Norfolk Southern Reports 2011 Fourth-Quarter and Full-Year Results

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Norfolk Southern Corporation

Jan 24, 2012, 04:05 ET

NORFOLK, Va., Jan. 24, 2012 /PRNewswire/ --

For 2011 vs. 2010:

NS set the following fourth-quarter records:

Railway operating revenues reached $2.8 billion, up 17 percent.
Net income increased 19 percent to $480 million.
Diluted earnings per share rose 30 percent to $1.42.

NS set the following records for the year:

Railway operating revenues reached $11.2 billion, up 17 percent.
Income from railway operations climbed 20 percent to $3.2 billion.
Net income was $1.9 billion, up 28 percent.
Diluted earnings per share increased 36 percent to $5.45.

Norfolk Southern Corporation (NYSE: NSC) today reported record fourth-quarter net income of $480 million, 19 percent higher compared with $402 million for the same quarter of 2010. Diluted earnings per share were a record $1.42, up 30 percent compared with the $1.09 per diluted share earned in the same period a year earlier.

For 2011, net income increased to an all-time record $1.9 billion, 28 percent higher compared with $1.5 billion for 2010. Diluted earnings per share for the year increased 36 percent, or $1.45, to a record $5.45, compared with 2010.

"Norfolk Southern achieved all-time records for revenues, operating income, net income, and earnings per share during 2011, and set fourth-quarter records for revenues, net income, and earnings per share," said Norfolk Southern CEO Wick Moorman. "In 2012 we will remain committed to enhancing our service product, maintaining the safety and quality of our rail network, improving operational efficiency, and supporting growth."

"Our strong capital program of $2.4 billion will include substantial investments along our Crescent Corridor, a public-private partnership to create a high-capacity, truck-competitive intermodal freight rail route between the Gulf Coast and Northeast," Moorman said. "As part of this program of projects, we plan to open intermodal terminals in Alabama, Pennsylvania, and Tennessee later in the year. Facilities such as these relieve congested freight lines and highways, and are proven centers for creating jobs and economic development."

Railway operating revenues increased to $2.8 billion, a fourth-quarter record, up 17 percent compared with the same period a year earlier. For 2011, railway operating revenues set an all-time record $11.2 billion, 17 percent higher compared with 2010. The improvements were the result of increases in revenue per unit of 11 percent for the quarter and 12 percent for the year and higher volumes that were up 6 percent for the quarter and 5 percent for the year.

General merchandise revenues rose to $1.4 billion, up 13 percent compared with fourth-quarter 2010. For 2011, general merchandise revenues increased to $5.6 billion, 12 percent higher compared with 2010. Traffic volume increased 1 percent in the quarter and was even for the year compared with the same periods of 2010.

Coal revenues in the fourth quarter were $850 million, up 24 percent compared with the same period last year. For 2011, coal revenues were $3.5 billion, 27 percent higher compared with 2010. Traffic volume increased 3 percent in the quarter and 4 percent for the year compared with the same periods of 2010.

Intermodal revenues were $554 million, up 18 percent compared with fourth-quarter 2010. For the year, intermodal revenues were $2.1 billion, up 19 percent compared with 2010. Traffic volume increased by 11 percent in the quarter and 10 percent for 2011 compared with the same periods of 2010.

Railway operating expenses were $2 billion for the fourth quarter, 14 percent higher compared with the same period a year earlier. For 2011, railway operating expenses were $8 billion, up 16 percent compared with 2010. The increases were primarily driven by fuel expenses, which rose by $95 million in the fourth quarter and $510 million for the year, and higher costs associated with increased traffic volumes.

Income from railway operations increased 25 percent for the quarter to $800 million and improved 20 percent to a record $3.2 billion for the year, compared with the same periods of 2010.

Fourth-quarter 2011 results included $11 million in deferred income tax benefits attributable to state tax law changes. The year included $68 million of favorable, non-recurring income tax benefits.

The fourth-quarter railway operating ratio improved by 2 percent to 71.4 percent compared with the same period last year. For 2011, the railway operating ratio improved by 1 percent to 71.2 percent compared with 2010.

Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal and industrial products.

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Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited)
	Three Months Ended				Years Ended
	December 31,				December 31,
	2011		2010		2011			2010
	(in millions, except per share amounts)

Railway operating revenues:
Coal	$	850	$	685		$	3,458		$	2,719
General merchandise		1,393		1,236			5,584			5,001
Intermodal		554		471			2,130			1,796
Total railway operating revenues		2,797		2,392			11,172			9,516

Railway operating expenses:
Compensation and benefits		734		659			2,974			2,708
Purchased services and rents		419		391			1,610			1,477
Fuel		403		308			1,589			1,079
Depreciation		221		207			862			819
Materials and other (note 1)		220		185			924			757
Total railway operating expenses		1,997		1,750			7,959			6,840

Income from railway operations		800		642			3,213			2,676

Other income – net		39		35			160			153
Interest expense on debt		116		115			455			462

Income before income taxes		723		562			2,918			2,367

Provision for income taxes:
Current		130		20			475			559
Deferred		113		140			527			312
Total income taxes (note 2)		243		160			1,002			871

