Volume 2, Issue 8
August 10, 2001

Inside this issue:
Smooth start-up: K&O team ready to go
Performance Incentive Plan to see improvements
Blend of hard work and dedication leads to success
Time spent away from work…not really time away
Employee News
Anniversaries
SLWC Railroad easily meets customer needs & wants

Smooth start-up: K&O team ready to go by Julie Madl Newsletter Coordinator

Watco Companies reached a milestone on July 1, 2001, one day before our 18th anniversary. On that date Watco became the largest privately owned short line holding company in the United States by acquiring the Kansas and Oklahoma Railroad in Wichita, Kansas, according to Rick Webb, President of Watco Companies, Inc.

"This acquisition is the biggest deal to date. It gives us 70 per cent of the short line track in the state of Kansas," Webb said.

Formerly the Central Kansas Railway, Watco took possession June 30th. The K&O consists of 920 miles of track extending from Wichita in 3 directions toward the Colorado border.

John Brown, Chief Operating Officer of Watco Transportation Services sees the possibilities brought by this expansion.

"We have the ability to move rail traffic efficiently and effectively from the Colorado border across Kansas, to the Port of Catoosa," Brown said.

The success of the K&O lies in its employees, according to Webb.

"The degree of success will be determined by how well the K&O employees concentrate on Customer service and controlling costs, leading to a high degree of profitability," said Webb.

Both Webb and Brown have high expectations for the K&O.

"The first day we took over, we saw 1,000 cars ordered, which represented a substantial increase from years past," Webb said.

Brown agreed, saying, "The start-up has been positive. The short time we've owned the K&O we've seen exceptional response from shippers. We are plowing fertile ground for Customer service and looking forward to increasing the level of Customer satisfaction."

Many have expressed an interest in the current status of the Performance Incentive Plan (PIP), and I want to update you on our progress.

After our year-end review of the PIP, the consensus was to make changes to the PIP to better reflect today's situation for Watco Companies. We concluded that the measurements needed to be changed in order to remove some inconsistencies and to reemphasize operational improvements that lead to financial improvements. For example, in 2000 we paid out more in the PIP than we did in 1999, but fewer dollars were delivered to the bottom line than in 1999. The exact measurements have not been set for 2001, but we intend to finalize them soon. In spite of that, we are going to pay out the 1st quarter PIP, based upon the previous year's first quarter PIP pay out and any deviation in financial performance. If your profit center's financial performance in the first quarter of 2001 is 10% better than in the first quarter of 2000, you will receive 10% higher PIP pay out than last year. If it is 10% less than you will receive a 10% lower PIP pay out for the first quarter of 2001. The new measurements will be in place by the time the second quarter 2001 PIP pay out is due on September 30, 2001.

The PIP is a very important part of our business plan. We realize that when each of us is motivated on a daily basis to perform our duties in the most efficient and effective manner possible, we will achieve true team success and our desired financial results. Watco has always believed in sharing the rewards of our combined efforts and continue to believe the PIP is a great way of doing just that. The fact that we are taking our time in setting up the new measurements for 2001 does not reflect any wavering of our commitment to the PIP. We have to make sure we are delivering the proper rewards for improved performance.

Within the next few weeks you can look forward to another communication, which will publish the measurements. We anticipate that these new measurements will be easily understood and calculated. The PIP measurements will continue to focus on improving the core elements of our business, which are Customer Satisfaction, Safety, Cost Control and Profitability. Our underlying philosophy of the PIP is to "share the wealth, created by improved performance".

Thanks for all of your interest and patience in the PIP and for improving your daily performance. You have made Watco Companies what it is today, and by constantly improving our performance we can make our company better for tomorrow.

"I've done everything and been everywhere if it pertains to Watco and railroads," says Pat LaCaze, General Manager of the Timber Rock Railroad.

And he's not telling tall tales either. Pat first came to Watco as an employee at the Boise Cascade switching operation in DeRidder, Louisiana in 1984. What was his job? Cleaning boxcars.

"I've been a car cleaner, switchman, worked in car repair, locomotive maintenance, track maintenance…I've been a clerk and managed switching operations."

It may sound like a story of rags to riches, and perhaps it is, but it's really a story of hard work and dedication.

"When we were looking for someone to take the TIBR toward further success, we knew Pat had done an excellent job in switching so we approached him. He has done everything we have asked and more," says John Brown, Chief Operating Officer of Watco Transportation Services.

Pat really had no idea one day he would be in the position he's in, and actually he wasn't thinking that far ahead.

"I started when I was a kid, 18, and it looked fun to me. My only goal was to work hard. I'm still having fun," Lacaze says. "But I didn't realize what I was getting into. I started back when Dick (Webb) used to work with us a lot, and he would say Watco was going to grow, but I never thought it would end up being what it is today. Now nothing would surprise me."

