 6,571 6,031 62 4,890 17,554 22,697 6,045 28,742 46,296 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 income taxes. The following is a summary of the effective tax rate reconciliation for the years ended December 31, 2015, 2014 and 2013: Tax provision at statutory rate Effect of foreign operations Effect of foreign rate change State income taxes, net of federal income tax benefit Benefit of track maintenance credit Other, net Effective income tax rate 2015 2014 2013 35.0 % (1.7)% (3.3)% 3.0 % (9.1)% 1.3 % 25.2 % 35.0 % (1.7)% — % 2.8 % (7.3)% 0.3 % 29.1 % 35.0 % (2.1)% — % 2.2 % (21.0)% 0.4 % 14.5 % F-41 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, 2015 and 2014 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 Pension and postretirement benefits Other Valuation allowance Deferred tax liabilities: Property and intangible basis difference Other Net deferred tax liabilities $ 2015 2014 $ 237,411 20,810 14,896 9,253 5,736 3,454 — 2,150 4,223 1,592 15,411 752 315,688 (19,315) 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) (1,270,901) (6,338) (980,866) $ (1,088,572) (1,519) (829,358) $ 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, 2015, the Company had United States net operating loss carryforwards in various state jurisdictions that totaled approximately $354.3 million, United States track maintenance credit carryforwards of $237.4 million and foreign net operating loss carryforwards in the Netherlands that totaled approximately $25.6 million. Some of the Company's 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 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 2016 and 2035. The United States track maintenance credits expire between 2026 and 2035. The Netherlands net operating losses expire between 2018 and 2024. The Company maintains a valuation allowance on state and foreign 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-42 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 Increase for foreign net operating losses Decrease for expiration of foreign tax credit Balance at end of year 2015 14,793 89 6,397 (1,964) 19,315 $ $ 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 tax positions related to prior years Decrease for effects of foreign exchange rates Balance at end of year 2015 2014 2013 $ $ 4,324 — (127) 4,197 $ $ 3,155 1,169 — 4,324 $ $ 3,155 — — 3,155 At December 31, 2015, 2014 and 2013, there was $4.2 million, $4.3 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, 2015, the following tax years remain open to examination by the major taxing jurisdictions to which the Company is subject: Jurisdiction United States Australia Belgium Canada Germany Mexico Netherlands Poland U.K. Open Tax Years From 2002 2010 2013 2010 2010 2008 2010 2010 2009 To 2015 2015 2015 2015 2015 2015 2015 2015 2015 - - - - - - - - - 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-43 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 7,437,500 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, 2015, there remained 2,481,736 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, 2015 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 983,280 360,235 (118,628) (4,171) (17,681) 1,203,035 1,199,470 566,815 $ $ $ $ Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) 76.99 79.67 45.74 87.49 94.97 80.58 80.57 73.28 3.0 $ 3.0 $ 1.9 $ 311 311 311 The weighted average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013 was $18.47, $18.90 and $22.16, respectively. The total intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $4.7 million, $20.9 million and $17.6 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, 2015, 2014 and 2013 using the Black-Scholes option pricing model: Expected volatility Expected term (in years) Risk-free interest rate Expected dividend yield 2015 2014 2013 27% 4 1.31% 0% 22% 4 1.20% 0% 29% 4 0.89% 0% The Company determines fair value of its restricted stock and restricted stock units based on the closing stock price on the date of grant. F-44 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the Company's non-vested restricted stock outstanding as of December 31, 2015 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 $ 124,239 95,092 $ (61,741) $ (2,789) $ $ 154,801 90.54 79.30 84.82 94.89 85.84 The weighted average grant date fair value of restricted stock granted during the years ended December 31, 2015, 2014 and 2013 was $79.30, $98.18 and $90.12, respectively. The total grant date fair value of restricted stock that vested during the years ended December 31, 2015, 2014 and 2013 was $5.2 million, $5.1 million and $11.3 million, respectively. The following table summarizes the Company's non-vested restricted stock units outstanding as of December 31, 2015 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 $ 65,406 44,761 $ (56,786) $ (5,673) $ $ 47,708 83.55 70.64 74.56 88.68 81.52 