Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

Third Quarter

First Nine Months

2013

2012

2013

2012

(in millions, except per share amounts)

Railway operating revenues

Coal

$

641

$

701

$

1,902

$

2,222

General merchandise

1,578

1,425

4,696

4,477

Intermodal

605

567

1,766

1,657

Total railway operating revenues

2,824

2,693

8,364

8,356

Railway operating expenses

Compensation and benefits

735

724

2,241

2,234

Purchased services and rents

420

403

1,223

1,186

Fuel

390

379

1,210

1,182

Depreciation

230

230

683

683

Materials and other

200

226

631

661

Total railway operating expenses

1,975

1,962

5,988

5,946

Income from railway operations

849

731

2,376

2,410

Other income – net (note 1)

30

33

194

93

Interest expense on debt

131

124

388

366

Income before income taxes

748

640

2,182

2,137

Provision for income taxes

Current

194

97

570

522

Deferred

72

141

215

279

Total income taxes

266

238

785

801

Net income

$

482

$

402

$

1,397

$

1,336

Earnings per share (notes 1 & 2)

Basic

$

1.55

$

1.26

$

4.45

$

4.12

Diluted

1.53

1.24

4.40

4.07

Weighted average shares outstanding (note 3)   

Basic

310.4

317.7

313.0

322.9

Diluted

313.9

321.8

316.6

327.4

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

Third Quarter

First Nine Months

2013

2012

2013

2012

($ in millions)

Net income

$

482

$

402

$

1,397

$

1,336

Other comprehensive income, before tax:

Pension and other postretirement benefits

38

33

110

97

Other comprehensive income (loss) of equity  

investees

-

-

2

(4)

Other comprehensive income, before tax

38

33

112

93

Income tax expense related to items of other   

comprehensive income

(15)

(13)

(43)

(38)

Other comprehensive income, net of tax

23

20

69

55

Total comprehensive income

$

505

$

422

$

1,466

$

1,391

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

September 30,

December 31,

2013

2012

($ in millions)

Assets

Current assets:

Cash and cash equivalents

$

984

$

653

Short-term investments

20

15

Accounts receivable - net

1,083

1,109

Materials and supplies

224

216

Deferred income taxes

149

167

Other current assets

34

82

Total current assets

2,494

2,242

Investments

2,395

2,300

Properties less accumulated depreciation of $10,271 and

$9,922, respectively

26,413

25,736

Other assets

63

64

Total assets

$

31,365

$

30,342

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

1,267

$

1,362

Short-term debt

-

200

Income and other taxes

241

206

Other current liabilities

377

263

Current maturities of long-term debt

447

50

Total current liabilities

2,332

2,081

Long-term debt

8,499

8,432

Other liabilities

2,166

2,237

Deferred income taxes

8,074

7,832

Total liabilities

21,071

20,582

Stockholders' equity:

Common stock $1.00 per share par value, 1,350,000,000 shares  

authorized; outstanding 308,910,329 and 314,034,174 shares,

respectively, net of treasury shares

310

315

Additional paid-in capital

1,979

1,911

Accumulated other comprehensive loss

(1,040)

(1,109)

Retained income

9,045

8,643

Total stockholders' equity

10,294

9,760

Total liabilities and stockholders' equity

$

31,365

$

30,342

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

First Nine Months

2013

2012

($ in millions)

Cash flows from operating activities

Net income

$

1,397

$

1,336

Reconciliation of net income to net cash provided by operating activities:  

Depreciation

687

688

Deferred income taxes

215

279

Gains and losses on properties and investments (note 1)

(100)

(4)

Changes in assets and liabilities affecting operations:

Accounts receivable

26

(56)

Materials and supplies

(8)

(27)

Other current assets

48

43

Current liabilities other than debt

121

183

Other – net

18

34

Net cash provided by operating activities

2,404

2,476

Cash flows from investing activities

Property additions

(1,470)

(1,522)

Property sales and other transactions

109

47

Investments, including short-term

(29)

(14)

Investment sales and other transactions

21

37

Net cash used in investing activities

(1,369)

(1,452)

Cash flows from financing activities

Dividends

(476)

(467)

Common stock issued – net

92

77

Purchase and retirement of common stock (note 3)

(564)

(1,150)

Proceeds from borrowings – net

492

1,291

Debt repayments

(248)

(358)

Net cash used in financing activities

(704)

(607)

Net increase in cash and cash equivalents

331

417

Cash and cash equivalents

At beginning of period

653

276

At end of period

$

984

$

693

Supplemental disclosures of cash flow information

Cash paid during the period for:

Interest (net of amounts capitalized)

$

305

$

297

Income taxes (net of refunds)

485

536

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Other Income — Net    
          In first quarter 2013, we recognized a $97 million gain on a land sale, which increased net income by 
    $60 million or $0.19 per share.

2. Earnings Per Share
          For basic earnings per share, income available to common stockholders reflects reductions for the
    effect of dividend equivalent payments made to holders of stock options and restricted stock units as follows: 
    for the third quarter, $2 million in 2013 and $3 million in 2012; and for the first nine months, $5 million in 2013
    and $7 million in 2012.      
          For diluted earnings per share, income available to common stockholders reflects reductions for the
    effect of dividend equivalent payments made to holders of stock options and restricted stock units as follows: 
    for the third quarter, $1 million in both 2013 and 2012; and for the first nine months, $3 million in both 2013
    and 2012.

3. Stock Repurchase Program
          We repurchased and retired 7.5 million shares of common stock in the first nine months of 2013, at a cost
    of $564 million, and 16.5 million shares at a cost of $1.2 billion for the same period of 2012.  On August 1, 2012,
    our Board of Directors authorized the repurchase of up to an additional 50 million shares of common stock
    through December 31, 2017.  The timing and volume of purchases is guided by our assessment of market
    conditions and other pertinent factors.  Any near-term share repurchases are expected to be made with
    internally generated cash, cash on hand, or proceeds from borrowings.  Since the beginning of 2006, we
    have repurchased and retired 135.9 million shares at a total cost of $8.1 billion.