Norfolk Southern
Annual Report 2008

Plain-text annual report

Norfolk Southern Corporation | Annual Report 2008 N o r f o l k S o u t h e r n system map 2 Description of Business Norfolk Southern Corporation (NYSE: NSC) is one of the nation’s premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 21,000 route miles in 22 states and the District of Columbia, serving every major port in the eastern United States and providing superior connections to western rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is North America’s largest rail carrier of metals and automotive products. financial highlights N o r f o l k S o u t h e r n C o r p o r a t i o n & S u b s i d i a r i e s (numbers in millions, except per-share amounts) For the Year Railway operating revenues Income from railway operations Net income Per share — basic Per share — diluted Dividends per share Dividend pay-out ratio Cash provided by operating activities Property additions Free cash flow1 At Year End Total assets Total debt Stockholders’ equity Shares outstanding Stockholders’ equity per share Financial Ratios (%) Operating ratio Debt to total capitalization 2008 $ 10,661 $ 3,084 $ 1,716 4.60 $ 4.52 $ 1.22 $ 27% 2,715 1,558 1,157 $ $ $ $ 26,297 6,667 $ 9,607 $ 366.2 26.23 $ 2007 9,432 $ $ 2,585 $ 1,464 3.74 $ 3.68 $ .96 $ 26% 2,333 1,341 992 $ $ $ $ 26,144 6,368 $ 9,727 $ 379.3 25.64 $ 2006 9,407 $ $ 2,557 $ 1,481 3.63 $ 3.57 $ .68 $ 19% 2,206 1,178 1,028 $ $ $ $ 26,028 6,600 $ 9,615 $ 397.4 24.19 $ 71.1% 41.0% 72.6% 39.6% 72.8% 40.7% (1) Free cash flow as used here is defined as cash provided by operating activities minus property additions and is a measure of cash available for other investing activities and financing activities, including repurchases of common stock and dividends. 1 Total Stockholder Returns (dollars) Railway Operating Revenue (in millions) Income from Railway Operations (in millions) Free Cash Flow1 (in millions) $10,661 $3,084 $9,407 $9,432 $2,557 $2,585 $1,157 $1,028 $992 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 06 07 08 06 07 08 06 07 08 $350 $300 $250 $200 $150 $100 $ 50 $ 0 Norfolk Southern Corp. Common Stock S&P Railroad Stock Price Index S&P Composite-500 Stock Price Index * Assumes that the value of the investment in Norfolk Southern Corporation common stock and each index was $100 on Dec. 31, 2003, and that all dividends were reinvested. Data furnished by Bloomberg Financial Markets. 2 F e l l o w shareholders I write this letter to you at a time of extraordinary turbulence in our nation’s and the world’s economies. The old curse – “May you live in interesting times” – has fallen upon us with a vengeance, and the current economic uncertainty seems likely to continue for some time into the future. Your company and the customers we serve are not immune to this period of turbulence, and our performance in 2009 will be challenged as a result. However, we remain very optimistic about our longer-term prospects, and a look at our 2008 results shows many of the reasons why. trainee programs for new college hires, and our operations supervisor trainee program for people with prior working experience. Like many other companies, we face challenges with the demographics of our work force, and these programs, which have been nationally recognized, are ensuring that we will have a strong and diverse management team in place for many years to come. Quite simply put, 2008 was a terrific year for Norfolk Our initiatives to drive service Southern. Even though our traffic volumes declined, through proper planning and cost controls we set records for railway operating revenues, income from railway operations, net income, and diluted earnings per share. Our operating ratio improved by 1.5 percentage points to 71.1, our best operating ratio ever. We continued to provide superior results for our shareholders as well, by raising our annual dividend 27 percent and buying back 19.4 million shares of stock. We made important strides with our other key constituencies as well. First and foremost, in terms of our people who are Norfolk Southern’s true competitive advantage, we were awarded our 19th consecutive E. H. Harriman Gold Medal Award for employee safety as the safest major U.S. railroad. No single fact better illustrates the commitment that every NS employee brings to doing his or her job safely and well. I ran out of superlatives to describe their performance a long time ago. 2008 was another strong year for our safety process, and we remain intent on our ultimate goal of zero incidents and zero injuries. We also strengthened our other human resource initiatives. Among the most important are our programs to bring new people into our management team. We continue to enhance and expand our management improvements for our customers also saw success in 2008, and we continue to be recognized as a service leader in the rail industry. Superior rail service is the product of a number of things: solid infrastructure, properly maintained and reliable locomotives and rolling stock, a well-designed operating plan, and a committed, focused work force with the tools and technology to support their efforts. We have them all. Norfolk Southern is a service company, and we are acutely aware that we must continue to improve our transportation products if we want to capture all of the opportunities that are available to us and realize the full value of those products. 