NS sets records in second quarter, first half and reports quarterly earnings up 55 percent over last year

For the second quarter of 2004, Norfolk Southern reported net income of $213 million, or $0.54 per diluted share, an increase of 55 percent, compared with $137 million, or $0.35 per diluted share, for the second quarter of 2003.

Second-quarter operating revenues of $1.8 billion were the highest of any quarter in NS’ history and improved 11 percent compared with $1.6 billion in the second quarter of 2003. The operating ratio for the quarter was 5 percentage points better at 76.6 percent compared to the same period last year.

“Norfolk Southern’s strong second-quarter results were driven by increased business volumes, effective expense controls and operating execution that is allowing us to deliver a higher quality, higher value service,” said David R. Goode, chairman, president and chief executive officer. “We continue to add train and engine crews, and they, along with the entire Thoroughbred team, are helping Norfolk Southern handle the strongest business growth we have seen in years.”

For the first six months, income from continuing operations before accounting changes was $371 million, or $0.94 per diluted share, an increase of 67 percent compared with last year’s $222 million, or $0.57 per diluted share. Reported net income for the first half of 2003 was $346 million, or $0.89 per diluted share, which included a $114 million, or $0.29 per diluted share, gain due to a required industry-wide accounting change to account for the cost of removing railroad crossties, and a gain of $10 million, or $0.03 per diluted share, from discontinued motor carrier operations.

Railway operating revenues for the first half of 2004 set a six-month record, increasing 10 percent to $3.5 billion compared with $3.2 billion for the same period a year earlier.

The railway operating ratio for the first six months also improved 5 percentage points to 78.0 percent compared with 83.4 in the first half of 2003.

Intermodal revenues climbed 21 percent to a record $364 million in the second quarter and improved 17 percent to $692 million for the first six months compared to the same periods of 2003. Traffic growth from new truck-competitive services, increased units handled with trucking partners and strong international shipments helped drive the growth.

Second-quarter general merchandise revenues reached a record $1 billion, an increase of 9 percent over the same quarter last year. For the first six months, general merchandise revenues improved 7 percent to $2 billion compared with the year-earlier period. All merchandise markets reported revenue gains compared with the same periods a year earlier. Metals and construction and chemicals posted the largest gains in both the quarter and for the first six months.

Coal revenues increased 9 percent to $424 million in the second quarter and improved 11 percent to $822 million for the first six months of 2004 compared with the same periods last year. This growth was driven by increased demand for export coal and better revenue yields.

Second-quarter railway operating expenses were up $53 million, or 4 percent, compared with second quarter last year. For the first six months, railway operating expenses rose $70 million, or 3 percent, over the same period in 2003. This was primarily due to higher costs associated with compensation and benefits and diesel fuel.

“As we move into the remainder of the year, I am confident that Norfolk Southern can continue to leverage our operational momentum, again improve service quality and energetically pursue new business and margin improvement,” Goode said.

NS, CP move to improve performance of northeastern rail network

Norfolk Southern and Canadian Pacific Railway signed a memorandum of understanding for an exchange of trackage rights, freight haulage and yard services that will increase operational efficiency and enhance rail service to customers.

“This is an excellent example of railroads cooperating to better serve our customers, said David Goode, NS chairman, president and chief executive officer. “We will be able to jointly provide transportation solutions that will improve efficiency and quality of service for both carriers in the northeast U.S.”

“This agreement with NS opens up new opportunity to move our northeastern U.S. franchise into a position of profitability,” said Rob Ritchie, president and chief executive officer of CP. “We expect the changes will generate higher traffic volumes and revenues, greater productivity and lower operating costs.”

CP announced in June 2003 it was restructuring its northeastern U.S. operations and was seeking proposals for ways to increase freight volumes, reduce operating costs and improve earnings. CP’s northeastern U.S. network is operated as the Delaware and Hudson Railway.

Under the agreement, CP and NS will consolidate freight marshalling at yards in Buffalo and Binghamton, N.Y.:

• CP will cease yard operations in Buffalo, shifting all freight marshalling to the NS yard there.

• Similarly, NS will shift its yard operations in Binghamton to CP’s East Binghamton yard.

New trackage rights and freight haulage arrangements between CP and NS have three major components:

• CP will be able to move NS freight traffic between Rouses Point and Saratoga Springs, N.Y., under a haulage arrangement. NS will operate its own trains over CP’s line between Saratoga Springs and Binghamton, N.Y., under a trackage rights arrangement. The arrangements will provide NS with a substantially shorter route to Quebec and the Maritime provinces and generate higher revenue for CP.

• CP’s freight traffic between Binghamton and Buffalo, N.Y., will move in NS trains under a haulage arrangement, replacing a trackage rights agreement under which CP operated its own trains between the two cities. The arrangement will generate additional revenue for NS and reduce CP’s operating costs.

