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May 2000


Communications Outage Disrupts CSXT Service

CSXT experienced a major service disruption the morning of April 28 caused by a communications outage resulting from an MCI WorldCom software problem during planned maintenance of their equipment. The outage affected train control and dispatching functions throughout most of the system, and resulted in delays to a number of Amtrak and commuter trains. The former Conrail territory acquired by CSXT was mostly unaffected.


CSX Reports Lower First-Quarter Earnings

CSX Corporation reported first quarter net earnings of $29-million compared to $75-million for the same quarter the previous year. "These results are unsatisfactory and reflect sharply higher fuel and labor costs, as well as lingering congestion problems at our railroad," said John Snow, CSX chairman and chief executive officer. He added, "We are taking steps to reduce the number of cars on our system and improve network fluidity. With demand expected to stay strong for the rest of the year, we can improve earnings substantially by running the railroad more efficiently." The company approved its regular dividend of 30 cents per share payable June 15 to shareholders of record on May 22.


Supreme Court Bars Suits Involving Federally-Funded Crossing Devices

The Supreme Court has ruled that railroads cannot be sued for the adequacy of warning devices at rail/highway grade crossings if federal funds were used to pay for all or part of the devices. The ruling came in a case involving Norfolk Southern, but it applies to affected grade crossings nationwide.


BNSF Begins Intermodal Service to Mexico

Burlington Northern Santa Fe has begun intermodal service between U.S. cities and Monterrey, Queretaro, and Mexico City, Mexico. The service operates daily at Laredo, Texas, the primary intermodal route to Mexico where more than half of U.S./Mexican trade crosses the border. A feature of the offering includes competitive pricing that permits customs clearance at destination rather than at the border, according to BNSF.


Amtrak Announces Restructuring for Intercity Business Unit

Amtrak has announced a new organizational structure for its Intercity Business Unit. Eastern and Western regions, each headed by a vice president, have been established within the business unit to provide support and leadership for all aspects of service delivery in their areas. Amtrak Intercity is one of three strategic business units in the nationwide system and is responsible for the operation of most long-distance trains as well as short-distance services in the Midwest and North Carolina. Al Edelston has been named to head the Eastern Region, and Don Saunders has been named to head the Western Region.


UP Cancels Plans for Intermodal Facility Near Maple Park, Illinois

[Reported by Carl Shaver] . . . Union Pacific has announced that it has canceled plans to build an intermodal facility near Maple Park, Illinois. UP said it will continue to address its future capacity needs, but does not plan to pursue the Maple Park project.


U.S. Rail Carloads Rise 2.3 Percent in March

U.S. rail carload traffic rose 2.3 percent in March compared to the same month last year. March marked the first time in more than a year that coal carloadings were up compared with the same month the previous year, although modestly at 3/10 of one percent. Metallic ores and metals rose 4.9 percent, agriculture rose 4.7 percent, chemical traffic rose 4.3 percent, and motor vehicles rose 3.8 percent.


CSXT Responds to FRA Track Concerns

The Federal Railroad Administration issued a draft safety report on CSXT track inspection and maintenance programs in March. The following are responses that were issued to employees and customers by then-president Ron Conway. These responses were issued prior to management changes at CSXT and the departure of Mr. Conway as president...


To All CSXT Employees,

I know that many of you are concerned over recent news articles regarding FRA findings on our track inspection and maintenance programs. I want you to know that we take FRA's findings very seriously, and that John Snow and I will be personally involved to ensure that all of the problems are fixed. As painful as the recent public criticism has been, I believe that in the long run, this will make us a better, safer, and more focused company.

Like any organization, we have problems that we need to continually work on. Despite the recent problems, we are a safe railroad. In fact, our track-caused derailment rate in 1999 was the lowest it has been since 1995, and was 8% better than 1998.

FRA has recognized publicly that the audit also found exceptionally well-maintained areas. In a press article, a senior FRA official said that "...some of them showed major improvements over the last time we looked at them ... we think the railroad is a safe railroad. We're here to work in partnership with them."

We perform very well in other areas, too. Our transportation team moved over 430,000 hazmat shipments last year with over 99% delivered safely to our customers. Obviously, while these are positive trends, we can't be satisfied. We must continually work to improve in safety.

Despite our challenges, as long as we work together in the spirit of the social compact, we will be able to meet the needs of our customers, fellow employees and the communities that we serve.

Thank you for being a professional and for doing your part every day to make us better.

