Railroads in 2002

Burlington Northern Santa Fe (NYSE: BNI)

FORT WORTH, Texas – BNSF’s earnings per share for the year ended December 31, 2002, was $2.00 on a diluted basis compared with prior period earnings of $1.87 per diluted share.

Freight revenues for the year were $8.87 billion compared with 2001 revenues of $9.09 billion. Operating expenses of $7.32 billion decreased by $135 million. Operating income fell to $1.66 billion from $1.75 billion as compared with the prior period. 2001 earnings include unusual items comprised of an automotive contract settlement gain, losses on non-rail investments, work force reduction related costs and an expense associated with the early extinguishment of debt.

Fourth quarter 2002 earnings of $0.54 per share compared with $0.46 per share including an adjustment for workforce reduction related costs in 2001, or $0.57 per share excluding these costs. Freight revenues of $2.27 billion for the fourth quarter 2002 were flat compared with 2001 fourth quarter. Operating income was $436 million compared with $401 million a year ago, or $467 million adjusted.

“In spite of the economic challenges BNSF faced throughout 2002, we posted our fifth consecutive year-over-year quarterly record for on-time performance for our customers,” said Matthew K. Rose, BNSF Chairman, President and Chief Executive Officer. “We achieved fourth quarter and annual record revenues in our international intermodal, truckload and perishables sectors within Consumer Products as well as several annual revenue records in the Industrial Products sector. In addition, for the fourth consecutive year BNSF generated significant positive free cash flow.”

Rose continued: “Going forward, we will continue to focus on customer service, revenue quality, operating efficiencies and technological innovation, building on the excellent foundation we have laid over the past two years. As the U.S. economic recovery picks up steam in 2003, BNSF is well-positioned for strong earnings growth.”

Canadian National (NYSE: CNI)

MONTREAL – Canadian National today reported 2002 net income of $800 million, or $3.97 per diluted share, compared with net income of $1,040 million, or $5.23 per diluted share, for 2001.

Operating income for the year ended Dec. 31, 2002, was $1,469 million, compared with $1,682 million for 2001. Revenues for 2002 were $6,110 million, compared with $5,652 million for 2001, while operating expenses for 2002 were $4,641 million, compared with $3,970 million for 2001.

CN’s 2002 and 2001 results include certain items affecting the comparability of the Company’s financial performance. Excluding these items, 2002 adjusted net income (1) was $1,052 million, an eight per cent increase over comparable net income of $978 million for 2001, while the related diluted earnings per share rose six per cent to $5.22 from $4.92 for 2001.

On an adjusted basis, 2002 operating income increased five per cent to $1,870 million. Operating expenses rose 10 per cent to $4,240 million, owing primarily to the inclusion of a full year of expenses attributable to the operations of WC and higher expenses associated with the movement of merchandise traffic. As adjusted, CN’s operating ratio for 2002 was 69.4 per cent, compared with 68.5 per cent for 2001.

CN’s 2002 revenues increased by eight per cent, reflecting the acquisition of Wisconsin Central (WC) and a strong performance by the majority of the company’s business units – petroleum and chemicals, automotive, intermodal and forest products. Gains by these businesses were partially offset by continued weakness in Canadian grain and coal revenues.

CN President and Chief Executive Officer E. Hunter Harrison said: “Thanks in large part to the discipline of our operating plan, CN turned in a solid 2002 financial performance in an extremely challenging environment for bulk commodities.

“Our business model focuses on service quality, which drove the strong revenue performance of our service-sensitive merchandise and intermodal units. This enabled us to offset the sharp downturn in grain revenues. Scheduled railroading also permitted us to control some of the cost increases associated with moving a higher proportion of merchandise traffic on our trains, and to boost asset utilization. As a result, we generated record free cash flow of $513 million in 2002. All CN employees deserve credit for meeting the challenge.

“For 2003, we remain cautious about CN’s prospects given uneven North American economic growth, uncertain precipitation levels in Western Canada, and potentially volatile international energy prices. Based on our superior service levels, we are optimistic that our merchandise and intermodal revenues will outpace overall economic growth.”

Canadian Pacific (TSX/NYSE: CP)

CALGARY, Alberta – Canadian Pacific Railway closed out 2002 with a record $857 million in operating income and a best-ever operating ratio of 76.6 per cent.

The combination of cost containment and strong growth in several business sectors offset the effect of the second year of depressed grain shipments due to the Canadian prairie drought. Net income in 2002 was $496 million, an increase of $124 million or 33 per cent over 2001, as a result of higher operating income, lower income taxes and a stronger Canadian dollar. Diluted earnings per share in 2002 were $3.11, an increase of $0.77 or 33 per cent over 2001.

For the fourth quarter of 2002, net income was $126 million, an increase of $28 million or 29 per cent over fourth-quarter 2001. Diluted earnings per share in the last three months of 2002 were $0.79, up $0.18 or 30 per cent over the same period of 2001.