• CP will operate over a new NS route using existing rail lines between Detroit and Chicago under a trackage rights agreement. It will be the shortest rail route between the two cities and will provide CP with a faster, lower-cost lane.

New trackage rights arrangements and the discontinuance of trackage rights require approval of the U.S. Surface Transportation Board.

NS awards 10 college scholarships

Ten sons and daughters of employees are receiving college scholarships from Norfolk Southern as part of the company's annual scholarship program.

Recipients of Norfolk Southern Merit Scholarships are:

Joshua Hill, son of John Hill, locomotive engineer, and Susan Hill, and a graduate of Ursuline High School, Youngstown, Ohio. He will attend the University of Pittsburgh, Pittsburgh.

Jason Mehal, son of Michael Mehal, director enterprise services, and Katherine Mehal, and a graduate of Harrison High School, Kennesaw, Ga. He will attend Georgia Tech, Atlanta.

Recipients of Norfolk Southern Special Scholarships are:

Elizabeth Baker, daughter of Newell Baker, director industrial development, and Carol Baker, and a graduate of Collins Hill High School, Suwanee, Ga. She will attend Stamford University, Birmingham, Ala.

Jack Beckett, son of Kenneth Beckett, signal maintainer, and Nancy Beckett, and graduate of Norwalk High School, Norwalk, Ohio. He will attend Whittenburg University, Springfield, Ohio.

Kelly Gallagher, daughter of Ronald Gallagher, conductor, and Catherine Gallagher, and graduate of Notre Dame Academy, Toledo, Ohio. She will attend Ohio State University, Columbus, Ohio.

Frank Moczulewski Jr., son of Frank Moczulewski, national account manager, and Carolyn Moczulewski, and graduate of Marian Central Catholic High School, Woodstock, Ill. He will attend DePaul University, Chicago.

Bryan Pierrot, son of John Pierrot, carman, and Laurie Pierrot, and graduate of Wadsworth High School, Wadsworth, Ohio. He will attend Grove City College, Grove City, Pa.

Mason Savage, son of John Savage, claims agent, and Ann Savage, and graduate of Benedictine Military School, Savannah, Ga. He will attend the University of Georgia, Athens, Ga.

Matthew Snively, son of Roger Andrews, trackman, and Cheryl Andrews, and graduate ofSmithville High School, Smithville, Ohio. He will attend Wooster College, Wooster, Ohio.

Emily Zeringue, daughter of Stanley Zeringue, pile driver engineer, and Robin Zeringue, and graduate of Slidell High School, Slidell, La. She will attend Louisiana Tech University, Ruston, La.

National Merit Scholarship Corporation, an independent, nonprofit organization, selects scholarship recipients. For detailed descriptions of the scholarships sponsored by Norfolk Southern and other corporations, visit the NMSC Web site, www.nationalmerit.org.

28th annual DARS Jubilee focuses on families

Norfolk Southern’s Drug and Alcohol Rehabilitation Services program focused on family solutions during its 28th Annual Jubilee in Stone Mountain, Ga.

“Substance abuse affects not only the abuser, but also family, friends and co-workers. Working together with loved ones and with an open mind will lead to recovery,” said Jack Scott, manager DARS.

Among the 174 people – including 71 families – attending, a retired employee who has been in the program since 1981 brought his family of 13, including wife, children, grandchildren and great-grandchild. Also attending was another family of 10 and two other families who never have missed a Jubilee.

Speakers told of triumph over alcohol and drug addiction through the DARS support system. That system is extended to family members in need as well.

Sober since 1997, a DARS volunteer recently learned that his teenage son had used drugs, but others’ testimonials encouraged him. “Thanks to Norfolk Southern and the Jubilee for providing a way for my family and me to meet other railroaders who had the same battles,” he said.

During his drinking days, one speaker said he felt so isolated and territorial about his possessions that he did not allow his young son to store his tricycle in the backyard shed. More than 20 years later, the employee is sober … and his son is welcome to store his belongings in the shed.

Estranged from his family, including an angry daughter, a 23-year employee lost his job because of his dependence on alcohol. Now, five years sober and celebrating his recovery and birthday, he received a needlepoint plaque made by his daughter.

One participant initially did not ask for help because he was afraid he would lose his family, friends and job. His addiction still drove away his family, and his job was threatened. Today, he is back with his kids, is making new friends and has a support group and sponsor.

An alcoholic mother hardly saw her two young children grow up. She sometimes sent pizza home to her kids while she drank at bars. Today, she has been sober for 15 years.

“The addiction is a tornado in the lives of everyone around them,” Scott said. “When we assist an employee, there is great potential for healing in their lives and for their loved ones. We see it every year at the Jubilee.”

