Quarterly Financial Review First Quarter 2003

Transcription

1 Quarterly Financial Review First Quarter 2003 Norfolk Southern Corporation Finance Department Three Commercial Place Norfolk, Virginia

2 Contents Consolidated Statements of Income...2 Consolidated Balance Sheets...4 Consolidated Statements of Cash Flows...5 Consolidated Financial Information...6 Railway Operating Revenue Yield Analysis...8 Monthly Railway Carloadings...9 Railway Operating Revenue Variance Analysis...10 Coal, Coke and Iron Ore Tonnage by Market...10 Railway Operating Expense Variance Analysis...11 Compensation and Benefits Expense Analysis...12 Diesel Fuel Expense Analysis...12 Other Income Net Analysis...13 Productivity Measures...14 Financial, Traffic and Operating Statistics: Consolidated Financial Data...16 Railway Statistical Data...18 Financial Inquiries: Henry C. Wolf...(757) Investor Inquiries: William J. Romig...(757) Leanne D. McGruder...(757) The accompanying unaudited interim financial statements should be read in conjunction with: (a) the financial statements and notes included in the Corporation s latest Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q, and (b) any Current Reports on Form 8-K. Quarterly Financial Review / 1

3 Consolidated Statements of Income Three Months Ended March 31, ($ millions except per share) Railway operating revenues: Coal $ 354 $ 359 General merchandise Intermodal Total railway operating revenues 1,561 1,498 Railway operating expenses: Compensation and benefits Materials, services and rents Conrail rents and services Depreciation Diesel fuel Casualties and other claims Other Total railway operating expenses 1,330 1,261 Income from railway operations Other income net Interest expense on debt (127) (134) Income from continuing operations before income taxes and accounting changes Provision (benefit) for income taxes: Current Deferred (6) 28 Total income taxes Income from continuing operations before accounting changes Discontinued operations taxes on sale of motor carrier (note 1) 10 Cumulative effect of changes in accounting principles, net of taxes (note 2) 114 Net income $ 209 $ 86 Earnings per share (basic and diluted): Income from continuing operations before accounting changes $ 0.22 $ 0.22 Discontinued operations (note 1) 0.03 Cumulative effect of changes in accounting (note 2) 0.29 Net income $ 0.54 $ 0.22 Average shares outstanding (000 s) 389, ,163 See notes to financial statements on pages 2, 4 and 5. Notes to Financial Statements 1. Discontinued Operations First-quarter 2003 results include an additional after-tax gain of $10 million, or 3 cents per share, related to the 1998 sale of NS' motor carrier subsidiary, North American Van Lines, Inc. This non-cash gain resulted from the resolution of tax issues related to the transaction. 2. Changes in Accounting Principles NS adopted Financial Accounting Standards Board (FASB) Statement No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143), effective Jan. 1, 2003, and recorded a $110 million net adjustment ($182 million before taxes) for the cumulative effect of this change in accounting on years prior to Pursuant to SFAS No. 143, the cost to remove crossties must be recorded as an expense when incurred; previously these removal costs were accrued as a component of depreciation. This change in accounting lowered depreciation expense and increased compensation and benefits expenses and other expenses for the first quarter of The net effect on total railway operating expenses and net income was not material. NS also adopted FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN No. 46), effective Jan. 1, 2003, and recorded a $4 million net adjustment ($6 million before taxes) for the cumulative effect of this change in accounting on years prior to Pursuant to FIN No. 46, NS has consolidated a special-purpose entity that leases certain locomotives to NS. This entity's assets and liabilities consist of the locomotives and debt related to their purchase. This change in accounting resulted in higher depreciation and interest expense for the quarter (to reflect the locomotives as owned assets) and lower lease expense; however, the net effect on total railway operating expenses and net income was not material. 2 / Quarterly Financial Review

