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Genesee & Wyoming Reports Results for the Third Quarter of 2014

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Genesee & Wyoming Inc. (G&W) (NYSE:GWR)

Third Quarter Highlights

  • Total operating revenues increased 7.8% to $432.5 million.
  • Adjusted income from operations increased 16.7% to $122.6 million; Reported income from operations increased 21.0% to $123.1 million. (1)
  • Adjusted operating ratio improved 2.1 percentage points to 71.7%; Reported operating ratio of 71.5% (71.4% North American & European Operations; 72.3% Australian Operations). (1)
  • Adjusted income before income taxes (pre-tax income) increased 19.1% to $109.3 million; Reported income before income taxes increased 24.1% to $109.8 million. (1)
  • Adjusted diluted earnings per common share (EPS) were $1.21, a 16.3% increase; Reported diluted EPS were $1.27, a 9.5% increase. (1)

Jack Hellmann, President and CEO of G&W, commented, “We are pleased with our results for the third quarter of 2014, as revenue increased approximately 8%, our adjusted operating ratio improved 2.1 percentage points to 71.7%, and our adjusted pre-tax income increased approximately 19%. In North America, our business was strong in the third quarter, with 7% growth in same railroad freight revenue, led by frac sand, salt, steel and agricultural products. Meanwhile, the newly established Rapid City, Pierre & Eastern Railroad (RCP&E) performed well, as we benefited from the record harvest in South Dakota and improved the railroad’s fluidity with connecting carriers.” (1)

“In Australia, our business was slightly weaker in the third quarter, with revenue in Australian dollars down approximately 2%, as intermodal and agricultural shipments weakened and track access income declined due to the previously announced closure of an iron ore mine.”

“Looking ahead, we remain optimistic about the strength of our North American business, which represents 80% of total revenues, and cautious about weakness in our Australian business, which represents 20% of total revenues, due to lower iron ore shipments resulting from a significant decline in iron ore prices. Meanwhile, we continue to actively evaluate several acquisition and investment opportunities in North America and internationally.”

Financial Results

G&W reported net income in the third quarter of 2014 of $72.9 million, compared with net income of $66.2 million in the third quarter of 2013. Excluding the net impact of certain significant items discussed below, G&W’s adjusted net income in the third quarter of 2014 was $69.3 million, compared with adjusted net income of $59.8 million in the third quarter of 2013. (1)

G&W’s reported diluted EPS in the third quarter of 2014 were $1.27 with 57.0 million weighted average shares outstanding, compared with reported diluted EPS in the third quarter of 2013 of $1.16 with 56.7 million weighted average shares outstanding. G&W’s adjusted diluted EPS in the third quarter of 2014 were $1.21 with 57.0 million weighted average shares outstanding, compared with adjusted diluted EPS in the third quarter of 2013 of $1.04 with 56.7 million weighted average shares outstanding. (1)

G&W’s effective income tax rate was 33.6% in the third quarter of 2014, compared with 25.1% in the third quarter of 2013. G&W’s effective income tax rate in the third quarter of 2014 included a $3.9 million tax benefit as a result of receiving IRS consent to change tax accounting methods retroactively for companies acquired as a result of the RailAmerica, Inc. (RailAmerica) acquisition. Excluding the RailAmerica-related tax benefit, G&W’s adjusted effective income tax rate was 37.2% in the third quarter of 2014. (1) The higher adjusted income tax rate in the third quarter of 2014, compared with the third quarter of 2013, was driven primarily by the expiration of the United States short line tax credit on December 31, 2013. G&W’s effective income tax rates also include adjustments to reflect differences between book income tax expense and final tax returns filed in September of each year related to the previous fiscal year.

In the third quarter of 2014 and 2013, G&W’s results included certain items affecting comparability between the periods that are set forth in the following table (in millions, except per share amounts).

Income/(Loss)

Before Taxes

Impact

After-Tax Net

Income/(Loss)

Impact

Diluted

Earnings/(Loss)

Per Common

Share Impact

Three Months Ended September 30, 2014

Business development and related costs $ (0.7 ) $ (0.5 ) $ (0.01 )
Net gain on sale of assets $ 1.2 $ 0.9 $ 0.02
RailAmerica-related tax benefit $ $ 3.9 $ 0.07
Adjustments for tax returns from previous fiscal year $ $ (0.7 ) $ (0.01 )

Three Months Ended September 30, 2013

Adjustment to depreciation and amortization expense

based on final fair values assigned to RailAmerica’s

assets and liabilities (6 mos.)

$ (2.0 ) $ (1.3 ) $ (0.02 )
RailAmerica integration costs $ (2.0 ) $ (1.3 ) $ (0.02 )
Net gain on sale of assets $ 0.7 $ 0.5 $ 0.01
Short line tax credit $ $ 6.8 $ 0.12
Adjustments for tax returns from previous fiscal year $ $ 1.7 $ 0.03

Explanation of Items Affecting Comparability

In the third quarter of 2014, G&W’s results included business development and related costs of $0.7 million, including acquisition and integration related costs from RCP&E and reorganization costs from Atlas Railroad Construction, LLC (Atlas), and net gain on sale of assets of $1.2 million. The third quarter of 2014 also included an income tax benefit of $3.9 million associated with the companies acquired as a result of the RailAmerica acquisition and an income tax expense adjustment of $0.7 million related to differences between book income tax expense and the final tax returns filed in September of 2014 related to the previous fiscal year.

