Fourth Quarter 2009 Results

Norfolk Southern Corporation

Fourth Quarter 2009 Results

Donald W. Seale

Executive Vice President

and Chief Marketing Officer

Revenue $ Millions

Railway Operating RevenueFourth Quarter 2009 vs. 2008

RevenueTotal - $2.1 Billion

Down $396 Million, 16% vs. 4Q 2008

Volume ($229)

Fuel Revenue ($245)

Price/Mix $ 78

Total Change ($396)

Merchandise

$1,119

(9%)

Coal

$580

(27%)

Intermodal

$407

(15%)

Railway Operating Revenue2009 vs. 2008

Revenue $ Millions RevenueTotal - $8.0 Billion

Down $2.7 Billion, 25% vs. 2008

Volume ($2,020)

Fuel Revenue ($1,253)

Price/Mix $581

Total Change ($2,692)

Merchandise

$4,175

(24%)

Coal

$2,264

(27%)

Intermodal

$1,530

(26%)

Revenue Per Unit2009 vs. 2008

4Q 2009 vs. 4Q 2008 2009 vs. 2008

Rev/Unit Abs. % Chg. Rev/Unit Abs. % Chg.

Agriculture $2,047 ($146) (7%) $2,097 $4 0%

MetCon $1,467 ($205) (12%) $1,478 ($208) (12%)

Chemicals $3,151 ($83) (3%) $3,061 ($83) (3%)

Paper $2,110 ($239) (10%) $2,172 ($108) (5%)

Automotive $1,836 ($213) (10%) $1,821 ($176) (9%)

Merchandise $2,065 ($156) (7%) $2,079 ($71) (3%)

Intermodal $607 ($46) (7%) $605 ($74) (11%)

Coal $1,634 ($183) (10%) $1,596 ($166) (9%)

Total $1,343 ($107) (7%) $1,338 ($113) (8%)

Tough comparisons

to strong 2008 RPU

Declining fuel

related revenue

Agriculture produces

record RPU for 2009

Solid pricing gains

throughout the year

4% gain for 4Q 2009

6% gain for year 2009

Railway VolumeFourth Quarter 2009 vs. 2008

4Q 2009 vs. 4Q 2008

Units Abs. % Chg.

Agriculture 156,281 11,105 8%

MetCon 126,659 (15,075) (11%)

Chemicals 88,287 3,732 4%

Paper 78,466 (11,555) (13%)

Automotive 92,184 2,547 3%

Merchandise 541,877 (9,246) (2%)

Intermodal 670,763 (63,800) (9%)

Coal 354,493 (84,998) (19%)

Total 1,567,133 (158,044) (9%)

Continued growth in ethanol and grains in fertilizer

and soybeans

Gains in coil, iron, and steel offset by continued

weakness in scrap metal and aluminum

Across the board volume growth supplemented by

new projects

Weakened lumber volume and conventional paper

market declines

1% increase in North American Light Vehicle

production

Weak international trade/improving domestic

volume

Lower electricity demand, natural gas competition,

high stockpiles, and lower domestic met volume

Export Coal VolumeFirst Quarter 2007 – Fourth Quarter 2009

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1Q

20

07

2Q

20

07

3Q

20

07

4Q

20

07

1Q

20

08

2Q

20

08

3Q

20

08

4Q

20

08

1Q

20

09

2Q

20

09

3Q

20

09

4Q

20

09

59,933

Carloads

Utility Coal VolumeFirst Quarter 2007 – Fourth Quarter 2009

80,000

120,000

160,000

200,000

240,000

280,000

320,000

360,000

1Q

20

07

2Q

20

07

3Q

20

07

4Q

20

07

1Q

20

08

2Q

20

08

3Q

20

08

4Q

20

08

1Q

20

09

2Q

20

09

3Q

20

09

4Q

20

09

237,117

Carloads

Railway Volume Quarterly and Total 2009 Volume

Intermodal

Qtr./Qtr.

% Chg. Merchandise

Qtr./Qtr.