4 Consolidated Statements of Income Years Ended December 31, ($ millions except per share) Notes to Financial Statements Railway operating revenues: Coal $ 1,441 $ 1,521 General merchandise 3,648 3,526 Intermodal 1,181 1,123 Total railway operating revenues 6,270 6,170 Railway operating expenses: Compensation and benefits 2,022 2,014 Materials, services and rents 1,457 1,444 Conrail rents and services Depreciation This page intentionally 515 left blank; 514 Diesel fuel Casualties and other claims Other here next quarter Total railway operating expenses 5,112 5,163 year-to-date statement will appear 1. Discontinued Operations First quarter 2001 included an additional after-tax gain of $13 million, or 3 cents per share, related to the 1998 sale of NS motor carrier subsidiary, North American Van Lines, Inc. This non-cash gain resulted from the expiration of certain indemnities contained in the sales agreement. Income from railway operations 1,158 1,007 Other income net Interest expense on debt (518) (553) Income from continuing operations before income taxes Provision for income taxes: Current Deferred Total income taxes Income from continuing operations Discontinued operations gain on sale of motor carrier, net of taxes (note 1) 13 Net income $ 460 $ 375 Earnings per share: Income from continuing operations, basic and diluted $ 1.18 $ 0.94 Net income, basic and diluted $ 1.18 $ 0.97 Average shares outstanding (000 s) 388, ,158 See notes to financial statements on pages 3 and 4. Quarterly Financial Review / 3

5 Consolidated Balance Sheets March 31, December 31, Assets Current assets: Cash and cash equivalents $ 128 $ 184 Accounts receivable net (note 3) Due from Conrail 3 6 Materials and supplies Deferred income taxes Other current assets Total current assets 1,331 1,299 Investment in Conrail 6,199 6,178 Properties less accumulated depreciation 11,772 11,370 Other assets 1,132 1,109 Total assets $ 20,434 $ 19,956 Notes to Financial Statements continued 3. Sales of Accounts Receivable A bankruptcyremote special purpose subsidiary of NS sells without recourse undivided ownership interests in a pool of accounts receivable. Accounts receivable sold under this arrangement, and therefore not included in Accounts receivable - net on the Consolidated Balance Sheets, were million at Mar. 31, 2003, and $30 million at Dec. 31, Liabilities and stockholders equity Current liabilities: Accounts payable $ 904 $ 908 Income and other taxes Due to Conrail Other current liabilities Current maturities of long-term debt Total current liabilities 2,171 1,853 Long-term debt 6,873 7,006 Other liabilities 983 1,029 Due to Conrail Minority interests Deferred income taxes 3,075 3,010 Total liabilities 13,747 13,456 Stockholders equity: Common stock $1.00 per share par value Additional paid-in capital Unearned restricted stock (8) Accumulated other comprehensive loss (68) (65) Retained income 5,876 5,694 6,707 6,520 Less treasury stock at cost, 21,169,125 shares (20) (20) Total stockholders equity 6,687 6,500 Total liabilities and stockholders equity $ 20,434 $ 19,956 See notes to financial statements on pages 2, 4 and 5. 4 / Quarterly Financial Review

6 Consolidated Statements of Cash Flows Three Months Ended March 31, Cash flows from operating activities: Net income $ 209 $ 86 Reconciliation of net income to net cash provided by operating activities: Net cumulative effect of changes in accounting principles (note 2) (114) Depreciation Deferred income taxes (6) 28 Equity in earnings of Conrail (12) (8) Gains on properties and investments (5) (28) Income from discontinued operations (note 1) (10) Changes in assets and liabilities affecting operations: Accounts receivable (note 3) (106) (140) Materials and supplies (4) (4) Other current assets and due from Conrail Current liabilities other than debt Other net (47) (55) Net cash provided by operating activities Notes to Financial Statements continued 4. Payments to Conrail Payments made to Conrail reduce NS Net cash provided by operating activities. A significant portion of these payments is borrowed back from a Conrail subsidiary. The borrowings are included in NS Net cash provided by financing activities and totaled $80 million in the first quarter of 2003 and $66 million in the first quarter of Cash flows from investing activities: Property additions (197) (189) Property sales and other transactions 3 (7) Investments, including short-term (20) (21) Investment sales and other transactions 4 11 Net cash used for investing activities (210) (206) Cash flows from financing activities: Dividends (27) (23) Common stock issued net 1 35 Proceeds from borrowings (note 4) Debt repayments (40) (42) Net cash provided by financing activities Net decrease in cash and cash equivalents (56) (40) Cash and cash equivalents: At beginning of year At end of period $ 128 $ 164 Supplemental disclosures of cash-flow information Cash paid during the period for: Interest (net of amounts capitalized) $ 72 $ 79 Income taxes $ 14 $ 27 See notes to financial statements on pages 2, 4 and 5. Quarterly Financial Review / 5

