Genesee & Wyoming Inc. 2016 Annual Report
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Genesee & Wyoming Inc. 2016 Annual Report Genesee & Wyoming Inc.*owns or leases 122 freight railroads worldwide that are organized into 10 operating regions with approximately 7,300 employees and 3,000 customers. * 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 Years Ended December 31 (In thousands, except per share amounts) 2012 2013 2014 2015 2016 Statement of Operations Data Operating revenues $874,916 $1,568,643 $1,639,012 $2,000,401 $2,001,527 Operating income 190,322 380,188 421,571 384,261 289,612 Net income 52,433 271,296 261,006 225,037 141,096 Net income attributable to Genesee & Wyoming Inc. 48,058 269,157 260,755 225,037 141,137 Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders: Diluted earnings per common share (EPS) $1.02 $4.79 $4.58 $3.89 $2.42 Weighted average shares - Diluted 51,316 56,679 56,972 57,848 58,256 Balance Sheet Data as of Period End Total assets $5,226,115 $5,319,821 $5,595,753 $6,703,082 $7,634,958 Total debt 1,858,135 1,624,712 1,615,449 2,281,751 2,359,453 Total equity 1,500,462 2,149,070 2,357,980 2,519,461 3,187,121 Operating Revenues Operating Income Net Income Diluted Earnings ($ In Millions) ($ In Millions) ($ In Millions) 421.61,2 Per Common Share 2 2,001.5 401.6 1 $2,000 2,000.4 $400 394.12 $275 271.3 $5.00 1 2 4.79 1 374.3 1 380.21 384.3 261.0 4.581 1,800 250 4.50 350 1,639.0 225.01 225 2 1 1,600 233.5 4.00 2 3.89 1,568.6 4.10 2 300 2 200 213.9 213.3 2 3.78 2 1,400 1 3.50 3.69 289.6 183.32 3.142 250 175 1,200 3.00 211. 2 2 150 2.532 1,000 200 2 2.50 129.7 1 141.1 874.9 1 125 1 190.3 2.42 800 2.00 150 100 600 1.50 75 100 400 1.00 50 1 52.41 1.02 50 200 25 0.50 0 0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 (1) As Reported (2) Adjusted operating income, adjusted net income and adjusted diluted EPS are non-GAAP financial measures and are not intended to replace operating income, net income 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 20-24. 2016 Annual Report 1 G&W revenues have increased at an 18% CAGR since the company’s initial public offering $2,000 Lake Ontario For much of its first century, Genesee and Wyoming Railroad Company Initial (GNWR) was a 14-mile Public Offering railroad serving a salt mine in upstate New York. $ in Millions ~18% G&W Revenue CAGR The company has since $3 grown to 122 freight railroads operating in ≈ Lake Erie 1978 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016NS the United States, Canada, Australia, the United Kingdom and Continental Europe. NEW YORK Gang Mills Corning Erwin WCOR Lindley Middlebury Stokesdale Mortimer B. Fuller III in 1987 (above) at the newly acquired Louisiana & Delta Railroad and in 2011 (left) in South Australia with Jack Hellmann commemo- rating the purchase of a new locomotive. On the Cover: (front) Chicago, Ft. Wayne & Eastern Railroad, Decatur, Indiana; (inside back) Rapid City, Pierre & Eastern Railroad, Inc., Sturgis, South Dakota 2 From the Chairman Mortimer B. Fuller III Chairman of the Board of Directors This letter will be my last to shareholders, after 40 years as Chairman of Genesee & Wyoming Inc., 30 of them as CEO, and 44 years as a director. I turn 75 shortly before our annual meeting in May and will not stand for re-election, consistent with guidelines established by the Board under my chairmanship. Jack Hellmann will succeed me, becoming the first Chairman outside the Fuller family in G&W’s 118 years. In the 17 years since Jack joined us and the 10 since he succeeded me as CEO, we’ve had long discussions and never a disagreement. I am confident and enthusiastic about G&W’s course. What a satisfying, fulfilling, extraordinary experience my 40 years has been. I became CEO, President and Chairman in 1977 upon purchasing a controlling interest in the 14-mile Genesee and Wyoming Railroad Company (GNWR) that my great-grandfather and his financial partners founded in 1899. We formed a holding company, merged GNWR into it and began to diversify. I knew we would grow, but I could not have foreseen our extraordinary expansion. G&W grew from a 14-mile railroad in upstate New York to a company with 122 freight railroads operating in the United States, Canada, Australia, the United