EX-99.1

Independent Auditors’ Report

To the Partners and Shareholders
Rail Partners Limited Partnership and Consolidated Entities, and
Rail Management Corporation

We have audited the accompanying combined balance sheet of Rail Partners Limited Partnership and consolidated entities, and Rail Management Corporation (an affiliated corporation) all of which are under common ownership and common management, as of December 31, 2004, and the related combined statements of income, owners’ capital, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Rail Partners Limited Partnership and consolidated entities, and Rail Management Corporation (an affiliated corporation), at December 31, 2004, and the combined results of their operations and their combined cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Carr, Riggs & Ingram, LLC

Enterprise, Alabama
July 22, 2005

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
COMBINED BALANCE SHEET
DECEMBER 31, 2004


	2004

ASSETS
CURRENT ASSETS
Cash	$	45,463,684
Accounts receivable, net of allowance for doubtful accounts of $46,629		12,991,717
Accounts receivable — related party		80,426
Inventories		963,793
Prepaid expenses and other assets		484,982


Total current assets		59,984,602


PROPERTY AND EQUIPMENT — NET		58,754,200


OTHER ASSETS
Goodwill		17,333,250
Other assets, net of accumulated amortization of $194,776		226,152


Total other assets		17,559,402


Total assets	$	136,298,204


LIABILITIES AND OWNERS’ CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt	$	153,916
Accounts payable		10,722,870
Accounts payable — related party		14,789
Accrued liabilities
Freight		7,382,675
Salaries, wages and employee benefits		6,946,355
Other		3,877,194

Total current liabilities		29,097,799

LONG-TERM DEBT		51,601,167

DEFERRED INCOME TAXES		351,343

Total liabilities		81,050,309

MINORITY INTEREST		1,060,645

COMMITMENTS AND CONTINGENCIES

OWNERS’ CAPITAL		54,187,250


Total liabilities and capital	$	136,298,204

See notes to combined financial statements.

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004


	2004

REVENUES	$	57,060,465


OPERATING EXPENSES
General and administrative		9,957,333
General and administrative — related party		407,189
Employment expenses		9,553,690
Repairs, maintenance, derailment and fuel		11,861,081
Car hire and operating lease expense		1,441,456
Lease expense — related party		145,418
Depreciation and amortization		6,633,796


Total operating expenses		39,999,963


OPERATING INCOME		17,060,502


OTHER INCOME (EXPENSE)
Interest income		439,705
Interest expense		(4,019,023	)
Other, net		115,770


Total other expense — net		(3,463,548	)


INCOME FROM CONTINUING OPERATIONS		13,596,954


INCOME FROM DISCONTINUED OPERATIONS—
Net of income tax provision of $551,902 and minority interest of $394,587		287,287


NET INCOME	$	13,884,241

See notes to combined financial statements.

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2004


	2004

OPERATING ACTIVITIES
Net income	$	13,884,241
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,142,748
Deferred income taxes		(144,785	)
Minority interest		394,587
(Gain) Loss on sale of property and equipment		(140,770	)
Changes in current assets and liabilities provided (used)
Cash
Accounts receivable		375,835
Accounts receivable-related party		594,475
Inventories		530,068
Prepaid expenses and other assets		(80,843	)
Accounts payable		1,928,414
Accounts payable-related party		(33,352	)
Accrued liabilities		2,707,282

Net cash provided by operating activities		27,157,900


INVESTING ACTIVITIES
Acquisition		(3,730,266	)
Purchases of property and equipment		(2,372,345	)
Proceeds from sale of property and equipment		362,027

Net cash used in investing activities		(5,740,584	)


FINANCING ACTIVITIES
Principal payments on long-term debt		(153,916	)
Capital distributions		(4,531,543	)
Minority distributions		(1,350,000	)

Net cash used in financing activities		(6,035,459	)


NET INCREASE IN CASH		15,381,857

CASH — Beginning of year		30,081,827


CASH — End of year	$	45,463,684


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	4,038,119


Income taxes	$	858,666

See notes to combined financial statements.

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004

NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS

Organization — The accompanying combined financial statements include the accounts of Rail Partners Limited Partnership and Consolidated Entities (“RPLP”), and Rail Management Corporation (“RMC”). The two entities are collectively referred to herein as the “Company”. Minority interest represents the minority shareholder’s (ASARCO) proportionate share of the equity in Copper Basin Railway, Inc., one of the Company’s consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidating RPLP and in combining RPLP and RMC.

