advertisement

---

To say Norfolk Southern Corp. had a record-breaking second quarter is an understatement. The Class I set four high-water marks in the period.

NS' second-quarter railway operating revenue increased 16 percent to an all-time-high $2.8 billion, income from operations rose 16 percent to a record $799 million, net income went up 15 percent to a high-water mark of $453 million and diluted earnings per share jumped 20 percent to a record $1.18 compared with second-quarter 2007 totals.

"By any measure, it was another strong quarter for our company despite continued weakness in the automotive and housing markets and unprecedented fuel prices," said Chairman, President and Chief Executive Officer Wick Moorman during NS' earnings conference held this morning. "It was an excellent quarter in the face of economic headwinds. The economy clearly is softer than anticipated."

Although traffic volume declined 2 percent year over year primarily because of the weak automotive- and housing-related markets, NS generated more revenue in several sectors, including general merchandise (up 10 percent to a record $1.5 billion), coal (up 34 percent to a record $775 million) and intermodal (up 11 percent to a record $532 million).

"Revenue gains continue to be driven by strong market-based pricing, increased fuel surcharge revenue and our high-quality service product," said Executive Vice President and Chief Marketing Officer Donald Seale.

With the exception of automotive, six of NS' seven business segments produced record revenue per unit at $1,455, he said.

"The second quarter represented our 23rd consecutive quarter of revenue-per-unit growth," said Seale.

However, railway operating expenses jumped 16 percent year over year to $2 billion, primarily because fuel expenses soared 76 percent to $491 million. During the quarter, the Class I paid an average price per gallon of diesel of $3.58, up 81 percent vs. second-quarter 2007's average price, said EVP and Chief Financial Officer James Squires.

NS' quarterly operating ratio of 71.1 was comparable to second-quarter 2007's level.

In the first half, railway operating revenue rose 14 percent to $5.3 billion, net income increased 9 percent to $744 million, railway operating expenses jumped 14 percent to $3.9 billion and NS' operating ratio inched up 0.1 points to 73.8 compared with first-half 2007 levels.

During the conference, Moorman said NS has increased this year's capital expenditures by $80 million to acquire more locomotives for coal service and replace rail.

— Jeff Stagl