Norfolk Southern Annual Report 2005

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FY2005 Annual Report · Norfolk Southern

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Norfolk Southern Corporation Annual Report 2005

Strong Legacy,
Strong Legacy,
Bright Future
Bright Future

System Map

Norfolk Southern Railway and its
Railroad Operating Subsidiaries

NS Trackage/Haulage Rights

Meridian Speedway

Heartland Corridor

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Description of Business

Norfolk Southern Corporation

is a
Norfolk, Va.-based company that controls
a major freight railroad, Norfolk Southern
Railway Company. The railway operates ap-
proximately 21,200 route miles in 22 east-
ern states, the District of Columbia and On-
tario, Canada, serves all major eastern ports
and connects with rail partners in the West
and Canada, linking customers to markets
around the world. Norfolk Southern pro-
vides comprehensive logistics services and
offers the most extensive intermodal net-
work in the East.

Financial Highlights

($ in millions, except per share amounts)

financial results
Railway operating revenues
Income from railway operations
Railway operating ratio
Net Income
Earnings per share

Basic
Diluted

financial position
Total assets
Total debt
Stockholders’ equity
Debt to total capitalization ratio
Stockholders’ equity per share

other information
Year-end stock price
Dividends per share
Price/earnings ratio at year end
Number of shareholders at year end
Shares outstanding at year end
Number of employees at year end

$
$

$
$
$

$
$

2004

7,312
1,702
76.7%
9231

2.341
2.311

24,750
7,525
7,990
48.5%
19.95

36.19
0.36
15.7
51,032
400,438,982
28,986

2005

% Increase
(Decrease)

$
$

$
$
$

$
$

8,527
2,117
75.2%
1,2812

3.172
3.112

25,861
6,930
9,289
42.7%
22.66

44.83
0.48
14.4
48,180
409,885,788
30,433

17
24
(2)
39

35
35

4
(8)
16
(12)
14

24
33
(8)
(6)
2
5

1 Results in 2004 include a $53 million net gain from the Conrail corporate reorganization, which increased net income by $53 million, or 13 cents per
diluted share.
2 Results in 2005 include a $96 million reduction of NS’ defered income tax liabilities resulting from tax legislation enacted by Ohio, which increased net
income by $96 million, or 23 cents per diluted share.

Contents

David Goode’s Letter to Stockholders ..................................................................................................................... 2
Wick Moorman’s Letter to Stockholders ................................................................................................................ 5
Bell Heralds Norfolk Southern’s Best Year On Its 175th Anniversary ............................................................. 6
Robust Freight Demand Spurs Record Volume, Revenue ............................................................................... 10
Innovation Builds Operating Capacity ................................................................................................................. 16
Rail: The Environmentally Friendly Transportation Choice ........................................................................... 19
In Katrina’s Wake, Norfolk Southern Shows Its Spirit ...................................................................................... 20
Financial Overview ................................................................................................................................................... 22
Five-Year Financial Review ...................................................................................................................................... 23
Consolidated Statements of Income ..................................................................................................................... 24
Consolidated Balance Sheets .................................................................................................................................. 25
Quarterly Financial Data .......................................................................................................................................... 26
Board of Directors ..................................................................................................................................................... 27
Officers ......................................................................................................................................................................... 28
Form 10-K Report ..................................................................................................................................................... K1
Stockholder Information ............................................................................................ inside back cover

Equal Employment
Opportunity Policy

Norfolk Southern

Corporation’s policy
is to comply with
all applicable laws,
regulations and executive
orders concerning equal
employment opportunity
and nondiscrimination and
to offer employment on the
basis of qualification and
performance, regardless of
race, religion, color, national
origin, gender, age, sexual
orientation, veteran status,
the presence of a disability or
any other legally protected
status.

Credits: design Mary McNeeley, Amber Nussbaum, Steven Spencer, Frank Wright editorial Allison Enedy, Rick Harris, Andrea Just photography Wes Cheney, Chris Little,
John Stanovich printing & manufacturing Progress Press, Inc., Roanoke, Va.

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Dear fellow

Shareholders

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5t his was an exceptional year

We posted record net income and

earnings per share. Revenues and

carloads both were all-time highs.

We continued to make progress

for Norfolk Southern.

in our operating ratio, improving our

margins by 1.5 points.

Norfolk Southern people once again

– for the 16th consecutive year – had the

safest work place in the transportation

industry and one of the safest in all

industries.

These are basic goals

for us, and 2005 was a

year our people did well.

Service was challenged

by a number of factors,

principally hurricanes and

other extraordinary weather

events. Still, strong service

levels were maintained

for our customers. We

implemented technology

innovations to handle our

increasing business levels as both coal

Overall, the year was a fine success.

and intermodal volumes continued

At the same time, it was marked by the

their strong upward trend, as did most

tragic accident at Graniteville, S.C. We

commodity groups.

also had to cope with hurricanes Katrina

and Rita and finished the year with

ice storms. Throughout all difficulties,

NS people responded well, and that

commitment made the year possible.
Growth

A retiring CEO inevitably looks

back. As I think of where we’ve been, the

hallmark of the last several years clearly

has been growth and the dramatic

changes our company has made to

position ourselves to benefit by it.

We’re much better off to

compete now than when I became

CEO in 1992. We’re not just

bigger in revenue and profit. We

have scope, and that required a

lot of change since 1992. As the

economy changed, we had to

transform ourselves into a much

more nimble, service-driven

David Goode

organization. At the same time, we had

Our railroad ancestors understood

surpassed it by a significant margin. So

to make strategic moves to make sure we

that transportation is a powerful force

for 2005, we had a goal for our company

had geographic and market access to do

for the economy. This is a company that’s

to be a 10. That meant reaching $8

business in the changing world.

important to our nation. We always have

billion in revenues and achieving a 2-

The company looks nothing like it

driven growth, not only for ourselves,

point improvement in margins – again

did when I joined Norfolk and Western

but for our communities and beyond

quite a stretch. Of course, a glance at the

Railway 40 years ago. We were then

– and thereby have produced better and

financial table shows how well the 8 part

regional. We were driven by coal. We

better returns for our investors. The 175-

was achieved, and we had a strong run at

were a small, tight organization with

year culture of Norfolk Southern has

the 2, with a 1.5 percent reduction in the

little diversity. Our horizons were much

been always to move ahead, to find new

operating ratio.

smaller, but we were led – as we always

have been – by people who dreamed of

bigger and better things.

Over time, we built ourselves into

a company of national – indeed global –

strength and recognition. We have been

admired consistently for safety and

efficiency. We have earned a reputation

for being an ethical, transparent

organization known for fair dealing and

for doing what we say we will. We’ve

added technology, innovation and a

commitment to diversity to the mix,

along with a passion for safety and service

– all of which have set us up for growth.

Our 175th anniversary finds us

excelling in the values that have made a

great organization not just endure, but

grow and prosper.

That should not come as a surprise

to those more familiar with the history

and culture of our company. We are,

The Norfolk Southern

story is one of great

people in a great

organization getting

the job done for

the nation as a key

and growing part

of the essential

transportation system

that makes the

economy strong.

My point is simply this: Norfolk

Southern and its people can produce

impressive results and grow significantly.

We’ve proven it consistently. Given

today’s economy and business

environment, we are in the best position

in our 175-year history to move ahead

with even greater momentum. We’re 175

years old and just beginning.

The opportunity is clearer than

it ever has been. Indeed, the story

we’ve believed in is now well known,

and it’s discussed in this report.

Fuel costs are pervasively high. Rail

offers environmental advantages.

Demographics limit highway

movements in spite of new investment.

Technology and innovation in rail

puts Norfolk Southern on the cutting

edge. Consumer goods increasingly are

moving to markets in a global economy.

Demand is coming our way. A company

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after all, the children of our founders,

horizons and along the way spread some

like ours, which consistently has proven

who gave their early companies names

powerful forces for good.

it has the talented people, the capacity

like Atlantic, Mississippi and Ohio when

So it is in the present. Leading

and the vision to seize the opportunity,

they were still bound by Virginia alone

up to 2004, I set a goal for NS people

can achieve the dream we talk about

and indeed by the eastern half. We have

that we called “7 plus 7” – revenues

in our vision statement to be the most

taken the values of our predecessors and

beginning with a 7, and an operating

successful transportation company.

really have created that strong bloodline

ratio returning to a number that started

The year 2005 to me exemplifies what

that now puts us in position to be the

with a 7. A glance back will remind what

our company is all about – moving ahead

recognized leader in our industry.

a stretch that looked like, but our people

and making opportunity even in spite of

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Wick Moorman, left, succeeds David Goode as head of Norfolk Southern. Goode retired in 2006 after an illustrious 40-year railroad career.

adversity. Certainly, the January tragedy in

events of the year show in my mind is

more efficient service, with the will and

South Carolina tested our resources and

that the momentum of a strong culture

backing of a tradition of excellence.

our people. We stand boldly as the safest

backed by 175 years of moving forward

As I retire after 40 years in the

transportation company. We have led the

can get the job done. We have kept the

business, I am very confident in our

industry for 16 years. Safety is and always

spirit and focus and family values that

company. It has been the highest honor

will remain the hallmark of all we do.

have built a strong company.

and the greatest personal satisfaction

Yet, the tragedy occurred. After first and

The Norfolk Southern story is one

to lead Norfolk Southern. Even more, it

foremost doing all we could to remediate

of great people in a great organization

has been a remarkable privilege to serve

the damage and help the recovery, we

getting the job done for the nation as

with the finest people in business today

have taken the tragic events and have

a key and growing part of the essential

– Norfolk Southern Thoroughbred

done all we can to learn from them, to

transportation system that makes the

people. With the strong leadership of

improve and to rededicate ourselves to

economy strong. Our progress has not

Wick Moorman and his team, they will

an even stronger commitment to safety.

been an unbroken upward curve, but

take us to a great future.

Furthermore, we saw at Graniteville and

we have always moved ahead to a better

later in the year when we had hurricane

tomorrow.

damage of historic scope, the ability of

As 2006 begins, our company and

Norfolk Southern people to step up and

people have never been in better shape

lead in recovery.

for a successful future. We have the

The story of Katrina as it affected NS

capacity, geography and position to

and our response is told in this report

prosper. More important, we have people

and the DVD enclosed. To say I was

and culture tested by adversity, propelled

proud of our people in a difficult time

by a commitment always to improve and

and task is only the surface. What the

focus on the customer and better and

Dear fellow

Shareholders

remarkable year for Norfolk Southern.

2 005 marked another

slightly lower rate. Our ability to set

The growth in rail traffic that began

prices reflecting the higher value of

our service delivery also continued

in late 2003 continued at only a

continue growing and prospering. We

Finally, we will continue to focus on

are focused intently on improving our

Norfolk Southern’s single biggest asset,

service product.

our people. I firmly believe that our

The second theme is technology.

company has the most talented team

We have made great strides in recent

from top to bottom of any railroad. We

years by implementing new systems that

plan to increase our efforts to ensure that

unabated. What we first attributed to

a rebound in the industrial economy

now clearly seems to be the result of a

number of factors that are changing the

underlying structure of the U.S. surface

transportation industry. These factors,

which include driver shortages, highway

congestion and higher fuel prices, are

limiting trucking capacity and increasing

trucking costs. The result has been a

great opportunity for us to grow volumes

and increase margins. In 2005, the

people of Norfolk Southern seized that

opportunity. While our company always

will be tied to the economy, it seems

evident that the favorable economics

of rail transportation will continue to

gain traction in the marketplace. Our

company will be ready to capitalize on

our advantages.

While our company

always will be tied

to the economy, it

seems evident that the

favorable economics

of rail transportation

will continue to

gain traction in the

marketplace. Our

company will be ready

to capitalize on our

advantages.

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we are recruiting, training and retaining

a strong and diverse work force.

All of these efforts will require

investment, and in 2006, we will

continue to make that investment. In

many ways, our current success is related

directly to the investments made in

past years. Our company always has

had the good fortune to be managed

by leaders who took the long view, and

we will continue to manage with that

perspective.

Finally, on a personal note, it is a

great honor and privilege for me to have

the opportunity to lead our company.

Norfolk Southern has a 175-year history

of great leaders, not the least of whom is

David Goode. Looking ahead, the senior

management team and I are excited

about the opportunities and will work as

hard as we can to justify your confidence

As you look through this report, you

have improved decision-making and

in our company.

will see three recurring themes that I

performance measurement. Now, with

believe are the drivers for our future

the development and implementation

success. The first is service. Providing

of the Unified Train Control System

superior transportation service to

and Optimized Train Control, we can

our customers is essential if we are to

redefine the way the railroad is operated.

Bell Heralds

Norfolk Southern’s

Best Year
On Its175th Anniversary

Norfolk Southern rang

the bell on Wall Street
in 2005.

hairman David Goode opened

trading at the New York Stock Exchange

Dec. 12, heralding Norfolk Southern’s

most successful year on its 175th

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anniversary.

A shiny red and green replica of the

first locomotive of Norfolk Southern’s

earliest predecessor added pageantry

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to the celebration outside the stock

exchange. Inside, the traditional opening

bell clanged to the smiles and applause

of Goode and other NS executives

assembled on the podium above the

trading floor.

A replica of the Best Friend of Charleston adorns the entrance to the New York Stock Exchange
for the Norfolk Southern bell-ringing ceremony Dec. 12. NS employees Rhonda Broom, manager
advertising and promotions, and Robin Chapman, manager public relations, both of Norfolk, join
the festivities in period costumes.

The ceremony evoked past and

safety and financial performance while

Harriman Gold Medal for posting

future: the Best Friend symbolizing

hauling record volumes of freight. At

the lowest injury ratio among the

Norfolk Southern’s storied heritage; the

175, Norfolk Southern is running strong.

biggest railroads. A Norfolk Southern

opening bell saluting the enduring value

2005 was a bellwether:

conductor, Tom Mulligan of Decatur,

of the Thoroughbred of Transportation.

The Best Friend and the South

• Wick Moorman assumed leadership
of the company and succeeded Goode as

Carolina Canal and Rail Road Company

achieved many firsts in the 1830 dawn of

American railroading. Norfolk Southern

president and chief executive officer.
• Norfolk Southern led the industry in
employee safety for the 16th consecutive

Ill., received singular recognition among

all American railroad employees as

recipient of the Harold F. Hammond

Award for outstanding individual safety

achievement.

in 2005 reached multiple milestones in

year, earning another coveted

(continued on page 8)

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

$107

$5,297

$1,171

$107

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

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$1,521

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STOCK PRICES

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE
($ MILLIONS)

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGES (DOLLARS)

$1.35

$0.30

$1.051

$0.13

$0.23

$2.88

$2.18

$2.312

$3.113

In Washington, D.C., to receive Norfolk Southern’s
record 16th consecutive E.H. Harriman Gold
Medal Award for employee safety are (1) Donnie
Nauman, locomotive engineer, Waynesboro, Va.;
(2) Debbie Butler, vice president customer service,
Atlanta; (3) Larry Rakestraw, word processing
operator, casualty claims, Roanoke; (4) Thomas
Mulligan, conductor, Decatur, Ill., and winner
of the Harold F. Hammond Award for individual
safety achievement; (5) Bessie Patrick, head clerk,
miscellaneous accounting, Atlanta; (6) Christine
Wardlow, clerk, intermodal, Chicago; (7) Gary
Woods, vice president engineering, Atlanta; (8)
Louise Myers, secretary/credit clerk, treasury,
Roanoke; (9) Diran Johnson, chief crew dispatcher,
Atlanta; (10) Eddie Barnett, secretary, material
management, Roanoke; (11) Jeffrey Dolby, fore-
man, bridges and buildings, Harrington, Del.; (12)
Mike Petrowsky, carman, Decatur, Ill.; (13) Steve
Tobias, vice chairman and chief operating officer,
AUTOMOTIVE REVENUE ($ MILLIONS)
Norfolk; (14) Steve Grabill, sheet metal worker, me-
chanical, Enola, Pa.; (15) Harry Harman, computer
operator, information technology, Roanoke; (16)
Tom Owens, telephone maintainer, communica-
tions and signals, Knoxville, Tenn.; (17) Ken Strong,
clerk, Central Yard Office, Atlanta; (18) Gerhard
Thelen, vice president mechanical, Atlanta; (19)
John Samuels, senior vice president operations
planning and support, Norfolk; (20) Barry Wells,
director safety, Roanoke; (21) Andy Corcoran,
senior general attorney, Norfolk; (22) James Mc-
Graw, yardmaster, Pitcairn, Pa.; (23) Jim Cornely,
timekeeper, payroll, Roanoke; (24) Jeff Germany,
carman, Macon, Ga.; (25) Chuck Wehrmeister, vice
president safety and environmental, Roanoke; and
(26) David Miller, truck operator, maintenance of
01
03
way, Crewe, Va.

$885

$961

$954

$997

$936

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

(PERCENT)

$8,4362

$804

$8,1382

$7,8932

$774

$733

58.12

2.5

55.62

53.12

2.5

2.4

DIVIDENDS PER SHARE (DOLLARS)

Best Year

($ MILLIONS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

$96

$1,185

$53

$870

$530

$119

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

1.6

81.9

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

$738

$755

$772

$864

$973

$674

$692

$699

$7,6321

$818

$7,3641

$978

$7,1601

$7,525

$1,521

$6,930

$1,441

$1,500 $1,728 $2,115

$654

$803

$1,054

$6,170 $6,270

$1,661 $2,105

$6,468 $7,312 $8,527

55.61

53.11

$5,163

50.71

$5,112

48.5

$5,4041

42.7

$5,610 $6,410

$8,4362

$804

$8,1382

$7,8932

$774

$733

58.12

2.5

55.62

53.12

2.5

2.4

$107

$5,297

1.6

$1,171

81.9
$107

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

LONG TERM DEBT ($ MILLIONS)

COAL REVENUE ($ MILLIONS)

CASH PROVIDED BY OPERATING

RAILWAY OPERATING REVENUES

DEBT TO TOTAL CAPITALIZATION RATIO

RAILWAY OPERATING EXPENSES

($ MILLIONS)

ACTIVITIES ($ MILLIONS)

($ MILLIONS)

(PERCENT)

($ MILLIONS)

DIVIDENDS PER SHARE (DOLLARS)

RAILWAY OPERATING RATIO (PERCENT)
INCOME FROM RAILWAY OPERATIONS
($ MILLIONS)

NET INCOME ($ MILLIONS)

INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES
($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)
DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGES (DOLLARS)

01
01

02
02

03
03

04
04

05
05

01
01

02
02

03
03

04
04

05
05

01
01

02
02

03
03

04
04

05
05

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

$375
$362

$460
$460

$5351
$4111

$9232
$9232

$1,2813
$1,2813

$746
$0.94

$695
$1.18

$720
$1.051

$1,041 $1,025
$2.312
$3.113

$0.24

83.7
81.5
$0.26
$1,007 $1,158

$0.30

83.51
$1,0641

$0.36

76.7
75.2
$0.48
$1,702 $2,117

INTERMODAL REVENUE ($ MILLIONS)

AUTOMOTIVE REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &
GOVERNMENT REVENUE ($ MILLIONS)

1 2003 results include $107 million of costs related to a voluntary separation program and an $84 million charge to recognize the impaired value of
certain telecommunications assets. Together, these items reduced income from continuing operations before accounting changes and net income by
$119 million, or 30 cents per diluted share. 2003 net income includes a benefit of $114 million, or 29 cents per diluted share, from the cumulative effect
of two accounting changes and income from discontinued operations of $10 million, or 3 cents per diluted share.
2 2004 results include a $53 million gain from the Conrail corporate reorganization, which increased income from continuing operations before
accounting changes and net income by $53 million, or 13 cents per diluted share.
3 2005 results include a $96 million reduction of NS’ deferred income tax liabilities resulting from tax legislation enacted by Ohio, which increased
income from continuing operations before accounting changes and net income by $96 million, or 23 cents per diluted share.

PAPER, CLAY & FOREST PRODUCTS
REVENUE ($ MILLIONS)

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

$107

$5,297

$1,171

$107

1.6

81.9

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

$107

$5,297

$1,171

$107

matured in 1994 and 1996. Norfolk

Southern continued its program of

1 Excludes notes payable to Conrail.
2 Includes 58 percent of Conrail debt.

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

83.7

53.11

81.5

50.71

83.51

48.5

76.7

42.7

75.2

$375
$0.24

$460
$0.26

$5351
$0.30

$9232
$0.36

$1,2813
$0.48

$7,6321

$746

$7,3641
$362

$695

$7,1601
$460

$720

$4111
$7,525

$1,041 $1,025
$9232
$6,930

$1,2813

$654

$0.94

$803

$1.18

$1,054

$1.051

$2.312
$1,661 $2,105

$3.113

01
01

02
02

03
03

04
04

05
05

02
01

03
02

04
03

05
04

01
01

02
02

05
04

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

(PERCENT)

DEBT TO TOTAL CAPITALIZATION RATIO

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)
DIVIDENDS PER SHARE (DOLLARS)

LONG TERM DEBT ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)
INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES
($ MILLIONS)

CASH PROVIDED BY OPERATING
ACTIVITIES ($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGES (DOLLARS)
STOCK PRICES

$8,4362

$804

$8,1382

$7,8932

$774

$733

$96

$1,185

$53

$870

$530

$119

$26.98

$19.99
$17.20

$24.11

$18.33

$13.41

$36.69
$36.19

$0.23

$36.69
$36.19

$24.62
$23.65

$0.13

$2.88

$2.18

$20.38

$1.35

$17.35

$0.30

$8,4362

$804

$8,1382

$7,8932

$774

$733

58.12

2.5

55.62

53.12

2.5

1.6

2.4

81.9

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

($ MILLIONS)

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

1.6

81.9

INTERMODAL REVENUE ($ MILLIONS)

• Norfolk Southern handled record
volumes of business in 2005.
• Railway operating revenues
increased by 17 percent over 2004 to a

record $8.5 billion, surpassing $8 billion

for the first time. Through fourth quarter

AGRICULTURE, CONSUMER PRODUCTS &
GOVERNMENT REVENUE ($ MILLIONS)

• Norfolk Southern’s credit ratings
continued to be among the best in the

PAPER, CLAY & FOREST PRODUCTS
REVENUE ($ MILLIONS)

AUTOMOTIVE REVENUE ($ MILLIONS)

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

industry. Standard & Poor’s raised the

company’s rating to BBB+ in 2005.
• Norfolk Southern announced a stock
buy-back program for up to 50 million

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING
ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$603

$634

$684

$793

$885

$961

$936

$954

$997

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

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2005, Norfolk Southern reported record

shares of common stock through the end

$1,239 $1,537 $1,826

revenues for nine consecutive quarters.
• Net income was a record $1.3 billion.
$1,181
$617
Earnings per share were a record $3.11.
05
• Shareholders benefited from two
dividend increases that together raised

of 2015.
• A $300 million issue of 100-year
$637
$612
notes offered by the company in March
05

$688

$845

$727

was well received by the market,

reflecting the endurance, permanence

$8,4362

$804

$8,1382

$7,8932

$774

$733

RAILWAY OPERATING REVENUES
($ MILLIONS)

and longevity of Norfolk Southern.

$7,6321
RAILWAY OPERATING EXPENSES
($ MILLIONS)
Two previous 100-year security issues

$7,3641
$6,930
$7,525
INCOME FROM RAILWAY OPERATIONS
CHEMICALS REVENUE ($ MILLIONS)
($ MILLIONS)
05

$7,1601

$654

COAL REVENUE ($ MILLIONS)

the dividend 30 percent.
• The operating ratio, a key
measurement of efficiency, improved by

1.5 points, to 75.2 percent.
• FORTUNE magazine named Norfolk
Southern America’s most admired

aggresive debt reduction, reducing long-

term debt by $595 million in 2005.

$107

railroad.

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING
ACTIVITIES ($ MILLIONS)

$5,297

DEBT TO TOTAL CAPITALIZATION RATIO
(PERCENT)

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

58.12

2.5

55.62

53.12

2.5

2.4

METALS & CONSTRUCTION REVENUE
($ MILLIONS)
01

$20.38

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$803

$1,054

$1,661 $2,105

COAL REVENUE ($ MILLIONS)

55.61

53.11

50.71

48.5

42.7

RAILWAY OPERATING REVENUES

$0.24

$0.26

$0.30

$0.36

$0.48

RAILWAY OPERATING EXPENSES

$362

$460

$4111

INCOME FROM RAILWAY OPERATIONS

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

($ MILLIONS)

$96

$53

$885

$961

$1,185

$936

$954

$997

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$53

$870

$530

$119

$36.69

$36.19

$1,2813

$36.69

$36.19

STOCK PRICES

$26.98

$19.99

$17.20

$24.62

$17.35

$24.11

$13.41

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

$1,185

$0.13

$2.88

$0.23

$1.35

$2.18

$0.30

$107

$5,297

$1,171

$107

$1,171

$107

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$107

$5,297

$1,171

$107

$8,4362
02
$804

$8,1382
03
$774

$7,8932
04

$733

04
2.5

05
2.5

2.4

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

58.12
$738
$5,4041

$5,610 $6,410

$755
55.62

$772
53.12

$864

$1,007 $1,158

$973

$674
$1,0641

$1,702 $2,117

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

$96

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

STOCK PRICES

$7,6321

$7,3641

$7,1601

$26.98

$19.99
$17.20

$24.62
$23.65

$17.35

$24.11

$18.33

$13.41

$7,525

$6,930

$36.69
$36.19
05

$36.69
$36.19

$654

$803

$1,054
1.6

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

($ MILLIONS)

$362

$460

$4111

$9232

$0.94

$1.18

$1.051

$2.312

($ MILLIONS)

$3.113

($ MILLIONS)

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

$20.38

81.9

1 Excludes notes payable to Conrail.
2 Includes 58 percent of Conrail debt.

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

$23.65

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

$18.33

$20.38

REVENUE ($ MILLIONS)

$20.38

Dawn Webb, dispatcher, and John Guttman, chief dispatcher, monitor train operations at the
Norfolk Southern dispatching center in Atlanta.

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

$1,123

NET INCOME ($ MILLIONS)

$1,239 $1,537 $1,826

$1,181

$617

CAPITAL EXPENDITURES ($ MILLIONS)

$845

$688

$727

$637

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

($ MILLIONS)

RAILWAY OPERATING EXPENSES

($ MILLIONS)

INCOME FROM RAILWAY OPERATIONS

$36.69

($ MILLIONS)

$36.19

$36.69

$36.19

1.6

81.9

STOCK PRICES

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

$107

$20.38

$1,171

$107

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

$5,297

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

1.6

81.9

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

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An intermodal train hauling mostly double-stacked containers moves northbound through the Virginia countryside near Interstate Highway 81.

Robust

Freight Demand
Volume, Revenue

Spurs Record

Demand for rail service

in all three major

business sectors –

intermodal, coal and

general merchandise –

intensified in 2005.

Revenue grew to $8.5

billion, a 17 percent

increase over 2004.

continue to favor rail.

t ransportation trends

industry, the expanding economy

Increased costs for the trucking

Norfolk Southern to sustain its value-

and improved service products allow

An image from a Norfolk Southern television advertisement depicts a train hauling freight containers
alongside a highway. In the ad, the big tree in the center becomes animated, picking a trailer off the highway
and loading it onto the train, illustrating the environmental and efficiency advantages of rail over truck.

In 2005, intermodal and coal led

The Thoroughbred Operating

Norfolk Southern’s volume growth.

Plan and the Coal Transportation

based pricing strategy.

Changes in international shipping

Management System gave NS tools

Higher freight volume is increasing

patterns continued to strengthen

to improve service on the general

roadway congestion. The trucking

industry is facing manpower and

rail transportation’s critical link in

merchandise and coal networks. Coal

the lengthening global supply chain.

volume grew by 3 percent. Increased

capacity shortages, as well as climbing

Intermodal volume grew by 9 percent

utility shipments reflected higher

fuel costs. This environment, in which

as steadily increasing Asian shipments

electricity demand from coal-fired units,

demand approaches capacity limits,

to East Coast ports caused a surge in

low inventories and the high cost of

inherently favors the efficiency of rail

traffic on Norfolk Southern’s intermodal

competing natural gas.

over transport by truck.

network.

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LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO
(PERCENT)

$8,4362

$804

$8,1382

$7,8932

$774

$733

58.12

2.5

55.62

53.12

2.5

2.4

Customers
Recognize
Performance
Excellence

• Toyota Logistics Services awarded

DIVIDENDS PER SHARE (DOLLARS)

Norfolk Southern its President’s Award

for overall logistics excellence among

INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES
($ MILLIONS)

rail carriers, its highest award given to

a logistics provider. The award is based

on performance in three categories –

customer service, on-time performance

and quality.

$530

• Maersk Sealand named NS its

$119

$96

$1,185

$53

$870

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

Norfolk Southern conductor David Adsit directs placement of an intermodal train at Portlock Yard
04
in Chesapeake, Va.

INTERMODAL REVENUE ($ MILLIONS)

Intermodal:
• Intermodal posted a 19 percent gain
in revenue on a volume increase of

9 percent.
• Traffic volume grew in all intermodal
segments: 16 percent international,

6 percent premium, 6 percent Triple

“Rail Carrier of the Year,” recognizing

$0.48

$362

$460

$4111

$9232

$1,2813

excellence in train service, customer
03
05
service, timeliness, accuracy and
AGRICULTURE, CONSUMER PRODUCTS &
responsiveness.
GOVERNMENT REVENUE ($ MILLIONS)

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DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$0.94

$1.18

$1.051

$2.312

$3.113

AUTOMOTIVE REVENUE ($ MILLIONS)

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$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

Crown Services, and 2 percent domestic.

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE
($ MILLIONS)

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES
($ MILLIONS)

RAILWAY OPERATING EXPENSES
($ MILLIONS)

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

$107

$5,297

$1,171

$107

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)
Freight containers are loaded double-stack at Norfolk Southern’s John W. Whitaker Intermodal
Terminal at Austell, Ga., near Atlanta. NS operates the most extensive intermodal network in the East.

STOCK PRICES

1.6

81.9

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE
($ MILLIONS)

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES
($ MILLIONS)

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

$107

$5,297

$1,171

$107

1.6

81.9

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81.5

83.51

76.7

75.2

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The Keystone Generating Station at Shelocta, Pa., is among 139 power generation plants Norfolk South-
ern serves. Growth in NS utility coal carloads exceeded growth in U.S. electricity production in 2005.

$375

Coal
$460
• Coal revenue grew by 22 percent
05
to a record $2.1 billion on a 3 percent

$9232

$5351

$1,2813

$746

$695

$720

$1,041 $1,025

General Merchandise

General merchandise revenue grew

STOCK PRICES

to $4.6 billion in 2005, a 13 percent

$36.69
increase over 2004, because of increased
$36.19

$36.69
$36.19

revenue per unit resulting from

$26.98

improved pricing and fuel surcharges.

The five commodity groups comprising

$17.35

$24.62
$23.65

$19.99
$17.20

$24.11

$18.33

$13.41

$20.38

the general merchandise sector are

highlighted as follows.

increase in volume. Utility coal growth

offset weaknesses in export and

domestic metallurgical coal, coke and

iron ore. Revenues included rate case

settlements in the second quarter.
• Utility revenue per car increased
because of improved pricing on utility

contracts and fuel surcharges. Utility

volume increased by 6 percent as U.S.

electricity production was up by almost

4 percent.
• Domestic metallurgical coal, coke
and iron ore volume decreased by

2 percent, reflecting a 6 percent drop in

U.S. steel production.
• Export coal volume decreased by 11
percent, reflecting supply constraints

and reduced European demand.

This railway bridge being constructed at Clarksburg, Pa., provides a more direct connection to the
Keystone Generating Station, shown above left.

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

$7,6321

$7,3641

$7,1601

$7,525

$6,930

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &
GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

John Darrington is a senior rail supervisor in the maintenance of way section at Charlotte, N.C.
05

$1,123

$1,181

$1,239 $1,537 $1,826

METALS & CONSTRUCTION REVENUE
($ MILLIONS)

$674

$692

$699

$818

$978

Agriculture, Consumer
Products and Government
COAL REVENUE ($ MILLIONS)
• Agriculture, consumer products
and government revenue was up by 16

percent on a 2 percent growth in carloads.
• Ethanol shipments increased by
38 percent. The 16 ethanol distribution

facilities on NS lines had throughput of

600 million gallons in 2005.
• Government, military and
$1,441
miscellaneous trafic volume growth was

$1,500 $1,728 $2,115

$1,521

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

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($ MILLIONS)

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

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$6,170 $6,270

$107

$5,297

$1,171

$107

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

Metals and Construction
• Metals and construction saw a
$803
20 percent revenue increase for a second

$1,054

$654

$1,661 $2,105

consecutive year of record revenue, on a

2 percent rise in trafic volume.
• Metals revenue was up by 21 percent,
a result of higher average revenue per

unit. NS serves 19 integrated mills, 17

minimills, more than 38 major steel

processors, and 73 steel distribution

facilities.
• Construction revenue grew by
16 percent on a 4 percent increase in

volume that reflected strong residential,

commercial and highway construction
CHEMICALS REVENUE ($ MILLIONS)

activity.
• Machinery revenue, which
represents about 2 percent of the

metals and construction market group,

gained 26 percent as agricultural

and construction machinery exports

remained at record levels. Power

generation machinery revenue increased

$738

$755

by 73 percent because of continued
05

03
capacity expansion at utilities and more

$772

$973

$864

RAILWAY OPERATING RATIO (PERCENT)

spending on environmental compliance.

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

led by military shipments and increased

1.6

81.9

STOCK PRICES

$36.69
$36.19

$20.38

$26.98

$19.99
$17.20

$24.62
$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

Norfolk Southern transports Case New Holland tractors originating in
Wisconsin for export at Baltimore. NS machinery revenue increased 26
percent in 2005 on record levels of exports.

Snow swirls around the head end of an eastbound train passing a
westbound movement of agricultural tankers hauling food products at
Holmesville, Ind.

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

declines in industrial and miscellaneous

chemicals. Several NS-served plastic

plants expanded capacity during the

year.
• Asphalt traffic was up by 8 percent
with increased demand from highway

projects.
• NS continued its investment in the
Thoroughbred Bulk Transfer network,

upgrading facilities at Grand Rapids,

Mich., Patterson, N.J., and Pittsburgh.

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE
($ MILLIONS)

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES
($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGES (DOLLARS)

42.7

$0.36
This ethanol terminal at Sewaren, N.J., is among 16 ethanol distribution facilities on
Norfolk Southern’s rail network. Ethanol shipment volume increased by 38 percent on NS in 2005.

$0.48

$0.30

$0.24

$362

$0.26

$460

$4111

01
traffic related to recovery efforts in the

05
03
RAILWAY OPERATING RATIO (PERCENT)

INTERMODAL REVENUE ($ MILLIONS)
Gulf region after Hurricane Katrina.
• Several other markets, including food
products, fertilizers, feed, and food oils,

experienced volume growth over 2004.

2005 was the fifth consecutive year of

revenue growth in the fertilizers market.

