July 28, 2004
Norfolk Southern Sets Records in Second Quarter, First Half
and Reports Quarterly Earnings up 55 Percent Over Last Year
For the second quarter 2004:
- Railway operating revenues increased 11 percent and set an all-time record of $1.8 billion.
- Net income increased 55 percent to $213 million, $0.54 per diluted share.
- Income from railway operations improved 43 percent and set a record at $425 million.
- Operating ratio improved 5 percentage points to 76.6 percent.
NORFOLK , VA. – For the second quarter of 2004, Norfolk Southern Corporation (NYSE: NSC) reported net income of $213 million, or $0.54 per diluted share, an increase of 55 percent, compared with $137 million, or $0.35 per diluted share, for the second quarter of 2003.
Second-quarter operating revenues of $1.8 billion were the highest of any quarter in Norfolk Southern’s history and improved 11 percent compared with $1.6 billion in the second quarter of 2003. The operating ratio for the quarter was 5 percentage points better at 76.6 percent compared to the same period last year.
“Norfolk Southern’s strong second-quarter results were driven by increased business volumes, effective expense controls and operating execution that is allowing us to deliver a higher quality, higher value service,” said David R. Goode, chairman, president and chief executive officer. “We continue to add train and engine crews, and they, along with the entire Thoroughbred team, are helping Norfolk Southern handle the strongest business growth we have seen in years.”
For the first six months, income from continuing operations before accounting changes was $371 million, or $0.94 per diluted share, an increase of 67 percent compared with last year’s $222 million, or 0.57 per diluted share. Reported net income for the first half of 2003 was $346 million, or $0.89 per diluted share, which included a $114 million, or $0.29 per diluted 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 diluted share, from discontinued motor carrier operations.
Railway operating revenues for the first half of 2004 set a six-month record, increasing 10 percent to $3.5 billion compared with $3.2 billion for the same period a year earlier.
The railway operating ratio for the first six months also improved 5 percentage points to 78.0 percent compared with 83.4 in the first half of 2003.
Intermodal revenues climbed 21 percent to a record $364 million in the second quarter and improved 17 percent to $692 million for the first six months compared to the same periods of 2003. T raffic growth from new truck-competitive services, increased units handled with trucking partners and strong international shipments helped drive the growth.
Second-quarter general merchandise revenues reached a record $1 billion, an increase of 9 percent over the same quarter last year. For the first six months, general merchandise revenues improved 7 percent to $2 billion compared with the year-earlier period. All merchandise markets reported revenue gains compared with the same periods a year earlier. Metals and construction and chemicals posted the largest gains in both the quarter and for the first six months.
Coal revenues increased 9 percent to $424 million in the second quarter and improved 11 percent to $822 million for the first six months of 2004 compared with the same periods last year. This growth was driven by increased demand for export coal and better revenue yields.
Second-quarter r ailway operating expenses were up $53 million, or 4 percent, compared with second quarter last year. For the first six months, railway operating expenses rose $70 million, or 3 percent, over the same period in 2003. This was primarily due to higher costs associated with compensation and benefits and diesel fuel.
“As we move into the remainder of the year, I am confident that Norfolk Southern can continue to leverage our operational momentum, again improve service quality and energetically pursue new business and margin improvement,” Goode said.
Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates 21,500 route miles in 22 states, the District of Columbia and Ontario , serving every major container port in the eastern United States and providing superior connections to western rail carriers. NS operates the most extensive intermodal network in the East and is the nation's largest rail carrier of automotive parts and finished vehicles.
