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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________________________________________________________________

FORM 10-Q

_________________________________________________________________________________________________________________



(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-31456

_________________________________________________________________________________________________________________

GENESEE & WYOMING INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________________________________________________________________



Delaware		06-0984624
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20 West Avenue, Darien, Connecticut 06820

(Address of principal executive offices)(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	Trading Symbol	Name of Each Exchange on Which Registered
Class A Common Stock	GWR	New York Stock Exchange	(NYSE)

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 every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

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.

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 12b-2 of the Exchange Act).

☐ Yes ☒ No

Shares of common stock outstanding as of the close of business on October 31, 2019:



Class		Number of Shares Outstanding
Class A Common Stock		57,037,678
Class B Common Stock		2,072

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INDEX
		Page

	Forward-Looking Statements	3

Part I	Financial Information	4

Item 1.	Financial Statements:

	Consolidated Balance Sheets (Unaudited) - As of September 30, 2019 and December 31, 2018	4
	Consolidated Statements of Operations (Unaudited) - For the Three and Nine Months Ended September 30, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income (Unaudited) - For the Three and Nine Months Ended September 30, 2019 and 2018	6
	Consolidated Statements of Changes in Equity (Unaudited) - For the Three and Nine Months Ended September 30, 2019 and 2018	7
	Consolidated Statements of Cash Flows (Unaudited) - For the Nine Months Ended September 30, 2019 and 2018	9
	Notes to Consolidated Financial Statements (Unaudited)	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	66

Item 4.	Controls and Procedures	66

Part II	Other Information	67

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	69

Item 6.	Exhibits	69

Index to Exhibits		70

Signatures		71

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Unless the context otherwise requires, when used in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q, including the financial statements, are in United States dollars unless specifically noted otherwise. The term carload represents physical railcars and the estimated railcar equivalents of commodities transported by metric ton or other measure, as well as intermodal units.

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 "Email 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 Quarterly Report or filed with the Securities and Exchange Commission.

Forward-Looking Statements

This report and other documents referred to in this report contain 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, our business and our performance, 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: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement with affiliates of Brookfield Infrastructure and GIC; the inability to complete the proposed merger due to the failure to satisfy other conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; risks related to disruption of management’s attention from G&W's ongoing business operations due to the transaction; the effect of the proposed merger on G&W's ability to retain and hire key personnel or maintain relationships with its customers, operating results and business generally; the risk that the proposed merger will not be consummated in a timely manner; exceeding the expected costs of the merger; risks related to the operation of our railroads; severe weather conditions and other natural occurrences, which could result in shutdowns, derailments, railroad network and port congestion or other substantial disruption of operations; customer demand and changes in our operations or loss of important customers; exposure to the credit risk of customers and counterparties; changes in commodity prices; consummation and integration of acquisitions; implementation of restructuring plans; economic, political and industry conditions, including employee strikes or work stoppages; retention and contract continuation; our ability to attract and retain skilled workers; legislative and regulatory developments, including changes in environmental and other laws and regulations to which we or our customers 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 and outcome of various legal claims, lawsuits and arbitrations; increase in, or volatility associated with, expenses related to estimated claims, self-insured retention amounts and insurance coverage, collectability and 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; uncertainties arising from a referendum in which voters in the United Kingdom (U.K.) approved an exit from the European Union (E.U.), commonly referred to as Brexit; our ability to integrate acquired businesses successfully or to realize the expected synergies associated with acquisitions; risks associated with our substantial indebtedness; failure to maintain satisfactory working relationships with partners in Australia; failure to maintain an effective system of internal control over financial reporting as well as disclosure controls and procedures and other risks including, but not limited to, those set forth in Part II Item 1A of this Quarterly Report on Form 10-Q, if any, and those noted in our 2018 Annual Report on Form 10-K 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 report or as of the date they were made. We do not undertake, and expressly disclaim, 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.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2019 and DECEMBER 31, 2018 (Unaudited)

(dollars in thousands, except per share and share amounts)



	September 30, 2019			December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	86,912		$	90,387
Accounts receivable, net	437,062			426,305
Materials and supplies	58,476			56,716
Prepaid expenses and other	36,275			54,185
Total current assets	618,725			627,593
PROPERTY AND EQUIPMENT, net	4,664,837			4,613,014
GOODWILL	1,096,095			1,115,849
INTANGIBLE ASSETS, net	1,362,963			1,430,197
DEFERRED INCOME TAX ASSETS, net	5,102			4,616
OTHER ASSETS	536,657			77,192
Total assets	$	8,284,379		$	7,868,461
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	38,951		$	28,303
Accounts payable	278,418			288,070
Accrued expenses	245,874			165,280
Total current liabilities	563,243			481,653
LONG-TERM DEBT, less current portion	2,176,563			2,425,235
DEFERRED INCOME TAX LIABILITIES, net	884,402			877,721
DEFERRED ITEMS - grants from outside parties	344,813			326,520
OTHER LONG-TERM LIABILITIES	608,101			127,280
COMMITMENTS AND CONTINGENCIES
EQUITY:
Class A Common Stock, $0.01 par value, one vote per share; 180,000,000 shares authorized at September 30, 2019 and December 31, 2018; 75,696,850 and 75,240,513 shares issued and 56,663,012 and 56,349,327 shares outstanding (net of 19,033,838 and 18,891,186 shares in treasury) on September 30, 2019 and December 31, 2018, respectively	757			752
Class B Common Stock, $0.01 par value, ten votes per share; 30,000,000 shares authorized at September 30, 2019 and December 31, 2018; 376,392 and 517,138 shares issued and outstanding on September 30, 2019 and December 31, 2018, respectively	4			5
Additional paid-in capital	1,812,085			1,785,005
Retained earnings	2,638,043			2,482,252
Accumulated other comprehensive loss	(230,108		)	(146,456		)
Treasury stock, at cost	(711,922		)	(699,852		)
Total Genesee & Wyoming Inc. stockholders' equity	3,508,859			3,421,706
Noncontrolling interest	198,398			208,346
Total equity	3,707,257			3,630,052
Total liabilities and equity	$	8,284,379		$	7,868,461

The accompanying notes are an integral part of these consolidated financial statements.

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GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018 (Unaudited)

(in thousands, except per share amounts)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
OPERATING REVENUES	$	583,694		$	603,304		$	1,713,263		$	1,772,955
OPERATING EXPENSES:
Labor and benefits	175,500			175,853			539,751			539,407
Equipment rents	30,926			35,325			95,169			104,214
Purchased services	51,055			53,717			156,337			178,864
Depreciation and amortization	63,026			65,392			188,169			197,127
Diesel fuel used in train operations	41,533			45,713			127,674			137,487
Electricity used in train operations	1,794			2,742			6,344			7,020
Casualties and insurance	11,658			9,912			34,869			32,862
Materials	32,435			32,744			94,949			97,589
Trackage rights	21,266			22,838			64,633			67,119
Net gain on sale and impairment of assets	(641		)	(642		)	(1,151		)	(2,501		)
Restructuring and related costs	3,561			3,286			18,756			12,931
Other expenses, net	38,825			28,604			101,097			82,978
Total operating expenses	470,938			475,484			1,426,597			1,455,097
OPERATING INCOME	112,756			127,820			286,666			317,858
Interest income	1,244			417			2,615			1,499
Interest expense	(25,386		)	(26,429		)	(80,395		)	(80,605		)
Other income/(loss), net	1,132			1,515			4,165			(237		)
Income before income taxes	89,746			103,323			213,051			238,515
Provision for income taxes	(19,975		)	(31,013		)	(53,101		)	(41,569		)
Net income	$	69,771		$	72,310		$	159,950		$	196,946
Less: Net income attributable to noncontrolling interest	2,979			2,720			3,011			8,090
Net income attributable to Genesee & Wyoming Inc.	$	66,792		$	69,590		$	156,939		$	188,856
Basic earnings per common share attributable to Genesee & Wyoming Inc. common stockholders:	$	1.18		$	1.18		$	2.78		$	3.13
Weighted average shares – Basic	56,638			59,168			56,497			60,343
Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders:	$	1.16		$	1.16		$	2.74		$	3.08
Weighted average shares – Diluted	57,532			60,131			57,297			61,255

The accompanying notes are an integral part of these consolidated financial statements.

