Annual Meeting of Stockholders
Williamsburg, Va. - May 13, 2010

Prepared remarks by:

Wick Moorman
Chairman, President and CEO
Norfolk Southern Corporation

In preparation for today’s meeting, I looked back at the remarks I made at this meeting last year, and to use an expression that you hear a lot these days, “What a difference a year makes”!

Without trying to bring back bad memories, I will remind you that at our last meeting, our traffic volume had fallen by 20% and was still headed south, and we were taking extraordinary measures to size our operations and reduce our cost structure in response.

I will point out that I was hopeful that the second quarter would be a low point and that the second half of the year would see an uptick. Thankfully, this was one of those rare occasions where my economic forecasting turned out to be correct, and in fact after a second quarter with volumes off 26% year-over-year, we saw an 8% sequential increase in the third quarter and another 3% sequential increase in the fourth quarter over the third. Even better news is that the only thing more rare in the railroad business than fourth quarter volumes higher than third quarter is for first quarter volumes to be higher than the preceding fourth, and that’s just what we saw in the first quarter this year – a strong sign that the economic recovery in our business is well underway.

This volume growth in the second half of the year, along with the hard work of a lot of Norfolk Southern people, enabled us to post 2009 financial results that I thought were very good on a relative basis, and certainly much better than I had feared in the depths of the crisis. To give you a different perspective, when we went out to visit shareholders a year or 15 months ago, I told them that I had three primary objectives for the year, all under the general heading of “survival”:

1. Continue to invest at a reasonable rate in the company through capital expenditures.
2. Pay the dividend.
3. Avoid a liquidity crisis.

I’m very happy to tell you that the $1.03 billion, or $2.76 per share, that we earned in 2009, while down 40% from 2008, did, in fact, allow us to invest about $1.3 billion in capex, pay an actually slightly increased dividend, and still have a little excess cash. This free cash flow, along with some timely borrowings at what I thought were remarkably low rates, enabled us to end the year with about a billion dollars in cash and cash equivalents on hand.

Simply put, your company came out of the worst economic downturn since the Great Depression in as good or better physical and financial condition than we went in, an exceptional tribute to the strength of the industry, the NS franchise, and most importantly, to the people of Norfolk Southern.

As I said, and as all of you know, we had a much improved first quarter this year, although volumes remained substantially below pre-2009 levels. To give you an idea of those comparisons, although our first-quarter volume of 1.58 million units was 9% above first quarter 2009; it is still 14% below our 2008 first quarter volume and 19% below our all-time high volume in the first quarter of 2006.

Clearly, while the economic recovery is underway, there is a long way to go before we see the levels of economic activity of a few years ago.

We believe that every day that goes by lessens the chance of a second dip in the economy, but we do remain guarded about the pace of the domestic economic recovery, and I tend to think that 2.5-3% GDP growth over the next couple of years is probably a reasonable assumption.

One positive indicator has been our April traffic, up 23% over April, 2009, which was almost our low-point last year. We had been concerned that we might see some fall-off in April after very strong March car loadings, but that turned out not to be the case. If you look at our April car loadings, they reflect the traffic patterns of the first quarter with some areas of real strength – agricultural products, driven by ethanol and export grain; chemicals; steel; domestic metallurgical coal; and export coal.

April also showed an uptick in some of our utility coal volumes, which had been quite depressed for the prior several quarters. We still see signs of weakness – anything related to housing continues to be anemic, and our international import container volumes remain relatively weak, indicative of a less-than-robust retail sector. However, and it leads to a point I want to make, our domestic intermodal business is growing rapidly. In 2009, domestic intermodal was essentially flat year-over-year with 2008, which actually represented a share shift to rail, and in the first quarter of this year it was up 23% year-over-year. April was even better, up 35% year-over-year.

