FOR IMMEDIATE RELEASE
January 25, 2006
NORFOLK SOUTHERN REPORTS RECORD INCOME
FOR FOURTH QUARTER AND 2005
For fourth quarter 2005:
* Railway operating revenues increased 16 percent to a record
$2.3 billion.
* Income from railway operations rose 29 percent to a record
$594 million.
* Net income set a fourth-quarter record of $362 million, or
$0.87 per diluted share.
* The railway operating ratio improved 2.6 percentage points
to 73.7 percent.
For 2005:
* Railway operating revenues climbed 17 percent to a record
$8.5 billion.
* Income from railway operations rose 24 percent to a record
$2.1 billion.
* Net income increased to a record $1.3 billion, or $3.11 per
diluted share.
* The railway operating ratio improved 1.5 percentage points to
75.2 percent.
NORFOLK, VA - Norfolk Southern Corporation (NYSE: NSC) today reported
record fourth-quarter net income of $362 million, or $0.87 per diluted
share, an increase of 37 percent compared with $264 million, or $0.65
per diluted share, for fourth-quarter 2004.
Net income for 2005 was a record $1.3 billion, or $3.11 per
diluted share, an increase of 39 percent compared with net income of
$923 million, or $2.31 per diluted share, for 2004. Results for 2005
included a benefit of $96 million, or $0.23 per diluted share, from
the effects of Ohio tax legislation. Net income for 2004 included a
$53 million, or $0.13 per diluted share, gain on the Conrail corporate
reorganization. Excluding both of these items, 2005 net income would
have been $1.2 billion, or $2.88 per diluted share, 36 percent higher
than 2004 net income of $870 million, or $2.18 per diluted share.
"2005 was an extraordinary year for Norfolk Southern, capped by
a fourth quarter that reflects the strength of our higher-value
transportation products and strategic focus," said Chief Executive
Officer Wick Moorman. "Demand for rail transportation was strong
throughout the year, and our 2005 financial results reflect record
levels of performance throughout our organization.
"Railway operating revenues were the highest of any year in
Norfolk Southern's history. All our commodity groups set revenue
records. We posted our best-ever income from railway operations,
net income and earnings per share. We set new carloading records,
and we continued to significantly improve the railway operating
ratio," Moorman said.
"In a year punctuated by a number of challenges, our people
performed remarkably well under trying circumstances to keep freight
moving and provide good customer service," he said.
Railway operating revenues set records for the quarter and the
year. For the fourth quarter, revenues increased to $2.3 billion, a
16 percent improvement compared with the same period a year earlier.
For 2005, railway operating revenues increased 17 percent to
$8.5 billion compared with 2004 results.
General merchandise revenues climbed to a record $1.2 billion
during the quarter, up 16 percent over fourth quarter 2004. Revenues
for the year reached a record $4.6 billion, a 13 percent increase
compared with the year-earlier period. All of the merchandise
markets posted revenue increases for both the quarter and year,
primarily due to higher average revenues, including fuel surcharges.
Coal revenues increased to $524 million in the quarter, up 14
percent over fourth-quarter 2004. For 2005, coal revenues climbed 22
percent to a record $2.1 billion compared with 2004. The revenue
gains during both periods were driven by higher average revenues,
including fuel surcharges.
For the fourth quarter, intermodal revenues rose 18 percent to
$519 million, the highest of any quarter in Norfolk Southern's history.
For the year, revenues reached a record $1.8 billion, a 19 percent
increase compared to the same period a year earlier. Total intermodal
units transported set fourth-quarter and annual records. The increase
in traffic volume and higher average revenues, which included fuel
surcharges, boosted the growth.
Railway operating expenses were $1.7 billion for the quarter,
up 12 percent compared to fourth quarter 2004, and $6.4 billion
for 2005, an increase of 14 percent compared with the same period a
year earlier. Higher diesel fuel prices, costs associated with increased
business volume and maintenance activities and, for the year, casualty
claims costs, contributed to the increases.
Income from railway operations was a record $594 million,
the highest of any quarter in Norfolk Southern's history, and a
record $2.1 billion for 2005, up 29 percent for the quarter and 24
percent for the year compared with results for the same periods of 2004.
The fourth-quarter operating ratio of 73.7 percent was an
improvement of 2.6 percentage points compared with fourth-quarter
2004. For 2005, the operating ratio improved 1.5 percentage points
to 75.2 percent.
Norfolk Southern Chairman David Goode, who retires soon, said,
"The year 2005 showed the strength and dedication of Norfolk Southern
people and this organization. We handled business demands unimaginable
only a few years ago and produced historically good results that
benefit customers and investors alike. I leave with a lot of pride
in our people and what they have accomplished and even more confidence
in what they will do in the future."
