Genesee & Wyoming Inc. 2017 Annual Report
Genesee & Wyoming Inc.
Genesee & Wyoming Inc.* owns or leases 122 freight
railroads organized into nine operating regions with
approximately 8,000 employees and 3,000 customers.
OYLO
AKMD
PNW
AKMD
AKMD
WSR
RSOR
North American Operations
Genesee & Wyoming Australia (GWA)**
U.K./European Operations
Above and Below Rail Operations
Above Rail Operations
Served Ports
** 51%-owned
by G&W
* The terms “Genesee & Wyoming,” “G&W,” “the Company,”
“we,” “our,” and “us” refer collectively to Genesee & Wyoming Inc.
and its subsidiaries and affiliated companies.
Financial Highlights
(In thousands, except per share amounts)
Statement of Operations Data
Operating revenues
Operating income
Net income
Net income attributable to Genesee & Wyoming Inc.
Diluted earnings per common share attributable
to Genesee & Wyoming Inc. common stockholders:
2013
2014
2015
2016
2017
Years Ended December 31
$1,568,643
$1,639,012
$2,000,401
$2,001,527
$2,208,044
380,188
271,296
271,296
421,571
261,006
260,755
384,261
225,037
225,037
289,612
141,096
141,137
398,462
556,778
549,051
Diluted earnings per common share (EPS)
Weighted average shares - Diluted
$4.79
56,679
$4.58
56,972
$3.89
57,848
$2.42
58,256
$8.79
62,464
Balance Sheet Data as of Period End
Total assets
Total debt
Total equity
$5,319,821
$5,595,753
$6,703,082
$7,634,958
$8,034,897
1,624,712
1,615,449
2,281,751
2,359,453
2,331,295
2,149,070
2,357,980
2,519,461
3,187,121
3,896,092
Operating Revenues
($ In Millions)
Operating Income
($ In Millions)
Net Income
Attributable to G&W
($ In Millions)
549.11
Diluted EPS
8.791
$2,200
2,000
1,800
1,600
1,568.6
1,639.0
1,400
1,200
1,000
800
600
400
200
0
2,208.0
2,000.4
2,001.5
421.61,2
401.62
374.22
384.31
415.52
398.51
$400
394.12
380.21
289.61
350
300
250
200
150
100
50
0
$275
271.31
260.81
233.52
225.01
213.9 2
213.32
182.42
182.02
141.11
250
225
200
175
150
125
100
75
50
25
0
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017
$5.00
4.791
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
4.581
4.102
3.891
3.782
3.692
3.132
2.421
2.912
2013 2014 2015 2016 2017
(1) As Reported
(2) Adjusted operating income, adjusted net income attributable to G&W and adjusted diluted EPS are non-GAAP financial measures and are not intended
to replace operating income, net income attributable to G&W and diluted EPS, their most directly comparable GAAP measures. The information required
by Item 10(e) of the Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 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.
2017 Annual Report 1
From the CEO
Jack Hellmann
Chairman, President and Chief Executive Officer
To Our Stockholders:
In 2017, we strengthened the foundation of safety, service and cash flow generation that we expect
will drive G&W’s positive earnings growth in 2018 and beyond. In 2017, our safety results continued
to be world class, and our biennial customer satisfaction survey yielded the highest scores in our history
at 8.0 out of 10 (compared to 7.2 for the trucking industry and 6.9 for the rail industry). We are now
leveraging our safety and service advantage to bring additional traffic to rail amidst improving economic
conditions in each of our three main geographies of North America, Australia and the U.K./Europe.
Also in 2017, we enhanced our service offering by completing three small acquisitions: i) the tuck-in
of the Heart of Georgia Railroad that is contiguous with two other G&W railroads in the State of Georgia,
ii) the creation of a new rail ferry joint venture, CG Railway, which connects our railroad in Alabama
across the Gulf of Mexico to a third-party railroad serving Southeast Mexico, and iii) the addition of a
U.K. container terminal and logistics business, Pentalver, that enhances our U.K. intermodal franchise
as we can now offer rail, terminal and trucking services for our customers.
From a financial perspective in 2017, we reported net income attributable to G&W of $549.1
million and diluted EPS of $8.79, which included the impact of the United States Tax Cuts and Jobs
Act. Our net cash provided by operating activities increased 17.7% to $479.2 million. G&W’s adjusted
net income was essentially flat at $182 million, while our adjusted diluted EPS declined 7%, the latter
primarily due to our higher share count following an equity offering in late 2016. While our adjusted
net income was unchanged, our adjusted free cash flow attributable to G&W increased 3.6% in 2017,
as we were able to reduce costs and capital to match operating conditions.(1)
(1) Adjusted operating income, adjusted income before income taxes (pre-tax income), adjusted net
income, adjusted diluted earnings per common share (EPS), adjusted free cash flow attributable to
G&W, adjusted free cash flow attributable to G&W before new business investments, and net adjusted
debt to adjusted earnings before interest, taxes, depreciation and amortization (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 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.
2017 Annual Report 3
From the CEO, continued
Adjusted free cash flow is the best measurement of G&W’s financial strength, and it is important
to note that we consistently generate adjusted free cash flow that is higher than net income. For example,
in 2017, adjusted free cash flow attributable to G&W of $250.2 million was 37% higher than adjusted
net income of $182.0 million. There are two main reasons for the differential. The first is that our annual
sustaining capital expenditures of $200 to $210 million are much less than our depreciation and amor-
tization of $250.5 million (note that depreciation is $192.9 million, and $57.6 million is amortization
of intangible assets related to acquisition accounting under U.S. GAAP). The second reason is that our
cash tax payments are less than our book tax expenses due to the intricacies of U.S. tax rules for short
line railroads, as well as the tax positions of railroads that we have acquired. Over the next five years,
for example, G&W currently estimates a global cash tax rate of approximately 13.5% versus our book
tax rate of 27%. The bottom line is that our adjusted free cash flow is strong and generally runs 30%
or more higher than our adjusted net income, and we expect our cash flow to strengthen further as we
return to growth in 2018.(1)
G&W is a unique and dynamic global rail platform with multiple paths for organic and acquisition-
led growth. Even in periods when we do not appear to be active in making additions to our global
business, we are constantly analyzing possible transactions and making decisions that are in the best
interests of our stockholders. Having strengthened our U.K. and Australia businesses with complementary
acquisitions in 2016-17 and endured a freight rail recession in North America, we are now poised
for growth on all three continents. I want to extend my deep appreciation to my fellow G&W colleagues
who have weathered the economic cycle and are preparing for the challenges of business expansion.
Safety
G&W’s worldwide operations completed 2017 with an employee injury-frequency rate (IFR) of 0.83 per
200,000 hours, which is three times safer than the U.S. short line average. Our railroads and switching
operations (i.e., not including U.K. container terminals and trucking) finished the year at 0.79, outper-
forming all of the Class I railroads for the ninth consecutive year. Nevertheless, it was also our weakest
safety performance in the last nine years, making 2017 a disappointment in that regard. In keeping with
our “safety is never fixed” mindset, we are implementing a variety of new safety analytics and initiatives
to ensure that we continue our proud tradition of being the safest rail operator in the world.
Bright spots in our safety results included our Coastal Region, whose one injury sustained in late
2017 ended a 421-day run of injury-free operations. Their IFR of 0.20 was the lowest among our nine
regions, making the Coastal Region our 2017 G&W Chairman’s Safety Award winner. This is especially
noteworthy since, in addition to 21 short line railroads, the Coastal Region includes most of our
industrial switching operations, which involve getting on and off equipment with much greater
frequency and hence have heightened exposure to potential injury.
Also noteworthy in 2017 was our UK/Europe Region, with an IFR of 0.71 (19 injuries) in 2017,
compared with an IFR of 2.15 (58 injuries) in 2015, the year that G&W acquired Freightliner. In just
two years, our 3,000 employees in the U.K. and Europe have embraced the safety culture that ties
G&W together on a global basis with a 67% improvement in results.
Finally, our inaugural Tyrone C. James Award for sustained safety performance, whose namesake
retired as Senior Vice President of Safety in 2017, goes to our Australia Region for achieving the lowest
three-year-average IFR among G&W regions. The Australia Region’s 2015 to 2017 IFRs were 0.00,
0.85 and 0.69, respectively, for a three-year average of 0.51.
Safety is ultimately about people, not numbers. Safe railroads are places where employees want
to work and where customers want to entrust their shipments, which ensures the long-term success
of G&W’s business.
4 Genesee & Wyoming Inc.
SAFETY
G&W’s worldwide operations completed 2017
with an employee injury-frequency rate
of 0.83 per 200,000 hours, or three times safer
than the U.S. short line average. Our railroads
and switching operations (i.e., not including U.K.
container terminals and trucking) finished the
year at 0.79, outperforming all of the Class I
railroads for the ninth consecutive year.
Industry-Leading Safety
Injury-Frequency Rate Comparison per 200,000 Man-Hours
as Reported to the Federal Railroad Administration
5
4
3
2
1
0
Short Lines
Class I
G&W
2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016 2017
*G&W results include April 2015 acquisition of Freightliner Group
G&W Safety Performance – 2017
Injury-Frequency Rate per 200,000 Man-Hours
3.16
2.47
1.81
1.32
1.21
1.16
1.09
0.83
0.80
0.79
FRA
FRA
KCS
NS
CSX
Group 2 Group 3
Class I BNSF G&W (a) UP
Average
G&W (b)
(a) Includes rail, terminals and trucking businesses
(b) Rail operations only
G&W Community Involvement
From 2015-17, nearly 100 employee volunteers from
G&W railroads made 1,490 Operation Lifesaver
presentations to more than 200,000 schoolchildren,
school bus and truck drivers, law enforcement
personnel, first responders and other individuals
to discuss the importance of rail-crossing safety.
2017 Annual Report 5
SERVICE
In our sixth biennial customer satisfaction
survey, G&W again outscored the overall
trucking and railroad industries. Moreover,
we received our highest overall satisfaction
score to date (8.0) and outscored the trucking
industry by the widest margin to date. A score
of 8.0 out of 10, our target, represents a
loyal customer.
Industry-Leading Customer Satisfaction
Biennial Survey by Leading Customer-Satisfaction Research Firm
8.0 = G&W Target
G&W
Trucking
Other
Railroads
10
9
8
7
6
5
2007 2009 2011 2013
2015
2017
November 2017 Survey by a Leading Customer-Satisfaction Research Firm
G&W’s Highest Rated Attributes
by Customers
Operating personnel demonstrate
a clear commitment to safety
Professionalism of Customer
Service personnel
Availability of Customer
Service personnel
9.0
8.8
8.5
Satisfaction (1-10 scale)
1
2
3
4
5
6
7
8 9
10
G&W’s Key Customer Touch-Points
Overall Satisfaction
Marketing/Sales
Customer Service
Equipment for Loading
Transportation Services
Billing and Invoicing
8.0
8.3
8.3
8.0
8.0
7.9
1
2
3
4
5
6
7
8 9
10
6 Genesee & Wyoming Inc.
From the CEO, continued
Financial Results
G&W’s consolidated financial results for 2017 were as follows:
Operating Revenues increased 10.3% from $2.0 billion in 2016 to $2.2 billion in 2017.
Operating Income increased 37.6% from $289.6 million in 2016 to $398.5 million in 2017;
Adjusted Operating Income increased 11.0% from $374.2 million in 2016 to $415.5 million
in 2017.(1)
Net Income Attributable to G&W increased from $141.1 million in 2016 to $549.1 million
in 2017; Adjusted Net Income Attributable to G&W remained stable at $182.0 million in
2017 compared to $182.4 million in 2016.(1)
Diluted EPS Attributable to G&W increased from $2.42 in 2016 (with 58.3 million weighted
average shares outstanding) to $8.79 in 2017 (with 62.5 million weighted average shares
outstanding); Adjusted Diluted EPS decreased 7.0% from $3.13 in 2016 (with 58.3 million
weighted average shares outstanding) to $2.91 in 2017 (with 62.5 million weighted average
shares outstanding).(1)
Net Cash Provided by Operating Activities increased 17.7% from $407.1 million in 2016
to $479.2 million in 2017; Adjusted Free Cash Flow Attributable to G&W Before New
Business Investments and Grant Funded Projects increased 1.5% from $265.9 million in
2016 to $269.8 million in 2017; Adjusted Free Cash Flow Attributable to G&W increased
3.6% from $241.5 million in 2016 to $250.2 million in 2017.(1)
The clearest way to understand G&W’s financial results is to review each of our three business
segments: North America (75% of adjusted operating income in 2017), Australia (20% of adjusted
operating income in 2017, of which we own 51%) and the U.K./Europe (5% of adjusted operating
income in 2017). For 2017, the financial performance of our segments was as follows:
North America: Our North American revenues increased 3.0% to $1.27 billion in 2017, while same
railroad revenues remained relatively flat at $1.24 billion. Of the $7.7 million increase in same railroad
revenues, $2.0 million was due to the appreciation of the Canadian dollar relative to the U.S. dollar.
The remaining same railroad revenue increase of $5.7 million was driven by an $18.7 million increase
in freight revenues that was partially offset by a $10.9 million decline in freight-related revenues.
Despite the modest increase in total revenues in North America, our operating income decreased 4.9%
to $303.9 million in 2017. Performance was impacted by lower than expected carloads due to a drought
in South Dakota (agricultural products), the closure of a specialty chemical plant in Pennsylvania and
reduced sulfuric acid consumption at a copper smelter in Arizona (chemicals), and higher levels of
trucking and barge competition (paper, scrap steel and agricultural products). Operating income in 2017
included $8.2 million of corporate development and related costs and $0.5 million of restructuring
costs, while 2016 included $7.2 million of corporate development and related costs and $0.9 million
of restructuring costs. Our adjusted operating income decreased 4.6% from $327.6 million to $312.6
million. The decline in North American adjusted operating income reflected higher diesel fuel costs
and increased derailment and incident expense. Although diesel fuel prices in 2017 were generally
below the threshold for our fuel surcharge programs, higher diesel prices from current levels should
be largely offset by fuel surcharges.(1)
2017 Annual Report 7
From the CEO, continued
Australia: Our Australian Operations exceeded our expectations in 2017 primarily due to the
reopening of previously served iron ore and manganese mines, as well as good expense management.
Our GRail acquisition from Glencore performed in-line with our expectations, our partnership with
Macquarie Infrastructure and Real Assets (MIRA) has proven to be excellent, and one of our major
customers was purchased out of bankruptcy thereby greatly strengthening its future.
Our total Australian revenues increased 38.2% to $307.5 million in 2017, while our same railroad
revenues increased 9.9%, or $22.0 million, which included a $6.9 million increase due to the appreciation
of the Australian dollar relative to the U.S. dollar and a $24.5 million increase in freight revenues,
partially offset by a $9.2 million decline in freight-related revenues.
In 2017, our Australian operating income increased to $77.3 million from $4.8 million in 2016.
The comparison is not particularly meaningful since our 2016 operating income reflects 11 months
of 100% ownership by G&W and includes $21.1 million of charges related to a customer bankruptcy in
Australia, as well as $14.7 million of corporate development costs associated with the GRail transaction,
while our 2017 operating income is 51%-owned by G&W and 49%-owned by MIRA. Nevertheless, our
adjusted operating income increased 98.6% from $41.4 million to $82.2 million, primarily due to the
full-year impact of the GRail transaction and the stronger metallic ores revenues. The simplest way to
understand Australia is that we have doubled the size of our business but simultaneously reduced our
ownership to 51% of a company that we believe is more diverse, has stronger free cash flow and has a
stronger growth profile, including significant new carloads that we have under contract starting in 2021.(1)
U.K./Europe: Following the restructuring of our Continental Europe intermodal business in the
first quarter of 2017, our U.K./European Operations segment generally performed in-line with our
expectations in 2017, with multiple commercial and operational initiatives completed in the U.K.,
a more fluid flow of containers from the container shipping lines through U.K. ports, and an improving
U.K. business climate. Although our U.K./European Operations had higher than expected operating
costs in the fourth quarter of 2017, we expect further revenue growth and improvements in operating
income in 2018. In addition, our Pentalver acquisition in the U.K. is performing well, and we are
investing in additional container storage capacity in the Port of London Gateway.
In 2017, U.K./European revenues increased 15.5% to $626.2 million, while our same railroad
revenues decreased $18.5 million, or 3.4%. Of the $18.5 million decrease in same railroad operating
revenues, $13.4 million was due to foreign currency depreciation, and the remaining same railroad
revenue decrease was $5.1 million, primarily due to a decline in Continental Europe intermodal revenues
following the discontinuation of certain intermodal train services as part of the restructuring of ERS
Railways B.V. (ERS). The restructuring of our Continental Europe intermodal business, along with
the continued decline of the U.K. coal market, masked the positive performance in other areas of our
U.K./Europe Operations such as: i) U.K. intermodal as a result of a more fluid flow of containers,
ii) organic and new customer growth of aggregate shipments in Poland and the U.K., and iii) expanded
steel and intermodal-related switching contracts in the U.K.
In 2017, operating income in our U.K./European Operations increased to $17.3 million, compared
to an operating loss of $34.7 million in 2016. Operating income in 2017 included $9.4 million of restruc-
turing costs, $4.0 million of corporate development and related costs, and an $8.9 million reduction
to other expenses as a result of the buyout of deferred consideration agreements from the Freightliner
acquisition, while the operating loss in 2016 included impairment and related charges of $21.5 million
related to ERS, $14.7 million of restructuring and related charges associated with our U.K. coal business,
$2.3 million of other restructuring and related charges and $1.5 million of corporate development and
related costs. Our adjusted operating income increased from $5.2 million in 2016 to $20.7 million in
2017, due to eight months of Pentalver operations, an improving U.K. business climate, cost reductions
and operating efficiencies.(1)
8 Genesee & Wyoming Inc.
ENHANCING OUR ROLE IN THE SUPPLY CHAIN
NORTH AMERICA
G&W railroads are irreplaceable infrastructure assets and
vital links in the supply chain. We constantly seek to attract
new traffic to our infrastructure by extending its reach and
by enhancing the customer experience to make it easier
to use rail:
n In 2017, we extended the reach of our railroads by partnering with
SEACOR to provide rail ferry service (left) across the Gulf of Mexico,
as a faster and more cost-effective alternative to the traditional land
route between the Southeast U.S. and Southeast Mexico.
n We also partnered with Canadian Pacific Railway and Bluegrass Farms
of Ohio on a major new intermodal terminal and bulk transload facility
(lower left) to extend the reach of the Class I rail network from
Vancouver, B.C., into the Ohio Valley.
n To enhance the customer experience for a major pulp & paper producer
(above), we embedded a full-time employee at the customer’s corporate
office as a single point of contact for all of their serving G&W railroads
– a best practice from Freightliner that we’ve now brought to the U.S.
n Last year, we piloted customized supply chain software that provides
customers with real-time visibility of their loaded and empty railcars
across the entire North American rail network. The software is being
rolled out to strategic customers across G&W railroads during 2018.
2017 Annual Report 9
Chicago
MICHIGAN
To Vancouver,
British Columbia
TPW
ILLINOIS
Dashed lines
indicate
trackage
rights.
CFE
CERA
INDIANA
ISRR
Detroit
Lake Erie
Cleveland
Lima
OHIO
IORY
Columbus
CUOH
OHCR
OSRR
CIND
Cincinnati
Canadian Pacific Railway
G&W Railroads
Nearby G&W Railroads
Bluegrass Farms Site
of New Intermodal Terminal
and Bulk Transload Facility
ENHANCING OUR ROLE IN THE SUPPLY CHAIN
AUSTRALIA
➤
worth
To
Tam
➤
To Brisbane
To Sydney
➤
➤
To Gulgong
Glencore Mines
Other Mines
In December 2016, we purchased 30 locomotives and
894 wagons to serve Glencore Coal in New South Wales.
With exceptional performance and strong support from
its customers, Genesee & Wyoming Australia continues
to invest in additional rolling stock to increase capacity
to serve Hunter Valley producers in the world’s premier
thermal coal supply chain.
10 Genesee & Wyoming Inc.
Genesee & Wyoming Australia’s intermodal business
achieved 95% on-time delivery in 2017.
From the CEO, continued
Acquisitions in 2017
Pentalver: On May 3rd, we closed on the acquisition of Pentalver from a subsidiary of APM Terminals
(a subsidiary of A P Møller-Maersk A/S) for £77.5 million (US$100.1 million) net of cash received
of £20.2 million (or US$26.1 million). Pentalver operates off-dock container terminals (most under
long-term lease) strategically located at each of the four major U.K. seaports of Felixstowe, Southampton,
London Gateway and Tilbury, as well as an inland terminal located at Cannock, in the U.K. Midlands,
near many of the nation’s largest distribution centers. In addition to providing storage for loaded and
empty containers on over 100 acres of land, Pentalver also operates a trucking service with more than
150 vehicles that provide daily service between the seaports of Felixstowe and Southampton and its
inland terminal at Cannock.
The acquisition of Pentalver is an excellent strategic fit with our existing intermodal offering in
the U.K. With the advent of larger container ships and the growth of distribution centers in the Midlands
and throughout the U.K., our maritime intermodal customers are seeking greater service optionality,
which includes not only rail and road transportation but also the ability to store, maintain and position
containers. Cross-selling trucking and container terminal services to augment Freightliner rail service
provides U.K. intermodal customers with better supply chain solutions and a relief valve from any
port congestion.
Heart of Georgia Railroad: On May 31st, we completed the acquisition of the Heart of Georgia Railroad,
Inc. (HOG), a 221-mile short line that operates across the State of Georgia on track leased from the
Georgia Department of Transportation. A classic tuck-in acquisition to our Coastal Region, HOG
connects with two G&W short lines, the Georgia Southwestern Railroad and the Georgia Central
Railway, and serves an inland intermodal terminal at Cordele, Georgia, providing direct rail service
via the Georgia Central to the Port of Savannah for auto, agricultural products and other merchandise
customers. HOG connects with two Class I railroads and transports approximately 10,000 annual car-
loads of agricultural products, feed, fertilizer, and lumber & forest products, of which approximately
2,000 carloads are interchanged with the Georgia Central.
CG Railway Joint Venture: On September 5th, we announced the formation of a 50-50 joint venture
with SEACOR Holdings Inc. (NYSE:CKH) to own and operate CG Railway, LLC (CGR), a freight
railroad that provides four-day rail ferry service between the ports of Mobile, Alabama, and Coatzacoalcos,
Veracruz, in Southeast Mexico. Using two roll-on/roll-off rail ferries with the capacity to transport 115
railcars per voyage (see photo on page 9), the ferry service transports roughly 10,000 carloads per
year of commodities such as chemicals and plastics, fructose and refined sugar, steel and pulp & paper.
CGR’s four-day service is a faster and more cost-effective alternative to the traditional land route between
the Southeast U.S. and Southeast Mexico.
Outlook for 2018
In 2018, we expect to return to positive earnings growth in each of our geographies worldwide and
to have positive diluted EPS growth for the first time since 2014. In 2018, we expect G&W revenues
to grow approximately 8%. Operating income is also expected to increase, primarily due to same
railroad growth and the full-year impact of the Pentalver acquisition as well as operating improvements
worldwide. Our overall financial outlook is favorable, with target growth in adjusted pre-tax income
over 10%, target growth in adjusted diluted EPS over 30% and target growth in adjusted free cash flow
attributable to G&W over 25%. In addition, we expect our leverage to decline to 2.2x net adjusted
debt/adjusted EBITDA at the parent level at year-end 2018 (compared with 2.8x at year-end 2017),
assuming no major acquisitions, investments or share repurchases.(1)
2017 Annual Report 11
From the CEO, continued
In North America, our 2018 outlook is for revenues to increase approximately 4% due to higher
pricing amidst a tight trucking market, as well as improved traffic across most of our commodity
groups (with the exception of agricultural products and utility coal which are weather dependent).
We expect North American operating income to increase, primarily due to the incremental profits
on our higher revenue, as additional railcars on a freight train have an attractive profit contribution.
In Australia, we expect our 2018 revenues to increase approximately 7%, largely due to growth in
export coal shipments, partially offset by lower agricultural products due to weaker 2017-18 harvests
of grain and cotton, and lower metallic ores revenues due to the suspension of operations at a mine
that is now evaluating a major expansion project. The growth in Australian coal revenues is expected
to be supported by the delivery of additional railcars starting in mid-2018 that increase our rail capacity
in the Hunter Valley. We expect Australian operating income to improve in 2018, primarily due to the
revenue growth, partially offset by increasing expenses as we invest in our commercial and operating
capabilities for future growth. Under the leadership of our new CEO for the Australia Region, Luke
Anderson, our team is particularly focused on new commercial contracts in both existing and new
geographies within Australia.
Finally, in the U.K./Europe we expect 2018 revenues to increase approximately 20%. The major
drivers of the expected U.K./Europe revenue growth include contributions from the Pentalver acquisi-
tion, improved intermodal shipments due to better U.K. port fluidity, and higher aggregates volumes
in the U.K. and Poland, partially offset by a decline in U.K. coal volumes. U.K./Europe operating income
is expected to significantly increase in 2018 due to the higher revenues as well as the full-year impact
of cost reduction programs. Under the leadership of our new CEO for the UK/Europe Region, Gary Long,
our team is also seeing additional opportunities to unlock operating efficiencies, and we expect further
cost cutting initiatives as 2018 unfolds.
We expect G&W’s consolidated annual effective income tax rate, which is the blend of all our
tax rates worldwide, to decline to approximately 27% in 2018, primarily driven by the Tax Cuts and
Jobs Act of 2017, which reduced the U.S. federal statutory tax rate from 35% to 21%. In addition to
the benefits of broad-based U.S. corporate tax reform, G&W remains focused on receiving an extension
of the U.S. short line tax credit which holds strong bipartisan support in Congress—with majority
support in the House (256 cosponsors) and the Senate (54 cosponsors) as well as strong support from
our customers. In February 2018, a retroactive short line tax credit extension for 2017 was signed into
law, and we will record the full-year 2017 benefit in the first quarter of 2018. However, our primary
legislative goal is a longer-term or permanent extension of the short line tax credit, with one possible
legislative vehicle being a new bill to increase investment in U.S. infrastructure.
People and Values
G&W’s reputation is built on our Core Values (Focus, Integrity, Respect and Excellence), our Core
Purpose (to be the safest and most respected rail service provider in the world) and our Code of Ethics
and Conduct. These elements define who we are as a company and foster a culture that correlates with
the personal and professional satisfaction of our employees. And it is motivated employees who drive
the satisfaction of our customers, the seamless and safe execution of our operations, the tremendous
energy of our acquisition team and the ultimate success of our business.
As we continue to build our global footprint of railroads, we are deeply aware that our reputation
is critical to our future success. Our strong reputation among key stakeholders—customers, employees,
elected officials and regulators, Class I railroads as well as potential short line sellers—has been integral
to our past achievements, and any shortcomings could undermine a reputation that has been built over
12 Genesee & Wyoming Inc.
ENHANCING OUR ROLE IN THE SUPPLY CHAIN
U.K./EUROPE
G&W’s Freightliner is the U.K.’s largest rail
maritime intermodal operator. The May 2017
acquisition of Pentalver added 100+ acres of
container storage at the four major U.K. seaports
and an inland terminal, as well as haulage
via more than 150 trucks. Cross-selling trucking
and container terminal services to augment
Freightliner rail service provides customers
with better supply chain solutions and a relief
valve from any port congestion.
Freightliner is also the U.K.’s second-largest
transporter of bulk rail freight and continues
to win new bulk business and position itself to
serve major infrastructure construction projects.
2017 Annual Report 13
From the CEO, continued
many decades. In the first quarter of 2018, we launched a new Code of Ethics and Conduct. The Code
educates employees on laws that affect our multiple geographies and guides them on upholding our
Core Values in a safe and legal manner. Adherence to the Code is a condition of employment at G&W
operations around the world, and we are all committed to living by the Core Values that have become
synonymous with G&W. And when confronted with a difficult situation, I also ask my colleagues to
apply what I call the Thanksgiving dinner test—if you would be uncomfortable explaining why you
made a given decision to your family at the Thanksgiving dinner table, then you probably should not
be doing it.
Board Retirements
At our stockholders meeting in May, two longstanding Directors will retire from the G&W Board,
Michael Norkus and Rick Allert. Michael has served with distinction on the G&W Board for almost
nine years and, as an expert on strategic consulting, has been a tremendous asset in guiding the strate-
gic plans that have underpinned G&W’s remarkable growth and transformation. Rick has served on the
G&W Board for almost seven years and the Board of G&W Australia for 10 years, and his wisdom and
leadership as a Director has permeated G&W, particularly in the growth and evolution of our Australian
business. Rick’s willingness to make the 27-hour journey from South Australia to Connecticut for the past
seven years has been a commitment for which we are immensely grateful, while his ability to impart
best practices from Australia to our U.S. corporate environment has been invaluable. I would like to thank
Michael and Rick for their outstanding service to G&W and our stockholders. G&W has been built on
a superb team of Directors and employees who are absolutely committed to G&W’s long-term success.
Entering 2018, our core business of 122 railroads has never been stronger, and the opportunities for
organic growth are promising in each of our geographies worldwide. In addition, we continue to evaluate
acquisition and investment opportunities across G&W’s global footprint. Our resources are significant,
with approximately $300 million of borrowing capacity under our revolving credit facility and substan-
tial additional capital-raising capacity. As we pursue these investment opportunities, our due diligence
is rigorous, our valuation approach is disciplined, and we will only execute on those opportunities that
create meaningful stockholder value. With a deep culture of safety and service that is coupled with
exceptional acquisition capabilities, G&W is well positioned to drive significant growth in the years
ahead. Thank you for your support.
Jack Hellmann
Chairman, President and Chief Executive Officer
March 29, 2018
2017 Annual Report 15
Non-GAAP Financial Measures
This Annual Report contains references to adjusted operating income; adjusted operating ratio; adjusted
income before income taxes (pre-tax income); adjusted net income attributable to G&W; adjusted diluted
earnings per common share (EPS) attributable to G&W; the adjusted free cash flow measures of adjusted
net cash provided by operating activities attributable to G&W, adjusted free cash flow attributable to G&W,
and adjusted free cash flow attributable to G&W before new business investments and grant funded
projects; and net adjusted debt to adjusted earnings before interest, taxes, depreciation and amortization
(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 the adjusted free cash flow measures, a useful indicator of cash flow that
may be available for discretionary use by G&W. Management also views these non-GAAP financial meas-
ures as a way to assess comparability between periods. Key limitations of the adjusted free cash flow
measures include the assumptions that G&W will be able to refinance its existing debt when it matures
and meet other cash flow obligations from financing activities, such as principal payments on debt.
These non-GAAP financial measures are not intended to represent, and should not be considered
more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These
non-GAAP financial measures may be different from similarly titled non-GAAP financial measures
used by other companies.
The following tables set forth reconciliations of each of these non-GAAP financial measures to their
most directly comparable GAAP measure (in millions, except percentages and per share amounts).
Reconciliations of Non-GAAP Financial Measures
Adjusted Operating Income and Adjusted Operating Ratio
Operating revenues
Operating expenses
Operating income (a)
Operating ratio(b)
Operating expenses
RailAmerica integration/acquisition costs
Corporate development and related costs
Net gain on sale of assets
Freightliner acquisition/integration costs
Australia severance costs
ERS impairment and related costs
Australia impairment and related costs
U.K. coal railcar leases
Restructuring costs
Buyout of Freightliner deferred
consideration agreements
Adjusted operating expenses
Adjusted operating income
Adjusted operating ratio
$ 1,188.5
(17.0)
(1.6)
4.7
-
-
-
-
-
-
-
Years Ended December 31,
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
2016
$ 2,001.5
1,711.9
$ 289.6
2017
$ 2,208.0
1,809.6
$ 398.5
75.8%
74.3%
80.8%
85.5%
82.0%
$ 1,217.4
$ 1,616.1
$ 1,711.9
$ 1,809.6
-
(5.2)
5.1
-
-
-
-
-
-
-
-
(2.1)
2.3
(15.3)
(2.3)
-
-
-
-
-
-
(23.3)
-
-
-
(21.5)
(21.1)
(10.5)
(8.2)
-
-
(11.9)
-
-
-
-
(4.9)
1.1
(10.2)
8.9
$ 1,792.5
$ 1,174.5
$ 1,217.4
$ 1,598.8
$ 1,627.3
$ 394.1
$ 421.6
$ 401.6
$ 374.2
$ 415.5
74.9%
74.3%
79.9%
81.3%
81.2%
(a) Operating income is calculated as operating revenues less operating expenses.
(b) Operating ratio is calculated as operating expenses divided by operating revenues.
16 Genesee & Wyoming Inc.
Adjusted Operating Income and Adjusted Operating Ratio by Segment
Year Ended December 31, 2017
Operating revenues
Operating expenses
Operating income (a)
Operating ratio(b)
Operating expenses
Corporate development and related costs
Restructuring costs
Australia impairment and related costs
Buyout of Freightliner deferred
consideration agreements
U.K. coal restructuring and related charges
Adjusted operating expenses
Adjusted operating income
Adjusted operating ratio
Year Ended December 31, 2016
Operating revenues
Operating expenses
Operating income/(loss) (a)
Operating ratio(b)
Operating expenses
Corporate development and related costs
Restructuring costs
Australia impairment and related costs
ERS impairment and related costs
U.K. coal restructuring and related charges
Adjusted operating expenses
Adjusted operating income
Adjusted operating ratio
North
American
Operations
$ 1,274.3
970.4
$ 303.9
Australian
Operations
$ 307.5
230.3
$ 77.3
U.K./
European
Operations
$ 626.2
608.9
$ 17.3
Total
$ 2,208.0
1,809.6
$ 398.5
76.2%
74.9%
97.2%
82.0%
$ 970.4
(8.2)
(0.5)
-
-
-
$ 230.3
0.3
(0.3)
(4.9)
-
-
$ 961.7
$ 225.3
$ 608.9
(4.0)
(9.4)
-
8.9
1.1
$ 605.5
$ 1,809.6
(11.9)
(10.2)
(4.9)
8.9
1.1
$ 1,792.5
$ 312.6
75.5%
$ 82.2
73.3%
$ 20.7
$ 415.5
96.7%
81.2%
$ 1,236.8
917.2
$ 319.6
$ 222.6
217.8
$ 4.8
74.2%
97.8%
$ 917.2
(7.2)
(0.9)
-
-
-
$ 909.1
$ 217.8
(14.7)
(0.8)
(21.1)
-
-
$ 181.2
$ 542.2
576.9
$ (34.7)
106.4%
$ 576.9
(1.5)
(6.5)
-
(21.5)
(10.5)
$ 537.0
$ 2,001.5
1,711.9
$ 289.6
85.5%
$ 1,711.9
(23.3)
(8.2)
(21.1)
(21.5)
(10.5)
$ 1,627.3
$ 327.6
$ 41.4
$ 5.2
$ 374.2
73.5%
81.4%
99.0%
81.3%
(a) Operating income is calculated as operating revenues less operating expenses.
(b) Operating ratio is calculated as operating expenses divided by operating revenues.
Adjusted Income Before Income Taxes, Adjusted Net Income and Adjusted EPS
Year Ended December 31, 2013
As reported
Adjusted for:
RailAmerica integration/acquisition costs
Corporate development and related costs
Net gain on sale of assets
Retroactive Short Line Tax Credit for 2012
Valuation allowance on FTC
Adjustment for tax returns from previous fiscal year
As adjusted
2013 Short Line Tax Credit
As adjusted excluding the 2013 Short Line Tax Credit
Income Before
Income Taxes
(Pre-Tax Income)
(Benefit from)/
Provision for
Income Taxes
Net Income
Attributable to
G&W
Diluted
EPS
$
317.6
$
46.3
$
271.3
$
4.79
17.0
2.2
(4.7)
-
-
-
332.1
-
332.1
$
$
6.4
0.8
(1.5)
41.0
(2.0)
1.4
92.3
25.9
118.2
$
$
10.7
1.4
(3.2)
(41.0)
2.0
(1.4)
239.8
(25.9)
213.9
$
$
0.19
0.03
(0.06)
(0.72)
0.03
(0.02)
4.24
(0.46)
3.78
$
$
2017 Annual Report 17
Adjusted Income Before Income Taxes, Adjusted Net Income and Adjusted EPS Continued
Year Ended December 31, 2014
As reported
Adjusted for:
Corporate development and related costs
Credit facility refinancing-related costs
Net gain on sale of assets
RailAmerica-related tax benefit
Adjustment for tax returns from previous fiscal year
As adjusted
2014 Short Line Tax Credit
As adjusted excluding the 2014 Short Line Tax Credit
Year Ended December 31, 2015
As reported
Adjusted for:
Corporate development and related costs
Freightliner acquisition/integration related costs
Net gain on sale of assets
Loss on settlement of Freightliner acquisition-related
foreign currency forward purchase contracts
Impact of reduction in U.K. effective tax rate
As adjusted
2015 Short Line Tax Credit
As adjusted excluding the 2015 Short Line Tax Credit
Year Ended December 31, 2016
As reported
Adjusted for:
Corporate development and related costs
Restructuring costs
Australia impairment and related costs
ERS impairment and related costs
U.K. coal restructuring and related charges
Write off of debt issuance costs
Impact of reduction in U.K. effective tax rate
As adjusted
2016 Short Line Tax Credit
As adjusted excluding the 2016 Short Line Tax Credit
Income Before
Income Taxes
(Pre-Tax Income)
(Benefit from)/
Provision for
Income Taxes
Net Income
Attributable to
G&W
Diluted
EPS
$
368.1
$
107.1
$
261.0
$
4.58
5.2
4.7
(5.1)
-
-
372.8
-
372.8
$
$
2.0
1.8
(1.6)
3.9
(0.7)
112.4
27.0
139.3
$
$
3.2
2.9
(3.5)
(3.9)
0.7
260.5
(27.0)
233.5
$
$
0.06
0.05
(0.06)
(0.07)
0.01
4.57
(0.47)
4.10
$
$
$
300.9
$
75.9
$
225.0
$
3.89
6.4
15.3
(2.3)
18.7
-
339.0
-
339.0
$
$
2.2
4.0
(0.6)
7.1
9.7
98.3
27.4
125.7
$
$
4.3
11.2
(1.7)
11.6
(9.7)
240.7
(27.4)
213.3
$
$
$
215.5
$
74.4
$
141.1
26.6
8.2
21.1
21.5
10.5
1.3
-
304.7
-
304.7
$
$
5.9
1.8
4.4
-
1.9
0.4
4.3
93.1
28.8
121.9
$
$
20.7
6.4
16.8
21.5
8.6
0.5
(4.3)
211.3
(28.8)
182.4
$
$
0.07
0.19
(0.03)
0.20
(0.17)
4.16
(0.47)
3.69
2.42
0.36
0.11
0.29
0.37
0.15
0.01
(0.07)
3.63
(0.50)
3.13
8.79
0.13
0.14
0.03
(0.14)
(0.02)
(0.01)
(0.05)
(5.96)
2.91
$
$
$
$
$
$
$
Year Ended December 31, 2017
As reported
Adjusted for:
Corporate development and related costs
Restructuring costs
Australia impairment and related costs
Buyout of Freightliner deferred consideration agreements
Gain on sale of investment
U.K. coal restructuring and related charges
Recognition of unrecognized tax benefits
Impact of United States Tax Cuts and Jobs Act
As adjusted
$
295.5
$
(261.3)
$
549.1
11.9
10.2
4.9
(8.9)
(1.6)
(1.1)
-
-
310.9
$
4.3
1.0
1.5
-
(0.7)
(0.2)
3.3
371.9
119.8
$
8.1
9.0
1.8
(8.9)
(1.0)
(0.9)
(3.3)
(371.9)
182.0
$
18 Genesee & Wyoming Inc.
Adjusted Free Cash Flow Measures
Net cash provided by operating activities
Allocation of adjusted cash flow to noncontrolling interest (a)
Adjusted net cash provided by operating activities attributable to G&W
Purchase of property and equipment, net (b)
Adjusted free cash flow attributable to G&W
Net cash paid for new business investments (b)
Net cash paid for/(received from) grant funded projects (b)
Adjusted free cash flow attributable to G&W before new
2017
2016
$ 479.2
(27.6)
$ 451.6
(201.4)
$ 250.2
8.6
11.0
$ 407.1
-
$ 407.1
(165.6)
$ 241.5
26.1
(1.6)
business investments and grant funded projects
$ 269.8
$ 265.9
(a) Allocation of adjusted cash flow to noncontrolling interest (MIRA’s 48.9% equity ownership of GWA since December 1, 2016) is calculated
as 48.9% of cash flow provided by operating activities of G&W’s Australian Operations, less net purchases of property and equipment of G&W’s
Australian Operations. The timing and amount of actual distributions, if any, from GWA to G&W and MIRA made in any given period will vary
and could differ materially from the amounts presented. There were no such distributions made for both the twelve months ended December 31,
2017 and 2016. G&W expressly disclaims any direct correlation between the allocation of adjusted cash flow to noncontrolling interest and
actual distributions made in any given period.
(b) See breakout below:
Year Ended December 31, 2017
Purchase of property and equipment
Grant proceeds from outside parties
Insurance proceeds for the replacement of assets
Proceeds from disposition of property and equipment
Purchase of property and equipment, net
Core Capital (c)
New Business
Investments
$
$
(188.6)
-
1.6
5.2
(181.8)
$
$
(8.7)
0.1
-
-
(8.6)
Year Ended December 31, 2016
Purchase of property and equipment
Grant proceeds from outside parties
Insurance proceeds for the replacement of assets
Proceeds from disposition of property and equipment
Purchase of property and equipment, net
$
(159.0) $
-
15.2
2.7
$
(141.1) $
(26.1)
-
-
-
(26.1)
Grant
Funded
Projects (d)
$
$
$
$
(31.2)
20.2
-
-
(11.0)
(34.5)
36.1
-
-
1.6
Total
(228.5)
20.2
1.6
5.2
(201.4)
(219.5)
36.1
15.2
2.7
(165.6)
$
$
$
$
(c) Core capital expenditures represents purchases of property and equipment as presented on the Statement of Cash Flows less grant proceeds
from outside parties, insurance proceeds for the replacement of assets and proceeds from disposition of property and equipment, each of which
as presented on the Statement of Cash Flows, less new business investments and grant funded projects.
(d) Grant funded projects represents purchases of property and equipment for projects partially or entirely funded by outside parties, net of grant
proceeds from outside parties as presented on the Statement of Cash Flows.
2018 (Guidance)
Net cash provided by operating activities
Allocation of adjusted cash flow to noncontrolling interest (a)
Adjusted net cash provided by operating activities attributable to G&W
Purchase of property and equipment, net
Adjusted free cash flow attributable to G&W
Net cash paid for new business investments
Net cash received for grant funded projects
Adjusted free cash flow attributable to G&W before new
business investments and grant funded projects
$
590
(20)
$ 570
(200)
370
(40)
(15)
$
$
315
(a) Allocation of adjusted cash flow to noncontrolling interest (MIRA's 48.9% equity ownership of GWA since December 1, 2016) is calculated
as 48.9% of cash flow provided by operating activities of G&W’s Australian Operations, less net purchases of property and equipment of G&W’s
Australian Operations. The timing and amount of actual distributions, if any, from GWA to G&W and MIRA made in any given period will vary
and could differ materially from the amounts presented. G&W expressly disclaims any direct correlation between the allocation of adjusted
cash flow to noncontrolling interest and actual distributions made in any given period.
2017 Annual Report 19
Net Adjusted Debt to Adjusted EBITDA
Twelve Months Ended December 31, 2017
Net income
Adjusted for:
Provision for income taxes
Interest expense
Depreciation and amortization expense
EBITDA
Adjusted for certain items::
Non-cash compensation cost related to equity awards
Change in deferred considerations during 2017
Corporate development and related costs
Restructuring costs
Australia dividends, distributions of cash payments
Net gain on sale of assets
Hedging agreement expense
U.K. coal railcar leases
Adjusted EBITDA
Total debt
Add back: Deferred financing fees
Net adjusted debt
Less: Cash
Net adjusted debt
Total G&W
Less: Australian
Operations (a)
Adjustments (b)
Adjustments (c)
Adjusted
$
556.8
$
15.8
$
-
$
540.9
(261.3)
107.3
250.5
653.3
2,331
25
2,356
80
2,276
$
$
$
$
6.1
55.5
61.1
138.6
702
12
714
52
661
$
$
$
$
-
12.9
-
12.9
17.3
(6.5)
7.0
9.8
13.5
(1.5)
2.5
(3.9)
5
-
5
(4)
8
$
$
$
$
(267)
65
189
534.5
17.3
(6.5)
7.0
9.8
13.5
(1.5)
2.5
(3.9)
572.6
1,634
13
1,648
24
1,623
$
7.0 $
$
$
$
$
Net adjusted debt/Adjusted EBITDA ratio
2.8 : 1.0
(a) Australia Operations are excluded from G&W’s Senior Secured Syndicated Credit Facility Agreement.
(b) Adjustments based on Credit Facility Agreement.
(c) Pentalver for 1/1/17-4/30/17 and HOG for 1/1/17-5/30/17.
Twelve Months Ended December 31, 2018 (Outlook)
Net income attributable to G&W
Add back:
Provision for income taxes
Interest expense
Depreciation and amortization expense
EBITDA
Add back certain items:
Non-cash compensation cost related to equity awards
Adjusted EBITDA
Total debt
Less: Cash
Net debt
Add back: Deferred financing fees
Net adjusted debt
Total G&W
Less: Australian
Operations (a)
Acquisitions/
Adjustments (b)
Adjusted
$
240
$
19
$
-
$
221
92
110
275
717
19
2,087
117
1,970
16
1,986
$
$
$
$
8
56
65
148
-
705
81
624
9
633
$
$
$
$
-
-
-
16
-
5
-
5
-
5
$
$
$
$
84
54
210
585
19
604
1,387
36
1,351
7
1,358
$
$
$
$
$
Net adjusted debt/Adjusted EBITDA ratio 2.2 : 1.0
(a) Australia Operations are excluded from G&W’s Senior Secured Syndicated Credit Facility Agreement.
(b) Adjustments based on Credit Facility Agreement.
20 Genesee & Wyoming Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 001-31456
GENESEE & WYOMING INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
20 West Avenue, Darien, Connecticut
(Address of principal executive offices)
06-0984624
(I.R.S. Employer Identification No.)
06820
(Zip Code)
(203) 202-8900
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Class A Common Stock, $0.01 par value
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.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act).
Yes
No
Aggregate market value of Class A Common Stock held by non-affiliates based on the closing price as reported by the New York Stock
Exchange on the last business day of the registrant's most recently completed second fiscal quarter: $4,118,846,839. 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 22, 2018:
Class
Class A Common Stock
Class B Common Stock
Number of Shares Outstanding
61,948,709
701,138
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year ended December 31, 2017 in connection with the Annual Meeting to be held on May 23, 2018 are incorporated by reference in Part
III hereof and made a part hereof.
Genesee & Wyoming Inc.
FORM 10-K
For The Fiscal Year Ended December 31, 2017
INDEX
PAGE NO.
4
20
37
38
43
43
44
46
48
98
101
101
102
103
104
104
104
104
104
105
105
106
107
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
ITEM 16. Form 10-K Summary
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 Part II 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," "may," "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 of 1995 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 or lease 122 freight railroads worldwide that are organized in nine operating regions with
approximately 8,000 employees and 3,000 customers.
• Our seven North American regions serve 41 U.S. states and four Canadian provinces and include 115 short
line and regional freight railroads with more than 13,000 track-miles.
• Our Australia Region serves New South Wales, the Northern Territory and South Australia and operates the
1,400-mile Tarcoola-to-Darwin rail line. As of December 1, 2016, the Australia Region is 51.1% owned by
G&W and 48.9% owned by a consortium of funds and clients managed by Macquarie Infrastructure and
Real Assets (MIRA).
• Our U.K./European Region includes the United Kingdom's (U.K.) largest rail maritime intermodal operator
and second-largest freight rail provider, as well as regional rail services in Continental Europe.
Our subsidiaries and joint ventures also provide rail service at more than 40 major ports, rail-ferry service
between the United States Southeast and Mexico, transload services, contract coal loading, and industrial railcar
switching and repair.
During the third quarter of 2017, our Mountain West Region railroads were consolidated into our Central and
Pacific regions, and the Pacific Region was renamed the Western Region. The consolidation reduced our number of
operating regions from ten to nine.
Impact of Glencore Rail (NSW) Pty Limited (GRail) Acquisition on our Financial Presentation
Our Australian business underwent a transformational change on December 1, 2016, with the acquisition of
Glencore Rail (NSW) Pty Limited (GRail) and the formation of the Australia Partnership, which we control through
our 51.1% interest. The GRail acquisition significantly expanded our operations in New South Wales. In
conjunction with the GRail acquisition, we issued a 48.9% equity stake in our Australian subsidiary, G&W Australia
Holdings LP (GWAHLP), to MIRA. We retained a 51.1% controlling interest in GWAHLP and continue to
consolidate 100% of our Australian Operations in our financial statements and report a noncontrolling interest for
MIRA’s 48.9% equity ownership. As a result, (1) 100% of the assets and liabilities of our Australian Operations,
after the elimination of intercompany balances, were included in our consolidated balance sheets as of December
31, 2017 and 2016, with MIRA's 48.9% noncontrolling interest reflected in the equity section, (2) our operating
revenues and operating income for the year ended December 31, 2017 and 2016 included 100% of our Australian
Operations, while net income attributable to G&W reflected our 51.1% ownership position in our Australian
Operations since the formation of the partnership on December 1, 2016 and (3) 100% of the cash flows of our
Australian Operations, after the elimination of intercompany items, were included in our consolidated statements of
cash flows for the years ended December 31, 2017 and 2016. Accordingly, any payments between our Australian
Operations and our other businesses are eliminated in consolidation, while our cash flows reflect 100% of any cash
flows between our Australian Operations and MIRA. Our Australian Operations did not make any equity
distributions to the partners during the years ended December 31, 2017 and 2016.
GROWTH STRATEGY
Since our initial public offering in 1996, our revenues have increased at a compound annual growth rate of
17.3%, from $77.8 million in 1996 to $2.2 billion in 2017. Over the same period, our stock price has increased at a
compound growth rate of 15.2%, from $3.75 on June 25, 1996, adjusted for stock splits, to $78.73 on December 31,
2017. 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.
4
Operating Strategy
Our railroads operate under strong regional management teams, supported by centralized administrative,
commercial and operational support and oversight. As of December 31, 2017, our operations were organized in nine
geographic regions. In North America, we have seven regions: Central (which includes industrial switching
operations), Coastal (which includes industrial switching and port operations), Midwest, Northeast, Southern,
Western and Canada. Outside North America, we have two regions: Australia (which is 51.1% owned by us through
the Australia Partnership) and U.K./Europe (which consists of operations in the U.K., Belgium, Germany, the
Netherlands and Poland, as well as the provision of management and technical support through Freightliner Group
Limited (Freightliner) to Saudi Arabia Railway Company).
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. To monitor our safety performance, we apply the
guidelines established by the Federal Railroad Administration (FRA) to all of our operations worldwide. In
2017, our operations achieved a consolidated FRA reportable injury frequency rate of 0.83 per 200,000
man-hours worked. Through the implementation of our safety program, we have reduced our injury
frequency rate by 57% since 2006, when it was 1.95 injuries per 200,000 man-hours worked. For
comparative purposes, from January 2017 through November 2017, the most recent month for which FRA
data is publicly available, the United States short line average reportable injury frequency rate was 2.46
injuries per 200,000 man-hours worked, and the United States regional railroad average was 3.14 injuries
per 200,000 man-hours worked. Based on these results, in 2017, our operations were three times safer than
the short line and regional railroad averages. Our safety program also focuses on the safety and security of
our train operations, and we monitor our reportable derailments worldwide in accordance with the
guidelines established by the FRA. Our operations achieved a consolidated reportable derailment frequency
rate, defined as FRA reportable derailments per 200,000 man-hours worked, of 0.58 and 0.52 for the years
ended December 31, 2017 and 2016, respectively.