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GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018 (Unaudited)

(dollars in thousands)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
NET INCOME	$	69,771		$	72,310		$	159,950		$	196,946
OTHER COMPREHENSIVE INCOME/(LOSS):
Foreign currency translation adjustment, net of tax provision of ($2,068), $0, ($1,885) and $0, respectively	(36,647		)	(9,501		)	(32,641		)	(59,042		)
Net unrealized (loss)/gain on qualifying hedges, net of tax benefit/(provision) of $8,720, ($1,583), $19,430 and ($4,612), respectively	(27,462		)	5,153			(61,139		)	14,756
Changes in pension and other postretirement benefits, net of tax (provision)/benefit of ($8), ($14), $74 and ($42), respectively	60			43			(94		)	129
Other comprehensive loss	(64,049		)	(4,305		)	(93,874		)	(44,157		)
COMPREHENSIVE INCOME	$	5,722		$	68,005		$	66,076		$	152,789
Less: Comprehensive loss attributable to noncontrolling interest	(4,759		)	(2,179		)	(7,211		)	(9,495		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO GENESEE & WYOMING INC.	$	10,481		$	70,184		$	73,287		$	162,284

The accompanying notes are an integral part of these consolidated financial statements.

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GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018 (Unaudited)

(dollars in thousands)



	G&W Stockholders
	Class A Common Stock		Class B Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)/Income			Treasury Stock			Non-controlling Interest			Total Equity
BALANCE, December 31, 2018	$	752	$	5		$	1,785,005		$	2,482,252		$	(146,456	)	$	(699,852	)	$	208,346		3,630,052
Net income	—		—			—			38,706			—			—			100			38,806
Other comprehensive (loss)/income	—		—			—			—			(6,989		)	—			818			(6,171		)
Conversion of 100,000 shares Class B Common Stock to Class A Common Stock	1		(1		)	—			—			—			—			—			—
Value of stock issued for stock-based compensation - 164,732 shares Class A Common Stock	2		—			2,069			—			—			—			—			2,071
Compensation cost related to stock-based compensation	—		—			3,884			—			—			—			—			3,884
Value of treasury stock repurchased - 111,289 shares	—		—			—			—			—			(8,630		)	—			(8,630		)
Other	—		—			(832		)	(1,104		)	—			—			(796		)	(2,732		)
BALANCE, March 31, 2019	$	755	$	4		$	1,790,126		$	2,519,854		$	(153,445	)	$	(708,482	)	$	208,468		$	3,657,280
Net income/(loss)	—		—			—			51,441			—			—			(68		)	51,373
Other comprehensive loss	—		—			—			—			(20,352		)	—			(3,302		)	(23,654		)
Conversion of 40,746 shares Class B Common Stock to Class A Common Stock	—		—			—			—			—			—			—			—
Value of stock issued for stock-based compensation - 38,512 shares Class A Common Stock	1		—			2,095			—			—			—			—			2,096
Compensation cost related to stock-based compensation	—		—			4,227			—			—			—			—			4,227
Other (including treasury stock repurchased - 107 shares)	—		—			1,346			(44		)	—			—			(1,722		)	(420		)
BALANCE, June 30, 2019	$	756	$	4		$	1,797,794		$	2,571,251		$	(173,797	)	$	(708,482	)	$	203,376		$	3,690,902
Net income	—		—			—			66,792			—			—			2,979			69,771
Other comprehensive loss	—		—			—			—			(56,311		)	—			(7,738		)	(64,049		)
Value of stock issued for stock-based compensation - 112,347 shares Class A Common Stock	1		—			10,227			—			—			—			—			10,228
Compensation cost related to stock-based compensation	—		—			4,277			—			—			—			—			4,277
Value of treasury stock acquisitions from equity awards - 31,256 shares	—		—			—			—			—			(3,440		)	—			(3,440		)
Other	—		—			(213		)	—			—			—			(219		)	(432		)
BALANCE, September 30, 2019	$	757	$	4		$	1,812,085		$	2,638,043		$	(230,108	)	$	(711,922	)	$	198,398		$	3,707,257

The accompanying notes are an integral part of these consolidated financial statements.

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GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018 (Unaudited)

(dollars in thousands) (continued)



	G&W Stockholders															Non-controlling Interest			Total Equity
	Class A Common Stock		Class B Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)/Income			Treasury Stock			Non-controlling Interest			Total Equity
BALANCE, December 31, 2017	$	748	$	7		$	1,757,332	$	2,234,864	$	(105,534	)	$	(236,951	)	$	245,626		$	3,896,092
Net income	—		—			—		75,098		—			—			927			76,025
Other comprehensive income/(loss)	—		—			—		—		10,345			—			(4,018		)	6,327
Value of stock issued for stock-based compensation - 115,897 shares Class A Common Stock	1		—			1,049		—		—			—			—			1,050
Compensation cost related to stock-based compensation	—		—			4,056		—		—			—			—			4,056
Value of treasury stock repurchased - 832,232 shares	—		—			—		—		—			(60,175		)	—			(60,175		)
Amounts reclassified from accumulated other comprehensive loss to retained earnings related to the United States Tax Cuts and Jobs Act	—		—			—		2,970		(2,970		)	—			—			—
Other	—		—			—		—		—			—			1			1
BALANCE, March 31, 2018	$	749	$	7		$	1,762,437	$	2,312,932	$	(98,159	)	$	(297,126	)	$	242,536		$	3,923,376
Net income	—		—			—		44,168		—			—			4,443			48,611
Other comprehensive loss	—		—			—		—		(37,511		)	—			(8,668		)	(46,179		)
Conversion of 30,000 shares Class B Common Stock to Class A Common Stock	—		—			—		—		—			—			—			—
Value of stock issued for stock-based compensation - 42,102 shares Class A Common Stock	1		—			1,856		—		—			—			—			1,857
Compensation cost related to stock-based compensation	—		—			4,515		—		—			—			—			4,515
Value of treasury stock repurchased - 1,873,170 shares	—		—			—		—		—			(134,952		)	—			(134,952		)
Distribution to noncontrolling interest	—		—			—		—		—			—			(14,898		)	(14,898		)
Other	—		—			—		—		—			—			48			48
BALANCE, June 30, 2018	$	750	$	7		$	1,768,808	$	2,357,100	$	(135,670	)	$	(432,078	)	$	223,461		$	3,782,378
Net income	—		—			—		69,590		—			—			2,720			72,310
Other comprehensive income/(loss)	—		—			—		—		594			—			(4,899		)	(4,305		)
Conversion of 130,000 shares Class B Common Stock to Class A Common Stock	2		(2		)	—		—		—			—			—			—
Value of stock issued for stock-based compensation - 72,925 shares Class A Common Stock	—		—			5,902		—		—			—			—			5,902
Compensation cost related to stock-based compensation	—		—			4,458		—		—			—			—			4,458
Value of treasury stock acquisitions from equity awards - 893,705 shares	—		—			—		—		—			(78,167		)	—			(78,167		)
Other	—		—			—		—		—			—			(6		)	(6		)
BALANCE, September 30, 2018	$	752	$	5		$	1,779,168	$	2,426,690	$	(135,076	)	$	(510,245	)	$	221,276		$	3,782,570

The accompanying notes are an integral part of these consolidated financial statements.

