Norfolk Southern Reports Third-Quarter 2009 Results

NORFOLK, Va., Oct. 27 /PRNewswire-FirstCall/ -- For the third quarter of 2009, Norfolk Southern Corporation (NYSE: NSC) reported net income of $303 million, or $0.81 per diluted share, compared with $520 million, or $1.37 per diluted share, for the third quarter of 2008.

"While our third-quarter results reflect the continuing weak economy, they also show Norfolk Southern's resilience and the strength of our franchise," said Norfolk Southern CEO Wick Moorman. "By controlling costs and maintaining service levels, we are managing through this economic downturn and will emerge an even stronger company."

Third-quarter railway operating revenues were $2.1 billion, down 29 percent, compared with the third quarter of 2008, primarily the result of a 20 percent reduction in traffic volume and lower fuel-related revenues.

General merchandise revenues were $1.1 billion, 24 percent lower compared with the same period last year. Coal revenues declined 35 percent to $571 million compared with third-quarter 2008 results. Intermodal revenues decreased 31 percent to $389 million compared with the third quarter of last year.

Railway operating expenses for the quarter were $1.5 billion, a decrease of 25 percent over the same period of 2008.

The railway operating ratio was 72.8 percent, compared with 69.1 percent during third-quarter 2008.

Norfolk Southern Corporation is a leading North American transportation provider. Its Norfolk Southern Railway subsidiary operates approximately 21,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal and industrial products.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Unaudited)

Three Months Ended Nine Months Ended September 30, September 30, 2009 2008 2009 2008 ($in millions, except per share amounts)

Railway operating revenues: Coal (note 1) $571 $876 $1,684 $2,313 General merchandise 1,103 1,458 3,056 4,268 Intermodal 389 560 1,123 1,578 ----- ----- ----- ----- Total railway operating revenues 2,063 2,894 5,863 8,159 ----- ----- ----- -----

Railway operating expenses: Compensation and benefits (note 2) 598 708 1,788 2,075 Purchased services and rents 352 419 1,041 1,194 Fuel 192 474 504 1,369 Depreciation 210 201 624 598 Materials and other (note 3) 149 198 493 652 ----- ----- ----- ----- Total railway operating expenses 1,501 2,000 4,450 5,888 ----- ----- ----- -----

Income from railway operations 562 894 1,413 2,271

Other income - net 37 39 90 92 Interest expense on debt 118 111 348 332 --- --- --- ---

Income before income taxes 481 822 1,155 2,031

Provision for income taxes: Current 80 184 255 586 Deferred 98 118 173 181 --- --- --- --- Total income taxes 178 302 428 767 --- --- --- ---

Net income $303 $520 $727 $1,264 ==== ==== ==== ======

Earnings per Share (note 4): Basic $0.82 $1.39 $1.97 $3.36 Diluted $0.81 $1.37 $1.94 $3.30

Weighted average shares outstanding (millions) (notes 4 & 5): Basic 367.3 372.5 366.8 374.4 Diluted 372.5 380.5 371.7 382.6

See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)

September 30, December 31, 2009 2008 ($in millions)

Assets Current assets: Cash and cash equivalents $999 $618 Accounts receivable - net 855 870 Materials and supplies 172 194 Deferred income taxes 152 149 Other current assets 55 168 ----- ----- Total current assets 2,233 1,999

Investments 2,067 1,779

Properties less accumulated depreciation 22,490 22,247

Other assets 285 272 ------- -------

Total assets $27,075 $26,297 ======= =======

Liabilities and stockholders' equity Current liabilities: Accounts payable $980 $1,140 Income and other taxes 219 261 Other current liabilities 287 220 Current maturities of long-term debt 380 484 ----- ----- Total current liabilities 1,866 2,105

Long-term debt 6,685 6,183

Other liabilities 1,892 2,030

Deferred income taxes 6,566 6,372 ------ ------ Total liabilities 17,009 16,690 ------ ------

Stockholders' equity: Common stock $1.00 per share par value, 1,350,000,000 shares authorized; outstanding 367,893,915 and 366,233,106 shares, respectively, net of treasury shares 369 368 Additional paid-in capital 1,761 1,680 Accumulated other comprehensive loss (912) (942) Retained income 8,848 8,501 ------ ----- Total stockholders' equity 10,066 9,607 ------ -----

Total liabilities and stockholders' equity $27,075 $26,297 ======= =======

See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30, 2009 2008 ($in millions)

Cash flows from operating activities: Net income $727 $1,264 Reconciliation of net income to net cash provided by operating activities: Depreciation 630 606 Deferred income taxes 173 181 Gains and losses on properties (13) (24) Changes in assets and liabilities affecting operations: Accounts receivable (26) 63 Materials and supplies 22 (34) Other current assets 111 93 Current liabilities other than debt (184) (80) Other - net (65) 6 ----- ----- Net cash provided by operating activities 1,375 2,075

Cash flows from investing activities: Property additions (919) (1,104) Property sales and other transactions 61 74 Investments, including short-term (119) (34) Investment sales and other transactions 10 254 ---- ---- Net cash used in investing activities (967) (810)

Cash flows from financing activities: Dividends (374) (338) Common stock issued - net 32 224 Purchase and retirement of common Stock (note 5) - (899) Proceeds from borrowings - net 990 1,225 Debt repayments (675) (1,126) ---- ------ Net cash used in financing activities (27) (914) --- ----

Net increase in cash and cash equivalents 381 351

Cash and cash equivalents: At beginning of year 618 206 ---- ----

At end of period $999 $557 ==== ====

Supplemental disclosure of cash flow information Cash paid during the period for: Interest (net of amounts capitalized) $288 $254 Income taxes (net of refunds) $234 $401

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Coal Revenues Third quarter 2008 includes $22 million related to a coal customer's 2008 contracted volume shortfall and a nonrecurring effect related to the implementation of NS' new export coal billing system.

2. Labor Agreement Third quarter 2008 includes $28 million for lump-sum payments (including payroll taxes) due under a new labor agreement with the Brotherhood of Locomotive Engineers and Trainmen (BLET).

3. Materials and Other Second quarter 2009 includes a $21 million favorable adjustment related to settlement of a multi-year state tax dispute.

4. Earnings Per Share In the first quarter of 2009, NS adopted the provisions of the Financial Accounting Standards Board Staff Position (FSP) EITF No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities" (Accounting Standards Codification (ASC) 260-10), which requires the treatment of unvested stock options receiving dividend equivalents as participating securities in computing earnings per share under the two-class method. NS has retrospectively applied the provisions of this FSP. Accordingly, for basic earnings per share, income available to common stockholders for the third quarter 2009 and 2008 reflects a $2 million and $3 million reduction, respectively, and for the first nine months of 2009 and 2008 a $6 million and $7 million reduction, respectively, from net income for the effect of dividend equivalent payments made to holders of stock options. In addition, for the third quarter and first nine months of 2009, diluted earnings per share was calculated under the more dilutive two-class method (as compared to the treasury stock method) and income available to common stockholders reflects a $2 million and $6 million reduction, respectively, from net income for dividend equivalent payments.

5. Stock Repurchase Program In March 2007, NS' Board of Directors amended the stock repurchase program that was authorized in November 2005 so as to increase the number of shares of NS common stock that may be repurchased from 50 million to 75 million. In addition, the term of the program was shortened from December 31, 2015 to December 31, 2010. During the first nine months of 2009, NS did not repurchase any shares of common stock. Since inception of the stock repurchase program in 2006, NS has repurchased and retired 64.7 million shares at a total cost of $3.3 billion.

SOURCE Norfolk Southern Corporation