The Railroad Week in Review:
Week Ending October 4, 1997

Regionals and Shortlines: DOCP has wrapped up its tender offer. Shared tendered plus those already in the clutches of Walter and CSX represent more than 90% of the total common. The $22 per ticket is expected to be paid promptly and those who've not tendered will get the right to receive the $22 on demand at a later time....RailTex will announce third quarter earnings November 4. There will be an analysts' conference call Nov 5 at 10AM CST. To tune in, call (800) 988-9755 with pass code RailTex. To hear a recording after the fact, call (800) 327-6631 and press "2" with pass code 7084972....The Arkansas & Missouri has signed a safety agreement with the FRA covering track and equipment inspection, training measures, and operating practices. Specifics include vegetation control and implementation of the operational tests program required by 49CFR 217.9. Copies of the A&M Safety Agreement may be obtained from the FRA by calling (202) 632-3124...Pioneer Railcorp reports a 13% increase in August carloadings compared with last year. Several properties contributed to the increase which was across a wide range of commodities. The release did not say whether this was a "same store" change.

Norfolk Southern will begin trading on a 3:1 split basis October 10 with a record date of September 5. Until October 10, Norfolk Southern common shares will trade in both regular way and "when issued" formats. During the interim, any purchaser of Norfolk Southern shares at the regular way price and who holds the stock through October 9 will be eligible to participate in the 3-for-1 split.

"First you say you do and then you don't" - an old top twenty hit song. Union Pacific announced plans to relieve congestion on the west coast by hiring ship space from APL and floating containers east via the Panama Canal. Two days later the plan was scrapped and a "Service Recovery Plan" was announced, complete with conference call. Replays may be heard by calling (800) 475-6701, access code 358601. WSJ's Danny Machalaba wrote a scathing review of the UP debacle in Thursday's issue. The article notes specific companies and the chemical industry in particular as switching to truck for the interim. Shortliners and regional rail operators would do well to check with customers with O-D pairs on UP/SP and be prepared to suggest alternate routes where possible.

Responding to last week's paragraph on Ohio Congressman Dennis Kucinich, a reader in Cincinnati writes, "Is this the same Dennis Kucinich who bankrupted Cleveland in the 70s or 80's? People really do get the government they deserve. Put him and another fine Ohio representative, Steve Chabot (R-Cincinnati), together and you have a very large vacuum. Fortunately, they will never vote together since Chabot, by reflex and without thought, always votes with the Republicans. Kucinich says the merger 'is a threat to the lives of my constituents.' I can't stand it. Ol' Denny's tenure in office is a more likely threat to the lives and livelihoods of his constituents. I just can't stand it. Make him go away."

Supplier notes: Greenbrier has received orders worth some $30 MM for 695 double-stack cars. The orders, received from TTX Company and other customers, are for the Company's 5-unit articulated Maxi-Stack(R) III railcar and 3-unit drawbar All-Purpose Husky-Stack railcar. All railcars will be delivered in Greenbrier's fiscal 1998 which ends August 31, 1998...Varlen, a rail and truck equipment supplier, announced a three-for-two common stock split...GATX 6.69% pass-through certificates series 1997-1 have been awarded Standard & Poor's double-'A' rating...Coltec Industries of Charlotte NC has acquired the assets related to the Alco locomotive business from General Electric Company.

Maryland will go down in the record books as the first state to endorse the CSX-NS acquisition of Conrail. In a Baltimore ceremony on Wednesday Gov. Parris Glendening and other state officials strongly endorsed the plan. Glendening had been withholding support for the plan while it negotiated a separate agreement allowing MARC commuter trains to continue using CSX tracks. The Board of Public Works last week approved a four-year, $69 million contract between the Mass Transit Administration and CSX allowing commuter trains to use the tracks. Meanwhile, NJ Transit and SEPTA are working toward similar agreements with both NS and CSX.

School's still out on the value of KCS Railroad split out from KCS Industries as the holding company moves to focus on its financial asset management (FAM) services. One analyst quoted in this week's Barron's says the FAM is worth $35, the railroad $3, saying "the railroad has been a drag on KCS shares." There are no details on how he arrived at $3. But in any case the railroad is still a gift with shares closing at $33.25 Friday. Meanwhile, a New England reader posts, "If the rail assets are worth $5 [another number bandied about] and the mutual funds $30, that doesn't leave a lot of wiggle room if there is either a market sell-off or an economic slowdown. If 15% of the equity or bond fund owners got bearish and switched to money market funds at the same company the revenue effect would very unpleasant. My first thought is to lay low and see where the [Mexican] debt winds up. The RR could choke on it if the business plan is wrong. I will try to find out how much is swapped into fixed rate and where the collars are."

Broad market small cap stocks outperformed the blue chips in the September quarter. And they held the edge in our favorite sector too. The top six gainers for the quarter were Emons, KCSI, P&W, RailAmerica, Genesee & Wyoming, DOCP, and class I Canadian National. Gains ranged from a whopping 71% for EMON to 12% for GNWR. Bringing up the markers were UP and WC, down nine and 13% respectively. For the year thru 9/30, the top spots in terms of percentage gain were held by DOCP, CN, KCSI, P&W, and CSX with market-beating gains ranging from DOCP's 81% down to 30% for CSX. The rest of the small caps occupied the entire cellar with losses from 8% (RAIL) to 40% (Pioneer).

--Roy Blanchard

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