G&W buys Rail Management's RRs

[Anonymous]

QUOTE: Originally posted by dldance

One interesting operating scenario might be when a large conglomerate of short lines would generate sufficient freight at one point (A) - destined for another part of their short line system (B). In such a case, the normal manifest could be treated by the connecting class 1 as a unit train going from A to B playing into both organization's core competancies.

dd

dd

True. In theory this works. In practice there are relatively few places where short lines connect and have freight that can be consolidated. This does happen in a few areas, for example with grain. Usually, however, the Class 1 can make the intermediate move easier on their own tracks and they can price it cheaper, so consolidating the traffic just doesn't have any real impact for the customer and that is where it counts. Generally, Class 1s will only treat like loads or empties as a unit train, so one should not draw any inferences that merely consolidating all traffic between points would result in such trains being considered unit trains. This is governed by tariffs, contracts and AAR rules, designed to maximize profits for the Class 1s who are the primary members of the AAR.

LC

[dldance]

One interesting operating scenario might be when a large conglomerate of short lines would generate sufficient freight at one point (A) - destined for another part of their short line system (B). In such a case, the normal manifest could be treated by the connecting class 1 as a unit train going from A to B playing into both organization's core competancies.

dd

dd

[dharmon]

QUOTE: Originally posted by gabe

Also, I consider short lines and class ones as working with rather than competing with Class 1s. But, Limitedclear summed it up much better than I could have.

Gabe

Concur.

BTW ........G& W stock jumped over $3 a share today. And while on that subject...NS and BNSF have been getting good reviews from the stock analysts the past few weeks.

Dan

[gabe]

Also, I consider short lines and class ones as working with rather than competing with Class 1s. But, Limitedclear summed it up much better than I could have.

Gabe

[Anonymous]

QUOTE: Originally posted by Junctionfan

Genesee&Wyoming, Rail America et al are the key to giving the class 1s some competition. The way things are shaping up, I wouldn't be the least bit surprised if my Great Lakes and Atlantic idea(a number of shortlines=class 1) doesn't start to become a reality in some way.

Andrew -

You still have much to learn about how railroads operate as a business. For a number of reasons what you propose is quite unlikely to happen on more than an occasional basis. First, the economics of a move drops off exponentially as more railroads are added into the route. Also, there are significant problems of added interchange time as more interchanges are needed to hand cars from one of the railroads in the route to the next. This adds significant costs to the car hire and handling expenses. Remember, each time a car is interchanged it is handled at least twice, once by each railroad. Also, there is a question of car supply. Usually Class 1s provide many of the cars loaded on short lines. In an all short line move, one of the short lines would have to make a sizeable investment in rail cars as the Class 1s won't provide cars unless they are getting freight revenues. And the list goes on...

It is nowhere near as easy as drawing it on a map...

This is another one of those times as a RRer where one has to just shrug his shoulders as most folks, even railfans who ostensibly study the industry, don't get into the important details. Remember, the "Devil is in the details" is a phrase that fits well in RRing. There are 1001 ways to lose your a** in this business...

LC

[Anonymous]

QUOTE: Originally posted by gabe

QUOTE: Originally posted by mudchicken

LC-

Assume Earl Durden retiring? Now if they could do something about Brenkman and the Peoria bunch. Rail Management has spun off a few who ultimately failed.

It seems to me that the Peoria Bunch are distracted by another industry of theirs. I can't quite put my finger on it, and I am pretty sure my wife wont be too happy if I do. [:0]

Gabe

That is the purpose of that particular industry Gabe. Distracts you just long enough so they can get your wallet...

LC

[Junctionfan]

Genesee&Wyoming, Rail America et al are the key to giving the class 1s some competition. The way things are shaping up, I wouldn't be the least bit surprised if my Great Lakes and Atlantic idea(a number of shortlines=class 1) doesn't start to become a reality in some way.

[dldance]

from a business point of view - successully operating short lines and switching operations requires a different set of core competancies and a different management mind set than main line operations. There could be economies of scale at both ends of the operating spectrum. We have seen the class 1's consolidate to attempt to benefit from economies of scale. Some have done this better than others. It will be interesting to see if G&W can do the same in the short haul relm.

dd

[gabe]

QUOTE: Originally posted by mudchicken

LC-

Assume Earl Durden retiring? Now if they could do something about Brenkman and the Peoria bunch. Rail Management has spun off a few who ultimately failed.

