Norfolk Southern Reports Record Revenues; Net Income Increases 57 Percent

NORFOLK, Va., April 26 /PRNewswire-FirstCall/ -- Norfolk Southern Corporation today reported first-quarter net income of $305 million, or $0.72 per diluted share, an increase of 57 percent compared with $194 million, or $0.47 per diluted share, for the first quarter of 2005.

"Continued strong demand for rail service allowed us to produce a substantial improvement over the prior year," said Wick Moorman, Norfolk Southern's chief executive officer. "From our vantage point, demand for rail transportation remains healthy, and our first-quarter results reflect solid execution throughout the enterprise. I'm even more encouraged that we were able to achieve our lowest first-quarter operating ratio since the Conrail transaction and report continuing substantial volume growth in conjunction with our improved earnings."

Railway operating revenues of $2.3 billion were the highest of any quarter in Norfolk Southern's history and improved 17 percent compared with $1.96 billion in the first quarter of 2005.

General merchandise revenues were a record $1.28 billion, an increase of 18 percent compared with the same period a year earlier. The gains were due primarily to higher average revenues and a 3 percent increase in traffic volumes. Each of the major business groups reported revenue improvements. Agricultural product revenues increased by 38 percent, metals and construction by 25 percent, paper, clay and forest products by 14 percent, chemical products by 11 percent and automotive by 4 percent.

Coal revenues climbed $92 million, or 20 percent, to $559 million, compared with the same period last year, primarily a result of higher average revenues and a 4 percent increase in coal volumes.

Intermodal revenues set a first-quarter record, rising 14 percent to $466 million compared with the same period a year earlier. The improvement was driven by higher average revenues and an 8 percent increase in traffic volume, reflecting strength in the international and truckload sectors.

First-quarter railway operating expenses were $1.75 billion, up 12 percent over the same period in 2005. Higher compensation and benefits, a 54 percent increase in diesel fuel expense and costs of handling additional business volumes contributed to the increases during the quarter.

The first-quarter operating ratio of 76.1 percent was an improvement of 3.3 percentage points compared with 79.4 percent during first-quarter 2005.

Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 21,200 route miles in 22 states, the District of Columbia and Ontario, Canada, serving every major container port in the eastern United States and providing superior connections to western rail carriers. NS operates the most extensive intermodal network in the East and is North America's largest rail carrier of automotive parts and finished vehicles.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) ($ millions except per share) Three Months Ended March 31, 2006 2005 ---- ---- Railway operating revenues: Coal $ 559 $ 467 General merchandise 1,278 1,086 Intermodal 466 408 ------- ------- TOTAL RAILWAY OPERATING REVENUES 2,303 1,961 ------- ------- Railway operating expenses: Compensation and benefits (note 1) 721 604 Materials, services and rents 471 436 Conrail rents and services 32 35 Depreciation 183 193 Diesel fuel 231 150 Casualties and other claims (note 2) 53 78 Other 61 62 ------- ------- TOTAL RAILWAY OPERATING EXPENSES 1,752 1,558 ------- ------- Income from railway operations 551 403 Other income - net 35 2 Interest expense on debt 120 128 ------- ------- Income before income taxes 466 277 Provision for income taxes: Current 162 59 Deferred (1) 24 ------- ------- TOTAL INCOME TAXES 161 83 ------- ------- NET INCOME $ 305 $ 194 ======= ======= Earnings per share: Basic $ 0.74 $ 0.48 Diluted $ 0.72 $ 0.47 Average shares outstanding (000's): Basic 412,444 401,771 Diluted 421,773 410,107 See notes to consolidated financial statements.