• 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 ten years, we have outscored the trucking and railroad industries 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, Freightliner in 2015, GRail in 2016 and Pentalver Transport Limited (Pentalver) in 2017, we believe
that our expanded footprint across North America, Australia, the United Kingdom and Europe 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. Further, we believe that our relationship with
MIRA, a recognized Australian infrastructure investor, will enable us to leverage our rail platform for
future growth opportunities in Australia. We also pursue additional sources of revenue by providing
ancillary rail services such as railcar switching, rolling-stock and shipping container repair, storage,
cleaning, weighing and blocking and bulk transfer, which enables our customers and Class I carriers to
move freight more easily and cost-effectively.
5
•
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 by leveraging our regional structure,
consolidating equipment and in-sourcing track maintenance, reducing transportation costs, selling surplus
assets and reducing expenses associated with accidents and personal injuries through the implementation of
our safety culture.
• 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. Further, in 2015, we formed a new entity, Railroad Engineering
Services LLC, with experienced management and dedicated track engineering resources to enhance the
productivity of our track and bridge capital programs. 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 and other infrastructure. Typically, we seek government
funds to support investments that otherwise would not be economically viable for us to fund on a stand-
alone basis.
To assist our local management teams, we provide administrative, commercial and operational support from
corporate staff groups where there are benefits to be gained from 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. Most recently,
in May 2017, we consummated the previously announced acquisition of Pentalver. Pentalver operates off-dock
container terminals, offers trucking haulage services and provides services related to container maintenance and
repair. See “Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
- Changes in Operations” for more information on the Pentalver acquisition. Since 2000, we have added 105
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 the
Providence and Worcester Railroad Company (Providence and Worcester Railroad) acquisition in 2016 and
our acquisitions of Pinsly Railroad Company's (Pinsly) Arkansas Division (Pinsly Arkansas) in 2015,
RailAmerica in 2012, Arizona Eastern Railway Company 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 2017, there were approximately 460 short line and regional
railroads in the United States not owned by us;
• Acquisitions of international railroads and transportation service providers, such as our acquisitions of
Pentalver in 2017, London-based Freightliner in 2015, FreightLink Pty Ltd (FreightLink) in Australia in
2010 and Rotterdam Rail Feeding B.V. (RRF) in the Netherlands in 2008. We believe that there are
additional acquisition and investment prospects in Australia, Europe and other international markets,
including significant opportunities to invest in ancillary businesses that expand our service offerings;
•
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, our upgrade of the Chicago, Ft. Wayne &
Eastern Railroad to enhance Class I traffic flow east of Chicago and our September 2017 joint venture with
SEACOR Holdings, Inc. to own and operate the CG Railway, LLC (CGR). The CGR provides a rail ferry
service that extends our reach from Mobile, Alabama to southeastern Mexico;
6
• 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 Railways Limited (CP) in 2014; and
• Acquisitions of operations from industrial or mining companies, such as our acquisitions of GRail from
Glencore Coal Pty Limited in Australia on December 1, 2016 and the 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, which improves customer satisfaction and drives 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 and ancillary
business opportunities worldwide. We have made a number of important railroad investments in North America and
in various international markets, and we expect to continue to pursue our acquisition and investment strategy while
adhering to our disciplined valuation approach.
North American Operations
United States
INDUSTRY
According to the AAR's 2017 Railroad Facts Book, 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(a)
Regional or Class II
Local or Class III
Total
Number
Aggregate
Miles
Operated
Revenues and Miles Operated
7
21
546
574
$447.62 million or more
95,264
10,355 At least $20 million and 350 or more miles operated or
$35.81 million to $447.62 million
32,858 Less than $35.81 million and less than 350 miles operated
138,477
(a) 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 2017 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.
7
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 105 local (short line) railroads in the United States over approximately 15,800
miles of track, inclusive of approximately 3,200 miles of track that are owned or leased by others, which we operate
through various trackage and operating rights agreements.
Canada
According to Rail Trends 2017, published by The Railway Association of Canada (RAC), there are
approximately 27,000 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 1,490 miles of track, inclusive of
approximately 100 miles of track that are owned or leased by others, which we operate through various trackage and
operating rights agreements.
Australian Operations
Australia has approximately 25,000 miles (40,000 kilometers (km)) 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 transport 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 rail
freight transport 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 rail freight transport 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.
8
Through our Australian subsidiaries, we manage approximately 2,300 miles (3,700 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, as well as approximately 900
miles (1,500 km) of track in South Australia that we manage pursuant to a lease that expires in 2047. Through the
concession and lease 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 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 acquisitions of Freightliner and GRail, we
also have above rail operations in New South Wales.
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
2016, 8% of all freight goods were moved by rail, while over the same period, 78% and 14% of goods were moved
via road and water, respectively.
Through our recent acquisition of Pentalver, we operate off-dock container terminals (most under long-term
lease) strategically placed at each of the four major seaports of Felixstowe, Southampton, London Gateway and,
until March 2018, Tilbury, as well as an inland terminal located at Cannock, in the U.K. Midlands, near many of the
nation’s largest distribution centers. In addition to providing storage for loaded and empty containers on over 100
acres of land, Pentalver also operates a trucking haulage service with more than 150 trucks, primarily providing
daily service between the seaports of Felixstowe and Southampton and its inland terminal at Cannock. Pentalver also
provides services related to container maintenance and repair (including refrigerated containers) and is one of the
largest sellers of new and used containers in the U.K.
The maritime container logistics industry in the U.K. is highly competitive, whether by road, rail or short-sea,
with a premium placed on timely, efficient and safe service. We expect that the Pentalver acquisition will enable
G&W to (1) enhance its U.K. services by providing rail and road transportation solutions, as well as offering storage
options at the ports and inland and (2) unlock efficiencies from shared services and enhanced asset utilization from
Pentalver’s trucking fleet and Freightliner’s existing fleet of approximately 200 trucks that currently provide local
collection and delivery haulage from Freightliner’s inland terminals.
Freightliner is 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, Freightliner is the second largest rail freight company in the U.K.
Belgium
According to Infrabel, the Belgian railways infrastructure manager, there are approximately 2,238 miles (3,602
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 and on the main
corridors towards the Netherlands and German boarders.
9
Germany
The German rail network is composed of approximately 20,638 miles (33,214 km) of track. There are
approximately 385 rail operators certified for freight transport in Germany. In Germany, as well as in 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.
A number of our subsidiaries operate in Germany. ERS Railways B.V. (ERS) operates intermodal routes from
the Ports of Hamburg and Bremerhaven, among others. Freightliner PL Sp. zo. o. (Freightliner Poland) operates on
the open access rail system within Poland with cross-border traffic into Germany. RRF provides short-line rail
services on the main corridors in Germany, and Freightliner DE GmbH (Freightliner Germany) operates on the open
access rail system within Germany with cross-border traffic into Poland.
Netherlands
According to ProRail, the entity responsible for the Dutch rail infrastructure, there are approximately 4,363
miles (7,021 km) of track owned and managed by it on the Dutch rail network. As a result of the open access regime
in the Netherlands, 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 rail freight services in the
Netherlands.
In the Netherlands, our subsidiary, RRF, operates mainly in the Port of Rotterdam and on the main corridors
towards the German and Belgian borders. Our subsidiary, ERS, operates intermodal routes from the Port of
Rotterdam.
Poland
According to the Office of Rail Transport, the railway regulator in Poland, there are approximately 114 rail
operators certified for freight transport in Poland operating over approximately 11,939 miles (19,214 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 network within Poland with some
cross-border traffic into other neighboring countries.
OPERATIONS
Through our subsidiaries, we own or lease 122 freight railroads worldwide, including 105 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 Germany and two in the Netherlands. Our subsidiaries provide freight
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 16,200 miles of track that are owned, jointly owned or leased by us,
which includes the Tarcoola-to-Darwin rail line in Australia that we manage under a concession agreement that
expires in 2054. Also, through various track access arrangements, we operate over approximately 6,200 additional
miles of track that is owned or leased by others.
While our railroads are predominantly focused on freight service, certain of our railroads interact with
passenger rail operations. The majority of our railroads in the U.K. and Continental Europe provide freight service
that is commingled with passenger operations on third party track. In North America and Australia, it is not
uncommon for passenger or excursion operators to provide service over our track. In addition, the Providence and
Worcester Railroad provides freight service over track that is owned by a passenger operator in the United States and
our Portland & Western Railroad operates passenger trains for the Tri-County Metropolitan Transportation District
of Oregon.
10
Freight Revenues
We generate freight revenues from the haulage of freight by rail. Freight revenues represented 70.4%, 68.5%
and 70.0% of our total operating revenues for the years ended December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015,
see the discussion under "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
We group the commodities we carry as follows:
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
Commodity Description
Wheat, barley, corn and other grains, as well as soybean meal
Finished automobiles and stamped auto parts
Sulfuric acid, ethanol, fertilizers and other chemicals and plastics used in
manufacturing
Shipments of coal to power plants and industrial customers
Fruits, vegetables and food oils
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 and alumina
Finished steel products and copper, as well as scrap metal and pig iron
Construction aggregates, clay and bentonite, gypsum, salt used in highway ice
control, limestone and frac sand
Liquefied petroleum gases, natural gas liquids, crude oil, asphalt, diesel fuel and
gasoline
Container board, finished papers, scrap paper and 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, which has the potential to move from origin to destination
without using our rail line, 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 2017, 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), trucking haulage services and container
storage, 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 customer's train between
specified origin and destination points) and other ancillary revenues related to the movement of freight. Freight-
related revenues represented 24.1%, 26.8% and 25.1% of our total operating revenues for the years ended
December 31, 2017, 2016 and 2015, respectively.
11
All Other Revenues
We generate all other revenues primarily from revenues from third-party railcar and locomotive repairs,
container sales, property rentals and other ancillary revenues not directly related to the movement of freight. All
other revenues represented 5.5%, 4.7% and 4.9% of our total operating revenues for the years ended December 31,
2017, 2016 and 2015, 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. Seasonality is also reflected in our results of operations due to 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. Further, 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. 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). In the U.K./
European operations, the intermodal business peaks in the late third and early fourth quarter of the year. We typically
initiate capital projects in North America in the second and third quarters when weather conditions are more
favorable.
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. For information about the risks related to our foreign
operations, see "Part I Item 1A. Risk Factors" and more specifically "Part I Item 1A. Risk Factors—Additional
Risks Associated With Our Foreign Operations."
Customers
As of December 31, 2017, our operations served approximately 3,000 customers. Revenues from our ten
largest customers accounted for approximately 24%, 22% and 22% of our operating revenues for the years ended
December 31, 2017, 2016 and 2015, respectively. Two of our ten largest customers in 2017 were located in
Australia. One operates in the agricultural and coal sectors, and the other operates in the iron ore mining sector.
Three of our ten largest customers in 2017 were located in the U.K. Two of these customers are maritime shipping
companies and the other is the infrastructure manager of most of the rail network in England, Scotland and Wales. In
North America, our largest customer represents less than 2% of our operating revenues.
In North America, we typically handle freight pursuant to transportation contracts between us, our connecting
carriers and the customer. These contracts are in accordance with industry norms and vary in duration, with terms
generally ranging from less than one year to ten 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 have terms as long as 20 years and 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.
12
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 twelve
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. In addition, Freightliner, as part of a
British consortium, provides management and technical support for infrastructure and freight operations to Saudi
Railway Company. The Saudi Railway Company is a government-owned company that is tasked with developing
and operating railway services in Saudi Arabia.
Employees
There are various labor laws governing the countries in which we operate. As of December 31, 2017, we had
approximately 8,000 full-time employees. Of this total, approximately 4,200 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 operations have approximately 100 labor agreements with unions. We are currently engaged in
negotiations with respect to approximately 27 of those agreements and are currently negotiating collective
bargaining agreements with five newly represented bargaining units. We are also a party to employee association
agreements covering an additional 17 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 the U.K., we have collective bargaining agreements with four recognized unions
covering the majority of our employees. In Continental Europe, we have one collective bargaining agreement in
Belgium, and other key locations have local work councils. We believe that we maintain positive working
relationships with our employees.
The following table sets forth an approximation of union and non-union employees as of December 31, 2017:
North America
Australia
U.K./Europe
Total
Union/
Represented (a)
1,600
500
2,100
4,200
Non-Union/
Non-Represented
2,700
200
900
3,800
(a) 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. 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. To monitor our safety performance, we apply the guidelines established by the
FRA to all of our operations worldwide. Our operations achieved a consolidated reportable injury frequency rate, as
defined by the FRA as reportable injuries per 200,000 man-hours worked, of 0.83 and 0.73 for the years ended
December 31, 2017 and 2016, respectively. The average injuries per 200,000 man-hours worked for all United States
short line railroads was 2.46 in 2017 (through November) and 2.75 in 2016. Based on these results, in 2017, our
operations were approximately three times safer than the short line and regional railroad averages.
Our safety program also focuses on the safety and security of our train operations, and we monitor our
reportable derailments worldwide in accordance with the guidelines established by the FRA. Our operations
achieved a consolidated reportable derailment frequency rate, defined as FRA reportable derailments per 200,000
man-hours worked, of 0.58 and 0.52 for the years ended December 31, 2017 and 2016, respectively. Further, 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.
13
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 2017, employees of our railroads made approximately 391
Operation Lifesaver presentations focused on the dangers associated with highway-rail grade crossings and
trespassing on railroad property. We also participate in safety committees of the AAR and the American Short Line
and Regional Railroad Association.
INSURANCE
We maintain liability and property insurance coverage to mitigate the financial risk of providing rail and rail-
related services. Our liability policies cover railroad employee injuries, personal injuries associated with grade
crossing accidents and accidents involving passengers 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 $2.5 million per occurrence. 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 and for certain commodities, 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 facility, 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. In addition, we also face competition from other companies that provide terminal and rail-related
services.
To a lesser degree, there is also 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 (e.g., steel). In addition, some of
the products we transport are exported and face competition on a global basis (e.g., grain).
14
In acquiring rail properties and making rail equipment and/or track infrastructure investments, 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.
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
operates under the Department of Homeland Security (DHS);
state departments of transportation; and
some state and local regulatory agencies.
The STB is the successor to certain regulatory functions previously administered by the Interstate Commerce
Commission (ICC). Established by the ICC Termination Act of 1995, the STB has jurisdiction over, among other
things, certain freight rates (where there is no effective competition), extension or abandonment of rail lines, the
acquisition of rail lines and the consolidation, merger or acquisition of control of rail common carriers. In limited
circumstances, the STB may condition its approval of an acquisition upon the acquirer of a railroad agreeing to
provide severance benefits to certain subsequently terminated employees. The FRA, DOT, OSHA and PHMSA have
jurisdiction over certain aspects of safety, which include the regulation of equipment standards, track maintenance,
handling of hazardous shipments, locomotive and railcar inspection, repair requirements, operating practices and
crew qualifications. The TSA has broad authority over railroad operating practices that have implications for
homeland security. Additionally, various state and local agencies have jurisdiction over disposal of hazardous waste
and may regulate movement of hazardous materials in ways not preempted by federal law.
Over the past five years, there have been various proceedings at the STB seeking 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. Additionally, the preliminary results of a 2012 DOT study on the impacts
of a possible increase in federal truck size and weight limits were released in 2015, but data limitations hindered any
changes to the federal truck size and weight limits. In 2018, we expect Congress to direct the DOT to develop a
research plan to supplement the shortcomings of the earlier results. State departments of transportation have also
launched initiatives seeking to increase truck size and weight limits at the state level. 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.
15
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 are required to install PTC-related
equipment by the end of 2018. Our procurement and implementation of required PTC equipment is underway, and
we expect to comply with the statutory installation deadlines. However, 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.
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, Knob Lake & Timmins Railway and the Goderich-Exeter Railway are federally regulated
railroads in Canada 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 exclusively 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. 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.
Australian Operations
In Australia, we are subject to multiple regulatory regimes governing workplace health and safety, as well as
rail safety, in each of the states and the one territory in which we operate. Regulation of rail safety is predominately
governed by national legislation and administered by the Office of the National Rail Safety Regulator.
Regulation of track access to nationally significant rail infrastructure is generally governed by federally
legislated guidelines that are implemented by the states. The state access regimes are required to be certified as
effective access regimes by the Australian National Competition Council. The regulatory oversight for the provision
of rail infrastructure access is provided by the Essential Services Commission of South Australia. In addition, certain
new acquisitions in Australia will also be subject to review by the Foreign Investment Review Board based on
Australian national interest considerations and the Australian Competition and Consumer Commission on
competition considerations.
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.
Currently, each of the countries in which our U.K./European Operations segment operates 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. In June 2016, the
U.K. held a referendum in which voters approved an exit from the EU, commonly referred to as Brexit. The long-
term effects of Brexit will depend on any agreements the U.K. makes to retain access to European markets, either
during a transitional period or more permanently, and any other bilateral trade agreements the U.K. can reach with
other trade partners, as well as any changes to the regulation of rail.
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 state 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
17
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. We believe our railroads operate in
compliance with current environmental laws and regulations and agency agreements in all material respects. While
we presently estimate that 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.
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 November 2014, we received a notice 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. Although the cleanup associated with this derailment is substantially
complete, fines associated with the contamination have yet to be assessed and are not estimable.
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.
Our railroads in Australia operate in compliance with current environmental laws and regulations and agency
agreements, of which we have two in Australia, one with the South Australian Environmental Protection Agency
under EPA License 2933 and the other with the Northern Territory Environmental Protection Agency under EPL
222. Genesee & Wyoming Australia is not currently required to be licensed in New South Wales but may be required
to be licensed in the future. Our South Australia and Northern Territory environmental protection licenses require us
to provide annual returns demonstrating compliance with their operational and administrative conditions. They also
have embedded in them conditions that require us to make certain notifications in the event of an occurrence that is
likely to breach a condition of the licenses or the legislation. These conditions have been managed effectively to date
with no notifications required. Genesee & Wyoming Australia is also obligated to report annually under the
Commonwealth Government National Greenhouse and Energy Reporting Act.
The Commonwealth of Australia (Commonwealth) 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. Non-compliance with applicable laws
and regulations may result in the implementation of remedial actions, the imposition of fines, temporary or
permanent shutdown of operations or other injunctive relief, criminal prosecution or the termination of our lease.
18
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.
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 with or furnished to
the SEC.
GENERAL RISKS ASSOCIATED WITH OUR BUSINESS
Adverse global macroeconomic and business conditions could negatively impact our business, and changes in
commodity prices could decrease demand for the transport of commodities.
Slower economic growth, an economic recession, significant changes in global economic conditions or
commodity prices or import or export volumes 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. Further, if the rate of economic growth in Asia slows, the export coal carried by
our railroads, particularly in Australia, could decline. 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. 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.
If we are unable to consummate additional acquisitions or investments or manage our growth effectively, then we
may not be able to implement our growth strategy successfully.
Our growth strategy is based in part on the selective acquisition and development of, and investment in, rail
operations, both in new regions and in regions in which we currently operate. The success of this strategy will
depend on, among other things:
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the availability of suitable opportunities;
our ability to dedicate adequate resources to value acquisition and investment opportunities accurately and
negotiate acceptable terms for those acquisitions and investments;
the level of competition from other potential buyers;
our ability to identify and enter into mutually beneficial relationships with partners; and
the receipt of government approvals and financial constraints or other restrictions that may be specific to
the particular company or asset to be acquired.
We have experienced significant growth in the past, partially due to the acquisition of additional railroads.
Effective management of rapid growth presents challenges, including the availability of management resources to
oversee the integration and operation of the new businesses effectively, the need to expand our management team
and staff when necessary, the need to enhance internal operating systems and controls and the ability to consistently
achieve targeted returns on capital. These challenges are more pronounced when we experience growth in numerous
geographies and on a larger scale. As our business grows, we may not be able to maintain similar rates of growth in
the future or manage our growth effectively.
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Our inability to integrate acquired businesses successfully or to realize the anticipated cost savings and other
benefits could have adverse consequences to our business.
We may not be able to integrate acquired businesses successfully. Integrating acquired businesses could also
result in significant unexpected costs. Further, the process of integrating businesses may be disruptive to our existing
business and may cause an interruption or reduction of our business as a result of the following factors, among
others:
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loss of key employees, contracts or customers;
assumptions related to customer revenues;
possible inconsistencies in or conflicts between standards, internal controls, procedures and policies among
the combined companies and the need to implement company-wide financial, accounting, information
technology and other systems;
changes in the regulatory approval process and inability to obtain necessary regulatory approvals;
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 railroad and
safety cultures following an acquisition;
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 and the associated revenues, the
ability to negotiate acceptable contractual arrangements, including renewals of leases with other 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.
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 insufficient right to indemnification, could adversely affect our results of operations, financial condition and
liquidity.
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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.
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 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.
The loss of important customers or contracts may adversely affect our results of operations, financial condition
and liquidity.
Our operations served approximately 3,000 customers in 2017. Revenues from our ten largest customers
accounted for approximately 24% of our operating revenues in 2017. In 2017, our largest customer served the
agricultural and coal sectors in Australia, and accounted for approximately 6% or our operating revenues across all
geographies. In North America and in our intermodal business in the U.K. and Australia, we typically handle freight
pursuant to transportation contracts between us, our connecting carriers and the customer. Our contracts are
generally 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. For instance, one of our largest customers, Arrium Limited (Arrium), announced it had
entered into voluntary administration in 2016. Although Arrium was sold to the GFG Alliance in 2017, a portion of
Arrium's shipments and the associated revenue to GWA pursuant to contracts with Arrium ceased in 2015 and has
not recommenced. 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.
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We are exposed to the credit risk of our customers and counterparties, and their failure to meet their financial
obligations could adversely affect our business.
Our business is subject to credit risk. There is a risk that customers or counterparties, which include
government entities related to grants and financial institutions related to derivative transactions, will fail to meet
their obligations when due. Customers and counterparties that owe us money have defaulted and may continue to
default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, shutdowns, operational failures or
other reasons. Over the last three years, several of our mining, metals and maritime shipping customers instituted
insolvency proceedings. In the United States, 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 amount
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 risks
for new operations as well as 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.
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 2017, approximately 81% of our total carloads in the United
States and Canada were interchanged with Class I carriers. 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. A decision by any of these Class I carriers to cease or re-route certain freight movements or to alter existing
business relationships could have a material adverse effect on our results of operations. The overall impact of any
such decision would depend on which Class I carrier is involved, the routes and freight movements affected, as well
as the nature of any changes.
In addition, 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.
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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 11.3% of our 2017 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 ten years represent 3% or less of our annual revenues in the
year of expiration based on our operating revenues for the year ended December 31, 2017. 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 (2018 - 2022) would represent approximately 2.4%, 0.3%, 0.0%, 0.6% and 1.1% of our operating
revenues in each of those years, respectively, based on our operating revenues for the year ended December 31,
2017. 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 droughts or heavy rains and flooding in South Australia.
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 adverse effect on our results of operations,
financial condition and liquidity.
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The development of some of our business could be hindered if we fail to maintain satisfactory working
relationships with partners in Australia.
Following our acquisition of GRail, our Australian Operations are conducted through the Australia Partnership,
in which we own a controlling 51.1% ownership interest and, therefore, include 100% of our Australian Operations
within our consolidated financial statements with a 48.9% noncontrolling interest recorded to reflect MIRA's
ownership. However, as a consequence of the partnership agreement, we do not have absolute control over the
operations of the Australia Partnership. The Australia Partnership is governed by a management committee, which is
comprised of representatives appointed by both MIRA and G&W as general partners. Certain matters require
approval by both MIRA and us, including: (1) hiring and dismissing select executives of the partnership; (2)
commitments relating to significant contracts or other matters; (3) approval of the partnership’s strategic plan, which
is a long-term plan outlining the expectations of MIRA and us for the business (including leverage, equity returns
and capitalization); (4) mergers or consolidations; (5) incurrence of material indebtedness; (6) capital structure
changes; (7) changes to the distribution policy; and (8) related-party transactions. Accordingly, our ability to
maintain constructive and cooperative relations with MIRA will be critical to our ability to implement our plans and
expand our business. Any failure to maintain satisfactory working relationships with MIRA or the need to dedicate
significant management resources and time to align our interests with the interests of MIRA could result in a
material adverse effect on our operating results, financial condition and liquidity. Furthermore, should we fail to
maintain a controlling interest in the Australia Partnership, we will deconsolidate our Australian Operations and
account for them under the equity method of accounting.
Our Credit Agreement and our Australian Credit Agreement contain 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 and the ability of
our subsidiaries to, among other things:
incur additional indebtedness;
pay dividends on capital stock or redeem, repurchase or retire capital stock or indebtedness;
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engage in certain transactions with affiliates;
create liens;
sell assets, including capital stock of any of our subsidiaries;
consolidate or merge;
enter into sale-leaseback transactions;
change the business conducted by us and the guarantors;
change our fiscal year; and
enter into certain agreements containing negative pledges and upstream limitations.
Our Australian Credit Agreement contains comparable provisions that are applicable solely to our Australian
business. In addition, our Credit Agreement and the Australian Credit Agreement also contain financial covenants
that require the borrowers under each agreement to meet financial ratios and tests. Failure to comply with the
obligations in our Credit Agreement, the Australian 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, the Australian
Credit Agreement or other debt agreements, as applicable, which, if not cured or waived, could permit lenders to
accelerate the related 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, 2017, we had a total indebtedness of $2.3
billion, and we had unused commitments of $393.1 million under our Credit Agreement (after giving effect to $3.2
million of undrawn letters of credit that reduces such availability). In addition, we had unused commitments of
A$46.9 million under the Australian Credit Agreement.
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Subject to the limits contained in our Credit Agreement, the Australian Credit Agreement and our other debt
instruments, we may be able to incur additional debt from time to time to finance working capital, capital
expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of
debt could intensify. Specifically, our high level of debt could have important consequences, including the
following:
• making it more difficult to satisfy our obligations with respect to our outstanding debt;
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limiting our ability to draw down on amounts available under our Credit Agreement or the Australian
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 and the Australian Credit Agreement, are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a disadvantage compared to other, less leveraged competitors; and
increasing our cost of borrowing.
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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,
which 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.
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 2017, we obtained partial or complete funding by
United States and Canadian federal, state, provincial and municipal agencies for 62 new projects. The net spending
associated with these grant-funded projects represented approximately 4% of our net capital expenditures during
2017. 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.
Our entities in the U.K. benefit 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 confirmed its continued funding of MSRS in 2017, the amount of the funding available for the
periods subsequent to 2017 may be less than in prior years. Reduced grants may have a material adverse effect on
our results of operations, financial condition and liquidity.
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The occurrence of losses or other liabilities that are either not covered by insurance or that exceed our insurance
limits could materially adversely affect our results of operations, financial condition and liquidity.
We purchase insurance coverage for losses arising from personal injury and for property damage in the event
of derailments, grade crossing accidents, collisions 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
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, our Connecticut Southern Railroad operates
over Amtrak trackage in Connecticut and the Providence and Worcester Railroad operates over MetroNorth
Commuter Railroad trackage in New York and Connecticut and also operates over Amtrak trackage in New York,
Connecticut, Rhode Island and Massachusetts. In Australia, The Ghan passenger train is operated by a third party
over the track of GWA (North) Pty Ltd between Tarcoola and Darwin, and GRail operations also have touchpoints
with the passenger network in New South Wales. Further, we operate excursion trains on behalf of third parties on
certain of the rail lines over which we operate. In the U.K., Continental Europe and Australia, 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 specified levels of insurance coverage, but insurance coverage may not be sufficient to cover all of the
losses arising from an incident involving such operators on our rail lines. Also, insurance is available from only a
very limited number of insurers, and we may not be able to obtain insurance protection at current levels or at all or
obtain it on terms acceptable to us. Deteriorating insurance market conditions caused by global property or rail
liability losses, as well as subsequent adverse events directly and indirectly attributable to us, including such things
as derailments, accidents, discharge of toxic or hazardous materials, or other like occurrences in the industry, may
result in additional increases in our insurance premiums and/or our self-insured retentions, volatility in our claims'
expenses and limitations to the coverage under our existing policies and could have a material adverse effect on our
results of operations, financial condition and liquidity. In addition, we are subject to the risk that one or more of our
insurers may become insolvent and would be unable to pay a claim that may be made in the future. Even with
insurance, if any catastrophic interruption of service occurs, we may not be able to restore service without a
significant interruption to our operations, which could have a material adverse effect on our results of operations,
financial condition and liquidity.
We are subject to significant governmental regulation of our railroad operations. The failure to comply with
governmental regulations or changes to the legislative and regulatory environment could have a material adverse
effect on our results of operations, financial condition and liquidity.
We are subject to governmental regulation with respect to our railroad operations associated with new
legislation, executive orders issued by the President of the United States and to a variety of health, safety, security,
labor, environmental and other regulations 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, the FRA rules
governing the implementation of an interoperable positive train control system (PTC), which were amended in
October 2015, require compliance 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 are
required to install PTC-related equipment by the end of 2018. We expect to comply with the statutory installation
deadlines. However, non-compliance with these and other applicable laws or regulations could undermine public
confidence in us and subject us to fines, penalties and other legal or regulatory sanctions.
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In addition, there are various legislative and regulatory actions that have been considered in the United States
in recent years to modify the regulatory oversight of the rail industry. Various proceedings have been initiated by the
STB related to rail competition, interchange commitments and competitive access. A DOT study on the impacts of a
possible increase in federal truck size and weight limits commenced in 2012. The preliminary results of the DOT
study were released in 2015, but data limitations hindered any changes to the federal truck size and weight limits. In
2018, we expect Congress to direct the DOT to develop a research plan to supplement the shortcomings of the
earlier results. State departments of transportation have also launched initiatives seeking to increase truck size and
weight limits at the state level. Many of the actions under consideration and pending are directed at Class I railroads;
however, various legislative and regulatory 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, the Office of Rail and Road (ORR) in the U.K. is undertaking a periodic review which will
determine Network Rail’s costs and funding for the period from April 2019 to March 2024. The periodic review
could impact the network access charges which are paid by rail providers to Network Rail, as well as the
performance and other compensation regimes that regulate the relationship between Network Rail and all rail
operators. The review could result in increased charges being paid by our operations for access to the rail network,
along with increased performance payments and reduced compensation payments. The ORR is expected to publish
its draft decision in June 2018, with the final decision to be issued in December 2018. Our failure to comply with
applicable laws and regulations, or changes to the regulatory regimes could have a material adverse effect on our
results of operations, financial condition and liquidity.
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 in
the United States could be displaced. Further, we carry significant coal volumes in Australia that are destined for
export to Asia. A decrease in the demand for coal in the United States or Asia 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.
28
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.
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, provincial, state, local and
foreign environmental laws and regulations concerning, among other things, emissions to the air, discharges to
waters, the generation 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, leased or operated by us, 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, leased or operated by us, including from lading in the event of a derailment. For
instance, 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. While the cleanup associated with this derailment is substantially complete, fines associated
with the contamination have yet to be assessed. Under some environmental statutes, liability may be found without
regard to whether we were at fault and may also be "joint and several," whereby we are responsible for all the
liability at issue even though we (or the entity that gives rise to our liability) may be only one of a number of entities
whose conduct contributed to the liability.
Environmental liabilities may also arise from claims asserted by owners or occupants of affected properties,
other third parties affected by environmental conditions (for example, contractors and current or former employees)
seeking to recover in connection with alleged damages to their property or personal injury or death, and/or by
governmental authorities seeking to remedy environmental conditions or to enforce environmental obligations.
While we maintain insurance for certain environmental damages and claims, environmental requirements and
liabilities could obligate us to incur significant costs and expenses to investigate and remediate environmental
contamination that may or may not be fully covered by our insurance. Violations of, and liabilities under,
environmental laws and regulations 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 or
automation.
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.
29
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."
We may be adversely affected by diesel fuel supply constraints resulting from disruptions in the fuel markets and
increases in diesel fuel costs.
We consumed 71.6 million gallons of diesel fuel in 2017 and 68.0 million gallons of diesel fuel in 2016. 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.
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. 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 7% of our
operating expenses for the years ended December 31, 2017 and 2016, 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, contract claims 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. From time to time, we also have various contractual disputes with interchange partners and customers.
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 or environmental liability against us or monetary damages
associated with a breach of contract or other claims that is not covered by insurance could have a material adverse
effect on our results of operations, financial condition and liquidity.
30
Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our results of
operations, financial condition and liquidity.
As of December 31, 2017, we were a party to approximately 100 collective bargaining agreements with
various labor unions in the United States, Australia, Canada and U.K./Europe. We are currently engaged in
negotiations with respect to approximately 27 of these agreements, and are currently negotiating collective
bargaining agreements with five newly represented bargaining units. Approximately 4,200 of our approximately
8,000 full time employees are either union members or have employment terms and conditions determined by labor
agreements or negotiated by a labor union or works council. In addition, we have 91 employees who have elected to
have union representation and are in the process of negotiating their first collective bargaining agreement. We also
have entered into employee association agreements with an additional 17 employees who are not represented by a
national labor organization. GWA has six collective enterprise bargaining agreements covering the majority of its
employees. In the U.K./Europe we have various collective bargaining agreements, as well as agreements with local
work councils.
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, 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 9% of our current workforce will become eligible for retirement based on an average
retirement age of 61. 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.
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. We may not 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.
31
If we fail to maintain an effective system of internal control over financial reporting as well as disclosure controls
and procedures, we could become subject to regulatory scrutiny and current and potential shareholders may lose
confidence in our financial reporting and disclosures.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual Report
on Form 10-K our management’s report and an independent registered public accounting firm's report on the
effectiveness of our internal control over financial reporting. As we execute our acquisition strategy, consistent with
the guidance issued by the Securities and Exchange Commission, we may elect to omit an assessment of internal
control over financial reporting of a recently acquired business in the year of acquisition from management's report.
Recently acquired businesses are required to be included in our assessment of internal control over financial
reporting no later than in the year subsequent to the acquisition. As a result, to the extent we delay the assessment of
an acquisition, there may be a delay in identifying and reporting control issues.
The failure to implement and maintain proper and effective internal controls over financial reporting, as well as
disclosure controls and procedures, could result in our identification of material weaknesses in our financial
reporting controls that may cause errors in our financial statements that could have a material effect on our financial
results, financial position or liquidity and in the accompanying footnote disclosures. Such errors could also require
restatements of previously issued financial statements. We may be unable to identify and report any material
weaknesses on a timely basis in the future. Should such events occur, we may become subject to regulatory scrutiny
and investors may lose confidence in our reported financial information and disclosure, which could negatively
impact our stock price.
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 wagons
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, as well as those provided by critical vendors, is critical to our ability to operate, compete safely
and effectively improve our efficiency. 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 or sensitive information, process failure, security breach or other
operational difficulties, thereby impacting our efficiency and damaging our corporate reputation. 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.
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ADDITIONAL RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We are subject to the risks of doing business in foreign countries.
Some of our subsidiaries provide service and transact business in foreign countries, namely in Australia,
Canada, the U.K., Belgium, Germany, the Netherlands, Poland, Saudi Arabia, Mexico, the Marshall Islands and
China. In addition, we may consider acquisitions or other investments in other foreign countries in the future. The
risks of doing business in foreign countries include:
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adverse changes or greater volatility in the economies of those countries;
foreign currency fluctuations;
adverse effects due to changes in the European Union (EU) or eurozone membership, including risks
associated with the U.K.'s exit from the EU;
adverse effects due to the migration of people into the EU;
limitations in our ability to enforce contractual provisions, including those related to indemnities and
jurisdiction, in varied legal systems;
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.
We have operations in Australia, Canada, the U.K. and Europe. The results of operations of our foreign entities
are maintained in the local currency (including, the Australian dollar, the British pound, 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. In addition, Freightliner, as part of a British consortium, provides management and technical support for
infrastructure and freight operations to Saudi Railway Company. The Saudi Railway Company is a government-
owned company established in 2006 that is tasked with developing and operating railway services in Saudi Arabia.
Payments under the contract are made in Saudi riyal and are converted into British pounds and included in our
consolidated operating income in our U.K./European Operations. 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.
Moreover, foreign governments may restrict transfers of cash out of the country and control exchange rates.
We may not be able to repatriate our earnings, and at exchange rates that are beneficial to us, which could have a
material adverse effect on our business, results of operations, financial condition and liquidity.
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 U.S. dollars, such fluctuations may affect our consolidated results of
operations and financial condition and may affect the comparability of our results between financial periods.
33
Our concession and/or lease agreements in Australia could be canceled, and these agreements may not 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, and could have a material adverse effect on our results of operations, financial
condition and liquidity.
Open access regimes in Australia and Europe could lead to additional competition for rail services, disruption to
service 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. Further, the open
access nature of the rail network could lead to disruptions to services as infrastructure maintenance and scheduling
operations are outside our control. The loss of our customers to competitors or unexpected disruptions in service
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, the independent safety and economic regulator for Britain's railways, 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 U.K./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 to supplement their annual and spot audit inquiries. 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.
34
We have significant pension funding obligations under our U.K. Pension Program
We provide a defined benefit pension program for our 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 of
approximately £25 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. Our section of the Pension Program
is a shared cost arrangement with required contributions shared between us and our employees with our contribution
being 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 our section of the Pension Program is underfunded on an actuarial basis at any
valuation point, the shared cost nature of the program means that we are 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 our section of the Pension Program is terminated and wound up, any deficit would fall entirely on us and
would not be shared with active employees. Equally, if all active employees were to leave our section, we would
have full responsibility for funding any deficits. As of December 31, 2017, there were approximately 1,500 active
employees in our section of the Pension Program. Our pension expense and funding of our 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.
Political and economic uncertainty arising from a majority of voters approving a referendum for the United
Kingdom to exit the European Union could adversely impact our operations and financial results.
In June 2016, the U.K. held a referendum in which voters approved an exit from the European Union (EU),
commonly referred to as Brexit. As a result of the referendum, the U.K. Government is currently negotiating with
the EU Commission on the precise terms of the U.K.'s withdrawal. A withdrawal could, among other outcomes,
disrupt the free movement of goods, services and people between the U.K. and the EU, undermine bilateral
cooperation in key policy areas and significantly disrupt trade between the U.K. and the EU. In addition, Brexit
could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which
EU laws to replace or replicate. Given the lack of comparable precedent, it is unclear what financial, trade and legal
implications the withdrawal of the U.K. from the EU would have and how such withdrawal would affect us. Our
U.K./European Operations represented approximately 28% of our consolidated revenues in 2017. The
announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations
that resulted in the weakening of the British pound against the United States dollar. During periods of a weakening
British pound, our reported international revenues are reduced because the British pound translates into fewer
United States dollars. The long-term effects of Brexit will depend on any agreements the U.K. makes to retain
access to European markets, either during a transitional period or more permanently, and any other bilateral trade
agreements the U.K. can reach with other trade partners. Any of the potential effects of Brexit could have
unpredictable consequences for credit markets and adversely affect our business, results of operations and financial
condition and liquidity.
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RISKS RELATED TO TAXATION
United States federal income tax reform could adversely affect us.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the TCJA) was enacted into law. The TCJA makes
broad and complex changes to United States federal income taxation including, but not limited to: (1) reducing the
corporate income tax rate from 35% to 21%; (2) changing from a worldwide taxation system to a territorial tax
system and providing a 100% dividends received deduction for dividends received from foreign subsidiaries; (3)
creating new limitations on deductions for interest expense and officer compensation; and (4) requiring certain
income of foreign subsidiaries directly or indirectly derived from intangible assets to be subject to United States
federal income tax. The TCJA also imposes a one-time transition (toll) tax on earnings of certain foreign subsidiaries
that were previously deferred for United States federal income tax purposes.
To address the application of the TCJA on accounting for income taxes in the period that includes the
enactment date, the Securities and Exchange Commission's staff issued Staff Accounting Bulletin No. 118 (SAB
118). SAB 118 provides for an up to one-year measurement period during which the tax effect of the TCJA can be
recomputed based on additional guidance and analysis. In accordance with SAB 118, we determined a reasonable
estimate of the effects of the TCJA and have recorded provisional amounts in our results of operations for the year
ended December 31, 2017.
Given the significant complexity of the TCJA, anticipated guidance from the Internal Revenue Service about
implementing the TCJA, the potential for additional guidance from the Securities and Exchange Commission or the
Financial Accounting Standards Board related to the TCJA and our ongoing analysis thereof, which could result in
changes in interpretations and assumptions we have made, these estimates may be adjusted, which could have a
material effect on our financial position, results of operations and liquidity. In accordance with SAB 118, we expect
to complete our assessment of the impact of the TCJA and record applicable adjustments in 2018.
The United States Short Line Tax Credit was renewed in February 2018 for the calendar year ended
December 31, 2017. If this credit is not extended, our effective tax rate in future periods will be higher.
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. The Short Line Tax Credit was initially enacted for a three-year period, 2005 through 2007, and was
subsequently extended a series of times with the last extension enacted in February 2018. The February 2018
extension provided a retroactive credit, solely for fiscal year 2017. Legislation is currently pending that seeks to
extend the Short Line Tax Credit for fiscal year 2018 and beyond. There is no guarantee that the Short Line Tax
Credit will be extended again. If the Short Line Tax Credit is not extended for additional tax years, or is modified
prospectively, or the benefit derived from the credit is not replaced otherwise, the loss or a reduction of the credit
will increase our tax rate and reduce our earnings per share.
If the earnings of our foreign subsidiaries were 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. The
amount of accumulated foreign earnings that have not been distributed was $237.9 million as of December 31, 2017.
These earnings have been subject to United States federal income tax via the estimated toll tax required by the
TCJA. If the earnings were to be distributed in the future, those distributions may result in foreign exchange gains or
losses and be subject to other taxes and credits, including U.S. state income taxes and withholding taxes payable to
various foreign countries, which could result in a higher effective tax rate for us, thereby reducing our earnings. No
provision is made for the impact of those future foreign exchange gains or losses or such other potential taxes and
credits that could be applicable to the undistributed earnings of our foreign subsidiaries in the event of distribution.
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.
36
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.
37
ITEM 2.
Properties.
Genesee & Wyoming, through our subsidiaries, currently has interests in 122 freight railroads, including 105
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 Germany 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 16,200 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 ten years
would represent 3% or less of our annual revenues in the year of expiration, based on our operating revenues for the
year ended December 31, 2017. 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 6,200 additional miles of track that are owned or leased by others under contractual track access
arrangements. The track miles listed below exclude approximately 2,120 miles of sidings and yards (1,870 miles in
the United States, 170 miles in Canada and 80 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. For additional information
regarding our 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.
The following table sets forth certain information with respect to our railroads as of December 31, 2017:
RAILROAD AND LOCATION
NORTH AMERICAN OPERATIONS
UNITED STATES:
Genesee and Wyoming Railroad Company
(GNWR) New York(a)
The Dansville and Mount Morris Railroad Company
(DMM) New York(a)
Rochester & Southern Railroad, Inc.
(RSR) New York(a)
Louisiana & Delta Railroad, Inc.
(LDRR) Louisiana
Buffalo & Pittsburgh Railroad, Inc.
(BPRR) New York, Pennsylvania(b)(c)(d)
Allegheny & Eastern Railroad, LLC
(ALY) Pennsylvania(b)
Bradford Industrial Rail, Inc.
(BR) Pennsylvania(c)
Willamette & Pacific Railroad, Inc.
(WPRR) Oregon
Portland & Western Railroad, Inc.
(PNWR) Oregon
Pittsburg & Shawmut Railroad, LLC
(PS) Pennsylvania(d)
Illinois & Midland Railroad, Inc.
(IMRR) Illinois
Commonwealth Railway, Incorporated
(CWRY) Virginia
Corpus Christi Terminal Railroad, Inc.
(CCPN) Texas
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
1899
1985
1986
1987
1988
1992
1993
1993
1995
1996
1996
1996
1997
27
8
58
83
368
128
4
178
288
108
98
24
42
Owned
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
38
RAILROAD AND LOCATION
Golden Isles Terminal Railroad, Inc.
(GITM) Georgia
Savannah Port Terminal Railroad, Inc.
(SAPT) Georgia
South Buffalo Railway Company
(SB) New York
St. Lawrence & Atlantic Railroad Company
(SLR) Maine, New Hampshire, Vermont
York Railway Company
(YRC) Pennsylvania
Utah Railway Company
(UTAH) Utah
Salt Lake City Southern Railroad Company, Inc.
(SLCS) Utah
Chattahoochee Industrial Railroad
(CIRR) Georgia
Arkansas Louisiana & Mississippi Railroad Company
(ALM) Arkansas, Louisiana
Fordyce and Princeton R.R. Co.
(FP) Arkansas
Tazewell & Peoria Railroad, Inc.
(TZPR) Illinois
Golden Isles Terminal Wharf
(GITW) Georgia
First Coast Railroad Inc.
(FCRD) Florida, Georgia
AN Railway, L.L.C.
(AN) Florida
Atlantic & Western Railway, Limited Partnership
(ATW) North Carolina
The Bay Line Railroad, L.L.C.
(BAYL) Alabama, Florida
East Tennessee Railway, L.P.
(ETRY) Tennessee
Galveston Railroad, L.P.
(GVSR) Texas
Georgia Central Railway, L.P.
(GC) Georgia
KWT Railway, Inc.
(KWT) Kentucky, Tennessee
Little Rock & Western Railway, L.P.
(LRWN) Arkansas
Meridian & Bigbee Railroad, L.L.C.
(MNBR) Alabama, Mississippi
Riceboro Southern Railway, LLC
(RSOR) Georgia
Tomahawk Railway, Limited Partnership
(TR) Wisconsin
Valdosta Railway, L.P.
(VR) Georgia
Western Kentucky Railway, L.L.C.
(WKRL) Kentucky
Wilmington Terminal Railroad, Limited Partnership
(WTRY) North Carolina
Chattahoochee Bay Railroad, Inc.
(CHAT) Alabama, Georgia
Maryland Midland Railway, Inc.
(MMID) Maryland
Chattooga & Chickamauga Railway Co.
(CCKY) Georgia
Luxapalila Valley Railroad, Inc.
(LXVR) Alabama, Mississippi
YEAR
ACQUIRED
TRACK
MILES
1998
1998
2001
2002
2002
2002
2002
2003
2003
2003
2004
2004
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2006
2007
2008
2008
13
18
54
143
42
41
2
15
62
57
25
6
32
96
16
108
4
39
171
69
79
147
18
6
10
—
17
26
70
49
34
STRUCTURE
Owned/Leased
Leased
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Owned
Owned/Leased
Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
39
RAILROAD AND LOCATION
Columbus and Greenville Railway Company
(CAGY) Mississippi
The Aliquippa & Ohio River Railroad Co.
(AOR) Pennsylvania
The Columbus & Ohio River Rail Road Company
(CUOH) Ohio
The Mahoning Valley Railway Company
(MVRY) Ohio
Ohio Central Railroad, Inc.
(OHCR) Ohio
Ohio and Pennsylvania Railroad Company
(OHPA) Ohio
Ohio Southern Railroad, Inc.
(OSRR) Ohio
The Pittsburgh & Ohio Central Railroad Company
(POHC) Pennsylvania
The Warren & Trumbull Railroad Company
(WTRM) Ohio
Youngstown & Austintown Railroad Inc.
(YARR) Ohio
The Youngstown Belt Railroad Company
(YB) Ohio
Georgia Southwestern Railroad, Inc.
(GSWR) Alabama, Georgia
Arizona Eastern Railway Company
(AZER) Arizona, New Mexico
Hilton & Albany Railroad, Inc.
(HAL) Georgia
Columbus & Chattahoochee Railroad, Inc.
(CCH) Alabama, Georgia
Alabama & Gulf Coast Railway LLC
(AGR) Alabama, Mississippi, Florida
Arizona & California Railroad Company
(ARZC) Arizona, California
Bauxite & Northern Railway Company
(BXN) Arkansas
California Northern Railroad Company
(CFNR) California
Carolina Piedmont Railroad
(CPDR) South Carolina
Cascade and Columbia River Railroad Company
(CSCD) Washington
Central Oregon & Pacific Railroad, Inc.
(CORP) Oregon, California
The Central Railroad Company of Indiana
(CIND) Indiana, Ohio
Central Railroad Company of Indianapolis
(CERA) Indiana
Chesapeake and Albermarle Railroad
(CA) North Carolina, Virginia
Chicago, Fort Wayne & Eastern Railroad
(CFE) Indiana, Ohio
Conecuh Valley Railway, L.L.C.
(COEH) Alabama
Connecticut Southern Railroad, Inc.
(CSO) Connecticut
Dallas, Garland & Northeastern Railroad, Inc.
(DGNO) Texas
Eastern Alabama Railway, LLC
(EARY) Alabama
Grand Rapids Eastern Railroad
(GR) Michigan
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2011
2011
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
151
6
247
6
70
3
18
35
4
5
14
231
200
56
26
283
190
5
210
30
131
305
82
43
68
281
13
23
168
26
24
Owned
Owned
Owned/Leased
Owned
Owned/Leased
Owned
Owned
Owned
Leased
Leased
Owned
Owned/Leased
Owned
Leased
Leased
Owned/Leased
Owned
Owned
Leased
Owned
Owned
Owned/Leased
Owned
Owned/Leased
Leased
Owned/Leased
Owned
Owned/Leased
Owned/Leased
Owned
Owned
40
RAILROAD AND LOCATION
Huron and Eastern Railway Company, Inc.
(HESR) Michigan
Indiana & Ohio Railway Company
(IORY) Indiana, Ohio, Michigan
Indiana Southern Railroad, LLC
(ISRR) Indiana
Kiamichi Railroad Company L.L.C.
(KRR) Oklahoma, Arizona, Texas
Kyle Railroad Company
(KYLE) Colorado, Kansas
Marquette Rail LLC
(MQT) Michigan
The Massena Terminal Railroad Company
(MSTR) New York
Michigan Shore Railroad
(MS) Michigan
Mid-Michigan Railroad, Inc.
(MMRR) Michigan
Missouri & Northern Arkansas Railroad Company, Inc.
(MNA) Arizona, Missouri, Kansas
New England Central Railroad, Inc.
(NECR) Vermont, New Hampshire, Massachusetts, Connecticut
North Carolina & Virginia Railroad Company L.L.C.
(NCVA) North Carolina, Virginia
Otter Tail Valley Railroad Company, Inc.
(OTVR) Minnesota
Point Comfort & Northern Railway Company
(PCN) Texas
Puget Sound & Pacific Railroad
(PSAP) Washington
Rockdale, Sandow & Southern Railroad Company
(RSS) Texas
San Diego & Imperial Valley Railroad Company, Inc.
(SDIY) California
San Joaquin Valley Railroad Co.
(SJVR) California
South Carolina Central Railroad Company, LLC
(SCRF) South Carolina
Texas Northeastern Railroad
(TNER) Texas
Three Notch Railway, L.L.C.
(TNHR) Alabama
Toledo, Peoria & Western Railway Corp.
(TPW) Illinois, Indiana
Ventura County Railroad Company
(VCRR) California
Wellsboro & Corning Railroad, LLC
(WCOR) Pennsylvania, New York
Wiregrass Central Railway, L.L.C.
(WGCR) Alabama
Rapid City, Pierre & Eastern Railroad, 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
Olympia & Belmore Railroad, Inc.
(OYLO) Washington
Providence and Worcester Railroad Company
(PW) Rhode Island, Massachusetts, Connecticut and New York(e)
41
YEAR
ACQUIRED
TRACK
MILES
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2014
2015
2015
2015
2016
2016
STRUCTURE
Owned/Leased
Owned/Leased
Owned
Owned
Owned/Leased
Leased
Owned
Owned
Owned/Leased
Owned/Leased
Owned
Owned
Owned
Owned
330
450
165
231
505
128
3
50
30
483
325
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
5
229
Leased
Leased
Owned
Owned
Owned/Leased
Owned
Owned
Leased
Owned
RAILROAD AND LOCATION
Heart of Georgia Railroad
(HOG) Georgia and Alabama
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 and Freightliner Germany
ERS Railways (ERS)
YEAR
ACQUIRED
TRACK
MILES
STRUCTURE
2017
1997
1997
2002
2012
2012
2012
2012
2014
2008
2015
2015
2015
221
173
301
95
242
183
157
46
10
—
—
—
—
Leased
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
AUSTRALIAN OPERATIONS (51.1% owned by us as of December 1, 2016):
Genesee & Wyoming Australia Pty Ltd (GWA)(f)
GWA (North) Pty Ltd (GWA North)
Freightliner Australia Pty Ltd (FLA)(g)
1997; 2006
2010
2015; 2016
822
1,395
—
(a) The original GNWR consisted of 14 miles and acquired an additional 13 miles in 1982. The GNWR and DMM are now operated by RSR.
(b) ALY merged with BPRR in January 2004.