AGRICULTURE, CONSUMER PRODUCTS &
GOVERNMENT REVENUE ($ MILLIONS)

1.6

81.9

Chemicals
• Chemicals revenue increased by
$1,181
13 percent on flat volume levels.

$1,239 $1,537 $1,826

$1,123

05
Increased demand for plastics and

83.7

81.5

83.51

76.7

75.2

$617

$637

$688

$727

$845

$530

$119

$96

$1,185

$0.23

$2.88

$0.13

$2.18

$1.35

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

$53

$870

$9232

02
$1,2813

04
$0.94

05
$1.18

$0.30

$1.051

01
$2.312

02
$3.113

$107

$5,297

$1,171

$107

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

Paper, Clay and Forest Products
PAPER, CLAY & FOREST PRODUCTS
• Paper, clay and forest products
REVENUE ($ MILLIONS)
revenue reached a record high, with a

16 percent increase on volume growth of

2 percent.
• Printing paper, pulpboard, newsprint
and woodchip shipments were up by

$375

more than 5 percent each.
$460
$5351
$1,2813
• While lumber shipments declined,
03
05
$634
$793
revenue growth exceeded 11 percent as

$9232

$612

$684

$603

market demand continued to support

AUTOMOTIVE REVENUE ($ MILLIONS)

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

$746

$695

$720

$1,041 $1,025

01
$885

02
$961

$936

$954

$997

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

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DIVIDENDS PER SHARE (DOLLARS)

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$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

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48.5

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

($ MILLIONS)

petroleum products was offset by
COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES
($ MILLIONS)

higher price levels.

RAILWAY OPERATING EXPENSES
($ MILLIONS)

INCOME FROM RAILWAY OPERATIONS
($ MILLIONS)

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

$107

$5,297

$1,171

$107

1.6

81.9

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &
GOVERNMENT REVENUE ($ MILLIONS)

PAPER, CLAY & FOREST PRODUCTS
REVENUE ($ MILLIONS)

AUTOMOTIVE REVENUE ($ MILLIONS)

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

($ MILLIONS)

RAILWAY OPERATING REVENUES
($ MILLIONS)

RAILWAY OPERATING EXPENSES
($ MILLIONS)

Automotive
• Automotive reached a record-
high $997 million in revenue despite

INCOME FROM RAILWAY OPERATIONS
($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

a 3 percent decrease in volume. NS

continues to be North America’s largest

$107
carrier of auto parts and finished

$0.23

vehicles.
$5,297
• Honda completed its first full year
of production at its second Lincoln,
$0.13
$5,4041
$5,163
Ala., plant, and Mercedes-Benz opened
$2.18
04

$5,610 $6,410

a second plant at its NS-served Vance,

$2.88
$5,112

Ala., production complex.

$2.312

$3.113

$1,171

$107

$1,0641

$1,702 $2,117

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LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$7,6321

$7,3641

$7,1601

$7,525

$6,930

RAILWAY OPERATING RATIO (PERCENT)

$803

$1,054

$1,661 $2,105

$654

NET INCOME ($ MILLIONS)

55.61

53.11

50.71

48.5

42.7

$0.24

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$96

$53

$1,185
$6,170 $6,270
$870
01

$530

$119

CAPITAL EXPENDITURES ($ MILLIONS)

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES
($ MILLIONS)

A Norfolk Southern train pulls a load of multilevels, used for hauling vehicles, near DePauw, Ind.
NS is North America’s largest rail carrier of automotive parts and finished vehicles.

DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGES (DOLLARS)

$6,468 $7,312 $8,527

$1.35

$0.30

INTERMODAL REVENUE ($ MILLIONS)

STOCK PRICES

AGRICULTURE, CONSUMER PRODUCTS &
GOVERNMENT REVENUE ($ MILLIONS)

PAPER, CLAY & FOREST PRODUCTS
REVENUE ($ MILLIONS)

AUTOMOTIVE REVENUE ($ MILLIONS)

1.6

81.9

$36.69
$36.19

$20.38

$26.98

$19.99
$17.20

$24.62
$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

($ MILLIONS)

RAILWAY OPERATING REVENUES
($ MILLIONS)

RAILWAY OPERATING EXPENSES
($ MILLIONS)

INCOME FROM RAILWAY OPERATIONS
($ MILLIONS)

Barbara Grey is shown handling train dispatch operations at Dearborn, Mich. She now is Norfolk
Southern’s logistics manager assigned to customer DaimlerChrysler in Detroit.
A map of the Heartland corridor

$107

$5,297

$1,171

$107

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

1.6

81.9

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

Innovation

Builds

Operating
Capacity

Norfolk Southern has prepared itself

capacity and improve service on

to take on additional business and to

handle it effectively:
• A joint venture with Kansas City
Southern pending before the Surface

Transportation Board will increase

the Meridian Speedway between
Meridian, Miss., and Shreveport, La.,

a critical connection between the

Southeast and Southwest.
• Routing agreements with several

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Building on its heritage

of innovation, Norfolk

Southern focused on
customer satisfaction in

2005 by integrating new

systems that helped

operations remain

consistent even with

record volumes and

major weather-related

disruptions.

inventive business solutions benefiting

b y developing

175-year company.

the company as well as customers and

communities, and using performance-

future even as it hails its success as a

enhancing technology, NS looks to the

The continued efficiency of rail in the

multimodal global marketplace depends

on alliances and other cooperative

efforts to increase profitability and

improve service on the transportation

infrastructure.

Superintendents of transportation Howard Gillespie, standing, Phil Turner, far left, and Wayne
Baker keep their eyes on train movements and horsepower utilization at the operations control
center in Atlanta.

Builds

The Optimized Train Control system enhances train and operating efficiency by linking together a variety of data points with the Norfolk Southern
communications network.

major carriers streamline the exchange

Expected to be operational in 2007, it will

system combines data communications,

of traffic at major gateways.

be one of the largest intermodal facilities

positioning systems and onboard

Norfolk Southern focused on public-

private partnerships to serve the public’s

interests and improve service and

capacity on the network:
• Proposed clearance improvements
along the Heartland Corridor from
Norfolk to Ohio will create a seamless,

high-capacity and higher-speed double-

stack intermodal route across Virginia

on the NS network, with capacity to

computers tied to a train’s control

support a full-scale logistics park.
• Proposed work on corridor
improvements such as CREATE
(Chicago Regional Environmental

systems. It automatically verifies

operating limits to help prevent

collisions and other train accidents. OTC

provides improved visibility of network

and Transportation Efficiency) will

conditions and promotes more efficient

unscramble rail lines in Chicago, leading

to increased efficiency for shippers and

better traffic flow for motorists.

and West Virginia to Midwest markets.

Developments in technology

The western anchor of the project,

the Rickenbacker Intermodal Facility

at Columbus, Ohio, is the result of an

agreement between the Columbus

Rickenbacker Airport Authority and NS.

continue to enhance NS’ rail operations:
• The company is preparing to test
a system called Optimized Train
Control between Charleston and
Columbia, S.C., to enhance safety. The

operations.
• NS is implementing its Unified
Train Control System. Jointly
developed by NS and General Electric,

UTCS provides a seamless and disaster-

hardened transportation management

system. It replaces existing equipment

with networked, computer-aided

dispatching work stations that function

with tactical NS information systems.

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• Responding to increased demand
for rail freight transportation, NS hired
more than 2,400 train and engine service

and mechanical employees in 2005.
• The company enhanced training
for train and engine service employees

and reached more field employees

through coaching and mentoring. All

operations supervisors completed

training on leadership skills, including

communications and coaching.
• Planning for future work-force
changes, NS conducted career fairs to
inform agreement employees about the

benefits of joining management ranks.
• The company developed operations
supervisor training for agreement
employees who may choose to move

into nonagreement supervisory

positions. Similar to NS’ management

trainee program, it teaches leadership

skills, builds confidence and teamwork,

increases knowledge of company

operations, and makes management

processes more consistent. The first

group of employees began training in

early 2006.

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Brig Burgess, Norfolk Southern Dearborn Division superintendent, addresses NS employees in
Atlanta about management career opportunities available within the company.

UTCS includes a promising new feature

Norfolk Southern is working in

called the movement planner. Using a

additional ways to improve safety and

virtual model of the NS rail network,

the movement planner formulates

an optimal, system-focused train

management plan with the objective of

maximizing on-time performance.
• The company has refined its
Thoroughbred Operating Plan,
increasing capacity for freight and

customer service:
• The purchase of 222 new high-
efficiency locomotives from late
2005 through the first half of 2006 will

increase productivity and help handle

growth in traffic volumes. Also, in the

company’s largest-ever locomotive

rehabilitation program, NS overhauled

making railroad operations more

491 locomotives and rebuilt 29 in 2005.

flexible. For the first time, the plan

In 2006, NS expects to overhaul 420

incorporates intermodal and unit trains

locomotives and rebuild 52.

dedicated to single commodities.
• NS evaluates the benefits of
infrastructure investment
alternatives through a refined capacity

planning process using industry-

standard simulation software. The

process has led to capacity projects

on rail corridors between Memphis

and Chattanooga, Tenn.; between

Chattanooga, Atlanta and Jacksonville,

Fla.; and between Charleston and

Columbia, S.C.

Transportation management trainee Sarah Ponder operates a locomotive simulator at Norfolk
Southern’s Training Center at McDonough, Ga., near Atlanta.

Rail:The environmentally friendly
transportation choice

Rail is the safest, cleanest and most

aluminum and railcar parts; rewelding

curvature, the train’s length and weight

energy-efficient manner in which to

used rail; and rejuvenating and reusing

and other operating conditions. LEADER

move freight.

lubricating oil and cleaning solvents.

ultimately will be an integral part of the

Railroads move a ton of freight four

The company has enhanced its efforts

times as far as trucks do per gallon of fuel.

to improve the environment in a number

Each rail carload is equivalent to three

and one-half truckloads. By putting more

freight on railroads, the environment will

of significant ways:
• Purchasing high-efficiency
locomotives that use less fuel and meet

be cleaner, and natural resources will be

new Environmental Protection Agency

used in their most efficient way.

For example, a transportation study

concludes that shifting 25 percent of

standards for emissions.
• Deploying a locomotive computer
system to improve fuel efficiency and

freight from truck to rail by 2025 would

safe handling of trains in long-haul

Optimized Train Control system.
• Using state-of-the-art rail-based
lubrication systems made from

biodegradable soy-based lubricants

developed by NS and the University of

Northern Iowa.
• Developing locomotive shutdown
and automatic locomotive stop systems.
• Working with federal, state and
local officials to develop public-private

reduce fuel consumption by 15.6 billion

operations. The system, developed by

partnerships that will reduce highway

gallons annually and reduce air pollutants

New York Air Brake and known as

congestion, reduce emissions and

by nearly 792,100 tons each year.

LEADER®, or Locomotive Engineer

conserve fuel. It is estimated that along

Using the nation’s resources efficiently

Assist Display and Event Recorder,

the I-81 corridor alone, 1,000 trucks per

and with the lowest possible impact on

provides locomotive engineers with

day removed between Harrisburg, Pa.,

land, air and water quality is fundamental

real-time information about a train’s

and Chattanooga, Tenn., would save

to Norfolk Southern’s operations.

operating conditions. An on-board

18 million gallons of fuel and eliminate

NS has longstanding conservation

computer calculates and displays

4,900 tons of nitrous oxide, 634 tons of

practices, including collecting and

the optimum train operating speed,

recycling crossties, tires, paper, metal,

depending on topography and track

carbon monoxide and 231 tons of volatile
t

organic compounds.

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New high-efficiency Norfolk Southern locomotives consume less fuel and comply with strict federal environmental standards.

In Katrina’s Wake,

Norfolk Southern
Shows its Spirit

Norfolk Southern’s

response to catastrophic

weather events in

2005 demonstrated the

culture and vitality of a

company that after 175

years in business has

plenty of resolve to face

future challenges and

opportunities.

Hurricane Katrina inflicted widespread

o n Aug. 29,

signals, highway-rail grade crossing

and Mississippi. NS facilities, track,

destruction across Louisiana, Alabama

devices and microwave communication

sites sustained heavy damage. The storm

surge washed nearly five miles of track,

ties and ballast from the NS trestle

spanning Lake Pontchartrain north of

New Orleans.

Before the storm’s arrival, NS set up

Floating cranes all in a row tower over the barren deck of the Lake Pontchartrain trestle following
Hurricane Katrina. As seen at lower right, the cranes recovered 4.8 miles of track from the lake
and lifted it back onto the bridge.

a command center in Atlanta to direct

equipment was placed for easy transport

people came with a mission: quickly

storm preparations and subsequent

to potentially affected areas. Employees

restore rail service in a region vital to

operations. The company rerouted

were encouraged to evacuate.

national commerce.

traffic headed for New Orleans through

Even as New Orleans still resembled

Engineering personnel moved in

other gateways and moved equipment

a ghost town in Katrina’s wake, a small

as soon as it was safe to start repairs.

to higher ground. Emergency repair

army of determined Norfolk Southern

“We really had to be on our toes

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all the time to deal with numerous

difficult circumstances that we just

don’t normally encounter,” said Jeff

McCracken, NS chief engineer for

line maintenance, Western Region.

“If it could happen, it did in this

environment.”

NS people cleared some 5,000 trees

off the tracks as they made their way

south from Birmingham.

To repair damage to the Lake

Pontchartrain bridge – a major east-

west rail link – McCracken’s team

devised an ingenious plan to recover

track that had been washed into the

lake. They used nine cranes on barges to

lift the track back onto the bridge deck.

“It’s very gratifying that it all

worked out the way we had planned,”

McCracken said. “It would have taken

People and machinery join forces to repair a section of track damaged by Hurricane Katrina.

when NS’ intermodal and automotive

thanked me for allowing them to be part

facilities reopened. Other divisions

of it. They said this is something they

weeks to reconstruct a new track in lieu

handled additional traffic until rail lines

would tell their grandchildren, and they

of using the track that was there.”

were restored.

were proud to be a part of it, and they

Bridge repairs were completed just

“It was a team effort, as one big

wished they could have done more.”

16 days after Katrina hit, and traffic to

family,” McCracken said. “People came

“It just goes to show what Norfolk

New Orleans was restored fully Oct. 3,

up to me at the end of this project and

Southern people can do when faced

with a challenge,” McCracken said,

adding that the entire effort was

accomplished without a single injury.

“They put safety first.”

The company offered financial

assistance, temporary job relocations

and short-term housing to employees

affected by Katrina. Norfolk Southern

also gave donations to communities and

matched employee contributions to

the American Red Cross and Salvation

Army. Employees participated in

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areas.

The first train moves across the Lake Pontchartrain trestle, restoring rail service to New Orleans
just 16 days after Hurricane Katrina washed nearly five miles of track off the bridge into the lake.
Norfolk Southern people repaired the bridge in record time, safely and under extremely challeng-
ing conditions.

volunteer relief efforts in storm-ravaged

Financial
Overview

INCOME FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES
($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM
DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS BEFORE
CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGES (DOLLARS)
ACCOUNTING CHANGES (DOLLARS)

DIVIDENDS PER SHARE (DOLLARS)

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

(PERCENT)

$8,4362

$8,1382

$7,8932

$804

$774

$733

58.12

2.5

55.62

53.12

2.5

2.4

$1,123

$1,181

l
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INTERMODAL REVENUE ($ MILLIONS)
n
n
A
A

INTERMODAL REVENUE ($ MILLIONS)

n
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N

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$0.30

$1,239 $1,537 $1,826

$96

$53

$870

$530

$1,185

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

$1.051

$0.30

The combination of record revenues

$460

$362

$0.36

$0.48

$0.36
and an improved operating ratio
produced the highest net income in
03
02
04
Norfolk Southern’s history. Net income
for 2005 was $1.3 billion, or $3.11 per
AGRICULTURE, CONSUMER PRODUCTS &
AGRICULTURE, CONSUMER PRODUCTS &
diluted share, a $358 million, or 39
GOVERNMENT REVENUE ($ MILLIONS)
GOVERNMENT REVENUE ($ MILLIONS)
percent improvement compared with 2004.
Results in 2005 included a noncash

benefit of $96 million, or 23 cents
per diluted share, from the effects of
Ohio tax legislation, while 2004 results
included a $53 million, or 13 cents per
share, noncash gain from the Conrail
corporate reorganization.

$617

Excluding these items, net income
$845
$637
in 2005 would have been $1.2 billion, or
$2.88 per diluted share, up $315 million,
05
or 36 percent. The improvement was

$637

$688

$727

$845

the result of higher income from railway
$9232
$1.18
operations.

$1,2813

$9232

$0.94

$1.18

$0.94

$4111

Railway operating revenues were a
03
04
record $8.5 billion, up $1.2 billion, or 17
percent, compared with 2004, a result of
PAPER, CLAY & FOREST PRODUCTS
PAPER, CLAY & FOREST PRODUCTS
increased average revenue per carload,
REVENUE ($ MILLIONS)
REVENUE ($ MILLIONS)
including fuel surcharges, and higher
traffic volume.

Railway operating expenses were

$6.4 billion, up $800 million, or 14
percent, reflecting higher diesel
fuel prices, volume-related expense
increases, more maintenance activities
and higher costs for casualty claims.
The railway operating ratio was
$684
$684
$603
$603
75.2 percent, compared with 76.7
percent in 2004, a 1.5 percentage point
01
02
05
improvement.

$612

$634

$793

$3.113

$2.312

$3.113

Cash provided by operating activities
$2.312

AUTOMOTIVE REVENUE ($ MILLIONS)

was $2.1 billion, an increase of $444
million, or 27 percent, compared with
2004. Outstanding debt was reduced by
$595 million, or 8 percent, and NS’ debt-
AUTOMOTIVE REVENUE ($ MILLIONS)
to-total capitalization ratio was 42.7
percent at year-end 2005, compared
with 48.5 percent the year before.
The quarterly dividend was

increased twice during 2005 – from 10
cents per share to 11 cents in January
and to 13 cents in July. In addition,
the board of directors in January 2006
declared a dividend of 16 cents per
share, which is double the dividend paid
$936
in the first quarter of 2004.
$997

t
$954
$954

$885

$961

$997

$936

$961

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

($ MILLIONS)

RAILWAY OPERATING REVENUES
($ MILLIONS)

RAILWAY OPERATING EXPENSES
($ MILLIONS)

RAILWAY OPERATING RATIO (PERCENT)

INCOME FROM RAILWAY OPERATIONS
($ MILLIONS)

$107

$5,297

1.6

$1,171

$107

$107
81.9

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158
83.7

$1,007 $1,158
81.5

$1,0641

83.51
$1,0641

76.7
$1,702 $2,117

75.2
$1,702 $2,117

RAILWAY OPERATING RATIO (PERCENT)

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

1 2003 results include $107 million of costs related to a voluntary separation program that increased the railway operating ratio by 1.6 percentage points.

1.6

81.9

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

83.7

81.5

83.51

76.7

75.2

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

LONG TERM DEBT ($ MILLIONS)

CASH PROVIDED BY OPERATING

ACTIVITIES ($ MILLIONS)

DEBT TO TOTAL CAPITALIZATION RATIO

DIVIDENDS PER SHARE (DOLLARS)

INCOME FROM CONTINUING OPERATIONS

BEFORE ACCOUNTING CHANGES

($ MILLIONS)

DILUTED EARNINGS PER SHARE FROM

CONTINUING OPERATIONS BEFORE

ACCOUNTING CHANGES (DOLLARS)

$8,4362

$804

$8,1382

$7,8932

$774

$733

(PERCENT)

58.12

2.5

55.62

53.12

2.5

2.4

$7,6321

$7,3641

$7,1601

$7,525

$6,930

$654

$803

$1,054

$1,661 $2,105

55.61

53.11

50.71

48.5

42.7

$0.24

$0.26

$0.30

$0.36

$0.48

$362

$460

$4111

$9232

$1,2813

$0.94

$1.18

$1.051

$2.312

$3.113

$96

$1,185

$53

$870

$530

$119

$0.23

$2.88

$0.13

$2.18

$1.35

$0.30

INTERMODAL REVENUE ($ MILLIONS)

AGRICULTURE, CONSUMER PRODUCTS &

PAPER, CLAY & FOREST PRODUCTS

AUTOMOTIVE REVENUE ($ MILLIONS)

GOVERNMENT REVENUE ($ MILLIONS)

REVENUE ($ MILLIONS)

CHEMICALS REVENUE ($ MILLIONS)

METALS & CONSTRUCTION REVENUE

COAL REVENUE ($ MILLIONS)

RAILWAY OPERATING REVENUES

RAILWAY OPERATING EXPENSES

INCOME FROM RAILWAY OPERATIONS

($ MILLIONS)

$1,123

$1,181

$1,239 $1,537 $1,826

$617

$637

$688

$727

$845

$612

$603

$634

$684

$793

$885

$961

$936

$954

$997

$738

$755

$772

$864

$973

$674

$692

$699

$818

$978

$1,521

$1,441

$1,500 $1,728 $2,115

$6,170 $6,270

$6,468 $7,312 $8,527

$5,163

$5,112

$5,4041

$5,610 $6,410

$1,007 $1,158

$1,0641

$1,702 $2,117

NET INCOME ($ MILLIONS)

CAPITAL EXPENDITURES ($ MILLIONS)

$107

$5,297

$1,171

$107

STOCK PRICES

$36.69

$36.19

$36.69

$36.19

$20.38

$26.98

$19.99

$17.20

$24.62

$23.65

$17.35

$24.11

$18.33

$13.41

$375

$460

$5351

$9232

$1,2813

$746

$695

$720

$1,041 $1,025

Five-Year Financial Review — Norfolk Southern Corporation and Subsidiaries

($ in millions, except per-share amounts)
results of operations
Railway operating revenues
Railway operating expenses

Income from railway operations

Other income — net
Interest expense on debt

Income from continuing operations before
income taxes and accounting changes

Provision for income taxes

Income from continuing operations before

accounting changes
Discontinued operations4
Cumulative effect of changes in accounting

principles, net of taxes5

Net income
per share data

Income from continuing operations before

accounting changes
Basic
Diluted
Net income
Basic
Diluted
Dividends
Stockholders’ equity at year end
financial position

Total assets
Total long-term debt, including

current maturities6
Stockholders’ equity

other

Capital expenditures
Average number of shares outstanding (thousands)
Number of stockholders at year end
Average number of employees

20051

20042

20033

2002

2001

8,527
6,410
2,117

74
494

1,697

416

1,281

—

7,312
5,610
1,702

89
489

1,302

379

923

—

6,468
5,404
1,064

6,270
5,112
1,158

6,170
5,163
1,007

19
497

586

175

411

114

66
518

706

246

460

—

99
553

553

191

362

—

1,281

923

535

460

375

$
$

$
$
$
$

3.17
3.11

3.17
3.11
0.48
22.66

25,861

6,930

9,289

1,025
404,170
48,180
30,294

$
$

$
$
$
$

2.34
2.31

2.34
2.31
0.36
19.95

24,750

7,525

7,990

1,041
394,201
51,032
28,475

$
$

$
$
$
$

1.05
1.05

1.37
1.37
0.30
17.83

20,596

7,160

6,976

720
389,788
52,091
28,753

$
$

$
$
$
$

1.18
1.18

1.18
1.18
0.26
16.71

19,956

7,364

6,500

695
388,213
51,418
28,970

$
$

$
$
$
$

0.94
0.94

0.97
0.97
0.24
15.78

19,418

7,632

6,090

746
385,158
53,042
30,894

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1 2005 provision for income taxes includes a $96 million benefit related to the reduction of NS’ deferred income tax liabilities resulting from tax legisla-
tion enacted by Ohio. This benefit increased net income by $96 million, or 23 cents per diluted share.
2 2004 other income — net includes a $53 million net gain from the Conrail corporate reorganization. This gain increased net income by $53 million, or
13 cents per diluted share.
3 2003 operating expenses include a $107 million charge for a voluntary separation program. Other income — net includes an $84 million charge to
recognize the impaired value of certain telecommunications assets. These charges reduced net income by $119 million, or 30 cents per diluted share.
4 NS sold all the common stock of its motor carrier subsidiary, North American Van Lines, Inc. (NAVL), in 1998. Results in 2001 include an additional
after-tax gain of $13 million, or 3 cents per diluted share, that resulted from the expiration of certain indemnity obligations contained in the sales
agreement. Results in 2003 include an additional after-tax gain of $10 million, or 3 cents per diluted share, resulting from the resolution of tax issues
related to the transaction.
5 2003 reflects two accounting changes, the cumulative effect of which increased net income by $114 million, or 29 cents per diluted share: a change
in accounting for the cost to remove railroad crossties, which increased net income by $110 million; and a change in accounting related to a special-
purpose entity that leased certain locomotives to NS, which increased net income by $4 million.
6 Excludes notes payable to Conrail of $716 million in 2003, $513 million in 2002 and $301 million in 2001.

Consolidated Statements of Income

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railway operatinG revenues

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

Income from railway operations

Other income — net
Interest expense on debt

Income from continuing operations

before income taxes and accounting changes

Provision for income taxes

In come from continuing operations

before accounting changes

Di scontinued operations — gain on sale of motor

carrier, net of taxes

Cu mulative effect of changes in accounting

principles, net of taxes

net income

earninGs per share
Income from continuing operations
before accounting changes

Basic
Diluted
Net income

Basic

Diluted

2005

Years ended December 31,

2004

2003

($ in millions, except earnings per share)

8,527

7,312

6,468

2,493
1,809
129
774
727
224
254
6,410

2,117

74
494

1,697

416

1,281

—

1,281

3.17
3.11

3.17

3.11

$
$

2,272
1,601
319
598
449
151
220
5,610

1,702

89
489

1,302

379

923

—

$
$

923

2.34
2.31

2.34

2.31

$
$

2,275
1,427
419
513
380
181
209
5,404

1,064

19
497

586

175

411

114

535

1.05
1.05

1.37

See Form 10-K report beginning on Page K1 for full financial statements and footnotes.

Consolidated Balance Sheets

assets
Current assets:

Cash and cash equivalents
Short-term investments
Accounts receivable, net
Materials and supplies
Deferred income taxes
Other current assets
Total current assets

Investments
Properties less accumulated depreciation
Other assets

total assets

liabilities and stockholders’ equity
Current liabilities:

Accounts payable
Income and other taxes
Other current liabilities
Current maturities of long-term debt
Total current liabilities

Long-term debt
Other liabilities
Deferred income taxes
total liabilities

Stockholders’ equity:

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

authorized; issued 430,718,913 and 421,346,107 shares, respectively

Additional paid-in capital
Unearned restricted stock
Accumulated other comprehensive loss
Retained income
Less treasury stock at cost, 20,833,125 and 20,907,125 shares, respectively
total stockholders’ equity
total liabilities and stockholders’ equity

See Form 10-K report beginning on Page K1 for full financial statements and footnotes.

As of December 31,

2005

2004

($ in millions)

289
968
931
132
167
163
2,650

1,590
20,705
916
25,861

1,163
231
213
314
1,921

6,616
1,415
6,620
16,572

431
992
(17)
(77)
7,980
(20)
9,289
25,861

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202
767
104
187
240
1,967

1,499
20,526
758
24,750

1,090
210
239
662
2,201

6,863
1,146
6,550
16,760

421
728
(8)
(24)
6,893
(20)
7,990
24,750

Quarterly Financial Data

2005
Railway operating revenues

Income from railway operations

Net income

Earnings per share:

Basic

Diluted

2004

Railway operating revenues

Income from railway operations
Net income
Earnings per share:

Basic
Diluted

March 31

June 30

sept. 30

Dec. 31

Three Months Ended

($ in millions, except earnings per share)

$
$

1,961

403

194

0.48

0.47

1,693

346
158

0.40
0.40

$
$

2,154

2,155

2,257

592
4241

1.051
1.041

1,813

425
213

0.55
0.54

$
$

528

301

0.74

0.73

594

362

0.89

0.87

1,857

1,949

469
2882

0.732
0.722

$
$

462
264

0.66
0.65

Includes a $96 million, or 23 cents per diluted share, benefit related to a reduction of deferred income tax liabilities resulting from tax legislation enacted by Ohio.
2Includes a $53 million, or 13 cents per diluted share, gain from the Conrail corporate reorganization.

Stock Price and Dividend Information

The Common Stock
of Norfolk Southern
Corporation, owned
by 48,180 stockholders
of record as of Dec. 31,
2005, is traded on the
New York Stock Ex-
change with the symbol
NSC. The following
table shows the high
and low sales prices and
dividends per share, by
quarter, for 2005 and
2004.

2005

Market price

High

Low

Dividends per share

2004

Market price

High

Low

Dividends per share

1st

38.99

33.21

0.11

24.06

20.38

0.08

Quarter

2nD

37.78

29.60

0.11

26.60

21.54

0.08

3rD

40.93

30.70

0.13

29.79

24.77

0.10

4th

45.81

38.01

0.13

36.69

29.88

0.10

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Board

ofDirectors

Charles W. Moorman, 54,
of Virginia Beach, Va., is chairman,
president and chief executive officer
of Norfolk Southern Corporation. He
joined Norfolk Southern in 1970 and
was named chairman effective Feb. 1,
2006. His board service began in 2005;
his current term expires in 2008.

Jane Margaret O’Brien, 52, of

Committees: Executive
9.
St. Mary’s City, Md., is president of St.
Mary’s College of Maryland. Her board
service began in 1994; her current term
expires in 2007.
Committees: Executive, audiT,
Compensation
10.

Harold W. Pote, 59, of New

York City, is vice chairman, Retail
Financial Services of JPMorgan Chase &
Co. His board service began in 1988; his
current term expires in 2006.
Committees: ExECuTivE, Governance and
Nominating, Compensation
11.

J. Paul Reason, 64, Admiral,

USN, retired, of Norfolk, Va., is
vice chairman of Metro Machine
Corporation, a ship repair company. His
board service began in 2002; his current
term expires in 2008.
Committees: audit, Finance

Daniel A. Carp, 57, of Naples, Fla.,
formerly served as chairman and chief
executive officer of Eastman Kodak
Company. His board service began in
January 2006; his current term expires
in 2006. (not pictured)

Committees: audit, Compensation

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In Memoriam
Carroll Campbell

Former South Carolina Gov. Carroll

Campbell, who served on the board
of directors of Norfolk Southern from
1996 to 2002, died Dec. 7, 2005.

Campbell served on the executive

and governance, finance and audit
committees of the board. He helped
guide the company during a time of
significant growth and expansion. Prior
to joining the board, he served two
terms as South Carolina’s governor.

1.
Gerald L. Baliles, 65, of
Richmond, Va., will retire effective
March 31, 2006, from Hunton &
Williams, a business law firm with
offices in several major U.S. cities
and international offices in Bangkok,
Brussels, London, Hong Kong and
Singapore, and on April 1 will become
director of the Miller Center of Public
Affairs for the University of Virginia. His
board service began in 1990; his current
term expires in 2008.
Committees: Executive, Governance and
Nominating, FiNaNCE
2.

Gene R. Carter, 66, of

Alexandria, Va., is executive director
and chief executive officer of the
Association for Supervision and
Curriculum Development, among the
world’s largest international education
associations. His board service began in
1992; his current term expires in 2008.
Committees: Executive, audit,
COMPENSaTiON
3.

Alston D. Correll, 64, of
Atlanta, is chairman of Georgia-Pacific
Corporation. His board service began in
2000; his current term expires in 2007.
Committees: Governance and Nominating,
Finance

David R. Goode, 65, of Norfolk,

Va., is retired chairman of Norfolk
Southern Corporation. He joined
Norfolk and Western Railway in 1965
and served as chief executive officer of
Norfolk Southern from 1992 to Nov.
1, 2005, continuing as chairman until
Feb. 1, 2006. His board service began in
1992; his current term expires in 2006.
Committees: Executive
5.
Bay Cove, N.Y., is a partner in Brown
Brothers Harriman & Co., a private
bank in New York City. His board
service began in 1992; his current term
expires in 2007.
Committees: Executive, GOvErNaNCE
aNd NOMiNaTiNG, Finance
6.

Landon Hilliard, 66, of Oyster

Burton M. Joyce, 64, of South
Pasadena, Fla., is chairman of IPSCO,
a leading steel producer. His board
service began in November 2003; his
current term expires in 2007.
Committees: audit, Compensation
7.

Steven F. Leer, 53, of St. Louis,
is president and chief executive officer
of Arch Coal, Inc., the nation’s second-
largest coal producer. His board service
began in 1999; his current term expires
in 2006.
Committees: Governance and Nominating,
Finance

10.

11.

Committee of the Board of Directors -
CHAIRS are indicated by capital letters

As of January 1, 2006

Officers

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David R. Goode
chairman

Charles W. Moorman
president and chief executive officer

L. I. Prillaman
vice chairman and chief marketing officer

Stephen C. Tobias
vice chairman and chief operating officer

Henry C. Wolf
vice chairman and chief financial officer

James A. Hixon
executive vice president law and corporate relations

Mark D. Manion
executive vice president operations

Kathryn B. McQuade
executive vice president planning and chief
information officer

All smiles for the Dec. 12 opening bell of the New York Stock Exchange are (front row l-r) Ike Prilla-
man, chief marketing officer; Hank Wolf, chief financial officer; Landon Hilliard, Norfolk Southern
board member; Catherine Kinney, co-president of the stock exchange; David Goode, NS chairman;
Wick Moorman, chief executive officer; Steve Tobias, chief operating officer; Jim Hixon, executive vice
president law and corporate relations; and (back row l-r) Harold Pote, NS board member; Don Seale,
executive vice president sales and marketing; Arnold McKinnon, former chairman and board member;
Kathryn McQuade, executive vice president planning and chief information officer; Mark Manion,
executive vice president operations; and John Rathbone, executive vice president administration.

Joseph C. Dimino
vice president and corporate counsel

Robert E. Martínez
vice president business development

Cynthia C. Earhart
vice president information technology

Michael R. McClellan
vice president intermodal and automotive marketing

John P. Rathbone
executive vice president administration

Terry N. Evans
vice president operations planning and budget

Thomas H. Mullenix, Jr.
vice president human resources

Donald W. Seale
executive vice president sales and marketing

Robert C. Fort
vice president corporate communications

William J. Romig
vice president and treasurer

John M. Samuels
senior vice president operations planning and support

William A. Galanko
vice president financial planning

Marta R. Stewart
vice president and controller

Daniel D. Smith
senior vice president energy and properties

Robert E. Huffman
vice president intermodal operations

Gerhard A. Thelen
vice president mechanical

James A. Squires
senior vice president law

David A. Brown
vice president strategic planning

Deborah H. Butler
vice president customer service

James E. Carter, Jr.
vice president internal audit

Robert M. Kesler, Jr.
vice president taxation

Charles J. Wehrmeister
vice president safety and environmental

David T. Lawson
vice president industrial products

H. Craig Lewis
vice president corporate affairs

Mark R. MacMahon
vice president labor relations

Bruno Maestri
vice president government relations

F. Blair Wimbush
vice president real estate

Gary W. Woods
vice president engineering

Dezora M. Martin
corporate secretary

Stockholder Information

common stock

dividends

Ticker symbol: NSC
Common stock of Norfolk
Southern Corporation is listed
and traded on the New York Stock
Exchange.

publications

Upon written request, the
corporation’s annual and quarterly
reports on Forms 10-K and 10-Q will
be furnished free to stockholders.
Write to: Corporate Communications
Department, Norfolk Southern
Corporation, Three Commercial Place,
Norfolk, Va. 23510-9227.