% Chg. Coal

Qtr./Qtr.

% Chg. Total

Qtr./Qtr.

% Chg.

1Q 2009 vs. 4Q 2008

606,840 (17%) 467,948 (15%) 380,779 (13%) 1,455,567 (16%)

2Q 2009 vs. 1Q 2009

612,765 1% 467,666 (0%) 331,911 (13%) 1,412,342 (3%)

3Q 2009vs. 2Q 2009

640,100 4% 530,818 14% 351,297 6% 1,522,215 8%

4Q 2009 vs. 3Q 2009

670,763 5% 541,877 2% 354,493 1% 1,567,133 3%

Total 2,530,468 (16%) 2,008,309 (21%) 1,418,480 (20%) 5,957,257 (19%)

Outlook – Business Portfolio

Chemicals

Agriculture

Export Coal

Domestic Intermodal

-Rebound in basic chemicals markets & project growth

-Increase in agri-fuels, export soybeans, and fertilizer

-Global demand for steel – China’s exit from coke market

-Truckload conversions

Outlook – Business Portfolio

Chemicals

Agriculture

Export Coal

Domestic Intermodal

-Rebound in basic chemicals markets & project growth

-Increase in agri-fuels, export soybeans, and fertilizer

-Global demand for steel – China’s exit from coke market

-Truckload conversions

Steel

Domestic Met Coal

Utility Coal

Paper & Forest Products

Automotive

-Slowly improving domestic steel demand

-Lower stockpiles – second half recovery

-Improving housing market – project growth in paper

-Mixing Center redesign, increased auto production, and sales

Outlook – Business Portfolio

Chemicals

Agriculture

Export Coal

Domestic Intermodal

-Rebound in basic chemicals markets & project growth

-Increase in agri-fuels, export soybeans, and fertilizer

-Global demand for steel – China’s exit from coke market

-Truckload conversions

Steel

Domestic Met Coal

Utility Coal

Paper & Forest Products

Automotive

-Slowly improving domestic steel demand

-Lower stockpiles – second half recovery

-Improving housing market – project growth in paper

-Mixing Center redesign, increased auto production, and sales

International Intermodal - Slow recovery in domestic and global economy

2010- A Snapshot

4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009

1,725,177

1,455,5671,412,342

1,522,215

1,567,133

Gradual economic

improvement leads to

continued growth in core

markets

Strong project growth

Strong customer service

Continued pricing

improvement

70% of Book of Business

repriced for 2010

Price gains in excess of

rail inflation for the year

4Q 2008 – 4Q 2009 Units

Fourth Quarter 2009 Results

Mark Manion

Executive Vice President

and Chief Operating Officer

Rail Industry Safety2009 Preliminary

(Injury Ratio per 200,000 Employee-Hours)

NS CSX UP BNSF AMTRAK

1.08 1.20

1.46

2.03

2.20

Operating Plan TrendsAugust 2008 – December 2009

5200

5500

5800

6100

6400

6700

7000

7300

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

We

ek

ly T

rain

Sta

rts

Da

ys

/Ca

r -

Ha

nd

lin

gs

/Ca

r -

10

0's

Mil

es

/Da

y

Days/Car Handlings/Car 100's Miles/Day Train Starts

Cars Stored2009 – Monthly Snapshot

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Merchandise - Total

Automotive

Intermodal

Coal

Locomotives Stored2009 – Monthly Snapshot

0

100

200

300

400

500

600

700

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Locomotive Fuel ConsumptionBy Quarters 2009 vs. 2008

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

13

0,1

67

12

3,0

66

11

7,7

33

111

,58

9

10

5,3

72

90

,47

1

95

,02

5

10

1,6

73

2008

2009

-26% -19%

Change from Prior Year:

-9%-19%

Train & Engine EmployeesBy Quarters 2009 vs. 2008

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

12

,28

3

12

,10

2

12

,07

8

12

,05

0

11

,34

8

10

,37

2

10

,42

2

10

,58

2

2008

2009

-14%

Change from Prior Year:

