Norfolk Southern Corp (NSC) 2002 Q2 法說會逐字稿

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  • David Goode

  • Good morning.

  • I am David Goode and on behalf of Norfolk Southern, let he welcome you to our second quarter analyst meeting.

  • I will welcome those listening by telephone conference call, as well and make my usual reminder to use the microphone so that everybody can hear.

  • I remind our listeners to the telephone the slides by the presenters are available for your convenience on our website in the investing in the Thoroughbred section.

  • We have several representatives of our management team here this morning.

  • We have our vice chairmen and I will introduce them.

  • I think you know them.

  • We have vice chairman Ike Prillaman;

  • Steve Tobias our chief operating officer; and Hank Wolf our chief financial officer.

  • All of whom you will be hearing from.

  • We have Catherine McQuaid, senior vice president;

  • John Rathbone, our senior vice president and controller;

  • Bill Roamy, vice president and treasurer;

  • Bob Fort our vice president of public relations; and Leanne McGruder, our director of investor relations is here in the front.

  • And most important of all, I guess, Debbie Malbon, Hank's assistant. (inaudible) I hope you will take advantage of that. Now, overall, I am encouraged with second quarter results.

  • They show 11% increase in earnings year-over-year.

  • I am more pleased we were able to achieve the improvements in the second quarter from a financial and also from an operating perspective.

  • This quarter illustrates continuing improvement in results and as you know, that is very simply our objective.

  • We saw good strength this quarter in our intermodal and our general commodity loading.

  • Although I can't say the same for coal. I am particularly pleased you will not be surprised, I am particularly pleased our operating ratio for the quarter once again has a 7 as the first digit.

  • You know we have been working on that and that is something we are going to continually work on improving margins.

  • The Thoroughbred operating plan has been a key to business growth and positioned us to improve our service reliability, which Steve will talk about.

  • It enabled us to lower operating expenses and achieve greater productivity.

  • The favorable second quarter results are obviously in spite of the continued economic uncertainty.

  • Nevertheless, we saw strength in the quarter in most of our markets.

  • We expect that to continue. Our increase in the dividend was recognition of the improvements and we expect to sustain those improvements and build on them for the future.

  • Looking at numbers, which I will do briefly and Hank will do in considerable detail.

  • Our net income was $119 million or 31 cents a share.

  • Compare wide net income of $107 or 28 cents a share in last year's second quarter.

  • That is 11% improvement.

  • It was done with essentially flat overall revenues.

  • When you look closer, the revenues show good growth in general carloads offset by the decline in coal. For the first six months net income was 53 cents a share.

  • For the comparable period last year net income was $181 or 47 cents a share.

  • That included, this is the last time I will have to talk about this.

  • That included the after-tax gain from the North American Van Lines residual of 3 cents per share, which was a 1998 item reported in the first quarter of last year. In any event, on a comparable basis, our six month results are improved 20% on year-over-year basis.

  • During the second quarter, we handled 2% more traffic and at the same time reported record on-time performance levels.

  • Steve will show you our scheduled operating plan continues to gain momentum.

  • We showed a good deal of progress in the quarter in improving train speed and in lowering terminal dwell time.

  • That is producing good results for us. In short, we feel good about our operations about gathering strength in our markets.

  • Yet, we are cautious, as everyone is, about the economy in the troubled times.

  • I would like you to note as we work to improve operations and network efficiency, we maintain our focus on safety.

  • In May the nst had the honor of accepting the Harriman gold medal.

  • We want to continue to show leadership in this area and continue to do that.

  • Our numbers are improving year-over-year in safety.

  • Labor and management are working together in close cooperation to improve safety, and at the same time, improve service in the overall operations.

  • We have teams actively working with customers on sales and service improvement efforts, as we have long had teams working on safety. Even with the weak coal traffic this quarter, the second quarter railway operating ratio improved to 79.8%.

  • That compares with 82.3% in the same period of 2001.

  • That is our best quarterly operating ratio since the Conrail integration.

  • It is not what we want, but this improved operating ratio shows efficiency and productivity improvement can take effect even with less than optimum traffic mix.

  • We will continue to work on improvements in this area. Our dividend action yesterday shows how we feel about our improvements.

  • Our first priority continues to be debt reduction and we expect to do that this year and in the future.

  • We do expect to use improved operating ratio and cost generation to benefit both our dit holders and stockholders and at the same time improved service benefits our customers. Looking to the third quarter and the balance of the year, we expect continued improvement in operations to produce additional efficiency gains and improve customer servings.

  • We are continuing to take a discipline d approach to pricing our rail service.

  • We are actively negotiating rates with customers that reflect the market value of rail service and associated costs, at the same time we are taking every action to improve the value of our servings. I know you are interested and we will give you details on revenue in a few minutes.

  • We expect favorable service trends to continue throughout the balance of 2000 and into next year.

  • We think that will help us grow new business from the highway.

  • We have seen evidence of that already and seeing that does take hold.

  • We believe the economy is improving.

  • We see favorable signs in the carloadings, although it is still moving very slowly and obviously there is a good deal of uncertainty.

  • We remain cautiously optimistic about economic recovery.

  • Our carloadings in July are up 5% year-over-year, led by strength in intermodal volume, which is up 13%, suggesting the consumer economy remains viable.

  • Looking to coal, we do expect to see improvement in the weather when I arrived here certainly indicated somebody should be burning some coal for electric generation and working down the stockpiles. I have to say improvement in coal business has not yet been visible to us.

  • So, to summarize, I believe the Norfolk Southern has been able to do a good deal more than hold its own in this tough economic environment.

  • We are going to continue to improve our operations and focus aggressively on improving revenue yield in all markets.

  • We are going to facilitate that by improvement in service consistency and reliability as we continue to improve and implement our Thoroughbred Operating Plan.

  • I am obviously worried about the effects of the stock markets' weakness on business generally and attitudes that you see.

  • However, Norfolk Southern plans are simply to stick to our knitting.

  • We are going to improve service and performance on a continual basis.

  • We are going to be able and ready to take on business as we sell our product aggressively.

  • That appears to have worked in the second quarter and I think it will work in the future. I look forward to seeing where we can go when a rallying economy let's us hit full stride.

  • I will ask Hank Wolf to review numbers for the second quarter and then have Ike give you specifics of the markets and revenue numbers and then Steve will follow to review our operational statistics for you.

  • You will get a good dose of numbers and then we will return to take your questions.

  • Hank Wolf - CFO

  • Thank you, David.

  • Good morning.