A notice and proxy statement/annual

meeting of stockholders are furnished
to stockholders in advance of the annual
meeting.

Upon request, a stockholder
may receive a printed copy of the
Corporate Governance Guidelines,
board committee charters, Code of
Ethics, and Code of Ethical Conduct for
Senior Financial Officers. Contact the
Corporate Secretary, Norfolk Southern
Corporation, Three Commercial
Place, Norfolk, Va. 23510-9219. This
information also is available on the NS
Web site.

internal audit hotline

High ethical standards always
have been key to Norfolk Southern’s
success. Anyone who may be aware of
a violation of the corporation’s ethical
standards or a conflict of interest, or
has a concern or complaint regarding
the corporation’s financial reporting,
accounting, internal controls or auditing
matters is encouraged to report such
information to the Internal Audit
Hotline, (800) 732-9279. Reports may be
made anonymously and without fear of
retaliation.

At its January 2006 meeting, the
corporation’s board of directors declared
a quarterly dividend of 16 cents per
share on its common stock, payable
on March 10, 2006, to stockholders of
record on Feb. 3, 2006.

Norfolk Southern Corporation pays

quarterly dividends on its common
stock, usually on or about March 10,
June 10, Sept. 10 and Dec. 10. The
corporation has paid 94 consecutive
quarterly dividends since its inception
in 1982.

account assistance

For assistance with lost stock
certificates, transfer requirements
and the Dividend Reinvestment Plan,
contact:

Registrar and Transfer Agent
The Bank of New York
101 Barclay St.—11E
New York, N.Y. 10286
(866) 272-9472

financial inquiries
Henry C. Wolf
Vice Chairman and
Chief Financial Officer
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510-9215
(757) 629-2650

investor inquiries
Leanne D. Marilley
Director Investor Relations
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510-9215
(757) 629-2861

annual meetinG

May 11, 2006, at 10 a.m. EDT

The Roper Performing Arts Center

340 Granby St., Norfolk, Va.

For assistance with address changes,

dividend checks and direct deposit of
dividends, contact:

Assistant Corporate Secretary

Stockholder Records

Norfolk Southern Corporation
Three Commercial Place
Norfolk, Va. 23510-9219
(800) 531-6757

dividend reinvestment plan

Stockholders whose names appear
on their stock certificates (not a street or
broker name) are eligible to participate
in the Dividend Reinvestment Plan.
The plan provides a convenient,
economical and systematic method
of acquiring additional shares of
the corporation’s common stock by
permitting eligible stockholders of
record to reinvest dividends.

The plan’s administrator is The Bank

of New York.

For additional information, dial (866)

272-9472.

corporate offices
Executive Offices
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510-9227
(757) 629-2600

Regional Offices
1200 Peachtree St. N.E.
Atlanta, Ga. 30309

110 Franklin Road S.E.
Roanoke, Va. 24042

annual report requests
and information
(800) 531-6757

most

n Be theSafest,
o
s
v
r
u
o

in the World

and

Customer-Focused
Successful Transportation Company

We are responsible to our stockholders, customers,

employees and the communities we serve.

For all OuR cOnStituEnciES, we will make safety our highest priority.

For OuR cuStOMERS, we will provide quality service, always trying to reduce our

costs in order to offer competitive prices.

For OuR StOckhOlDERS, we will strive to earn a return on their equity investment that will
increase the value of their ownership. By generating a reasonable return on invested capital,
we will provide the security of a financially strong company to our customers, employees,

stockholders and communities.

For OuR EMPlOyEES, our greatest asset, we will provide fair and dignified treatment with equal
opportunity at every level. We will seek a talented, diverse work force and management with the
highest standards of honesty and fairness.

For the cOMMunitiES WE SERvE, we will be good corporate citizens, seeking to enhance their quality
of life through service, jobs, investment and the energies and good will of our employees.

The Thoroughbred of Transportation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the fiscal year ended DEC. 31, 2005

( )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to _________

Commission file number 1-8339

NORFOLK SOUTHERN CORPORATION
(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of incorporation)

Three Commercial Place
Norfolk, Virginia
(Address of principal executive offices)

Registrant's telephone number, including area code

52-1188014
(IRS Employer Identification No.)

23510-2191
Zip Code

(757) 629-2680

No Change
(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Norfolk Southern Corporation

Common Stock (Par Value $1.00)

Name of each exchange

on which registered

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by checkmark if the registrant is well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes (X) No ( )

Indicate by checkmark if the registrant is not required to file such reports pursuant to section 13 or 15(d) of the Act. Yes ( ) No (X)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)

The aggregate market value of the voting common equity held by nonaffiliates as of June 30, 2005 was $12,524,405,303 (based on the closing price
as quoted on the New York Stock Exchange on that date).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]

The number of shares outstanding of each of the registrant's classes of common stock, as of Jan. 31, 2006: 412,236,777 (excluding 20,833,125
shares held by registrant's consolidated subsidiaries).

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement to be filed electronically pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year, are incorporated by reference in Part III.

TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

Part I.

Part II.

1 and 2. Business and Properties
1A. Risk Factors
1B. Unresolved Staff Comments
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant

5. Market for Registrant's Common Equity and Related Stockholders Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
9A. Controls and Procedures

Part III.

10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
13. Certain Relationships and Related Transactions
14. Principal Accountant Fees and Services

Part IV.

15. Exhibits and Financial Statement Schedules

Power of Attorney

Signatures

Page

K3
K12
K15
K15
K15
K16

K18
K19

K21
K41
K42

K82
K82

K83
K83

K83
K86
K86

K87

K95

PART I

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

Item 1. Business. and Item 2. Properties.

GENERAL - Norfolk Southern Corporation (Norfolk Southern) was incorporated on July 23, 1980,
under the laws of the Commonwealth of Virginia. On June l, 1982, Norfolk Southern acquired control of
two major operating railroads, Norfolk and Western Railway Company (NW) and Southern Railway
Company (Southern) in accordance with an Agreement of Merger and Reorganization dated as of July 31,
1980, and with the approval of the transaction by the Interstate Commerce Commission (now the Surface
Transportation Board [STB]). Effective Dec. 31, 1990, Norfolk Southern transferred all the common
stock of NW to Southern, and Southern's name was changed to Norfolk Southern Railway Company
(Norfolk Southern Railway or NSR). Effective Sept. 1, 1998, NW was merged with and into Norfolk
Southern Railway. As of Dec. 31, 2005, all the common stock of Norfolk Southern Railway was owned
directly by Norfolk Southern.

Through a limited liability company, Norfolk Southern and CSX Corporation (CSX) jointly own
Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC). Norfolk
Southern has a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the
remainder of the economic and voting interests. CRC owns and operates certain properties (the Shared
Assets Areas) for the joint and exclusive benefit of NSR and CSX Transportation Inc. (CSXT). On
June 1, 1999, NSR and CSXT, began operating separate portions of Conrail’s rail routes and assets. On
August 27, 2004, NS, CSX and Conrail completed a corporate reorganization of Conrail (Conrail
Corporate Reorganization), which established direct ownership and control by NSR and CSX
Transportation, Inc. (CSXT) of two former CRC subsidiaries, Pennsylvania Lines LLC (PRR) and New
York Central Lines LLC (NYC), respectively (See Note 5 to the Consolidated Financial Statements).

Norfolk Southern makes available free of charge through its website, www.nscorp.com, its annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to
those reports as soon as reasonably practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission (SEC). Additionally, Norfolk Southern’s
corporate governance guidelines, board committee charters, code of ethics and code of ethical conduct for
senior financial officers are available on the company’s website and in print to any shareholder who
requests them.

Unless otherwise indicated, Norfolk Southern and its subsidiaries are referred to collectively as NS.

RAILROAD OPERATIONS – As of Dec. 31, 2005, NS’ railroads operated approximately
21,200 miles of road in 22 eastern states, the District of Columbia and Ontario, Canada. The miles

operated, which includes leased lines between Cincinnati, Ohio, and Chattanooga, Tennessee, and
trackage rights over property owned by North Carolina Railway Company, were as follows:

Mileage Operated as of Dec. 31, 2005

Miles
of
Road

Second and
Other Main
Track

Passing
Track,
Crossovers

and
Turnouts

Way and
Yard
Switching

Total

Owned
Operated under lease,
contract or trackage rights
Total

16,237

4,947
21,184

2,808

1,978
4,786

2,087

417
2,504

8,598

29,730

969
9,567

8,311
38,041

NS' railroads carry raw materials, intermediate products and finished goods primarily in the Southeast,
East and Midwest and, via interchange with other rail carriers, to and from the rest of the United States
and parts of Canada. They also transport overseas freight through several Atlantic and Gulf Coast ports,
which include:

The ports of New York/New Jersey
Baltimore, MD
Morehead City, NC
Brunswick, GA
New Orleans, LA

Philadelphia, PA
Wilmington, DE
Charleston, SC
Jacksonville, FL

Camden, NJ
Norfolk, VA
Savannah, GA
Mobile, AL

The lines of NS' railroads reach most of the larger industrial and trading centers of the Southeast,
Northeast, Mid-Atlantic region and Midwest. In addition, haulage arrangements with connecting carriers
allow NS' railroads to provide single-line service to and from additional markets. Highlights of our
service network are as follows:

Haulage, trackage rights and interline arrangements with:

Florida East Coast Railway
Company

- Service to Southern and Eastern Florida

The Kansas City Southern Railway
Company

- Transcontinental intermodal service via Dallas with the
Burlington Northern Santa Fe Railway Company

Canadian Pacific Railway Company

- Service to New England

Guilford Transportation Industries

- Service to New England

Leading centers originating and terminating freight traffic:

Chicago
Atlanta
Kansas City, MO
Charleston
Philadelphia
Greensboro

Norfolk
New York City
Baltimore
Cleveland
Pittsburgh
Charlotte

Detroit
Jacksonville
Buffalo
Columbus
Toledo
Savannah

Major interterritorial gateways:

Chicago
New Orleans
St. Louis

Memphis
Kansas City
Meridian, MS

Corridors with heaviest freight volume:

Sidney/Salem, IL
Buffalo

New York City area to Chicago (via Allentown and Pittsburgh)

Chicago to Jacksonville (via Cincinnati, Chattanooga and Atlanta)

Appalachian coal fields of Virginia, West Virginia and Kentucky to Norfolk and Sandusky, OH

Cleveland to Kansas City

Knoxville to Chattanooga

The system’s lines also reach many individual industries, electric generating facilities, mines (in western
Virginia, eastern Kentucky, southern and northern West Virginia and western Pennsylvania), distribution
centers, transload facilities and other business located in smaller communities in its service area.

Triple Crown Operations – Triple Crown Services Company (TCSC), NS’ subsidiary, offers door-to-
door intermodal service using RoadRailer® equipment and domestic containers. RoadRailer® units are
enclosed vans that can be pulled over highways in tractor-trailer configuration and over the rails by
locomotives. TCSC provides intermodal service in major traffic corridors, including those between the
Midwest and the Northeast, the Midwest and the Southeast, and the Midwest and Texas.

The following table sets forth certain statistics relating to NS railroads' operations for the past 5 years:

Rail Operating Statistics

Revenue ton miles (billions)
Freight train miles traveled (millions)
Revenue per ton mile
Revenue ton miles per
man-hour worked
Percentage ratio of railway operating
expenses to railway operating revenues

2005

203
81.2
$0.0421

Years Ended Dec. 31,
2003

2002

2004

2001

198
77.7
$0.0369

183
73.9
$0.0353

179
72.6
$0.0350

182
70.0
$0.0339

3,146

3,347

3,111

3,067

3,023

75.2%

76.7%

83.5%1

81.5%

83.7%

1Includes $107 million of costs for a voluntary separation program, which added 1.6 percentage points to
the ratio.

RAILWAY OPERATING REVENUES -- NS' total railway operating revenues were $8.5 billion
in 2005. See the financial information by traffic segment in Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”

COAL TRAFFIC -- Coal, coke and iron ore -- most of which is bituminous coal -- is NS' railroads'
largest commodity group as measured by revenues. The railroads handled a total of 187 million tons in

2005, most of which originated on NS' lines in West Virginia, Virginia, Pennsylvania and Kentucky.
Revenues from coal, coke and iron ore accounted for about 25% of NS' total railway operating revenues
in 2005.

Total coal handled through all system ports in 2005 was 38 million tons. Of this total, 12 million tons
(including coastwise traffic) moved through Norfolk, Virginia, 4 million tons moved through the
Baltimore Terminal, 14 million tons moved to various docks on the Ohio River, and 8 million tons moved
to various Lake Erie ports. Other than coal for export, virtually all coal handled by NS' railroads was
terminated in states east of the Mississippi River.

See the discussion of coal traffic, by type of coal, in Part II, Item 7, “Management's Discussion and
Analysis of Financial Condition and Results of Operations.”

GENERAL MERCHANDISE TRAFFIC - General merchandise traffic is composed of five major
commodity groupings: automotive; chemicals; metals and construction; agriculture, consumer products
and government; and paper, clay and forest products. The automotive group includes finished vehicles
for BMW, DaimlerChrysler, Ford Motor Company, General Motors, Honda, Isuzu, Jaguar, Land Rover,
Mazda, Mercedes-Benz, Mitsubishi, Nissan, Saab, Subaru, Suzuki, Toyota and Volkswagen, and auto
parts for Ford Motor Company, General Motors, Mercedes-Benz and Toyota. The chemicals group
includes sulfur and related chemicals, petroleum products, chlorine and bleaching compounds, plastics,
rubber, industrial chemicals, chemical wastes and municipal wastes. The metals and construction group
includes steel, aluminum products, machinery, scrap metals, cement, aggregates, bricks and minerals.
The agriculture, consumer products and government group includes soybeans, wheat, corn, fertilizer,
animal and poultry feed, food oils, flour, beverages, canned goods, sweeteners, consumer products,
ethanol and items for the military. The paper, clay and forest products group includes lumber and wood
products, pulp board and paper products, wood fibers, wood pulp, scrap paper and clay.

In 2005, 144 million tons of general merchandise freight, or approximately 66% of total general
merchandise tonnage handled by NS, originated online. The balance of general merchandise traffic was
received from connecting carriers at interterritorial gateways. The principal interchange points for NS-
received traffic included Chicago, Memphis, New Orleans, Cincinnati, Kansas City, Detroit, Hagerstown,
St. Louis/East St. Louis and Louisville. General merchandise carloads handled in 2005 were 2.9 million,
the revenue from which accounted for 54% of NS’ total railway operating revenues in 2005.

See the discussion of general merchandise rail traffic by commodity group in Part II, Item 7,
“Management's Discussion and Analysis of Financial Conditions and Results of Operations.”

INTERMODAL TRAFFIC - The intermodal market consists of shipments moving in trailers, domestic
and international containers, and Roadrailer® equipment. These shipments are handled on behalf of
intermodal marketing companies, international steamship lines, truckers and other shippers. Intermodal
units handled in 2005 were 3.2 million, the revenues from which accounted for 21% of NS’ total railway
operating revenues for the year.

See the discussion of intermodal traffic in Part II, Item 7, “Management's Discussion and Analysis of
Financial Condition and Results of Operations.”

FREIGHT RATES - In 2005, NS' railroads continued their reliance on private contracts and exempt
price quotes as their predominant pricing mechanisms. Thus, a major portion of NS' railroads' freight
business is not currently economically regulated by the government. In general, market forces have been
substituted for government regulation and now are the primary determinant of rail service prices. In 2005,
coal movements that had been moving under common carrier (tariff) rates to Duke Energy and Carolina

Power and Light power plants began moving under contract rates as part of the settlement agreements
resolving the rail transportation rate cases brought by each of the utilities. In 2004 there were significant
coal movements moving under common carrier (tariff) rates that had previously moved under rates
contained in transportation contracts.

In 2005, NS' railroads were found by the STB to be “revenue adequate” based on results for the year
2004. A railroad is “revenue adequate” under the applicable law when its return on net investment
exceeds the rail industry's composite cost of capital. This determination is made pursuant to a statutory
requirement.

PASSENGER OPERATIONS - Regularly scheduled passenger trains are operated by Amtrak on
NS' lines between Alexandria and New Orleans, between Greensboro and Selma, North Carolina,
between Chicago, Illinois, and Detroit, Michigan, and between Chicago and Harrisburg, Pennsylvania.
Commuter trains are operated on the NS line between Manassas and Alexandria in accordance with
contracts with two transportation commissions of the Commonwealth of Virginia. NS also leases the
Chicago to Manhattan, Illinois, line to the Commuter Rail Division of the Regional Transportation
Authority of Northeast Illinois. NS operates lines on which Amtrak conducts regularly scheduled
passenger operations. In addition, NS provides freight service over lines with significant ongoing Amtrak
and commuter passenger operations, and is conducting freight operations over some trackage owned by
Amtrak or by New Jersey Transit, the Southeastern Pennsylvania Transportation Authority, Metro-North
Commuter Railroad Company and Maryland DOT. Finally, passenger operations are conducted either by
Amtrak or by the commuter agencies over trackage owned by Conrail in the Shared Assets Areas.

NONCARRIER OPERATIONS - NS' noncarrier subsidiaries engage principally in the acquisition,
leasing and management of coal, oil, gas and minerals; the development of commercial real
estate; telecommunications; and the leasing or sale of rail property and equipment. In 2005, no
such noncarrier subsidiary or industry segment grouping of noncarrier subsidiaries met the
requirements for a reportable business segment set forth in Statement of Financial Accounting
Standards No. 131.

RAILWAY PROPERTY

The NS railroad system extends across 22 states, the District of Columbia and portions of Canada. The
railroad infrastructure makes the company capital intensive with total property of approximately
$21 billion.

Capital Expenditures - Capital expenditures for road, equipment and other property for the past five
years were as follows (including capitalized leases):

2005

2004

2003

2002

2001

Capital Expenditures

($ in millions)

Road
Equipment
Other property
Total

739 $
284
2
1,025 $

607 $
429
5
1,041 $

495 $
218
7
720 $

519 $
174
2
695 $

505
233
8
746

Capital spending and maintenance programs are and have been designed to assure the ability to provide
safe, efficient and reliable transportation services. For 2006, NS has budgeted $1.15 billion of capital

spending. On Dec. 2, 2005, NS announced an agreement to form a joint venture with Kansas City
Southern pursuant to which NS intends to contribute $300 million in cash in exchange for a 30% interest
in the joint venture. See the discussion following “Cash used for investing activities,” in Part II, Item 7,
“Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Equipment - As of Dec. 31, 2005, NS owned or leased the following units of equipment:

Owned*

Number of Units
Leased**

Total

Capacity
of Equipment

Locomotives:
Multiple purpose
Switching
Auxiliary units
Total locomotives

Freight cars:
Hopper
Box
Covered hopper
Gondola
Flat
Caboose
Other
Total freight cars

Other:
Work equipment
Vehicles
Highway trailers and
containers
RoadRailer®
Miscellaneous
Total other

3,360
207
74
3,641

19,313
18,615
9,207
30,118
2,785
238
4,012
84,288

5,422
3,948

450
6,784
1,447
18,051

(Horsepower)

12,077,200
303,700
--
12,380,900

(Tons)

2,127,459
1,652,499
1,302,758
4,090,723
321,218
--
199,706
9,694,363

150
--
--
150

814

2,257
2,725
8,031
1,339
--
--
15,166

3
--

10,253

197

19,012
29,465

3,510
207
74
3,791

20,127
20,872
11,932
38,149
4,124
238
4,012
99,454

5,425
3,948

10,703
6,981
20,459
47,516

* Includes equipment leased to outside parties and equipment subject to equipment trusts,
conditional sale agreements and capitalized leases.
** Includes 18 locomotives and 6,550 freight cars leased from CRC.

The following table indicates the number and year built for locomotives and freight cars owned at
Dec. 31, 2005.

2005 2004

2003

2002

2001

1994-
2000

1989-
1993

1988 &
Before

Year Built

89
2%

207
6%

100
3%

--*
--%

160
4%

975
27%

465
13%

1,645
45%

Total

3,641
100%

71
--%

--
--%

44
--%

9,475
11%

6,866
8%

67,832
81%

84,288
100%

Locomotives:
No. of units
% of fleet

Freight cars:
No. of units
% of fleet

*Fifty of the locomotives built in 2001 were purchased in 2002.

The following table shows the average age of NS’ locomotive and freight car fleets at Dec. 31, 2005, and
the number of retirements in 2005:

Average age – in service
Retirements
Average age – retired

Locomotives

Freight Cars

17.2 years
52 units
27.4 years

28.4 years
1,499 units
34.1 years

Between 1988 and 2000, about 29,000 coal cars were rebodied. As a result, the remaining serviceability
of the freight car fleet is greater than may be inferred from the high percentage of freight cars built in
earlier years.

Annual Average Bad Order Ratio

2005

2004

2003

2002

2001

Freight cars
Locomotives

6.3%
6.2%

7.4%
6.3%

7.4%
6.2%

8.1%
6.3%

6.9%
5.8%

Ongoing freight car and locomotive maintenance programs are intended to ensure the highest standards of
safety, reliability, customer satisfaction and equipment marketability. The freight car bad order ratio rose
in 2001 and 2002 as a result of decreased maintenance activity. The declines in 2005 and 2003 reflected
an increase in maintenance activity as well as the retirement of unserviceable units. The locomotive bad
order ratio includes units out of service for required inspections every 92 days and program work such as
overhauls. The elevated ratio through 2005 reflected units out of service related to the resumption of
maintenance and modification activities.

Encumbrances - Certain railroad equipment is subject to the prior lien of equipment financing
obligations amounting to approximately $650 million as of Dec. 31, 2005, and $930 million as of
Dec. 31, 2004.

Track Maintenance - Of the approximately 38,000 total miles of track operated, NS had responsibility
for maintaining about 30,000 miles of track with the remainder being operated under trackage rights.

Over 75% of the main line trackage (including first, second, third and branch main tracks, all excluding
trackage rights) has rail ranging from 131 to 155 pounds per yard with the standard installation currently
at 136 pounds per yard. Approximately 44% of NS lines carried 20 million or more gross tons per
track mile.

The following table summarizes several measurements regarding NS' track roadway additions and
replacements during the past five years:

2005

2004

2003

2002

2001

Track miles of rail installed
Miles of track surfaced
New crossties installed (millions)

302
4,663
2.5

246
5,055
2.5

233
5,105
2.8

235
5,270
2.8

254
3,836
1.5

Microwave System - The NS microwave system, consisting of approximately 7,400 radio route miles,
424 core stations, 14 secondary stations and 5 passive repeater stations, provides communications
between most operating locations. The microwave system is used primarily for voice communications,
VHF radio control circuits, data and facsimile transmissions, traffic control operations and AEI data
transmissions.

Traffic Control - Of the approximately 16,200 route miles owned by NS, 11,052 miles are signalized,
including 8,030 miles of centralized traffic control (CTC) and 3,022 miles of automatic block signals.
Of the 8,030 miles of CTC, 2,715 miles are controlled by data radio originating at 215 base station
radio sites.

Computers - A computer network consisting of a centralized data center in Atlanta, Georgia, and various
distributed computers throughout the company connects the yards, terminals, transportation offices,
rolling stock repair points, sales offices and other key system locations. Operating and traffic data are
processed and stored to provide customers with information on their shipments throughout the system.
Computer systems provide current information on the location of every train and each car on line, as well
as related waybill and other train and car movement data. In addition, the computer systems are utilized
to assist management in the performance of a variety of functions and services including payroll, car and
revenue accounting, billing, material management activities and controls, and special studies.

ENVIRONMENTAL MATTERS - Compliance with federal, state and local laws and regulations
relating to the protection of the environment is a principal NS goal. To date, such compliance has not
affected materially NS' capital additions, earnings, liquidity or competitive position. See the discussion of
“Personal Injury, Environmental and Legal Liabilities” in Part II, Item 7, “Management's Discussion and
Analysis of Financial Condition and Results of Operations,” and in Note 18 to the Consolidated Financial
Statements.

K10

EMPLOYEES – The following table shows the average number of employees and the average cost per
employee for wages and benefits:

2005

2004

2003

2002

2001

Average number of employees

30,294

28,475

28,753

28,970

30,894

Average wage cost per employee

$61,000

$59,000

$58,000

$54,000

$52,000

Average benefit cost per employee

$29,000

$28,000

$24,000

$21,000

Approximately 85% of NS' railroad employees are covered by collective bargaining agreements with
14 different labor unions. See the discussion of “Labor Agreements” in Part II, Item 7, “Management's
Discussion and Analysis of Financial Condition and Results of Operations.”

GOVERNMENT REGULATION - In addition to environmental, safety, securities and other
regulations generally applicable to all businesses, NS' railroads are subject to regulation by the STB. The
STB has jurisdiction over some rates, routes, conditions of service and the extension or abandonment of
rail lines. The STB also has jurisdiction over the consolidation, merger or acquisition of control of and by
rail common carriers. The Federal Railroad Administration regulates certain track and mechanical
equipment standards.

The relaxation of economic regulation of railroads, begun over two decades ago under the Staggers Rail
Act of 1980, has continued. Significant exemptions are TOFC/COFC (i.e., “piggyback”) business, rail
boxcar traffic, lumber, manufactured steel, automobiles and certain bulk commodities such as sand,
gravel, pulpwood and wood chips for paper manufacturing. Transportation contracts on regulated
shipments effectively remove those shipments from regulation as well for the duration of the contract.
About 80% of NS' freight revenues come from either exempt traffic or traffic moving under transportation
contracts.

Efforts may be made in 2006 to re-subject the rail industry to unwarranted federal economic regulation.
The Staggers Rail Act of 1980, which substantially reduced such regulation, encouraged and enabled rail
carriers to innovate and to compete for business, thereby contributing to the economic health of the nation
and to the revitalization of the industry. Accordingly, NS will oppose efforts to reimpose unwarranted
economic regulation.

COMPETITION - There is continuing strong competition among rail, water and highway carriers. Price
is usually only one factor of importance as shippers and receivers choose a transport mode and specific
hauling company. Inventory carrying costs, service reliability, ease of handling and the desire to avoid
loss and damage during transit are also important considerations, especially for higher-valued finished
goods, machinery and consumer products. Even for raw materials, semifinished goods and work-in-
process, users are increasingly sensitive to transport arrangements that minimize problems at successive
production stages.

NS' primary rail competitor is the CSX system; both operate throughout much of the same territory.
Other railroads also operate in parts of the territory. NS also competes with motor carriers, water carriers
and with shippers who have the additional option of handling their own goods in private carriage.

Certain marketing strategies among railroads and between railroads and motor carriers enable carriers to
compete more effectively in specific markets.

K11

Item 1A. Risk Factors.

NS is subject to significant governmental regulation and legislation over commercial,
environmental and operating matters. Railroads are subject to commercial regulation by the Surface
Transportation Board, which has jurisdiction over some rates, routes, conditions of service and the
extension or abandonment of rail lines. The STB also has jurisdiction over the consolidation, merger or
acquisition of control of and by rail common carriers. Occasional efforts are made to re-subject the rail
industry to unwarranted federal economic regulation. Economic re-regulation of the rail industry could
negatively impact NS’ ability to determine prices for rail services and reduce capital spending on its rail
network, resulting in a material adverse effect on NS’ results of operations, financial condition, and
liquidity.

NS’ operations are subject to extensive federal, state, and local environmental laws and regulations
concerning, among other things, emissions to the air; discharges to water ways or ground water supplies;
handling, storage, transportation, and disposal of waste and other materials; and the cleanup of hazardous
material or petroleum releases. The risk of incurring environmental liability - for acts and omissions, past,
present and future - is inherent in the railroad business. Several of NS’ subsidiaries own, or have owned,
land used as operating property or held for sale, or which is leased or may have been leased and operated
by others. Environmental problems that are latent or undisclosed may exist on these properties, and NS
could incur environmental liabilities or costs, the amount and materiality of which cannot be estimated
reliably at this time, with respect to one or more of these properties. Moreover, lawsuits and claims
involving other unidentified environmental sites and matters are likely to arise from time to time, and the
resulting liabilities could have a significant effect on financial condition, results of operations or liquidity
in a particular year or quarter.

The Federal Railroad Administration regulates a host of operations matters including track and
mechanical equipment standards; signaling systems; testing and inspection of grade crossing warning
devices, hours of service of operating employees; drug and alcohol testing; locomotive engineer
certification; and reporting of employee injuries, among other areas. NS’ unintentional failure to comply
with applicable laws and regulations could have a material adverse effect on NS, and changes in the
legislative or regulatory frameworks within which NS operates could adversely affect its business.

NS may be affected by general economic conditions. Prolonged negative changes in domestic and
global economic conditions affecting the producers and consumers of the commodities NS carries may
have an adverse effect on its operating results, financial condition, and liquidity. Economic conditions
resulting in bankruptcies of one or more large customers could have a significant impact in a particular
quarter.

NS faces competition from other transportation providers. NS is subject to competition from motor
carriers, railroads, and to a lesser extent, ships, barges, and pipelines on the basis of transit time, pricing,
and the quality and reliability of service. While NS has used primarily internal resources to build or
acquire and maintain its rail system, trucks and barges have been able to use public rights-of-way
maintained by public entities. Any future improvements or expenditures materially increasing the quality
or reducing the cost of alternative modes of transportation in the regions in which NS operates, or
legislation granting materially greater latitude for motor carriers with respect to size or weight limitations,
could have a material adverse effect on its results of operations, financial condition, and liquidity.

NS, as a common carrier by rail, must offer to transport hazardous materials, regardless of risk.
Transportation of certain hazardous materials could create catastrophic losses in terms of personal injury
and property damage costs, and compromise critical parts of our rail network. Legislation introduced in
Congress in early 2005 would give federal regulators increased authority to conduct investigations and

K12

levy substantial fines and penalties in connection with railroad accidents. Federal regulators also would
be required to prescribe new regulations governing railroads’ transportation of hazardous materials. If
enacted, such legislation and regulations could impose significant additional costs on railroads.
Additionally, regulations adopted by the Department of Transportation and regulations contemplated by
the Department of Homeland Security could significantly increase the costs associated with moving
hazardous materials on NS’ lines. Further, certain local governments have sought to enact ordinances
banning hazardous materials moving by rail within their borders. Some legislators have contemplated
pre-notification requirements for hazardous materials shipments. If promulgated such ordinances could
require the re-routing of hazardous materials shipments, with the potential for significant additional costs
and network inefficiencies.

The operations of carriers with which NS interchanges may adversely affect its operations. NS’
ability to provide rail service to customers in the U.S. and Canada depends in large part upon its ability to
maintain cooperative relationships with connecting carriers with respect to, among other matters, freight
rates, revenue divisions, car supply, reciprocal switching, interchange, trackage rights and locomotive
availability. Deterioration in the operations of, or service provided by connecting carriers, or in our
relationship with those connecting carriers, could result in NS’ inability to meet its customers’ demands
or require NS to use alternate train routes, which could result in significant additional costs and network
inefficiencies.

NS relies on technology and technology improvements in its business operations. If NS experiences
significant disruption or failure of one or more of its information technology systems, including computer
hardware, software, and communications equipment, NS could experience a service interruption, security
breach, or other operational difficulties, which could have a material adverse impact on its results of
operations, financial condition, and liquidity. Additionally, if NS does not have sufficient capital to
acquire new technology or if it is unable to implement new technology, NS may suffer a competitive
disadvantage within the rail industry and with companies providing other modes of transportation service,
which could have a material adverse effect on its results of operations, financial position, and liquidity.

During 2006, NS will relocate its primary production data center to a newly renovated, state-of-the-art
data center. Relocation of primary production applications will begin in April and continue through
November. Multiple strategies are being utilized to minimize risk such as purchasing seed equipment for
the new data center in support of all mission critical applications. This would include all network
components, Mainframe, Teradata and server based critical infrastructure. For less critical applications,
the equipment will be shutdown and transported to the new data center. In all cases disaster recovery
readiness for mission critical applications will be maintained.

The vast majority of NS employees belong to labor unions, and labor agreements, strikes, or work
stoppages could adversely affect its operations. Approximately 26,000, or about 85%, of NS railroad
employees are covered by collective bargaining agreements with various labor unions. If unionized
workers were to engage in a strike, work stoppage, or other slowdown, NS could experience a significant
disruption of its operations. Additionally, future national labor agreements, or renegotiation of labor
agreements or provisions of labor agreements, could significantly increase NS’ costs for healthcare,
wages, and other benefits. Any of these factors could have a material adverse impact on NS’ results of
operations, financial condition, and liquidity.

NS may be subject to various claims and lawsuits that could result in significant expenditures. The
nature of NS’ business exposes it to the potential for various claims and litigation related to labor and
employment, personal injury, freight loss and other property damage, and other matters. Job-related
personal injury and occupational claims are subject to the Federal Employers’ Liability Act (FELA),
which is applicable only to railroads. FELA’s fault-based tort system produces results that are

K13

unpredictable and inconsistent as compared with a no-fault worker’s compensation system. The
variability inherent in this system could result in actual costs being very different from the liability
recorded.

Any material changes to current litigation trends or a catastrophic rail accident involving any or all of
freight loss or property damage, personal injury, and environmental liability could have a material adverse
effect on NS’ operating results, financial condition, and liquidity to the extent not covered by insurance.
NS has obtained commercial insurance for potential losses for third-party liability and first-party property
damages. Specified levels of risk are retained on a self-insurance basis (currently up to $25 million per
occurrence for bodily injury and property damage to third parties and $12.5 million per occurrence for
property owned by NS or in its care, custody or control). Insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be obtainable on terms acceptable
to NS.

Severe weather could result in significant business interruptions and expenditures. Severe weather
conditions and other natural phenomena, including hurricanes and floods, may cause significant business
interruptions and result in increased costs, increased liabilities, and decreased revenues, which could have
an adverse effect on NS’ operating results, financial condition, and liquidity.

Unpredictability of demand for rail services resulting in the unavailability of qualified personnel
could adversely affect NS’ operational efficiency and ability to meet demand. Workforce
demographics, training requirements, and the availability of qualified personnel, particularly engineers
and trainmen, could each have a negative impact on NS’ ability to meet demand for rail service.
Unpredictable increases in demand for rail services may exacerbate such risks, which could have a
negative impact on NS’ operational efficiency and otherwise have a material adverse effect on its results
of operations, financial condition, and liquidity.

NS may be affected by terrorism or war. Any terrorist attack, or other similar event, any government
response thereto, and war or risk of war could cause significant business interruption and may adversely
affect NS’ results of operations, financial condition, and liquidity. Because NS plays a critical role in the
nation’s transportation system, it could become the target of such an attack or have a significant role in
the government’s preemptive approach or response to an attack or war.

