2012 Citi Global Industrials Conference September 20, 2012 John P. - - PowerPoint PPT Presentation

2012 Citi Global Industrials Conference

John P. Rathbone Executive Vice President Finance and Chief Financial Officer

September 20, 2012

Norfolk Southern Update

• Second Quarter Results
• Third Quarter Update
• Market Drivers
• Business Outlook

Second Qtr Second Qtr Favorable 2012 2011 $ % Railway operating revenues $ 2,874 $ 2,866 $ 8

• Railway operating expenses

1,940 1,991 51 3% Income from railway operations $ 934 $ 875 $ 59 7% Railway operating ratio 67.5 69.5 2.0 3%

Operating Results

Second Quarter 2012 vs. 2011 ($ Millions)

Norfolk Southern Update

• Second Quarter Results
• Third Quarter Update
• Market Drivers
• Business Outlook

1,809.9 1,806.7 1,730.8 1,799.3 ~1,780 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 YOY

• 2%

Units (000)

Total Railway Volume

3Q 2011 – 3Q 2012

Forecast

405.1 405.8 359.0 354.8 ~350 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Units (000)

Coal Carloads

3Q 2011 – 3Q 2012

Forecast YOY

• 13%

578.1 566.0 586.8 604.1 ~570 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Units (000)

General Merchandise Carloads

3Q 2011 – 3Q 2012

Forecast YOY

• 1%

826.7 834.9 785.0 840.4 ~860 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Units (000)

Intermodal Units

3Q 2011 – 3Q 2012

Forecast YOY + 4%

Revenues – Year over Year 3Q12 Fcst vs. 3Q11 Volumes ~($120) FSC Lag ~($80) Total Variance ~($200)

16% 4% 3% 0% (3%) Change in Units 2Q12 vs. 2Q11

Merchandise Volume

2Q12 vs. 2Q11 and 3Q12 vs. 3Q11

8%

• 8%

5% 0% (5%) Change in Units 3Q12 Fcst vs. 3Q11 Chemicals Automotive MetCon Paper Agriculture +4%

• 1%

Train Speed

2012 - YTD through September 7, 2012

21.5 22.0 22.5 23.0 23.5 24.0 24.5 25.0 25.5

NS Train Speed (miles per hour) Better

Source: As reported publicly to the AAR

Terminal Dwell

2012 - YTD through September 7, 2012

16.0 17.0 18.0 19.0 20.0 21.0 22.0 23.0 24.0 25.0

NS Terminal Dwell (hours) Better

Source: As reported publicly to the AAR

Composite Service Performance

1Q10 – 3Q12*

70% 72% 74% 76% 78% 80% 82% 84% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12*

* 3Q12 reflects August quarter-to-date.

Norfolk Southern Update

• Second Quarter Results
• Third Quarter Update
• Market Drivers
• Business Outlook

Market Drivers

• Automotive strength
• Sourcing and regulatory changes in coal
• Energy exploration and drilling activity
• U.S. crop conditions
• Consecutive year-over-year growth

in housing starts

• Highway conversions for Intermodal

Continued Strength in Automotive

6 8 10 12 14 16 18 20 6 7 8 9 10 11 12 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 US Vehicle Sales (M) Vehicle Age (yrs.)

U.S. Vehicle Age vs. Sales

• Automotive volume up 18% YTD
• North American vehicle production

forecasted at 15.4 million units for 2012, up 15% vs. last year

• Average vehicle age at all-time high

Source: Ward’s, Polk

NS Coal Tonnage

YTD 2012 – 99.7M tons

Excludes coke & iron ore

Illinois Basin 12.9 M Tons 13% Northern Appalachia 26.7 M Tons 27% Western 17.4 M Tons 17% Central Appalachia 40.4 M Tons 41% Southern Appalachia 2.3 M Tons 2%

Norfolk Southern Railway and its Railroad Operating Subsidiaries

• - - NS Trackage and

Haulage Rights

Marcellus & Utica Shale Deposits

NS Shale Volume Up 27% YTD vs. 2011

Drilling Activity in NS Service Region

YTD Permit and Rig Activity in PA, OH, WV

500 1,000 1,500 2,000 2,500 3,000 50 100 150 200 250 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Permits Active Rigs

• New York pending decision to lift moratorium
• Market shift from dry to wet gas
• Natural gas price above $3.00 in September

Source: EIA, RigData

Bakken Alberta

• Efficient and direct routing to

East Coast, Gulf Coast and Midwest refineries

• Unit train staging & delivery

Chicago

Crude Oil to East Coast, Gulf Coast and Midwest Refineries

Grain Market Sourcing and Service Flexibility

$0 $2 $4 $6 $8 50 100 150

04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 Price ($/bu) Yield (bu/ac)

Crop Year

Corn Yield and Price

Source: NOAA, USDA

• Sourcing from non-traditional origins
• Additional West to East flows
• Imports through East coast ports
• Rationalization in ethanol production

90 day Precipitation During growing season

Corridor 2Q 2012

• vs. 2011

1H 2012

• vs. 2011

Pan Am Southern 3% 9% Crescent Corridor 22% 22% Heartland Corridor 27% 23% Meridian Speedway 14% 12%

Intermodal Corridors

Harrisburg

Meridian

To Mexico

Bethlehem Greencastle Birmingham Memphis Atlanta Charlotte Harrisburg

To/From West

New Orleans

Terminal Investments

Crescent Corridor

Sets the Stage for up to 34 New Service Lanes in 2013

Meridian

To/From Mexico

Terminal Incremental lifts Total Investment $M NS Investment $M Targeted Completion Rossville 200,000 $137.9 $76.0 2012 Birmingham 150,000 $101.5 $42.4 2012 Charlotte 115,000 $90.9 $75.1 2013 Greencastle 150,000 $99.9 $54.9 2012 Rutherford 95,000 $60.9 $45.9 2014 Harrisburg 97,000 $30.1 $10.1 2013 Total 807,000 $521.2 $304.4

New Terminal Capacity on Crescent Corridor

New investment, plus current capacity, will support over 500,000 new revenue moves in Crescent related lanes

Norfolk Southern Update

• Second Quarter Results
• Third Quarter Update
• Market Drivers
• Business Outlook

Coal Utility coal impacted by higher stockpiles in first half and competition from natural gas Moderating strength, but continued growth in the domestic metallurgical market to support steel production Weaker demand in European market for both met and steam coal Softening opportunities in Asian market

Business Outlook

Coal Utility coal impacted by higher stockpiles in first half and competition from natural gas Moderating strength, but continued growth in the domestic metallurgical market to support steel production Weaker demand in European market for both met and steam coal Softening opportunities in Asian market Merchandise Project growth in crude oil and demand for plastics Moderating growth in materials for natural gas drilling operations Solid automotive/steel production and new business development projects Reduced U.S. corn and soybean crop

Business Outlook

Coal Utility coal impacted by higher stockpiles in first half and competition from natural gas Moderating strength, but continued growth in the domestic metallurgical market to support steel production Weaker demand in European market for both met and steam coal Softening opportunities in Asian market Intermodal Increasing opportunities for highway conversion - tightening truck capacity New Memphis terminal open July 1 Growth with NS international shipping partners Expansion in premium market segment Merchandise Project growth in crude oil and demand for plastics Moderating growth in materials for natural gas drilling operations Solid automotive/steel production and new business development projects Reduced U.S. corn and soybean crop

Business Outlook

Thank You