During the third quarter of 2013, G&W finalized its assignment of fair values to the assets and liabilities we assumed from RailAmerica, which resulted in additional depreciation and amortization expense of $3.0 million recorded in the third quarter of 2013, of which $2.0 million related to prior periods, and, accordingly, was included as an adjustment to the third quarter results. G&W’s third quarter of 2013 results also included $2.0 million of RailAmerica integration costs and net gain on sale of assets of $0.7 million. The third quarter of 2013 also included an income tax benefit of $6.8 million associated with the United States short line tax credit and an income tax benefit adjustment of $1.7 million related to differences between book income tax expense and the final tax returns filed in September of 2013 related to the previous fiscal year.

Third Quarter Results

In the third quarter of 2014, G&W’s total operating revenues increased $31.2 million, or 7.8%, to $432.5 million, compared with $401.4 million in the third quarter of 2013. The increase included $19.0 million in revenues from RCP&E. These revenue increases were partially offset by a $0.7 million decrease from the net depreciation of foreign currencies relative to the U.S. dollar. Excluding the net impact from foreign currency depreciation, G&W’s same railroad operating revenues, which exclude RCP&E, increased $12.9 million, or 3.2%.

G&W’s same railroad freight revenues in the third quarter of 2014 were $313.9 million, compared with $298.9 million in the third quarter of 2013. Excluding a $0.4 million decrease from the net impact of foreign currency depreciation, G&W’s same railroad freight revenues increased by $15.4 million, or 5.1%.

G&W’s same railroad non-freight revenues in the third quarter of 2014 were $99.6 million, compared with $102.5 million in the third quarter of 2013. Excluding a $0.3 million decrease from the net impact of foreign currency depreciation, G&W’s same railroad non-freight revenues decreased by $2.5 million, or 2.5%, primarily due to less construction revenues as compared to the prior year.

G&W’s traffic in the third quarter of 2014 increased 37,077 carloads, or 7.7%, to 519,900 carloads. Excluding 15,644 carloads from the RCP&E, same railroad traffic in the third quarter of 2014 increased 21,433 carloads, or 4.4%. The same railroad traffic increase was principally due to increases of 8,991 carloads of minerals and stone traffic (primarily in the Ohio Valley and Central regions), 3,851 carloads of traffic from G&W’s other commodity group (primarily overhead Class I shipments), 2,580 carloads of metals traffic (primarily in the Ohio Valley Region), 2,376 carloads of coal and coke traffic (primarily in the Ohio Valley and Central regions) and 2,165 carloads of lumber and forest products traffic (primarily in the Pacific and Southern regions), partially offset by a 2,562 carload decrease in intermodal traffic (due to a 1,460 carload decrease in shipments primarily in the Australia and Canada regions and a 1,102 decrease due to a classification change affecting traffic for a customer in North America that was previously reported in the intermodal commodity group in the third quarter of 2013 and has been reported based on the underlying commodity shipped since December 2013). All remaining traffic increased by a net 4,032 carloads.

G&W’s income from operations in the third quarter of 2014 was $123.1 million, compared with $101.7 million in the third quarter of 2013. G&W’s operating ratio in the third quarter of 2014 was 71.5%, compared with an operating ratio of 74.7% in the third quarter of 2013. Income from operations in the third quarter of 2014 included business development and related costs of $0.7 million, partially offset by net gain on sale of assets of $1.2 million. Income from operations in the third quarter of 2013 included $2.0 million of depreciation and amortization expense not related to the current period resulting from the finalization of G&W’s assignment of fair values to the assets and liabilities we assumed from RailAmerica and $2.0 million of RailAmerica integration costs, partially offset by net gain on sale of assets of $0.7 million. Excluding these items, G&W’s adjusted income from operations increased $17.6 million, or 16.7%, to $122.6 million in the third quarter of 2014, and G&W’s adjusted operating ratio improved 2.1 percentage points to 71.7% in the third quarter of 2014, compared with 73.8% in the third quarter of 2013. (1)

Free Cash Flow (1)

G&W’s free cash flow for the nine months ended September 30, 2014 and 2013 was as follows (in millions):

Nine Months Ended
September 30,
2014 2013
Net cash provided by operating activities $ 369.0 $ 278.7

Net cash used in investing activities, excluding new business

investments

(368.5 ) (110.8 )
Add back: net cash used for acquisitions (a) 220.5 11.3
Free cash flow before new business investments 221.0 179.1
New business investments (71.5 ) (31.8 )
Free cash flow (1) $ 149.5 $ 147.4
(a) The 2014 period primarily consisted of cash paid for the RCP&E acquisition. The 2013 period consisted of cash paid for expenses related to the integration of RailAmerica.

