Table of Contents Financial Highlights 2 Our vision: Chairman’s Letter to Stockholders 3 Be the safest, Overview of 2000: Meeting the Challenge 5 Norfolk Southern underwent changes and overcame challenges associated most customer-focused with expanding its transportation network and successful Operating Performance Positions System for Growth 8 transportation company NS recognizes the importance of maintaining safe, fluid operations and improving customer service in the world Meeting Customer Needs Through Innovation and Technology 11 NS is enhancing ways in which it will meet customers’ needs electronically Adding Value Through Growth, Description Service and Asset Utilization 14 of business NS launches systemwide initiatives to improve financial Norfolk Southern Corporation, a efficiency and add value Virginia-based holding company with headquarters in Norfolk, Moving the Goods that Move the Economy 17 Va., owns all the common stock NS is focused on increasing revenues and profitability in each market of and controls a major freight group to realize the potential of its expanded network railroad, Norfolk Southern Railway Co. In addition, it owns Financial Overview 20 a natural resources company, Pocahontas Land Corp., and a Quarterly Financial Data 21 telecommunications company, Thoroughbred Technology and Eleven-Year Financial Review 22 Telecommunications, Inc. The railroad system’s owned Management’s Discussion and Analysis 24 and operated lines extend over approximately 21,800 miles of Consolidated Financial Statements 38 road in 22 states, the District of Columbia and the province of Notes to Consolidated Financial Statements 42 Ontario, Canada. Pocahontas Land Corp. Report of Management 54 manages more than a million acres of coal and natural gas Report of Independent Auditors 55 resources in Alabama, Illinois, Kentucky, Tennessee, Virginia Board of Directors and Officers 56 and West Virginia. Thoroughbred Technology Stockholder Information 57 and Telecommunications, Inc., or T-Cubed, pursues opportuni- ties to use the Corporation’s assets for various technology- related purposes. Financial Highlights % Increase ($ in millions, except per share amounts) 2000* 1999 (Decrease) Financial Results Railway operating revenues $ 6,159 $ 5,242 17 Income from railway operations $ 633 $ 718 (12) Railway operating ratio 89.7% 86.3% 4 Net income $ 172 $ 239 (28) Earnings per share — diluted $ 0.45 $ 0.63 (29) Financial Position Total assets $ 18,976 $ 19,250 (1) Total debt $ 7,687 $ 8,182 (6) Stockholders’ equity $ 5,824 $ 5,932 (2) Debt-to-total capitalization 56.9% 58.0% (2) Stockholders’ equity per share $ 15.16 $ 15.50 (2) Other Information Year-end stock price $ 13.31 $ 20.50 (35) Dividends per share $ 0.80 $0.80 — Price/earnings ratio at year end 29.6 32.5 (9) Number of shareholders at year end 53,194 51,123 4 Shares outstanding at year end 384,057,473 382,681,770 — Number of employees at year end 32,341 35,640 (9) * 2000 results include costs for work-force reduction programs that reduced income from railway operations by $165 million, net income by $101 million and diluted earnings per share by 26 cents. Excluding these costs, the railway operating ratio was 87.0%. See note 11 on page 52. Equal Opportunity Policy Norfolk Southern’s policy is to comply with all applicable laws, regulations and executive orders concerning equal opportunity and nondiscrimination and to offer employment on the basis of qualification and performance, regardless of race, color, creed, national origin, sex, age or veteran status. Additionally, the policy provides employment and equal conditions of employment to qualified individuals with disabilities and disabled veterans within their capabilities to safely perform services with a reasonable accommodation that does not cause the Corporation undue hardship. – Norfolk Southern's 2000 Annual Report cost 64 cents per book to produce, which represents an 11 percent decrease from 1999. This is compared with a national average of – $4.38 for annual reports produced by other companies, according to the National Investor Relations Institute. Dear Fellow Stockholders: Norfolk Southern’s perform- will move us successfully forward. nonagreement work force by almost 25 ance in 2000 met neither our standards Reducing the dividend is one step in a percent from approximately 6,000 to nor yours. strategy we are implementing to further about 4,600. Meanwhile, our agreement While we overcame operating chal- align our company with changing econom- work force has been reduced by almost 7 lenges and improved the condition of our ic realities and sharpen our focus on percent. company as a functioning transportation improving financial performance while Going forward, we will continue to system, we did not achieve acceptable maintaining our commitment to safety review our work-force requirements financial results. and customer service. against business levels and will size our Lower-than-expected railroad carload- The restructuring includes: work force accordingly. Our ability to