At December 31, 2004, the Company owned, or indirectly owned through affiliated entities, the following entities:


CONSOLIDATED ENTITIES		STATES OF OPERATION

AN Railway, L.L.C. (“ANR”)		Florida
Atlantic and Western Railway, Limited Partnership (“ATW”)		North Carolina
The Bay Line Railroad, L.L.C. (“BAY”)		Florida and Alabama
Copper Basin Railway, Inc. (“CBR”)		Arizona
East Tennessee Railway, L.P. (“ETR”)		Tennessee
Evansville Belt Line Railroad, Inc. (“EBL”)		Indiana
Riceboro Southern Railway, L.L.C. (“RSR”)		Georgia
Galveston Railroad, L.P. (“GRR”)		Texas
Georgia Central Railway, L.P. (“GCR”)		Georgia
KWT Railway, Inc. (“KWT”)		Tennessee and Kentucky
Little Rock and Western Railway, L.P. (“LRW”)		Arkansas
M&B Railroad, L.L.C. (“M&B”)		Mississippi and Alabama
Tomahawk Railway, Limited Partnership (“TRY”)		Wisconsin
Valdosta Railway, L.P. (“VRY”)		Georgia
Western Kentucky Railway, L.L.C. (“WKR”)		Kentucky
Wilmington Terminal Railroad, Limited Partnership (“WTR”)		North Carolina
Grizzard Transfer Company (“GTC”)		Georgia
Rail Leasing, Inc. (“RLI”)		Florida
Rail Switching Services, L.L.C. (“RSS”)		Illinois and Ohio

Capital Structure — RPLP and the consolidated entities, except RMC, KWT, GTC, RLI, EBL and CBR, are organized as limited partnerships (“LP”) or limited liabilities companies (“LLC”). Included in the combined statement of owners’ capital of the Company at December 31, 2004 are 6,642.5 membership units of RPLP owned by various trusts controlled by the K. Earl Durden family. All other membership units in the LPs and LLCs are owned by other combined entities and thus are eliminated in combination.

NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS (Continued)

to the applicable provisions of the Internal Revenue Code. CBR is organized as a C Corporation. RMC is authorized to issue two series of common stock, which are Series A voting common stock and Series B non-voting common stock. Included in the combined statement of owners’ capital at December 31, 2004 are 10,000 shares (authorized, issued and outstanding) of RMC no par common stock, comprised of 2,896 shares of Series A voting common stock and 7,104 shares of Series B non-voting common stock. The common stock of RLI, KWT, and CBR, except for the 45% minority interest in CBR, is held by other combined entities and thus is eliminated in combination.

On December 31, 2004, Panama City Beach Office Park, LTD (“PCB”), which was owned 99% by RPLP and 1% by RMC, adopted a plan of merger into Durden Enterprises, LLC, a company owned solely by K. Earl Durden (“KED”) and Michael E. Durden (“MED”). RPLP distributed 33.24% of its interest in PCB to RMC, which KED subsequently purchased. KED also purchased RMC’s 1% interest in PCB. RPLP distributed its remaining 66.76% interest in PCB to the various trusts controlled by the K. Earl Durden family. All unit distributions were made at book value.

Profits and losses are allocated to each partner in the LPs and LLCs based upon their respective ownership percentages. Distributions, including distributions in the event of liquidation, are made in accordance with provisions of the partnership agreements and such distributions may vary from the individual partner’s proportionate capital account balances.

Nature of Operations and Customer Concentration — RPLP is a holding company that holds investments in companies operating short-line railroads and other entities in various states that serve a limited number of customers, lease rail cars, and provide certain other services to related and unrelated entities. RMC is a holding company that holds an investment in RPLP, KWT, GTC, EBL, and RLI.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition — Revenue from transportation and switching services is generally recognized upon completion of the service.

Accounts Receivable — Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Changes in the valuation allowance have not been material to the financial statements.

Inventories — Inventories consist principally of tools, spare parts, and materials used in the Company’s day-to-day operations. These inventories are stated at the lower of cost (first-in, first-out method) or market.

