2013 Financial Performance

Moving the Economy

For a detailed look at our 2013 financial performance, see Norfolk Southern’s annual report, “What we move, moves the economy,” on our corporate website.

Financial Highlights

Norfolk Southern Corporation & Subsidiaries

For the Year (Numbers in millions, except per-share amounts)

2011 2012 2013
Railway operating revenues 11172 11040 11245
Income from railway operations 3213 3124 3257
Net income 1916 1749 1910
Per share — basic 5.52 5.42 6.1
Per share — diluted 5.45 5.37 6.04
Dividends per share 1.66 1.94 2.04
Dividend pay-out ratio 0.3 0.36 0.33
Cash provided by operating activities 3227 3065 3078
Property additions 2160 2241 1971
Free cash flow 1067 824 1107
2
1.5
1
 
2011
2012
2013
11250
11125
11000
 
2011
2012
2013
3260
3200
3140
 
2011
2012
2013
1920
1835
1750
 
2011
2012
2013
6.21
5.805
5.4
 
2011
2012
2013
6.1
5.725
5.35
 
2011
2012
2013
2.1
1.8
1.5
 
2011
2012
2013
0.36
0.305
0.25
 
2011
2012
2013
3230
3140
3050
 
2011
2012
2013
2250
2100
1950
 
2011
2012
2013
1110
967.5
825
 
2011
2012
2013

At Year-End

2011 2012 2013
Total assets 28538 30342 32483
Total debt 7540 8682 9448
Stockholders' equity 9911 9760 11289
Shares outstanding 330.4 314.0 308.9
Stockholders' equity per share                                               30.0 31.08 36.55
2
1.5
1
 
2011
2012
2013
32500
30500
28500
 
2011
2012
2013
9500
8500
7500
 
2011
2012
2013
11300
10525
9750
 
2011
2012
2013
335
320
305
 
2011
2012
2013
37
33.5
30
 
2011
2012
2013

Financial Ratios

2011 2012 2013
Operating ratio 0.712 0.717 0.71
Debt-to-total-capitalization ratio                            0.432 0.471 0.456
2
1.5
1
 
2011
2012
2013
0.72
0.715
0.71
 
2011
2012
2013
0.48
0.455
0.43
 
2011
2012
2013

2013 company records

A socially responsible stock

During 2013, Norfolk Southern was listed among the “Top 25 Socially Responsible Dividend Stocks” by the Dividend Channel, an online investment research website. According to the Dividend Channel, which focuses on dividend-paying stocks, the ranking means prominent asset managers recognize the railroad as being a “socially responsible investment” through an analysis of various social and environmental criteria.

Environmental criteria include the environmental impact of a company’s products and services, as well as its efficiency in using energy and resources. Social criteria include corporate diversity and impacts of business activities on society.

A Big Year in 2013

Norfolk Southern set new precedents for operating revenues, net income, earnings per share, and operating ratio.

Revenue: Railway operating revenues exceeded $11 billion for the third consecutive year, rising by $205 million, or 2 percent, over 2012. Net income was up 9 percent, while earnings per share increased 12 percent. In July, the company’s board of directors raised the quarterly dividend on our common stock by 4 percent, to 52 cents from 50 cents per share.

Revenues rose in 2013 despite a 12 percent year-over-year revenue decline in our coal business. The drop in coal revenue was offset by growth in other markets: General merchandise revenues rose by 7 percent overall, led by a 14 percent increase in chemicals revenue, a 10 percent increase in automotive, and a 5 percent increase in metals and construction. Intermodal revenues increased 6 percent.

Expenses: On the cost side, Norfolk Southern delivered on a commitment to hold operating expenses to a 1 percent increase. Higher revenue and increased network efficiencies enabled us to achieve a record-best operating ratio of 71 percent – a measure of the amount of operating revenues consumed by operating expenses.

Volume: Traffic volumes rose by 3 percent for the year – despite a 3 percent decline in coal volumes. Increases in domestic and international intermodal traffic, up by an overall 6 percent, led volume growth, fueled by investments in rail corridor infrastructure. A highlight included the opening of two new intermodal terminal facilities at Charlotte, N.C., and Greencastle, Pa., that increased capacity on the Crescent Corridor.

Merchandise volumes were up 4 percent overall, with chemicals and automotive markets experiencing significant growth. Growth in chemicals is attributed largely to increased carloads of crude oil from the Bakken (in North Dakota) and Canadian oil fields and more carloads of liquefied petroleum gas from the Utica Shale region. Auto volumes reflected an increase in vehicle production at plants we serve and new business from existing customers, including auto parts and finished vehicles.

Job creation: Norfolk Southern helped in the location of 67 new industries and expansion of 25 existing industries, representing customer investment of $2.3 billion, a projected 3,100 new jobs, and more than 136,000 carloads of new rail traffic annually.

More than 44,000 customer jobs

In the last decade, Norfolk Southern has helped customers locate or expand 1,024 facilities. That represents a $29 billion customer investment and more than 44,000 customer jobs.

A key challenge: Changes in markets and business mix pose a challenge as we develop strategies and identify investments to advance the company’s economic goals. For example, the railroad’s coal business, currently our top revenue producer, faces challenges from increased supplies of relatively cheap domestic natural gas, making gas a coal-competitive alternative for power utilities. Additionally, actions by the U.S. Environmental Protection Agency to regulate carbon emissions from coal-fired power plants pose a long-term risk to the coal business.

An opportunity: While maintaining a strong commitment to the coal business, the railroad is adapting to market changes. We recognized early on the value that rail offered to support increased U.S. production of oil and gas, and we are developing that emerging energy market. Additionally, investments in our primary intermodal rail corridors, including the Crescent and Heartland corridors, have improved competitiveness with long-haul trucks, bringing growth to the railroad’s intermodal business portfolio. Further, we are aggressively seeking new business possibilities across all market areas. By investing in innovative technologies and processes that enhance operating efficiencies, Norfolk Southern is reinventing our markets.