Norfolk Southern Reports First-Quarter 2011 Results

Apr 28, 2011

NORFOLK, Va., April 27, 2011 /PRNewswire/ --

For 2011 vs. 2010, Norfolk Southern achieved the following first-quarter records:

Railway operating revenues increased 17 percent to $2.6 billion.
Income from railway operations improved 8 percent to $600 million.
Diluted earnings per share rose 32 percent to $0.90.

For the first quarter of 2011, Norfolk Southern Corporation (NYSE: NSC) reported net income of $325 million, or $0.90 per diluted share, 26 percent higher than $257 million, or $0.68 per diluted share, for the first quarter of 2010.

First-quarter 2011 results included a $58 million non-cash charge associated with an unfavorable insurance arbitration ruling that reduced net income by $36 million, or $0.10 per diluted share. For the same period of 2010, results were impacted by a $27 million, or $0.07 per diluted share, deferred tax charge resulting from the enactment of healthcare legislation.

"Norfolk Southern delivered an excellent financial performance during the quarter, reflecting the strong market for freight rail transportation and the value of our service product," said CEO Wick Moorman. "We see continuing opportunities for growth in almost every segment of our business, and we're optimistic about our prospects for the balance of 2011."

First-quarter railway operating revenues improved 17 percent to $2.6 billion, compared with the first quarter of 2010, as the result of 8 percent increases in revenue per unit and traffic volume.

General merchandise revenues were $1.3 billion, 10 percent higher compared with the same period last year. Coal revenues increased 30 percent to $816 million compared with first-quarter 2010 results. Intermodal revenues were $485 million, up 18 percent compared with the first quarter of last year.

Railway operating expenses for the quarter were $2.0 billion, up 20 percent compared with first-quarter 2010. The increase was largely due to higher fuel costs, which rose by $135 million or 53 percent, primarily as the result of increased prices as well as the effects of an unfavorable arbitration ruling and higher traffic volumes.

Income from railway operations for the quarter improved 8 percent to $600 million compared with the same period of 2010.

The railway operating ratio was 77.1 percent, compared with 75.2 percent in first- quarter 2010.

Norfolk Southern Corporation (NYSE: NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 20,000 route miles in 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 and industrial products.

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

			Three Months Ended
			March 31,
			2011		2010
		(in millions, except per share amounts)
Railway operating revenues:
Coal	$	816		$	629
General merchandise		1,319			1,199
Intermodal		485			410
Total railway operating revenues		2,620			2,238

Railway operating expenses:
Compensation and benefits		765			699
Purchased services and rents		383			335
Fuel		389			254
Depreciation		211			204
Materials and other (note 1)		272			191
Total railway operating expenses		2,020			1,683

Income from railway operations		600			555

Other income - net		27			20
Interest expense on debt		112			119

Income before income taxes		515			456

Provision for income taxes:
Current		78			159
Deferred (note 2)		112			40
Total income taxes		190			199

Net income	$	325		$	257

Earnings per share (note 3):
Basic	$	0.91		$	0.69
Diluted	$	0.90		$	0.68

Weighted average shares outstanding (notes 3 & 4):
Basic		355.2			369.5
Diluted		360.5			374.9

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

		March 31,		December 31,
		2011		2010
		($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	236	$	827
Short-term investments		252		283
Accounts receivable - net		934		807
Materials and supplies		190		169
Deferred income taxes		148		145
Other current assets		72		240
Total current assets		1,832		2,471

Investments		2,199		2,193

Properties less accumulated depreciation		23,451		23,231

Other assets		246		304

Total assets	$	27,728	$	28,199

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,093	$	1,181
Short-term debt		-		100
Income and other taxes		102		199
Other current liabilities		309		244
Current maturities of long-term debt		63		358
Total current liabilities		1,567		2,082

Long-term debt		6,554		6,567

Other liabilities		1,794		1,793

Deferred income taxes		7,212		7,088
Total liabilities		17,127		17,530

Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 353,216,661 and 357,362,604 shares,
respectively, net of treasury shares		354		358
Additional paid-in capital		1,939		1,892
Accumulated other comprehensive loss		(786)		(805)
Retained income		9,094		9,224
Total stockholders’ equity		10,601		10,669

Total liabilities and stockholders’ equity	$	27,728	$	28,199

See accompanying notes to consolidated financial statements.

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

		Three Months Ended
		March 31,
		2011		2010
		($ in millions)

Cash flows from operating activities:
Net income	$	325	$	257
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		213		206
Deferred income taxes		112		40
Gains and losses on properties		-		(1)
Changes in assets and liabilities affecting operations:
Accounts receivable		(127)		(101)
Materials and supplies		(21)		(16)
Other current assets		19		17
Current liabilities other than debt		27		209
Other - net		104		147
Net cash provided by operating activities		652		758

Cash flows from investing activities:
Property additions		(423)		(256)
Property sales and other transactions		(10)		-
Investments, including short-term		(4)		(155)
Investment sales and other transactions		55		51
Net cash used in investing activities		(382)		(360)

Cash flows from financing activities:
Dividends		(142)		(126)
Common stock issued - net		32		21
Purchase and retirement of common stock (note 4)		(343)		-
Debt repayments		(408)		(128)
Net cash used in financing activities		(861)		(233)

Net increase (decrease) in cash and cash equivalents		(591)		165

Cash and cash equivalents:
At beginning of year		827		996

At end of period	$	236	$	1,161

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	72	$	50
Income taxes (net of refunds)	$	3	$	-

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. MATERIALS AND OTHER

During the first quarter of 2011, NS received an unfavorable ruling for an arbitration claim with an insurance carrier that failed to respond to insurance claims submitted by NS, related to the January 6, 2005 derailment in Graniteville, SC. As a result, NS recorded a $43 million expense for the receivables associated with the contested portion of the claim and a $15 million expense for other receivables affected by the ruling for which recovery is no longer probable.

2. DEFERRED TAXES

During the first quarter of 2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were signed into law. Provisions of the Acts eliminated, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program. As required by the Financial Accounting Standards Board Accounting Standards Codification (ASC) 740, "Income Taxes," NS recorded a $27 million charge to deferred tax expense in the first quarter of 2010.

3. EARNINGS PER SHARE

For basic earnings per share, income available to common stockholders for the first quarters of 2011 and 2010 reflects $2 million in reductions from net income for the effect of dividend equivalent payments made to holders of stock options and restricted stock units. In addition, for the first quarters of 2011 and 2010, diluted earnings per share were calculated under the more dilutive two-class method (as compared to the treasury stock method) and income available to common stockholders reflects $2 million in reductions from net income, in both periods, for dividend equivalent payments made to holders of stock options.

4. STOCK REPURCHASE PROGRAM

NS repurchased and retired 5.3 million shares of Common Stock in the first quarter of 2011, at a cost of $343 million. There were no shares repurchased under this program in the first quarter of 2010. The timing and volume of purchases is guided by management's assessment of market conditions and other pertinent facts. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since 2005, NS has repurchased and retired 84.7 million shares at a total cost of $4.5 billion.

SOURCE Norfolk Southern Corporation