Property and Equipment — Property and equipment are depreciated over estimated useful lives at straight-line rates for financial reporting purposes. Certain assets are depreciated at accelerated rates for income tax reporting purposes. Major classes of depreciable property and equipment and their estimated service lives are as follows:


		ESTIMATED
		LIVES
		IN YEARS

Buildings		20 — 40
Railroad tracks and property		12 — 20
Trucks and autos		5 — 7
Machinery and equipment		3 — 12
Furniture and fixtures		3 — 10

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and Other Intangible Assets — Goodwill totaling approximately $24,000,000 was recognized by the Company on ECI’s acquisition of Green Bay Packaging’s interest in RPLP and RMC in 1996. The recorded amounts represent the excess of the price paid for the acquisitions over the book value of the interests acquired. Goodwill was being amortized on the straight-line method over twenty years.

The Company adopted the provisions of FASB Statement 142 as of January 1, 2003. Financial condition and results of operations in accordance with Statement 142 are reflected in the accompanying financial statements.

Income Taxes — RPLP, RMC, KWT, GTC, EBL, and all other LP’s and LLCs are organized as non-taxable entities. Since taxable income of these entities is includable in the income tax returns of the partners and owners, income taxes are not provided for on the income of these entities.

Provision for income taxes is, however, recorded on income of CBR. Deferred income taxes for CBR reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These differences relate primarily to depreciation.

Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements — During 2004, the Company adopted FASB Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees.” FIN 45 requires increased disclosure of guarantees, including those for which likelihood of payment is remote, and product warranty information. FIN 45 also requires that guarantors recognize a liability for certain types of guarantees equal to the fair value of the guarantee upon its issuance. The adoption of FIN 45 did not have a material impact on the results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46). FIN 46 addresses whether business enterprises must consolidate the financial statements of entities known as “variable interest entities”. A variable interest entity is defined by FIN 46 to be a business entity which has one or both of the following characteristics: (1) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional support from other parties, which is provided through other interests that will absorb some or all of the expected losses at the entity; and (2) the equity investors lack one or more of the following essential characteristics of a controlling financial interest; (a) direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights, (b) the obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities, or (c) the right to receive the expected residual returns of the entity if they occur, which is the compensation for risk of absorbing expected losses. The Company adopted FIN 46’s accounting provisions for the year ended December 31, 2003. The adoption of this new standard did not have a material impact on results of operations or financial position.

In December 2003, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which supersedes SAB 101 “Revenue Recognition in Financial Statements.” SAB 104, among other things, rescinds accounting guidance contained in SAB 101 related to multiple element revenue arrangements which was superseded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” The issuance of SAB 104 reflects the concepts contained in EITF 00-21. The other revenue recognition concepts contained in SAB 101 remain largely unchanged. The issuance of SAB 104 did not have a material impact on the Company’s results of operations, financial position or cash flows.

NOTE 3 — PROPERTY AND EQUIPMENT

Balances of major classes of property and equipment, at cost, and accumulated depreciation at December 31, 2004 are as follows:


	2004

Land	$	6,630,549
Buildings		5,898,202
Railroad tracks and property		69,273,779
Trucks and autos		2,359,114
Machinery and equipment		44,610,398
Furniture and fixtures		1,423,397


Total		130,195,439

Less: accumulated depreciation		71,441,239


Property and equipment, net	$	58,754,200

Depreciation expense for the year ended December 31, 2004 totaled $6,594,348.

NOTE 4 — LONG-TERM DEBT

Long-term debt at December 31, 2004 consists of the following:


			2004


Unsecured note payable to an insurance company with an aggregate availability of $80,000,000, interest payable at 8% per annum; principal payments are due in annual installments of $10,000,000 beginning June 30, 2006 and through June 30, 2009. Remaining principal balance due June 30, 2010.	$	50,000,000

Note payable to the State of Wisconsin Department of Transportation with no interest; principal payments are due in minimum quarterly installments of $10,304 through 2007, with the remaining balance due December 31, 2008, secured by a building (carrying value of $210,459 at December 31, 2004).		546,062

Note payable to the State of Wisconsin Department of Transportation with no interest; principal payments are due in minimum quarterly installments of $9,750 through 2009, with the remaining balance due December 31, 2010, secured by a building (carrying value of $445,867 at December 31, 2004).		619,421

Note payable to the State of Wisconsin Department of Transportation with no interest; principal payments are due in minimum quarterly installments of $18,425 through 2011, with the remaining balance due December 31, 2012, secured by a building (carrying value of $551,710 at December 31, 2004).		589,600

Total		51,755,083

Less: Current maturities		153,916


Long-term debt	$	51,601,167

NOTE 4 — LONG-TERM DEBT (Continued)

Long-term debt has a fair value of approximately $52,000,000 at December 31, 2004. Fair value was estimated using a discounted cash flows analysis, based on borrowing rates currently available to the Company for bank loans with similar terms and average maturities.