Net income	$	480	$	402		$	1,916		$	1,496

Earnings per share (note 3):
Basic	$	1.44	$	1.11		$	5.52		$	4.06
Diluted	$	1.42	$	1.09		$	5.45		$	4.00

Weighted average shares outstanding (note 4):
Basic		332.8		360.7			345.5			366.5
Diluted		338.6		365.7			351.3			371.8
See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)
		As of December 31,
		2011		2010
		($ in millions)

Assets
Current assets:
Cash and cash equivalents	$	276	$	827
Short-term investments		25		283
Accounts receivable – net		1,022		807
Materials and supplies		209		169
Deferred income taxes		143		145
Other current assets		76		240
Total current assets		1,751		2,471

Investments		2,234		2,193

Properties less accumulated depreciation of $9,464 and $9,262, respectively		24,469		23,231

Other assets		84		304

Total assets	$	28,538	$	28,199

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,092	$	1,181
Short-term debt		100		100
Income and other taxes		207		199
Other current liabilities		252		244
Current maturities of long-term debt		50		358
Total current liabilities		1,701		2,082

Long-term debt		7,390		6,567

Other liabilities		2,050		1,793

Deferred income taxes		7,486		7,088
Total liabilities		18,627		17,530

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares authorized; outstanding 330,386,089 and 357,362,604 shares, respectively, net of treasury shares		332		358
Additional paid-in capital		1,912		1,892
Accumulated other comprehensive loss		(1,026)		(805)
Retained income		8,693		9,224
Total stockholders' equity		9,911		10,669

Total liabilities and stockholders' equity	$	28,538	$	28,199

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)

		Years Ended December 31,
		2011		2010
		($ in millions)
Cash flows from operating activities:
Net income	$	1,916	$	1,496
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		869		826
Deferred income taxes		527		312
Gains and losses on properties and investments		(32)		(42)
Changes in assets and liabilities affecting operations:
Accounts receivable		(215)		(41)
Materials and supplies		(40)		(5)
Other current assets		14		(1)
Current liabilities other than debt		68		126
Other – net		120		43
Net cash provided by operating activities		3,227		2,714

Cash flows from investing activities:
Property additions		(2,160)		(1,470)
Property sales and other transactions		84		97
Investments, including short-term		(135)		(504)
Investment sales and other transactions		439		421
Net cash used in investing activities		(1,772)		(1,456)

Cash flows from financing activities:
Dividends		(576)		(514)
Common stock issued – net		120		89
Purchase and retirement of common stock (note 4)		(2,051)		(863)
Proceeds from borrowings – net		1,101		350
Debt repayments		(600)		(489)
Net cash used in financing activities		(2,006)		(1,427)

Net decrease in cash and cash equivalents		(551)		(169)

Cash and cash equivalents:
At beginning of year		827		996

At end of year	$	276	$	827

Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized)	$	435	$	453
Income taxes (net of refunds)	$	289	$	602
See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. MATERIALS AND OTHER

During the first quarter of 2011, NS received an unfavorable ruling for an arbitration claim with an insurance carrier that failed to respond to insurance claims submitted by NS, related to the January 6, 2005 derailment in Graniteville, SC. As a result, NS recorded a $43 million charge for the receivables associated with the contested portion of the claim and a $15 million charge for other receivables affected by the ruling for which recovery is no longer probable.

2. INCOME TAXES

During the second quarter of 2011, the Internal Revenue Service (IRS) completed its examination of NS' 2008 tax return and review of certain claims for refund for prior years that resulted in a decrease in income tax expense of $40 million. Also during the second quarter, three states enacted tax law changes that decreased deferred income tax expense by $19 million.

During the fourth quarter of 2010, NS recognized a $34 million non-recurring benefit resulting from a change in estimate for deferred taxes. During the first quarter of 2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were signed into law. Provisions of the Acts eliminated, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program. Accordingly, NS recorded a $27 million charge to deferred tax expense in the first quarter of 2010.

3. EARNINGS PER SHARE

For basic earnings per share, income available to common stockholders reflects reductions for the effect of dividend equivalent payments made to holders of stock options and restricted stock units as follows: for the fourth quarter, $3 million in 2011 and $2 million in 2010; and for the year, $9 million in 2011 and $8 million in 2010.

For diluted earnings per share, income available to common stockholders reflects reductions for the effect of dividend equivalent payments made to holders of stock options and restricted units as follows: for the fourth quarter, less than $1 million in 2011 and $2 million in 2010; and for the year $2 million for 2011 and $8 million for 2010.

4. STOCK REPURCHASE PROGRAM

During 2011, NS repurchased and retired 30.2 million shares of Common Stock at a cost of $2.1 billion and 14.7 million shares at a cost of $863 million for the same period of 2010. The timing and volume of purchases is guided by management's assessment of market conditions and other pertinent factors. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since 2005, NS has repurchased and retired 109.6 million shares at a total cost of $6.2 billion.

SOURCE Norfolk Southern Corporation