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GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018 (Unaudited)

(dollars in thousands)



	Nine Months Ended
	September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	159,950		$	196,946
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	188,169			197,127
Stock-based compensation	12,371			13,029
Deferred income taxes	34,468			7,978
Gain on insurance recoveries	(2,500		)	—
Net gain on sale and impairment of assets	(1,151		)	(2,501		)
Changes in assets and liabilities which provided/(used) cash:
Accounts receivable, net	2,594			(50,143		)
Materials and supplies	(3,550		)	3,133
Prepaid expenses and other	(4,519		)	(11,663		)
Accounts payable and accrued expenses	(7,065		)	33,818
Other assets and liabilities, net	5,434			9,750
Net cash provided by operating activities	384,201			397,474
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(227,266		)	(194,132		)
Grant proceeds from outside parties	22,987			16,696
Proceeds from settlement of derivative transactions	45,360			—
Proceeds from sale of business	—			7,927
Insurance proceeds for replacement of assets	4,297			2,780
Proceeds from disposition of property and equipment	5,200			3,710
Contributions to joint ventures	(2,965		)	(2,921		)
Net cash used in investing activities	(152,387		)	(165,940		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on revolving line-of-credit, long-term debt and finance lease obligations	(426,276		)	(799,726		)
Proceeds from revolving line-of-credit and long-term debt	195,335			854,679
Debt amendment/issuance costs	—			(5,318		)
Purchase of additional shares in Freightliner Australia	(4,696		)	—
Common share repurchases	(4,796		)	(270,488		)
Distribution to noncontrolling interest	—			(14,898		)
Installment payments on Freightliner deferred consideration	(2,522		)	(6,255		)
Other financing related activities, net	6,534			5,006
Net cash used in financing activities	(236,421		)	(237,000		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	1,132			(939		)
DECREASE IN CASH AND CASH EQUIVALENTS	(3,475		)	(6,405		)
CASH AND CASH EQUIVALENTS, beginning of period	90,387			80,472
CASH AND CASH EQUIVALENTS, end of period	$	86,912		$	74,067

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:

The interim consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and are unaudited. They do not contain all disclosures which would be required in a full set of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, the unaudited financial statements for the three and nine months ended September 30, 2019 and 2018 are presented on a basis consistent with the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of the results for the interim periods presented. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. The consolidated balance sheet data for 2018 was derived from the audited financial statements in the Company's 2018 Annual Report on Form 10-K, but does not include all disclosures required by U.S. GAAP.

The results of operations of the foreign entities are maintained in the local currency of the respective subsidiary and 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 interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018 included in the Company's 2018 Annual Report on Form 10-K.

During the process of preparing the Form 10-K for the year ended December 31, 2018, the Company determined that there was an error in and revised its statement of cash flows for the nine months ended September 30, 2018, which resulted in the following offsetting adjustments: an increase of $33.0 million in principal payments on revolving line-of-credit, long-term debt and capital lease obligations, representing cash outflows from financing activities, and an increase of $33.0 million in proceeds from revolving line-of-credit and long-term debt, representing cash inflows from financing activities. There was no effect on any other section of the Company's statement of cash flows, and this revision had no impact on the Company's consolidated balance sheet as of December 31, 2018 or the Company's consolidated statements of operations or comprehensive income for the three and nine months ended September 30, 2018. The Company does not consider this revision material to any previously issued consolidated financial statements.

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 and divestitures, changing economic conditions, fluctuations in commodity prices, competitive forces, changes in foreign currency exchange rates, rail network issues and congestion, the ability to attract and retain skilled workers, 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, 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. CHANGES IN OPERATIONS:

Proposed Merger

On July 1, 2019, the Company, together with Brookfield Infrastructure, GIC and Brookfield Infrastructure's institutional partners, announced an agreement pursuant to which affiliates of Brookfield Infrastructure and GIC will acquire G&W for a transaction price of $112.00 per share of common stock valued at approximately $8.4 billion including debt (the Merger). The proposed Merger was approved by the Company stockholders on October 3, 2019 by an affirmative vote of the holders of approximately 82.9% of the voting power of the outstanding shares of G&W's common stock on the record date. Subject to the satisfaction of the other closing conditions, the Merger is expected to close by year end 2019 or early 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Merger will be effected pursuant to the Agreement and Plan of Merger (the Merger Agreement), by and among the Company, DJP XX, LLC, a Delaware limited liability company (Parent), and MKM XXII Corp., a Delaware corporation and a wholly owned subsidiary of Parent (Merger Sub). Merger Sub will be merged with and into G&W with G&W surviving the Merger as a wholly-owned subsidiary of Parent. The proposed Merger will result in G&W becoming a privately held company.

Completion of the proposed Merger is subject to various closing conditions, including, among others, (i) the absence of any law, injunction or other order that prohibits the consummation of the Merger, (ii) the approval or authorization of, or exemption by, the Surface Transportation Board (or approval of the use of a voting trust structure), which exemption was granted on October 29, 2019, (iii) receipt of other antitrust and regulatory approvals, including approval of the Committee on Foreign Investment in the United States, and (iv) other customary closing conditions, including the accuracy of each party’s representations and warranties and each party’s compliance with its covenants and agreements contained in the Merger Agreement (subject in the case of this clause (iv) to certain materiality qualifiers).

Australian Operations

Divestiture of 51.1% Interest in G&W Australia Holdings LP (GWAHLP): Under the Merger Agreement (as described in more detail above), the Company agreed to use reasonable best efforts to assist and cooperate with Parent in Parent’s efforts to consummate any planned divestiture by Parent of G&W's interests in GWAHLP, the holding company for all of the Company's Australian businesses, to a third party (the GWA Divestiture), provided that (i) such cooperation would not unreasonably interfere with the Company's business or operations and (ii) the Company would not be required to take any action that would subject it to actual or potential liability, to bear any cost or expense or to pay any fee or make any other payment or agree to provide any indemnity in connection with the GWA Divestiture prior to the effective time of the Merger. Following the execution of the Merger Agreement, Parent requested that G&W cause certain of its subsidiaries to enter into a Definitive Interest Sale Agreement for the GWA Divestiture (the GWA Divestiture Agreement), and on August 4, 2019, G&W's board of directors and the governing bodies of such subsidiaries approved the GWA Divestiture Agreement and such subsidiaries entered into the GWA Divestiture Agreement.

Under the GWA Divestiture Agreement, certain entities affiliated with MIRA that currently own 48.9% of GWAHLP will acquire, directly or indirectly, the remaining interests in GWAHLP from certain subsidiaries of G&W in exchange for A$627.4 million, subject to adjustment. The GWA Divestiture is subject to customary closing conditions, including the satisfaction of the closing conditions set forth in the Merger Agreement. Neither the Company nor any of its subsidiaries will have any liability under the GWA Divestiture Agreement prior to the consummation of the Merger. The GWA Divestiture Agreement may be terminated under certain circumstances, including by any party thereto if the transactions contemplated by the GWA Divestiture Agreement have not been consummated on or before July 1, 2020.

The consideration to be received by the subsidiaries of the Company that are parties to the GWA Divestiture Agreement will not be distributed to any of the Company’s stockholders prior to consummation of the Merger, and the sole consideration that the Company's stockholders will receive in the Merger is $112.00 in cash per share of G&W common stock on the terms and conditions set forth in the Merger Agreement.

The consummation of the GWA Divestiture is not a condition to the closing of the Merger or any of Parent’s other obligations under the Merger Agreement.

North American Operations

Canada Lease Expirations: Two of the Company's short line railroad leases in Canada (Goderich-Exeter Railway (GEXR) and Southern Ontario Railway (SORR)) expired at the end of 2018. The Company's results for the three and nine months ended September 30, 2018 included $5.1 million and $16.1 million, respectively, of revenues and operating losses of $0.9 million and $1.3 million, respectively, from these leased railroads.