Although NS currently maintains insurance coverage for third-party liability arising out of war and acts of
terrorism, its current insurance coverage for first-party property damage and damage to property in NS’
care, custody or control does not apply to damage caused by war and may not apply to certain acts of
terrorism. In addition, premiums for some or all of NS’ current insurance programs covering these losses
could increase dramatically, or insurance coverage for certain losses may not be available to NS in the
future.

NS may be affected by supply constraints resulting from disruptions in the fuel markets or the
nature of some of its supplier markets. NS consumes over 500 million gallons of diesel fuel each year.
Fuel availability could be affected by any limitation in the fuel supply or by any imposition of mandatory
allocation or rationing regulations. If a severe fuel supply shortage arose from production curtailments,
disruption of oil imports, disruption of domestic refinery production, damage to refinery or pipeline
infrastructure, political unrest, war or otherwise, NS’ operating results, financial condition, and liquidity
could be affected. Also, such an event would impact NS as well as its customers and other transportation
companies.

Due to the capital intensive nature and industry-specific requirements of the rail industry, there are high
barriers of entry for potential new suppliers of core railroad items, such as locomotives and rolling stock

K14

equipment. Additionally, NS competes with other industries for available capacity and raw materials
used in the production of certain track materials, such as rail and ties. Changes in the competitive
landscapes of these limited-supplier markets could result in increased prices or material shortages that
could materially affect NS’ operating results, financial condition, and liquidity.

Item 1B. Unresolved Staff Comments.

None.

Item 3. Legal Proceedings.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during the fourth quarter of 2005.

K15

Executive Officers of the Registrant.

Norfolk Southern's executive officers generally are elected and designated annually by the Board of
Directors at its first meeting held after the annual meeting of stockholders, and they hold office until their
successors are elected. Executive officers also may be elected and designated throughout the year as the
Board of Directors considers appropriate. There are no family relationships among the officers, nor any
arrangement or understanding between any officer and any other person pursuant to which the officer was
selected. The following table sets forth certain information, as of January 31, 2006, relating to the
executive officers.

Name, Age, Present Position

Business Experience During Past Five Years

David R. Goode, 65,
Chairman

Charles W. Moorman, 53,
President and Chief Executive
Officer

L. I. Prillaman, 62,
Vice Chairman and
Chief Marketing Officer

Stephen C. Tobias, 61,
Vice Chairman and
Chief Operating Officer

Henry C. Wolf, 63,
Vice Chairman and
Chief Financial Officer

James A. Hixon, 52,
Executive Vice President –
Law and Corporate Relations

Present position since November 1, 2005.
Served as Chairman and Chief Executive Officer from
October 1, 2004, to November 1, 2005, and prior thereto
was Chairman, President and Chief Executive Officer.
Mr. Goode will retire from position as Chairman effective
February 1, 2006, and he will serve as special advisor to the
Chief Executive Officer until his retirement effective
March 1, 2006.

Present position since November 1, 2005.
Served as President from October 1, 2004 to November 1, 2005;
as Senior Vice President – Corporate Planning and Services from
December 1, 2003 to October 1, 2004; Senior Vice President –
Corporate Services from February 1, 2003 to December 1, 2003;
also served as President – Thoroughbred Technology and
Telecommunications, Inc. since October 1999 and prior thereto
was Vice President – Information Technology. Mr. Moorman
will succeed Mr. Goode as Chairman effective February 1, 2006.

Present position since August 1998.

Present position since October 1, 2005.
Served as Executive Vice President – Finance and Public Affairs
From October 1, 2004, to October 1, 2005; Senior Vice
President – Legal and Government Affairs from December 1,
2003 to October 1, 2004; Senior Vice President – Administration
from February 1, 2001 to December 1, 2003; Senior Vice
President – Employee Relations from November 1, 1999 to
February 1, 2001; and prior thereto was Vice President –
Taxation.

K16

Mark D. Manion, 53,
Executive Vice President –
Operations

Present position since October 1, 2004.
Served as Senior Vice President – Transportation Operations
from December 1, 2003 to October 1, 2004; Vice President –
Transportation Services and Mechanical from February 1, 2001
to December 1, 2003; and prior thereto was Vice President –
Mechanical.

Kathryn B. McQuade, 49,
Executive Vice President –
Planning and Chief Information
Officer

Present position since October 1, 2004.
Served as Senior Vice President – Finance from December 1,
2003 to October 1, 2004; Senior Vice President – Financial
Planning from April 1, 2000 to December 1, 2003; and prior
thereto was Vice President – Financial Planning.

John P. Rathbone, 53,
Executive Vice President –
Administration

Donald W. Seale, 53,
Executive Vice President –
Sales and Marketing

Daniel D. Smith, 53,
Senior Vice President –
Energy and Properties

James A. Squires, 44,
Senior Vice President – Law

Present position since October 1, 2004.
Served as Senior Vice President – Administration from
December 1, 2003 to October 1, 2004; Senior Vice President
and Controller from April 2000 to December 1, 2003 and prior
thereto was Vice President and Controller.

Present position since October 1, 2004.
Served as Senior Vice President – Marketing Services from
December 1, 2003 to October 1, 2004; and prior thereto was
Senior Vice President- Merchandise Marketing.

Present position since December 1, 2003.
Served as President- NS Development from February 1, 2001 to
December 1, 2003; and prior thereto was President of
Pocahontas Land Corporation.

Present position since October 1, 2004.
Served as Vice President – Law from December 1, 2003 to
October 1, 2004; Senior General Counsel from February 1, 2002
to December 1, 2003 and prior thereto was General Counsel.

Marta R. Stewart, 48,
Vice President and Controller

Present position since December 1, 2003.
Prior thereto was Assistant Vice President Corporate Accounting.

K17

PART II

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
STOCK PRICE AND DIVIDEND INFORMATION

The Common Stock of Norfolk Southern Corporation, owned by 48,180 stockholders of record as of
Dec. 31, 2005, is traded on the New York Stock Exchange with the symbol NSC. The following table
shows the high and low sales prices as reported by Bloomberg L.P. on its internet-based service and
dividends per share, by quarter, for 2005 and 2004.

2005

Market price
High
Low
Dividends per share

2004

Market price
High
Low
Dividends per share

1st

2nd

Quarter

3rd

4th

38.99 $
33.21
0.11 $

37.78 $
29.60
0.11 $

40.93 $
30.70
0.13 $

24.06 $
20.38
0.08 $

26.60 $
21.54
0.08 $

29.79 $
24.77
0.10 $

45.81
38.01
0.13

36.69
29.88
0.10

ISSUER REPURCHASES OF EQUITY SECURITIES

(a) Total Number
of Shares (or
Units) Purchased

(b) Average
Price Paid per
Share (or Unit)

Period

Oct. 1-31, 2005

Nov. 1-30, 2005

Dec. 1-31, 2005

2,524(1)

32,170(1)

10,907(1)

Total

45,601

$39.61

$42.01

$44.28

$42.42

(d) Maximum Number (or
Approximate Dollar
Value) of Shares (or Units)
that may yet be Purchased
Under the Plans or
Programs(2)

50,000,000

(1)

(2)

Shares tendered by employees in connection with the exercise of stock options under the
Long-Term Incentive Plan.
On Nov. 22, 2005, the Board of Directors authorized a share repurchase program, pursuant to
which up to 50 million of the NS’ common stock may be purchased by 2015.

K18

Item 6. Selected Financial Data.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
FIVE-YEAR FINANCIAL REVIEW 2001-2005

20051

20042
20033
2002
($ in millions, except per share amounts)

2001

RESULTS OF OPERATIONS
Railway operating revenues
Railway operating expenses
Income from railway
operations

Other income – net
Interest expense on debt
Income from continuing
operations before income
taxes and accounting changes

Provision for income taxes
Income from continuing
operations before accounting
changes

Discontinued operations4
Cumulative effect of changes in
accounting principles, net of
taxes5
Net income

8,527 $
6,410

7,312 $
5,610

6,468 $
5,404

6,270 $
5,112

2,117

1,702

1,064

1,158

74
494

1,697

416

1,281

89
489

1,302

379

923

19
497

586

175

411

66
518

706

246

460

--
1,281 $

--
923 $

114
535 $

--
460 $

PER SHARE DATA
Income from continuing
operations before accounting
changes – basic
$
$
– diluted
$
Net income – basic
$
– diluted
Dividends
$
Stockholders' equity at year end $

$
$

FINANCIAL POSITION
Total assets
Total long-term debt, including
current maturities6
Stockholders' equity

OTHER
Capital expenditures

Average number of shares
outstanding (thousands)
Number of stockholders at year
end
Average number of employees:
Rail
Nonrail
Total

3.17 $
3.11 $
3.17 $
3.11 $
0.48 $
22.66 $

2.34 $
2.31 $
2.34 $
2.31 $
0.36 $
19.95 $

1.05 $
1.05 $
1.37 $
1.37 $
0.30 $
17.83 $

1.18 $
1.18 $
1.18 $
1.18 $
0.26 $
16.71 $

25,861 $

24,750 $

20,596 $

19,956 $

19,418

6,930 $
9,289 $

7,525 $
7,990 $

7,160 $
6,976 $

7,364 $
6,500 $

7,632
6,090

1,025 $

1,041 $

720 $

695 $

746

404,170

394,201

389,788

388,213

385,158

48,180

51,032

52,091

51,418

53,042

29,851
443
30,294

28,057
418
28,475

28,363
390
28,753

28,587
383
28,970

30,510
384
30,894

K19

6,170
5,163

1,007

99
553

553

191

362

--
375

0.94
0.94
0.97
0.97
0.24
15.78

2005 provision for income taxes includes a $96 million benefit related to the reduction of NS’ deferred income
tax liabilities resulting from tax legislation enacted by Ohio. This benefit increased net income by $96 million,
or 23 cents per diluted share.

2004 other income – net includes a $53 million net gain from the Conrail Corporate Reorganization. This gain
increased net income by $53 million or 13 cents per diluted share.

2003 operating expenses include a $107 million charge for a voluntary separation program. Other income –
net includes an $84 million charge to recognize the impaired value of certain telecommunications assets.
These charges reduced net income by $119 million, or 30 cents per diluted share.

NS sold all the common stock of its motor carrier subsidiary, North American Van Lines, Inc. in 1998. Results
in 2001 include an additional after-tax gain of $13 million, or 3 cents per diluted share, that resulted from the
expiration of certain indemnity obligations contained in the sales agreement. Results in 2003 include an
additional after-tax gain of $10 million, or 3 cents per diluted share, resulting from resolution of tax issues
related to the transaction.

Net income in 2003 reflects two accounting changes, the cumulative effect of which increased net income by
$114 million, or 29 cents per diluted share: a change in accounting for the cost to remove railroad crossties,
which increased net income by $110 million, and a change in accounting related to a special-purpose entity
that leases certain locomotives to NS, which increased net income by $4 million.

Excludes notes payable to Conrail of $716 million in 2003, $513 million in 2002 and $301 million in 2001.

See accompanying Consolidated Financial Statements and notes thereto.

K20

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Norfolk Southern Corporation and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Consolidated Financial
Statements and Notes and the Selected Financial Data.

OVERVIEW

NS’ results in 2005 reflect substantial increases in revenues resulting from higher pricing, fuel surcharges
and increased traffic volume that kept pace with the growth of the U.S. economy. Revenues increased
$1.2 billion, or 17%, in 2005, as high demand for rail freight transportation, coupled with constrained
capacity for other modes of transport and the fluidity of the NS network enabled NS to raise rates and
handle additional volume. Approximately one-third of the revenue increase was due to higher fuel
surcharge amounts. Carloadings were up 322,300 units, or 4%, largely because of a 9% increase in
intermodal traffic. For the most part, increased operating expenses of $800 million were reflective of the
increased traffic volume as well as sharply higher fuel prices. In addition, casualties and other claims
expenses were significantly higher in 2005 related to an accident in Graniteville, South Carolina in
January, a large unfavorable jury award in July and two strong Gulf Coast hurricanes in August and
September. Despite the 14% increase in expenses, the operating ratio, a measure of the amount of
operating revenues consumed by operating expenses, improved to 75.2%, and income from railway
operations rose 24%.

The strong operating results translated into significantly improved cash flows which were used to pay off
debt and increase dividends while establishing an all-time high cash and short-term investment balance of
$1.3 billion at year end. Looking ahead, NS expects business levels to continue to grow in 2006 but at a
more modest pace than seen in 2005. NS plans to continue its focus on improving service levels and
maintaining an aggressive pricing strategy as business is renewed. Approximately one-half of NS’
revenue base is subject to renegotiation or repricing in 2006.

SUMMARIZED RESULTS OF OPERATIONS

2005 Compared with 2004

Net income in 2005 was $1.3 billion, or $3.11 per diluted share, up $358 million, or 39%, compared with
$923 million, or $2.31 per diluted share, in 2004. The results in 2005 reflected a $96 million second
quarter increase to net income related to state tax law changes (see Note 3), while the results in 2004
reflected a $53 million net gain related to the Conrail Corporate Reorganization (see Note 5). The
remaining $315 million increase in net income was primarily due to higher income from railway
operations. Railway operating revenues increased $1.2 billion, reflecting higher rates (including the
favorable effects of the coal rate cases settled in the second quarter – see below), fuel surcharges and
increased traffic volume. Railway operating expenses rose $800 million, or 14%, principally due to
higher diesel fuel prices, increased volume-related expenses and casualty claims costs.

K21

2004 Compared with 2003

Net income in 2004 of $923 million, or $2.31 per diluted share, was up $388 million, or 73%, compared
with net income of $535 million, or $1.37 per diluted share, in 2003. Results in 2003 included a
$10 million, or 3 cents per share, gain from discontinued operations (see Note 17) and a $114 million, or
29 cents per share, benefit related to the cumulative effect of changes in accounting principles (see
Note 1). Income from continuing operations before accounting changes was $923 million, or $2.31 per
diluted share, in 2004, compared with $411 million, or $1.05 per diluted share, in 2003. The increase in
2004 was the result of higher income from railway operations and also included a $53 million net noncash
gain from the Conrail Corporate Reorganization (see Note 5). In addition, the comparisons were affected
by the costs of a voluntary separation program (see Note 11) and the impairment of certain
telecommunications assets (see Note 6) in 2003, which combined to reduce net income in that year by
$119 million, or 30 cents per diluted share.

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

Railway operating revenues were $8.5 billion in 2005, $7.3 billion in 2004 and $6.5 billion in 2003. The
following table presents a three-year comparison of revenues, volume and average revenue per unit by
market group.

2005

Revenues
2004
($ in millions)

2003

2005

Units
2004
(in thousands)

2003

2005

Revenue per Unit
2004
($ per unit)

2003

Coal
General merchandise:
Automotive
Metals/construction
Chemicals
Agr./cons. prod./govt.
Paper/clay/forest
General merchandise

Intermodal

Total

$ 2,115 $ 1,728 $

1,500

1,735.4

1,690.8

1,614.6 $ 1,219 $ 1,022 $

929

997
978
973
845
793
4,586

954
818
864
727
684
4,047

936
699
772
688
634
3,729

615.9
794.2
447.0
580.3
458.8
2,896.2

634.6
781.1
448.5
568.9
448.8
2,881.9

645.1
710.2
425.7
555.8
443.2
2,780.0

1,620
1,231
2,176
1,455
1,729
1,583

1,503
1,048
1,927
1,278
1,524
1,404

1,450
984
1,815
1,238
1,431
1,341

1,826

1,537

1,239

3,154.9

2,891.5

2,466.6

579

531

502

$ 8,527 $ 7,312 $

6,468

7,786.5

7,464.2

6,861.2 $ 1,095 $

980 $

943

In 2005, revenues increased $1.2 billion, or 17%, reflecting a $539 million, or 13%, rise in general
merchandise revenues; a $387 million, or 22%, improvement in coal revenues; and a $289 million, or
19%, increase in intermodal revenues. All market groups collected significant amounts of fuel surcharge,
which accounted for approximately one-third of the increase in revenues. At year end 2005, fuel
surcharge provisions covered approximately 85% of total revenues.

K22

As shown in the following table, the 2005 revenue improvement was the result of increased average
revenues and higher traffic volumes.

Revenue Variance Analysis
Increases

Revenue per unit/mix
Volume
Total

2005 vs. 2004

2004 vs. 2003

($ in millions)

899
316
1,215 $

275
569
844

The favorable revenue per unit/mix variance accounted for 74% of the total variance and was driven by
higher rates and increased fuel surcharges, offset in part by an unfavorable mix component reflecting a
9% rise in lower average priced intermodal traffic volume. Volume rose by 322,300 units, or 4%.

In 2004, revenues increased $844 million, or 13%, reflecting a $318 million, or 9%, rise in general
merchandise revenues, a $298 million, or 24%, increase in intermodal revenues and a $228 million, or
15%, improvement in coal revenues. The revenue improvement was the result of 9% higher traffic
volumes and increased average revenues. All general merchandise market groups except automotive
posted volume increases over 2003. The favorable revenue per unit/mix variance was driven by higher
average revenue per unit that reflected higher rates and increased fuel surcharges, offset in part by the
effects of a 17% increase in lower-priced intermodal traffic volume.

Beginning March 1, 2004, NS modified its fuel surcharge program for its merchandise and coal traffic.
The fuel surcharge program in effect until that time applied a 2% fuel surcharge to line haul freight
charges when the West Texas Intermediate (WTI) crude oil price, as published in the Wall Street Journal,
exceeded $28.00 per barrel for 30 consecutive business days. For each $5.00 per barrel increase, an
additional 2% fuel surcharge applied. The revised fuel surcharge is based on the monthly average price of
WTI crude oil. Line haul freight charges are adjusted by 0.4% for every dollar the average price exceeds
$23 per barrel in the second calendar month prior to the month in which the fuel surcharge is applied.
The modification in the fuel surcharge program causes the amount charged to more closely reflect fuel
price fluctuations. Higher average WTI crude oil prices resulted in an increase in fuel surcharges;
however, this was offset by the effect of higher prices for diesel fuel and other oil products.

COAL revenues increased $387 million, or 22%, compared with 2004, reflecting higher average
revenue per carload and increased traffic volume. Coal average revenue per unit was up 19%
compared with 2004, reflecting higher rates, the favorable effects of fuel surcharges, longer-haul
business and the rate cases settled in the second quarter (see below). Coal represented 25% of NS’
revenues in 2005, and 83% of shipments handled originated on NS’ lines. Traffic volumes rose 3%
primarily because of increased shipments of utility coal that offset lower export and domestic
metallurgical coal, coke and iron ore shipments.

During the second quarter of 2005, NS entered into settlement agreements with two utility customers that
resolved their rail transportation rate cases before the Surface Transportation Board (STB). In 2002,
Duke Energy (Duke) and Carolina Power & Light (CP&L) each filed rate reasonableness complaints with
the STB. In October 2004, the STB found NS’ rates to be reasonable in both cases, and at the STB’s
invitation, Duke and CP&L each initiated proceedings to determine if phasing constraints should apply.
As a result of the settlement of these cases, NS recognized $55 million of additional coal revenue related
to the period in dispute.

K23

In 2004, coal revenues increased $228 million, or 15%, versus 2003. Traffic volume increased 5%
primarily due to higher export, utility and metallurgical coal volumes, which offset declines in coke and
iron ore. Average revenue per unit increased 10%, reflecting higher rates, fuel surcharges, a
favorable change in the mix of traffic (the rate of increase in longer haul traffic exceeded that of short
haul traffic) and improved loading productivity (increased tons per car). Coal, coke and iron ore revenues
represented 24% of total railway operating revenues in 2004, and 83% of NS' coal shipments originated
on lines it operates.

Total Coal, Coke and Iron Ore Carloads

Utility
Export
Domestic metallurgical
Industrial
Total

2005

2004
(Cars in thousands)

2003

1,292.0
139.2
209.5
94.7
1,735.4

1,222.4
157.0
214.0
97.4
1,690.8

1,188.5
116.5
213.8
95.8
1,614.6

Utility coal volume increased 6%, compared to 2004, in response to increased coal-fired generation to
meet the heavier electricity demand of a strong economy, limited nuclear power generation capacity,
higher natural gas prices and utility coal stockpiles which were below target levels across NS’ service
area. Supply constraints dampened shipments while the increased demand for Eastern U.S. coal
prompted some customers to shift to coal from non-traditional sources in Wyoming and Colorado and
imported coal. Appalachian coal production increased modestly and western coal production was up 2%
in 2005.

In 2004, utility coal volume increased 3%, compared to 2003, as electricity production was up almost 2%
in NS’ service region responding to higher demand driven by a rebounding U.S. economy. Utilities
increased burn to meet the heavier electricity demand and a new rail unloading facility began operating in
April 2004 at a northern utility. Utility coal stockpiles were below target levels across NS’ service area
due in part to the increased demand for coal-fired electric generation. Increased demand for Eastern U.S.
coal prompted some customers to shift to coal from non-traditional sources in Wyoming and Colorado in
addition to more imported coal. In response, Appalachian coal production increased slightly in 2004
following a decline in 2003.

The outlook for utility coal remains positive. The continued growth in demand for electricity and lower-
than-targeted coal stockpiles at the utilities should support increased coal carloads in 2006. Domestic
western origin and imported coals are expected to continue to be an important source of additional coal
supply to overcome the supply imbalance created by increased utility demand and the supply constraints
of Eastern U.S. coal sources. Natural gas prices are expected to remain higher and more volatile than coal
energy prices. As always, demand for coal will be influenced by the weather.

A number of evolving environmental issues could affect the utility coal market, depending upon their
outcome. These include a national energy policy, proposed multi-emissions legislation, mercury
emissions standards, new source review, potential regional programs aimed at capping and reducing
power plant CO2 emissions, and ongoing efforts at addressing climate change. Certain utilities have
chosen to add emissions control technologies to their electric generating units in advance of governmental
requirements and are moving up their plans to more fully utilize their existing coal-fired power plants.

K24

Export coal volume decreased 11% in 2005, compared to 2004, due to both coal supply constraints and a
weak European steel market. Volume through Norfolk and Baltimore decreased. Norfolk was down
approximately 16,000 carloads, or 14%, and Baltimore was down approximately 2,000 carloads, or 6%.
U.S. exports in 2005 were constrained by several factors: (1) the tight coal supply from Eastern coal
mines caused primarily by the sporadic closure of a major coal mine, (2) the idling of production by
European steel manufacturers in order to manage finished goods inventory, and (3) the abundant supply
of Chinese coke on the world market lowering the price and making it more economical to buy coke
rather than import metallurgical coal from the U.S. and convert it.

In 2004, export coal volume increased 35%, compared to 2003, due to sustained strong global demand for
high quality metallurgical coal and China’s continued growing consumption of coal for steel production
and electricity generation. The devaluation of the dollar resulted in lower U.S. coal prices relative to
Australian and Canadian coal prices, which made U.S. coals more economical in traditional European
markets. In addition, ocean vessel rates continued to favor U.S. coals. Volume through Baltimore and
Norfolk increased dramatically. Baltimore was up approximately 24,000 carloads, or 159%, and Norfolk
was up approximately 16,000 carloads, or 16%. However, U.S. exports in 2004 were constrained by the
tight coal supply from Eastern coal mines.

Export coal volume for 2006 is expected to show improvement, subject to the availability of U.S. coal, as
the European steel market recovers; and international demand for high-quality metallurgical coal is
expected to remain high despite the impact of abundant Chinese coke on the world market.

Domestic metallurgical coal, coke and iron ore volume was down 2% in 2005, compared with 2004.
Declines in domestic coke and iron ore volumes, principally due to the idling of a major steel blast
furnace, were partially offset by an 8% increase in metallurgical coal.

For 2004, domestic metallurgical coal, coke and iron ore volume was flat compared with 2003.
Metallurgical coal volume was up 12%. However, this was offset by declines in domestic coke and iron
ore volumes, principally due to reduced production at an NS-served producer.

Demand for domestic metallurgical coal, coke and iron ore is expected to improve in 2006, as the idled
blast furnace is expected to return to operation and metallurgical coal production is expected to grow.

Other coal volumes (principally steam coal shipped to industrial plants) decreased 3% versus 2004,
primarily due to the diversion of coal to the utility market. In 2004, other coal volumes increased 2%
versus 2003, primarily due to new business and the recovery of the U.S. economy.

GENERAL MERCHANDISE revenues increased 13% due to higher average rates and fuel surcharges.
Traffic volume was up modestly compared with 2004 as decreases in automotive and chemicals traffic
offset increases in other business groups. In 2004, general merchandise revenues increased 9% and traffic
volume increased 4% compared to 2003, principally due to higher average revenues across all business
groups, including increased fuel surcharges, and improved volumes in all but the automotive business
group.

Automotive revenues rose 5% in 2005 compared with 2004, the result of an 8% increase in average
revenue per unit that reflected pricing improvements and higher fuel surcharges. In contrast, traffic
volume decreased 3% primarily due to reduced production at Ford and GM, with GM closing assembly
plants in Michigan, Maryland and New Jersey. Ford and GM combined operate 17 of 31 assembly plants
served by NS. These declines were partially offset by increased production at Honda, Mercedes-Benz
and Toyota.

K25

In 2004, automotive revenues increased 2%, reflecting pricing improvements and fuel surcharge
increases. In contrast, traffic volume decreased 2% compared to 2003, primarily related to reduced
automotive production at Ford and GM, partially offset by increased production at Toyota and Honda.

For 2006, automotive revenues are expected to increase modestly despite a continued decline in traffic
volume. Production decreases by U.S. automotive manufacturers are expected to be partially offset by
higher domestic production by foreign manufacturers. In addition to the GM plant closures that occurred
in 2005, Ford announced that it will close five plants, of which NS serves the St. Louis and Atlanta
assembly plants and the Batavia transmission plant.

Metals and construction revenue increased 20% and traffic volume increased 2% in 2005 compared
with 2004. Revenue per unit rose 17% because of higher rates and fuel surcharges. The volume
improvements were due primarily to continued strength at NS-served integrated and electric arc mills and
higher aluminum product shipments, which were partially offset by lower scrap metal carloads.
Construction traffic volume benefited from increased residential, commercial and highway construction.

For 2004, metals and construction revenue increased 17% and traffic volume increased 10% compared
with 2003. The improvement was primarily due to increased production at NS-served integrated mills
and mini-mills, the conversion of truck business to rail resulting from a shortage of flatbed trucks as well
as higher scrap metal volumes resulting from expanded alliances with key scrap metal shippers and access
to new scrap processors and steel mills. Construction traffic volume benefited from increased residential,
commercial and highway construction.

Metals and construction volume is expected to be slightly higher in 2006, reflecting continued strength in
metals and highway construction, coupled with reconstruction in the Gulf Coast region.

Chemicals revenues increased 13%, reflecting higher prices and fuel surcharges, while traffic volume
was down slightly, as a result of production curtailment in the Gulf Coast region, compared with a strong
2004. Volume increases for plastic and petroleum products were offset by decreases in industrial and
miscellaneous chemicals.

In 2004, chemicals revenues increased 12% and traffic volume increased 5% compared with 2003.
Revenue per unit reflected higher prices in response to market conditions and fuel surcharges. The
volume increase reflected manufacturers’ increased demand across all chemical business groups.
Feedstocks and plastic shipments were up as inventories were restocked in anticipation of higher product
prices related to increased natural gas costs, and new propane and asphalt terminals in the Southeast
added carloads.

Chemical volume is expected to grow modestly in 2006, supported by new and expanded propane and
plastic plants in North Carolina and Virginia. However, volume could be adversely affected by the price
of natural gas and crude oil, which accounts for more than 50% of the cost of most chemical products and
presents a significant competitive challenge that could cause domestic chemical producers to move
production overseas.

Agriculture, consumer products and government revenue increased 16% and traffic volume increased
2% in 2005 compared with 2004. Average revenue per unit rose 14%, a result of higher rates and fuel
surcharges. Traffic volume growth resulted from sweeteners, government traffic and fertilizer.
Government traffic growth was primarily due to the support of military operations in Iraq as well as
shipments of temporary housing to hurricane-damaged areas. Ethanol traffic increased 38% due to higher
shipments from current customers in addition to new business in Georgia and South Carolina.

K26

In 2004, agriculture, consumer products and government revenue increased 6% and traffic volume
increased 2% compared with 2003. Revenue per unit improved 3% as a result of changes in traffic mix
such as increased ethanol traffic and more long haul feed shipments as well as higher prices. The volume
increase was primarily driven by ethanol and fertilizer shipments. Ethanol traffic increased 59%
primarily due to the opening of the Northeast market to ethanol as a gasoline additive. Fertilizer was up
7% year-over-year, reflecting higher domestic shipments to industrial customers and increased exports of
phosphates, principally to China.

Agriculture, consumer products and government volume is expected to grow in 2006, benefiting from the
expanding markets for ethanol and bio-diesel production and continued recovery efforts in the Gulf
region.

Paper, clay and forest products revenue increased 16% and traffic volume increased 2% in 2005
compared with 2004. Average revenue per unit rose 13% due to higher rates and fuel surcharges. Pulp
board, printing paper, newsprint and woodchip produced volume gains despite consolidations within the
industry and mill shutdowns.

In 2004, paper, clay and forest products revenue increased 8% and traffic volume increased 1% compared
with 2003, reflecting yield improvements in all segments except newsprint, together with higher printing
paper, newsprint, pulp board and kaolin shipments as U.S. paper production and demand for paper
products strengthened in 2004. Revenue per unit improved 6% principally as a result of price increases
but also aided by higher fuel surcharges.

In 2006, paper, clay and forest product revenues are expected to benefit from paper volume, higher
construction and demolition debris shipments and a new lumber distribution center that is expected to
open in 2006.

INTERMODAL revenues increased $289 million, or 19% compared with 2004, reflecting improved
traffic volume, higher fuel surcharges, and increased rates. Despite moderated growth in domestic
business, traffic volume increased 9% reflecting strength in the international, truckload and Triple Crown
Services lines of business. International traffic volume grew by 16% reflecting strength in U.S. consumer
markets and growth in the movement of import and export goods through NS-served east coast ports, as
well as west coast ports. Truckload volume increased 10% compared with 2004, reflecting additional
business with traditional truckload companies. Premium business, which includes parcel and LTL
carriers, grew 6% due primarily to new business in the Northern region. Triple Crown Services volume
grew 6% reflecting expanded geographic coverage and increased trailer fleet size to meet higher demand.
Domestic volume decreased 3% compared with 2004, principally due to the continued reduction in
transloading of west coast international freight into domestic containers. Intermodal revenue per unit
increased 9%, a result of fuel surcharges and rate increases.

In 2004, intermodal revenue increased 24% and volume increased 17% compared with 2003. Strong
demand was driven by an expanding economy led by higher consumer spending, industrial production
and international trade, in addition to constraints in truck and other railroads’ capacity. International
steamship volume was up 15%, tied to the growth in U.S. trade volumes through east and west coast
ports. Truckload volume increased 28% as a result of new business with traditional truckload companies.
Premium business, which includes parcel and LTL carriers, grew 15% principally due to new parcel
service between Chicago and New Jersey. Triple Crown Services Company increased volume by 8%
through an expanded trailer fleet and growth in its geographic coverage. Revenue per unit improved 6%,
reflecting value-based pricing and fuel surcharges.

K27

In 2006, intermodal revenues are expected to grow as NS plans to open new terminals in Kentucky and
Pennsylvania in addition to expanding existing intermodal terminals in Georgia and Ohio. In addition,
strong international trade is expected to create growth opportunities in NS’ international business
segment. Future growth may, however, be tempered by operating improvements at other railroads, as
well as constraints in the drayage market.

Railway Operating Expenses

Railway operating expenses in 2005 were $6.4 billion, up $800 million, or 14%, compared to 2004, which
were up 4% compared to 2003. The 2005 increase was principally due to a sharp rise in the price of
diesel fuel, volume-related expense increases, more maintenance activities and higher casualty costs.
Carloads rose 4% in 2005 compared to 2004 and 9% in 2004 compared to 2003. The increase in 2004
was largely the result of higher traffic volume, offset in part by the absence of the $107 million cost of a
voluntary separation program incurred in 2003.

The railway operating ratio, which measures the percentage of railway operating revenues consumed by
railway operating expenses, was 75.2% in 2005, compared with 76.7% in 2004 and 83.5% in 2003.

The following table shows the changes in railway operating expenses summarized by major
classifications.

Operating Expense Variances
Increases (Decreases)

Compensation and benefits*
Materials, services and rents
Conrail rents and services
Depreciation
Diesel fuel
Casualties and other claims
Other
Total

2005 vs. 2004

2004 vs. 2003

($ in millions)

221
208
(190)
176
278
73
34
800

(3)
174
(100)
85
69
(30)
11
206

* Includes $107 million of voluntary separation costs in 2003.

Compensation and benefits, which represents about 40% of total railway operating expenses, increased
$221 million, or 10%, compared with 2004 and was flat in 2004 compared with 2003. The 2005 increase
reflected increased hours for train operations, including trainees, and equipment maintenance (up
$70 million); increased wage rates (up $46 million); increased pension, postretirement and health and
welfare benefit costs (up $43 million); higher stock-based compensation (up $22 million); and higher
payroll taxes (up $12 million).

NS employment averaged 30,294 in 2005 compared with 28,475 in 2004 and 28,753 in 2003. The
increased employment has come almost exclusively in operating department personnel to meet the
increased volume and service needs, as well as expected retirements. NS continues to hire and train
additional workers in order to meet the requirements of forecasted volumes in light of the demographics
of its work force.

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In 2005 and prior years, NS accounted for its stock-based compensation under APB No. 25; however, NS
will adopt SFAS 123(R) in the first quarter of 2006 (see discussion under “New Accounting
Pronouncement” and Note 1) which will result in higher compensation expense. The expense increase
will include the effect of accelerated recognition of costs related to grants to retirement-eligible
employees. Most NS salaried employees are eligible to retire at age 55 with a reduced pension benefit.
SFAS No. 123(R) requires immediate expense recognition for the cost of grants made to such retirement-
eligible employees rather than accrual over the expected future service period. About three-quarters of
the cost of stock-based compensation granted in January 2006 will be expensed in 2006 (with almost half
of the cost in the first quarter) even though some of the components are earned over a three-year period.

In 2004, compensation expenses reflected higher volume-related train and engine payroll expenses, up
$39 million; higher wage rates, which added $37 million; increased stock-based compensation, up
$24 million; and higher management and locomotive engineer performance-based incentive
compensation, which was up $20 million. These increases were offset by lower nonagreement workforce
levels, saving $24 million, as well as the absence of the $107 million expense of the 2003 voluntary
separation program.

The Railroad Retirement and Survivors’ Improvement Act, which took effect Jan. 1, 2002, allows for
investment of Tier II assets in a diversified portfolio through the National Railroad Retirement Investment
Trust. The law also provides a mechanism for automatic adjustment of Tier II payroll taxes should the
trust assets fall below a four-year reserve or exceed a six-year reserve. As a result, the employers’ portion
of Tier II retirement payroll taxes have been reduced from 14.2% in 2003 to 13.1% in 2004 and to12.6%
in 2005 and thereafter. However, these savings are expected to continue to be substantially offset by
higher payroll taxes on increased wages and a higher wage base.