  • In the second quarter, we posted improved results across the board despite decline of nearly 10% in coal traffic.

  • The economy remains weak.

  • We have been intensely focused on running the railroad efficiently and controlling cost.

  • We believe that our disciplined approach with the new Thoroughbred Operating Plan will position us well to handle the incremental business as the economy strengthens in the future. As you will recall last year, we recognized additional after-tax gain of $13 million or 3 cents per share related to 1998 sale of North American Van Lines.

  • Today I will focus on our first 6 month results excluding the effects of this item.

  • Railway operating revenues for the second quarter were 1.59 billion, one billion above last year.

  • Year-over-year operating revenues were 3.1 billion, a decrease of 41 million or 1%. Ike Prillaman will provide you with details of our revenues in just a moment. Railway operating expenses for second quarter were 1.27 billion, 39 million below 2001.

  • For the first six months railway operating expenses were 2.53 billion, 113 million or 4% lower than last year.

  • With the exception of modest increases in depreciation and other expense, all expense categories showed improvement in the second quarter.

  • The largest decrease was in diesel fuel expense, which declined by 22 million or 21%.

  • The improvement in diesel fuel expense was due to 20% decline in the average price per gallon, which fell from 88 cents to 70 cents together with a small reduction in fuel consumption of approximately 1 million gallons. Continuing our diesel fuel hedging program, we hedged approximately 77% of our second quarter diesel fuel requirements.

  • The third and fourth quarters are 62 and 52% hedge respectively using the combination of swaps and advanced purchases. We hedged a little over 92 million gallons of fuel in the second quarter.

  • We have approximately 76 million gallons and 65 million gallons hedged respectively in the third and fourth quarters.

  • The average price per gallon on the hedged fuel is 71.7 cents in the third quarter and 74.8 cents in the fourth quarter.

  • The second largest decrease in our railway operating expenses was in material services and rent, which declined by 13 million or 3%. The quarter-over-quarter improvement was due to $18 million decrease in equipment rents and $1 million decline in materials.

  • These were partially offset by $6 million increase in purchase services stemming from higher joint facility costs.

  • This slide illustrates generally why we had an $18 million favorable reduction in equipment rents.

  • As you can see, the increase in system velocity correlates with reduced equipment rent costs.

  • Steve Tobias is going to provide you with additional information on the improvements in our operating efficiency in just a few minutes. Compensation and benefits improved by $5 million, compared to the second quarter of 2001.

  • As increased salary and wages, higher benefit costs for contract employees and lower pension income were offset by reduced hours and lower pay thereto roll taxes.

  • Conrail rents decreased by 3 million, due to lower shared asset area costs.

  • Casualties and other claims decreased by 3 million as a result of our cultural emphasis on safety in everything we do.

  • Other expense increased by 6 million year-over-year largely due to increase in bad debt expense and depreciation increased 1 million year-over- year reflecting continued investment plan equipment. I would like to take a moment and point out that the productivity of employees continues to improve, as seen in operating revenue per employee.

  • For the second quarter it was 55,500 per employee, 8% quarter-over-quarter improvement compared with last year.

  • Another measure of productivity, carloads per employee shows the second quarter of 2000 reached 59.9 carloads per employee.

  • This is a 10% increase over last year. As I noted a moment ago, railway operating expenses for the first 6 months were 2.53 billion, 113 million or 4% lower than last year.

  • Year-over-year diesel fuel was lower by 58 million dollars or 26% primarily due to lower average price per gallon, which declined from 90 cents per gallon last year to 69 cents per gallon this year.

  • Consumption decreased by approximately 9 million gallons or 4%.

  • Materials, services and rent decreased 46 million or 6%.

  • The year-over-year reduction in material, services and rent was due to lower equipment rent expense which decreased 42 million or 18%.

  • Material costs were down 14 million in a variety of areas.

  • Purchase services with 10 million dollars higher due to higher joint facility costs. Other expense decreased $9 million or 8%, benefiting from lower property and sales and use taxes.

  • Casualties and other claims decreased 5 million.

  • Compensation and benefits decreased by 1 million.

  • Partially offsetting reductions Conrail rents and services increased 5 million, due to lower equity earnings in Conrail and absence of favorable tax adjustment that benefits Conrail' s earnings in 2001. Depreciation was up 1 million for the same reasons as I gave for the quarter.

  • The railway operating ratio for the second quarter was 79.8%, compare wide 82.3% last year, a 2 and one half percentage point improvement over the second quarter of last year.

  • This is our lowest quarterly operating ratio since the Conrail integration and the first time we have a quarterly operating ratio below 80 since the first quarter of 1999.

  • For the first 6 months slightly lower operating revenues, combined with 4% decrease in operating expenses, to produce operating ratio of 81.9%, compared with 84.5% last year, a 3% improvement. Income from railway operations for the second quarter was 322 million, up 40 million or 14% over last year.

  • For the first 6 months, income from railway operations was 559 million, compare wide 487 million in 2001, or a 15% improvement.

  • Total other income and expense for the second quarter was in expense of 128 million, compared with expense of 115 million last year.

  • Gain on the sale of property and investments was 13 million lower than last year.

  • As you may remember, we benefited from a 15 million dollar gain on the sale of property.

  • As you know, property sales do not occur on a level basis, fluctuations should be expected. Coal royalties were slightly below 2001 and 12 million due to reduced volumes for the quarter.

  • Accounts receivable sales fees were 3 million less than last year due to combination of lower principle balance and lower interest rates.

  • All other was expense of $12 million for the quarter, a $10 million decline due to lower returns and corporate-owned life insurance and reduced rental income.

  • Interest expense on debt was 130 million, which is 9 million or 6% lower than last year.

  • For the first 6 months, total other income and expense was in expense of 228 million, compared with expense of 229 million in 2001. Gain on the sale of property and investments was $32 million, up $6 million due to a large gain on the sale of an investment in the first quarter of this year.

  • Coal royalties were $25 million, down $3 million due to reduced volumes.

  • Account receivables sales fees were 3 million or 8 million less than last year, due to lower principle amount and lower interest rates.

  • All other expense of 18 million compared with income of 8 million last year.

  • As you may recall, in the first quarter of 2001, we benefited from a settlement in favor of the company that added income of $13 million. As was the case with the quarter, lower returns in corporate-owned life insurance and reduced rental income contributed to the decline in the all other category.

  • Interest expense on debt is 264 million for the first 6 months and was 16 million below last year, due to the lower interest rate environment and a little bit less debt outstanding.

