Remarks by:
Debbie H. Butler
Executive Vice President Planning and Chief Information Officer
Norfolk Southern Corporation
Thank you, Steve and good morning. I’d like to spend a few minutes describing Norfolk Southern’s 2008 capital expenditure plans, with a particular focus on infrastructure investment.
2008 Cap Ex Drivers
Norfolk Southern manages our capital investments to support our business strategy. Our 2008 budget includes investments both to maintain the safety and quality of our existing franchise, and to support the business growth we expect in future years. We will continue to invest in core rail programs and in rolling stock. Investments in service quality and performance, especially in the Intermodal market area, have been and will remain key drivers of growth. And we will continue to look toward public-private partnerships as one method to help finance these improvements.
Capital Investments
In 2008, NS plans to spend $1.425 billion on capital investments. This represents an increase of $84 million, or 6%, versus 2007 expenditures.
2008 Capital Improvement Budget
Each year, a significant portion of our capital expenditures is invested to maintain our franchise, including maintaining our right-of-way, equipment replacement, and safety and regulatory requirements. Approximately 71% of our 2008 capital expenditures will be spent on maintaining our railroad for continued safe and reliable operations.
The remaining 29% of our budget is related to the growth and productivity of our franchise. These projects include infrastructure and terminal expansion investments, strategic opportunities, and projects that improve our productivity and efficiency.
The categories of capital expenditures we plan to make in 2008 are highlighted here. I’ll provide some detail for each of these types of investments on the next few slides.
I mentioned earlier that a large part of our budget is spent to maintain our existing franchise, and a significant portion of that is needed to maintain our right-of-way. Maintenance of way spending in 2008 is budgeted to be $613 million, or 43% of our total capital budget.
Maintenance of Way
Norfolk Southern has a strong history of maintaining our track network at levels that allow us to operate trains safely and efficiently, and that meet our customer’s service standards. Our 2008 budget contains funding for the normalized replacement of rail, ties and ballast, as well as for the continued improvement or replacement of bridges located throughout our system.
2008 Capital Improvement Budget
Locomotives and freight car acquisitions and improvements will total $264 million, or 19% of our expected capital expenditures this year.
Freight Cars and Locomotives
We will continue a multi-year program that began in 2007 to replace our coal car fleet with more efficient cars as our existing fleet becomes unsuitable for service due to age and condition.
To maintain capacity in certain high-demand freight car fleets, we plan to buy out the leases of 321 freight cars as their leases expire in 2008.
163 new multi-level automobile racks will be built to handle existing traffic; we also continue to make capital improvements to our multi-level fleet to keep the cars at the high quality levels that our automotive customers expect.
I mentioned in June that we expected spending on locomotives to be lower for the next few years, due partly to aggressive spending in previous years, and partly to the asset utilization improvements Steve alluded to earlier. We will take delivery of 15 new locomotives in early 2008 and will continue to make capital improvements to the fleet to improve efficiency and reliability.
2008 Capital Improvement Budget
Investments in facilities and terminals throughout our network will total $143 million, or 10% of our total planned capital expenditures.
Facilities/Terminals
We believe that Intermodal will continue to be a high growth market on our network over the long term, so we are still investing in terminal capacity to handle the expected growth. Major projects include the construction or expansion of facilities in Columbus and Maple Heights, OH.
Investments in bulk transfer facilities will support the growing ethanol market as well as other commodities.
Significant facility investments are also budgeted for non-commercial activities. These include a new freight car repair shop in Portsmouth, OH, upgrades to locomotive service facilities, and new or upgraded wastewater treatment plants.
2008 Capital Improvement Budget
Investments in computers and technology are budgeted to be $66 million, or 5% of our total capital expenditures.
Technology
We believe strongly that investments in technology enhance safety, improve operational efficiency and equipment utilization, and give us the tools to better plan and manage our network and processes. Accordingly, we are investing in hardware and software to support a number of technology initiatives in 2008.
A few examples of projects that will be funded next year include: LEADER, a locomotive engineer coaching system system that has proven to yield fuel savings and reduced train and track wear and tear as a result of better train handling; Optimized Train Control, Norfolk Southern’s version of positive train control; and several new or improved systems that will take advantage of the increased availability of GPS and other on-board communication devices on our locomotives.