Materials, services and rents includes costs related to items used for the maintenance of railroad lines,
structures and equipment; the costs of services purchased from outside contractors, including the net costs
of operating joint (or leased) facilities with other railroads; and the net cost of equipment rentals. This
category of expenses increased $208 million, or 13% in 2005 compared to 2004 and increased 12% in
2004 compared to 2003. The increase in 2005 reflected higher volume-related purchased services (up
$82 million) and higher maintenance expense (up $74 million). Equipment rents rose $28 million,
reflecting higher traffic volume as well as leases from the Conrail Corporate Reorganization (see Note 5).

The 2004 increase was the result of higher purchased services, up $100 million, including higher costs for
volume-related intermodal services such as the lifting of containers and trailers and drayage. In addition,
locomotive and freight car maintenance expenses rose $23 million, and equipment rents increased
$33 million.

Locomotive repair costs increased in 2005 and 2004, due to more maintenance activity related to higher
usage from increased traffic volumes coupled with the age of the fleet. This level of expense is expected
to continue and may increase depending on traffic volumes.

Equipment rents, which includes the cost to NS of using equipment (mostly freight cars) owned by other
railroads or private owners, less the rent paid to NS for the use of its equipment, rose 11% in 2005 and
increased 9% in 2004. The increase in 2005 was principally due to additional lease expense for a full year
from the Conrail Corporate Reorganization and increased volume-related intermodal shipments. The rise
in 2004 was principally due to traffic volume (particularly intermodal shipments) and the absence of
favorable settlements that benefited 2003.

Conrail rents and services decreased $190 million, or 60%, in 2005 compared to 2004 and decreased
24% in 2004 compared to 2003. This item includes amounts due to CRC for operation of the Shared

K29

Assets Areas (see Note 5). The decline in both 2005 and 2004 was primarily driven by the Conrail
Corporate Reorganization, which resulted in the consolidated reporting of individual components of
Conrail equity earnings, principally depreciation, equipment rents and interest expense (see Note 5). NS’
share of equity earnings after the Conrail Corporate Reorganization is a component of “Other income-net”
(see Note 2).

Depreciation expense increased $176 million, or 29%, in 2005 compared to 2004 and increased 17% in
2004 compared to 2003. The increases in 2005 and 2004 were primarily a result of the Conrail Corporate
Reorganization (see Note 5). In addition, substantial capital investments and improvements affected all
years, resulting in higher depreciation expense.

In 2004, NS received the results of a roadway depreciation study from an independent firm of engineers.
The results of the study, which were implemented in September 2004, prospectively reduced depreciation
expense by approximately $17 million annually. In 2006, NS expects to complete an equipment
depreciation study and an analysis of the assets received in the Conrail Corporate Reorganization. The
results of these items are expected to reduce depreciation expense, making 2006 comparable with 2005.

Diesel fuel expenses increased 62% in 2005 compared with 2004 and increased 18% in 2004 compared
with 2003. Diesel fuel expense is recorded net of hedge benefits (see “Market Risks and Hedging
Activities,” below and Note 16). The increase in 2005 reflects a 43% rise in the average price per gallon
and a 2% increase in consumption. The increase in 2004 reflects a 13% rise in the average price per
gallon and a 6% increase in consumption. Expenses in 2005 included hedge benefits of $148 million
compared with benefits of $140 million in 2004 and $59 million in 2003. NS has hedged approximately
4% of expected 2006 diesel fuel requirements as of Dec. 31, 2005, at an average price of 89 cents per
gallon. No new hedges have been entered into since May 2004. Accordingly, if diesel fuel prices remain
at their current levels, or increase further, diesel fuel expense will be higher in 2006.

Legislation enacted in the first quarter of 2005 repeals the 4.3 cents per gallon excise tax on railroad
diesel fuel and inland waterway fuel by 2007, with the following phased reductions in 2005 and 2006: by
1 cent per gallon from Jan. 1, 2005 through June 30, 2005; 2 cents per gallon from July 1, 2005 through
Dec. 31, 2006; and by the full 4.3 cents thereafter. NS consumes over 500 million gallons of diesel fuel
per year.

Casualties and other claims expenses (including the estimates of costs related to personal injury,
property damage and environmental matters) increased 48% in 2005 compared to 2004 and decreased
17% in 2004 compared to 2003. The increase in 2005 reflected costs associated with a derailment in
Graniteville, South Carolina (see discussion below), $16 million for an unfavorable jury verdict received
in an FELA case, $9 million of higher insurance costs, and $4 million for the portion of the $12.5 million
self-insured retention related to Hurricane Katrina expenses. The decline in 2004 reflected favorable
personal injury and freight claims development and higher insurance settlements, partially offset by
increased derailment expenses.

On Jan. 6, 2005, a collision in Graniteville, South Carolina, between two NS trains caused the release
of chlorine gas from a ruptured tank car. NS’ liability in 2005 related to this accident includes a
current and long-term portion which 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 substantially all expenses
related to this derailment above NS’ self-insured retention, including NS’ response costs and legal fees.
Accordingly, the Consolidated Balance Sheet reflects a current and long-term receivable for estimated
recoveries from NS’ insurance carriers. The $41 million expense recorded in 2005 represents NS’

K30

retention under its insurance policies and other uninsured costs. 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.

During the third quarter, NS’ operations were adversely affected by Hurricane Katrina, and to a lesser
extent, Hurricane Rita, both of which struck the Gulf Coast. NS sustained damage to its facilities in the
region as a result of Hurricane Katrina but restored rail freight service into and around New Orleans in a
relatively short period of time. The damage sustained to NS facilities as a result of Hurricane Katrina did
not materially impact NS’ financial condition or results of operations and is covered by insurance above
the self-insurance retention limit.

The largest component of casualties and other claims expense is personal injury costs. Cases involving
occupational injuries comprised about one-third of total employee injury cases resolved and about one-
fourth of total payments made. With its long-established commitment to safety, NS continues to work
actively to eliminate all employee injuries and to reduce the associated costs. With respect to
occupational injuries, which are not caused by a specific accident or event, but result from a claimed
exposure over time, the benefits of any existing safety initiatives may not be realized immediately. These
types of claims are being asserted by former or retired employees, some of whom have not been actively
employed in the rail industry for decades.

The rail industry remains uniquely susceptible to litigation involving job-related accidental injury and
occupational claims because of the Federal Employers' Liability Act (FELA), which is applicable only to
railroads. FELA’s fault-based system, which covers employee claims for job-related injuries, produces
results that are unpredictable and inconsistent as compared with a no-fault workers' compensation system.

NS maintains substantial amounts of commercial insurance for potential third-party liability and property
damage claims. It also retains reasonable levels of risk through self-insurance (see Note 18). NS expects
insurance costs to be higher in 2006.

Other expenses increased 15% in 2005 compared to 2004 and 5% in 2004 compared to 2003. Both 2005
and 2004 reflected higher property and sales and use taxes.

Other income – net was $74 million in 2005 and $89 million in 2004, which included the $53 million
gain from the Conrail Corporate Reorganization (see Note 5). Results in 2005 reflected: (1) higher
interest income (up $28 million), (2) equity in earnings of Conrail subsequent to the Conrail Corporate
Reorganization (up $26 million), (3) additional coal royalties (up $12 million), and (4) lower interest
accruals related to tax liabilities (down $9 million). These income improvements were partially offset by
more expense associated with tax credit investments (up $39 million).

In 2004, other income – net increased by $70 million, reflecting the absence of the $84 million
telecommunications assets impairment charge that burdened 2003 (see Note 6) and the gain in 2004 on
the Conrail Corporate Reorganization (see Note 5). These increases combined to more than offset
expenses from an investment in a limited liability company that owns and operates facilities that produce
synthetic fuel from coal (see Note 2). The production of synthetic fuel results in tax credits as well as
expenses related to the investments. The expenses are recorded as a component of “Other income – net,”
and the tax credits, as well as tax benefits related to the expenses, are reflected in the provision for income
taxes (see Note 3).

K31

Income Taxes

Income tax expense in 2005 was $416 million for an effective rate of 25%, compared with effective rates
of 29% in 2004 and 30% in 2003. The large decline in 2005 resulted from the Ohio tax legislation
changes, which lowered deferred taxes by $96 million and the effective tax rate by six percentage points
(see Note 3).

As shown in Note 3 to the Consolidated Financial Statements, which sets forth a reconciliation from the
statutory rate to the effective rate for all three years, the effective rates in both 2005 and 2004 were
reduced as a result of tax credits from synthetic fuel-related investments. In addition, 2004 benefited
from the favorable resolution of an IRS audit of a synthetic fuel related investment. The effective rates in
all three years benefited from favorable adjustments upon filing the prior year tax returns and favorable
adjustments to state tax liabilities.

The consolidated federal income tax returns for 2002 through 2003 are being audited by the Internal
Revenue Service (IRS). The IRS completed its examination of the 2000 and 2001 consolidated federal
income tax returns and issued a Revenue Agent’s Report in September 2005, which had a negligible
effect on the effective tax rate.

For the 2001 through 2004 tax years, 30% and 50% bonus depreciation was allowed for federal income
tax purposes. Except for certain areas affected by Hurricane Katrina, bonus depreciation was not
available in 2005. In addition, the Conrail Corporate Reorganization resulted in NS receiving assets with
less future tax depreciation than book depreciation. As a result, current taxes were higher in 2005 than in
earlier years and are expected to remain higher in 2006.

NS’ interests in synthetic fuel credits are subject to reduction if the Reference Price of a barrel of oil for
the year falls within an inflation-adjusted phase-out range specified by the tax code. The Reference Price
for a year is the annual average wellhead price per barrel of unregulated domestic crude oil as determined
by the Secretary of the Treasury by April 1 of the following year. In 2004, the phase-out range was
$51.35 to $64.47. The phase-out range for 2005 and later years will be adjusted for inflation. No phase
out is considered likely in 2005; however, NS cannot predict with certainty the Reference Price of a barrel
of oil for later years. If the Reference Price for a year falls within or exceeds the applicable phase-out
range for that year, NS’ synthetic fuel credits could be reduced or eliminated. However, indemnification
arrangements limit NS’ exposure if tax credits are reduced due to oil prices.

Discontinued Operations

In 2003, income from discontinued operations consisted of a $10 million after-tax gain related to the
resolution of tax issues arising from the sale of NS’ motor carrier subsidiary (see Note 17).

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities, NS' principal source of liquidity, was $2.1 billion in 2005,
compared with $1.7 billion in 2004 and $1.1 billion in 2003. The improvement in 2005 reflected the
$415 million increase in income from railway operations as well as the effects of the Conrail Corporate
Reorganization (see below), offset in part by higher income tax payments, including a payment made
upon settlement of a federal audit cycle. In 2004, the increase was primarily due to increased railway
operating income.

K32

Prior to the Conrail Corporate Reorganization (see Note 5), a significant portion of the payments made
to PRR under the operating and lease agreements (which were included in “Conrail rents and services”
and, therefore, were a use of cash in “Cash provided by operating activities”), was borrowed back from
a subsidiary of PRR under a note due in 2032, and therefore, was a source of cash in “Proceeds from
borrowings.” NS’ net cash flow from these borrowings amounted to $118 million in 2004 and
$203 million in 2003. This note was effectively extinguished by the reorganization in 2004.
Subsequent to the Conrail Corporate Reorganization, payments under “Conrail rents and services”
have declined, depreciation charges have increased and the net borrowings have been terminated.
Accordingly, NS’ cash provided by operating activities after the Conrail Corporate Reorganization has
increased.

NS had working capital of $729 million at Dec. 31, 2005, compared with a working capital deficit of
$234 million at Dec. 31, 2004. The improvement reflected higher cash provided by operating
activities, as well as a $348 million reduction in current maturities of long-term debt. NS expects that
cash on hand combined with cash flow from operations will be sufficient to meet its ongoing
obligations. This expectation is based on a view that the economy will continue at a moderate growth
rate through 2006.

Contractual obligations at Dec. 31, 2005, related to NS' long-term debt (including capital leases) (see
Note 8), operating leases (see Note 9), agreements with CRC (see Note 5), unconditional purchase
obligations (see Note 18) and other long-term obligations (see Note 18), are as follows:

Total

Payments Due By Period
2007-
2008
($ in millions)

2009-
2010

2006

2011 and
Subsequent

Long-term debt and
capital lease principal
Operating leases
Agreements with CRC
Unconditional purchase
obligations
Long-term advances
from Conrail
Other long-term obligations
Total

6,930 $
1,067
456

314 $
144
25

860 $
255
50

816 $
185
50

341

240

101

133
17
8,944 $

--
11
734 $

--
6
1,272 $

--
--
1,051 $

4,940
483
331

133
--
5,887

Off balance sheet arrangements consist of operating lease obligations, which are included in the table of
contractual obligations above and disclosed in Note 9. NS did not renew its accounts receivable
securitization program which expired in May 2005.

Cash used for investing activities was $1.8 billion in 2005, compared with $1.2 billion in 2004 and
$640 million in 2003. The increase in 2005 was principally the result of larger purchases of short-term
investments, while the rise in 2004 resulted from higher property additions and the investment in a
membership interest in a limited liability company that owns and operates facilities that produce
synthetic fuel from coal. Property additions account for most of the recurring spending in this
category. The following tables show capital spending (including capital leases) and track and
equipment statistics for the past five years.

K33

Capital Expenditures

2005

2004

2003
($ in millions)

2002

2001

Road
Equipment
Other property
Total

739 $
284
2
1,025 $

607 $
429
5
1,041 $

495 $
218
7
720 $

519 $
174
2
695 $

505
233
8
746

Capital expenditures in 2005 were $16 million, or 2%, lower than 2004 principally due to decreases in
equipment purchases that were partially offset by increased investment in roadway projects. In 2004,
higher capital expenditures were primarily due to increased locomotive purchases as well as
investment in roadway projects, Triple Crown Services equipment and freight cars.

Track Structure Statistics (Capital and Maintenance)

2005

2004

2003

2002

2001

Track miles of rail installed
Miles of track surfaced
New crossties installed (millions)

302

4,663

2.5

246
5,055
2.5

233
5,105
2.8

235
5,270
2.8

254
3,836
1.5

Average Age of Owned Railway Equipment

Freight cars
Locomotives
Retired locomotives

2005

2004

28.4
17.2
27.4

27.6
16.8
22.9

2003
(years)
26.6
15.3
28.7

2002

2001

25.9
16.1
28.2

25.4
15.7
22.4

Through its coal car rebody program, which was suspended in 2000, NS converted about 29,000 hopper
cars into high-capacity steel gondolas or hoppers. As a result, the remaining service life of the freight-car
fleet is greater than may be inferred from the increasing average age shown in the table above.

For 2006, NS has budgeted $1.15 billion for capital expenditures. The anticipated spending includes
$735 million for roadway projects, of which $484 million is for track and bridge program work. Also
included are projects for communications, signal and electrical systems, as well as projects for
environmental and public improvements such as grade crossing separations and signal upgrades. Other
roadway projects include marketing and industrial development initiatives, including increasing track
capacity and access to coal receivers and vehicle production and distribution facilities, and continuing
investments in intermodal infrastructure. Equipment spending of $358 million includes the purchase of
133 locomotives and upgrades to existing units, improvements to multilevel automobile racks, and
projects related to computers and information technology, including additional security and backup
systems. NS expects to make all of its capital expenditures with internally generated funds.

On Dec. 2, 2005, NS announced an agreement to form a joint venture with Kansas City Southern pursuant
to which NS intends to contribute $300 million in cash, substantially all of which will be used for capital
improvements over a period of approximately four years, in exchange for a 30% interest in the joint
venture. Kansas City Southern will contribute a 320 mile rail line between Meridian, Mississippi and
Shreveport, Louisiana (the “Meridian Speedway”). Closing of the transaction is conditioned on the

K34

receipt of the necessary authority from the Surface Transportation Board. Accordingly, if the transaction
is authorized and consummated, NS expects to recognize its pro rata share of the joint venture’s earnings
or loss as required under the equity method of accounting. The transaction is expected to be modestly
dilutive in the early years of the venture due to lost interest income on the cash contributed to the joint
venture. However, NS expects that the dilution from the lost interest income will be offset from
additional traffic as the investment is made and improvements are completed. The joint venture is
expected to increase capacity and improve service on the Meridian Speedway.

NS expects to spend $50 million, in the near future, connected with Heartland Corridor-related projects.
The Heartland Corridor is a package of proposed clearance improvements and other facilities that will
create a seamless high-capacity intermodal route across Virginia and West Virginia to Midwest markets.
Completion of the related projects is contingent on securing public or third-party funding commitments.

NS and other railroads have agreed to participate in the Chicago Region Environmental and
Transportation Efficiency (CREATE) project in Chicago. The intent of the proposed public-private
partnership is to reduce rail and highway congestion and add freight and passenger capacity in the
metropolitan Chicago area. A portion of the public funding has been approved and the parties are
working to develop a list of projects to be included in Phase I of the project. Funding requirements will
be determined by the selection of Phase I projects. The railroads expect to complete Phase I over the next
four years.

Cash used for financing activities was $456 million in 2005, compared with $233 million in 2004 and
$314 million in 2003. Financing activity in 2005 included: (1) the issuance of $300 million aggregate
principal amount of 6% unsecured notes due March 2105, and (2) the issuance of $717 million of
unsecured notes ($350 million at 5.64% due 2029 and $367 million at 5.59% due 2025) and payment of
$218 million of premium in exchange for $717 million of previously issued unsecured notes
($350 million at 7.8% due 2027, $200 million at 7.25% due 2031, and $167 million at 9.0% due 2021)
(see Note 8). The $218 million cash premium payment is reflected as a reduction of debt in the
Consolidated Balance Sheets and Statement of Cash Flows and will be amortized as additional interest
expense over the terms of the new debt. Investing activities in 2005 and 2004 also included substantial
proceeds from employee exercise of stock options. NS’ debt-to-total capitalization ratio was 42.7% at
Dec. 31, 2005, and 48.5% at Dec. 31, 2004.

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. The timing and volume of any purchases will be guided by
management’s assessment of market conditions and other pertinent factors. Near-term purchases under
the program are expected to be made with internally generated cash; however, future funding sources
could include proceeds from the sale of commercial paper notes or the issuance of long-term debt.

NS currently has in place and available a $1 billion, five-year credit agreement, which provides for
borrowings at prevailing rates and includes financial covenants. There were no amounts outstanding
under this facility at Dec. 31, 2005, and NS is in compliance with all of the financial covenants. NS also
has in place a shelf registration statement on Form S-3 filed with the SEC in September 2004 with
$700 million of available capacity (see Note 8). On July 18, 2005, Standard & Poor’s (S&P) upgraded its
ratings on NS’ unsecured debt from BBB to BBB+. Moody’s rating remains at Baa1, comparable to
S&P’s.

K35

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. These estimates and assumptions
may require significant judgment about matters that are inherently uncertain, and future events are likely
to occur that may require management to change them. Accordingly, management regularly reviews
these estimates and assumptions based on historical experience, changes in the business environment and
other factors that management believes to be reasonable under the circumstances. Management discusses
the development, selection and disclosures concerning critical accounting estimates with the Audit
Committee of its Board of Directors.

Pensions and Other Postretirement Benefits

Accounting for pensions and other postretirement benefit plans requires management to make several
estimates and assumptions (see Note 11). These include the expected rate of return from investment of
the plans' assets, projected increases in medical costs and the expected retirement age of employees as
well as their projected earnings and mortality. In addition, the amounts recorded are affected by changes
in the interest rate environment because the associated liabilities are discounted to their present value.
Management makes these estimates based on the company's historical experience and other information
that it deems pertinent under the circumstances (for example, expectations of future stock market
performance). Management engages an independent consulting actuarial firm to assist it in selecting
appropriate assumptions and valuing its related liabilities.

NS' net pension benefit, which is included in “Compensation and benefits” on its Consolidated Income
Statement, was $23 million for the year ended Dec. 31, 2005. In recording this amount, NS assumed a
long-term investment rate of return of 9%. Investment experience of the pension fund over the past 10-,
15- and 20-year periods has been a rate of return in excess of 10%. A one percentage point change to this
rate of return assumption would result in an $18 million change to the pension credit and, as a result, an
equal change in “Compensation and benefits” expense. Changes that are reasonably likely to occur in
assumptions concerning retirement age, projected earnings and mortality would not be expected to have a
material effect on NS' net pension benefit or net pension asset in the future. The net pension asset is
recorded at its net present value using a discount rate that is based on the current interest rate environment
in light of the timing of expected benefit payments. Specifically, NS refers to Moody’s seasoned Aa
corporate bond yields and the changes in such yields; therefore, management has little discretion in this
assumption.

NS' net cost for other postretirement benefits, which is also included in “Compensation and benefits,” was
$62 million for the year ended Dec. 31, 2005. In recording this expense and valuing the net liability for
other postretirement benefits, which is included in “Other benefits” as disclosed in Note 11, management
estimated future increases in health-care costs. These assumptions, along with the effect of a one
percentage point change in them, are described in Note 11.

Properties and Depreciation

Most of NS' total assets are comprised of long-lived railway properties (see Note 6). As disclosed in
Note 1, NS' properties are depreciated using group depreciation. Rail is depreciated primarily on the
basis of use measured by gross-ton miles. Other properties are depreciated generally using the straight-
line method over the lesser of estimated service or lease lives. NS reviews the carrying amount of
properties whenever events or changes in circumstances indicate that such carrying amount may not be

K36

recoverable based on future undiscounted cash flows. Assets that are deemed impaired as a result of such
review are recorded at the lesser of carrying amount or fair value.

NS' depreciation expense is based on management's assumptions concerning service lives of its properties
as well as the expected net salvage that will be received upon their retirement. These assumptions are the
product of periodic depreciation studies that are performed by a firm of consulting engineers. These
studies analyze NS' historical patterns of asset use and retirement and take into account any expected
change in operation or maintenance practices. NS' recent experience with these studies has been that
while they do result in changes in the rates used to depreciate its properties, these changes have not
caused a significant effect to its annual depreciation expense. The studies may also indicate that the
recorded amount of accumulated depreciation is deficient (or in excess) of the amount indicated by the
study. Any such deficiency (or excess) is amortized as a component of depreciation expense over the
remaining service lives of the affected class of property. NS' “Depreciation expense” for the year ended
Dec. 31, 2005, amounted to $774 million. NS' weighted-average depreciation rates for 2005 are disclosed
in Note 6; a one-tenth percentage point increase (or decrease) in these rates would have resulted in a
$25 million increase (or decrease) to NS' depreciation expense.

Personal Injury, Environmental and Legal Liabilities

NS' expense for “Casualties and other claims” amounted to $224 million for the year ended Dec. 31,
2005. Most of this expense was composed of NS' accrual related to personal injury liabilities (see
discussion of FELA in the discussion captioned “Casualties and other claims” above). Job-related
personal injury and occupational claims are subject to FELA, which is applicable only to railroads.
FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with
a no-fault worker’s compensation system. The variability inherent in this system could result in actual
costs being very different from the liability recorded. In all cases, NS records a liability when the
expected loss for the claim is both probable and estimable.

NS engages an independent consulting actuarial firm to aid in valuing its personal injury liability and
determining the amount to accrue during the year. For employee personal injury cases, the actuarial firm
studies NS' historical patterns of reserving for claims and subsequent settlements, taking into account
relevant outside influences. An estimate of the ultimate amount of the liability, which includes amounts
for incurred but unasserted claims, is based on the results of this analysis. For occupational injury claims,
the actuarial firm studies NS’ history of claim filings, severity, payments and other relevant facts.
Additionally, the estimate of the ultimate loss for occupational injuries includes a provision for those
claims that have been incurred but not reported by projecting NS’ experience into the future as far as can
be reasonably determined. NS has recorded this actuarially determined liability. The liability is
dependent upon many individual judgments made as to the specific case reserves as well as the judgments
of the consulting actuary and management in the periodic studies. Accordingly, there could be significant
changes in the liability, which NS would recognize when such a change became known. The most recent
actuarial study, completed in the fourth quarter of 2005, resulted in a slight decrease to NS' personal
injury liability during the fourth quarter. While the liability recorded is supported by the most recent
study, it is reasonably possible that the liability could be higher or lower.

NS is subject to various jurisdictions' environmental laws and regulations. It is NS' policy to record a
liability where such liability or loss is probable and its amount can be estimated reasonably (see Note 18).
Environmental engineers regularly participate in ongoing evaluations of all known sites and in
determining any necessary adjustments to liability estimates. NS also has established an Environmental
Policy Council, composed of senior managers, to oversee and interpret its environmental policy.

K37

Operating expenses for environmental matters totaled approximately $16 million in 2005, $11 million in
2004 and $9 million in 2003, and capital expenditures totaled approximately $9 million in each of 2005,
2004 and 2003. Capital expenditures in 2006 are expected to be comparable to those in 2005.

NS' balance sheets included liabilities for environmental exposures in the amount of $58 million at
Dec. 31, 2005, and $64 million at Dec. 31, 2004 (of which $12 million was accounted for as a current
liability at Dec. 31, 2005, and 2004). At Dec. 31, 2005, the liability represented NS' estimate of the
probable cleanup and remediation costs based on available information at 189 identified locations. On
that date, 16 sites accounted for $30 million of the liability, and no individual site was considered to be
material. NS anticipates that much of this liability will be paid out over five years; however, some costs
will be paid out over a longer period.

At some of the 189 locations, certain NS subsidiaries, usually in conjunction with a number of other
parties, have been identified as potentially responsible parties by the Environmental Protection Agency
(EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for
cleanup costs.

With respect to known environmental sites (whether identified by NS or by the EPA or comparable state
authorities), estimates of NS' ultimate potential financial exposure for a given site or in the aggregate for
all such sites are necessarily imprecise because of the widely varying costs of currently available cleanup
techniques, the likely development of new cleanup technologies, the difficulty of determining in advance
the nature and full extent of contamination and each potential participant's share of any estimated loss
(and that participant's ability to bear it), and evolving statutory and regulatory standards governing
liability. NS estimates its environmental remediation liability on a site-by-site basis, using assumptions
and judgments that management deems appropriate for each site. As a result, it is not practical to
quantitatively describe the effects of changes in these many assumptions and judgments. NS has
consistently applied its methodology of estimating its environmental liabilities.

Based on its assessment of the facts and circumstances now known, management believes that it has
recorded the probable costs for dealing with those environmental matters of which the Corporation is
aware. Further, management believes that it is unlikely that any known matters, either individually or in
the aggregate, will have a material adverse effect on NS' financial position, results of operations or
liquidity.

Norfolk Southern and certain subsidiaries are defendants in numerous lawsuits and other claims relating
principally to railroad operations. When management concludes that it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge
to expenses. While the ultimate amount of liability incurred in any of these lawsuits and claims is
dependent on future developments, in management's opinion the recorded liability, if any, is adequate to
cover the future payment of such liability and claims. However, the final outcome of any of these
lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could
result in additional accruals that could be significant to results of operations in a particular year or quarter.
Any adjustments to recorded liabilities will be reflected in expenses in the periods in which such
adjustments are known.

Income Taxes

NS' net long-term deferred tax liability totaled $6,620 million at Dec. 31, 2005 (see Note 3). This liability
is estimated based on the expected future tax consequences of items recognized in the financial
statements. After application of the federal statutory tax rate to book income, judgment is required with

K38

respect to the timing and deductibility of expenses in the corporate income tax returns. For state income
and other taxes, judgment is also required with respect to the apportionment among the various
jurisdictions. A valuation allowance is recorded if management expects that it is more likely than not that
its deferred tax assets will not be realized. NS had a $16 million valuation allowance on $775 million of
deferred tax assets as of Dec. 31, 2005, reflecting the expectation that most of these assets will be
realized. In addition, NS has a recorded liability for its estimate of potential income tax exposures.
Management believes this liability for potential exposure to be adequate. Income tax expense is adjusted
to the extent the final outcome of these matters differs from the amounts recorded. For every one half
percent change in the 2005 effective rate net income would have changed by $8 million.

OTHER MATTERS

Labor Agreements

Approximately 26,000, or about 85%, of NS' railroad employees are covered by collective bargaining
agreements with various labor unions. These agreements remain in effect until changed pursuant to the
Railway Labor Act (RLA). NS largely bargains in concert with other major railroads. Moratorium
provisions in the labor agreements govern when the railroads and the unions may propose labor
agreement changes. The previous moratorium provisions expired in the latter part of 2004 and the
railroads and the rail labor unions thereafter served new proposals to begin the next bargaining round.
Industry issues include train crew staffing and employee contributions for health care benefits.

Seven rail unions (Brotherhood of Locomotive Engineers and Trainmen, Brotherhood of Maintenance of
Way Employes, American Train Dispatchers Association, Brotherhood of Railroad Signalmen,
International Brotherhood of Blacksmiths and Boilermakers, National Conference of Firemen and Oilers,
and Sheet Metal Workers International Association) are bargaining together under the auspices of the Rail
Labor Bargaining Coalition (RLBC). The railroads filed for mediation with the United Transportation
Union (UTU) and with the RLBC unions. The status quo is preserved during mediation while a federal
mediator assists the parties in their efforts to reach agreement. If the NMB were to terminate mediation, it
would, at that time, propose that the parties arbitrate their differences. A strike could occur 30 days
thereafter if the parties did not accept arbitration. However, the President of the United States of America
could then appoint an Emergency Board which would delay any strike for a further 60 days while the
Board made recommendations and the parties and engaged in further negotiations. The outcome of the
negotiations cannot be determined at this point.

Market Risks and Hedging Activities

NS has used derivative financial instruments to reduce the risk of volatility in its diesel fuel costs and to
manage its overall exposure to fluctuations in interest rates.

In 2001, NS began a program to hedge a portion of its diesel fuel consumption. The intent of the program
is to assist in the management of NS' aggregate risk exposure to fuel price fluctuations, which can
significantly affect NS' operating margins and profitability, through the use of one or more types of
derivative instruments.

Diesel fuel costs represented 11% of NS' operating expenses for 2005. The program provides that NS
will not enter into any fuel hedges with a duration of more than 36 months, and that no more than 80% of
NS' average monthly fuel consumption will be hedged for any month within any 36-month period.

K39

As of Dec. 31, 2005, through swap transactions, NS has hedged approximately 4% of expected 2006
diesel fuel requirements. The effect of these hedges is to yield an average cost of 89 cents per hedged
gallon, including federal taxes and transportation. A 10% decrease in diesel fuel prices would reduce NS'
asset related to the swaps by approximately $4 million as of Dec. 31, 2005.

However, with fuel prices near historic highs and fuel surcharges being collected under certain tariffs and
contracts, NS has not entered into additional hedges since May 2004. Consequently, the past pattern of
entering into regular monthly swaps may not be indicative of future hedging activity. If diesel fuel prices
remain at their current levels, or increase further, diesel fuel expense will be higher going forward.

NS manages its overall exposure to fluctuations in interest rates by issuing both fixed- and floating-rate
debt instruments and by entering into interest-rate hedging transactions to achieve an appropriate mix
within its debt portfolio.

At Dec. 31, 2005, NS' debt subject to interest rate fluctuations totaled $285 million. A 1% increase in
interest rates would increase NS' total annual interest expense related to all its variable debt by
approximately $3 million. Management considers it unlikely that interest rate fluctuations applicable
to these instruments will result in a material adverse effect on NS' financial position, results of operations
or liquidity.

Some of NS' capital leases, which carry an average fixed rate of 7%, were effectively converted to
variable rate obligations using interest rate swap agreements. On Dec. 31, 2005, the average pay rate
under these agreements was 7%, and the average receive rate was 5%. During 2005, the effect of the
swaps was to reduce interest expense by $2 million. A portion of the lease obligations is payable in
Japanese yen. NS eliminated the associated exchange rate risk at the inception of each lease with a yen
deposit sufficient to fund the yen-denominated obligation. Most of these deposits are held by foreign
banks, primarily Japanese. As a result, NS is exposed to financial market risk relative to Japan.
Counterparties to the interest rate swaps and Japanese banks holding yen deposits are major financial
institutions believed by management to be creditworthy.

New Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123(R), “Share-Based Payments”. This statement establishes standards for accounting for
transactions in which an entity exchanges its equity instruments for goods or services, such as stock-based
compensation plans. NS will adopt this standard in the first quarter of 2006, which will result in higher
compensation expense (see Note 1). The statement applies to all awards granted after the effective date
and to awards modified, repurchased, or cancelled after that date, as well as awards that are unvested at
the effective date.

Inflation

In preparing financial statements, U.S. generally accepted accounting principles require the use of
historical cost that disregards the effects of inflation on the replacement cost of property. NS, a capital-
intensive company, has most of its capital invested in such assets. The replacement cost of these assets,
as well as the related depreciation expense, would be substantially greater than the amounts reported on
the basis of historical cost.

K40

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that may be identified by the use of words like “believe,” “expect,”
“anticipate” and “project.” Forward-looking statements reflect management's good-faith evaluation of
information currently available. However, such statements are dependent on and, therefore, can be
influenced by, a number of external variables over which management has little or no control, including:
legislative and regulatory developments; competition and consolidation within the transportation industry;
domestic and international economic conditions; the business environment in industries that produce and
consume rail freight; the operations of carriers with which we interchange; labor difficulties, including
strikes and work stoppages; disruptions to our technology infrastructure including our computer systems;
natural events such as severe weather, floods and hurricanes; acts of terrorism or war; fluctuation in prices
of key materials, in particular diesel fuel; and changes in securities and capital markets. Forward-looking
statements are not, and should not be relied upon as, a guaranty of future performance or results. Nor will
they necessarily prove to be accurate indications of the times at or by which any such performance or
results will be achieved. As a result, actual outcomes and results may differ materially from those
expressed in forward-looking statements. NS undertakes no obligation to update or revise forward-
looking statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The information required by this item is included in Part II, Item 7, “Management's Discussion and
Analysis of Financial Condition and Results of Operations” under the heading “Market Risks and
Hedging Activities.”

K41

Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Report of Management

Reports of Independent Registered Public Accounting Firm

Consolidated Statements of Income
Years ended Dec. 31, 2005, 2004 and 2003

Consolidated Balance Sheets
As of Dec. 31, 2005 and 2004

Consolidated Statements of Cash Flows
Years ended Dec. 31, 2005, 2004 and 2003

Consolidated Statements of Changes in Stockholders' Equity
Years ended Dec. 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

The Index to Consolidated Financial Statement Schedule in Item 15

Page

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K44

K47

K48

K49

K50

K51

K87

K42

Report of Management

February 21, 2006

To the Stockholders
Norfolk Southern Corporation

Management is responsible for establishing and maintaining adequate internal control over financial
reporting. In order to ensure that the Corporation's internal control over financial reporting is effective,
management regularly assesses such controls and did so most recently for its financial reporting as of
December 31, 2005. This assessment was based on criteria for effective internal control over financial
reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management has concluded that
the Corporation maintained effective internal control over financial reporting as of December 31, 2005.