(c) BR merged with BPRR in January 2004.
(d) PS merged with BPRR in January 2004.
(e) PW operates over approximately 300 additional miles of track through contractual track access arrangements.
(f) We initially invested in South Australia in 1997; contributed our holdings to our Australian Railroad Group Pty. Ltd. (ARG) joint venture in
2000; upon sale of our interest in ARG in 2006, we re-acquired our contributed holdings, which were renamed GWA.
(g) We acquired Glencore Rail (NSW) Pty Limited (GRail) in 2016. FLA has been the rail operator of GRail since its inception in 2010.
42
As of December 31, 2017, our rolling stock consisted of 1,340 locomotives, of which 1,142 were owned and
198 were leased, and 30,263 railcars, of which 8,594 were owned and 21,669 were leased. A breakdown of the types
of railcars owned and leased by us as of December 31, 2017 is set forth in the table below:
EQUIPMENT
Railcars by Car Type:
Box
Covered hoppers
Flats
Gondolas
Open top hoppers
Tank cars
Vehicle flats
Maintenance of way
Crew cars
Owned
Leased
Total
1,334
2,637
1,755
573
2,106
20
44
111
14
8,594
8,696
4,686
2,790
3,430
1,623
38
406
—
—
21,669
10,030
7,323
4,545
4,003
3,729
58
450
111
14
30,263
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, including those related to
property damage, personal injury, freight loss, labor and employment, environmental and other matters. We maintain
insurance policies to mitigate the financial risk associated with such claims. However, any material changes to
pending litigation or a catastrophic rail accident or series of accidents involving material freight loss or property
damage, personal injuries or environmental liability or other claims or disputes that are not covered by insurance
could have a material adverse effect on our results of operations, financial condition and liquidity. 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 many of these claims.
In November 2014, we received a notice from the United States Environmental Protection Agency requesting
information under the Clean Water Act related to the discharge of crude oil as a result of a derailment of an Alabama
& Gulf Coast Railway LLC (AGR) freight train in November 2013 in the vicinity of Aliceville, Alabama. A fine
associated with the contamination has not yet been assessed and is not estimable.
We are also involved in several arbitrations related to contractual disputes that are not covered by insurance. In
March 2017, CSX Transportation, Inc. (CSXT) initiated arbitration against several of our subsidiaries associated
with freight revenue factors (or divisions) under certain operating agreements associated with leased railroads.
CSXT is seeking to reduce certain of our freight revenue factors for the time period after August 21, 2016. We
believe we have meritorious defenses against the CSXT claims. In an unrelated matter, on May 3, 2017, the AGR
initiated arbitration related to the collection of outstanding liquidated damages under a volume commitment (or
take-or-pay) contract with a customer. We believe we will prevail in the collection of approximately $13 million of
outstanding liquidated damages. Although we expect to attain successful outcomes in each of these matters,
arbitration is inherently uncertain and it is possible that an unfavorable ruling could have an 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 and the aforementioned arbitrations. Based upon currently
available information, we do not believe it is reasonably possible that any such lawsuit or arbitration would be
material to our results of operations or have a material adverse effect on our financial position or liquidity.
ITEM 4. Mine Safety Disclosures.
Not applicable.
43
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, 2017
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Year Ended December 31, 2016
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Number of Holders
High
Low
$
$
$
$
$
$
$
$
High
79.48
74.01
68.69
78.30
80.01
70.03
65.99
64.17
$
$
$
$
$
$
$
$
Low
71.00
65.11
62.60
65.17
64.55
58.58
52.86
44.55
On February 22, 2018, there were 137 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,
2017 and 2016. 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 plans.
Recent Sales of Unregistered Securities
On November 22, 2017, we issued 238,201 shares of our Class A Common Stock upon buyout of our deferred
consideration agreements with certain former management shareholders of Freightliner. The issuance was exempt from
registration pursuant to Regulation S under the Securities Act of 1933, as amended (the Act). These shares are restricted
from trading by contract and are subject to the holding periods required by Rule 144 under the Act. We did not receive
any cash proceeds from the issuance of these shares. 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 for additional
information regarding the buyout of the Freightliner deferred consideration.
44
Issuer Purchases of Equity Securities
2017
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)
— $
16,595
1,211
17,806
$
—
74.40
76.98
74.57
(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 17,806 shares acquired in the three months ended December 31, 2017 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) On September 29, 2015, in conjunction with Amendment No. 1 to the Credit Agreement, the Board of Directors authorized the
repurchase of up to $300.0 million of our Class A Common Stock and appointed a special committee of the Board of Directors to
review and approve repurchases proposed by management.
45
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, 2017, 2016, 2015,
2014 and 2013. 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:
2017 (a)
For the Year Ended December 31,
2015 (c)
(In thousands, except per share amounts)
2016 (b)
2014 (d)
2013 (e)
Operating revenues
Operating expenses
Operating income
Interest income
Interest expense
Loss on forward contracts
Other income, net
Income before income taxes
Benefit from/(provision for) income taxes
Net income
Less: Series A-1 Preferred Stock dividend
Less: Net income/(loss) attributable to noncontrolling
interest
Net income attributable to Genesee & Wyoming Inc.
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:
$ 2,208,044
$ 2,001,527
$ 2,000,401
$ 1,639,012
$ 1,568,643
1,809,582
1,711,915
1,616,140
1,217,441
1,188,455
398,462
289,612
384,261
421,571
380,188
2,082
1,107
481
1,445
3,971
(107,291)
(75,641)
—
2,266
295,519
261,259
556,778
—
7,727
(67,073)
(18,686)
1,948
(56,162)
(67,894)
—
1,259
—
1,327
—
413
215,491
300,931
368,113
317,592
(74,395)
(75,894)
(107,107)
(46,296)
141,096
225,037
261,006
271,296
—
(41)
—
—
—
251
2,139
—
$ 549,051
$ 141,137
$ 225,037
$ 260,755
$ 269,157
$
$
8.92
$
2.46
$
3.97
$
4.71
$
5.00
61,579
57,324
56,734
55,305
53,788
8.79
$
2.42
$
3.89
$
4.58
$
4.79
62,464
58,256
57,848
56,972
56,679
Total assets
$ 8,034,897
$ 7,634,958
$ 6,703,082
$ 5,595,753
$ 5,319,821
Long-term debt and capital leases (excluding portion
due within one year)
Total equity
$ 2,303,442
$ 2,306,915
$ 2,205,785
$ 1,548,051
$ 1,540,346
$ 3,896,092
$ 3,187,121
$ 2,519,461
$ 2,357,980
$ 2,149,070
(a) On May 3, 2017, our subsidiary, GWI UK Acquisition Company Limited, purchased for cash all of the issued share capital of
Pentalver for £97.8 million (or $126.2 million at the exchange rate on May 3, 2017) or £77.5 million (or $100.1 million) net
of cash received of £20.2 million (or $26.1 million). On May 31, 2017, we completed the acquisition of all the outstanding
shares of Atlantic Western Transportation, Inc., the parent company of Heart of Georgia Railroad, Inc. (HOG), for $5.6
million in cash and contingent consideration valued at $5.7 million. In addition, we recorded a $371.9 million estimated tax
benefit associated with the Tax Cuts and Jobs Act of 2017. We also bought out the Freightliner deferred consideration in
November 2017 and recorded an $8.9 million gain on the buyout, which was included within other expenses in our
consolidated statement of operations. In addition, during 2017 we incurred $11.9 million of corporate development and
related costs and $10.2 million of restructuring costs, as well as $4.9 million of impairment and related charges primarily
associated with the write down of track assets on idle branch lines in South Australia.
46
(b) On November 1, 2016, we completed the acquisition of Providence and Worcester Railroad for $126.2 million. On
December 1, 2016, one of our Australian subsidiaries completed the acquisition of GRail for A$1.14 billion (or
approximately $844.9 million at an exchange rate of $0.74 for one Australian dollar) and concurrently issued a 48.9% equity
stake in GWAHLP, which is the holding entity for all of the Company’s Australian businesses, including GRail, to MIRA. On
December 13, 2016, we completed a public offering of 4,000,000 shares of Class A Common Stock at $75.00 per share and
received net proceeds of $285.8 million after deducting underwriting discounts and commissions and offering expenses. In
addition, we incurred impairment and related charges of $57.3 million, including $21.5 million related to our ERS business in
Continental Europe, $21.1 million related to the impairment of our rolling stock maintenance facility and associated write-off
of accounts receivable resulting from an iron ore customer in Australia entering voluntary administration and $14.7 million
charges related to leases of idle excess U.K. coal railcars, as well as $26.6 million of corporate development and related costs.
(c) 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 $15.3 million of acquisition/integration costs primarily associated with Freightliner 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.
(d) 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.
(e) On February 13, 2013, we exercised our option to convert all of the outstanding Series A-1 Preferred Stock issued to Carlyle
Partners V, L.P. (collectively, 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 cash in lieu of fractional shares and all accrued
and unpaid dividends on the Series A-1 Preferred Stock totaling $2.1 million. In addition, we incurred $17.0 million of
integration and acquisition-related costs associated with RailAmerica during 2013.
47
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 and natural gas liquids). 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.
When we discuss foreign exchange impact, we are referring to the change in our results due to the change in foreign
currency exchange rates. We calculate foreign exchange impact by comparing the prior period results translated from local
currency to United States dollars using current period exchange rates to the prior period results in United States dollars as
reported. Constant currency, which is a non-GAAP measure, reflects the prior period results translated at the current period
exchange rates. When we discuss results from existing operations or same railroad operations, we are referring to the change
in our results, period-over-period, associated with operations that we managed in both periods (i.e., excluding the impact of
acquisitions).
Outlook for 2018
Financial Expectations
We expect consolidated revenues to grow approximately 8% in 2018. Operating income is also expected to grow,
primarily due to same railroad growth, the impact of the Pentalver Transport Limited (Pentalver) acquisition as well as
operating improvement worldwide. In North America, we expect revenues to increase approximately 4% in 2018, due to
higher freight pricing as well as improved traffic across most commodity groups. We expect North American operating
income to increase, primarily due to incremental margins on higher revenues. In Australia, we expect revenues to increase
approximately 7% in 2018, largely due to increases in export coal shipments, partially offset by lower agricultural products
due to a weaker 2017-18 harvest and lower metallic ores revenues due to the suspension of operations at a mine that is
evaluating a major expansion project. The increase in Australian coal revenues is expected to be supported by the delivery of
additional rail cars in mid-2018. We expect Australian operating income to increase in 2018, primarily due to the revenue
growth, partially offset by increasing expenses as we enhance our commercial and operational platform for future growth.
Finally, in our U.K./Europe segment we expect revenues to increase approximately 21% in 2018. The major components
underlying the expected U.K./Europe revenue growth include contributions from the Pentalver acquisition, improved
intermodal shipments due to better U.K. port fluidity and higher aggregates volumes, partially offset by a decline in U.K. coal
volumes. Revenues are also expected to increase given the recent appreciation of the British pound relative to the U.S. dollar.
U.K./Europe operating income is expected to significantly increase in 2018 due to the Pentalver acquisition and same railroad
revenue increases, as well as cost reductions and increased operating efficiency. We expect our consolidated annual effective
income tax rate to be approximately 27% for 2018, primarily driven by the Tax Cuts and Jobs Act of 2017 (the TCJA), which
reduced the United States federal statutory tax rate from 35% to 21%.
Capital Plan
We expect to make capital investments totaling $255 million in 2018. Of this total, $200 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. We expect to spend an additional $40 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 are identified during the year.
48
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.
Overview
We own or lease 122 freight railroads worldwide that are organized in nine operating regions with approximately 8,000
employees and 3,000 customers. The financial results of our nine operating regions are reported in the following three
distinct segments:
• Our North American Operations segment includes seven regions that serve 41 U.S. states and four Canadian
provinces and includes 115 short line and regional freight railroads with more than 13,000 track-miles.
• Our Australian Operations segment serves New South Wales, the Northern Territory and South Australia and
operates the 1,400-mile Tarcoola-to-Darwin rail line. As of December 1, 2016, the Australia Region is 51.1% owned
by G&W and 48.9% owned by a consortium of funds and clients managed by Macquarie Infrastructure and Real
Assets (MIRA).
• Our U.K./European Operations segment is led by Freightliner Group Limited (Freightliner), the United Kingdom's
(U.K.) largest rail maritime intermodal operator and second-largest freight rail provider, as well as regional rail
services in Continental Europe.
Our subsidiaries and joint ventures also provide rail service at more than 40 major ports, rail-ferry service between the
United States Southeast and Mexico, transload services, contract coal loading, and industrial railcar switching and repair. 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.
During the third quarter of 2017, our Mountain West Region railroads were consolidated into our Central and Pacific
regions, and the Pacific Region was renamed the Western Region. The consolidation reduced our number of operating regions
from ten to nine.
Impact of Glencore Rail (NSW) Pty Limited (GRail) Acquisition on our Financial Presentation
Our Australian business underwent a transformational change on December 1, 2016, with the acquisition of GRail and
the formation of the Australia Partnership, which we control through our 51.1% interest. The GRail acquisition significantly
expanded our operations in New South Wales. In conjunction with the GRail acquisition that closed on December 1, 2016, we
issued a 48.9% equity stake in our Australian subsidiary, G&W Australia Holdings LP (GWAHLP) to MIRA. We retained a
51.1% controlling interest in GWAHLP and continue to consolidate 100% of our Australian Operations in our financial
statements and report a noncontrolling interest for MIRA’s 48.9% equity ownership. As a result, (1) 100% of the assets and
liabilities of our Australian Operations, after the elimination of intercompany balances, were included in our consolidated
balance sheets as of December 31, 2017 and 2016, with MIRA's 48.9% noncontrolling interest reflected in the equity section,
(2) our operating revenues and operating income for the year ended December 31, 2017 and 2016 included 100% of our
Australian Operations, while net income attributable to G&W reflected our 51.1% ownership position in our Australian
Operations since the formation of the partnership on December 1, 2016 and (3) 100% of the cash flows of our Australian
Operations, after the elimination of intercompany items, were included in our consolidated statements of cash flows for the
years ended December 31, 2017 and 2016. Accordingly, any payments between our Australian Operations and our other
businesses are eliminated in consolidation, while our cash flows reflect 100% of any cash flows between our Australian
Operations and MIRA. Our Australian Operations did not make any equity distributions to the partners during the years
ended December 31, 2017 and 2016.
49
Consolidated Annual Results
Our operating revenues increased $206.5 million to $2,208.0 million for the year ended December 31, 2017, compared
with $2,001.5 million for the year ended December 31, 2016. Operating income for the year ended December 31, 2017 was
$398.5 million, compared with $289.6 million for the year ended December 31, 2016. Our operating ratio, defined as
operating expenses divided by operating revenues, was 82.0% for the year ended December 31, 2017, compared with 85.5%
for the year ended December 31, 2016. The increase in our operating income in 2017 was primarily due to new operations,
including GRail, Providence and Worcester Railroad Company (Providence and Worcester Railroad) and Pentalver. Our
operating income for the year ended December 31, 2017 also included corporate development and related costs of $11.9
million, primarily related to the acquisitions, $10.2 million of restructuring costs, primarily associated with our U.K./
European Operations, and Australia impairment and related charges of $4.9 million, which included $5.9 million related to
the write down of track assets on idle branch lines in South Australia. These costs were partially offset by a $0.9 million
recovery in relation to Arrium Limited's (Arrium) voluntary administration, a net reduction to other expenses of $8.9 million
as a result of the buyout of the Freightliner acquisition deferred consideration agreements with certain former Freightliner
management holders and a $1.1 million reduction to expense associated with a prior year accrual established for the
restructuring of our U.K. coal business. 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 (i.e., excluding the impact of acquisitions).
Our net income attributable to G&W for the year ended December 31, 2017 was $549.1 million, compared with net
income of $141.1 million for the year ended December 31, 2016. Our diluted earnings per share (EPS) for the year ended
December 31, 2017 were $8.79 with 62.5 million weighted average shares outstanding, compared with diluted EPS of $2.42
with 58.3 million weighted average shares outstanding for the year ended December 31, 2016. Our benefit from income taxes
for the year ended December 31, 2017 was $261.3 million, while our income tax provision for the year ended December 31,
2016 was $74.4 million. The benefit from income taxes for the year ended December 31, 2017 included an income tax benefit
of approximately $394 million resulting from reducing the value of our net deferred tax liabilities from a 35% United States
federal income tax rate to the newly enacted rate of 21%, partially offset by an estimated transitional (toll) tax of
approximately $22 million, both associated with the TCJA signed into law in December 2017.
Our results for the year ended December 31, 2017 and 2016 included certain items affecting comparability between the
periods that are set forth below (dollars in millions, except per share amounts):
Year Ended December 31, 2017
Corporate development and related costs
Restructuring costs
Australia impairment and related costs
Buyout of Freightliner deferred consideration agreements
Gain on sale of investment
U.K. coal restructuring and related charges
Impact of the Tax Cuts and Jobs Act of 2017
Recognition of unrecognized tax benefits
Year Ended December 31, 2016
Corporate development and related costs
Restructuring costs
Australia impairment and related costs
ERS impairment and related costs
U.K. coal railcar leases
Write-off of debt issuance costs
Impact of reduction in U.K. effective tax rate
2016 Short Line Tax Credit
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
50
Income/(Loss)
Before Taxes
Impact
Net Income/(Loss)
Attributable to
G&W Impact
Diluted Earnings/
(Loss) Per
Common Share
Impact
(11.9) $
(10.2) $
(4.9) $
$
8.9
$
1.6
1.1
$
— $
— $
(26.6) $
(8.2) $
(21.1) $
(21.5) $
(10.5) $
(1.3) $
— $
— $
(8.1) $
(9.0) $
(1.8) $
$
8.9
$
1.0
$
0.9
$
371.9
$
3.3
(20.7) $
(6.4) $
(16.8) $
(21.5) $
(8.6) $
(0.5) $
$
4.3
$
28.8
(0.13)
(0.14)
(0.03)
0.14
0.02
0.01
5.96
0.05
(0.36)
(0.11)
(0.29)
(0.37)
(0.15)
(0.01)
0.07
0.50
During the year ended December 31, 2017, we generated $479.2 million in cash flows from operating activities. During
the same period, we purchased $228.5 million of property and equipment, including $8.6 million for new business
investments, partially offset by $20.2 million in cash received from government grants and other outside parties for capital
spending, $5.2 million in cash proceeds from the sale of property and equipment and $1.6 million in insurance proceeds
received for the replacement of assets. We also paid $107.6 million for acquisitions, net of cash acquired. Our unused
borrowing capacity as of December 31, 2017 was $393.1 million.
Annual Results by Segment
North American Operations
Our North American Operations segment fell short of expectations for 2017 primarily due to lower than expected
freight traffic as well as higher diesel fuel costs and increased casualty losses and insurance expense. As a result, North
American Operations operating income for the year ended December 31, 2017, decreased $15.7 million, or 4.9%, to $303.9
million.
Operating revenues from our North American Operations increased $37.5 million, or 3.0%, to $1,274.3 million for the
year ended December 31, 2017, compared with $1,236.8 million for the year ended December 31, 2016. Excluding $29.9
million of revenues from new operations and a $2.0 million increase from the impact of foreign currency appreciation, our
North American Operations same railroad revenues increased $5.7 million, or 0.5%. When we discuss either operating
revenues from existing operations or same railroad operating revenues, we are referring to the change in our operating
revenues, period-over-period, associated with operations that we managed in both periods (i.e., excluding the impact of
acquisitions).
Total traffic from our North American Operations increased 28,929 carloads, or 1.8%, to 1,603,182 carloads for the
year ended December 31, 2017, compared with the year ended December 31, 2016. The increase consisted of 38,003 carloads
from new operations, partially offset by a decrease of 9,074 carloads, or 0.6%, from existing operations. The decrease in
traffic from existing operations was principally due to decreases of 8,979 carloads of agricultural products, 5,572 carloads of
petroleum products traffic, 3,772 carloads of metallic ores traffic, 2,669 carloads of chemicals and plastics traffic, 2,608
carloads of metals traffic, 2,498 carloads of pulp and paper traffic, and 2,402 carloads of food and kindred products traffic,
partially offset by increases of 6,631 carloads of minerals and stone traffic, 5,959 carloads of waste traffic, 3,701 carloads of
autos and auto parts traffic, and 3,277 carloads of coal and coke traffic. All remaining traffic decreased by a net 142 carloads.
Operating income from our North American Operations for the year ended December 31, 2017 was $303.9 million,
compared with $319.6 million for the year ended December 31, 2016. The operating ratio from our North American
Operations for the year ended December 31, 2017 was 76.2%, compared with 74.2% for the year ended December 31, 2016.
Operating income for the year ended December 31, 2017 included $8.2 million of corporate development and related costs
and $0.5 million of restructuring costs. Operating income for the year ended December 31, 2016 included $7.2 million of
corporate development and related costs and $0.9 million of restructuring costs.
Australian Operations
Our Australian Operations segment exceeded expectations in 2017 primarily due to the recommencement of iron ore
and manganese mines as well as good expense management. In addition, our Australia business underwent a transformational
change on December 1, 2016, with the acquisition of GRail and the formation of the Australia Partnership, which we control
through our 51.1% interest. The GRail acquisition significantly expanded our operations in New South Wales. Prior to the
GRail acquisition, our Australian subsidiary, Freightliner Australia Pty Ltd (Freightliner Australia), provided rail operator
services to GRail, which were recorded as freight-related revenues. These freight-related services continued post acquisition,
but are now eliminated in consolidation. Revenues from GRail were included in our consolidated freight revenues from new
operations since the December 1, 2016 acquisition date.
Operating revenues from our Australian Operations increased $84.9 million, or 38.2%, to $307.5 million for the year
ended December 31, 2017, compared with $222.6 million for the year ended December 31, 2016. Excluding $63.0 million of
net revenues from new operations and a $6.9 million increase from the impact of foreign currency appreciation, our
Australian Operations same railroad operating revenues increased by $15.1 million, or 6.6%, primarily due to an increase in
freight revenues resulting from the recommencement of operations at two previously closed iron ore and manganese mines.
When comparing our freight-related and all other revenues from existing operations for the year ended December 31, 2017 to
our freight-related and all other revenues for the year ended December 31, 2016, our 2017 existing operations included $42.8
million of revenues for services provided to GRail for the year ended December 31, 2017, which were eliminated in
consolidated freight-related and all other revenues.
51
Total traffic from our Australian Operations increased 335,760 carloads to 552,155 carloads for the year ended
December 31, 2017, compared with the year ended December 31, 2016. The increase consisted of 327,851 carloads from new
operations and an increase of 7,909 carloads, or 3.7%, from existing operations. The increase in traffic from existing
operations was principally due to increases of 15,651 carloads of metallic ores traffic and 8,547 carloads of agricultural
products traffic, partially offset by decreases of 12,188 carloads of minerals and stone traffic and 3,263 carloads of coal and
coke traffic. All remaining traffic decreased by a net 838 carloads.
Operating income from our Australian Operations for the year ended December 31, 2017 was $77.3 million, compared
with $4.8 million for the year ended December 31, 2016. The operating ratio from our Australian Operations for the year
ended December 31, 2017 was 74.9%, compared with an operating ratio of 97.8% for the year ended December 31, 2016.
Operating income for the year ended December 31, 2017 included impairment and related charges of $4.9 million, of which
$5.9 million related to the write down of track assets on idle branch lines in South Australia and was partially offset by a $0.9
million recovery in relation to the Arrium voluntary administration. Operating income for the year ended December 31, 2016
included $21.1 million of charges related to the impairment of a rolling-stock maintenance facility and associated write-off of
accounts receivable in the first quarter of 2016 resulting from Arrium's voluntary administration, $14.7 million of corporate
development and related costs primarily associated with the GRail transactions and $0.8 million of restructuring costs.
U.K./European Operations
Following the restructuring of our Continental Europe intermodal business in the first quarter of 2017, our U.K./
European Operations segment generally performed consistent with our expectations with multiple commercial and
operational initiatives completed in the U.K., more fluid flow of containers from the shipping lines through the U.K. ports
and an improving U.K. business climate. Although our U.K./Europe segment ended the year with higher than expected
operating costs in the fourth quarter, we expect further revenue growth and improvements in operating income in 2018. In
addition, our new acquisition, Pentalver, is performing well and we are investing in additional container storage capacity in
the Port of London Gateway.
Operating revenues from our U.K./European Operations increased $84.1 million, or 15.5%, to $626.2 million for the
year ended December 31, 2017, compared with $542.2 million for the year ended December 31, 2016. Excluding $102.6
million of revenues from our new operations relating to Pentalver and a $13.4 million decrease from the impact of foreign
currency depreciation, our U.K./European Operations same railroad revenues decreased $5.1 million, or 1.0%, primarily due
to a decrease in Continental Europe intermodal revenues following the discontinuation of certain intermodal train services as
part of the restructuring of ERS Railways B.V. (ERS).
Total traffic from our U.K./European Operations decreased 11,467 carloads, or 1.0%, to 1,092,549 carloads for the year
ended December 31, 2017, compared with the year ended December 31, 2016. The decrease in traffic was principally due to
decreases of 17,714 carloads of coal and coke traffic and 13,939 carloads of intermodal traffic, partially offset by increases of
19,053 carloads of minerals and stone traffic and 1,807 carloads of agricultural products traffic. All remaining traffic
decreased by a net 674 carloads.
Operating income from our U.K./European Operations for the year ended December 31, 2017 was $17.3 million,
compared with an operating loss of $34.7 million for the year ended December 31, 2016. The operating ratio from our U.K./
European Operations for the year ended December 31, 2017 was 97.2%, compared with 106.4% for the year ended December
31, 2016. Operating income for the year ended December 31, 2017 included $9.4 million of restructuring costs, $4.0 million
of corporate development and related costs, an $8.9 million reduction to other expenses as a result of the buyout of the
Freightliner acquisition deferred consideration agreements and a $1.1 million reduction to expense associated with a prior
year accrual established for the restructuring of our U.K. coal business. The operating loss for the year ended December 31,
2016 included impairment and related charges of $21.5 million related to ERS, $14.7 million of restructuring and related
charges associated with our U.K. coal business and $6.5 million of corporate development and related costs. For additional
information regarding these charges, 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.
52
Changes in Operations
North American Operations
Heart of Georgia Railroad, Inc.: On May 31, 2017, we completed the acquisition of all the outstanding shares of
Atlantic Western Transportation, Inc., parent company of Heart of Georgia Railroad, Inc. (HOG), for $5.6 million in cash and
contingent consideration valued at $5.7 million. The contingent consideration is payable to the sellers upon satisfaction of
certain conditions, which we expect to be paid in 2021. The results of operations from HOG have been included in our
consolidated statement of operations within our North American Operations since the acquisition date. For additional
information regarding the acquisition of HOG, 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.
Providence and Worcester Railroad Company: On November 1, 2016, we completed the acquisition of 100% of the
outstanding common stock of Providence and Worcester Railroad for $25.00 per share, or $126.2 million. We funded the
acquisition with borrowings under our Second Amended and Restated Senior Secured Syndicated Credit Facility Agreement,
as amended (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). The results of operations from Providence
and Worcester Railroad have been included in our consolidated statements of operations since the acquisition date. We
incurred $3.1 million of integration costs associated with Providence and Worcester Railroad during the year ended
December 31, 2017, of which $2.7 million was included within labor and benefits expense primarily for severance costs and
$0.4 million was included within other expenses in our consolidated statement of operations within our North American
Operations. For additional information regarding the acquisition of Providence and Worcester Railroad, 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.
Australian Operations
Glencore Rail (NSW) Pty Limited: On December 1, 2016, our subsidiary completed the acquisition of GRail for A$1.14
billion (or approximately $844.9 million at an exchange rate of $0.74 for one Australian dollar) and concurrently issued a
48.9% equity stake in GWAHLP (collectively, the Australia Partnership), which is the holding entity for all of our Australian
businesses, including GRail, to MIRA, a large infrastructure investment firm. Through wholly-owned subsidiaries, we
retained a 51.1% ownership in GWAHLP. As we maintain control of our Australian Operations, we continue to consolidate
100% of our Australian Operations in our financial statements and report a noncontrolling interest for MIRA’s 48.9% equity
ownership.
We and MIRA contributed a combined A$1.3 billion in the form of cash, partner loans and contributed equity, and our
subsidiary, GWI Acquisitions Pty Ltd (GWIA), entered into a five-year A$690.0 million senior secured term loan facility that
is non-recourse to us and to MIRA. The proceeds were used to acquire GRail for A$1.14 billion, repay Genesee & Wyoming
Australia’s (GWA) existing A$250.0 million term loan (under our Credit Agreement) and pay A$19.8 million in debt issuance
costs and A$13.2 million of acquisition-related costs (collectively the GRail Transactions). The foreign exchange rate used to
translate the transaction amounts to United States dollars (USD) was $0.74 for one Australian dollar (AUD).
The results from operations from GRail have been included in our consolidated statements of operations within our
Australian Operations segment since the December 1, 2016 acquisition date. For additional information regarding the
acquisition of GRail, 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.
Arrium Limited: Between 2011 and 2014, GWA invested a total of $78 million 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.
On April 7, 2016, Arrium announced it had entered into voluntary administration. As a result, during the first quarter of
2016, we recorded a $13.0 million non-cash charge related to the impairment of an idle rolling-stock maintenance facility,
which was recorded to net loss/(gain) on sale and impairment of assets within operating expenses, which represented the
entire carrying value of these assets, and an allowance for doubtful accounts charge of $8.1 million associated with accounts
receivable from Arrium, which was recorded to other expenses within operating expense. Also as a result of the voluntary
administration, all payments to GWA associated with the Southern Iron rail haulage agreement have ceased. In December
2017, we recovered $0.9 million of cash in relation to Arrium's voluntary administration.
53
On August 31, 2017, Arrium was sold to GFG Alliance. The steel making business was rebranded as Liberty OneSteel
and the mining business was rebranded as SIMEC Mining. GWA continues to provide services and receive payments under
the rail haulage agreement for the Middleback Range operations, which includes service to several iron ore mines in the
Middleback Range and the Whyalla steelworks operations.
U.K./European Operations
Pentalver Transport Limited: On May 3, 2017, our subsidiary, GWI UK Acquisition Company Limited, purchased for
cash all of the issued share capital of Pentalver from a subsidiary of APM Terminals (a subsidiary of A P Møller-Maersk A/S
(Maersk)) for £97.8 million (or $126.2 million at the exchange rate on May 3, 2017) or £77.5 million (or $100.1 million at
the exchange rate on May 3, 2017) net of cash received of £20.2 million (or $26.1 million at the exchange rate on May 3,
2017). We funded the acquisition with borrowings under the Credit Agreement. The foreign exchange rate used to translate
the total consideration to United States dollars was $1.29 for one British pound (GBP).
Headquartered in Southampton, U.K., Pentalver operates off-dock container terminals (most under long-term lease)
strategically placed at each of the four major seaports of Felixstowe, Southampton, London Gateway and Tilbury, as well as
an inland terminal located at Cannock, in the U.K. Midlands, near many of the nation’s largest distribution centers. In
addition to providing storage for loaded and empty containers on over 100 acres of land, Pentalver also operates a trucking
haulage service with more than 150 trucks, primarily providing daily service between the seaports of Felixstowe and
Southampton and its inland terminal at Cannock. Pentalver also provides services related to container maintenance and repair
(including refrigerated containers) and is one of the largest sellers of new and used containers in the U.K.
The results of operations from Pentalver have been included in our consolidated statement of operations within our
U.K./European Operations segment since the May 3, 2017, acquisition date. For additional information regarding the
acquisition of Pentalver, 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.
Continental Europe Intermodal Business: During 2016, we explored ways to enhance the long-term viability of ERS,
the Continental Europe intermodal business Freightliner acquired from Maersk, which we acquired in 2015 with the
Freightliner acquisition. Due to its limited history of profitability and competitive dynamics in the market in which it
operates, we ascribed little value to it at the time of acquisition.
Despite a significant and focused effort by us, the performance of ERS reached unsustainable levels during 2016 and a
restructuring plan was initiated. In conjunction with that plan, in 2017, we ceased all "open" train services from the port of
Rotterdam, closed the ERS offices in Rotterdam and Frankfurt and the ERS customer services function in Warsaw. We are in
the process of redistributing ERS’s leased locomotives and railcars, which have lease termination dates up through 2019.
These steps will enable us to focus on the deep sea intermodal sector. Our subsidiary, Rotterdam Rail Feeding B.V., will
continue its existing services and not be affected by the restructuring of ERS.
As a result of the ERS restructuring plan, we recorded impairment and related charges of $21.5 million in December
2016. These charges primarily included $14.5 million for an impairment of goodwill and $4.1 million for an impairment of a
customer-related intangible asset, which were both recorded to net loss/(gain) on sale and impairment of assets within
operating expenses, which represented the entire carrying value of these assets. For the year ended December 31, 2017, we
recorded $5.7 million of restructuring costs related to ERS, primarily for severance costs and costs associated with surplus
locomotive and railcar leases.
Restructuring of U.K. Coal Business: During 2016, due to a drastic decline in coal shipments, we implemented a
restructuring of our U.K. coal business. The U.K. coal business, which we acquired as part of the Freightliner acquisition in
2015, is a relatively low-margin business, and we originally expected to cease coal shipments by 2022. We incurred charges
related to the U.K. coal restructuring program of $14.7 million during the year ended December 31, 2016. These charges
included $10.5 million associated with leased railcars that exceed our expected ongoing needs and were permanently taken
out of service, which was recorded to equipment rents within operating expenses, as well as $4.2 million of severance and
related costs associated with restructuring our workforce. During the year ended December 31, 2017, we recorded a reduction
to equipment rents within operating expenses of $1.1 million associated with an adjustment to the liability recorded in 2016
for the leased railcars.
54
Acquisition of 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 bought out this deferred consideration in
November 2017, as described below.
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, at
the time of acquisition, Freightliner's ERS subsidiary, based in Rotterdam, provided 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 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
As of March 25, 2015, 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 represented 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 bought out this deferred consideration in
November 2017 with the issuance of 238,201 shares of our Class A Common Stock with a grant date fair value of $17.5
million, as well as £2.1 million (or $2.9 million at the exchange rate on December 31, 2017) in cash to be paid in March
2018. These shares have time-based contractual restrictions on their transfer until March 2018, March 2019 and March 2020.
In addition, we issued a note payable with a £6.3 million (or $8.6 million at the exchange rate on December 31, 2017) face
value (£5.7 million fair value, or $7.7 million at the exchange rate on December 31, 2017) to certain management holders as
part of the buyout of the deferred consideration. This note is payable in three annual installments starting in March 2018. We
recorded a net gain of $8.9 million on the buyout of the deferred consideration in November 2017, which is included within
other expenses in our consolidated statement of operations.
The results of operations from Freightliner have been included in our consolidated statements of operations since the
March 25, 2015 acquisition date. 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. 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.
55
Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
Consolidated Operating Results
Operating Revenues
The following table sets forth our operating revenues and total carloads into new operations and existing operations for
the years ended December 31, 2017 and 2016 (dollars in thousands):
2017
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Eliminations
(a)
Existing
Operations
2016
Amount
%
Amount
%
Currency
Impact
$1,553,875
$ 133,509
$
— $1,420,366
$1,371,566
$ 182,309
13.3 % $ 48,800
3.6 % $ (2,403)
533,651
74,208
(42,759)
502,202
536,359
(2,708)
(0.5)%
(34,157)
(6.4)% (1,594)
120,518
30,416
—
90,102
93,602
26,916
28.8 %
(3,500)
(3.7)%
(577)
$2,208,044
$ 238,133
$ (42,759) $2,012,670
$2,001,527
$ 206,517
10.3 % $ 11,143
0.6 % $ (4,574)
Freight
revenues
Freight-related
revenues
All other
revenues
Total operating
revenues
Carloads
3,247,886
365,854
— 2,882,032
2,894,664
353,222
12.2 %
(12,632)
(0.4)%
(a) Represents revenues for services provided by Freightliner Australia to GRail for the 11 months ended November 2017 (the new
operations period), which were eliminated in our consolidated revenues.
Operating revenues were $2,208.0 million for the year ended December 31, 2017, compared with $2,001.5 million for
the year ended December 31, 2016, an increase of $206.5 million, or 10.3%. The $206.5 million increase in operating
revenues consisted of $195.4 million in net revenues from new operations and an $11.1 million increase in existing
operations, primarily due to an increase in freight revenues, partially offset by a decrease in freight-related and all other
revenues. For additional explanations regarding the changes in our operating revenues, see "Operating Results by Segment."
Operating Expenses
Total operating expenses for the year ended December 31, 2017 increased $97.7 million, or 5.7%, to $1,809.6 million,
compared with $1,711.9 million for the year ended December 31, 2016. The increase consisted of $158.5 million from new
operations, partially offset by a decrease of $60.8 million from existing operations. When we discuss either operating
expenses from existing operations or same railroad operating expenses, we are referring to the change in our operating
expenses, period-over-period, associated with operations that we managed in both periods (i.e., excluding the impact of
acquisitions).
Excluding a $1.4 million decrease from the depreciation of foreign currencies relative to the United States dollar,
operating expenses from existing operations decreased $59.4 million. For additional explanations regarding the changes in
our total operating expenses, see "Operating Results by Segment."
56
The following table sets forth our total operating expenses for the years ended December 31, 2017 and 2016 (dollars in
thousands):
2017
2016
Amount
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Increase/
(Decrease)
Currency
Impact
2016
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
Labor and benefits
$ 660,284
29.9% $ 633,114
31.5% $ 27,170
$
(4,177) $ 628,937
$
31,347
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 loss on sale and
impairment of assets
Restructuring costs
Other expenses
132,903
244,119
6.0%
11.1%
159,372
198,046
8.0%
9.9%
(26,469)
46,073
(513)
28
158,859
198,074
(25,956)
46,045
250,457
11.3%
205,188
10.3%
45,269
147,427
6.7%
118,203
5.9%
29,224
7,521
46,993
107,519
87,490
4,254
10,160
110,455
0.3%
2.1%
4.9%
4.0%
0.2%
0.5%
5.0%
13,346
38,884
82,522
87,194
32,484
8,182
135,380
0.7%
1.9%
4.1%
4.4%
1.6%
0.4%
6.8%
(5,825)
8,109
24,997
296
(28,230)
1,978
(24,925)
675
121
45
89
(421)
(77)
2,568
(330)
640
205,863
44,594
118,324
29,103
13,391
38,973
82,101
87,117
35,052
7,852
(5,870)
8,020
25,418
373
(30,798)
2,308
136,020
(25,565)
Total operating expenses
$ 1,809,582
82.0% $ 1,711,915
85.5% $ 97,667
$
(1,352) $1,710,563
$
99,019
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Operating Income/Operating Ratio
Operating income was $398.5 million for the year ended December 31, 2017, compared with $289.6 million for the
year ended December 31, 2016. Operating income for the year ended December 31, 2017 included corporate development
and related costs of $11.9 million, restructuring costs of $10.2 million and impairment and related charges of $4.9 million
related to our Australian Operations, partially offset by an $8.9 million reduction to expense as a result of the buyout of the
Freightliner deferred consideration. Operating income for the year ended December 31, 2016 included corporate development
and related costs of $23.3 million, ERS impairment and related costs of $21.5 million and Australia impairment and related
costs of $21.1 million. Our operating ratio was 82.0% for the year ended December 31, 2017, compared with 85.5% for the
year ended December 31, 2016.
Interest Expense
Interest expense was $107.3 million for the year ended December 31, 2017, compared with $75.6 million for the year
ended December 31, 2016. The increase in interest expense was primarily due to a higher debt balance resulting from the
GRail Transactions in December 2016, as well as higher interest rates in 2017 compared with 2016.
Benefit From/Provision For Income Taxes
Our benefit from income taxes for the year ended December 31, 2017 was $261.3 million, while our provision for
income taxes for the year ended December 31, 2016 was $74.4 million. The benefit from income taxes for the year ended
December 31, 2017 was primarily driven by the impact of the TCJA, which resulted in a net benefit of $371.9 million. For
additional information regarding our benefit from/provision for income taxes, 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.
Our provision for income taxes for the year ended December 31, 2016 included a $28.8 million tax benefit associated
with the United States Short Line Tax Credit and a $4.3 million tax benefit associated with a prospective reduction in the
U.K. income tax rate enacted during the fourth quarter of 2015.
57
The United States Short Line Tax Credit was 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 (the Short Line Tax Credit).
Qualified expenditures included 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 was 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 initially enacted for a three-year period, 2005
through 2007, and was subsequently extended a series of times with the last extension enacted in February 2018. The
February 2018 extension provided a retroactive credit, solely for fiscal year 2017. As a result of this extension, we expect to
record an income tax benefit of approximately $32 million during the three months ended March 31, 2018 associated with the
Short Line Tax Credit for fiscal year 2017. Legislation is currently pending that seeks to extend the Short Line Tax Credit for
fiscal year 2018 and beyond. For additional information regarding the 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.
Net Income and Earnings Per Common Share Attributable to G&W Common Stockholders
Net income attributable to G&W for the year ended December 31, 2017 was $549.1 million, compared with $141.1
million for the year ended December 31, 2016. Our basic EPS were $8.92 with 61.6 million weighted average shares
outstanding for the year ended December 31, 2017, compared with basic EPS of $2.46 with 57.3 million weighted average
shares outstanding for the year ended December 31, 2016. Our diluted EPS for the year ended December 31, 2017 were $8.79
with 62.5 million weighted average shares outstanding, compared with diluted EPS of $2.42 with 58.3 million weighted
average shares outstanding for the year ended December 31, 2016. Our results for the years ended December 31, 2017 and
2016 included certain items affecting comparability between the periods as previously presented in the "Overview."
58
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, 2017 and 2016 (dollars in thousands):
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)/loss on sale and impairment of assets
Restructuring costs
Other expenses
Total operating expenses
Operating income
Operating ratio
Interest expense, net
(Benefit from)/provision for income taxes
Expenditures for additions to property & equipment, net of
grants from outside parties
Carloads
2017
North
American
Operations
Australian
Operations
U.K./European
Operations
Total
Operations
$
961,356
249,623
63,306
$ 1,274,285
$
$
254,653
46,696
6,161
307,510
$
$
337,866
237,332
51,051
626,249
$ 1,553,875
533,651
120,518
$ 2,208,044
416,468
53,139
59,815
158,006
76,852
—
37,262
49,757
38,637
(1,456)
467
81,456
970,403
303,882
$
76.2%
$
38,547
$ (266,063)
$
166,685
1,603,182
$
$
$
$
68,935
5,577
26,269
61,142
25,236
—
5,502
10,706
12,633
5,797
338
8,124
230,259
77,251
74.9%
54,718
6,110
16,076
552,155
$
$
$
$
174,881
74,187
158,035
31,309
45,339
7,521
4,229
47,056
36,220
(87)
9,355
20,875
608,920
17,329
660,284
132,903
244,119
250,457
147,427
7,521
46,993
107,519
87,490
4,254
10,160
110,455
1,809,582
398,462
$
97.2%
82.0%
11,944
(1,306)
$
105,209
$ (261,259)
25,462
1,092,549
$
208,223
3,247,886
59
2016
North
American
Operations
Australian
Operations
U.K./European
Operations
Total
Operations
$
913,619
258,922
64,223
$ 1,236,764
$
$
120,622
95,776
6,188
222,586
$
$
337,325
181,661
23,191
542,177
$ 1,371,566
536,359
93,602
$ 2,001,527
397,129
57,680
62,369
147,527
59,023
—
29,103
50,095
36,645
(209)
884
76,967
917,213
319,551
74.2%
40,985
80,701
137,334
1,574,253
$
$
$
$
66,547
6,514
23,429
30,863
19,743
—
5,373
10,559
10,047
13,341
789
30,571
217,776
4,810
97.8%
13,958
988
11,285
216,395
169,438
95,178
112,248
26,798
39,437
13,346
4,408
21,868
40,502
19,352
6,509
27,842
576,926
(34,749)
106.4%
19,591
(7,294)
34,831
1,104,016
633,114
159,372
198,046
205,188
118,203
13,346
38,884
82,522
87,194
32,484
8,182
135,380
1,711,915
289,612
85.5%
74,534
74,395
183,450
2,894,664
$
$
$
$
$
$
$
$
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)/loss on sale and impairment of assets
Restructuring costs
Other expenses
Total operating expenses
Operating income/(loss)
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 and Carloads
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, 2017 and 2016 (dollars in thousands):
2017
2016
Increase/(Decrease) in
Total Operations
Increase/
(Decrease) in Existing
Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
Freight revenues
$ 961,356
$ 27,794
$ 933,562
$ 913,619
$ 47,737
5.2 % $ 19,943
2.2 % $ 1,235
Freight-related revenues
249,623
All other revenues
63,306
1,154
914
248,469
62,392
258,922
64,223
(9,299)
(3.6)%
(10,453)
(4.0)%
(917)
(1.4)%
(1,831)
(2.9)%
465
251
Total operating revenues $1,274,285
$ 29,862
$1,244,423
$1,236,764
$ 37,521
3.0 % $
7,659
0.6 % $ 1,951
Carloads
1,603,182
38,003
1,565,179
1,574,253
28,929
1.8 %
(9,074)
(0.6)%
60
Freight Revenues
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, 2017, compared with the year ended
December 31, 2016 (dollars in thousands):
Commodity Group
2017
2016
Increase/
(Decrease) in
Total
Operations
New
Operations
Currency
Impact
2016
Constant
Currency*
Agricultural Products
$
124,285
$
115,627
$
8,658
$
1,601
$
123
$
115,750
Increase/
(Decrease) in
Existing
Operations
Constant
Currency*
6,934
$
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
22,901
148,252
75,935
33,424
980
87,200
13,391
103,863
130,511
68,388
107,453
25,063
19,710
18,259
137,712
74,664
33,549
99
83,509
16,819
103,799
114,185
70,519
104,523
20,835
19,520
4,642
10,540
1,271
(125)
881
3,691
(3,428)
64
16,326
(2,131)
2,930
4,228
190
2,371
7,227
—
577
815
2,379
1
1,991
6,666
1,445
1,201
914
606
35
242
61
26
—
77
58
164
76
108
241
6
18
18,294
137,954
74,725
33,575
99
83,586
16,877
103,963
114,261
70,627
104,764
20,841
19,538
Total freight revenues
$
961,356
$
913,619
$
47,737
$
27,794
$
1,235
$
914,854
$
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
2,236
3,071
1,210
(728)
66
1,235
(3,487)
(2,091)
9,584
(3,684)
1,488
3,308
(434)
18,708
The following table sets forth our North American Operations freight revenues, carloads and average freight revenues
per carload for the years ended December 31, 2017 and 2016 (dollars in thousands, except average freight revenues per
carload):
Freight Revenues
Carloads
2017
2016 Constant
Currency*
2017
2016
Average Freight
Revenues Per
Carload
Commodity Group
Amount
% of
Total
Amount
% of
Total
Amount
Amount
2017
2016
2016
Constant
Currency*
Agricultural Products
$ 124,285
12.9% $ 115,750
12.7%
209,471
217,038
$
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
22,901
148,252
75,935
33,424
980
87,200
13,391
103,863
130,511
68,388
107,453
25,063
19,710
2.4%
18,294
2.0%
37,246
15.4%
137,954
15.1%
177,602
7.9%
74,725
8.2%
224,278
3.5%
0.1%
9.1%
1.4%
10.8%
13.6%
7.1%
33,575
99
83,586
16,877
103,963
114,261
70,627
3.7%
—%
9.1%
1.8%
11.4%
12.5%
7.7%
59,307
9,838
17,925
136,888
214,469
98,414
11.2%
104,764
11.5%
161,872
2.6%
2.0%
20,841
19,538
2.2%
2.1%
52,081
62,935
30,308
175,316
221,001
60,874
1,382
21,697
137,898
197,849
102,718
163,595
44,922
61,559
140,856
138,096
$ 961,356
100.0% $ 914,854
100.0% 1,603,182
1,574,253
$
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
61
593
615
835
339
564
100
619
747
759
609
695
664
481
313
600
$
$
533
602
786
338
551
72
605
775
753
577
687
639
464
317
580
$
$
533
604
787
338
552
72
605
778
754
578
688
640
464
317
581
Total traffic from our North American Operations increased 28,929 carloads, or 1.8%, for the year ended December 31,
2017, compared with the year ended December 31, 2016. The increase consisted of 38,003 carloads from new operations,
partially offset by a decrease of 9,074 carloads, or 0.6%, from existing operations. The decrease in traffic from existing
operations was principally due to decreases of 8,979 carloads of agricultural products traffic, 5,572 carloads of petroleum
products traffic, 3,772 carloads of metallic ores traffic, 2,669 carloads of chemicals and plastics traffic, 2,608 carloads of
metals traffic, 2,498 carloads of pulp and paper traffic and 2,402 carloads of food and kindred products traffic, partially offset
by increases of 6,631 carloads of minerals and stone traffic, 5,959 carloads of waste traffic, 3,701 carloads of autos and auto
parts traffic and 3,277 carloads of coal and coke traffic. All remaining traffic decreased by a net 142 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates
and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Excluding the impact of
foreign currency, average freight revenues per carload from existing operations increased 2.6% to $596 for the year ended
December 31, 2017, compared with the year ended December 31, 2016. The increase in average freight revenues per carload
was impacted by higher fuel surcharges, which increased average freight revenues per carload by 0.6%, partially offset by the
impact of a change in commodity mix, which decreased average freight revenues per carload 0.4%. Excluding these factors,
average freight revenues per carload increased 2.4%.
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.
Agricultural products revenues increased $6.9 million, or 6.0%. Agricultural products average freight revenues per
carload increased 10.7%, which increased revenues by $12.2 million, while traffic decreased 8,979 carloads, or 4.1%, which
decreased revenues by $5.3 million. The increase in average freight revenues per carload was primarily driven by a change in
the mix of business. The carload decrease was primarily due to reduced shipments as a result of modal competition, drought
conditions in South Dakota, reduced export demand in the midwestern United States and plant closures in the southern United
States.
Autos and auto parts revenues increased $2.2 million, or 12.2%, primarily due to a traffic increase of 3,701 carloads, or
12.2%, as a result of import spot shipments in the western United States and increased shipments in the midwestern United
States related to a model conversion.
Chemicals and plastics revenues increased $3.1 million, or 2.2%. Chemicals and plastics average freight revenues per
carload increased 3.8%, which increased revenues by $5.3 million, while traffic decreased 2,669 carloads, or 1.5%, which
decreased revenues by $2.2 million. The decrease in carloads was primarily due to decreased shipments of industrial chemicals
due to a plant closure in the northeastern United States, reduced demand from a mining customer in the western United States
and decreased shipments of ethanol in the midwestern United States.
Metallic ores revenues decreased $3.5 million, or 20.7%. Metallic ores traffic decreased 3,772 carloads, or 17.4%, which
decreased revenues by $2.8 million, and average freight revenues per carload decreased 4.0%, which decreased revenues by
$0.7 million. These decreases were primarily due to the planned idling of an alumina customer facility in the southern United
States and lower production from a copper mining customer in the western United States.
Metals revenues decreased $2.1 million, or 2.0%, primarily due to a traffic decrease of 2,608 carloads or 1.9%. The
carload decrease was primarily due to reduced shipments of scrap steel and pig iron as a result of modal competition in the
southeastern United States.
Minerals and stone revenues increased $9.6 million, or 8.4%. Minerals and stone average freight revenues per carload
increased 4.8%, which increased revenues by $5.6 million, and traffic increased 6,631 carloads, or 3.4%, which increased
revenues by $4.0 million. The increase in average freight revenues per carload was primarily due to the change in the mix of
business. The increase in carloads was primarily due to increased shipments of cement, frac sand, rock salt and clay, partially
offset by decreased shipments of construction aggregates.
Petroleum products decreased $3.7 million, or 5.2%, primarily due to a traffic decrease of 5,572 carloads, or 5.4%. The
carload decrease was primarily due to decreased shipments of liquid petroleum gases resulting from barge competition in the
western United States and production declines and a loss of a customer contract in the northeastern United States.
Pulp and paper revenues increased $1.5 million, or 1.4%. Pulp and paper average freight revenues per carload increased
3.1%, which increased revenues by $3.1 million, while traffic decreased 2,498 carloads, or 1.5%, which decreased revenues by
$1.6 million. The decrease in carloads was primarily due to decreased shipments resulting from truck competition and multiple
maintenance shutdowns of mills in the southern United States.