U.K./European Operations

U.K. Operations Optimization: In May 2018, the Company began a program to restructure and further optimize its operations in the U.K., which it intends to complete by 2020. The program includes the rationalization of the locomotive and railcar fleet, management restructuring (following the U.K. consultative process) and technology investments to upgrade systems to enhance productivity and service quality.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Restructuring and related costs associated with the optimization are expected to be approximately $43 million (at an exchange rate of $1.28 for one British pound) and are comprised of the following (dollars in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Total Costs Incurred Through September 30, 2019		Estimated Total Restructuring and Related Costs
Rationalization of locomotive and railcar fleet	$	—	$	—	$	6,301	$	11,000
Management restructuring^(a)	1,240		10,381		15,021		17,000
Productivity and automation investments	1,998		5,136		9,179		15,000
Total	$	3,238	$	15,517	$	30,501	$	43,000


(a)	Subject to requisite U.K. consultative process.

Changes in restructuring and related liabilities for the U.K. Operations Optimization program for the nine months ended September 30, 2019 was as follows (dollars in thousands):



	Rationalization of Locomotive and Railcar Fleet			Management Restructuring			Productivity and Automation Investments			Total
Restructuring and related liabilities as of December 31, 2018	$	4,094		$	982		$	—		$	5,076
Restructuring and related costs incurred	—			10,381			5,136			15,517
Cash payments	(1,394		)	(8,079		)	(5,136		)	(14,609		)
Non-cash settlements	—			—			—			—
Restructuring and related liabilities as of September 30, 2019	$	2,700		$	3,284		$	—		$	5,984

Continental Europe Intermodal Business: On June 5, 2018, the Company sold its Continental Europe intermodal business, ERS Railways B.V. (ERS), for gross cash proceeds of €11.2 million (or $13.1 million at the exchange rate on June 5, 2018) or €6.8 million (or $7.9 million at the exchange rate on June 5, 2018) net of €4.4 million (or $5.2 million at the exchange rate on June 5, 2018) of cash on hand that transferred to the buyer. The Company's results for the nine months ended September 30, 2018 included $24.1 million of revenues and $1.6 million of operating income from ERS.

3. EARNINGS PER COMMON SHARE:

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share amounts):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerators:
Net income attributable to Genesee & Wyoming Inc.	$	66,792	$	69,590	$	156,939	$	188,856
Denominators:
Weighted average Class A common shares outstanding – Basic	56,638		59,168		56,497		60,343
Weighted average Class B common shares outstanding	376		664		426		679
Dilutive effect of employee stock-based awards	518		299		374		233
Weighted average shares – Diluted	57,532		60,131		57,297		61,255
Earnings per common share attributable to Genesee & Wyoming Inc. common stockholders:
Basic earnings per common share	$	1.18	$	1.18	$	2.78	$	3.13
Diluted earnings per common share	$	1.16	$	1.16	$	2.74	$	3.08

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following total number of shares of Class A Common Stock issuable under the assumed exercise of stock-based awards computed based on the treasury stock method were excluded from the calculation of diluted earnings per common share, as the effect of including these shares would have been antidilutive (in thousands):



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2019	2018	2019	2018
Antidilutive shares	—	704	249	1,045

Share Repurchase

In October 2018, the Company completed its $300 million share repurchase program that had been approved in 2015, and the Company's Board of Directors authorized a new $500 million share repurchase program of Class A Common Stock, subject to certain limitations under the Company's credit facility. The table below presents information regarding shares repurchased by the Company under the share repurchase programs during the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share amounts):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Class A Common Stock repurchased	—		894		65		3,560
Average price paid per share of Class A Common Stock repurchased	$	—	$	87.46	$	73.94	$	75.99

Repurchased shares are recorded in treasury stock, at cost, which includes any applicable commissions and fees. As of September 30, 2019, the remaining amount authorized for repurchase under the $500 million share repurchase program was $335.0 million. In light of the Company's entry into the Merger Agreement with affiliates of Brookfield Infrastructure and GIC, future share repurchases under the repurchase program have been suspended. See Note 2, Changes in Operations, for additional information regarding the Merger Agreement.

4. ACCOUNTS RECEIVABLE:

Accounts receivable consisted of the following as of September 30, 2019 and December 31, 2018 (dollars in thousands):



	September 30, 2019			December 31, 2018
Accounts receivable – trade	$	395,512		$	397,255
Accounts receivable – grants from outside parties	24,677			19,376
Accounts receivable – insurance and other third-party claims	29,386			19,729
Total accounts receivable	449,575			436,360
Less: Allowance for doubtful accounts	(12,513		)	(10,055		)
Accounts receivable, net	$	437,062		$	426,305

The timing of revenue recognition, billings and cash collections result in trade accounts receivable, contract assets and contract liabilities. The Company’s contract assets and liabilities are typically short-term in nature, with terms settled within a 12-month period. The Company had no material contract assets or contract liabilities recorded on the consolidated balance sheet as of September 30, 2019 or December 31, 2018.

Grants from Outside Parties

The Company periodically receives grants for the upgrade and construction of rail lines and the upgrade 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 $23.0 million and $16.7 million for the nine months ended September 30, 2019 and 2018, respectively, from such grant programs. The proceeds were presented as cash inflows from investing activities within the statement of cash flows for each of the applicable periods. The Company records additions to property and equipment for its grant-funded projects and defers 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table sets forth the offset to depreciation expense from the amortization of deferred grants recorded by the Company during the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Amortization of deferred grants	$	3,442	$	3,173	$	10,265	$	8,776

Insurance and Third-Party Claims

The increase in the balance of the accounts receivable from insurance and other third-party claims for the nine months ended September 30, 2019 was primarily related to the anticipated insurance recovery associated with a personal injury that occurred in the U.K. in 2019. The receivable and the associated claim liability were recorded on the balance sheet as of September 30, 2019.

The Company completed its annual property insurance renewal during the third quarter of 2019, which became effective on August 1, 2019. Effective with this renewal, the Company's property policies have various self-insured retentions, which vary based on the type and location of the incident, up to $10.0 million. The Company recently completed its annual liability insurance renewal, which became effective on November 1, 2019. Effective with this renewal, the Company's liability policies have various self-insured retentions up to $5.0 million.

5. LEASES:

On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (the New Standard), and all related amendments, which supersedes the previous lease guidance, using the transition method with the election not to adjust comparative periods. The New Standard requires lessees to recognize leases on their balance sheet as a right-of-use (ROU) asset with a corresponding lease liability. The adoption resulted in the recognition of ROU assets included in other assets and lease liabilities included in accrued expenses and other long-term liabilities of approximately $495 million in the Company's consolidated balance sheet, each as a result of the new requirement to recognize operating leases. No material cumulative-effect adjustment was recognized in retained earnings, and the adoption did not materially impact operating results, liquidity or the Company's debt-covenant compliance under these agreements. The Company continues to recognize its capital leases on the balance sheet but these leases are now referred to as "finance" leases, as required by the New Standard.

The Company enters into leases for railcars, locomotives and other equipment as well as real property. These leases may contain variable payments that vary with rate or index changes or include payment of a per car fee or per mile fee to use the track under variable lease contracts. The Company may receive rent holidays and other incentives provided by the lessor on lease agreements. On occasion, the Company subleases assets to other parties.