KPMG LLP, independent registered public accounting firm, has audited the Corporation's financial
statements and has reported on management's assessment of the effectiveness of the Corporation's internal
control over financial reporting as of December 31, 2005.

/s/ Charles W. Moorman
Charles W. Moorman
Chairman, President and
Chief Executive Officer

/s/ Henry C. Wolf
Henry C. Wolf
Vice Chairman and
Chief Financial Officer

/s/ Marta R. Stewart
Marta R. Stewart
Vice President and
Controller

K43

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors
Norfolk Southern Corporation:

We have audited management's assessment, included in the accompanying Report of Management, that
Norfolk Southern Corporation maintained effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control—Integrated Framework, issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Norfolk Southern
Corporation's management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of
Norfolk Southern Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Norfolk Southern Corporation maintained effective internal
control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on
criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also in our opinion, Norfolk Southern Corporation
maintained, in all material respects, effective internal control over financial reporting as of December 31,
2005, based on criteria established in Internal Control—Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

K44

Report of Independent Registered Public Accounting Firm
Page 2

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Norfolk Southern Corporation and subsidiaries
as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in
stockholders’ equity and cash flows for each of the years in the three-year period ended December 31,
2005. In connection with our audits of the consolidated financial statements, we have also audited the
financial statement schedule as listed in Item 15(A)2. Our report dated February 21, 2006, expressed an
unqualified opinion on the consolidated financial statements and financial statement schedule.

/s/ KPMG LLP
Norfolk, Virginia
February 21, 2006

K45

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors
Norfolk Southern Corporation:

We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and
subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the years in the three-year period ended
December 31, 2005. In connection with our audits of the consolidated financial statements, we have also
audited the financial statement schedule as listed in Item 15(A)2. These consolidated financial statements
and financial statement schedule are the responsibility of Norfolk Southern Corporation’s management.
Our responsibility is to express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Norfolk Southern Corporation and subsidiaries as of December 31, 2005
and 2004, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in note 1 to the consolidated financial statements, effective January 1, 2003, Norfolk
Southern Corporation adopted Financial Accounting Standards Board Statement No. 143, Accounting for
Asset Retirement Obligations, and Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Norfolk Southern Corporation’s internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 21, 2006, expressed an unqualified opinion on management’s
assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP
Norfolk, Virginia
February 21, 2006

K46

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income

Years ended Dec. 31,
2004
($ in millions, except earnings per share)

2005

2003

Railway operating revenues

8,527 $

7,312 $

6,468

Railway operating expenses
Compensation and benefits (Note 11)
Materials, services and rents
Conrail rents and services (Note 5)
Depreciation (Note 5)
Diesel fuel
Casualties and other claims (Note 18)
Other

2,493
1,809
129
774
727
224
254

2,272
1,601
319
598
449
151
220

2,275
1,427
419
513
380
181
209

Total railway operating expenses

6,410

5,610

5,404

Income from railway operations

2,117

1,702

1,064

Other income – net (Note 2)
Interest expense on debt (Note 6)

74
494

89
489

Income from continuing operations
before income taxes and accounting changes

1,697

1,302

Provision for income taxes (Note 3)

416

379

19
497

586

175

Income from continuing operations
before accounting changes

Discontinued operations – gain on sale
of motor carrier, net of taxes (Note 17)
Cumulative effect of changes in accounting
principles, net of taxes (Note 1)

1,281

923

411

114

Net income

1,281 $

923 $

535

Per share amounts (Note 14):
Income from continuing operations before
accounting changes
Basic
Diluted
Net income
Basic
Diluted

$
$

3.17 $
3.11 $

2.34 $
2.31 $

1.05
1.05

1.37
1.37

See accompanying notes to consolidated financial statements.

K47

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets

Assets
Current assets:
Cash and cash equivalents
Short-term investments (Note 5)
Accounts receivable – net (Notes 4 and 18)
Materials and supplies
Deferred income taxes (Note 3)
Other current assets
Total current assets

Investments (Note 5)
Properties less accumulated depreciation (Note 6)
Other assets (Note 18)
Total assets

Liabilities and stockholders' equity
Current liabilities:
Accounts payable (Notes 7 and 18)
Income and other taxes
Other current liabilities (Note 7)
Current maturities of long-term debt (Note 8)
Total current liabilities

Long-term debt (Note 8)
Other liabilities (Notes 10 and 18)
Deferred income taxes (Note 3)
Total liabilities

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; issued 430,718,913 and 421,346,107 shares,
respectively
Additional paid-in capital
Unearned restricted stock (Note 12)
Accumulated other comprehensive loss (Note 13)
Retained income
Less treasury stock at cost, 20,833,125 and 20,907,125 shares,
respectively

Total stockholders' equity

As of Dec. 31,

2005

2004

($ in millions)

289 $
968
931
132
167
163
2,650

1,590
20,705
916
25,861 $

1,163 $
231
213
314
1,921

6,616
1,415
6,620
16,572

431
992
(17)
(77)
7,980

(20)

9,289

467
202
767
104
187
240
1,967

1,499
20,526
758
24,750

1,090
210
239
662
2,201

6,863
1,146
6,550
16,760

421
728
(8)
(24)
6,893

(20)

7,990

Total liabilities and stockholders' equity

25,861 $

24,750

See accompanying notes to consolidated financial statements.

K48

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows

2005

Years Ended Dec. 31,
2004
($ in millions)

2003

1,281 $

923 $

535

--
787
80
(37)
--
(51)
--

(94)
(28)
20
55
92
2,105

(1,025)
110
(1,822)
910
(1,827)

(194)
194
--
433
(889)
(456)

(178)

--
609
200
(54)
(53)
(46)
--

(71)
(12)
(18)
126
57
1,661

(1,041)
75
(396)
117
(1,245)

(142)
162
--
202
(455)
(233)

183

(114)
528
132
(58)
--
(45)
(10)

(12)
5
(4)
(25)
122
1,054

(720)
78
(106)
108
(640)

(117)
13
(43)
261
(428)
(314)

100

467

284

184

289 $

467 $

284

$
$

485 $
271 $

483 $
146 $

510
93

Cash flows from operating activities
Net income
Reconciliation of net income to net cash
provided by operating activities:
Net cumulative effects of changes in accounting principles
Depreciation
Deferred income taxes
Equity in earnings of Conrail (Note 5)
Gain on Conrail Corporate Reorganization (Note 5)
Gains and losses on properties and investments
Income from discontinued operations
Changes in assets and liabilities affecting operations:
Accounts receivable (Note 4)
Materials and supplies
Other current assets
Current liabilities other than debt
Other – net (Notes 6 and 11)
Net cash provided by operating activities

Cash flows from investing activities
Property additions
Property sales and other transactions
Investments, including short-term
Investment sales and other transactions
Net cash used for investing activities

Cash flows from financing activities
Dividends
Common stock issued – net
Redemption of minority interest
Proceeds from borrowings
Debt repayments
Net cash used for financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents
At beginning of year

At end of year

Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized)
Income taxes (net of refunds)

See accompanying notes to consolidated financial statements.

K49

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity

Common
Stock

Additional
Paid-in
Capital

Accum.
Other
Compre-
hensive
Income
Retained
Income
(Loss)
($ in millions, except per share amounts)

Unearned
Restricted
Stock

Treasury
Stock

Total

Balance Dec. 31, 2002

410

481

(65)

5,694

(20)

6,500

Comprehensive income
Net income
Other comprehensive
income (Note 13)
Total comprehensive
income
Dividends on Common
Stock, $0.30 per share
Other (Notes 11 and 12)

Balance Dec. 31, 2003

Comprehensive income
Net income
Other comprehensive
income (Note 13)
Total comprehensive
income
Dividends on Common
Stock, $0.36 per share
Other (Notes 11 and 12)

Balance Dec. 31, 2004

Comprehensive income
Net income
Other comprehensive
loss (Note 13)
Total comprehensive
income
Dividends on Common
Stock, $0.48 per share
Other (Notes 11 and 12)

535

(117)

535

556

(117)
37

(44)

6,112

(20)

6,976

923

(142)

923

943

(142)
213

(24)

6,893

(20)

7,990

(53)

1,281

(194)

1,281

(53)

1,228

(194)
265

412

521

(5)

421

207

728

(3)

(8)

264

(9)

Balance Dec. 31, 2005

431

992

(17) $

(77)

7,980

(20)

9,289

See accompanying notes to consolidated financial statements.

K50

Norfolk Southern Corporation and Subsidiaries
Notes to Consolidated Financial Statements

The following Notes are an integral part of the Consolidated Financial Statements.

1. Summary of Significant Accounting Policies

Description of Business

Norfolk Southern Corporation is a Virginia-based holding company engaged principally in the rail
transportation business, operating approximately 21,200 route miles primarily in the East and Midwest.
These consolidated financial statements include Norfolk Southern Corporation (Norfolk Southern) and its
majority-owned and controlled subsidiaries (collectively, NS). Norfolk Southern's major subsidiary is
Norfolk Southern Railway Company (NSR). All significant intercompany balances and transactions have
been eliminated in consolidation.

The railroad transports raw materials, intermediate products and finished goods classified in the following
market groups (percent of total railway operating revenues in 2005): coal (25%); intermodal (21%);
automotive (12%); metals/construction (12%); chemicals (11%); agriculture/consumer products/
government (10%); and paper/clay/forest products (9%). Although most of NS’ customers are domestic,
ultimate points of origination or destination for some of the products transported (particularly coal bound
for export and some intermodal containers) may be outside the United States. Approximately 85% of NS'
railroad employees are covered by collective bargaining agreements with 14 different labor unions.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Management reviews its
estimates, including those related to the recoverability and useful lives of assets, as well as liabilities for
litigation, environmental remediation, casualty claims, income taxes, and pension and postretirement
benefits. Changes in facts and circumstances may result in revised estimates.

Revenue Recognition

Transportation revenue is recognized proportionally as a shipment moves from origin to destination and
related expenses are recognized as incurred. Refunds (which are primarily volume-based incentives) are
recorded as a reduction to revenues on the basis of management's best estimate of projected liability,
which is based on historical activity, current traffic counts and the expectation of future activity. NS
regularly monitors its contract refund liability, and historically, the estimates have not differed
significantly from the amounts ultimately refunded. Switching, demurrage and other incidental service
revenues are recognized when the services are performed.

Derivatives

NS does not engage in the trading of derivatives. NS uses derivative financial instruments to reduce the
risk of volatility in its diesel fuel costs and in the management of its mix of fixed and floating-rate debt.
Management has determined that these derivative instruments qualify as either fair-value or cash-flow

K51

hedges, having values that highly correlate with the underlying hedged exposures, and have designated
such instruments as hedging transactions. Income and expense related to the derivative financial
instruments are recorded in the same category as generated by the underlying asset or liability. Credit risk
related to the derivative financial instruments is considered to be minimal and is managed by requiring
high credit standards for counterparties and periodic settlements (see Note 16).

Stock-Based Compensation

NS has stock-based employee compensation plans, which are more fully described in Note 12. Through
Dec. 31, 2005, NS applied the intrinsic value recognition and measurement principles of APB Opinion
No. 25, “Accounting for Stock Issued to Employees” (APB Opinion No. 25), and related interpretations
in accounting for these plans (See “Required Accounting Change in 2006,” below).

The following table illustrates the effect on net income and earnings per share if NS had applied the fair
value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (SFAS No. 123), to stock-based employee compensation:

2005

2004
($ in millions except per share)

2003

Net income, as reported
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
Deduct: Stock-based employee compensation
expense determined under fair value method, net
of related tax effects
Pro forma net income

Earnings per share:
As reported
Basic
Diluted

Pro forma
Basic
Diluted

1,281

923

535

(45)
1,282

3.17
3.11

3.17
3.10

$
$

(44)
911

2.34
2.31

2.31
2.28

$
$

(35)
518

1.37
1.37

1.33
1.33

Required Accounting Change in 2006

Effective January 1, 2006, NS adopted Statement of Financial Accounting Standards, No. 123(R), “Share
Based Payments,” [SFAS No. 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. In November 2005, the
Board of Directors of NS changed the vesting period on options granted in January 2005 from three years
to one year in order to reduce future compensation expense. At the time, these options had an intrinsic
value of approximately $9 each and the modification resulted in less than $1 million of compensation
expense. Future compensation expense will be reduced by $10 million as a result of this modification.

Under SFAS No. 123(R), all new awards granted to retirement eligible employees must be expensed
immediately. Under APB Opinion No. 25 and related interpretations, such awards were amortized over

K52

the stated service period. Such awards were treated similarly under SFAS No. 123 in the pro forma
amounts disclosed in the preceding table. As a result of SFAS No. 123(R), expense recognition is
accelerated on grants to retirement eligible employees and the effect of this acceleration will be
approximately $20 million of additional compensation expense in 2006.

Cash Equivalents

“Cash equivalents” are highly liquid investments purchased three months or less from maturity.

Investments

Debt securities classified as “held-to-maturity” are reported at amortized cost and marketable equity and
debt securities classified as “trading” or “available-for-sale” are recorded at fair value. Unrealized after-
tax gains and losses for investments designated as “available-for-sale,” are recognized in “Accumulated
other comprehensive loss.”

Investments where NS has the ability to exercise significant influence over but does not control the entity
are accounted for using the equity method in accordance with APB Opinion No. 18, “The Equity Method
of Accounting for Investments in Common Stock.”

Materials and Supplies

“Materials and supplies,” consisting mainly of fuel oil and items for maintenance of property and
equipment, are stated at the lower of average cost or market. The cost of materials and supplies expected
to be used in capital additions or improvements is included in “Properties.”

Properties

“Properties” are stated principally at cost and are depreciated using group depreciation. Rail is
depreciated primarily on the basis of use measured by gross ton-miles. Other properties are depreciated
generally using the straight-line method over the lesser of estimated service or lease lives. Depletion of
natural resources (see Note 2) is based on units of production. Depreciation in the Consolidated
Statements of Cash Flows includes depreciation and depletion. NS capitalizes interest on major capital
projects during the period of their construction. Expenditures, including those on leased assets that
extend an asset's useful life or increase its utility, are capitalized. Costs related to repairs and
maintenance activities that do not extend an asset’s useful life or increase its utility are expensed when
such repairs are performed. When properties other than land and nonrail assets are sold or retired in the
ordinary course of business, the cost of the assets, net of sale proceeds or salvage, is charged to
accumulated depreciation, and no gain or loss is recognized through income. Gains and losses on
disposal of land and nonrail assets are included in “Other income - net” (see Note 2) since such income is
not a product of NS’ railroad operations.

NS reviews the carrying amount of properties whenever events or changes in circumstances indicate
that such carrying amount may not be recoverable based on future undiscounted cash flows. Assets that
are deemed impaired as a result of such review are recorded at the lower of carrying amount or fair value
(see Note 6).

Required Accounting Changes in 2003

NS adopted Statement of Financial Accounting Standards 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 2003.

K53

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 (because the depreciation rate for crossties no longer reflects cost to
remove) and increased compensation and benefits and other expenses (for the costs to remove retired
assets). The net effect to total railway operating expenses and net income was not material.

NS also adopted Financial Accounting Standards Board 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 2003.
Pursuant to FIN No. 46, NS consolidated a special-purpose entity that leased certain locomotives to NS.
This entity’s assets and liabilities at Jan. 1, 2003, included $169 million of locomotives and $157 million
of debt related to their purchase as well as a $6 million minority interest liability. This change in
accounting increased depreciation and interest expense (to reflect the locomotives as owned assets) and
lowered lease expense. The net effect to total railway operating expenses and net income was not
material.

The cumulative effect of these changes amounted to $114 million, or 29 cents per share, in 2003.

Reclassifications

Certain amounts have been reclassified to conform to current presentation. Specifically, $112 million of
auction rate securities held at Dec. 31, 2004, previously classified as cash equivalents, have been
reclassified as short-term investments. These securities were sold in the first quarter of 2005 at market
value, which was equal to their carrying cost, and accordingly are included in “Investment sales and other
transactions” in the Consolidated Statements of Cash Flows. In addition, the following items shown in
the Consolidated Balance Sheet as of Dec. 31, 2004, have been reclassified to conform to the current
presentation: (1) “Investment in Conrail” and the amount of investments included in “Other assets” have
been reclassified and comprise “Investments” and (2) “Due to Conrail” has been reclassified and is
included in the amount shown for “Accounts Payable.”

2. Other Income - Net

Income from natural resources:
Royalties from coal
Nonoperating depletion and depreciation
Subtotal

Gains from sale of properties and investments
Rental income
Interest income
Equity in earnings of Conrail (Note 5)
Corporate-owned life insurance – net
Gain from Conrail Corporate Reorganization (Note 5)
Equity in losses of partnerships
Taxes on nonoperating property
Other interest expense
Charitable contributions
Impairment of telecommunications assets (Note 6)
Other
Total

K54

2005

2004
($ in millions)

2003

54 $
(13)
41

49
42
41
37
4
--
(108)
(9)
(6)
(4)
--
(13)
74 $

42 $
(11)
31

46
40
13
11
8
53
(61)
(8)
(17)
(4)
--
(23)
89 $

39
(15)
24

45
38
10
--
21
--
--
(8)
(4)
(4)
(84)
(19)
19

“Other income - net” includes the income generated by the activities of NS' noncarrier subsidiaries as
well as the costs incurred by those subsidiaries in their operations. NS has a 40.5% interest in a limited
liability company that owns and operates facilities that produce synthetic fuel from coal. The production
of synthetic fuel results in tax credits as well as expenses related to the investments. The expenses are
classified in “Equity in losses of partnerships” above.

“Other current assets” in the Consolidated Balance Sheets includes prepaid interest of $47 million at
Dec. 31, 2005, and $48 million at Dec. 31, 2004, arising from corporate-owned life insurance borrowings.

3. Income Taxes

Provision for Income Taxes

2005

2004
($ in millions)

2003

Current:
Federal
State
Total current taxes

Deferred:
Federal
State
Total deferred taxes

283 $
53
336

220
(140)
80

133 $

46
179

181
19
200

Provision for income taxes

416 $

379 $

Reconciliation of Statutory Rate to Effective Rate

32
11
43

97
35
132

175

The “Provision for income taxes” in the Consolidated Statements of Income reflects taxes from
continuing operations before accounting changes and differs from the amounts computed by applying the
statutory federal corporate tax rate as follows:

Federal income tax at
statutory rate
State income taxes, net of
federal tax effect
Tax credits
Ohio rate change, net of
federal tax effect
Equity in earnings of Conrail
Gain from Conrail Corporate
Reorganization
Other – net

2005

2004

2003

Amount

($ in millions)

594

35 $

456

35 $

205

40
(104)

(96)
(10)

--
(8)

2
(6)

(6)
--

--
--

42
(80)

--
(18)

(19)
(2)

3
(7)

--
(1)

(1)
--

30
--

--
(20)

--
(40)

5
--

--
(3)

--
(7)

Provision for income taxes

416

25 $

379

29 $

175

K55

In June 2005, Ohio enacted tax legislation that phases out its Corporate Franchise Tax, which was
generally based on federal taxable income, and phases in a new gross receipts tax called the Commercial
Activity Tax, which is based on current year sales and rentals. The phased elimination of the Corporate
Franchise Tax resulted in a reduction in NS’ deferred income tax liability, as required by Statement of
Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which, as noted above,
decreased deferred tax expense by $96 million.

Deferred Tax Assets and Liabilities

Certain items are reported in different periods for financial reporting and income tax purposes. Deferred
tax assets and liabilities are recorded in recognition of these differences.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are as follows:

Deferred tax assets:
Reserves, including casualty and other claims
Retiree health and death benefit obligations
Taxes, including state and property
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax asset

Deferred tax liabilities:
Property
Other
Total gross deferred tax liabilities

Net deferred tax liability
Net current deferred tax asset

Dec. 31,

2005

2004

($ in millions)

162
190
390
33
775
(16)
759

(6,957)
(255)
(7,212)

(6,453)
167

200
180
449
44
873
(21)
852

(7,022)
(193)
(7,215)

(6,363)
187

Net long-term deferred tax liability

(6,620)

(6,550)

Net deferred income tax liabilities increased by $3,113 million in 2004 as a result of the Conrail
Corporate Reorganization (see Note 5). Except for amounts for which a valuation allowance has
been provided, management believes that it is more likely than not that future taxable income will be
sufficient to realize the deferred tax assets. The valuation allowance at the end of each year relates to
subsidiary state income tax net operating losses that may not be utilized prior to their expiration. The
total valuation allowance decreased $5 million in 2005, $1 million in 2004 and $2 million in 2003.

Internal Revenue Service (IRS) Reviews

Consolidated federal income tax returns have been examined and Revenue Agent Reports have been
received for all years up to and including 2001. In 2004, the favorable resolution of the IRS audit of a
synthetic fuel-related investment is reflected in the “Tax credits” line of the reconciliation of statutory rate
to the effective rate. In 2003, the favorable resolution of prior years’ audits is reflected in the “Other –
net” line of the reconciliation of statutory rate to the effective rate, as shown above, and comprised most
of that line item. The consolidated federal income tax returns for 2002 and 2003 are being audited by the

K56

IRS. The IRS examination for 2002 and 2003 is expected to be completed by the end of 2006.
Management believes that adequate provision has been made for any additional taxes and interest thereon
that might arise as a result of IRS examinations.

4. Accounts Receivable

Until May 2005, NS had in place an accounts receivable sales program. Under this program a
bankruptcy-remote special purpose subsidiary of NS sold without recourse undivided ownership interests
in a pool of accounts receivable. While there were some sales during 2004 and 2003, there were no
accounts receivable sold under this arrangement as of Dec. 31, 2004. The change in “Accounts
receivable” included on the Consolidated Statements of Cash Flows related to receivable sales was zero
for 2005 and 2004 and a decrease of $30 million in 2003. The fees associated with sales, which are based
on the buyers' financing costs, are included in “Other income – net” (see Note 2).

NS' allowance for doubtful accounts was $6 million at Dec. 31, 2005, and $9 million at Dec. 31, 2004.
To determine its allowance for doubtful accounts, NS evaluates historical loss experience (which has
not been significant), the characteristics of current accounts, as well as general economic conditions
and trends.

5. Investments

Short-term investments with average maturities at
Dec. 31, 2005:
Federal government notes, 6 months
Corporate notes, 10 months
Commercial paper, 4 months
Municipal debt, 5 months
Other short-term investments, 6 months
Total short-term investments

Long-term investments:
Investment in Conrail Inc.
Other equity method investments
Company-owned life insurance at net cash
surrender value
Other investments
Total long-term investments

Dec. 31,

2005

2004

($ in millions)

348
290
251
43
36
968

844
331

276
139
1,590

--
40
--
96
66
202

805
313

254
127
1,499

The $968 million in “Short-term investments” is classified as available-for-sale, of which approximately
two-thirds mature within 6 months. Unrealized gains from short-term investments were less than $1
million at Dec. 31, 2005 and $1 million at Dec. 31, 2004.

K57

Investment in Conrail and Operations Over Its Lines

Overview

Conrail Corporate Reorganization

On August 27, 2004, NS, CSX and Conrail completed a reorganization of Conrail (Conrail Corporate
Reorganization), which established direct ownership and control by NSR and CSXT of two former
CRC subsidiaries, Pennsylvania Lines LLC (PRR) and New York Central Lines LLC (NYC),
respectively. Prior to the Conrail Corporate Reorganization, NSR operated the routes and assets of
PRR and CSXT operated the routes and assets of NYC, each in accordance with operating and lease
agreements. Pursuant to the Conrail Corporate Reorganization, the operating and lease agreements
were terminated and PRR and NYC were merged into NSR and CSXT, respectively. The
reorganization did not involve the Shared Assets Areas and did not affect the competitive rail service
provided in the Shared Assets Areas. Conrail continues to own, manage and operate the Shared Assets
Areas as previously approved by the Surface Transportation Board (STB).

As a part of the Conrail Corporate Reorganization, Conrail restructured its existing unsecured and
secured public indebtedness, with the consent of Conrail’s debtholders. Prior to the restructuring, there
were two series of unsecured public debentures with an outstanding principal amount of approximately
$800 million and 13 series of secured debt with an outstanding principal amount of approximately
$300 million. Guaranteed debt securities were offered in an approximate 58%/42% ratio in exchange
for Conrail’s unsecured debentures. Of the $800 million unsecured public debentures, $779 million
were tendered and accepted for exchange, and NSR issued unsecured public debentures with a total
principal of $452 million and an issue-date fair value of $595 million. Conrail’s secured debt and lease
obligations remain obligations of Conrail and are supported by leases and subleases which are the
direct lease and sublease obligations of NSR or CSXT. Substantially all of these NSR obligations are
capital leases and, accordingly, are a component of NS’ capital lease obligations (see Note 8).

NS accounted for the transaction at fair value, which resulted in the recognition of a $53 million net
gain (reported in “Other income – net”) from the tax-free distribution to NS of a portion of its
investment in Conrail. NS concluded that fair value was the appropriate measurement for 42% of PRR
because the transaction resulted in the complete ownership and control of PRR. The remaining 58% of
PRR was recorded at NS’ carryover basis. As a result of the transaction, NS’ investment in Conrail no
longer includes amounts related to PRR and NYC. Instead the assets and liabilities of PRR are
reflected in their respective line items in NS’ Consolidated Balance Sheet and amounts due to PRR
were extinguished.

K58

The following summarizes the effect of the transaction on NS’ Consolidated Balance Sheet
($ in millions):

Properties
Extinguishment of amounts due to PRR
Other assets and liabilities, net
Deferred income taxes
Long-term debt, including current maturities
Net assets received
Investment in Conrail
Gain from Conrail Corporate Reorganization

8,368
870
177
(3,113)
(734)
5,568
(5,515)
53

The amounts shown above for the net assets received reflect the fair value of such assets. Properties
have been valued based on information received from an independent valuation consultant. The assets
of PRR included the note due from NSR discussed below under the heading “Related Party
Transactions,” which resulted in its effectively being extinguished. Debt has been recorded at fair
value based on interest rates at the time of the reorganization. The reduction to NS’ investment in
Conrail represents the removal of amounts related to NS’ equity interests in PRR and NYC as well as
amounts related to the Conrail debt that was exchanged or effectively assumed by the leases and
subleases entered into to support those obligations.

On the Consolidated Statements of Income, “Conrail rents and services” is reduced as a result of the
transaction. After the Conrail Corporate Reorganization, “Conrail rents and services” reflects only the
expenses associated with the Shared Assets Areas, and other expenses (primarily the depreciation
related to the PRR assets) are reflected in their respective line items in the Consolidated Statements of
Income. The transaction’s impact on net income was the $53 million gain discussed above.
Prospectively, the transaction will have no effect on revenues and will not have a significant ongoing
effect on net income. Had the transaction been consummated before the periods presented, there
would have been no change in revenues and no significant change to net income.

NS is continuing to apply the equity method of accounting to its remaining investment in Conrail in
accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in
Common Stock." NS is amortizing the excess of the purchase price over Conrail's net equity using the
principles of purchase accounting, based primarily on the estimated remaining useful lives of Conrail's
depreciable property and equipment, including the related deferred tax effect of the differences in tax
and accounting bases for certain assets, as all of the purchase price at acquisition was allocable to
Conrail’s tangible assets and liabilities. At Dec. 31, 2005, the difference between NS' investment in
Conrail and its share of Conrail's underlying net equity was $593 million.

Related-Party Transactions

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of
NSR and CSXT. NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared Assets
Areas. In addition, NSR and CSXT pay, based on usage, the costs incurred by CRC to operate the Shared
Assets Areas. Future minimum lease payments due to CRC under the Shared Assets Areas agreements
are as follows: $25 million in each of 2006 through 2010 and $331 million thereafter.

K59

The components of "Conrail rents and services" are as follows:

Years Ended Dec. 31,
2005

2004
($ in millions)

2003

Amounts due to PRR for use by NSR of operating
properties and equipment (prior to the Conrail
Corporate Reorganization)

NS’ equity in the earnings of Conrail, net of
amortization (prior to the Conrail Corporate
Reorganization)*

Expenses for amounts due to CRC for operation of
the Shared Assets Areas
Conrail rents and services

233

348

(43)

(58)

129
129

129
319

129
419

*After the reorganization, NS’ equity in the earnings of Conrail, net of amortization, is
included in “Other income – net,” (see Note 2).

Prior to the Conrail Corporate Reorganization, a significant portion of the payments made to PRR was
borrowed back from a subsidiary of PRR under a note due in 2032. Amounts outstanding under this
note comprised the long-term balance of “Due to Conrail,” and this note was effectively extinguished
by the reorganization. "Due to Conrail" included in “Accounts payable” (see Note 7) is composed
principally of amounts related to expenses included in "Conrail rents and services," as discussed above.
“Long-term advances from Conrail,” included in “Other liabilities” (see Note 10), bear interest at an
average rate of 4.4% and are due in 2035.

NS provides certain general and administrative support functions to Conrail, the fees for which are
billed in accordance with several service-provider arrangements and amount to approximately
$7 million annually.

Summary Financial Information – Conrail

As a result of the Conrail Corporate Reorganization discussed above, two CRC subsidiaries, PRR and
NYC, were distributed to NS and CSX, respectively, and CRC’s public indebtedness was restructured.
The results of the operations of these subsidiaries and their net assets are presented in the following
financial information as “Discontinued Operations.” The 2005 and 2004 summarized information was
derived from unaudited financial statements. The 2003 summarized information was derived from
audited financial statements.

Summarized Income Statement Information - Conrail

2005

Years Ended Dec. 31,
2004
($ in millions)

2003

Operating revenues
Operating income (loss)
Income from continuing operations
Discontinued operations (PRR and NYC)
Net income

$
$
$
$
$

378
32
85
--
85

$
$
$
$
$

352 $
(18) $
22 $
119 $
140 $

316
(36)
10
191
203

K60

Note: Conrail adopted FIN No. 46 “Consolidation of Variable Interest Entities,” effective Jan. 1, 2004,
and recorded a $1 million net adjustment for the cumulative effect of this change in accounting on
years prior to 2004. Conrail adopted SFAS No. 143, effective Jan. 1, 2003, and recorded a $40 million
net adjustment for the cumulative effect of this change in accounting on years prior to 2003 (including
$38 million related to discontinued operations). NS excluded this amount from its determination of
equity in earnings of Conrail because an amount related to Conrail is included in NS’ cumulative effect
adjustment for SFAS No. 143.

Summarized Balance Sheet Information - Conrail

Assets:
Current assets
Noncurrent assets
Total assets

Liabilities and stockholders' equity:
Current liabilities
Noncurrent liabilities
Stockholders' equity
Total liabilities and stockholders' equity

As of Dec. 31,

2005

2004

($ in millions)

233 $

1,242
1,475 $

233 $
807
435
1,475 $

334
1,080
1,414

242
811
361
1,414

Note: Current assets include amounts due from NS and CSX totaling $134 million at Dec. 31,
2005, and $165 million at Dec. 31, 2004. Noncurrent assets include amounts due from NS and CSX
totaling $413 million at Dec. 31, 2005, and $225 million at Dec. 31, 2004. Current liabilities include
amounts payable to NS and CSX totaling $6 million at Dec. 31, 2005, and $4 million at Dec. 31, 2004.

6. Properties

Dec. 31,

2005

2004

($ in millions)

Depreciation
Rate for 2005

Land
Railway property:
Road
Equipment
Other property

Less accumulated depreciation

2,088 $

2,083

18,131
6,838
469
27,526

(6,821)

17,552
6,661
469
26,765

(6,239)

Net properties

20,705

20,526

2.8%
4.4%
2.8%

Railway property includes $602 million at Dec. 31, 2005, and $618 million at Dec. 31, 2004, of assets
recorded pursuant to capital leases with accumulated amortization of $170 million and $149 million at
Dec. 31, 2005 and 2004, respectively. Other property includes the costs of obtaining rights to natural
resources of $337 million at Dec. 31, 2005, and $341 million at Dec. 31, 2004. Properties increased
$8,368 million in 2004 as a result of the Conrail Corporate Reorganization (see Note 5).

K61

Impairment of Telecommunications Assets in 2003

In 2003, NS recorded an $84 million non-cash reduction in the carrying value of certain
telecommunications assets to recognize their impaired value in accordance with the provisions of SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” NS’ subsidiary,
Thoroughbred Technology and Telecommunications (T-Cubed), developed fiber optic infrastructure with
companies in the telecommunications industry. This industry experienced a severe downturn in 2003;
accordingly, T-Cubed monitored the carrying amount of these assets through independent fair market
value appraisals. As a result of a deterioration in the long-term prospects for these assets, an updated
appraisal obtained in the fourth quarter of 2003 indicated a significant decline in their value. T-Cubed
continues to monitor the carrying value of these assets.

Capitalized Interest

Total interest cost incurred on debt in 2005, 2004 and 2003 was $505 million, $499 million and
$509 million, respectively, of which $11 million, $10 million and $12 million was capitalized.

7. Current Liabilities

Accounts payable:
Accounts and wages payable
Casualty and other claims (Note 18)
Vacation liability
Equipment rents payable – net
Due to Conrail
Other
Total

Other current liabilities:
Interest payable
Liabilities for forwarded traffic
Retiree health and death benefit obligations (Note 11)
Other
Total

Dec. 31,

2005

2004

($ in millions)

571
291
119
101
56
25
1,163

100
47
45
21
213

544
222
115
106
78
25
1,090

117
46
45
31
239

K62

8. Long-term Debt

Notes and debentures at average rates and maturities as follows:
7.10%, maturing to 2010
5.89%, maturing 2011 and 2014
8.02%, maturing 2017 to 2025
7.13%, maturing 2027 to 2031
7.21%, maturing 2037 and 2043
7.02%, maturing 2097 and 2105
Equipment obligations at an average rate of 5.54%, maturing to 2014
Capitalized leases at an average rate of 4.49%, maturing to 2024
Other debt at an average rate of 7.04%, maturing to 2019
Discounts and premiums, net
Total long-term debt
Less current maturities
Long-term debt excluding current maturities

Long-term debt maturities subsequent to 2006 are as follows:
2007
2008
2009
2010
2011 and subsequent years
Total

Dec. 31,

2005

2004

($ in millions)

1,440 $
741
1,314
1,300
855
650
363
290
113
(136)
6,930
(314)
6,616 $

1,840
741
1,114
1,500
855
350
563
370
113
79
7,525
(662)
6,863

492
368
476
340
4,940
6,616

In May 2005, NS issued $717 million of unsecured notes ($350 million at 5.64% due 2029 and
$367 million at 5.59% due 2025) and paid $218 million of premium in exchange for $717 million of its
previously issued unsecured notes ($350 million at 7.8% due 2027, $200 million at 7.25% due 2031, and
$167 million at 9.0% due 2021). The $218 million cash premium payment is reflected as a reduction of
debt in the Consolidated Balance Sheet and Statement of Cash Flows and is included in “Discounts and
premiums, net.” The premium is being amortized as additional interest expense over the terms of the new
debt, resulting in effective interest rates of 8.7% for the 2029 notes and 9.0% for the 2025 notes.

