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6/25/2007



Rail News: Rail Industry Trends

Genesee & Wyoming to terminate Ferrocarriles Chiapas-Mayab operations


An October 2005 hurricane that damaged 175 miles of Genesee & Wyoming Inc.’s (GWI) Mexican subsidiary Ferrocarriles Chiapas-Mayab S.A. de C.V. (FCCM) turned out to be too much for the railroad to overcome. Today, FCCM will notify the Mexican transportation secretary of its intent to cease rail operations and terminate its 30-year concession from the Mexican government.

The railroad expects to wind down operations and discontinue rail service during the next four weeks.

Since Hurricane Stan destroyed or damaged about 70 bridges and washed out segments of track between Tonala and the Guatemalan border in fall 2005, FCCM has been working to develop a reconstruction plan for the damaged portion of the line. But the railroad has not been financially viable, and rail traffic has continued to decrease since the hurricane.

“The uncertainty of the Chiapas reconstruction combined with the deterioration of our rail traffic means that we can no longer justify absorbing financial losses or making incremental investments,” said GWI President and Chief Executive Officer John Hellmann in a prepared statement.

The short-line holding company expects to record charges of about $12 million, or 30 cents per share, mostly in the second quarter. Charges will include severance costs, wind-down expenses, non-cash write-offs of currency translation accounts, and tax impacts.

GWI plans to complete its formal liquidation of FCCM by year’s end. As of March 31, GCCM had $17.5 million of assets consisting of $6.6 million of non-current assets, primarily locomotives and rail cars, and about $10.9 million of current assets, primarily receivables and inventory. Under terms of FCCM’s concession, the Mexican government could acquire or lease the railroad’s equipment based on fair market value.




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