Record revenues reported; Net income increases 23 percent

For first quarter 2005 vs. first quarter 2004:

• Railway operating revenues improved 16 percent to a record $1.96 billion.
• Income from railway operations rose 16 percent to $403 million and set a first-quarter record.
• Net income climbed 23 percent to $194 million, or $0.47 per diluted share.

Norfolk Southern reported record revenues for the first quarter of 2005, with net income of $194 million, or $0.47 cents per diluted share, a 23 percent increase, compared with $158 million, or $0.40 per diluted share, for first-quarter 2004.

First-quarter results included approximately $35 million for expenses (pretax) related to the Jan. 6 train derailment in Graniteville, S.C.

“Our solid first-quarter results reflect robust volumes and revenues, and along with our improving operating ratio, demonstrate the focus of Norfolk Southern people on safety and service,” said David R. Goode, chairman and chief executive officer. “We continue to show strong momentum on volume and revenue growth.”

First-quarter railway operating revenues of $1.96 billion were the highest of any quarter in Norfolk Southern’s history, a 16 percent improvement, compared with $1.7 billion in the first quarter of 2004. Traffic volume was up approximately 106,000 units, or 6 percent.

General merchandise revenues for the first quarter reached a record $1.1 billion, an increase of 12 percent over the same period last year. All marketing groups except automotive reported strong revenue gains during the period. Metals and construction revenues led the growth with a 22 percent increase, followed by paper, up 19 percent, and chemicals, up 14 percent.

Intermodal revenues set a first-quarter record of $408 million, up 24 percent compared with first-quarter 2004. This was the fifth consecutive quarter during which intermodal showed double-digit revenue growth.

Coal revenues increased 17 percent to $467 million in the first quarter compared with the same quarter last year. The export and utility coal markets benefited from increased traffic volumes. Export traffic climbed 19 percent in the first quarter compared with the same period of 2004.

First-quarter railway operating expenses were $1.6 billion, up 16 percent over the same period in 2004. This primarily was due to costs associated with increased traffic volume, higher diesel fuel prices and expenses related to the Graniteville derailment.

For the quarter, the railroad operating ratio improved to 79.4 (even including expenses for Graniteville, which added 1.7 points) compared with 79.6 a year earlier.

NS recognized for service excellence by Maersk Sealand, Owens Corning and Toyota

Three major customers recently recognized Norfolk Southern for service excellence.

Maersk Sealand named NS its “Rail Carrier of the Year.”

“We are very proud of this award,” said Lori Leonardos, international marketing manager. “Based on the combination of train service, customer service, timeliness, accuracy and responsiveness, Maersk Sealand determined we provided the best rail transportation for them in 2004. They emphasized that it was the entire NS experience that warranted the award through hard work and dedication.

“Our receiving Maersk Sealand’s award reflects the proficiency of NS in handling the demand of a company that size,” Leonardos said. “It sends the message to others that NS is really the pre-eminent railroad to partner with. It solidifies the fact that we’re committed to doing business with one another and that we have a long-standing relationship and commitment to remain partners.”

Owens Corning named NS its “Carrier of the Year” for 2004.

“Based on Owens Corning’s data, NS was the best performing Class I railroad in 2004,” said Rudy Dowe, national account manager metals and construction. “Part of the reason for our success has to do with the switch to scheduled rail service. Because we’ve done that, our service was more consistent and reliable among major railroads.

“Owens Corning’s recognition of NS as one of the best railroad companies bodes well for earning more of their business,” Dowe said.

Toyota Logistics Services awarded NS the 2004 President’s Award for overall logistics excellence among rail carriers, its highest award given to a logistics provider.

The award is based on performance in three categories – customer service, on-time performance and quality.

“It is an honor to be selected as the top-performing rail logistics partner by Toyota, a recognized world leader in quality and service,” said Ike Prillaman, vice chairman and chief marketing officer.

NS also received Toyota Logistics’ Excellence Award for On-Time Performance among rail carriers.

Since Toyota began presenting these awards in 1996, NS has won the President’s Award three times and the Excellence Award for On-Time Performance four times.

NS transported more than 56,000 Toyota vehicles during 2004, including those originating from NS-served plants in Georgetown, Ky., and Princeton, Ind.