-12%

-8%

-14%

Composite Service PerformanceBy Quarters 2009 vs. 2008

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year

77

.5%

79

.0%

78

.6%

81

.3%

79

.1%

82

.3%

83

.8%

79

.3%

78

.8%

81

.0%

2008

2009

+6.1%

Change from Prior Year:

+2.4%

+6.2%

+.9%

-3.1%

Productivity Scorecard4Q 2009 vs. 4Q 2008

• Carload Volume -9%

• Crew Starts -10%

• Railroad Employees -9%

• GTMs per Employee 4%

• GTMs per Gallon 4%

• GTMs per Train Hour 5%

• Car Hire Days per Carload 0%

Fourth Quarter 2009 Results

James A. SquiresExecutive Vice President Finance and Chief Financial Officer

Operating ResultsFourth Quarter 2009 vs. 2008 ($ Millions)

Fourth Qtr Fourth Qtr

Favorable

(Unfavorable)

2009 2008 $ %

Railway Operating Revenues $ 2,106 $ 2,502 $ (396) (16%)

2

Operating ResultsFourth Quarter 2009 vs. 2008 ($ Millions)

Fourth Qtr Fourth Qtr

Favorable

(Unfavorable)

2009 2008 $ %

Railway Operating Revenues $ 2,106 $ 2,502 $ (396) (16%)

Railway Operating Expenses 1,557 1,689 132 8%

Income from Railway Operations $ 549 $ 813 $ (264) (32%)

Railway Operating Ratio 73.9 67.5 (6.4) (9%)

3

Railway Operating Expense AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

+ $7

- $52- $48

Depreciation

- $43

+ $4Materials

and Other

Purchased Services

and RentsFuel

Compensationand Benefits

4 Net Decrease $132 Million / 8%

Materials and Other Expense AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

Decrease

Materials $ (15)

Casualties and Other Claims (17)

Other (20)

Total Decrease $ (52)

5

Railway Operating Expense AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

+ $7

- $52- $48

Depreciation

- $43

+ $4Materials

and Other

Purchased Services

and RentsFuel

Compensationand Benefits

6 Net Decrease $132 Million / 8%

Locomotive Fuel Consumption 2009 vs. 2008 Comparison

-9%-19%-26%

-19%

7

Total Fuel

Consumption

Savings

($ Millions)

1Q $ 70

2Q $126

3Q $ 92

4Q $ 25

Fuel Expense AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

Fourth Qtr

2008

Decreased

Consumption

Lower

Prices

Fourth Qtr

2009

$ 269 - $ 25

- $ 23

$ 221

8

Railway Operating Expense AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

+ $7

- $52- $48

Depreciation

- $43

+ $4Materials

and Other

Purchased Services

and RentsFuel

Compensationand Benefits

9 Net Decrease $132 Million / 8%

Purchased Services and Rents AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

10

Decrease

Equipment Rents $ (9)

Transportation Services and Operations (8)

Mechanical (6)

Intermodal (5)

Other (15)

Total Decrease $ (43)

Railway Operating Expense AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

+ $7

- $52- $48

Depreciation

- $43

+ $4Materials

and Other

Purchased Services

and RentsFuel

Compensationand Benefits

11 Net Decrease $132 Million / 8%

Compensation and Benefits AnalysisFourth Quarter 2009 vs. 2008 ($ Millions)

Increase

(Decrease)

Stock-Based Compensation $ 54

Wage Rates 14

Pension Costs 10

T&E and Other Volume-Related Payroll (40)

Incentive Compensation (24)

Other (10)

Net Increase $ 4

12

Other Income - NetFourth Quarter 2009 vs. 2008 ($ Millions)

Fourth Qtr Fourth Qtr Favorable

(Unfavorable)2009 2008

Interest on Tax Deficiencies $ 11 $ (3) $ 14

Corporate-Owned Life Insurance (3) (6) 3

All Other 29 27 2

Other Income - Net $ 37 $ 18 $ 19

Interest Expense on Debt $ 119 $ 112 $ (7)

13

Income Before Income TaxesFourth Quarter ($ Millions)

14

Change vs.

