Genesee & Wyoming Inc.

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Genesee & Wyoming Inc.

71 Lewis Street
Greenwich, Connecticut 06830
U.S.A.
(203) 629-3722
Fax: (203) 661-4106

Public Company
Incorporated: 1899 as Genesee and Wyoming Railroad Co.
Employees: 771
Sales: $103.6 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: GNWR
SICs: 4011 Railroads, Line-Haul Operating; 4731 Arrangement of Transportation of Freight & Cargo; 4741 Rental of Railroad Cars; 6719 Offices of Holding Companies, Not Elsewhere Classified

Through its subsidiaries, Genesee & Wyoming Inc. (GWI) oversees the operations of short-line and regional freight railroads and provides related railroad services, such as switching and rail-car leasing and repair. Celebrating its 100th anniversary in 1999, GWI had come a long way from its role as a regional hauler of rock salt, and in 1997 comprised 15 U.S. railroads—in New York, Pennsylvania, Illinois, Louisiana, and Texas—hauling bulk cargos such as coal, petroleum products, pulp and paper, lumber, and metals over about 1,500 miles of track. Nevertheless, the company maintained a link to its past in that Mortimer B. Fuller III, great-grandson of GWF’s patriarch, retained an interest in the company. In the late 1990s, GWI made some acquisitions intended to enhance its size and scope within the niche market of short-line railroading. Interest in a Canadian company that owned and operated two short-line Canadian railroads was purchased in 1997, and the company also began operating freight service along about 900 miles of track in Australia. In addition, GWI acquired Rail Link, Inc., a leading provider of railroad switching and related services.

Late 19th Century Origins

The company traces its history to the 1899 founding of the Genesee & Wyoming Railroad Co., itself a successor of the Genesee & Wyoming Valley Railway in Livingston County, Pennsylvania. At the time, the company operated about 16 miles of railroad, which was used to transport rock salt from a mine in Retsof, in western New York. Its main line ran from Retsof to Pittsburgh and Lehigh Junction, with shorter branches running from Retsof to Greigsville and Retsof Junction. In 1899, this small railway was purchased by E.L. Fuller, who reorganized the company as the Genesee & Wyoming Railroad.

The cargo aboard trains on the Genesee & Wyoming during this time was supplied by the Retsof Salt Mining Co., which controlled the road in that area. Expansion activities during this time were limited to leases of short stretches of track, and for years the Genesee & Wyoming continued to be dependent on a single industry, salt mining. Fuller’s son Mortimer B. Fuller served as the company’s president at this time, and the company’s main office was located in Scranton, Pennsylvania. By 1913, the company’s gross income had reached $113,855 with net income of $71,250.

By 1920 the Genesee & Wyoming, still running on a little over 17 miles of track, had purchased two passenger coaches as well as six locomotives and two cabooses. Gross revenues that year had risen to almost $500,000, and net income was reported at $270,065. The Genesee & Wyoming railroad experienced its own Depression early, with operating revenues falling every year from 1922 to 1932, when they came to less than half what they had been at the peak. Net income dropped as low as $30,000, but the company never lost money and continued its tradition, established in 1900, of paying quarterly dividends.

The Genesee & Wyoming continued to prosper in subsequent decades. It passed $1 million in annual operating revenues in 1955 and $2 million in 1970, when net income came to $512,622. The company’s main office had by then moved to Clarks Summit, Pennsylvania. While its “line of road” comprised only about 13 miles, the railroad’s equipment, or “rolling stock,” had increased significantly and now included seven diesel locomotives, 97 50-ton boxcars, 47 60-ton hopper cars, and two cabooses. Operating revenues were $3.3 million and net income $662,000 in 1978.

Expansion in Mid-20th Century

Mortimer B. Fuller III, great-grandson of the founder, purchased a controlling interest in the firm in 1977 and began seeking contracts from industries that would make the railroad its sole supplier. Under his leadership the company, which was renamed Genesee & Wyoming Industries, Inc. and moved its main office to Greenwich, Connecticut, first entered the rail-car leasing business and then began making rail-line acquisitions, seeking contracts from industries that would make the railroad its sole supplier. Within a decade GWI became a leading provider of short-line and regional rail transportation and related services.