As of January 1, 2019, the Company adopted a number of practical expedients and exemptions included in the New Standard, which were intended to reduce the cost and complexity of complying with the transition requirements. The Company chose the following practical expedients and exemptions in setting its accounting policy elections for transition to:


1.	Not recognize an asset and liability for leases of all asset classes with a term of 12 months or less;


2.	Carry forward the historical lease classification and not reassess its existing contracts to determine whether the arrangements contained a lease or whether initial direct costs qualified for capitalization;


3.	Not separate lease and non-lease components; and


4.	Carry forward its current accounting treatment for land easements on existing agreements.

Lease contracts may include one or more renewal options, with renewal terms from one to fifty years or more. Leases may also include options to terminate the arrangement or options to purchase the underlying leased property. The exercise of lease options are generally at the discretion of the Company's management team. The Company determines the expected term of a lease and includes options that are reasonably certain to be exercised in the calculation of its ROU assets and lease liabilities.

The determination of whether a contract contains a lease, as well as the analysis regarding the allocation of consideration in a contract between lease and non-lease components, is performed on a case by case basis and considers the nature and interdependency of the individual assets in the arrangement. The Company generally accounts for lease assets as a single component as the assets in most agreements are highly interrelated and dependent upon each other to fulfill the arrangement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As the implicit rate is not readily determinable in most of the Company's lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The following table summarizes the Company's leased assets and lease liabilities recorded in the consolidated balance sheet as of September 30, 2019 (dollars in thousands):



	Balance Sheet Location	September 30, 2019
Leased right-of-use assets:
Operating leased assets	Other assets	$	471,929
Finance leased assets, net	Property and equipment, net^(a)	85,230
Total leased assets		$	557,159
Lease liabilities:
Current
Operating lease liabilities	Accrued expenses	$	60,624
Finance lease liabilities	Current portion of long-term debt	14,402
Non-current
Operating lease liabilities	Other long-term liabilities	411,153
Finance lease liabilities	Long-term debt, less current portion	64,309
Total lease liabilities		$	550,488


(a)	Net of $30.1 million of accumulated amortization as of September 30, 2019, which was recognized in depreciation and amortization expense within the Company's consolidated statement of operations.

The following table summarizes the components of lease expense for the three and nine months ended September 30, 2019 (dollars in thousands):



	Location of Amount Recognized in Earnings	Three Months Ended			Nine Months Ended
	Location of Amount Recognized in Earnings	September 30, 2019			September 30, 2019
Finance leases:
Amortization of right-of-use assets	Depreciation and amortization	$	2,069		$	5,830
Interest on lease liability	Interest expense	881			2,554
Total finance lease cost		$	2,950		$	8,384
Operating leases:
Operating lease cost	Equipment rents/Trackage rights	$	22,292		$	66,976
Short-term lease cost	Equipment rents/Trackage rights	2,071			7,064
Variable lease cost	Equipment rents/Trackage rights	1,964			6,871
Sublease income (gross basis)	Operating revenues	(1,291		)	(3,541		)
Total operating lease cost		$	25,036		$	77,370
Total lease cost		$	27,986		$	85,754

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The maturities of lease liabilities under the New Standard based on the Company's reasonably certain holding period for each lease were as follows as of September 30, 2019 (dollars in thousands):



	Finance Leases		Operating Leases
Maturity of lease liabilities:
2019 (remainder)	$	3,299	$	23,076
2020	19,373		72,851
2021	10,495		63,445
2022	14,650		52,080
2023	10,551		43,398
Thereafter	34,778		553,484
Total lease payments	93,146		808,334
Less: Imputed interest	14,435		336,557
Total lease liabilities	$	78,711	$	471,777

The following is a summary of future minimum lease payments based on the minimum non-cancelable lease term as required under previous guidance for capital and operating leases as of December 31, 2018 (dollars in thousands):



	Capital		Operating
2019	$	11,405	$	82,191
2020	17,261		63,062
2021	8,668		54,305
2022	9,625		44,739
2023	10,780		35,919
Thereafter	13,988		383,739
Total minimum payments	$	71,727	$	663,955

The following table presents supplemental cash flow and other information for the Company's leases as of and for the nine months ended September 30, 2019 (dollars in thousands):



	Nine Months Ended
	September 30, 2019
Cash flow information:
Cash paid for operating leases included in operating activities	$	69,533
Cash paid for finance leases included in operating activities	$	2,608
Cash paid for finance leases included in financing activities	$	9,694

Weighted average remaining lease term (in years):
Operating leases	26.8
Finance leases	8.1

Weighted average discount rate:
Operating leases	3.8		%
Finance leases	4.5		%

New leases:
Right-of-use assets obtained in exchange for operating lease liabilities	$	36,333
Right-of-use assets obtained in exchange for finance lease liabilities	$	27,592

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6. 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 risks associated with underlying interest rate and foreign exchange rate exposures. The Company's use of these derivative financial instruments may result in short-term gains or losses and increased earnings volatility. The instruments held by the Company are recorded in the consolidated balance sheets at fair value in prepaid expenses and other, other assets, 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 is recorded in other comprehensive income/(loss) (OCI). Amounts recorded in OCI may be realized and reported in the consolidated statements of operations on the same line item as the hedged item in the event the hedged item is settled, did not or is no longer expected to occur or if the hedging relationship is no longer effective.

The Company may designate fair value hedges to mitigate foreign currency exchange rates on non-functional currency assets or liabilities. The Company uses the mark-to-market approach to remeasure the hedged item and the hedging instrument. The changes in the fair value of the hedged item is included in other income/(loss), net and are offset by changes in the fair value of the hedging instrument which are reported in the same income statement line item.

In addition, the Company may designate net investment hedges to reduce the impact of the variability of foreign currency exchange rates on its net investments in certain non-U.S. operations using cross-currency swaps. The Company measures the effectiveness of the hedge by offsetting the changes in the fair value of the cross-currency swap and the hedged asset or liability. Gains and losses on the after-tax effective portion of the net investment hedge are reported in currency translation adjustments where they remain until the investment is liquidated. The Company records the portion of the gain or loss on the hedging instrument that exceeds the gain or loss of the hedged item as an offset to the tax impact recognized during the period.

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 instrument ceases to be a highly effective hedge of the underlying transaction, 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. Gains and losses on any excluded components of derivatives designated as hedges are recorded in OCI and amortized to other income/(loss), net over the life of the hedge.

From time to time, the Company may enter into certain derivative instruments that may not be designated as hedges for accounting purposes. 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/(loss), net.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table summarizes the fair value of the Company's derivative instruments recorded in the consolidated balance sheets as of September 30, 2019 and December 31, 2018 (dollars in thousands):



		Fair Value
	Balance Sheet Location	September 30, 2019		December 31, 2018
Asset Derivatives:
Derivatives designated as cash flow hedges:
British pound forward contracts	Prepaid expenses and other	$	4,535	$	—
British pound forward contracts	Other assets	—		26,011
Derivative designated as a net investment hedge:
Cross-currency swap contract	Other assets	8,039		—
Total derivatives designated as hedges		$	12,574	$	26,011
Derivatives not designated as hedges:
Cross-currency swap contract	Prepaid expenses and other	$	—	$	19,684
Total derivatives not designated as hedges		$	—	$	19,684

Liability Derivatives:
Derivatives designated as cash flow hedges:
Interest rate swap agreements	Accrued expenses	$	8,545	$	1,954
Interest rate swap agreements	Other long-term liabilities	86,483		12,441
British pound forward contracts	Other long-term liabilities	—		59
Derivative designated as a fair value hedge:
Cross-currency swap contract	Other long-term liabilities	4,047		—
Total derivatives designated as hedges		$	99,075	$	14,454

The following table shows the effective portion of net changes in the fair value of the Company's derivative instruments designated as hedges recognized in OCI, net of tax for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):



	Total Derivatives Designated as Hedges OCI Activity, Net of Tax
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Derivatives Designated as Hedges:
Cash Flow Hedges:
Interest rate swap agreements	$	(26,746	)	$	4,816		$	(61,451	)	$	14,396
Foreign currency forward contracts	—			(13		)	—			275
British pound forward contracts, net ^(a)	(12		)	350			1,446			85
	$	(26,758	)	$	5,153		$	(60,005	)	$	14,756
Net Investment Hedge:
Cross-currency swap contract	$	6,821		$	—		$	6,048		$	—

Fair Value Hedge:
Cross-currency swap contract	$	(704	)	$	—		$	(1,134	)	$	—

Total derivatives designated as hedges	$	(20,641	)	$	5,153		$	(55,091	)	$	14,756

(a)

The three months ended September 30, 2019 represented a net loss of $1.0 million for the mark-to-market of the U.K. intercompany loan, partially offset by a net gain of $1.0 million for the mark-to-market of the British pound forward contracts. The nine months ended September 30, 2019 represented a net gain of $18.5 million for the mark-to-market of the U.K. intercompany loan, partially offset by a net loss of $17.0 million for the mark-to-market of the British pound forward contracts.

