Download PDF

PROSPERITY

2015 Strategy & Performance Scorecard

Reported operating
revenue of

$10.5 billion

Adopted

five-year

strategic plan
for operations

Paid $700+
Million

in dividends

Strategic plan drives service, efficiency, growth

In December 2015, Norfolk Southern announced a five-year strategic plan that sets targets for the company’s economic performance through 2020. Developed by Jim Squires, who became CEO June 1, along with the senior management team and board of directors, the plan followed a comprehensive evaluation of the company’s business model.

The plan is based on the core competencies of NS’ business: safety and service; revenue growth; and stewardship of resources through productivity and operating efficiencies. The conservative and flexible plan enables the company to make adjustments to meet performance targets amid changing economic cycles and business markets.

The aim is to achieve ongoing operational efficiencies that result in a faster, more fluid, and lower-cost railroad. Improving network velocity enables NS to deliver superior service, create track capacity for volume growth, and generate cost savings that benefit the bottom line. A key target is to achieve an annual operating ratio below 65 percent. The ratio is a measure of operating expenses as a percentage of total revenue – the lower the ratio, the better.

The plan’s focus areas include:

  • Managing the workforce and facilities – including yards, terminals, and rail lines – based on business market demands. Streamlining operations around NS’ coal business, which has declined in volume over the past four years, is a key part of the plan.
  • Reducing the size of the locomotive and freight car fleets. The strategy includes replacing older, less reliable locomotives with new units and continuing NS’ innovative locomotive rebuild program to enhance the efficiency and reliability of its road fleet.
  • Improving locomotive fuel efficiency through a combination of onboard energy-management technologies, such as LEADER, improved network velocity, and operation of fewer locomotives.
Key 2020 Targets of Five-Year Plan

Operating
ratio:

below
65%

Productivity
savings:

$650
million

Locomotive fuel
efficiency savings:

$80
million

Capital
spending:

17%
of revenue

Learn More Details

More information about Norfolk Southern’s five-year strategic plan and 2015 business highlights can be found on its corporate website and in filings with the Securities and Exchange Commission.

Organizational changes generate efficiencies, growth opportunities

Norfolk Southern made organizational changes during 2015 that streamlined operations and created opportunities to grow the business. In three of the most significant, the company:

  • Consolidated corporate office locations from three to two. NS closed its Roanoke, Va., office building and moved approximately 500 job positions to NS’ corporate headquarters office in downtown Norfolk and its operations office in Midtown Atlanta. The move reduces operating costs, creates opportunities for employee career development and advancement, and generates business benefits by collocating employees within the same departments into single locations.
  • Restructured Triple Crown Services to focus the NS subsidiary’s business on door-to-door movement of automobile parts. Based in Fort Wayne, Ind., Triple Crown Services specializes in the use of RoadRailer® trailers that move on road and rail. The restructuring reduces operating costs and achieves operating efficiencies by channeling its nonauto parts business onto NS’ conventional intermodal network.
  • Acquired a 282-mile mainline stretch of track in Pennsylvania and New York from the Delaware & Hudson Railway. The investment strengthens NS’ competitive position in the Northeast and opens opportunities for long-term growth, in particular for intermodal, automotive, and energy markets and for business shared with short line railroad partners.

Strong Network Supports Future Growth

Norfolk Southern’s Network Interfaces with:

  • More than 50 percent of U.S. population, manufacturing, and energy consumption
  • Estimated 50M+ long-haul truck shipments in our service area*
  • Extensive port access

Volume Mix(trailing 12-months 3/31/16)

*Represents 500 miles or more

~20,000Route Miles of Track
22 StatesServed by Network
43 PortsServed by Network

Creating shareholder value

In 2015, Norfolk Southern returned more than $700 million to shareholders in dividend payouts, representing a 6 percent increase in dividends per share for the year. Further enhancing shareholder value, NS repurchased $1.1 billion of company stock to retire 11.3 million shares.

Through 2015, NS has paid dividends for 134 consecutive quarters – every quarter since the company’s inception in 1982. Dividend increases have produced a 10-year compound annual growth rate of 17 percent.

2015 Economic Impact By the Numbers

(Numbers in millions, except per-share amounts)

For the year 2013 2014 2015
Railway operating revenues $11,245 $11,624 $10,511
Net income $1,910 $2,000 $1,556
Dividends per share $2.04 $2.22 $2.36
Dividend payout ratio (as % of net income) 33% 34% 46%
Stockholders’ equity $11,289 $12,408 $12,188
Debt-to-total capitalization ratio 45.4% 42% 45.3%

2015 railway operating revenues by market group

Total: $10. 5 billion* *numbers are rounded

pie2