  • Second quarter income before income taxes was 194 million, compared with 167 million last year, a 16% improvement.

  • For the first 6 months, income before income taxes was 331 million, compared with 258 million last year, which is a 28% improvement. The provision for income tax for the second quarter was 75 million dollars, compared with $60 million last year and the effected tax rate in the second quarter was 38.7%, compared with 35.9% last year.

  • For the first 6 months, the provision for income taxes was 126 million, compare wide 90 million last year.

  • The effect of the tax rate was 38.1% compared to (inaudible) in 2001.

  • The higher effected tax rate is primarily attributable to reduced equity earnings of Conrail reported on after-tax basis.

  • And an increase in the applicable income tax rate for the state of Indiana. For the second quarter, net income was $119 million, 11% higher than the $107 million reported in 2001.

  • For the first 6 months, net income was $205 million, 22% above last year's $168 million, excluding the additional after-tax gain on the sale of North American Van Lines.

  • As can be seen, the improvement in results this year over last year, excluding 2001 gains of discontinued operations, was primarily due to improvements in railway operations.

  • For the second quarter, railway operating revenues were up 1 million and railway operating expenses were 39 million lower, which produced an increase in income from railway operations of $40 million.

  • Our other income net was $22 million less.

  • And interest expense declined by 9 million, while income taxes increased by $15 million, resulting in $12 million more in net income. Year to date income from operations improved by $72 million or 15%, as a $14 million decline in railway operating revenues was offset by $113 million reduction in year to date railway operating expenses.

  • Additionally lower interest contributed $16 million.

  • These improvements were offset by $15 million less in other income net and income taxes that were $36 million higher, resulting in a $37 million increase in net income for the first 6 months.

  • Earnings per share for the second quarter were 31 cents, compared with 28 cents per share in 2001, an 11% increase.

  • Earnings per share were 53 cents, which was 20% above the 44 cents per share that we earned in the first 6 months of 2001.

  • I want to thank you for your attention.

  • I will turn the program to Ike Prillaman who will give us a report on revenues.

  • Ike Prillaman - Vice Chairman

  • Thank you, Hank.

  • Good morning.

  • Both the economy and our markets produce mixed results for the second quarter.

  • Railway loadings were one positive economic indicator, as the months of May and June marked the first time since July of 2000, that each of the class 1 railroads reported year over year increases.

  • The ism, the institute for supply management index, was over 50 for the fifth executive month and June's production index of 61.4 was the highest since June of 1999.

  • However, we see some business sectors stronger than others and the rate of inventory liquidation slowed during the quarter. As David and Hank both have said going forward, we are cautiously optimistic.

  • Our business volumes produced mixed results, as did the economy.

  • Carloads for the second quarter when compared to 2001 and 2000, showed favorable trending except in coal and paper.

  • Intermodal experienced double-digit growth.

  • Automotive and metal construction led the merchandise group.

  • Coal carloads dropped to lowest level since the Conrail transaction and overall mixed results produced carload increase of 29,600 or 1.8% over the same period last year.

  • Despite the increase for 2002, coal and merchandise volume is still down 84,000 carloads from the second quarter of 2000, indicating we have capacity and hopefully more economic recovery to come. We did produce overall favorable revenue comparisons.

  • Total revenue reached $1.593 billion above second quarter 2001 and 2000.

  • Both intermodal and merchandise produced increases over the prior 2 years.

  • Intermodal revenue reached 295 million, increasing 20 million or 7.3% over last year.

  • This was our second highest quarter ever and was reached outside the peak season.

  • Merchandise obtained the highest revenue quarter ever, reaching 948 million, 26 million or 2.8% increase was a result of increases in all of the industrial groups, except for 8 million dollar decline in paper revenues.

  • Coal declined to the lowest level since the fourth quarter of 2000.

  • Revenue reached 350 million, declining 45 million, down 11.4% compared to second quarter of 2001. Year to date revenues were off 41 million or 1.3% and the revenue increases for merchandise and intermodal could not offset the 79 million or 10% decline in coal revenue.

  • Analyzing revenue yields, our overall revenue per car for the quarter was 928 dollars, that is decline of $16, a 1.7%, compared to second quarter of 2001.

  • The decline was due to change in mix for our traffic.

  • The 61,500 unit rise in intermodal volume increased intermodal share to 35% of the total traffic, compared to 32% a year ago.

  • While coal's 43,000 unit decline caused share to drop for coal from 26% to 23%. Last year the ratio of intermodal volume to merchandise was 75.6%, and it was 82.8% for the recent quarter.

  • As one of you have pointed out, our mix changed for the quarter was extreme and adverse, with the absence of coal.

  • However, we are pleased to have the offset.

  • Merchandise revenue increased faster than volume and obviously produced year over year gains with increases in revenue per car for all the groups.

  • Revenue per car reached 1310 dollars, increasing $15 or 1.2% and perhaps more notable is merchandise 80 dollar or 6.5 increase over second quarter of 2000.

  • Rate increases and changes in traffic mix and network redesign contributed to overall improvement for both 2000 and 2001. For 2002, ag produced largest increase as a result of improved market mix toward longer haul traffic.

  • The chemical revenue per car increases $38 from 2.2%.

  • We estimate these rate increases accounted for over 50% of this improvement.

  • Intermodal revenue per unit was $493, declining $19 compared to last year.

  • Several factors were involved in the reduction.

  • First, fuel charge of 4.2 million was realized in the second quarter of 2001, this compares to 1.2 million this quarter.

  • This accounted for $7 of the decline. 16% increase in container traffic, combine wide 1.8% loss of trailer volume, which I will go into detail later, also contributed to decline in revenue per unit.

  • Our new terminals in Cleveland and Savannah increased short-haul.

  • These shipments have average length of haul of 360 miles and account for nearly half of the conventional intermodal growth in the second quarter. Refunds for the short-term business during the recent downturn contributed to the decline and obviously refunds are going away with increased activity and absence of surplus equipment with the recent surge in intermodal business.

  • Looking at coal, revenue per car declined by $14 in year over year comparisons.

  • A change in traffic mix is the driver of the decline.

  • Short-haul movement with pricing less than $250 less than car rose by 10,900 car loads.

  • This increase in short-haul business decreased revenue per car by $17.

  • As you can see, the mid-strata hardly changed at all.

  • Whereby, we have a 2002 loss of Laggerhaul(phonetic) export volume.

  • This had a more adverse effect on revenue per car when compared to 2001.

