FOR IMMEDIATE RELEASE
July 23, 2003
Norfolk Southern Reports
Second-Quarter, First-Half Results
For the second quarter of 2003 vs. the same period of 2002:
- Net income rose 15 percent to $137 million.
- Coal revenues climbed 11 percent on increased utility
coal shipments.
- Railway operating revenues set an all-time record of
$1.63 billion, up 3 percent.
- Income from railway operations declined 7 percent to
$298 million.
- Earnings per diluted share improved 13 percent to
$0.35.
- The operating ratio increased to 81.8 percent.
NEW YORK, NY -- Norfolk Southern Corporation (NYSE: NSC) today
reported second-quarter net income of $137 million, or $0.35 per
diluted share, an increase of 15 percent, compared with net
income of $119 million, or $0.31 per diluted share, in the second
quarter of 2002.
"We produced better results despite continued economic slowness
in the quarter and considerable downward pressure on general
merchandise traffic," said David R. Goode, chairman, president
and chief executive officer. "The quality of our transportation
continues to improve due to the strength of our operating plan
and our ability to operate a high-service railroad in a tough
economy." For the first six months, net income from continuing
operations, before required accounting changes,was $222 million,
or $0.57 per diluted share compared with net income of $205
million, or $0.53 per diluted share, during the same period of 2002.
Net income for the first six months was $346 million, or $0.89
per diluted share, and included a $114 million, or $0.29 per diluted
share, gain largely due to a required change in accounting for the
cost of removing railroad crossties, and a $10 million, or $0.03
per diluted share, gain from discontinued operations resulting
from the 1998 sale of a former motor carrier subsidiary.
Second-quarter railway operating revenues of $1.63 billion
were the highest of any quarter in Norfolk Southern's history and
improved 3 percent compared with $1.59 billion in the second
quarter of 2002. Railway operating revenues for the first half of
2003 also set a six-month record rising 3 percent to $3.19 billion
compared with $3.09 billion for the same period a year earlier.
Coal revenues in the second quarter climbed 11 percent to
$389 million compared with second quarter 2002. The growth
was driven by an increase in utility shipments as power companies
replenished stockpiles. For the first half, coal revenues improved
5 percent to $743 million compared to the same period a year
earlier as the result of stronger electricity production due to
seasonable weather conditions in Norfolk Southern's service region.
Intermodal revenues set records rising 2 percent to $300
million in the second quarter and 4 percent to $589 million
for the first six months compared with the same periods of
2002. The growth was the result of strong international
business and the successful conversion of new truck-competitive,
transcontinental interline services.
Second-quarter general merchandise revenues of $944 million
were down slightly compared to second quarter 2002, particularly
in the automotive, metals and construction and chemical commodity
sectors. For the first six months, general merchandise revenues
increased 2 percent to $1.86 billion compared with the
year-earlier period. Agricultural revenues, strengthened by
fertilizer and grain shipments, posted the largest gain, growing
by 12 percent in the quarter and 9 percent for the first six
months, compared to the same periods a year ago.
In addition, paper and forest products revenues grew by 6
percent for both the second quarter and the first six months compared
with the same periods of 2002.
Railway operating expenses increased 5 percent for both the
second quarter and the first six months of 2003 compared with the
same periods last year. These increases primarily were due to
increased compensation and benefits, higher diesel fuel costs and
increased casualty and other claims costs.
For the quarter, the railway operating ratio, the percentage
of revenues required to operate the railroad, was 81.8 percent
compared with 79.8 percent in the same period of 2002. For the
first six months, the operating ratio was 83.4 percent, compared
with 81.9 during the same period of 2002.
Norfolk Southern is one of the nation's premier transportation
companies. Its Norfolk Southern Railway subsidiary operates 21,500
route miles in 22 states, the District of Columbia and Ontario,
serving every major container port in the eastern United States and
providing superior connections to western rail carriers. NS operates
the East's most extensive intermodal network and is the nation's
largest rail carrier of automotive parts and finished vehicles.