7 Consolidated Financial Information Railway Operating Revenues $1,540 $1,592 $1,593 $1,508 $1,530 $1,598 $1,498 $1,581 $1,561 Railway Operating Expenses $1,335 $1,310 $1,263 $1,261 $1,271 $1,287 $1,293 $1,330 $1,255 Income from Railway Operations $205 $282 $245 $275 $237 $322 $311 $288 $231 Income Taxes (See page 16 for details.) Deferred Current $30 $60 $45 $56 $51 $75 $63 $57 $40 $- $- $ - 6 / Quarterly Financial Review

8 Consolidated Financial Information Net Income * Excludes effect of gain on sale of motor carrier. See note 1 on page 16. ** Excludes effect of gain on sale of motor carrier and cumulative effect of changes in accounting principles. See notes 1 and 2 on page 16. $61 $107 $79 $115 $86 $119 $126 $129 $85 1* ** Earnings per Share Diluted (dollars) $- $- $- 1* ** Railway Operating Ratio (percent) Capital Expenditures (See page 16 for details.) Equipment Road $294 $131 $169 $152 $189 $156 $174 $197 $176 $ 0 Quarterly Financial Review / 7

9 Railway Operating Revenue Yield Analysis First Quarter Revenue Carloads Revenue Yield (thousands) ($ per carload) Coal $ 393 $ 359 $ $ 895 $ 901 $ 895 Agriculture/consumer/gov't ,153 1,230 1,246 Metals and construction ,027 Paper/clay/forest ,320 1,340 1,404 Chemicals ,748 1,791 1,817 Automotive ,410 1,400 1,453 General merchandise ,297 1,319 1,360 Intermodal Total $ 1,540 $ 1,498 $ 1,561 1, , ,648.0 $ 931 $ 932 $ 947 Second Quarter Coal $ 395 $ $ 903 $ 889 Agriculture/consumer/gov't ,177 1,223 Metals and construction Paper/clay/forest ,375 1,376 Chemicals ,724 1,762 Automotive ,414 1,428 General merchandise ,295 1,310 Intermodal Total $ 1,592 $ 1,593 1, ,716.5 $ 944 $ 928 Third Quarter Coal $ 366 $ $ 909 $ 900 Agriculture/consumer/gov't ,215 1,215 Metals and construction Paper/clay/forest ,376 1,379 Chemicals ,734 1,758 Automotive ,444 1,494 General merchandise ,300 1,313 Intermodal Total $ 1,508 $ 1,598 1, ,735.8 $ 929 $ 921 Fourth Quarter Coal $ 367 $ $ 881 $ 892 Agriculture/consumer/gov't ,196 1,244 Metals and construction Paper/clay/forest ,360 1,418 Chemicals ,761 1,784 Automotive ,429 1,485 General merchandise ,301 1,351 Intermodal Total $ 1,530 $ 1,581 1, ,662.0 $ 921 $ 951 Year-to-date Coal $ 1,521 $ 1,441 $ 354 1, , $ 897 $ 895 $ 895 Agriculture/consumer/gov't ,185 1,228 1,246 Metals and construction ,027 Paper/clay/forest ,357 1,378 1,404 Chemicals ,742 1,773 1,817 Automotive ,423 1,450 1,453 General merchandise 3,526 3, , , ,298 1,323 1,360 Intermodal 1,123 1, , , Total $ 6,170 $ 6,270 $ 1,561 6, , ,648.0 $ 931 $ 933 $ / Quarterly Financial Review

10 Monthly Railway Carloadings JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Coal (thousands) General Merchandise (thousands) Intermodal (units) (thousands) Quarterly Financial Review / 9

11 Railway Operating Revenue Variance Analysis First Quarter 2003 vs Coal General Merchandise Intermodal Total Amount Percent Amount Percent Amount Percent Amount Percent Revenue Variance due to: Volume $ (3) (1%) $ 21 3% $ 14 5% $ 39 2% Revenue per unit/mix (2) % 28 3% 5 2% 24 2% $ (5) (1%) $ 49 6% $ 19 7% $ 63 4% This area intentionally left blank; year-to-date analysis will appear here next quarter. Coal, Coke and Iron Ore Tonnage by Market First Quarter (tons in thousands) Change Change Change Tons vs Tons vs Tons vs Utility 34,357 18% 31,388 (9%) 31,770 1% Export 4,692 (15%) 3,625 (23%) 3,530 (3%) Steel 4,378 (30%) 4,682 7% 4,497 (4%) Industrial 2,698 3% 2,276 (16%) 2,001 (12%) 46,125 6% 41,971 (9%) 41,798 % This area intentionally left blank; year-to-date analysis will appear here next quarter. 10 / Quarterly Financial Review