62
Waste revenues increased $3.3 million, or 15.9%. Waste traffic increased by 5,959 carloads, or 13.3%, which increased
revenues by $2.8 million, and average freight revenues per carload increased 2.4%, which increased revenues by $0.5 million.
These increases were primarily due to new and expanded contracts in the midwestern United States.
Freight revenues from all remaining commodities combined increased by a net $1.3 million.
Freight-Related Revenues
Excluding a $0.5 million increase due to the impact from foreign currency appreciation, 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, decreased $9.8 million, or 3.8%, to $249.6 million
for the year ended December 31, 2017, compared with $259.4 million for the year ended December 31, 2016. The decrease in
freight-related revenues was primarily due to the recognition of $10.0 million of revenue from a multi-year take-or-pay
volume shortfall under a crude-by-rail contract in the year ended December 31, 2016, compared with $3.1 million of revenue
recognized for that contract in the year ended December 31, 2017 and lower demurrage revenues in the southern United
States.
All Other Revenues
Excluding a $0.3 million increase due to the impact of foreign currency appreciation, 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 $1.2 million, or 1.8%, to
$63.3 million for the year ended December 31, 2017, compared with $64.5 million for the year ended December 31, 2016.
The decrease in all other revenues consisted of $2.1 million from existing operations, partially offset by $0.9 million from
new operations.
Operating Expenses
Total operating expenses from our North American Operations increased $53.2 million, or 5.8%, to $970.4 million for
the year ended December 31, 2017, compared with $917.2 million for the year ended December 31, 2016. The increase
consisted of $28.9 million from new operations and $24.2 million from existing operations. The increase from existing
operations was primarily due to a $15.7 million increase in the cost and usage of diesel fuel in train operations, an $8.1
million increase in depreciation and amortization, a $7.1 million increase in casualties and insurance, a $4.6 million increase
in labor and benefits and a $2.8 million increase in other expenses, partially offset by a $7.2 million decrease in equipment
rents, a $5.6 million decrease in purchased services, and a $1.9 million decrease in materials. In addition, the change from
existing operations included a $1.8 million increase due to impact of foreign currency appreciation.
The following table sets forth operating expenses from our North American Operations for the years ended
December 31, 2017 and 2016 (dollars in thousands):
2017
2016
Amount
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Increase/
(Decrease)
Currency
Impact
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 and
impairment of assets
Restructuring costs
Other expenses
$ 416,468
32.8 % $ 397,129
32.1% $
19,339
$
53,139
59,815
4.2 %
4.7 %
57,680
62,369
4.7%
5.0%
(4,541)
(2,554)
158,006
12.4 %
147,527
11.9%
10,479
76,852
37,262
49,757
38,637
6.0 %
2.9 %
3.9 %
3.0 %
(1,456)
(0.1)%
467
81,456
— %
6.4 %
59,023
29,103
50,095
36,645
(209)
884
76,967
4.8%
2.4%
4.0%
3.0%
—%
0.1%
6.2%
17,829
8,159
(338)
1,992
(1,247)
(417)
4,489
672
103
124
435
176
42
107
19
(4)
—
144
2016
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
$ 397,801
$
18,667
57,783
62,493
147,962
59,199
29,145
50,202
36,664
(213)
884
77,111
(4,644)
(2,678)
10,044
17,653
8,117
(445)
1,973
(1,243)
(417)
4,345
Total operating expenses
$ 970,403
76.2 % $ 917,213
74.2% $
53,190
$
1,818
$ 919,031
$
51,372
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
63
The following information discusses the significant changes in operating expenses from our North American
Operations, excluding an increase of $1.8 million due to the impact from foreign currency appreciation.
Labor and benefits expense was $416.5 million for the year ended December 31, 2017, compared with $397.8 million
for the year ended December 31, 2016, an increase of $18.7 million, or 4.7%. The increase consisted of $14.0 million from
new operations, of which $2.7 million related to the Providence and Worcester Railroad integration-related severance costs,
and $4.6 million from existing operations. The increase from existing operations was due primarily to annual wage increases.
Equipment rents expense was $53.1 million for the year ended December 31, 2017, compared with $57.8 million for
the year ended December 31, 2016, a decrease of $4.6 million, or 8.0%. The decrease consisted of $7.2 million from existing
operations, partially offset by $2.6 million from new operations. The decrease from existing operations was primarily due to
reduced leased freight car expense due to certain leased cars being returned to lessors or converted to per diem leases,
reduced leased locomotive expense due to buyouts of certain of our locomotive leases and reduced car hire expense.
Purchased services expense was $59.8 million for the year ended December 31, 2017, compared with $62.5 million for
the year ended December 31, 2016, a decrease of $2.7 million, or 4.3%. The decrease consisted of $5.6 million from existing
operations, partially offset by $2.9 million from new operations. The decrease from existing operations was primarily due to a
reduction in the use of third-party contractors for maintenance and repair of track property.
Depreciation and amortization expense was $158.0 million for the year ended December 31, 2017, compared with
$148.0 million for the year ended December 31, 2016, an increase of $10.0 million, or 6.8%. The increase consisted of $8.1
million from existing operations and $1.9 million from new operations. The increase from existing operations was primarily
attributable to a larger depreciable asset base in 2017 compared with 2016, reflecting capital spending in 2017 and 2016.
The cost of diesel fuel used in train operations was $76.9 million for the year ended December 31, 2017, compared
with $59.2 million for the year ended December 31, 2016, an increase of $17.7 million, or 29.8%. The increase consisted of
$15.7 million from existing operations, partially offset by $2.0 million from new operations. The increase from existing
operations consisted of $12.9 million due to a 21.5% increase in average fuel cost per gallon and $2.7 million due to a 4.0%
increase in diesel fuel consumption.
Casualties and insurance expense was $37.3 million for the year ended December 31, 2017, compared with $29.1
million for the year ended December 31, 2016, an increase of $8.1 million, or 27.9%. The increase consisted of $7.1 million
from existing operations and $1.0 million from new operations. The increase from existing operations was primarily
attributable to an increase in derailments expense in 2017.
Trackage rights expense was $38.6 million for the year ended December 31, 2017, compared with $36.7 million for the
year ended December 31, 2016, an increase of $2.0 million, or 5.4%. The increase consisted of $1.5 million from new
operations and $0.5 million from existing operations.
Net gain on sale and impairment of assets was $1.5 million for the year ended December 31, 2017, primarily due to
scrap sales during 2017.
Other expenses were $81.5 million for the year ended December 31, 2017, compared with $77.1 million for the year
ended December 31, 2016, an increase of $4.3 million, or 5.6%. The increase consisted of $2.8 million from existing
operations and $1.6 million from new operations. The increase from existing operations was primarily attributable to
corporate development and related costs.
Operating Income/Operating Ratio
Operating income from our North American Operations was $303.9 million for the year ended December 31, 2017,
compared with $319.6 million for the year ended December 31, 2016. Operating income for the year ended December 31,
2017 included $8.2 million of corporate development and related costs associated with the integration of Providence and
Worcester Railroad and other corporate development projects. Operating income for the year ended December 31, 2016
included corporate development and related costs of $7.2 million. The operating ratio was 76.2% for the year ended
December 31, 2017, compared with 74.2% for the year ended December 31, 2016.
64
Australian Operations
Operating Revenues and Carloads
As previously disclosed, we own a controlling 51.1% ownership interest in our Australian Operations and, therefore,
include 100% of our Australian Operations within our consolidated financial statements with a 48.9% noncontrolling interest
recorded to reflect MIRA's ownership. The following table sets forth our Australian Operations operating revenues and
carloads by new operations and existing operations for the years ended December 31, 2017 and 2016 (dollars in thousands):
2017
Increase/(Decrease) in
Total Operations
Increase/
(Decrease) in Existing
Operations
Total
Operations
New
Operations
Eliminations
(a)
Existing
Operations
2016
Amount
%
Amount
%
Currency
Impact
$ 254,653
$ 105,715
$
— $ 148,938
$ 120,622
$ 134,031
111.1 % $ 28,316
23.5 % $ 3,848
46,696
6,161
—
6
(42,759)
89,455
95,776
(49,080)
(51.2)%
(6,321)
(6.6)%
2,860
—
6,155
6,188
(27)
(0.4)%
(33)
(0.5)%
174
$ 307,510
$ 105,721
$
(42,759) $ 244,548
$ 222,586
$ 84,924
38.2 % $ 21,962
9.9 % $ 6,882
552,155
327,851
—
224,304
216,395
335,760
155.2 %
7,909
3.7 %
Freight
revenues
Freight-
related
revenues
All other
revenues
Total
operating
revenues
Carloads
(a) Represents revenues for services provided by Freightliner Australia to GRail for the 11 months ended November 2017 (the new
operations period), which were eliminated in our consolidated revenues.
Operating revenues were $307.5 million for the year ended December 31, 2017, compared with $222.6 million for the
year ended December 31, 2016, an increase of $84.9 million, or 38.2%. Excluding $63.0 million of net revenues from new
operations and a $6.9 million increase from the impact of foreign currency appreciation, our Australian Operations same
railroad operating revenues increased by $15.1 million, or 6.6%.
Freight Revenues
The following table sets forth the changes in our Australian Operations freight revenues by commodity group
segregated into new operations and existing operations for the year ended December 31, 2017, compared with the year ended
December 31, 2016 (dollars in thousands):
Commodity Group
2017
2016
Increase/
(Decrease) in
Total
Operations
New
Operations
Currency
Impact
2016
Constant
Currency*
Increase/
(Decrease) in
Existing
Operations
Constant
Currency*
Agricultural Products
$
22,562
$
17,511
$
5,051
$
— $
Coal & Coke
Intermodal
Metallic Ores
Minerals & Stone
Petroleum Products
117,678
69,433
37,415
6,878
687
11,112
66,761
16,874
7,634
730
106,566
105,715
2,672
20,541
(756)
(43)
—
—
—
—
547
473
2,027
541
236
24
$
18,058
$
4,504
11,585
68,788
17,415
7,870
754
378
645
20,000
(992)
(67)
Total freight revenues
$
254,653
$
120,622
$
134,031
$
105,715
$
3,848
$
124,470
$
24,468
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
65
The following table sets forth our Australian Operations freight revenues, carloads and average freight revenues per
carload for the years ended December 31, 2017 and 2016 (dollars in thousands, except average freight revenues per carload):
Freight Revenues
Carloads
2017
2016 Constant
Currency*
2017
2016
Average Freight Revenues Per
Carload
Commodity Group
Amount
% of
Total
Amount
% of
Total
Amount
Amount
2017
2016
2016
Constant
Currency*
Agricultural Products
$ 22,562
8.8% $ 18,058
14.5%
51,909
43,362
$
Coal & Coke
Intermodal
Metallic Ores
Minerals & Stone
Petroleum Products
117,678
69,433
37,415
6,878
687
46.2%
27.3%
14.7%
2.7%
0.3%
11,585
68,788
17,415
7,870
754
9.3% 359,791
55.3%
14.0%
6.3%
0.6%
58,848
29,458
51,872
277
35,203
59,688
13,807
64,060
275
$
435
327
1,180
1,270
133
2,480
$
404
316
1,118
1,222
119
2,655
Total
$ 254,653
100.0% $ 124,470
100.0% 552,155
216,395
$
461
$
557
$
416
329
1,152
1,261
123
2,742
575
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our Australian Operations increased 335,760 carloads to 552,155 carloads for the year ended
December 31, 2017, compared with the year ended December 31, 2016. The increase consisted of 327,851 carloads from new
operations and an increase of 7,909 carloads, or 3.7%, from existing operations. The increase in traffic from existing
operations was principally due to increases of 15,651 carloads of metallic ores traffic and 8,547 carloads of agricultural
products traffic, partially offset by decreases of 12,188 carloads of minerals and stone traffic and 3,263 carloads of coal and
coke traffic. All remaining traffic decreased by a net 838 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates
and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Excluding the impact of
foreign currency, average freight revenues per carload from our Australian Operations decreased 19.8% to $461 for the year
ended December 31, 2017, compared with the year ended December 31, 2016. Excluding the impact of foreign currency,
average freight revenues per carload from existing operations increased 15.5% to $664 for the year ended December 31,
2017. The increase in average freight revenues per carload from existing operations was primarily due to increased metallic
ores shipments as a result of the recommencement of operations at two previously closed iron ore and manganese mines.
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.
Agricultural products revenues increased $4.5 million, or 24.9%. Agricultural products traffic increased 8,547 carloads,
or 19.7%, which increased revenues by $3.7 million, and average freight revenues per carload increased 4.6%, which
increased revenues by $0.8 million. The increase in carloads was primarily due to stronger mainland grain shipments.
Metallic ores revenues increased $20.0 million, primarily due to a traffic increase of 15,651 carloads, which increased
revenues by $19.9 million. The increase in carloads was primarily due to the recommencement of operations at two
previously closed iron ore and manganese mines.
Freight-Related Revenues
Excluding a $2.9 million increase due to the net impact of foreign currency appreciation, 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, decreased $51.9 million, or 52.7%, to $46.7 million for the year
ended December 31, 2017, compared with $98.6 million for the year ended December 31, 2016. Excluding $42.8 million of
net freight-related revenues for services provided by Freightliner Australia to GRail for the 11 months ended November 30,
2017 (the new operations period), which were eliminated in our consolidated freight-related revenues, our freight-related
revenues from existing operations decreased $9.2 million. The decrease from existing operations was primarily due to the
loss of the fixed payments from Arrium that we received in the first quarter of 2016 associated with our rail haulage
agreement to serve their Southern Iron mine and shipments of stockpiled manganese in 2016 at a previously closed customer
mine facility. The decrease was partially offset by an increase in agricultural products-related switching revenues in 2017.
66
All Other Revenues
Excluding a $0.2 million increase due to the net impact of foreign currency appreciation, 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 $0.2 million, or 3.2%, to $6.2 million for the
year ended December 31, 2017, compared with $6.4 million for the year ended December 31, 2016.
Operating Expenses
Total operating expenses from our Australian Operations for the year ended December 31, 2017 increased $12.5
million, or 5.7%, to $230.3 million, compared with $217.8 million for the year ended December 31, 2016. The increase
consisted of $31.8 million from new operations, partially offset by a decrease of $19.3 million from existing operations.
Operating expenses for the year ended December 31, 2017 included $4.9 million of impairment and related charges primarily
associated with track assets on idle branch lines in South Australia. Operating expenses for the year ended December 31,
2016 included a $13.0 million impairment of a rolling-stock maintenance facility and an accounts receivable reserve of $8.1
million, both of which were associated with Arrium's voluntary administration. In addition, the change from existing
operations in 2017 included a $6.3 million increase from the net appreciation 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,
2017 and 2016 (dollars in thousands):
2017
2016
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Amount
Increase/
(Decrease)
Currency
Impact
2016
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
$
68,935
22.4% $
66,547
29.9% $
2,388
$
2,069
$
68,616
$
319
5,577
26,269
61,142
25,236
5,502
10,706
12,633
5,797
338
8,124
1.8%
8.6%
19.9%
8.2%
1.8%
3.5%
4.1%
1.9%
0.1%
2.6%
6,514
23,429
30,863
19,743
5,373
10,559
10,047
13,341
789
30,571
2.9%
10.5%
13.9%
8.9%
2.4%
4.7%
4.5%
6.0%
0.4%
(937)
2,840
30,279
5,493
129
147
2,586
(7,544)
(451)
13.7%
(22,447)
203
712
994
608
204
333
320
197
13
620
6,717
24,141
31,857
20,351
5,577
10,892
10,367
13,538
802
(1,140)
2,128
29,285
4,885
(75)
(186)
2,266
(7,741)
(464)
31,191
(23,067)
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in train
operations
Casualties and insurance
Materials
Trackage rights
Net loss on sale and
impairment of assets
Restructuring costs
Other expenses
Total operating expenses
$ 230,259
74.9% $ 217,776
97.8% $
12,483
$
6,273
$ 224,049
$
6,210
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses from our Australian Operations
excluding a $6.3 million increase due to the net impact from foreign currency appreciation.
Equipment rents expense was $5.6 million for the year ended December 31, 2017, compared with $6.7 million for the
year ended December 31, 2016, a decrease of $1.1 million, or 17.0%. The decrease was primarily attributable to the purchase
of equipment that was previously rented.
Purchased services expense was $26.3 million for the year ended December 31, 2017, compared with $24.1 million for
the year ended December 31, 2016, an increase of $2.1 million, or 8.8%. The increase was primarily attributable to new
operations.
Depreciation and amortization expense was $61.1 million for the year ended December 31, 2017, compared with $31.9
million for the year ended December 31, 2016, an increase of $29.3 million, or 91.9%. The increase was primarily
attributable to new operations.
67
The cost of diesel fuel used in train operations was $25.2 million for the year ended December 31, 2017, compared
with $20.4 million for the year ended December 31, 2016, an increase of $4.9 million, or 24.0%. The increase consisted of
$3.6 million due to a 17.4% increase in average fuel cost per gallon and $1.3 million due to a 5.7% increase in diesel fuel
consumption.
Trackage rights expense was $12.6 million for the year ended December 31, 2017, compared with $10.4 million for the
year ended December 31, 2016, an increase of $2.3 million, or 21.9%. The increase was primarily attributable to services for
an iron ore customer that recommenced operations in July 2016, as well as increased grain shipments.
Net loss on the sale and impairment of assets for the year ended December 31, 2017, of $5.8 million was primarily
related to the impairment of track assets on idle branch lines in Southern Australia. Net loss on the sale and impairment of
assets for year ended December 31, 2016 of $13.3 million was primarily related to the impairment of a rolling-stock
maintenance facility resulting from Arrium entering into voluntary administration.
Other expenses were $8.1 million for the year ended December 31, 2017, compared with $31.2 million for the year
ended December 31, 2016, a decrease of $23.1 million. Other expenses for the year ended December 31, 2016 included $14.7
million of corporate development and related costs associated with the GRail Transactions and an accounts receivable reserve
of $8.1 million associated with Arrium entering into voluntary administration.
Operating Income
Operating income from our Australian Operations was $77.3 million for the year ended December 31, 2017, compared
with $4.8 million for the year ended December 31, 2016. For the year ended December 31, 2017, our Australian Operations
recorded charges of $5.9 million related to the impairment of track assets on idle branch lines in Southern Australia. For the
year ended December 31, 2016, our Australian Operations recorded charges of $21.1 million, including a $13.0 million non-
cash charge related to the impairment of a rolling-stock maintenance facility and associated write-off of accounts receivable
of $8.1 million, resulting from Arrium entering into voluntary administration. Operating income for the year ended December
31, 2016 also included $14.7 million of corporate development and related costs, primarily associated with the GRail
Transactions. The operating ratio was 74.9% for the year ended December 31, 2017, compared with 97.8% for the year ended
December 31, 2016.
U.K./European Operations
Operating Revenues and Carloads
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, 2017 and 2016 (dollars in thousands):
2017
2016
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$ 337,866
$
— $ 337,866
$ 337,325
$
541
0.2 % $
541
0.2 % $ (7,486)
237,332
51,051
73,054
29,496
164,278
181,661
21,555
23,191
55,671
27,860
30.6 %
(17,383)
120.1 %
(1,636)
(9.6)%
(7.1)%
(4,919)
(1,002)
$ 626,249
$ 102,550
$ 523,699
$ 542,177
$ 84,072
15.5 % $ (18,478)
(3.4)% $ (13,407)
Freight revenues
Freight-related
revenues
All other revenues
Total operating
revenues
Carloads
1,092,549
— 1,092,549
1,104,016
(11,467)
(1.0)%
(11,467)
(1.0)%
68
Freight Revenues
The following table sets forth the changes in our U.K./European Operations freight revenues by commodity group for
the year ended December 31, 2017, compared with the year ended December 31, 2016 (dollars in thousands):
Commodity Group
2017
2016
Increase/
(Decrease) in
Total
Operations
Currency
Impact
2016 Constant
Currency*
Agricultural Products
$
5,280
$
2,465
$
2,815
$
188
$
2,653
$
Coal & Coke
Intermodal
Lumber & Forest Products
Metallic Ores
Minerals & Stone
9,972
253,854
—
—
14,982
262,977
170
100
68,760
56,631
(5,010)
(9,123)
(170)
(100)
12,129
(375)
(8,511)
2
5
14,607
254,466
172
105
1,205
57,836
Total freight revenues
$
337,866
$
337,325
$
541
$
(7,486) $
329,839
$
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Increase/
(Decrease) in
Total
Operations
Constant
Currency*
2,627
(4,635)
(612)
(172)
(105)
10,924
8,027
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, 2017 and 2016 (dollars in thousands, except average freight revenues per
carload):
Freight Revenues
Carloads
2017
2016 Constant
Currency*
2017
2016
Average Freight
Revenues Per
Carload
Commodity Group
Amount
% of
Total
Amount
% of
Total
Amount
Amount
2017
2016
Agricultural Products
$
Coal & Coke
Intermodal
Lumber & Forest
Products
Metallic Ores
5,280
9,972
1.6% $
2,653
2.9%
14,607
0.8%
4.4%
4,359
22,403
40,117
2,552
$
1,211
$
253,854
75.1% 254,466
77.2%
890,844
904,783
—
—
—%
—%
172
105
0.1%
—%
—
—
473
201
Minerals & Stone
68,760
20.4%
57,836
17.5%
174,943
155,890
Total
$ 337,866
100.0% $ 329,839
100.0% 1,092,549
1,104,016
$
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
2016
Constant
Currency*
$
1,040
364
281
—
—
371
299
$
966
373
291
359
498
363
306
445
285
—
—
393
309
$
Total traffic from our U.K./European Operations decreased 11,467 carloads, or 1.0%, to 1,092,549 carloads for the year
ended December 31, 2017, compared with the year ended December 31, 2016. The decrease in traffic was principally due to
decreases of 17,714 carloads of coal and coke traffic and 13,939 carloads of intermodal traffic, partially offset by increases of
19,053 carloads of minerals and stone traffic and 1,807 carloads of agricultural products traffic. All remaining traffic
decreased by a net 674 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates
and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Excluding the impact of
foreign currency, average freight revenues per carload from our U.K./European Operations increased 3.3% to $309 for the
year ended December 31, 2017, compared with the year ended December 31, 2016.
The following information discusses the significant changes in our U.K./European Operations freight revenues by
commodity group excluding the impact of foreign currency.
Agricultural products revenues increased $2.6 million, or 99.0%. Agricultural products traffic increased 1,807 carloads,
or 70.8%, which increased revenues by $2.2 million, and average freight revenues per carload increased 16.4%, which
increased revenues by $0.4 million. The increase in carloads was primarily due to the development of new business in
Poland.
69
Coal and coke revenues decreased $4.6 million, or 31.7%. Coal and coke traffic decreased 17,714 carloads, or 44.2%,
which decreased revenues by $7.9 million, while average freight revenues per carload increased 22.3%, which increased
revenues by $3.3 million. The decrease in carloads was primarily due to lower demand for steam coal in the U.K., largely as a
result of competition from natural gas power generation and an increase in the carbon tax. The increase in average freight
revenues per carload was primarily due to a change in the mix of business.
Minerals and stone revenues increased $10.9 million, or 18.9%. Minerals and stone traffic increased 19,053 carloads, or
12.2%, which increased revenues by $7.5 million, and average freight revenues per carload increased 5.9%, which increased
revenues by $3.4 million. The increase in carloads was primarily due to higher construction aggregates shipments in the U.K.
and Poland. The increase in average freight revenues per carload was primarily due to a change in the mix of business in the
U.K.
Freight revenues from all remaining commodities combined decreased by $0.9 million.
Freight-Related Revenues
Freight-related revenues from our U.K./European Operations include trucking haulage services, container storage and
switching services, as well as infrastructure services, where we operate work trains for the track infrastructure owner. Freight-
related revenues in the U.K./Europe also include traction services (or hook and pull), which requires us to provide
locomotives and drivers to move a customer's train between specified origin and destination points and other ancillary
revenues related to the movement of freight.
Excluding a $4.9 million decrease due to the impact of foreign currency depreciation, freight-related revenues from our
U.K./European Operations increased $60.6 million, or 34.3%, to $237.3 million for the year ended December 31, 2017,
compared with $176.7 million for the year ended December 31, 2016. The increase consisted of $73.1 million from new
operations, partially offset by a decrease of $12.5 million, or 7.1%, from existing operations. The decrease from existing
operations was primarily due to the discontinuation of certain routes in Continental Europe following the completion of the
restructuring of ERS in the first half of 2017 and decreased U.K. infrastructure revenues.
All Other Revenues
Excluding a $1.0 million decrease due to the impact of foreign currency depreciation, all other revenues from our U.K./
European Operations, which includes revenues from container sales, third-party railcar and locomotive repairs, property
rentals and other ancillary revenues not directly related to the movement of freight, increased $28.9 million to $51.1 million
for the year ended December 31, 2017, compared with $22.2 million for the year ended December 31, 2016. The increase
consisted of $29.5 million from new operations, primarily from container sales and container repairs at Pentalver, partially
offset by a decrease of $0.6 million, or 2.9%, from existing operations. The decrease from existing operations was primarily
due to reduced management and technical support revenues in Saudi Arabia resulting primarily from the timing of project
deliverables, partially offset by increased passenger crewing revenues.
Operating Expenses
Total operating expenses from our U.K./European Operations increased $32.0 million, or 5.5%, to $608.9 million for
the year ended December 31, 2017, compared with $576.9 million for the year ended December 31, 2016. The increase
consisted of $97.7 million from new operations, partially offset by a decrease of $65.7 million from existing operations. The
decrease from existing operations included an $8.9 million gain on the buyout of the Freightliner deferred consideration and
$9.4 million due to the net impact of foreign currency depreciation. Operating expenses for the year ended December 31,
2016 included $21.5 million of impairment charges related to ERS and $14.7 million of charges related to the U.K. coal
restructuring. The decrease in operating expenses from existing operations was also due to a $6.1 million decrease in labor
and benefits expense primarily resulting from reduced headcount related to the restructuring of the U.K. coal business and the
discontinuation of certain routes in Continental Europe as part of our restructuring of ERS.
70
The following table sets forth operating expenses from our U.K./European Operations for the years ended
December 31, 2017 and 2016 (dollars in thousands):
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)/loss on sale and
impairment of assets
Restructuring costs
Other expenses
2017
2016
Amount
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Increase/
(Decrease)
Currency
Impact
2016
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
$ 174,881
27.9% $ 169,438
31.3% $
5,443
$
(6,918) $ 162,520
$
12,361
74,187
158,035
31,309
11.9%
25.2%
5.0%
95,178
112,248
26,798
17.5%
20.7%
4.9%
(20,991)
45,787
4,511
(819)
(808)
(754)
94,359
111,440
26,044
(20,172)
46,595
5,265
45,339
7.2%
39,437
7.3%
5,902
(663)
38,774
6,565
7,521
4,229
47,056
36,220
(87)
9,355
20,875
1.2%
0.7%
7.5%
5.8%
—%
1.5%
3.3%
13,346
4,408
21,868
40,502
19,352
6,509
27,842
2.5%
0.8%
4.0%
7.5%
3.6%
1.2%
5.1%
(5,825)
(179)
25,188
(4,282)
45
(157)
(861)
(416)
(19,439)
2,375
2,846
(6,967)
(343)
(124)
13,391
4,251
21,007
40,086
21,727
6,166
27,718
(5,870)
(22)
26,049
(3,866)
(21,814)
3,189
(6,843)
Total operating expenses
$ 608,920
97.2% $ 576,926
106.4% $
31,994
$
(9,443) $ 567,483
$
41,437
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses from our U.K./European Operations,
excluding a decrease of $9.4 million due to the net impact from foreign currency depreciation.
Labor and benefits expense was $174.9 million for the year ended December 31, 2017, compared with $162.5 million
for the year ended December 31, 2016, an increase of $12.4 million, or 7.6%. The increase consisted of $18.5 million from
new operations, partially offset by a decrease of $6.1 million from existing operations. The decrease from existing operations
was primarily due to reduced headcount related to the restructuring of the U.K. coal business and the discontinuation of
certain routes in Continental Europe as part of our restructuring of ERS.
Equipment rents expense was $74.2 million for the year ended December 31, 2017, compared with $94.4 million for
the year ended December 31, 2016, a decrease of $20.2 million, or 21.4%. The decrease consisted of $28.6 million from
existing operations, partially offset by $8.4 million from new operations. The year ended December 31, 2016 included
surplus lease costs in Continental Europe and higher locomotive lease costs in the U.K. that have since been renegotiated
with more favorable terms. These resulted in lower equipment costs for the year ended December 31, 2017 that were partially
offset by additional locomotive lease expense in Poland to support increased aggregates and grain business.
Purchased services expense was $158.0 million for the year ended December 31, 2017, compared with $111.4 million
for the year ended December 31, 2016, an increase of $46.6 million, or 41.8%. The increase consisted of $35.5 million from
new operations and $11.1 million from existing operations. The increase in existing operations was primarily due to cost
reimbursements in 2016 as a result of disruptions caused by a temporary flood-related bridge outage in the U.K. In addition,
the year ended December 31, 2017 included increased third-party costs for services performed at the ports and for contracted
administrative services, partially offset by a decrease due to the discontinuation of certain routes in Continental Europe as
part of our restructuring plan.
Depreciation and amortization expense was $31.3 million for the year ended December 31, 2017, compared with $26.0
million for the year ended December 31, 2016, an increase of $5.3 million, or 20.2%. The increase consisted of $3.3 million
from new operations and $2.0 million from existing operations. The increase from existing operations was primarily
attributable to a larger depreciable asset base in 2017 compared with 2016, reflecting capital spending in 2017 and 2016.
The cost of diesel fuel used in train operations was $45.3 million for the year ended December 31, 2017, compared
with $38.8 million for the year ended December 31, 2016, an increase of $6.6 million, or 16.9%. The increase consisted of
$5.4 million due to a 14.8% increase in average fuel cost per gallon and $1.2 million due to a 1.8% increase in diesel fuel
consumption.
71
The cost of electricity used in train operations was $7.5 million for the year ended December 31, 2017, compared with
$13.4 million for the year ended December 31, 2016, a decrease of $5.9 million, or 43.8%. The decrease was primarily due to
the discontinuation of certain routes in Continental Europe as part of our restructuring plan as well as reimbursement of prior
year energy taxes as a result of an initiative by the German government.
Materials expense was $47.1 million for the year ended December 31, 2017, compared with $21.0 million for the year
ended December 31, 2016, an increase of $26.0 million primarily from new operations.
Trackage rights expense was $36.2 million for the year ended December 31, 2017, compared with $40.1 million for the
year ended December 31, 2016, a decrease of $3.9 million, or 9.6%. The decrease was primarily due to the discontinuation of
certain routes in Continental Europe as part of our restructuring plan, partially offset by increased construction aggregates
shipments in Poland.
Net loss on the sale and impairment of assets for the year ended December 31, 2016 included impairment charges of
$21.5 million related to the impairment of assets associated with our ERS business in Continental Europe.
Restructuring costs for the year ended December 31, 2017, of $9.4 million, were primarily related to our previously
announced restructuring of ERS. Restructuring costs for the year ended December 31, 2016, of $6.5 million, were primarily
associated with severance costs related to the restructuring of the U.K. coal business.
Other expenses were $20.9 million for the year ended December 31, 2017, compared with $27.7 million for the year
ended December 31, 2016, a decrease of $6.8 million, or 24.7%. The decrease consisted of $11.7 million from existing
operations, partially offset by $4.8 million from new operations. The decrease from existing operations was primarily due to
the buyout of the Freightliner deferred consideration, which resulted in a net gain of $8.9 million in 2017. The year ended
December 31, 2016 included a write-off of accounts receivable associated with ERS of $2.6 million. For additional
information regarding 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.
Operating Income/(Loss)
Operating income from our U.K./European Operations was $17.3 million for the year ended December 31, 2017,
compared with an operating loss of $34.7 million for the year ended December 31, 2016. Operating income for the year
ended December 31, 2017 included $9.4 million of restructuring costs and $4.0 million of corporate development and related
costs, partially offset by a gain on the buyout of the Freightliner deferred consideration of $8.9 million. Operating loss for the
year ended December 31, 2016 included impairment charges of $21.5 million associated with our ERS business and $6.5
million of restructuring costs.
Year Ended December 31, 2016 Compared with Year Ended December 31, 2015
Consolidated Operating Results
Operating Revenues
The following table sets forth our operating revenues and total carloads into new operations and existing operations for
the years ended December 31, 2016 and 2015 (dollars in thousands):
2016
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Eliminations
(a)
Existing
Operations
2015
Amount
%
Amount
%
Currency
Impact
$1,371,566
$ 89,298
$
— $1,282,268
$1,400,547
$ (28,981)
(2.1)% $(118,279)
(8.4)% $(34,793)
536,359
49,465
(4,104)
490,998
502,083
34,276
6.8 %
(11,085)
(2.2)% (15,632)
93,602
5,047
(32)
88,587
97,771
(4,169)
(4.3)%
(9,184)
(9.4)%
(3,258)
$2,001,527
$ 143,810
$
(4,136) $1,861,853
$2,000,401
$
1,126
0.1 % $(138,548)
(6.9)% $(53,683)
Freight
revenues
Freight-related
revenues
All-other
revenues
Total operating
revenues
Carloads
2,894,664
273,383
— 2,621,281
2,733,019
161,645
5.9 % (111,738)
(4.1)%
(a) Represents revenues for services provided by Freightliner Australia to GRail for the month of December 2016, which were eliminated
in our consolidated revenues.
72
Operating revenues were $2,001.5 million for the year ended December 31, 2016, compared with $2,000.4 million for
the year ended December 31, 2015, an increase of $1.1 million, or 0.1%. The $1.1 million increase in operating revenues
consisted of $139.7 million in net revenues from new operations, partially offset by a $138.5 million decrease in existing
operations, primarily due to a decrease in freight revenues. For additional explanations regarding the changes in our operating
revenues, see "Operating Results by Segment."
Operating Expenses
Total operating expenses for the year ended December 31, 2016 increased $95.8 million, or 5.9%, to $1,711.9 million,
compared with $1,616.1 million for the year ended December 31, 2015. The increase consisted of $140.4 million from new
operations, partially offset by a decrease of $44.7 million from existing operations. When we discuss either operating
expenses from existing operations or same railroad operating expenses, we are referring to the change in our operating
expenses, period-over-period, associated with operations that we managed in both periods (i.e., excluding the impact of
acquisitions).
Excluding a $48.8 million decrease from the depreciation of foreign currencies relative to the United States dollar,
operating expenses from existing operations increased $4.1 million. For additional explanations regarding the changes in our
total operating expenses, see "Operating Results by Segment."
The following table sets forth our total operating expenses for the years ended December 31, 2016 and 2015 (dollars in
thousands):
2016
2015
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Amount
Increase/
(Decrease)
Currency
Impact
2015
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
Labor and benefits
$ 633,114
31.5% $ 614,967
30.7 % $
18,147
$ (19,635) $ 595,332
$
37,782
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 loss/(gain) on sale and
impairment of assets
Restructuring costs
Other expenses
159,372
198,046
8.0%
9.9%
149,825
186,905
7.5 %
9.3 %
9,547
11,141
(6,361)
(5,441)
143,464
181,464
15,908
16,582
205,188
10.3%
188,535
9.4 %
16,653
(3,145)
185,390
19,798
118,203
5.9%
132,149
6.6 %
(13,946)
(4,115)
128,034
(9,831)
13,346
38,884
82,522
87,194
32,484
8,182
135,380
0.7%
1.9%
4.1%
4.4%
1.6%
0.4%
6.8%
13,714
42,494
95,248
78,140
(2,291)
—
116,454
0.7 %
2.1 %
4.9 %
3.9 %
(0.1)%
— %
5.8 %
(368)
(3,610)
(12,726)
9,054
34,775
8,182
18,926
(494)
(549)
(3,375)
(3,173)
17
—
13,220
41,945
91,873
74,967
(2,274)
—
(2,509)
113,945
126
(3,061)
(9,351)
12,227
34,758
8,182
21,435
Total operating expenses
$1,711,915
85.5% $1,616,140
80.8 % $
95,775
$ (48,780) $1,567,360
$ 144,555
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Operating Income/Operating Ratio
Operating income was $289.6 million for the year ended December 31, 2016, compared with $384.3 million for the
year ended December 31, 2015. Operating income for the year ended December 31, 2016 included impairment and related
charges of $21.5 million related to ERS, $21.1 million of charges associated with Arrium entering into voluntary
administration and $14.7 million of restructuring and related charges associated with our U.K. coal business. Operating
income for the year ended December 31, 2016 also included corporate development and related costs of $23.3 million and
restructuring costs of $4.0 million. Operating income for the year ended December 31, 2015 included Freightliner
acquisition/integration related costs of $15.3 million, corporate development and related costs of $4.4 million and net gain on
sale of assets of $2.3 million. Our operating ratio was 85.5% for the year ended December 31, 2016, compared with 80.8%
for the year ended December 31, 2015. Our same railroad operating ratio for the year ended December 31, 2016 was 84.4%,
compared with 80.8% for the year ended December 31, 2015.
73
Interest Expense
Interest expense was $75.6 million for the year ended December 31, 2016, compared with $67.1 million for the year
ended December 31, 2015. The increase in interest expense was primarily due to a higher debt balance resulting from the
acquisition of Freightliner in March 2015, as well as the write-off of deferred financing costs related to the GRail
Transactions in 2016.
Provision for Income Taxes
Our income tax provision for the year ended December 31, 2016 was $74.4 million, which represented 34.5% of
income before 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. The increase in our effective income tax rate for the year ended
December 31, 2016 was primarily driven by the effect of foreign operations, which resulted from losses incurred in some
foreign jurisdictions generating a tax benefit at tax rates lower than United States statutory rate, a portion of which were
reduced by recording of a valuation allowance.
In addition, our provision for income taxes for the year ended December 31, 2016 included a $28.8 million tax benefit
from the United States Short Line Tax Credit and a $4.3 million tax benefit associated with a prospective reduction in the
U.K. income tax rate, which was enacted in September 2016. Our provision for income taxes for the year ended
December 31, 2015 included a $27.4 million tax benefit associated with the United States Short Line Tax Credit and a $9.7
million tax benefit associated with a prospective reduction in the U.K. income tax rate enacted during the fourth quarter of
2015.
Net Income and Earnings Per Common Share Attributable to G&W Common Stockholders
Net income attributable to G&W for the year ended December 31, 2016 was $141.1 million, compared with $225.0
million for the year ended December 31, 2015. Our basic EPS were $2.46 with 57.3 million weighted average shares
outstanding for the year ended December 31, 2016, compared with basic EPS of $3.97 with 56.7 million weighted average
shares outstanding for the year ended December 31, 2015. Our diluted EPS for the year ended December 31, 2016 were $2.42
with 58.3 million weighted average shares outstanding, compared with diluted EPS of $3.89 with 57.8 million weighted
average shares outstanding for the year ended December 31, 2015. Our results for the years ended December 31, 2016 and
2015 included certain items affecting comparability between the periods as previously presented in the "Overview."
74
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, 2016 and 2015 (dollars in thousands):
North
American
Operations
Australian
Operations
U.K./European
Operations
Total
Operations
2016
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)/loss on sale and impairment of
assets
Restructuring costs
Other expenses
Total operating expenses
Operating income/(loss)
Operating ratio
Interest expense, net
Provision for/(benefit from) income taxes
Expenditures for additions to property &
equipment, net of grants from outside parties
Carloads
$
$
$
$
$
$
913,619
258,922
64,223
1,236,764
$
$
120,622
95,776
6,188
222,586
$
$
337,325
181,661
23,191
542,177
169,438
95,178
112,248
26,798
39,437
13,346
4,408
21,868
40,502
$
$
1,371,566
536,359
93,602
2,001,527
633,114
159,372
198,046
205,188
118,203
13,346
38,884
82,522
87,194
66,547
6,514
23,429
30,863
19,743
—
5,373
10,559
10,047
13,341
789
30,571
217,776
4,810
97.8%
13,958
988
11,285
216,395
$
$
$
$
19,352
6,509
27,842
576,926
(34,749)
106.4%
19,591
(7,294)
34,831
1,104,016
$
$
$
$
32,484
8,182
135,380
1,711,915
289,612
85.5%
74,534
74,395
183,450
2,894,664
397,129
57,680
62,369
147,527
59,023
—
29,103
50,095
36,645
(209)
884
76,967
917,213
319,551
74.2%
40,985
80,701
137,334
1,574,253
$
$
$
$
75
North
American
Operations
Australian
Operations
U.K./European
Operations
Total
Operations
2015
$
$
949,028
227,154
65,633
1,241,815
$
$
146,850
87,616
8,486
242,952
$
$
304,669
187,313
23,652
515,634
$
$
1,400,547
502,083
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
$
$
— $
$
(6,548)
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
18,686
75,894
32,035
887,714
$
329,762
2,733,019
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
Operating income
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
$
$
$
$
$
North American Operations
Operating Revenues and Carloads
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, 2016 and 2015 (dollars in thousands):
Total
Operations
$ 913,619
258,922
64,223
2016
New
Operations
4,772
$
70
396
Existing
Operations
$ 908,847
258,852
63,827
2015
Total
Operations
$ 949,028
227,154
65,633
Increase/(Decrease)
in Total Operations
Increase/(Decrease) in
Existing Operations
Amount
$ (35,409)
31,768
(1,410)
Amount
%
(3.7)% $ (40,181)
31,698
14.0 %
(1,806)
(2.1)%
Currency
%
Impact
(4.2)% $ (2,467)
(806)
14.0 %
(449)
(2.8)%
$1,236,764
$
5,238
$1,231,526
$1,241,815
$ (5,051)
(0.4)% $ (10,289)
(0.8)% $ (3,722)
Freight revenues
Freight-related revenues
All other revenues
Total operating
revenues
Carloads
1,574,253
6,389
1,567,864
1,644,400
(70,147)
(4.3)%
(76,536)
(4.7)%
76
Freight Revenues
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, 2016, compared with the year ended
December 31, 2015 (dollars in thousands):
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
2016
$ 115,627
18,259
137,712
74,664
33,549
99
83,509
16,819
103,799
114,185
70,519
104,523
20,835
19,520
$ 913,619
2015
$ 123,116
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
$ 949,028
Increase/
(Decrease) in
Total
Operations
$
(7,489) $
946
(2,688)
(18,877)
(1,350)
90
3,300
(2,937)
(99)
(2,352)
2,935
(9,307)
2,757
(338)
New
Operations
233
469
1,243
—
76
83
99
—
329
1,299
351
273
135
182
4,772
$ (35,409) $
Currency
Impact
2015
Constant
Currency*
(335) $ 122,781
(103)
17,210
(403)
139,997
(79)
93,462
(24)
34,875
9
—
(105)
80,104
(118)
19,638
(362)
103,536
(117)
116,420
(269)
67,315
(465)
113,365
(12)
18,066
(75)
19,783
(2,467) $ 946,561
$
$
Increase/
(Decrease) in
Existing
Operations
Constant
Currency*
$
(7,387)
580
(3,528)
(18,798)
(1,402)
7
3,306
(2,819)
(66)
(3,534)
2,853
(9,115)
2,634
(445)
$ (37,714)
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following table sets forth our North American Operations freight revenues, carloads and average freight revenues
per carload for the years ended December 31, 2016 and 2015 (dollars in thousands, except average freight revenues per
carload):
Freight Revenues
Carloads
2016
2015 Constant
Currency*
2016
2015
Average Freight
Revenues Per
Carload
Commodity Group
Amount
% of
Total
Amount
% of
Total
Amount
Amount
2016
2015
Agricultural Products
$ 115,627
12.7% $ 122,781
13.0%
217,038
216,500
$
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
18,259
137,712
74,664
33,549
99
83,509
16,819
103,799
114,185
70,519
104,523
20,835
19,520
2.0%
17,210
1.8%
30,308
15.1%
139,997
14.8%
175,316
8.2%
93,462
9.9%
221,001
3.7%
—%
9.1%
1.8%
11.4%
12.5%
7.7%
34,875
9
80,104
19,638
103,536
116,420
67,315
3.7%
—%
8.5%
2.1%
10.9%
12.3%
60,874
1,382
21,697
137,898
197,849
7.1%
102,718
11.4%
113,365
12.0%
163,595
2.3%
2.1%
18,066
19,783
1.8%
2.1%
44,922
61,559
27,738
179,002
267,258
61,145
107
24,812
133,915
209,957
102,759
176,543
38,927
68,728
138,096
137,009
$ 913,619
100.0% $ 946,561
100.0% 1,574,253
1,644,400
$
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
77
2015
Constant
Currency*
567
$
620
782
350
570
84
585
791
773
554
655
642
464
288
576
$
533
602
786
338
551
72
605
775
753
577
687
639
464
317
580
$
$
569
624
784
350
571
84
585
796
776
555
658
645
464
289
577
Total traffic from our North American Operations decreased 70,147 carloads, or 4.3%, for the year ended December 31,
2016, compared with the year ended December 31, 2015. The decrease consisted of 76,536 carloads, or 4.7%, from existing
operations, partially offset by 6,389 carloads from new operations. The decrease in traffic from existing operations was
principally due to decreases of 46,257 carloads of coal and coke traffic, 14,160 carloads of minerals and stone traffic, 13,163
carloads of pulp and paper traffic, 7,411 carloads of other commodity traffic, 4,412 carloads of chemicals and plastics traffic
and 3,115 carloads of metallic ores traffic, partially offset by increases of 5,826 carloads of waste traffic and 3,678 carloads
of metals traffic. All remaining traffic increased by a net 2,478 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates
and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Excluding the impact of
foreign currency, average freight revenues per carload from existing operations increased 0.7% to $580 for the year ended
December 31, 2016, compared with the year ended December 31, 2015. The increase in average freight revenues per carload
was impacted by a change in commodity mix, which increased average freight revenues per carload 1.1%, partially offset by
lower fuel surcharges, which decreased average freight revenues per carload 2.3%. Excluding these factors, average freight
revenues per carload increased 1.9%.
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.
Agricultural products revenues decreased $7.4 million, or 6.0%, primarily due to a decrease in average freight revenues
per carload of 6.2%. The decrease was primarily due to a change in customer mix, shorter average length of haul, as well as
lower fuel surcharges.
Chemicals and plastics revenues decreased $3.5 million, or 2.5%, primarily due to a traffic decrease of 4,412 carloads,
or 2.5%. The decrease in carloads was primarily due to decreased shipments of industrial chemicals in the western United
States.
Coal and coke revenues decreased $18.8 million, or 20.1%. Coal and coke traffic decreased 46,257 carloads, or 17.3%,
which decreased revenues by $15.6 million, and average freight revenues per carload decreased 3.4%, which decreased
revenues by $3.2 million. The decrease in carloads was primarily due to lower demand for steam coal as a result of
competition from natural gas power generation. The decrease in average freight revenues per carload was due to a change in
customer mix.
Lumber and forest products revenues increased $3.3 million, or 4.1%. Lumber and forest products average freight
revenues per carload increased 3.2%, which increased revenues by $2.7 million, and traffic increased 989 carloads, or 0.7%,
which increased revenues by $0.6 million. The increase in carloads was primarily due to increased lumber shipments in the
northeastern United States.
Metallic ores revenues decreased $2.8 million, or 14.4%. Metallic ores traffic decreased 3,115 carloads, or 12.6%,
which decreased revenues by $2.4 million, and average freight revenues per carload decreased 2.0%, which decreased
revenues by $0.4 million. The decrease in carloads was primarily due to the planned idling of an alumina customer facility in
the southern United States and lower production at a copper facility in the western United States.
Minerals and stone revenues decreased $3.5 million, or 3.0%. Minerals and stone traffic decreased 14,160 carloads, or
6.7%, which decreased revenues by $8.1 million, while average freight revenues per carload increased 4.2%, which increased
revenues by $4.6 million. The decrease in carloads was primarily due to weaker rock salt shipments due to the mild 2015
winter and lower frac sand shipments in the northeastern and midwestern United States, partially offset by stronger
aggregates and cement shipments throughout the United States. The increase in average freight revenues per carload was
primarily due to the change in mix of business.
Petroleum products increased $2.9 million, or 4.2%, primarily due to an increase in average freight revenues per
carload of 4.6%. Average freight revenues per carload increased primarily due to the change in mix of business.
Pulp and paper revenues decreased $9.1 million, or 8.0%, primarily due to a traffic decrease of 13,163 carloads, or
7.5%. The decrease in carloads was primarily due to decreased shipments resulting from trucking competition and the closure
of several plants we served due to consolidation within the paper industry.
Waste revenues increased $2.6 million, or 14.6%, primarily due to an increase in traffic of 5,826 carloads, or 15.0%,
resulting from new contracts in the United States.
78
Freight revenues from all remaining commodities combined increased by a net $0.1 million.
Freight-Related Revenues
Excluding an $0.8 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 $32.6 million, or 14.4%, to $258.9 million
for the year ended December 31, 2016, compared with $226.3 million for the year ended December 31, 2015. The increase in
freight-related revenues was primarily from existing operations due to a change in presentation of $13.5 million of revenues
from certain of our port terminal railroad operations, which were previously presented net of certain related costs incurred, as
well as the recognition of $10.0 million of revenue from a multi-year take-or-pay volume shortfall under a crude-by-rail
contract and an increase in switching and storage revenues of $8.4 million.
All Other Revenues
Excluding a $0.4 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 $1.0 million, or 1.5%, to
$64.2 million for the year ended December 31, 2016, compared with $65.2 million for the year ended December 31, 2015.
The decrease in all other revenues consisted of $1.4 million from existing operations, partially offset by $0.4 million from
new operations.
Operating Expenses
Total operating expenses from our North American Operations decreased $27.1 million, or 2.9%, to $917.2 million for
the year ended December 31, 2016, compared with $944.3 million for the year ended December 31, 2015. The decrease
included $32.6 million from existing operations, partially offset by $5.5 million from new operations. The decrease from
existing operations was primarily due to a $16.6 million decrease in the cost of diesel fuel used in train operations, a $12.3
million decrease in other expenses, an $8.4 million decrease in equipment rents and a $7.6 million decrease in materials,
partially offset by an $11.8 million increase in trackage rights and a $6.2 million increase in depreciation and amortization
expense. The depreciation of the Canadian dollar relative to the United States dollar also resulted in a $3.4 million decrease
in operating expenses from existing operations.
79
The following table sets forth operating expenses from our North American Operations for the years ended
December 31, 2016 and 2015 (dollars in thousands):
2016
2015
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Amount
Increase/
(Decrease)
Currency
Impact
2015
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
$ 397,129
32.1% $ 397,911
32.0 % $
(782) $ (1,317) $ 396,594
$
535
Labor and benefits
Equipment rents
Purchased services
57,680
62,369
4.7%
5.0%
65,918
63,986
5.3 %
5.1 %
Depreciation and amortization
147,527
11.9% 141,814
11.4 %
Diesel fuel used in train operations
Casualties and insurance
Materials
Trackage rights
Net gain on sale and impairment of
assets
Restructuring costs
Other expenses
59,023
29,103
50,095
36,645
(209)
884
76,967
4.8%
2.4%
4.0%
3.0%
—%
0.1%
6.2%
75,630
29,574
57,808
24,601
6.1 %
2.4 %
4.7 %
2.0 %
(2,001)
(0.2)%
—
89,088
— %
7.2 %
(8,238)
(1,617)
5,713
(16,607)
(471)
(7,713)
12,044
1,792
884
(171)
(228)
(728)
(449)
(98)
(215)
(11)
3
—
65,747
63,758
141,086
75,181
29,476
57,593
24,590
(8,067)
(1,389)
6,441
(16,158)
(373)
(7,498)
12,055
(1,998)
—
1,789
884
(12,121)
(221)
88,867
(11,900)
Total operating expenses
$ 917,213
74.2% $ 944,329
76.0 % $ (27,116) $ (3,435) $ 940,894
$ (23,681)
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses from our North American
Operations excluding a decrease of $3.4 million due to the net impact from foreign currency depreciation.
Labor and benefits expense was $397.1 million for the year ended December 31, 2016, compared with $396.6 million
for the year ended December 31, 2015, an increase of $0.5 million, or 0.1%. The increase consisted of $3.1 million from new
operations, partially offset by a decrease of $2.5 million from existing operations. The decrease from existing operations was
primarily due to a reduction in the average number of employees, partially offset by an increase in labor costs.
