Norfolk Southern (NSC) 8-K Norfolk Southern reports second-quarter 2019 results

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Second Quarter				First Six Months
	2019		2018		2019		2018
	($ in millions, except per share amounts)
Railway operating revenues
Merchandise	$	1,756	$	1,718	$	3,442	$	3,323
Intermodal	701		714		1,420		1,392
Coal	468		466		903		900
Total railway operating revenues	2,925		2,898		5,765		5,615
Railway operating expenses
Compensation and benefits	712		706		1,439		1,443
Purchased services and rents	418		430		842		831
Fuel	254		272		504		538
Depreciation	284		273		567		545
Materials and other	192		191		382		397
Total railway operating expenses	1,860		1,872		3,734		3,754
Income from railway operations	1,065		1,026		2,031		1,861
Other income – net	22		29		66		37
Interest expense on debt	153		131		302		267
Income before income taxes	934		924		1,795		1,631
Income taxes
Current	136		170		263		280
Deferred	76		44		133		89
Total income taxes	212		214		396		369
Net income	$	722	$	710	$	1,399	$	1,262
Earnings per share - diluted	$	2.70	$	2.50	$	5.21	$	4.43
Weighted average shares outstanding - diluted	267.1		283.7		268.3		284.8

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Second Quarter						First Six Months
	2019			2018			2019			2018
	($ in millions)
Net income	$	722		$	710		$	1,399		$	1,262
Other comprehensive income, before tax:
Pension and other postretirement benefits	5			8			10			1
Other comprehensive income (loss) of
equity investees	—			1			(1		)	2
Other comprehensive income, before tax	5			9			9			3
Income tax expense related to items of
other comprehensive income	(2		)	(2		)	(3		)	—
Other comprehensive income, net of tax	3			7			6			3
Total comprehensive income	$	725		$	717		$	1,405		$	1,265

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
	2019			2018
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	274		$	358
Accounts receivable – net	1,039			1,009
Materials and supplies	256			207
Other current assets	345			288
Total current assets	1,914			1,862
Investments	3,301			3,109
Properties less accumulated depreciation of $12,372
and $12,374, respectively	31,201			31,091
Other assets	756			177
Total assets	$	37,172		$	36,239
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,407		$	1,505
Income and other taxes	270			255
Other current liabilities	373			246
Current maturities of long-term debt	401			585
Total current liabilities	2,451			2,591
Long-term debt	11,076			10,560
Other liabilities	1,738			1,266
Deferred income taxes	6,596			6,460
Total liabilities	21,861			20,877
Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 263,406,773 and 268,098,472 shares,
respectively, net of treasury shares	265			269
Additional paid-in capital	2,226			2,216
Accumulated other comprehensive loss	(557		)	(563		)
Retained income	13,377			13,440
Total stockholders’ equity	15,311			15,362
Total liabilities and stockholders’ equity	$	37,172		$	36,239

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	First Six Months
	2019			2018
	($ in millions)
Cash flows from operating activities
Net income	$	1,399		$	1,262
Reconciliation of net income to net cash provided by operating activities:
Depreciation	567			546
Deferred income taxes	133			89
Gains and losses on properties	(7		)	(14		)
Changes in assets and liabilities affecting operations:
Accounts receivable	(30		)	(92		)
Materials and supplies	(49		)	(38		)
Other current assets	55			19
Current liabilities other than debt	(30		)	134
Other – net	(86		)	(80		)
Net cash provided by operating activities	1,952			1,826
Cash flows from investing activities
Property additions	(979		)	(836		)
Property sales and other transactions	214			48
Investment purchases	(12		)	(4		)
Investment sales and other transactions	(75		)	6
Net cash used in investing activities	(852		)	(786		)
Cash flows from financing activities
Dividends	(458		)	(408		)
Common stock transactions	18			15
Purchase and retirement of common stock	(1,050		)	(700		)
Proceeds from borrowings – net of issuance costs	1,054			543
Debt repayments	(750		)	(750		)
Net cash used in financing activities	(1,186		)	(1,300		)
Net decrease in cash, cash equivalents, and restricted cash	(86		)	(260		)
Cash, cash equivalents, and restricted cash
At beginning of year	446			690
At end of period	$	360		$	430
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	271		$	246
Income taxes (net of refunds)	215			126

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Common Stock			Additional Paid-in Capital			Accum. Other Comprehensive Loss			Retained Income			Total
	($ in millions, except per share amounts)
Balance at December 31, 2018	$	269		$	2,216		$	(563	)	$	13,440		$	15,362
Comprehensive income:
Net income										677			677
Other comprehensive income							3						3
Total comprehensive income													680
Dividends on common stock,
$0.86 per share										(230		)	(230		)
Share repurchases	(3		)	(22		)				(475		)	(500		)
Stock-based compensation	1			19						(1		)	19
Balance at March 31, 2019	267			2,213			(560		)	13,411			15,331
Comprehensive income:
Net income										722			722
Other comprehensive income							3						3
Total comprehensive income													725
Dividends on common stock,
$0.86 per share										(228		)	(228		)
Share repurchases	(2		)	(22		)				(526		)	(550		)
Stock-based compensation				35						(2		)	33
Balance at June 30, 2019	$	265		$	2,226		$	(557	)	$	13,377		$	15,311

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Common Stock			Additional Paid-in Capital			Accum. Other Comprehensive Loss			Retained Income			Total
	($ in millions, except per share amounts)
Balance at December 31, 2017	$	285		$	2,254		$	(356	)	$	14,176		$	16,359
Comprehensive income:
Net income										552			552
Other comprehensive loss							(4		)				(4		)
Total comprehensive income													548
Dividends on common stock,
$0.72 per share										(205		)	(205		)
Share repurchases	(2		)	(16		)				(282		)	(300		)
Stock-based compensation	1			17						(2		)	16
Reclassification of stranded
tax effects							(88		)	88			—
Balance at March 31, 2018	284			2,255			(448		)	14,327			16,418
Comprehensive income:
Net income										710			710
Other comprehensive income							7						7
Total comprehensive income													717
Dividends on common stock,
$0.72 per share										(203		)	(203		)
Share repurchases	(3		)	(20		)				(377		)	(400		)
Stock-based compensation				28						(1		)	27
Balance at June 30, 2018	$	281		$	2,263		$	(441	)	$	14,456		$	16,559

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.     Stock Repurchase Program

We repurchased and retired 5.7 million shares and 4.8 million shares of common stock under our stock repurchase program in the first six months of 2019 and 2018, respectively, at a cost of $1.1 billion and $700 million, respectively. Since the beginning of 2006, we have repurchased and retired 191.3 million shares at a total cost of $15.2 billion.

2.     Leases

On January 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, "Leases (Topic 842)" which requires lessees to recognize right-of-use (ROU) assets and lease liabilities on the balance sheet for leases greater than twelve months. As a result of the adoption, the Consolidated Balance Sheet at June 30, 2019 includes the recognition of ROU assets of $586 million included in "Other assets," current lease liabilities of $98 million included in "Other current liabilities," and non-current lease liabilities of $488 million included in "Other liabilities."

3. Restricted Cash

The "Cash, cash equivalents, and restricted cash" line item in the Consolidated Statements of Cash Flows includes restricted cash of $86 million at June 30, 2019 and $88 million at December 31, 2018, reflecting 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 in both periods.

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." We adopted the provisions of ASU 2018-02 in the first quarter of 2018 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."