PR Newswire | Oct 28, 2020 08:02AM EDT

10/28 07:00 CDT

Norfolk Southern reports third-quarter 2020 results NORFOLK, Va., Oct. 28, 2020

NORFOLK, Va., Oct. 28, 2020 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported financial results for the quarter ended September 30, 2020. During the quarter, the company achieved net income of $569 million, diluted earnings per share of $2.22, and an operating ratio of 66.5%. These results include a previously announced $99 million non-cash impairment charge. Excluding the effects of the impairment charge, adjusted third-quarter net income was $643 million, adjusted diluted earnings per share were $2.51, and the adjusted operating ratio was 62.5%, which reflects a 240 basis point improvement compared with third-quarter 2019.

"Since launching our Precision Scheduled Railroading strategy, we have significantly enhanced Norfolk Southern's operational and financial performance and delivered superior returns for shareholders," said James A. Squires, Norfolk Southern chairman, president and CEO. "Given the impact of the COVID-19 pandemic on our industry and the broader economy, we quickly executed a plan to align our assets and resources with demand and generate sustainable margin improvement. In addition to maintaining outstanding service levels with fewer resources and reduced headcount, we successfully idled our fifth hump in the last five quarters, helping Norfolk Southern achieve record productivity. With the resilience of our railroad, strong customer relationships and the hard work of our team, including new Chief Operating Officer and PSR veteran Cindy Sanborn, we are confident in our ability to achieve our goal of a 60% operating ratio with more to come, while delivering enhanced free cash flow and further value creation for Norfolk Southern shareholders."

Third-quarter summary

* Railway operating revenues of $2.5 billion decreased 12% compared with third-quarter 2019, driven by a 7% decline in total volume and 5% decline in revenue per unit. * Railway operating expenses were $1.7 billion, including a $99 million non-cash impairment charge related to an equity-method investment. * Excluding the impairment charge, adjusted operating expenses declined $278 million, or 15%, compared with third-quarter 2019, driven by lower compensation and benefits, fuel, purchased services, materials, and the absence of last year's $32 million receivable write-off.

* Income from railway operations was $840 million and the operating ratio was 66.5%. * Excluding the impairment charge, adjusted income from railway operations was $939 million, while the adjusted operating ratio improved to 62.5% versus the third-quarter record of 64.9% set in 2019.

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 19,500 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 is a major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In addition, the railroad operates the most extensive intermodal network in the East and is a principal carrier of coal, automobiles, and automotive parts.

Non-GAAP Financial Measures

This news release includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures is provided in the table below, entitled "Reconciliation of Non-GAAP Financial Measures."

Forward-looking statements

This news release contains forward-looking statements that may be identified by the use of words like "believe," "expect," "anticipate," "estimate," "plan," "consider," "project," and similar references to the future. Forward-looking statements reflect our good-faith evaluation of information currently available. These forward-looking statements are subject to a number of risks and uncertainties, and our actual results may differ materially from those projected. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important. Additional risks include the impact of the COVID-19 pandemic on us, our customers, our supply chain and our operations.Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. We undertake no obligation to update or revise forward-looking statements.

Reconciliation of Non-GAAP Financial Measures

Information included within this filing includes non-GAAP financial measures, as defined by SEC Regulation G. Non-GAAP financial measures should be considered in addition to, not as a substitute for, the financial measures reported in accordance with U.S. generally accepted accounting principles (GAAP).

GAAP financial results are adjusted to exclude the effects of an impairment charge in the third quarter of 2020 related to an equity method investment.

Norfolk Southern believes that these non-GAAP financial measures provide valuable information regarding its earnings and business trends by excluding specific items that it believes are not indicative of the ongoing operating results of its business, providing a useful way for investors to make a comparison of our performance over time and against other companies in our industry by excluding the effects of the impairment charge. These non-GAAP financial measures are being provided as supplemental information to Norfolk Southern's GAAP financial measures, and Norfolk Southern believes these measures provide investors with additional meaningful financial information regarding our operational performance. Norfolk Southern also uses these non-GAAP measures as supplemental measures to evaluate its business and performance.

($ in millions except per share amounts) Third

Quarter 2020

Railway operating expenses $ 1,666

Effect of impairment charge (99)

Adjusted railway operating expenses $ 1,567

Income from railway operations $ 840

Effect of impairment charge 99

Adjusted income from railway operations $ 939

Operating ratio (%) 66.5

Effect of impairment charge (%) (4.0)

Adjusted operating ratio (%) 62.5

Net income $ 569

Effect of impairment charge 74

Adjusted net income $ 643

Diluted earnings per share $ 2.22

Effect of impairment charge 0.29

Adjusted diluted earnings per share $ 2.51







Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)



Third Quarter First Nine Months

2020 2019 2020 2019

(in millions, except per share amounts)