Prior Period: -35%$719

$467

Income TaxesFourth Quarter ($ Millions)

15

Change vs.

Prior Period: -40%$267

$160

Net Income and Diluted Earnings per ShareFourth Quarter ($ Millions except per share)

Net Income

16

$452

Diluted Earnings per Share

$307 $0.82

$1.21

Change vs. Prior Period: -32% Change vs. Prior Period: -32%

Net Income and Diluted Earnings per ShareYear ($ Millions except per share)

Net Income

17

$1,716

Diluted Earnings per Share

$1,034 $2.76

$4.52

Change vs. Prior Period: -40% Change vs. Prior Period: -39%

Cash Flows2009 Comparison ($ Millions)

2009 2008 2007 2006

Cash Provided by Operating Activities $ 1,860 $ 2,715 $ 2,333 $ 2,206

Capital Expenditures (1,299) (1,558) (1,341) (1,178)

*Free Cash Flow $ 561 $ 1,157 $ 992 $ 1,028

Dividends $ 500 $ 456 $ 377 $ 278

18 *Please see reconciliation to GAAP posted on our web site.

2010 Expense Drivers

• Increased Volumes

• Higher Fuel Prices

• Higher Pay Rates

• Higher Medical Costs

19

Financial Performance

• Strong Operating Cash Flow

• Access to Credit Markets

• Low Debt Repayments

• No 2010 Pension Funding Required

• Dividends Remain a Priority

• Commitment to Capital Spending

20

2010 Capital Expenditures

Deborah H. Butler

Executive Vice President and

Chief Information Officer

2010 Capital Expenditure Drivers

• Roadway

• Capacity and efficiency improvements

• Track 2012

• Intermodal projects

Capital Expenditures(millions)

$1,178

$1,341

$1,558

$1,299$1,442

2006 2007 2008 2009 2010

budget

2010 Capital Improvement Budget Replacement/Core vs. Growth/Productivity

75%

25%

Replacement/Core

Growth/Productivity

Total Spending = $1.442 billion

2010 Capital Improvement Budget (millions)

$140

$110$81

$221

$706

$184

Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

2010 Capital Improvement Budget (millions)

$140

$110$81

$221

$184

$706Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

Roadway$706 million

• Normalized programs to maintain the

track network

• Primarily rail, tie, ballast programs

• Bridge and culvert replacements

2010 Capital Improvement Budget (millions)

$140

$110$81

$221

$706

$184

Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

Facilities and Terminals$184 million

• Intermodal terminals and equipment

• Mechanical shops and facilities

• Other Marketing initiatives

2010 Capital Improvement Budget(millions)

$110$81

$221$140

$706

$184

Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

Technology$140 million

• New technology

– SAP Phase I implementation

– IT infrastructure and software development

• Improve safety, service, operating

efficiency and equipment utilization

(Track 2012)

– LEADER

– UTCS

• Positive Train Control

2010 Capital Improvement Budget (millions)

$81

$221

$110

$140

$706

$184

Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

Infrastructure$110 million

• Network improvements for coal and

merchandise traffic

• MidAmerica Corridor

• Public/Private Partnerships

– Heartland Corridor

– CREATE

2010 Capital Improvement Budget (millions)

$221

$81 $110

$140

$706

$184

Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

Rolling Stock$81 million

• Rebuild or upgrade locomotives

• Emission kits

• Alternative power locomotives

• Minimal freight car expenditures

2010 Capital Improvement Budget (millions)

$221

$81 $110

$140

$706

$184

Roadway

Facilities/Terminals

Technology

Infrastructure

Rolling Stock

Other Projects

Total Spending = $1.442 billion

Other Capital Investments$221 million

• Communication & signal projects

• Hyrails and trucks

• Maintenance of way equipment

• Grade crossings and separations

• Triple Crown

• Small project funding

Capital Expenditures(millions)

$1,178

$1,341

$1,558

$1,299$1,442

2006 2007 2008 2009 2010

budget