Long-term debt matures as follows:


YEAR ENDING
DECEMBER 31:

2005	$	153,916
2006		10,153,916
2007		10,576,330
2008		10,112,700
2009		10,112,700
Thereafter		10,645,521


Total	$	51,755,083

The Company has a revolving line of credit with a bank which provides for the Company to borrow up to $15,000,000. The term of the agreement runs through June 30, 2007 unless extended by mutual agreement of the Company and the bank. At December 31, 2004 there were no borrowings under this line of credit.

The Company’s debt agreements contain various restrictions, including the maintenance of minimum financial ratios and limitations on the amount of capital distributions.

NOTE 5 — LEASES

The Company leases various property and equipment items under leases which are accounted for as operating leases. These leases expire at various dates through 2027 and certain leases contain provisions for renewal. The rental payments under certain of these leases are based on activity along various portions of track and the number of rail cars used. Total rent expense for all operating leases was approximately $766,000 for 2004, which includes approximately $333,000 contingent rentals.

The following is a schedule of future minimum lease payments for operating leases at December 31, 2004:


YEAR ENDING
DECEMBER 31:

2005	$	719,477
2006		661,839
2007		632,704
2008		629,969
2009		628,556
Thereafter		1,248,538


Total	$	4,521,083

NOTE 6 — RELATED PARTY TRANSACTIONS

The Company has entered into various agreements and transactions with ASARCO and with certain entities affiliated with the Company’s shareholders. Amounts included in the combined financial statements as of December 31, 2004 and for the year then ended as a result of these transactions are as follows:

NOTE 6 — RELATED PARTY TRANSACTIONS (Continued)


	2004

Balance Sheets
Accounts receivable	$	80,426
Accounts payable		14,789
Statements of Income
Freight revenue	$	5,492,589
Management, marketing, consulting and accounting fees		407,189
Lease expense		145,418

NOTE 7 — CONTINGENCIES

The Company is self-insured for claims related to employee injuries and general liability, and property claims up to various amounts based on the nature of the claim. In the opinion of management, the ultimate amounts to be paid related to claims existing at December 31, 2004 are not material to the accompanying combined financial statements.

The Company is involved in certain litigation arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company’s combined financial statements.

NOTE 8 — ACQUISITIONS

On February 28, 2004, RMC purchased the stock of EBL, an existing Subchapter S Corporation. There were 1,000 shares authorized and 89 issued and outstanding with a par value of $1,000. RMC purchased all 89 outstanding shares at the price of $1,250 per share, for a total purchase price of $111,250. EBL owned no real property and was not an operating corporation. Upon the purchase of the stock, RMC filed Form 8869 with the Internal Revenue Service electing the treatment of EBL as a Qualified Subchapter S Subsidiary of RMC, an existing S-Corporation, effective March 1, 2004. Subsequent to the stock acquisition EBL purchased approximately 5.5 miles of track from CSX Transportation, Inc. for the price of $150,000. The purchases were funded using cash on hand.

The components, at fair value, of the acquisition are as follows:


Common stock	$	89,000
Goodwill		22,250


Cash paid for stock acquisition	$	111,250

On July 20, 2004, Riceboro Southern Railway, LLC, was formed to acquire 18.8 miles of track from CSX Transportation in Riceboro, Georgia. The total purchase price for the acquisition was $975,000. The purchase was funded using cash on hand.

The components, at fair value, of the acquisition are as follows:


Railroad track and property	$	975,000

On August 23, 2004, KWT purchased 14 miles of track in Dresden, Tennessee. The total purchase price for the acquisition was $2,408,933. The purchases were funded using cash on hand.

NOTE 8 — ACQUISITIONS (Continued)

The components, at fair value, of the acquisition are as follows:


Railroad track	$	2,032,000
Land		376,933


Cash paid for acquisition	$	2,408,933

NOTE 9 — CASH FLOW INFORMATION

The Company considers time deposits, certificates of deposits, and all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

As disclosed in Note 1, a non-cash distribution of RPLP’s interest in PCB was made to the various trusts controlled by the K. Earl Durden family. The distribution was made at book value on December 31, 2004 of $391,253.