12 Railway Operating Expense Variance Analysis First Quarter 2003 vs Amount of change Net Increase $69 Million 5% $16 $21 $23 $12 Unfavorable Favorable Conrail Rents and Services $3 Compensation and Benefits Other Casualties and Other Claims Materials, Services and Rents Diesel Fuel $6 Year This area intentionally left blank; 2002 year-to-date vs analysis will appear here next quarter. Amount of change $28 Unfavorable Favorable Diesel Fuel Other Conrail Rents and Services $9 $1 Depreciation $8 Compensation and Benefits $13 Materials, Services and Rents Casualties and Other Claims $22 Net Decrease $51 Million 1% $70 Quarterly Financial Review / 11

13 Compensation and Benefits Expense Analysis First Quarter 2003 vs Amount of change This Year area intentionally left blank; year-to-date 2002 vs analysis will appear here next quarter. Amount of change Benefits/$28 Benefits/$14 Net Increase $3 Million 1% Average Compensation per Hour/$18 Net Increase $8 Million % Hours/$2 Other/$8 Other/$13 Hours/$46 Diesel Fuel Expense Analysis First Quarter 2003 vs Amount of change This Year area intentionally left blank; year-to-date 2002 vs analysis will appear here next quarter. Amount of change Consumption/$5 Cost per Gallon/$23 Net Increase $23 Million 28% Cost per Gallon/$65 Net Decrease $70 Million 17% 12 / Quarterly Financial Review

14 Other Income Net Analysis First Quarter 2003 vs Amount of change Other Items Net/$13 Accounts Receivable Sale Fees/$1 Coal Royalties/$4 Gain on Sale of Property and Investments/$23 Net Decrease $13 Million 38% This area intentionally left blank; year-to-date analysis will appear here next quarter. Accounts Receivable Sale Fees/$13 Coal Royalties/$4 Gain on Sale of Property and Investments/$13 Net Decrease $33 Million 33% Other Items Net/$29 Quarterly Financial Review / 13

15 Productivity Measures Operating Revenue per Employee ($ thousands) $49.5 $51.4 $49.8 $51.6 $51.8 $55.5 $56.2 $55.9 $ Carloads per Employee Revenue Ton Miles per Employee (thousands) 1,505 1,495 1,522 1,580 1,588 1,572 1,574 1,468 1, Revenue Ton Miles per Mile of Road Operated (thousands) 2,149 2,129 2,058 2,070 2,043 2,106 2,102 2,064 2, / Quarterly Financial Review

16 Productivity Measures Operating Expense per Employee ($ thousands) $42.9 $42.3 $41.7 $42.3 $43.6 $44.3 $45.2 $45.7 $ Operating Expense per Carload (dollars) $807 $777 $778 $756 $785 $740 $741 $778 $807 Gross Ton Miles per Train Hour (thousands) Revenue Ton Miles per Train Hour (thousands) Quarterly Financial Review / 15