Equipment rents expense was $57.7 million for the year ended December 31, 2016, compared with $65.7 million for
the year ended December 31, 2015, a decrease of $8.1 million, or 12.3%. The decrease consisted of $8.4 million from
existing operations, partially offset by $0.3 million from new operations. The decrease from existing operations was primarily
due to reduced car hire expense and reduced railcar lease expense as a result of the purchase of railcars in 2015.
Purchased services expense was $62.4 million for the year ended December 31, 2016, compared with $63.8 million for
the year ended December 31, 2015, a decrease of $1.4 million, or 2.2%. The decrease consisted of $1.8 million from existing
operations, partially offset by $0.4 million from new operations. The decrease from existing operations was primarily due to a
reduction in the use of outside contractors for maintenance of track property.
Depreciation and amortization expense was $147.5 million for the year ended December 31, 2016, compared with
$141.1 million for the year ended December 31, 2015, an increase of $6.4 million, or 4.6%. The increase from existing
operations was primarily attributable to a larger depreciable asset base in 2016 compared with 2015, reflecting capital
spending in 2016 and 2015.
The cost of diesel fuel used in train operations was $59.0 million for the year ended December 31, 2016, compared
with $75.2 million for the year ended December 31, 2015, a decrease of $16.2 million, or 21.5%. The decrease consisted of
$16.6 million from existing operations, partially offset by $0.4 million from new operations. The decrease from existing
operations was primarily attributable to a 17.9% decrease in average fuel cost per gallon.
Materials expense was $50.1 million for the year ended December 31, 2016, compared with $57.6 million for the year
ended December 31, 2015, a decrease of $7.5 million, or 13.0%. The decrease was primarily from existing operations due to
increased purchasing efficiencies, lower equipment maintenance expenses associated with decreased traffic volumes and a
reduction in the level of construction projects in 2016.
80
Trackage rights expense was $36.6 million for the year ended December 31, 2016, compared with $24.6 million for the
year ended December 31, 2015, an increase of $12.1 million, or 49.0%. The increase was primarily from existing operations
due to a change in the presentation of $13.5 million of costs incurred to operate within certain of our port terminal railroad
operations, which costs were previously presented as an offset to revenues generated from the operations.
Other expenses were $77.0 million for the year ended December 31, 2016, compared with $88.9 million for the year
ended December 31, 2015, a decrease of $11.9 million, or 13.4%. The decrease consisted of $12.3 million from existing
operations, partially offset by $0.4 million from new operations. The decrease from existing operations was primarily
attributable to acquisition and integration costs related to the Freightliner acquisition and integration in 2015.
Operating Income/Operating Ratio
Operating income from our North American Operations was $319.6 million for the year ended December 31, 2016,
compared with $297.5 million for the year ended December 31, 2015. Operating income for the year ended December 31,
2016 included $7.2 million of corporate development and related costs, primarily associated with the Providence and
Worcester Railroad and GRail transactions, and restructuring costs of $0.9 million. Operating income for the year ended
December 31, 2015 included $14.5 million of Freightliner acquisition and integration related costs, net gain on sale of assets
of $2.0 million and corporate development and related costs of $1.4 million. The operating ratio was 74.2% for the year
ended December 31, 2016, compared with 76.0% for the year ended December 31, 2015.
Australian Operations
Operating Revenues and Carloads
As previously disclosed, we own a controlling 51.1% ownership interest in our Australian Operations and, therefore,
include 100% of our Australian Operations within our consolidated financial statements with a 48.9% noncontrolling interest
recorded to reflect MIRA's ownership. The following table sets forth our Australian Operations operating revenues and
carloads by new operations and existing operations for the years ended December 31, 2016 and 2015 (dollars in thousands):
2016
Increase/(Decrease) in
Total Operations
Increase/
(Decrease) in Existing
Operations
Total
Operations
New
Operations
Eliminations
(a)
Existing
Operations
2015
Amount
%
Amount
%
Currency
Impact
$ 120,622
$
11,112
$
— $ 109,510
$146,850
$ (26,228)
(17.9)% $ (37,340)
(25.4)% $ (2,708)
95,776
10,906
(4,104)
88,974
87,616
8,160
9.3 %
1,358
1.5 %
246
6,188
28
(32)
6,192
8,486
(2,298)
(27.1)%
(2,294)
(27.0)%
(156)
$ 222,586
$
22,046
$
(4,136) $ 204,676
$242,952
$ (20,366)
(8.4)% $ (38,276)
(15.8)% $ (2,618)
216,395
35,203
—
181,192
200,905
15,490
7.7 %
(19,713)
(9.8)%
Freight
revenues
Freight-
related
revenues
All other
revenues
Total
operating
revenues
Carloads
(a) Represents revenues for services provided by Freightliner Australia to GRail for the month of December 2016, which were eliminated
in our consolidated revenues.
Operating revenues were $222.6 million for the year ended December 31, 2016, compared with $243.0 million for the
year ended December 31, 2015, a decrease of $20.4 million, or 8.4%. Excluding $17.9 million of net revenues from new
operations and a $2.6 million decrease from the impact of foreign currency depreciation, our Australian Operations same
railroad operating revenues decreased by $35.7 million, or 14.8%.
81
Freight Revenues
The following table sets forth the changes in our Australian Operations freight revenues by commodity group
segregated into new operations and existing operations for the year ended December 31, 2016, compared with the year ended
December 31, 2015 (dollars in thousands):
Commodity Group
2016
2015
Increase/
(Decrease) in
Total
Operations
New
Operations
Currency
Impact
2015
Constant
Currency*
Increase/
(Decrease) in
Existing
Operations
Constant
Currency*
Agricultural Products
$
17,511
$
22,614
$
Coal & Coke
Intermodal
Metallic Ores
Minerals & Stone
Petroleum Products
11,112
66,761
16,874
7,634
730
—
71,429
44,204
7,306
1,297
(5,103) $
11,112
(4,668)
(27,330)
328
(567)
— $
(436) $
22,178
$
(4,667)
11,112
—
—
—
—
—
(711)
(1,475)
(82)
(4)
—
70,718
42,729
7,224
1,293
—
(3,957)
(25,855)
410
(563)
Total freight revenues
$
120,622
$
146,850
$
(26,228) $
11,112
$
(2,708) $
144,142
$
(34,632)
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following table sets forth our Australian Operations freight revenues, carloads and average freight revenues per
carload for the years ended December 31, 2016 and 2015 (dollars in thousands, except average freight revenues per carload):
Freight Revenues
Carloads
2016
2015 Constant
Currency*
2016
2015
Average Freight Revenues Per
Carload
2015
Constant
Currency*
Commodity Group
Amount
% of
Total
Amount
% of
Total
Amount
Amount
2016
2015
Agricultural Products
$ 17,511
14.5% $ 22,178
Coal & Coke
Intermodal
Metallic Ores
Minerals & Stone
Petroleum Products
11,112
66,761
16,874
7,634
730
9.2%
55.4%
14.0%
6.3%
0.6%
—
70,718
42,729
7,224
1,293
15.4%
—%
49.1%
29.6%
5.0%
0.9%
43,362
35,203
59,688
13,807
64,060
275
51,534
$
—
61,659
26,915
60,490
307
404
316
1,118
1,222
119
2,655
439
$
—
1,158
1,642
121
4,225
Total
$ 120,622
100.0% $ 144,142
100.0%
216,395
200,905
$
557
731
$
430
—
1,147
1,588
119
4,212
717
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our Australian Operations increased 15,490 carloads, or 7.7%, to 216,395 carloads for the year ended
December 31, 2016, compared with the year ended December 31, 2015. The increase consisted of 35,203 carloads from new
operations, partially offset by a decrease of 19,713 carloads, or 9.8%, from existing operations. The decrease in traffic from
existing operations was principally due to decreases of 13,108 carloads of metallic ores traffic, 8,172 carloads of agricultural
products traffic and 1,971 carloads of intermodal traffic, partially offset by a 3,570 carload increase in minerals and stone
traffic.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates
and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Excluding the impact of
foreign currency, average freight revenues per carload from our Australian Operations decreased 22.3% to $557 for the year
ended December 31, 2016, compared with the year ended December 31, 2015. Excluding the impact of foreign currency,
average freight revenues per carload from existing operations decreased 15.8% to $604 for the year ended December 31,
2016. This decrease in average freight revenues per carload from existing operations was primarily due to decreased metallic
ores shipments and lower fuel surcharges.
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.
82
Agricultural products revenues decreased $4.7 million, or 21.0%. Agricultural products traffic decreased 8,172
carloads, or 15.9%, which decreased revenues by $3.3 million, and average freight revenues per carload decreased 6.0%,
which decreased revenues by $1.4 million. The decrease in carloads was primarily driven by low global crop prices affecting
export volumes and carloads shipped by truck from South Australia to domestic markets in eastern Australia due to weak
local harvests in those areas. The decrease in average freight revenues per carload was primarily attributable to a change in
the mix of business.
Intermodal revenues decreased $4.0 million, or 5.6%. Intermodal traffic decreased 1,971 carloads, or 3.2%, which
decreased revenues by $2.2 million, and average freight revenues per carload decreased 2.4%, which decreased revenues by
$1.8 million. The decrease in carloads was primarily due to lower project-related traffic. The decrease in average freight
revenues per carload was primarily due to lower fuel surcharges.
Metallic ores revenues decreased $25.9 million, or 60.5%. Metallic ores traffic decreased 13,108 carloads, or 48.7%,
which decreased revenues by $16.0 million, and average freight revenues per carload decreased 23.0%, which decreased
revenues by $9.8 million. These decreases were primarily driven by a decrease in iron ore and manganese shipments as a
result of multiple customer mine closures in 2015.
Freight revenues from all remaining commodities combined decreased by $0.2 million.
Freight-Related Revenues
Excluding a $0.2 million increase due to the net impact of foreign currency appreciation, 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 $7.9 million, or 9.0%, to $95.8 million for the year
ended December 31, 2016, compared with $87.9 million for the year ended December 31, 2015. The increase in freight-
related revenues consisted of $6.8 million of net freight-related revenues from new operations and $1.1 million from existing
operations. The increase in freight-related revenues from existing operations was primarily due to temporary shipments of
manganese stockpiled at a customer mine facility that will not recur unless the mine is reopened in the future and increased
switching revenues, partially offset by lower Southern Iron fixed payments from Arrium that ceased in April 2016 when
Arrium filed for voluntary administration.
All Other Revenues
Excluding a $0.2 million decrease due to the net 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 $2.1 million, or 25.7%, to $6.2 million for the
year ended December 31, 2016, compared with $8.3 million for the year ended December 31, 2015, primarily due to reduced
third-party railcar and locomotive repair revenues.
Operating Expenses
Total operating expenses from our Australian Operations for the year ended December 31, 2016 increased $29.7
million, or 15.8%, to $217.8 million, compared with $188.1 million for the year ended December 31, 2015. The increase
consisted of $17.8 million from new operations and $11.8 million from existing operations. The increase from existing
operations included $21.1 million related to the impairment of a rolling-stock maintenance facility and associated write-off of
accounts receivable in the first quarter of 2016 resulting from Arrium entering voluntary administration, as well as $14.7
million of corporate development and related costs primarily associated with the GRail Transactions, partially offset by a $1.9
million decrease from the net depreciation of the Australian dollar relative to the United States dollar. In addition, lower
freight volumes from existing operations and effective management of operating costs further reduced operating expenses
from our Australian Operations for the year ended December 31, 2016.
83
The following table sets forth operating expenses from our Australian Operations for the years ended December 31,
2016 and 2015 (dollars in thousands):
Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization
Diesel fuel used in train
operations
Casualties and insurance
Materials
Trackage rights
Net loss/(gain) on sale and
impairment of assets
Restructuring costs
Other expenses
Total operating expenses
2016
2015
Amount
$ 66,547
6,514
23,429
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Increase/
(Decrease)
29.9% $ 67,947
12,298
19,560
2.9%
10.5%
28.0% $ (1,400) $
5.1%
8.0%
(5,784)
3,869
Currency
Impact
2015
Constant
Currency*
(888) $ 67,059
(73)
12,225
(257)
19,303
Increase/
(Decrease)
Constant
Currency*
(512)
$
(5,711)
4,126
30,863
13.9%
27,425
11.3%
3,438
(197)
27,228
3,635
19,743
5,373
10,559
10,047
13,341
789
30,571
$ 217,776
8.9%
2.4%
4.7%
4.5%
21,150
8,498
11,408
13,234
8.7%
3.5%
4.7%
5.4%
(1,407)
(3,125)
(849)
(3,187)
(71)
(62)
(7)
(317)
21,079
8,436
11,401
12,917
(1,336)
(3,063)
(842)
(2,870)
(48)
6.0%
—
0.4%
13.7%
6,638
97.8% $ 188,110
—% 13,389
—%
789
2.7% 23,933
77.4% $ 29,666
(1)
—
(76)
(49)
—
6,562
$ (1,949) $ 186,161
13,390
789
24,009
$ 31,615
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses of our Australian Operations
excluding a $1.9 million decrease due to the net impact from foreign currency depreciation.
Labor and benefits expense was $66.5 million for the year ended December 31, 2016, compared with $67.1 million for
the year ended December 31, 2015, a decrease of $0.5 million, or 0.8%. The decrease consisted of $4.6 million from existing
operations, partially offset by $4.1 million from new operations. The decrease from existing operations was primarily due to a
reduction in the average number of employees in 2016 and severance costs recorded in 2015, partially offset by insourcing of
equipment maintenance activities in 2015.
Equipment rents expense was $6.5 million for the year ended December 31, 2016, compared with $12.2 million for the
year ended December 31, 2015, a decrease of $5.7 million, or 46.7%. The decrease consisted of $6.3 million from existing
operations, partially offset by $0.6 million from new operations. The decrease from existing operations was primarily
attributable to a change in classification of maintenance expense associated with certain leased equipment from equipment
rents expense in 2015 to purchased services expense in 2016, as well as reduced leased freight car expense associated with
lower grain shipments.
Purchased services expense was $23.4 million for the year ended December 31, 2016, compared with $19.3 million for
the year ended December 31, 2015, an increase of $4.1 million, or 21.4%. The increase consisted of $2.2 million from
existing operations and $1.9 million from new operations. The increase from existing operations was primarily attributable to
a change in classification of maintenance expense associated with certain leased equipment from equipment rents expense in
2015 to purchased services expense in 2016, partially offset by the insourcing of maintenance of way activities in 2015.
Depreciation and amortization expense was $30.9 million for the year ended December 31, 2016, compared with $27.2
million for the year ended December 31, 2015, an increase of $3.6 million, or 13.4%. The increase consisted of $3.1 million
from new operations and $0.6 million from existing operations.
The cost of diesel fuel used in train operations was $19.7 million for the year ended December 31, 2016, compared
with $21.1 million for the year ended December 31, 2015, a decrease of $1.3 million, or 6.3%. The decrease consisted of $3.3
million from existing operations, partially offset by $2.0 million from new operations. The decrease from existing operations
was primarily attributable to a 22.2% decrease in average fuel cost per gallon.
Casualties and insurance expense was $5.4 million for the year ended December 31, 2016, compared with $8.4 million
for the year ended December 31, 2015, a decrease of $3.1 million, or 36.3%, primarily due to a decrease in derailment
expense in 2016.
84
Trackage rights expense was $10.0 million for the year ended December 31, 2016, compared with $12.9 million for the
year ended December 31, 2015, a decrease of $2.9 million, or 22.2%. The decrease consisted of $3.2 million from existing
operations, partially offset by $0.3 million from new operations. The decrease from existing operations was primarily
attributable to decreased shipments as a result of the Southern Iron mine closure in South Australia in 2015.
Net loss on the sale and impairment of assets for the year ended December 31, 2016 of $13.3 million was primarily
related to the impairment of a rolling-stock maintenance facility resulting from Arrium entering into voluntary administration.
Other expenses were $30.6 million for the year ended December 31, 2016, compared with $6.6 million for the year
ended December 31, 2015, an increase of $24.0 million. The increase consisted of $18.3 million from existing operations and
$5.7 million from new operations. The increase from existing operations was primarily attributable to the write-off of
accounts receivable associated with Arrium entering into voluntary administration and increased corporate development and
related costs primarily associated with the GRail Transactions.
Operating Income
Operating income from our Australian Operations was $4.8 million for the year ended December 31, 2016, compared
with $54.8 million for the year ended December 31, 2015. For the year ended December 31, 2016, our Australian Operations
recorded charges of $21.1 million, including a $13.0 million non-cash charge related to the impairment of a rolling-stock
maintenance facility and associated write-off of accounts receivable of $8.1 million, resulting from Arrium entering into
voluntary administration. Operating income for the year ended December 31, 2016 also included $14.7 million of corporate
development and related costs, primarily associated with the GRail Transactions. Operating income for the year ended
December 31, 2015 included corporate development and related costs of $2.7 million.
U.K./European Operations
Operating Revenues and Carloads
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, 2016 and 2015 (dollars in thousands):
2016
2015
Increase/(Decrease) in
Total Operations
Increase/(Decrease) in
Existing Operations
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Amount
%
Amount
%
Currency
Impact
$ 337,325
$
73,414
$ 263,911
$ 304,669
$ 32,656
10.7 % $ (40,758)
(13.4)% $ (29,618)
181,661
23,191
38,489
4,623
143,172
187,313
18,568
23,652
(5,652)
(461)
(3.0)%
(1.9)%
(44,141)
(23.6)% (15,072)
(5,084)
(21.5)%
(2,653)
$ 542,177
$ 116,526
$ 425,651
$ 515,634
$ 26,543
5.1 % $ (89,983)
(17.5)% $ (47,343)
Freight revenues
Freight-related
revenues
All other revenues
Total operating
revenues
Carloads
1,104,016
231,791
872,225
887,714
216,302
24.4 %
(15,489)
(1.7)%
Operating revenues and carloads for the year ended December 31, 2016 included twelve months of revenues from our
Freightliner U.K./European operations compared with approximately nine months for the year ended December 31, 2015.
85
Freight Revenues
The following table sets forth the changes in our U.K./European Operations freight revenues by commodity group for
the year ended December 31, 2016, compared with the year ended December 31, 2015 (dollars in thousands):
Commodity Group
2016
2015
Increase/
(Decrease) in
Total
Operations
New
Operations
Currency
Impact
2015
Constant
Currency*
Increase/
(Decrease) in
Existing
Operations
Constant
Currency*
Agricultural Products
$
2,465
$
520
$
1,945
$
321
$
(21) $
499
$
1,645
Coal & Coke
Intermodal
Lumber & Forest Products
Metallic Ores
Minerals & Stone
14,982
262,977
170
100
24,026
227,527
—
—
56,631
52,596
(9,044)
35,450
170
100
4,035
4,176
59,375
64
—
(2,640)
(23,384)
21,386
204,143
—
—
—
—
(10,580)
(541)
106
100
9,478
(3,573)
49,023
(1,870)
Total freight revenues
$
337,325
$
304,669
$
32,656
$
73,414
$
(29,618) $
275,051
$
(11,140)
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
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, 2016 and 2015 (dollars in thousands, except average freight revenues per
carload):
Freight Revenues
Carloads
2016
2015 Constant
Currency*
2016
2015
Average Freight
Revenues Per
Carload
Commodity Group
Amount
% of
Total
Amount
% of
Total
Amount
Amount
2016
2015
2015
Constant
Currency*
Agricultural Products
$
2,465
0.7% $
499
Coal & Coke
Intermodal
Lumber & Forest Products
Metallic Ores
14,982
262,977
170
100
4.4%
21,386
0.2%
7.8%
2,552
40,117
610
$
61,144
78.0% 204,143
74.2%
904,783
692,304
0.1%
—%
—
—
—%
—%
473
201
—
—
Minerals & Stone
56,631
16.8%
49,023
17.8%
155,890
133,656
Total
$ 337,325
100.0% $ 275,051
100.0% 1,104,016
887,714
$
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
966
373
291
359
498
363
306
$
$
852
393
329
—
—
394
343
$
$
818
350
295
—
—
367
310
Total traffic from our U.K./European Operations increased 216,302 carloads, or 24.4%, to 1,104,016 carloads for the
year ended December 31, 2016, compared with the year ended December 31, 2015. The increase consisted of 231,791
carloads from new operations, partially offset by a decrease from existing operations of 15,489 carloads, or 1.7%. The
decrease in traffic from existing operations was principally due to decreases of 28,943 carloads of coal and coke traffic and
6,027 carloads of mineral and stone traffic, partially offset by increases of 17,397 carloads of intermodal traffic and 1,580
carloads of agricultural products traffic. All remaining traffic increased by a net 504 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates
and fuel surcharges, as well as changes in the mix of customer traffic within a commodity group. Excluding the impact of
foreign currency, average freight revenues per carload from our U.K./European Operations decreased 1.3% to $306 for the
year ended December 31, 2016, compared with the year ended December 31, 2015. Excluding the impact of foreign currency,
average freight revenues per carload from existing operations decreased 2.3% to $303 for the year ended December 31, 2016.
This decrease in average freight revenues per carload was primarily due to a change in the mix of business.
The following information discusses the significant changes in our U.K./European Operations freight revenues from
existing operations by commodity group excluding the impact of foreign currency.
Agricultural products revenues increased $1.6 million, primarily due to a traffic increase of 1,580 carloads. The carload
increase was primarily due to new grain business in Poland.
86
Coal and coke revenues decreased $10.6 million, or 49.5%. Coal and coke traffic decreased 28,943 carloads, or 47.3%,
which decreased revenues by $9.7 million, and average freight revenues per carload decreased 4.0%, which decreased
revenues by $0.9 million. The decrease in carloads was due to lower demand for steam coal in the U.K., largely as a result of
competition from natural gas power generation and an increase in the carbon tax.
Intermodal revenues decreased $0.5 million, or 0.3%. Intermodal average freight revenues per carload decreased 2.7%,
which decreased revenues $5.5 million, while traffic increased 17,397 carloads, or 2.5%, which increased revenues by $5.0
million. The decrease in revenues per carload was primarily due to the change in the mix of customers and routes. The
increase in carloads was primarily due to an increase in the U.K. intermodal container market.
Minerals and stone revenues decreased $1.9 million, or 3.8%, primarily due to a traffic decrease of 6,027 carloads, or
4.5%. The decline in traffic was primarily due to decreased cement shipments in the U.K. and delays in road construction
projects in Poland.
Freight revenues from all remaining commodities combined increased by $0.2 million.
Freight-Related Revenues
Freight-related revenues from our U.K./European Operations include 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 Europe intermodal business.
Excluding a $15.1 million decrease due to the impact of foreign currency depreciation, freight-related revenues from
our U.K./European Operations increased $9.4 million, or 5.5%, to $181.7 million for the year ended December 31, 2016,
compared with $172.2 million for the year ended December 31, 2015. The increase consisted of $38.5 million from new
operations, partially offset by a decrease of $29.1 million, or 16.9%, from existing operations. The decrease from existing
operations was primarily due to a decrease in Continental Europe intermodal services as unprofitable routes were
rationalized.
All Other Revenues
Excluding a $2.7 million decrease due to the impact of foreign currency depreciation, 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, increased $2.2 million, or 10.4%, to $23.2 million for the
year ended December 31, 2016, compared with $21.0 million for the year ended December 31, 2015. The increase consisted of
$4.6 million from new operations, partially offset by a decrease of $2.4 million, or 11.6%, from existing operations. The
decrease from existing operations was primarily due to a temporary contract in 2015 for a passenger operator in the U.K.
Operating Expenses
Total operating expenses from our U.K./European Operations increased $93.2 million, or 19.3%, to $576.9 million for
the year ended December 31, 2016, compared with $483.7 million for the year ended December 31, 2015. The increase
consisted of $117.1 million from new operations, partially offset by a decrease of $23.9 million from existing operations. The
decrease from existing operations included a decrease of $43.4 million due to the net impact of foreign currency depreciation.
Excluding the impact of foreign currency depreciation, existing operations increased $19.5 million. The increase included
$21.5 million of charges related to ERS and $14.7 million of charges related to the U.K. coal restructuring program, partially
offset by a $9.1 million decrease in purchased services.
87
The following table sets forth operating expenses from our U.K./European Operations for the years ended
December 31, 2016 and 2015 (dollars in thousands):
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 loss/(gain) on sale and
impairment of assets
Restructuring costs
Other expenses
2016
2015
Amount
% of
Operating
Revenues
Amount
% of
Operating
Revenues
Increase/
(Decrease)
Currency
Impact
2015
Constant
Currency*
Increase/
(Decrease)
Constant
Currency*
$ 169,438
31.3% $ 149,109
28.9% $
20,329
$ (17,430) $ 131,679
$
37,759
95,178
112,248
26,798
17.5%
20.7%
4.9%
71,609
103,359
19,296
13.9%
20.0%
3.7%
23,569
8,889
7,502
(6,117)
(4,956)
(2,220)
65,492
98,403
17,076
29,686
13,845
9,722
39,437
7.3%
35,369
6.9%
4,068
(3,595)
31,774
7,663
13,346
4,408
21,868
40,502
19,352
6,509
27,842
2.5%
0.8%
4.0%
7.5%
3.6%
1.2%
5.1%
13,714
4,422
26,032
40,305
(242)
—
20,728
2.7%
0.9%
5.0%
7.8%
—%
—%
4.0%
(368)
(14)
(4,164)
197
19,594
6,509
7,114
(494)
(389)
(3,153)
(2,845)
15
—
13,220
4,033
22,879
37,460
126
375
(1,011)
3,042
(227)
19,579
(2,212)
18,516
—
6,509
9,326
Total operating expenses
$ 576,926
106.4% $ 483,701
93.8% $
93,225
$ (43,396) $ 440,305
$ 136,621
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses from our U.K./European Operations,
excluding a decrease of $43.4 million due to the net impact from foreign currency depreciation.
Labor and benefits expense was $169.4 million for the year ended December 31, 2016, compared with $131.7 million
for the year ended December 31, 2015, an increase of $37.8 million, or 28.7%. The increase consisted of $40.0 million from
new operations, partially offset by a decrease of $2.2 million from existing operations. The decrease from existing operations
was primarily due to a reduction in the average number of employees in the U.K. and Continental Europe.
Equipment rents expense was $95.2 million for the year ended December 31, 2016, compared with $65.5 million for
the year ended December 31, 2015, an increase of $29.7 million, or 45.3%. The increase consisted of $19.3 million from new
operations and $10.4 million from existing operations. The increase from existing operations was primarily due to charges
related to leased coal railcars in the U.K. that exceed our expected ongoing needs and are therefore considered permanently
taken out of service, as well as a reclassification of maintenance activities on certain leased equipment from materials
expense in 2015 to equipment rents expense in 2016.
Purchased services expense was $112.2 million for the year ended December 31, 2016, compared with $98.4 million
for the year ended December 31, 2015, an increase of $13.8 million, or 14.1%. The increase consisted of $22.9 million from
new operations, partially offset by a decrease of $9.1 million from existing operations. The decrease from existing operations
was primarily due to a decrease in handling, crewing and other third-party operating services resulting from reduced
Continental Europe intermodal services.
Depreciation and amortization expense was $26.8 million for the year ended December 31, 2016, compared with $17.1
million for the year ended December 31, 2015, an increase of $9.7 million, or 56.9%. The increase consisted of $5.6 million
from new operations and $4.1 million from existing operations. The increase from existing operations was primarily
attributable to a larger depreciable asset base in 2016 compared with 2015, reflecting capital spending in 2016 and 2015.
The cost of diesel fuel used in train operations was $39.4 million for the year ended December 31, 2016, compared
with $31.8 million for the year ended December 31, 2015, an increase of $7.7 million, or 24.1%. The increase consisted of
$7.0 million from new operations and $0.7 million from existing operations.
88
The cost of electricity used in train operations was $13.3 million for the year ended December 31, 2016, compared with
$13.2 million for the year ended December 31, 2015, an increase of $0.1 million, or 1.0%. The increase consisted of $2.7
million from new operations, partially offset by a decrease of $2.6 million from existing operations. The decrease from
existing operations was primarily due to reduced Continental Europe intermodal services.
Materials expense was $21.9 million for the year ended December 31, 2016, compared with $22.9 million for the year
ended December 31, 2015, a decrease of $1.0 million, or 4.4%. The decrease consisted of $6.6 million from existing
operations, partially offset by $5.6 million from new operations. The decrease from existing operations was primarily due to a
reclassification of maintenance activities on certain leased equipment from materials expense in 2015 to equipment rents
expense in 2016.
Trackage rights expense was $40.5 million for the year ended December 31, 2016, compared with $37.5 million for the
year ended December 31, 2015, an increase of $3.0 million, or 8.1%. The increase consisted of $8.0 million from new
operations, partially offset by a decrease $4.9 million from existing operations. The decrease from existing operations was
primarily due to reduced Continental Europe intermodal services.
Net loss on the sale and impairment of assets for the year ended December 31, 2016 of $19.4 million was primarily
related to the impairment of assets associated with our ERS business in Continental Europe.
Restructuring costs for the year ended December 31, 2016 of $6.5 million were primarily associated with severance
costs related to the restructuring of our U.K. coal business.
Other expenses were $27.8 million for the year ended December 31, 2016, compared with $18.5 million for the year
ended December 31, 2015, an increase of $9.3 million, or 50.4%. The increase consisted of $4.7 million from new operations
and $4.7 million from existing operations. The increase from existing operations was primarily due to an increase in reserves
for accounts receivable in 2016 compared with 2015 and the change in the estimated fair value of deferred consideration. For
additional information regarding 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.
Operating (Loss)/Income
Operating loss from our U.K./European Operations was $34.7 million for the year ended December 31, 2016,
compared with operating income of $31.9 million for the year ended December 31, 2015. The operating loss for the year
ended December 31, 2016 included impairment and related charges of $36.2 million, which included $21.5 million related to
ERS and $14.7 million of restructuring and related charges associated with our U.K. coal business. The operating loss for the
year ended December 31, 2016 also included $2.3 million of additional restructuring costs and $1.5 million of corporate
development and related costs. Operating income for the year ended December 31, 2015 included $0.7 million of corporate
development and related costs and net gain on sale of assets of $0.3 million.
Liquidity and Capital Resources
We had cash and cash equivalents of $80.5 million and $32.3 million at December 31, 2017 and 2016, respectively, of
which, $52.4 million and $9.2 million as of December 31, 2017 and 2016 was from our Australian Operations. In accordance
with our Australia Partnership agreement, the cash and cash equivalents of our Australian Operations can be used to make
payments in the usual and regular course of business, pay down debt of the Partnership and make distributions to the Partners
in proportion to their investments.
Based on current expectations, we believe our cash, together with our other liquid assets, anticipated future cash flows
from operations, availability under our credit agreement, access to debt and equity capital markets and sources of available
financing will be sufficient to fund expected operating, capital and debt service requirements and other financial
commitments for the foreseeable future.
During the year ended December 31, 2017, we completed the acquisitions of Pentalver for cash consideration of £77.5
million (or $100.1 million at the exchange rate on May 3, 2017) net of cash received of £20.2 million (or $26.1 million at the
exchange rate on May 3, 2017) and HOG for cash consideration of $5.6 million. 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 for additional information regarding our acquisitions of Pentalver and HOG.
89
At December 31, 2017, we had long-term debt, including current portion, of $2.3 billion, which comprised 39.4% of
our total capitalization, and $393.1 million of unused borrowing capacity. At December 31, 2016, we had long-term debt,
including current portion, totaling $2.4 billion, which comprised 44.9% of our total capitalization. At December 31, 2017 and
2016 our long-term debt, including current portion, included $525.1 million and $498.8 million, respectively, outstanding
under the Australian Credit Agreement, which is non-recourse to us and to MIRA.
During 2017, 2016 and 2015, we generated $479.2 million, $407.1 million and $476.6 million, respectively, of cash
from operating activities. Changes in working capital decreased net cash flows from operating activities by $30.6 million,
$23.1 million and $8.5 million in 2017, 2016 and 2015, respectively.
During 2017, 2016 and 2015, our cash used in investing activities was $306.9 million, $1,135.0 million and $1,074.3
million, respectively. For 2017, primary drivers of cash used in investing activities were $107.6 million of net cash paid for
acquisitions, including the acquisitions of Pentalver, HOG and a 50% joint venture in CG Railway, LLC, partially offset by
proceeds received from a working capital adjustment related to the GRail acquisition, $228.5 million of cash used for capital
expenditures, including $8.6 million for new business investments, partially offset by $20.2 million in cash received from
grants from outside parties for capital spending and $5.2 million of proceeds from dispositions of property and equipment.
For 2016, primary drivers of cash used in investing activities were $969.5 million of cash paid for acquisitions, including the
acquisitions of Providence and Worcester Railroad and GRail, $219.5 million of cash used for capital expenditures, including
$26.1 million for new business investments, partially offset by $36.1 million in cash received from grants from outside
parties for capital spending and $15.2 million of insurance proceeds for the replacement of assets. 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 certain subsidiaries of Pinsly Railroad Company (Pinsly) that constituted Pinsly's Arkansas Division (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.
During 2017, our cash used in financing activities was $130.9 million, which included a net decrease in our outstanding
debt of $137.9 million as the primary driver. During 2016 and 2015, our cash provided by financing activities was $719.9
million and $580.2 million, respectively. For 2016, the primary drivers of cash provided by financing activities were proceeds
of $476.8 million, which included $300.3 million for the issuance of a 48.9% equity stake in GWAHLP to MIRA and $176.5
million of proceeds from MIRA under the Partner Loan Agreement, and net proceeds of $285.8 million from the sale of our
Class A Common Stock. For 2015, the primary driver of cash flows provided by financing activities was net cash inflows of
$586.2 million, predominately related to borrowings under the Credit Agreement in conjunction with our acquisition of
Freightliner.
Cash Repatriation
At December 31, 2017, we had cash and cash equivalents totaling $80.5 million, of which $69.5 million were held by
our foreign subsidiaries. The amount of undistributed earnings of our foreign subsidiaries as of December 31, 2017 was
$237.9 million. We file a consolidated United States federal income tax return that includes all of our United States
subsidiaries. In accordance with the TCJA that was signed into law on December 22, 2017, we recorded a provisional liability
of approximately $22 million of United States income tax associated with unrepatriated foreign earnings, which will be
payable over eight years. Each of our foreign subsidiaries files income tax returns in each of its respective countries. If the
earnings were to be distributed in the future, those distributions may result in foreign exchange gains and losses and be
subject to other taxes and credits, including U.S. state income taxes and withholding taxes payable to various foreign
countries; however, the amount of the tax and credits is not practicable to determine. No provision is made for the impact of
those future foreign exchange gains or losses or such other potential taxes and credits that could be applicable to the
undistributed earnings of our foreign subsidiaries in the event of distribution.
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. Under this shelf registration, we
completed a public offering of 4,000,000 shares of Class A Common Stock at $75.00 per share on December 13, 2016.
90
Credit Agreement
During the year ended December 31, 2017, we made scheduled quarterly principal payments under our credit agreement
of $5.2 million on the United States term loan and £5.1 million (or $6.7 million at the exchange rate on the dates the
payments were made) on the U.K. term loan. During the year ended December 31, 2017, we also made prepayments on the
United States term loan of $209.8 million. Since we applied all of our prepayments on the term loan to our quarterly
installments, our remaining principal balance of $1.2 billion will be due at maturity on March 31, 2020.
For additional information regarding our 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.
Australian Credit Agreement
For the benefit of our Australian business, GWI Acquisitions Pty Ltd (GWIA) entered into a syndicated facility
agreement on November 28, 2016 (the Australian Credit Agreement) for A$690.0 million (or $511.4 million at the exchange
rate on November 28, 2016) in senior secured term loan facilities and A$50.0 million (or $37.1 million at the exchange rate
on November 28, 2016) in the form of a revolving credit facility. The Australian Credit Agreement is non-recourse to us and
to MIRA and has a maturity date of December 1, 2021. For additional information regarding our Australian 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.
Partner Loan Agreement
On December 1, 2016, GWAHLP and MIRA entered into a Partner Loan Agreement with an A$238.0 million non-
recourse subordinated partner loan from MIRA used to fund a portion of its contribution to the Australia Partnership to fund
the acquisition of GRail (note our subsidiary, GWI Holding B.V., has a matching partner loan for a portion of our
contribution that is eliminated in consolidation). The Partner Loan Agreement is subordinated to the Australian Credit
Agreement. The maturity date of the partner loan is November 1, 2026. For additional information regarding our Partner
Loan 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.
Non-Interest Bearing Loan
In 2010, as part of the acquisition of FreightLink Pty Ltd, Asia Pacific Transport Pty Ltd and related corporate entities,
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, 2017, the carrying value of the loan was A$3.1 million (or $2.4 million at the
exchange rate on December 31, 2017) 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.
For additional information regarding our equipment and property leases, see Note 6, Property and Equipment and Leases, to
our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial Statement Schedules" of this Annual
Report.
Grants from Outside Parties
Our railroads have received a number of project grants from federal, provincial, state and local agencies and other
outside parties 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 or equipment that had 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.
91
Insurance and Third-Party Claims
Accounts receivable from insurance and other third-party claims was $10.8 million and $12.0 million as of
December 31, 2017 and 2016, respectively. Accounts receivable from insurance and other third-party claims at December 31,
2017 included $5.9 million from our North American Operations, $4.3 million from our U.K./European Operations and $0.6
million from our Australian Operations. The balance from our North American Operations resulted predominately from our
anticipated insurance recoveries associated with a 2015 trestle fire in the United States and derailments in Canada. The
balance from our U.K./European Operations resulted primarily from our anticipated insurance recoveries associated with a
pre-acquisition rail-related collision in Germany in 2014 that occurred prior to our acquisition of Freightliner. We received
proceeds from insurance totaling $1.6 million, $15.2 million and $10.4 million for the years ended December 31, 2017, 2016
and 2015, respectively.
2018 Estimated Capital Expenditures
The following table sets forth our budgeted capital expenditures by segment for the year ending December 31, 2018
(dollars in thousands):
Year Ending
December 31, 2018
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
North American
Operations
Australian
Operations
U.K./European
Operations
Total
$
150,000
$
22,000
$
28,000
$
200,000
70,000
15,000
(55,000) $
$
180,000
$
—
20,000
—
42,000
$
—
5,000
—
33,000
$
70,000
40,000
(55,000)
255,000
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 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, 2017, 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.
92
The following table represents our obligations and commitments for future cash payments under various agreements as
of December 31, 2017 (dollars in thousands):
Contractual Obligations:
Long-term debt obligations(a)
Interest on long-term debt(b)
Derivative instruments(c)
Capital lease obligations
Operating lease obligations
Purchase obligations(d)
Other contractual obligations(e)
Total
Total
2,318,134
301,535
14,382
74,988
614,516
30,526
62,554
3,416,635
$
$
$
$
Payments Due By Period
Less than 1
year
1-3 years
3-5 years
More than 5
years
27,242
81,723
1,972
9,624
100,952
30,526
19,935
271,974
$
$
1,601,402
126,403
12,410
24,696
149,610
—
6,927
1,921,448
$
$
464,345
45,304
—
19,701
100,301
—
6,247
635,898
$
$
225,145
48,105
—
20,967
263,653
—
29,445
587,315
(a) Includes an A$50.0 million (or $39.1 million at the exchange rate on December 31, 2017) non-interest bearing loan due in 2054
assumed in the acquisition of FreightLink in 2010 with a carrying value of A$3.1 million (or $2.4 million at the exchange rate on
December 31, 2017).
(b) Assumes no change in variable interest rates from December 31, 2017.
(c) Includes the fair value of our interest rate swaps of $14.4 million.
(d) Includes purchase commitments for future capital expenditures among our existing operations.
(e) Includes future payment obligations associated with the acquisitions of Freightliner and HOG of $16.5 million, deferred compensation
of $13.5 million, estimated casualty obligations of $3.8 million and certain other long-term liabilities of $10.5 million. In addition, the
table includes our 2018 estimated contributions of $11.6 million to our pension plans and estimated post-retirement medical and life
insurance benefits of $6.7 million.
As a result of the TCJA, we recorded a one-time estimated transition (toll) tax of approximately $22 million on earnings
of certain foreign subsidiaries, which were previously deferred for United States federal income tax purposes and can be paid
over an eight-year period beginning in 2018. This toll tax was not included in the table above as it does not represent a
contractual obligation. For additional information regarding the transition tax, 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.
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, 2017 consisted of operating lease obligations, which are
included in the contractual obligations table above. Effective January 1, 2019, we will adopt Financial Accounting Standards
Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which will require lessees to recognize
leases on their balance sheets as a right-of-use asset with a corresponding liability. 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 for additional information regarding this standard.
93
Impact of Foreign Currencies on Consolidated Results
The results of operations of our foreign entities are maintained in the local currency (including, the Australian dollar,
the British pound, 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. When comparing the effects of average foreign currency exchange rates on operating
revenues and operating expenses during the year ended December 31, 2017 versus the year ended December 31, 2016,
foreign currency translation had a net positive impact on our consolidated operating revenues and a net negative impact on
our consolidated operating expenses due to the weakening of the British pound relative to the United States dollar, partially
offset by the strengthening of the Australian and Canadian dollars and the Euro relative to the United States dollar for the
year ended December 31, 2017. 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."
The following tables reflect the exchange rates used to translate the foreign entities respective local currency into
United States dollars as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016 and 2015:
United States dollar per Australian dollar
United States dollar per British pound
United States dollar per Canadian dollar
United States dollar per Euro
United States dollar per Australian dollar
United States dollar per British pound
United States dollar per Canadian dollar
United States dollar per Euro
December 31,
2017
2016
$
$
$
$
0.78
1.35
0.80
1.20
$
$
$
$
2017
Year Ended December 31,
2016
2015
$
$
$
$
0.77
1.29
0.77
1.13
$
$
$
$
0.74
1.36
0.76
1.11
$
$
$
$
0.72
1.23
0.74
1.06
0.75
1.53
0.78
1.11
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.
Business Combinations
We account for businesses we acquire using the acquisition method of accounting. Under this method, all acquisition-
related costs are expensed as incurred. We record the underlying net assets at their respective acquisition-date fair values. As
part of this process, we identify and attribute values and estimated lives to property and equipment and intangible assets
acquired. These determinations involve significant estimates and assumptions, including those with respect to future cash
flows, discount rates and asset lives, and therefore require considerable judgment. These determinations affect the amount of
depreciation and amortization expense recognized in future periods. The results of operations of acquired businesses are
included in the consolidated statements of operations beginning on the respective business's acquisition date.
Property and Equipment
We record property and equipment at cost. We capitalize major renewals or improvements, but routine maintenance and
repairs are expensed when incurred. We incur maintenance and repair expenses to keep our operations safe and fit for existing
purpose. Major renewals or improvements to property and equipment, however, are undertaken to extend the useful life or
increase the functionality of the asset, or both.
94
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. Our largest category of
capital expenditures is for track line upgrades, expansion and replacement, where we will utilize both our employees and
professional contractors in completing these capital projects. Costs that are directly attributable to self-constructed assets
(including overhead costs) are capitalized. Direct costs that are capitalized as part of self-constructed assets include materials,
labor and equipment. Indirect costs are capitalized if they clearly relate to the construction of the asset. We also generally do
not incur significant rail grinding or ballast cleaning expenses. However, if and when such costs are incurred, they are
expensed.
The following table sets forth our total net capitalized major renewals and improvements versus our total maintenance
and repair expense for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):
Gross capitalized major renewals and improvements
Grants from outside parties
Net capitalized major renewals and improvements
Total repairs and maintenance expense
2017
2016
2015
$
$
$
220,246
(20,249)
199,997
468,306
$
$
$
190,406
(36,094)
154,312
467,054
$
$
$
285,593
(41,742)
243,851
463,654
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
Maximum
2
20
3
2
2
2
5
2
2
40
50
50
10
30
15
20
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 less the cost to sell such asset, as determined by
valuation techniques applicable in the circumstances. Losses from impairment of assets are charged to net loss/(gain) on sale
and impairment of assets within operating expenses.
95
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 loss/(gain)
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.
During the year ended December 31, 2017, we recorded a $5.9 million non-cash charge related to the impairment of
track assets on idle branch lines in South Australia. During the year ended December 31, 2016, we recorded a $13.0 million
non-cash charge related to the impairment of an idle rolling-stock maintenance facility resulting from Arrium, an iron ore
customer in Australia, entering voluntary administration. For additional information regarding Arrium, 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. There were no material losses incurred through other dispositions from unanticipated or
unusual events for the year ended December 31, 2015.
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
We review the carrying value of goodwill at least annually to assess impairment since these assets are not amortized.
We perform our annual impairment assessment as of November 30 of each year. Additionally, we review the carrying value
of goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. No
impairment was recognized for the years ended December 31, 2017 and 2015, as a result of our annual impairment
assessment. In 2016, in conjunction with our annual impairment assessment of goodwill combined with previously discussed
efforts to address challenges with our Continental Europe intermodal business, ERS, we recorded an impairment of goodwill
of $14.5 million. 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 for additional information regarding ERS.
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. 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 loss/(gain) on sale and impairment of assets
within operating expenses.
Amortizable Intangible Assets
We perform an impairment test on amortizable intangible assets when specific impairment indicators are present. We
have amortizable intangible assets valued primarily as operational network rights, customer contracts and relationships and
track access agreements. These intangible assets are generally amortized on a straight-line basis over the expected economic
longevity of the facility served, the customer relationship, or the length of the contract or agreement including expected
renewals. In 2016, in conjunction with our annual impairment assessment of goodwill combined with previously disclosed
efforts to address challenges with ERS, we recorded an impairment of a customer-related intangible asset of $4.1 million. 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 for additional information regarding ERS.
96
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 accidents involving passengers 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 $2.5 million per
occurrence. The property policies also provide business interruption insurance arising from covered events. The self-insured
retentions under our policies may change with each annual insurance renewal depending on our loss history, the size and
make-up of our Company and general insurance market conditions.
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.
Defined Benefit Plans
We sponsor certain defined benefit plans covering eligible employees. We engage independent actuaries to compute
amounts of liabilities and expenses related to these plans subject to the assumptions that we determine are appropriate based
on historical trends, current market rates and future projections. These assumptions include, but are not limited to the
selection of a discount rate, expected long-term rate of return on plan assets, rate of future compensation increases, inflation
volatility and mortality. For additional information regarding these plans, see Note 11, U.K. Pension Plan, and Note 12, Other
Employee Benefit Programs, to our Consolidated Financial Statements set forth in "Part IV Item 15. Exhibits, Financial
Statement Schedules" of this Annual Report.
Income Taxes
We file a consolidated United States federal income tax return, which includes all of our United States subsidiaries.
Each of our 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 our ability to generate sufficient taxable
income. We evaluate 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.
On December 22, 2017, the TCJA was enacted into law. The TCJA reduced the United States federal corporate income
tax rate to 21% from 35% effective for tax years beginning after December 31, 2017. Additionally, the TCJA requires United
States companies to compute a one-time transition (toll) tax on earnings of certain foreign subsidiaries that were previously
deferred for United States federal income tax purposes. We have estimated the impact of the reduction in the United States
federal corporate tax rate to be a reduction to our net deferred tax liabilities of approximately $394 million, which represents
a decrease in corporate income taxes expected to be paid in the future. We have also estimated the toll tax to be
approximately $22 million payable over an eight-year period beginning in 2018. Each of our foreign subsidiaries files income
tax returns in each of its respective countries. No provision is made for certain taxes applicable to the undistributed earnings
of our foreign subsidiaries as it is the intention of management to fully utilize those earnings in the operations of foreign
subsidiaries. The amount of undistributed earnings of our foreign subsidiaries as of December 31, 2017 was $237.9 million.
If the earnings were to be distributed in the future, those distributions would not be subject to United States federal corporate
income tax but may result in foreign exchange gains and losses and be subject to other taxes and credits, including United
States state taxes and withholding taxes payable to various foreign countries; however, the amount of the tax is not
practicable to determine.
For additional information regarding our income taxes, 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.
97
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.
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
The following tables set forth the primary drivers of our interest expense, net, for our North American Operations,
Australia Operations and U.K./European Operations for the years ended December 31, 2017, 2016 and 2015 (dollars in
thousands):
December 31, 2017
North
American
Operations
Australian
Operations
U.K./European
Operations
Interest expense on variable rate debt
Interest expense on intercompany loans
Interest expense on fixed rate debt
Interest expense on other instruments(b)
Amortization of debt issuance costs
Derivative financial instruments
Interest expense
Interest income from intercompany loans
All other interest income
Interest income
$
$
$
38,416
—
—
1,619
5,206
5,228
50,469
$
$
(11,058) $
(864)
(11,922)
35,815
12,933
176
781
3,143
2,699
55,547
$
$
6,050
11,058
—
3,736
916
3,506
25,266
Eliminations(a)
$
— $
(23,991)
—
—
—
$
(23,991) $
Total
80,281
—
176
6,136
9,265
11,433
107,291
— $
(829)
(829)
(12,933) $
(389)
(13,322)
$
23,991
—
23,991
—
(2,082)
(2,082)
Interest expense, net
$
38,547
$
54,718
$
11,944
$
— $
105,209
98
Interest expense on variable rate debt
Interest expense on intercompany loans
Interest expense on fixed rate debt
Interest expense on other instruments(b)
Amortization of debt issuance costs
Derivative financial instruments
Interest expense
Interest income from intercompany loans
All other interest income
Interest income
Interest expense, net
Interest expense on variable rate debt
Interest expense on intercompany loans
Interest expense on fixed rate debt
Interest expense on other instruments(b)
Amortization of debt issuance costs
Capitalized interest
Derivative financial instruments
Interest expense
Interest income from intercompany loans
All other interest income
Interest income
Interest expense, net
$
$
$
$
$
$
$
$
$
$
42,858
—
—
1,691
5,196
3,200
52,945
$
$
(11,046) $
(914)
(11,960) $
37,851
—
—
2,143
6,260
(622)
3,462
49,094
$
$
(9,402) $
(41)
(9,443) $
December 31, 2016
North
American
Operations
Australian
Operations
U.K./European
Operations
10,226
1,049
158
526
2,268
—
14,227
$
$
4,553
14,566
—
4,735
230
—
24,084
Eliminations(a)
$
— $
(15,615)
—
—
—
—
(15,615) $
$
Total
57,637
—
158
6,952
7,694
3,200
75,641
— $
(269)
(269) $
(4,569) $
76
(4,493) $
15,615
—
15,615
$
$
—
(1,107)
(1,107)
40,985
$
13,958
$
19,591
$
— $
74,534
December 31, 2015
North
American
Operations
Australian
Operations
U.K./European
Operations
8,632
—
148
539
514
—
—
9,833
$
$
3,350
17,297
—
3,982
814
—
—
25,443
Eliminations(a)
$
— $
(17,297)
—
—
—
—
—
(17,297) $
$
(593) $
(264)
(857) $
(7,302) $
(176)
(7,478) $
17,297
—
17,297
$
$
Total
49,833
—
148
6,664
7,588
(622)
3,462
67,073
—
(481)
(481)
39,651
$
8,976
$
17,965
$
— $
66,592
(a) Intercompany borrowing and lending activity is eliminated in consolidation.
(b) Interest expense on other instruments reflects interest on capital leases and certain fees related to our credit facilities.
