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Changes in Operations
12 Months Ended
Dec. 31, 2014
Significant Changes in Operations [Abstract]  
Changes in Operations [Text Block]
CHANGES IN OPERATIONS:
United States
Rapid City, Pierre & Eastern Railroad, Inc.: On May 30, 2014, the Company's new subsidiary, Rapid City, Pierre & Eastern Railroad, Inc. (RCP&E), purchased the assets comprising the western end of Canadian Pacific Railway Limited's (CP) Dakota, Minnesota & Eastern Railroad Corporation (DM&E) rail line for a cash purchase price of $218.6 million, including the purchase of materials and supplies, railcars, equipment and vehicles. RCP&E commenced freight service on the line on June 1, 2014. The results of operations from RCP&E have been included in the Company's consolidated statement of operations since the acquisition date within the Company's North American & European Operations segment.
RCP&E operates approximately 670 miles of rail line between Tracy, Minnesota and Rapid City, South Dakota; north of Rapid City to Colony, Wyoming; south of Rapid City to Dakota Junction, Nebraska; and connecting branch lines as well as trackage from Dakota Junction to Crawford, Nebraska, currently leased to the Nebraska Northwestern Railroad Inc. (NNW). Customers on the RCP&E ship approximately 63,000 carloads annually of grain, bentonite clay, ethanol, fertilizer and other products. RCP&E has the ability to interchange with CP, Union Pacific Railroad, BNSF Railway Company and NNW. RCP&E has approximately 180 employees, most of whom were hired from the DM&E operations.
The Company accounted for the acquisition as a business combination using the acquisition method of accounting under U.S. GAAP. The following acquisition-date fair values were assigned to the acquired net assets (dollars in thousands):
Materials and supplies
 
$
3,621

Prepaid expenses and other
 
116

Property and equipment
 
217,032

Deferred income tax assets
 
325

Total assets
 
221,094

Current portion of long-term debt
 
1,121

Accounts payable and accrued expenses
 
108

Long-term debt, less current portion
 
1,260

Net assets
 
$
218,605

RailAmerica, Inc.: On October 1, 2012, the Company acquired 100% of RailAmerica's outstanding shares for cash at a price of $27.50 per share and, in connection with such acquisition, the Company repaid RailAmerica's term loan and revolving credit facility. The calculation of the total consideration for the RailAmerica acquisition is presented below (in thousands, except per share amount):
RailAmerica outstanding common stock as of October 1, 2012
49,934

Cash purchase price per share
$
27.50

Equity purchase price
$
1,373,184

Payment of RailAmerica's outstanding term loan and revolving credit facility
659,198

