THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Thursday, January 30, 1997 TAG: 9701300391
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 80 lines
Norfolk Southern officials will meet Friday with counterparts from merger partners CSX and Conrail in what is likely to be the first of many meetings to determine Conrail's fate and the face of railroading in the East.
The planned talks were mentioned by Norfolk Southern Chairman David R. Goode as the Norfolk-based railroad released fourth-quarter and 1996 earnings at a meeting with stock analysts in New York.
With the seeming regularity of a scheduled train, Norfolk Southern Corp. reported yet another round of record earnings.
Norfolk Southern also disclosed that it has already spent $75 million on the battle for Conrail Inc. These costs include legal and investment banking fees, but are mostly loan commitment fees to arrange financing for the cash offer for Conrail.
Goode said he is entering the talks with CSX Corp. and Conrail with an open mind, but is unwilling to yield on two points:
Norfolk Southern cannot compromise its pledge to pay Conrail shareholders $115 a share for their stock. That amounts to an offer of $10.3 billion for Conrail.
Any resolution with CSX and Conrail must result in competitive balance in rail freight in the East.
``I know that my friends at CSX and Conrail also have strongly held beliefs and compromise will be difficult,'' said Goode.
Officials with Richmond-based CSX and Philadelphia-based Conrail have repeatedly restated their commitment to merge. CSX is offering $9.5 billion in cash and stock.
If a resolution cannot be worked out, Goode said, ``Norfolk Southern will move on. We'll state our case to the Surface Transportation Board and we'll move on with Conrail shareholders and replace the Conrail board if we have to
Goode wouldn't disclose details about Friday's meeting, not even where it will be held. Goode did say, however, that the threat of imposed solution by the Surface Transportation Board provides plenty of incentive for a private compromise. The STB is the federal agency that oversees railroad mergers.
Meanwhile, Norfolk Southern reported its best earnings ever.
``Despite an extraordinary rise in fuel prices, we ended 1996 on a high note, setting records across the board,'' Goode said. ``Led by growth in automotive, coal, chemicals and intermodal, railway operating revenues exceeded $4 billion for the second consecutive year.''
The nation's fourth-largest railroad made $770.4 million last year, an 8 percent gain over 1995's record $712.7 million. On a per-share basis, earnings rose to $6.09, up from $5.44.
Total revenues - from the railroad and its trucking unit, North American Van Lines - were $4.77 billion in 1996, $100 million more than 1995.
Record results in the fourth quarter came despite the distractions of the fight for Conrail.
Norfolk Southern earned $200.5 million, or $1.60 per share, in the fourth quarter, up 13 percent from $176.9 million, or $1.37 per share, in the quarter ended Dec. 31, 1995. Revenues increased 2 percent to $1.18 billion.
The railroad's fourth-quarter 1995 earnings were depressed by an early retirement program's costs, which took $20.4 million or 16 cents per share out of net income.
The railroad's biggest operating challenge last year was the price of diesel fuel, which increased an average of 11 cents a gallon in 1996 compared to 1995.
``Norfolk Southern consumed 350 million gallons of diesel fuel in 1996,'' said Henry C. Wolf, Norfolk Southern's chief financial officer. ``Therefore for each additional penny in price of diesel fuel, operating expenses increased $3.5 million.''
Wolf said diesel hasn't cost so much since the Persian Gulf crisis, which spiked prices in 1990 and 1991.
``Despite the spike in fuel prices, we were able to reduce our total operating expenses, and achieve record operating results,'' Wolf said.
Nearly $100 million of revenue gains in several key rail commodities in 1996 helped offset rising fuel prices. Coal tonnage increased 5 million tons, adding $36.9 million, thanks to increased demand from domestic utilities and steel producers, as well as overseas markets.
Chemicals, the railroad's second biggest commodity after coal, added $19.4 million. The shipment of containers and truck trailers added $13 million.
Automotive shipments chipped in a $39.6 million gain, more than offsetting a $24.3 million decline in wood and paper shipments.
KEYWORDS: CONRAIL CSX NORFOLK SOUTHERN MERGER