2008 saw us continue as well our initiatives to support the communities we serve. We have increased our emphasis on sustainability by naming the industry’s first corporate sustainability officer, creating innovative programs to reduce the amount of energy we consume in our operations, and increasing our use of alternative energy sources. Railroads truly are the environmentally friendly mode of transportation, and we believe that actively working to improve our environmental footprint is not only the responsible thing to do, but it makes good business sense as well. In 2009, we’ll continue all of the initiatives that helped strengthen NS in 2008. We are in extraordinarily challenging times, but we have built the foundations to be able to meet those challenges successfully, and we’ll stay focused on a few key drivers of the business as we manage through the downturn. First, we’ll continue to manage our costs aggressively while still providing a superior level of customer service. Norfolk Southern has a long history of effective cost controls, and we have the tools and technology to resize our operations quickly in response to changing business conditions. At the same time, we’ll try to mitigate the impact on our work force to the fullest extent possible. Guided by our Track 2012 strategic initiatives, we’ll continue to invest in the company in order to keep the property strong and continue our improvement programs. Put simply, we won’t sacrifice longer-term opportunities for short-term profits. This downturn will be over some day, and we will be ready to take full advantage of the business prospects that will be there when it ends. Finally, we’ll continue to aggressively pursue new business development initiatives and to ensure that we realize the appropriate value for our superior transportation services. Our strategy to create new business corridors has helped drive our growth in recent years, and we’re now working hard to develop our biggest project to date, the Crescent Corridor. It’s an exciting concept to work with government and our trucking partners in a public- private partnership to take a million or more trucks off the highways. We’re seeing a very positive response by public 3 officials, and I’m optimistic that we’ll see considerable progress on the project in 2009. In closing, as you’ll see, this is a new way of presenting our annual report. The enclosed DVD gives you the chance to see and hear from some NS employees about what they do every day to help our company succeed. They’re representatives of the whole NS team – talented, creative, and driven to make our company a success. They’re great people, too, and I’m happy and proud to be part of the team. Sincerely, Wick Moorman Chairman, President and Chief Execuitve Officer Norfolk Southern’s management team (left to right): Jim Hixon, executive vice president law and corporate relations; Don Seale, executive vice president and chief marketing officer; John Rathbone, executive vice president administration; Wick Moorman, chairman, president and chief executive officer; Mark Manion, executive vice president operations; Steve Tobias, vice chairman and chief operating officer; Jim Squires, executive vice president finance and chief financial officer; and Deb Butler, executive vice president planning and chief information officer. Pla y v ideo sto ri es onli ne at www.nsvoices.com or on enclosed DVD voices John Kraemer, a Roanoke-based marketing group vice president, From Roanoke, Alan Shaw’s team coordinates Norfolk Southern’s coal, manages a diverse portfolio of coke, and iron ore network, which business that includes agriculture, accounts for more than 25 percent fertilizer, and consumer products. of the railroad’s total freight tonnage. Kraemer works in the Industrial Surging worldwide demand for U.S. Products group that also serves coal made 2008 a record year for shippers of chemicals, paper, clay, the company’s coal franchise. 