  • The loss of 34,000 car loads affected revenue per car by $33 or total price volume change of $50. So, our same-store sales and new-store sales changed dramatically during the quarter.

  • Looking at each of the coal markets, the utility business experienced second quarter of unfavorable year over year comparisons.

  • Volume declined over 9% for the quarter and year to date.

  • Certain generating units were also shut down for maintenance during this period of low demand.

  • We believe stockpiles have declined and are now, we believe to be closer to seasonal norm.

  • Looking at export volume, it declined by 13,200 loads, down 36% from 2001.

  • The second quarter decline was related to unusually slow contract settlements, as well as reduced demand in the world steel markets, particularly the European steel market. With some exceptions, most of the European and Brazilian coal contracts have been completed.

  • Our domestic metal business was even with last year, with gains exceeding losses on met coal and iron ore.

  • The effect of the section 201 tariffs has helped the steel industry and production is up and orders are strong.

  • Looking forward, total U.S. coal production is expected to increase 4% in the third quarter.

  • This is per dri estimate.

  • We believe comparison versus 2001 should improve during the second half of 2002.

  • That is because there are easier comparisons. Export activity is expected to strengthen in the second half.

  • We expect gradual ramping up of Norfolk pier 6 volume in the third quarter.

  • We achieved highest ever quarterly merchandise revenue of $948 million.

  • Our ag market continues steady performance in the second quarter revenue reached $152 million, increasing $4 million over 2001, while volume fell by 1.1%.

  • Year to date revenue of 306 million exceeded last year by 8 million or 2.7%.

  • The demand for long-haul corn for feed in our new feed processing plants remain strong.

  • Unit-trained network continues to expand and consistently cycles from load to load in 6 days. Our chemicals business reached 194 million, increasing 3 million or 1.1% over 2001.

  • Volume was basically flat.

  • Chemical prices are up since the beginning of the year and most in the industry believe a slow recovery has begun. Our paper market continues to face challenging times with its sixth straight quarter of unfavorable comparison.

  • Revenue reached 154 million for the quarter or 4.9 below second quarter 2001.

  • Year to date paper revenue is down 21 million or 6.6%.

  • Paper production capacity has been falling off since 1998, and the industry's response has been consolidation and mergers.

  • There have been at least six major mergers in the U.S. since 2000.

  • We estimate approximately 3 million of papers - our business is second quarter decline is due to mill closures. Unlike paper, our automotive and metals and construction business has grown considerable since pre-Conrail.

  • It drove increases for the quarter.

  • Both sectors obtained their highest revenue ever.

  • For 2002, automotive revenue reached 259 million for the quarter, increasing 15 million over 2001 and 29 million year to date, resulting from the 7.6% increase in auto production.

  • Our automotive business is up 73% or 109 million since the second quarter of '98, pre-Conrail.

  • Overall, service improvements have positively affected our network, our auto network, particularly the Ford mixing center. Looking forward, second half North American production is forecasted to be 4.1% over 2001.

  • This is the estimate from the industry itself.

  • Increased production, successful contract negotiations, along with numerous planned expansions and continuing equipment utilization improvements, we believe will continue to produce encouraging results for this sector. Metals and construction revenue reached $189 million, increasing $12 million or 6.8%.

  • Year to date revenue is $7 million ahead of last year.

  • Our second quarter revenue exceeds the pre-Conrail 1998 second quarter by $91 million or 93%.

  • The coal, steel volume was up 3%, it benefited from increased orders from the auto sector and overall, iron and steel produced 22% improvement over the second quarter 2001.

  • Scrap metal volume increased 16%.

  • We understand going forward that the order books are full for the mills through September and even beyond in some cases.

  • Construction and sand and gravel volume increased 7% over last year on the strength of highway continuing increased highway construction and also access to new stone quaries. The rail industries intermodal business is on a tear.

  • According to aar, the rail industries intermodal traffic for June increased 8.6%, resulting from two weeks of record high volume and second quarter volume increased 8.5%.

  • Our intermodal sector also experienced significant volume gains rising to (inaudible) units, this is increase of 61,475, or 11.4% over second quarter 2000.

  • Year to date volume is up 6.2%. Intermodal growth can be attributed to 15.9% increase in our domestic and international business, compared to second quarter of 2001.

  • Our domestic and international growth is the result of new terminals, new products and continued economic recovery, including and obviously improving consumer confidence.

  • Premium volume had a slight increase over second quarter 2001; however, it is noteworthy, total ltl volume for second quarter of 2002 was up 17% over last year.

  • This is due to some good conversions from the highway.

  • While the parcel business was down 6%, this was due to labor concerns at UPS, which they have behind them. In summary, the second quarter produced levels of growth beyond our expectations for intermodal.

  • We continue to ramp up new products from our rail allowances and new products throughout the intermodal network.

  • Nearly 60% of our conventional traffic is operated in alliance with rail partners which grew 17% in the second quarter, from an expanding portfolio of guaranteed transcontinental services with our western partners. In summary, we are encouraged, but not satisfied that we were able to match prior year revenue, even though we had a significant traffic mix change, including a $45 million decline in coal business.

  • The second half, we are cautiously optimistic, but we do remember post-July 4th downturns in 2000 and 2001.

  • I would add July carloadings are running slight slee ahead of last year and we do have one more working day this year, compared to 2001.

  • Now, I will turn it over to Steve, and report on operations.

  • Steve Tobias - COO

  • Thank you.

  • Good morning.

  • I am pleased to report that Norfolk Southern operations continue to improve.

  • We monitor the economy, Thoroughbred is in position to handle increase business.

  • Capacity continue to improve as we realize the full benefits of our Thoroughbred Operating Plan and operating adherence plan.

  • This is the case even as we had experienced unplanned disruptions.

  • Before I continue on this subject, let me bring you up to date on safety.

  • By achieving lowest ratio of reportable injuries among class 1 railroads in 2001, we earned the Harriman gold medal.

  • Our reported 2001 annual ratio of 1.25 was 13% better than the previous year.

  • For the first 6 months of 2002, our report of injuries is 1.16, 11% better than 2001.

  • Let me start with a look at standard measures for the second quarter.

  • I will ask you to pay particular attention to the blue lines on the first three slides.

  • They indicate this year's performance.

  • Train speed averaged 23.3 mph, compared to a year earlier.

  • We hit our all-time record high on July 12th, of 25 mph for that day.

  • Cars on line, still important indicator of fluidity, improved 8.3% from 201, (inaudible) and we continue to improve on this measure.