Conference Call and Webcast Details

As previously announced, G&W’s conference call to discuss financial results for the third quarter of 2014 will be held on Friday, October 31, 2014, at 11 a.m. EDT. The dial-in number for the teleconference in the U.S. is (800) 553-5260; outside the U.S. is (612) 234-9959, or the call may be accessed live over the Internet (listen only) at www.gwrr.com/investors, by selecting “Q3 2014 Genesee & Wyoming Inc. Earnings Conference Call Webcast.” Management will be referring to a slide presentation that will also be available at gwrr.com/investors. The webcast will be archived at www.gwrr.com/investors, until the following quarter’s earnings press release. Telephone replay is available for 30 days beginning at 1 p.m. EDT on October 31, 2014 by dialing (800) 475-6701 (or outside the U.S., dial 320-365-3844). The access code is 309990.

About G&W

G&W owns and operates short line and regional freight railroads in the United States, Australia, Canada, the Netherlands and Belgium. In addition, G&W operates the 1,400-mile Tarcoola to Darwin rail line, which links the Port of Darwin with the Australian interstate rail network in South Australia. Operations currently include 112 railroads organized in 11 regions, with more than 15,000 miles of owned and leased track, 5,000 employees and over 2,000 customers. We provide rail service at 37 ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial customers.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains forward-looking statements regarding future events and the future performance of Genesee & Wyoming Inc. that are based on current expectations, estimates and projections about our industry, management’s beliefs, and assumptions made by management. Words such as “anticipates,” “intends,” “plans,” “believes,” “could,” “should,” “seeks,” “expects,” “will,” “estimates,” “trends,” “outlook,” variations of these words and similar expressions are intended to identify these forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast, including the following: risks related to the operation of our railroads; severe weather conditions and other natural occurrences, which could result in shutdowns, derailments, railroad network congestion or other substantial disruption of operations; customer demand and changes in our operations; exposure to the credit risk of customers and counterparties; changes in commodity prices; consummation and integration of acquisitions; economic, political and industry conditions (including employee strikes or work stoppages); retention and contract continuation; legislative and regulatory developments, including changes in environmental and other laws and regulations to which we are subject; increased competition in relevant markets; funding needs and financing sources, including our ability to obtain government funding for capital projects; international complexities of operations, currency fluctuations, finance, tax and decentralized management; challenges of managing rapid growth including retention and development of senior leadership; unpredictability of fuel costs; susceptibility to various legal claims and lawsuits; increase in, or volatility associated with, expenses related to estimated claims, self-insured retention amounts, and insurance coverage limits; consummation of new business opportunities; decrease in revenues and/or increase in costs and expenses; susceptibility to the risks of doing business in foreign countries; our ability to realize the expected synergies associated with acquisitions; and others including, but not limited to, those noted in our 2013 Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q under “Risk Factors.” Therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Forward-looking statements speak only as of the date of this press release or as of the date they were made. G&W does not undertake, and expressly disclaims, any duty to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

1. Adjusted income from operations, adjusted operating ratio, adjusted income before taxes, adjusted net income, adjusted diluted earnings per common share, adjusted effective income tax rate and free cash flow are non-GAAP financial measures and are not intended to replace financial measures calculated in accordance with GAAP. The information required by Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and Regulation G under the Securities Exchange Act of 1934, including a reconciliation to their most directly comparable financial measures calculated in accordance with GAAP, is included in the tables attached to this press release.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
OPERATING REVENUES $ 432,543 $ 401,377 $ 1,223,385 $ 1,176,975
OPERATING EXPENSES 309,427 299,636 915,285 891,617
INCOME FROM OPERATIONS 123,116 101,741 308,100 285,358
INTEREST INCOME 82 992 1,357 2,985
INTEREST EXPENSE (12,654 ) (16,029 ) (44,109 ) (53,352 )
OTHER (LOSS)/INCOME, NET (747 ) 1,752 439 1,529
INCOME BEFORE INCOME TAXES 109,797 88,456 265,787 236,520
PROVISION FOR INCOME TAXES (36,945 ) (22,231 ) (92,412 ) (22,517 )
NET INCOME 72,852 66,225 173,375 214,003
LESS:

NET INCOME/(LOSS) ATTRIBUTABLE TO

NONCONTROLLING INTEREST

202 538 (7 ) 984
LESS: SERIES A-1 PREFERRED STOCK DIVIDEND 2,139
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 72,650 $ 65,687 $ 173,382 $ 210,880