The reason that I believe these numbers are so significant is that they illustrate that the fundamental forces which have driven so much of our success over the past few years are firmly in place. The nation’s highways are over-crowded and under-maintained, and there’s no money to fix them. Systemically higher energy prices are here to stay, and the rail industry’s energy-efficiency gives us a tremendous competitive advantage. The job of long-distance truck driver remains low-paying and unattractive to most, and as the economy improves, drivers will be harder and harder to recruit and retain. And finally, the sustainability profile of rail transportation is becoming more and more attractive to shippers who are concerned with their own sustainability initiatives. All of these factors bode well for not only our intermodal business, but our carload merchandise business as well.

With these strong fundamentals and a company with terrific people, excellent customer service, and a strong physical plant and assets, you would think that I would be forecasting a bright future, indeed, but I also have to say a word about Washington, where bright futures have been blighted before. The attitude in Washington towards the rail industry these days is verging on schizophrenia. On the negative side, we are still engaged in defending against the long-running initiative by a small, but well-funded, group of rail shippers who are attempting to alter the economic regulatory regime which governs us so as to lower their rates, and at the same time seriously damage our ability to earn adequate returns for you our shareholders, and invest in the future.

These shipper- representatives are cynical and short-sighted in trying to manipulate the system to their advantage, while at the same time complaining loudly about government interference in their own businesses. Fortunately, this is neither a public issue nor a partisan one, and relatively few congressmen support any significant changes, although unfortunately for us, a couple of those who do hold key committee chairmanships. The industry has been working with the Senate Commerce Committee for well over a year now to try to find common ground. The Commerce Committee has produced a bill which causes grave concern, but they want our support and we are continuing the dialogue with them. At the end of the day, I still believe that a bill that’s fundamentally bad for our industry cannot be passed.

The second really bad thing that Washington has done to us is to mandate the installation of Positive Train Control, or PTC, technology by the end of 2015. I don’t want to say much about P.T.C., so I’ll just remark that other than the mandate being unfunded, the technology unproven for heavy main-line operations, the estimated NPV cost of installation of the system estimated to be $10 billion, and the government’s own estimate that every $22 of cost will yield $1 of benefits, it’s really not such a bad idea. It is a legislated mandate, so all we can do is argue for changes in the legislation. We’re getting a lot of sympathy, but it’s unclear how that will manifest itself in votes.

With all of that said, the very positive thing that is happening in Washington, in state capitols, and in broader public opinion as well, is the growing belief that rail transportation, for both freight and passengers, must play a much stronger role in helping to solve our nation’s growing transportation problems. This is the reason that D.O.T Secretary Ray LaHood is calling for a complete rethinking of transportation policies and advocating shifting freight traffic off of the highways and onto rails. Not only is the Administration advocating this, with broad Congressional support, they are putting money up to get the process started. As part of the Stimulus Act, $1.5 billion in TIGER (Transportation Investment Generating Economic Recovery) grants for non-traditional transportation projects was set up.

Norfolk Southern put together a five-state coalition, under the strong leadership of Gov. Ed Rendell of Pennsylvania, to seek funding for our Crescent Corridor initiative, and we received a $105 million grant, the largest single TIGER grant, to build new intermodal terminals near Memphis and Birmingham. Similarly we worked closely with Amtrak and several states in seeking participation in the $8 billion in High Speed Rail funding set up under the Stimulus Act, and as a result, several hundred million dollars will be spent on NS lines over the next three years, including relieving chokepoints on our key route into Chicago.

This funding was obtained through the creativity and hard work of a lot of members of the NS team, and I believe that our success is a harbinger of more good things to come.

The more our public policy leaders see our strengths and capabilities, the more they are convinced that rail transportation can and should do more, and equally importantly, convinced that legislative initiatives which could undermine our ability to do more are bad policy. With all of this said, the longer-term prospects for Norfolk Southern and the rail industry remain very bright. We had a strong first quarter which provides a platform for continued momentum, and as the economy improves, the stage is set for a good 2010.

I’ll close these remarks by saluting one more accomplishment of Norfolk Southern’s people. In 2009, we were awarded our 20th consecutive Harriman Gold Medal for Employee Safety.

As I’ve said before, they retired the word “unprecedented” about 15 years ago in describing our performance. The keys to our success are our people – they do remarkable things every day, and it’s my great privilege and honor to represent them and on their behalf, to thank all of our shareholders for your faith in us.