4 and forest products as well as metals and construction material. Norfolk Southern, the largest rail carrier of metals in North America, serves 38 major steel processors. The Neville Wilson in Atlanta helps ensure that the more than 200 agriculture sector, which accounted for 28 percent of all industrial product trains operating each day on the carloads in 2008, moves tons of Georgia Division are moving safely wheat, soybeans, corn, ethanol, and and efficiently. Wilson, the division’s assistant superintendent, oversees operations on 1,800 miles of the railroad’s 21,000-mile rail network. “Our job is to provide the level and quality of service our customers have come to expect from Norfolk Southern,” says Wilson, who joined the company 11 years ago. “Safety and service are the heart of everything we do. We measure our The railroad in 2008 moved about 194 million tons of coal, coke, and iron ore to steel furnaces, industrial sites, more than 100 power plants in the eastern United States, and to 29 countries overseas. Says Shaw, a Norfolk Southern group vice president, “Through investments in performance every day, 365 days other commodities. “We serve technology and better scheduling a year, to make sure we meet and industries that are vital to the of our coal train network, we’ve exceed the needs of our customers.” economy, both here in the United been able to reduce transit times States and around the world,” says and improve customer service while Kraemer, who joined the railroad as a handling record demand.” management trainee 32 years ago. As an Indianapolis-based manager in the Industrial Development Department, Dayne Tate scours the state of Indiana for sites where Under division manager Jeff Monday’s watch, more than 1,200 freight containers move in and out of the Rickenbacker Intermodal companies can build on Norfolk Terminal every day. The state-of-the- Southern rail lines. In 2008, 115 art terminal in Columbus, Ohio, which companies built or expanded opened in 2008, provides customers facilities on the system – companies with access to key markets in the such as Louis-Dreyfus, which began Midwest. Norfolk Southern serves operating a biodiesel and soybean 48 intermodal terminals spread processing plant in Claypool, Ind., across its rail system. “We have the 5 Shari Hulin’s job is finding the people who will become the next generation that is one of the largest in the world. The work of the Industrial Development Department grows business for the railroad and brings of Norfolk Southern employees for a new jobs and economic growth to company that BusinessWeek ranks the communities Norfolk Southern as one of the top 50 places to launch serves. Notes Tate: “Over the past a career. Norfolk-based Hulin, 20 years, we’ve helped nearly 2,000 manager of professional recruiting, industries locate or expand on our says the company puts a premium system. That translates into more than on work-force diversity because 100,000 new jobs and over 2 million it gives the railroad a competitive additional carloads of freight.” advantage by “fostering innovation and giving us a better understanding of our customers and the communities we serve.” Military veterans, she says, also make good employees because of their commitment to safety and strong work ethic. “We’re dedicated to hiring and retaining the best people, and our training and recruiting programs help us do just that,” Hulin says. most extensive intermodal network in the East,” says Monday, who joined the railroad 13 years ago in his native Chicago. “We’re investing in facilities such as Rickenbacker to meet the future demand for intermodal service.” Pla y v ideo sto ri es onli ne at www.nsvoices.com or on enclosed DVD voices 6 Bob Billingsley joined Norfolk Southern as a junior engineer more than 30 years ago. Today, his Roanoke-based job as director of structural projects has put him in charge of the Heartland Corridor, a rail freight route that, when completed in 2010, will cut 24 hours off the transit times between Virginia ports and the Midwest. NS and federal and state governments are funding the project through a public-private partnership. Once completed, the Heartland Corridor will help relieve highway congestion and reduce carbon emissions. “We’re raising the clearance through 28 tunnels so we’ll be able to run double- stacked trains through them,” Billingsley explains. “It’s a win When it comes to green, says Jerri Parks, Norfolk Southern is continually looking for ways to reduce its environmental footprint. Railroads are the most environmentally friendly mode of ground transportation, able to move a ton of freight 436 miles on a gallon of fuel. Parks notes Norfolk Southern was the first railroad to appoint a sustainability officer and in 2008 issued its first corporate sustainability report. The railroad also has invested heavily in improving the environmental performance of its locomotives, putting for the railroads, it’s a win for our it ahead of all other freight railroads in meeting federal emissions customers, and it’s a win for the standards. “We’re committed,” says Parks, Norfolk-based director of communities we serve.” intermodal systems, “to protecting the quality of our environment and to helping our customers reduce their carbon footprints.” board of directors Members of the board of directors of Norfolk Southern are (front row left to