Norfolk Southern reports fourth-quarter and full-year 2015 results

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Jan 27, 2016, 08:00 ET

NORFOLK, Va., Jan. 27, 2016 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported fourth-quarter and 2015 financial results.

Fourth-quarter net income was $361 million, or $1.20 per diluted share, compared with $511 million, or $1.64 per diluted share, in fourth-quarter 2014. For 2015, net income was $1.6 billion, or $5.10 per diluted share, compared with $2.0 billion, or $6.39 per diluted share, in 2014.

Results included expenses related to restructuring the company's Triple Crown Services subsidiary and closing its Roanoke, Va., office, which together reduced fourth-quarter net income by $31 million, or $0.10 per diluted share, and lowered 2015 net income by $58 million, or $0.19 per diluted share.

FOURTH-QUARTER 2015 RESULTS

Railway operating revenues totaled $2.5 billion.
Income from railway operations was $642 million.
Net income was $361 million.
Diluted earnings per share were $1.20.
The railway operating ratio was 74.5 percent.

2015 RESULTS

Railway operating revenues reached $10.5 billion.
Income from railway operations was $2.9 billion.
Net income totaled $1.6 billion.
Diluted earnings per share were $5.10.
The railway operating ratio was 72.6 percent.

In a separate press release issued today, Norfolk Southern provided additional detail regarding its strategic plan to streamline operations and drive profitability and growth. The plan includes cost reductions across the organization and improved operational efficiencies. As a result of this plan, the Company expects to achieve annual productivity savings of more than $650 million by 2020, with approximately $130 million to be realized in 2016. Through the initiatives announced today, Norfolk Southern is confident in its ability to achieve an operating ratio below 65 percent by 2020.

"We are implementing a plan to reduce costs and enhance profitable growth," said James A. Squires, Norfolk Southern's chairman, president and CEO. "This plan will enable us to achieve significant annual expense savings beginning in 2016 without compromising the company's ability to capitalize on volume and revenue growth opportunities. We are making progress despite a challenging operating environment, including successfully restoring our rail service to previous high levels, realigning resources, and completing strategic capacity investments to improve efficiency and productivity.

"Through these actions, we are positioning Norfolk Southern for improved performance and value creation in 2016 and beyond. We are confident in our ability to deliver superior shareholder value through our strategic plan, which is built on exceptional customer service, growth through pricing and new business, cost reduction and control, and increasing returns on capital. Our fourth-quarter results reflect current challenges in domestic and global markets."

FOURTH-QUARTER SUMMARY

Railway operating revenues declined 12 percent compared with fourth-quarter 2014, to $2.5 billion. Traffic volume declined 6 percent, a result of lower coal volumes and the effects of low commodity prices. Average revenue per unit decreased 6 percent as the effects of higher rates were more than offset by a $226 million, or 73 percent, decline in fuel surcharge revenues.
General merchandise revenues were $1.5 billion, 9 percent lower than the same period last year. Volume declined 4 percent, as a 9 percent gain in automotive traffic was more than offset by decreases in the other four commodity groups.
Intermodal revenues declined to $563 million, 13 percent below fourth-quarter 2014. The Triple Crown restructuring and fewer domestic shipments combined to reduce traffic volume by 5 percent.
Coal revenues were $433 million, 20 percent lower compared with fourth quarter of 2014. A weak global export market, record high temperatures in the East, and low natural gas prices combined to decrease volume by 18 percent.
Railway operating expenses decreased $103 million, or 5 percent, to $1.9 billion compared with same period of 2014, notwithstanding $49 million of expenses related to the Triple Crown restructuring and Roanoke office closure.
Income from railway operations was $642 million, 28 percent lower compared with fourth-quarter 2014.
The operating ratio, or operating expenses as a percentage of revenues, was 74.5 percent, compared with 69 percent during the same quarter in 2014. Triple Crown restructuring and Roanoke office closure expenses added 2.0 percentage points to the operating ratio.