BASIC EARNINGS PER COMMON SHARE ATTRIBUTABLE TO

GENESEE & WYOMING INC. COMMON STOCKHOLDERS

$ 1.31 $ 1.20 $ 3.14 $ 3.94
WEIGHTED AVERAGE SHARES – BASIC 55,600 54,626 55,167 53,475

DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE

TO GENESEE & WYOMING INC. COMMON STOCKHOLDERS

$ 1.27 $ 1.16 $ 3.05 $ 3.76
WEIGHTED AVERAGE SHARES – DILUTED 57,014 56,738 56,943 56,637
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(in thousands)
(unaudited)
September 30, December 31,
2014 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,792 $ 62,876
Accounts receivable, net 348,909 325,453
Materials and supplies 34,147 31,295
Prepaid expenses and other 45,984 52,584
Deferred income tax assets, net 61,567 76,122
Total current assets 509,399 548,330
PROPERTY AND EQUIPMENT, net 3,775,127 3,440,744
GOODWILL 630,342 630,462
INTANGIBLE ASSETS, net 594,796 613,933
DEFERRED INCOME TAX ASSETS, net 2,591 2,405
OTHER ASSETS, net 53,454 83,947
Total assets $ 5,565,709 $ 5,319,821
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 39,473 $ 84,366
Accounts payable 265,716 242,010
Accrued expenses 121,334 130,132
Total current liabilities 426,523 456,508
LONG-TERM DEBT, less current portion 1,601,303 1,540,346
DEFERRED INCOME TAX LIABILITIES, net 896,171 863,051
DEFERRED ITEMS – grants from outside parties 296,475 267,098
OTHER LONG-TERM LIABILITIES 40,968 43,748
TOTAL EQUITY 2,304,269 2,149,070
Total liabilities and equity $ 5,565,709 $ 5,319,821
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 173,375 $ 214,003
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 116,130 105,718
Compensation cost related to equity awards 9,063 13,620
Excess tax benefits from share-based compensation (5,483 ) (7,487 )
Deferred income taxes 62,612 622
Net gain on sale of assets (3,444 ) (3,419 )
Insurance proceeds received 5,527 10,353

Changes in assets and liabilities which provided/(used) cash, net of effect of

acquisitions:

Accounts receivable, net (32,222 ) (42,607 )
Materials and supplies (1,070 ) (1,105 )
Prepaid expenses and other 5,568 (9,910 )
Accounts payable and accrued expenses 34,990 (8,178 )
Other assets and liabilities, net 3,957 7,073
Net cash provided by operating activities 369,003 278,683
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (271,696 ) (170,435 )
Grant proceeds from outside parties 43,518 23,878
Cash paid for acquisitions, net of cash acquired (220,542 )
Insurance proceeds for the replacement of assets 4,112
Proceeds from disposition of property and equipment 4,562 3,954
Net cash used in investing activities (440,046 ) (142,603 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (378,763 ) (388,018 )
Proceeds from issuance of long-term debt 398,761 215,443
Debt amendment costs (3,880 ) (1,880 )
Dividends paid on Series A-1 Preferred Stock (2,139 )
Proceeds from employee stock purchases 9,574 11,026
Excess tax benefits from share-based compensation 5,483 7,487
Treasury stock acquisitions (4,062 ) (10,941 )
Net cash provided by/(used in) financing activities 27,113 (169,022 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (154 ) 124
DECREASE IN CASH AND CASH EQUIVALENTS (44,084 ) (32,818 )
CASH AND CASH EQUIVALENTS, beginning of period 62,876 64,772
CASH AND CASH EQUIVALENTS, end of period $ 18,792 $ 31,954
GENESEE & WYOMING INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
(unaudited)
Three Months Ended September 30,
2014 2013
Amount % of Revenue Amount % of Revenue

Revenues:

Freight $ 331,042 76.5 % $ 298,911 74.5 %
Non-freight 101,501 23.5 % 102,466 25.5 %
Total revenues $ 432,543 100.0 % $ 401,377 100.0 %

Operating Expense Comparison:

Natural Classification

Labor and benefits $ 121,707 28.1 % $ 110,609 27.6 %
Equipment rents 22,934 5.3 % 20,388 5.1 %
Purchased services 24,502 5.7 % 33,270 8.3 %
Depreciation and amortization 40,277 9.3 % 37,334 9.3 %
Diesel fuel used in operations 36,089 8.3 % 35,660 8.9 %
Casualties and insurance 8,702 2.0 % 8,974 2.2 %
Materials 21,437 5.0 % 18,909 4.7 %
Trackage rights 14,174 3.3 % 13,430 3.4 %
Net gain on sale of assets (1,237 ) (0.3 )% (703 ) (0.2 )%
Other expenses 20,842 4.8 % 21,765 5.4 %
Total operating expenses $ 309,427 71.5 % $ 299,636 74.7 %

Functional Classification

Transportation $ 115,785 26.8 % $ 110,820 27.6 %
Maintenance of ways and structures 46,672 10.8 % 43,250 10.8 %
Maintenance of equipment 46,670 10.8 % 42,049 10.5 %
General and administrative 55,997 12.9 % 56,029 14.0 %
Construction costs 5,263 1.2 % 10,857 2.7 %
Net gain on sale of assets (1,237 ) (0.3 )% (703 ) (0.2 )%
Depreciation and amortization 40,277 9.3 % 37,334 9.3 %
Total operating expenses $ 309,427 71.5 % $ 299,636 74.7 %
GENESEE & WYOMING INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
(unaudited)
Three Months Ended September 30, 2014

North American & European

Operations

Australian Operations Total Operations

Amount

% of

Revenue

Amount

% of

Revenue

Amount

% of
Revenue

Revenues:

Freight $ 267,584 76.2 % $ 63,458 77.9 % $ 331,042 76.5 %
Non-freight 83,481 23.8 % 18,020 22.1 % 101,501 23.5 %
Total revenues 351,065 100.0 % 81,478 100.0 % 432,543 100.0 %

Operating expenses:

Labor and benefits 102,024 29.1 % 19,683 24.2 % 121,707 28.1 %
Equipment rents 20,413 5.8 % 2,521 3.1 % 22,934 5.3 %
Purchased services 16,911 4.8 % 7,591 9.3 % 24,502 5.7 %
Depreciation and amortization 33,205 9.5 % 7,072 8.7 % 40,277 9.3 %
Diesel fuel used in operations 29,614 8.4 % 6,475 8.0 % 36,089 8.3 %
Casualties and insurance 4,228 1.2 % 4,474 5.5 % 8,702 2.0 %
Materials 18,556 5.3 % 2,881 3.5 % 21,437 5.0 %
Trackage rights 8,221 2.3 % 5,953 7.3 % 14,174 3.3 %
Net gain on sale of assets (1,162 ) (0.3 )% (75 ) (0.1 )% (1,237 ) (0.3 )%
Other expenses 18,548 5.3 % 2,294 2.8 % 20,842 4.8 %
Total operating expenses 250,558 71.4 % 58,869 72.3 % 309,427 71.5 %
Income from operations $ 100,507 $ 22,609 $ 123,116
Carloads 462,342 57,558 519,900

Net expenditures for additions to property &

equipment

$ 73,240 $ 7,661 $ 80,901
Three Months Ended September 30, 2013

North American & European

Operations

Australian Operations Total Operations
Amount

% of

Revenue

Amount

% of

Revenue

Amount

% of
Revenue

Revenues:

Freight $ 233,285 73.1 % $ 65,626 79.7 % $ 298,911 74.5 %
Non-freight 85,794 26.9 % 16,672 20.3 % 102,466 25.5 %
Total revenues 319,079 100.0 % 82,298 100.0 % 401,377 100.0 %

Operating expenses:

Labor and benefits 94,310 29.6 % 16,299 19.8 % 110,609 27.6 %
Equipment rents 17,706 5.6 % 2,682 3.3 % 20,388 5.1 %
Purchased services 19,978 6.3 % 13,292 16.2 % 33,270 8.3 %
Depreciation and amortization 30,704 9.6 % 6,630 8.1 % 37,334 9.3 %
Diesel fuel used in operations 27,720 8.7 % 7,940 9.7 % 35,660 8.9 %
Casualties and insurance 6,671 2.1 % 2,303 2.8 % 8,974 2.2 %
Materials 18,306 5.7 % 603 0.7 % 18,909 4.7 %
Trackage rights 7,383 2.3 % 6,047 7.3 % 13,430 3.4 %
Net gain on sale of assets (661 ) (0.2 )% (42 ) (0.1 )% (703 ) (0.2 )%
Other expenses 19,938 6.2 % 1,827 2.2 % 21,765 5.4 %
Total operating expenses 242,055 75.9 % 57,581 70.0 % 299,636 74.7 %
Income from operations $ 77,024 $ 24,717 $ 101,741
Carloads 422,770 60,053 482,823

Net expenditures for additions to property &

equipment

$ 31,277 $ 8,954 $ 40,231
GENESEE & WYOMING INC. AND SUBSIDIARIES
RAILROAD FREIGHT REVENUES, CARLOADS AND AVERAGE REVENUES PER CARLOAD
COMPARISON BY COMMODITY GROUP
(dollars in thousands, except average revenues per carload)
(unaudited)
Three Months Ended September 30, 2014 North American & European Operations Australian Operations Total Operations

Average

Average

Average

Freight Revenues Per Freight

Revenues Per

Freight

Revenues Per

Commodity Group Revenues Carloads Carload Revenues Carloads Carload Revenues Carloads Carload
Agricultural Products $ 32,153 52,337 $ 614 $ 7,178 12,219 $ 587 $ 39,331 64,556 $ 609
Chemicals & Plastics 34,889 43,292 806 34,889 43,292 806
Coal & Coke 31,771 87,011 365 31,771 87,011 365
Metallic Ores * 4,585 5,638 813 29,261 14,347 2,040 33,846 19,985 1,694
Metals 35,390 49,329 717 35,390 49,329 717
Pulp & Paper 30,639 45,368 675 30,639 45,368 675
Minerals & Stone 34,089 56,280 606 2,562 14,681 175 36,651 70,961 516
Intermodal ** 138 1,216 113 24,063 16,235 1,482 24,201 17,451 1,387
Lumber & Forest Products 21,445 35,376 606 21,445 35,376 606
Petroleum Products 15,710 25,735 610 394 76 5,184 16,104 25,811 624
Food & Kindred Products 9,109 15,494 588 9,109 15,494 588
Autos & Auto Parts 6,389 9,333 685 6,389 9,333 685
Waste 5,254 10,839 485 5,254 10,839 485
Other 6,023 25,094 240 6,023 25,094 240
Totals $ 267,584 462,342 $ 579 $ 63,458 57,558 $ 1,103 $ 331,042 519,900 $ 637
Three Months Ended September 30, 2013 North American & European Operations Australian Operations Total Operations