Yours truly,



Dear Customer:

No doubt, in recent days you have read or heard about the Federal Railroad Administration's (FRA) draft safety report of CSX Transportation that was first reported in the Friday, March 31st edition of the Washington Post. We received a copy of that draft report on March 14 and have been cooperating and collaborating with the FRA every step of the way.

Like any organization, we have problems that we need to continually work on. Despite the recent problems, we are a safe railroad. In fact, our track-caused derailment rate in 1999 was the lowest it has been since 1995, and was 8% better than 1998. FRA has recognized publicly that the audit also found exceptionally well-maintained areas. In a press article, a senior FRA official said that "...some of them showed major improvements over the last time we looked at them ... we think the railroad is a safe railroad. We're here to work in partnership with them." We perform very well in other areas, too. Our transportation team moved over 430,000 hazmat shipments last year with over 99% delivered safely to our customers. Obviously, while these are positive trends, we can't be satisfied. We must continually work to improve in safety.

We take the findings very seriously and believe there can be no compromise with safety on our railroad. All of the defects reported by the Post have been repaired - including all gauge defects - or, they are in the process of being repaired, and our operations have been modified to ensure safe movement until the work is completed.

To make sure the FRA's findings are addressed promptly, CSX chairman John Snow will personally head an internal company review of all track maintenance and improvement programs. In addition, I am personally leading a senior team that will include Gary Spiegel, senior vice president of operations, and Tom Schmidt, the railroad's vice president of engineering, this week to inspect the FRA-identified problem areas.

Again, I want to assure you that the safety of our employees, rail passengers, the products you ship on CSXT, and the communities in which we operate, is our highest priority. We will continue to communicate with you on this very important subject. In the interim, please contact me or your CSXT sales representative to discuss any specific questions you may have.





CSXT Responds to Management Changes

CSX Corporation announced on April 11 that its president, Ron Conway, and some other officials had left the company. The following are letters sent to employees concerning the matter...


Dear Colleague,

The last few years have been a time of great change and challenge for all of us at CSX. One of the things I've learned in my 23 years with this company is that our operating team always rises to the challenges and has learned to embrace change as a catalyst for making us stronger.

It's with a deep sense of pride that I'm joining this team. I'm also pleased to announce to you the key members of the operating team that will help us to meet the challenges ahead. Al Crown will be senior vice president-transportation, responsible for directing all transportation activities, including the five regions and the operations center. Mike Cantrell adds engineering to his responsibilities and becomes senior vice president-mechanical and engineering. Jim Fallon will serve as vice president-network operations, succeeding Clarence Gooden, who joins the commercial team as senior vice president-Coal Service Group. Gerry Gates will succeed Al Crown as vice president-Central Region. Please join me in congratulating each of them as they assume their new responsibilities.

Others who will continue to play key roles in the Operating Department include: Ed Codd, vice president-risk management; Bob Downing, vice president-Northeast Region; Frank Pursley, vice president-service design; Mike Pendergrass, vice president-Southern Region; Mike Peterson, vice president-Western Region; Tom Schmidt, vice president-engineering; Jim Schultz, vice president-safety and chief safety officer; and John Williams, vice president-Midwest Region.

While change is inevitable, my goal is to minimize the amount of change in the operating departments and to focus on the basics: safety, service and costs. We will not compromise on safety - it is our first priority. We will be working closely with Mike Giftos and the commercial team to improve our service performance to a level that meets our customers' expectations. And we'll continue our focus on increasing productivity and the cost effectiveness of the network.

The foundation for building on our successes is the social compact with employees. I have experienced how powerful the compact is, and it will remain the basis for our relationships going forward. With that foundation, the tenets for our organization will be teamwork, leadership and treating everyone with respect. I believe in working as a team and for every individual to understand his or her role in achieving the team's success. I also am committed to improving the quality of work life for our operating employees - union and management - and the operating leadership will be focusing on that initiative.

Each of you holds the keys to our success through your dedication, expertise and ideas for making us a better company. Over the days, weeks and months ahead, you will see me and other members of the operating team often. Please share your thoughts with us. By working together, we can achieve the levels of performance that our employees, customers, shareholders and communities expect.



Dear Colleague,

It is with great pride that I join CSXT's commercial team. While this has been a challenging time for our company and customers, the service groups have performed effectively in meeting many of their goals.