Rob Ritchie, President and Chief Executive Officer, said: “CPR’s diverse commodity mix is one of our underlying strengths, and our Marketing and Sales team used this strength to overcome the effect on our grain revenue of a prolonged drought. At the same time, we managed pressures on expenses by being unrelenting in every area of the business. Our focus on the fundamentals – safety, service and productivity – is an effective, common-sense business approach that benefited shareholders in 2002 and will continue to pay off.”

On the year, record-operating income of $857 million was $16 million or 2 per cent higher than the comparative figure, excluding non-recurring items, in 2001. CPR’s operating ratio, a key measure of efficiency in the railway industry, improved 70 basis points to 76.6 per cent, compared with 2001.

Excluding non-recurring items and the effect of foreign exchange gains and losses on long-term debt, net income in 2002 was $407 million, an increase of $27 million or 7 per cent over the comparable results in 2001. On the same basis, diluted earnings per share were $2.56 in 2002, an increase of $0.17 or 7 per cent over 2001.

Fourth-quarter 2002 operating income was $238 million, compared with $261 million, excluding non-recurring items, in the same period of 2001. The operating ratio was 75.0 per cent, compared with a record fourth-quarter operating ratio of 72.5 per cent in 2001.

Norfolk Southern (NYSE: NSC)

NORFOLK, Va. – Norfolk Southern Corporation reported fourth-quarter net income of $129 million, or $0.33 per diluted share, up 12 percent compared with net income of $115 million, or $0.30 per diluted share, in the fourth quarter of 2001.

For the year, net income was $460 million, or $1.18 per diluted share, up 23 percent, compared to $375 million, or $0.97 per diluted share, in the same period a year earlier. Net income during 2001 included an after-tax gain of $13 million, or $0.03 per diluted share, from the 1998 sale of a former motor carrier subsidiary.

“I am pleased with the substantial improvements in income and operations during the quarter and 2002 in a year filled with challenges for everyone in business,” said David R. Goode, chairman, president and chief executive officer. “The value of service improvements is making itself apparent.”

Railway operating revenues set record highs for both the fourth quarter and the year. In the quarter, revenues reached $1.58 billion, up three percent compared with the fourth quarter of 2001, and for the year, revenues of $6.27 billion rose two percent compared with the same period in 2001.

Fourth-quarter general merchandise revenues of $914 million reflected a five percent improvement compared to the fourth quarter of 2001. All market groups showed revenue gains compared to the same period of 2001, led by a seven percent improvement in automotive. For the year, general merchandise revenues of $3.65 billion increased three percent compared with 2001 and set a record.

Intermodal revenues in the fourth quarter were $306 million, an increase of five percent compared to the fourth quarter of 2001. For the year, intermodal revenues of $1.18 billion were the highest of any year in Norfolk Southern’s history and improved five percent compared with 2001. The revenue growth reflects the introduction of new services that enabled conversion of highway movements to rail as well as improvements in on-time reliability and service speed.

Coal revenues declined two percent in the fourth quarter to $361 million in the face of less demand for utility coal and decreased five percent for the year to $1.44 billion compared to strong 2001 results.

Railway operating expenses in the quarter were $1.3 billion, up three percent from the fourth quarter of 2001. For the year, railway-operating expenses were $5.1 billion, down $51 million, or one percent, from 2001.

For the quarter, the railway-operating ratio improved to 81.8 percent compared with 82.0 percent in the same period of 2001. For the year, the operating ratio improved to 81.5 percent, compared with 83.7 percent a year earlier.

“Our results show that Norfolk Southern is on course and headed in the right direction,” Goode said.

Union Pacific (NYSE: UNP)

OMAHA, Neb. – Union Pacific Corporation today reported a fourth quarter record net income of $378 million, or $1.41 per diluted share.

This is a 37 percent increase over the 2001 level of $275 million, or $1.06 per diluted share. The 2002 quarterly results include one-time gains of $0.16 per diluted share from the sale of land and track to the Santa Clara Valley Transportation Authority as well as $0.15 per diluted share for tax adjustments. Without these transactions, the Corporation earned $1.10 per diluted share in the fourth quarter of 2002.

For the year, net income increased by 39 percent to a record $1.341 billion, or $5.05 per diluted share, compared to $966 million, or $3.77 per diluted share in 2001. Excluding one-time items totaling $0.75 per diluted share that Union Pacific reported in the third and fourth quarters of 2002, full year earnings were $4.30 per diluted share, a 14 percent increase over 2001 earnings.

“This was a remarkable year for Union Pacific,” said Dick Davidson, chairman and chief executive officer. “While it was a very difficult economic environment, and the West Coast port disruption temporarily slowed our momentum, the men and women of Union Pacific answered every challenge.

“Our 2002 earnings performance accelerated our ability to strengthen the balance sheet and position ourselves for continued long-term growth.”