Dahlman Rose & Co. Fifth Annual Global Transportation Conference - PowerPoint PPT Presentation

Dahlman Rose & Co. Fifth Annual Global Transportation Conference Donald W. Seale Executive Vice President and Chief Marketing Officer 1

Agenda • Second Quarter & First Half Results • Third Quarter-to-Date • Market Drivers • Business Outlook 2

Operating Results Second Quarter 2012 vs. 2011 ($ Millions) 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% 3

Railway Operating Revenue Second Quarter 2012 vs. 2011 Components of Revenue Growth $ in Millions $20 ($12) $2,874 $2,866 Revenue $2.9 Billion, up $8 Million 2Q 2011 Volume RPU 2Q 2012 RPU $1,597, down ($7) per unit 2Q 2012 Revenue $ in Millions & y-o-y Percent Change Coal $755 Volume (15%) Merchandise $1,556 1,799,300 units, up 12,400 +9% Intermodal $563 loads +4% 4

Railway Volume Second Quarter 2012 vs. 2011 2Q 2012 Volume (000’s) Total volume up 1% & y-o-y Percent Change Coal down (12%) 1,799.3 1,786.9 (21%) decline in Utility 2,000 6% gain in Export 2% gain in Domestic Met (12%) Coal 1,500 Intermodal up 5% 10% gain in Domestic more than Intermodal +5% offsets (1%) decline in 1,000 International Merchandise up 4% 500 Gains in Automotive, MetCon Merchandise +4% and Chemicals more than offset decline in Paper 0 2Q 2011 2Q 2012 5

Operating Results First Half 2012 vs. 2011 ($ Millions) 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% 6

Railway Operating Revenue First Half 2012 vs. 2011 Components of Revenue Growth $ in Millions $5,663 $50 $127 $5,486 Revenue $5.7 Billion, up $177 Million 1H 2011 RPU Volume 1H 2012 RPU $1,604, up $36 per unit 1H 2012 Revenue $ in Millions & y-o-y Percent Change Coal $1,521 Volume (11%) Merchandise $3,052 3,530,100 units, up 32,000 +11% Intermodal $1,090 loads +6% 7

Railway Volume First Half 2012 vs. 2011 1H 2012 Volume (000’s) Total volume up 1% & y-o-y Percent Change Coal down (12%) 3,530.1 3,498.1 4,000 (19%) decline in Utility 10% gain in Domestic Met 3,500 (12%) Coal (2%) decline in Export 3,000 Intermodal up 5% 2,500 11% gain in Domestic more than +5% Intermodal 2,000 offsets (2%) decline in International 1,500 Merchandise up 4% 1,000 +4% Gains in Automotive, MetCon Merchandise 500 and Chemicals more than offset declines in Paper and Agriculture 0 1H 2011 1H 2012 8

Improving Overall Service Composite Service Performance First Half 2012 vs. 2011 2011 82.9% 2012 74.5% 1st Half 9

Improving Productivity First Half 2012 vs. 2011 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% 10

Agenda • Second Quarter & First Half Results • Third Quarter-to-Date • Market Drivers • Business Outlook 11

Current Railway Volume Third Quarter through Week 35 (Sept 1, 2012)  1,219,500 units, down (1%) Change in Units Units (000) 3QTD12 vs. 2011 1,230.6 1,219.5 Automotive 13% Intermodal 6% Chemicals 3% Agriculture 0% (4%) Paper (8%) MetCon (14%) Coal 2011 2012 12

Agenda • Second Quarter & First Half Results • Third Quarter-to-Date • Market Drivers • Business Outlook 13

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 14

Continued Strength in Automotive • 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 Vehicle Age US Vehicle U.S. Vehicle Age vs. Sales (yrs.) Sales (M) 12 20 18 11 16 10 14 9 12 8 10 7 8 6 6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Ward’s, Polk 15

NS Coal Tonnage YTD 2012 – 99.7M tons Western 17.4 M Tons 17% Northern Appalachia 26.7 M Tons 27% Illinois Basin 12.9 M Tons Central 13% Appalachia 40.4 M Tons Southern 41% Appalachia 2.3 M Tons Norfolk Southern 2% Railway and its Railroad Operating Subsidiaries - - - NS Trackage and Haulage Rights Excludes coke & iron ore 16

Marcellus & Utica Shale Deposits NS Shale Volume Up 27% YTD vs. 2011 17

Drilling Activity in NS Service Region YTD Permit and Rig Activity in PA, OH, WV Active Rigs Permits 250 3,000 2,500 200 2,000 150 1,500 100 1,000 • New York pending decision to lift moratorium 50 500 • Market shift from dry to wet gas • Natural gas price $2.85 in August 0 0 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 18 Source: EIA, RigData

Crude Oil to East Coast, Gulf Coast and Midwest Refineries Alberta Chicago Bakken • Efficient and direct routing to East Coast, Gulf Coast and Midwest refineries • Unit train staging & delivery 19

Grain Market Sourcing and Service Flexibility • 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 Yield (bu/ac) Corn Yield and Price Price ($/bu) $8 150 $6 100 $4 50 $2 0 $0 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 Crop Year 20 Source: NOAA, USDA

Intermodal Corridors Harrisburg 2Q 2012 1H 2012 Corridor vs. 2011 vs. 2011 Pan Am 3% 9% Southern Crescent 22% 22% Corridor Heartland 27% 23% Corridor Meridian 14% 12% Speedway 21

Crescent Corridor Sets the Stage for up to 34 New Service Lanes in 2013 Bethlehem Harrisburg Greencastle Memphis To/From West Charlotte Atlanta Birmingham Meridian Meridian New Orleans To/From Mexico To Mexico Terminal Investments

New Terminal Capacity on Crescent Corridor New investment, plus current capacity, will support over 500,000 new revenue moves in Crescent related lanes Total NS Incremental Targeted Terminal Investment Investment lifts Completion $M $M 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 23

Agenda • Second Quarter & First Half Results • Third Quarter-to-Date • Market Drivers • Business Outlook 24

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 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 25

Thank You 1