right) Michael D. Lockhart, Karen N. Horn, J. Paul Reason, Gene R. Carter, (back row left to right) Burton M. Joyce, Steven F. Leer, Landon Hilliard, Charles W. Moorman, Alston D. Correll, Gerald L. Baliles, and Daniel A. Carp. 7 Gerald L. Baliles, 68, of Charlottesville, Va., has been director of the Miller Center of Public Affairs at the University of Virginia since Karen N. Horn, 65, of Lyme, Conn., is partner with Brock Capital Group. Her board service began in 2008; April 2006. He is a former governor and attorney general of Virginia. her current term expires in 2011. His board service began in 1990; his current term expires in 2011. Committees: Finance, Governance and Nominating Committees: Executive, Finance (chairman), Governance and Nominating Daniel A. Carp, 60, of Naples, Fla., is nonexecutive chairman of Delta Air Lines, Inc., and formerly served as chairman and chief Burton M. Joyce, 67, of South Pasadena, Fla., is former chairman of IPSCO Inc., a leading steel producer. His board service began in November 2003; his current term expires in 2010. executive officer of Eastman Kodak Company. His board service Committees: Audit, Compensation began in January 2006; his current term expires in 2009. Committees: Audit, Compensation Gene R. Carter, 69, of Spotsylvania, Va., is executive director and chief executive officer of the Association for Supervision and Steven F. Leer, 56, of St. Louis, Mo., is chairman and chief executive officer of Arch Coal, Inc., one of the nation’s largest coal producers. His board service began in 1999; his current term expires in 2009. Curriculum Development, one of the world’s largest international Committees: Finance, Governance and Nominating education associations. His board service began in 1992; his current term expires in 2011. Committees: Audit (chairman), Compensation, Executive Alston D. Correll, 67, of Atlanta, Ga., became chairman of Atlanta Equity Investors, LLC, a private equity firm, in September 2007, and is chairman emeritus of Georgia-Pacific Corporation. His board service began in 2000; his current term expires in 2010. Committees: Compensation (chairman), Executive, Governance and Nominating Landon Hilliard, 69, of Oyster Bay Cove, N.Y., is a partner of Brown Brothers Harriman & Co., a private bank in New York City. His board service began in 1992; his current term expires in 2010. Committees: Executive, Finance, Governance and Nominating (chairman) Michael D. Lockhart, 59, of Lancaster, Pa., is chairman, president, and chief executive officer of Armstrong World Industries, Inc. His board service began in 2008; his current term expires in 2009. Committees: Audit, Finance Charles W. Moorman, 57, of Virginia Beach, Va., is chairman, president and chief executive officer of Norfolk Southern Corporation. His board service began in 2005; his current term expires in 2009. Committee: Executive (chairman) J. Paul Reason, 67, Admiral, USN, retired, of Washington, D.C., is a member of the Naval Studies Board at the National Academy of Sciences. His board service began in 2002; his current term expires in 2011. Committees: Audit, Compensation 8 officers Equal Employment Opportunity Policy Norfolk Southern Corporation’s policy is to comply with all applicable laws, regulations, and executive orders concerning equal employment opportunity and nondiscrimination and to offer employment on the basis of qualification and performance, regardless of race, religion, color, national origin, gender, age, sexual orientation, veteran status, the presence of a disability, or any other legally protected status. Charles W. Moorman Chairman, President and Chief Executive Officer Stephen C. Tobias Vice Chairman and Chief Operating Officer Deborah H. Butler Executive Vice President Planning and Chief Information Officer James A. Hixon Executive Vice President Law and Corporate Relations Mark D. Manion Executive Vice President Operations John P. Rathbone Executive Vice President Administration Donald W. Seale Executive Vice President and Chief Marketing Officer James A. Squires Executive Vice President Finance and Chief Financial Officer Daniel D. Smith Senior Vice President Energy and Properties Joseph C. Dimino Vice President Audit and Compliance Timothy J. Drake Vice President Engineering Cindy C. Earhart Vice President Human Resources Fredric M. Ehlers Vice President Customer Service Terry N. Evans Vice President Operations Planning and Budget John H. Friedmann Vice President Strategic Planning William A. Galanko Vice President Law Tim A. Heilig Vice President Mechanical Robert E. Huffman Vice President Intermodal Operations Robert M. Kesler, Jr. Vice President Taxation David T. Lawson Vice President Industrial Products H. Craig Lewis Vice President Corporate Affairs Bruno Maestri Vice President Government Relations Robert E. Martínez Vice President Business Development Michael R. McClellan Vice President Intermodal and