Remarks by:
Deb H. Butler
Executive Vice President Planning and Chief Information Officer
Norfolk Southern Corporation
Good Morning. The next several slides are intended to add a little color to Norfolk Southern’s 2009 capital expenditure plans.
2009 Capital Expenditure Drivers
Due to the uncertainty of the economy, we plan to spend less in 2009 than we did in 2008. And as Jim mentioned, we have already identified projects within the 2009 plan that could be postponed if business conditions are substantially worse than forecast and spending needs to be adjusted further. However, our planned 2009 capital budget includes investments both to maintain the safety and quality of our existing franchise, and to support the business growth we continue to expect in future years. 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 Expenditures
Total planned capital investment in 2009 is $1.412 billion, compared with $1.56 billion in 2008 capital spending.
2009 Capital Improvement Budget
Replacement/Core vs. Growth
$1.412 billion
Each year, a significant portion of our capital expenditures is invested to maintain our franchise, including upgrading the condition of our right-of-way, replacing equipment, and complying with safety and regulatory requirements. Approximately 72% of our 2009 capital expenditures will be spent on maintaining our railroad for continued safe and reliable operations.
The remaining 28% 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.
2009 Capital Improvement Budget
The categories of capital expenditures we plan to make in 2009 are highlighted here. I’ll provide some detail for each of these types of investments in the next few slides.
2009 Capital Improvement Budget
A large part of our budget is spent to maintain our existing franchise, and a significant portion of that is needed to keep our right-of-way in the condition needed to move our customers’ business safely and reliably. Roadway spending in 2009 is budgeted to be $698 million, or 49% of our total capital budget.
Roadway
$698 million (+13% vs. 2008)
Our 2009 roadway 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. Program spending is projected to be 13% higher than 2008 spending, although our plans to replace rail, crossties, and ballast are all slightly below 2008 levels on a unit basis.
The increase in Roadway spending in 2009 is primarily due to increased unit cost projections. These costs are a moving target in today’s environment, and we will adjust our spending throughout 2009 to reflect actual costs. However due to the long lead times required, roughly two-thirds of the material needed to support the 2009 programs has already been purchased or committed.
2009 Capital Improvement Budget
Freight car acquisitions and improvements will total $45 million, or 3% of our expected capital expenditures this year.
Freight Cars
$45 million (-78% vs. 2008)
In 2009, we plan to acquire 514 newly-built super jumbo covered hoppers to protect our core southeastern feed grain business. These cars replace more expensive leased cars that we will turn back, and as a result, the project has very attractive returns.
To maintain capacity in certain freight car fleets where we expect high demand in the future, we plan to buy out the leases of 331 freight cars as their leases expire in 2009.
We are reaping the benefits of several 2008 initiatives, including the scheduling of unit coal trains, that significantly improved the velocity of our coal car fleet. Although we are still faced with replacement of a large percentage of our coal fleet over the next several years, we will be able to defer new coal car purchases until 2010 and later years.
2009 Capital Improvement Budget
Locomotive spending will total $79 million, or 6% of our expected capital expenditures this year.
Locomotives
$79 million (- 49% vs. 2008)
We do not plan to acquire new locomotives in 2009, due partly to aggressive spending in previous years, and partly to asset utilization improvements. We will, however, continue to make capital improvements to the fleet to maintain capacity and improve efficiency and reliability.
Emission kits for both GE and EMD locomotives will be installed to meet government requirements. We will invest in Communication Management Units, which are GPS locomotive information systems that are central to a number of our Track 2012 initiatives, including positive train control.
Hybrid initiatives include the construction of a six-axle locomotive with lead acid power plants to be used for pusher service in Pennsylvania and the construction of several Genset locomotives for local switching.
2009 Capital Improvement Budget
Investments in facilities and terminals throughout our network will total $141 million, or 10% of our total planned capital expenditures.
Facilities/Terminals
$141 million (-16% vs. 2008)
We expect Intermodal to be a high growth market over the long term and we will continue to invest in Intermodal terminal capacity. This was our strategy during the lean recession years in 2002 and early 2003, and it positioned us well when traffic growth resumed.
Investments to support other Marketing initiatives include facilities for moving ethanol and municipal solid waste.
Non-commercial facility investments include new locomotive facilities in Pittsburgh, PA and Atlanta, GA; the renovation of several buildings used by Transportation and Mechanical forces; and new or upgraded wastewater treatment plants.
2009 Capital Improvement Budget
Investments in computers and technology are budgeted to be $66 million, or 5% of our total capital expenditures.
Technology
$67 million (- 4% vs. 2008)
We invest in technology to enhance safety, to improve operational efficiency and equipment utilization, and to give us the tools to better plan and manage our network and processes. All of these investments are targeted to help us meet our Track 2012 goals.
Projects that will be funded next year include the continued roll-out of Optimized Train Control, Norfolk Southern’s version of PTC; LEADER, a locomotive engineer coaching system that is expected to yield fuel savings and reduce equipment wear and tear as a result of better train handling, and UTCS, our new dispatching system.
Several new and replacement investments are budgeted in order to maintain our core systems and to provide new planning tools to assist in improving yard, crew, train, locomotive and freight car performance.
2009 Capital Improvement Budget
Investments in infrastructure are budgeted to be $170 million, or 12% of our total capital expenditures.
Infrastructure
$170 million (+36% vs. 2008)
Most of the infrastructure investments planned for 2009 are projects to increase mainline capacity, to improve the network to accommodate future traffic growth, and to support Public/Private Partnership investments such as the Heartland and Crescent Corridors and the Chicago CREATE project.
Crescent Corridor investments include the 2009 spending required to complete our matching obligation of the Virginia Commonwealth funds for capital improvements along the Crescent Corridor in Virginia.
2009 Capital Improvement Budget
Projects that fall outside of the categories I’ve previously described total $213 million, or 15% of our planned capital expenditures in 2009.
Other Capital Investments
$213 million (-3% vs. 2008)
Included in this category are core investments such as the replacement of roadway machinery and vehicles, communications and signal projects, and public improvements such as grade crossing separations.
Also included is funding for projects that require capital investments of less than $500,000 per project.
Capital Expenditures
To summarize, the $1.412 billion to be spent on 2009 capital investments represents a decrease of $144 million, or 9%, compared with 2008 capital spending. As always, business needs, the economic environment and strategic initiatives such as Track 2012 are the key drivers of our capital investment decisions.
Thank you and I’ll turn the program back over to Wick. |