The three and nine months ended September 30, 2018 represented a net loss of $1.7 million and $5.4 million, respectively, for the mark-to-market of the U.K. intercompany loan, partially offset by a net gain of $2.0 million and $5.5 million, respectively, for the mark-to-market of the British pound forward contracts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table shows the effect of the Company's derivative instruments not designated as hedges for the three and nine months ended September 30, 2019 and 2018 in the consolidated statements of operations (dollars in thousands):



		Amount Recognized in Earnings
	Location of Amount Recognized in Earnings	Three Months Ended					Nine Months Ended
		September 30,					September 30,
		2019		2018			2019			2018
Derivatives Not Designated as Hedges:
Cross-currency swap agreements, net ^(a)	Other income/(loss), net	$	—	$	(2,410	)	$	(1,770	)	$	(4,900	)


(a)	The nine months ended September 30, 2019 represented a net loss of $1.4 million for the mark-to-market of the GRail Intercompany Loan and a net loss of $0.3 million for the mark-to-market of the swaps. This derivative was settled in June 2019, and the Company received cash proceeds of €17.0 million (or $19.3 million at the exchange rate on June 30, 2019).

The three months ended September 30, 2018 represented a net loss of $3.0 million for the mark-to-market of the GRail Intercompany Loan, partially offset by a net gain of $0.6 million for the mark-to-market of the swaps. The nine months ended September 30, 2018 represented a net loss of $8.1 million for the mark-to-market of the GRail Intercompany Loan, partially offset by a net gain of $3.2 million for the mark-to-market of the swaps.

The following table shows the cash flow impacts from the Company's derivatives that settled during the nine months ended September 30, 2019 (dollars in thousands):



	Nine Months Ended
	September 30, 2019
Derivatives designated as hedges:
British pound forward contracts	$	26,088

Derivatives not designated as hedges:
Cross-currency swap contract	19,272
Total cash received from settlement of derivative transactions, investing activities	$	45,360

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. Interest payments accrued each reporting period for these interest rate swaps are recognized in interest expense.

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	Expiration Date	Notional Amount		Pay Fixed Rate	Receive Variable Rate
12/1/2016	12/1/2021	A$	517,500	2.44%	AUD-BBR
8/31/2018	8/31/2021 - 8/31/2048	$	500,000	2.70% - 2.87%	1-month LIBOR

During the three and nine months ended September 30, 2019, $1.7 million and $3.2 million, respectively, of net losses associated with the Company's interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. During the three and nine months ended September 30, 2018, $0.5 million and $1.2 million, respectively, of net losses associated with the Company's interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. Based on the Company's fair value assumptions as of September 30, 2019, it expects to realize $8.9 million of net losses that are reported in accumulated other comprehensive loss (AOCL) into earnings within the next 12 months. See Note 11, Accumulated Other Comprehensive Loss, for additional information regarding the Company's derivatives designated as hedges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Foreign Currency Exchange Rate Risk

As of September 30, 2019, the Company's foreign subsidiaries had $948.4 million of third-party debt, including finance leases, 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 its 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, including non-functional currency intercompany debt, typically associated with acquisitions and any timing difference between announcement and closing of an acquisition of a foreign business. To mitigate currency exposures related to non-functional currency denominated intercompany debt, foreign currency forward contracts or cross-currency swaps may be entered into for periods consistent with the underlying debt. In cases where foreign currency forward contracts or cross-currency swaps do not qualify for hedge accounting, the gains or losses from changes in the fair value are recognized in current period earnings within other income/(loss), net.

In 2015, the Company, in conjunction with the acquisition of Freightliner Group Limited (Freightliner) in the U.K., transferred cash 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). To mitigate the foreign currency exchange rate risk related to the outstanding balance of this loan, the Company entered into British pound forward contracts, which were accounted for as cash flow hedges. During the nine months ended September 30, 2019, the Company settled certain of its British pound forward contracts, which had notional amounts totaling £120.0 million with a settlement date of March 31, 2020 and exchange rates ranging from 1.50 to 1.51 GBP to USD. Upon settlement, the Company received cash proceeds of $26.1 million.

As of September 30, 2019, the Company's outstanding British pound forward contracts had a notional amount of £32.6 million with a settlement date of March 31, 2020 and exchange rates ranging from 1.28 to 1.57 GBP to USD. During the three and nine months ended September 30, 2019, $0.1 million and $0.8 million, respectively, of net gains were recorded as interest income in the consolidated statements of operations. During the three and nine months ended September 30, 2018, $0.2 million and $0.5 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 September 30, 2019, it expects to realize $0.2 million of net gains that are reported in AOCL into earnings within the next 12 months. See Note 11, Accumulated Other Comprehensive Loss, for additional information regarding the Company's derivatives designated as hedges.

In 2016, in conjunction with an acquisition in Australia, the Company's subsidiaries, G&W Australia Holdings LP (GWAHLP) and 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. 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. These agreements did not qualify as hedges for accounting purposes, and, accordingly, mark-to-market changes in the fair value of the Swaps relative to the underlying GRail Intercompany Loan were recorded over the life of the agreements, which expired on June 30, 2019. Upon settlement of the agreements, the Company received cash proceeds of €17.0 million (or $19.3 million at the exchange rate on June 30, 2019).

In June 2019, the Company entered into two new cross-currency swap agreements designated as fair value hedges of the non-functional currency GRail intercompany loan. In addition, the Company entered into a cross-currency swap in June 2019 that was designated as a net investment hedge of the GWBV investment. During the three and nine months ended September 30, 2019, the Company recognized a gain of $0.1 million within other income/(loss), net in the consolidated statement of operations related to amortization of excluded components of its net investment hedge. Based on the Company's assumptions as of September 30, 2019, its net investment hedge and fair value hedge, which each terminate on June 30, 2021, are expected to realize $0.6 million of net gains and $0.9 million of net losses, respectively, that are currently reported in AOCL into earnings within the next 12 months. See Note 11, Accumulated Other Comprehensive Loss, for additional information regarding the Company's derivatives designated as hedges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following table presents the Company's financial instruments carried at fair value using Level 2 inputs as of September 30, 2019 and December 31, 2018 (dollars in thousands):



	September 30, 2019		December 31, 2018
Financial instruments carried at fair value using Level 2 inputs:
Financial assets carried at fair value:
British pound forward contracts	$	4,535	$	26,011
Cross-currency swap contract - net investment hedge	8,039		—
Cross-currency swap contracts	—		19,684
Total financial assets carried at fair value	$	12,574	$	45,695
Financial liabilities carried at fair value:
Interest rate swap agreements	$	95,028	$	14,395
British pound forward contracts	—		59
Cross-currency swap contract - fair value hedge	4,047		—
Total financial liabilities carried at fair value	$	99,075	$	14,454

Financial Instruments Carried at Fair Value: Derivative instruments are recorded on the consolidated balance sheets as either assets or liabilities measured at fair value. As more fully described in Note 6, Derivative Financial Instruments, 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 derivative financial instruments based on Level 2 valuation inputs, including fixed interest rates, LIBOR, British pound LIBOR, BBR and EURIBOR implied forward interest rates and the remaining time to maturity.