Cash consideration
2,032,382

Impact of pre-acquisition share-based awards
9,400

Total consideration
$
2,041,782


The Company financed the $1.4 billion cash purchase price for RailAmerica's common stock, the refinancing of $1.2 billion of the Company's and RailAmerica's outstanding debt prior to the acquisition as well as transaction and financing-related expenses with approximately $1.9 billion of debt from the Company's Senior Secured Syndicated Credit Facility Agreement (the Credit Agreement) (see Note 9, Long-Term Debt), $475.5 million of gross proceeds from the Company's public offerings of Class A Common Stock and Tangible Equity Units (TEUs) (see Note 4, Earnings Per Common Share) and $350.0 million through a private issuance of mandatorily convertible Series A-1 Preferred Stock to affiliates of Carlyle Partners V, L.P. (collectively, Carlyle) (see Note 4, Earnings Per Common Share, and Note 10, Derivative Financial Instruments).
Commencing on October 1, 2012, the shares of RailAmerica were held in an independent voting trust while the United States Surface Transportation Board (STB) considered the Company's control application, which application was approved with an effective date of December 28, 2012. Accordingly, the Company accounted for the earnings of RailAmerica using the equity method of accounting while the shares were held in the voting trust and acquisition date fair values of the acquired assets and assumed liabilities have been included in the Company's consolidated balance sheets since December 28, 2012. The results from the operations acquired from RailAmerica are included among the various line items in the Company's consolidated statement of operations for the years ended December 31, 2014 and 2013 and are included in the Company's North American & European Operations segment.
In accordance with U.S. GAAP, a new accounting basis was established for RailAmerica on October 1, 2012 for its stand-alone financial statements. Condensed consolidated financial information for RailAmerica as of and for the period ended December 28, 2012 is included in Note 8, Equity Investment.
During the year ended December 31, 2012, as discussed more fully under Contingent Forward Sale Contract in Note 10, Derivative Financial Instruments, the Company recorded a $50.1 million non-cash mark-to-market expense related to an investment agreement governing the sale of the Series A-1 Preferred Stock to Carlyle in connection with the funding of the RailAmerica acquisition (the Investment Agreement). The expense resulted from the significant increase in the Company's share price between July 23, 2012 (the date the Company entered into the Investment Agreement) and September 28, 2012 (the last trading date prior to issuing the Series A-1 Preferred Stock). On February 13, 2013, the Company exercised its option to convert all of the outstanding Series A-1 Preferred Stock into 5,984,232 shares of the Company's Class A Common Stock. In November 2013, Carlyle sold all of these outstanding shares of the Company's Class A Common Stock in a public offering.
The Company also incurred $17.0 million and $30.0 million of RailAmerica integration and acquisition-related costs during the years ended December 31, 2013 and 2012, respectively. The Company recognized $15.6 million of net income from the equity investment in RailAmerica during the three months ended December 31, 2012. The income from equity investment included $3.5 million of after-tax acquisition/integration costs incurred by RailAmerica in the three months ended December 31, 2012.
Headquartered in Jacksonville, Florida, with approximately 2,000 employees, RailAmerica owned and operated 45 short line freight railroads in North America with approximately 7,100 miles of track in 28 U.S. states and three Canadian provinces as of the October 1, 2012 acquisition date.
The Company accounted for the RailAmerica acquisition using the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting:
The assets and liabilities of RailAmerica were recorded at their respective acquisition-date preliminary fair values by RailAmerica as of October 1, 2012, which is referred to as the application of push-down accounting, and were included in the Company's consolidated balance sheet in a single line item following the equity method of accounting as of that date (see RailAmerica as of October 1, 2012 column in the following table).
Upon approval by the STB for the Company to control RailAmerica, the preliminary determination of fair values of the acquired assets and assumed liabilities were consolidated with the Company's assets and liabilities as of December 28, 2012 (see RailAmerica as of December 28, 2012 Preliminary column in the following table). Between October 1, 2012 and December 28, 2012, the Company recognized income from its equity investment in RailAmerica of $15.6 million and other comprehensive loss of $2.0 million, primarily resulting from foreign currency translation adjustments. In addition, the Company recognized $21.8 million, representing the change in RailAmerica's cash and cash equivalents from October 1, 2012 to December 28, 2012, as a reduction in net cash paid for the acquisition.
In 2013, the Company finalized its determination of fair values of RailAmerica's assets and liabilities (see RailAmerica as of December 28, 2012 Final column in the following table). The measurement period adjustments to the fair values were as follows: 1) property and equipment increased $10.7 million, 2) intangible assets decreased $29.9 million, 3) deferred income tax liabilities, net decreased $16.0 million, 4) noncontrolling interest decreased $5.0 million, 5) all other assets, net increased $1.3 million and 6) goodwill decreased $3.1 million as an offset to the above-mentioned changes. This resulted in additional annualized depreciation and amortization expense of approximately $4 million. The Company does not consider these adjustments material to its consolidated financial statements taken as a whole and as such, prior periods were not retroactively adjusted.
The fair values assigned to the acquired net assets of RailAmerica were as follows (dollars in thousands):
 
 
RailAmerica
 
 
As of
October 1, 2012
 
As of December 28, 2012
 
 
 
Preliminary
 
Final
Cash and cash equivalents
 
$
86,102

 
$
107,922

 
$
107,922

Accounts receivable
 
104,839

 
91,424

 
90,659

Materials and supplies
 
6,406

 
7,325

 
7,325

Prepaid expenses and other
 
15,146

 
14,815

 
15,801

Deferred income tax assets
 
49,074

 
49,074

 
56,998

Property and equipment
 
1,579,321

 
1,588,612

 
1,599,282

Goodwill
 
474,115

 
474,115

 
471,028

Intangible assets
 
451,100

 
446,327

 
416,427

Other assets
 
116

 
116

 
116

Total assets
 
2,766,219

 
2,779,730

 
2,765,558

Accounts payable and accrued expenses
 
143,790

 
135,117

 
140,160

Long-term debt
 
12,158

 
12,010

 
12,010

Deferred income tax liabilities, net
 
542,210

 
551,856

 
535,864

Other long-term liabilities
 
20,754

 
19,618

 
21,439

Noncontrolling interest
 
5,525

 
5,525

 
481

Net assets
 
$
2,041,782

 
$
2,055,604

 
$
2,055,604


Pro Forma Financial Results (unaudited)
The following table summarizes the Company's unaudited pro forma operating results for the year ended December 31, 2012 as if the acquisition of RailAmerica had been consummated as of January 1, 2011. The pro forma operating results do not include the impact of any potential operating efficiencies, savings from expected synergies, costs to integrate the operations or costs necessary to achieve savings from expected synergies, or the impact of derivative instruments that the Company has entered into or may enter into to mitigate interest rate or currency exchange rate risk (dollars in thousands, except per share amounts): 
 
 
2012
Operating revenues
 
$
1,461,419

Net income attributable to Genesee & Wyoming Inc.
 
