Norfolk Southern reports third-quarter 2016 results

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- Diluted earnings per share were $1.55.

- Operating ratio improved to 67.5 percent, reflecting a 10 percent reduction in operating expenses coupled with a 7 percent decline in operating revenues.

NORFOLK, Va., Oct. 26, 2016 /PRNewswire/ -- Norfolk Southern Corporation NSC today reported financial results for third-quarter 2016. Net income was $460 million, 2 percent higher compared with $452 million during the same period of 2015. Diluted earnings per share were $1.55, 4 percent higher compared with $1.49 per diluted share earned in the third quarter last year.

"Our continued focus on efficiency and asset utilization, balanced with our commitment to customer service, drove an operating ratio of 67.5 percent for the quarter and a record 68.7 percent for the first nine months, setting us well on the way to achieving productivity savings of about $250 million and an operating ratio below 70 percent for the year -- even in the face of economic headwinds," said Chairman, President and CEO James A. Squires. "As we move forward, we are well positioned for growth opportunities longer term and confident in our ability to drive shareholder value."

Third-quarter summary

  • Railway operating revenues were $2.5 billion, down 7 percent compared with third-quarter 2015, due to reduced volumes and lower fuel surcharge revenues. Overall volume declined 4 percent to 1.9 million units for the quarter.
  • General merchandise revenues were $1.6 billion, 4 percent lower than the same period last year. Volume declined 4 percent, due to fewer crude oil, vehicles, pulpboard, and feed market shipments. The five merchandise commodity groups reported the following year-over-year revenue results:
    • Chemicals: $408 million, down 10 percent
    • Agriculture: $380 million, even
    • Metals/Construction: $337 million, up 2 percent
    • Automotive: $236 million, down 4 percent
    • Paper/Forest: $191 million, down 6 percent
  • Intermodal revenues were $575 million, 7 percent lower compared with third-quarter 2015. Volume declined one percent due to lower Triple Crown Services volume, a result of last year's restructuring. Domestic volume, excluding Triple Crown Services, and International volume were up 8 percent and one percent, respectively.
  • Coal revenues were $397 million, 18 percent lower compared with the same quarter last year. Above-normal stockpiles and low natural gas prices combined to decrease volume by 15 percent.
  • Railway operating expenses declined 10 percent to $1.7 billion, primarily due to targeted expense reduction initiatives, reduced fuel expenses, the absence of last year's restructuring costs, and gains from the disposition of operating property. These decreases were partially offset by higher incentive compensation expense related to improved operating results.
  • Income from railway operations was $820 million, flat compared with third-quarter 2015.
  • The composite service metric, which measures train performance, terminal operations, and operating plan adherence, improved 8 percent in the quarter, and 14 percent for the first nine months, compared with the same periods last year.
  • The railway operating ratio, or operating expenses as a percentage of revenue, was 67.5 percent, a 220 basis point improvement compared with 69.7 percent in the third quarter of last year.

About Norfolk Southern
Norfolk Southern Corporation NSC is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000 route milesin 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.

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



Third Quarter


First Nine Months


2016


2015


2016


2015


($ in millions, except per share amounts)













Railway operating revenues












Merchandise

$

1,552



$

1,610



$

4,678



$

4,757


Intermodal


575




621




1,635




1,846


Coal


397




482




1,085




1,390


Total railway operating revenues


2,524




2,713




7,398




7,993














Railway operating expenses












Compensation and benefits


691




702




2,081




2,209


Purchased services and rents


386




451




1,149




1,312


Fuel


181




221




504




740


Depreciation


258




275




767




767


Materials and other


188




242




584




723














Total railway operating expenses


1,704




1,891




5,085




5,751














Income from railway operations


820




822




2,313




2,242














Other income – net


29




39




49




79


Interest expense on debt


144




137




421




403














Income before income taxes


705




724




1,941




1,918














Provision for income taxes












Current


169




251




512




667


Deferred


76




21




177




56


Total income taxes


245




272




689




723














Net income

$

460



$

452



$

1,252



$

1,195














Earnings per share












Basic

$

1.56



$

1.50



$

4.23



$

3.93


Diluted


1.55




1.49




4.21




3.90














Weighted average shares outstanding












Basic


292.7




300.1




294.9




303.2


Diluted


294.7




302.5




296.7




305.8


See accompanying notes to consolidated financial statements.

 

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



Third Quarter


First Nine Months


2016


2015


2016


2015


($ in millions)













Net income

$

460



$

452



$

1,252



$

1,195


Other comprehensive income, before tax:












Pension and other postretirement benefits


7




10




20




31


Other comprehensive loss of












equity investees











(4)














Other comprehensive income, before tax


7




10




20




27


Income tax expense related to items of other












comprehensive income


(3)




(3)




(8)




(11)














Other comprehensive income, net of tax


4




7




12




16














Total comprehensive income

$

464



$

459



$

1,264



$

1,211


See accompanying notes to consolidated financial statements.

