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Annual Meeting of Stockholders

May 12, 2016


Remarks by

James A. Squires
Chairman, President and CEO
Norfolk Southern Corporation


It is an honor to deliver my first address to shareholders of Norfolk Southern Corporation. I am grateful to be serving you, alongside our incredibly experienced and highly independent board of directors; our leadership team with their expertise, foresight, and deep bench of talent; and our employees, who are the best in the transportation business. Together, we are focused completely on driving value for all shareholders.

I am tempted to say that in 2015 we “turned a new page” for Norfolk Southern. But in truth, it’s a “new page, new chapter, new book.”

At all levels I see in our people heightened resolve to adapt and improve in ways that are most meaningful to shareholders, customers, and communities. Years ago, a well-known architect exhorted his colleagues to “make no little plans.” In that spirit, we at Norfolk Southern have recommitted to doing the big things that it takes to fully realize our vision of becoming the best in breed.

In our business, so much begins and ends with service. In 2015, after a challenging start, we steadily improved our service offering, closing the year with metrics that approached our all-time best.

Maintaining a high level of service is important to all of the customers we serve. It is especially critical in the service-sensitive markets in which we have made significant investments, have a solid presence, and have substantial growth opportunities. It is a competitive advantage for Norfolk Southern and the U.S. economy.

Relatedly, a fast, fluid railroad lowers costs and is more profitable. Speed coupled with reliability enhances our capacity and the value of our product to shippers and receivers.

Safety too is essential to marketplace success. In 2015 we achieved lower employee injury ratios year-over-year. The most important obligation we have to the communities in which we operate is to do so safely. Ensuring that our employees, customers, and neighbors return home safely every day is good business.

As is sustainability. Last year we made progress in improving fuel efficiency, emissions reduction, efficient energy use, recycling, use of renewable materials, and environmental partnerships. In Atlanta and Chicago, for example, we unveiled a new class of rail yard locomotives to reduce emissions in urban areas – a first of its kind.

Another way we partner with business and communities is through our industrial development services. Norfolk Southern assisted 93 industries in locating or expanding their business along our rail lines in 2015. This represents an investment of $4.2 billion by Norfolk Southern customers and is expected to create 6,200 new jobs in the railroad’s service territory.

In the Northeast, we took a key forward-looking step with our acquisition of the Delaware & Hudson Railway’s 282-mile line between Sunbury, Pennsylvania, and Schenectady, New York. This transaction makes Norfolk Southern a more competitive option between Pennsylvania, New York, and New England, while supporting well-paying railroad jobs and signaling our optimism for economic growth in the region.

For shareholders, we returned significant capital in 2015. We repurchased $1.1 billion of Norfolk Southern stock to retire 11.3 million shares, and we paid more than $700 million in dividends, representing a 6 percent increase for the year.

I mentioned a few minutes ago that it is “new page, new chapter, new book” for Norfolk Southern. Recently, after a comprehensive six-month evaluation, we announced our five-year strategic plan to drive growth, streamline operations, improve network performance, and deliver enhanced shareholder value.

The plan is designed to achieve annual productivity savings of more than $650 million and result in an operating ratio below 65 by 2020. It is designed to deliver sustainable, profitable growth by optimizing pricing and targeting service-sensitive markets.

We have implemented decisive cost-savings measures as well. We restructured our Triple Crown Services subsidiary to sharpen our intermodal strategy. We closed our corporate office in Roanoke and consolidated or relocated some 400 positions. We continued rationalization of our coalfield tracks and consolidated operations at our coal docks on Lake Erie. We streamlined operations by combining two operating regions and two operating divisions. We idled a major classification yard. We adjusted capital spending during the year to adapt to the economic environment.

Your team is working hard to manage employee productivity and enhance asset utilization, while maintaining the excellent service that underpins our ability to secure revenue growth. We will continue for instance to invest wisely in our infrastructure, with $2 billion of capital expenditure for 2016 in order to deliver best-in-class customer service.

Our strong first-quarter 2016 performance gives an early glimpse of the opportunities that await us through solid execution of our new strategic plan to drive enhanced profitability and shareholder returns.

During that quarter we delivered double-digit improvements in operating income, net income, and earnings per share. We were able to grow in markets such as automotive and intermodal.

We delivered a first-quarter record operating ratio of 70.1 percent, putting us on the path to a sub-70 percent operating ratio for the full year 2016 and the targeted 65 percent operating ratio by 2020.

Network performance showed marked improvement. We increased the composite service measure by 23 percent, increased train speeds by 15 percent, and reduced the time trains spend in terminals by 14 percent.

Importantly, we noted in our first-quarter report that, while we had been targeting expense savings of $130 million for 2016, our initial successes have allowed us to revise that upward to $200 million.

Looking ahead, we remain committed to a capital allocation strategy that allows for significant return of capital to shareholders. We have a strong record in this regard.

Last month, we announced the 135th consecutive dividend paid by Norfolk Southern since its 1982 inception. The dividend has increased steadily to produce a 10-year compound annual growth rate of 17 percent. We will maintain our commitment to a targeted 33 percent dividend pay-out ratio.

Our share repurchase program continues apace, as well. We have averaged approximately $1 billion in share repurchases per year over the 10-year period.

Your corporation is on the right trajectory. I am confident … our board of directors and our management team are confident ... that the projects we have accomplished to date and the initiatives we are undertaking over the next five years are positioning us to achieve our financial and service goals.

Thank you for your investment in Norfolk Southern and for the confidence you have placed in us. While your corporation is nearly two centuries old, Norfolk Southern today in some respects is in the early part of its story. The exciting “new book” is just getting under way. I look forward to the next time I report to you at our annual stockholders meeting.