NOTE 10 — ASSETS HELD FOR SALE

During the last quarter of 2004 management of RPLP having the authority to approve the action, entered into negotiations with ASARCO, the minority owner of CBR, to sell RPLP’s 55% ownership interest in CBR. As of the balance sheet date an agreement had not yet been reached, although the sale is expected to take place during the calendar year ending December 31, 2005.

The results of operations of CBR for the year ended December 31, 2004 reflected revenues of $8,099,678 and net income of $876,859, net of income tax provision of $551,902, and is included in Income from Discontinued Operations.

The carrying amounts of the major classes of assets and liabilities of CBR that are included as part of the combined financial statements that are considered as being held for sale are as follows:


	2004

Cash	$	1,146,033
Accounts receivable
Trade		674,537
Affiliates		80,426
Inventories		208,584
Prepaid expenses		85,598
Property and equipment-net		1,557,973


Total assets	$	3,753,151


Accounts payable	$	600,736
Accrued liabilities		444,083
Deferred income taxes		351,343


Total liabilities	$	1,396,162

ASARCO’s interest in the assets and liabilities of CBR is presented in the combined balance sheet at December 31, 2004 as Minority Interest totaling $1,060,645.

NOTE 11 — DISCONTINUED OPERATIONS

As disclosed in Note 1, the Company’s ownership interest in PCB was disposed of on December 31, 2004. Accordingly, revenue and net loss from operations of PCB totaling $62,898 and $194,985, respectively, for the year ended December 31, 2004 have been included in Income from Discontinued Operations in accordance with SFAS 144.

NOTE 12 — SUBSEQUENT EVENT

On May 25, 2005, Rail Management Corporation (“RMC”) and various trusts controlled by the K. Earl Durden family entered into an agreement with certain subsidiaries of Genesee & Wyoming, Inc. (GWI Subs) to sell the trusts’ partnership interest in RPLP and certain capital stock, membership interests and partnership interests held by RMC representing substantially all of the rail operations of the two entities. Upon completion of the transaction, the GWI Subs directly or indirectly owned all of the capital stock, membership interests and partnership interests (as applicable) of RPLP, EBL, KWT, and GTC.

RMC and various trusts controlled by the K. Earl Durden family own and operate other businesses which are not being sold to the GWI Subs.

The accompanying combined financial statements are derived from the historical books and records of the Company and do not give effect to any purchase accounting adjustments, which the GWI Subs may record as a result of its acquisition. Certain assets and liabilities on the accompanying balance sheet will not be acquired or assumed by the GWI Subs. Such assets and liabilities will be retained by RMC or were retired at the closing date by the GWI Subs.

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
UNAUDITED COMBINED BALANCE SHEETS


	March 31,		December 31,
	2005		2004
ASSETS
CURRENT ASSETS
Cash	$	38,142,778	$	45,463,684
Accounts receivable, net of allowance for doubtful accounts of $46,629 (2005 and 2004)		14,487,964		13,072,143
Inventories		1,181,576		963,793
Prepaid expenses and other assets		180,452		484,982

Total current assets		53,992,770		59,984,602


PROPERTY AND EQUIPMENT — NET		58,560,807		58,754,200


OTHER ASSETS
Goodwill		17,333,250		17,333,250
Other assets, net of accumulated amortization of $202,377 (2005) and $194,776 (2004)		218,151		226,152

Total other assets		17,551,401		17,559,402


Total assets	$	130,104,978	$	136,298,204


LIABILITIES AND OWNERS’ CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt	$	153,916	$	153,916
Accounts payable		10,992,017		10,737,659
Accrued liabilities		18,007,932		18,206,224

Total current liabilities		29,153,865		29,097,799

LONG-TERM DEBT		51,562,688		51,601,167

DEFERRED INCOME TAXES		351,343		351,343

Total liabilities		81,067,896		81,050,309

MINORITY INTEREST		627,928		1,060,645

COMMITMENTS AND CONTINGENCIES

OWNERS’ CAPITAL		48,409,154		54,187,250


Total liabilities and owners’ capital	$	130,104,978	$	136,298,204

See notes to unaudited combined financial statements.

