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Customer First – Safety Always!
WATCO COMPANIES
Making the Right Connections
Q1 2018
Customer First – Safety Always!2
Customer First Foundation Principles
Customer First - Safety Always!Value Our Customers• Earn their business every day by providing Safe,
Accurate, and Timely Service• Create solutions that deliver value for our
Customers and Watco over the long term
Value Our People• SAFE Service, ALWAYS• Be Honest and Fair
Safely Improve Every Day• Always do the right thing and always try to find a
better way• Build a tremendous future by making decisions that
protect our Customer, Team, Community, and Environment
Customer First – Safety Always!
Watco OverviewTimeline
Customer First – Safety Always!
Watco OverviewLong Term Growth
Revenue 2007-2018 EBITDA 2007-2018
Customer First – Safety Always!5
Watco OverviewOur Team Approach
Watco U
• Award winning Leadership and Development Program
• Awarded Training Staff dedicated to Improving Team Member Skills
More than 4,900 Team Members
Turnover down YOY 1.6%
STAT Center
• Equipping Team Members for today’s technology and regulations
• Centralized training location for Engineers and Conductors
• Expansion of offerings to Maintenance of Way and Mechanical
• Specialized course giving Team Members access to instructors, equipment, and
technology including locomotive simulators
65%72%
78% 78% 80%
40%
50%
60%
70%
80%
90%
2014 2015 2016 2017 2018
Watco Companies, LLC Retention Rates
Customer First – Safety Always!6
Watco OverviewSafety Always – Our Safety Vision
• All injuries can be prevented
• We are committed to provide a safe work environment for all Team Members.
• Team Members of all levels are accountable for their own safety and the safety of their co-
workers, preventing injuries and accidents, and displaying safe work behavior
• No job is so important, no service so urgent that we cannot take time to perform all work safely
• Our primary goal is to get our team members home safely to their families every night
• Our safety journey is on-going, with focus to improve each and every day
• 154 locations RPI free in 2018
Watco Team Members in Jeffersonville, IN to be recognized for an award by the American Equity Underwriters for safety in stevedoring
The BRS received a Presidents Award from the ASLRRA for best safety performance in the Central region for roads with less than 50,000 man hours
Customer First – Safety Always!7
Watco OverviewCommodity Diversity
2018 Terminal and Ports Revenue2018 Transportation Freight Revenue
Customer First – Safety Always!8
Watco OverviewGeographic Diversity
We operate 41 railroads, 19 mechanical shops, 83 terminal and port operations, and33 switching locations in 38 states, Western Australia, Mexico, and Canada
Customer First – Safety Always!9
Watco OverviewService Diversity
12% of 2018 Revenue
• Provides repair and maintenance services at shops or through mobile locations for all car types
• 19 mechanical facilities• 8 certified tank car repair• 7 general car repair• 4 dedicated mobile operations
50% of 2018 2018 Revenue
• Second largest short line operator (largest private operator) in North America with 41 short line railroads in the U.S., Canada, and Australia
• +440 locomotives• +4,600 railcars
• +5,100 track miles• +1MM car loads transported or switched • 33 switching and other operations• Operations in 29 states and Australia
24% of 2018 Revenue
• 86 Terminal and Port Operations• 49 Transload Terminals• 35 Marine Terminals• 2 Specialty Terminals
• Service Offerings
• 30 Dedicated Contract Facilities• 56 Merchant Terminals
14% of 2018 Revenue
• Opportunity to solve Customer supply chain and logistics needs
• 21 Supply Chain Service Centers
• End to End solutions
• +25,000 Licensed Motor Carriers Under Contract
Supply Chain ServicesMechanical Services
Transportation Services Terminal and Port Services
Customer First – Safety Always!10
Watco OverviewOrganic Revenue Growth
• Organic defined as the first twelve months a location is under Watco ownership
• Revenues exclude the Mechanical Segment and Fuel Surcharge
• Photos show recently acquired stevedoring equipment at Greens Port Industrial Terminals
• Average Organic Revenue Growth: 2010 - 2018
– Freight Revenue 4.3%
– Non Freight Revenue 7.4%
– Combined Organic Revenue Growth 5.8%
Customer First – Safety Always!11
Creating Sustainable and Reliable GrowthWatco’s Approach
• Follow our Customer First Foundation Principles
– Value our Customers
– Value our People
– Safely Improve Everyday
• Create an environment that focuses on Team
Member Safety
• Develop and Retain talent
• Listen to our Customers and be innovative
Customer First – Safety Always!12
Creating Sustainable and Reliable GrowthSafety Focus
• Opened May 22, 2017 in Fairfield, AL on the Birmingham Terminal Railroad.
