Norfolk Southern Reports Second-Quarter 2010 Results

For second quarter 2010 vs. second quarter 2009:

- Railway operating revenues increased 31 percent to $2.4 billion.

- Income from railway operations improved 57 percent to $733 million.

- Net income increased 59 percent to $392 million.

- Diluted earnings per share rose 58 percent to $1.04.

- The railway operating ratio improved by 5 percentage points to 69.8 percent, resulting in a second-quarter record.

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Norfolk Southern Corporation

Jul 27, 2010, 04:01 ET

NORFOLK, Va., July 27 /PRNewswire-FirstCall/ -- Norfolk Southern Corporation (NYSE: NSC) today reported second-quarter 2010 net income of $392 million, an increase of 59 percent, compared with $247 million for second-quarter 2009. Diluted earnings per share were $1.04, up 58 percent, compared with $0.66 per diluted share earned in the second quarter of 2009.

"Norfolk Southern delivered strong financial results in the second quarter, based on continuing operating leverage," said CEO Wick Moorman. "This is our fourth straight quarter of volume growth, and we are optimistic about continued year-over-year increases in rail traffic. We remain focused on reinforcing the safety and quality of our franchise, improving operational efficiency and service, and supporting future business growth."

Second-quarter railway operating revenues improved 31 percent to $2.4 billion, compared with the second quarter of 2009, primarily as the result of a 22 percent increase in traffic volume.

General merchandise revenues were $1.3 billion, 31 percent higher compared with second-quarter 2009 results. Coal revenues increased 36 percent to $696 million compared with the same period last year. Intermodal revenues were $451 million, 23 percent higher compared with the second quarter of 2009.

Railway operating expenses for the quarter were $1.7 billion, 22 percent higher compared with the same period of 2009, primarily due to higher compensation and benefits, and fuel expenses. Income from railway operations improved 57 percent to $733 million in the second quarter compared with the same period last year.

The railway operating ratio was 69.8, a second-quarter record, and an improvement of 5 percentage points compared with 74.8 percent during second-quarter 2009.

Norfolk Southern Corporation (NYSE: NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 21,000 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				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(In millions, except per share amounts)

Railway operating revenues:
Coal	$	696	$	511	$	1,325	$	1,113
General merchandise		1,283		978		2,482		1,953
Intermodal		451		368		861		734
Total railway operating revenues		2,430		1,857		4,668		3,800

Railway operating expenses:
Compensation and benefits		670		551		1,369		1,190
Purchased services and rents		374		334		709		689
Fuel		258		153		512		312
Depreciation		204		207		408		414
Materials and other (note 1)		191		144		382		344
Total railway operating expenses		1,697		1,389		3,380		2,949

Income from railway operations		733		468		1,288		851

Other income – net		17		36		37		53
Interest expense on debt		115		113		234		230

Income before income taxes		635		391		1,091		674

Provision for income taxes:
Current		237		85		396		175
Deferred (note 4)		6		59		46		75
Total income taxes		243		144		442		250

Net income	$	392	$	247	$	649	$	424

Earnings per share (note 2):
Basic	$	1.06	$	0.67	$	1.74	$	1.14
Diluted	$	1.04	$	0.66	$	1.72	$	1.13

Weighted average shares outstanding (notes 2 & 3):
Basic		369.7		366.8		369.6		366.5
Diluted		375.1		371.4		375.0		371.3

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

	June 30,		December 31,
	2010		2009
	($ in millions)

Assets
Current assets:
Cash and cash equivalents	$	855	$	996
Short-term investments		205		90
Accounts receivable – net		892		766
Materials and supplies		179		164
Deferred income taxes		148		142
Other current assets		49		88
Total current assets		2,328		2,246

Investments		2,293		2,164

Properties less accumulated depreciation		22,786		22,643

Other assets		226		316

Total assets	$	27,633	$	27,369

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,064	$	974
Short-term debt		-		100
Income and other taxes		226		109
Other current liabilities		284		232
Current maturities of long-term debt		363		374
Total current liabilities		1,937		1,789

Long-term debt		6,326		6,679

Other liabilities		1,791		1,801

Deferred income taxes		6,818		6,747
Total liabilities		16,872		17,016

Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 368,615,496 and 369,019,990 shares,
respectively, net of treasury shares		370		370
Additional paid-in capital		1,894		1,809
Accumulated other comprehensive loss		(820)		(853)
Retained income		9,317		9,027
Total stockholders’ equity		10,761		10,353

Total liabilities and stockholders’ equity	$	27,633	$	27,369

See accompanying notes to consolidated financial statements.

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

	Six Months Ended
	June 30,
	2010		2009
	($ in millions)

Cash flows from operating activities:
Net income	$	649	$	424
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		411		418
Deferred income taxes		46		75
Gains and losses on properties		(3)		(4)
Changes in assets and liabilities affecting operations:
Accounts receivable		(126)		29
Materials and supplies		(15)		6
Other current assets		36		75
Current liabilities other than debt		236		(319)
Other – net		148		(61)
Net cash provided by operating activities		1,382		643

Cash flows from investing activities:
Property additions		(569)		(566)
Property sales and other transactions		21		27
Investments, including short-term		(260)		(119)
Investment sales and other transactions		77		9
Net cash used in investing activities		(731)		(649)

Cash flows from financing activities:
Dividends		(252)		(250)
Common stock issued – net		42		24
Purchase and retirement of common stock (note 3)		(114)		-
Proceeds from borrowings – net		-		990
Debt repayments		(468)		(654)
Net cash provided by (used in) financing activities		(792)		110

Net increase (decrease) in cash and cash equivalents		(141)		104

Cash and cash equivalents:
At beginning of year		996		618

At end of period	$	855	$	722

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	232	$	224
Income taxes (net of refunds)	$	253	$	222

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. MATERIALS AND OTHER

Second quarter 2009 includes a $21 million favorable adjustment related to settlement of a multiyear state tax dispute.

2. EARNINGS PER SHARE

As required under the provisions of the Financial Accounting Standards Board Accounting Standards Codification (ASC) 260-10, "Earnings Per Share," for basic earnings per share, income available to common stockholders for the second quarters of 2010 and 2009 reflects a $2 million reduction and for the first six months of 2010 and 2009 a $4 million reduction from net income for the effect of dividend equivalent payments made to holders of stock options. In addition, for the second quarters and first six months of 2010 and 2009, diluted earnings per share were calculated under the more dilutive two-class method (as compared to the treasury stock method) and income available to common stockholders reflects a $2 million and $4 million reduction, respectively, from net income for dividend equivalent payments.

3. STOCK REPURCHASE PROGRAM

During the first six months of 2010, NS purchased and retired 2.0 million shares of common stock at a cost of $114 million. Since inception of the stock repurchase program, NS has repurchased and retired 66.7 million shares at a total cost of $3.4 billion.

4. 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 these Acts eliminate, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program. As required by ASC 740, "Income Taxes," NS recorded a $27 million charge to deferred tax expense.

SOURCE Norfolk Southern Corporation