2006 Annual Report
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Norfolk Southern Corporation Annual Report 2006 Our Vision Be the Safest, Most Customer-Focused and Successful Transportation Company in the World Thoroughbred Success Through Service Annual Report 2 0 Norfolk Southern Corporation 0 Three Commercial Place 6 Norfolk, Va. 23510-9217 www.nscorp.com Stockholder Information Norfolk Southern Common Stock Account Assistance Ticker symbol: NSC For assistance with lost stock certificates, transfer System Map Common stock of Norfolk Southern Corporation is listed and requirements and the Dividend Reinvestment Plan, contact: traded on the New York Stock Exchange. Registrar and Transfer Agent Publications The Bank of New York 101 Barclay St.—11E Upon written request, the corporation’s annual and quarterly re- New York, N.Y. 10286 ports on Forms 10-K and 10-Q will be furnished free to stockholders. 866.272.9472 Write to: Corporate Communications Department, Norfolk Southern Corporation, Three Commercial Place, Norfolk, Va. 23510-9227. For assistance with address changes, dividend checks and direct deposit of dividends, contact: A notice and proxy statement for the annual meeting of stock- holders are furnished to stockholders in advance of the meeting. Assistant Corporate Secretary Stockholder Records Norfolk Southern Corporation Upon request, a stockholder may receive a printed copy of the Three Commercial Place Corporate Governance Guidelines, board committee charters, Norfolk, Va. 23510-9219 Code of Ethics, and Code of Ethical Conduct for Senior Financial 800.531.6757 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. Dividend Reinvestment Plan Stockholders whose names appear on their stock certificates Ethics & Compliance Hotline (not a street or broker name) are eligible to participate in the Dividend Reinvestment Plan. High ethical standards always have been key to Norfolk Southern’s success. Anyone who may be aware of a violation of the corpora- The plan provides a convenient, economical and systematic tion’s ethical standards or a conflict of interest, or has a concern method of acquiring additional shares of the corporation’s common or complaint regarding the corporation’s financial reporting, stock by permitting eligible stockholders of record to reinvest accounting, internal controls or auditing matters is encouraged dividends.The plan’s administrator is The Bank of New York. to report such information to the Ethics & Compliance Hotline, 800.732.9279. Reports may be made anonymously and For additional information, dial 866.272.9472. without fear of retaliation. Dividends Financial Inquiries Corporate Offices Map Key At its January 2007 meeting, the corporation’s board of directors declared a quarterly dividend of 22 cents per Henry C. Wolf Executive Offices Norfolk Southern Railway and its Vice Chairman and Norfolk Southern Corp. Railroad Operating Subsidiaries share on its common stock, payable on March 10, 2007, Chief Financial Officer Three Commercial Place NS Trackage/Haulage Rights to stockholders of record on Feb. 2, 2007. Norfolk Southern Corp. Norfolk, Va. 23510-9227 Norfolk Southern Corporation pays quarterly dividends on Three Commercial Place 757.629.2600 its common stock, usually on or about March 10, June 11, Norfolk, Va. 23510-9215 Regional Offices Sept. 10 and Dec. 10. The corporation has paid 98 consecutive 757.629.2650 1200 Peachtree St. N.E. quarterly dividends since its inception in 1982. Description of Business Investor Inquiries Atlanta, Ga. 30309 Leanne D. Marilley 110 Franklin Road S.E. Norfolk Southern Corporation is a Norfolk, Va.-based company that controls a major freight railroad, Norfolk Southern Annual Meeting Director Investor Relations Roanoke, Va. 24042 Railway Company. The railway operates approximately 21,000 route miles in 22 eastern states, the District of Columbia Norfolk Southern Corp. May 10, 2007, at 10 a.m. EDT Three Commercial Place and Ontario, Canada, serves all major eastern ports and connects with rail partners in the West and Canada, linking Annual Report Williamsburg Lodge Conference Center Norfolk, Va. 23510-9215 Requests & Information customers to markets around the world. Norfolk Southern provides comprehensive logistics services and offers the 310 South England St. 757.629.2861 most extensive intermodal network in the East. Williamsburg, Va. 23185 800.531.6757 Our Creed: We are responsible to our stockholders, customers, employees and the communities we serve. For all our constituencies, we will make safety our highest priority. For our customers, we will provide quality service, always trying to reduce our costs in order to offer competitive prices. For our stockholders, we will strive to earn a return on their equity investment that will increase the value of their ownership. By generating a reasonable return on invested capital, we