  • As a matter of fact, this morning we hit a record low of 179,651 cars on line for yesterday.

  • Average terminal dwell improved by 1.7 hours or 7.2%, average 22 hours per quarter. This view shows quarter over quarter comparison of cars on line, train speed, term nol dwell and weekly shipments.

  • Each operating area shows improvement, even though we were challenged by the circumstances in a somewhat slow economy.

  • Turning now to a look at second quarter trains.

  • As you can see, performance remains strong across all categories.

  • In the past, our focus on train performance was depicted in metric that reflected on-time arrival at destination.

  • Top is providing a new set of metrics that gives us the means to better understand problems associated with train performance.

  • This line and the ones that follow depict arrival performance, shown in green, but also the performance of origin, shown in red.

  • And the end transit performance is shown in yellow. The dotted line shows trains departing two hours ahead of schedule.

  • As we move forward to perform dock-to-dock performance these metrics are important to assure connectio ns are made and we are not simply measuring when a train arrives.

  • I will quickly show you several other graphs that depict train performance.

  • This chart is general merchandise trains which are the foundation of TOP.

  • This one shows our intermodal set.

  • This one our premium intermodal train.

  • Here are multi-level trains and as you can see, trends are in an upward and positive direction.

  • Let's take a review of train performance a bit further. We are looking at train performance of general merchandise traffic in terms of the degree late or early at destination for trains operating during the first half of '02.

  • The red bars represent first quarter and the green bars, second quarter.

  • As you can see, top continues to improve on-time performance.

  • The on-time arrival distribution is shifting to on-time and early arrivals.

  • We are experiencing improvements in all major categories of train operations. Here is intermodal, again.

  • Premium intermodal.

  • Here are multi-level trains, as in overall on-time performance, the arrival spread is tracking in the right direction.

  • We see this in our weekly review.

  • Last week performance for all trains was 89%.

  • Also TOP has resulted in improvement in loaded car cycle times.

  • Look at this graph.

  • You can see declining trend on loaded car days on line and acceleration since full TOP implementation.

  • The first half comparison indicates 7% improvement. I introduced this metric at our last meeting.

  • TOP continues to push us toward efficient locomotive utilizatio n, driving fuel efficiency.

  • Note the reduction in gallons per car load, shown in green, the trend points out significant cost savings, that continue to be achieved while our service improves.

  • I reported during the last meeting, our operating plan adherence project was nearing completion.

  • Programming is complete and testing is underway.

  • Blocking adherence portion is in production.

  • The blocking adherence portion measures three blocking dimensions.

  • The right blocks are moving on prescribed train.

  • Are the blocks in the correct standing order?

  • Are the cars in the block contiguous?

  • The next stage will be connection performance component.

  • We will measure performance in switching cars from one train to another in prescribed time to the correct train.

  • Let me wrap up by noting the Thoroughbred Operating Plan will continue to be the driving force behind service improvement at Norfolk Southern.

  • We are getting closer to meeting expectations with respect to dock-to-dock reliability.

  • The Thoroughbred is ready to run and run forward as the economy rebounds. Thank you.

  • David Goode

  • Thank you, Steve and Ike Prillaman and Hank for the good reports.

  • I will now take questions. 00:51:56

  • Analyst

  • Couple of questions.

  • One, I was wondering if Ike can give specificity about how much of change in car load was due to mix or change in the long haul versus pure pricing?

  • We got a flavor of that in the coal segment, but not a flavor looking at the merchandise segment.

  • David Goode

  • That is hard to put on a slide.

  • Ike can talk to you about it.

  • Ike Prillaman - Vice Chairman

  • One reason the merchandi se side was up.

  • In the last statement, which may have sounded like I was talking to chemicals, it was really overall.

  • We think over 50% plus is the price improvement.

  • Other is (inaudible).

  • Analyst

  • One other quick question.

  • Maybe it is for Steve.

  • In looking at the charts and perhaps it was hard to figure the terms out.

  • They made the point.

  • If I look at intermodal charge for distribution and was early versus late, it looks as if things didn't improve as much as merchandise.

  • Were most of the improvement will be in the merchandise segment?

  • David Goode

  • Steve is happy to address that question.

  • Steve Tobias - COO

  • The response is we have done such a good job in running the intermodal segments in relationship to the rest of the traffic flow, that the incremental potential is probably a bit smaller.

  • As we drive intermodal through our system, and we continue to pick up speed, the relationships between the different modes continue to be somewhat relevant based on the tonnage and composure of the train mix.

  • David Goode

  • We have better measurements on this and more detailed measurements to look at.

  • The old addage is true.

  • What you measure, you improve.

  • I think what we are seeing is that we concentrated on certain things more than others, just as reality over the years.

  • Now we are seeing that as we concentrate on more and more detailed pieces of the business, we are driving more and more improvements in the system.

  • We are optimistic we have made significant improvements, but still have a long way to go.

  • Analyst

  • Question for Hank.

  • Great operating ratio being below 80.

  • I wonder if you can talk about below the line items, the other income and other within other income in the sense that I think the prior guidance had been normally it should run $20 million a quarter and you can't forecast this, but given the drop down to $2 million in the quarter, I am try tog understand if we should change our forward- looking thinking.

  • Hank Wolf - CFO

  • On real estate sales, we were running $40 million a year.

  • We have had unusual sales.

  • In the first quarter of last year we had a $15 million sale of partnership interest.

  • It was real estate, but not property that we owned per se by ourselves.

  • In the fourth quarter of last year, we had another large property sale, so, it doesn't come evenly.

  • Overall, we have been kind of running at a rate of about $40 million.

  • Every once in a while, a special situation will pop up.

  • With respect to the other items and the other income category, I think that the - we explained the decline in modest decline in coal royalty income which was volume driven. The reduction in interest rate little bit less, but lower interest rates on floating rate debt -

  • Analyst

  • I missed that.

  • Hank Wolf - CFO

  • (inaudible) deferred compensati on and the performance to that life insurance in the environment we are operating in from a market standpoint was down.

  • Analyst

  • You expect that to run up a lower rate going forward?

  • Hank Wolf - CFO

  • I don't want to lead you to believe that that is the case.

  • I think there will be pluses and minuses.

  • The big item I can help with is real estate.

  • If you think in terms of somewhere averaging around $40 million number, that is probably a more near normal level.

  • David Goode

  • It continues to be our objective, as we - we haven't talked about much recently, but in past years.

  • We have emphasized a program of trying to intensively analyze our assets and turn them into the most productive use.