In August 2004, pursuant to the Conrail Corporate Reorganization (see Note 5), NSR issued unsecured
public debentures with a total principal of $452 million ($314 million at 9.75% due 2020 and
$138 million at 7.875% due 2043) and fair value of $595 million. This difference is included in
“Discounts and premiums, net” and is being amortized as a reduction of interest expense over the terms of
the notes, resulting in effective interest rates of 6.0% for the 2020 notes and 6.2% for the 2043 notes.

The railroad equipment obligations and the capitalized leases are secured by liens on the
underlying equipment. Certain lease obligations require the maintenance of yen-denominated deposits,
which are pledged to the lessor to satisfy yen-denominated lease payments. These deposits are included
in “Other assets” on the balance sheet and totaled $87 million at Dec. 31, 2005, and $100 million at
Dec. 31, 2004.

K63

Shelf Registration

NS has on file with the Securities and Exchange Commission a Form S-3 shelf registration statement
covering the issuance of up to $1 billion of registered debt or equity securities. In 2005, NS issued
$300 million of 6% senior notes due March 2105 under this shelf registration statement.

Credit Agreement, Debt Covenants and Commercial Paper

In August 2004, NS renewed its $1 billion credit facility under substantially the same terms and
conditions as the previous facility for a five-year term expiring in 2009. Any borrowings under the credit
agreement are contingent on the continuing effectiveness of the representations and warranties made at
the inception of the agreement. NS is subject to various financial covenants with respect to its debt and
under its credit agreement, including a minimum net worth requirement, a maximum leverage ratio
restriction, certain restrictions on the issuance of further debt by NS or its subsidiaries and the
consolidation, merger or sale of substantially all of NS’ assets. At Dec. 31, 2005, NS was in compliance
with all financial covenants.

NS has the ability to issue commercial paper supported by its $1 billion credit agreement. At Dec. 31,
2005, and Dec. 31, 2004, NS had no outstanding commercial paper or borrowings under the credit
agreement.

9. Lease Commitments

NS is committed under long-term lease agreements, which expire on various dates through 2067, for
equipment, lines of road and other property. The following amounts do not include payments to CRC
under the Shared Assets Areas agreements (see Note 5). Future minimum lease payments and operating
lease expense are as follows:

2006
2007
2008
2009
2010
2011 and subsequent years
Total
Less imputed interest on capital leases at an average rate of 5.4%
Present value of minimum lease payments included in debt

Operating
Leases

Capital
Leases

($ in millions)

144
141
114
100
85
483
1,067

67
78
46
59
24
44
318
(28)
290

Operating Lease Expense

Minimum rents
Contingent rents
Total

2005

2004
($ in millions)

2003

190
75
265

151 $

65
216 $

130
63
193

K64

10. Other Liabilities

Casualty and other claims (Note 18)
Retiree health and death benefit obligations (Note 11)
Deferred compensation
Long-term advances from Conrail
Net pension obligations (Note 11)
Other
Total

11. Pensions and Other Postretirement Benefits

Dec. 31,

2005

2004

($ in millions)

421 $
364
143
133
106
248
1,415 $

315
354
143
--
94
240
1,146

Norfolk Southern and certain subsidiaries have both funded and unfunded defined benefit pension plans
covering principally salaried employees. Norfolk Southern and certain subsidiaries also provide specified
health care and death benefits to eligible retired employees and their dependents. Under the present plans,
which may be amended or terminated at NS' option, a defined percentage of health care expenses is
covered, reduced by any deductibles, copayments, Medicare payments and, in some cases, coverage
provided under other group insurance policies.

Asset Management

Eleven investment firms manage the Company’s defined benefit pension plan’s assets under investment
guidelines approved by the Board of Directors. Investments are restricted to domestic fixed income
securities, international fixed income securities, domestic and international equity investments and
unleveraged exchange-traded options and financial futures. Limitations restrict investment concentration
and use of certain derivative instruments. The target asset allocation for equity is 75% of the pension
plan’s assets. Fixed income investments must have an average rating of “AA” or better and all fixed
income securities must be rated “A” or better except bond index funds. Equity investments must be in
liquid securities listed on national exchanges. No investment is permitted in the securities of Norfolk
Southern Corporation or its subsidiaries (except through commingled pension trust funds). Investment
managers’ returns are expected to exceed selected market indices by prescribed margins.

K65

NS’ pension plan weighted-average asset allocations at Dec. 31, 2005 and 2004, by asset category, are
as follows:

Asset Category

Percentage of
plan assets at Dec. 31,
2004
2005

Equity securities
Debt securities
Total
International equity securities
included in equity securities above

76%
24%
100%

11%

76%
24%
100%

10%

The postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies
with an asset allocation at Dec. 31, 2005, of 66% in equity securities and 34% in debt securities compared
with 67% in equity securities and 33% in debt securities at Dec. 31, 2004. The target asset allocation for
equity is between 50% and 75% of the plan’s assets.

The plans’ assumed future returns are based principally on the asset allocation and on the historic returns
for the plans’ asset classes determined from both actual plan returns and, over longer time periods, market
returns for those asset classes.

Voluntary Separation Program in 2003

Compensation and benefits expense in 2003 includes $107 million of costs related to a voluntary
separation program undertaken in the fourth quarter. Through the program, 553 nonagreement employees
were separated from service, of which 314 retired under Norfolk Southern’s retirement plan. The costs
include $66 million for separation payments and other benefits of the program and $41 million of costs
related to the pension and other benefit plans.

Medicare Changes

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Act) was signed
into law in December 2003. The Act introduced a new prescription drug benefit under Medicare
(Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide
a benefit that is at least actuarially equivalent to Medicare Part D. The actuary for Norfolk Southern’s
medical plan has determined that Norfolk Southern’s medical plan’s prescription drug benefit for 2006 is
actuarially equivalent to the new prescription drug benefit under Medicare Part D. In accordance with
Financial Accounting Standards Board Staff Position No. 106-1, NS elected to take into account these
legislative changes in the measurement of its postretirement benefit obligations, which resulted in a
reduction of $15 million in the net benefit cost in 2005, $9 million in 2004 and no effect on the net benefit
cost in 2003.

K66

Pension and Other Postretirement Benefit Obligations and Plan Assets

Change in benefit obligations
Benefit obligation at beginning of year
Service cost
Interest cost
Settlement
Actuarial losses
Benefits paid
Benefit obligation at end of year

Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year

Funded status

Unrecognized actuarial loss
Unrecognized prior service cost (benefit)
Net amount recognized

Amounts recognized in the Consolidated
Balance Sheets consist of:
Prepaid benefit cost
Accrued benefit liability
Accumulated other comprehensive income
Net amount recognized

Pension Benefits
2004
2005
($ in millions)

Other Benefits
2004
2005

1,574 $
23
87
--
72
(114)
1,642

1,488 $
18
89
--
96
(117)
1,574

701 $
17
40
(12)
60
(52)
754

1,806
126
6
(114)
1,824

1,720
197
6
(117)
1,806

105
3
52
(52)
108

608
15
39
--
83
(44)
701

130
10
9
(44)
105

182

232

(646)

(596)

336
14
532 $

253
18
503 $

264
(27)
(409) $

232
(35)
(399)

612 $
(106)
26
532 $

577 $
(94)
20
503 $

-- $

(409)
--
(409) $

--
(399)
--
(399)

During 2005, NS distributed split dollar life insurance policies to eligible retired employees, which
resulted in a $12 million reduction of the postretirement benefit obligation.

Following is information for NS’ unfunded pension plans which in all cases have no assets and therefore
have an accumulated benefit obligation in excess of plan assets:

Dec. 31,

2005

2004

($ in millions)

Projected benefit obligation
Accumulated benefit obligation

$
$

134
106

$
$

120
94

K67

Pension and Other Postretirement Benefit Costs Components

Pension benefits
Service cost
Interest cost
Curtailment loss
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial losses
Net benefit

Other postretirement benefits
Service cost
Interest cost
Curtailment loss
Special termination benefits
Expected return on plan assets
Amortization of prior service cost (benefit)
Amortization of unrecognized losses
Net cost

Pension Assumptions

2005

2004
($ in millions)

2003

23 $
87
--
(149)
2
14
(23) $

17 $
40
--
--
(9)
(8)
22
62 $

18 $
89
--
(149)
3
3
(36) $

15 $
39
--
--
(12)
(9)
16
49 $

20
89
17
(158)
5
2
(25)

18
40
10
17
(12)
(7)
14
80

Pension and other postretirement benefit costs are determined based on actuarial valuations that reflect
appropriate assumptions as of the measurement date, ordinarily the beginning of each year. The funded
status of the plans is determined using appropriate assumptions as of each year end. A summary of the
major assumptions follows:

Funded status:
Discount rate
Future salary increases
Pension cost:
Discount rate
Return on assets in plans
Future salary increases

Health Care Cost Trend Assumptions

2005

5.50%
4.5%

5.75%
9%
4.5%

2004

5.75%
4.5%

6.25%
9%
4.5%

2003

6.25%
4.5%

6.75%
9%
4.5%

For measurement purposes at Dec. 31, 2005, increases in the per capita cost of covered health care
benefits were assumed to be 9% for 2005 and 8% for 2006. It is assumed the rate will decrease gradually
to an ultimate rate of 5% for 2009 and remain at that level thereafter.

K68

Assumed health care cost trend rates have a significant effect on the amounts reported in the financial
statements. To illustrate, a one-percentage-point change in the assumed health care cost trend would have
the following effects:

Increase (decrease) in:
Total service and interest cost components
Postretirement benefit obligation

Contributions and Estimated Future Benefit Payments

One percentage point
Decrease
Increase

($ in millions)

$
$

7 $
81 $

(6)
(69)

In 2006, NS expects to contribute approximately $8 million to its unfunded pension plans for payments to
pensioners and $44 million to its other postretirement benefit plans for retiree health benefits.

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid
as follows:

2006
2007
2008
2009
2010
Years 2011-2015

Pension
Benefits

Other
Benefits

($ in millions)

116
113
111
110
111
587

44
45
46
47
49
262

Beginning in 2006, the other benefit payments include an estimated annual $4 million reduction due to
the Medicare Part D Subsidy.

Other Postretirement Coverage

Under collective bargaining agreements, NS and certain subsidiaries participate in a multi-employer
benefit plan, which provides certain postretirement health care and life insurance benefits to eligible
union employees. Premiums under this plan are expensed as incurred and amounted to $26 million in
2005, $20 million in 2004 and $18 million in 2003.

Section 401(k) Plans

Norfolk Southern and certain subsidiaries provide Section 401(k) savings plans for employees. Under the
plans, NS matches a portion of employee contributions, subject to applicable limitations. NS' expenses
under these plans were $13 million in 2005, and $12 million in each of 2004 and 2003.

12. Stock-Based Compensation

Under the stockholder-approved Long-Term Incentive Plan (LTIP), a committee of nonemployee
directors of the Board or the chief executive officer (if delegated such authority by the committee) may
grant stock options, stock appreciation rights (SARs), restricted shares, restricted stock units and

K69

performance share units (PSUs), up to a maximum of 88,025,000 shares of Norfolk Southern Common
Stock (Common Stock). Of these shares, 5,000,000 were approved by the Board for issuance to non-
officer participants; as a broad-based issuance, stockholder approval was not required. In May 2005, the
stockholders approved an amended LTIP which provided that 8,500,000 shares of stock previously
approved for issuance under LTIP could be granted as restricted shares, restricted stock unit shares or
performance shares. Under the Board-approved Thoroughbred Stock Option Plan (TSOP), the committee
may grant stock options up to a maximum of 6,000,000 shares of Common Stock. Options may be
granted for a term not to exceed 10 years, but may not be exercised prior to the first anniversary of the
date of grant. Options are exercisable at the fair market value of Common Stock on the date of grant.

The LTIP also permits the payment – on a current or a deferred basis and in cash or in stock – of dividend
equivalents on shares of Common Stock covered by options, PSUs or restricted stock units in an amount
commensurate with dividends paid on Common Stock. Tax absorption payments also are authorized for
any awards under LTIP in amounts estimated to equal the federal and state income taxes applicable to
shares of Common Stock issued subject to a share retention agreement.

Accounting Method

As disclosed in Note 1, through Dec. 31, 2005, NS applied APB Opinion 25 and related interpretations in
accounting for awards made under the plans. Accordingly, grants of PSUs, restricted shares, restricted
share units, dividend equivalents, tax absorption payments and SARs resulted in charges to net income,
while grants of stock options had no effect on net income. Related compensation costs were $75 million
in 2005, $53 million in 2004 and $29 million in 2003. NS recognized additional paid-in capital of
$47 million in 2005, $30 million in 2004 and $2 million in 2003 related to the tax benefit generated by
stock option exercises.

Note 1 includes a table that illustrates the effect on net income and earnings per share had NS applied the
fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. The pro
forma amounts include compensation costs calculated using the Black-Scholes option-pricing model, with
the following assumptions and no dividend yield:

Average expected option life
Average risk-free interest rate
Average stock-price volatility
Per-share grant-date fair value

2005

2004

2003

5 years
3.7%
33%
12.19

5 years
3.2%
35%
7.95

5 years
2.8%
33%
6.60

K70

Stock Option Activity

Balance Dec. 31, 2002

Granted
Exercised
Expired
Balance Dec. 31, 2003

Granted
Exercised
Expired
Balance Dec. 31, 2004

Granted
Exercised
Expired
Balance Dec. 31, 2005

Option Shares
37,658,644

Weighted
Average
Exercise Price
23.47

5,700,000
(781,610)
(863,219)
41,713,815

4,580,500
(8,203,589)
(1,233,859)
36,856,867

1,353,600
(8,651,237)
(13,550)
29,545,680

19.63
16.13
24.37
23.07

22.02
19.60
24.53
23.66

34.10
22.93
30.00
24.35

Of the total options outstanding at Dec. 31, 2005, 28 million were vested and had a weighted-average
exercise price of $23.88.

Stock Options Outstanding

Range

$ 15.48
19.63
24.41
29.46
$ 15.48

- $ 16.94
22.49
-
27.69
-
-
34.10
- $ 34.10

Performance Share Units

Weighted
Average
Exercise Price
16.12
21.53
27.65
32.58
24.35

Number
Outstanding
at Dec. 31, 2005
4,587,502
13,550,929
3,632,042
7,775,207
29,545,680

Weighted Average
Remaining
Contractual Life
4.6 years
7.0 years
3.0 years
2.7 years
5.0 years

PSUs provide for awards based on achievement of certain predetermined corporate performance goals at
the end of a three-year cycle. PSU grants and average grant-date fair values were 1,344,400 and $34.10
in 2005; 831,000 and $22.02 in 2004; and 946,000 and $19.63 in 2003. PSUs may be paid in the form of
shares of Common Stock, cash or any combination thereof. Shares earned and issued may be subject to
share retention agreements and held by NS for up to five years.

Restricted Shares and Restricted Stock Units

Restricted share and restricted stock unit grants were 576,240 and 384,160, respectively, in 2005, with a
grant-date fair value of $34.10 and a five-year restriction period (that may be accelerated to a three-year
restriction period upon achievement of specified performance measures), and were 359,040 and 239,360,
respectively, in 2004, with a grant date fair value of $22.02 and a three-year restriction period. At

K71

Dec. 31, 2005 and 2004, the balance of unearned compensation was $17 million and $8 million, relating
to 1,262,776 and 726,540 restricted shares, respectively. Restricted stock units are payable in cash.

Shares Available and Issued

Shares of stock available for future grants and issued in connection with all features of the LTIP and
TSOP are as follows:

Available for future grants as of Dec. 31:
LTIP
TSOP

Shares of Common Stock issued:
LTIP
TSOP

13. Stockholders' Equity

Accumulated Other Comprehensive Loss

2005

2004

2003

11,321,573
2,771,400

14,033,053
2,773,300

17,994,726
2,737,200

9,078,717
410,750

8,764,021
8,700

1,412,749
--

“Accumulated other comprehensive income (loss)” reported in the Consolidated Statements of Changes in
Stockholders' Equity consisted of the following:

Balance
at Beginning
of Year

Net
Gain
(Loss)

Reclassification
Adjustments

Balance
at End
of Year

($ in millions)

Dec. 31, 2005
Unrealized gains (losses) on securities
Cash flow hedges
Minimum pension liability
Accumulated other
comprehensive loss

Dec. 31, 2004
Unrealized gains on securities
Cash flow hedges
Minimum pension liability
Accumulated other
comprehensive loss

1
47
(72)

(1)
55
(17)

(24) $

--
28
(72)

1
104
--

-- $

(90)
--

--
12
(89)

(90) $

(77)

-- $

(85)
--

1
47
(72)

(44) $

105

(85) $

(24)

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“Other comprehensive income (loss)” reported in the Consolidated Statements of Changes in
Stockholders' Equity consisted of the following:

Year ended Dec. 31, 2005
Net gain (loss) arising during the year:
Cash flow hedges
Reclassification adjustments for gains
included in net income
Subtotal

Unrealized losses on securities
Minimum pension liability
Other comprehensive income (loss)

Year ended Dec. 31, 2004
Net gain (loss) arising during the year:
Cash flow hedges
Reclassification adjustments for gains
included in net income
Subtotal

Unrealized gains on securities
Other comprehensive income (loss)

Year ended Dec. 31, 2003
Net gain (loss) arising during the year:
Cash flow hedges
Reclassification adjustments for gains
included in net income
Subtotal

Unrealized losses on securities
Minimum pension liability
Other comprehensive income (loss)

Pretax
Amount

Tax
(Expense)
Benefit
($ in millions)

Net-of-Tax
Amount

(37) $

(148)
(56)

(1)
(19)
(76) $

58
21

--
2

23 $

(90)
(35)

(1)
(17)
(53)

171 $

(67) $

104

(140)
31

55
(12)

1
32

--
(12) $

(85)
19

1
20

(29) $

(59)
16

(1)
11
26

23
(6)

--
1
(5) $

(36)
10

(1)
12
21

In 2005, 2004 and 2003, Conrail recorded a $22 million loss, a $3 million gain and a $25 million gain,
respectively, in other comprehensive income (loss) related to its minimum pension liability. NS' “Other
comprehensive income (loss)” includes a $13 million loss for 2005, a $2 million gain for 2004 and a
$14 million gain for 2003, arising from the Conrail adjustments.

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14. Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share:

2005

2004
($ in millions except per share, shares in millions)

2003

Income available to common stockholders for
basic and diluted computations

Basic earnings per share:
Weighted-average shares outstanding
Basic earnings per share

Diluted earnings per share:
Weighted-average shares outstanding per above
Dilutive effect of outstanding options, PSUs and
restricted shares (as determined by the
application of the treasury stock method)
Adjusted weighted-average shares outstanding
Diluted earnings per share

1,281 $

923 $

535

404.2

3.17 $

394.2

2.34 $

389.8
1.37

404.2

394.2

389.8

8.1
412.3
3.11 $

5.1
399.3

2.31 $

1.9
391.7
1.37

These calculations exclude options whose exercise price exceeded the average market price of Common
Stock as follows: 1 million in 2005, 13 million in 2004 and 28 million in 2003.

As disclosed in Note 1, the cumulative effect of changes in accounting principles in 2003 amounted to
$114 million, or 29 cents per share (basic and diluted). As disclosed in Note 17, the results in 2003
included discontinued operations of $10 million, or 3 cents per share (basic and diluted).

There are no adjustments to “Net income” or “Income from continuing operations” for the diluted
earnings per share computations.

15. Fair Values of Financial Instruments

The fair values of “Cash and cash equivalents,” “Short-term investments,” “Accounts receivable” and
“Accounts payable” approximate carrying values because of the short maturity of these financial
instruments. The fair value of corporate-owned life insurance approximates carrying value. The carrying
amounts and estimated fair values for the remaining financial instruments, excluding derivatives (see
Note 16) and investments accounted for under the equity method in accordance with APB Opinion
No. 18, consisted of the following at Dec. 31:

Investments
Long-term debt

2005

Carrying
Amount

2004

Fair
Value

Carrying
Amount

($ in millions)

Fair
Value

139 $

160 $

125 $

(6,930)

(7,934)

(7,525)

134
(8,577)

Quoted market prices were used to determine the fair value of marketable securities; underlying net assets
were used to estimate the fair value of other investments. The fair values of notes receivable are based on

K74

future discounted cash flows. The fair values of debt were estimated based on quoted market prices or
discounted cash flows using current interest rates for debt with similar terms, company rating and
remaining maturity.

Carrying amounts of marketable securities reflect unrealized holding gains of less than $1 million on Dec.
31, 2005, and $1 million on Dec. 31, 2004. Sales of “available-for-sale” securities were immaterial for
the years ended Dec. 31, 2005, 2004 and 2003; most short-term investments were redeemed at maturity.

16. Derivative Financial Instruments

On Jan. 1, 2001, NS adopted Statement of Financial Accounting Standards No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS No. 133), as amended by Statement of Financial
Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging
Activities” (SFAS No. 138). The Statements establish accounting and reporting standards for derivative
instruments and hedging activities, requiring that all derivatives be recognized in the financial statements
as either assets or liabilities and that they be measured at fair value. Changes in fair value are recorded as
adjustments to the assets or liabilities being hedged in “Other comprehensive income,” or in current
earnings, depending on whether the derivative is designated and qualifies for hedge accounting, the type
of hedge transaction represented and the effectiveness of the hedge. The settlements of the hedges will
result in the reclassification into diesel fuel expense of the related gains or losses recorded as a component
of “Other comprehensive income.”

NS uses derivative financial instruments to reduce the risk of volatility in its diesel fuel costs and to
manage its overall exposure to fluctuations in interest rates. NS does not engage in the trading of
derivatives. Management has determined that its derivative financial instruments qualify as either fair-
value or cash-flow hedges, having values that highly correlate with the underlying hedged exposures, and
has designated such instruments as hedging transactions. Credit risk related to the derivative financial
instruments is considered to be minimal and is managed by requiring high credit standards for
counterparties and periodic settlements.

Diesel Fuel Hedging

NS has hedged a portion of its diesel fuel consumption. The intent of the hedges is to assist in the
management of NS' aggregate risk exposure to fuel price fluctuations, which can significantly affect NS'
operating margins and profitability. In order to minimize this risk, NS has entered into a series of swaps
in order to lock in the purchase prices of some of its diesel fuel. Management has designated these
derivative instruments as cash-flow hedges of the exposure to variability in expected future cash flows
attributable to fluctuations in diesel fuel prices.

Following is a summary of NS' diesel fuel swaps:

Number of swaps entered into during the year
Approximate number of gallons hedged (millions)
Approximate average price per gallon of Nymex
No. 2 heating oil

2005
--
--

2004
120
157

n/a

$0.86

NS has 4% of estimated 2006 future diesel fuel consumption covered as of Dec. 31, 2005.

Hedges are entered into periodically by competitive bid among selected counterparties; however, no
hedges have been placed since May 2004. The goal of this hedging strategy is to reduce the variability of
fuel costs over an extended period of time while minimizing the incremental cost of hedging. The

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program provides that NS will not enter into any fuel hedges with a duration of more than 36 months, and
that no more than 80% of NS' average monthly fuel consumption will be hedged for each month within
any 36-month period. After taking into account the effect of the hedging, diesel fuel costs represented
11% of NS' operating expenses for the year ended Dec. 31, 2005, 8% for the year ended Dec. 31, 2004,
and 7% for the year ended Dec. 31, 2003.

NS' fuel hedging activity resulted in decreases in diesel fuel expenses of $148 million, $140 million and
$59 million for 2005, 2004 and 2003, respectively. Ineffectiveness, or the extent to which changes in the
fair value of the heating oil contracts do not offset changes in the fair values of the expected diesel fuel
transactions, was a $5 million expense in 2005, a $5 million benefit in 2004 and less than a $1 million
benefit in 2003.

Interest Rate Hedging

NS manages its overall exposure to fluctuations in interest rates by issuing both fixed and floating-rate
debt instruments, and by entering into interest rate hedging transactions. NS had $116 million, or 1.7%,
and $151 million, or 2.2%, of its fixed rate debt portfolio hedged as of Dec. 31, 2005, and Dec. 31, 2004,
respectively, using interest rate swaps that qualify for and are designated as fair-value hedge transactions.
NS’ interest rate hedging activity resulted in decreases in interest expenses of $2 million, $6 million and
$10 million for 2005, 2004 and 2003, respectively. These swaps have been effective in hedging the
changes in fair value of the related debt arising from changes in interest rates and there has been no
impact on earnings resulting from ineffectiveness associated with these derivative transactions.

Fair Values

The fair values of NS' diesel fuel derivative instruments as of Dec. 31, 2005 and 2004 were determined
based upon current market values as quoted by an independent third party. Fair values of interest rate
swaps were determined based upon the present value of expected future cash flows discounted at the
appropriate implied spot rate from the spot rate yield curve. Fair value adjustments are noncash
transactions and, accordingly, are excluded from the Consolidated Statement of Cash Flows.
“Accumulated other comprehensive loss,” a component of “Stockholders' equity,” included unrealized
gains of $20 million (pretax) as of Dec. 31, 2005, and $75 million (pretax) as of Dec. 31, 2004, related to
the fair value of derivative fuel hedging transactions that will terminate within twelve months of the
respective dates. Any future gain or loss actually realized will be based on the fair value of the derivative
fuel hedges at the time of termination.

The asset and liability positions of NS' outstanding derivative financial instruments were as follows:

Dec. 31,

2005

2004

($ in millions)

3 $
--

20
--
23 $

9
--

81
--
90

Interest rate hedges:
Gross fair value asset position
Gross fair value (liability) position
Fuel hedges:
Gross fair value asset position
Gross fair value (liability) position
Total net asset (liability) position

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17. Discontinued Operations - Motor Carrier

On March 28, 1998, NS sold all the common stock of North American Van Lines, Inc. (NAVL), its
motor carrier subsidiary. Results in 2003 include an additional after-tax gain of $10 million, or 3 cents
per share (basic and diluted), that resulted from resolution of tax issues related to the transaction.

18. Commitments and Contingencies

Lawsuits

Norfolk Southern and certain subsidiaries are defendants in numerous lawsuits and other claims
relating principally to railroad operations. When management concludes that it is probable that a
liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued
through a charge to earnings. While the ultimate amount of liability incurred in any of these lawsuits
and claims is dependent on future developments, in management's opinion, the recorded liability is
adequate to cover the future payment of such liability and claims. However, the final outcome of any
of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected
outcomes could result in additional accruals that could be significant to results of operations in a
particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the
periods in which such adjustments are known.

NS has been involved in mass tort litigation proceedings arising out of historic flooding events that
occurred in West Virginia in 2001. During the third quarter, one of NS’ subsidiaries was identified as
the target defendant for claims related to a specific sub-watershed. The final outcome of these
proceedings is inestimable at this time. Although NS has good defenses to the litigation, an
unexpected adverse resolution could have a material adverse effect on the results of operations in a
particular quarter or fiscal year.

Casualty Claims

Casualty claims include employee personal injury and occupational claims as well as third-party
claims, all exclusive of legal costs. NS engages an independent consulting actuarial firm to aid in
valuing its liability for these claims. Job-related accidental injury and occupational claims are subject
to the Federal Employers’ Liability Act (FELA), which is applicable only to railroads. FELA’s fault-
based system produces results that are unpredictable and inconsistent as compared with a no-fault
workers’ compensation system. The variability inherent in this system could result in actual costs
being very different from the liability recorded. While the ultimate amount of claims incurred is
dependent on future developments, in management’s opinion, the recorded liability is adequate to
cover the future payments of claims and is supported by the most recent actuarial study. In all cases,
NS records a liability when the expected loss for the claim is both probable and estimable.

In 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 substantially all
expenses related to this derailment above NS’ self-insured retention, including NS’ response costs and
legal fees. Accordingly, the Consolidated Balance Sheet reflects a current and long-term receivable for
estimated recoveries from NS’ insurance carriers. The $41 million expense recorded in 2005 related to
this incident represents NS’ retention under its insurance policies and other uninsured costs. While it
is reasonable to expect that the liability for covered losses could differ from the amount recorded, such

K77

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.

Employee personal injury claims – The largest component of casualties and other claims expense is
employee personal injury costs. The actuarial firm engaged by NS provides quarterly studies to aid in
valuing its employee personal injury liability and estimating its employee personal injury expense.
The actuarial firm studies NS’ historical patterns of reserving for claims and subsequent settlements,
taking into account relevant outside influences. The actuary uses the results of these analyses to
estimate the ultimate amount of the liability, which includes amounts for incurred but unasserted
claims. NS adjusts its liability to the actuarially determined amount on a quarterly basis. The estimate
of loss liabilities is subject to inherent limitation given the difficulty of predicting future events such as
jury decisions, court interpretations or legislative changes and as such the actual loss may vary from
the actuarial estimate.

Occupational claims – Occupational claims (including asbestosis and other respiratory diseases, as
well as repetitive motion) are often not caused by a specific accident or event but rather result from a
claimed exposure over time. Many such claims are being asserted by former or retired employees,
some of whom have not been employed in the rail industry for decades. The actuarial firm provides an
estimate of the occupational claims liability based upon NS’ history of claim filings, severity,
payments and other pertinent facts. The liability is dependent upon management’s judgments made as
to the specific case reserves as well as judgments of the consulting actuarial firm in the periodic
studies. The actuarial firm’s estimate of ultimate loss includes a provision for those claims that have
been incurred but not reported. This provision is derived by analyzing industry data and projecting
NS’ experience into the future as far as can be reasonably determined. NS adjusts its liability to the
actuarially determined amount on a quarterly basis. However, it is possible that the recorded liability
may not be adequate to cover the future payment of claims. Adjustments to the recorded liability are
reflected in operating expenses in the periods in which such adjustments become known.

Third-party claims – NS records a liability for third-party claims including those for highway
crossing accidents, trespasser and other injuries, automobile liability, property damage and lading
damage. The actuarial firm assists with the calculation of potential liability for third-party claims,
except lading damage, based upon NS’ experience including number and timing of incidents, amount
of payments, settlement rates, number of open claims and legal defenses. The actuarial estimate
includes a provision for claims that have been incurred but have not yet been reported. Each quarter
NS adjusts its liability to the actuarially determined amount. Given the inherent uncertainty in regard
to the ultimate outcome of third-party claims, it is possible that future settlement costs may differ from
the estimated liability recorded.

Environmental Matters

NS is subject to various jurisdictions' environmental laws and regulations. It is NS' policy to record a
liability where such liability or loss is probable and its amount can be estimated reasonably. Claims, if
any, against third parties for recovery of cleanup costs incurred by NS are reflected as receivables
(when collection is probable) on the balance sheet and are not netted against the associated NS
liability. Environmental engineers regularly participate in ongoing evaluations of all known sites and
in determining any necessary adjustments to liability estimates. NS also has an Environmental Policy
Council, composed of senior managers, to oversee and interpret its environmental policy.

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NS' Consolidated Balance Sheets included liabilities for environmental exposures in the amount of
$58 million at Dec. 31, 2005, and $64 million at Dec. 31, 2004 (of which $12 million was accounted for
as a current liability at Dec. 31, 2005 and 2004). At Dec. 31, 2005, the liability represented NS' estimate
of the probable cleanup and remediation costs based on available information at 189 known locations. On
that date, 16 sites accounted for $30 million of the liability, and no individual site was considered to be
material. NS anticipates that much of this liability will be paid out over five years; however, some costs
will be paid out over a longer period.

The risk of incurring environmental liability – for acts and omissions, past, present and future - is inherent
in the railroad business. Some of the commodities in NS' traffic mix, particularly those classified as
hazardous materials, can pose special risks that NS and its subsidiaries work diligently to minimize. In
addition, several NS subsidiaries own, or have owned, land used as operating property, or which is leased
and operated by others, or held for sale. Because environmental problems may exist on these properties
that are latent or undisclosed, there can be no assurance that NS will not incur environmental liabilities or
costs with respect to one or more of them, the amount and materiality of which cannot be estimated
reliably at this time. Moreover, lawsuits and claims involving these and potentially other unidentified
environmental sites and matters are likely to arise from time to time. The resulting liabilities could have a
significant effect on financial condition, results of operations or liquidity in a particular year or quarter.

However, based on its assessment of the facts and circumstances now known, management believes
that it has recorded the probable costs for dealing with those environmental matters of which the
Corporation is aware. Further, management believes that it is unlikely that any known matters, either
individually or in the aggregate, will have a material adverse effect on NS' financial position, results of
operations or liquidity.

Insurance

NS obtains on behalf of itself and its subsidiaries commercial insurance for potential losses for third-party
liability and first-party property damages. Specified levels of risk are retained on a self-insurance basis
(up to $25 million per occurrence for bodily injury and property damage to third parties and $12.5 million
per occurrence for property owned by NS or in NS’ care, custody or control).

Purchase Commitments

NSR had outstanding purchase commitments of approximately $341 million in connection with its
2006 and 2007 capital programs, including 133 locomotives in 2006 and 63 locomotives in 2007. In

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addition, Norfolk Southern has committed to purchase telecommunications services totaling $17 million
through 2007.

Change-In-Control Arrangements

Norfolk Southern has compensation agreements with officers and certain key employees that become
operative only upon a change in control of the Corporation, as defined in those agreements. The
agreements provide generally for payments based on compensation at the time of a covered individual's
involuntary or other specified termination and for certain other benefits.

Guarantees

In a number of instances, NS and its subsidiaries have agreed to indemnify lenders for additional costs
they may bear as a result of certain changes in laws or regulations applicable to their loans. Such changes
may include impositions or modifications with respect to taxes, duties, reserves, liquidity, capital
adequacy, special deposits, and similar requirements relating to extensions of credit by, deposits with, or
the assets or liabilities of such lenders. Similar provisions exist in NS' accounts receivable sales program.
The nature and timing of changes in laws or regulations applicable to NS' financings are inherently
unpredictable, and therefore NS' exposure in connection with the foregoing indemnifications cannot be
quantified. No liability has been recorded related to these indemnifications. In the case of one type of
equipment financing, NSR's Japanese leveraged leases, NSR may terminate the leases and ancillary
agreements if such a change-in-law indemnity is triggered. Such a termination would require NSR to
make early termination payments that would not be expected to have a material adverse effect on NS'
financial condition, results of operations or liquidity.

NS has indemnified parties in a number of transactions for U.S. income tax withholding imposed as a
result of changes in U.S. tax law. In all cases, NS has the right to unwind the related transaction if the
withholding cannot be avoided in the future. Because these indemnities would be triggered and are
dependent upon a change in the tax law, the maximum exposure is not quantifiable. Management does
not believe that it is likely that it will be required to make any payments under these indemnities.

NS has outstanding warranty liabilities primarily related to work performed at its locomotive facilities.
NS has recorded a reserve of less than $1 million as of Dec. 31, 2005, and 2004, for these warranties.

