NSC 8-K
Norfolk Southern Corp (NSC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 29, 2020 (
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
Item 7.01. Regulation FD Disclosure
On April 29, 2020, the Registrant issued a Press Release, attached hereto as Exhibit 99.1, reporting first quarter results for 2020. Quarterly financial data is attached hereto as Exhibit 99.2. These documents are available on the Registrant’s website, www.norfolksouthern.com, in the “Invest in NS” section, under “Financial Reports.”
The accompanying unaudited financial information and summary of certain notes to the consolidated financial statements should be read in conjunction with: (a) the consolidated financial statements and notes included in the Registrant's latest Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q; and (b) any Current Reports on Form 8-K.
Item 8.01 Other Events
On April 29, 2020, the Registrant furnished the 2018 & 2019 Railway Operating Revenues Analysis for its revenue commodity groups (“Railway Operating Revenues Analysis”), attached hereto as Exhibit 99.3. During the first quarter of 2020, the Registrant re-categorized certain commodities within the Merchandise major commodity groups to better align with how it internally manages these commodities. The Railway Operating Revenues Analysis re-categorizes these commodities within Merchandise revenues for full year 2018 and 2019 and each quarter therein to conform to the current categorization and for purposes of comparison of upcoming quarterly Merchandise revenue to the corresponding periods in 2018 and 2019.
The re-categorization does not have any net impact on previously reported overall Merchandise revenues or total railway operating revenues for 2018 or 2019.
The Railway Operating Revenues Analysis should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrant’s latest Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are filed as part of this Current Report on Form 8-K:
| Exhibit Number | Description |
| 99.1 | Press Release dated April 29, 2020 |
| 99.2 | 2020 1Q Financial Data |
| 99.3 | 2018 & 2019 Railway Operating Revenues Analysis |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SIGNATURES | |
| NORFOLK SOUTHERN CORPORATION | |
| (Registrant) | |
| /s/ Denise W. Hutson | |
| Name: Denise W. Hutson | |
| Title: Corporate Secretary |
Date: April 29, 2020
FOR IMMEDIATE RELEASE
Norfolk Southern reports first-quarter 2020 results, non-cash asset rationalization charge related to PSR implementation
NORFOLK, Va., April 29, 2020 – Norfolk Southern Corporation (NYSE: NSC) today reported first-quarter financial results of net income equal to $381 million, diluted earnings per share of $1.47, and an operating ratio of 78.4%. These results include a $385 million non-cash locomotive rationalization charge related to the ongoing disposition and marketing of excess locomotives not required for future operations due to the successful introduction of Precision Scheduled Railroading. Excluding the effects of the asset rationalization charge, adjusted first-quarter net income was $669 million, adjusted diluted earnings per share were $2.58, and the adjusted operating ratio improved by 230 basis points compared with first-quarter 2019 to 63.7%.
“During the first quarter, Norfolk Southern’s determination to transform our operations once again produced all-time best service delivery levels accompanied by productivity improvements, despite volumes being impacted by weak energy prices and the onset of the COVID-19 pandemic,” said James A. Squires, Norfolk Southern chairman, president and CEO. “While it is unclear how long economic activity will remain suppressed, we are dedicated to serving our customers and keeping our employees healthy and safe while navigating the downturn so that we can emerge strong and resilient for our shareholders. I am extremely proud of the commitment and strength the Norfolk Southern team has displayed by keeping our nation’s freight moving during this challenging start to 2020 while also enhancing our financial position.”
First-quarter summary
| · | Railway operating revenues of $2.6 billion decreased 8% compared with first-quarter 2019, driven by an 11% decline in total volume. |
| · | Railway operating expenses were $2.1 billion, including a $385 million non-cash locomotive rationalization charge related to locomotives marketed for sale and/or disposed of as a result of productivity gains achieved through the successful introduction of Precision Scheduled Railroading. |
| ◦ | Excluding the locomotive rationalization charge, adjusted operating expenses declined $202 million, or 11%, driven by lower compensation and benefits, fuel, purchased services, and materials. |
| · | Income from railway operations was $568 million and the operating ratio was 78.4%. |
| ◦ | Adjusted income from railway operations of $953 million declined by 1%, while the adjusted operating ratio improved to 63.7% versus the first-quarter record of 66.0% set in 2019. |
Guidance update
| · | Second-quarter volumes have continued to decline across all of Norfolk Southern’s commodity segments, down 30% quarter-to-date, setting up for a very soft revenue outlook. With uncertainty on both the cadence of reopening the U.S. economy and the slope of recovery, we withdraw the previously-issued outlook for flat full year revenue. |
| · | As a result of the current volume environment, we also withdraw core operating ratio guidance for 2020. |
| · | “While the COVID-19 pandemic will effect business volumes for the year, the PSR implementation that our team is executing upon will generate significant operating expense savings in 2020,” said Chief Financial Officer Mark R. George. “In this challenging environment our team is doubling down on examination of our structural cost opportunities to ensure that we remain positioned to drive enhanced profitability for the long term.” |
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.