  • We continue to do that with real estate.

  • Obviously a lot of our holdings are industrial development related holdings and commercial property.

  • Those have not been the two strongest markets early in the year.

  • So, we are - it is difficult for us to predict those, just as it is.

  • The other obviously, things like the earnings on corporate life insurance, hopefully the margin is going to improve.

  • You tell me.

  • Unknown Speaker

  • David, let me add one thing.

  • Is the glass half empty or half full?

  • We had $two million less in other income this quarter.

  • Yet, we were able to produce a rather significant improvement in earnings principally based on income from operation.

  • I think the core business is doing considerably better.

  • No reason to believe that one quarter of down other income is necessarily a trend.

  • David Goode

  • You can be assured it is core business we are concentrating on.

  • Analyst

  • The other question I had was regarding wage cost employee.

  • It is up 7%.

  • You are making good gain by taking people out of the system.

  • I am trying to understand.

  • That number has been the case across the U.S. railroads for the second quarter in a row.

  • Should we expect a step down or is this healthcare cost, wage inflation and other things going on?

  • Unknown Speaker

  • All of those things.

  • It is certainly, as we get down to a point where we are able to resolve whatever issues we have with respect to renewal of labor agreements, that pattern will become much clearer.

  • David Goode

  • We are hopeful that we can work on some of the factors in that number.

  • In the meantime, that gives us a bar that we need to focus on in productivity improvement.

  • Obviously that is a hard job.

  • That is the job we take.

  • Analyst

  • This is Tom (inaudible) from Bear Stearns.

  • Couple of questions which weave together.

  • I want to understand how much further you can improve headcount.

  • Again, strong 7 and a half percent reduction in headcount.

  • That has been the trend.

  • Can you tell me how much longer you think you can sustain that year-over-year improvement and related to that, if coal picks up in the second half and you have to add crews, would we expect that year-over-year reduction to not be as good?

  • Also, in the merchandise network, with TOP in place, do you have optimal train lengths already or can you expand the train line and add volume without adding crew?

  • David Goode

  • Steve and I will work on this a little.

  • In a sense, nothing would give me greater pleasure than to begin to add headcount.

  • Because, you can be assured if we did that we would do that because train and engine crews needed to be enhanced and we needed to have the folks.

  • Obviously we are achieving, as we implement our scheduled railroad plan, we are implementing efficiency improvements and productivity improvements.

  • That means among other things, we use our crews and our people better.

  • We give them more regular assignments, which is good for the working relationship as it is better for productivity. We think that as we continue to increase the regularity of our operations, take those charts and bar charts Steve showed you and tighten the span, we have an active Six Sigma program and woo what you do is try to improve the consistency and reduce the span of irregular ity of that.

  • All of those are contribute to productivity improvement.

  • How far can we press?

  • What can we do?

  • We make a commitment to press that envelope as hard as we can at the same time I resist setting up goals or telling you about goals for headcount reduction s and things like that.

  • That is a very complex mix of business and productivity improvement.

  • What we have been successful in doing is achieving improvements and we do that the old-fashioned way, by making our operations better. We do it the old-fashioned way by improving information systems and technology, which helps us in those areas.

  • That is just three arts and a cloud of dust .

  • We do it everyday. Steve, do you want to amplify the way the crews work more?

  • Steve Tobias - COO

  • I think you probably touched on the points.

  • The only thing I would add is one of the wonders of the world is compounding.

  • Clearly the laws of physics apply to a certain extent in the relationship between what we do in the transportation medium and the requirement for people.

  • What we are setting about trying to do is turn in efficiencies that in any form or fashion we can find them, when they serve the customer base and they serve the economic base.

  • To that extent, we are driven in that direction. An important part of what we are trying to do is build consistency in the service model that will drive consistenc y in a way our people work and their lifestyles.

  • That in and of itself is the probably the thing that most of us all seek and it is called job security.

  • We will find that by getting more consistent growing our business and trying to find the efficiencies of taking advantage of them wherever they develop with the applicatio n, for example, of technologies that may not be in the forefront.

  • David Goode

  • We don't know where we are going to take this, Tom.

  • Clearly, we are into something.

  • You sense - we clearly think we are into a new dimension in improving service and the reliability of that service and productivity along with it.

  • We are interested.

  • Analyst

  • Is it appropriate to view the network as having excess (inaudible) or should we view it as being rightly the right size?

  • David Goode

  • We believe we have considerable capacity within the network, given our train sizes and train schedules, we could add a lot - we could add a lot of capacity without impacting the schedules and adding a lot of crews and networks.

  • We think we have considerable ability to do that.

  • We welcome that.

  • We are longing for the opportunity to test that.

  • Because we see that what we have been able to do in improvements and know we have capacity in the system.

  • We are just anxious for the economy to give us a better chance to test how far we can push it without increasing capital and labor.

  • Analyst

  • Okay.

  • Thanks.

  • David Goode

  • Way in the back.

  • Analyst

  • Thanks.

  • David, can you update us real quick on fleet storage?

  • Where you stand in terms of equipment stored?

  • Remind us on what you expect in terms of net fleet additions for the year?

  • David Goode

  • Steve, do you have the numbers handy on that?

  • Might have to update you on the numbers.

  • I think Steve can give you flavor for it.

  • Steve Tobias - COO

  • We currently have something on the order of 5,000 cars stored.

  • David Goode

  • Steve is pulling it up on his blackberry.

  • Steve Tobias - COO

  • We are currently running about 170 locomotives in storage, not all of which I would characterize to you as serviceable without work.

  • Analyst

  • And fleet additions for the year.

  • Steve Tobias - COO

  • Fleet additions are already in the fleet.

  • Analyst

  • David, can you also - I know there is limited amount to what you can say.

  • Can you give us whatever you can in terms of an update concerning the tariff cases currently ongoing?

  • David Goode

  • They are currently ongoing.

  • I think that will probably be what I need to say for a couple of quarters yet on the case, as we are - we are working with them and I think the discovery is largely completed on it.

  • They are ready to go into the next phase.

  • We are just as anxious for that to be resolved as I am sure the folks on the other side of the case and you are.

  • We would like to move that as quickly as possible because we hate to have a lingering dispute with our really good customers, as the folks involved in that are.

  • We have been long-time friends and partners.

  • So, we hate to have this case outstanding. On the other hand, we will pursue them as vigorously and efficiently as we can.

  • I hope we can get them through.

  • It is a process that takes time.

  • I expect that to continue through the year, really.