As of Dec. 31, 2005, certain Norfolk Southern subsidiaries are contingently liable as guarantors with
respect to $8 million of indebtedness of an entity in which they have an ownership interest, the Terminal
Railroad Association of St. Louis, due in 2019. Six other railroads are also jointly and severally liable as
guarantors for this indebtedness. No liability has been recorded related to this guaranty.

* * * * *

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)

2005
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted

2004
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted

March 31

Three Months Ended
Sept. 30
June 30

Dec. 31

(In millions of dollars, except per share amounts)

$
$

1,961
403
194

0.48
0.47

1,693
346
158

0.40
0.40

$
$

2,154
592
4241

1.051
1.041

1,813
425
213

0.55
0.54

$
$

2,155
528
301

0.74
0.73

1,857
469
2882

0.732
0.722

$
$

2,257
594
362

0.89
0.87

1,949
462
264

0.66
0.65

1 Includes a $96 million, or 23 cents per diluted share, benefit related to a reduction of deferred income
tax liabilities resulting from tax legislation enacted by Ohio.

2 Includes a $53 million or 13 cents per diluted share net gain from the Conrail Corporate Reorganization
(see Note 5 to the Consolidated Financial Statements).

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Norfolk Southern’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness
of NS' disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2005. Based
on such evaluation, such officers have concluded that, as of Dec. 31, 2005, NS' disclosure controls and
procedures are effective in alerting them on a timely basis to material information relating to NS
(including its consolidated subsidiaries) required to be included in NS' periodic filings under the
Exchange Act.

Internal Control over Financial Reporting

The management of Norfolk Southern is responsible for establishing and maintaining adequate internal
control over financial reporting. The Corporation’s internal control over financial reporting includes
those policies and procedures that pertain to the Corporation’s ability to record, process, summarize and
report reliable financial data. Management recognizes that there are inherent limitations in the
effectiveness of any internal control over financial reporting, including the possibility of human error and
the circumvention or overriding of internal control. Accordingly, even effective internal control over
financial reporting can provide only reasonable assurance with respect to financial statement preparation.
Further, because of changes in conditions, the effectiveness of internal control over financial reporting
may vary over time.

In order to ensure that the Corporation’s internal control over financial reporting is effective, management
regularly assesses such controls and did so most recently for its financial reporting as of Dec. 31, 2005.
This assessment was based on criteria for effective internal control over financial reporting set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework. Based on our assessment, management has concluded that the Corporation
maintained effective internal control over financial reporting as of Dec. 31, 2005.

The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the
Corporation's accounting policies, financial reporting and internal control. The Audit Committee of the
Board of Directors is comprised entirely of outside directors who are independent of management. The
independent registered public accounting firm and the internal auditors have full and unlimited access to
the Audit Committee, with or without management, to discuss the adequacy of internal control over
financial reporting, and any other matters which they believe should be brought to the attention of the
Audit Committee.

Norfolk Southern’s management has issued a report of its assessment of internal control over financial
reporting, and Norfolk Southern’s independent registered public accounting firm has issued a report on
this assessment. These reports appear in Part II, Item 8 of this report on Form 10-K.

During the fourth quarter of 2005, management has not identified any changes in NS' internal controls
over financial reporting that have materially affected, or are reasonably likely to materially affect, NS’
internal control over financial reporting.

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PART III

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

Item 10. Directors and Executive Officers of the Registrant.

In accordance with General Instruction G(3), information called for by Item 10, Part III, is incorporated
herein by reference from the information appearing under the caption “Election of Directors,” under the
caption “Board of Directors;” and under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance” in Norfolk Southern's definitive Proxy Statement for the Norfolk Southern Annual Meeting
of Stockholders to be held on May 11, 2006, which definitive Proxy Statement will be filed electronically
with the Commission pursuant to Regulation 14A no later than May 1, 2006. The information regarding
executive officers called for by Item 401 of Regulation S-K is included in Part I hereof beginning under
“Executive Officers of the Registrant.”

Item 11. Executive Compensation.

In accordance with General Instruction G(3), information called for by Item 11, Part III, is incorporated
herein by reference from the information appearing under the subcaption “Compensation” under the
caption “Board of Directors” for directors and under the caption “Executive Compensation” for
executives, including the information appearing in the “Summary Compensation Table” and under the
subcaptions “Long-Term Incentive Plan” (including the three tables therein), “Pension Plans” (including
the table therein), and “Change in Control Arrangements” in Norfolk Southern's definitive Proxy
Statement for the Norfolk Southern Annual Meeting of Stockholders to be held on May 11, 2006, which
definitive Proxy Statement will be filed electronically with the Commission pursuant to Regulation 14A
no later than May 1, 2006.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

In accordance with General Instruction G(3), information on security ownership of certain beneficial
owners and management called for by Item 12, Part III, Item 403 of Regulation S-K, is incorporated
herein by reference from the information appearing under the caption “Beneficial Ownership of Stock”
and the caption “Executive Compensation” in Norfolk Southern's definitive Proxy Statement for the
Norfolk Southern Annual Meeting of Stockholders to be held on May 11, 2006, which definitive Proxy
Statement will be filed electronically with the Commission pursuant to Regulation 14A no later than
May 1, 2006.

K83

Equity Compensation Plan Information (as of Dec. 31, 2005)

Number of
securities
to be issued upon
exercise of
outstanding options,
warrants and rights

(a)

Weighted-
average
exercise price
of outstanding

options, warrants

and rights
(b)

Number of securities
remaining available
for future issuance
under equity

Compensation plans

(excluding
securities reflected
in column (a))
(c)

28,456,663

23.78(4)

11,321,573(5)

4,210,417(3)

27.79(3)

2,810,400(6)

Plan
category

Equity compensation
Plans approved by
security holders1

Equity compensation
Plans not approved by
security holders2

Total

32,667,080

24.35

14,131,973

1 The Long-Term Incentive Plan, excluding five million shares for broad-based issuance to non-officers.
2 The Long-Term Incentive Plan's five million shares for broad-based issuance to non-officers, the Thoroughbred
Stock Option Plan and the Directors' Restricted Stock Plan.
3 Includes options and performance share units granted under the Long-Term Incentive Plan on 1,401,267 shares
for non-officers and options granted under the Thoroughbred Stock Option Plan.
4 Calculated without regard to 3,121,400 outstanding performance share units at Dec. 31, 2005.
5 Of the shares remaining available for grant under plans approved by stockholders, 8,500,000 are available for grant
as restricted shares, performance shares or restricted stock unit shares under the Long-Term Incentive Plan.
6 Of the shares remaining available for grant under plans not approved by stockholders, 39,000 are available for grant
as restricted stock under the Directors' Restricted Stock Plan.

Norfolk Southern Corporation Long-Term Incentive Plan (“LTIP”)

Established on June 28, 1983, and approved by stockholders at their Annual Meeting held on May 10,
1984, LTIP was adopted to promote the success of Norfolk Southern by providing an opportunity for non-
employee directors, officers and other key employees to acquire a proprietary interest in the Corporation.
On Jan. 23, 2001, the Board of Directors further amended the plan and approved the issuance of an
additional 5,000,000 shares of authorized but unissued Common Stock under LTIP to participants who
are not officers of Norfolk Southern. The issuance of these shares was broadly-based, and stockholder
approval of these shares was not required. Accordingly, this portion of LTIP is included in the number of
securities available for future issuance for plans not approved by stockholders. Also on Jan. 23, 2001, the
Board adopted an amended plan, which was approved by shareholders on May 10, 2001, that included the
reservation for issuance of an additional 30,000,000 shares of authorized but unissued Norfolk Southern
Common Stock.

Pursuant to another amendment approved by stockholders on May 12, 2005, not more than 8.5 million of
the shares remaining available for issuance under the plan may be awarded as restricted shares,
performance shares or restricted stock unit shares. Cash payments of restricted stock units, stock
appreciation rights and performance share units will not be applied against the maximum number of

K84

shares issuable under the plan. Any shares of Common Stock subject to options, performance share units
or restricted stock units which are not issued as Common Stock will again be available for award under
the plan after the expiration or forfeiture of an award.

Non-employee directors, officers and other key employees residing in the United States or Canada are
eligible for selection to receive LTIP awards. Under LTIP, the Compensation Committee (Committee)
may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted shares,
restricted stock units and performance share units (in addition, dividend equivalents may be awarded for
options, restricted stock units and performance share units). The Committee may establish such terms and
conditions for the awards as provided in the plan.

For options, the option price per share will not be less than 100% of the fair market value of Norfolk
Southern's Common Stock on the effective date the option is granted. All options are subject to a vesting
period of at least one year, and the term of the option will not exceed ten years. LTIP specifically
prohibits option repricing without stockholder approval, except for capital adjustments.

Performance share units entitle a recipient to receive performance-based compensation at the end of a
three-year performance cycle based on Norfolk Southern’s performance during that three-year period.
For the 2005 performance share unit awards, corporate performance will be measured using three equally
weighted standards established by the committee: (1) three-year average return on average capital
invested, (2) three-year average operating ratio and (3) three-year total return to stockholders.
Performance share units may be payable in either shares of Norfolk Southern Common Stock or cash.

Restricted stock units are payable in cash or in shares of Norfolk Southern Common Stock at the end of a
restriction period of not less than 36 months and not more than 60 months. During the restriction period,
the holder of the restricted stock units has no beneficial ownership interest in the Norfolk Southern
Common Stock represented by the restricted stock units and has no right to vote the shares represented by
the units or to receive dividends (except for dividend equivalent rights that may be awarded with respect
to the restricted stock units). Restricted stock units will be forfeited immediately if the holder leaves the
continuous employment of Norfolk Southern before the end of the restriction period, unless such
employment is terminated by reason of retirement, disability or death or unless the restrictions are waived
by Norfolk Southern.

Norfolk Southern Corporation Thoroughbred Stock Option Plan

The Board adopted the Norfolk Southern Corporation Thoroughbred Stock Option Plan (“TSOP”) on
Jan. 26, 1999, to promote the success of Norfolk Southern by providing an opportunity for nonagreement
employees to acquire a proprietary interest in Norfolk Southern and thereby to provide an additional
incentive to nonagreement employees to devote their maximum efforts and skills to the advancement,
betterment, and prosperity of Norfolk Southern and its stockholders. The plan has not been and is not
required to have been approved by stockholders. Six million shares of authorized but unissued Common
Stock were reserved for issuance under TSOP.

Active full-time nonagreement employees residing in the United States or Canada are eligible for
selection to receive TSOP awards. Under TSOP, the Compensation Committee of the Board of
Directors may grant nonqualified stock options subject to such terms and conditions as provided in
the plan.

The option price will not be less than 100% of the fair market value of Norfolk Southern's Common Stock
on the effective date the options are granted. All options are subject to a vesting period of at least one

K85

year, and the term of the option will not exceed ten years. TSOP specifically prohibits option repricing
without stockholder approval, except for capital adjustments.

Norfolk Southern Corporation Directors' Restricted Stock Plan

The Norfolk Southern Corporation Directors' Restricted Stock Plan (“Plan”) was adopted on Jan. 1, 1994,
and is designed to increase ownership of Norfolk Southern Common Stock by its non-employee directors
so as to further align their ownership interest in Norfolk Southern with that of stockholders. The Plan has
not been and is not required to have been approved by stockholders. Currently, a maximum of 66,000
shares of Corporation Common Stock may be granted under the Plan. To make grants to eligible
directors, Norfolk Southern purchases, through one or more subsidiary companies, the number of shares
required in open-market transactions at prevailing market prices, or makes such grants from Norfolk
Southern Common Stock already owned by one or more of Norfolk Southern's subsidiary companies.

Only non-employee directors who are not and never have been employees of Norfolk Southern are
eligible to participate in the Plan. Upon becoming a director, each eligible director receives a one-time
grant of 3,000 restricted shares of Norfolk Southern Common Stock. No individual member of the Board
exercises discretion concerning the eligibility of any director or the number of shares granted.

The restriction period applicable to restricted shares granted under the plan begins on the date of the grant
and ends on the earlier of the recipient’s death or six months after the recipient ceases to be a director by
reason of disability or retirement. During the restriction period shares may not be sold, pledged or
otherwise encumbered. Directors will forfeit the restricted shares if they cease to serve as a director of
Norfolk Southern for reasons other than their disability, retirement or death.

Item 13. Certain Relationships and Related Transactions.

In accordance with General Instruction G(3), information called for by Item 13, Part III, is incorporated
herein by reference from the information appearing under the caption “Certain Relationships and Related
Transactions” in Norfolk Southern's definitive Proxy Statement for the Norfolk Southern Annual Meeting
of Stockholders to be held on May 11, 2006, which definitive Proxy Statement will be filed electronically
with the Commission pursuant to Regulation 14A no later than May 1, 2006.

Item 14. Principal Accountant Fees and Services.

In accordance with General Instruction G(3), information called for by Item 14, Part III is incorporated
herein by reference from the information appearing under the caption “Ratification of Appointment of
Independent Registered Public Accounting Firm” in Norfolk Southern’s definitive Proxy Statement for
the Norfolk Southern Annual Meeting of Stockholders to be held on May 11, 2006, which definitive
proxy statement will be filed electronically with the Commission pursuant to Regulation 14A no later
than May 1, 2006.

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PART IV

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

Item 15. Exhibits and Financial Statement Schedules.

Page

(A)

The following documents are filed as part of this report:

Index to Consolidated Financial Statements

K43
Report of Management
K44
Reports of Independent Registered Public Accounting Firm
K47
Consolidated Statements of Income, Years ended Dec. 31, 2005, 2004 and 2003
Consolidated Balance Sheets As of Dec. 31, 2005 and 2004
K48
Consolidated Statements of Cash Flows, Years ended Dec. 31, 2005, 2004 and 2003 K49
Consolidated Statements of Changes in Stockholders' Equity, Years ended
Dec. 31, 2005, 2004 and 2003
Notes to Consolidated Financial Statements

K50
K51

Financial Statement Schedule:

The following consolidated financial statement schedule should be read in
connection with the consolidated financial statements:

Index to Consolidated Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

Page

K97

Schedules other than the one listed above are omitted either because they are not
required or are inapplicable, or because the information is included in the
consolidated financial statements or related notes.

Exhibits

Exhibit
Number

Description

3(i)

3(ii)

Articles of Incorporation and Bylaws -

The Restated Articles of Incorporation of Norfolk Southern Corporation are incorporated
By reference to Exhibit 3(i) to Norfolk Southern Corporation's 10-K filed on March 5, 2001.

The Bylaws of Norfolk Southern Corporation, as amended Jan. 23, 2006, are incorporated
by reference to Exhibit 3(ii) to Norfolk Southern Corporation’s Form 8-K filed on
Jan. 27, 2006.

K87

Instruments Defining the Rights of Security Holders, Including Indentures:

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

Indenture, dated as of Jan. 15, 1991, from Norfolk Southern Corporation to First Trust of
New York, National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to
Norfolk Southern Corporation's Registration Statement on Form S-3 (No. 33-38595).

First Supplemental Indenture, dated May 19, 1997, between Norfolk Southern Corporation
and First Trust of New York, National Association, as Trustee, related to the issuance of
notes in the principal amount of $4.3 billion, is incorporated herein by reference to
Exhibit 1.1(d) to Norfolk Southern Corporation’s Form 8-K filed on May 21, 1997.

Second Supplemental Indenture, dated April 26, 1999, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, related to the issuance
of notes in the principal amount of $400 million, is incorporated herein by reference to
Exhibit 1.1(c) to Norfolk Southern Corporation’s Form 8-K filed on April 30, 1999.

Third Supplemental Indenture, dated May 23, 2000, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, related to the issuance
of notes in the principal amount of $600 million, is incorporated herein by reference to
Exhibit 4.1 to Norfolk Southern Corporation's Form 8-K filed on May 25, 2000.

Fourth Supplemental Indenture, dated as of Feb. 6, 2001, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, related to the issuance
of notes in the principal amount of $1 billion, is incorporated herein by reference to Exhibit
4.1 to Norfolk Southern Corporation's Form 8-K filed on Feb. 7, 2001.

Fifth Supplemental Indenture, dated as of July 5, 2001, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, related to the issuance
of notes in the principal amount of $250 million, is incorporated herein by reference to
Exhibit 4.1 to Norfolk Southern Corporation's Form 8-K filed on July 5, 2001.

Sixth Supplemental Indenture, dated as of April 30, 2002, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, relating to the issuance
of notes in the principal amount of $200 million, is incorporated herein by reference to
Exhibit 4.1 to Norfolk Southern Corporation's Form 8-K filed on May 1, 2002.

Seventh Supplemental Indenture, dated as of April 30, 2002, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, relating to the issuance
of notes in the principal amount of $100 million, is incorporated herein by reference to
Exhibit 4.1 to Norfolk Southern Corporation's Form 8-K filed on May 1, 2002.

Eighth Supplemental Indenture, dated as of Sept. 17, 2004, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, relating to the issuance
of 5.257% Notes due 2014 (“Securities”) in the aggregate principal amount of
$441.5 million in connection with Norfolk Southern Corporation’s offer to exchange the
Securities and cash for up to $400 million of its outstanding 7.350% Notes due 2007, is
incorporated herein by reference to Exhibit 4.1 to Norfolk Southern Corporation’s
Form 8-K filed on Sept. 23, 2004.

K88

(j)

(k)

(l)

(m)

(n)

Indenture, dated Aug. 27, 2004, among PRR Newco, Inc., as Issuer, and Norfolk Southern
Railway Company, as Guarantor, and The Bank of New York, as Trustee, is incorporated
herein by reference to Exhibit 4(l) to Norfolk Southern Corporation’s Form 10-Q filed on
Oct. 28, 2004.

First Supplemental Indenture, dated Aug. 27, 2004, among PRR Newco, Inc., as Issuer,
and Norfolk Southern Railway Company, as Guarantor, and The Bank of New York, as
Trustee, related to the issuance of notes in the principal amount of approximately
$451.8 million, is incorporated herein by reference to Exhibit 4(m) to Norfolk Southern
Corporation’s Form 10-Q filed on Oct. 28, 2004.

Ninth Supplemental Indenture, dated as of March 11, 2005, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, relating to the issuance
of notes in the principal amount of $300 million, is incorporated herein by reference to
Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on March 15, 2005.

Tenth Supplemental Indenture, dated as of May 17, 2005, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, relating to the issuance
of notes in the principal amount of $366.6 million, is incorporated herein by reference to
Exhibit 99.1 to Norfolk Southern Corporation’s Form 8-K filed on May 18, 2005.

Eleventh Supplemental Indenture, dated as of May 17, 2005, between Norfolk Southern
Corporation and U.S. Bank Trust National Association, as Trustee, relating to the issuance
of notes in the principal amount of $350 million, is incorporated herein by reference to
Exhibit 99.2 to Norfolk Southern Corporation’s Form 8-K filed on May 18, 2005.

In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of other instruments of
Norfolk Southern Corporation and its subsidiaries with respect to the rights of holders of
long-term debt are not filed herewith, or incorporated by reference, but will be furnished to
the Commission upon request.

Material Contracts -

(a)

(b)

(c)

The Transaction Agreement, dated as of June 10, 1997, by and among CSX, CSX
Transportation, Inc., Registrant, Norfolk Southern Railway Company, Conrail Inc.,
Consolidated Rail Corporation and CRR Holdings LLC, with certain schedules thereto,
previously filed, is incorporated herein by reference to Exhibit 10(a) to Norfolk Southern
Corporation’s Form 10-K filed on Feb. 24, 2003.

Amendment No. 1, dated as of Aug. 22, 1998, to the Transaction Agreement, dated as of
June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated
Rail Corporation and CRR Holdings LLC, is incorporated herein by reference from Exhibit
10.1 to Norfolk Southern Corporation's Form 10-Q filed on Aug. 11, 1999.

Amendment No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated June 10,
1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail
Corporation and CRR Holdings LLC, is incorporated herein by reference from Exhibit
10.2 to Norfolk Southern Corporation's Form 10-Q filed on Aug. 11, 1999.

K89

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

Shared Assets Area Operating Agreement for North Jersey, dated as of June 1, 1999, by
and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern
Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit
10.4 to Norfolk Southern Corporation's Form 10-Q filed on Aug. 11, 1999.

Shared Assets Area Operating Agreement for South Jersey/ Philadelphia, dated as of
June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and
Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by
reference from Exhibit 10.5 to Norfolk Southern Corporation's Form 10-Q filed on
Aug. 11, 1999.

Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by and
among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern
Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit
10.6 to Norfolk Southern Corporation's Form 10-Q filed on Aug. 11, 1999.

Amendment No. 1, dated as of June 1, 2000, to the Shared Assets Areas Operating
Agreement for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1,
1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk
Southern Railway Company, with exhibit thereto, is incorporated herein by reference to
Exhibit 10(h) to Norfolk Southern Corporation's 10-K filed on March 5, 2001.

Amendment No. 2, dated as Jan. 1, 2001, to the Shared Assets Area Operating
Agreements for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1,
1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk
Southern Railway Company, with exhibit thereto, is incorporated herein by reference to
Exhibit 10(j) to Norfolk Southern Corporation's Form 10-K filed on Feb. 21, 2002.

Amendment No. 3, dated as of June 1, 2001, and executed in May of 2002, to the Shared
Assets Area Operating Agreement for North Jersey, South Jersey/Philadelphia and Detroit,
dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX
Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is
incorporated herein by reference to Exhibit 10(k) to Norfolk Southern Corporation’s Form
10-K filed on Feb. 24, 2003.

Monongahela Usage Agreement, dated as of June 1, 1999, by and among CSX
Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines LLC and
New York Central Lines LLC, with exhibit thereto, is incorporated herein by reference
from Exhibit 10.7 to Norfolk Southern Corporation's Form 10-Q filed on Aug. 11, 1999.

The Agreement, entered into as of July 27, 1999, between North Carolina Railroad
Company and Norfolk Southern Railway Company, is incorporated herein by reference
from Exhibit 10(i) to Norfolk Southern Corporation's Form 10-K filed on March 6, 2000.

K90

(l)

The Supplementary Agreement, entered into as of Jan. 1, 1987, between the Trustees of the
Cincinnati Southern Railway and The Cincinnati, New Orleans and Texas Pacific Railway
Company (the latter a wholly owned subsidiary of Norfolk Southern Railway Company) -
extending and amending a Lease, dated as of Oct. 11, 1881 - is incorporated by reference
to Exhibit 10(k) to Norfolk Southern Corporation's Form 10-K filed on March 5, 2001.

*(m) The Norfolk Southern Corporation Executive Management Incentive Plan, effective

Jan. 25, 2005, is incorporated by reference herein from Exhibit 99 to Norfolk Southern
Corporation's Form 8-K filed on May 13, 2005.

*(n)

*(o)

*(p)

*(q)

*(r)

*(s)

*(t)

*(u)

*(v)

The Norfolk Southern Corporation Long-Term Incentive Plan, as amended effective
Jan. 25, 2005, is incorporated herein by reference to Exhibit 99 to Norfolk Southern
Corporation’s Form 8-K filed on May 13, 2005.

The Norfolk Southern Corporation Officers' Deferred Compensation Plan, as amended
effective September 26, 2000, is incorporated herein by reference to Exhibit 10(n) to
Norfolk Southern Corporation's Form 10-K filed on March 5, 2001.

The Norfolk Southern Corporation Executives' Deferred Compensation Plan, as amended
effective Jan. 20, 2001, is incorporated herein by reference to Exhibit 10(o) to Norfolk
Southern Corporation's Form 10-K filed on March 5, 2001.

The Directors' Deferred Fee Plan of Norfolk Southern Corporation, as amended effective
Jan. 23, 2001, is incorporated herein by reference to Exhibit 10(p) to Norfolk Southern
Corporation's Form 10-K filed on March 5, 2001.

The Norfolk Southern Corporation Directors' Restricted Stock Plan, effective Jan. 1, 1994,
as restated Nov. 24, 1998, is incorporated herein by reference from Exhibit 10(h) to
Norfolk Southern Corporation's Form 10-K filed on March 24, 1999.

Form of Severance Agreement, dated as of June 1, 1996, between Norfolk Southern
Corporation and certain executive officers (including those defined as “named executive
officers” and identified in the Corporation's Proxy Statement for the 1997 through 2001
Annual Meetings of Stockholders), is incorporated herein by reference to Exhibit 10(t) to
Norfolk Southern Corporation's Form 10-K filed on Feb. 21, 2002.

Norfolk Southern Corporation Supplemental (formerly, Excess) Benefit Plan, effective as
of Aug. 22, 1999, is incorporated herein by reference to Exhibit 10(r) to Norfolk Southern
Corporation's Form 10-K filed on March 6, 2000.

The Norfolk Southern Corporation Directors' Charitable Award Program, effective Feb. 1,
1996, is incorporated herein by reference to Exhibit 10(v) to Norfolk Southern
Corporation's Form 10-K filed on Feb. 21, 2002.

The Norfolk Southern Corporation Outside Directors' Deferred Stock Unit Program, as
amended effective Jan. 28, 2003, is incorporated herein by reference to Exhibit 10(x) to
Norfolk Southern Corporation’s Form 10-K filed on Feb. 24, 2003.

K91

*(w)

(x)

*(y)

*(z)

(aa)

(bb)

(cc)

(dd)

(ee)

Form of Agreement, dated as of Oct. 1, 2001, providing enhanced pension benefits to
three officers in exchange for their continued employment with Norfolk Southern
Corporation for two years, is incorporated herein by reference to Exhibit 10(w) to
Norfolk Southern Corporation's Form 10-Q filed on Nov. 9, 2001. The agreement was
entered into with L. Ike Prillaman, Vice Chairman and Chief Marketing Officer; Stephen
C. Tobias, Vice Chairman and Chief Operating Officer; and Henry C. Wolf, Vice
Chairman and Chief Financial Officer.

The Norfolk Southern Corporation Thoroughbred Stock Option Plan, as amended
effective Jan. 28, 2003, is incorporated herein by reference to Exhibit 10(z) to Norfolk
Southern Corporation’s Form 10-K filed on Feb. 24, 2003.

The Norfolk Southern Corporation Restricted Stock Unit Plan, effective Jan. 28, 2003, is
incorporated herein by reference to Exhibit 10(bb) to Norfolk Southern Corporation’s
Form 10-K filed on Feb. 24, 2003.

The Norfolk Southern Corporation Executive Life Insurance Plan, as amended, effective
Oct. 1, 2003, is incorporated herein by reference to Exhibit 10 to Norfolk Southern
Corporation’s Form 10-Q filed on Oct. 31, 2003.

Amendment No. 3, dated as of June 1, 1999, and executed in April 2004, to the
Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX
Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway
Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, is
incorporated herein by reference to Exhibit 10(dd) to Norfolk Southern Corporation’s
Form 10-Q filed on July 30, 2004.

Distribution Agreement, dated as of July 26, 2004, by and among CSX Corporation,
CSX Transportation, Inc., CSX Rail Holding Corporation, CSX Northeast Holdings
Corporation, Norfolk Southern Corporation, Norfolk Southern Railway Company, CRR
Holdings LLC, Green Acquisition Corp., Conrail Inc., Consolidated Rail Corporation,
New York Central Lines LLC, Pennsylvania Lines LLC, NYC Newco, Inc. and PRR
Newco, Inc., is incorporated herein by reference to Exhibit 2.1 to Norfolk Southern
Corporation’s Form 8-K filed on Sept. 2, 2004.

Amendment No. 5 to the Transaction Agreement, dated as of Aug. 27, 2004, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation,
Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and
CRR Holdings LLC, is incorporated herein by reference to Exhibit 10.1 to Norfolk
Southern Corporation’s Form 8-K filed on Sept. 2, 2004.

Tax Allocation Agreement, dated as of Aug. 27, 2004, by and among Green Acquisition
Corp., Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC and
Pennsylvania Lines LLC, is incorporated herein by reference to Exhibit 10.2 to Norfolk
Southern Corporation’s Form 8-K filed on Sept. 2, 2004.

Credit Agreement dated as of Aug. 31, 2004, between Norfolk Southern Corporation and
various lenders, is incorporated herein by reference to Exhibit 99 to Norfolk Southern
Corporation’s Form 8-K/A filed on Sept. 7, 2004.

K92

(ff)

*(gg)

*(hh)

*(ii)

*(jj)

*(kk)

**(ll)

Amendment No. 4, dated as of June 1, 2005, and executed in late June 2005, to the
Shared Assets Area Operating Agreement for North Jersey, South Jersey/Philadelphia
and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation,
CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibits thereto,
is incorporated herein by reference to Exhibit 99 to Norfolk Southern Corporation’s
Form 8-K filed on July 1, 2005.

The description of Norfolk Southern Corporation’s executive physical reimbursement for
non-employee directors and certain executives is incorporated herein by reference to
Norfolk Southern Corporation’s Form 8-K filed on July 28, 2005.

Form of 2006 Incentive Stock Option and Non-Qualified Stock Option Agreement under
the Norfolk Southern Long-Term Incentive Plan, is incorporated herein by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K/A filed on Dec. 7, 2005.

Form of 2006 Restricted Share and Restricted Stock Unit Agreement under the Norfolk
Southern Corporation Long-Term Incentive Plan, is incorporated herein by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K/A filed on Dec. 7, 2005.

Form of 2005 Performance Share Unit Award under the Norfolk Southern Corporation
Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 99 to Norfolk
Southern Corporation’s Form 8-K/A filed on Dec. 7, 2005.

Revised annual salaries for certain named executive officers are incorporated herein by
reference to Norfolk Southern Corporation’s Form 8-K/A filed on Dec. 7, 2005.

The Transaction Agreement, dated as of Dec. 1, 2005, by and among Norfolk Southern
Corporation, The Alabama Great Southern Railroad Company, Kansas City Southern
and The Kansas City Southern Railway Company (Exhibits, annexes and schedules
omitted. The Registrant will furnish supplementary copies of such materials to the SEC
upon request).

**(mm) Amendment No. 1, dated as of Jan. 17, 2006, by and among Norfolk Southern

Corporation, The Alabama Great Southern Railroad Company, Kansas City Southern
and the Kansas City Southern Railroad.

*(nn)

*(oo)

The retirement agreement, dated Jan. 27, 2006, between Norfolk Southern Corporation
and David R. Goode, is incorporated herein by reference to Exhibit 10.1 to Norfolk
Southern Corporation’s Form 8-K filed on Jan. 27, 2006.

The waiver agreement, dated Jan. 27, 2006, between Norfolk Southern Corporation and
David R. Goode, providing for the waiver of forfeiture provisions otherwise applicable
to certain restricted shares and restricted stock units upon retirement, is incorporated
herein by reference to Exhibit 10.2 to Norfolk Southern Corporation’s Form 8-K filed on
Jan. 27, 2006.

*(pp)

Revised fees for outside directors are incorporated herein by reference to Norfolk
Southern Corporation’s Form 8-K filed on Jan. 27, 2006.

K93

**12

**21

**23.1

**23.2

**31

**32

**99.1

**99.2

Statement re: Computation of Ratio of Earnings to Fixed Charges.

Subsidiaries of the Registrant.

Consent of Independent Registered Public Accounting Firm.

Consent of Independent Registered Public Accounting Firms.

Rule 13a-14(a)/15d-14(a) Certifications.

Section 1350 Certifications.

Annual CEO Certification pursuant to NYSE Rule 303A.12(a).

Unaudited Financial Statements of Conrail Inc.

* Management contract or compensatory arrangement.
** Filed herewith.

(B)

Exhibits.

The Exhibits required by Item 601 of Regulation S-K as listed in Item 15(A)3 are filed
herewith or incorporated herein by references.

(C)

Financial Statement Schedules.

Financial statement schedules and separate financial statements specified by this Item are
included in Item 15(A)2 or are otherwise not required or are not applicable.

Exhibits 23.1, 31, 32 and 99.1 are included; remaining exhibits are not included in copies assembled for
public dissemination. These exhibits are included in the 2005 Form 10-K posted on our website at
www.nscorp.com under “Investors” and “SEC Filings” or you may request copies by writing to:

Office of Corporate Secretary
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-9219

K94

POWER OF ATTORNEY

Each person whose signature appears below under “SIGNATURES” hereby authorizes Henry C. Wolf,
James A. Hixon and James A. Squires or any one of them, to execute in the name of each such person,
and to file, any amendment to this report and hereby appoints Henry C. Wolf, James A. Hixon and James
A. Squires or any one of them, as attorneys-in-fact to sign on his or her behalf, individually and in each
capacity stated below, and to file, any and all amendments to this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Norfolk
Southern Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on this 21st day of February, 2006.

NORFOLK SOUTHERN CORPORATION

By: /s/ Charles W. Moorman
Charles W. Moorman
(Chairman, President and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
this 21st day of February 2006, by the following persons on behalf of Norfolk Southern Corporation and
in the capacities indicated.

Signature

Title

/s/ Charles W. Moorman
(Charles W. Moorman)

Chairman, President and Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Henry C. Wolf
(Henry C. Wolf)

Vice Chairman and Chief Financial Officer
(Principal Financial Officer)

/s/ Marta R. Stewart
(Marta R. Stewart)

Vice President and Controller
(Principal Accounting Officer)

/s/ Gerald L. Baliles
(Gerald L. Baliles)

/s/ Daniel A. Carp
(Daniel A. Carp)

Director

K95

/s/ Gene R. Carter
(Gene R. Carter)

/s/ Alston D. Correll
(Alston D. Correll)

/s/ David R. Goode
(David R. Goode)

/s/ Landon Hilliard
(Landon Hilliard)

/s/ Burton M. Joyce
(Burton M. Joyce)

/s/ Steven F. Leer
(Steven F. Leer)

/s/ Jane Margaret O’Brien
(Jane Margaret O'Brien)

/s/ Harold W. Pote
(Harold W. Pote)

/s/ J. Paul Reason
(J. Paul Reason)

Director

K96

Schedule II

Norfolk Southern Corporation and Subsidiaries
Valuation and Qualifying Accounts
Years Ended December 31, 2003, 2004 and 2005
(In millions of dollars)

Year ended December 31, 2003
Valuation allowance (included
net in deferred tax liability) for
deferred tax assets
Casualty and other claims
included in other liabilities
Current portion of casualty and
other claims included in accounts
payable

Year ended December 31, 2004
Valuation allowance (included
net in deferred tax liability) for
deferred tax assets
Casualty and other claims
included in other liabilities
Current portion of casualty and
other claims included in accounts
payable

Year ended December 31, 2005
Valuation allowance (included
net in deferred tax liability) for
deferred tax assets
Casualty and other claims
included in other liabilities
Current portion of casualty and
other claims included in accounts
payable

Additions charged to:

Beginning
Balance

Expenses

Other
Accounts

Deductions

Ending
Balance

254

207

270

218

315

222

134

112

311

1251

481

1241

114 1

2 2

1243

1484

1 2

115 3

143 4

5 2

205 3

270

218

315

222

421

137 4

291

1Includes revenue refunds and overcharges provided through deductions from operating revenues and
transfers from other accounts.

2Reclassifications to/from other assets.

3Payments and reclassifications to/from accounts payable.

4Payments and reclassifications to/from other liabilities.

K97