will provide the security of a financially strong company to our customers, employees, stockholders and communities. For our employees, our greatest asset, we will provide fair and dignified treatment with equal opportunity at every level. We will seek a talented, diverse work force and management with the highest standards of honesty and fairness. For the communities we serve, we will be good corporate citizens, seeking to enhance their quality of life through service, jobs, investment and the energies and good will of our employees. Photo must be purchased or NS may supply a similar photo Highlights of the Year ($ in millions, except per-share amounts) Financial Results 2006 200 % Increase (decrease) Railway operating revenues $ 9,07 $ 8,27 10 Income from railway operations $ 2,7 $ 2,117 21 Railway operating ratio 72.8% 7.2% () Net income $ 1,81 $ 1,2811 16 Earnings per share Basic $ 3.6 $ 3.171 1 Diluted $ 3.7 $ 3.111 1 Financial Position Total assets $ 26,028 $ 2,89 1 Total debt $ 6,600 $ 6,90 () Stockholders’ equity $ 9,61 $ 9,276 Debt to total capitalization ratio 40.7% 42.8% () Stockholders’ equity per share $ 2.19 $ 22.6 7 Other Information Year-end stock price $ 50.29 $ 44.8 12 Dividends per share $ 0.68 $ 0.8 2 Price/earnings ratio at year end 1.1 1. (2) Number of shareholders at year end 8,900 48,180 (19) Shares outstanding at year end 97,19,601 09,88,788 () Number of employees at year end 0,721 30, 1 1 Results in 200 include a $96 million reduction of NS’ deferred income tax liabilities resulting from tax legislation enacted by Ohio, which increased net income by $96 million, or 2 cents per diluted share. 6 7 Table of Contents 9 Wick Moorman’s Letter to Stockholders 10 Norfolk Southern Marks Another Record Year 14 NS People Deliver on Service 20 Service to our Customers 28 Service to Communities 30 Financial Overview 33 Board of Directors 34 Officers K1 Form 10-K Report Inside Back Cover Stockholder Information 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. Credits: Production of this annual report was directed by Rick Harris and Mary McNeeley of Norfolk Southern, assisted by Edelman, a public relations firm. Photography is by Wes Cheney, Jared Hopewell, Charlie Juda, Bob Lake, Chris Little and Ken Rieves. Printing is by Progress Press, Inc., of Roanoke, Va. 8 Norfolk Southern’s executive management team is led by (l-r): Don Seale, executive vice president and chief marketing officer; Steve Tobias, vice chairman and chief operating officer; John Rathbone, executive vice president administration; Jim Hixon, executive vice president law and corporate relations; Mark Manion, executive vice president operations; Kathryn McQuade, executive vice president planning and chief information officer; Wick Moorman, chairman, president and chief executive officer; and Hank Wolf, vice chairman and chief financial officer. “The market for rail freight transportation in the U.S. remains strong, and we believe that there are significant opportunities for further growth ahead.” - Wick Moorman 9 Dear Fellow Stockholders 2006 marked another outstanding year for Norfolk Customers are the second essential partner, and we Southern. Our company continued to generate exceptional are working hard to improve every component of our financial results driven by superior operating performance, customers’ interactions with our company. New systems and by a continuing strong demand for rail transportation. are being developed to improve and simplify customer For the third consecutive year we posted record results in interactions, and we continue to add capacity and terms of revenue, volume, income, and earnings per share. improve our equipment to serve their growing needs. Our operating ratio for the year was 72.8 percent, a full 2. percentage points lower than 200. We were able Finally, we continue to work with the communities we to increase the dividend by 2 percent, and during the serve to foster industrial and economic development, course of the year we repurchased 21.8 million shares to protect the environment, and to be good corporate of our common stock as an indication of our confidence citizens. More and more government and public policy in the strategic direction of our company. leaders at all levels are recognizing that rail transportation must remain healthy and expand if the nation’s As the 2006 results indicate, the market for rail freight economy is to continue to work efficiently and grow. transportation in the U.S. remains strong, and we believe that there are significant opportunities for further growth 2006 also marked my first full year as the CEO of Norfolk ahead. This annual report tells the story of how we were Southern, and I can think of no higher honor or privilege able to achieve our 2006 results, and how we’re planning than to serve in this role as the representative of the over for the future.