The following table presents the carrying value, net of debt issuance costs and fair value using Level 2 inputs of the Company's financial instruments carried at historical cost as of September 30, 2019 and December 31, 2018 (dollars in thousands):



	September 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities carried at historical cost:
United States term loan	$	1,261,983	$	1,258,527	$	1,295,672	$	1,296,079
U.K. term loan	289,357		290,883		315,524		319,556
Australian credit agreement	422,120		427,617		450,252		457,978
Australia subordinated shareholder loan from Macquarie Infrastructure and Real Assets	160,675		157,652		167,796		166,974
Revolving credit facility	319		3,687		160,033		163,662
Other debt	2,392		2,379		2,356		2,352
Total	$	2,136,846	$	2,140,745	$	2,391,633	$	2,406,601

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.

8. U.K. PENSION PLAN:

Through its Freightliner subsidiary, the Company has a defined benefit pension plan for Freightliner's eligible 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 participating members, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables summarize the components of the Pension Program related to the net benefit costs recognized in labor and benefits and other income/(loss), net in the Company's consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):



		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2019			2018			2019			2018
Operating expense:
	Service cost^(a)	$	3,257		$	3,610		$	10,094		$	11,235
Nonoperating income, net:
	Interest cost	2,240			2,383			6,942			7,416
	Expected return on plan assets	(4,158		)	(4,572		)	(12,885		)	(14,231		)
	Amortization of prior year service cost	42			—			130			—
	Total nonoperating income, net^(b)	(1,876		)	(2,189		)	(5,813		)	(6,815		)
Net periodic benefit cost		$	1,381		$	1,421		$	4,281		$	4,420

(a) Included in labor and benefits within the Company’s consolidated statements of operations.

(b) Included in other income/(loss), net within the Company’s consolidated statements of operations.

During the nine months ended September 30, 2019, the Company contributed £4.7 million (or $6.0 million at the exchange rate when the payments were made) to fund the Pension Program. The Company expects to contribute £2.3 million (or $2.8 million at the September 30, 2019 exchange rate) to the Pension Program for the remainder of 2019. The Pension Program's assets may undergo significant changes over time as a result of market conditions, and its assets and liabilities are formally valued on an independent actuarial basis every three years to assess the adequacy of funding levels. A key element of the valuation process is an assessment of the creditworthiness of the participating employer. 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 could not be shared with active members. Currently, the Company has no intention of terminating the Pension Program.

9. INCOME TAXES:

The Company's provision for income taxes for the three months ended September 30, 2019 was $20.0 million, compared with $31.0 million for the three months ended September 30, 2018. The Company's provision for income taxes for the three months ended September 30, 2019 included a $4.2 million benefit from the release of a reserve for an uncertain tax position as a result of a lapse of the statute of limitations. The Company's provision for income taxes for the three months ended September 30, 2018 included a $1.6 million measurement period adjustment to increase the one-time transition (toll) tax on earnings of certain foreign subsidiaries as a result of the Tax Cuts and Jobs Act (TCJA).

The Company's provision for income taxes for the nine months ended September 30, 2019 was $53.1 million compared with $41.6 million for the nine months ended September 30, 2018. Based on developments during the nine months ended September 30, 2018, the Company recorded a reserve for uncertain tax positions of $5.5 million related to tax deductions on intercompany financing arrangements in the U.K., of which $3.7 million related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. The provision for income taxes for the nine months ended September 30, 2018 also included an income tax benefit of $31.6 million associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2017, which was enacted in February 2018.

The Company's effective income tax rate for the three and nine months ended September 30, 2019 was 22.3% and 24.9%, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2018 was 30.0% and 17.4%, respectively. Excluding the benefit from the retroactive extension of the United States Short Line Tax Credit and the prior period portion of the reserve for uncertain tax positions, the Company's effective income tax rate for the nine months ended September 30, 2018 was 29.1%. The decrease in the Company's effective income tax rate from 2018, excluding the benefit from the retroactive extension and the prior period portion of the reserve for uncertain tax positions, to 2019 was primarily due to the $4.2 million benefit from the release of a reserve for an uncertain tax position recognized during the three months ended September 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The United States Short Line Tax Credit is an income tax track maintenance credit for Class II and Class III railroads to reduce their federal income tax based on qualified railroad track maintenance expenditures. Qualified expenditures include amounts incurred for maintaining track, including roadbed, bridges and related track structures owned or leased by a Class II or Class III railroad. The credit is equal to 50% of the qualified expenditures, subject to an annual limitation of $3,500 multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as of the end of its tax year. The United States Short Line Tax Credit was 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 make the United States Short Line Tax Credit permanent for fiscal year 2018 and beyond.

10. COMMITMENTS AND CONTINGENCIES:

From time to time, the Company is a defendant in certain lawsuits and a party to certain arbitrations 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. The Company maintains 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 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. In May 2018, the EPA notified the AGR of a maximum civil payment of up to $14.1 million, based on the amount of oil allegedly discharged and other relevant factors considered under the applicable regulation. The Company's evaluation of its defenses, settlement options and insurance coverage is ongoing. Although the cleanup associated with this derailment is substantially complete, the civil penalty associated with the contamination is subject to further discussion and potential litigation.

Following the filing of the Company’s definitive proxy statement (the Proxy Statement) associated with the Merger with the Securities and Exchange Commission (the SEC) on August 20, 2019, three lawsuits were filed in connection with the Merger, including two purported class action lawsuits that were filed on August 21, 2019 and September 4, 2019 in the United States District Court for the District of Delaware, and one lawsuit filed on behalf of a purported individual shareholder on September 12, 2019 in the United States District Court for the District of Connecticut. These lawsuits, Gordon vs. Genesee & Wyoming Inc. et al., Case No. 1:19-cv-01558-MN, Thompson vs. Genesee & Wyoming Inc. et al., Case No. 1;19-cv-01650-MN and Geery vs. Genesee & Wyoming Inc. et al., Case No. 3:19-cv-01438-VLB (collectively, the Disclosure Actions), named the Company and individual officers and members of the Company’s board of directors as defendants. The actions alleged, among other things, that the defendants failed to disclose certain information relating to the Company’s financial projections set forth in the Proxy Statement.

On September 25, 2019, solely to eliminate the burden, expense, and uncertainty inherent in such litigation, and without admitting any liability or wrongdoing, the Company filed a Form 8-K containing certain supplemental disclosures with the SEC. In consideration for such supplemental disclosures by the Company, plaintiffs in the Disclosure Actions had agreed to voluntarily dismiss the Disclosure Actions. On October 4, 2019, pursuant to those agreements, plaintiffs filed voluntary dismissals of the Disclosure Actions.

On September 17, 2019, in New South Wales, Australia, a complaint was filed by Australia Eastern Railroad Pty Ltd ACN against the Company, GWI Holdings Pty Ltd and Genesee & Wyoming Australia Pty Ltd in connection with the Merger. The complaint seeks an award of damages in connection with a right of first refusal provision in a commercial contract involving the Company’s majority-owned Australian subsidiary. The Company disputes the allegations made in the complaint and intends to defend itself appropriately.

In addition to the EPA matter and the lawsuits set forth above, from time to time, the Company is a defendant in certain lawsuits resulting from its operations in the ordinary course. 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 EPA matter. Based upon currently available information, management does not believe it is reasonably possible that any such lawsuit, related lawsuit or matter would be material to the Company's results of operations or have a material adverse effect on its financial position or liquidity.