  • Analyst

  • (inaudible) from Goldman Sachs.

  • All things being equal on the economy and given the very solid performance metrics you guys have put up on the board, do you feel your productivity levers (static) -

  • Unknown Speaker

  • - we are hopeful we can continue to sustain growth and we are hopeful coal will return to more normal - what I regard as normal levels.

  • I don't know if I see that in 25% less of our business, in a long time.

  • Maybe not ever.

  • So, obviously we would like to see that back, but our philosophy is that we control what we can.

  • What we control is the efficiency and the productivity.

  • So, we believe that our job is to just continually focus on that, no matter what.

  • So that when we have a quarter like we just went through, we can still post good results, even in an economy that is not totally favorable. Then, if we get help from the economy and have an economy more favorable, we can continue to push productivity improvements and then we hope and expect to have considerable upside.

  • If the - you know, if things go bad, then by having our productivity and having our operation run as tightly as possible, we expect to be able to produce the best results possible.

  • So, our job is to control what we can do and make sure that our service is good and available and doing everything we can to encourage our customers to have good results and benefit from that.

  • Analyst

  • Thank you.

  • David Goode

  • Yes.

  • Go to the other side.

  • Analyst

  • Thanks.

  • Ken Hexterfrom Merrill Lynch. Can you talk about the rational for the dividend increase versus net reduction?

  • For Hank, I think Ike mentioned (inaudible) revenue per car.

  • Can you talk about that excluding fuel surcharge?

  • Unknown Speaker

  • Let me talk about the philosophy for dividend increase.

  • As I said in my remarks, we have a commitment to reduce our debt.

  • That is clear and that is always on our mind and we are working hard at doing that.

  • We have had some success so far this year.

  • We expect more as the year goes on.

  • We have not and will not take our eye off that ball.

  • At the same time, we have achieved improvements.

  • We feel good about the system and the improvements we have achieved.

  • We posted improvements in earnings and our objective is ads we do that to share that with our investors.

  • I hope we can continue to do that on a consistent basis, as time goes on.

  • That simply is our philosophy.

  • We achieve service improvements and share them with our customers.

  • We pay off debt from the money we make on that and share that with our investors there.

  • We share the income we make with our employees and our stockholders. It is not a scientific equation, but one we try to follow.

  • Hank, you want to take the second part of that?

  • Hank Wolf - CFO

  • We probably need to get together after the meeting and go through it.

  • Essentially the slide I threw up showed that the change in trailer and container mix, along with shorter haul business coming from the new network contributed $9 over and above the fuel surcharge.

  • The contract refunds, the last item on the slide was $3.

  • And that is not necessarily all price compression.

  • It could represent new store sales, too, if you will.

  • Refunds off new store sales, as well as current.

  • What I would suggest, maybe after the meeting, we will get together.

  • I am interested to see your percentage .

  • Mine doesn't calculate.

  • David Goode

  • This picking up of short-haul business is really exciting news for us because what that is saying is we are achieving the conversion of traffic to the highway on rail.

  • So, when we go to picking up significant increases in short-haul business in intermodal or general commodities or even coal for that matter, that is good news for us because that is business that we didn't have before that is essentially new business that we are getting and that is the basis of our growth.

  • Analyst

  • Two questions.

  • First, -

  • David Goode

  • I didn't see you sitting back there.

  • Analyst

  • Steve, scheduled railroad system, could you talk about (inaudible)?

  • Do you know more power for gtm?

  • How do those ratios hash out moving forward?

  • Steve Tobias - COO

  • There is a certain requirement for horsepower per ton, impacted by curvature and grade in relationship to the product, than it is a mindful decision of trying to overpower.

  • I guess the comparable I would give you is the difference between a family sedan and a sports car.

  • We are in the mode to make good business decisions and don't overpower in our estimation, trains which would clearly impact fuel burn.

  • You can see from the numbers, fuel burn is going in the right direction, utilization is going in the right direction, our velocity to the system is going in the right direction.

  • I would draw the conclusion things are in a good state of harmony to that extent.

  • That doesn't mean we are satisfy wide it and will not continue to tweak it.

  • The physical plan in and of itself in terms of curvature and grade verses tonnage, hasn't changed a great deal.

  • It would lead one to the conclusion TOP is delivering in the service side of it and the efficiency side of it.

  • We think there is up to go.

  • Analyst

  • Stay with locomotive.

  • You have excess locomotives, clearly the economy has room for improvement.

  • CSX has locomotives. is there a scenario down the road the two of you can come up with a system that better utilizes locomotive?

  • Steve Tobias - COO

  • There is a system in place (inaudible) cooling environment.

  • We exchange horsepower hours as we run locomotives through our system to expedite traffic.

  • That is ongoing on any given day.

  • I have got x number of locomotives or NS has x number of locomotives on anybody's railroads. (inaudible) in horsepower hours.

  • So, I would suggest to you there is a plan to that extent, depending on our need and whether we have to bring pressure to bayer to get your locomotives back in place.

  • Aside from that, there are third-party leasers who have power available that you can turn to in a short situation.

  • Analyst

  • Follow-up for Hank, if I could.

  • Capital expenditures.

  • Can you talk about the ability, what would have to come to bare with productivity improvements to hold the line on capex numbers annually you are forecasting for this year going forward, assuming tonnage continues to get better?

  • Can you hold the line on capital for a period of couple of years beyond '02?

  • Hank Wolf - CFO

  • I think that we can, Gary.

  • Obviously this year we saw that the business environment was not going to be particularly robust and we trimmed the capital expenditures, taking that into consideration.

  • On the other hand, there is a delicate balance here because if you do have a business opportunity then you have to have the resources to go ahead and deliver for the customer and to do that in a timely fashion, or you are going to lose the business.

  • If our game plan today is to get business off of the highway, we need to be prepared to do that. We go through an extensive process each year in deciding where we are going to deploy capital.

  • It is a very, very healthy debate that takes place within the company.

  • When it is over, while at one time or another, somebody's blood pressure may go up a little bit, in the end, we all and out of the meeting as friends and we all stick to the game plan.

  • Unless circumstances demand it be changed.

  • On a go-forward basis, I think that our capital expenditures will continue to reflect that.

  • We have emphasis on repaying our debt and you can't row pay debt if you were overdeploying capital for asset that is may not be as used as they could be.

  • We will be mindful of that.

  • We haven't even gotten into the capital budget process for 2003 yet.

  • So, I frankly don't even have a clear inkling of where the number will go.