Average

Average

Average

Freight

Revenues Per

Freight

Revenues Per

Freight

Revenues Per

Commodity Group Revenues Carloads Carload Revenues Carloads Carload Revenues Carloads Carload
Agricultural Products $ 20,440 40,188 $ 509 $ 9,146 13,897 $ 658 $ 29,586 54,085 $ 547
Chemicals & Plastics 32,918 40,796 807 32,918 40,796 807
Coal & Coke 28,733 84,635 339 28,733 84,635 339
Metallic Ores * 3,765 4,780 788 28,596 14,632 1,954 32,361 19,412 1,667
Metals 33,905 46,562 728 33,905 46,562 728
Pulp & Paper 29,861 44,630 669 29,861 44,630 669
Minerals & Stone 22,835 43,923 520 2,245 14,209 158 25,080 58,132 431
Intermodal ** 298 2,777 107 25,247 17,236 1,465 25,545 20,013 1,276
Lumber & Forest Products 19,654 33,143 593 19,654 33,143 593
Petroleum Products 14,783 25,566 578 392 79 4,962 15,175 25,645 592
Food & Kindred Products 7,854 13,476 583 7,854 13,476 583
Autos & Auto Parts 6,484 9,024 719 6,484 9,024 719
Waste 6,303 12,048 523 6,303 12,048 523
Other 5,452 21,222 257 5,452 21,222 257
Totals $ 233,285 422,770 $ 552 $ 65,626 60,053 $ 1,093 $ 298,911 482,823 $ 619
* Includes carload and intermodal units
** Represents intermodal units
GENESEE & WYOMING INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
(unaudited)
Nine Months Ended September 30,
2014 2013
Amount % of Revenue Amount % of Revenue

Revenues:

Freight $ 935,526 76.5 % $ 879,864 74.8 %
Non-freight 287,859 23.5 % 297,111 25.2 %
Total revenues $ 1,223,385 100.0 % $ 1,176,975 100.0 %

Operating Expense Comparison:

Natural Classification

Labor and benefits $ 354,887 29.0 % $ 329,690 28.0 %
Equipment rents 61,866 5.1 % 57,986 4.9 %
Purchased services 76,174 6.2 % 93,156 7.9 %
Depreciation and amortization 116,130 9.5 % 105,718 9.0 %
Diesel fuel used in operations 115,403 9.4 % 109,539 9.3 %
Casualties and insurance 31,087 2.5 % 26,968 2.3 %
Materials 56,995 4.7 % 60,726 5.2 %
Trackage rights 40,461 3.3 % 37,057 3.2 %
Net gain on sale of assets (3,444 ) (0.3 )% (3,419 ) (0.3 )%
Other expenses 65,726 5.4 % 74,196 6.3 %
Total operating expenses $ 915,285 74.8 % $ 891,617 75.8 %

Functional Classification

Transportation $ 351,846 28.8 % $ 327,426 27.8 %
Maintenance of ways and structures 131,161 10.7 % 123,527 10.5 %
Maintenance of equipment 131,484 10.7 % 123,587 10.5 %
General and administrative 172,467 14.1 % 183,431 15.6 %
Construction costs 15,641 1.3 % 31,347 2.7 %
Net gain on sale of assets (3,444 ) (0.3 )% (3,419 ) (0.3 )%
Depreciation and amortization 116,130 9.5 % 105,718 9.0 %
Total operating expenses $ 915,285 74.8 % $ 891,617 75.8 %
GENESEE & WYOMING INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
(unaudited)
Nine Months Ended September 30, 2014

North American & European

Operations

Australian Operations Total Operations
Amount % of Revenue Amount % of Revenue Amount % of Revenue

Revenues:

Freight $ 748,891 76.2 % $ 186,635 77.5 % $ 935,526 76.5 %
Non-freight 233,605 23.8 % 54,254 22.5 % 287,859 23.5 %
Total revenues 982,496 100.0 % 240,889 100.0 % 1,223,385 100.0 %

Operating expenses:

Labor and benefits 300,187 30.5 % 54,700 22.7 % 354,887 29.0 %
Equipment rents 54,324 5.5 % 7,542 3.2 % 61,866 5.1 %
Purchased services 48,432 4.9 % 27,742 11.5 % 76,174 6.2 %
Depreciation and amortization 94,824 9.7 % 21,306 8.8 % 116,130 9.5 %
Diesel fuel used in operations 94,204 9.6 % 21,199 8.8 % 115,403 9.4 %
Casualties and insurance 21,872 2.2 % 9,215 3.8 % 31,087 2.5 %
Materials 51,994 5.3 % 5,001 2.1 % 56,995 4.7 %
Trackage rights 23,550 2.4 % 16,911 7.0 % 40,461 3.3 %
Net gain on sale of assets (3,207 ) (0.3 )% (237 ) (0.1 )% (3,444 ) (0.3 )%
Other expenses 55,591 5.7 % 10,135 4.2 % 65,726 5.4 %
Total operating expenses 741,771 75.5 % 173,514 72.0 % 915,285 74.8 %
Income from operations $ 240,725 $ 67,375 $ 308,100
Carloads 1,323,372 173,538 1,496,910