• Direct reflection of commitment Watco is making to safety for;– Our Team Members
– Communities
– Customers
– The short line industry as a whole
• Equipping Team Members for today’s technology and regulations.
• Centralized training location for Engineers and Conductors. – Expansion of offerings to Maintenance of Way and
Mechanical
• Standardized course giving Team Members access to instructors, equipment, and technology such as locomotive simulators.
• Course Completion Apr 2017 – Dec 2017– 175 ground
– 42 engineer
– 45 maintenance
• Over 500 TM Course Completion in 2018
Customer First – Safety Always!13
Creating Sustainable and Reliable GrowthDevelop and Retain Talent
• Create a structure that mirrors the reality of our business
• Focus on the fundamentals
– Take care of our people
– Find the best, know their story, train them better than anyone
in the industry
– Culture beats strategy every time
• Empower Team Members to fix what they find that is
wrong, and an avenue to voice their thoughts and
opinions on the business
• Develop the next round of leaders.
– Leadership Development Program
– Align core values with those we place in Leadership Roles;
Integrity, Communication, Flexibility, Initiative, Personal
Accountability
– 2012 – 2017 Watco promoted 82 internally developed Team
Members to Leadership roles
• Don’t be afraid of adapting – Watco University– Learning! 100 Award (top 100 learning organization)
– BizLibrary Learnings Management Systems Award (1st place
out of 700 clients for online learning content)
– 10,000+ course completions annually
Customer First – Safety Always!14
Creating Sustainable and Reliable GrowthListen to our Customers
• Placing customers needs at the top
• Utilize our existing business relationships as a primary source of growth
• Provide integrated customer solutions across our operating groups
• Leverage our capital for growth with customers
Customer First – Safety Always!15
Creating Sustainable and Reliable GrowthListen to our Customers – Capital Spend by Year
Top Growth Projects:
Western Australia WATTS replacing RMI GSHP Docks GSHP Docks GSHP Docks APF Stevedoring
Dore Startup CVR Storage Yard Dore Pioneer Warehouse ABS Track Rehab Locomotive Purchase Waste Management APF
WSOR Prairie Sub SACR Track WSOR Oregon Spur SLWC Cushing KNWA Giddings Extension Wink Crude Terminal
Raceway Park
Acquisitions:
WSOR AARR Sooner Sub Permian KMBT2 KMBT2 DREI
BHRR BBLU (Common) Aspen Logistics IMG Tuloma MRT
Port Brimingham KMBT1 (Common) Louisville River Road Oklahoma Transload MidShip
Cargill Phoenix
$40.4 $48.0
$37.0
$57.1 $60.1 $58.7
$78.5 $32.4 $17.4 $36.5
$71.4 $75.8
$55.8
$132.0
$210.7
$95.8 $85.3
$187.2
$52.7 $61.0
$86.3
$283.6
$161.2 $158.8
$315.6
$188.6 $175.5
$296.8
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
2012 2013 2014 2015 2016 2017 2018
Maintenance Growth Acquisition
Customer First – Safety Always!16
Creating Sustainable and Reliable GrowthListen to our Customers – Strategic Partners
Norfolk Southern Crowley MaritimeKinder Morgan
• Largest Pipeline Company and 3rd largest Energy Company in North America
• Second Largest Private Maritime Business in North America
• Investment through SkyKnight Capital with 6 other Family Offices
• Largest Railroad in Eastern Half of the U.S. and 3rd largest in North America
OaktreeTransportation Investment Fund
“TIF”
• Oaktree has over $120B of assets under management and $2.5B investments in infrastructure
• TIF is exclusively focused on long term North American transportation infrastructure
• TIF partners have deep transportation experience
Customer First – Safety Always!17
Creating Sustainable and Reliable GrowthListen to our Customers – Greens Port Expansion
• 735 acre Industrial Park on the Houston Ship Channel
• Largest private industrial park on the Channel
• 6,725 linear ft of waterfront space
– 4,800 ft of deep water docks
– Deep water depth 40 ft, only 2 others in the channel
– 2,250 ft of barge dock
– Capable of handling Panamax vessels (750 ft LOA)
• 33 miles of rail infrastructure with dockside and
warehouse access
– 1,500 railcar storage capacity
– Capable of receiving unit trains
• 3,200,000 sq ft of indoor warehousing
– Large bay widths, crane availability, heavy floor loading
• 94 acres located in Free Trade Zone
• Liquid pipeline connectivity to every major refinery in the region and the Colonial Explorer Pipeline
• Easy truck access via I-10, I-610, Beltway 8
• Rail connectivity through the PTRA with access to the BNSF, KCS, and UP.
