Norfolk Southern Corporation   |   Annual Report 2008
Norfolk Southern

                                                                      system map


financial highlights
                                Norfolk Southern Corporation & Subsidiaries

(numbers in millions, ex...

    I   write this letter to you at a time of extraordinary     ...
innovative programs to reduce the amount of energy
we consume in our operations, and increasing our use
of alternative ene...
    Play video s tories online at w w w.n svo i c e s.c o m o r o n e n c l o se d D V D

As an Indianapolis-based manager         Under division manager
    Play video s tories online at w w w.n svo i c e s.c o m o r o n e n c l o se d D V D

    Bob Billingsley
board directors                    of

    Charles W. Moorman                        William A. Galanko                        Equal

Common Stock                                  Dividends                                      Divi...
Safety: We put safety first by taking care of the people around us
                  and following the rules.

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