FOR IMMEDIATE RELEASE
January 26, 2005
NORFOLK SOUTHERN REPORTS RECORD INCOME FOR FOURTH QUARTER AND 2004
For fourth quarter 2004:
* Railway operating revenues increased 16 percent to a record
$1.9 billion.
* Income from railway operations was a fourth-quarter record
$462 million.
* Net income was a fourth-quarter record $264 million or $0.65
per diluted share.
For 2004:
* Railway operating revenues increased 13 percent to a record
$7.3 billion.
* Income from railway operations was a record $1.7 billion.
* Net income was a record $923 million or $2.31 per diluted share.
NORFOLK, VA - Norfolk Southern Corporation (NYSE: NSC) today reported
record fourth-quarter net income of $264 million or $0.65 per diluted
share, compared with $52 million or $0.13 per diluted share for
fourth-quarter 2003. Fourth-quarter 2003 was affected by costs related
to a voluntary separation program and an asset impairment charge that
together reduced the quarter's net income by $119 million or $0.30
per share. Excluding the effects of those items, fourth-quarter 2003
net income would have been $171 million or $0.43 per diluted share.
Net income for 2004 was a record $923 million or $2.31 per
diluted share, including a third-quarter noncash gain of $53 million
or $0.13 per diluted share from the Conrail corporate reorganization.
Excluding the noncash gain, 2004 net income would have been $870 million
or $2.18 per diluted share, compared with net income of $535 million
or $1.37 per diluted share for 2003.
"In practically every way, 2004 was a record year for Norfolk
Southern," said David R. Goode, chairman and chief executive officer.
"We topped $7 billion in revenue for the first time in our history,
and all of our major business sectors set revenue records. The
full-year operating ratio of 76.7 percent was substantially better
than the prior year. Norfolk Southern people responded admirably to
the challenge of high demands for service. Our investments in people,
systems and infrastructure to prepare for business opportunities paid
off in 2004," Goode said.
Railway operating revenues and income from railway operations
each set fourth-quarter and full-year records. Railway operating
revenues were $1.9 billion for the fourth quarter, an increase of
16 percent over fourth-quarter 2003, and $7.3 billion for 2004,
an increase of 13 percent compared with 2003 results. Coal, general
merchandise and intermodal traffic all set revenue records for the
quarter and year. Intermodal set volume records as well for the quarter
and year and reported the biggest revenue increases compared with 2003,
32 percent to $441 million for the fourth quarter, and 24 percent
to $1.5 billion for 2004.
General merchandise revenues totaled $1 billion in the fourth
quarter, up 10 percent over fourth quarter 2003, and $4 billion for 2004,
a 9 percent increase compared with 2003. All merchandise commodities
except automotive posted record revenue for the year, and agriculture
and metals and construction set carload records for 2004. Total general
merchandise carloads set a fourth-quarter record.
Coal revenue increased 19 percent in the fourth quarter over
fourth-quarter 2003 to $459 million. For 2004, coal revenue increased
15 percent compared with 2003 to $1.7 billion.
Income from railway operations was $462 million for the quarter
and $1.7 billion for 2004, up 40 percent for the quarter and 45 percent
for the year compared with results for 2003, excluding the separation
charge. Income from railway operations for 2003 was $224 million for
the fourth quarter and $1.1 billion for the year. Excluding the $107
million charge for the separation program, income from railway
operations for 2003 would have been $331 million in the fourth quarter
and $1.2 billion for the year.
The fourth-quarter and full-year operating ratios were the best
since 1998. The fourth-quarter ratio of 76.3 percent was an improvement
of 4 percentage points compared with the fourth-quarter 2003 operating
ratio, excluding the separation charge. For 2004, the operating ratio
was 76.7, 5.2 percentage points better than 2003, excluding the
voluntary separation charge. The operating ratios in 2003 were 86.6
percent in the fourth quarter and 83.5 percent for the year. Excluding
the $107 million separation charge, which added 6.3 percentage points
to the fourth-quarter ratio and 1.6 percentage points to the year,
the 2003 operating ratios would have been 80.3 percent for the fourth
quarter and 81.9 percent for the year.
Norfolk Southern Corporation is one of the nation's premier
transportation companies. Its Norfolk Southern Railway subsidiary
operates 21,500 route miles in 22 states, the District of Columbia
and Ontario, Canada, serving every major container port in the
eastern United States and providing superior connections to western
rail carriers. NS operates the most extensive intermodal network in
the East and is North America's largest rail carrier of automotive
parts and finished vehicles.
###
For further information contact:
(Media) Bob Fort, 757-629-2710 (rcfort@nscorp.com)
(Investors) Leanne Marilley, 757-629-2861
(Leanne.Marilley@nscorp.com)
_______________________________________________________________
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Three Months Ended
Dec. 31,
------------------
2004 2003
---- ----
Railway operating revenues:
Coal $ 459 $ 385
General merchandise 1,049 956
Intermodal 441 335
------- -------
TOTAL RAILWAY OPERATING REVENUES 1,949 1,676
------- -------
Railway operating expenses:
Compensation and benefits (note 2) 592 683
Materials, services and rents 436 344
Conrail rents and services (note 1) 37 105
Depreciation (note 1) 189 129
Diesel fuel 138 97
Casualties and other claims 42 39
Other 53 55
------- -------
TOTAL RAILWAY OPERATING EXPENSES 1,487 1,452
------- -------
Income from railway operations 462 224
Other income - net (note 3) 39 (38)
Interest expense on debt (126) (124)
------- -------
Income before income taxes 375 62
Provision (benefit) for income taxes:
Current 23 (6)
Deferred 88 16
------- -------
Total income taxes 111 10
------- -------
NET INCOME $ 264 $ 52
======= =======
Earnings per share:
Basic $ 0.66 $ 0.13
Diluted $ 0.65 $ 0.13
Average shares outstanding (000's) 398,723 390,357
See notes to consolidated financial statements.
