Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) ($ in millions except per share amounts) Three Months Ended March 31, -------------------- 1997 1996 --------- --------- Transportation operating revenues: Railway: Coal $ 326.1 $ 323.8 General merchandise 594.2 574.1 Intermodal 125.7 118.8 --------- --------- Total railway 1,046.0 1,016.7 Motor carrier 203.7 198.3 --------- --------- Total transportation operating revenues 1,249.7 1,215.0 --------- --------- Transportation operating expenses: Railway: Compensation and benefits 361.9 377.3 Materials, services and rents 169.4 151.9 Depreciation 102.9 100.3 Diesel fuel 62.7 55.4 Casualties and other claims 29.0 34.7 Other 38.6 35.2 --------- --------- Total railway 764.5 754.8 Motor carrier 199.6 199.2 --------- --------- Total transportation operating expenses 964.1 954.0 --------- --------- Income from operations 285.6 261.0 Other income (expense): Interest income 6.3 5.8 Interest expense on debt (38.4) (27.6) Charge for credit facility costs (note 2) (77.2) -- Other - net 22.2 27.6 --------- --------- Total other income (expense) (87.1) 5.8 --------- --------- Income before income taxes 198.5 266.8 Provision for income taxes: Current 63.2 84.8 Deferred 7.5 13.9 --------- --------- Total income taxes 70.7 98.7 --------- --------- Net income (note 2) $ 127.8 $ 168.1 ========= ========= Earnings per share (note 2) $ 1.02 $ 1.31 Average number of shares outstanding (000's) 125,255 128,215 Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) ($ in millions) March 31, December 31, 1997 1996 ---------- ------------ Assets Current assets: Cash and cash equivalents $ 139.5 $ 209.2 Short-term investments 185.7 194.2 Accounts receivable - net 748.7 704.3 Materials and supplies 64.8 63.0 Deferred income taxes 139.5 158.9 Other current assets 108.8 127.2 ---------- ---------- Total current assets 1,387.0 1,456.8 Investments (note 1) 1,266.1 274.7 Properties less accumulated depreciation 9,677.6 9,529.1 Other assets (note 2) 101.6 155.8 ---------- ---------- Total assets $ 12,432.3 $ 11,416.4 ========== ========== Liabilities and stockholders' equity Current liabilities: Short-term debt $ 27.2 $ 44.0 Accounts payable 679.0 708.9 Income and other taxes 217.7 178.7 Other current liabilities 161.9 202.7 Current maturities of long-term debt 56.0 56.0 ---------- ---------- Total current liabilities 1,141.8 1,190.3 Long-term debt (notes 3 and 4) 2,843.6 1,800.3 Other liabilities 959.7 987.1 Minority interests 49.7 49.5 Deferred income taxes 2,392.5 2,411.6 ---------- ---------- Total liabilities 7,387.3 6,438.8 ---------- ---------- Stockholders' equity: Common stock $1.00 per share par value 132.7 132.4 Other capital 488.1 462.1 Retained income 4,444.8 4,403.7 ---------- ---------- 5,065.6 4,998.2 Less treasury stock at cost, 7,252,634 shares (20.6) (20.6) ---------- ---------- Total stockholders' equity 5,045.0 4,977.6 ---------- ---------- Total liabilities and stockholders' equity $ 12,432.3 $ 11,416.4 ========== ========== Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) ($ in millions) Three Months Ended March 31, 1997 1996 --------- --------- Cash flows from operating activities: Net income $ 127.8 $ 168.1 Reconciliation of net income to net cash provided by operating activities: Charge for credit facility costs (note 2) 77.2 -- Depreciation 107.8 105.6 Deferred income taxes 7.5 13.9 Nonoperating gains and losses on properties and investments (10.4) (15.9) Changes in assets and liabilities affecting operations: Accounts receivable (44.4) (31.1) Materials and supplies (1.8) (2.3) Other current assets 7.2 12.1 Current liabilities other than debt 18.7 67.7 Other - net (18.2) 2.4 -------- -------- Net cash provided by operating activities 271.4 320.5 Cash flows from investing activities: Property additions (note 4) (229.5) (163.0) Property sales and other transactions 17.5 24.0 Investments (note 1) (984.9) (23.6) Investment sales and other transactions 1.8 12.7 Short-term investments - net 7.5 9.0 -------- -------- Net cash used for investing activities (1,187.6) (140.9) Cash flows from