| Norfolk Southern Corporation and Subsidiaries |
| Consolidated Statements of Income |
(Unaudited) |
($ millions except per share) |
|
|
|
|
|
|
Three Months Ended June 30, |
|
2004 |
2003 |
|
|
|
|
|
Railway operating revenues: |
|
|
|
|
Coal |
$ |
424 |
$ |
389 |
General merchandise |
|
1,025 |
|
944 |
Intermodal |
|
364 |
|
300 |
Total railway operating revenues |
|
1,813 |
|
1,633 |
|
|
|
|
|
Railway operating expenses: |
|
|
|
|
Compensation and benefits |
|
565 |
|
535 |
Materials, services and rents |
|
389 |
|
377 |
Conrail rents and services |
|
101 |
|
102 |
Depreciation |
|
130 |
|
129 |
Diesel fuel |
|
106 |
|
93 |
Casualties and other claims |
|
38 |
|
47 |
Other |
|
59 |
|
52 |
Total railway operating expenses |
|
1,388 |
|
1,335 |
|
|
|
|
|
Income from railway operations |
|
425 |
|
298 |
|
|
|
|
|
Other income – net |
|
-- |
|
24 |
Interest expense on debt |
|
(121) |
|
(123) |
|
|
|
|
|
Income before income taxes |
|
304 |
|
199 |
|
|
|
|
|
Provision for income taxes: |
|
|
|
|
Current |
|
31 |
|
9 |
Deferred |
|
60 |
|
53 |
Total income taxes |
|
91 |
|
62 |
Net income |
$ |
213 |
$ |
137 |
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic |
$ |
0.55 |
$ |
0.35 |
Diluted |
$ |
0.54 |
$ |
0.35 |
|
|
|
|
|
Average shares outstanding (000's) |
|
392,401 |
|
389,635 |
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
| Norfolk Southern Corporation and Subsidiaries |
| Consolidated Statements of Income |
(Unaudited) |
($ millions except per share) |
|
|
|
|
|
|
Six Months Ended June 30, |
|
2004 |
2003 |
|
|
|
|
|
Railway operating revenues: |
|
|
|
|
Coal |
$ |
822 |
$ |
743 |
General merchandise |
|
1,922 |
|
1,862 |
Intermodal |
|
692 |
|
589 |
Total railway operating revenues |
|
3,506 |
|
3,194 |
|
|
|
|
|
Railway operating expenses: |
|
|
|
|
Compensation and benefits |
|
1,110 |
|
1,061 |
Materials, services and rents |
|
754 |
|
737 |
Conrail rents and services |
|
203 |
|
209 |
Depreciation |
|
259 |
|
256 |
Diesel fuel |
|
213 |
|
197 |
Casualties and other claims |
|
78 |
|
98 |
Other |
|
118 |
|
107 |
Total railway operating expenses |
|
2,735 |
|
2,665 |
|
|
|
|
|
Income from railway operations |
|
771 |
|
529 |
|
|
|
|
|
Other income – net |
|
10 |
|
45 |
Interest expense on debt |
|
(242) |
|
(250) |
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
|
|
and accounting changes |
|
539 |
|
324 |
|
|
|
|
|
Provision for income taxes: |
|
|
|
|
Current |
|
80 |
|
55 |
Deferred |
|
88 |
|
47 |
Total income taxes |
|
168 |
|
102 |
|
|
|
|
|
Income from continuing operations before accounting changes |
|
371 |
|
222 |
|
|
|
|
|
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 |
$ |
371 |
$ |
346 |
|
|
|
|
|
Earnings per share: |
|
|
|
|
Income from continuing operations before accounting changes |
|
|
|
|
Basic |
$ |
0.95 |
$ |
0.57 |
Diluted |
$ |
0.94 |
$ |
0.57 |
Net income |
|
|
|
|
Basic |
$ |
0.95 |
$ |
0.89 |
Diluted |
$ |
0.94 |
$ |
0.89 |
|
|
|
|
|
Average shares outstanding (000's) |
|
391,816 |
|
389,443 |
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
| Norfolk Southern Corporation and Subsidiaries |
| Consolidated Balance Sheets |
(Unaudited) |
($ millions) |
|
|
|
|
|
|
June 30, |
December 31, |
|
2004 |
2003 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
203 |
$ |
284 |
Accounts receivable – net |
|
782 |
|
695 |
Materials and supplies |
|
100 |
|
92 |
Deferred income taxes |
|
191 |
|
189 |
Other current assets |
|
155 |
|
165 |
Total current assets |
|
1,431 |
|
1,425 |
|
|
|
|
|
Investment in Conrail |
|
6,293 |
|
6,259 |
Properties less accumulated depreciation |
|
11,915 |
|
11,779 |
Other assets |
|
1,190 |
|
1,133 |
Total assets |
$ |
20,829 |
$ |
20,596 |
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