2008 Capital Improvement Budget
Projects that fall outside of the categories I’ve previously described total $339 million, or 24% of our planned capital expenditures in 2008. We’ve classified these as Infrastructure and Other.
This category is primarily comprised of investments in infrastructure and expansion, although I should point out that some projects that also provide for expansion and growth are included in other categories such as Terminals and Technology.
Infrastructure & Other
Most of the infrastructure investments are projects to increase mainline capacity; track upgrades and expansions to accommodate new customers or traffic; and large network Public/Private Partnership investments such as the Heartland and Crescent Corridors and the Chicago CREATE project.
Core investments such as communications and signal projects, the replacement of maintenance of way machinery, and public improvements such as grade crossing separations are also included in this category.
Our infrastructure investments are critical to our capacity to support future growth, so I’ll provide a little more detail about them on the next few slides.
Gateways
Before I describe our 2008 spending plans, it is important to highlight the infrastructure investments that were made in 2006 and 2007. Investing to accommodate growth on our Southern Gateways has been a priority. Investments in the Memphis and Meridian gateways support growth in interline business with our western partners. Growing volumes on our route to Florida, including our Jacksonville gateway with FEC, has led to spending in that area of the southeast as well.
Key Routes
We’ve also invested to improve operations in two key areas outside the Southeast – on our route between Cincinnati and Columbus, Ohio, and at our Harrisburg Intermodal hub.
Coal Improvements
NS had made several targeted investments to improve the efficiency of its coal network and we have also had success in building partnerships with the states of Georgia, North Carolina and Pennsylvania to facilitate $118 million of investment on NS lines.
Overall, Norfolk Southern authorized $120 million for strategic capacity improvements in our lines in 2006 and 2007 – not including the Heartland and Crescent Corridors. The investments shown here, as well as infrastructure spending prior to 2006, have already had positive impacts on network fluidity and service reliability.
Heartland Corridor
Let me quickly highlight our two major capacity expansion initiatives. The Heartland Corridor project will give us a new double-stack gateway for container traffic from the east coast to the mid-west, reducing transit time from the Hampton Roads ports to the Ohio Valley by 24 hours. This is a complex engineering project that will raise clearances in 28 tunnels. And it’s not only the engineering that’s complex. An enormous amount of work has gone into re-designing service to existing customers, to allow trains to operate around the construction windows. The first tunnel work began in October and the entire project is expected to be complete by 2010. As you will recall, this is a $150 million public/private partnership involving contributions totaling $95 million from the federal government, Virginia, West Virginia, and Ohio.
Crescent Corridor
As we announced in June, the Crescent Corridor project will link key markets in the Northeast, Mid-Atlantic and central southeast with high quality rail intermodal service. Most of the investments will be targeted to expand existing facilities or markets along the NS network and to make line of road improvements to handle the increase in traffic. The remaining investments for the Crescent Corridor will include locomotives, railcars and Intermodal equipment such as containers and chassis.
The total cost for the corridor is in excess of $2 billion and will take several years to complete. As with the Heartland Corridor, NS will invest to the extent that we expect to earn a reasonable return on our investment. In fact, a couple of projects in our 2008 infrastructure plan will directly support Crescent and are the result of a public-private partnership with the Commonwealth of Virginia. But the availability of additional public funding will be a critical component of the success of this project.
Focus areas (Chicago Line, N. end GA Division)
Apart from Heartland and Crescent, and based on the market expectations we have today, over the next three years infrastructure investment on Norfolk Southern is expected to be concentrated in two major areas -- the lines east of Chicago and the Southeast. The Chicago East projects have largely been identified and will be built out in phases over the next two to three years. Significant investments in facilities and track capacity are also planned in the Atlanta and Birmingham areas.
So let me end where I began. As has always been our practice, Norfolk Southern’s capital plan is designed to support, and closely align with our business strategy. Clearly, that strategy anticipates solid prospects for long-term growth. But our plan is also flexible enough to allow us to adjust spending if market or regulatory conditions change.
Thank you, and I’ll turn the program back over to Wick. |