###
Media Contact: Bob Fort, Norfolk, 757-629-2710
Investor Contact: Leanne McGruder, Norfolk, 757-629-2861
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Three Months Ended
June 30,
------------------
2003 2002
---- ----
Railway operating revenues:
Coal $ 389 $ 350
General merchandise 944 948
Intermodal 300 295
------- -------
TOTAL RAILWAY OPERATING REVENUES 1,633 1,593
------- -------
Railway operating expenses:
Compensation and benefits 535 497
Materials, services and rents 377 364
Conrail rents and services 102 103
Depreciation 129 129
Diesel fuel 93 84
Casualties and other claims 47 37
Other 52 57
------- -------
TOTAL RAILWAY OPERATING EXPENSES 1,335 1,271
------- -------
Income from railway operations 298 322
Other income - net 24 2
Interest expense on debt (123) (130)
------- -------
Income before income taxes 199 194
Provision for income taxes:
Current 9 33
Deferred 53 42
------- -------
TOTAL INCOME TAXES 62 75
------- -------
NET INCOME $ 137 $ 119
======= =======
Earnings per share:
Basic and diluted) $ 0.35 $ 0.31
Average shares outstanding (000's) 389,635 388,261
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,
----------------
2003 2002
---- ----
Railway operating revenues:
Coal $ 743 $ 709
General merchandise 1,862 1,817
Intermodal 589 565
------- -------
TOTAL RAILWAY OPERATING REVENUES 3,194 3,091
------- -------
Railway operating expenses:
Compensation and benefits 1,061 1,020
Materials, services and rents 737 703
Conrail rents and services 209 216
Depreciation 256 256
Diesel fuel 197 165
Casualties and other claims 98 72
Other 107 100
------- -------
TOTAL RAILWAY OPERATING EXPENSES 2,665 2,532
------- -------
Income from railway operations 529 559
Other income - net 45 36
Interest expense on debt (250) (264)
------- -------
Income from continuing operations before
income taxes and accounting changes 324 331
Provision for income taxes:
Current 55 56
Deferred 47 70
------- -------
TOTAL INCOME TAXES 102 126
------- -------
Income from continuing operations
before accounting changes 222 205
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 $ 346 $ 205
======= =======
Earnings per share (basic and diluted):
Income from continuing operations before
accounting changes $ 0.57 $ 0.53
Discontinued operations (note 1) 0.03 --
Cumulative effect of changes
in accounting (note 2) 0.29 --
------- -------
NET INCOME $ 0.89 $ 0.53
======= =======
Average shares outstanding (000's) 389,443 387,712
See notes to consolidated financial statements.
- ---------------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
June 30, December 31,
------- -----------
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 110 $ 184
Accounts receivable - net (note 3) 800 683
Due from Conrail 6 6
Materials and supplies 102 97
Deferred income taxes 202 187
Other current assets 86 142
------- -------
Total current assets 1,306 1,299
Investment in Conrail 6,215 6,178
Properties less accumulated depreciation 11,823 11,370
Other assets 1,194 1,109
------- -------
TOTAL ASSETS $ 20,538 $ 19,956
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 923 $ 908
Income and other taxes 229 269
Due to Conrail 78 86
Other current liabilities 226 232
Current maturities of long-term debt 613 358
------- -------
Total current liabilities 2,069 1,853
Long-term debt 6,848 7,006
Other liabilities 1,003 1,029
Due to Conrail 618 513
Minority interests 50 45
Deferred income taxes 3,141 3,010
------- -------
TOTAL LIABILITIES 13,729 13,456
------- -------
Stockholders' equity:
Common stock $1.00 per share par value 411 410
Additional paid-in capital 504 481
Unearned restricted stock (7) --
Accumulated other comprehensive loss (64) (65)
Retained income 5,985 5,694
------- -------
6,829 6,520
Less treasury stock at cost,
21,169,125 shares (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 6,809 6,500
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,538 $ 19,956
======= =======
See notes to consolidated financial statements.
- ----------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
($ millions)
------------------------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 346 $ 205
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes in
accounting principles (note 2) (114) --
Depreciation 263 262
Deferred income taxes 47 70
Equity in earnings of Conrail (27) (19)
Gains on properties and investments (12) (32)
Income from discontinued operations (note 1) (10) --
Changes in assets and liabilities
affecting operations:
Accounts receivable (note 3) (117) (48)
Materials and supplies (5) (10)
Other current assets and due from Conrail 56 53
Current liabilities other than debt (25) (34)
Other - net (36) (62)
------- -------
Net cash provided by operating activities 366 385
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (386) (345)
Property sales and other transactions 15 (3)
Investments, including short-term (66) (44)
Investment sales and other transactions 5 13
------- -------
Net cash used for investing activities (432) (379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (55) (46)
Common stock issued - net 4 36
Proceeds from borrowings (note 4) 130 526
Debt repayments (87) (632)
------- -------
Net cash used for financing activities (8) (116)
------- -------
Net decrease in cash and cash equivalents (74) (110)
CASH AND CASH EQUIVALENTS:
At beginning of year 184 204
------- -------
At end of period $ 110 $ 94
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH-FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 261 $ 268
Income taxes $ 57 $ 38
See notes to consolidated financial statements.
- ---------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. DISCONTINUED OPERATIONS -
First-quarter 2003 results included an additional after-tax gain
of $10 million, or 3 cents per share, 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 -
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. This change
in accounting lowered 2003 depreciation expense (because the
depreciation rate for crossties no longer reflects costs to
remove) and increased compensation and benefits expenses (for
the costs to remove retired assets). The net effect on total
railway operating expenses and net income was not material.
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.
This entity's assets and liabilities consist of the locomotives
and debt related to their purchase. This change in accounting
increased depreciation and interest expense in 2003 (to reflect
the locomotives as owned assets) and lowered lease expense. The
net effect on total railway operating expenses and net income
was not material.
3. SALES OF ACCOUNTS RECEIVABLE -
A bankruptcy-remote special purpose subsidiary of NS sells
without recourse undivided ownership interests in a pool of
accounts receivable. Accounts receivable sold under this
arrangement, and therefore not included in "Accounts receivable -
net" on the Consolidated Balance Sheets, were $0 at June 30,
2003, and $30 million at Dec. 31, 2002.
4. 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 borrowings are
included in NS' "Net cash used for financing activities" and
totaled $105 million in the first half of 2003 and $98 million
in the first half of 2002.