Net expenditures for additions to property &

equipment

$ 212,637 $ 15,541 $ 228,178

Nine Months Ended September 30, 2013

North American & European

Operations

Australian Operations

Total Operations

Amount % of Revenue Amount % of Revenue Amount % of Revenue

Revenues:

Freight $ 687,127 73.5 % $ 192,737 79.8 % $ 879,864 74.8 %
Non-freight 248,263 26.5 % 48,848 20.2 % 297,111 25.2 %
Total revenues 935,390 100.0 % 241,585 100.0 % 1,176,975 100.0 %

Operating expenses:

Labor and benefits 279,095 29.8 % 50,595 21.0 % 329,690 28.0 %
Equipment rents 50,174 5.3 % 7,812 3.2 % 57,986 4.9 %
Purchased services 54,208 5.8 % 38,948 16.1 % 93,156 7.9 %
Depreciation and amortization 85,503 9.1 % 20,215 8.4 % 105,718 9.0 %
Diesel fuel used in operations 86,281 9.2 % 23,258 9.6 % 109,539 9.3 %
Casualties and insurance 20,246 2.2 % 6,722 2.8 % 26,968 2.3 %
Materials 58,827 6.3 % 1,899 0.8 % 60,726 5.2 %
Trackage rights 21,379 2.3 % 15,678 6.5 % 37,057 3.2 %
Net gain on sale of assets (3,029 ) (0.3 )% (390 ) (0.2 )% (3,419 ) (0.3 )%
Other expenses 68,766 7.4 % 5,430 2.2 % 74,196 6.3 %
Total operating expenses 721,450 77.1 % 170,167 70.4 % 891,617 75.8 %
Income from operations $ 213,940 $ 71,418 $ 285,358
Carloads 1,234,847 179,259 1,414,106

Net expenditures for additions to property &

equipment

$ 105,203 $ 41,354 $ 146,557
GENESEE & WYOMING INC. AND SUBSIDIARIES
RAILROAD FREIGHT REVENUES, CARLOADS AND AVERAGE REVENUES PER CARLOAD
COMPARISON BY COMMODITY GROUP
(dollars in thousands, except average revenues per carload)
(unaudited)
Nine Months Ended September 30, 2014 North American & European Operations Australian Operations Total Operations

Average

Average

Average

Freight

Revenues Per

Freight

Revenues Per

Freight

Revenues Per

Commodity Group Revenues Carloads Carload Revenues Carloads Carload Revenues Carloads Carload
Agricultural Products $ 86,754 153,704 $ 564 $ 26,346 44,872 $ 587 $ 113,100 198,576 $ 570
Chemicals & Plastics 102,031 126,007 810 102,031 126,007 810
Coal & Coke 94,908 262,715 361 94,908 262,715 361
Metallic Ores * 13,381 16,504 811 82,858 42,195 1,964 96,239 58,699 1,640
Metals 99,417 139,142 715 99,417 139,142 715
Pulp & Paper 87,445 130,495 670 87,445 130,495 670
Minerals & Stone 81,726 143,104 571 6,780 39,360 172 88,506 182,464 485
Intermodal** 333 2,900 115 69,572 46,900 1,483 69,905 49,800 1,404
Lumber & Forest Products 61,937 103,219 600 61,937 103,219 600
Petroleum Products 47,357 78,423 604 1,079 211 5,114 48,436 78,634 616
Food & Kindred Products 26,151 44,804 584 26,151 44,804 584
Autos & Auto Parts 17,736 25,038 708 17,736 25,038 708
Waste 13,656 29,918 456 13,656 29,918 456
Other 16,059 67,399 238 16,059 67,399 238
Totals $ 748,891 1,323,372 $ 566 $ 186,635 173,538 $ 1,075 $ 935,526 1,496,910 $ 625
Nine Months Ended September 30, 2013 North American & European Operations Australian Operations Total Operations

Average

Average

Average

Freight

Revenues Per

Freight

Revenues Per

Freight

Revenues Per

Commodity Group Revenues Carloads Carload Revenues Carloads Carload Revenues Carloads Carload
Agricultural Products $ 66,197 130,722 $ 506 $ 31,653 48,291 $ 655 $ 97,850 179,013 $ 547
Chemicals & Plastics 98,267 124,035 792 98,267 124,035 792
Coal & Coke 81,956 240,540 341 81,956 240,540 341
Metallic Ores * 11,933 14,898 801 79,509 36,705 2,166 91,442 51,603 1,772
Metals 96,252 133,000 724 96,252 133,000 724
Pulp & Paper 83,597 126,780 659 83,597 126,780 659
Minerals & Stone 65,505 122,938 533 8,325 46,138 180 73,830 169,076 437
Intermodal** 653 6,114 107 71,908 47,905 1,501 72,561 54,019 1,343
Lumber & Forest Products 59,835 101,274 591 59,835 101,274 591
Petroleum Products 47,424 80,928 586 1,342 220 6,100 48,766 81,148 601
Food & Kindred Products 23,375 40,168 582 23,375 40,168 582
Autos & Auto Parts 19,667 26,998 728 19,667 26,998 728
Waste 17,204 32,167 535 17,204 32,167 535
Other 15,262 54,285 281 15,262 54,285 281
Totals $ 687,127 1,234,847 $ 556 $ 192,737 179,259 $ 1,075 $ 879,864 1,414,106 $ 622
* Includes carload and intermodal units
** Represents intermodal units

