FOR IMMEDIATE RELEASE
OCTOBER 29, 2003
NORFOLK SOUTHERN REPORTS THIRD-QUARTER 2003 RESULTS
For the third quarter of 2003 vs. the same period of 2002:
* Net income rose 9 percent to $137 million.
* Intermodal revenues set an all-time record of $315 million.
* The railway operating ratio was 80.5 percent.
* Earnings per diluted share increased to $0.35.
NEW YORK, N.Y. -- Norfolk Southern Corporation (NYSE: NSC) today
reported third-quarter net income of $137 million, or $0.35 per
diluted share, compared with net income of $126 million, or $0.32
per diluted share, in the third quarter of 2002.
"Despite a challenging environment, we managed to improve our net
income and earnings per share and at the same time post the best
operating performance metrics in our history, positioning ourselves
for the future by improving service consistency, asset utilization
and efficiency," said David R. Goode, chairman, president and chief
executive officer.
For the first nine months, income from continuing operations, before
required accounting changes, was $359 million, or $0.92 per diluted
share, compared with net income of $331 million, or $0.85 per
diluted share, for the same period in the prior year.
Net income during the first nine months was $483 million, or $1.24
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.
Third-quarter railway operating revenues of $1.60 billion were
even with third quarter 2002. Year-to-date railway operating
revenues of $4.79 billion were up $103 million, or two percent,
compared to the same period a year earlier and established a
new nine-month record.
Intermodal revenues in 2003 set a third-quarter record at $315 million
and also a record for the first nine months, increasing three percent to
$904 million compared to the same period a year earlier. The revenue
growth reflects increases in converting traffic from the highway to
the railroad.
Coal revenues improved slightly to $372 million in the quarter and
increased three percent to $1.12 billion for the first nine months
compared to the same period a year earlier, primarily due to
increases in utility and export coal shipments.
Third-quarter general merchandise revenues declined one percent
to $911 million compared to the same period of 2002. Automotive
revenues decreased 11 percent, primarily due to slowed manufacturing
and model changeovers, while agricultural, paper and forest products
and chemicals reported increased revenues. For the first nine months,
general merchandise revenues rose one percent to $2.77 billion
compared with the year-earlier nine-month period.
Railway operating expenses for the quarter remained unchanged at
$1.29 billion compared to third quarter 2002 but were up three
percent to $3.95 billion for the first nine months compared to
the same period last year largely due to lower pension income and
increases in employee wages and medical benefits, as well as higher
diesel fuel prices.
For the quarter, the railway operating ratio remained unchanged at
80.5 percent compared with the same period of 2002. For the first
nine months, the operating ratio rose from 81.4 percent to 82.5
percent.
Norfolk Southern Corporation is one of the nation's premier
transportation companies. Its Norfolk Southern Railway subsidiary
operates 21,500 route miles in 22 states, the District of Columbia
and Ontario, serving every major container port in the eastern United
States and providing superior connections to western rail carriers.
NS operates the most extensive intermodal network in the East and
is the nation's largest rail carrier of automotive parts and
finished vehicles.
###
Media Contact: Bob Fort, Norfolk, 757-629-2710
Investor Contact: Leanne McGruder, Norfolk, 757-629-2861
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Three Months Ended
Sept. 30,
------------------
2003 2002
---- ----
Railway operating revenues:
Coal $ 372 $ 371
General merchandise 911 917
Intermodal 315 310
------- -------
TOTAL RAILWAY OPERATING REVENUES 1,598 1,598
------- -------
Railway operating expenses:
Compensation and benefits 531 489
Materials, services and rents 346 386
Conrail rents and services 105 100
Depreciation 128 129
Diesel fuel 86 81
Casualties and other claims 44 57
Other 47 45
------- -------
TOTAL RAILWAY OPERATING EXPENSES 1,287 1,287
------- -------
Income from railway operations 311 311
Other income - net 12 4
Interest expense on debt (123) (126)
------- -------
Income before income taxes 200 189
Provision for income taxes:
Current (6) (6)
Deferred 69 69
------- -------
Total Income Taxes 63 63
------- -------
NET INCOME $ 137 $ 126
======= =======
Earnings per share:
Basic and diluted $ 0.35 $ 0.32
Average shares outstanding (000's) 389,910 388,550
See notes to consolidated financial statements.