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
UNAUDITED COMBINED STATEMENTS OF INCOME


	Three Months Ended March 31,
	2005			2004

REVENUES	$	15,438,493		$	14,005,080


OPERATING EXPENSES
General and administrative		2,681,626			2,528,797
Employment expenses		2,385,161			2,174,578
Repairs, maintenance, derailment and fuel		3,123,662			3,490,349
Car hire and operating lease expense		439,451			405,778
Depreciation and amortization		1,678,248			1,644,750


Total operating expenses		10,308,148			10,244,252


OPERATING INCOME		5,130,345			3,760,828


OTHER INCOME (EXPENSE)
Interest income		188,930			73,693
Interest expense		(1,000,000	)		(1,009,375	)
Other — net		44,648			(1,508	)


Total other expense — net		(766,422	)		(937,190	)


INCOME FROM CONTINUING OPERATIONS		4,363,923			2,823,638


INCOME FROM DISCONTINUED OPERATIONS-
Net of income tax provision of $258,054 and $146,372, and minority interest of $256,621 and $98,800, respectively		313,647			95,354


NET INCOME	$	4,677,570		$	2,918,992

See notes to unaudited combined financial statements.

RAIL PARTNERS LIMITED PARTNERSHIP AND CONSOLIDATED
ENTITIES, AND RAIL MANAGEMENT CORPORATION
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
	2005			2004

OPERATING ACTIVITIES
Net income	$	4,677,570		$	2,918,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,784,499			1,770,000
Minority interest		256,621			98,800
(Gain) loss on sale of property and equipment		(46,348	)		(6,492	)
Changes in current assets and liabilities provided (used) cash
Accounts receivable		(1,333,655	)		(315,188	)
Inventories		(217,783	)		387,970
Prepaid expenses and other assets		304,530			239,197
Accounts payable		229,342			(198,180	)
Accrued liabilities		(255,447	)		1,491,858


Net cash provided by operating activities		5,399,329			6,386,957


INVESTING ACTIVITIES
Acquisitions		(1,050,000	)		(79,872	)
Purchases of property and equipment		(547,863	)		(439,093	)
Proceeds from sale of property and equipment		61,107			6,727


Net cash used in investing activities		(1,536,756	)		(512,238	)


FINANCING ACTIVITIES
Principal payments on debt		(38,479	)		(38,479	)
Capital distributions		(11,145,000	)		(2,597,050	)


Net cash used in financing activities		(11,183,479	)		(2,635,529	)


NET (DECREASE) INCREASE IN CASH		(7,320,906	)		3,239,190

CASH — Beginning of period		45,463,684			30,081,827


CASH — End of period	$	38,142,778		$	33,321,017

See notes to unaudited combined financial statements.

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
MARCH 31, 2005

NOTE 1 — BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS

Basis of Presentation — The accompanying unaudited combined financial statements of Rail Partners Limited Partnership and Consolidated Entities (“RPLP”) and Rail Management Corporation (“RMC”) (hereinafter collectively referred to as the “Company”) have been prepared by the Company without audit in accordance with accounting principles for interim financial information generally accepted in the United States of America and pursuant to the relevant rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted.

The unaudited combined financial statements include the accounts of the Company as described below and reflect all normal, recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the combined results of operations of the Company in conformity with accounting principles generally accepted in the United States of America for the interim periods presented. The combined results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for future periods or for a full year.

Organization — The combined financial statements include the accounts of RPLP and RMC. Minority interest represents the minority shareholder’s (ASARCO) proportionate share of the equity in Copper Basin Railway, Inc., one of the Company’s consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidating RPLP and in combining RPLP and RMC.

At March 31, 2005, the Company owned, or indirectly owned through affiliated entities, the following entities:


CONSOLIDATED ENTITIES		STATES OF OPERATION

AN Railway, L.L.C. (“ANR”)		Florida
Atlantic and Western Railway, Limited Partnership (“ATW”)		North Carolina
The Bay Line Railroad, L.L.C. (“BAY”)		Florida and Alabama
Copper Basin Railway, Inc. (“CBR”)		Arizona
East Tennessee Railway, L.P. (“ETR”)		Tennessee
Evansville Belt Line Railroad, Inc. (“EBL”)		Indiana
Riceboro Southern Railway, L.L.C. (“RSR”)		Georgia
Galveston Railroad, L.P. (“GRR”)		Texas
Georgia Central Railway, L.P. (“GCR”)		Georgia
KWT Railway, Inc. (“KWT”)		Tennessee and Kentucky
Little Rock and Western Railway, L.P. (“LRW”)		Arkansas
M&B Railroad, L.L.C. (“M&B”)		Mississippi and Alabama
Tomahawk Railway, Limited Partnership (“TRY”)		Wisconsin
Valdosta Railway, L.P. (“VRY”)		Georgia
Western Kentucky Railway, L.L.C. (“WKR”)		Kentucky
Wilmington Terminal Railroad, Limited Partnership (“WTR”)		North Carolina