Next year’s Jubilee is June 17–19 in Akron, Ohio, the birthplace of Alcoholics Anonymous.

For more information on the program, visit the Employee Resource Center on the company’s Web site at www.nscorp.com or call NS medical services at 1-800-552-2306.

Celebrate Hispanic Heritage Month Sept. 15 – Oct. 15

Share your traditions and experiences

Norfolk Southern is honoring the rich traditions and contributions of Hispanic culture during Hispanic Heritage Month, Sept. 15 to Oct. 15. If you'd like to share some of your experiences and traditions, we'd like to hear from you. We may publish some of the stories in Newsbreak or post them on a special section of the NS Web site. Send your stories to Andrea Just, manager corporate communications, via e-mail to andrea.just@nscorp.com; NS mail to Box 224, Norfolk; or U.S. Mail to Andrea Just, Three Commercial Place, Norfolk, VA 23510.

Are you a veteran or on active duty?

Tell us your stories for Veterans Month

Norfolk Southern will honor its veterans and active-duty employees during Veteran’s Month in November. If you’d like to share some of your experiences as a member of the military for poss-ible publication in Newsbreak and on a special section of the NS Web site, send them to Andrea Just, manager corporate communications, at andrea.just@nscorp.com; NS mail to Box 224, Norfolk; or U.S. Mail to Three Commercial Place, Norfolk, Va. 23510.

Women’s network forms council, hosts first events

Norfolk Southern’s women’s network, WiNS, now has a leadership council of 12 people from across the system and five senior executive sponsors.

WiNS held its first events in Atlanta, Norfolk and Roanoke in late June and early July. The group sponsored lunch-and-learn sessions featuring a presentation by Marta Stewart, vice president and controller. Information about WiNS also was presented.

Membership in WiNS is open to all nonagreement employees. To find out more about WiNS, check out its Web site, accessible through NS’ electronic Employee Resource Center. Access the ERC through the NS Web site at www.nscorp.com.

NS, Sylvania celebrate 150th anniversary of Horseshoe Curve

Horseshoe Curve near Altoona, Pa., one of the engineering marvels of the world celebrates its 150th anniversary this year.

In ceremonies hosted by the Railroaders Memorial Museum on July 4, Norfolk Southern joined Sylvania to recreate Sylvania’s centennial event of 1954. At the time, 6,000 flash bulbs were set off to illuminate the curve in what was called “the largest flash photograph in the world.” The 150th was celebrated with a combination of floodlights, strobes and in-car lighting to illuminate a train running along the curve.

People gathered to watch a Norfolk Southern train light up Horseshoe Curve on July 4. Photo by David Boe.

“Horseshoe Curve is the single most recognizable railroad landmark in North America, if not the world,” said David Goode, NS chairman, president and chief executive officer, in prepared remarks.

“Over the years, Horseshoe Curve helped the United States expand west. It provided a means for families to find new opportunities during the Great Depression, and it was a vital link for military efforts during World War II in the Pacific and Europe – to the point that saboteurs were sent to destroy railroad operations in this area. It also allowed some of our most recognized companies to grow their businesses,” Goode said.

Prior to the curve’s construction, a series of canals, railroads and inclined planes made up what was called the Main Line of Public Works, stretching from Philadelphia to Pittsburgh. It took about four days to make the trip.

The 6,000 flash bulb shot taken in 1954 lasted only 1/15 of a second.

In the 1840s, the Pennsylvania Railroad was created to bypass the Main Line. When it ran out of money in 1848, the owners decided to pay tolls to cross the mountains via the Allegheny Portage Railroad.

To eliminate the tolls, J. Edgar Thomson, the railroad’s chief engineer, suggested a new PRR route that went around a valley, down one side of the valley and up the other side, climbing all the time to gain elevation, creating the horseshoe shape. The result was a gradual 1.8 percent grade, completed Feb. 15, 1854, that enabled trains to cross the mountains without stopping and to make the Philadelphia-to-Pittsburgh run in 13 hours. It was the first completely privately financed railroad project of its magnitude in the country.

Goode paid tribute to railroaders past and present. “An important part of Horseshoe Curve is the railroaders who have made and continue to make all this possible – beginning with the men who carved this landmark out with nothing more than picks, shovels, gun powder and mules,” Goode said.

He applauded the outstanding performance of track and signal forces; train crews; the operators of Alto, Slope, MG and AR towers; the yardmasters at Rose; train dispatchers in Altoona and Pittsburgh and craftsmen at the Juniata and Altoona shops.

“Today, Horseshoe Curve continues to play a vital role not only in our national economy, but in the economies of Asia and Europe as well. You all occupy a special place in the continuing story of railroading in America. I look forward to many more anniversaries for the Curve,” Goode said.