Automotive Marketing Harold R. Mobley Vice President Labor Relations William J. Romig Vice President and Treasurer Marta R. Stewart Vice President and Controller Gerhard A. Thelen Vice President Operations Planning and Support Charles J. Wehrmeister Vice President Safety and Environmental Thomas G. Werner Vice President Information Technology F. Blair Wimbush Vice President Real Estate and Corporate Sustainability Officer Howard D. McFadden Corporate Secretary stockholder I n f o r m a t i o n Common Stock Ticker symbol: NSC Common stock of Norfolk Southern Corporation is listed and traded on the New York Stock Exchange. Publications Upon written request, the corporation’s annual and quarterly reports on Forms 10-K and 10-Q will be furnished free to stockholders. Write to: Corporate Communications Department, Norfolk Southern Corporation, Three Commercial Place, Norfolk, Va. 23510-9227. A notice and proxy statement for the annual meeting of stockholders are furnished to stockholders in advance of the meeting. Upon request, a stockholder may receive a printed copy of the Corporate Governance Guidelines, board committee charters, Code of Ethics, and Code of Ethical Conduct for Senior Financial Officers. Contact the Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, Norfolk, Va. 23510-9219. This information also is available on the NS Web site. Ethics & Compliance Hotline High ethical standards always have been key to Norfolk Southern’s success. Anyone who may be aware of a violation of the corporation’s ethical standards or a conflict of interest, or has a concern or complaint regarding the corporation’s financial reporting, accounting, internal controls or auditing matters is encouraged to report such information to the Ethics & Compliance Hotline, 800.732.9279. Reports can be made anonymously and without fear of retaliation. Dividends At its January 2009 meeting, the corporation’s board of directors declared a quarterly dividend of 34 cents per share on its common stock, payable on March 10, 2009, to stockholders of record on Feb. 6, 2009. Norfolk Southern Corporation usually pays quarterly dividends on its common stock on or about March 10, June 10, Sept. 10 and Dec. 10, when and if declared by the board of directors to stockholders of record. The corporation has paid 106 consecutive quarterly dividends since its inception in 1982. Account Assistance For assistance with lost stock certificates, transfer requirements and the Dividend Reinvestment Plan, contact: Registrar and Transfer Agent BNY Mellon Shareowner Services 480 Washington, Blvd., 29th Floor Jersey City, N.J. 07310 866.272.9472 For assistance with address changes, dividend checks and direct deposit of dividends, contact: Assistant Corporate Secretary Stockholder Records Norfolk Southern Corporation Three Commercial Place Norfolk, Va. 23510-9219 800.531.6757 Annual Meeting May 14, 2009 10 a.m. EDT The Kimball Theatre 428 W. Duke of Gloucester St. Williamsburg, Va. Dividend Reinvestment Plan Stockholders whose names appear on their stock certificates (not a street or broker name) are eligible to participate in the Dividend Reinvestment Plan. The plan provides a convenient, economical and systematic method of acquiring additional shares of the corporation’s common stock by permitting eligible stockholders of record to reinvest dividends. The plan’s administrator is BNY Mellon Shareowner Services. For additional information, dial 866.272.9472. Financial Inquiries James A. Squires Executive Vice President Finance and Chief Financial Officer Norfolk Southern Corp. Three Commercial Place Norfolk, Va. 23510-9215 757.629.2845 Investor Inquiries Leanne D. Marilley Director Investor Relations Norfolk Southern Corp. Three Commercial Place Norfolk, Va. 23510-9215 757.629.2861 Corporate Offices Executive Offices Norfolk Southern Corp. Three Commercial Place Norfolk, Va. 23510-9227 757.629.2600 Regional Offices 1200 Peachtree St. N.E. Atlanta, Ga. 30309 110 Franklin Road S.E. Roanoke, Va. 24042 Annual Report Requests & Information 800.531.6757 values Safety: We put safety first by taking care of the people around us and following the rules. Performance: We are performance driven and committed to providing quality customer service. We act on facts and are accountable for results. Integrity: We do the right thing. We are open, fair, honest, and straightforward. Respect: We believe in the importance of all of our stakeholders. We value the ideas and beliefs of our co-workers. Innovation: We constantly seek new ideas and creative solutions to business challenges. Teamwork: We believe that working together always produces the best results. our vision Be the safest, most customer-focused, and successful transportation company in the world. S Norfolk Southern Corporation Three Commercial Place Norfolk, VA 23510-9217 www.nscorp.com 29.0109.x426.200K 

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