The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2015, 2014 and 2013 was $70.64, $98.24 and $89.44, respectively. The total grant date fair value of restricted stock units that vested during the years ended December 31, 2015, 2014 and 2013 was $4.2 million, $4.4 million and $14.3 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 is 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, 2015 and changes during the year then ended. Actual shares that will vest depending on the level of attainment of the performance-based criteria: Shares Weighted Average Grant Date Fair Value Non-vested at beginning of year Granted Vested Forfeited Non-vested at end of year F-45 14,424 14,386 $ $ — $ — $ $ 28,810 42.39 62.73 — — 52.55 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company determines the fair value of each performance-based restricted stock unit 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 years ended December 31, 2015 and 2014 and 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) 2015 2014 24% 25% 0.5 0.98% 0% 3 25% 29% 0.6 0.81% 0% 3 For the year ended December 31, 2015, total compensation costs from all of the Company's stock-based awards was $14.3 million. Total compensation costs related to non-vested awards not yet recognized was $19.3 million as of December 31, 2015, 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 $4.2 million for the year ended December 31, 2015. For the year ended December 31, 2014, compensation costs from all of the Company's stock-based awards was $12.7 million. 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. 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. The total income tax benefit realized from the exercise of stock-based awards was $3.9 million, $11.0 million and $17.7 million for the years ended December 31, 2015, 2014 and 2013, 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, 2015, 231,303 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, 2015, 2014 and 2013. F-46 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, 2015 and 2014, 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, 2013 $ (14,687) $ 214 $ 20,562 $ 6,089 (56,059) 1,008 (22,054) (77,105) Other comprehensive (loss)/income before reclassifications Amounts reclassified from accumulated other comprehensive income, net of tax (provision)/benefit of ($102) and $946, respectively Change in 2014 — (56,059) Balance, December 31, 2014 $ (70,746) $ Other comprehensive (loss)/income before reclassifications Amounts reclassified from accumulated other comprehensive income, net of tax (provision)/benefit of ($41) and $1,170, respectively Change in 2015 (86,968) — (86,968) Balance, December 31, 2015 $ (157,714) $ 183 (a) 1,191 1,405 9,526 74 (a) 9,600 11,005 (1,419) (b) (23,473) $ (2,911) $ (2,082) (1,236) (78,341) (72,252) (79,524) (1,755) (b) (3,837) (1,681) (81,205) $ (6,748) $ (153,457) (a) Existing net gains realized were recorded in labor and benefits on the consolidated statements of operations. (b) Existing net losses realized were recorded in interest expense on the consolidated statements of operations (see Note 9, 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, 2015, 2014 and 2013 (dollars in thousands): Interest, net Income taxes 2015 2014 2013 $ $ 59,564 44,807 $ $ 43,076 36,179 $ $ 57,206 14,522 Significant Non-Cash Investing and Financing Activities The Company had outstanding receivables from outside parties for the funding of capital expenditures of $23.0 million, $32.1 million and $33.0 million as of December 31, 2015, 2014 and 2013, respectively. At December 31, 2015, 2014 and 2013, the Company also had $26.2 million, $51.3 million and $40.1 million, respectively, of purchases of property and equipment that had not been paid and, accordingly, were accrued in accounts payable in the normal course of business. As more fully described in Note 4, Earnings Per Common Share, on October 1, 2015, the Company settled the prepaid stock purchase contract component of its TEUs with the delivery of 3,539,240 shares of its Class A Common Stock. F-47 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. SEGMENT AND GEOGRAPHIC AREA INFORMATION: Segment Information The Company presents the financial results of its 11 operating regions as three distinct operating segments: North American Operations, Australian Operations and U.K./European Operations (as more fully described in Note 1, Business and Customers). Each of our segments generates the following three categories of revenues from external customers: freight revenues, freight-related revenues and all other revenues (as more fully described in Note 2, Significant Accounting Policies). The Company's nine North American regions are aggregated into one segment as a result of having similar economic and operating characteristics. The following tables set forth results from the Company's North