 

Norfolk Southern Corporation and Subsidiaries 
Consolidated Balance Sheets  
(Unaudited)



September 30,


December 31,


2016


2015


($ in millions)

Assets








Current assets:








Cash and cash equivalents

$


984



$


1,101


Accounts receivable – net



960





946


Materials and supplies



301





271


Other current assets



72





194


Total current assets



2,317





2,512










Investments



2,779





2,572


Properties less accumulated depreciation of $11,663 and








$11,478, respectively



29,467





28,992


Other assets



69





63










Total assets

$


34,632



$


34,139










Liabilities and stockholders' equity








Current liabilities:








Accounts payable

$


1,131



$


1,091


Short-term debt







200


Income and other taxes



218





203


Other current liabilities



333





237


Current maturities of long-term debt



550





500


Total current liabilities



2,232





2,231










Long-term debt



9,555





9,393


Other liabilities



1,322





1,385


Deferred income taxes



9,127





8,942










Total liabilities



22,236





21,951










Stockholders' equity:








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








  authorized; outstanding 291,942,235 and 297,795,016 shares,








respectively, net of treasury shares



293





299


Additional paid-in capital



2,169





2,143


Accumulated other comprehensive loss



(433)





(445)


Retained income



10,367





10,191










Total stockholders' equity



12,396





12,188










Total liabilities and stockholders' equity

$


34,632



$


34,139


See accompanying notes to consolidated financial statements.

 

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



First Nine Months


2016


2015


($ in millions)

Cash flows from operating activities






Net income

$

1,252



$

1,195


Reconciliation of net income to net cash provided






by operating activities:






Depreciation


770




770


Deferred income taxes


177




56


Gains and losses on properties and investments


(38)




(20)


Changes in assets and liabilities affecting operations:






Accounts receivable


8




(48)


Materials and supplies


(30)




(52)


Other current assets


130




295


Current liabilities other than debt


149




88


Other – net


(106)




(76)








Net cash provided by operating activities


2,312




2,208








Cash flows from investing activities






Property additions


(1,304)




(1,777)


Property sales and other transactions


87




43


Investment purchases


(119)




(5)


Investment sales and other transactions


6




32








Net cash used in investing activities


(1,330)




(1,707)








Cash flows from financing activities






Dividends


(523)




(537)


Common stock transactions


33




1


Purchase and retirement of common stock


(603)




(997)


Proceeds from borrowings – net


594




594


Debt repayments


(600)




(102)








Net cash used in financing activities


(1,099)




(1,041)








Net decrease in cash and cash equivalents


(117)




(540)








Cash and cash equivalents






At beginning of year


1,101




973








At end of period

$

984



$

433








Supplemental disclosures of cash flow information






Cash paid during the period for:






Interest (net of amounts capitalized)

$

337



$

320


Income taxes (net of refunds)


409




350


See accompanying notes to consolidated financial statements.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

  1. Stock Repurchase Program
    We repurchased and retired 7.2 million and 10.3 million shares of common stock under our stock repurchase program in the first nine months of 2016 and 2015, respectively, at a cost of $603 million and $997 million, respectively.  The timing and volume of purchases is guided by our assessment of market conditions and other pertinent factors.  Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings.  Since the beginning of 2006, we have repurchased and retired 158.3 million shares at a total cost of $10.1 billion.

  2. Restructuring Costs
    Third quarter 2015 operating expenses include $37 million of costs associated with the restructuring of our Triple Crown Services subsidiary and the closure of our Roanoke, Virginia, office which reduced net income by $23 million, or $0.08 per diluted share.

  3. New Accounting Pronouncement- Deferred Taxes
    In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, "Balance Sheet Classification of Deferred Taxes."  This update requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet rather than as separate current and noncurrent amounts.  We adopted the provisions of this ASU during the first quarter of 2016 and applied it retrospectively.  The adoption of ASU 2015-17 resulted in the presentation of $121 million of current deferred income tax assets as a reduction of "Deferred income taxes" in the long-term liabilities section of the Consolidated Balance Sheet at September 30, 2016.  We retrospectively presented the December 31, 2015, Consolidated Balance Sheet to reflect the reclassification of $121 million of deferred income tax assets from "Deferred income taxes" in the current assets section of the balance sheet to "Deferred income taxes" in the long-term liabilities section of the balance sheet.

  4. New Accounting Pronouncement- Stock-Based Compensation
    In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." We adopted the provisions of this ASU during the first quarter of 2016.  This update principally affects the recognition of excess tax benefits and deficiencies and the cash flow classification of share-based compensation-related transactions.  The requirement to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement was applied prospectively, with a benefit of $12 million recognized in the "Provision for income taxes" line item for the nine months ended September 30, 2016.  The classification requirements on the Consolidated Statements of Cash Flows for the adoption of ASU 2016-09 resulted in a $29 million increase in "Current liabilities other than debt" within the operating activities section and a corresponding decrease in "Common stock transactions" within the financing activities section for the first nine months of 2016.  We retrospectively presented the Consolidated Statements of Cash Flows for the first nine months of 2015 to reflect a $29 million increase in "Current liabilities other than debt" within the operating activities section and a corresponding decrease in "Common stock transactions" within the financing activities section.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/norfolk-southern-reports-third-quarter-2016-results-300351286.html

SOURCE Norfolk Southern Corporation

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