NS, CN announce routing protocol to streamline interchange traffic

Norfolk Southern and Canadian National Railway announced a structured routing protocol to streamline their exchange of rail traffic at major gateways.

The agreement is the product of a comprehensive examination of all interline traffic and service schedules. CN and NS will direct rail traffic through the most efficient interchange locations. The objective is to improve network capacity, transit times and asset utilization for through rail car movements.

“With the demand for freight rail service increasing at historic levels throughout North America, this is a creative way of expanding network capacity and enhancing the service options available to our joint customers,” said Don Seale, NS executive vice president sales and marketing.

James Foote, CN’s executive vice president sales and marketing, said, “This agreement will improve our interline coordination and equipment cycles and focus our organizations on improving the service product that we offer to our joint customers.”

The major interchange points for traffic moving between CN and NSR are Rouses Point and Buffalo, N.Y.; Detroit; Toledo; Ohio; Chicago; Memphis; New Orleans; and Mobile, Ala.

The routing protocol will result in a number of changes:

• Traffic between the Louisiana Gulf and the Northeast United States will be interchanged directly at New Orleans or Memphis, benefiting by a more direct routing and fewer intermediate handlings;
• Western Canada traffic to and from the south-central United States will be interchanged at Memphis, avoiding the congestion and additional handling in Chicago;
• The rail companies will expand the use of the new Rouses Point gateway agreement announced in November 2004 to further handle traffic between Eastern Canada and the southeastern United States.

NS employee honored for safety training efforts

Norfolk Southern safety coordinator Jeff Dodd received the 2005 Virginia Department of Motor Vehicles’ Transportation Safety Award. Members of the Safety Department nominated Dodd for his ongoing efforts in creating a safer workplace.

“It is really exciting to be recognized for this. We focus on putting forth our best efforts toward safety and service,” Dodd said.

Dodd produces safety videos portraying different scenarios that show employees how to react to dangerous situations.

“We create videos that make people aware of dangerous situations,” he said. “This allows them to see how they should react and how to choose a proper course of action.”

Dodd believes safety must be a personal commitment for employees. “You must make safety personal,” he said. “Safety is paramount for the individual. They have to know what’s in it for them. Our productions allow individuals to understand the importance of following the proper procedures while working.”

Dodd feels that safety is a staple of the NS culture. “This is just another indication of our total commitment to safety,” he said. “It takes everyone working together to achieve what we have at NS. That’s how we’ve earned the Harriman Gold Medal award for employee safety 15 years in a row. I’m only one of many individuals who really stress the importance of safety. Everybody is part of it.”

Six Sigma honors first Distinguished Champions

Norfolk Southern’s quality management department recognized eight employees for promoting and using Six Sigma methodology. Six Sigma is a data-driven, problem-solving methodology NS uses to improve customer satisfaction, eliminate waste and increase profit.

Recipients of the awards are: Debbie Butler, vice president transportation and customer service; Tim Heilig, assistant vice president transportation network; Rush Bailey, senior director planning and support; Dewey Smith, director service design and interline management; John Wagner, assistant general manager transportation; Jay Heslep, director cost; Ben Chapman, assistant vice president accounting operations; and Bob E. Holland, manager cost systems development.

“These individuals have gone above and beyond the call of duty to ensure the use of Six Sigma tools,” said Charlie Strickland, director quality management. “By providing support, pushing for the completion of projects and stressing the importance of quality, they’ve really immersed themselves in and embraced the concepts we’ve tried to implement.

“Debbie Butler made Six Sigma greenbelt certification a requirement for her entire service measurement group,” Strickland said. “That is just one example of the commitment displayed by these eight individuals. Each has shown dedication to quality by embracing Six Sigma tools.”

Until recently, NS recognized three levels of Six Sigma participation: greenbelt for those who complete 120 hours of classroom instruction and one project; blackbelt for those who complete 192 hours of classroom instruction and two projects; and champions, who provide leadership and guidance for greenbelts and blackbelts. Recipients of the newly created Distinguished Champion Award are selected by a three member panel: John Samuels, senior vice president operations and support; Terry Evans, vice president operations planning and budget; and Strickland.

