EX-99.2 3 ns3q2018financials.htm 3Q 2018 FINANCIALS Exhibit


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

 
Third Quarter
 
First Nine Months
 
2018
 
2017
 
2018
 
2017
 
($ in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
Railway operating revenues
 
 
 
 
 
 
 
 
 
 
 
Merchandise
$
1,737

 
 
$
1,600

 
 
$
5,060

 
 
$
4,781

 
Intermodal
 
746

 
 
 
621

 
 
 
2,138

 
 
 
1,785

 
Coal
 
464

 
 
 
449

 
 
 
1,364

 
 
 
1,316

 
Total railway operating revenues
 
2,947

 
 
 
2,670

 
 
 
8,562

 
 
 
7,882

 
 
 
 
 
 
 
 
 
 
 
 
 
Railway operating expenses
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
 
725

 
 
 
771

 
 
 
2,168

 
 
 
2,249

 
Purchased services and rents
 
450

 
 
 
377

 
 
 
1,281

 
 
 
1,146

 
Fuel
 
274

 
 
 
198

 
 
 
812

 
 
 
601

 
Depreciation
 
276

 
 
 
265

 
 
 
821

 
 
 
788

 
Materials and other
 
202

 
 
 
164

 
 
 
599

 
 
 
574

 
 
 
 
 
 
 
 
 
 
 
 
 
Total railway operating expenses
 
1,927

 
 
 
1,775

 
 
 
5,681

 
 
 
5,358

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from railway operations
 
1,020

 
 
 
895

 
 
 
2,881

 
 
 
2,524

 
 
 
 
 
 
 
 
 
 
 
 
 
Other income – net
 
30

 
 
 
39

 
 
 
67

 
 
 
127

 
Interest expense on debt
 
142

 
 
 
134

 
 
 
409

 
 
 
416

 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
908

 
 
 
800

 
 
 
2,539

 
 
 
2,235

 
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes
 
 
 
 
 
 
 
 
 
 
 
Current
 
157

 
 
 
189

 
 
 
437

 
 
 
580

 
Deferred
 
49

 
 
 
105

 
 
 
138

 
 
 
219

 
Total income taxes
 
206

 
 
 
294

 
 
 
575

 
 
 
799

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
702

 
 
$
506

 
 
$
1,964

 
 
$
1,436

 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share - diluted
$
2.52

 
 
$
1.75

 
 
$
6.95

 
 
$
4.93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - diluted
 
278.2

 
 
 
289.5

 
 
 
282.6

 
 
 
291.2

 




See accompanying notes to consolidated financial statements.




Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
 
Third Quarter
 
First Nine Months
 
2018
 
2017
 
2018
 
2017
 
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
702

 
 
$
506

 
 
$
1,964

 
 
$
1,436

 
Other comprehensive income, before tax:
 
 
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit
 
8

 
 
 
7

 
 
 
9

 
 
 
21

 
Other comprehensive income (loss) of
 
 
 
 
 
 
 
 
 
 
 
equity investees
 
—

 
 
 
—

 
 
 
2

 
 
 
(1
)
 
Other comprehensive income, before tax
 
8

 
 
 
7

 
 
 
11

 
 
 
20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense related to items of
 
 
 
 
 
 
 
 
 
 
 
other comprehensive income
 
(2
)
 
 
 
(2
)
 
 
 
(2
)
 
 
 
(8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax
 
6

 
 
 
5

 
 
 
9

 
 
 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
$
708

 
 
$
511

 
 
$
1,973

 
 
$
1,448

 



















   

See accompanying notes to consolidated financial statements.




Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 
September 30,
 
December 31,
 
2018
 
2017
 
($ in millions)
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
 
729

 
 
$
 
690

 
Accounts receivable – net
 
 
1,043

 
 
 
 
955

 
Materials and supplies
 
 
267

 
 
 
 
222

 
Other current assets
 
 
70

 
 
 
 
282

 
Total current assets
 
 
2,109

 
 
 
 
2,149

 
 
 
 
 
 
 
 
 
Investments
 
 
3,109

 
 
 
 
2,981

 
Properties less accumulated depreciation of $12,276 and
 
 
 
 
 
 
 
$11,909, respectively
 
 
30,712

 
 
 
 
30,330

 
Other assets
 
 
392

 
 
 
 
251

 
 
 
 
 
 
 
 
 
Total assets
$
 
36,322

 
 
$
 
35,711

 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
 
1,394

 
 
$
 
1,401

 
Short-term debt
 
 
—

 
 
 
 
100

 
Income and other taxes
 
 
230

 
 
 
 
211

 
Other current liabilities
 
 
317

 
 
 
 
233

 
Current maturities of long-term debt
 
 
500

 
 
 
 
600

 
Total current liabilities
 
 
2,441

 
 
 
 
2,545

 
 
 
 
 
 
 
 
 
Long-term debt
 
 
10,635

 
 
 
 
9,136

 
Other liabilities
 
 
1,302

 
 
 
 
1,347

 
Deferred income taxes
 
 
6,464

 
 
