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