Norfolk Southern (NSC) 8-K Norfolk Southern reports second-quarter 2018 results

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Second Quarter				First Six Months
	2018		2017		2018		2017
	($ in millions, except per share amounts)
Railway operating revenues
Merchandise	$	1,718	$	1,597	$	3,323	$	3,181
Intermodal		714		593		1,392		1,164
Coal		466		447		900		867
Total railway operating revenues		2,898		2,637		5,615		5,212
Railway operating expenses
Compensation and benefits		706		719		1,443		1,478
Purchased services and rents		430		392		831		769
Fuel		272		190		538		403
Depreciation		273		264		545		523
Materials and other		191		200		397		410
Total railway operating expenses		1,872		1,765		3,754		3,583
Income from railway operations		1,026		872		1,861		1,629
Other income – net		29		48		37		88
Interest expense on debt		131		140		267		282
Income before income taxes		924		780		1,631		1,435
Income taxes
Current		170		225		280		391
Deferred		44		58		89		114
Total income taxes		214		283		369		505
Net income	$	710	$	497	$	1,262	$	930
Earnings per share - diluted	$	2.50	$	1.71	$	4.43	$	3.18
Weighted average shares outstanding - diluted		283.7		291.2		284.8		292.0

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Second Quarter						First Six Months
	2018			2017			2018		2017
	($ in millions)
Net income	$	710		$	497		$	1,262	$	930
Other comprehensive income, before tax:
Pension and other postretirement benefit		8			7			1		14
Other comprehensive income (loss) of
equity investees		1			1			2		(1	)
Other comprehensive income, before tax		9			8			3		13
Income tax expense related to items of
other comprehensive income		(2	)		(3	)		—		(6	)
Other comprehensive income, net of tax		7			5			3		7
Total comprehensive income	$	717		$	502		$	1,265	$	937

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
	2018			2017
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	430		$	690
Accounts receivable – net		1,035			955
Materials and supplies		260			222
Other current assets		179			282
Total current assets		1,904			2,149
Investments		3,058			2,981
Properties less accumulated depreciation of $12,175 and
$11,909, respectively		30,540			30,330
Other assets		286			251
Total assets	$	35,788		$	35,711
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,323		$	1,401
Short-term debt		—			100
Income and other taxes		269			211
Other current liabilities		260			233
Current maturities of long-term debt		500			600
Total current liabilities		2,352			2,545
Long-term debt		9,146			9,136
Other liabilities		1,317			1,347
Deferred income taxes		6,414			6,324
Total liabilities		19,229			19,352
Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 280,029,764 and 284,157,187 shares,
respectively, net of treasury shares		281			285
Additional paid-in capital		2,263			2,254
Accumulated other comprehensive loss		(441	)		(356	)
Retained income		14,456			14,176
Total stockholders’ equity		16,559			16,359
Total liabilities and stockholders’ equity	$	35,788		$	35,711

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	First Six Months
	2018			2017
	($ in millions)
Cash flows from operating activities
Net income	$	1,262		$	930
Reconciliation of net income to net cash provided by operating activities:
Depreciation		546			525
Deferred income taxes		89			114
Gains and losses on properties		(14	)		(20	)
Changes in assets and liabilities affecting operations:
Accounts receivable		(92	)		(12	)
Materials and supplies		(38	)		(32	)
Other current assets		19			48
Current liabilities other than debt		134			93
Other – net		(80	)		(70	)
Net cash provided by operating activities		1,826			1,576
Cash flows from investing activities
Property additions		(836	)		(883	)
Property sales and other transactions		48			60
Investment purchases		(4	)		(4	)
Investment sales and other transactions		6			3
Net cash used in investing activities		(786	)		(824	)
Cash flows from financing activities
Dividends		(408	)		(354	)
Common stock transactions		15			42
Purchase and retirement of common stock		(700	)		(402	)
Proceeds from borrowings – net of issuance costs		543			298
Debt repayments		(750	)		(650	)
Net cash used in financing activities		(1,300	)		(1,066	)
Net decrease in cash and cash equivalents		(260	)		(314	)
Cash and cash equivalents
At beginning of year		690			956
At end of period	$	430		$	642
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	246		$	270
Income taxes (net of refunds)		126			341

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.     Pension and Other Postretirement Benefits

We adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-07 on January 1, 2018. The retrospective application resulted in the reclassification of $16 million and $32 million of pension and other postretirement benefits from the “Compensation and benefits” line item within “Railway operating expenses” to “Other income - net” on the Consolidated Statements of Income for the second quarter and first six months of 2017, respectively.

2.     Stock Repurchase Program

We repurchased and retired 4.8 million and 3.4 million shares of common stock under our stock repurchase program in the first six months of 2018 and 2017, respectively, at a cost of $700 million and $402 million, respectively. Since the beginning of 2006, we have repurchased and retired 173.3 million shares at a total cost of $12.0 billion.

3.     Reclassification of Stranded Tax Effects

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This update is intended to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017 from accumulated other comprehensive income to retained earnings. In the first quarter of 2018, we adopted the provisions of ASU 2018-02 resulting in an increase to “Accumulated other comprehensive loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’ equity.”