Deutsche Bank 2012 Aviation and Transportation Conference Donald W. - - PowerPoint PPT Presentation

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Donald W. Seale Executive Vice President and Chief Marketing Officer

Deutsche Bank 2012 Aviation and Transportation Conference

Agenda

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• Second Quarter & First Half Results
• Third Quarter-to-Date
• 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)

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Revenue $2.9 Billion, up $8 Million RPU $1,597, down ($7) per unit Volume 1,799,300 units, up 12,400 loads

2Q 2011 Volume RPU 2Q 2012

$2,866 $2,874 $20 ($12) 2Q 2012 Revenue $ in Millions & y-o-y Percent Change Components of Revenue Growth $ in Millions

Railway Operating Revenue

Second Quarter 2012 vs. 2011

Merchandise $1,556 +9% Coal $755 (15%) Intermodal $563 +4%

2Q 2012 Volume (000’s) & y-o-y Percent Change

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500 1,000 1,500 2,000 2Q 2011 2Q 2012 Coal Merchandise Intermodal +4% +5% (12%) 1,786.9 1,799.3

Coal down (12%)

(21%) decline in Utility 6% gain in Export 2% gain in Domestic Met

Intermodal up 5%

10% gain in Domestic more than

• ffsets (1%) decline in

International

Merchandise up 4%

Gains in Automotive, MetCon and Chemicals more than offset decline in Paper

Total volume up 1%

Railway Volume

Second Quarter 2012 vs. 2011

First Half First Half Favorable 2012 2011 $ % Railway operating revenues $ 5,663 $ 5,486 $ 177 3% Railway operating expenses 3,984 4,011 27 1% Income from railway operations $ 1,679 $ 1,475 $ 204 14% Railway operating ratio 70.4 73.1 2.7 4%

Operating Results

First Half 2012 vs. 2011 ($ Millions)

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Revenue $5.7 Billion, up $177 Million RPU $1,604, up $36 per unit Volume 3,530,100 units, up 32,000 loads

1H 2011 RPU Volume 1H 2012

$5,486 $5,663 $127 $50 1H 2012 Revenue $ in Millions & y-o-y Percent Change Components of Revenue Growth $ in Millions

Railway Operating Revenue

First Half 2012 vs. 2011

Merchandise $3,052 +11% Coal $1,521 (11%) Intermodal $1,090 +6%

1H 2012 Volume (000’s) & y-o-y Percent Change

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500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1H 2011 1H 2012 Coal Merchandise Intermodal +4% +5% (12%) 3,498.1 3,530.1

Coal down (12%)

(19%) decline in Utility 10% gain in Domestic Met (2%) decline in Export

Intermodal up 5%

11% gain in Domestic more than

• ffsets (2%) decline in

International

Merchandise up 4%

Gains in Automotive, MetCon and Chemicals more than offset declines in Paper and Agriculture

Total volume up 1%

Railway Volume

First Half 2012 vs. 2011

Improving Overall Service

Composite Service Performance First Half 2012 vs. 2011

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1st Half

74.5% 82.9%

2011 2012

Train & Engine Service Overtime Reduced 16% Re-Crews Reduced 33% Equipment Rents (Velocity Driven) Reduced 9% Locomotives In Service Reduced 3% Fuel Consumption Reduced 2% Gross Ton Miles per Gallon Improved 1%

Improving Productivity

First Half 2012 vs. 2011

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Agenda

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• Second Quarter & First Half Results
• Third Quarter-to-Date
• Market Drivers
• Business Outlook

• 1,219,500 units, down (1%)

13% 6% 3% 0% (4%) (8%) (14%) Change in Units 3QTD12 vs. 2011 1,230.6 1,219.5 2011 2012 Units (000)

Current Railway Volume

Third Quarter through Week 35 (Sept 1, 2012)

Automotive Intermodal Chemicals Agriculture Paper MetCon Coal

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Agenda

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• Second Quarter & First Half Results
• Third Quarter-to-Date
• Market Drivers
• Business Outlook

Market Drivers

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• 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

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NS Coal Tonnage

YTD 2012 – 99.7M tons

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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

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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

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• New York pending decision to lift moratorium
• Market shift from dry to wet gas
• Natural gas price $2.85 in August

Source: EIA, RigData

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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

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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

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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

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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

Agenda

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• Second Quarter & First Half Results
• Third Quarter-to-Date
• Market Drivers
• Business Outlook

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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 Continued 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 Moderate 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

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Thank You