NOTE 1 — BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS (Continued)


Grizzard Transfer Company (“GTC”)		Georgia
Rail Leasing, Inc. (“RLI”)		Florida
Rail Switching Services, L.L.C. (“RSS”)		Illinois and Ohio

Capital Structure — RPLP and the consolidated entities, except RMC, KWT, GTC, RLI, EBL and CBR, are organized as limited partnerships (“LP”) or limited liabilities companies (“LLC”). Included in the unaudited combined balance sheets of the Company at March 31, 2005 and December 31, 2004 are 6,642.5 membership units of RPLP owned by various trusts controlled by the K. Earl Durden family. All other membership units in the LPs and LLCs are owned by other combined entities and thus are eliminated in combination.

RLI was established as a QSS Subsidiary of RMC pursuant to the applicable provisions of the Internal Revenue Code. RMC and KWT have elected subchapter S status pursuant to the applicable provisions of the Internal Revenue Code. KWT was subsequently converted into a QSS Subsidiary of RMC pursuant to the applicable provisions of the Internal Revenue Code. CBR is organized as a C Corporation. RMC is authorized to issue two series of common stock, which are Series A voting common stock and Series B non-voting common stock. Included in the unaudited combined balance sheets at March 31, 2005 and December 31, 2004 are 10,000 shares (authorized, issued and outstanding) of RMC no par common stock, comprised of 2,896 shares of Series A voting common stock and 7,104 shares of Series B non-voting common stock. The common stock of RLI, KWT, and CBR, except for the 45% minority interest in CBR, is held by other combined entities and thus is eliminated in combination.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

In March 2005, the Financial Accounting Standards Board (“FASB”) issued Interpretation Number 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (“FIN47”). FIN 47 clarifies the term “conditional asset retirement obligation” as used in Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, and also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We do not anticipate that the implementation of FIN 47 will have a material impact on our financial position, results of operations or cash flows.

NOTE 3 — LONG-TERM DEBT

Long-term debt consists of the following:


	March 31,		December 31,
	2005		2004
Unsecured note payable to an insurance company with an aggregate availability of $80,000,000, interest payable at 8% per annum; principal payments are due in annual installments of $10,000,000 beginning June 30, 2006 and through June 30, 2009. Remaining principal balance due June 30, 2010.	$	50,000,000	$	50,000,000

Note payable to the State of Wisconsin Department of Transportation with no interest; principal payments are due in minimum quarterly installments of $10,304 through 2007, with the remaining balance due December 31, 2008, secured by a building.		535,758		546,062

Note payable to the State of Wisconsin Department of Transportation with no interest; principal payments are due in minimum quarterly installments of $9,750 through 2009, with the remaining balance due December 31, 2010, secured by a building.		609,671		619,421

Note payable to the State of Wisconsin Department of Transportation with no interest; principal payments are due in minimum quarterly installments of $18,425 through 2011, with the remaining balance due December 31, 2012, secured by a building.		571,175		589,600


Total		51,716,604		51,755,083

Less: Current maturities		153,916		153,916


Long-term debt	$	51,562,688	$	51,601,167

The Company has a revolving line of credit with a bank which provides for the Company to borrow up to $15,000,000. The term of the agreement runs through June 30, 2007 unless extended by mutual agreement of the Company and the bank. At March 31, 2005 and December 31, 2004 there were no borrowings under this line of credit.

The Company’s debt agreements contain various restrictions, including the maintenance of minimum financial ratios and limitations on the amount of capital distributions.