The U.S. railroad industry underwent significant change after the passage of a 1980 Federal act that deregulated the pricing and types of services provided by railroads. The larger railroads focused their management and capital resources on their long-haul core systems, and certain of them sold branch lines to smaller and more cost-efficient rail operators willing to commit the resources necessary to meet the needs of shippers located on these lines. GWI was one of these smaller, more cost-efficient operators and began acquiring such lines in 1985, when it purchased The Dansville & Mt. Morris Railroad, a line with headquarters in Leicester, New York, and eight miles of track running a little south of G&W’s own line.

The company acquired the Ashford Junction-Rochester line in 1986 from railroading giant CSX Corp. This railroad, which GWI renamed the Rochester & Southern Railroad (R&S), was losing money and in very poor condition at the time of purchase because of deferred maintenance; the threat of derailment kept train speeds below normal, limiting the amount of traffic the railroad could carry. Under the parentage of Genesee & Wyoming, however, improvements were made; revenue carloads increased 36 percent between 1986 and 1988, and the company had 39 customers in 1989, including Eastman Kodak Co. In 1991 the R&S reached Buffalo via a connection at Silver Springs, New York, with a Canadian Pacific Railway line and by 1997 operated 66 miles of track in the Rochester, New York, area.

During this time, Genesee & Wyoming also acquired the Buffalo & Pittsburgh Railroad (B&P) from the Pennsylvania division of CSX. Like R&S, this railroad had its origins late 1880s, when it was founded as the Rochester & Pittsburgh Railroad, hauling coal as the chief source of income and carrying passengers until 1955. After acquiring this line, which would become GWF’s biggest, GWI implemented cost savings by cutting crew sizes and requiring that rail workers be able to function in roles as varied as engineer and track repairer. In 1997 the B&P had 279 miles of track, some of it leased, and was carrying scrap steel for Armco Butler, oil from refineries in northwestern Pennsylvania, paper from a Willamette mill, coal glass, forest products, and automobiles moving down the line from Canada. Coal composed 40 percent of its business in 1996, with chemicals from 15 to 25 percent and mixed freight accounting for the rest.

When GWI acquired 149-mile-long Allegheny & Eastern Railroad in 1992, the B&P, R&S, and A&E became virtually one railroad, with shared customer service, dispatching tasks, and pooled power. The A&E operated an extension west from the B&P at Johnsonburg, Pennsylvania, and an extension east at Ridgeway, Pennsylvania.

In 1993 GWI also acquired four-mile-long Bradford Industrial Rail. This line had its headquarters in the same place as the A&E—Punxsutawney, Pennsylvania.

GWI had also expanded its geographic scope, having in 1987 purchased a part of the Southern Pacific Railroad that it named the Louisiana & Delta Railroad. This enterprise had its headquarters in New Iberia, Louisiana, and a main line running between Lafayette and Avondale, Louisiana. Some of its 87 miles of track were leased rather than owned by GWI.

Other geographic expansion occurred in 1993 when the company purchased the Willamette & Pacific Railroad from Southern Pacific Rail Corp. This Far West railroad, with 185 miles of track in 1997—some of it leased—included a main line between Portland and Monroe, Oregon, and a branch line from Corvallis east to Albany—the railroad’s headquarters—and west to Toledo. Another branch ran south from Albany to Eugene. In 1995 GWI opened the Portland & Western Railroad (P&W) on tracks leased from the Southern Pacific. The new line ran around Portland, Hillsboro, Beaverton, Tigard, Sherwood, and Newberg, via Milwaukie and Lake Oswego. It connected at Newberg with the Willamette & Pacific, which pooled locomotive servicing, track maintenance, accounting, administration, and customer service with the P&W. P&W had 198 miles of track in 1997, including a 92-mile line linking Astoria and other Columbia River ports to Portland and continuing south to Quinby, acquired from Burlington Northern Inc. that year.

Genesee & Wyoming Railroad itself was moving about two million tons of salt a year for Azko Nobel Salt Inc. when this Retlof, New York, mine met with disaster, collapsing and flooding in 1994. Only nine other businesses were using the 26-mile railroad, and they were accounting for only about ten percent of its revenue before the disaster, but the Genesee & Wyoming continued operations, including serving a salt distribution center at the site of the collapsed mine. An investment group was planning to build a new salt mine in the same area in the late 1990s.

Company Perspectives:

The cor e purpose of Genesee & Wyoming is to be a leader in rail related services, anticipating and responding rapidly to customers’ requirements and the dynamics of a competitive market place.

Going Public and Further Acquisitions

In June 1996, the company went public, offering about 2.5 million shares at $17 apiece. The offering reportedly raised about $46 million, which the company planned to use to pay down the debt it was incurring during its recent period of acquisitions.