It seems to me that the Peoria Bunch are distracted by another industry of theirs. I can't quite put my finger on it, and I am pretty sure my wife wont be too happy if I do. [:0]

Gabe

[Anonymous]

QUOTE: Originally posted by mudchicken

LC-

Assume Earl Durden retiring? Now if they could do something about Brenkman and the Peoria bunch. Rail Management has spun off a few who ultimately failed.

I assume Earl is retiring, but I don't know. Haven't spoken to him since last fall. Yeah, many of the spin offs from short line groups often fail or turn into non-profits, because they couldn't attract the traffic. With current congestion and traffic it is a tough time to be a short line. Class 1s can't be bothered to stop and pick up the interchange...

LC

[mudchicken]

LC-

Assume Earl Durden retiring? Now if they could do something about Brenkman and the Peoria bunch. Rail Management has spun off a few who ultimately failed.

[Anonymous]

QUOTE: Originally posted by dharmon

So is having all the shortlines coming under parent companies (G&W, RailAmerica, etc...) a good thing or a bad thing? Seems it gives them a better chance at survival by having a larger organization, but at the same time, puts them under a larger organization with it's inherent issues.

Dan

Dan -

Its like anything else. The good holding companies like G&W are well managed and financed and they do well. Bad ones, don't. This acquisition is G&W buying out Rail Management, which is a sizable group of short lines itself and politically quite influential.

LC

[dharmon]

So is having all the shortlines coming under parent companies (G&W, RailAmerica, etc...) a good thing or a bad thing? Seems it gives them a better chance at survival by having a larger organization, but at the same time, puts them under a larger organization with it's inherent issues.

Dan

[Anonymous]

Genesee & Wyoming Announces Agreement to Acquire Short Line and Port Railroads from Rail Management Corporation
GREENWICH, Conn., May 26, 2005/PR Newswire/-- Genesee & Wyoming Inc. (GWI) (NYSE:GWR) announced today that it has signed an agreement with Rail Management Corporation (RMC) to acquire substantially all of RMC’s rail operations for $243 million in cash and the assumption of $1.7 million of non-interest bearing debt. The acquisition is subject to customary closing conditions and the expiration of the 7-day notice period required by the Surface Transportation Board for GWI to obtain authority to control the railroads owned by RMC. GWI expects to close the acquisition and commence operations on June 1, 2005.

Overview of Acquisition
Founded in 1980, RMC, headquartered in Panama City Beach, Florida, is an operator of short line railroads. The business being acquired is composed of fourteen principal rail operations with locations throughout the South and Southeast United States, including Florida, Alabama, Mississippi, Georgia, Arkansas, Texas, North Carolina, Tennessee and Kentucky. There is also one rail property located in Wisconsin. The main operations are composed of: i) five former industrial railroads serving the paper and forest products industry, ii) seven short line railroads, and iii) two port railroads. RMC operates over 928 miles of track, with 88 locomotives and 1,751 freight cars. The railroads handle approximately 170,000 annual carloads, with approximately 50% of its customers being in the paper and forest products industry.

Geographic Fit with GWI
The acquired business will be operated as part of GWI’s Jacksonville-based Rail Link subsidiary, under the leadership of Billy C. Eason. The acquisition of the five former industrial railroads complements Rail Link’s current paper and forest products business which includes three railroads formerly owned by Georgia-Pacific Corp. (acquired in 2003) and industrial switching operations at eight paper mills throughout the Southeast. The acquisition of the two port railroad operations ( Galveston, TX; Wilmington, NC ) as well as two ports served by two of the other rail lines ( Panama City, FL; Port St. Joe, FL ) complements Rail Link’s seven existing port operations ( Corpus Christi, TX; Jacksonville, FL; Fernandina, FL; two ports in Savannah, GA; Brunswick, GA; Baton Rouge, LA ). The remaining short lines will be managed along with Rail Link’s existing eleven short line operations. For a map of the acquired businesses and the geographic overlap with Rail Link’s railroads, please go to the following web site www.gwrr.com.