NOTE 4 — RELATED PARTY TRANSACTIONS


	March 31,		December 31,
	2005		2004

Balance Sheets
Accounts receivable	$	187,770	$	80,426
Accounts payable		7,076		14,789

NOTE 4 — RELATED PARTY TRANSACTIONS (Continued)


	Three Months Ended March 31,
	2005		2004
Statements of Income
Freight revenue	$	1,799,595	$	1,350,900
Management, marketing, consulting and accounting fees		107,706		105,034
Lease expense		20,715		42,658

NOTE 5 — CONTINGENCIES

The Company is self-insured for claims related to employee injuries and general liability, and property claims up to various amounts based on the nature of the claim. In the opinion of management, the ultimate amounts to be paid related to claims existing at March 31, 2005 are not material to the accompanying combined financial statements.

NOTE 6 — ACQUISITIONS

The components, at fair value, of the acquisition are as follows:


Common stock	$	89,000
Goodwill		22,250


Cash paid for stock acquisition	$	111,250

The components, at fair value, of the acquisition are as follows:


Railroad track and property		$	975,000

On August 23, 2004, KWT purchased 14 miles of track in Dresden, Tennessee. The total purchase price for the acquisition was $2,408,933. The purchases were funded using cash on hand.

NOTE 6 — ACQUISITIONS (Continued)

The components, at fair value, of the acquisition are as follows:


Railroad track	$	2,032,000
Land		376,933

Cash paid for acquisition	$	2,408,933

NOTE 7 — ASSETS HELD FOR SALE

During the last quarter of 2004 management of RPLP, having the authority to approve the action, entered into negotiations with ASARCO, the minority owner of CBR, to sell RPLP’s 55% ownership interest in CBR. As of the balance sheet date an agreement had not yet been reached, although the sale is expected to take place during the calendar year ending December 31, 2005.

The results of operations of CBR for the three months ended March 31, 2005 and 2004 reflected revenues of $2,746,970 and $1,891,295, respectively and net income of $570,268 and $234,193, respectively, net of income tax provision of $258,054 and $146,372, respectively, and is included in Income from Discontinued Operations. The results of operations for the quarter ended March 31, 2004 have been included in Discontinued Operations in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144).

The carrying amounts of the major classes of assets and liabilities of CBR that are included as part of the combined financial statements that are considered as being held for sale are as follows:


	March 31,		December 31,
	2005		2004

Cash	$	536,294	$	1,146,033
Accounts receivable		763,938		754,963
Inventories		316,748		208,584
Prepaid expenses		411		85,598
Property and equipment-net		1,451,722		1,557,973


Total assets	$	3,069,113	$	3,753,151


Accounts payable	$	180,292	$	600,736
Accrued liabilities		1,142,081		444,083
Deferred income taxes		351,343		351,343


Total liabilities	$	1,673,716	$	1,396,162

ASARCO’s interest in the assets and liabilities of CBR is presented in the combined balance sheet at March 31, 2005 and December 31, 2004 as Minority Interest totaling $627,928 and $1,060,645, respectively.

NOTE 8 — SUBSEQUENT EVENT

NOTE 8 — SUBSEQUENT EVENT (Continued)

partnership interests held by RMC representing substantially all of the rail operations of the two entities. Upon completion of the transaction, the GWI Subs directly or indirectly owned all of the capital stock, membership interests and partnership interests (as applicable) of RPLP, EBL, KWT, and GTC.

RMC and various trusts controlled by the K. Earl Durden family own and operate other businesses which are not being sold to the GWI Subs.


	PAGE
INDEPENDENT AUDITORS’ REPORT		1

COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004

COMBINED BALANCE SHEET		2

COMBINED STATEMENT OF INCOME		3

COMBINED STATEMENT OF OWNERS’ CAPITAL		4

COMBINED STATEMENT OF CASH FLOWS		5

NOTES TO COMBINED FINANCIAL STATEMENTS		6 — 13


	COMMON		RETAINED			PARTNERS’
	STOCK		EARNINGS			CAPITAL			TOTAL

BALANCE—January 1, 2004	$	1,964,252	$	26,476,444		$	16,785,109		$	45,225,805

NET INCOME		—		(4,401,539	)		18,285,780			13,884,241

CAPITAL DISTRIBUTIONS		—		(2,024,000	)		(2,898,796	)		(4,922,796	)


BALANCE — December 31, 2004	$	1,964,252	$	20,050,905		$	32,172,093		$	54,187,250


UNAUDITED COMBINED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

UNAUDITED COMBINED BALANCE SHEETS			14

UNAUDITED COMBINED STATEMENTS OF INCOME			15

UNAUDITED COMBINED STATEMENTS OF CASH FLOWS			16

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS			17 — 22