 
 
6,324

 
 
 
 
 
 
 
 
 
Total liabilities
 
 
20,842

 
 
 
 
19,352

 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
Common stock $1.00 per share par value, 1,350,000,000 shares
 
 
 
 
 
 
 
  authorized; outstanding 272,346,940 and 284,157,187 shares,
 
 
 
 
 
 
 
  respectively, net of treasury shares
 
 
274

 
 
 
 
285

 
Additional paid-in capital
 
 
1,996

 
 
 
 
2,254

 
Accumulated other comprehensive loss
 
 
(435
)
 
 
 
 
(356
)
 
Retained income
 
 
13,645

 
 
 
 
14,176

 
 
 
 
 
 
 
 
 
Total stockholders’ equity
 
 
15,480

 
 
 
 
16,359

 
 
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
$
 
36,322

 
 
$
 
35,711

 
  

See accompanying notes to consolidated financial statements.




Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
First Nine Months
 
2018
 
2017
 
($ in millions)
Cash flows from operating activities
 
 
 
 
 
Net income
$
1,964

 
 
$
1,436

 
Reconciliation of net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation
 
822

 
 
 
791

 
Deferred income taxes
 
138

 
 
 
219

 
Gains and losses on properties
 
(26
)
 
 
 
(62
)
 
Changes in assets and liabilities affecting operations:
 
 
 
 
 
Accounts receivable
 
(102
)
 
 
 
(59
)
 
Materials and supplies
 
(45
)
 
 
 
12

 
Other current assets
 
45

 
 
 
68

 
Current liabilities other than debt
 
173

 
 
 
165

 
Other – net
 
(85
)
 
 
 
(105
)
 
 
 
 
 
 
 
Net cash provided by operating activities
 
2,884

 
 
 
2,465

 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
Property additions
 
(1,326
)
 
 
 
(1,315
)
 
Property sales and other transactions
 
93

 
 
 
137

 
Investment purchases
 
(4
)
 
 
 
(4
)
 
Investment sales and other transactions
 
96

 
 
 
8

 
 
 
 
 
 
 
Net cash used in investing activities
 
(1,141
)
 
 
 
(1,174
)
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
Dividends
 
(627
)
 
 
 
(529
)
 
Common stock transactions
 
38

 
 
 
75

 
Purchase and retirement of common stock
 
(2,300
)
 
 
 
(712
)
 
Proceeds from borrowings – net of issuance costs
 
2,023

 
 
 
293

 
Debt repayments
 
(750
)
 
 
 
(650
)
 
 
 
 
 
 
 
Net cash used in financing activities
 
(1,616
)
 
 
 
(1,523
)
 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash
 
127

 
 
 
(232
)
 
 
 
 
 
 
 
Cash, cash equivalents, and restricted cash
 
 
 
 
 
At beginning of year
 
690

 
 
 
956

 
 
 
 
 
 
 
At end of period
$
817

 
 
$
724

 
 
 
 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
Interest (net of amounts capitalized)
$
327

 
 
$
345

 
Income taxes (net of refunds)
 
314

 
 
 
594

 

   

 

See accompanying notes to consolidated financial statements.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.     Pensions and Other Postretirement Benefits
We adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-07 on January 1, 2018. The retrospective application resulted in the reclassification of $16 million and $48 million of pension and other postretirement benefits from the “Compensation and benefits” line item within “Railway operating expenses” to “Other income – net” on the Consolidated Statements of Income for the third quarter and first nine months of 2017, respectively.

2.     Stock Repurchase Programs
We repurchased and retired 12.8 million shares (5.7 million shares under an accelerated stock repurchase program (ASR) and 7.1 million shares under our ongoing program) and 6.0 million shares of common stock under our stock repurchase programs in the first nine months of 2018 and 2017, respectively, at a cost of $2.1 billion and $712 million, respectively. We entered into an ASR on August 2, 2018 with two third-party financial institutions to repurchase common stock, at which time we made a payment of $1.2 billion to the financial institutions and received an initial delivery of 5.7 million shares valued at $960 million. The remaining balance of $240 million, included in “Additional paid-in capital” on the Consolidated Balance Sheets, will be settled no later than the end of January 2019, with the final number of shares to be delivered by the financial institutions equal to the volume-weighted average price per share of common stock over the ASR term, less a negotiated discount.

Since the beginning of 2006, we have repurchased and retired 181.3 million shares at a total cost of $13.4 billion.

3.     Reclassification of Stranded Tax Effects
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This update is intended to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017 from accumulated other comprehensive income to retained earnings. In the first quarter of 2018, we adopted the provisions of ASU 2018-02 resulting in an increase to “Accumulated other comprehensive loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’ equity.”

4.     Restricted Cash
The “Cash, cash equivalents, and restricted cash” line item in the Consolidated Statements of Cash Flows includes restricted cash of $88 million at September 30, 2018 which reflects deposits held by a third party bond agent as collateral for certain debt obligations maturing in 2019. The restricted cash balance is included as part of “Other assets” on the Consolidated Balance Sheets.