2015 SUMMARY

Railway operating revenues were $10.5 billion, 10 percent lower compared with 2014, reflecting an $852 million, or 64 percent, reduction in fuel surcharge revenues. Traffic volume was down 3 percent, driven by a sharp decline in coal.
General merchandise revenues declined 6 percent to $6.3 billion, while traffic volume was about even compared with the prior year.
Intermodal revenues totaled $2.4 billion, 6 percent lower compared with 2014. Traffic volume was up slightly for 2015.
Coal revenues were $1.8 billion, down 23 percent, due to a 16 percent decline in traffic volume compared with 2014.
Railway operating expenses of $7.6 billion declined $422 million, or 5 percent, compared with 2014, despite $93 million of additional expenses related to the Triple Crown restructuring and Roanoke office closure.
Income from railway operations was $2.9 billion, 19 percent lower compared with 2014.
The operating ratio for the year was 72.6 percent compared with 69.2 percent the prior year. The Triple Crown restructuring and Roanoke office closure costs added 0.9 percentage points to the operating ratio.

For 2016, Norfolk Southern plans to invest $2.1 billion to maintain the safety of its rail network, enhance service, improve operational efficiency, and support growth opportunities.

About Norfolk Southern
Norfolk Southern Corporation (NYSE: NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company 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, automotive, and industrial products.

Forward-Looking Statements
Certain statements in this press release are "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or the Company's future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance, or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "project," "consider," "predict," "potential," or other comparable terminology. The Company has based these forward-looking statements on management's current expectations, assumptions, estimates, beliefs, and projections. While the Company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. These and other important factors, including those discussed under "Risk Factors" in the Company's Form 10-K for the year ended Dec. 31, 2014, as well as the Company's subsequent filings with the Securities and Exchange Commission, may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this press release are made only as of the date they were first issued, and unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Copies of Norfolk Southern Corporation's press releases and additional information about the Company are available at www.norfolksouthern.com, or you can contact the Norfolk Southern Corporation Investor Relations Department by calling 757-629-2861.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited)

	Fourth Quarter				Years ended December 31,
	2015		2014		2015		2014
	($ in millions, except per share amounts)

Railway operating revenues
Coal	$	433	$	543	$	1,823	$	2,382
General merchandise		1,522		1,678		6,279		6,680
Intermodal		563		649		2,409		2,562
Total railway operating revenues		2,518		2,870		10,511		11,624

Railway operating expenses
Compensation and benefits		702		714		2,911		2,897
Purchased services and rents		440		452		1,752		1,687
Fuel		194		347		934		1,574
Depreciation		287		240		1,054		951
Materials and other		253		226		976		940

Total railway operating expenses (note 1)		1,876		1,979		7,627		8,049

Income from railway operations		642		891		2,884		3,575

Other income – net		24		28		103		104
Interest expense on debt		142		129		545		545

Income before income taxes		524		790		2,442		3,134

Provision for income taxes
Current		(101)		6		566		840
Deferred		264		273		320		294
Total income taxes		163		279		886		1,134

Net income	$	361	$	511	$	1,556	$	2,000

Earnings per share (note 1)
Basic	$	1.21	$	1.65	$	5.13	$	6.44
Diluted		1.20		1.64		5.10		6.39

Weighted average shares outstanding (note 2)
Basic		297.9		309.0		301.9		309.4
Diluted		300.4		312.0		304.4		312.5

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Unaudited)

	Fourth Quarter				Years ended December 31,
	2015		2014		2015		2014
	($ in millions)

Net income	$	361	$	511	$	1,556	$	2,000
Other comprehensive income (loss), before tax:
Pension and other postretirement benefits		(107)		(329)		(76)		(15)
Other comprehensive income (loss) of
equity investees		4		(18)		—		(8)

Other comprehensive income (loss), before tax		(103)		(347)		(76)		(23)
Income tax benefit (expense) related to items of
other comprehensive income (loss)		40		127		29		6

Other comprehensive income (loss), net of tax		(63)		(220)		(47)		(17)

