FOR IMMEDIATE RELEASE
October 20, 2004
NORFOLK SOUTHERN REPORTS RECORD REVENUES,
INCOME FROM RAILWAY OPERATIONS
For the third quarter 2004:
- Railway operating revenues increased 16 percent and
set an all-time record of $1.9 billion.
- Income from railway operations improved 51 percent to
a record $469 million.
- Net income was $288 million, $0.72 per diluted share.
- Operating ratio improved 5.8 percentage points to
74.7 percent.
NORFOLK, VA. - For the third-quarter of 2004, Norfolk Southern
Corporation (NYSE: NSC) reported record revenues of $1.9 billion,
up 16 percent compared with the same period last year, and record
third-quarter income from railway operations of $469 million, up
51 percent compared with the third-quarter in 2003.
Third-quarter reported net income was $288 million, or
$0.72 per diluted share, which included a non-cash gain of $53
million, or $0.13 per diluted share, from the Conrail corporate
reorganization. Excluding the gain, net income was $235 million,
or $0.59 per diluted share, an increase of 72 percent, compared
with $137 million, or $0.35 per diluted share, in the same period
last year.
The railway operating ratio for the third quarter improved
5.8 percentage points to 74.7 percent compared with 80.5
percent in the same period of 2003.
"By any measure, this was an extremely strong quarter for our
company," said David R. Goode, chairman and chief executive officer.
"We demonstrated uniform strength in the face of a robust peak
traffic season, and our people and network performed well."
For the first nine months, reported net income was $659
million, or $1.66 per diluted share, which included the $53
million, or $0.13 per diluted share, gain on the Conrail
reorganization. Excluding the gain, net income was $606 million,
or $1.53 per diluted share, an increase of 25 percent, compared
with $483 million, or $1.24 per diluted share, for the same period
of last year. Net income for the first nine months of 2003 included
a $114 million, or $0.29 per diluted share, gain due to a required
industry-wide accounting change to account for the cost of
removing railroad crossties, and a gain of $10 million, or $0.03
per diluted share, from discontinued motor carrier operations.
Railway operating revenues for the first nine months of
2004 increased 12 percent to a record $5.4 billion compared with
$4.8 billion for the same period a year earlier.
The railway operating ratio for the first nine months
improved 5.6 percentage points to 76.9 percent compared with 82.5
percent in the same period of 2003.
Third-quarter general merchandise revenues reached
$1.0 billion, an increase of 10 percent over the same quarter last
year. For the first nine months, general merchandise revenues
improved 8 percent to a record $3.0 billion compared with the
year-earlier period. All merchandise markets reported revenue
gains compared with the same periods a year earlier.
Coal revenues increased 20 percent to $447 million in
the third quarter and improved 14 percent to $1.3 billion for
the first nine months of 2004 compared with the same periods last
year. This growth principally was driven by increases in export
and utility coal revenues.
Intermodal revenues grew 28 percent to a record $404
million in the third quarter and improved 21 percent to a record
$1.1 billion for the first nine months compared to the same periods
of 2003. Significantly increased traffic volumes and higher average
revenues helped drive the growth.
Third-quarter railway operating expenses were up $101
million, or 8 percent, compared with third quarter last year. For
the first nine months, railway operating expenses rose $171 million,
or 4 percent, over the same period in 2003. Both increases were
primarily related to the higher business volumes.
Norfolk Southern Corporation is one of the nation's
premier transportation companies. Its Norfolk Southern Railway
subsidiary operates 21,500 route miles in 22 states, the District
of Columbia and Ontario, Canada, serving every major container port
in the eastern United States and providing superior connections to
western rail carriers. NS operates the most extensive intermodal
network in the East and is North America's largest rail carrier
of automotive parts and finished vehicles.
###
For further information contact:
(Media) Bob Fort, 757-629-2710
(Investors) Leanne Marilley, 757-629-2861
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Three Months Ended
September 30,
------------------
2004 2003
---- ----
Railway operating revenues:
Coal $ 447 $ 372
General merchandise 1,006 911
Intermodal 404 315
------- -------
TOTAL RAILWAY OPERATING REVENUES 1,857 1,598
------- -------
Railway operating expenses:
Compensation and benefits 570 531
Materials, services and rents 411 346
Conrail rents and services 79 105
Depreciation 150 128
Diesel fuel 98 86
Casualties and other claims 31 44
Other 49 47
------- -------
TOTAL RAILWAY OPERATING EXPENSES 1,388 1,287
------- -------
Income from railway operations 469 311
Other income - net (note 1) 40 12
Interest expense on debt (121) (123)
------- -------
Income before income taxes 388 200
Provision for income taxes:
Current 76 (6)
Deferred 24 69
------- -------
Total income taxes 100 63
------- -------
NET INCOME $ 288 $ 137
======= =======
Earnings per share:
Basic $ 0.73 $ 0.35
Diluted $ 0.72 $ 0.35
Average shares outstanding (000's) 394,449 389,910
See notes to consolidated financial statements.