American Operations segment, Australian Operations segment and U.K./European Operations segment for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands): Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Income from operations Depreciation and amortization Loss on settlement of foreign currency forward purchase contracts Interest expense, net Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Income/(loss) from operations Depreciation and amortization Interest expense, net Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties North American Operations $ 949,028 227,154 65,633 $ 1,241,815 297,486 $ 141,814 $ $ $ $ $ 16,374 39,651 69,552 266,548 North American Operations $ 1,008,236 214,388 82,137 $ 1,304,761 333,194 $ 127,421 $ 41,732 $ 86,363 $ $ 277,725 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ December 31, 2015 Australian Operations U.K./European Operations Total Operations 146,850 87,616 8,486 242,952 54,842 27,425 2,312 8,976 12,890 31,179 $ $ $ $ $ $ $ $ 309,236 182,746 23,652 515,634 31,933 19,296 $ 1,405,114 497,516 97,771 $ 2,000,401 384,261 $ 188,535 $ — $ 17,965 $ (6,548) $ 18,686 66,592 75,894 32,035 $ 329,762 December 31, 2014 Australian Operations U.K./European Operations Total Operations 243,705 55,461 14,104 313,270 90,396 28,095 12,152 23,443 24,930 $ $ $ $ $ $ $ — $ 1,251,941 290,787 96,284 $ 1,639,012 421,571 157,081 54,717 107,107 20,938 43 20,981 (2,019) $ $ 1,565 833 $ (2,699) $ 864 $ 303,519 F-48 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Operating revenues: Freight revenues Freight-related revenues All other revenues Total operating revenues Income/(loss) from operations Depreciation and amortization Interest expense, net Provision for/(benefit from) income taxes Expenditures for additions to property & equipment, net of grants from outside parties December 31, 2013 North American Operations Australian Operations U.K./European Operations Total Operations $ $ $ $ $ $ $ 917,971 215,302 95,899 1,229,172 286,164 113,155 48,483 24,446 163,157 $ $ $ $ $ $ $ 259,393 57,834 7,569 324,796 95,016 27,102 14,814 22,258 51,860 $ $ $ $ $ $ $ — $ 14,675 — 14,675 $ (992) $ $ 1,387 626 $ (408) $ 1,177,364 287,811 103,468 1,568,643 380,188 141,644 63,923 46,296 388 $ 215,405 The following table sets forth the property and equipment recorded in the consolidated balance sheets as of December 31, 2015 and 2014 (dollars in thousands): December 31, 2015 Property and equipment, net $ 3,433,669 $ 465,123 $ 316,271 $ 4,215,063 North American Operations Australian Operations U.K./European Operations Total Operations Property and equipment, net Geographic Area Information December 31, 2014 North American Operations Australian Operations U.K./European Operations Total Operations $ 3,269,604 $ 506,154 $ 12,724 $ 3,788,482 Operating revenues for each geographic area for the years ended December 31, 2015, 2014 and 2013 were as follows (dollars in thousands): Operating revenues: United States Non-United States: Australia Canada U.K. Netherlands Other Total Non-United States Total operating revenues 2015 2014 2013 Amount % of Total Amount % of Total Amount % of Total $ 1,143,056 57.1% $ 1,188,084 72.5% $ 1,100,334 70.2% $ 242,952 98,759 340,747 119,421 55,466 $ 857,345 $ 2,000,401 12.1% $ 313,270 116,677 5.0% — 17.0% 17,693 6.0% 3,288 2.8% 42.9% $ 450,928 100.0% $ 1,639,012 19.1% $ 324,796 128,838 7.1% — —% 12,687 1.1% 1,988 0.2% 27.5% $ 468,309 100.0% $ 1,568,643 20.7% 8.2% —% 0.8% 0.1% 29.8% 100.0% F-49 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and equipment for each geographic area as of December 31, 2015 and 2014 were as follows (dollars in thousands): Property and equipment located in: United States Non-United States: Australia Canada U.K. Other Total Non-United States Total property and equipment, net $ $ $ $ 2015 2014 Amount % of Total Amount % of Total 3,202,963 76.0% $ 3,003,299 79.3% 465,123 230,706 303,210 13,061 1,012,100 4,215,063 11.0% $ 5.5% 7.2% 0.3% 24.0% $ 100.0% $ 506,154 266,305 — 12,724 785,183 3,788,482 13.4% 7.0% —% 0.3% 20.7% 100.0% 19. QUARTERLY FINANCIAL DATA (unaudited): The following table sets forth the Company's quarterly results for the years ended December 31, 2015 and 2014 (dollars in thousands, except per share data): 2015 Operating revenues Income from operations Net income Diluted earnings per common share 2014 Operating revenues Income from operations Net income Diluted earnings per common share First Quarter Second Quarter Third Quarter Fourth Quarter $ $ $ $ $ $ $ $ 397,030 72,620 23,904 0.42 376,279 74,875 40,004 0.70 $ $ $ $ $ $ $ $ 542,219 99,451 52,837 0.92 414,563 110,109 60,728 1.07 $ $ $ $ $ $ $ $ 546,299 117,559 63,362 1.10 432,543 123,116 72,650 1.27 $ $ $ $ $ $ $ $ 514,853 94,631 84,934 1.47 415,627 113,471 87,373 1.53 In addition to the Company's changes in operations as described in Note 3, Changes in