Total comprehensive income	$	298	$	291	$	1,509	$	1,983

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

	At December 31,
	2015		2014
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	1,101	$	973
Accounts receivable – net		946		1,055
Materials and supplies		271		236
Deferred income taxes		121		167
Other current assets		194		347
Total current assets		2,633		2,778

Investments		2,572		2,679
Properties less accumulated depreciation of $11,478 and
$10,814, respectively		28,992		27,694
Other assets (note 3)		63		49

Total assets	$	34,260	$	33,200

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,091	$	1,233
Short-term debt		200		100
Income and other taxes		203		217
Other current liabilities		237		228
Current maturities of long-term debt		500		2
Total current liabilities		2,231		1,780

Long-term debt (note 3)		9,393		8,883
Other liabilities		1,385		1,312
Deferred income taxes		9,063		8,817

Total liabilities		22,072		20,792

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 297,795,016 and 308,240,130 shares,
respectively, net of treasury shares		299		310
Additional paid-in capital		2,143		2,148
Accumulated other comprehensive loss		(445)		(398)
Retained income		10,191		10,348

Total stockholders' equity		12,188		12,408

Total liabilities and stockholders' equity	$	34,260	$	33,200

See accompanying notes to consolidated financial statements.

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

	Years ended December 31,
	2015		2014
	($ in millions)
Cash flows from operating activities:
Net income	$	1,556	$	2,000
Reconciliation of net income to net cash provided by operating activities:
Depreciation		1,059		956
Deferred income taxes		320		294
Gains and losses on properties and investments		(30)		(13)
Changes in assets and liabilities affecting operations:
Accounts receivable		109		(31)
Materials and supplies		(35)		(13)
Other current assets		192		(260)
Current liabilities other than debt		(183)		53
Other – net		(111)		(134)

Net cash provided by operating activities		2,877		2,852

Cash flows from investing activities:
Property additions		(2,385)		(2,118)
Property sales and other transactions		63		114
Investments, including short-term		(5)		(104)
Investment sales and other transactions		240		106

Net cash used in investing activities		(2,087)		(2,002)

Cash flows from financing activities:
Dividends		(713)		(687)
Common stock issued		43		130
Purchase and retirement of common stock (note 2)		(1,075)		(318)
Proceeds from borrowings – net		1,185		200
Debt repayments		(102)		(645)

Net cash used in financing activities		(662)		(1,320)

Net increase (decrease) in cash and cash equivalents		128		(470)

Cash and cash equivalents:
At beginning of year		973		1,443

At end of year	$	1,101	$	973

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized)	$	518	$	522
Income taxes (net of refunds)		386		1,102

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Restructuring Costs
Fourth quarter 2015 results include $49 million of costs associated with the restructuring of our Triple Crown Services subsidiary and the closure of our Roanoke, Virginia, office, which reduced net income by $31 million, or $0.10 per diluted share. For 2015, results include $93 million of such costs, which reduced net income by $58 million, or $0.19 per diluted share.

2. Stock Repurchase Program
We repurchased 11.3 million and 3.1 million shares of common stock in 2015 and 2014, respectively, at a cost of $1.1 billion and $318 million, respectively. We have remaining authorization from our Board of Directors to repurchase up to 23.9 million shares through December 31, 2017. The timing and volume of purchases is guided by our 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 the beginning of 2006, we have repurchased and retired 151.1 million shares at a total cost of $9.5 billion.

3. New Accounting Pronouncement
In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." This update requires that debt issuance costs be presented in the balance sheet as a reduction from the related debt liability rather than as an asset, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. We early adopted the provisions of this ASU during the second quarter of 2015 and applied it retrospectively. The adoption of ASU 2015-03 resulted in the presentation of $47 million of debt issuance costs as a reduction of "Long-term debt" at December 31, 2015. We retrospectively adjusted the December 31, 2014 consolidated balance sheet and related disclosures to reflect the reclassification of $41 million of debt issuance costs from "Other assets" to "Long-term debt." There was no other impact on our consolidated financial statements from the adoption of ASU 2015-03.

SOURCE Norfolk Southern Corporation