$
112,191

Less: Series A-1 Preferred Stock dividend
 
17,500

  Net income available to common stockholders
 
$
94,691

Basic earnings per common share attributable to Genesee & Wyoming Inc. common stockholders
 
$
1.99

Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders
 
$
1.89


The unaudited pro forma operating results included the acquisition of RailAmerica adjusted, net of tax, for depreciation and amortization expense resulting from the determination of fair values of the acquired property and equipment and amortizable intangible assets, the inclusion of interest expense related to borrowings used to fund the acquisition, the amortization of debt issuance costs related to amendments to the Company's prior credit agreement and the elimination of RailAmerica's interest expense related to debt not assumed in the acquisition.
The unaudited pro forma results were based upon the Company's historical consolidated statements of operations for the year ended December 31, 2012 and RailAmerica's consolidated statements of operations for the nine months ended September 30, 2012 and the three months ended December 28, 2012. The pro forma results for 2012 included approximately $55 million of costs incurred by RailAmerica associated with the redemption of senior secured notes in January 2012. In addition, the pro forma results have been revised to eliminate the Company's $50.1 million mark-to-market expense related to the Investment Agreement in connection with the funding of the acquisition.
As a result of these charges, the numerator used in the calculation of pro forma diluted earnings per common share (EPS) attributable to Genesee & Wyoming Inc. common stockholders was reduced by the Series A-1 Preferred Stock dividend and the denominator excluded approximately 6.0 million "if-converted" shares related to the Series A-1 Preferred Stock.
The pro forma financial information does not purport to be indicative of the results that actually would have been obtained had the transactions been completed as of the assumed dates and for the periods presented and are not intended to be a projection of future results or trends.
Australia
Arrium Limited: In July 2012, the Company's subsidiary, Genesee & Wyoming Australia Pty Ltd (GWA), announced that it had expanded two existing rail haulage contracts with Arrium Limited (formerly OneSteel), including Arrium's Southern Iron mine and its Whyalla-based operations, to transport additional export iron ore in South Australia. To support the increased shipments under the two contracts, during the year ended December 31, 2012, GWA invested A$52.1 million (or $54.1 million at the exchange rate on December 31, 2012) to purchase narrow gauge locomotives and railcars as well as to construct a standard gauge rolling-stock maintenance facility in order to support the increased shipments under the two contracts. During the year ended December 31, 2013, GWA spent an additional A$22.3 million (or $19.9 million at the exchange rate on December 31, 2013) on these projects.
In January 2015, Arrium Limited announced that it is redesigning its mining business and expects to mothball its Southern Iron mine by June of 2015 citing the significant decline in the price of iron ore. During 2014, GWA carried approximately 26,000 carloads of iron ore from the Southern Iron mine, generating approximately A$65 million in freight revenues (or approximately $52 million, at current exchange rates of A$1.00 = US$0.80), under a fixed and variable payment structure. As a result of the announcement, the Company expects to receive only the fixed portion of the payments under the rail haulage agreement after the mine is mothballed. GWA also provides switching services to Arrium's Whyalla-based operations serving several of its iron mines located in the Middleback Range on the Eyre Peninsula, which services are not expected to be materially impacted by the announcement. As a result of the announcement by Arrium Limited, the Company evaluated its Australian Operations' long-lived assets for potential impairment and concluded there was no impairment as of December 31, 2014.
Canada
Tata Steel Minerals Canada Ltd.: In August 2012, the Company announced that its newly formed subsidiary, Kérail Inc. (Kérail), entered into a long-term agreement with Tata Steel Minerals Canada Ltd. (TSMC), for Kérail to provide rail transportation services to the direct shipping iron ore mine TSMC is developing near Schefferville, Quebec in the Labrador Trough (the Mine). In June 2014, Kérail completed construction of an approximately 25-kilometer rail line that connects the Mine to the Tshiuetin Rail Transportation interchange point in Schefferville. Upon receipt of the necessary permits from the Canadian and provincial governments, the Company commenced shipments in the fourth quarter of 2014. Shipments, as anticipated, ceased in the winter and are expected to restart once the weather permits. Operated as part of the Company's Canada Region, Kérail hauls unit trains of iron ore from its rail connection with the Mine, and then travels over three privately owned railways to the Port of Sept-Îles for export primarily to Tata Steel Limited's European operations.
Results from Operations
When comparing the Company's results from operations from one reporting period to another, it is important to consider that the Company has historically experienced fluctuations in revenues and expenses due to acquisitions, changing economic conditions, commodity prices, competitive forces, changes in foreign currency exchange rates, rail network congestion, one-time freight moves, fuel price fluctuations, customer plant expansions and shut-downs, sales of property and equipment, derailments and weather-related conditions, such as hurricanes, cyclones, tornadoes, droughts, heavy snowfall, unseasonably hot or cold weather, freezing and flooding. In periods when these events occur, the Company's results of operations are not easily comparable from one period to another. Finally, certain of the Company's railroads have commodity shipments that are sensitive to general economic conditions, such as steel products, paper products and lumber and forest products, as well as product specific market conditions, such as the availability of lower priced alternative sources of power generation (coal) and energy commodity price differentials (crude oil). Other shipments are relatively less affected by economic conditions and are more closely affected by other factors, such as winter weather (salt) and seasonal rainfall (agricultural products). As a result of these and other factors, the Company's results of operations in any reporting period may not be directly comparable to the Company's results of operations in other reporting periods.