Railway operating revenues

Merchandise $1,556$1,731$4,535$5,173

Intermodal 700 707 1,924 2,127

Coal 250 403 757 1,306

Total railway operating revenues 2,506 2,841 7,216 8,606



Railway operating expenses

Compensation and benefits 578 682 1,786 2,121

Purchased services and rents 486 423 1,261 1,265

Fuel 126 226 399 730

Depreciation 293 286 867 853

Materials and other 183 228 500 610

Loss on asset disposal - - 385 -

Total railway operating expenses 1,666 1,845 5,198 5,579



Income from railway operations 840 996 2,018 3,027



Other income - net 39 22 110 88

Interest expense on debt 155 150 465 452



Income before income taxes 724 868 1,663 2,663



Income taxes

Current 133 119 243 382

Deferred 22 92 78 225

Total income taxes 155 211 321 607



Net income $569 $657 $1,342$2,056



Earnings per share - diluted $2.22 $2.49 $5.21 $7.70



Weighted average shares outstanding - 256.1 264.3 257.2 266.9 diluted



See accompanying notes to consolidated financial statements







Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)



SeptemberDecember 30, 31,

2020 2019

($ in millions)

Assets

Current assets:

Cash and cash equivalents $1,359 $580

Accounts receivable - net 883 920

Materials and supplies 247 244

Other current assets 90 337

Total current assets 2,579 2,081



Investments 3,566 3,428

Properties less accumulated depreciation of $11,873

and $11,982, respectively 31,239 31,614

Other assets 795 800



Total assets $38,179$37,923



Liabilities and stockholders' equity

Current liabilities:

Accounts payable $1,273 $1,428

Income and other taxes 257 229

Other current liabilities 386 327

Current maturities of long-term debt 89 316

Total current liabilities 2,005 2,300



Long-term debt 12,634 11,880

Other liabilities 1,701 1,744

Deferred income taxes 6,898 6,815



Total liabilities 23,238 22,739



Stockholders' equity:

Common stock $1.00 per share par value, 1,350,000,000 shares authorized; outstanding 253,985,338 and 255 259 257,904,956 shares, respectively, net of treasury shares

Additional paid-in capital 2,246 2,209

Accumulated other comprehensive loss (471) (491)

Retained income 12,911 13,207



Total stockholders' equity 14,941 15,184



Total liabilities and stockholders' equity $38,179$37,923



See accompanying notes to consolidated financial statements







Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



First Nine Months

2020 2019

($ in millions)

Cash flows from operating activities

Net income $1,342$2,056

Reconciliation of net income to net cash provided by operating activities:

Depreciation 867 854

Deferred income taxes 78 225

Gains and losses on properties (14) (4)

Loss on asset disposal 385 -

Impairment of investment 99 -

Changes in assets and liabilities affecting operations:

Accounts receivable 36 34

Materials and supplies (3) (59)

Other current assets 55 40

Current liabilities other than debt 104 (72)

Other - net (182) (77)



Net cash provided by operating activities 2,767 2,997



Cash flows from investing activities

Property additions (1,053)(1,494)

Property sales and other transactions 291 282

Investment purchases (6) (12)

Investment sales and other transactions (50) (99)



Net cash used in investing activities (818) (1,323)



Cash flows from financing activities

Dividends (722) (705)

Common stock transactions 53 21

Purchase and retirement of common stock (960) (1,550)

Proceeds from borrowings - net of issuance costs 784 1,404

Debt repayments (325) (750)



Net cash used in financing activities (1,170)(1,580)



Net increase in cash, cash equivalents, and restricted 779 94 cash



Cash, cash equivalents, and restricted cash

At beginning of year 580 446



At end of period $1,359$540



Supplemental disclosures of cash flow information

Cash paid during the period for:

Interest (net of amounts capitalized) $395 $392

Income taxes (net of refunds) 118 404



See accompanying notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Impairment of Investment

During the third quarter of 2020, we recorded an other-than-temporary impairment of $99 million related to the carrying value of an equity method investment. This non-cash impairment charge is recorded in "Purchased services and rents" on the Consolidated Statements of Income and had a $74 million impact on net income for the third quarter and the first nine months of 2020.

2. Loss on Asset Disposal

In the first quarter of 2020, we committed to a plan to dispose of certain locomotives deemed excess and no longer needed for railroad operations. Specifically, during the first nine months of 2020, the Company recorded a charge related to the loss on the sale of 574 locomotives disposed of in the first nine months, and a write-down of 129 additional locomotives that we are actively marketing to sell. Accordingly, a $385 million loss was recorded to adjust their carrying amount to their estimated fair value.

3. Stock Repurchase Program

We repurchased and retired 5.3 million and 8.4 million shares of common stock under our stock repurchase program during the first nine months of 2020 and 2019, respectively, at a cost of $960 million and $1.6 billion, respectively.

4. Restricted Cash

The "Cash, cash equivalents, and restricted cash" line item on the Consolidated Statements of Cash Flows includes restricted cash of $88 million in 2019, reflecting deposits held by a third-party bond agent as collateral for certain debt obligations which matured on October 1, 2019.

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SOURCE Norfolk Southern Corporation