We will work closely with Michael Ward and his operating team to provide customers with the best rail transportation possible. Michael and I have worked together for many years to overcome challenges and seize opportunities like those facing us now. And in confronting these new challenges, we recognize that we are not providing the service our customers expect or deserve. Our teams will partner to change that, making consistency and value our top priorities. Through a renewed focus and close working relationship, we are confident we can provide the service our customers have asked for. In addition, I am committed to improving communications with our customers. We must continually update them on our progress and give them realistic expectations on our service performance.

I am also pleased to announce the senior members of the new commercial organization.

... Dale Hawk, a veteran in the auto arena, will continue as Senior Vice President of the Automotive Service Group.

... Joining him will be two newcomers to the commercial group. Clarence Gooden, formerly Vice President-Transportation and a proven operations leader, will serve as Senior Vice President-Coal Service Group.

... Bill Flynn, formerly Senior Vice President-Strategic Planning for CSX Corporation, has been named Senior Vice President-Merchandise Service Group. Bill formerly served in a number of senior sales, marketing and other management positions at Sea-Land.

... In addition, I have asked Chris Jenkins to transfer his expertise in the commercial area to the broader role as Vice President-Sales and Marketing. Chris will serve as a commercial strategist and help lead our pricing and capacity management efforts.

These leaders bring a unique combination of talents and experiences that will allow us to effectively meet the needs of our customers. Please join me in congratulating Dale, Clarence, Bill and Chris as they move to their new posts.

However, success will only be realized with the help, energy and insights of every one of our employees. Over the next several weeks I plan to visit with as many of our sales and marketing professionals as possible in Jacksonville and in the field. You know our customers' needs and how to serve them. I look forward to working with and learning from you.

Together I am confident we can leverage the full potential of our expanded network and achieve all that is expected of us by our customers, our shareholders and our colleagues.



Dear Colleague,

The attached news release is being issued. The release below details significant changes in our senior management team to better enable our company to move quickly and decisively toward critical goals in safety, service to our customers and revenue growth. I look forward to meeting with as many of you as possible in the days and weeks ahead as we build a foundation for a new, higher level of performance.




CSX Corporation, which owns and operates the largest railroad in the eastern half of the United States, today announced changes in its senior management organization.

John W. Snow, chairman and chief executive officer of the corporation, is assuming responsibilities formerly handled by Ronald J. Conway. Conway, who joined CSX from Conrail in 1998 and was named president in 1999, has resigned to pursue other interests. "We are grateful to Ron for his contributions, most notably for leading CSX Transportation through the complex integration of Conrail properties into our network," Snow said. "I am pleased that he will be staying with us as a consultant.

"CSX has a terrific opportunity to grow earnings substantially," Snow noted. "Our job now is to sharply focus the entire organization on the overriding goal of enhancing shareholder value by stepping up the pace of operations, making this the safest railroad possible and bringing customers the level of rail service they want and need. We've done that before, and now is the time to do it again."

Reporting to Snow, these senior executives will have key leadership roles:

... CSX Corporation Executive Vice President and Chief Financial Officer Paul R. Goodwin has been named vice chairman. All financial functions in the company have been integrated under his supervision, and he is heading a major effort to drive out costs and improve financial performance.

... P. Michael Giftos, formerly CSX Transportation senior vice president and general counsel, becomes executive vice president and chief commercial officer at the railroad. Giftos, who has been responsible for pricing strategy, will be in charge of the railroad's merchandise, coal, and auto marketing and sales efforts.

... CSX Transportation Executive Vice President Michael J. Ward is now responsible for operations and rail network performance. He formerly led the railroad's coal operations and managed the company's two-year effort to integrate former Conrail operations into the CSX system.

The Office of Chairman, established in 1999, will continue to manage all CSX staff and key support functions. It includes Vice Chairman A.R. "Pete" Carpenter; Goodwin; Mark G. Aron, executive vice president-law and public affairs; Andrew B. Fogarty, senior vice president-corporate services; William J. Flynn, senior vice president-strategic planning; William J. Ryan, senior vice president-human resources; Jesse R. Mohorovic, group vice president-corporate communications and investor relations; and Robert W. Shinn, vice president and executive assistant to the chairman.


