Norfolk Southern (NSC) 8-K Results of Operations and Financial Condition

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended March 31,
	2009		2008
	($ in millions, except earnings per share)
Railway operating revenues:
Coal	$	602	$	662
General merchandise		975		1,352
Intermodal		366		486
Total railway operating revenues		1,943		2,500
Railway operating expenses:
Compensation and benefits		639		705
Purchased services and rents		355		375
Fuel		159		404
Depreciation		207		198
Materials and other		200		240
Total railway operating expenses		1,560		1,922
Income from railway operations		383		578
Other income – net		17		7
Interest expense on debt		117		109
Income before income taxes		283		476
Provision for income taxes Current Deferred		90 16		160 25
Total income taxes		106		185
Net income	$	177	$	291
Earnings per share (note 1):
Basic	$	0.48	$	0.77
Diluted	$	0.47	$	0.76
Weighted average shares outstanding (millions) (notes 1 & 2):
Basic Diluted		366.2 371.1		375.7 383.9

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	March 31,		December 31,
	2009		2008
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	884	$	618
Accounts receivable – net		831		870
Materials and supplies		191		194
Deferred income taxes		161		149
Other current assets		127		168
Total current assets		2,194		1,999
Investments		1,806		1,779
Properties less accumulated depreciation		22,292		22,247
Other assets		254		272
Total assets	$	26,546	$	26,297
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	952	$	1,140
Income and other taxes		311		261
Other current liabilities		287		220
Current maturities of long-term debt		468		484
Total current liabilities		2,018		2,105
Long-term debt		6,467		6,183
Other liabilities		1,945		2,030
Deferred income taxes		6,406		6,372
Total liabilities		16,836		16,690
Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 367,037,849 and 366,233,106 shares,
respectively, net of treasury shares		369		368
Additional paid-in capital		1,723		1,680
Accumulated other comprehensive loss		(933)		(942)
Retained income		8,551		8,501
Total stockholders’ equity		9,710		9,607
Total liabilities and stockholders’ equity	$	26,546	$	26,297

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2009		2008
	($ in millions)
Cash flows from operating activities:
Net income	$	177	$	291
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		209		200
Deferred income taxes		16		25
Gains and losses on properties and investments		(2)		(5)
Changes in assets and liabilities affecting operations:
Accounts receivable		39		(37)
Materials and supplies		3		(18)
Other current assets		35		30
Current liabilities other than debt		(107)		75
Other – net		(16)		43
Net cash provided by operating activities		354		604
Cash flows from investing activities:
Property additions		(243)		(304)
Property sales and other transactions		1		3
Investment sales and other transactions		(2)		54
Net cash used in investing activities		(244)		(247)
Cash flows from financing activities:
Dividends		(125)		(109)
Common stock issued – net		6		71
Purchase and retirement of common stock (note 2)		--		(276)
Proceeds from borrowings		500		525
Debt repayments		(225)		(410)
Net cash provided by (used in) financing activities		156		(199)
Net increase in cash and cash equivalents		266		158
Cash and cash equivalents:
At beginning of year		618		206
At end of period	$	884	$	364
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	49	$	54
Income taxes (net of refunds)	$	23	$	7

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.   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,” 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 both 2009 and 2008 reflects a $2 million reduction from net income for the effect of dividend equivalent payments made to holders of stock options.  In addition, for the first quarter 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 reduction from net income for dividend equivalent payments.

2.   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 three 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.