99
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, 2017 (dollars in
thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Fair Value
$
— $
— $
— $
— $
— $
39,070
$
39,070
$
2,425
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
Fixed rate debt:
Other debt(a)
Average annual
interest rate
Variable rate debt:
Credit Agreement:
Revolving credit
facility:
Canada
$
United Kingdom $
Europe
Term loans:
$
— $
— $
— $
— $
3,195
— $
194,789
— $
30,656
United Kingdom $
10,316
$
13,754
$
102,172
$
— $
— $ 1,213,000
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
3,195
$
3,187
— $ 194,789
$ 195,631
— $
30,656
$
30,665
— $ 126,242
$ 126,480
— $ 1,213,000
$ 1,208,657
United States
Average annual
interest rate
Australian Credit
Agreement
Australian Term
Loan
Partner Loan Agreement
Average annual
interest rate
3.2%
3.4%
3.4%
0.0%
0.0%
0.0%
3.4%
$
$
16,996
$
16,995
$
26,763
$
464,347
$
— $
— $ 525,101
$ 528,105
— $
— $
— $
— $
— $
186,085
$ 186,085
$ 184,750
5.1%
5.4%
5.6%
5.8%
7.5%
7.8%
6.3%
Total
$
27,312
$
30,749
$ 1,570,575
$
464,347
$
— $
225,155
$ 2,318,138
$ 2,279,901
(a) Includes an A$50.0 million (or $39.1 million at the exchange rate on December 31, 2017) non-interest bearing loan due in 2054 assumed in the acquisition
of FreightLink with a carrying value of A$3.1 million (or $2.4 million at the exchange rate on December 31, 2017) 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 BBSY and BBR, Canada BA, Euro LIBOR and United States LIBOR (as of
December 31, 2017). BBSY is the Bank Bill Swap Bid Rate, which we believe is generally considered the Australian equivalent
to LIBOR. BBR is the Bankers Buyers Rate, which we believe is generally considered analogous with BBSY. The borrowing
margin is composed of a weighted average of 1.50% for Canadian, European and United States borrowings under our Credit
Agreement. The borrowing margin is composed of a weighted average of 2.78% for our Australian term loan under our
Australian Credit Agreement and 4.50% for our Partner Loan 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 $12.7 million under our Credit Agreement and $3.1 million under
our Australian Credit Agreement and Partner Loan Agreement.
Foreign Currency Exchange Rate Risk
As of December 31, 2017, our foreign subsidiaries had the United States dollar equivalent of $1.1 billion of third-party
debt denominated in the local currencies in which our 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 our debt service
payments is limited. However, in the event the foreign currency debt service is not paid by our foreign subsidiaries and is paid
by United States subsidiaries, we 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.
100
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, we may enter into cross-currency swaps or foreign currency forward contracts 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 represented 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 bought out this deferred
consideration in November 2017 with the issuance of 238,201 shares of the Company's Class A Common Stock with a grant
date fair value of $17.5 million, as well as £2.1 million (or $2.9 million at the exchange rate on December 31, 2017) in cash to
be paid in March 2018. These shares have time-based contractual restrictions on their transfer until March 2018, March 2019
and March 2020. In addition, we issued a note payable with a £6.3 million (or $8.6 million at the exchange rate on
December 31, 2017) face value (£5.7 million fair value, or $7.7 million at the exchange rate on December 31, 2017) to certain
management holders to buy out a portion of the deferred consideration. This note is payable in three annual installments starting
in March 2018. We recorded a net $8.9 million gain on the buyout of the deferred consideration in November 2017.
Sensitivity to Diesel Fuel Prices
We are exposed to fluctuations in diesel fuel prices since an increase in the price of diesel fuel would result in lower
earnings and cash outflows. For the year ended December 31, 2017, fuel costs for fuel used in operations represented 8.1% of
our total operating expenses. As of December 31, 2017, we had not entered into any hedging transactions to manage this diesel
fuel risk. We receive fuel surcharges and other rate adjustments that offset the majority of the impact of higher fuel prices, with
a lag of up to four months. As of December 31, 2017, each one percentage point change in the price of diesel fuel would result
in a $1.6 million change in our annual operating income 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.
101
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, 2017. 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 Pentalver, whose total assets represented
2% of Genesee & Wyoming Inc.'s consolidated total assets at December 31, 2017. Pentalver's total revenues and operating
income for the period May 3, 2017 through December 31, 2017 represented approximately 5% and 1% of Genesee &
Wyoming Inc.'s revenues and operating income, respectively, for the year ended December 31, 2017. Based upon that
evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2017, the disclosure controls and procedures were effective to accomplish their objectives at the reasonable
assurance level.
Internal Control Over Financial Reporting — On May 3, 2017, we completed the acquisition of Pentalver. We extended
our oversight and monitoring processes that support our internal control over financial reporting, as appropriate, to include
Pentalver's financial position, results of operations and cash flow into our consolidated financial statements from the date of
acquisition through December 31, 2017. We are continuing to integrate the acquired operations of Pentalver 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, 2017 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
102
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, 2017.
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
Pentalver. The Company acquired Pentalver in a business combination on May 3, 2017. Pentalver's total assets represented 2%
of Genesee & Wyoming Inc.'s consolidated total assets as of December 31, 2017. Pentalver's total revenues and operating
income for the period May 3, 2017 through December 31, 2017 represented less than 5% and 1% of Genesee & Wyoming
Inc.'s revenues and operating income, respectively, for the year ended December 31, 2017.
Based on this assessment, management determined that, as of December 31, 2017, 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 Statement Schedules."
ITEM 9B. Other Information.
None.
103
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 23, 2018, 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 23, 2018, under "Executive Compensation," including the "Compensation Discussion and
Analysis," "Compensation Committee Report" and "Summary Compensation Table" sections, and "Director
Compensation."
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The following table sets forth all of our securities authorized for issuance under our equity compensation plans
as of December 31, 2017:
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))
1,477,626
$
—
1,477,626
$
78.04
—
78.04
1,492,088
—
1,492,088
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 23, 2018, 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 23, 2018, under "Corporate Governance" and "Related Person Transactions."
ITEM 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to our proxy statement to be filed
within 120 days after the end of our fiscal year in connection with the Annual Meeting of the Stockholders of G&W
to be held on May 23, 2018.
104
ITEM 15. Exhibits, Financial Statement Schedules.
PART IV
DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT ON 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, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017,
2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016
and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
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—Schedules have been omitted because they are not applicable
or not required or the information required to be set forth therein is included in the Financial Statements
and Supplementary Data, or notes thereto.
ITEM 16. Form 10-K Summary.
None.
105
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 28, 2018
GENESEE & WYOMING INC.
By:
/S/ JOHN C. HELLMANN
John C. Hellmann
Chairman, 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 28, 2018
Chairman, Chief Executive Officer and
President (Principal Executive Officer)
February 28, 2018
Chief Financial Officer
(Principal Financial Officer)
February 28, 2018
Chief Accounting Officer (Principal
Accounting Officer)
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
/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/ HANS MICHAEL NORKUS
Hans Michael Norkus
/S/ JOSEPH H. PYNE
Joseph H. Pyne
/S/ ANN N. REESE
Ann N. Reese
/S/ MARK A. SCUDDER
Mark A. Scudder
/S/ HUNTER C. SMITH
Hunter C. Smith
106
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
3.1
(4)
4.1
4.2
4.3
4.4
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).
(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 1994, 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).**
107
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
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, GWI UK Holding 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 Incentive 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 Incentive 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
Incentive 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 Incentive
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 Incentive 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 Incentive 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
Incentive 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 Incentive 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).**
108
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
(11)
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).**
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).
Form of Performance-Based Restricted Stock Unit Award Notice Under the Third Amended and
Restated Omnibus Incentive Plan is incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2016 (File No. 001-31456).**
Form of Performance-Based Restricted Stock Unit Award Notice for the CEO Under the Third
Amended and Restated Omnibus Incentive Plan is incorporated herein by reference to Exhibit 10.2
to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2016 (File No. 001-31456).**
Share Sale Agreement, dated October 20, 2016, relating to Glencore Rail (NSW) Pty Limited by and
among Genesee & Wyoming Inc., GWI Acquisitions Pty Ltd, Glencore Coal Pty Limited and
Glencore Operations Australia Pty Limited, is incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on October 20, 2016 (File No. 001-31456).***
Mandate, Commitment and Fee Letter, dated October 14, 2016, among GWI Holdings No. 2 Pty Ltd
and Australia and New Zealand Banking Group Limited, Bank of America, N.A. Australian Branch,
BNP Paribas, Citibank, N.A. Sydney Branch, Commonwealth Bank of Australia, JPMorgan Chase
Bank, N.A., National Australia Bank Limited, Sumitomo Mitsui Banking Corporation and The Bank
of Tokyo-Mitsubishi UFJ, Ltd., is incorporated herein by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on October 20, 2016 (File No. 001-31456).
Amendment No. 2, dated as of October 20, 2016, 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 10.3 to the Registrants Current
Report on Form 8-K filed on October 20, 2016 (File No. 001-31456).
Amendment and Restatement Deed, dated November 30, 2016, by and among Genesee & Wyoming
Inc. and the members of a Macquarie Infrastructure and Real Assets consortium, is incorporated
herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
December 1, 2016 (File No. 001-31456).***
Syndicated Facility Agreement, dated November 28, 2016, among GWI Acquisitions Pty Ltd, the
obligors party thereto, National Australia Bank Limited, as agent and lender, and Australia and New
Zealand Banking Group Limited, Bank of America, N.A. Australian Branch, BNP Paribas, Citibank,
N.A. Sydney Branch, Commonwealth Bank of Australia, JPMorgan Chase Bank, N.A., Sumitomo
Mitsui Banking Corporation and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as lenders, is
incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
filed on December 1, 2016 (File No. 001-31456).
Form of Performance-Based Restricted Stock Unit Award Notice under the Third Amended and
Restated 2004 Omnibus Incentive Plan is incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2017 (File No. 001-31456).**
Form of Performance-Based Restricted Stock Unit Award Notice for the CEO under the Third
Amended and Restated 2004 Omnibus Incentive Plan is incorporated herein by reference to Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2017 (File No.
001-31456).**
Not included as a separate exhibit as computation can be determined from Note 2 to the financial
statements included in this Annual Report under Item 8
*(21.1)
Subsidiaries of the Registrant
*(23.1)
Consent of PricewaterhouseCoopers LLP
109
*(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, 2017, formatted in XBRL includes: (i) Consolidated Balance
Sheets as of December 31, 2017 and 2016, (ii) Consolidated Statements of Operations for the Years
Ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 2017, 2016 and 2015, (iv) Consolidated Statements of Changes in
Equity for the Years Ended December 31, 2017, 2016 and 2015, (v) Consolidated Statements of
Cash Flows for the Years Ended December 31, 2017, 2016 and 2015, and (vi) the Notes to
Consolidated Financial Statements.
Exhibit filed or furnished with this Annual Report on Form 10-K.
Management contract or compensatory plan in which directors and/or executive officers are eligible
to participate.
Certain schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-
K. The Company agrees to furnish supplementally a copy of such schedule, or any section thereof,
to the Securities and Exchange Commission upon request.
110
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, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016
and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and
2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Genesee & Wyoming Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Genesee & Wyoming Inc. and its subsidiaries as
of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, cash
flows and changes in equity for each of the three years in the period ended December 31, 2017, including the related
notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's
internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2017 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, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated 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 Report of Management on Internal Control over Financial Reporting appearing under Item
9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. 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.
As described in Report of Management of Internal Control Over Financial Reporting, management has excluded
Pentalver Transport Limited ("Pentalver") from its assessment of internal control over financial reporting as of
December 31, 2017 because it was acquired by the Company in a purchase business combination during 2017. We
have also excluded Pentalver from our audit of internal control over financial reporting. Pentalver is a wholly-owned
subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal
control over financial reporting represent 2% and 5% respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2017.
F-2
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
Rochester, New York
February 28, 2018
We have served as the Company’s auditor since 2002.
F-3
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 and 2016
(dollars in thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Materials and supplies
Prepaid expenses and other
Total current assets
PROPERTY AND EQUIPMENT, net
GOODWILL
INTANGIBLE ASSETS, net
DEFERRED INCOME TAX ASSETS, net
OTHER ASSETS
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, 2017 and 2016; 74,808,305 and 74,162,972 shares
issued and 61,946,078 and 61,362,665 shares outstanding (net of 12,862,227 and
12,800,307 shares in treasury) on December 31, 2017 and 2016, respectively
Class B Common Stock, $0.01 par value, ten votes per share; 30,000,000 shares
authorized at December 31, 2017 and 2016; 701,138 and 758,138 shares issued and
outstanding on December 31, 2017 and 2016, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost
Total Genesee & Wyoming Inc. stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
December 31,
2017
2016
$
80,472
416,705
57,750
34,606
589,533
4,656,921
1,165,587
1,567,038
3,343
52,475
$8,034,897
$
32,319
363,923
43,621
45,475
485,338
4,503,319
1,125,596
1,472,376
2,671
45,658
$7,634,958
$
27,853
253,993
185,935
467,781
2,303,442
873,194
321,592
172,796
$
52,538
266,867
159,705
479,110
2,306,915
1,162,221
301,383
198,208
748
742
7
1,699,420
2,234,864
(119,554)
(236,951)
3,578,534
317,558
3,896,092
$8,034,897
8
1,651,703
1,685,813
(211,336)
(232,348)
2,894,582
292,539
3,187,121
$7,634,958
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015
(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 loss/(gain) on sale and impairment of assets
Restructuring costs
Other expenses
Total operating expenses
OPERATING INCOME
Interest income
Interest expense
Loss on settlement of foreign currency forward purchase contracts
Other income, net
Income before income taxes
Benefit from/(provision for) income taxes
Net income
Less: Net income/(loss) attributable to noncontrolling interest
Net income attributable to Genesee & Wyoming Inc.
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,
2017
$2,208,044
2016
$2,001,527
2015
$2,000,401
660,284
132,903
244,119
250,457
147,427
7,521
46,993
107,519
87,490
4,254
10,160
110,455
1,809,582
398,462
2,082
(107,291)
—
2,266
295,519
261,259
556,778
7,727
$ 549,051
633,114
159,372
198,046
205,188
118,203
13,346
38,884
82,522
87,194
32,484
8,182
135,380
1,711,915
289,612
1,107
(75,641)
—
413
215,491
(74,395)
141,096
(41)
$ 141,137
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
$
$
$
$
8.92
61,579
8.79
62,464
$
$
2.46
57,324
2.42
58,256
3.97
56,734
3.89
57,848
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015
(in thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME/(LOSS):
Foreign currency translation adjustment
Net unrealized gain/(loss) on qualifying cash flow hedges, net of tax
(provision)/benefit of ($1,507), $3,651 and $2,558, respectively
Changes in pension and other postretirement benefit obligations, net
of tax benefit/(provision) of $401, $6,366 and ($2,552), respectively
Other comprehensive income/(loss)
COMPREHENSIVE INCOME
Years Ended December 31,
2017
2016
2015
$ 556,778
$ 141,096
$ 225,037
106,861
(47,349)
(86,968)
1,870
(5,666)
(3,837)
347
109,078
$ 665,856
$
(30,953)
(83,968)
57,128
9,600
(81,205)
$ 143,832
Less: Comprehensive income attributable to noncontrolling interest
25,023
8,508
—
COMPREHENSIVE INCOME ATTRIBUTABLE
TO GENESEE & WYOMING INC.
$ 640,833
$
48,620
$ 143,832
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015
(dollars in thousands)
G&W Stockholders
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(Loss)
$
Treasury
Stock
Non-
controlling
Interest
Total
Equity
$1,333,353
$1,319,639
(72,252) $(224,547) $
—
—
225,037
—
—
(81,205)
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 income 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
Purchase of noncontrolling
interest
Other
BALANCE, December 31, 2015
Net income/(loss)
Other comprehensive (loss)/
income
Value of stock issued for equity
offering - 4,000,000 shares
Conversion of 35,000 shares
Class B Common Stock to
Class A Common Stock
Value of stock issued for stock-
based compensation - 458,565
shares Class A Common Stock
Settlement of deferred stock
awards - 78,088 shares
Compensation cost related to
stock-based compensation
Income tax deficiencies from
stock-based compensation
Value of treasury stock
repurchased - 71,506 shares
Issuance of noncontrolling
interest
Other
BALANCE, December 31, 2016
Net income
Other comprehensive income
Conversion of 57,000 shares
Class B Common Stock to
Class A Common Stock
Value of stock issued for stock-
based compensation - 348,818
shares Class A Common Stock
Settlement of deferred stock
awards - 17,661 shares
Compensation cost related to
stock-based compensation
Value of treasury stock
repurchased - 61,920 shares
Value of stock issued from sale
of unregistered securities -
238,201 shares
Other
BALANCE, December 31, 2017
—
—
3
2
—
—
—
36
—
—
697
$
$
—
—
40
—
5
—
—
—
—
—
$
$
—
742
—
—
1
3
—
—
—
2
—
748
$
$
810
$1,355,345
—
$1,544,676
$
(153,457) $(227,808) $
141,137
—
10
—
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
7
(2)
—
6,826
14,421
1,432
—
(36)
(1,461)
—
—
285,716
—
8,289
2,069
18,884
(281)
—
(18,327)
8
$1,651,703
—
—
11,581
738
17,476
—
17,489
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$1,685,813
549,051
—
$
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
(3,261)
—
—
—
—
—
—
—
—
—
—
—
(4,540)
1,121
$2,357,980
—
—
—
—
—
—
—
—
225,037
(81,205)
6,829
—
14,421
1,432
(3,261)
—
(1,121)
(2,582)
810
—
— $2,519,461
(41)
141,096
8,549
(83,968)
—
—
—
—
—
—
—
285,756
—
8,294
2,069
18,884
(281)
(4,540)
—
—
—
—
—
—
—
—
(92,517)
—
—
—
—
—
—
—
34,638
—
284,031
300,342
—
—
—
(211,336) $(232,348) $ 292,539
7,727
17,296
—
91,782
—
—
—
—
—
—
—
—
—
—
—
—
(4,603)
—
—
—
—
—
—
—
8
$3,187,121
556,778
109,078
—
11,584
738
17,476
(4,603)
17,491
429
$3,896,092
433
$1,699,420
—
$2,234,864
$
—
(4)
(119,554) $(236,951) $ 317,558
—
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015
(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
Deferred income taxes
Net loss/(gain) on sale and impairment of assets
Loss on settlement of foreign currency forward purchase contracts
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
Proceeds from sale of investment
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 revolving line-of-credit, long-term debt and capital
lease obligations
Proceeds from revolving line-of-credit and long-term borrowings
Proceeds from noncontrolling interest
Proceeds from Class A Common Stock issuance
Stock issuance costs
Debt amendment/issuance costs
Proceeds from employee stock purchases
Treasury stock acquisitions
Net cash (used in)/provided by financing activities
Years Ended December 31,
2016
2015
2017
$
556,778
$
141,096
$
225,037
250,457
17,554
(319,249)
4,254
—
(12,969)
2,474
23,973
(35,341)
(8,725)
479,206
(228,472)
20,249
(107,586)
—
2,100
1,590
5,225
(306,894)
(661,561)
523,672
—
—
—
—
11,583
(4,603)
(130,909)
205,188
17,976
33,442
32,484
—
(15,952)
750
836
(20,468)
11,715
407,067
(219,544)
36,094
(969,476)
—
—
15,201
2,691
(1,135,034)
(1,104,222)
1,074,516
476,828
286,500
(743)
(17,731)
9,317
(4,541)
719,924
188,535
14,649
40,477
(2,291)
18,686
28,905
(4,073)
7,462
(39,881)
(882)
476,624
(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)
580,156
(6,293)
(23,786)
59,727
35,941
$
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
4,421
(3,622)
35,941
32,319
The accompanying notes are an integral part of these consolidated financial statements.
6,750
48,153
32,319
80,472
$
$
F-8
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND CUSTOMERS:
Unless the context otherwise requires, when used in these consolidated financial statements, the terms
"Genesee & Wyoming," "G&W" and the "Company" refer to Genesee & Wyoming Inc. and its subsidiaries.
The Company owns or leases 122 freight railroads worldwide that are organized in nine operating regions with
approximately 8,000 employees and 3,000 customers. The financial results of our nine operating regions are
reported in the following three distinct segments:
• The Company's seven North American regions serve 41 U.S. states and four Canadian provinces and
include 115 short line and regional freight railroads with more than 13,000 track miles.
• The Company's Australian Region serves New South Wales, the Northern Territory and South Australia and
operates the 1,400-mile Tarcoola-to-Darwin rail line. As of December 1, 2016, G&W's Australia Region is
51.1% owned by us and 48.9% owned by a consortium of funds and clients managed by Macquarie
Infrastructure and Real Assets (MIRA).
• The Company's U.K./European Region includes the United Kingdom's (U.K.) largest rail maritime
intermodal operator and second-largest freight rail provider, as well as regional rail services in Continental
Europe.
The Company's subsidiaries and joint ventures also provide rail service at more than 40 major ports, rail-ferry
service between the U.S. Southeast and Mexico, transload services, contract coal loading, and industrial railcar
switching and repair. See Note 3, Changes in Operations, for descriptions of the Company's changes in operations in
recent years.
During the third quarter of 2017, the Company's Mountain West Region railroads were consolidated into its
Central and Pacific regions, and the Pacific Region was renamed the Western Region. The consolidation reduced the
Company's number of operating regions from ten to nine.
The Company's railroads transport a wide variety of commodities. Revenues from the Company's 10 largest
customers accounted for approximately 24%, 22% and 22% of the Company's operating revenues in 2017, 2016 and
2015, 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, 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 and natural gas liquids) or congestion at ports (intermodal). 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.
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.
F-9
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 customer's 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, container sales,
property rentals 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, as well as purchased containers from
the Company's newly acquired Pentalver Transport Limited (Pentalver) business in the U.K. 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.
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.
F-10
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company's largest category of capital expenditures is for track line upgrades, expansion and
replacement, where the Company utilizes both employees and professional contractors in completing these capital
projects. Costs that are directly attributable to self-constructed assets (including overhead costs) are capitalized.
Direct costs that are capitalized as part of self-constructed assets include materials, labor and equipment. Indirect
costs are capitalized if they clearly relate to the construction of the asset. 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 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
less the cost to sell 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.
During the year ended December 31, 2017, the Company recorded a $5.9 million non-cash charge related to
the impairment of track assets on idle branch lines in South Australia. During the year ended December 31, 2016,
the Company recorded a $13.0 million non-cash charge related to the impairment of an idle rolling-stock
maintenance facility resulting from Arrium, an iron ore customer in Australia, entering voluntary administration. For
additional information regarding Arrium, see Note 3, Changes in Operations. There were no material losses incurred
through other dispositions from unanticipated or unusual events for the year ended December 31, 2015.
Grants from Outside Parties
Grants from outside parties are recorded as deferred revenue within deferred items - grants from outside
parties, and are amortized as a reduction to depreciation expense over the same period during which the associated
assets are depreciated.
Goodwill
The Company reviews the carrying value of goodwill at least annually to assess impairment since these assets
are not amortized. The Company performs its annual impairment assessment as of November 30 of each year.
Additionally, the Company reviews the carrying value of goodwill whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. No impairment was recognized for the years ended
December 31, 2017 and 2015, as a result of our annual impairment assessment.
In 2016, in conjunction with the Company's annual impairment assessment of goodwill combined with
previously discussed efforts to address challenges with the Company's Continental Europe intermodal business, ERS
Railways B.V. (ERS), the Company recorded an impairment of goodwill of $14.5 million. See Note 3, Changes in
Operations, for additional information regarding ERS.
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. 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
loss/(gain) on sale and impairment of assets within operating expenses.
F-11
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, customer contracts and relationships and track access agreements. These intangible assets are generally
amortized on a straight-line basis over the expected economic longevity of the facility served, the customer
relationship, or the length of the contract or agreement including expected renewals. In 2016, in conjunction with the
Company's annual impairment assessment of goodwill combined with previously disclosed efforts to address
challenges with ERS, the Company recorded an impairment of a customer-related intangible asset of $4.1 million.
See Note 3, Changes in Operations, for additional information regarding ERS.
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 accidents involving passengers 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 $2.5 million per occurrence. 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.
Defined Benefit Plans
The Company sponsors certain defined benefit plans covering eligible employees. The Company engages
independent actuaries to compute amounts of liabilities and expenses related to these plans subject to the
assumptions that the Company determines are appropriate based on historical trends, current market rates and future
projections. These assumptions include, but are not limited to, the selection of a discount rate, expected long-term
rate of return on plan assets, rate of future compensation increases, inflation volatility and mortality. See Note 11,
U.K. Pension Plan, and Note 12, Other Employee Benefit Programs, for additional information regarding these
plans.
Income Taxes
The Company files a consolidated United States federal income tax return, which includes all of its United
States subsidiaries. Each of the Company's foreign subsidiaries files appropriate income tax returns in each of its
respective countries. The provision for, or benefit from, income taxes includes deferred taxes resulting from
temporary differences using a balance sheet approach. Such temporary differences result primarily from differences
in the carrying value of assets and liabilities for financial reporting and tax purposes. Future realization of deferred
income tax assets is dependent upon the Company's ability to generate sufficient taxable income. The Company
evaluates on a quarterly basis whether, based on all available evidence, the deferred income tax assets will be
realizable. Valuation allowances are established when it is estimated that it is more likely than not that the tax
benefit of a deferred tax asset will not be realized.
F-12
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the TCJA) was enacted into law. The TCJA
reduced the United States federal corporate income tax rate to 21% from 35% effective for years beginning after
December 31, 2017. Additionally, the TCJA requires United States companies to compute a one-time transition (toll)
tax on earnings of certain foreign subsidiaries that were previously deferred for United States federal income tax
purposes. The Company has estimated the impact of the reduction in the United States federal corporate tax rate to
be a reduction to the Company's net deferred tax liabilities of approximately $394 million, which represents a
decrease in corporate income taxes expected to be paid in the future. The Company has also estimated the toll tax to
be approximately $22 million payable over an eight-year period beginning in 2018. Each of the Company's foreign
subsidiaries files income tax returns in each of its respective countries. No provision is made for certain taxes
applicable to the undistributed earnings of our foreign subsidiaries as it is the intention of management to fully
utilize those earnings in the operations of foreign subsidiaries. The amount of undistributed earnings of the
Company's foreign subsidiaries as of December 31, 2017 was $237.9 million. If the earnings were to be distributed
in the future, those distributions would not be subject to United States federal corporate income tax but may result in
foreign exchange gains and losses and be subject to other taxes and credits including United States state taxes and
withholding taxes payable to various foreign countries; however, the amount of the tax is not practicable to
determine. See Note 13, Income Taxes, for additional information regarding the TCJA.
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.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718),
Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for
employee share-based compensation arrangements, including the accounting for income taxes, forfeitures, statutory
tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The
Company elected to account for forfeitures as they occur and elected the retrospective transition method in regards
to the classification of tax-related cash flows from stock-based payments. The amendment became effective for the
Company on January 1, 2017 and did not have a material impact on the consolidated financial statements for the
year ended December 31, 2017.
The grant date fair value of non-vested shares 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, restricted stock units and the
2017 and 2016 performance-based restricted stock units is based on the closing market price of the Company's
Class A Common Stock on the date of grant.
Fair Value of Financial Instruments
The Company applies the following three-level hierarchy of valuation inputs for measuring fair value:
• Level 1 – Quoted prices for identical assets or liabilities in active markets that the Company has the ability
to access at the measurement date.
• Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active; and model-derived valuations in which all
significant inputs are observable market data.
• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are
unobservable.
F-13
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency
The financial statements of the Company's foreign subsidiaries are prepared in the local currency of the
respective subsidiary and translated into United States dollars based on the exchange rate at the end of the period for
balance sheet items and, for the statement of operations, at the average rate for the period. Currency translation
adjustments are reflected within the equity section of the balance sheet and are included in other comprehensive
income/(loss). Upon complete or substantially complete liquidation of the underlying investment in the foreign
subsidiary, cumulative translation adjustments are recognized in the consolidated statements of operations.
Management Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management
to use judgment and to make estimates and assumptions that affect business combinations, reported assets,
liabilities, revenues and expenses during the reporting period. Significant estimates using management judgment are
made in the areas of recoverability and useful life of assets, as well as liabilities for casualty claims and income
taxes. Actual results could differ from those estimates.
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:
North American Operations
Heart of Georgia Railroad, Inc.: On May 31, 2017, the Company completed the acquisition of all the
outstanding shares of Atlantic Western Transportation, Inc., parent company of Heart of Georgia Railroad, Inc.
(HOG), for $5.6 million in cash and contingent consideration valued at $5.7 million. The contingent consideration is
payable to the sellers upon satisfaction of certain conditions, which the Company expects to be paid in 2021. See
Note 10, Fair Value of Financial Instruments, for additional information regarding the contingent consideration. The
results of operations from HOG have been included in the Company's consolidated statement of operations since the
acquisition date.
HOG was founded in 1999 and operates 221 miles of track that runs across the State of Georgia. The track is
leased from the Georgia Department of Transportation. It connects with the Company’s Georgia Southwestern
Railroad at Americus, Georgia, and with the Company’s Georgia Central Railway at Vidalia, Georgia. HOG serves
an inland intermodal terminal at Cordele, Georgia, providing five days per week, direct rail service via the Georgia
Central Railway to the Port of Savannah for auto, agricultural products and other merchandise customers. HOG has
Class I railroad connections with CSX Corp. at Cordele and with Norfolk Southern at Americus and Helena,
Georgia. HOG transports approximately 10,000 annual carloads of agricultural products, feed, fertilizer, and lumber
and forest products, of which approximately 2,000 carloads are interchanged with the Company’s Georgia Central
Railway.
Providence and Worcester Railroad Company: On November 1, 2016, the Company completed the acquisition
of 100% of the outstanding common stock of Providence and Worcester Railroad Company (Providence and
Worcester Railroad) for $25.00 per share, or $126.2 million. 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). The results of operations from Providence and Worcester Railroad have been
included in the Company's consolidated statements of operations since the acquisition date. The Company incurred
$3.1 million of integration costs associated with Providence and Worcester Railroad during the year ended
December 31, 2017, of which $2.7 million was included within labor and benefits expense primarily for severance
costs and $0.4 million was included within other expenses in the Company's consolidated statement of operations.
F-14
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Providence and Worcester Railroad is headquartered in Worcester, Massachusetts, and operates in Rhode
Island, Massachusetts, Connecticut and New York. Providence and Worcester Railroad is contiguous with the
Company’s New England Central Railroad (NECR) and Connecticut Southern Railroad (CSO). As of the acquisition
date, rail service was provided by approximately 130 Providence and Worcester Railroad employees with 32
locomotives across 229 miles of owned track and over approximately 300 track miles under track access
agreements. Providence and Worcester Railroad has exclusive freight access over Amtrak’s Northeast Corridor
between New Haven, Connecticut, and Providence, Rhode Island, and trackage rights over Metro-North Commuter
Railroad, Amtrak and CSX Corp. between New Haven, Connecticut, and Queens, New York. Providence and
Worcester Railroad interchanges with the Company’s NECR and CSO railroads, as well as with CSX Corp., Norfolk
Southern, Pan Am Railways, Pan Am Southern, the Housatonic Railroad and the New York and Atlantic Railroad,
and also connects to Canadian National and Canadian Pacific via NECR.
Providence and Worcester Railroad serves a diverse mix of aggregates, auto, chemicals, metals and lumber
customers in southeastern New England, handling approximately 44,000 carloads and intermodal units annually. In
addition, Providence and Worcester Railroad provides rail service to three ports (Providence, Davisville and New
Haven) and to a United States Customs bonded intermodal terminal in Worcester, Massachusetts, that receives
inbound intermodal containers for distribution in New England.
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 Providence and Worcester Railroad were
recorded at their acquisition-date fair values and were consolidated with those of the Company as of the acquisition
date. The following acquisition-date fair values were assigned to the acquired net assets (dollars in thousands). The
$27.9 million of fair value assigned to goodwill will not be deductible for tax purposes.
Cash and cash equivalents
Accounts receivable
Materials and supplies
Prepaid expenses and other
Property and equipment
Goodwill
Total Assets
Accounts payable and accrued expenses
Deferred income tax liabilities, net
Other long-term liabilities
Net assets
Australian Operations
Amount
1,529
4,011
1,048
648
129,473
27,938
164,647
9,759
27,464
1,273
126,151
$
$
Glencore Rail (NSW) Pty Limited: On December 1, 2016, a subsidiary of the Company completed the
acquisition of Glencore Rail (NSW) Pty Limited (GRail) for A$1.14 billion (or approximately $844.9 million at an
exchange rate of $0.74 for one Australian dollar) and concurrently issued a 48.9% equity stake in G&W Australia
Holdings LP (GWAHLP) (collectively, the Australia Partnership), which is the holding entity for all of the
Company’s Australian businesses, including GRail, to Macquarie Infrastructure and Real Assets (MIRA), a large
infrastructure investment firm. The Company, through wholly-owned subsidiaries, retained a 51.1% ownership in
GWAHLP. As the Company maintained control of its Australian Operations, it continues to consolidate 100% of the
Company's Australian Operations in its financial statements and reports a noncontrolling interest for MIRA’s 48.9%
equity ownership. The acquisition of GRail was funded through a combination of third-party debt and contributions
from the Company and MIRA in the form of equity and partner loans.
F-15
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company and MIRA contributed a combined A$1.3 billion in the form of cash, partner loans and
contributed equity, and the Company's subsidiary, GWI Acquisitions Pty Ltd (GWIA), entered into a five-year
A$690.0 million senior secured term loan facility that is non-recourse to the Company and to MIRA. The proceeds
were used to acquire GRail for A$1.14 billion, repay Genesee & Wyoming Australia’s (GWA) existing A$250.0
million term loan (under the Company’s Credit Agreement) and pay A$19.8 million in debt issuance costs and
A$13.2 million of acquisition-related costs (collectively the GRail Transactions). The foreign exchange rate used to
translate the transaction amounts to United States dollars (USD) was $0.74 for one Australian dollar (AUD).
GRail’s coal haulage business was established in 2010 as an alternative rail service provider to the incumbent
railroads in the Hunter Valley and has grown to be the third largest coal haulage business in Australia. The
Company’s Freightliner Australia subsidiary (acquired by the Company in March 2015) has been the rail operator of
GRail since inception and presently provides haulage and logistics services for approximately 40 million tonnes per
year of steam coal that is among the lowest cost and highest quality coal in the world sold principally to customers
in Japan, Korea and Taiwan. These services have continued following the GRail transaction.
In conjunction with the GRail acquisition, the Company entered into a 20-year rail haulage contract with the
seller, Glencore Coal Pty Limited (GC), to exclusively haul all coal produced at GC’s existing mines in the Hunter
Valley to the Port of Newcastle. The contract has minimum guaranteed volumes over the first 18 years.
The GRail transaction included the acquisition of nine train sets (30 locomotives and 894 railcars). Rail
haulage service is operated on government-owned, open-access track that is coordinated by a neutral third party.
Track access fees will continue to be paid directly by GC.
The Company paid GC, the seller of GRail, A$1.14 billion (or approximately $844.9 million at an exchange
rate of $0.74 for one Australian dollar) in cash at closing and received A$3.8 million (or $2.9 million at the exchange
rate on the date the cash was received) from the seller for the final working capital adjustment during the three
months ended March 31, 2017. 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 GRail 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 $0.74 for one Australian dollar,
the exchange rate on December 1, 2016. The results of operations from GRail have been included in the Company's
consolidated statements of operations since the December 1, 2016 acquisition date.
The following acquisition-date fair values were assigned to the acquired net assets (amounts in thousands):
Accounts receivable
Materials and supplies
Property and equipment
Goodwill
Intangible assets
Total assets
Accounts payable and accrued expenses
Deferred income tax liabilities, net
Net assets
AUD
1,556
411
279,592
415,959
635,000
1,332,518
5,796
190,551
1,136,171
$
$
A$
A$
USD
1,153
305
207,206
308,267
470,599
987,530
4,296
141,217
842,017
The A$635.0 million (or $470.6 million at the exchange rate on December 1, 2016) of fair value assigned to
intangible assets relates to an amortizable customer contract associated with the 20-year take-or-pay rail haulage
contract with GC. The A$416.0 million (or $308.3 million at the exchange rate on December 1, 2016) of fair value
assigned to goodwill will not be deductible for tax purposes.
Arrium Limited: Between 2011 and 2014, GWA invested a total of $78 million 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. 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.
F-16
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 7, 2016, Arrium announced it had entered into voluntary administration. As a result, during the first
quarter of 2016, the Company recorded a $13.0 million non-cash charge related to the impairment of GWA's idle
rolling-stock maintenance facility, which was recorded to net (gain)/loss on sale and impairment of assets within
operating expenses, which represented the entire carrying value of these assets, and an allowance for doubtful
accounts charge of $8.1 million associated with accounts receivable from Arrium, which was recorded to other
expenses within operating expenses. Also, as a result of the voluntary administration, all payments to GWA
associated with the Southern Iron rail haulage agreement ceased. In December 2017, the Company recovered $0.9
million of cash in relation to the Company's previous agreements with Arrium.
On August 31, 2017, Arrium was sold to GFG Alliance. The steel making business was rebranded as Liberty
OneSteel and the mining business was rebranded as SIMEC Mining. GWA continues to provide services and receive
payments under the rail haulage agreement for the Middleback Range operations. Pursuant to that rail haulage
agreement, GWA serves several iron ore mines in the Middleback Range and the Whyalla steelworks operations.
U.K./European Operations
Pentalver Transport Limited: On May 3, 2017, the Company's subsidiary, GWI UK Acquisition Company
Limited, purchased for cash all of the issued share capital of Pentalver from a subsidiary of APM Terminals (a
subsidiary of A P Møller-Maersk A/S) for £97.8 million (or $126.2 million at the exchange rate on May 3, 2017) or
£77.5 million (or $100.1 million at the exchange rate on May 3, 2017) net of cash received of £20.2 million (or
$26.1 million at the exchange rate on May 3, 2017) of cash received in connection with the sale. The Company
funded the acquisition with borrowings under the Credit Agreement. The foreign exchange rate used to translate the
total consideration to United States dollars was $1.29 for one British pound (GBP).
Headquartered in Southampton, U.K., Pentalver operates off-dock container terminals (most under long-term
leases) strategically placed at each of the four major seaports of Felixstowe, Southampton, London Gateway and
Tilbury, as well as an inland terminal located at Cannock, in the Midlands, near many of the nation’s largest
distribution centers. In addition to providing storage for loaded and empty containers on over 100 acres of land,
Pentalver also operates a trucking haulage service with more than 150 trucks, primarily providing daily service
between the seaports of Felixstowe and Southampton and its inland terminal at Cannock. Pentalver also provides
services related to container maintenance and repair (including refrigerated containers) and is one of the largest
sellers of new and used containers in the U.K.
Pentalver’s operations are complementary to those of the Company's Freightliner subsidiary, which is the
largest rail maritime intermodal operator in the U.K. The logistics of maritime container transportation in the U.K.
are highly competitive, whether by road, rail or short-sea, with a premium placed on timely, efficient and safe
service. The Company expects that the Pentalver acquisition will enable it to (i) enhance its U.K. services by
providing rail and road transportation solutions, as well as offering storage options at the ports and inland, and (ii)
unlock efficiencies from shared services and enhanced asset utilization from Pentalver’s trucking fleet and
Freightliner’s existing fleet of approximately 200 trucks that currently provide local collection and delivery haulage
from Freightliner’s inland terminals. With approximately 600 employees, Pentalver will operate as part of the
Company’s U.K./Europe Region.
The results of operations from Pentalver have been included in the Company's consolidated statement of
operations since the May 3, 2017, acquisition date within the Company's U.K./European Operations segment.
Pentalver contributed $102.6 million of total revenues and $4.3 million of operating income, which included $3.3
million of depreciation and amortization expense, to the Company's consolidated results since the acquisition date.
The Company incurred $3.9 million of acquisition and integration costs related to Pentalver during the year ended
December 31, 2017, of which $3.8 million was included within other expenses and $0.1 million was included in
labor and benefits expense in the Company's consolidated statement of operations.
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 Pentalver were recorded at their preliminary
acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The
preliminary acquisition-date fair values are subject to further adjustment for the final determination of fair values of
the acquired assets and liabilities. The foreign exchange rate used to translate the balance sheet to United States
dollars was $1.29 for one British pound.
F-17
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following preliminary 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
Total assets
Accounts payable and accrued expenses
Deferred income tax liabilities, net
Deferred items-grants from outside parties
Net assets
GBP
USD
20,224
16,849
13,360
3,238
20,649
8,592
42,000
124,912
21,341
5,220
601
97,750
$
$
26,117
21,759
17,253
4,182
26,666
11,096
54,239
161,312
27,560
6,741
776
126,235
£
£
The $54.2 million of intangible assets relate to amortizable operational rights with contractual terms spanning
up to 50 years and a weighted average amortization period of 33 years. The $11.1 million of goodwill will not be
deductible for tax purposes.
Continental Europe Intermodal Business: During 2016, the Company explored ways to enhance the long-term
viability of ERS, the Continental Europe intermodal business Freightliner acquired from Maersk, which the
Company acquired in 2015 with the Freightliner acquisition. Due to its limited history of profitability and
competitive dynamics in the market in which it operates, the Company ascribed little value to it at the time of
acquisition.
Despite a significant and focused effort by the Company, the performance of ERS reached unsustainable levels
during 2016 and a restructuring plan was initiated. In conjunction with that plan, in 2017, the Company ceased all
"open" train services from the port of Rotterdam, closed the ERS offices in Rotterdam and Frankfurt and the ERS
customer services function in Warsaw. The Company is in the process of redistributing ERS’s leased locomotives
and railcars, which have lease termination dates up through 2019. These steps will enable the Company to focus on
the deep sea intermodal sector. The Company's subsidiary, Rotterdam Rail Feeding B.V., will continue its existing
services and not be affected by the restructuring of ERS.
As a result of the ERS restructuring plan, the Company recorded impairment and related charges of $21.5
million in December 2016. These charges primarily included $14.5 million for an impairment of goodwill and $4.1
million for an impairment of a customer-related intangible asset, which were both recorded to net loss/(gain) on sale
and impairment of assets within operating expenses, which represented the entire carrying value of these assets. For
the year ended December 31, 2017, the Company recorded $5.7 million of restructuring costs related to ERS,
primarily for severance costs and costs associated with surplus locomotive and railcar leases.
Restructuring of U.K. Coal Business: During 2016, due to a drastic decline in coal shipments, the Company
implemented a restructuring of its U.K. coal business. The U.K. coal business, which the Company acquired as part
of the Freightliner acquisition in 2015, is a relatively low-margin business, and the Company originally expected to
cease coal shipments by 2022. The Company incurred charges related to the U.K. coal restructuring program of
$14.7 million during the year ended December 31, 2016. These charges included $10.5 million associated with
leased railcars that exceed the Company's expected ongoing needs and were permanently taken out of service, which
was recorded to equipment rents within operating expenses, as well as $4.2 million of severance and related costs
associated with restructuring the Company's workforce. During the year ended December 31, 2017, the Company
recorded a reduction to equipment rents within operating expenses of $1.1 million associated with an adjustment to
the liability recorded in 2016 for the leased railcars.
F-18
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 bought out this deferred
consideration in November 2017, as described below.
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, at the time of acquisition, Freightliner's ERS subsidiary, based in
Rotterdam, provided 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 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 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
£
£
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 represented 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 bought out this deferred consideration in November 2017 with the issuance of
238,201 shares of the Company's Class A Common Stock with a grant date fair value of $17.5 million, as well as
£2.1 million (or $2.9 million at the exchange rate on December 31, 2017) in cash to be paid in March 2018. These
shares have time-based contractual restrictions on their transfer until March 2018, March 2019 and March 2020. In
addition, the Company issued a note payable with a £6.3 million (or $8.6 million at the exchange rate on
December 31, 2017) face value (£5.7 million fair value, or $7.7 million at the exchange rate on December 31, 2017)
to certain management holders as part of the buyout of the deferred consideration. This note is payable in three
annual installments starting in March 2018. The Company recorded a net gain of $8.9 million on the buyout of the
deferred consideration in November 2017, which was included within other expenses in the Company's consolidated
statement of operations.
The results of operations from Freightliner have been included in the Company's consolidated statements of
operations since the March 25, 2015 acquisition date. 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. 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).
F-19
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Financial Results (Unaudited)
The following table summarizes the Company's unaudited pro forma operating results for the years ended
December 31, 2016 and 2015 as if the acquisition of Freightliner had been consummated as of January 1, 2014 and
the GRail Transactions had been consummated as of January 1, 2015. As such, these results include pro forma
results from Freightliner for the period January 1, 2015 through March 24, 2015 and pro forma results from the
GRail Transactions for the period from January 1, 2015 through November 30, 2016. 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 attributable to Genesee & Wyoming Inc.
Basic earnings per common share attributable to Genesee & Wyoming
Inc. common stockholders
Diluted earnings per common share attributable to Genesee & Wyoming
Inc. common stockholders
$
$
$
$
2016
2,052,840
136,559
2.38
2.34
$
$
$
$
2015
2,203,822
224,202
3.95
3.88
The unaudited pro forma operating results for the year ended December 31, 2015 included the acquisition of
Freightliner adjusted, net of tax, for depreciation and amortization expense resulting from the determination of fair
values of the acquired property and equipment and amortizable intangible asset, 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 unaudited pro forma operating results for the year ended December 31, 2015, also included the acquisition
of GRail adjusted, net of tax, for depreciation and amortization expense resulting from the determination of fair
values of the acquired property and equipment and amortizable intangible assets, the inclusion of interest expense
related to borrowings used to fund the acquisition, the amortization of debt issuance costs related to the Australian
Credit Agreement, noncontrolling interest related to MIRA's 48.9% ownership and the elimination of Australia's
interest expense related to debt under the Credit Agreement. Prior to the GRail acquisition, the Company's
Australian subsidiary, Freightliner Australia Pty Ltd (FLA), provided rail operator services to GRail, which has been
eliminated in the pro forma financial results. Since the pro forma financial results assume the acquisition was
consummated on January 1, 2015, the unaudited pro forma operating results for the year ended December 31, 2016
excluded $16.3 million ($15.6 million, net of tax) of costs incurred by the Company related to the GRail
Transactions. The unaudited pro forma results for the year ended December 31, 2015 included $17.6 million ($16.9
million, net of tax) of costs incurred by the Company related to the GRail Transactions.
F-20
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Freightliner's fiscal year was based on a 52/53 week period ending on the nearest Saturday on or before March
31, prior to the acquisition by the Company. 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, Freightliner's historical operating results for the 12
weeks ended March 28, 2015, adjusted to remove the results already included in the Company's first quarter results,
and GRail's historical operating results for the twelve months ended December 31, 2015. 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
foreign exchange rate used to translate GRail's 2015 historical operating results to United States dollars was $0.75
for one Australian dollar (which was calculated based on the weighted average monthly exchange rates for the
twelve months of 2015).
The unaudited pro forma operating results for the year ended December 31, 2016 were based on the
Company's consolidated statement of operations for the twelve months ended December 31, 2016 and GRail's
historical operating results for the eleven months ended November 30, 2016. The foreign exchange rate used to
translate GRail's 2016 historical operating results to United States dollars was $0.74 for one Australian dollar (which
was calculated based on the weighted average monthly exchange rates for the eleven months of 2016).
The pro forma financial information does not purport to be indicative of the results that actually would have
been obtained had the Freightliner acquisition been completed as of January 1, 2014 and had the GRail Transactions
been completed as of January 1, 2015 and for the periods presented and are not intended to be a projection of future
results or trends.
4. EARNINGS PER COMMON SHARE:
The following table sets forth the computation of basic and diluted earnings per share (EPS) attributable to
Genesee & Wyoming Inc. common stockholders for the years ended December 31, 2017, 2016 and 2015 (in
thousands, except per share amounts):
Numerators:
Net income attributable to Genesee & Wyoming Inc.
Denominators:
Weighted average Class A common shares outstanding -
Basic
Weighted average Class B common shares outstanding
Dilutive effect of employee stock-based awards
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
2017
2016
2015
$
549,051
$
141,137
$
225,037
61,579
735
150
62,464
57,324
790
142
58,256
$
$
8.92
8.79
$
$
2.46
2.42
$
$
56,734
884
230
57,848
3.97
3.89
Weighted average Class B common shares outstanding and common shares issuable under the assumed
exercise of stock-based awards computed based on the treasury stock method were the only reconciling items
between the Company's basic and diluted weighted average shares outstanding.
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 attributable to Genesee & Wyoming Inc. common stockholders, as the effect of including these shares
would have been anti-dilutive (in thousands):
Anti-dilutive shares
2017
2016
2015
1,130
1,185
687
F-21
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
The authorized capital stock of the Company consists of two classes of common stock designated as Class A
Common Stock and Class B Common Stock. The holders of Class A Common Stock and Class B Common Stock
are entitled to one vote and ten votes per share, respectively. Each share of Class B Common Stock is convertible
into one share of Class A Common Stock at any time at the option of the holder, subject to the provisions of the
Class B Stockholders' Agreement dated as of May 20, 1996. In addition, pursuant to the Class B Stockholders'
Agreement, certain transfers of the Class B Common Stock, including transfers to persons other than our executive
officers, will result in automatic conversion of Class B Common Stock into shares of Class A Common Stock.
Holders of Class A Common Stock and Class B Common Stock shall have identical rights in the event of
liquidation.
Dividends declared by the Company's Board of Directors are payable on the outstanding shares of Class A
Common Stock or both Class A Common Stock and Class B Common Stock, as determined by the Board of
Directors (the Board). If the Board 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.
Recent Sales of Unregistered Securities
On November 22, 2017, the Company issued 238,201 shares of our Class A Common Stock upon buyout of its
deferred consideration agreements with certain former management shareholders of Freightliner. The issuance was
exempt from registration pursuant to Regulation S under the Securities Act of 1933, as amended (the Act). These
shares are restricted from trading by contract and are subject to the holding periods required by Rule 144 under the
Act. The Company did not receive any cash proceeds from the issuance of these shares. See Note 3, Changes in
Operations, for additional information regarding the buyout of the Freightliner deferred consideration agreements.
Offerings
On December 13, 2016, the Company completed a public offering of 4,000,000 shares of Class A Common
Stock at $75.00 per share. The Company received net proceeds of $285.8 million after deducting underwriting
discounts and commissions and offering expenses from the sale of its Class A Common Stock. The Company's basic
shares outstanding for the year ended December 31, 2017 and 2016 included weighted average shares of 4,000,000
and 131,148, respectively, as a result of the public offering of Class A Common Stock. The Company used the net
proceeds from the offering to partially fund the acquisition of Pentalver Transport Limited and to repay
indebtedness. See Note 3, Changes in Operations, for additional information regarding the Company's acquisition of
Pentalver.
Share Repurchase
On September 29, 2015, the Board authorized the repurchase of up to $300 million of the Company's Class A
Common Stock, subject to certain limitations. See Note 8, Long-Term Debt, for additional information. Through
December 31, 2017, the Company has not repurchased any shares of Class A Common Stock under this
authorization.
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.
F-22
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable consisted of the following at December 31, 2017 and 2016 (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
2017
2016
$
$
401,723
17,734
10,753
430,210
(13,505)
416,705
$
$
353,347
10,652
11,994
375,993
(12,070)
363,923
The Company's trade accounts receivable balance as of December 31, 2017 included $22.6 million from the
newly acquired Pentalver business. See Note 3, Changes in Operations, for additional information regarding the
Pentalver acquisition.
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 $20.2 million, $36.1 million and $41.7 million for the
years ended December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015 (dollars in thousands):
Amortization of deferred grants
$
12,356
$
13,465
$
10,691
2017
2016
2015
Insurance and Third-Party Claims
Accounts receivable from insurance and other third-party claims at December 31, 2017 included $5.9 million
from the Company's North American Operations, $4.3 million from the Company's U.K./European Operations and
$0.6 million from the Company's Australian Operations. The balance from the Company's North American
Operations resulted predominately from the Company's anticipated insurance recoveries associated with a 2015
trestle fire in the United States and derailments in Canada. The balance from the Company's U.K./European
Operations resulted primarily from the Company's anticipated insurance recoveries associated with a pre-acquisition
rail-related collision in Germany in 2014 that occurred prior to the Company's acquisition of Freightliner. The
Company received proceeds from insurance totaling $1.6 million, $15.2 million and $10.4 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
F-23
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Doubtful Accounts
Activity in the Company's allowance for doubtful accounts for the years ended December 31, 2017, 2016 and
2015 was as follows (dollars in thousands):
Balance, beginning of year
Provisions
Charges
Balance, end of year
2017
2016
2015
$
$
12,070
7,752
(6,317)
13,505
$
$
6,213
19,655
(13,798)
12,070
$
$
5,826
7,512
(7,125)
6,213
During the year ended December 31, 2016, $8.1 million of accounts receivable associated with an Australian
iron ore customer that entered into voluntary administration in April 2016 was provisioned for and subsequently
written off and $2.6 million of ERS accounts receivable was provisioned for (see Note 3, Changes in Operations, for
additional information regarding Australia and ERS).