Another acquisition, in 1996, added the Chicago & Illinois Midland Railroad (C&IM) to Genesee & Wyoming’s corporate umbrella. This line began in 1889 as the Pawnee Railroad. The Chicago & Illinois Midland Railway Co. extended the line west to Auburn and east to Taylorville in 1906, thereby providing rail services through the rich coal fields of Sangamon and Christian counties. Eventually a new main line ran north from Taylorville through Springfield to Peoría. At its peak in 1940, C&IM employed 750 people and operated around the clock, providing fuel for Chicago’s Commonwealth Edison utility company. After GWI purchased the railroad, it was renamed Illinois & Midland.

Also in 1996, Genesee & Wyoming purchased the 224-mile-long Pittsburg & Shawmut Railroad for $11.7 million. This western Pennsylvania line—also based in Punxsutawney—connected to the Buffalo & Pittsburgh Railroad at Brockway. Along with the Pittsburg & Shawmut, GWI acquired two other coal-country lines—the Red Bank Railroad and the Mountain Laurel.

In a diversification move in 1996 Genesee & Wyoming purchased an industrial switching subsidiary, Rail Link, Inc. Based in Virginia, Rail Link had three Virginia-based subsidiaries of its own: Carolina Coastal Railway (17 miles of track), Commonwealth Railway (17 miles), and Talleyrand Terminal Railroad (ten miles).

Genesee & Wyoming’s rail system expanded beyond domestic operations in 1997, when it took on a 47.5 percent interest in a Canadian company that owned and operated two short-line railroads in Canada. One of these lines, Huron Central Railway, won a lease that year to operate Canadian Pacific’s 180 mile line between Sudbury and Sault Ste. Marie, Ontario. Huron Central’s customers included Algoma Steel and E.B. Eddy Forest Products.

International operations were bolstered by the 1997 purchase of certain freight-railroad assets of Australian National, a railroad company owned by the federal Australian government. The subsequently renamed Australia Southern Railroad (ASR), was an operation with 900 miles of track, and the land under the tracks was leased from the state of South Australia for 50 years. ASR was hauling six types of commodities, including grain, coal, and gypsum, for six major customers and also acquired contracts to operate “hook and pull” trains for three customers over the 2,100-mile-long corridor between Melbourne and Perth.

Genesee & Wyoming Industries, Inc. was renamed Genesee & Wyoming Inc. in 1995. The company’s domestic railroads and switching operations served more than 300 customers in 1997, the largest being Commonwealth Edison, which accounted for about 15 percent of company revenue that year. Coal, coke, and ores represented by far the largest commodity

group hauled in 1997, accounting for 37.4 percent of GWF’s 219,706 carloads. Also among the commodities it hauled were metals, pulp and paper, lumber and forest products, petroleum products, farm and food products, minerals and stone, chemicals, and autos and auto parts.

Genesee & Wyoming’s operating revenues increased from $53.4 million in 1995 to $103.6 million in 1997. Of the 1997 total, freight accounted for 71 percent, switching and storage for 18 percent, and rail-car hire and rental for six percent. Net income rose from $1.7 million in 1995 to $8 million in 1997. In March 1998 Mort Fuller, the founder’s great grandson, held 5.4 percent of Genesee & Wyoming’s Class A shares of common stock and 77.9 percent of the Class B shares, giving him 52.8 percent of the voting power.

Principal Subsidiaries

Allegheny & Eastern Railroad, Inc.; Australian Southern Railroad Pty Limited (Australia); Bradford Industrial Rail, Inc.; Buffalo & Pittsburgh Railroad, Inc.; Corpus Christi Terminal Railroad, Inc.; The Dansville & Mt. Morris Railroad Company; Genesee & Wyoming Investors, Inc.; Genesee and Wyoming Railroad Company; Genesee & Wyoming Railroad Services, Inc.; GWT Canada, Inc.; GWT Dayton, Inc.; GWT Leasing Corporation; GWT Rail Management Corporation; Illinois & Midland Railroad, Inc.; Louisiana & Delta Railroad, Inc.; Pittsburg & Shawmut Railroad, Inc.; Portland & Western Railroad, Inc.; Rail Link, Inc. (and its subsidiaries, Carolina Coastal Railway, Inc., Commonwealth Railway, Inc., and Talleyrand Terminal Railroad Company, Inc.); Rochester & Southern Railroad, Inc.; Willamette & Pacific Railroad, Inc.