NORFOLK SOUTHERN CORP - FORM 8-K - EX-99.2 - 4Q 2016 FINANCIALS

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EX-99.1 - PRESS RELEASE - NORFOLK SOUTHERN CORP	nspr-012517.htm
8-K - 8-K - NORFOLK SOUTHERN CORP	ns8k-012517.htm

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



	Fourth Quarter					Years Ended December 31,
	2016		2015			2016		2015
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,504	$	1,522		$	6,182	$	6,279
Intermodal		583		563			2,218		2,409
Coal		403		433			1,488		1,823
Total railway operating revenues		2,490		2,518			9,888		10,511

Railway operating expenses
Compensation and benefits		662		702			2,743		2,911
Purchased services and rents		399		440			1,548		1,752
Fuel		194		194			698		934
Depreciation		259		287			1,026		1,054
Materials and other		215		253			799		976

Total railway operating expenses		1,729		1,876			6,814		7,627

Income from railway operations		761		642			3,074		2,884

Other income – net		22		24			71		103
Interest expense on debt		142		142			563		545

Income before income taxes		641		524			2,582		2,442

Provision for income taxes
Current		175		(101	)		687		566
Deferred		50		264			227		320
Total income taxes		225		163			914		886

Net income	$	416	$	361		$	1,668	$	1,556

Earnings per share
Basic	$	1.43	$	1.21		$	5.66	$	5.13
Diluted		1.42		1.20			5.62		5.10

Weighted average shares outstanding
Basic		291.2		297.9			293.9		301.9
Diluted		293.7		300.4			296.0		304.4

See accompanying notes to consolidated financial statements.

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



	Fourth Quarter						Years Ended December 31,
	2016			2015			2016			2015
	($ in millions)

Net income	$	416		$	361		$	1,668		$	1,556
Other comprehensive loss, before tax:
Pension and other postretirement benefits		(94	)		(107	)		(74	)		(76	)
Other comprehensive income (loss) of
equity investees		5			4			5			—

Other comprehensive loss, before tax		(89	)		(103	)		(69	)		(76	)
Income tax benefit related to items of other
comprehensive loss		35			40			27			29

Other comprehensive loss, net of tax		(54	)		(63	)		(42	)		(47	)

Total comprehensive income	$	362		$	298		$	1,626		$	1,509

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)



	At December 31,
	2016			2015
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	956		$	1,101
Accounts receivable – net		945			946
Materials and supplies		257			271
Other current assets		133			194
Total current assets		2,291			2,512

Investments		2,777			2,572
Properties less accumulated depreciation of $11,737 and
$11,478, respectively		29,751			28,992
Other assets		73			63

Total assets	$	34,892		$	34,139

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,215		$	1,091
Short-term debt		100			200
Income and other taxes		245			203
Other current liabilities		229			237
Current maturities of long-term debt		550			500
Total current liabilities		2,339			2,231

Long-term debt		9,562			9,393
Other liabilities		1,442			1,385
Deferred income taxes		9,140			8,942
Total liabilities		22,483			21,951


Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 290,417,610 and 297,795,016 shares,
respectively, net of treasury shares		292			299
Additional paid-in capital		2,179			2,143
Accumulated other comprehensive loss		(487	)		(445	)
Retained income		10,425			10,191

Total stockholders’ equity		12,409			12,188

Total liabilities and stockholders’ equity	$	34,892		$	34,139

See accompanying notes to consolidated financial statements.

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



	Years Ended December 31,
	2016			2015
	($ in millions)
Cash flows from operating activities
Net income	$	1,668		$	1,556
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		1,030			1,059
Deferred income taxes		227			320
Gains and losses on properties and investments		(46	)		(30	)
Changes in assets and liabilities affecting operations:
Accounts receivable		23			109
Materials and supplies		42			(35	)
Other current assets		82			192
Current liabilities other than debt		158			(152	)
Other – net		(150	)		(111	)

Net cash provided by operating activities		3,034			2,908

Cash flows from investing activities
Property additions		(1,887	)		(2,385	)
Property sales and other transactions		130			63
Investment purchases		(123	)		(5	)
Investment sales and other transactions		48			240

Net cash used in investing activities		(1,832	)		(2,087	)

Cash flows from financing activities
Dividends		(695	)		(713	)
Common stock transactions		57			12
Purchase and retirement of common stock		(803	)		(1,075	)
Proceeds from borrowings – net		694			1,185
Debt repayments		(600	)		(102	)

Net cash used in financing activities		(1,347	)		(693	)

Net increase (decrease) in cash and cash equivalents		(145	)		128

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

At end of year	$	956		$	1,101

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized)	$	543		$	518
Income taxes (net of refunds)		593			386

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Stock Repurchase Program

We repurchased and retired 9.2 million and 11.3 million shares of common stock under our stock repurchase program in 2016 and 2015, respectively, at a cost of $803 million and $1.1 billion, respectively. On August 1, 2012, our Board of Directors authorized the repurchase of up to an additional 50 million shares of common stock through December 31, 2017, and 14.7 million shares remain under this authority as of December 31, 2016. 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 160.3 million shares at a total cost of $10.3 billion.

2. Restructuring Costs

Fourth quarter 2015 operating expenses 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.

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 retrospectively adopted the provisions of this ASU during the first quarter of 2016 and presented the December 31, 2015, Consolidated Balance Sheet to reflect the reclassification of $121 million of deferred income tax assets from current assets 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 affected 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 $17 million recognized in the "Provision for income taxes" line item for the year ended December 31, 2016. The classification requirements on the Consolidated Statements of Cash Flows for the adoption of ASU 2016-09 resulted in a $34 million increase in operating activities and a corresponding decrease in financing activities for the year ended December 31, 2016. We retrospectively presented the Consolidated Statements of Cash Flows for the year ended December 31, 2015 to reflect a $31 million increase in operating activities and a corresponding decrease in financing activities.

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