“We want them to be recognized by their peers,” Strickland said. “They’ve really been of great assistance to us and a true asset to the company.”

NS to purchase 50 additional locomotives to meet customer needs

Norfolk Southern will acquire 50 more new locomotives than initially planned in 2005 to handle continuing increases in traffic levels.

“Record volume growth over the past 18 months and continuing strong demand for rail transportation of freight make this a great investment for NS and our customers,” said Steve Tobias, vice chairman and chief operating officer. “The new locomotives will help us continue to ensure high service levels while increasing the reliability and fuel efficiency of our fleet.”

The six-axle, 4,000-horsepower high-adhesion locomotives, built by General Electric Transportation-Rail, meet all new reduced air-emission standards. Delivery is scheduled for the fourth quarter of this year.

The 50 new locomotives will be in addition to the purchase of 52 Electro Motive six-axle, 4,000 horsepower high-adhesion locomotives announced in the 2005 capital spending budget. With a total of 102 new locomotives, the NS fleet will increase to nearly 4,000 units.

NS police officer foils alleged kidnapping

A shoot-out on Chicago’s South Side near Norfolk Southern property resulted in two deaths, three arrests and a critically wounded NS police officer.

Supervisory Special Agent Hugh McCormack was providing protection to NS train 206 just after midnight March 27 when he heard gunshots. He saw an armed man chase and kill another man.

McCormack left his patrol car, identified himself as a police officer and ordered the assailant to put down his gun. The man turned on McCormack, and the two exchanged gunfire. McCormack was hit three times. NS special agent Michael Cage was nearby protecting the same train. He heard the gunshots, observed the gunfight and rushed to McCormack’s aid, also firing shots to drive the shooter away from McCormack.

A Chicago police officer on his way to his job saw McCormack gunned down. He stopped and ordered the gunman to drop his weapon. Instead, the gunman turned and fired at the city officer. The officer then shot and killed the gunman. Police said the men, and two women who were arrested later by Chicago Police, were part of an alleged kidnap attempt.

McCormack, who joined the NS Police Department in 1999, underwent multiple surgeries and was released from the hospital April 5. He is expected to recover fully.

Chicago Police Department spokesman Pat Camden called McCormack a genuine hero. “He saw a crime being committed and as a law enforcement officer reacted quickly,”
Camden said. “His actions saved lives.”

NS employees help students “Make the Right Choices”

Two Norfolk Southern engineering employees are reaching out to their community in an effort to reduce the number of high school dropouts.

As part of a program sponsored by the Decatur, Ill., Public School system called “Making the Right Choices,” Gary Nelson, senior general foreman, and Lucious Bobbitt Jr., assistant division engineer, spoke with high school students about employment opportunities at NS and the importance of education.

“I told them to stay in school and complete their education,” Nelson said. He spoke with students at Decatur’s Eisenhower High School. “We emphasized that education is the key to success, and with it you can do anything.”

Christine Pinckard, dropout prevention coordinator and homeless liaison, introduced Bobbitt and Nelson to the program. “The sessions went really well, and the students responded quite nicely,” Pinckard said. “Our Norfolk Southern mentors talked about the potential impact of dropping out and also shared the expectations of employers such as NS. The students kept Mr. Bobbitt engaged in questions and answers for an entire half hour.”

The main goal of the program is to reduce the number of dropouts by allowing students to see the many options that exist for them. NS has a commanding presence in the Decatur community, and Pinkcard was delighted to have the participation of Bobbitt and Nelson.

“Because Norfolk Southern has such a great reputation in our community, we are honored that they agreed to address our students,” Pinckard said. “Their actions and commitment to our community certainly speak highly of NS employees.”

Bobbitt and Nelson were delighted as well. “It was rewarding to see kids lined up who were interested in what we had to say,” Nelson said. “They answered the questions I asked and were very attentive. They were great kids.”

Pinckard appreciates the active community role NS has played in trying to reduce the number of high school dropouts in Decatur. “I am pleased that NS is recognizing employees who have taken the time to work with us as we attempt to conquer the dropout problem we are experiencing,” she said. “Hopefully, with the help of the entire community, we will help our students stay in school and realize a bright future. We certainly appreciate the support NS has provided us this year in reaching this goal.”

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