931 |
$ |
948 |
Income and other taxes |
|
201 |
|
199 |
Due to Conrail |
|
80 |
|
81 |
Other current liabilities |
|
219 |
|
213 |
Current maturities of long-term debt |
|
511 |
|
360 |
Total current liabilities |
|
1,942 |
|
1,801 |
|
|
|
|
|
Long-term debt |
|
6,336 |
|
6,800 |
Other liabilities |
|
1,072 |
|
1,080 |
Due to Conrail |
|
797 |
|
716 |
Deferred income taxes |
|
3,327 |
|
3,223 |
Total liabilities |
|
13,474 |
|
13,620 |
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
Common stock $1.00 per share par value |
|
415 |
|
412 |
Additional paid-in capital |
|
571 |
|
521 |
Unearned restricted stock |
|
(11) |
|
(5) |
Accumulated other comprehensive loss |
|
(21) |
|
(44) |
Retained income |
|
6,421 |
|
6,112 |
|
|
7,375 |
|
6,996 |
|
|
|
|
|
Less treasury stock at cost, 20,973,125 and 21,016,125 shares, respectively
|
|
(20) |
|
(20) |
Total stockholders' equity |
|
7,355 |
|
6,976 |
|
|
|
|
|
Total liabilities and stockholders' equity |
$ |
20,829 |
$ |
20,596 |
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
| Norfolk Southern Corporation and Subsidiaries |
| Consolidated Statements of Cash Flow |
(Unaudited) |
($ millions) |
|
|
|
|
|
|
Six Months Ended June 30, |
|
2004 |
2003 |
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
Net income |
$ |
371 |
$ |
346 |
Reconciliation of net income to net cash provided by |
|
|
|
|
operating activities: |
|
|
|
|
Net cumulative effect of changes in accounting principles (note 2) |
|
-- |
|
(114) |
Depreciation |
|
265 |
|
263 |
Deferred income taxes |
|
88 |
|
47 |
Equity in earnings of Conrail |
|
(32) |
|
(27) |
Gains on properties and investments |
|
(6) |
|
(12) |
Income from discontinued operations (note 1) |
|
-- |
|
(10) |
Changes in assets and liabilities affecting operations: |
|
|
|
|
Accounts receivable |
|
(87) |
|
(117) |
Materials and supplies |
|
(8) |
|
(5) |
Other current assets |
|
45 |
|
56 |
Current liabilities other than debt |
|
(1) |
|
(25) |
Other – net |
|
(9) |
|
(36) |
Net cash provided by operating activities |
|
626 |
|
366 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Property additions |
|
(412) |
|
(386) |
Property sales and other transactions |
|
16 |
|
15 |
Investments, including short-term |
|
(51) |
|
(66) |
Investment sales and other transactions |
|
4 |
|
5 |
Net cash used for investing activities |
|
(443) |
|
(432) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Dividends |
|
(63) |
|
(55) |
Common stock issued – net |
|
29 |
|
4 |
Proceeds from borrowings (note 3) |
|
141 |
|
130 |
Debt repayments |
|
(371) |
|
(87) |
|
|
|
|
|
Net cash used for financing activities |
|
(264) |
|
(8) |
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(81) |
|
(74) |
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
At beginning of year |
|
284 |
|
184 |
At end of period |
$ |
203 |
$ |
110 |
|
|
|
|
|
Supplemental disclosures of cash-flow information |
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest (net of amounts capitalized) |
$ |
241 |
$ |
261 |
Income taxes |
$ |
51 |
$ |
57 |
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
NOTES:
1. DISCONTINUED OPERATIONS -
First-quarter 2003 results included an additional after-tax gain of $10 million, or 3 cents per share (basic and diluted), 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.
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.
The cumulative effect of these changes amounted to $114 million, or 29 cents per share (basic and diluted).
3. 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 $81 million in the first half of 2004 and $105 million in the first half of 2003.
For further information contact:
(Media) Bob Fort, 757-629-2710
(Investors) Leanne Marilley, 757-629-2861