Pat has learned a lot, but says his most important lesson is to work hard.

"I've enjoyed working and meeting so many different people. And most of what I know I've picked up from other people along the way."

Rags to riches or not, Pat has achieved many goals with Watco Companies. John Brown says Pat is a prime story about achievement.

"Pat is a living example that hard work, heart and determination will allow you to achieve success within Watco Companies. If you have the ability and desire, there's a place for you here."

It's the vacation time of the year… or so they say. Fewer and fewer of us are experiencing the break from work for which vacation is intended. The practice of taking "a day here and a day there" has shortened the rest and relaxation of an entire week. Those that do take a full week often find themselves taking a working vacation. A study released last summer by Andersen Consulting (now Accenture) found that 60 percent of workers took some piece of mobile technology on vacation. Cell phones topped the list, followed by laptops and pagers. Of those who took a cell phone, 61 percent left the number with someone at work and more than half of those received a work-related call while on vacation. The Andersen study also showed that vacationing workers often initiate office contact. Thirty-three percent of the 306 workers surveyed checked their voice mail while away, and more than half of those checked at least once a day. In other words, many of us are working while we are supposed to be vacationing.

Vacations mean different things to different people. For some it is a beach resort and others it means harvest time. Regardless of what we choose to do with our time off, the purpose for vacations is to recreate oneself, to refresh mentally and physically, to satisfy the need for new, to learn, to experience, to push personal limits. You should come back better able to face the routine challenges of your everyday life. Here are some examples of how we took our vacations.

Larry Smith - Trainmaster on the PCC enjoyed a chance to do some major projects before a couple days fishing. One major project meant pouring yards and yards of concrete in preparation for a home basketball court. During the breaks waiting on delivery and curing time, he was able to haul hay and repair his water pump. Once the projects were done, he found time for a trip to Coeur d'Alene to fish for pike. He has been heard telling others about how fantastic 9-lb. pikes taste in his special beer batter.

Randy Bennett - Vice President of Switching took his family on their traditional vacation to the sugar white sand beaches of Destin, FL. For the last 6 years they have rented a condo on the beach overlooking the aqua-green ocean waters. His son spent time at the sports center and his wife visited the outlet mall and beach shops. Besides being sun-tanned, Randy also came back a few pounds heavier thanks to Gratzi's (an Italian restaurant) and The Donut Hole.

Maurice McGinnis - Switching Manager in Monroeville spent the entire week "renewing relationships" with his children, wife, and daytime television while it rained every day. Saturday provided a break in the weather with a day of beautiful sunshine for the grand pool party filled with good friends and great food. Rain returned the next day and he finished his vacation like it started, in front of the television.

Scott Reser -Switchman at Wallula spent his two weeks visiting friends and relatives. The highlights of his vacation included a fabulous fireworks display in the Seattle area and various nightclubs. He also took the ferry to Cuences Islands and spent time in Canada. His co-workers listened jealously of his travels to beautiful Vancouver and other places in the Puget Sound.

Friends from his "old Army days" gave Larry Wise - Jacksonville Mechanical Purchasing a tour of North Carolina. In Wilmington they visited the USS North Carolina Battleship and enjoyed the view of another branch of the military. They shared food and exchanged stories of their time together in Germany. The women had been in Germany with their husbands during the tours and were able to add their own special spin to the tales.

Each one of these employees related the ability to return to work with renewed vigor. Vacation gave the necessary break from the routine and pressures of daily work. A job takes on a new look and is appreciated afresh when there is a break.

Everyone is encouraged to take vacation time and totally get away from work. We must resist the lure of trying to stay in contact because we are "needed". Vacations provide an excellent time for others to learn new skills as they fill-in for the vacationing person. By not checking in while on vacation we show that we trust the rest of our co-workers to properly carry on without us. Who knows, they may even be happy to see you return to your job with a new appreciation of how much you really do.

The following people have joined the Watco Companies, Inc. family as part of the K&O Railroad.

Jimmy Alston, Jim Blevins, Ted Chamberlin, Chad Dikeman, Mark Hall, Jose Hernandez, Marlin Hughes, Jim Kilmer, Mark Lawless, Mitch Menges, Stephen Sams, Russell Sherffius, Leo Stos, Timothy Tolan, Harold Yahnke, Laura Stieben, Allen Ott, John Ott, Chad Nichols, Wade Cotter, Jason Stutzman, Jack Wiles, Lucky Mitchell, Sherlyn Graham, Tom Little, Dale Reynolds, Lisa Stewart, Deborah Furnace, David Gray, Joni Butler, Tim Marr.

