NORFOLK SOUTHERN CORP - FORM 8-K - EX-99.2 - 3Q 2016 FINANCIALS

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EX-99.1 - PRESS RELEASE - NORFOLK SOUTHERN CORP	nspr1026161.htm
8-K - 8-K - NORFOLK SOUTHERN CORP	ns8k102616.htm

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



	Third Quarter				First Nine Months
	2016		2015		2016		2015
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,552	$	1,610	$	4,678	$	4,757
Intermodal		575		621		1,635		1,846
Coal		397		482		1,085		1,390
Total railway operating revenues		2,524		2,713		7,398		7,993

Railway operating expenses
Compensation and benefits		691		702		2,081		2,209
Purchased services and rents		386		451		1,149		1,312
Fuel		181		221		504		740
Depreciation		258		275		767		767
Materials and other		188		242		584		723

Total railway operating expenses		1,704		1,891		5,085		5,751

Income from railway operations		820		822		2,313		2,242

Other income – net		29		39		49		79
Interest expense on debt		144		137		421		403

Income before income taxes		705		724		1,941		1,918

Provision for income taxes
Current		169		251		512		667
Deferred		76		21		177		56
Total income taxes		245		272		689		723

Net income	$	460	$	452	$	1,252	$	1,195

Earnings per share
Basic	$	1.56	$	1.50	$	4.23	$	3.93
Diluted		1.55		1.49		4.21		3.90

Weighted average shares outstanding
Basic		292.7		300.1		294.9		303.2
Diluted		294.7		302.5		296.7		305.8

See accompanying notes to consolidated financial statements.

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



	Third Quarter						First Nine Months
	2016			2015			2016			2015
	($ in millions)

Net income	$	460		$	452		$	1,252		$	1,195
Other comprehensive income, before tax:
Pension and other postretirement benefits		7			10			20			31
Other comprehensive loss of
equity investees		—			—			—			(4	)

Other comprehensive income, before tax		7			10			20			27
Income tax expense related to items of other
comprehensive income		(3	)		(3	)		(8	)		(11	)

Other comprehensive income, net of tax		4			7			12			16

Total comprehensive income	$	464		$	459		$	1,264		$	1,211

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)



	September 30,			December 31,
	2016			2015
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	984		$	1,101
Accounts receivable – net		960			946
Materials and supplies		301			271
Other current assets		72			194
Total current assets		2,317			2,512

Investments		2,779			2,572
Properties less accumulated depreciation of $11,663 and
$11,478, respectively		29,467			28,992
Other assets		69			63

Total assets	$	34,632		$	34,139

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,131		$	1,091
Short-term debt		—			200
Income and other taxes		218			203
Other current liabilities		333			237
Current maturities of long-term debt		550			500
Total current liabilities		2,232			2,231

Long-term debt		9,555			9,393
Other liabilities		1,322			1,385
Deferred income taxes		9,127			8,942

Total liabilities		22,236			21,951

Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 291,942,235 and 297,795,016 shares,
respectively, net of treasury shares		293			299
Additional paid-in capital		2,169			2,143
Accumulated other comprehensive loss		(433	)		(445	)
Retained income		10,367			10,191

Total stockholders’ equity		12,396			12,188

Total liabilities and stockholders’ equity	$	34,632		$	34,139

See accompanying notes to consolidated financial statements.

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



	First Nine Months
	2016			2015
	($ in millions)
Cash flows from operating activities
Net income	$	1,252		$	1,195
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		770			770
Deferred income taxes		177			56
Gains and losses on properties and investments		(38	)		(20	)
Changes in assets and liabilities affecting operations:
Accounts receivable		8			(48	)
Materials and supplies		(30	)		(52	)
Other current assets		130			295
Current liabilities other than debt		149			88
Other – net		(106	)		(76	)

Net cash provided by operating activities		2,312			2,208

Cash flows from investing activities
Property additions		(1,304	)		(1,777	)
Property sales and other transactions		87			43
Investment purchases		(119	)		(5	)
Investment sales and other transactions		6			32

Net cash used in investing activities		(1,330	)		(1,707	)

Cash flows from financing activities
Dividends		(523	)		(537	)
Common stock transactions		33			1
Purchase and retirement of common stock		(603	)		(997	)
Proceeds from borrowings – net		594			594
Debt repayments		(600	)		(102	)

Net cash used in financing activities		(1,099	)		(1,041	)

Net decrease in cash and cash equivalents		(117	)		(540	)

Cash and cash equivalents
At beginning of year		1,101			973

At end of period	$	984		$	433

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	337		$	320
Income taxes (net of refunds)		409			350

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Stock Repurchase Program

We repurchased and retired 7.2 million and 10.3 million shares of common stock under our stock repurchase program in the first nine months of 2016 and 2015, respectively, at a cost of $603 million and $997 million, respectively. 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 158.3 million shares at a total cost of $10.1 billion.

2. Restructuring Costs

Third quarter 2015 operating expenses include $37 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 $23 million, or $0.08 per diluted share.

3. New Accounting Pronouncement- Deferred Taxes

In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, "Balance Sheet Classification of Deferred Taxes." This update requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet rather than as separate current and noncurrent amounts. We adopted the provisions of this ASU during the first quarter of 2016 and applied it retrospectively. The adoption of ASU 2015-17 resulted in the presentation of $121 million of current deferred income tax assets as a reduction of "Deferred income taxes" in the long-term liabilities section of the Consolidated Balance Sheet at September 30, 2016. We retrospectively presented the December 31, 2015, Consolidated Balance Sheet to reflect the reclassification of $121 million of deferred income tax assets from "Deferred income taxes" in the current assets section of the balance sheet to "Deferred income taxes" in the long-term liabilities section of the balance sheet.

4. New Accounting Pronouncement- Stock-Based Compensation

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." We adopted the provisions of this ASU during the first quarter of 2016. This update principally affects the recognition of excess tax benefits and deficiencies and the cash flow classification of share-based compensation-related transactions. The requirement to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement was applied prospectively, with a benefit of $12 million recognized in the "Provision for income taxes" line item for the nine months ended September 30, 2016. The classification requirements on the Consolidated Statements of Cash Flows for the adoption of ASU 2016-09 resulted in a $29 million increase in "Current liabilities other than debt" within the operating activities section and a corresponding decrease in "Common stock transactions" within the financing activities section for the first nine months of 2016. We retrospectively presented the Consolidated Statements of Cash Flows for the first nine months of 2015 to reflect a $29 million increase in "Current liabilities other than debt" within the operating activities section and a corresponding decrease in "Common stock transactions" within the financing activities section.

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