John Snow Calls for "Sense of Urgency"

[From CSXT Employee News, April 13, 2000] . . . In a meeting with employees in Jacksonville - the first in a series that will take him to all five regional headquarters - Chairman and CEO John Snow committed to lead CSX to a new level of safety, service to customers and financial performance. "We have to get this company turned around fast, and we can," Snow told employees Tuesday in the lobby of the Jacksonville General Office Building. "We're falling far short of our potential. Our potential is to enhance shareholder value and to delight customers, and right now, we're not doing that." Earlier in the day, Snow announced that he was assuming the "hands on" running of the railroad in place of Ron Conway, who departed. Snow thanked the Conrail veteran for the many innovations he brought to CSXT, including the development of the five geographic regions and the service groups representing coal, merchandise, automobiles and intermodal.

Snow said he would "accelerate the pace of change" and make more rapid progress in increasing train velocity and reducing terminal car dwell and cars on line. But to reach CSX's full potential, something more was needed. Snow pledged to create a workplace built on consensus and decisiveness, urgency for action, and one in which employees feel free to express ideas and disagreement. In the end, however, the results must improve. "Nothing is going to move us ahead like running the railroad better and faster," Snow said.

Michael Ward Says Railroading Will be Fun Again

[From CSXT Employee News, April 13, 2000] . . . Michael Ward, newly appointed executive vice president for rail operations and network performance, said he wants to bring some of the fun back to railroading. "We've done this before," he told employees during the Jacksonville lobby meeting. "We've run the railroad in fine fashion. It's fun to be on a winning team." Ward pledged a return to the basics, with an intense focus on safety, customer satisfaction, costs and asset productivity, and pricing. Ward also echoed Chairman and CEO John Snow's theme of accountability, and Vice Chairman Pete Carpenter's long-held view that companies succeed when they are "hard on facts and easy on people." Ward said CSXT would operate on a "no-fault fixing" mode. Rather, energy and ideas should be directed to finding the problems and eliminating them.


Mike Giftos Looks Ahead to Better Days

[From CSXT Employee News, April 13, 2000] . . . Mike Giftos, newly-appointed executive vice president and chief commercial officer, said that the commercial team will work closely with the operating team to provide customers with the best rail transportation possible. "Michael [Ward] and I recognize that we have not been providing the service that our customers expect or deserve," Giftos said. "Our teams will partner to change that, making consistency and value our top priorities." Giftos pointed to strong product demand and enormous franchise potential as key drivers on the road to improved results. "The combination of these together will allow us to achieve our performance expectations," Giftos said. Giftos acknowledged that while he has worked on key commercial issues as the company's top lawyer, he still has a learning curve to overcome. But Giftos championed the strength of the commercial team and said that he looked forward to working with and learning from them. "I welcome this opportunity and look forward to far, far happier days at CSX," he said.


Paul Goodwin Brings Intense Focus to Costs

[From CSXT Employee News, April 13, 2000] . . . CSX Vice Chairman and Chief Financial Officer Paul Goodwin says he is looking forward to rolling up his sleeves with the new team. "We're going to be doing some of the things that we did in the early 1990s when we produced record earnings, a much lower operating ratio, and pleased our investors and shareholders," Goodwin said. In addition, Goodwin said he would ask his team to evaluate new ways to reducing and eliminating unnecessary costs, and making CSX a much more efficient company. "We've had some success in bringing operating, marketing and finance perspectives together," he said. "There is much more potential with closer alignment of departments as well as with corporate and the railroad."


Pete Carpenter Points Out Lessons of the Past

[From CSXT Employee News, April 13, 2000] . . . The architect of CSX Transportation's success in the 1990s says the lessons of history can be inspirational - and brutal. The inspirational ones include CSXT's not-so-long ago turnaround in safety and financial performance. The brutal ones include the near-death of the rail industry in the 1970s. "We've been part of digging this company out of some tough spots," said Vice Chairman Pete Carpenter. "We can do it again." CSX's turnaround is necessary for many reasons, but among the most important is its critical need to access capital to keep the railroad strong and able to grow. Carpenter said such a process would require "accountability and common sense" and the commitment by people to "manage in the proper way - slow to anger, quick to praise."