Media Inquiries:
Media Relations, 404-420-4444 ([email protected])
Investor Inquiries:
Pete Sharbel, 470-867-4807 ([email protected])
http://www.norfolksouthern.com
Reconciliation of Non-GAAP Financial Measures
Information included within this press release 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 a non-cash charge in the first quarter of 2020 related to the disposal of approximately 300 locomotives and the designation of an additional 400 locomotives as held for sale. The introduction of precision scheduled railroading in 2019 continues to provide significant benefits to the network operations and has resulted in excess capacity resulting in the sidelining of these locomotives.
The Company uses these non-GAAP financial measures internally and believes this information provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the locomotive disposal charge. While the Company believes that these non-GAAP financial measures are useful in evaluating the Company’s business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.
| ($ in millions except per share amounts) | First Quarter 2020 | |||
| Railway operating expenses | $ | 2,057 | ||
| Effect of locomotive charge | (385 | ) | ||
| Adjusted railway operating expenses | $ | 1,672 | ||
| Income from railway operations | $ | 568 | ||
| Effect of locomotive charge | 385 | |||
| Adjusted income from railway operations | $ | 953 | ||
| Operating ratio (%) | 78.4 | |||
| Effect of locomotive charge (%) | (14.7 | ) | ||
| Adjusted operating ratio (%) | 63.7 | |||
| Net income | $ | 381 | ||
| Effect of locomotive charge | 288 | |||
| Adjusted net income | $ | 669 | ||
| Diluted earnings per share | $ | 1.47 | ||
| Effect of locomotive charge | 1.11 | |||
| Adjusted diluted earnings per share | $ | 2.58 | ||
###
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| First Quarter | ||||||||
| 2020 | 2019 | |||||||
| (in millions, except per share amounts) | ||||||||
| Railway operating revenues | ||||||||
| Merchandise | $ | 1,672 | $ | 1,686 | ||||
| Intermodal | 655 | 719 | ||||||
| Coal | 298 | 435 | ||||||
| Total railway operating revenues | 2,625 | 2,840 | ||||||
| Railway operating expenses | ||||||||
| Compensation and benefits | 622 | 727 | ||||||
| Purchased services and rents | 403 | 424 | ||||||
| Fuel | 189 | 250 | ||||||
| Depreciation | 292 | 283 | ||||||
| Materials and other | 166 | 190 | ||||||
| Loss on asset disposal | 385 | — | ||||||
| Total railway operating expenses | 2,057 | 1,874 | ||||||
| Income from railway operations | 568 | 966 | ||||||
| Other income – net | 22 | 44 | ||||||
| Interest expense on debt | 154 | 149 | ||||||
| Income before income taxes | 436 | 861 | ||||||
| Income taxes | ||||||||
| Current | 44 | 127 | ||||||
| Deferred | 11 | 57 | ||||||
| Total income taxes | 55 | 184 | ||||||
| Net income | $ | 381 | $ | 677 | ||||
| Earnings per share – diluted | $ | 1.47 | $ | 2.51 | ||||
| Weighted average shares outstanding – diluted | 258.7 | 269.4 | ||||||
See accompanying notes to consolidated financial statements
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ($ in millions) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 608 | $ | 580 | ||||
| Accounts receivable – net | 889 | 920 | ||||||
| Materials and supplies | 265 | 244 | ||||||
| Other current assets | 240 | 337 | ||||||
| Total current assets | 2,002 | 2,081 | ||||||
| Investments | 3,470 | 3,428 | ||||||
| Properties less accumulated depreciation of $11,794 | ||||||||
| and $11,982, respectively | 31,179 | 31,614 | ||||||
| Other assets | 787 | 800 | ||||||
| Total assets | $ | 37,438 | $ | 37,923 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,284 | $ | 1,428 | ||||
| Income and other taxes | 200 | 229 | ||||||
| Other current liabilities | 352 | 327 | ||||||
| Current maturities of long-term debt | 400 | 316 | ||||||
| Total current liabilities | 2,236 | 2,300 | ||||||
| Long-term debt | 11,807 | 11,880 | ||||||
| Other liabilities | 1,683 | 1,744 | ||||||
| Deferred income taxes | 6,828 | 6,815 | ||||||