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-24
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, 2017 and 2016 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
2017
Accumulated
Depreciation
Net Book Value
$
$
755,234
257,173
718,001
2,758,946
4,489,354
24,070
993,872
77,928
75,460
88,629
77,271
1,337,230
36,903
5,863,487
$
— $
(59,611)
(122,380)
(568,954)
(750,945)
(17,852)
(290,796)
(48,147)
(42,079)
(18,873)
(37,874)
(455,621)
—
$
(1,206,566) $
755,234
197,562
595,621
2,189,992
3,738,409
6,218
703,076
29,781
33,381
69,756
39,397
881,609
36,903
4,656,921
Gross Book Value
2016
Accumulated
Depreciation
Net Book Value
$
$
735,054
214,980
692,324
2,639,961
4,282,319
20,449
893,911
72,388
72,210
48,931
57,547
1,165,436
31,910
5,479,665
$
— $
(43,431)
(103,521)
(477,366)
(624,318)
(14,927)
(217,704)
(41,257)
(37,632)
(15,663)
(24,845)
(352,028)
—
$
(976,346) $
735,054
171,549
588,803
2,162,595
3,658,001
5,522
676,207
31,131
34,578
33,268
32,702
813,408
31,910
4,503,319
F-25
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, 2017 and 2016 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
2017
2016
$
$
4,209
1,000
5,504
18,397
7,793
36,903
$
$
85
1,600
12,302
11,786
6,137
31,910
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.
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
3
2
2
2
5
2
2
40
50
50
10
30
15
20
20
20
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 totaled $192.9 million, $172.3
million and $159.1 million, respectively.
In December 2017, the Company recorded a $5.9 million non-cash charge related to the impairment of track
assets on idle branch lines in South Australia, which was recorded to net loss/(gain) on sale and impairment of assets
within operating expenses within the Company's Australian Operations segment.
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 Agreement.
F-26
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2017, 2016 and 2015 was
as follows:
Railcars
Locomotives
2017
2016
2015
21,669
198
20,738
309
21,819
333
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, 2017, 2016 and 2015 was as follows
(dollars in thousands):
Equipment
Real property
Trackage rights
2017
2016
2015
$
$
$
80,759
17,268
87,490
$
$
$
91,537
14,291
87,194
$
$
$
91,919
12,136
78,140
For the year ended December 31, 2016, the Company incurred $10.5 million of charges associated with leased
coal railcars in the U.K. that exceed the Company's expected ongoing needs and were therefore considered
permanently taken out of service. See Note 3, Changes in Operations, for additional information regarding the U.K.
coal business.
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 accounted for approximately 11.3% of the Company's 2017 total
operating revenues. Leases from Class I railroads and other third parties that are subject to expiration in each of the
next ten years represent 3% or less of the Company's annual revenues in the year of expiration based on the
Company's operating revenues for the year ended December 31, 2017. For example, the Company's revenues
associated with leases from Class I railroads and other third parties subject to expiration in each of the next five
years (2018 - 2022) would represent approximately 2.4%, 0.3%, 0.0%, 0.6% and 1.1% of the Company's operating
revenues in each of those years, respectively, based on the Company's operating revenues for the year ended
December 31, 2017.
The Company's capital leased assets primarily consist of locomotives and railcars. The amortization of capital
leased assets is included within the Company's depreciation expense. The following is a summary of future
minimum lease payments under capital leases and operating leases as of December 31, 2017 (dollars in thousands):
2018
2019
2020
2021
2022
Thereafter
Total minimum payments
Capital
Operating
Total
9,624
9,103
15,593
7,320
12,381
20,967
74,988
$
$
100,952
81,637
67,973
55,408
44,893
263,653
614,516
$
$
110,576
90,740
83,566
62,728
57,274
284,620
689,504
$
$
F-27
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INTANGIBLE ASSETS AND GOODWILL:
Intangible Assets
Intangible assets as of December 31, 2017 and 2016 were as follows (dollars in thousands):
Intangible assets:
Amortizable intangible assets:
Operational network rights
Track access agreements
Customer contracts and relationships
Trade names/trademarks
Favorable operating leases
Total amortizable intangible assets
Non-amortizable intangible assets:
Operating license
Total intangible assets, net
Intangible assets:
Amortizable intangible assets:
Operational network rights
Track access agreements
Customer contracts and relationships
Trade names/trademarks
Favorable operating leases
Total amortizable intangible assets
Non-amortizable intangible assets:
Perpetual track access agreements
Operating license
Total intangible assets, net
2017
Gross
Carrying
Amount
Accumulated
Amortization
Intangible Assets,
Net
Weighted
Average
Amortization
Period
(in Years)
$
$
$
$
495,088
467,098
796,354
13,296
2,441
1,774,277
Gross
Carrying
Amount
399,751
416,878
750,057
11,888
2,210
1,580,784
$
$
$
$
(13,260) $
(91,059)
(100,621)
(919)
(1,500)
(207,359) $
481,828
376,039
695,733
12,377
941
1,566,918
92
41
24
40
5
46
120
1,567,038
$
2016
Accumulated
Amortization
Intangible Assets,
Net
Weighted
Average
Amortization
Period
(in Years)
100
43
24
40
5
48
(7,050) $
(72,442)
(63,520)
(524)
(869)
(144,405) $
$
392,701
344,436
686,537
11,364
1,341
1,436,379
35,891
106
1,472,376
The Company expenses costs incurred to renew or extend the term of its track access agreements.
During the year ended December 31, 2017, the Company assigned a fair value of $54.2 million to operational
network rights in the purchase price allocation of Pentalver. See Note 3, Changes in Operations, for additional
information on the Pentalver acquisition. As a result of ongoing changes to the business of one of the Company's
railroads, effective January 1, 2017, the Company assigned an estimated useful life of 20 years and began
amortizing the intangible asset associated with perpetual track access agreements on this railroad, which was
previously considered an indefinite-lived asset. This immaterial change effectively aligns the amortization period for
this intangible asset with the approximate weighted-average life of the complementary property and equipment
assets of the respective railroad.
During the year ended December 31, 2016, the Company assigned a fair value of $470.6 million to customer
contracts and relationships in the purchase price allocation of GRail. See Note 3, Changes in Operations, for
additional information on the GRail acquisition. During the year ended December 31, 2016, the Company also
recorded an impairment charge of $4.1 million related to a customer relationship intangible asset at ERS. See Note
3, Changes in Operations, for additional information regarding ERS.
F-28
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017, 2016 and 2015, the aggregate amortization expense associated with
intangible assets was $57.6 million, $32.9 million and $29.4 million, respectively. The Company estimates the future
aggregate amortization expense related to its intangible assets as of December 31, 2017 will be as follows for the
periods presented (dollars in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Goodwill
Amount
57,963
53,132
52,913
52,823
52,823
1,297,264
1,566,918
$
$
The changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 were as
follows (dollars in thousands):
North American
Operations
Australian
Operations
U.K./European
Operations
Total Operations
Balance as of January 1, 2017:
Goodwill, gross
Accumulated impairment losses
Goodwill
Changes during the period:
Goodwill acquired
Acquisition accounting adjustments
Currency translation adjustment
Balance as of December 31, 2017:
Goodwill, gross
Accumulated impairment losses
Goodwill
$
$
$
$
632,937
—
632,937
4,083
(650)
1,640
638,010
—
638,010
$
$
$
$
339,865
—
339,865
—
—
27,503
367,368
—
367,368
$
$
$
$
167,276
(14,482)
152,794
$
$
1,140,078
(14,482)
1,125,596
11,096
(21,765)
18,084
15,179
(22,415)
47,227
174,691
(14,482)
160,209
$
$
1,180,069
(14,482)
1,165,587
Balance as of January 1, 2016:
Changes during the period:
Goodwill acquired
Acquisition accounting adjustments
Goodwill impairment
Currency translation adjustment
Balance as of December 31, 2016:
Goodwill, gross
Accumulated impairment losses
Goodwill
North American
Operations
Australian
Operations
U.K./European
Operations
$
605,234
$
39,312
$
182,029
Total Operations
826,575
$
26,969
176
—
558
308,267
168
—
(7,882)
—
9,736
(14,482)
(24,489)
335,236
10,080
(14,482)
(31,813)
$
$
632,937
—
632,937
$
$
339,865
—
339,865
$
$
167,276
(14,482)
152,794
$
$
1,140,078
(14,482)
1,125,596
F-29
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquired goodwill for the year ended December 31, 2017 was related to the acquisitions of Pentalver in
our U.K./European Operations segment and HOG in our North American Operations segment. The acquisition
accounting adjustments for the year ended December 31, 2017 related to the correction of the following two errors
in accounting for the acquisition of Freightliner, both of which only impacted the consolidated balance sheet. (1) The
tax basis in assets acquired at the date of acquisition was £43.8 million greater than the amount the Company used to
determine deferred taxes, which resulted in a decrease of $10.4 million in goodwill and a decrease of $10.4 million
in deferred tax liabilities. (2) An additional asset for maintenance deposits associated with acquired locomotive
operating leases existed at the acquisition date but was not previously recognized, which resulted in an increase to
other assets of $13.6 million, a decrease in goodwill of $11.3 million and an increase in deferred tax liabilities of
$2.3 million. The Company does not consider these adjustments material to its consolidated financial statements
taken as a whole and as such, prior periods were not restated or retroactively adjusted.
The acquired goodwill for the year ended December 31, 2016 was related to the acquisitions of Providence
and Worcester Railroad in our North American Operations and GRail in our Australian Operations. See Note 3,
Changes in Operations, for additional information regarding the Providence and Worcester Railroad, GRail,
Pentalver and HOG acquisitions. The goodwill impairment recorded in 2016 resulted from the write-off of goodwill
ascribed to the Company's ERS business within its U.K./European Operations segment. See Note 3, Changes in
Operations, for additional information regarding ERS.
8. LONG-TERM DEBT:
Long-term debt consisted of the following as of December 31, 2017 and 2016 (dollars in thousands):
Credit Agreement with variable interest rates (weighted average of 2.82% and
2.71% before impact of interest rate swaps at December 31, 2017 and 2016,
respectively) due 2020
Australian Credit Agreement with variable interest rates (weighted average of
4.28% and 4.64% before impact of interest rate swaps at December 31, 2017
and 2016, respectively) due 2021
Partner Loan Agreement (6.50% and 6.51% interest rate at December 31,
2017 and 2016, respectively) due 2026
Other debt and capital leases
Less: Unamortized debt issuance costs long-term
Long-term debt
Less: current portion, net of unamortized debt issuance costs
Long-term debt, less current portion
2017
2016
$
1,567,882
$
1,630,406
525,101
498,801
186,085
77,402
(25,175)
2,331,295
27,853
2,303,442
$
172,154
91,278
(33,186)
2,359,453
52,538
2,306,915
$
Credit Agreement
In anticipation of its acquisition of Freightliner, the Company entered into the Second Amended and Restated
Senior Secured Syndicated Facility Agreement (the Credit Agreement) on March 20, 2015. At closing, the credit
facilities under the Credit Agreement were 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 stated maturity
date of each of the Company's credit facilities under the Credit Agreement is March 31, 2020.
On October 20, 2016, the Company entered into Amendment No. 2 to the Credit Agreement (Amendment No.
2). Amendment No. 2 permitted, among other things, the Company to enter into the Australia Partnership
Transaction and the GRail Transactions (collectively, the Australian Reorganization). Amendment No. 2 also
permitted the repayment in full and termination of the obligations of the Australia Partnership and its subsidiaries
(the Australian Loan Parties) under the Credit Agreement (the Australian Refinancing). Following the Australian
Refinancing and Australian Reorganization, the Australian Loan Parties became unrestricted subsidiaries under,
ceased to be party to and have no obligations under the Credit Agreement.
F-30
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Australian Reorganization, the Company repaid in full the outstanding Australian term
loan of A$250.0 million (or $185.3 million at the exchange rate on December 1, 2016 when the payment was made).
During 2016, prior to repaying the loan, the Company made prepayments on its Australian term loan of A$35.6
million (or $26.6 million at the exchange rate on the dates the payments were made). The Company also made a
scheduled quarterly principal payment of A$4.1 million (or $3.1 million at the exchange rate on the date the
payment was made) on the Australian term loan.
As a result of the Australian Reorganization, on December 1, 2016, the $625.0 million revolving credit facility
under the Credit Agreement was reallocated and includes flexible sub-limits for revolving loans denominated in
United States 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 British pound, Canadian dollar, 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 under the Credit Agreement,
interest on borrowings is calculated under a "Base Rate" or "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 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.
During the year ended December 31, 2017, the Company made scheduled quarterly principal payments under
its credit agreement of $5.2 million on its United States term loan and £5.1 million (or $6.7 million at the exchange
rate on the dates the payments were made) on its U.K. term loan. During the year ended December 31, 2017, the
Company also made prepayments on its United States term loan of $209.8 million. Since the Company applied all of
its prepayments on the term loan to its quarterly installments, the Company's remaining principal balance of $1.2
billion will be due at maturity on March 31, 2020.
The British pound-denominated term loans began to amortize in quarterly installments during the three months
ended September 30, 2016, with the remaining principal balance payable upon maturity, as set forth below (amounts
in thousands):
British pound:
Quarterly Payment Date
March 31, 2018 through June 30, 2018
September 30, 2018 through December 31, 2019
Maturity date - March 31, 2020
Principal Amount
Due on Each
Payment Date
£
£
£
1,271
2,542
75,532
As of December 31, 2017, the Company had the following outstanding term loans under its Credit Agreement
(amounts in thousands, except percentages):
United States dollar
British pound
Local Currency
1,213,000
93,326
$
£
United States
Dollar Equivalent
1,213,000
$
126,242
$
Interest Rate
3.07%
1.99%
F-31
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's availability to draw from the unused borrowing capacity is subject to covenant limitations as
discussed below. As of December 31, 2017, the Company had the following unused borrowing capacity under its
revolving credit facility (amounts in thousands):
Total available borrowing capacity
Outstanding revolving loans
Outstanding letter of credit guarantees
Unused borrowing capacity
2017
625,000
228,640
3,240
393,120
$
$
$
$
As of December 31, 2017, the Company had the following outstanding revolving loans under its revolving
credit facility (amounts in thousands, except percentages):
British pound
Canadian dollar
Euro
£
C$
Local Currency
144,000
4,000
25,500
United States
Dollar Equivalent
194,789
$
3,195
$
30,656
$
Interest Rate
1.99%
2.91%
1.50%
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, other than its Australian
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.
On September 30, 2015, the Company entered into Amendment No. 1 (Amendment No. 1) to the Credit
Agreement. Amendment No. 1 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 Amendment No. 1. In addition, Amendment No. 1 states that if a material acquisition occurs, the senior
secured leverage ratio shall be tested at a level 0.50 higher than the applicable level for the quarter following the
date of the material acquisition for the next four fiscal quarters, not to exceed 4.50 to 1.00. As a result of the
Australian Reorganization, the periods December 31, 2016 through September 30, 2017 have been adjusted to
reflect this provision. The maximum senior secured leverage ratio for the applicable periods is set forth in the
following table:
Quarterly Periods Ending
December 31, 2016 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
3.75 to 1.00
3.50 to 1.00
F-32
€
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, Amendment No. 1 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,
Amendment No. 1 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.
Amendment No. 1 also 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 Amendment No. 1 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 Amendment No. 1 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. The Company repurchased no
shares of Class A Common Stock under this authorization during the years ended December 31, 2017 and 2016.
As of December 31, 2017, the Company was in compliance with the covenants under the Credit Agreement, as
amended by Amendment No. 1 and Amendment No. 2 (the Amendments), including the maximum senior secured
leverage ratio covenant noted above.
Australian Credit Agreement
For the benefit of the Company's Australian business, GWI Acquisitions Pty Ltd (GWIA) entered into a
syndicated facility agreement on November 28, 2016 (the Australian Credit Agreement) for A$690.0 million (or
$511.4 million at the exchange rate on November 28, 2016) in senior secured term loan facilities and A$50.0 million
(or $37.1 million at the exchange rate on November 28, 2016) in the form of a revolving credit facility. The term
loan facilities are comprised of Tranche A1 amortizing term loan for A$130.0 million (or $96.3 million at the
exchange rate on November 28, 2016) and Tranche A2 for A$560.0 million (or $415.0 million at the exchange rate
on November 28, 2016), both repayable on the maturity date. The maturity date of the Australian Credit Agreement
is December 1, 2021.
During the year ended December 31, 2017, the Company made scheduled quarterly principal payments of
A$18.0 million (or $13.9 million at the exchange rates on the dates the payment were made).
The loan began to amortize in quarterly installments commencing during the three months ended March 31,
2017, with the remaining principal balance payable upon maturity, as set forth below (amounts in thousands):
Quarterly Periods Ending
March 31, 2018 through December 31, 2019
March 31, 2020 through December 31, 2021
Maturity date - December 1, 2021
Principal Amount
Due on Each
Payment Date
A$
A$
A$
5,437
8,563
560,000
The interest rate per annum applicable to the loans under the Australian Credit Agreement for a relevant
interest period will be the sum of the applicable margin and the BBSY. BBSY is the Bank Bill Swap Bid Rate, which
the Company believes is generally considered the Australian equivalent to LIBOR. The applicable margin ranges
from 2.35% per annum to 3.65% per annum for Tranche A1 and the revolving credit facility and 2.45% per annum
to 3.75% per annum for Tranche A2, depending upon the total leverage ratio of GWIA and the obligors under the
agreement (GWA Group).
F-33
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Australian Credit Agreement requires the GWA Group to comply with certain financial covenants
including a debt service coverage ratio and leverage ratio. The financial covenants are calculated for a period of 12
months ending on the calculation date. The debt service coverage ratio shall be equal to or greater than 1.20 to 1.00.
The maximum leverage ratio of net senior debt to EBITDA, as defined in the agreement, is set forth in the following
table:
Calculation date falling in the following period
December 31, 2018
January 1, 2019 through December 31, 2020
January 1, 2021 through December 31, 2021
Leverage Ratio
4.75 to 1.00
4.50 to 1.00
4.25 to 1.00
In addition to paying interest on outstanding principal under the Australian Credit Agreement, GWIA will be
required to pay a commitment fee with respect to the unutilized portion of the commitments under the revolving
credit facility. The commitment fee rate is 45% of the applicable margin from time to time under the facility to
which the unutilized portion of the commitments relate. GWIA will also pay customary letter of credit and agency
fees.
The Australian Credit Agreement also requires GWIA to maintain interest rate swap agreements so that until
December 1, 2019, at least 75% of the aggregate debt under the term loan facilities is hedged against interest rate
risk and after December 1, 2019, at least 50% of the aggregate debt under the term loan facilities is hedged against
interest rate risk until at least September 1, 2021. For additional information regarding the Australian interest rate
swaps, see Note 9, Derivative Financial Instruments.
GWIA's availability to draw from the unused borrowing capacity is subject to covenant limitations as
discussed below. As of December 31, 2017, GWIA had the following unused borrowing capacity under its revolving
credit facility (amounts in thousands):
Total available borrowing capacity
Outstanding letter of credit guarantees
Unused borrowing capacity
2017
50,000
3,137
46,863
A$
A$
A$
In connection with the Australian Credit Agreement, GWIA and certain obligors (the Australia Guarantors),
subject to certain exceptions and grace periods, have guaranteed and granted security interests over substantially all
of their assets to guarantee and secure amounts borrowed under the credit agreement. Pursuant to the security
documents, amounts borrowed under the Australian Credit Agreement, and any other amounts owing under the
finance documents (including hedge agreements) are secured on a first priority basis by a perfected security interest
over substantially all of the tangible and intangible assets (subject to certain exceptions) of GWIA and the Australia
Guarantors, including the capital stock of each of GWIA’s direct and indirect wholly-owned material subsidiaries.
The Australian Credit Agreement contains a number of customary affirmative and negative covenants that,
among other things, limit or restrict the ability of GWIA and the Guarantors, 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; enter into sale and leaseback transactions; change the business conducted
by GWIA and the Australia Guarantors; sell capital stock of certain Australia Guarantors; enter into certain
agreements or make amendments to certain agreements; and engage in certain transactions with affiliates.
The Australian Credit Agreement contains customary events of default which apply to GWIA and certain
obligors, including nonpayment of principal, interest, fees or other amounts; violation of certain covenants
(including the financial covenants); material inaccuracy of a representation or warranty when made; cross-default to
other indebtedness; the occurrence of certain bankruptcy or insolvency events; material unsatisfied judgments;
actual or asserted invalidity or the repudiation of any finance document in connection with the credit facilities;
appropriation by a government agency of material business property of an Australia Guarantor; and the occurrence
of certain events which would have a material adverse effect. Certain events of default are subject to customary
remedy periods and the violation of certain financial covenants referred to above is subject to cure rights.
F-34
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partner Loan Agreement
On December 1, 2016, GWAHLP and MIRA entered into a Partner Loan Agreement with an A$238.0 million
non-recourse subordinated partner loan from MIRA used to fund a portion of its contribution to the Australia
Partnership to fund the acquisition of GRail (note the Company's subsidiary, GWI Holding B.V., has a matching
partner loan for a portion of its contribution that is eliminated in consolidation). The Partner Loan Agreement is
subordinated to the Australian Credit Agreement. The maturity date of the partner loan is November 1, 2026.
The interest on the Partner Loan Agreement is calculated using BBR plus a 4.5% margin for each six month
period commencing initially on December 1, 2016, and ending on the first interest payment date on June 30, 2017.
Subsequently, each six month period commences on an interest payment date and ends on the next interest payment
date. BBR is the Bankers Buyers Rate, which the Company believes is generally considered analogous with BBSY.
In addition to paying interest on the outstanding borrowings under the Partner Loan Agreement, the Australia
Partnership is required to pay a commitment fee equal to 2.75% of the original loan amount. The commitment fee is
payable annually in ten installments commencing on the first interest payment date.
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, 2017,
the carrying value of the loan was A$3.1 million (or $2.4 million at the exchange rate on December 31, 2017) with a
non-cash imputed interest rate of 8.0%.
Schedule of Future Payments Including Capital Leases
The following is a summary of the maturities of the Company's long-term debt, including capital leases, as of
December 31, 2017 (dollars in thousands):
2018
2019
2020
2021
2022
Thereafter(a)
Total
Amount
36,866
39,849
1,586,249
471,666
12,380
246,112
2,393,122
$
$
(a) Includes the A$50.0 million (or $39.1 million at the exchange rate on December 31, 2017) non-interest bearing loan due in
2054 assumed in the FreightLink Acquisition with a carrying value of A$3.1 million (or $2.4 million at the exchange rate on
December 31, 2017).
Debt Issuance Costs
Debt issuance costs as of December 31, 2017 and 2016 were as follows (dollars in thousands):
Debt issuance costs, gross
Accumulated amortization
Debt issuance costs, net
Weighted average amortization period (in years)
2017
2016
$
$
$
$
43,950
(18,775)
25,175
2.5
42,495
(9,309)
33,186
3
F-35
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017, 2016 and 2015, the Company amortized $9.3 million, $7.7 million
and $7.6 million, respectively, of unamortized debt issuance costs as an adjustment to interest expense. Unamortized
debt issuance 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 2016 amortization amount included $1.3 million associated with the write-off of unamortized debt
issuance costs as a result of the Amendment Agreement, and deferred $3.0 million of costs. In connection with the
Australian Credit Agreement, the Company deferred A$19.8 million (or $14.7 million at the exchange on December
1, 2016) of costs. The 2015 amortization amount included $2.0 million associated with the write-off of unamortized
debt issuance costs as a result of the March 2015 refinancing of the Company's credit agreement and deferred $5.8
million of costs.
As of December 31, 2017, the Company estimated the future interest expense related to amortization of its
unamortized debt issuance costs will be as follows for the periods presented (dollars in thousands):
2018
2019
2020
2021
2022
Total
Amount
9,042
8,959
4,385
2,789
—
25,175
$
$
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 financial 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.
F-36
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the
Company may enter into cross-currency swap contracts 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.
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 (amounts in thousands):
Effective Date
9/30/2016
9/30/2016
9/30/2016
12/1/2016
12/1/2016
12/1/2016
12/1/2016
12/1/2016
12/1/2016
12/1/2016
Expiration Date
9/30/2026
9/30/2026
9/30/2026
12/1/2021
12/1/2021
12/1/2021
12/1/2021
12/1/2021
12/1/2021
12/1/2021
Notional Amount
$
$
$
Date
9/30/2026
9/30/2026
9/30/2026
12/1/2021 A$
12/1/2021 A$
12/1/2021 A$
12/1/2021 A$
12/1/2021 A$
12/1/2021 A$
12/1/2021 A$
Amount
100,000
100,000
100,000
93,150
93,150
93,150
93,150
55,373
55,373
34,155
Pay Fixed Rate
2.76%
2.74%
2.73%
2.44%
2.44%
2.44%
2.44%
2.44%
2.44%
2.44%
Receive Variable Rate
1-month LIBOR
1-month LIBOR
1-month LIBOR
AUD-BBR
AUD-BBR
AUD-BBR
AUD-BBR
AUD-BBR
AUD-BBR
AUD-BBR
On November 9, 2012, the Company entered into multiple 10-year forward starting interest rate swap
agreements to manage the exposure to changes in interest rates on the Company's variable rate debt. On
September 30, 2016, the Company amended its forward starting swaps which included moving the mandatory
settlement date from September 30, 2016 to September 30, 2020, with a final termination date of September 30,
2026, changing from 3-month LIBOR to 1-month LIBOR and adjusting the fixed rate. The amended forward
starting swaps continue to qualify for hedge accounting. In addition, 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 throughout the term of the outstanding swap agreements. The Company expects to
amortize any gains or losses on the settlements over the life of the respective swap.
The following table summarizes the Company's interest rate swap agreements that expired during the years
ended December 31, 2016 and 2015 (dollars in thousands):
Effective Date
Expiration Date
9/30/2014
9/30/2015
9/30/2015
9/30/2016
Notional Amount
Date
9/30/2014
12/31/2014
3/31/2015
6/30/2015
9/30/2015
$
$
$
$
$
Amount
1,150,000
1,100,000
1,050,000
1,000,000
350,000
Paid Fixed Rate
0.54%
0.54%
0.54%
0.54%
0.93%
Receive Variable Rate
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
1-month LIBOR
F-37
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, 2017, 2016 and 2015 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, 2017, 2016 and 2015, existing net losses associated with the Company's
interest rate swaps of $2.1 million, $2.1 million and $2.9 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, 2017, the Company expects to reclassify $2.0 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, 2017, the Company's foreign subsidiaries had United States dollar equivalent of $1.1
billion 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, the Company may enter into cross-currency swaps or foreign currency forward contracts 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.
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 accumulated
accrued interest as of December 31, 2017 of £21.7 million (or $29.3 million at the exchange rate on December 31,
2017), 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.
F-38
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 years ended December 31, 2017, 2016 and 2015 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, 2017 and 2016, $0.6 million and $0.8 million, respectively, of net gains were
recorded as interest income in the consolidated statements of operations. Based on the Company's fair value
assumptions as of December 31, 2017, it expects to realize $0.6 million of existing net gains that are 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.
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
3/31/2016
6/30/2016
9/30/2016
12/30/2016
3/31/2017
6/30/2017
10/2/2017
12/29/2017
Settlement Date
3/31/2020
3/31/2020
3/31/2020
3/31/2020
3/31/2020
3/31/2020
3/31/2020
3/31/2020
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
£1,881
£1,909
£1,959
£1,989
£1,975
£2,026
£2,079
£2,111
Exchange Rate
1.51
1.50
1.57
1.51
1.48
1.45
1.35
1.33
1.28
1.30
1.34
1.36
1.39
On December 1, 2016, GWAHLP and the Company's subsidiary, GWI Holding B.V. (GWBV), entered into an
A$248.9 million non-recourse subordinated Partner Loan Agreement (GRail Intercompany Loan), which is
eliminated in consolidation. GWBV used the proceeds from this loan to fund a portion of the acquisition of GRail.
See Note 8, Long-Term Debt, for additional information regarding the Partner Loan Agreement. To mitigate the
foreign currency exchange rate risk related to the non-functional currency intercompany loan, the Company entered
into two Euro/Australian dollar floating-to-floating cross-currency swap agreements (the Swaps) on December 22,
2016, which effectively convert the A$248.9 million intercompany loan receivable in the Netherlands into a €171.7
million loan receivable. These agreements did not qualify as hedges for accounting purposes. The first swap requires
the Company to pay Australian dollar BBR plus 4.50% based on a notional amount of A$123.9 million and allows
the Company to receive EURIBOR plus 2.68% based on a notional amount of €85.5 million on a semi-annual basis.
EURIBOR is the Euro Interbank Offered Rate, which the Company believes is generally considered the Euro
equivalent to LIBOR. The second swap requires the Company to pay Australian dollar BBR plus 4.50% based on a
notional amount of A$125.0 million and allows the Company to receive EURIBOR plus 2.90% based on a notional
amount of €86.3 million on a semi-annual basis. The Swaps require semi-annual net settlement payments beginning
on December 31, 2017. The Company realized a net expense of $3.5 million within interest expense for the year
ended December 31, 2017. As a result of the mark-to-market impact of the intercompany loan compared to the
mark-to-market of the Swaps, the Company realized a net expense of $2.5 million and $3.3 million within other
income, net for the years ended December 31, 2017 and 2016, respectively. Over the life of the Swaps, the Company
expects the cumulative impact of net gains and losses from the mark-to-market of the intercompany loan and Swaps
to be approximately zero. These agreements expire on June 30, 2019.
F-39
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the fair value of the Company's derivative instruments recorded in the
consolidated balance sheets as of December 31, 2017 and 2016 (dollars in thousands):
Balance Sheet Location
2017
2016
Fair Value
Asset Derivatives:
Derivatives designated as hedges:
British pound forward contracts
Total derivatives designated as hedges
Derivatives not designated as hedges:
Cross-currency swap contract
Cross-currency swap contract
Total derivatives not designated as hedges
Liability Derivatives:
Derivatives designated as hedges:
Interest rate swap agreements
Interest rate swap agreements
British pound forward contracts
Total derivatives designated as hedges
Other assets, net
Prepaid expenses and other
Other assets, net
Accrued expenses
Other long-term liabilities
Other long-term liabilities
$
$
$
$
$
$
13,657
13,657
5,775
2,887
8,662
1,972
12,410
829
15,211
$
$
$
$
$
$
26,359
26,359
174
506
680
1,747
13,411
17
15,175
The following table shows the effect of the Company's derivative instruments designated as cash flow hedges
for the years ended December 31, 2017, 2016 and 2015 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, net(a)
Total Cash Flow
Hedge OCI Activity,
Net of Tax
2017
2016
2015
$
$
372
1,498
1,870
$
$
(1,676) $
(3,990)
(5,666) $
(4,749)
912
(3,837)
(a) The year ended December 31, 2017 represents a net gain of $9.8 million for the mark-to-market of the U.K. intercompany
loan, partially offset by a net loss of $8.3 million for the mark-to-market of the British pound forward contracts. The year
ended December 31, 2016 represents a net loss of $18.7 million for the mark-to-market of the U.K. intercompany loan,
partially offset by a net gain of $14.7 million for the mark-to-market of the British pound forward contracts. The year ended
December 31, 2015 represents a net gain of $0.9 million for the mark-to-market of the British pound forward contracts.
F-40
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the effect of the Company's derivative instruments not designated as hedges for the
years ended December 31, 2017, 2016 and 2015 in the consolidated statements of operations (dollars in thousands):
Location of Amount Recognized
in Earnings
Amount Recognized in Earnings
2017
2016
2015
Derivative Instruments Not
Designated as Hedges:
Cross-currency swap
agreements
Cross-currency swap
agreements, net(a)
British pound forward
purchase contracts
Interest (expense)/income
Other (expense)/
income, net
Loss on settlement of
foreign currency forward
purchase contracts
$
$
(3,505) $
— $
(2,451)
(3,267)
—
—
—
(5,956) $
—
(3,267) $
(18,686)
(18,686)
(a) The year ended December 31, 2017 represents a net gain of $8.4 million for the mark-to-market of the Swaps, partially offset
by a net loss of $10.8 million for the mark-to-market of the GRail Intercompany Loan. The year ended December 31, 2016
represents a net gain of $0.7 million for the mark-to-market of the Swaps, partially offset by a net loss of $3.9 million for the
mark-to-market of the GRail Intercompany Loan.
10. 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.
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, foreign currency forward contracts and cross-
currency swap agreements. The Company estimated the fair value of its interest rate swap agreements based on
Level 2 valuation inputs, including fixed interest rates, LIBOR and BBR 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 estimated the fair value of its cross-currency swap
agreements based on Level 2 valuation inputs, including EURIBOR implied forward interest rates, BBR 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 HOG acquisition in 2017 and the Freightliner acquisition in 2015.
The fair value of the deferred consideration liability were estimated by discounting, to present value, contingent
payments expected to be made.
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-41
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, 2017 and 2016 (dollars in thousands):
Financial instruments carried at fair value using Level 2 inputs:
Financial assets carried at fair value:
British pound forward contracts
Cross-currency swap contracts
Total financial assets carried at fair value
Financial liabilities carried at fair value:
Interest rate swap agreements
British pound forward purchase contracts
Total financial liabilities carried at fair value
2017
2016
$
$
$
$
13,657
8,662
22,319
14,382
829
15,211
$
$
$
$
26,359
680
27,039
15,158
17
15,175
The following table presents the Company's financial instrument carried at fair value using Level 3 inputs as of
December 31, 2017 and 2016 (amounts in thousands):
Financial instrument carried at fair value using Level 3 inputs:
Financial liabilities carried at fair value:
Accrued deferred consideration - Freightliner
Accrued deferred consideration - HOG
2017
2016
$
$
— $
$
5,974
31,933
—
At the date of acquisition of Freightliner in 2015, the contingent liability represented the aggregate fair value
of the shares transferred to the Company by the Management Shareholders in exchange for the right to receive cash
consideration for the representative economic interest of approximately 6% in Freightliner in the future (deferred
consideration). This contingent liability has been adjusted each period to represent the fair value of the deferred
consideration as of the balance sheet date. The Company bought out this deferred consideration in November 2017.
See Note 3, Changes in Operations, for additional information regarding this contingent consideration.
At the date of acquisition of HOG in 2017, the contingent liability represented the fair value of the deferred
consideration payable to the sellers upon satisfaction of certain conditions, which the Company expects to be paid in
2021. This contingent liability is adjusted each period to represent the fair value of the deferred consideration as of
the balance sheet date. To do so, the Company recalculates the HOG's deferred consideration based on the
contractual formula as defined in the stock purchase agreement. This calculation effectively represents the present
value of the expected payment to be made upon settlement of the deferred consideration. Accordingly, such
recalculation will reflect both the impact of the time value of money and the impact of changes in the expected
future performance of the acquired business, as applicable. 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. See Note 3, Changes in Operations, for additional
information regarding HOG.
The following table presents the amounts recognized, through other expenses, within the Company's
consolidated statements of operations during the years ended December 31, 2017, 2016 and 2015 as a result of the
change in the estimated fair value of the deferred consideration (dollars in thousands):
Freightliner
HOG
2017
2016
2015
$
$
2,405
298
$
$
2,278
$
— $
—
—
F-42
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the carrying value and fair value using Level 2 inputs of the Company's financial
instruments carried at historical cost at December 31, 2017 and 2016 (dollars in thousands):
2017
2016
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$
$
1,204,714
124,747
513,192
186,085
225,155
2,419
2,256,312
$
$
1,208,657
126,480
528,105
184,750
229,483
2,426
2,279,901
$
$
1,415,873
121,149
484,703
172,154
74,297
4,882
2,273,058
$
$
1,422,512
121,594
501,909
171,435
81,192
4,889
2,303,531
Financial liabilities carried at
historical cost:
United States term loan
U.K. term loan
Australian Credit Agreement
Partner Loan Agreement
Revolving credit facility
Other debt
Total
11. U.K. PENSION PLAN:
In connection with the acquisition of Freightliner on March 25, 2015, 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.
The following table summarizes the funding obligations and assets of the Pension Program as of December 31,
2017 and 2016 (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%)
2017
2016
$
$
$
698,809
531,671
(167,138)
(66,855)
(100,283) $
607,003
450,281
(156,722)
(62,689)
(94,033)
F-43
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 for the years ended December 31, 2017 and 2016 and the funded status as of
December 31, 2017 and 2016 (dollars in thousands):
Change in benefit obligations:
Benefit obligation at beginning of period
Service cost
Interest cost
Benefits paid
Actuarial loss
Exchange rate changes
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of period
Actual return on plan assets
Benefits paid
Employer contributions
Exchange rate changes
Fair value of plan assets at end of year
Funded status of the Pension Plan
2017
2016
$
$
$
$
$
364,202
15,401
10,194
(13,580)
6,697
36,372
419,286
$
$
$
270,169
27,847
(13,580)
8,531
26,036
$
319,003
(100,283) $
348,033
12,980
12,074
(8,853)
59,008
(59,040)
364,202
277,308
38,360
(8,853)
8,607
(45,253)
270,169
(94,033)
The Pension Program's actuarial loss for the year ended December 31, 2017 was primarily due to a decrease in
the discount rate as reflected in the table of actuarial assumptions below, partially offset by updated participant
census data. The Pension Program's actuarial loss for the year ended December 31, 2016 was primarily due to a
decrease in the discount rate as reflected in the table of actuarial assumptions below.
The following table presents the amounts recognized for the Pension Program in the consolidated balance
sheets as of December 31, 2017 and 2016 and in other comprehensive income/(loss) for the years ended
December 31, 2017 and 2016 (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 loss
2017
2016
$
$
$
13,879
86,404
100,283
$
$
9,047
84,986
94,033
(24,409) $
(25,234)
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 for the years ended
December 31, 2017, 2016 and 2015 (dollars in thousands):
Service cost
Interest cost
Expected return on plan assets
Net periodic benefit cost
2017
15,401
10,194
(17,046)
8,549
$
$
2016
12,980
12,074
(15,434)
9,620
$
$
2015
11,345
8,812
(12,509)
7,648
$
$
F-44
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the actuarial assumptions used to compute the funded status of the Pension
Program as of December 31, 2017, 2016 and 2015:
Discount rate
Price inflation (RPI measure)
Pension increases (CPI measure)
Salary increases
2017
2016
2015
2.4%
3.3%
2.2%
3.3%
2.7%
3.3%
2.2%
3.3%
3.8%
3.1%
2.0%
3.7%
The following table presents the actuarial assumptions used for the calculation of net periodic expense
associated with the Pension Program for the years ended December 31, 2017, 2016 and 2015:
Discount rate
Price inflation (RPI measure)
Pension increases (CPI measure)
Salary increases
Expected return on plan assets
2017
2016
2015
2.7%
3.3%
2.2%
3.3%
6.0%
3.8%
3.1%
2.0%
3.7%
6.1%
3.2%
3.0%
1.7%
3.4%
6.1%
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. The following table presents
the sensitivity to a change in the Company's U.K. pension liability resulting from a one percentage point change in
the discount rate and retail price index (RPI) as of December 31, 2017 (dollars in thousands):
Discount Rate +1% per annum
Discount Rate -1% per annum
RPI inflation +1% per annum
RPI inflation -1% per annum
Change in Pension
Liability
$
$
$
$
(76,022)
100,641
99,559
(76,833)
The assets of the Pension Program are held in a separate trustee administered fund operated by Railways
Pension 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.
F-45
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2017, 2016 and 2015:
Growth, private equity and infrastructure pooled funds
Defensive and government bond pooled fund plus cash
7.1%
1.4%
81%
19%
Expected return on plan assets
5.7%
0.3%
6.0%
2017
Weighted Average
Expected Yields
Weighted Average
Asset Allocation
Weighted Average
Expected Return
on Plan Assets
Growth, private equity and infrastructure pooled funds
Defensive and government bond pooled fund plus cash
7.1%
1.5%
82%
18%
Expected return on plan assets
5.8%
0.3%
6.1%
2016
Weighted Average
Expected Yields
Weighted Average
Asset Allocation
Weighted Average
Expected Return
on Plan Assets
Growth, private equity and infrastructure pooled funds
Defensive and government bond pooled fund plus cash
6.9%
2.8%
81%
19%
Expected return on plan assets
5.6%
0.5%
6.1%
2015
Weighted Average
Expected Yields
Weighted Average
Asset Allocation
Weighted Average
Expected Return
on Plan Assets
F-46
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of all of the Pension Program's assets are measured using the net asset value per share method.
The following table presents the fair value of the Pension Program's assets as of December 31, 2017 and 2016
(dollars in thousands):
Growth pooled fund(a)
Private equity pooled fund(b)
Government bond pooled fund(c)
Infrastructure pooled fund(d)
Long-term income pooled fund(e)
Short duration index linked pooled fund(f)
Fair value of plan assets
2017
2016
$
$
221,762
30,494
47,679
6,455
8,485
4,128
319,003
$
$
182,630
29,463
47,030
8,536
2,510
—
270,169
(a) The growth pooled fund is comprised of global equities, government bonds, property, emerging market bonds and hedge
funds.
(b) The private equity pooled fund is comprised of a series of sub funds, each representing a different vintage of private equity
investment.
(c) The government bond pooled fund is U.K. only government bond fund with an average portfolio duration of approximately
five years.
(d) The infrastructure pooled fund is comprised of investments in facilities, structures and services required to facilitate the
orderly operation of the economy.
(e) The long-term income pooled fund is comprised of investments offering inflation linkage, distributable income and are British
pound denominated.
(f) The short duration index linked pooled fund is comprised of investments in government bonds with average portfolio duration
of approximately five years.
The Company expects to contribute £8.1 million (or $10.9 million at the exchange rate on December 31,
2017) to the Pension Program for the year ending December 31, 2018. 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 2018 and 2026 (dollars in thousands):
2018
2019
2020
2021
2022
2023 - 2026
Amount
13,879
14,184
14,496
14,815
15,141
79,938
$
$
$
$
$
$
12. OTHER EMPLOYEE BENEFIT PROGRAMS:
Employee Bonus Programs
The Company has performance-based bonus programs that include a majority of non-union employees.
Approximately $20 million, $23 million and $13 million were awarded under the various performance-based bonus
plans for the years ended December 31, 2017, 2016 and 2015, 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.
F-47
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's Canadian subsidiaries administer two different retirement benefit plans. The plans qualify
under Section 146 of the federal and provincial income tax law. Under each plan, employees may elect to contribute
a certain percentage of their salary on a pre-tax basis. The first plan is a Registered Retirement Savings Plan (RRSP)
and the Company matches up to a maximum of 6% of gross salary. The second plan is a Retirement Pension Plan
(RPP) and the Company contributes 5% of gross salary.
The Company's Australian subsidiary administers a statutory retirement benefit plan. The Company was
required to contribute the equivalent of 9.5%, of an employee's base salary into a registered superannuation fund in
each of the years ended December 31, 2017, 2016 and 2015. 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, 2017, 2016
and 2015 were as follows (dollars in thousands):
Company contributions to defined contribution plans
$
11,231
$
9,521
$
9,532
2017
2016
2015
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, 2017, there were approximately 230 employees participating
under these plans. As of December 31, 2017, the Company's consolidated balance sheet included a $3.0 million
pension liability and a $1.4 million gain 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, 2017,
there were approximately 65 employees participating under these plans. As of December 31, 2017, the Company's
consolidated balance sheet included a $7.0 million postretirement benefit liability and a $0.1 million loss in
accumulated other comprehensive (loss)/income related to these plans.
13. INCOME TAXES:
The components of income before income taxes for the years ended December 31, 2017, 2016 and 2015 were
as follows (dollars in thousands):
United States
Foreign
Total
2017
2016
2015
$
$
262,969
32,550
295,519
$
$
273,361
(57,870)
215,491
$
$
236,613
64,318
300,931
F-48
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the (benefit from)/provision for income taxes for the years ended December 31, 2017, 2016
and 2015 were as follows (dollars in thousands):
United States:
Current
Federal
State
Deferred
Federal
State
Foreign:
Current
Deferred
Total
2017
2016
2015
$
$
$
23,182
14,626
$
20,877
11,284
(326,190)
19,808
(268,574)
18,435
(11,120)
7,315
(261,259) $
43,820
2,263
78,244
3,289
(7,138)
(3,849)
74,395
$
12,003
8,181
41,975
5,383
67,542
11,031
(2,679)
8,352
75,894
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the TCJA) was enacted into law and the Securities
and Exchange Commission's staff issued Staff Accounting Bulletin No.118 (SAB 118) to address the application of
the TCJA on accounting for income taxes in the period that includes the enactment date. Specifically, when the
initial accounting for items under the TCJA is incomplete, SAB 118 allows the Company to include provisional
amounts when reasonable estimates can be made. SAB 118 provides for an up to one-year measurement period
during which the tax effect of the TCJA can be recomputed based on additional guidance and analysis. Any
adjustment will be recorded as a tax expense or benefit in the reporting period during which the amounts are
determined.
The TCJA reduces the United States federal corporate income tax rate to 21% from 35% effective for tax years
beginning after December 31, 2017, and creates a territorial tax system rather than a worldwide system, which
generally eliminates United States federal income tax on dividends from foreign subsidiaries. The transition to the
territorial system requires United States companies to compute a one-time transition (toll) tax on earnings of certain
foreign subsidiaries, which were previously deferred for United States federal income tax purposes. The Company
has determined a reasonable estimate of the effects of the TCJA based on Internal Revenue Service guidance and
information available as of January 19, 2018, which was included in the Company's net benefit for income taxes for
the year ended December 31, 2017. The Company estimated the impact of the reduction in the United States federal
corporate income tax rate to be a reduction to the Company’s United States net deferred tax liabilities of
approximately $394 million. This represents a decrease in corporate income taxes expected to be paid in the future.
The Company believes this calculation to be complete except for deferred taxes related to certain equity
compensation arrangements and changes in estimates which can result from finalizing the 2017 United States
income tax return, which are not anticipated to be material. The Company has also estimated the toll tax to be
approximately $22 million, net of applicable foreign tax credits. At this time, the Company has not gathered,
prepared and analyzed the necessary information in sufficient detail to complete the complex calculations necessary
to finalize the amount of the toll tax and related foreign tax credits. The Company believes the preliminary
calculations result in a reasonable estimate of the toll tax and has included the provisional amount in its 2017 year-
end tax provision. The toll tax can be paid over an eight-year period beginning in 2018. The payments increase from
8% of the toll tax for each of the years 2018 through 2022, to 15% in 2023, 20% in 2024 and 25% in 2025.
F-49
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The United States track maintenance credit is an income tax credit for Class II and Class III railroads, as
defined by the United States Surface Transportation Board (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 United States Short Line Tax Credit was initially enacted for a three year period, 2005
through 2007, and was subsequently extended a series of times with the last extension enacted in February 2018.
The February 2018 extension provided a retroactive credit, solely for fiscal year 2017. In 2018, the Company
expects to record an income tax benefit of approximately $32 million as a result of this extension. Legislation is
currently pending that seeks to extend the Short Line Tax Credit for fiscal year 2018 and beyond. The Company's
provision for income taxes for the years ended December 31, 2016 and 2015 included income tax benefits of $28.8
million and $27.4 million, respectively, associated with the Short Line Tax Credit.
The Company's provision for income taxes for the years ended December 31, 2016 and 2015 also included
$4.3 million and $9.7 million, respectively, of income tax benefits due to a change in the U.K. tax rate. 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 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 income
tax rate reconciliation for the years ended December 31, 2017, 2016 and 2015:
Tax provision at statutory rate
Effect of foreign operations
Foreign valuation allowance
Foreign goodwill impairment
Effect of foreign tax rate change
Effect of U.S. transition (toll) tax
Effect of U.S. federal rate change
State income taxes, net of federal income tax benefit
Benefit of track maintenance credit
Other, net
Effective income tax rate
2017
2016
2015
35.0 %
(1.1)%
(0.3)%
— %
— %
7.2 %
(133.3)%
3.8 %
— %
0.3 %
(88.4)%
35.0 %
4.3 %
2.9 %
2.4 %
(2.0)%
— %
— %
4.1 %
(13.4)%
1.2 %
34.5 %
35.0 %
(3.8)%
2.1 %
— %
(3.3)%
— %
— %
3.0 %
(9.1)%
1.3 %
25.2 %
The Company’s effective income tax rate for the year ended December 31, 2017 as compared with the year
ended December 31, 2016, was primarily driven by the effects of the TCJA. The estimated benefit from the
reduction in the United States corporate income tax rate to 21% was partially offset by the United States transition
tax and a reduction of the United States federal benefit on state income taxes.
The Company’s effective income tax rate was 9.3% higher for the year ended December 31, 2016 as compared
with the year ended December 31, 2015, primarily driven by the effect of foreign operations, which resulted from
losses incurred in some foreign jurisdictions (including impairments) generating a tax benefit at tax rates lower than
the United States statutory rate, a portion of which were reduced by the recording of a valuation allowance. As the
Company concluded it is more likely than not, some of those losses will not be able to be utilized to offset future
income taxes, the Company recorded a valuation allowance. This valuation allowance further increased the
Company’s consolidated effective income tax rate.
F-50
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, 2017 and 2016 were as follows (dollars in thousands):
Deferred income tax assets:
Track maintenance credit carryforward
Net operating loss carryforwards
Accruals and reserves not deducted for tax purposes until paid
Stock-based compensation
Deferred revenue
Deferred compensation
Interest rate swaps
Alternative minimum tax credit carryforward
Pension and postretirement benefits
Other
Valuation allowance
Deferred income tax liabilities:
Interest rate swaps
Property and equipment basis difference
Intangible assets basis difference
Other
Net deferred tax liabilities
2017
2016
$
147,907
27,211
11,375
8,634
4,588
3,496
545
1,592
24,889
1,992
232,229
(26,674)
217,054
23,168
15,131
10,089
8,289
3,891
—
1,592
22,983
2,072
304,269
(24,075)
—
(700,488)
(374,067)
(851)
(869,851) $
(4,579)
(1,016,349)
(418,448)
(368)
(1,159,550)
$
$
As of December 31, 2017, the Company had United States net operating loss carryforwards in various state
jurisdictions that totaled approximately $292.3 million, United States track maintenance credit carryforwards of
$147.9 million and foreign net operating loss carryforwards in the Netherlands that totaled approximately $44.1
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. The Company expects to fully utilize its track maintenance credit carryforwards. The state net
operating losses exist in different states and expire between 2019 and 2037. The United States track maintenance
credits expire between 2026 and 2036. The Netherlands net operating losses expire between 2019 and 2026.
The Company maintains a valuation allowance on state net operating losses, foreign net operating losses and
certain other deferred tax assets for which, based on the weight of available evidence, it is more likely than not that
some or all of the deferred income tax assets will not be realized.
A reconciliation of the beginning and ending amount of the Company's valuation allowance is as follows
(dollars in thousands):
Balance at beginning of year
Increase/(decrease) for state net operating losses
Increase for foreign net operating losses and impairments
Balance at end of year
2017
2016
$
$
24,075
1,964
635
26,674
$
$
19,315
(1,476)
6,236
24,075
F-51
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of the Company's liability for uncertain tax positions is
as follows (dollars in thousands):
2017
2016
2015
Balance at beginning of year
Increase for tax positions related to prior years
Decrease for tax positions related to prior years
Decrease for expiration of statute of limitations
Increase/(decrease) for effects of foreign exchange rates
Balance at end of year
$
$
7,125
246
—
(3,271)
—
4,100
$
$
4,197
3,970
(1,169)
—
127
7,125
$
$
4,324
—
—
—
(127)
4,197
At December 31, 2017, 2016 and 2015, there was $4.1 million, $7.1 million and $4.2 million, respectively, of
unrecognized tax benefits that if recognized would affect the annual effective income tax rate. The Company
recognizes interest and penalties related to uncertain tax positions in its provision for income taxes.
For the period ending December 31, 2017, the Company recognized approximately $3.3 million in previously
unrecognized tax benefits as a result of a lapse of the statute of limitations on acquired liabilities for uncertain tax
positions.
As of December 31, 2017, the following tax years remain open to examination by the major taxing
jurisdictions to which the Company is subject:
United States
Australia
Belgium
Canada
Germany
Mexico
Netherlands
Poland
Saudi Arabia
U.K.
Open Tax Years
From
2014
2010
2015
2009
2013
2008
2012
2012
2015
2015
To
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
-
-
-
-
-
-
-
-
-
-
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, including those 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 many of these claims. However, any material
changes to pending litigation or a catastrophic rail accident or series of accidents involving material freight loss or
property damage, personal injuries or environmental liability or other claims or disputes that are not covered by
insurance could have a material adverse effect on the Company's results of operations, financial condition and
liquidity.