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Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) ($ millions) March 31, December 31, 2006 2005 ---- ---- ASSETS Current assets: Cash, cash equivalents and short-term investments $ 1,542 $ 1,257 Accounts receivable - net (note 2) 985 931 Materials and supplies 143 132 Deferred income taxes 167 167 Other current assets 107 163 ------- ------- Total current assets 2,944 2,650 Investments 1,623 1,590 Properties less accumulated depreciation 20,756 20,705 Other assets (note 2) 918 916 ------- ------- TOTAL ASSETS $ 26,241 $ 25,861 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable (note 2) $ 1,036 $ 1,163 Income and other taxes 301 231 Other current liabilities 276 213 Current maturities of long-term debt 348 314 ------- ------- Total current liabilities 1,961 1,921 Long-term debt 6,550 6,616 Other liabilities (note 2) 1,408 1,415 Deferred income taxes 6,613 6,620 ------- ------- TOTAL LIABILITIES 16,532 16,572 ------- ------- Stockholders' equity: Common stock $1.00 per share par value 436 431 Additional paid-in capital 1,220 992 Unearned restricted stock -- (17) Accumulated other comprehensive loss (85) (77) Retained income 8,158 7,980 ------- ------- 9,729 9,309 Less treasury stock at cost, 20,833,125 shares (20) (20) ------- ------- TOTAL STOCKHOLDERS' EQUITY 9,709 9,289 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,241 $ 25,861 ======= ======= See notes to consolidated financial statements. -------------------------------------------------------------------------- Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, ($ millions) 2006 2005 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 305 $ 194 Reconciliation of net income to net cash provided by operating activities: Depreciation 185 197 Deferred income taxes (1) 24 Equity in earnings of Conrail (6) (6) Gains on properties and investments (19) (7) Changes in assets and liabilities affecting operations: Accounts receivable (54) (52) Materials and supplies (11) (10) Other current assets 28 23 Current liabilities other than debt 53 36 Other - net 30 9 ------- ------- Net cash provided by operating activities 510 408 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (256) (144) Property sales and other transactions 52 4 Investments, including short-term (354) (303) Investment sales and other transactions 267 216 ------- ------- Net cash used for investing activities (291) (227) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends (66) (44) Common stock issued - net 183 66 Purchase and retirement of common stock (note 3) (67) -- Proceeds from borrowings -- 332 Debt repayments (32) (138) ------- ------- Net cash provided by financing activities 18 216 ------- ------- Net increase in cash and cash equivalents 237 397 CASH AND CASH EQUIVALENTS: At beginning of year 289 467 ------- ------- At end of period 526 864 SHORT-TERM INVESTMENTS AT END OF PERIOD 1,016 255 ------- ------- CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 1,542 $ 1,119 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION Cash paid during the year for: Interest (net of amounts capitalized) $ 63 $ 70 Income taxes (net of refunds) $ 17 $ -- See notes to consolidated financial statements. ------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: 1. ADOPTION OF SFAS 123(R), "SHARE-BASED PAYMENT" Effective January 1, 2006, NS adopted Statement of Financial Accounting Standards, No. 123(R), "Share-Based Payment," [SFAS 123(R)]. This statement applies to awards granted, modified, repurchased or cancelled after the effective date as well as awards that are unvested at the effective date and includes, among other things, the requirement to expense the fair value of stock options. As a result of the implementation of SFAS 123(R), compensation and benefits expense in the first quarter of 2006 included $27 million for the immediate expensing of awards granted to retirement eligible employees and $4 million for stock options granted to non-retirement eligible employees. 2. GRANITEVILLE DERAILMENT - In the first quarter of 2005, NS recorded a liability related to the Jan. 6, 2005, derailment in Graniteville, SC. The liability, which includes a current and long-term portion, represents NS' best estimate based on current facts and circumstances. The estimate includes amounts related to business property damage and other economic losses, personal injury and individual property damage claims as well as third-party response costs. NS' commercial insurance policies are expected to cover expenses related to this derailment above NS' self-insured retention, including its own response costs and legal fees. Accordingly, the Consolidated Balance Sheet reflects a current and long-term receivable for estimated recoveries from its insurance carriers. Results for the first quarter of 2005 include approximately $35 million of expenses related to this incident, which represents NS' retention under its insurance policies and other uninsured costs, and which reduced net income by approximately $21 million, or 5 cents per diluted share. While it is reasonable to expect that the liability for covered losses could differ from the amount recorded, such a change would be offset by a corresponding change in the insurance receivable. As a result, NS does not believe that it is reasonably likely that its net loss (the difference between the liability and future recoveries) will be materially different than the loss recorded in 2005. NS expects at this time that insurance coverage is adequate to cover potential claims and settlements above its self-insurance retention. 3. STOCK REPURCHASE PROGRAM - In November 2005, NS' Board of Directors authorized the repurchase of up to 50 million shares of NS common stock through the end of 2015. During the first quarter of 2006, cash flows from financing activities included $67 million for the purchase and retirement of 1,310,000 shares of common stock under this program.