- ---------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Nine Months Ended
Sept. 30,
-----------------
2003 2002
---- ----
Railway operating revenues:
Coal $ 1,115 $ 1,080
General merchandise 2,773 2,734
Intermodal 904 875
------- -------
TOTAL RAILWAY OPERATING REVENUES 4,792 4,689
------- -------
Railway operating expenses:
Compensation and benefits 1,592 1,509
Materials, services and rents 1,083 1,089
Conrail rents and services 314 316
Depreciation 384 385
Diesel fuel 283 246
Casualties and other claims 142 129
Other 154 145
------- -------
TOTAL RAILWAY OPERATING EXPENSES 3,952 3,819
------- -------
Income from railway operations 840 870
Other income - net 57 40
Interest expense on debt (373) (390)
------- -------
Income from continuing operations before
income taxes and accounting changes 524 520
Provision for income taxes:
Current 49 50
Deferred 116 139
------- -------
Total Income Taxes 165 189
------- -------
Income from continuing operations
before accounting changes 359 331
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 $ 483 $ 331
======= =======
Earnings per share (basic and diluted):
Income from continuing operations before
accounting changes $ 0.92 $ 0.85
Discontinued operations (note 1) 0.03 --
Cumulative effect of changes
in accounting (note 2) 0.29 --
------- -------
Net Income $ 1.24 $ 0.85
======= =======
Average shares outstanding (000's) 389,598 387,992
See notes to consolidated financial statements.
- ---------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
Sept. 30, Dec. 31,
-------- -------
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 158 $ 184
Short-term investments 3 --
Accounts receivable - net (note 3) 779 683
Due from Conrail 6 6
Materials and supplies 92 97
Deferred income taxes 198 187
Other current assets 48 142
------- -------
Total current assets 1,284 1,299
Investment in Conrail 6,229 6,178
Properties less accumulated depreciation 11,821 11,370
Other assets 1,225 1,109
------- -------
TOTAL ASSETS $ 20,559 $ 19,956
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 938 $ 908
Income and other taxes 222 269
Due to Conrail 65 86
Other current liabilities 266 232
Current maturities of long-term debt 363 358
------- -------
Total current liabilities 1,854 1,853
Long-term debt 6,823 7,006
Other liabilities 1,030 1,029
Due to Conrail 688 513
Minority interests 50 45
Deferred income taxes 3,199 3,010
------- -------
TOTAL LIABILITIES 13,644 13,456
------- -------
Stockholders' equity:
Common stock $1.00 per share par value 412 410
Additional paid-in capital 507 481
Unearned restricted stock (6) --
Accumulated other comprehensive loss (69) (65)
Retained income 6,091 5,694
------- -------
6,935 6,520
Less treasury stock at cost,
21,116,125 shares and
21,169,125 shares, respectively (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 6,915 6,500
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,559 $ 19,956
======= =======
See notes to consolidated financial statements.
- ---------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended Sept. 30,
($ millions)
--------------------------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 483 $ 331
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes in
accounting principles (note 2) (114) --
Depreciation 395 395
Deferred income taxes 116 139
Equity in earnings of Conrail (41) (32)
Gains on properties and investments (16) (35)
Income from discontinued operations (note 1) (10) --
Changes in assets and liabilities
affecting operations:
Accounts receivable (note 3) (96) (209)
Materials and supplies 5 (1)
Other current assets and due from Conrail 86 75
Current liabilities other than debt 23 21
Other - net (31) (62)
------ -------
Net cash provided by operating activities 800 622
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (536) (517)
Property sales and other transactions 40 15
Investments, including short-term (83) (58)
Investment sales and other transactions 1 15
------- -------
Net cash used for investing activities (578) (545)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (86) (74)
Common stock issued - net 5 39
Proceeds from borrowings (note 4) 218 609
Debt repayments (385) (723)
------- -------
Net cash used for financing activities (248) (149)
------- -------
Net decrease in cash and cash equivalents (26) (72)
CASH AND CASH EQUIVALENTS:
At beginning of year 184 204
------- -------
At end of period $ 158 $ 132
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH-FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 334 $ 348
Income taxes $ 62 $ 49
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 Sept. 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 $174 million in the first nine months of 2003 and $162
million in the first nine months of 2002.