Table of Contents GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

11. ACCUMULATED OTHER COMPREHENSIVE LOSS:

The following tables set forth the components of AOCL attributable to Genesee & Wyoming Inc. included in the consolidated balance sheets and consolidated statements of comprehensive income (dollars in thousands):



	Foreign Currency Translation Adjustment				Defined Benefit Plans				Net Unrealized Gain/(Loss) on Hedges				Accumulated Other Comprehensive Loss
Balance, December 31, 2018	$	(144,503	)		$	11,120			$	(13,073	)		$	(146,456	)
Other comprehensive loss before reclassifications	(24,026		)		—				(57,612		)		(81,638		)
Amounts reclassified from accumulated other comprehensive loss, net of tax (provision)/benefit of ($26), $74 and $593, respectively	82			(a)	(94		)	(b)	(2,002		)	(c)	(2,014		)
Current period change	(23,944		)		(94		)		(59,614		)		(83,652		)
Balance, September 30, 2019	$	(168,447	)		$	11,026			$	(72,687	)		$	(230,108	)



	Foreign Currency Translation Adjustment			Defined Benefit Plans				Net Unrealized Gain/(Loss) on Hedges				Accumulated Other Comprehensive Loss
Balance, December 31, 2017	$	(74,617	)	$	(19,601	)		$	(11,316	)		$	(105,534	)
Other comprehensive income before reclassifications	(41,395		)	—				14,926				(26,469		)
Amounts reclassified from accumulated other comprehensive loss, net of tax (provision)/benefit of ($42) and $76, respectively	—			129			(b)	(232		)	(c)	(103		)
Current period change	(41,395		)	129				14,694				(26,572		)
Amounts reclassified from accumulated other comprehensive loss to retained earnings related to the United States Tax Cuts and Jobs Act	—			(132		)		(2,838		)		(2,970		)
Balance, September 30, 2018	$	(116,012	)	$	(19,604	)		$	540			$	(135,076	)


(a)	Net gains realized were recorded in other income/(loss), net within the consolidated statements of operations.


(b)	Net (losses)/gains realized were recorded in labor and benefits on the consolidated statements of operations.

(c)

For the nine months ended September 30, 2019, $1.7 million and $0.3 million of net losses were recorded in interest expense and other income/(loss), net, respectively, within the consolidated statements of operations. For the nine months ended September 30, 2018, net losses realized were recorded in interest expense on the consolidated statements of operations. See Note 6, Derivative Financial Instruments.

Comprehensive Loss Attributable to Noncontrolling Interest

The following table sets forth comprehensive loss attributable to noncontrolling interest for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net income attributable to noncontrolling interest	$	2,979		$	2,720		$	3,011		$	8,090
Other comprehensive income/(loss):
Foreign currency translation adjustment	(7,690		)	(4,804		)	(8,697		)	(17,647		)
Net unrealized (loss)/gain on qualifying cash flow hedges, net of tax benefit/(provision) of $21, $41, $654 and ($26), respectively	(48		)	(95		)	(1,525		)	62
Comprehensive loss attributable to noncontrolling interest	$	(4,759	)	$	(2,179	)	$	(7,211	)	$	(9,495	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

12. SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:

As of September 30, 2019 and 2018, the Company had outstanding accounts receivable from outside parties for the funding of capital expenditures of $24.7 million and $14.6 million, respectively. As of September 30, 2019 and 2018, the Company also had $24.5 million and $16.1 million, respectively, of purchases of property and equipment that were not paid and, accordingly, were accrued in accounts payable in the normal course of business. See Note 5, Leases, for ROU assets obtained during the reporting period in exchange for lease liabilities.

13. SEGMENT INFORMATION:

The Company presents the financial results of its eight operating regions as three reportable segments: North American Operations, Australian Operations and U.K./European Operations. During the three months ended March 31, 2019, the Company's Central Region railroads were consolidated into the Company's Midwest and Southern regions. The Company's remaining six North American regions are aggregated into one segment as a result of having similar economic and operating characteristics. 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.

The Company's Australian business underwent a transformational change on December 1, 2016, with the acquisition of

Glencore Rail (NSW) Pty Limited (GRail) and the formation of a partnership with Macquarie Infrastructure and Real Assets (MIRA) (the Australia Partnership), which the Company controls through its 51.1% interest. The GRail acquisition significantly expanded the Company's operations in New South Wales. In conjunction with the GRail acquisition, the Company issued a 48.9% equity stake in its Australian subsidiary, GWAHLP, to MIRA. The Company retained a 51.1% controlling interest in GWAHLP and continues to consolidate 100% of its Australian Operations in the Company's financial statements and reports a noncontrolling interest for MIRA's 48.9% equity ownership. As a result, (1) 100% of the assets and liabilities of the Company's Australian Operations, after the elimination of intercompany balances, were included in the Company's consolidated balance sheets as of September 30, 2019 and December 31, 2018, with MIRA's 48.9% noncontrolling interest reflected in the equity section, (2) the Company's operating revenues and operating income for the three and nine months ended September 30, 2019 and 2018 included 100% of the Australian Operations, while net income attributable to G&W reflected the Company's 51.1% ownership position in the Australian Operations and (3) 100% of the cash flows of the Australian Operations, after the elimination of intercompany items, were included in the Company's consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018. Accordingly, any payments between the Company's Australian Operations and its other businesses are eliminated in consolidation, while the Company's cash flows reflect 100% of any cash flows between the Australian Operations and MIRA.

In accordance with the Company's Australian Partnership agreement with MIRA, the cash and cash equivalents of the Company's Australian Operations can be used to make payments in the ordinary course of business, to pay down debt of the Australia Partnership and to make distributions to the partners in proportion to their investments. No such distributions were made during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Australia Partnership made an A$40.0 million distribution, of which A$20.4 million (or $15.6 million at the exchange rate on June 5, 2018) and A$19.6 million (or $14.9 million at the exchange rate on June 5, 2018) were distributed to the Company and MIRA, respectively.

The results of operations of the Company's 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 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 OCI. 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. 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 each foreign entity's respective local currency balance sheet into United States dollars as of September 30, 2019 and December 31, 2018:



	September 30, 2019		December 31, 2018
United States dollar per Australian dollar	$	0.67	$	0.70
United States dollar per British pound	$	1.23	$	1.28
United States dollar per Canadian dollar	$	0.76	$	0.73
United States dollar per Euro	$	1.09	$	1.15

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table reflects the average exchange rates used to translate each foreign entity's respective local currency results of operations into United States dollars for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
United States dollar per Australian dollar	$	0.69	$	0.73	$	0.70	$	0.76
United States dollar per British pound	$	1.23	$	1.30	$	1.27	$	1.35
United States dollar per Canadian dollar	$	0.76	$	0.77	$	0.75	$	0.78
United States dollar per Euro	$	1.11	$	1.16	$	1.12	$	1.19

The following tables set forth select financial data for the Company's reportable segments, including operating revenues by commodity group, for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):



	Three Months Ended
	September 30, 2019
	North American Operations		Australian Operations		U.K./European Operations		Total Operations
Operating revenues:
Freight revenues by commodity group:
Agricultural Products	$	34,574	$	2,631	$	763	$	37,968
Autos & Auto Parts	6,339		—		—		6,339
Chemicals & Plastics	39,518		—		—		39,518
Coal & Coke	18,336		33,187		606		52,129
Food & Kindred Products	8,355		—		—		8,355
Intermodal	461		16,446		56,998		73,905
Lumber & Forest Products	22,862		—		—		22,862
Metallic Ores	4,225		7,036		—		11,261
Metals	28,115		—		—		28,115
Minerals & Stone	41,399		1,979		21,672		65,050
Petroleum Products	19,027		178		628		19,833
Pulp & Paper	30,648		—		—		30,648
Waste	8,278		—		—		8,278
Other	5,888		—		—		5,888
Total freight revenues	268,025		61,457		80,667

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

GENESEE & WYOMING INC 10-Q