Safety-Focused Train Control System Enters Field Testing

[From CSXT Employee News, March 30, 2000] . . . CSXT's advanced-technology solution for improving train-operating safety in unsignaled territory is nearing reality. The system, called Communications-Based Train Management (CBTM), recently passed laboratory qualification and is now undergoing field performance tests. "The system is performing as designed, and we're very excited about its potential to enhance safety for our train crews," said Tom Schmidt, vice president-engineering. The system uses a combination of computers, location tracking and date communications systems to prevent trains in 'dark territory' from entering a block they are not authorized to occupy and to enforce speed restrictions and work zones. Information is passed electronically from the dispatching center in Jacksonville to the CBTM system, which uploads the 'targets' and track data to an on-board locomotive computer. A combination of satellite global positioning and other systems fix the train's location and allow the locomotive's computer to continually evaluate speed in relation to required stopping distance. If, for example, a train's speed is too great to allow it to stop before entering an unauthorized block, the locomotive computer will take action to alert the engineer and begin braking automatically.

"This system is the best of both worlds, because it allows the crew to remain in control of the train while providing an additional safety net that takes action only when it's needed," explained Denise Lyle, director-advanced train control projects. After Federal Railroad Administration officials observe the system in operation next week, CSXT will begin a three-month phase during which the system will be operated on six CBTM-equipped AC-4400 locomotives in revenue service. Performance information will be gathered and crews will be consulted to determine what improvements can be made before the system enters production. "We're taking it one step at a time and making sure the system is both safe and a worthwhile investment," Lyle said. She also noted that the system offers add-on opportunities to improve operating efficiency in addition to the safety benefits.


Cumberland Sub Towers Nearing their End

It is an anomaly that any of them remain at all. But much more of an anomaly is that a "cluster" of them still exists with offices spaced in average of just six miles apart. Tucked away in West Virginia's Eastern Panhandle, CSXT's (ex-B&O) towers at Martinsburg, West Cumbo, Miller and Hancock have been performing yeoman service, the old-fashioned way, for about a century. In fact, the latter two towers are still extant with armstrong levers connected to pipelines that move their switches mechanically. The whole cluster is a veritable museum.

But all this is about to change.

By the middle of next year, if all goes according to plan, all four of the towers will have closed.

According to those familiar with the project, an electro-code signaling system will be installed over a 60-mile portion of the Cumberland Subdivision - between Harpers Ferry and Orleans Road - which will make the intervening towers obsolete.

The project will proceed in six phases, each with its own design, construction and cutover segments. The design segments will proceed concurrently while the construction and cutover segments will proceed consecutively from one phase into the next.

The first phase, which began its construction segment last month, will apply a bidirectional electro-code system to the low-grade freight line - presently signaled in one direction only - between Miller and West Cumbo. This is expected to be completed about the middle of June.

The second phase will include the installation of a completely new interlocking at Cherry Run, about half a mile east of Miller Tower, which will allow for the closing of that tower. If all goes according to schedule, that phase will be completed in early September, and Miller will be the first of the four towers to close.

The third phase, which will include the retirement of the tower at West Cumbo, is now scheduled for completion about the middle of November.

The fourth and fifth phases, from Harpers Ferry to Martinsburg, are slated for completion in May 2001, and will include the closing of NA Tower in Martinsburg.

The sixth and final phase, to include the closing of HO Tower in Hancock, is scheduled for completion in July 2001.

Once again, the time frame represented by this project is only tentative, but no one doubts that it will eventually be completed. About 21 tower operators, including extras, will be affected.


Courtney Wilson Installed as Executive Director of B&O Museum

[By Allen Brougham] . . . Courtney Brent Wilson, 46, newly-named executive director of the B&O Railroad Museum in Baltimore, was officially installed into his new position at a catered reception in the roundhouse on April 25. There were about 200 members and invited guests present. He had been serving as interim executive director since the departure of John Ott last October. Previously, Courtney had been chief curator and director of interpretation since April 1997. Following a nationwide search for a new executive director, for which a number of applications were received, it was decided that the talent the museum was looking for had been there all along, and he was appointed to the position in March.

Following a brief remarks segment, a new logo was introduced to signify the museum's upcoming role to observe the 175th anniversary of American railroading. Beginning on February 27, 2002, a 16-month celebration will begin with a variety of events, ending on July 4, 2003, the anniversary of the laying of the First Stone of the B&O Railroad. This latter date is also significant in that it is the 50th anniversary of the opening of the B&O Museum.

The anniversary celebration will also see restoration of the museum's rail operations program. Recently this program, which included excursions over the first mile and a quarter of B&O mainline track, had to be suspended for need of track rebuilding and equipment upgrades. Additionally, the museum is in the midst of evaluating its rolling stock collection and to identify the pieces most significant in telling the story of American railroading.

The goal of the B&O Museum is for it to become synonymous with railroading worldwide.