17 Financial, Traffic and Operating Statistics Consolidated Financial Data 2001 ($ millions except as noted) No corresponding charts for this data. First Second Third Fourth Page Item Quarter Quarter Quarter Quarter Year 6 Railway operating revenues (See page 8 for details): 8 Coal $ 393 $ 395 $ 366 $ 367 $ 1,521 8 General merchandise ,526 8 Intermodal ,123 6 Total railway operating revenues $ 1,540 $ 1,592 $ 1,508 $ 1,530 $ 6,170 6 Railway operating expenses: Compensation and benefits $ 519 $ 502 $ 478 $ 515 $ 2,014 Material (other than diesel fuel) Purchased services (other than equipment rents) Equipment rents Conrail rents and services Depreciation Diesel fuel Casualties and other claims Other Total railway operating expenses $ 1,335 $ 1,310 $ 1,263 $ 1,255 $ 5,163 6 Income from railway operations $ 205 $ 282 $ 245 $ 275 $ 1,007 Other income (expense) $ (114) $ (115) $ (121) $ (104) $ (454) Income before income taxes $ 91 $ 167 $ 124 $ 171 $ Income taxes current $ 66 $ 20 $ $ 61 $ Income taxes deferred (36) (5) 44 6 Total income taxes $ 30 $ 60 $ 45 $ 56 $ Net income (notes 1 and 2) $ 61 $ 107 $ 79 $ 115 $ Earnings per share - diluted (dollars) (notes 1 and 2) $ 0.16 $ 0.28 $ 0.20 $ 0.30 $ Railway operating ratio Capital expenditures: Equipment $ 172 $ 22 $ 9 $ 27 $ 230 Road Total $ 294 $ 131 $ 169 $ 152 $ 746 Cash and short-term investments $ 55 $ 47 $ 134 $ 204 $ 204 Total debt, excluding notes payable to Conrail $ 7,841 $ 7,701 $ 7,668 $ 7,632 $ 7,632 Debt-to-total capitalization (percent) Shares outstanding end of period (thousands) 384, , , , ,832 Note 1 Note 2 First quarter 2003 excludes the effect of a $10 million, or 3 cents per share, gain on the 1998 sale of NS' motor carrier subsidiary, North American Van Lines, Inc. (See note 1 on page 2 for additional details.) First quarter 2001 excludes the effect of a $13 million, or 3 cents per share, gain on this sale, resulting from the expiration of certain indemnities contained in the sales agreement. First quarter 2003 excludes $114 million ($188 million before taxes) related to required changes in accounting principles stemming from NS' adoption of Financial Accounting Standards Board (FASB) Statement No. 143, "Accounting for Asset Retirement Obligations" and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." See note 2 on page 2 for additional details. 16 / Quarterly Financial Review

18 First Second Third Fourth First Second Third Fourth Year- Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Quarter to-date $ 359 $ 350 $ 371 $ 361 $ 1,441 $ 354 $ $ $ $ , , $ 1,498 $ 1,593 $ 1,598 $ 1,581 $ 6,270 $ 1,561 $ $ $ $ 1,561 $ 523 $ 497 $ 489 $ 513 $ 2,022 $ 526 $ $ $ $ $ 1,261 $ 1,271 $ 1,287 $ 1,293 $ 5,112 $ 1,330 $ $ $ $ 1,330 $ 237 $ 322 $ 311 $ 288 $ 1,158 $ 231 $ $ $ $ 231 $ (100) $ (128) $ (122) $ (102) $ (452) $ (106) $ $ $ $ (106) $ 137 $ 194 $ 189 $ 186 $ 706 $ 125 $ $ $ $ 125 $ 23 $ 33 $ (6) $ 18 $ 68 $ 46 $ $ $ $ (6) (6) $ 51 $ 75 $ 63 $ 57 $ 246 $ 40 $ $ $ $ 40 $ 86 $ 119 $ 126 $ 129 $ 460 $ 85 $ $ $ $ 85 $ 0.22 $ 0.31 $ 0.32 $ 0.33 $ 1.18 $ 0.22 $ $ $ $ #DIV/0! #DIV/0! #DIV/0! 85.2 $ 76 $ 23 $ 43 $ 23 $ 165 $ 100 $ $ $ $ $ 189 $ 156 $ 174 $ 176 $ 695 $ 197 $ $ $ $ 197 $ 164 $ 94 $ 132 $ 184 $ 184 $ 128 $ $ $ $ 128 $ 7,656 $ 7,444 $ 7,383 $ 7,364 $ 7,364 $ 7,489 $ $ $ $ 7, , , , , , , ,377 Quarterly Financial Review / 17