Kingdom and Continental Europe. Since our initial public offering, our revenues have increased at a compound annual growth rate of 17.6%, from $77.8 million in 1996 to $2.0 billion in 2016. Over the same period, our stock price has increased at a compound annual growth rate of 15.3%, from $3.75 on June 25, 1996, adjusted for stock splits, to $69.41 on December 31, 2016. It is an exciting growth story with its up and down cycles: the first down cycle was from 1997-99; the second from 2008-09 (the financial crisis). Both took eight quarters (two years) for our stock price to recover to its high before the fall. We are in the midst of the third cycle, which began in the first quarter of 2015, caused by a worldwide drop in commodity prices and a strong U.S. dollar that under- mined exports. This cycle has hit our rail-freight business harder and longer than the financial crisis. Commodities have partially recovered, and our stock has regained 50% versus its high in 2015. Despite these historically wide fluctuations, we have always recovered our value and gone on to reach new highs. 2016 Annual Report 3 From the Chairman, continued A major contributor to our growth is acquisitions, and three were announced in 2016: the Providence and Worcester, an add-on acquisition connecting with our New England Central and Connecticut Southern railroads, which together add strategic value; Glencore Rail (GRail), nine train sets and a long-term, take-or-pay and exclusivity contract with Glencore Coal Pty Ltd that enhances our Australian footprint by adding a significant presence in the Hunter Valley and New South Wales; and Pentalver*, a U.K. operator of off-dock container terminals and one inland terminal, which also provides container storage and haulage services via 150 trucks. These latest acquisitions represent diverse opportunities on three continents and are indicative of the strength of our global footprint. My optimism for G&W’s future comes from my confidence in our people. Ultimately, the success of any business is determined by the people who work there. Driving the value we have created are dedicated employees, a management team of exceptional ability, a strong and independent Board of Directors, and advisory boards in Australia, Canada and Europe that reflect our international outlook. G&W has built an organization with the capability to identify opportunities, bid with discipline, integrate diverse regions and operate rail-freight businesses worldwide, bound and underpinned by G&W’s practices and principles: our Core Purpose and Core Values. As our goals expand and our horizons broaden, our purpose and values remain constant. Core Purpose – To be the safest and most respected rail service provider in the world. Core Values – Focus for disciplined growth Integrity to earn the trust of others Respect for all people with whom we deal Excellence in all we do Our Core Purpose is a company-wide goal. On a same railroad basis, we have been safer than any Class I railroad for the last eight years and made steady progress toward our goal of zero injuries. Our values not only set us apart but also are the glue that holds us together. Our logo, with its arrows pointing in opposite directions, symbolizes an organization that acknowledges and builds on its past while always looking ahead. When I look ahead, I see a future brighter than ever. As I look back at the past 40 years, I am most proud of the remarkable team we attracted to build G&W. All we have accomplished together is exceeded only by my gratitude for the support of my fellow employees, our Board of Directors, business partners, friends, family and shareholders. Thank you. ive Valley, Ohio ive Valley, ss re g Mortimer B. Fuller III , Inc., Pro Inc., , Chairman of the Board of Directors d March 24, 2017 *The acquisition of Pentalver is subject to satisfaction of customary closing conditions, including the receipt of competition clearances and the finalization of certain lease agreements. Railroa Ohio Central 4 Genesee & Wyoming Inc. From the CEO Jack Hellmann President and Chief Executive Officer To Our Shareholders: G&W’s performance in 2016 highlighted our two overarching strengths—world-class railroad operations and deep, global investment and acquisition capabilities.