Acquisition Structure
GWI will acquire the equity of certain RMC subsidiaries under Section 754 of the Internal Revenue Code and will therefore benefit from the stepped-up tax basis of the assets. The acquired business will also be eligible for tax credits associated with recent U.S. legislation which created a three-year tax credit for track investment by Class II and III railroads.

Financing
GWI is financing the $243 million cash purchase price by expanding the size of its senior revolving credit facility from $150 million to $225 million and by completing a private placement of $125 million 10-Year Senior Floating Rate Notes. The Company plans to draw down $118 million under the senior revolving credit facility at an initial borrowing rate of LIBOR plus 1.375%. The initial borrowing rate on the $125 million of Senior Notes will be LIBOR plus 0.85%. GWI expects to enter into a multi-year interest rate swap of approximately $125 million, and expects the blended borrowing rate of the financing associated with this acquisition to be approximately 5.2%.

Following the acquisition, GWI will have approximately $107 million of remaining capacity under its senior revolving credit facility, which will be available for general corporate purposes, including acquisitions. As of March 31, 2005, pro forma for the debt financing, GWI’s total debt to capitalization was approximately 51.1%.

Expected Financial Impact to GWI North America
On an annual basis, GWI expects the acquired business to haul approximately 170,000 carloads and to generate approximately $22 million of operating income, including the impact of certain immediate operating efficiencies. GWI expects the acquired business will require annual capital expenditures of approximately $2 million and will have annual depreciation and amortization expense of approximately $8 million. GWI expects the acquisition to be immediately accretive to earnings per share, despite start-up costs during an initial three month transition period. On an annual basis, including the tax impact of the transaction, GWI expects the acquisition to add approximately $22 million of additional free cash flow defined as Net Cash Provided by Operating Activities of approximately $24 million less Net Cash Used in Investing Activities of approximately $2 million) to its North American operations. See the attached description and discussion of Free Cash Flow.

Mortimer B. Fuller III, Chairman and CEO of GWI commented, “The timing and fit of the Rail Management acquisition is exceptional. First, the rail properties are an excellent geographic fit with our Rail Link Region thereby enabling us to reduce costs and increase efficiency. Second, our ability to write-up the tax basis of the acquired entities helps to support a substantial increase in our free cash flow. Third, we are purchasing the assets at a time when we are able to benefit from highly favorable debt market conditions. Fourth, while we are taking on a modest increase in our debt profile, the cash flow from the combined businesses will allow GWI to de-lever rapidly. Finally, the business is well run, management is strong, the employees are dedicated, the markets served are growing and the assets are in good condition.”

GWI is a leading operator of short line and regional freight railroads in the United States, Canada, Mexico, Australia and Bolivia. The Company operates over 8,200 miles of owned and leased track and more than 3,000 additional miles under track access arrangements.

Forward Looking Statements
This press release contains forward-looking statements regarding future events and the future performance of GWI that involve risks and uncertainties that could cause actual results to differ materially from its current expectations including, but not limited to, economic conditions, customer demand, increased competition in relevant markets, and others. GWI refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as GWI's Forms 10-Q and 10-K which contain additional important factors that could cause its actual results to differ from its current expectations and from the forward-looking statements contained in this press release.

Free Cash Flow Description and Discussion
Management views Free Cash Flow as an important financial measure of how well GWI is managing its assets. Subject to the limitations discussed below, Free Cash Flow is a useful indicator of cash flow that may be available for discretionary use by GWI. Free Cash Flow is defined as Net Cash Provided by Operating Activities less Net Cash Used in Investing Activities, excluding the Cost of Acquisitions. Key limitations of the Free Cash Flow measure include the assumptions that GWI will be able to refinance its existing debt when it matures and meet other cash flow obligations from financing activities, such as required dividend payments and principal payments on debt. Free Cash Flow is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of cash flow determined in accordance with Generally Accepted Accounting Principles.

SOURCE Genesee & Wyoming Inc.
05/26/05

CONTACT: John C. Hellmann, President, Genesee & Wyoming Inc., 203-629-3722
Web site: http://www.gwrr.com