Non-GAAP Financial Measures

This earnings release contains references to adjusted income from operations, adjusted operating ratio, adjusted income before income taxes, adjusted net income, adjusted diluted earnings per common share, adjusted effective income tax rate and free cash flow, which are “non-GAAP financial measures” as this term is defined in Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and Regulation G under the Securities Exchange Act of 1934. In accordance with these rules, G&W has reconciled these non-GAAP financial measures to their most directly comparable U.S. GAAP measures.

Management views these non-GAAP financial measures as important measures of G&W’s operating performance or, in the case of free cash flow, an important financial measure of how well G&W is managing its assets and a useful indicator of cash flow that may be available for discretionary use by G&W. Management also views these non-GAAP financial measures as a way to assess comparability between periods. Key limitations of the free cash flow measure include the assumptions that G&W will be able to refinance its existing debt when it matures and meet other cash flow obligations from financing activities, such as principal payments on debt.

These non-GAAP financial measures are not intended to represent, and should not be 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 Income from Operations and Adjusted Operating Ratio

Three Months Ended
September 30,
2014 2013
Operating revenues $ 432.5 $ 401.4
Operating expenses 309.4 299.6
Income from operations (a) $ 123.1 $ 101.7
Operating ratio (b) 71.5 % 74.7 %
Operating expenses $ 309.4 $ 299.6
Business development and related costs (0.7 ) (2.0 )
Net gain on sale of assets 1.2 0.7

Adjustment to depreciation and amortization expense based on final fair

values assigned to RailAmerica’s assets and liabilities (6 mos.)

(2.0 )
Adjusted operating expenses $ 309.9 $ 296.3
Adjusted income from operations $ 122.6 $ 105.0
Adjusted operating ratio 71.7 % 73.8 %
(a) Income from operations 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

As Reported As Adjusted
Three Months Ended Three Months Ended
September 30, September 30,
2014 2013 2014 2013
Operating revenues $ 432.5 $ 401.4 $ 432.5 $ 401.4
Operating expenses 309.4 299.6 309.4 299.6
Operating expense adjustments:
Business development and related costs

(0.7 ) (2.0 )
Net gain on sale of assets

1.2 0.7

Adjustment to depreciation and

amortization expense based on final

fair values assigned to RailAmerica’s

assets and liabilities (6 mos.)

(2.0 )
Operating expenses 309.4 299.6 309.9 296.3
Income from operations (a) 123.1 101.7 122.6 105.0
Interest income 0.1 1.0 0.1 1.0
Interest expense (12.7 ) (16.0 ) (12.7 ) (16.0 )
Other (loss)/income, net (0.7 ) 1.8 (0.7 ) 1.8
Income before income taxes $ 109.8 $ 88.5 $ 109.3 $ 91.8
% change in income before income taxes 24.1 % 19.1 %
(a) Income from operations is calculated as operating revenues less operating expenses.

Adjusted Net Income and Adjusted Diluted Earnings Per Common Share

Three Months Ended September 30, 2014 Net Income

Diluted

Earnings/(Loss)

Per Common

Share Impact

As reported $ 72.9 $ 1.27
Add back certain items, net of tax:
Business development and related costs 0.5 0.01
Net gain on sale of assets (0.9 ) (0.02 )
RailAmerica-related tax benefit (3.9 ) (0.07 )
Adjustments for tax returns from previous fiscal year 0.7

0.01
As adjusted $ 69.3 $ 1.21
Three Months Ended September 30, 2013 Net Income

Diluted

Earnings/(Loss)

Per Common

Share Impact

As reported

$

66.2

$

1.16

Add back certain items, net of tax:
Net gain on sale of assets (0.5 ) (0.01 )

Adjustment to depreciation and amortization expense based on final

fair values assigned to RailAmerica’s assets and liabilities (6 mos.)

1.3 0.02
RailAmerica integration costs 1.3 0.02
Short line tax credit (6.8 ) (0.12 )
Adjustments for tax returns from previous fiscal year (1.7 ) (0.03 )

As adjusted

$

59.8

$

1.04

Adjusted Effective Income Tax Rate

Three Months Ended
September 30, 2014
Income before income taxes $109.8
Provision for income taxes

$(36.9)

RailAmerica-related tax benefit

(3.9)

Adjusted provision for income taxes

$(40.8)

Effective income tax rate 33.6%
Adjusted effective income tax rate 37.2%

Free Cash Flow

Nine Months Ended
September 30,
2014 2013
Net cash provided by operating activities $ 369.0 $ 278.7
Net cash used in investing activities (440.0 ) (142.6 )
Net cash used for acquisitions 220.5 11.3
Free cash flow $ 149.5 $ 147.4

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