• End to end service offerings including warehousing and storage, material handling, stevedoring, dock services, liquid transloading and measurement, railcar repair, etc.
• In March 2018, Watco entered into a long term lease for the use and operation of the adjacent Industrial Terminal facility. The transaction gives Watco access to three additional docks and 100 acres of lay down space.
• In May 2018, Watco began self performing stevedoring services for bulk, breakbulk, and project cargo Customers
• $320M+ of Invested Capital
Cement
Material
Handling
Ethanol
Terminal
Material Handling
Customer First – Safety Always!18
Creating Sustainable and Reliable GrowthListen to our Customers – APF Solutions
• Project Summary
– Watco is working with American Plant Food (APF) to provide anew warehouse storage solution (Bldg 32A) at GreensportIndustrial Park (GSHP). APF will fund Bldg 32A which will beconnected to Berth 3 via inbound conveyor system. Watcoexpects APF to move 450,000 NTPY on average over the term ofthe 20 year agreement.
• Previous Investment: Watco previously invested in solutions to allow
for APF, product re-claiming, and truck loading/scaling out of Bldg
42. Watco made and additional investment alongside APF to
bring their bagging line to GSHP Bldg 6 in a rail served facility.
• American Plant Food: APF is an ammonium sulfate (AS) based
blended fertilizer producer that was founded in 1964. APF recently
signed a 15 year supply contract, commencing January 1, 2019,
with BASF to provide critical inputs to their product. BASF has been
the major supplier of AS to APF for over 50 years. APF operates 11
dry blending facilities in Texas. Following completion of Bldg. 32A,
GSHP will become APF’s major receiving terminal for N-P-K inputs
for their Texas distribution system.
• Total Capital Invested ~$40M including Phase I
– Capital will be used to engineer and construct a conveyorconnected warehouse storage solution for APF. Watco’sinvestment will include civil work, an inbound transfer conveyorsystem, and track access around APFs new Warehouse. APF isinvesting alongside Watco with capital going towards a 100,000sqft wooden A frame warehouse.
Customer First – Safety Always!19
Creating Sustainable and Reliable GrowthListen to our Customers – Exxon Solutions
• Baton Rouge
– 2008: Watco engineered, designed and operates a 1350 car
Storage in Transit Yard served by our Baton Rouge Southern
Railroad.
– Watco handles 800 plastic cars and 550 tank cars for
ExxonMobil.
• San Luis Potosi (TFCM Terminal)
– 2016: Refined Products Terminal: Unit train capable terminal,
engineered, designed and operated by Watco
– JV w/Kansas City Southern and Valoran (WTC)
– ExxonMobil first to ship unit trains into Mexico @ TFCM and
considers it the standard for Refined Products Terminals in
Mexico.
• Greensport Commodities By Rail (GCBR)
– 2018 refined product origination in Houston at Greensport
(GCBR)
– Loading Product out for SLP and for Permian Basin
• Permian Basin Crude Terminal
– 2018 unit train crude oil loading terminal upgrade and loading
operations
– Full management of Unit train operations in loop from Wink, TX
to Greensport
Baton Rouge SIT Expansion
WTC Industrial Park in San Luis Potosi, Mexico
Customer First – Safety Always!20
Creating Sustainable and Reliable GrowthListen to our Customers – Exxon Solutions
Project Summary• Exxon Mobil Pipeline Company (Exxon) owns a crude gathering terminal
in Wink, TX and wanted to ship Permian Crude by unit trains from Wink Terminal to St. James, Houston, and other Gulf Coast destinations via Union Pacific. Exxon has contracted Watco to provide unit train loading and transportation services for an initial term of 12 months, with a possible extension to 18 months, while there are pipeline takeaway constraints.
• The Wink Terminal is directly served by Watco’s Texas and New Mexico Railroad (TXNR) and interchanges with the Union Pacific at Monahans, TX.
• British Petroleum (BP) will also be shipping crude unit trains out of CIG at Jal for transport on the TXNR.
Total Capital Required ~$8.0M • Watco is investing $1M to upgrade the Wink Terminal rail loading and
crude measurement infrastructure required for loading unit trains.
• Watco is investing $7M through the construction of 14,000 feet of rail infrastructure required to increase unit train capacity on the TXNR.
• Union Pacific is spending ~$2M in upgraded rail at the Monahansinterchange for supporting Crude by Rail.
Customer First – Safety Always!21
Creating Sustainable and Reliable GrowthListen to our Customers – Waste Management Solutions
B
MTS2
M
T
Q
W
A
EMT
MTS1
Feb 2015 - Watco acquires Terminals from Kinder Morgan and begins service to Waste Management at Bronx (switching) and Brooklyn (switching & container handling) location.