In November 2014, the Company received a notice from the United States Environmental Protection Agency
(EPA) requesting information under the Clean Water Act related to the discharge of crude oil as a result of a
derailment of an Alabama & Gulf Coast Railway LLC (AGR) freight train in November 2013 in the vicinity of
Aliceville, Alabama. A fine associated with the contamination has yet to be assessed and is not estimable.
F-52
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is also involved in several arbitrations related to contractual disputes that are not covered by
insurance. In March 2017, CSX Transportation, Inc. (CSXT) initiated arbitration against several of the Company’s
subsidiaries associated with freight revenue factors (or divisions) under certain operating agreements associated with
leased railroads. CSXT is seeking to reduce certain of the Company's freight revenue factors for the time period after
August 21, 2016. The Company believes it has meritorious defenses against the CSXT claims. In an unrelated
matter, on May 3, 2017, the AGR initiated arbitration related to the collection of approximately $13 million of
outstanding liquidated damages under a volume commitment (or take-or-pay) contract with a customer. The
Company believes it will prevail in the collection of the outstanding liquidated damages. Although the Company
expects to attain successful outcomes in each of these matters, arbitration is inherently uncertain and it is possible
that an unfavorable ruling could have an 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 and the aforementioned arbitrations. Based upon currently
available information, the Company does not believe it is reasonably possible that any such lawsuit or arbitration
would be material to the Company's results of operations or have a material adverse effect on the Company's
financial position or liquidity.
15. STOCK-BASED COMPENSATION PLANS:
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, 2017, there remained 1,492,088 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, 2017 and changes during the year
then ended is presented below:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at end of year
Exercisable at end of year
Shares
1,357,498
362,903
(167,663)
(33,240)
(41,872)
1,477,626
789,818
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
77.12
73.98
61.44
90.47
69.57
78.04
85.88
2.6
1.8
$
$
10,811
3,503
The weighted average grant date fair value of options granted during the years ended December 31, 2017,
2016 and 2015 was $19.38, $17.37 and $18.47, respectively. The total intrinsic value of options exercised during the
years ended December 31, 2017, 2016 and 2015 was $1.5 million, $1.6 million and $4.7 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.
F-53
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following weighted average assumptions were used to estimate the grant date fair value of options granted
during the years ended December 31, 2017, 2016 and 2015 using the Black-Scholes option pricing model:
Expected volatility
Expected term (in years)
Risk-free interest rate
Expected dividend yield
2017
2016
2015
30%
4
1.69%
0%
37%
4
1.08%
0%
27%
4
1.31%
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.
The following table summarizes the Company's non-vested restricted stock activity as of December 31, 2017
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
$
266,370
106,799
$
(67,806) $
(16,347) $
$
289,016
64.76
73.07
78.33
63.07
64.74
The weighted average grant date fair value of restricted stock granted during the years ended December 31,
2017, 2016 and 2015 was $73.07, $57.11 and $79.30, respectively. The total grant date fair value of restricted stock
that vested during the years ended December 31, 2017, 2016 and 2015 was $5.3 million, $6.5 million and $5.2
million, respectively.
The following table summarizes the Company's non-vested restricted stock units activity as of December 31,
2017 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
$
62,701
28,668
$
(26,170) $
(10,361) $
$
54,838
65.35
73.18
70.03
67.95
66.72
The weighted average grant date fair value of restricted stock units granted during the years ended
December 31, 2017, 2016 and 2015 was $73.18, $57.11 and $70.64, respectively. The total grant date fair value of
restricted stock units that vested during the years ended December 31, 2017, 2016 and 2015 was $1.8 million, $1.8
million and $4.2 million, respectively.
In February 2016, the Company's Compensation Committee approved new performance-based restricted stock
units under the Omnibus Plan. The performance-based restricted stock units are granted once per year and vest on
the first anniversary of the grant date with the payout performance multiplier (ranging from 0% to 200%) to be
determined in accordance with the Company’s attainment of pre-determined financial performance targets
established under the Company’s Genesee Value Added (GVA) methodology. These awards have a service condition
and performance condition.
F-54
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the 2017 and 2016 performance-based restricted stock unit activity as of
December 31, 2017 and changes during the year then ended. Actual shares that will be paid out for the 2017 award
depends on the level of attainment of the performance based criteria. As of December 31, 2017, the Company
expects to pay out 77% of the 2017 award. The Company paid out 100% of the 2016 award during 2017.
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
Shares
Weighted Average
Grant Date
Fair Value
27,602
$
$
32,669
(27,602) $
(1,058) $
31,611
$
57.12
74.14
57.12
74.14
74.14
The Company determined the fair value of each of the 2017 and 2016 performance-based restricted stock units
by multiplying the number of units expected to be earned by the grant date fair market value of a share of the
Company's Class A Common Stock. Each reporting period, the number of performance-based restricted stock units
that are expected to be earned is determined and compensation cost based on the grant date fair value is adjusted
based on the current period probability assessment. At the end of the requisite service period, compensation cost is
adjusted to equal the restricted stock units actually issued multiplied by the grant date fair value.
In 2015 and 2014, the Company's Compensation Committee awarded performance-based restricted stock units
under the Omnibus Plan. These performance-based restricted stock units were granted once per year and vested
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 was generally three years. These performance-based restricted stock units
entitled 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. As a result of the Compensation Committee's recent modification to
the Long-Term Incentive Compensation Program, including adoption of a new-performance based restricted stock
unit program, effective February 2016, this program was discontinued and no future awards will be granted.
The following table summarizes the 2015 and 2014 performance-based restricted stock units activity as of
December 31, 2017 and changes during the year then ended. Actual shares that have vested or will vest depend on
the level of attainment of the performance based criteria. As of December 31, 2017, the threshold performance for
any payout on the 2015 awards granted has not been met. Based on the market condition criteria for the 2014
performance-based restricted stock units awarded, no shares were paid out at February 1, 2017 (the end of the
performance period).
Non-vested at beginning of year
Granted
Vested
Forfeited/Canceled
Non-vested at end of year
Shares
Weighted Average
Grant Date
Fair Value
28,810
$
— $
— $
(14,424) $
$
14,386
52.55
—
—
42.39
62.73
F-55
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the total compensation costs, total income tax benefit recognized in the
consolidated statement of operations for stock-based awards and total tax benefit realized from exercise of stock-
based awards for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):
Compensation costs
Income tax benefit recognized for compensation costs
Income tax benefit realized from exercise of stock-based
awards
$
$
$
2017
2016
2015
17,477
4,908
2,546
$
$
$
17,888
4,578
2,214
$
$
$
14,301
4,186
4,079
The total compensation costs related to non-vested awards not yet recognized was $21.1 million as of
December 31, 2017, which will be recognized over the next three years with a weighted average period of 1.6 years.
The Company has reserved 1,265,625 shares of Class A Common Stock that the Company may sell to its full-
time employees under its Employee Stock Purchase Plan (ESPP) at 90% of the stock's market price on the date of
purchase. At December 31, 2017, 278,230 shares had been purchased under this plan. The Company recorded
compensation expense for the 10% purchase discount of less than $0.2 million in each of the years ended
December 31, 2017, 2016 and 2015.
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, 2017 and 2016, respectively (dollars in thousands):
Cumulative
Foreign
Currency
Translation
Adjustment
Defined
Benefit
Plans
Net
Unrealized
Gain/(Loss) on
Cash Flow
Hedges
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2015
$
(156,146)
$
11,005
$
(8,316)
$
(153,457)
Other comprehensive (loss)/income
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax (provision)/benefit
of $0, ($113) and $11,637,
respectively
Change in 2016
(56,154)
(31,155)
14,583
(72,726)
34,638 (a)
(21,516)
202 (b)
(30,953)
(19,993) (c)
(5,410)
14,847
(57,879)
Balance, December 31, 2016
$
(177,662)
$
(19,948)
$
(13,726)
$
(211,336)
Other comprehensive income/(loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax provision of ($83)
and ($5,960), respectively
Change in 2017
89,025
199
(6,470)
82,754
—
89,025
148 (b)
347
8,880 (c)
2,410
9,028
91,782
Balance, December 31, 2017
$
(88,637)
$
(19,601)
$
(11,316)
$
(119,554)
(a) Reclassification from accumulated other comprehensive loss to additional paid-in capital resulting from the issuance of a
noncontrolling interest.
(b) Existing net gains realized were recorded in labor and benefits on the consolidated statements of operations.
(c) Existing net (losses)/gains realized were recorded in interest expense on the consolidated statements of operations (see Note
9, Derivative Financial Instruments).
F-56
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive Income Attributable to Noncontrolling Interests
The following table sets forth comprehensive income attributable to noncontrolling interests for the years
ended December 31, 2017, 2016 and 2015, respectively (dollars in thousands):
Net income/(loss) attributable to noncontrolling interest
Other comprehensive income/(loss):
2017
2016
2015
$
7,727
$
(41) $
Foreign currency translation adjustment
Net unrealized loss on qualifying cash flow hedges, net of tax
benefit of $232 and $110, respectively
Comprehensive income attributable to noncontrolling interest
17,836
8,805
(540)
25,023
$
$
(256)
8,508
$
—
—
—
—
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,
2017, 2016 and 2015 (dollars in thousands):
Cash paid for interest, net
Cash paid for income taxes
2017
2016
2015
$
$
95,243
40,923
$
$
66,124
45,738
$
$
59,437
44,807
Significant Non-Cash Investing and Financing Activities
The Company had outstanding receivables from outside parties for the funding of capital expenditures of
$17.7 million, $10.7 million and $23.0 million as of December 31, 2017, 2016 and 2015, respectively. At
December 31, 2017, 2016 and 2015, the Company also had $20.0 million, $16.4 million and $26.2 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.
In November 2017, the Company bought out the Freightliner deferred consideration with the issuance of
238,201 shares of the Company's Class A Common Stock with a grant date fair value of $17.5 million. In addition,
the Company issued a note payable with a £6.3 million (or $8.6 million at the exchange rate on December 31, 2017)
face value (£5.7 million fair value, or $7.7 million at the exchange rate on December 31, 2017) to certain
management holders as part of the buyout of the Freightliner deferred consideration. This note is payable in three
annual installments starting in March 2018. See Note 10, Fair Value of Financial Instruments, for additional
information regarding the buyout of the deferred consideration.
18. SEGMENT AND GEOGRAPHIC AREA INFORMATION:
Segment Information
The Company presents the financial results of its nine operating regions as three reportable segments: North
American Operations, Australian Operations and U.K./European Operations (as more fully described in Note 1,
Business and Customers). The Company owns a 51.1% controlling interest in the Australian Operations. As such,
the Company includes 100% of the revenues and expenses from its Australian Operations within its consolidated
financial statements and reports a noncontrolling interest for MIRA's 48.9% equity ownership. Each of the
Company's 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).
During the third quarter of 2017, the Company's Mountain West Region railroads were consolidated into the
Company's Central and Pacific regions, and the Pacific Region was renamed the Western Region. The consolidation
reduced the Company's number of operating regions from ten to nine. The Company's seven North American
regions are aggregated into one reportable segment as a result of having similar economic and operating
characteristics.
F-57
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2017, the Company incurred restructuring costs of $10.2 million, including $9.4 million in its U.K./
European Operations, $0.5 million in its North American Operations and $0.3 million in its Australian Operations.
During 2016, the Company incurred restructuring costs of $8.2 million, including $6.5 million in its U.K./European
Operations, $0.9 million in its North American Operations and $0.8 million in its Australian Operations.
The results of operations of the foreign entities are maintained in the respective local currency (the Australian
dollar, the British pound, the Canadian dollar and the Euro) and then translated into United States dollars at the
applicable exchange rates for inclusion in the consolidated financial statements. As a result, any appreciation or
depreciation of these currencies against the United States dollar will impact the Company's results of operations.
The following table reflects the balance sheet exchange rates used to translate the foreign entities respective
local currency balance sheet into United States dollars for the years ended December 31, 2017, and 2016.
United States dollar per Australian dollar
United States dollar per British pound
United States dollar per Canadian dollar
United States dollar per Euro
2017
2016
$
$
$
$
0.78
1.35
0.80
1.20
$
$
$
$
0.72
1.23
0.74
1.06
The following table reflects the average exchange rates used to translate the foreign entities respective local
currency results of operations into United States dollars for the years ended December 31, 2017, 2016 and 2015:
United States dollar per Australian dollar
United States dollar per British pound
United States dollar per Canadian dollar
United States dollar per Euro
2017
2016
2015
0.77
1.29
0.77
1.13
$
$
$
$
0.74
1.36
0.76
1.11
$
$
$
$
0.75
1.53
0.78
1.11
$
$
$
$
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, 2017, 2016 and 2015
(dollars in thousands):
Operating revenues:
Freight revenues
Freight-related revenues
All other revenues
Total operating revenues
Operating income
Depreciation and amortization
Interest expense, net
(Benefit from)/provision for income taxes
Cash expenditures for additions to property &
equipment, net of grants from outside parties
December 31, 2017
North American
Operations
Australian
Operations
U.K./European
Operations
Total Operations
$
$
$
$
$
$
$
$
961,356
249,623
63,306
$
1,274,285
$
303,882
$
158,006
$
38,547
(266,063) $
254,653
46,696
6,161
307,510
77,251
61,142
54,718
6,110
166,685
$
16,076
$
$
$
$
$
$
$
$
337,866
237,332
51,051
$
626,249
$
17,329
$
31,309
11,944
$
(1,306) $
1,553,875
533,651
120,518
2,208,044
398,462
250,457
105,209
(261,259)
25,462
$
208,223
F-58
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating revenues:
Freight revenues
Freight-related revenues
All other revenues
Total operating revenues
Operating income/(loss)
Depreciation and amortization
Interest expense, net
Provision for/(benefit from) income taxes
Cash 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
Operating income
Depreciation and amortization
Loss on settlement of foreign currency forward
purchase contracts
Interest expense, net
Provision for/(benefit from) income taxes
Cash expenditures for additions to property &
equipment, net of grants from outside parties
December 31, 2016
North American
Operations
Australian
Operations
U.K./European
Operations
Total Operations
$
$
$
$
$
$
$
913,619
258,922
64,223
1,236,764
319,551
147,527
40,985
80,701
137,334
$
$
$
$
$
$
$
120,622
95,776
6,188
222,586
4,810
30,863
13,958
988
11,285
$
$
$
$
$
$
$
$
337,325
181,661
23,191
$
542,177
(34,749) $
$
26,798
19,591
$
(7,294) $
1,371,566
536,359
93,602
2,001,527
289,612
205,188
74,534
74,395
34,831
$
183,450
December 31, 2015
North American
Operations
Australian
Operations
U.K./European
Operations
Total Operations
$
$
$
$
$
$
$
$
949,028
227,154
65,633
1,241,815
297,486
141,814
16,374
39,651
69,552
266,548
$
$
$
$
$
$
$
$
146,850
87,616
8,486
242,952
54,842
27,425
2,312
8,976
12,890
31,179
$
$
$
$
$
$
$
$
304,669
187,313
23,652
515,634
31,933
19,296
$
$
$
$
— $
17,965
$
(6,548) $
1,400,547
502,083
97,771
2,000,401
384,261
188,535
18,686
66,592
75,894
32,035
$
329,762
The following table sets forth the cash and cash equivalents and property and equipment recorded in the
consolidated balance sheets for each reportable segment as of December 31, 2017 and 2016 (dollars in thousands):
Cash and cash equivalents
Property and equipment, net
Cash and cash equivalents
Property and equipment, net
December 31, 2017
North American
Operations
Australian
Operations
U.K./European
Operations
Total
Operations
$
$
13,584
3,657,801
$
$
52,407
664,367
$
$
14,481
334,753
$
$
80,472
4,656,921
December 31, 2016
North American
Operations
Australian
Operations
U.K./European
Operations
Total
Operations
$
$
10,137
3,590,625
$
$
9,213
634,148
$
$
12,969
278,546
$
$
32,319
4,503,319
As noted above, the Company owns a 51.1% controlling interest in the Australian Operations. In accordance
with the Australia Partnership agreement, the cash and cash equivalents of the Company's Australian Operations can
be used for the following: 1) to make payments in the usual and regular course of business, 2) to pay down debt of
the Partnership and 3) to make distributions to the Partners in proportion to their investments.
F-59
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic Area Information
Operating revenues for each geographic area for the years ended December 31, 2017, 2016 and 2015 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
2017
2016
2015
Amount
% of Total
Amount
% of Total
Amount
% of Total
$ 1,176,674
53.3% $ 1,142,141
57.1% $ 1,143,056
57.1%
$ 307,510
97,611
475,239
78,819
72,191
$ 1,031,370
$ 2,208,044
13.9% $ 222,586
94,623
4.4%
378,551
21.5%
101,837
3.6%
3.3%
61,789
46.7% $ 859,386
100.0% $ 2,001,527
11.1% $ 242,952
98,759
4.7%
340,747
18.9%
119,421
5.1%
3.1%
55,466
42.9% $ 857,345
100.0% $ 2,000,401
12.1%
5.0%
17.0%
6.0%
2.8%
42.9%
100.0%
Property and equipment for each geographic area as of December 31, 2017 and 2016 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
$
$
$
$
2017
2016
Amount
% of Total
Amount
% of Total
3,404,204
73.1% $
3,353,296
74.4%
664,367
253,597
317,495
17,258
1,252,717
4,656,921
14.3% $
5.4%
6.8%
0.4%
26.9% $
100.0% $
634,148
237,328
264,954
13,593
1,150,023
4,503,319
14.1%
5.3%
5.9%
0.3%
25.6%
100.0%
F-60
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. QUARTERLY FINANCIAL DATA (unaudited):
The following table sets forth the Company's quarterly results for the years ended December 31, 2017 and
2016 (dollars in thousands, except per share data):
2017
Operating revenues
Operating income
Net income attributable to G&W
Basic earnings per common share
attributable to G&W
Diluted earnings per common share
attributable to G&W
2016
Operating revenues
Operating income
Net income attributable to G&W
Basic earnings per common share
attributable to G&W
Diluted earnings per common share
attributable to G&W
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
519,108
77,454
26,238
0.43
0.42
482,616
56,996
27,019
0.47
0.47
$
$
$
$
$
$
$
$
$
$
540,433
101,340
46,007
0.75
0.74
501,375
87,194
48,399
0.85
0.83
$
$
$
$
$
$
$
$
$
$
576,927
111,489
50,240
0.82
0.80
501,002
91,851
56,785
0.99
0.98
$
$
$
$
$
$
$
$
$
$
571,576
108,179
426,566
6.90
6.81
516,534
53,571
8,934
0.15
0.15
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 2017 included (i) $3.6 million after-tax restructuring costs and (ii) $3.2 million after-tax
corporate development and related costs.
The second quarter of 2017 included (i) $2.8 million after-tax corporate development and related costs, (ii)
$2.2 million after-tax restructuring costs, primarily associated with U.K./European Operations and (iii) $1.0 million
after-tax gain on the sale of an investment in the United States.
The third quarter of 2017 included (i) $3.3 million of previously unrecognized tax benefits resulting from the
lapse of the statute of limitations on acquired liabilities for uncertain tax positions, (ii) $2.2 million after-tax
restructuring costs, primarily associated with U.K./European Operations and (iii) $1.4 million after-tax corporate
development and related costs.
The fourth quarter of 2017 included (i) $371.9 million income tax benefit associated with the TCJA signed into
law in December 2017, (ii) $8.9 million after-tax reduction to other expenses as a result of the buyout of the
Freightliner deferred consideration, (iii) $1.8 million after-tax Australia impairment and related charges, (iv) $1.2
million after-tax restructuring costs, primarily associated with U.K./European Operations, (v) $0.9 million reduction
to expense associated with a prior year accrual established for the restructuring of our U.K. coal business and (vi)
$0.7 million after-tax corporate development and related costs.
The first quarter of 2016 included (i) $16.8 million after-tax impairment and related costs associated with an
Australia iron ore customer entering into voluntary administration following significant financial hardship, (ii) $6.3
million income tax benefit associated with the United States Short Line Tax Credit, (iii) $0.8 million after-tax
restructuring costs and (iv) $0.3 million after-tax corporate development and related costs.
The second quarter of 2016 included (i) $7.2 million income tax benefit associated with the United States
Short Line Tax Credit, (ii) $4.0 million after-tax restructuring costs, primarily associated with U.K./European
Operations and (iii) $1.8 million after-tax corporate development and related costs.
The third quarter of 2016 included (i) $7.8 million income tax benefit associated with the United States Short
Line Tax Credit, (ii) $4.3 million income tax benefit associated with a reduction in the U.K. income tax rate, (iii)
$3.0 million after-tax corporate development and related costs and (iv) $0.1 million after-tax restructuring costs.
F-61
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fourth quarter of 2016 included (i) $21.5 million after-tax impairment and related charges related to ERS
operations in Continental Europe, (ii) $15.9 million after-tax corporate development and related costs, primarily
related to the Providence and Worcester Railroad and GRail acquisitions, (iii) $8.6 million after-tax impairment
charges related to the leases of U.K. coal railcars, (iv) $7.5 million income tax benefit associated with the United
States Short Line Tax Credit, (v) $1.4 million after-tax restructuring costs and (vi) $0.5 million after-tax write-off of
debt issuance costs related to the entry into an Australian credit facility in conjunction with the GRail acquisition.
20. RECENTLY ISSUED ACCOUNTING STANDARDS:
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. In March 2016, the FASB issued ASU 2016-08, which clarifies the implementation guidance on principal
versus agent considerations. In April 2016, the FASB issued ASU 2016-10, which provides clarification when
identifying performance obligations and providing implementation guidance on licensing. In May 2016, the FASB
issued ASU 2016-12, which clarifies the objective of the collectibility criterion. In December 2016, the FASB issued
ASU 2016-20, which provides additional clarification on contract costs, modifications and disclosures.
These new standards will become effective for the Company on January 1, 2018, and the Company plans to
adopt them using the modified retrospective basis. Under the new standard, the Company will continue to recognize
freight revenues over time as shipments move from origin to destination, freight-related revenues and all other
revenues will continue to be recognized as services are performed. For contracts that include variable consideration,
the Company will be required to assess the variable consideration and recognize revenue based on estimates
throughout the applicable periods. The Company is currently finalizing its review of the impact of adopting this new
guidance and does not expect the adoption of this guidance to have a material impact to its consolidated financial
statements or the recognition of revenue from customers, although additional disclosures will be required to help
users of the financial statements understand the nature, amount and timing of revenue and cash flows arising from
the Company’s contracts with customers.
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 will become
effective for the Company beginning January 1, 2018. The Company does not expect the adoption of this guidance
to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize
leases on their balance sheets as a right-of-use asset with a corresponding liability. Lessees are permitted to make an
accounting policy election to not recognize an asset and liability for leases with a term of 12 months or less.
Additional qualitative and quantitative disclosures, including significant judgments made by management, will also
be required. In January 2018, the FASB issued ASU 2018-01, which permits entities to elect an optional transition
practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption
of this standard and that were not previously accounted for as leases under Topic 840.
These new standards will become effective for the Company beginning January 1, 2019, and will require a
modified retrospective transition approach resulting in the recognition of leases as of January 1, 2017 and the
retrospective adjustment of the financial statements for 2017 and 2018 when presented for comparative purposes.
Early application is permitted. The Company is currently assessing the impact of adopting this guidance on its
consolidated financial statements. The Company disclosed approximately $615 million in operating lease
obligations in Note 6, Property and Equipment and Leases, and continues to evaluate those contracts as well as other
existing arrangements to determine if they qualify for lease accounting under the new standard. The Company does
not plan to adopt the standard early.
F-62
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of
Certain Cash Receipts and Cash Payments, which provides guidance on eight targeted changes with respect to how
cash receipts and cash payments are classified in the statements of cash flows. The amendments will become
effective for the Company January 1, 2018. Early adoption is permitted. The Company does not expect the adoption
of this guidance to have a material impact on its consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash,
which requires that a statement of cash flows explain the change during the period in total of cash, cash equivalents
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The
amendments will become effective for the Company beginning January 1, 2018. The Company does not expect the
adoption of this guidance to have a material impact on its consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition
of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The
amendments will become effective for the Company beginning January 1, 2018. The Company will take the
amendments into consideration when assessing whether transactions should be accounted for as acquisitions (or
disposals) of assets or businesses.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying
the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2
from the goodwill impairment test. The amendments will become effective for the Company beginning January 1,
2020. 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 March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715), Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires an
employer to report the service cost component in the same line item or items as other compensation costs arising
from services rendered by the pertinent employees during the period. The other components of the net benefit cost
are required to be presented in the statement of operations separately from the service cost component and outside a
subtotal of operating income, if one is presented. The amendments will become effective for the Company beginning
January 1, 2018, and prior years will be reclassified to match this new presentation. As a result, the Company's
operating income for the years ended December 31, 2017 and 2016 will decrease by approximately $6.4 million and
$3.1 million, respectively. There is no impact to net income as a result of the adoption of this guidance.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718), Scope of
Modification Accounting, which provides guidance on which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting. The amendments will become effective for the
Company beginning January 1, 2018. The Company will apply this guidance to any further modifications of share-
based payment awards.
In August 2017, the FASB issued ASU 2017-12, Derivative and Hedging (Topic 815), Targeted Improvements
to Accounting for Hedging Activities, which expand and refine hedge accounting for both nonfinancial and financial
risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged
item in the financial statements. The amendments also include certain improvements to ease the application of
current guidance related to the assessment of hedge effectiveness. The amendments will become effective for the
Company beginning January 1, 2019. Early adoption is permitted. The Company does not expect the adoption of
this guidance to have a material impact on its consolidated financial statements.
F-63
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income
(Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting
from the Tax Cuts and Jobs Act of 2017. The standard allows the Company to reclassify the effect of remeasuring
deferred tax liabilities and assets related to items within accumulated other comprehensive income using the newly
enacted federal corporate income tax rate. The amendments will become effective for the Company beginning
January 1, 2019. Early adoption is permitted. The Company is evaluating the impact of the new guidance on its
consolidated financial statements and related disclosure.
F-64
Direct or Indirect Subsidiaries of Genesee & Wyoming Inc.*
Alabama & Gulf Coast Railway LLC
Allegheny & Eastern Railroad, LLC
AN Railway, L.L.C.
ARG Sell Down Holdings Pty. Limited
ARG Sell Down No1 Pty. Limited
ARG Sell Down No2 Pty. Limited
Arizona & California Railroad Company
Arizona Eastern Railway Company
Arkansas Louisiana & Mississippi Railroad Company
Arkansas Midland Railroad Company, Inc.
Atlantic and Western Railway, Limited Partnership
Atlantic Western Transportation, Inc.
Atlas Railroad Construction, LLC
Autoliner Ltd
Bauxite & Northern Railway Company
Belgium Rail Feeding BVBA
Buffalo & Pittsburgh Railroad, Inc.
CAGY Industries, Inc.
California Northern Railroad Company
Cape Breton & Central Nova Scotia Railway Limited
Cascade and Columbia River Railroad Company
Central Oregon & Pacific Railroad, Inc.
Central Railroad Company of Indianapolis
Chattahoochee Bay Railroad, Inc.
Chattahoochee Industrial Railroad
Chattooga & Chickamauga Railway Co.
Clinton Properties, Inc.
Columbus & Chattahoochee Railroad, Inc.
Columbus and Greenville Railway Company
Commonwealth Railway, Incorporated
Conecuh Valley Railway, L.L.C.
Connecticut Southern Railroad, Inc.
Corpus Christi Terminal Railroad, Inc.
Dallas, Garland & Northeastern Railroad, Inc.
Delphos Terminal Company, Inc.
East Tennessee Railway, L.P.
Eastern Alabama Railway, LLC
Emons Industries, Inc.
Emons Railroad Group, Inc.
Emons Transportation Group, Inc.
ERS European Railways GmbH
ERS Railways B.V.
Evansville Belt Line Railroad, Inc.
First Coast Railroad Inc.
FLA Coal Services Pty Ltd
Fordyce and Princeton R.R. Co.
Freightliner Acquisitions Ltd
Freightliner Australia Coal Haulage Pty Ltd
Exhibit 21.1
State/Country of
Formation
Delaware
Delaware
Florida
Australia
Australia
Australia
Delaware
Arizona
Delaware
Delaware
North Carolina
Georgia
Florida
England and Wales
Arkansas
Belgium
Delaware
Delaware
Delaware
Nova Scotia
Delaware
Delaware
Indiana
Delaware
Georgia
Mississippi
Rhode Island
Delaware
Mississippi
Virginia
Alabama
Delaware
Delaware
Texas
Delaware
Tennessee
Alabama
New York
Delaware
Delaware
Germany
The Netherlands
Indiana
Delaware
Australia
Arkansas
England and Wales
Australia
Freightliner Australia Pty Ltd
Freightliner DE GmbH
Freightliner Group Ltd
Freightliner Heavy Haul Ltd
Freightliner Ltd
Freightliner Maintenance Europe Sp. z o. o.
Freightliner Maintenance Ltd
Freightliner Middle East Ltd
Freightliner PL Sp. z o. o.
Freightliner Railports Limited
Freightliner Scotland Ltd
Freightliners Ltd
G&W Agave Holdings (MI) Inc.
G&W Agave Holdings Inc.
G&W Australia Holdings LP
G&W Canada Services Passagers Inc.
Galveston Railroad, L.P.
Genesee & Wyoming Australia Eastern Pty Ltd
Genesee & Wyoming Australia Pty Ltd
Genesee & Wyoming C.V.
Genesee & Wyoming Canada Inc.
Genesee & Wyoming Oman Limited
Genesee & Wyoming Railroad Services, Inc.
Genesee and Wyoming Railroad Company
Georgia Central Railway, L.P.
Georgia Southwestern Railroad, Inc.
Goderich-Exeter Railway Company Limited
Golden Isles Terminal Railroad, Inc.
Grail (NSW) Pty Limited
Granite State Transloading Inc.
Grizzard Transfer Company, Inc.
GW CM Holdings Inc.
GW Servicios, S.A. de C.V.
GWA (North) Pty Ltd
GWA Holdings Pty. Limited
GWA Northern Pty Ltd
GWA Operations North Pty Limited
GWI Acquisitions Pty Ltd
GWI Canada, Inc.
GWI Holding B.V.
GWI Holdings No.2 Pty Ltd
GWI Holdings Pty Ltd
GWI International B.V.
GWI International LLC
GWI International Pty Ltd
GWI Leasing Corporation
GWI Rail Management Corporation
GWI UK Acquisition Company Limited
GWI UK Holding Limited
Heart of Georgia Railroad, Inc.
Australia
Germany
England and Wales
England and Wales
England and Wales
Poland
England and Wales
England and Wales
Poland
England and Wales
Scotland
England and Wales
Marshall Islands
Delaware
Australia
Québec
Texas
Australia
Australia
The Netherlands
Canada
England and Wales
Delaware
New York
Georgia
Delaware
Ontario
Delaware
Australia
Delaware
Georgia
Delaware
Mexico
Australia
Australia
Australia
Australia
Australia
Delaware
The Netherlands
Australia
Australia
The Netherlands
Delaware
Australia
Delaware
Delaware
England and Wales
England and Wales
Georgia
Hilton & Albany Railroad, Inc.
Huron and Eastern Railway Company, Inc.
Huron Central Railway Inc.
Illinois & Midland Railroad, Inc.
Indiana & Ohio Rail Corp.
Indiana & Ohio Railway Company
Indiana Southern Railroad, LLC
Kérail Inc.
Kiamichi Railroad Company L.L.C.
Knob Lake & Timmins Railway Company Inc.
Koleje Wschodnie Sp. z o. o.
KWT Railway, Inc.
Kyle Railroad Company
Kyle Railways, LLC
Little Rock & Western Railway, L.P.
Logico Freight Ltd
Logico Transport Ltd
Louisiana & Delta Railroad, Inc.
Luxapalila Valley Railroad, Inc.
Maine Intermodal Transportation, Inc.
Management Consortium Bid Ltd
Marquette Rail, LLC
Maryland and Pennsylvania Railroad, LLC
Maryland Midland Railway, Inc.
Meridian & Bigbee Railroad, L.L.C.
Mid-Michigan Railroad, Inc.
Mirabel Railway Inc.
Missouri & Northern Arkansas Railroad Company, Inc.
New England Central Railroad, Inc.
New StatesRail Holdings, LLC
North Carolina & Virginia Railroad Company, LLC
Ohio and Pennsylvania Railroad Company
Ohio Central Railroad, Inc.
Ohio Southern Railroad, Inc.
Olympia & Belmore Railroad, Inc.
Otter Tail Valley Railroad Company, Inc.
Palm Beach Rail Holding, Inc.
Pawnee Transloading Company, Inc.
Pentalver Transport Limited
Pentalver Cannock Limited
Phoenix Logistics Ltd.
Pittsburg & Shawmut Railroad, LLC
Plainview Terminal Company
Point Comfort & Northern Railway Company
Portland & Western Railroad, Inc.
Providence and Worcester Railroad Company
Puget Sound & Pacific Railroad
Québec Gatineau Railway Inc.
Rail Feeding Solutions B.V.
Rail Line Holdings #1, Inc.
Delaware
Michigan
Ontario
Delaware
Delaware
Delaware
Delaware
Québec
Delaware
Canada
Poland
Tennessee
Kansas
Delaware
Arkansas
England and Wales
England and Wales
Delaware
Mississippi
Delaware
England and Wales
Delaware
Delaware
Maryland
Alabama
Michigan
Québec
Kansas
Delaware
Delaware
Virginia
Ohio
Ohio
Ohio
Delaware
Minnesota
Delaware
Delaware
England
England
Ohio
Delaware
Texas
Texas
New York
Rhode Island
Delaware
Québec
The Netherlands
Delaware
Rail Link, Inc.
Rail Partners, L.P.
Rail Services Europe Sp. z o. o.
Rail Switching Services, LLC
Rail Transportation Solutions Inc.
RailAmerica Australia II, LLC
RailAmerica Contract Switching Services, Inc.
RailAmerica Equipment Corp.
RailAmerica Holding Services, Inc.
RailAmerica Operations Shared Services, Inc.
RailAmerica Operations Support Group, Inc.
RailAmerica Transportation Corp.
RailAmerica, Inc.
Railcare Inc.
RaiLink Acquisition, Inc.
RaiLink Canada Ltd.
RailInvest Acquisitions Ltd
RailInvest Holding Company Ltd
Railroad Distribution Services, Inc.
Railroad Engineering Services LLC
Railroad Maintenance Services LLC
RailTex Canada, Inc.
RailTex Distribution Services, Inc.
RailTex, Inc.
Rapid City, Pierre & Eastern Railroad, Inc.
Riceboro Southern Railway, LLC
Rochester & Southern Railroad, Inc.
Rochester Switching Services Inc.
Rockdale, Sandow & Southern Railroad Company
Rotterdam Rail Feeding B.V.
RP Acquisition Company One
RP Acquisition Company Two
S A Rail Pty Limited
Salt Lake City Southern Railroad Company, Inc.
San Diego & Imperial Valley Railroad Company, Inc.
San Joaquin Valley Railroad Co.
San Pedro Trails, Inc.
Savannah Port Terminal Railroad, Inc.
Services Ferroviaires de l'Estuaire Inc.
Services Passagers Ferroviaires du Grand Montréal Inc.
South Buffalo Railway Company
South Carolina Central Railroad Company, LLC
South East Rail, Inc.
St. Lawrence & Atlantic Railroad (Québec) Inc.
St. Lawrence & Atlantic Railroad Company
StatesRail II Railroad, LLC
StatesRail, LLC
Summit View, Inc.
SWKR Operating Co., Inc.
Talleyrand Terminal Railroad Company, Inc.
Virginia
Delaware
Poland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Ontario
Delaware
Canada
England and Wales
England and Wales
Arkansas
Delaware
Delaware
Ontario
Texas
Texas
Delaware
Georgia
New York
New York
Texas
The Netherlands
Delaware
Delaware
Australia
Delaware
California
California
Arizona
Delaware
Canada
Québec
New York
South Carolina
Delaware
Québec
Delaware
Delaware
Delaware
Ohio
Arizona
Virginia
Tazewell & Peoria Railroad, Inc.
The Aliquippa & Ohio River Railroad Co.
The Bay Line Railroad, L.L.C.
The Central Railroad Company of Indiana
The Columbus & Ohio River Rail Road Company
The Dansville and Mount Morris Railroad Company
The Mahoning Valley Railway Company
The Massena Terminal Railroad Company
The Pittsburgh & Ohio Central Railroad Company
The Prescott and Northwestern Railroad Company
The Warren & Trumbull Railroad Company
The Youngstown Belt Railroad Company
Three Notch Railway, L.L.C.
Toledo, Peoria & Western Railway Corp.
Tomahawk Railway, Limited Partnership
Transrail Holdings, LLC
Transrail North America, LLC
Trois-Rivieres Trailers, Inc./Remorque Trois-Rivieres Inc.
UK Bulk Handling Services Ltd
Utah Railway Company
Valdosta Railway, L.P.
Ventura County Railroad Company
Viper Line Pty Limited
Warren & Saline River Railroad Company
Wellsboro & Corning Railroad, LLC
Western Kentucky Railway, L.L.C.
Western Labrador Rail Services Inc.
Western Labrador Railway (2013) Inc.
Willamette & Pacific Railroad, Inc.
Wilmington Terminal Railroad, Limited Partnership
Wiregrass Central Railway, L.L.C.
York Rail Logistics, Inc.
York Railway Company
Yorkrail, LLC
Youngstown & Austintown Railroad, Inc.
Delaware
Ohio
Alabama
Indiana
Ohio
New York
Ohio
New York
Ohio
Arkansas
Ohio
Ohio
Alabama
Delaware
Wisconsin
Delaware
Delaware
Québec
England and Wales
Utah
Georgia
Delaware
Australia
Arkansas
Delaware
Kentucky
Newfoundland
Newfoundland
New York
North Carolina
Alabama
Delaware
Delaware
Delaware
Ohio
The preceding list may omit the names of certain subsidiaries that, as of December 31, 2017, would not be deemed
“significant subsidiaries” as defined in Rule 1-02(w) of Regulation S-X if considered in the aggregate.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-206943) and on
Form S 8 (Nos. 333-09165, 333-49231, 333-90845, 333-51684, 333-67982, 333-120558, 333-174573 and 333-204137) of
Genesee & Wyoming Inc. of our report dated February 28, 2018 relating to the financial statements and the effectiveness of
internal control over financial reporting, which appears in this Form 10 K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
February 28, 2018
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
I, John C. Hellmann, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Genesee & Wyoming Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 28, 2018
/s/ JOHN C. HELLMANN
John C. Hellmann,
Chairman, Chief Executive Officer and President
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
I, Timothy J. Gallagher, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Genesee & Wyoming Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 28, 2018
/s/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher,
Chief Financial Officer
Exhibit 32.1
Section 1350 Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(“Section 906”), John C. Hellmann and Timothy J. Gallagher, President and Chief Executive Officer and Chief
Financial Officer, respectively, of Genesee & Wyoming Inc., certify that (i) the Annual Report on Form 10-K for the
year ended December 31, 2017, fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in such report fairly presents, in all material respects, the
financial condition and results of operations of Genesee & Wyoming Inc.
/s/ JOHN C. HELLMANN
John C. Hellmann
Chairman, Chief Executive Officer and President
February 28, 2018
/s/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
Chief Financial Officer
February 28, 2018
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
1200 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
ended December 31, 2017, 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, 2017, 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 2017 and 2016.
YEAR ENDED DECEMBER 31, 2017: HIGH LOW
4th Quarter $79.48 $71.00
3rd Quarter $74.01 $65.11
2nd Quarter $68.69 $62.60
1st Quarter $78.30 $65.17
YEAR ENDED DECEMBER 31, 2016: HIGH LOW
4th Quarter $80.01 $64.55
3rd Quarter $70.03 $58.58
2nd Quarter $65.99 $52.86
1st Quarter $64.17 $44.55
On February 22, 2018, there were 137 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*
Among Genesee & Wyoming Inc., the S&P Midcap 400 Index, and S&P 1500 Railroads
Years Ending
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
Note: Peer group indices use beginning of period market capitalization weighting.
We can offer no assurance that our stock performance will continue in the future with the same or similar trends depicted in the graph or table above.
BOARD OF DIRECTORS
As of December 31, 2017
John C. Hellmann
Chairman, President and Chief Executive Officer
Richard H. Allert
Retired; formerly founder of Allert, Heard & Co.
Chair, Australia Committee
Member, Audit Committee
Member, Governance Committee
Richard H. Bott
Retired; formerly Vice Chairman, Institutional Securities Group,
Morgan Stanley
Member, Audit Committee
Member, Compensation Committee
Øivind Lorentzen III
Director and Vice Chairman, SEACOR Holdings Inc.
Chair, Governance Committee
Albert J. Neupaver
Chairman, Westinghouse Air Brake Technology
Corporation
Member, Audit Committee
Hans Michael Norkus
Founder and President, Alliance Consulting Group
Member, Compensation Committee
Member, Governance Committee
Joseph H. Pyne
Executive Chairman of the Board, Kirby Corporation
Member, Compensation Committee
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
Mark A. Scudder
Chief Executive Officer and President,
Scudder Law Firm, P.C., L.L.O.
Chair, Compensation Committee
Member, Audit Committee
Hunter C. Smith
Chief Financial Officer, Rhythm Pharmaceuticals Inc.
Member, Compensation Committee
John C. Hellmann
Richard H. Allert
Richard H. Bott
Øivind Lorentzen III
Albert J. Neupaver
Hans Michael Norkus
Joseph H. Pyne
Ann N. Reese
Mark A. Scudder
Hunter C. Smith
CORPORATE OFFICERS
Genesee & Wyoming Inc.
John C. Hellmann
Chairman, President and Chief Executive Officer
Timothy J. Gallagher
Chief Financial Officer
David A. Brown
Chief Operating Officer
Matthew O. Walsh
Executive Vice President
Global Corporate Development
Allison M. Fergus
General Counsel and Secretary
Christopher F. Liucci
Chief Accounting Officer
and Global Controller
SENIOR EXECUTIVES
NORTH AMERICA
Genesee & Wyoming Railroad Services, Inc.
Andrew T. Chunko
Senior Vice President
Coastal Region
David J. Collins
Senior Vice President
Commercial Support
David R. Ebbrecht
Senior Vice President
Central Region
Kenneth A. Glover
Senior Vice President
Safety, Training and Compliance
Raymond A. Goss
Senior Vice President
Engineering
James E. Irvin
Senior Vice President
Southern Region
Tony D. Long
Senior Vice President
Operations Support
Michael M. Meyers
Senior Vice President
Information Technology
Michael O. Miller
Chief Commercial Officer
North America
J. Bradley Ovitt
Senior Vice President
Western Region
Michael W. Peters
Senior Vice President
Real Estate and Industrial Development
Martin A. Pohlod
Senior Vice President
Midwest Region
Richard J. Regan Jr.
Senior Vice President
Mechanical
Mary Ellen Russell
Global Human Resource Officer
Thomas D. Savage
Senior Vice President
Corporate Development and Treasurer
Jerry E. Vest
Senior Vice President
Government and Industry Affairs
Leonard M. Wagner
Senior Vice President
Northeast Region
Michael A. Webb
Senior Vice President
Distribution Services
Genesee & Wyoming Canada Inc.
Louis Gravel
President
AUSTRALIA
Genesee & Wyoming Australia Pty Ltd
Luke Anderson
Chief Executive Officer
.
U.K./EUROPE
Genesee & Wyoming Railroad Services, Inc.
Gary R. Long
Chief Executive Officer
UK/Europe Region
Genesee & Wyoming Inc.
Corporate Headquarters
Genesee & Wyoming Inc.
20 West Avenue
Darien, Connecticut 06820
203-202-8900
Administrative Headquarters
Genesee & Wyoming Railroad Services, Inc.
200 Meridian Centre, Suite 300
Rochester, New York 14618
585-328-8601
Operations Headquarters
Genesee & Wyoming Railroad Services, Inc.
13901 Sutton Park Drive South, Suite 330A
Jacksonville, Florida 32224
904-596-1045
Australia Region
Genesee & Wyoming Australia Pty Ltd (GWA)
Level 3, 33 Richmond Road
Keswick, SA 5035
+61 (0) 8 8343 5455
Canada Region
Cape Breton & Central Nova Scotia Railway
Limited (CBNS)
121 King Street
P.O. Box 2240
Stellarton, Nova Scotia B0K 1S0
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)
900, rue Bonaventure
Trois-Rivières, Québec G9A 5E3
819-375-4795
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
St. Lawrence & Atlantic Railroad Company (SLR)
225 First Flight Drive, Suite 201
Auburn, Maine 04210
207-782-5680
Canada Region continued
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)
900, rue Bonaventure
Trois-Rivières, Québec G9A 5E3
819-375-4795
Central Region
Arkansas Louisiana & Mississippi Railroad
Company (ALM)
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9000
Arkansas Midland Railroad Company, Inc. (AKMD)
314 Reynolds Road, Bldg 41
Malvern, Arkansas 72104
501-844-4444
Bauxite & Northern Railway Company (BXN)
6232 Cyanamid Road
Bauxite, Arkansas 72011
501-557-2600
Dallas, Garland & Northeastern Railroad, Inc. (DGNO)
475 Gautney Street
Garland, Texas 75040
972-808-9800
Fordyce and Princeton R.R. Co. (FP)
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
Carthage, Missouri 64836
417-358-8800
The Prescott and Northwestern Railroad
Company (PNW)
314 Reynolds Road, Bldg 41
Malvern, Arkansas 72104
501-844-4444
Central Region continued
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
Texas Northeastern Railroad (TNER)
475 Gautney Street
Garland, Texas 75040
972-808-9800
Warren & Saline River Railroad Company (WSR)
314 Reynolds Road, 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)
2594 Sportsman Blvd.
Suffolk, Virginia 23434
757-538-1200
Corpus Christi Terminal Railroad, Inc. (CCPN)
P.O. Box 1541
Corpus Christi, Texas 78403
361-884-4010
East Tennessee Railway, L.P. (ETRY)
P.O. Box 1479
Johnson City, Tennessee 37605
423-928-3721
First Coast Railroad Inc. (FCRD)
404 Gum Street
Fernandina, Florida 32034
904-261-0888
Galveston Railroad, L.P. (GVSR)
P.O. Box 1108
Galveston, Texas 77553
409-762-5411
Coastal Region continued
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
Heart of Georgia Railroad, Inc. (HOG)
908 Elm Avenue
Americus, Georgia 31709
229-924-7662
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
Wilmington Terminal Railroad, Limited Partnership (WTRY)
1709 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
The Central Railroad Company of Indiana (CIND)
2856 Cypress Way
Cincinnati, Ohio 45212
513-860-1000
Central Railroad Company of Indianapolis (CERA)
906 West Morgan Street
Kokomo, Indiana 46901
309-694-8619
Chicago, Ft. Wayne & Eastern Railroad (CFE)
2715 Wayne Trace
Ft. Wayne, Indiana 46803
260-267-9346
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
309-694-8619
Indiana & Ohio Railway Company (IORY)
2856 Cypress Way
Cincinnati, Ohio 45212
513-860-1000
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 (MS)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Midwest Region continued
Northeast Region continued
Mid-Michigan Railroad, Inc. (MMRR)
101 Enterprise Drive
Vassar, Michigan 48768
989-797-5100
Otter Tail Valley Railroad Company, Inc. (OTVR)
200 North Mill Street
Fergus Falls, Minnesota 56537
218-736-6073
Tazewell & Peoria Railroad, Inc. (TZPR)
301 Wesley Road
Creve Coeur, Illinois 61610
309-694-8619
Toledo, Peoria & Western Railway Corp. (TPW)
1990 East Washington Street
East Peoria, Illinois 61611
309-694-8619
Tomahawk Railway, Limited Partnership (TR)
17 South Marinette Street
Tomahawk, Wisconsin 54487
715-453-2303
Northeast Region
The Aliquippa & Ohio River Railroad Co. (AOR)
123 Division Street Extension
Youngstown, Ohio 44510
330-744-1992
Buffalo & Pittsburgh Railroad, Inc. (BPRR)
400 Meridian Centre, Suite 330
Rochester, New York 14618
585-785-6400
The Columbus & Ohio River Rail Road
Company (CUOH)
47849 Papermill Road
Coshocton, Ohio 43812
740-622-8092
Connecticut Southern Railroad, Inc. (CSO)
440 Windsor Street
Hartford, Connecticut 06142
860-249-2006
The Mahoning Valley Railway Company (MVRY)
123 Division Street Extension
Youngstown, Ohio 44510
330-744-1992
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
Ohio Central Railroad, Inc. (OHCR)
47849 Papermill Road
Coshocton, Ohio 43812
740-622-8092
Ohio Southern Railroad, Inc. (OSRR)
47849 Papermill Road
Coshocton, Ohio 43812
740-622-8092
The Pittsburgh & Ohio Central Railroad
Company (POHC)
208 Islands Avenue
McKee’s Rocks, Pennsylvania 15136
412-331-6200
Providence and Worcester Railroad Company (PW)
75 Hammond Street
Worcester, Massachusetts 01610
508-755-4000
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
The Warren & Trumbull Railroad Company (WTRM)
123 Division Street Extension
Youngstown, Ohio 44510
330-744-1992
Wellsboro & Corning Railroad, LLC (WCOR)
400 Meridian Centre, Suite 330
Rochester, New York 14618
585-785-6400
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
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
Southern Region continued
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
850-747-4034
Chattooga & Chickamauga Railway Co. (CCKY)
413 West Villanow Street
Lafayette, Georgia 30728
706-638-9552
Columbus & Chattahoochee Railroad, Inc. (CCH)
621 9th Avenue
Columbus, Georgia 31901
706-327-5464
Columbus and Greenville Railway Company (CAGY)
201 19th Street North
Columbus, Mississippi 39701
662-329-7710
Conecuh Valley Railway, L.L.C. (COEH)
812 North Main Street
Enterprise, Alabama 36330
334-347-6070
Eastern Alabama Railway, LLC (EARY)
2413 Hill Road
Sylacauga, Alabama 35151
256-249-1196
Georgia Southwestern Railroad, Inc. (GSWR)
78 Pulpwood Road
Dawson, Georgia 39842
229-698-2000
Hilton & Albany Railroad, Inc. (HAL)
78 Pulpwood Road
Dawson, Georgia 39842
850-747-4034
KWT Railway, Inc. (KWT)
908 Depot Street
Paris, Tennessee 38242
731-642-7942
Louisiana & Delta Railroad, Inc. (LDRR)
402 West Washington Street
New Iberia, Louisiana 70560
337-364-9625
Luxapalila Valley Railroad, Inc. (LXVR)
201 19th Street North
Columbus, Mississippi 39701
662-329-7710
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
334-347-6070
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
334-347-6070
Western 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
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 Avenue
Roseburg, Oregon 97470
541-957-2504
Olympia & Belmore Railroad, Inc. (OYLO)
1710 Midway Court
Centralia, Washington 98531
360-807-4325
Portland & Western Railroad, Inc. (PNWR)
1200 Howard Drive SE
Albany, Oregon 97321
503-365-7717
Puget Sound & Pacific Railroad (PSAP)
1710 Midway Court
Centralia, Washington 98531
360-807-4325
Western Region continued
San Diego & Imperial Valley Railroad
Company, Inc. (SDIY)
1501 National Avenue, Suite 200
San Diego, California 92113
619-239-3262
San Joaquin Valley Railroad Co. (SJVR)
221 North F Street
P.O. Box 937
Exeter, California 93221
559-592-1857
Utah Railway Company (UTAH)
1221 South Colorado Avenue
Provo, Utah 84606
801-373-1760
Ventura County Railroad Company (VCRR)
1501 National Avenue, Suite 200
San Diego, California 92113
619-239-3262
Willamette & Pacific Railroad, Inc. (WPRR)
1200 Howard Drive SE
Albany, Oregon 97321
503-365-7717
UK/Europe Region
Freightliner Ltd
Freightliner Heavy Haul Ltd
Freightliner Maintenance Ltd
Freightliner Middle East Ltd
3rd Floor, 90 Whitfield Street
Fitzrovia
London, W1T 4EZ
+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
Pentalver Transport Ltd.
3rd Floor, 90 Whitfield Street
Fitzrovia
London, W1T 4EZ
+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
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