April 26, 2006

Norfolk Southern Reports Record Revenues; Net Income Increases 57 Percent

Financial Statements

• Income
First Quarter
• Balance Sheets
• Cash Flow
• Notes
• PDF version of statements

For first-quarter 2006 vs. first-quarter 2005:

Railway operating revenues of $2.3 billion were the highest of any quarter in Norfolk Southern’s history.
Income from railway operations climbed 37 percent to $551 million and set a first-quarter record.
Net income increased 57 percent to $305 million, or $0.72 per diluted share.
The railway operating ratio improved 3.3 percentage points to 76.1 percent.

NORFOLK, VA – Norfolk Southern Corporation (NYSE: NSC) 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 contacts:
(Media) Bob Fort, 757-629-2710 (rcfort@nscorp.com)
(Investors) Leanne Marilley, 757-629-2861(leanne.marilley@nscorp.com )

�

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.	�	�	�	�

�

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
�	�	�	�	�
�	March 31,		Dec. 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	�	(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 Flow
(Unaudited)
($ millions)
�	�	�		�	�
�	Three Months Ended
�	March 31,
�	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 cash flow 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.