- ---------------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Years Ended
Dec. 31,
-----------------
2004 2003
---- ----
Railway operating revenues:
Coal $ 1,728 $ 1,500
General merchandise 4,047 3,729
Intermodal 1,537 1,239
------- -------
TOTAL RAILWAY OPERATING REVENUES 7,312 6,468
------- -------
Railway operating expenses:
Compensation and benefits (note 2) 2,272 2,275
Materials, services and rents 1,601 1,427
Conrail rents and services (note 1) 319 419
Depreciation (note 1) 598 513
Diesel fuel 449 380
Casualties and other claims 151 181
Other 220 209
------- -------
TOTAL RAILWAY OPERATING EXPENSES 5,610 5,404
------- -------
Income from railway operations 1,702 1,064
Other income - net (notes 1 and 3) 89 19
Interest expense on debt (489) (497)
------- -------
Income from continuing operations before
income taxes and accounting changes 1,302 586
Provision for income taxes:
Current 179 43
Deferred 200 132
------- -------
Total income taxes 379 175
------- -------
Income from continuing operations
before accounting changes 923 411
Discontinued operations - taxes on sale
of motor carrier (note 4) -- 10
Cumulative effect of changes in accounting
principles, net of taxes (note 5) -- 114
------- -------
NET INCOME $ 923 $ 535
======= =======
Earnings per share:
Income from continuing operations before
accounting changes
Basic $ 2.34 $ 1.05
Diluted $ 2.31 $ 1.05
Net Income
Basic $ 2.34 $ 1.37
Diluted $ 2.31 $ 1.37
Average shares outstanding (000's) 394,201 389,788
See notes to consolidated financial statements.
- ---------------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
Dec. 31, Dec. 31,
------- -------
2004 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 579 $ 284
Short-term investments 90 2
Accounts receivable - net 767 695
Materials and supplies 104 92
Deferred income taxes 187 189
Other current assets 240 163
------- -------
Total current assets 1,967 1,425
Investment in Conrail (note 1) 805 6,259
Properties less accumulated
depreciation (note 1) 20,526 11,779
Other assets 1,452 1,133
------- -------
TOTAL ASSETS $ 24,570 $ 20,596
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,012 $ 948
Income and other taxes 210 199
Due to Conrail 78 81
Other current liabilities 239 213
Current maturities of long-term debt 662 360
------- -------
Total current liabilities 2,201 1,801
Long-term debt (note 1) 6,863 6,800
Other liabilities 1,146 1,080
Due to Conrail (note 1) -- 716
Deferred income taxes (note 1) 6,550 3,223
------- -------
TOTAL LIABILITIES 16,760 13,620
------- -------
Stockholders' equity:
Common stock $1.00 per share par value 421 412
Additional paid-in capital 728 521
Unearned restricted stock (8) (5)
Accumulated other comprehensive loss (24) (44)
Retained income 6,893 6,112
------- -------
8,010 6,996
Less treasury stock at cost,
20,907,125 shares and
21,016,125 shares, respectively (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 7,990 6,976
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 24,750 $ 20,596
======= =======
See notes to consolidated financial statements.
- ----------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
($ millions)
Years Ended Dec. 31,
-----------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 923 $ 535
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes in
accounting principles (note 5) -- (114)
Depreciation 609 528
Deferred income taxes 200 132
Equity in earnings of Conrail (54) (58)
Gain on Conrail corporate reorganization (note 1) (53) --
Gains on properties and investments (46) (45)
Income from discontinued operations (note 4) -- (10)
Changes in assets and liabilities
affecting operations:
Accounts receivable (71) (12)
Materials and supplies (12) 5
Other current assets (18) (4)
Current liabilities other than debt 126 (25)
Other - net 57 122
------- -------
Net cash provided by operating activities 1,661 1,054
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (1,041) (720)
Property sales and other transactions 75 78
Investments, including short-term (228) (106)
Investment sales and other transactions 61 108
------- -------
Net cash used for investing activities (1,133) (640)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (142) (117)
Common stock issued - net 162 13
Redemption of minority interest -- (43)
Proceeds from borrowings (note 6) 202 261
Debt repayments (455) (428)
------- -------
Net cash used for financing activities (233) (314)
------- -------
Net increase in cash and
cash equivalents 295 100
CASH AND CASH EQUIVALENTS:
At beginning of year 284 184
------- -------
At end of year $ 579 $ 284
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH-FLOW
INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 483 $ 510
Income taxes $ 146 $ 93
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
Assets 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 in the
Consolidated Statement of Income for the year. The gain increased
net income by $53 million, or 13 cents per share (basic and diluted).
2. VOLUNTARY SEPARATION PROGRAM IN 2003 -
Fourth-quarter 2003 results included $107 million of costs
related to a voluntary separation program, which reduced net
income by $66 million, or 17 cents per share (basic and diluted).
3. ASSET IMPAIRMENT IN 2003 -
Fourth-quarter 2003 results included an $84 million non-cash
reduction in the carrying value of certain telecommunications
assets to recognize their impaired value. This charge reduced
net income by $53 million, or 13 cents per share (basic and
diluted).
4. 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.
5. 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 the changes amounted to $114 million,
or 29 cents per share (basic and diluted).
6. 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 2004
and $203 million in 2003.