pro- ings and record-high diesel fuel prices l Improving productivity by a work- vide our product at competitive prices combined to produce disappointing earn- force reduction over the next 12 depends in part on this effort, and we will ings. Pressure on the bottom line was months, which will be in addition to continue to improve. compounded by weakness in the economy programs announced in 2000; At the same time, we will not let up on our commitments to service and safety. In and changes in our transportation mar- l Disposition of at least 12,000 surplus May, Norfolk Southern employees again kets at a time when we were focused on freight cars; recovery from prior service problems. set the industry standard and earned an l A line rationalization program targeting As a result, we recorded net income of unprecedented eleventh consecutive E.H. 3,000 to 4,000 underutilized or $273 million, or 71 cents per diluted Harriman Gold Medal award, a remarkable duplicate track miles over the next share, excluding work-force reduction safety achievement. This is a testament to 24 months; charges of $101 million. Including the the hard work and dedication of all our charges, net income was $172 million, l Continuing investment in technology people, who maintained their focus on or 45 cents per diluted share, down and implementation of state-of-the-art safety during a time of change. It shows 28 percent compared with 1999. transportation systems; what we can do. Our goal now is to improve the l Consolidation or disposition of several A significant milestone was reached in financial performance of our expanded underutilized or redundant facilities; Thoroughbred Quality during the year network. We will do that through a series of and with ISO 9002 registration of our planned restructuring initiatives designed Northern Region transportation opera- l A redesign of Norfolk Southern’s serv- to reduce costs and enhance value for tions, major mechanical shops and the ice network with the assistance of investors, although we now must do so in training group. As a result, all of the MultiModal Applied Systems, a railroad an uncertain economic environment. company’s transportation operations now consulting firm with a successful track As stockholders, you are aware of one meet this internationally recognized record of helping railroads reduce of those actions. Our Board of Directors standard for quality and customer operating costs while improving reduced Norfolk Southern’s quarterly service. This recognition is another real service levels. dividend to 6 cents per share, compared achievement in changing times. with the previously paid quarterly divi- We began attacking our cost structure We completed in November an acceler- dend of 20 cents per share. This was a last year through work-force reductions. ated systemwide rollout of our service- difficult decision but a necessary compo- Since the end of 1999, we have reduced enhancing yard inventory data system, nent of our restructuring. We must the number of employees by 3,300, or 9 the Thoroughbred Yard Enterprise System. manage our costs and create a package of percent of the work force. As part of that We also are making operating system debt repayment and total returns that effort, we have been able to reduce our changes, in development with our consult- 3 ing partners, to improve routes, initiatives generate and to create train movement and service added value for our investors, our design. We have announced major customers, our people and the com- e-commerce efforts in partnership munities we proudly serve. with other transportation compa- As we press forward, we will nies to enhance efficiency and continue to listen appreciatively to improve our service. the advice of our critics and sup- On another front, interest in porters alike. In this, we will our Thoroughbred Technology and continue to feel the loss of one of Telecommunications, Inc., or T- our strongest allies, Norfolk Cubed, subsidiary remains strong. Southern director and retired chair- In cooperation with its telecom- man and chief executive officer of munications partners, T-Cubed is The Lubrizol Corporation Lester E. pursuing a unique business plan Coleman Jr., who died in October. and building an eastern U.S. fiber Les had served on our Board of optic network along Norfolk Directors since 1982, and his lega- Southern’s right of way, leveraging the We know that we have the people, track cy is one of long-term dedication, keen physical assets of our network to infrastructure, facilities and technology to business sense and enduring friendship. create added shareholder value. position us as industry leaders and to Les embodied the characteristics that Norfolk Southern reached agreement attract large shares of business from your company represents – integrity, com- this year in a case that ends a class action highways to rail, making our system mitment and vision. lawsuit alleging race discrimination in the thrive over the long term. Admittedly, we have work ahead as we company’s promotion practices.