Operations, the quarters shown were affected by the items below: The first quarter of 2015 included (i) $11.6 million after-tax loss on the settlement of foreign currency forward purchase contracts, (ii) $9.5 million after-tax business development and related costs, (iii) $1.3 million after-tax non- cash write-off of deferred financing fees associated with the refinancing of the credit facility, (iv) $1.2 million after- tax Australian severance costs and (v) $0.2 million after-tax gain on sale of assets. The second quarter of 2015 included (i) $0.5 million after-tax business development and related costs and (ii) $0.3 million after-tax gain on sale of assets. The third quarter of 2015 included (i) $1.3 million after-tax business development and related costs, (ii) $0.9 million after-tax gain on sale of assets and (iii) $0.4 million adjustment for tax returns from previous fiscal year. The fourth quarter of 2015 included (i) $27.4 million tax benefit associated with the United States Short Line Tax Credit for 2015, (ii) $9.7 million tax benefit due to a U.K. tax rate adjustment, (iii) $1.7 million after-tax business development and related costs, (iv) $1.6 million after tax out of period impact of the final allocation of fair value to Freightliner's assets and liabilities, (v) $1.3 million tax expense due to the application of the full year 2015 effective tax rate to the results of the first three quarters of 2015 and (vi) $0.2 million after-tax gain on sale of assets. The first quarter of 2014 included (i) $0.7 million after-tax business development and related costs and (ii) $0.5 million after-tax gain on sale of assets. F-50 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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) $27.0 million tax benefit associated with the United States Short Line Tax Credit for the first three quarters of 2014, (ii) $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, (iii) $1.0 million after-tax business development and related costs and (iv) $1.0 million after-tax gain on sale of assets. 20. RECENTLY ISSUED ACCOUNTING STANDARDS: In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. For public business entities, the amendments are effective for the financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years and should be applied prospectively. Early adoption is permitted. The Company early adopted this amendment effective September 30, 2015. The adoption of this guidance did not have a material impact on its consolidated financial statements. In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. For public entities, the amendments are effective for the financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years and should be applied retrospectively. Early adoption is permitted. The Company early adopted this amendment effective December 31, 2015. The adoption of this guidance did not have a material impact on its consolidated financial statements. Accounting Standards Not Yet Effective 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. In August 2015, the FASB issued ASU 2015-14, which approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company beginning with the first quarter 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. 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. Early adoption is permitted. The Company does not expect the adoption of this guidance to have an impact on its consolidated financial statements. F-51 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 U.S. 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. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which requires reporting entities to evaluate whether they should consolidate certain legal entities for financial reporting purposes. These amendments are effective for public entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be recorded as a direct reduction of the debt liability on the balance sheet rather than as an asset. For public business entities, the amendments are effective for the financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. In August 2015, the FASB issued ASU 2015-15, which advises that in regards to line-of-credit arrangements, the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Reclassifying the presentation of debt issuance costs is expected to decrease the Company's total assets by less than 1% and decrease total debt by approximately 1%. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. For public entities, the amendments in this guidance are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company does not expect the adoption of this guidance to have a material impact on its consolidated balance sheet. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair value, with subsequent changes in fair value recognized in net income. The amendments also impact certain disclosure requirements for financial instruments. The amendments are effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements. F-52 [THIS PAGE INTENTIONALLY LEFT BLANK] STOCK REGISTRAR AND TRANSFER AGENT Computershare P.O. Box 30170 College Station, Texas 77842-3170 800-622-6757 (U.S., Canada, Puerto Rico) 781-575-4735 (non-U.S.) www.computershare.com/investor AUDITORS PricewaterhouseCoopers LLP 1100 Bausch & Lomb Place Rochester, New York 14604 585-232-4000 www.pwc.com OTHER INFORMATION The Company has included as Exhibits 31 and 32 to its Annual Report on Form 10-K for the fiscal year ending December 31, 2015, filed with the Securities and Exchange Commission, certificates of the Chief Executive Officer and Chief Financial Officer of the Company certifying the quality of the Company’s public disclosure. The Company has submitted to the New York Stock Exchange a certificate of the Chief Executive Officer of the Company certifying that as of June 1, 2015, 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 2015 and 2014. YEAR ENDED DECEMBER 31, 2015: 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter YEAR ENDED DECEMBER 31, 2014: 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter HIGH $72.54 $75.84 $97.34 $105.15 HIGH $100.89 $105.47 $105.51 $99.86 LOW $50.28 $57.51 $76.18 $82.15 LOW $83.33 $93.82 $93.37 $87.19 On February 19, 2016, there were 353 Class A common stock record holders and 11 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, 2010, in stock or index, including reinvestment of dividends. Years Ending 1 Genesee & Wyoming Inc. S&P Midcap 400 S&P 1500 Railroads 2010 100.00 100.00 100.00 2011 114.41 98.27 114.23 2012 143.68 115.84 124.08 2013 181.40 154.64 176.90 2014 169.82 169.75 232.44 2015 101.40 166.05 162.35 1 Fiscal year ending December 31. Copyright© 2016 Standard & Poor’s, a division of McGraw-Hill financial. All rights reserved. (www.researchdatagroup.com/S&P.htm) 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. BOARD OF DIRECTORS As of December 31, 2015 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, Audit Committee Member, Compensation Committee Øivind Lorentzen III Managing Director, Northern Navigation LLC Chairman, Governance Committee Robert M. Melzer Retired; formerly Chief Executive Officer of Property Capital Trust Member, Compensation Committee Member, Governance Committee Albert J. Neupaver Executive Chairman, Westinghouse Air Brake Technology Corporation Hans Michael Norkus Founder and President, Alliance Consulting Group Member, Compensation Committee Member, Governance Committee Joseph H. Pyne Executive Chairman, Kirby Corporation Ann N. Reese Co-Founder and Co-Executive Director, Center for Adoption Policy Formerly Chief Financial Officer of ITT Corporation Chair, 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 Mark A. Scudder Chief Executive Officer and President, Scudder Law Firm, P.C., L.L.O. Chairman, Compensation Committee Member, Audit Committee Hunter C. Smith Vice President of Finance, Inflammation and Immunology, Celgene Corporation Member, Governance Committee Mortimer B. Fuller III John C. Hellmann Richard H. Allert Richard H. Bott Øivind Lorentzen III Robert M. Melzer Albert J. Neupaver Hans Michael Norkus Joseph H. Pyne Ann N. Reese Philip J. Ringo Mark A. Scudder Hunter C. Smith 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 Executive Vice President Global Corporate Development SENIOR EXECUTIVES Andrew T. Chunko Senior Vice President Coastal Region 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 James E. Irvin Senior Vice President Pacific 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 Tony D. Long Senior Vice President Operations Support Charles E. McBride Senior Vice President Ohio Valley Region Russell Mears Chief Executive Officer Freightliner Group 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 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, SA 5035 +61 (0) 8 8343 5455 Freightliner Australia Pty Ltd Suite 1, Building 1, Pymble Corporate Centre 20 Bridge St, Pymble, NSW 2073 +61 (0) 2 9449 6222 Canada Region Cape Breton & Central Nova Scotia Railway Limited (CBNS) 121 King Street P.O. Box 2240 Stellarton, Nova Scotia B0K 1S0 902-752-3357 Goderich-Exeter Railway Company Limited (GEXR) 101 Shakespeare Street, Unit #2 Stratford, Ontario N5A 3W5 519-271-4441 Huron Central Railway Inc. (HCRY) 30 Oakland Avenue Sault Ste. Marie, Ontario P6A 2T3 705-254-4511 Knob Lake & Timmins Railway Company Inc. (KLT) 9001, boul. de l’Acadie, Suite 600 Montréal, Québec H4N 3H5 514-948-6999 Ottawa Valley Railway (OVR) 445 Oak Street East North Bay, Ontario P1B 1A3 705-472-6200 Québec Gatineau Railway Inc. (QGRY) / Chemins de fer Québec-Gatineau inc. 3690, boul. de la Grande Allée Boisbriand, Québec J7H 1M9 450-435-5151 Railcare Inc. 500 Sherman Avenue North, Unit 80 Hamilton, Ontario L8L 8J6 905-527-8238 