Norfolk Southern Corporation is one of the nation's premier
transportation companies. Its Norfolk Southern Railway subsidiary
operates approximately 21,300 route miles in 22 states, the District
of Columbia and Ontario, Canada, serving every major container port
in the eastern United States and providing superior connections to
western rail carriers. NS operates the most extensive intermodal network
in the East and is North America's largest rail carrier of automotive
parts and finished vehicles.
###
For further information contact:
(Media) Bob Fort, 757-629-2710, (rcfort@nscorp.com)
(Investors) Leanne Marilley, 757-629-2861
(leanne.marilley@nscorp.com)
______________________________________________________________________
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Three Months Ended
Dec. 31,
------------------
2005 2004
---- ----
Railway operating revenues:
Coal $ 524 $ 459
General merchandise 1,214 1,049
Intermodal 519 441
------- -------
TOTAL RAILWAY OPERATING REVENUES 2,257 1,949
------- -------
Railway operating expenses:
Compensation and benefits 636 592
Materials, services and rents 465 436
Conrail rents and services (note 4) 32 37
Depreciation (note 4) 192 189
Diesel fuel 226 138
Casualties and other claims 47 42
Other 65 53
------- -------
TOTAL RAILWAY OPERATING EXPENSES 1,663 1,487
------- -------
Income from railway operations 594 462
Other income - net 31 39
Interest expense on debt (121) (126)
------- -------
Income before income taxes 504 375
Provision for income taxes:
Current 69 23
Deferred 73 88
------- -------
Total income taxes 142 111
------- -------
NET INCOME $ 362 $ 264
======= =======
Earnings per share:
Basic $ 0.89 $ 0.66
Diluted $ 0.87 $ 0.65
Average shares outstanding (000's):
Basic 407,481 398,723
Diluted 416,953 406,810
See notes to consolidated financial statements.
- ---------------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ millions except per share)
Years Ended
Dec. 31,
----------------
2005 2004
---- ----
Railway operating revenues:
Coal $ 2,115 $ 1,728
General merchandise 4,586 4,047
Intermodal 1,826 1,537
------- -------
TOTAL RAILWAY OPERATING REVENUES 8,527 7,312
------- -------
Railway operating expenses:
Compensation and benefits 2,493 2,272
Materials, services and rents 1,809 1,601
Conrail rents and services (note 4) 129 319
Depreciation (note 4) 774 598
Diesel fuel 727 449
Casualties and other claims (note 3) 224 151
Other 254 220
------- -------
TOTAL RAILWAY OPERATING EXPENSES 6,410 5,610
------- -------
Income from railway operations 2,117 1,702
Other income - net (note 4) 74 89
Interest expense on debt (494) (489)
------- -------
Income before income taxes 1,697 1,302
Provision for income taxes:
Current 336 179
Deferred (note 2) 80 200
------- -------
Total income taxes 416 379
------- -------
NET INCOME (note 1) $ 1,281 $ 923
======= =======
Earnings per share:
Basic $ 3.17 $ 2.34
Diluted $ 3.11 $ 2.31
Average shares outstanding (000's):
Basic 404,170 394,201
Diluted 412,291 399,327
See notes to consolidated financial statements.
- ---------------------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
($ millions)
As of Dec. 31,
2005 2004
---- ----
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments $ 1,257 $ 669
Accounts receivable - net (note 3) 931 767
Materials and supplies 132 104
Deferred income taxes 167 187
Other current assets 163 240
------- -------
Total current assets 2,650 1,967
Investments 1,590 1,499
Properties less accumulated depreciation 20,705 20,526
Other assets (note 3) 916 758
------- -------
TOTAL ASSETS $ 25,861 $ 24,750
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable (note 3) $ 1,163 $ 1,090
Income and other taxes 231 210
Other current liabilities 213 239
Current maturities of long-term debt 314 662
------- -------
Total current liabilities 1,921 2,201
Long-term debt (note 5) 6,616 6,863
Other liabilities (note 3) 1,415 1,146
Deferred income taxes 6,620 6,550
------- -------
TOTAL LIABILITIES 16,572 16,760
------- -------
Stockholders' equity:
Common stock $1.00 per share par value 431 421
Additional paid-in capital 992 728
Unearned restricted stock (17) (8)
Accumulated other comprehensive loss (77) (24)
Retained income 7,980 6,893
------- -------
9,309 8,010
Less treasury stock at cost, 20,833,125
and 20,907,125 shares, respectively (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 9,289 7,990
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,861 $ 24,750
======= =======
See notes to consolidated financial statements.
