Norfolk Southern (NSC) 8-K Norfolk Southern reports fourth-quarter and full-year 2018 results

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Fourth Quarter					Years Ended December 31,
	2018		2017			2018		2017
	($ in millions, except per share amounts)
Railway operating revenues
Merchandise	$	1,684	$	1,576		$	6,744	$	6,357
Intermodal		755		667			2,893		2,452
Coal		457		426			1,821		1,742
Total railway operating revenues		2,896		2,669			11,458		10,551
Railway operating expenses
Compensation and benefits		757		730			2,925		2,979
Purchased services and rents		449		268			1,730		1,414
Fuel		275		239			1,087		840
Depreciation		281		267			1,102		1,055
Materials and other		56		167			655		741
Total railway operating expenses		1,818		1,671			7,499		7,029
Income from railway operations		1,078		998			3,959		3,522
Other income – net		—		29			67		156
Interest expense on debt		148		134			557		550
Income before income taxes		930		893			3,469		3,128
Income taxes
Current		193		3			630		583
Deferred		35		(3,078	)		173		(2,859	)
Total income taxes		228		(3,075	)		803		(2,276	)
Net income	$	702	$	3,968		$	2,666	$	5,404
Earnings per share – diluted	$	2.57	$	13.79		$	9.51	$	18.61
Weighted average shares outstanding – diluted		273.5		287.8			280.2		290.3

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Fourth Quarter						Years Ended December 31,
	2018			2017			2018			2017
	($ in millions)
Net income	$	702		$	3,968		$	2,666		$	5,404
Other comprehensive income (loss), before tax:
Pension and other postretirement benefits		(157	)		134			(148	)		155
Other comprehensive income (loss) of
equity investees		(11	)		20			(9	)		19
Other comprehensive income (loss), before tax		(168	)		154			(157	)		174
Income tax benefit (expense) related to items of
other comprehensive income (loss)		40			(35	)		38			(43	)
Other comprehensive income (loss), net of tax		(128	)		119			(119	)		131
Total comprehensive income	$	574		$	4,087		$	2,547		$	5,535

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	At December 31,
	2018			2017
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	358		$	690
Accounts receivable – net		1,009			955
Materials and supplies		207			222
Other current assets		288			282
Total current assets		1,862			2,149
Investments		3,109			2,981
Properties less accumulated depreciation of $12,374 and
$11,909, respectively		31,091			30,330
Other assets		177			251
Total assets	$	36,239		$	35,711
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,505		$	1,401
Short-term debt		—			100
Income and other taxes		255			211
Other current liabilities		246			233
Current maturities of long-term debt		585			600
Total current liabilities		2,591			2,545
Long-term debt		10,560			9,136
Other liabilities		1,266			1,347
Deferred income taxes		6,460			6,324
Total liabilities		20,877			19,352
Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 268,098,472 and 284,157,187 shares,
respectively, net of treasury shares		269			285
Additional paid-in capital		2,216			2,254
Accumulated other comprehensive loss		(563	)		(356	)
Retained income		13,440			14,176
Total stockholders’ equity		15,362			16,359
Total liabilities and stockholders’ equity	$	36,239		$	35,711

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Years Ended December 31,
	2018			2017
	($ in millions)
Cash flows from operating activities	��
Net income	$	2,666		$	5,404
Reconciliation of net income to net cash provided by operating activities:
Depreciation		1,104			1,059
Deferred income taxes		173			(2,859	)
Gains and losses on properties		(171	)		(92	)
Changes in assets and liabilities affecting operations:
Accounts receivable		(70	)		(41	)
Materials and supplies		15			35
Other current assets		(46	)		(71	)
Current liabilities other than debt		223			135
Other – net		(168	)		(317	)
Net cash provided by operating activities		3,726			3,253
Cash flows from investing activities
Property additions		(1,951	)		(1,723	)
Property sales and other transactions		204			202
Investment purchases		(10	)		(7	)
Investment sales and other transactions		99			47
Net cash used in investing activities		(1,658	)		(1,481	)
Cash flows from financing activities
Dividends		(844	)		(703	)
Common stock transactions		40			89
Purchase and retirement of common stock		(2,781	)		(1,012	)
Proceeds from borrowings – net of issuance costs		2,023			290
Debt repayments		(750	)		(702	)
Net cash used in financing activities		(2,312	)		(2,038	)
Net decrease in cash, cash equivalents, and restricted cash		(244	)		(266	)
Cash, cash equivalents, and restricted cash
At beginning of year		690			956
At end of year	$	446		$	690
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	496		$	528
Income taxes (net of refunds)		519			705

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.     Pensions and Other Postretirement Benefits

We adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," on January 1, 2018. The retrospective application resulted in the reclassification of $16 million and $64 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 fourth quarter 2017 and for the year 2017, respectively, with no impact on “Net income.”

2.     Tax Reform

As a result of the enactment of the Tax Cuts and Jobs Act (“tax reform”) signed into law on December 22, 2017, the Consolidated Statements of Income included a $151 million benefit in “Purchased services and rents” and a $3,331 million benefit in “Total income taxes,” which added $3,482 million to “Net income” and $12.10 and $12.00 to “Earnings per share – diluted” in the fourth quarter 2017 and for the year 2017, respectively.

3.     Stock Repurchase Programs

We repurchased and retired 17.1 million shares (7.0 million shares under an accelerated stock repurchase program (ASR) and 10.1 million shares under our ongoing program) and 8.2 million shares of common stock under our stock repurchase programs in 2018 and 2017, respectively, at a cost of $2.8 billion and $1.0 billion, respectively. We entered into an ASR on August 2, 2018 with two financial institutions to repurchase common stock, at which time we made a payment of $1.2 billion to the financial institutions and received an initial delivery of 5.7 million shares valued at $960 million. The ASR was settled during the fourth quarter of 2018.

Since the beginning of 2006, we have repurchased and retired 185.6 million shares at a total cost of $14.1 billion.

4.     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 tax reform 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” on the Consolidated Balance Sheets.

5. Restricted Cash

The “Cash, cash equivalents, and restricted cash” line item on the Consolidated Statements of Cash Flows includes restricted cash of $88 million at December 31, 2018 which reflects deposits held by a third-party bond agent as collateral for certain debt obligations maturing in 2019. The restricted cash balance is included as part of “Other current assets” on the Consolidated Balance Sheets.