April 2015 - Watco earns the right to serve Waste Management at Queens (switching & container handling) location.
Dec 2015 - Watco solves a potential shutdown situation for WM at their Atlantic Landfill in Waverly, VA by implementing a solution for the disposal of Leachate waste water. Watco provided door-to-door, last mile service including rail, railcar leases, transload, and trucking logistic services.
Feb 2017- WM’s problem solved, Watco sold the same concept to Waste Connections, in Seneca Meadows, NY
Sept 2017 - WM selects Watco to load containers to barge at two Marine Transfer Stations in Brooklyn and unload barges in Elizabeth. Watco secures 20-year guaranteed operating contract.
Oct 2017 - Watco begins operations at Nitro, WV and Middleport, OH handling fly ash for WM. Springfield, IL and, Monahans, TX future terminals Total logistic package one rate for truck, transload, rail, and destination transload and trucking.
B
MTS2
NM
S T
Q
W
A
EMT
MTS1
B
• Green Circle denotes Waste Management profit center, blue circle denotes Waste Connections profit center
Customer First – Safety Always!22
Creating Sustainable and Reliable GrowthListen to our Customers – Waste Management Solutions
▪ Project Summary
▪ New York City Department of Sanitation contracted Waste Management (WM) to provide a marine based solution for transferring the City’s waste to landfills. Watco will operate two new Marine Transfer Stations (MTS, Hamilton and Southwest Brooklyn) and will also operate the destination terminal in Elizabeth, NJ (EMT). Services are contracted to 20 years with two 5 year extensions to be mutually agreed upon by both parties.
▪ MTS operations: Unload empty containers from barge to NYC trolley, deliver to MTS loading spot, lift loaded containers to barge, secure barge and facilitate operationally accessible deck and dock space, and perform preventative maintenance.
▪ EMT Operation: Lift/unload loaded or empty containers from barge to WM trucks and from WM trucks to barge. Load and unload containers to/from dock pier, load from ground to truck, and perform all maintenance on Watco Equipment.
▪ Total Capital Required ~$11.5MM
▪ Investment in specialized cranes to facilitate marine transloading needs for Waste Management containers.
▪ Additional Investments and Partnership▪ Partnered with WM to move flyash on our Kanwaha River Railroad by providing
freight transportation, a transloading site, and fleet support by procuring leased railcars.
Customer First – Safety Always!23
Creating Sustainable and Reliable GrowthListen to our Customers – Waste Management Solutions
Origin: Nitro, WV
Destination: Various
Commodity: Fly ash Beneficial Reuse Product
Watco Service Watco Team
Leases rail cars Fleet Team
Negotiate Rail Rates Pricing Team
Truck & Transload to
RailWTPS - Nitro
Origin rail haul WTS - KNWA
Customer First – Safety Always!24
Creating Sustainable and Reliable GrowthListen to our Customers – Be Innovative
• Building an Integrated Offering
– Develop relationship with growers and shippers.
– Provide a total supply chain solution.
– Commit to a consistent service at or better than the
alternative trucking rates.
• Delivering the service with Watco coordinating the full Supply Chain
1. Shippers truck to a Watco Warehouse in Burley, ID.
2. Watco aggregates product at our Warehouse by
unloading trucks and into temporary storage or cross-
docks into railcar with a uniquely developed technology
solution.
3. Move products on Watco’s Eastern Idaho Railroad.
4. Interchange with the Union Pacific.
5. Product furtherance on UP or another Class 1 to the
destination city.
6. Provide service for coordinating last mile drayage to
final destination.
• Continue working with customers and stakeholders to improve service and find new opportunities to further integrate
Wa
tco
Customer First – Safety Always!25
Creating Sustainable and Reliable GrowthListen to our Customers – Be Innovative
Origin: Mississippi
Destination: San Antonio, TX
Commodity: Steel CoilService Delivered to Customer
Watco Team
Truck to Terminal WTPS - Vicksburg
Transload to Barge WTPS - Vicksburg
Barge Rates for Deliver
WSCS/Mid-Ship
Transload from Barge to
Warehouse
WTPS - Houston
Transload to Customer Trucks
WTPS - Houston
Single Price/Invoice
WSCS
Steel Coil
Customer First – Safety Always!26
Relevant Industry Topics
• Precision Scheduled Railroading (“PSR”)
• Autonomous Operations
• Regulatory and Environmental
• Demand Economy (Netflix, Amazon, etc)
Customer First – Safety Always!27
Questions?
Decatur & Eastern Illinois RR
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