April 21, 2004
Norfolk Southern Reports Record Revenues, Income From Railway Operations
For the first quarter 2004:
Railway operating revenues rose to a record $1.7 billion.
Income from railway operations improved to $346 million and set an all-time record.
Net income reached $158 million or $0.40 per share.
Operating ratio improved to 79.6 percent, NS' best since the Conrail integration.
NORFOLK, VA - For the first quarter of 2004, Norfolk Southern Corporation (NYSE: NSC) reported record revenues of $1.7 billion, up eight percent compared with the same period last year, and record first quarter income from railway operations of $346 million, up 50 percent, compared with the same period last year.
First-quarter income from continuing operations before accounting changes was $158 million, or $0.40 per share, compared with last year's $85 million, or $0.22 per share.
Reported net income for first quarter 2003 was $209 million, or $0.54 per share, which included a $114 million, or $0.29 per share, gain due to a required industry-wide accounting change to account for the cost of removing railroad crossties, and a gain of $10 million, or $0.03 per share, from discontinued motor carrier operations.
Excluding those items, net income in the first quarter increased by $73 million, or 86 percent, over the same period last year. Revenues increased $132 million, or eight percent, over the same quarter in 2003. Carloads rose seven percent for the same period.
"I am very pleased to report that Norfolk Southern set a number of financial and operational records this quarter," said David R. Goode, chairman, president and chief executive officer. "We recorded the highest railway operating revenues in our history, and we posted our best ever income from railway operations. We produced the best first-quarter operating ratio since the Conrail integration in what is traditionally the most challenging quarter. Our network velocity reached an all-time high as our average train speed exceeded our goal and was among the best in the industry. We improved our terminal dwell time performance over year-earlier levels. And finally, our network fluidity continued to improve as we handled 109,000 more carloads in the quarter but our cars on line remained constant."
Norfolk Southern reported its best operating ratio -- the standard measure of railroad efficiency -- since the integration of its portion of the Conrail system in 1999. For the quarter, the railway operating ratio was 79.6 percent compared with 85.2 percent a year earlier.
General merchandise revenues for the first quarter reached a record $967 million, an increase of five percent over the same period last year. All merchandise markets reported revenue gains, compared with the same period a year earlier, led by metals and construction, which reported an increase of 10 percent. Increased steel shipments from nearly all of the mills served by Norfolk Southern helped grow this category. Chemicals set a record, with revenues increasing six percent over the same period in 2003, driven by increased shipments of petroleum and industrial intermediate products. Led by shipments of ethanol and fertilizer, agricultural products set first-quarter records for both volume and revenue.
Coal revenues were up in the first quarter, increasing 12 percent to $398 million in the first quarter of 2004 compared with the same period last year. The export coal sector benefited as a result of weakness of the dollar and higher ocean-going bulk rates. In the utility sector, carloadings were up three percent in the first quarter compared with the same period in 2003.
Intermodal revenues climbed 13 percent to $328 million in the first quarter 2004 compared with the same period last year. Increased demand for consumer products and traffic growth from new truck-competitive, transcontinental services, as well as reliable, consistent service performance, helped drive the growth.
First-quarter railway operating expenses were up only $17 million, or one percent, over the same period in 2003.
"Norfolk Southern's exceptional first-quarter performance has provided a solid platform from which to build through the remainder of the year and reflects the strength of our higher-value transportation products and operating efficiency," Goode said.
"Looking ahead, we remain optimistic about the health of the industrial economy," said Goode, noting that for April, overall carloadings were up five percent, led primarily by intermodal. "Our strong and improving service gives us an increasingly valuable product going forward."
Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates 21,500 route miles in 22 states, the District of Columbia and Ontario, serving every major container port in the eastern United States and providing superior connections to western rail carriers. NS operates the most extensive intermodal network in the East and is the nation's largest rail carrier of automotive parts and finished vehicles.
For further information contact:
(Media) Bob Fort, 757-629-2710
(Investors) Leanne McGruder, 757-629-2861
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Three Months Ended
March 31,
------------------
2004 2003
---- ----
Railway operating revenues:
Coal $ 398 $ 354
General merchandise 967 918
Intermodal 328 289
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TOTAL RAILWAY OPERATING REVENUES 1,693 1,561
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Railway operating expenses:
Compensation and benefits 545 526
Materials, services and rents 365 360
Conrail rents and services 102 107
Depreciation 129 127
Diesel fuel 107 104
Casualties and other claims 40 51
Other 59 55
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TOTAL RAILWAY OPERATING EXPENSES 1,347 1,330
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Income from railway operations 346 231
Other income - net 10 21
Interest expense on debt (121) (127)
------- -------
Income from continuing operations before
income taxes and accounting changes 235 125
Provision (benefit) for income taxes:
Current 49 46
Deferred 28 (6)
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TOTAL INCOME TAXES 77 40
------- -------
Income from continuing operations
before accounting changes 158 85
Discontinued operations - taxes on sale
of motor carrier (note 1) -- 10
Cumulative effect of changes in accounting
principles, net of taxes (note 2) -- 114
------- -------
NET INCOME $ 158 $ 209
======= =======
Earnings per share (basic and diluted):
Income from continuing operations before
accounting changes $ 0.40 $ 0.22
Discontinued operations (note 1) -- 0.03
Cumulative effect of changes
in accounting (note 2) -- 0.29
------- -------
NET INCOME $ 0.40 $ 0.54
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Average shares outstanding (000's) 391,231 389,250
See notes to financial statements.
