watco companies - swars

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


Watco OverviewTimeline


Watco OverviewLong Term Growth

Revenue 2007-2018 EBITDA 2007-2018


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


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


Watco OverviewCommodity Diversity

2018 Terminal and Ports Revenue2018 Transportation Freight Revenue


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


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


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%


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


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


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


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


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


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


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


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.


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


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.


Creating Sustainable and Reliable GrowthListen to our Customers – Waste Management Solutions

B

MTS2

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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.

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MTS2

NM

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EMT

MTS1

B

• Green Circle denotes Waste Management profit center, blue circle denotes Waste Connections profit center



▪ 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.



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


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


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


Relevant Industry Topics

• Precision Scheduled Railroading (“PSR”)

• Autonomous Operations

• Regulatory and Environmental

• Demand Economy (Netflix, Amazon, etc)


Questions?

Decatur & Eastern Illinois RR

watco companies - swars

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