The Blanchard Company

Marketing and Management Support
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The Railroad Week in Review 5/17/97
featuring: The Breakup of Conrail

Ready reference: homepages for Conrail | CSX | Norfolk Southern

Not long ago NS VP-Finance Henry Wolf presented the NS viewpoint of the Conrail transaction to the Goldman Sachs Transportation Conference. I thought readers of this page would appreciate his opening remarks, excerpted herewith:

"A prominent national publication recently likened Norfolk Southern to Darth Vader of Star Wars. While that was not the most flattering reference, I would have to concede that we do have two things in common with the character from the dark side in Star Wars.

First, we are guided by a single-minded determination to succeed. We won't be sidetracked -- or even swayed -- by what might appear to be insurmountable obstacles. That spirit -- that competitive drive -- is Norfolk Southern's hallmark. The second thing we have in common with Darth Vader is that our corporate color is no-nonsense black.

"But that's where the similarities end. Let me assure you that we are not in the business of vaporizing planets, people or companies. On the contrary, we are in the transportation business, and we see the transportation business as a growth opportunity for railroads -- and for Norfolk Southern in particular -- as we move into the next century. And we like to think of ourselves as being more like the other famous character from the Star Wars trilogy. Luke Skywalker. The good guy.

"When CSX and Conrail announced their merger plan on October 15th, we -- like Luke -- were underdogs. We were faced with a serious challenge to our position in the industry and to our leadership role in the national transportation infrastructure. A lot of people counted us out before the battle had begun, but the "force was with us."

Elsewhere in his remarks, Hank noted that all remaining CR shares will be purchased for $115 per share, all cash, on 5/23. The STB filing is slated for mid-June. The actual date will probably be 6/16 as the environmentals went in 5/16. Norfolk, CSX, and a number of other interested parties are pushing for the 255-day schedule requested by the buyers.

Last week CP and NS finalized an agreement under which NS will obtain haulage rights over the D&H from Harrisburg and Binghamton to Albany. In addition, NS and CP will shorten transit times and routes by relocating their interchange at Potomac Yard (of which precious little remains) to Harrisburg. CP will also receive new trackage rights between Harrisburg and Reading, improving their Philadelphia service by eliminating the Allentown reverse move and slow orders in the Scranton area. NS will share investment in certain track and bridge improvements on the D&H line. This arrangement will give NS a direct connection to Guilford Transportation, increasing competitive rail service to New England while improving service to Canada.

At the same time, CP will receive haulage rights on the CR line that NS expects to operate between Detroit and Chicago via Kalamazoo. This will give CP a shorter, faster route for intermodal and other freight moving into the US from shippers in the provinces of Quebec and Ontario.

The FRA has announced a $500,000 grant to Conrail for the first phase of a positive train control (PTC) project on the rail corridor between Harrisburg, Pa. and Manassas, Va. Phase One is to design and develop specifications for on-board locomotive technology that can accommodate a PTC system. Later on, NS, CSX and CR power will be equipped for testing along the corridor.

CN has officially opened its new Gateway Intermodal Terminal today at Harvey, Illinois, just outside Chicago. The new 75-acre facility operates 16 hours a day, six days a week, and is equipped to handle 225,000 lifts per year. It has been built to handle two 7,000 foot double-stack trains at once. First-year traffic predictions call for 100,000 to 120,000 boxes.

Supplier Notes: Schroder Werthiem & Co said it downgraded ABC Rail Products Corp (Nasdaq: ABCR) to "perform in line" from "outperform." Additional details were not immediately available. ABCR has gone from $19.88 to $16.75 year to date with a low of $13...MotivePower Industries (Nasdaq: MOPO) showed up on a report from Argus Research highlighting insider buying and consistent profitability. MOPO designs, manufactures, and distributes locomotive-component parts, provides locomotive fleet-maintenance services to the railroad industry, and overhauls and remanufactures locomotives. Trading range for 52-weeks has been $3-11. Year to date MOPO has gone from $7.75 to $13.50...Harmon Industries (Nasdaq: HRMN) announced a semi- annual dividend of seven and one-half cents per common share to be paid June 18, 1997, to common shareholders of record on May 31, 1997. HRMN closed Friday at $18.75, virtually unchanged for the year with very little movement either way.

Shortline/Regional Notes: Delaware Otsego (Nasdaq: DOCP) reported its first quarter net loss decreased from last year, 38 cents versus 55 cents, an improvement of 31%. Revenues were off six percent to $7.2 mm versus $7.7 mm a year ago. A company press release said aggressive cost-cutting measures did the trick.

--Roy Blanchard

Ready reference: homepages for Conrail | CSX | Norfolk Southern

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