What drove the increase in revenue for the second quarter and first six months of 2003?

Revenue growth was primarily driven by an increase in the coal segment, fueled by higher utility and export coal volumes, and by growth in the intermodal segment. General merchandise revenue saw a slight decrease in the quarter but a modest increase year-to-date, with specific sub-segments showing varied performance.

What were the main factors impacting operating expenses?

Operating expenses increased due to higher compensation and benefits, increased diesel fuel costs, and a rise in casualty and other claims. These increases were partly offset by a change in accounting for crosstie removal costs, which reduced depreciation expense.

Can you explain the significant accounting changes mentioned in the report?

The company adopted two new accounting standards effective January 1, 2003: SFAS No. 143, 'Accounting for Asset Retirement Obligations,' which changed how crosstie removal costs are expensed, and FIN No. 46, 'Consolidation of Variable Interest Entities,' which led to the consolidation of a special-purpose entity leasing locomotives. These changes resulted in cumulative effect adjustments impacting net income.

What is the status of the proposed Conrail transaction?

Norfolk Southern, along with CSX, filed a joint petition with the Surface Transportation Board (STB) to establish direct ownership of Pennsylvania Lines LLC (PRR) and New York Central Lines LLC (NYC) by their respective railroad subsidiaries. This transaction is subject to STB approval and an IRS ruling. It would replace existing operating agreements and involve a restructuring of Conrail's debt.

NSC 10-Q Quarterly Report Q2 FY2003 — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-Q filed July 30, 2003. Cited figures are marked; the original filing is the authoritative source.

Norfolk Southern Corporation (NSC) reported its financial results for the second quarter and the first six months ended June 30, 2003.

The company demonstrated revenue growth, driven by an increase in coal and intermodal segments, despite a slight dip in general merchandise. Net income for the quarter rose to $137 million^a from $119 million in the prior year. For the first six months, net income was $346 million, which included significant one-time accounting adjustments and a gain from discontinued operations.

The company's financial condition remains solid, with sufficient liquidity to meet its obligations, supported by operating cash flow and access to credit facilities. Management is actively managing market risks through hedging strategies for diesel fuel and interest rates, and is pursuing a significant strategic initiative involving the proposed spin-off of Pennsylvania Lines LLC (PRR) and New York Central Lines LLC (NYC) from Conrail, which is subject to regulatory approval.

02—Key points

Key Highlights

Total railway operating revenues increased by 3% to $1.63 billion for the second quarter and by 3% to $3.19 billion for the first six months of 2003 compared to the prior year periods.
Net income for the second quarter of 2003 was $137 million ($0.35 per diluted share), an increase from $119 million ($0.31 per diluted share) in the second quarter of 2002.
First six months net income was $346 million ($0.89 per diluted share), which included $114 million ($0.29 per diluted share) from the cumulative effect of accounting changes and $10 million ($0.03 per diluted share) from discontinued operations.
Coal revenues saw a significant increase of 11% in the second quarter, driven by higher utility and export coal volumes.
Railway operating expenses increased by 5% for both the second quarter and the first six months, primarily due to higher compensation and benefits, diesel fuel, and casualty claims expenses.
The company is progressing with the proposed spin-off of Pennsylvania Lines LLC and New York Central Lines LLC from Conrail, pending regulatory approval.
Norfolk Southern continues to actively manage diesel fuel price volatility through a hedging program, with 72% of expected 2003 diesel fuel requirements hedged as of June 30, 2003.

03—Questions

Frequently Asked Questions

What drove the increase in revenue for the second quarter and first six months of 2003?
Revenue growth was primarily driven by an increase in the coal segment, fueled by higher utility and export coal volumes, and by growth in the intermodal segment. General merchandise revenue saw a slight decrease in the quarter but a modest increase year-to-date, with specific sub-segments showing varied performance.
What were the main factors impacting operating expenses?
Operating expenses increased due to higher compensation and benefits, increased diesel fuel costs, and a rise in casualty and other claims. These increases were partly offset by a change in accounting for crosstie removal costs, which reduced depreciation expense.
Can you explain the significant accounting changes mentioned in the report?
The company adopted two new accounting standards effective January 1, 2003: SFAS No. 143, 'Accounting for Asset Retirement Obligations,' which changed how crosstie removal costs are expensed, and FIN No. 46, 'Consolidation of Variable Interest Entities,' which led to the consolidation of a special-purpose entity leasing locomotives. These changes resulted in cumulative effect adjustments impacting net income.
What is the status of the proposed Conrail transaction?
Norfolk Southern, along with CSX, filed a joint petition with the Surface Transportation Board (STB) to establish direct ownership of Pennsylvania Lines LLC (PRR) and New York Central Lines LLC (NYC) by their respective railroad subsidiaries. This transaction is subject to STB approval and an IRS ruling. It would replace existing operating agreements and involve a restructuring of Conrail's debt.

04—Continue

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