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
March 31, December 31,
-------- -----------
2004 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 107 $ 284
Accounts receivable - net (note 3) 765 695
Materials and supplies 97 92
Deferred income taxes 197 189
Other current assets 156 165
------- -------
Total current assets 1,322 1,425
Investment in Conrail 6,275 6,259
Properties less accumulated depreciation 11,819 11,779
Other assets 1,176 1,133
------- -------
TOTAL ASSETS $ 20,592 $ 20,596
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 884 $ 948
Income and other taxes 233 199
Due to Conrail 89 81
Other current liabilities 270 213
Current maturities of long-term debt 210 360
------- -------
Total current liabilities 1,686 1,801
Long-term debt 6,671 6,800
Other liabilities 1,065 1,080
Due to Conrail 785 716
Deferred income taxes 3,263 3,223
------- -------
TOTAL LIABILITIES 13,470 13,620
------- -------
Stockholders' equity:
Common stock $1.00 per share par value 413 412
Additional paid-in capital 539 521
Unearned restricted stock (12) (5)
Accumulated other comprehensive loss (37) (44)
Retained income 6,239 6,112
------- -------
7,142 6,996
Less treasury stock at cost,
21,016,125 shares (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 7,122 6,976
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,592 $ 20,596
======= =======
See notes to financial statements.
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
($ millions)
Three Months Ended March 31,
($ millions)
---------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 158 $ 209
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes in
accounting principles (note 2) -- (114)
Depreciation 132 131
Deferred income taxes 28 (6)
Equity in earnings of Conrail (15) (12)
Gains on properties and investments (1) (5)
Income from discontinued operations (note 1) -- (10)
Changes in assets and liabilities
affecting operations:
Accounts receivable (note 3) (71) (106)
Materials and supplies (5) (4)
Other current assets 20 24
Current liabilities other than debt 40 73
Other - net (28) (47)
------- -------
Net cash provided by operating activities 258 133
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (172) (197)
Property sales and other transactions 1 3
Investments, including short-term (23) (20)
Investment sales and other transactions 1 4
------- -------
Net cash used for investing activities (193) (210)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (32) (27)
Common stock issued - net 5 1
Proceeds from borrowings (note 4) 88 87
Debt repayments (303) (40)
------- -------
Net cash provided by (used for)
financing activities (242) 21
------- -------
Net decrease in cash and cash equivalents (177) (56)
CASH AND CASH EQUIVALENTS:
At beginning of year 284 184
------- -------
At end of period $ 107 $ 128
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH-FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 71 $ 72
Income taxes $ -- $ 14
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS:
1. DISCONTINUED OPERATIONS IN 2003-
First-quarter 2003 results included an additional after-tax gain
of $10 million, or 3 cents per share, related to the 1998 sale
of NS' motor carrier subsidiary, North American Van Lines, Inc.
This non-cash gain resulted from the resolution of tax issues
related to the transaction.
2. CHANGES IN ACCOUNTING PRINCIPLES IN 2003-
NS adopted Financial Accounting Standards Board (FASB) Statement
No. 143, "Accounting for Asset Retirement Obligations" (SFAS
No. 143), effective Jan. 1, 2003, and recorded a $110 million
net adjustment ($182 million before taxes) for the cumulative
effect of this change in accounting on years prior to 2003.
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 2003 depreciation expense (because the
depreciation rate for crossties no longer reflects costs to
remove) and increased compensation and benefits expenses (for
the costs to remove retired assets). The net effect on total
railway operating expenses and net income was not material.
NS also adopted FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN No. 46), effective Jan. 1, 2003,
and recorded a $4 million net adjustment ($6 million before taxes)
for the cumulative effect of this change in accounting on years
prior to 2003. Pursuant to FIN No. 46, NS has consolidated a
special-purpose entity that leases 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
in 2003 (to reflect the locomotives as owned assets) and lowered
lease expense. The net effect on total railway operating expenses
and net income was not material.
3. SALES OF ACCOUNTS RECEIVABLE -
A bankruptcy-remote special purpose subsidiary of NS sells
without recourse undivided ownership interests in a pool of
accounts receivable. Accounts receivable sold under this
arrangement, and therefore not included in "Accounts receivable -
net" on the Consolidated Balance Sheets, were $0 at March 31, 2004,
and $0 at Dec. 31, 2003. As a result, the change in "Accounts
receivable" included in "Net cash provided by operating activities"
on the Consolidated Statements of Cash Flow was $0 for the first
three months ended March 31, 2004, compared with $(30) million
for the same period of 2003.
4. PAYMENTS TO CONRAIL -
Payments made to Conrail reduce NS' "Net cash provided by
operating activities." A significant portion of these payments
is borrowed back from a Conrail subsidiary. The net borrowings
are included in NS' "Net cash used for financing activities" and
totaled $69 million in the first quarter of 2004 and $80 million
in the first quarter of 2003.
