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

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
	($ in millions, except per share amounts)
Railway operating revenues:
Coal	$	511	$	775	$	1,113	$	1,437
General merchandise		978		1,458		1,953		2,810
Intermodal		368		532		734		1,018
Total railway operating revenues		1,857		2,765		3,800		5,265
Railway operating expenses:
Compensation and benefits		551		662		1,190		1,367
Purchased services and rents		334		400		689		775
Fuel		153		491		312		895
Depreciation		207		199		414		397
Materials and other (note 1)		144		214		344		454
Total railway operating expenses		1,389		1,966		2,949		3,888
Income from railway operations		468		799		851		1,377
Other income - net		36		46		53		53
Interest expense on debt		113		112		230		221
Income before income taxes		391		733		674		1,209
Provision for income taxes:
Current		85		242		175		402
Deferred		59		38		75		63
Total income taxes		144		280		250		465
Net income	$	247	$	453	$	424	$	744
Earnings per share (note 3):
Basic	$	0.67	$	1.20	$	1.14	$	1.97
Diluted	$	0.66	$	1.18	$	1.13	$	1.94
Weighted average shares outstanding (millions) (notes 2 & 3):
Basic		366.8		375.4		366.5		375.6
Diluted		371.4		383.5		371.3		383.7
See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	June 30,		December 31,
	2009		2008
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	722	$	618
Accounts receivable - net		800		870
Materials and supplies		188		194
Deferred income taxes		136		149
Other current assets		90		168
Total current assets		1,936		1,999
Investments		2,027		1,779
Properties less accumulated depreciation		22,375		22,247
Other assets		295		272
Total assets	$	26,633	$	26,297
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	945	$	1,140
Income and other taxes		159		261
Other current liabilities		240		220
Current maturities of long-term debt		394		484
Total current liabilities		1,738		2,105
Long-term debt		6,688		6,183
Other liabilities		1,902		2,030
Deferred income taxes		6,446		6,372
Total liabilities		16,774		16,690
Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 367,636,640 and 366,233,106 shares,
respectively, net of treasury shares		369		368
Additional paid-in capital		1,741		1,680
Accumulated other comprehensive loss		(922)		(942)
Retained income		8,671		8,501
Total stockholders' equity		9,859		9,607
Total liabilities and stockholders' equity	$	26,633	$	26,297
See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2009		2008
	($ in millions)
Cash flows from operating activities:
Net income	$	424	$	744
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		418		402
Deferred income taxes		75		63
Gains and losses on properties		(4)		(22)
Changes in assets and liabilities affecting operations:
Accounts receivable		29		55
Materials and supplies		6		(27)
Other current assets		75		34
Current liabilities other than debt		(319)		(245)
Other - net		(61)		54
Net cash provided by operating activities		643		1,058
Cash flows from investing activities:
Property additions		(566)		(676)
Property sales and other transactions		27		66
Investments, including short-term		(119)		(34)
Investment sales and other transactions		9		251
Net cash used in investing activities		(649)		(393)
Cash flows from financing activities:
Dividends		(250)		(218)
Common stock issued - net		24		177
Purchase and retirement of common stock (note 2)		-		(494)
Proceeds from borrowings - net		990		1,225
Debt repayments		(654)		(1,107)
Net cash provided by (used in) financing activities		110		(417)
Net increase in cash and cash equivalents		104		248
Cash and cash equivalents:
At beginning of year		618		206
At end of period	$	722	$	454
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	224	$	208
Income taxes (net of refunds)	$	222	$	235
See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.    Materials and Other

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

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 six 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.

3.    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 the second quarter 2009 and 2008 reflects a $2 million reduction and for the first six months of 2009 and 2008 a $4 million reduction from net income for the effect of dividend equivalent payments made to holders of stock options.  In addition, for the second quarter and first six 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 $4 million reduction, respectively, from net income for dividend equivalent payments.