financing activities: Dividends (75.1) (71.9) Common stock issued - net 9.7 11.2 Purchase and retirement of common stock -- (108.6) Commercial paper proceeds (note 3) 993.1 -- Credit facility costs paid (70.9) -- Proceeds from long-term borrowings (note 4) 1.2 5.6 Debt repayments (11.5) (11.8) -------- -------- Net cash provided by (used for) financing activities 846.5 (175.5) -------- -------- Net increase (decrease) in cash and cash equivalents (69.7) 4.1 Cash and cash equivalents: At beginning of year 209.2 67.7 -------- -------- At end of period $ 139.5 $ 71.8 ======== ======== Supplemental disclosures of cash-flow information Cash paid during the period for: Interest (net of amounts capitalized) $ 52.2 $ 43.1 Income taxes $ 4.3 $ 2.7 Cash equivalents represent all highly liquid investments purchased three months or less from maturity. Norfolk Southern Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (1) Conrail acquisition - On February 11, 1997, NS purchased 8.2 million Conrail Inc. (Conrail) shares, representing approximately 9.9 percent of Conrail's then outstanding common shares, acquired pursuant to NS' prior tender offer at $115 per share. On April 8, 1997, CSX Corporation (CSX) and NS reached agreement on a joint acquisition and division of the routes and assets of Conrail. The two companies will form a jointly owned entity to acquire all outstanding shares of Conrail, not currently held by NS or CSX, for $115 per share pursuant to a tender offer expiring May 23, 1997. NS will contribute $5.9 billion for its 58 percent share of the acquisition cost and CSX will contribute $4.3 billion for its 42 percent share (including amounts previously paid by NS and CSX to acquire Conrail shares). The shares will be placed in a joint voting trust pending Surface Transportation Board approval of the proposed transaction. (2) Charge for credit facility costs - Following NS' April 8, 1997, agreement with CSX, NS has terminated all but $1.65 billion of the loan commitments available under a $13.0 billion credit agreement dated February 10, 1997, as amended. The February credit agreement would have provided financing for NS' then-proposed acquisition of all shares of Conrail. NS has begun negotiating a new credit agreement to provide a bank facility of up to $7.0 billion. NS recorded a $77.2 million pretax charge in the first quarter of 1997 for the direct costs, principally loan commitment fees, of having secured and maintained certain now-terminated commitments under the February credit agreement. This charge reduced first quarter net income by $49.7 million, or $0.40 per share. Excluding the charge, net income and earnings per share would have been $177.5 million and $1.42, respectively. (3) Commercial paper debt - During the first quarter of 1997, NS issued $1.0 billion of commercial paper debt to finance its purchase of 8.2 million shares of Conrail stock. The debt has been classified as long-term because NS has the ability to convert this obligation into longer term debt. NS intends to refinance the commercial paper either by issuing additional commercial paper or by replacing commercial paper notes with long-term debt. (4) Capital lease obligations - During the first quarters of 1997 and 1996, an NS Rail subsidiary entered into capital leases covering new locomotives. The related capital lease obligations totaling $44.7 million in 1997 and $74.4 million in 1996 were reflected in the Consolidated Balance Sheets as debt and, because they were non-cash transactions, were excluded from the Consolidated Statements of Cash Flows. The lease obligations carry stated interest rates but were converted to variable rate obligations using interest rate swap agreements. The interest rates on these obligations are based on the six-month London Interbank Offered Rate and are reset every six months with changes in interest rates accounted for as an adjustment of interest expense. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation's most recent Annual Report to Stockholders and quarterly report to the Securities and Exchange Commission.