Services Ferroviaires de L’Estuaire Inc. (SFE) 4800, rue John-Molson Québec, Québec G1X 3X4 418-951-0501 Southern Ontario Railway (SOR) 241 Stuart Street West Hamilton, Ontario L8R 3H2 905-777-1234 Canada Region continued Central Region continued 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 Principale Nord Richmond, Québec J0B 2H0 819-826-5460 Western Labrador Rail Services Inc. (WLRS) 9001, boul. de l’Acadie, Suite 600 Montréal, Québec H4N 3H5 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 6232 Cyanamid Road Bauxite, Arkansas 72011 501-557-2600 Dallas, Garland & Northeastern Railroad, Inc. (DGNO) 475 Gautney Road Garland, Texas 75040 972-487-0433 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) 475 Gautney Road Garland, Texas 75040 972-487-0433 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 Coastal Region continued Galveston Railroad, L.P. (GVSR) P.O. Box 1108 Galveston, Texas 77553 409-762-5411 Georgia Central Railway, L.P. (GC) 186 Winge Road Lyons, Georgia 30436 912-526-6165 Golden Isles Terminal Railroad, Inc. (GITM) 179 Penniman Circle Brunswick, Georgia 31523 912-262-9885 Golden Isles Terminal Wharf (GITW) P.O. Box 7358 Garden City, Georgia 31408 912-232-1762 Maryland Midland Railway, Inc. (MMID) P.O. Box 1000 Union Bridge, Maryland 21791 410-775-7718 North Carolina & Virginia Railroad Company, LLC (NCVA) 214 Railroad Street North Ahoskie, North Carolina 27910 252-332-2778 Point Comfort & Northern Railway Company (PCN) P.O. Box 247 Lolita, Texas 77971 361-874-4441 Rail Link, Inc. 13901 Sutton Park Drive South, Suite 125 Jacksonville, Florida 32224 904-223-1110 Riceboro Southern Railway, LLC (RSOR) 186 Winge Road Lyons, Georgia 30436 912-884-2935 Rockdale, Sandow & Southern Railroad Company (RSS) P.O. Box 387 Rockdale, Texas 76567 512-446-3478 Savannah Port Terminal Railroad, Inc. (SAPT) P.O. Box 7358 Garden City, Georgia 31408 912-964-9004 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 Midwest Region Central Railroad Company of Indianapolis (CERA) 906 West Morgan Street Kokomo, Indiana 46901 309-698-2600 Grand Rapids Eastern Railroad (GR) 101 Enterprise Drive Vassar, Michigan 48768 989-797-5100 Huron and Eastern Railway Company, Inc. (HESR) 101 Enterprise Drive Vassar, Michigan 48768 989-797-5100 Illinois & Midland Railroad, Inc. (IMRR) 1500 North Grand Avenue East Springfield, Illinois 62702 309-694-8200 Indiana Southern Railroad, LLC (ISRR) 202 West Illinois Street 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 Midwestl Region continued Northeast Region continued 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) 17 South 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 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 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) 1501 National Avenue, Suite 200 San Diego, California 92113 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 330-744-1992 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 330-744-1992 Ohio Central Railroad, Inc. (OHCR) 47849 Papermill Road Coshocton, Ohio 43812 740-622-8092 Ohio Valley Region continued 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 412-331-6200 The Warren & Trumbull Railroad Company (WTRM) 123 Division Street Extension Youngstown, Ohio 44510 330-744-1992 Youngstown & Austintown Railroad, Inc. (YARR) 123 Division Street Extension Youngstown, Ohio 44510 330-744-1992 The Youngstown Belt Railroad Company (YB) 123 Division Street Extension Youngstown, Ohio 44510 330-744-1992 Pacific Region California Northern Railroad Company (CFNR) 1166 Oak Avenue Woodland, California 95695 530-406-8981 Cascade and Columbia River Railroad Company (CSCD) 901 Omak Avenue Omak, Washington 98841 509-826-3752 Central Oregon & Pacific Railroad, Inc. (CORP) 333 S.E. Mosher P.O. Box 1083 Roseburg, Oregon 97470 541-957-2504 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 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 Southern Region continued 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 U.K./Europe Region Freightliner Ltd Freightliner Heavy Haul Ltd Freightliner Maintenance Ltd Freightliner Middle East Ltd 3rd Floor, The Podium, 1 Eversholt Street London, NW1 2FL +44 (0) 207 200 3974 Freightliner DE GmbH Strabe am Flugplatz 6a 12487 Berlin, Germany +49 (0) 30 63223 4712 Freightliner PL Sp. z o.o. ul. Polna 11 00-633 Warszawa Poland +48 (0) 22 648 66 55 Logico Transport 3rd Floor, The Podium, 1 Eversholt Street London, NW1 2FL +44 (0) 207 200 3974 ERS Railways B.V. Albert Plesmanweg 61 B, 3088 GB Rotterdam, Netherlands +31 (0) 10 428 5200 Rotterdam Rail Feeding B.V. Albert Plesmanweg 63 3088 GB Rotterdam The Netherlands +31 (0) 88 011 4200 Belgium Rail Feeding BVBA Karveelstraat 5 B 2030 Antwerpen Belgium +32 (0) 3 543 06 72 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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