- ----------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Nine Months Ended
September 30,
----------------
2004 2003
---- ----
Railway operating revenues:
Coal $ 1,269 $ 1,115
General merchandise 2,998 2,773
Intermodal 1,096 904
------- -------
TOTAL RAILWAY OPERATING REVENUES 5,363 4,792
------- -------
Railway operating expenses:
Compensation and benefits 1,680 1,592
Materials, services and rents 1,165 1,083
Conrail rents and services 282 314
Depreciation 409 384
Diesel fuel 311 283
Casualties and other claims 109 142
Other 167 154
------- -------
TOTAL RAILWAY OPERATING EXPENSES 4,123 3,952
------- -------
Income from railway operations 1,240 840
Other income - net (note 1) 50 57
Interest expense on debt (363) (373)
------- -------
Income from continuing operations before
income taxes and accounting changes 927 524
Provision for income taxes:
Current 156 49
Deferred 112 116
------- -------
Total income taxes 268 165
------- -------
Income from continuing operations
before accounting changes 659 359
Discontinued operations - taxes on sale of
motor carrier (note 2) -- 10
Cumulative effect of changes in accounting
principles, net of taxes (note 3) -- 114
------- -------
NET INCOME $ 659 $ 483
======= =======
Earnings per share:
Income from continuing operations
before accounting changes
Basic $ 1.68 $ 0.92
Diluted $ 1.66 $ 0.92
Net income
Basic $ 1.68 $ 1.24
Diluted $ 1.66 $ 1.24
Average shares outstanding (000's) 392,693 389,598
See notes to consolidated financial statements.
- ----------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
September 30, December 31,
------------ -----------
2004 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 475 $ 284
Short-term investments 55 2
Accounts receivable - net 806 695
Materials and supplies 102 92
Deferred income taxes 191 189
Other current assets 177 163
------- -------
Total current assets 1,806 1,425
Investment in Conrail (note 1) 735 6,259
Properties less accumulated depreciation
(note 1) 20,464 11,779
Other assets 1,462 1,133
------- -------
TOTAL ASSETS $ 24,467 $ 20,596
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,004 $ 948
Income and other taxes 245 199
Due to Conrail 68 81
Other current liabilities 276 213
Current maturities of long-term debt 529 360
------- -------
Total current liabilities 2,122 1,801
Long-term debt (note 1) 7,019 6,800
Other liabilities 1,116 1,080
Due to Conrail (note 1) -- 716
Deferred income taxes 6,522 3,223
------- -------
TOTAL LIABILITIES 16,779 13,620
------- -------
Stockholders' equity:
Common stock $1.00 per share par value 417 412
Additional paid-in capital 620 521
Unearned restricted stock (9) (5)
Accumulated other comprehensive
income (loss) 11 (44)
Retained income 6,669 6,112
------- -------
7,708 6,996
Less treasury stock at cost, 20,938,125
and 21,016,125 shares, respectively (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 7,688 6,976
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 24,467 $ 20,596
======= =======
See notes to consolidated financial statements.
- ----------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
($ millions)
Nine Months Ended
September 30,
----------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 659 $ 483
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes in
accounting principles (note 3) -- (114)
Depreciation 417 395
Deferred income taxes 112 116
Equity in earnings of Conrail (45) (41)
Gain on Conrail corporate reorganization (note 1) (53) --
Gains on properties and investments (15) (16)
Income from discontinued operations (note 2) -- (10)
Changes in assets and liabilities
affecting operations:
Accounts receivable (110) (96)
Materials and supplies (10) 5
Other current assets 70 86
Current liabilities other than debt 162 23
Other - net 24 (31)
----- -----
Net cash provided by operating activities 1,211 800
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (669) (536)
Property sales and other transactions 45 40
Investments, including short-term (146) (83)
Investment sales and other transactions 5 1
----- -----
Net cash used for investing activities (765) (578)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (102) (86)
Common stock issued - net 71 5
Proceeds from borrowings (note 4) 202 218
Debt repayments (426) (385)
----- -----
Net cash used for financing activities (255) (248)
----- -----
Net increase (decrease) in cash and
cash equivalents 191 (26)
CASH AND CASH EQUIVALENTS:
At beginning of year 284 184
----- -----
At end of period $ 475 $ 158
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH-FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 311 $ 334
Income taxes $ 78 $ 62
See notes to consolidated financial statements.
- -----------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. CONRAIL CORPORATE REORGANIZATION -
On August 27, 2004, NS, CSX and Conrail completed a corporate
reorganization of Conrail that resulted in the direct ownership and
control by Norfolk Southern Railway Company (NSR) of routes and
assets that had previously been operated by NSR under operating and
lease agreements with a Conrail subsidiary. As a part of the
reorganization, NSR issued new unsecured debt obligations, which were
exchanged for unsecured debt obligations of Consolidated Rail
Corporation (CRC), a Conrail subsidiary. In addition, NSR entered
into new lease and sublease arrangements with CRC to support CRC's
secured debt and lease obligations, and the long-term note due to
Conrail was eliminated. The reorganization did not affect the Shared
Asset Areas, which continue to be owned and operated by CRC, and are
reflected in NS' remaining Investment in Conrail as shown in the
Consolidated Balance Sheet.
This distribution was accounted for at fair value, resulting in a net
gain of $53 million, which is included in Other income - net on the
Consolidated Statement of Income. The gain increased net income
by $53 million, or 13 cents per diluted share.
2. DISCONTINUED OPERATIONS IN 2003 -
First-quarter 2003 results included an additional after-tax gain
of $10 million, or 3 cents per share (basic and diluted), 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.
3. CHANGES IN ACCOUNTING PRINCIPLES IN 2003 -
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.
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.
The cumulative effect of these changes amounted to $114 million,
or 29 cents per share (basic and diluted).
4. PAYMENTS TO CONRAIL -
Payments made to Conrail in accordance with the operating and lease
agreements in place before the Conrail corporate reorganization (see
note 1) reduce NS' "Net cash provided by operating activities." A
significant portion of these payments was borrowed back from a
Conrail subsidiary. The net borrowings are included in NS'
"Net cash used for financing activities" and totaled $118 million
in the first nine months of 2004 and $174 million in the first
nine months of 2003.