  • Obviously, we are going to go forward in a measured way and as a team, deploy that capital as efficiently as we can.

  • David Goode

  • Gary, the CEO of this company loves the creative tension among the guys on the front row down here when the subject comes up.

  • It is an intensely managed question because it is the basics of the business.

  • I have some goals in this, but we are certainly have in our mind controlling the capital expenditures in a disciplined way.

  • At the same time, we have the objective to aggressively grow this company and we are not in the business of leaving any business on the table right now for the best of reasons.

  • So, this is a - it is not a simple process.

  • It is one where I think I can assure you we will come out with the tightest result that we can and I don't expect to see in the absence of really exciting growth opportunities, I don't expect to see the capital budget expand and certainly as a percentage of the business operations over the next few years. it is going to be tough and tight.

  • Analyst

  • Thanks.

  • I was wondering if you could update and forgive my memory, the east Carolina business unit?

  • David Goode

  • I don't think we are ready to give the numbers on that.

  • I would anticipate at a meeting, we will probably do a presentation on that when we think it has had enough time to gel.

  • The early returns on it are very good.

  • The people in North Carolina are excited, we picked up quite a few pieces of new business that were not available.

  • We have a young, aggressive management team down there involved in labor in the management of it.

  • It is our - we are quite satisfied early on how that is working, but I think it is too early for us to give you any numbers or show the results of it as a business unit.

  • Let's give it more time to g, l and we will do that.

  • Analyst

  • Fair enough.

  • Have you rethought at all or too early to rethink line sales?

  • David Goode

  • We are looking for other opportunities to do the same thing we have done in North Carolina.

  • Let me put it that way.

  • We are excited enough about the early returns to look for other opportunities to do similar transactions.

  • At the same time, we are, as we always do, continually looking at lines and will continue to have some disposition s on an ongoing basis.

  • Analyst

  • I was very pleased to see the change in equipment rent, car higher, given the fact the merchandise carloads about basically the same, if not up a bit.

  • I think Steve, this wants to go to you.

  • Have you - help us a bit with the relationship between cars on-line and your metric for total loaded car days?

  • Now, a car on line counted had a customer being loaded or unloaded, right?

  • And car days is from load to release in transit between origin and destination, what is the link up there, please?

  • David Goode

  • Did you understand it?

  • I didn't understand the question.

  • Steve Tobias - COO

  • Roy, get with me afterwards.

  • Analyst

  • Fair enough.

  • Thanks.

  • Analyst

  • I just wonder if you can give us a quick update on NS21.

  • David Goode

  • Thank you.

  • I should do that.

  • NS21 has gone into the second phase.

  • We haven't renamed it NS22 or 23 yet, but we have - we haven't completed all of the initiatives that we began in the first phase of it.

  • We have brought a number of them to completion and you see some of the results of that in the productivity improvements.

  • We have begun a second phase in which we are choosing flew areas of emphasis and new projects and I would expect by probably by the next meeting we might be in a position to give you that laundry list.

  • We may even announce that before the next meeting.

  • But, we are still working on closing those out.

  • We have with us Catherine McClay, who is one of the leaders in the NS21 process.

  • Do you want to say a few words about how we are proceeding to continue that?

  • Unknown Speaker

  • I talked to Scott before about the NS21.

  • Generally, a lot of our projects are going to completion (inaudible) several of them, as well as continuation of our disposition plan, as well as putting on more customer focused projects.

  • So, that is where NS21 is going for this year, as well as (inaudible).

  • David Goode

  • Jim.

  • Analyst

  • There has been talk about rolling Conrail's numbers with your numbers, given the time where people want to know what is going on from an accounting standpoint.

  • You guys have fantastic accounting.

  • If there is going to be a change about rolling in, in terms of depreciation and change of tax rate or anything like that.

  • Have you started to look into that?

  • David Goode

  • John, why don't you talk about that.

  • I think we wish we could roll them in.

  • John.

  • Unknown Speaker

  • We use equity accounting for Conrail.

  • We would love to be able to do partial consolidation, but that is not allowed because of the transparency issue, which we understand this group has somewhat difficult time understanding the numbers and we spend a lot of time discussing those.

  • The only thing that would change that would be tax spin-off of Conrail.

  • You would then see consolidated numbers more in line with what you see in normal corporate.

  • Analyst

  • I thought originally 02 or 03 or might be at the point.

  • Unknown Speaker

  • Yes, five years.

  • David Goode

  • We are now at the point where we could try to achieve a split of the spin-off of the company to achieve a split.

  • That is in the works.

  • We are working on it.

  • That is not an overnight that requires tax rulings.

  • It is not an overnight process nor is it a probably that is absolutely assured we can do it in a short period of time.

  • So, it is an objective we have and one we want to work on.

  • In the meantime, we want to make Conrail's results as available and transparent to you as we do our own results.

  • I mean, you saw today in the slides and some of the numbers, we were showing you even more detail on operations than we have before.

  • That is because we are sensitive to times and what is on people's minds.

  • We want our results to be absolutely transparent and clear.

  • We will try to do everything we can to make the Conrail piece of that transparent and clear to not only to you, but people less informed than you. It is a little murky to get through at the moment.

  • We will do everything we can to do that.

  • It is my understanding our hands are a little bit tied by the accounting procedures we have to use.

  • We are not at the moment, in any event, able to just split it out and take 58% of everything.

  • Analyst

  • Included in our quarterly financial review, there is supplemental information that we try to help you with the cash flow of EBITDA for Conrail, so you can get a better flavor for that.

  • Hopefully that has been helpful for you.

  • David Goode

  • I think we in effect, our objective for Conrail is to manage that as efficiently and tightly as we can.

  • The management of Conrail in this last year has done an excellent job with the help of a team - a joint team of CSX and Northern Capital.

  • Catherine McQuaid happens to be a leader of that team, as well, along with her counterpart at CSX.

  • Significant improvements are being made there.

  • We want to do everything we can to make those visible and show them to you.

  • Conrail is running better at the moment, just as I think its parents are running better.

  • Its productivity is key to our efficiency of operations, as well.

  • The two work in tandem and we are both excited and encouraged by the improvements being made at Conrail and I guess we welcome the opportunity to show those to you in any way we could.

  • David Goode

  • Any other final notes here?

  • You have been a very patient audience this morning.

  • Thank you for coming out in mid-summer and difficult times.

  • They are exciting times.

  • We are encouraged by our operations and we are optimistic, although as we said about four times, cautiously optimistic. 01:00:00 Thank you for being with us.