Watco Transportation-Track Ron Preuss, Dean Moore, Steven Palecki, Charles Shope, Brandon Lorenz, Allen Shields, Herb Lambin, Rick Winegarner, Irineo Basurto, Juan Zamora Jr., Herbert Griggs, David Smith, Heath Griggs, Jason Rossman, Heath Davis, Lonnie Showalter, Heath Morgan, Neal Jacobs, Willis Iverson, Steven Morgan, Dale Elias, Donald Brau.

Watco Transportation-Locomotive Repair Charles King, Michael Engberg, Greg Horsley, Codi Engberg, Chris Frye.

Watco Transportation-Car Repair

James Roger Jr., Lonnie Freenstra, Ed Erker, Craig Stansbury, Carl Baker.

Watco Leasing in Jacksonville, Florida, welcomes Sonya Hall as Leasing Clerk. Sonya has over 12 years of experience in accounting and club and office management. She and her husband Alex have an 11 year old son, Wesley.

Also new to the Jacksonville location, is Karla Milton. Karla is the accounts payable clerk and has 7 years experience in accounts payables and receivables and as a legal assistant. Karla and her husband, Jason, have a 15 month old son Bradley.

Lois Ziesenis joins Watco Companies, corporate office in Pittsburg, KS, as Accounts Receivable for Railroads. Lois has 14 years experience in finance and banking. Lois and her husband Tim have 2 kids, Justin, 12, and Jessica 9.

Birth Announcements: Todd Buie, SKOL Engineer in Cherryvale, KS, and his wife Amy: baby girl Lacy Jolene Buie, born July 11th, 8 lbs. 8oz, 19 inches long.

Brian Guy, Watco Warehouse Assistant Manager in Pittsburg, KS, and his wife Tammy: baby boy Benjamin James Guy, born July 16th, 6 lbs. 4 oz, 18 inches long. Tammy and Brian also have a 3 year old daughter Samantha.

Congratulations to the following people who celebrate a milestone in the month of August.

1 year-Todd Fenimore, Danyale Norman, Dennis Madison, Kent Williams, Kaman Holt, Christopher Rogers, John Horton, Michael Gonzales, Michael Guillory, Williard Jordan.

2 years-Dan Person, Kim Bohrer, Jeremy Bailey, Jason Dunbar, Robert Coleman, Michael Collier, Buehl Pool III, Jay Setser, Joe Washington, James Brooks.

3 years-James Salyer, Albert Small.

4 years-Raymond Houck, Donald Hartman, Scott Reser, Randel Thomas, Chad Davis, Brian Fryer, Chris Applebaugh, Brian Collier.

5 years-Doug Kerley.

6 years-Charles Moore, Susan Lewis, Charles Sigley.

7 years-Jeri Miorandi, Ralph Scully, Randy Brister, Scott Storer, Donald Sappenfiel.

9 years-Kenneth Dozier, Juan Ramirez, Bobby Reeves.

10 years-Maurice McGinnis.

11 years-Robert Brightwell.

12 years-Jose Hernandez.

13 years-Jerry Wilson.

16 years-Randy Garrteson, Billy Coy, Mark Nolte, Terry Johnston.

17 years-Randy Bennett.

The Stillwater Central Railroad just celebrated it's third year of operations since its startup in June 1998 over the former Burlington Northern Santa Fe Railroad between Pawnee and Stillwater, OK,("the Aggie Sub") and Sapulpa, and Oklahoma City, ("the Sooner Sub").

These two line segments were purchased by the State of Oklahoma to retain rail service to those communities and Watco Companies was selected by the State of Oklahoma to be the rail operator. Employees of the Stillwater Central are committed to provide safe, efficient, quality rail transportation services for customers. The working relationship goes beyond what is required with the customers and the BNSF as the SLWC goes the extra mile to provide rail transportation services. Customers that once received rail service a couple of times a week are now receiving five day a week consistent service.

The on-line customer base of Armstrong World Industries, National Standard, Polybag, Quebecor, and Stillwater Milling generates approximately 1,500 carloads of revenue freight each year. Major commodities such as limestone, steel wire rod, plastics, printing paper, and agricultural products are transported via the SLWC.

General Manager, Jeff Mayberry, believes providing the customer with consistent quality rail transportation services will allow SLWC to continue to grow and prosper. Jeff has established a great team to provide the rail service and with the support of the customer service center located in Cherryvale, KS, they are able to meet the customer's needs. The train crew of Richard Mendenhall and Randy Wessel provide the customers with excellent service, along with the track crew lead by David Blythe.

Ash Grove Cement, one of the customers on the SKOL, expects the completion of their plant expansion later this year and will begin moving several thousand carloads of cement from Chanute, KS (SKOL) to Oklahoma City (SLWC) over both the SKOL and the SLWC. It is this type of synergy that helps make the Watco Companies a vital rail transportation provider for its customers.

(This is an on-going series on Watco Companies profit centers.)

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