- -----------------------------------------------------------
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
($ millions)
Years Ended Dec. 31,
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,281 $ 923
Reconciliation of net income to
net cash provided by operating activities:
Depreciation 787 609
Deferred income taxes 80 200
Equity in earnings of Conrail (37) (54)
Gain on Conrail corporate reorganization (note 4) -- (53)
Gains on properties and investments (51) (46)
Changes in assets and liabilities
affecting operations:
Accounts receivable (94) (71)
Materials and supplies (28) (12)
Other current assets 20 (18)
Current liabilities other than debt 55 126
Other - net 92 57
----- -----
Net cash provided by operating activities 2,105 1,661
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (1,025) (1,041)
Property sales and other transactions 110 75
Investments, including short-term (1,822) (396)
Investment sales and other transactions 910 117
----- -----
Net cash used for investing activities (1,827) (1,245)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (194) (142)
Common stock issued - net 194 162
Proceeds from borrowings (note 6) 433 202
Debt repayments (note 5) (889) (455)
----- -----
Net cash used for financing activities (456) (233)
----- -----
Net (decrease) increase in cash
and cash equivalents (178) 183
CASH AND CASH EQUIVALENTS:
At beginning of year 467 284
----- -----
At end of year 289 467
SHORT-TERM INVESTMENTS AT END OF YEAR 968 202
----- -----
CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS AT END OF YEAR $1,257 $ 669
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest (net of amounts capitalized) $ 485 $ 483
Income taxes (net of refunds) $ 271 $ 146
See notes to consolidated financial statements.
- --------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. SETTLEMENTS OF COAL RATE CASES -
During the second quarter of 2005, NS entered into settlement
agreements with two utility customers that resolved their rail
transportation rate cases before the Surface Transportation Board
(STB). In 2002, Duke Energy (Duke)and Carolina Power & Light
(CP&L) each filed rate reasonableness complaints with the STB.
In October 2004, the STB found NS' rates to be reasonable in both
cases, and at the STB's invitation, Duke and CP&L each initiated
proceedings to determine if phasing constraints should apply.
As a result of the settlements, NS recognized additional revenue
related to the period in dispute, which net of associated expenses
and income taxes increased second-quarter net income by $24
million, or 6 cents per diluted share.
2. REDUCTION OF DEFERRED TAXES -
In the second quarter of 2005, Ohio enacted tax legislation that
phases out its Corporate Franchise Tax, which was generally based
on federal taxable income, and phases in a new gross receipts tax
called the Commercial Activity Tax, which is based on current year
sales and rentals. The elimination of the Corporate Franchise
Tax resulted in a reduction of NS' deferred income tax liability
in the second quarter, as required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
which increased net income by $96 million, or 23 cents per diluted
share.
3. GRANITEVILLE DERAILMENT -
In the first quarter of 2005, NS recorded a liability related to
the Jan. 6, 2005, derailment in Graniteville, SC. The liability,
which includes a current and long-term portion, represents NS'
best estimate based on current facts and circumstances. The
estimate includes amounts related to business property damage
and other economic losses, personal injury and individual
property damage claims as well as third-party response costs.
NS' commercial insurance policies are expected to cover expenses
related to this derailment above NS' self-insured retention,
including its own response costs and legal fees. Accordingly,
the Consolidated Balance Sheet reflects a current and long-term
receivable for estimated recoveries from its insurance carriers.
Results for the year include approximately $41 million of expenses
related to this incident, which represents NS' retention under
its insurance policies and other uninsured costs, and which reduced
net income by approximately $24 million, or 6 cents per diluted share.
While it is reasonable to expect that the liability for covered
losses could differ from the amount recorded, such a change would
be offset by a corresponding change in the recovery receivable.
As a result, NS does not believe that it is reasonably likely that
its net loss (the difference between the liability and future
recoveries) will be materially different than the loss recorded in
2005. NS expects at this time that insurance coverage is adequate
to cover potential claims and settlements above its self-insurance
retention.
4. 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. After the reorganization,
"Conrail rents and services" reflects only the expenses associated
with the Shared Assets Areas, and other expenses (primarily the
depreciation related to the routes and assets)are reflected in
their respective line items.
This distribution resulted 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.
5. DEBT EXCHANGE -
In the second quarter of 2005, NS issued $717 million of new
unsecured notes ($350 million at 5.64% due 2029 and $367 million
at 5.59% due 2025) and paid $218 million of premium in exchange for
$717 million of its previously issued unsecured notes ($350 million
at 7.8% due 2027, $200 million at 7.25% due 2031, and $167 million
at 9.0% due 2021). The $218 million cash premium payment is
reflected as a reduction of debt in the Consolidated Balance
Sheet and Statement of Cash Flows and will be amortized as
additional interest expense over the terms of the new debt.
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 4) reduced NS' "Net cash provided by operating
activities." A significant portion of these payments was
borrowed back from a Conrail subsidiary. The net borrowings
were included in NS' "Net cash used for financing activities"
and totaled $118 million in 2004.