19 Financial, Traffic and Operating Statistics Traffic and Operating Statistics 2001 No corresponding charts for this data. First Second Third Fourth Page Item Quarter Quarter Quarter Quarter Year 8 Railway carloads (thousands) (See page 8 for details): 8 Coal , General merchandise , Intermodal , Total railway carloads 1, , , , ,625.0 Revenue ton miles (RTMs) (billions): Coal General merchandise Intermodal Total Revenue (dollars) per thousand RTMs: Coal $ $ $ $ $ General merchandise $ $ $ $ $ Intermodal $ $ $ $ $ Total $ $ $ $ $ Railway Statistical Data Gross ton miles (GTMs) (billions) Revenue ton miles (RTMs) (billions) Railroad employees (average) 31,086 30,988 30,290 29,675 30,510 Total operating expense (dollars) per thousand GTMs $ $ $ $ $ Compensation and benefits (dollars) per thousand GTMs $ 5.83 $ 5.62 $ 5.65 $ 6.00 $ 5.77 Total operating expense (dollars) per thousand RTMs $ $ $ $ $ Compensation and benefits (dollars) per thousand RTMs $ $ $ $ $ Total operating revenue ($ thousands) per employee $ 49.5 $ 51.4 $ 49.8 $ 51.6 $ Total operating expense ($ thousands) per employee $ 42.9 $ 42.3 $ 41.7 $ 42.3 $ GTMs (thousands) per employee 2,862 2,881 2,795 2,893 11, RTMs (thousands) per employee 1,505 1,495 1,468 1,504 5, Carloads per employee RTMs (thousands) per mile of road operated 2,149 2,129 2,058 2,070 8, Total operating expense (dollars) per carload $ 807 $ 777 $ 778 $ 756 $ 779 Compensation and benefits (dollars) per carload $ 314 $ 298 $ 294 $ 310 $ 304 RTMs (thousands) per carload Diesel fuel consumed (thousands of gallons) 127, , , , ,644 Average price (cents) per gallon of diesel fuel RTMs per gallon of fuel consumed GTMs (thousands) per train hour RTMs (thousands) per train hour Percent of loaded-to-total car miles Total new crossties installed (thousands) ,544 Total track miles of rail laid (miles) / Quarterly Financial Review

20 First Second Third Fourth First Second Third Fourth Year- Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Quarter to-date , , , , , , , , , , $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ ,909 28,677 28,456 28,306 28,587 28,259 28,259 $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ $ 6.22 $ 5.69 $ 5.68 $ 6.02 $ 5.90 $ 6.19 $ #DIV/0! $ #DIV/0! $ #DIV/0! $ 6.19 $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ $ $ $ $ $ $ $ #DIV/0! $ #DIV/0! $ #DIV/0! $ $ 51.8 $ 55.5 $ 56.2 $ 55.9 $ $ 55.2 $ #DIV/0! $ #DIV/0! $ #DIV/0! $ 55.2 $ 43.6 $ 44.3 $ 45.2 $ 45.7 $ $ 47.1 $ #DIV/0! $ #DIV/0! $ #DIV/0! $ ,910 3,045 3,025 3,012 11,992 3,007 #DIV/0! #DIV/0! #DIV/0! 3,007 1,522 1,580 1,588 1,572 6,262 1,574 #DIV/0! #DIV/0! #DIV/0! 1, #DIV/0! #DIV/0! #DIV/0! ,043 2,106 2,102 2,064 8,315 2,065 #DIV/0! #DIV/0! #DIV/0! 2,065 $ 785 $ 740 $ 741 $ 778 $ 761 $ 807 $ #DIV/0! $ #DIV/0! $ #DIV/0! $ 807 $ 326 $ 290 $ 282 $ 309 $ 301 $ 319 $ #DIV/0! $ #DIV/0! $ #DIV/0! $ #DIV/0! #DIV/0! #DIV/0! , , , , , , , #VALUE! #VALUE! #VALUE! , Quarterly Financial Review / 19

21 Supplemental Financial Information The information on this page is an alternative, pro forma presentation of Norfolk Southern and Conrail financial data intended to assist investors in analyzing Norfolk Southern s financial performance. Such information is not in the format filed with the Securities and Exchange Commission and does not conform to generally accepted accounting principles. Investors are urged to review such information in light of financial statements filed with the Securities and Exchange Commission. Norfolk Southern has a 58% economic interest and a 50% voting interest in Conrail, and conducts rail operations over a portion of Conrail s system pursuant to an operating agreement. EBITDA calculations and other pro forma combinations of Norfolk Southern and Conrail financial data are not intended to suggest that Norfolk Southern has the right to utilize Conrail s assets other than pursuant to the foregoing operating agreement. Pro Forma Combined Earnings Before Interest, Taxes, Depreciation and Amortization (Includes NS and 58% of Conrail Inc.) Unaudited Unaudited Three months ended December 31, Years ended December 31, Norfolk Southern Corporation Operating income $ 288 $ 275 $ 1,158 $ 1,007 Other income - net Depreciation and amortization Less: Equity in Conrail earnings (22) (13) (54) (44) EBITDA, excluding equity in Conrail earnings ,699 1,589 Conrail Inc. Operating income - 58% Other income - net - 58% Depreciation and amortization - 58% EBITDA - 58% Pro Forma Combined EBITDA $ 529 $ 531 $ 2,098 $ 1, / Quarterly Financial Review