| Total liabilities | 22,554 | 22,739 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock $1.00 per share par value, 1,350,000,000 shares | ||||||||
| authorized; outstanding 256,179,130 and 257,904,956 shares, | ||||||||
| respectively, net of treasury shares | 258 | 259 | ||||||
| Additional paid-in capital | 2,205 | 2,209 | ||||||
| Accumulated other comprehensive loss | (481 | ) | (491 | ) | ||||
| Retained income | 12,902 | 13,207 | ||||||
| Total stockholders’ equity | 14,884 | 15,184 | ||||||
| Total liabilities and stockholders’ equity | $ | 37,438 | $ | 37,923 | ||||
See accompanying notes to consolidated financial statements
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| First Three Months | ||||||||
| 2020 | 2019 | |||||||
| ($ in millions) | ||||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 381 | $ | 677 | ||||
| Reconciliation of net income to net cash provided by operating activities: | ||||||||
| Depreciation | 292 | 283 | ||||||
| Deferred income taxes | 11 | 57 | ||||||
| Gains and losses on properties | (8 | ) | (18 | ) | ||||
| Loss on asset disposal | 385 | — | ||||||
| Changes in assets and liabilities affecting operations: | ||||||||
| Accounts receivable | 32 | (39 | ) | |||||
| Materials and supplies | (21 | ) | (21 | ) | ||||
| Other current assets | (33 | ) | 12 | |||||
| Current liabilities other than debt | (40 | ) | (27 | ) | ||||
| Other – net | (44 | ) | (43 | ) | ||||
| Net cash provided by operating activities | 955 | 881 | ||||||
| Cash flows from investing activities | ||||||||
| Property additions | (366 | ) | (467 | ) | ||||
| Property sales and other transactions | 158 | 152 | ||||||
| Investment purchases | — | (2 | ) | |||||
| Investment sales and other transactions | (25 | ) | (33 | ) | ||||
| Net cash used in investing activities | (233 | ) | (350 | ) | ||||
| Cash flows from financing activities | ||||||||
| Dividends | (242 | ) | (230 | ) | ||||
| Common stock transactions | 14 | 2 | ||||||
| Purchase and retirement of common stock | (466 | ) | (500 | ) | ||||
| Proceeds from borrowings | — | 250 | ||||||
| Net cash used in financing activities | (694 | ) | (478 | ) | ||||
| Net increase in cash, cash equivalents, and restricted cash | 28 | 53 | ||||||
| Cash, cash equivalents, and restricted cash | ||||||||
| At beginning of year | 580 | 446 | ||||||
| At end of period | $ | 608 | $ | 499 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest (net of amounts capitalized) | $ | 121 | $ | 112 | ||||
| Income taxes (net of refunds) | 16 | 9 | ||||||
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. 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 quarter of 2020, the Company recorded a charge related to the loss on the sale of approximately 300 locomotives disposed of in the first quarter, and a write-down of approximately 400 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. The loss on asset disposal reduced "Earnings per share – diluted" by $1.11.
2. Stock Repurchase Program
We repurchased and retired 2.6 million and 2.9 million shares of common stock under our stock repurchase program during the first three months of 2020 and 2019, respectively, at a cost of $466 million and $500 million, respectively.
3. Restricted Cash
The "Cash, cash equivalents, and restricted cash" line item on the Consolidated Statement of Cash Flows includes restricted cash of $88 million in 2019, reflecting deposits held by a third-party bond agent as collateral for certain debt obligations which matured on October 1, 2019.
Railway Operating Revenues Analysis
| Revenues | Units | Revenue per Unit | ||||||||||||||||||||||
| ($ in millions) | (in thousands) | ($ per unit) | ||||||||||||||||||||||
| Commodity and Period | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| First Quarter | ||||||||||||||||||||||||
| Agriculture, forest and consumer products | $ | 558 | $ | 594 | 190.7 | 211.2 | $ | 2,927 | $ | 2,811 | ||||||||||||||
| Chemicals | 507 | 400 | 145.0 | 106.5 | 3,495 | 3,751 | ||||||||||||||||||
| Metals and construction | 370 | 368 | 164.4 | 185.6 | 2,255 | 1,985 | ||||||||||||||||||
| Automotive | 251 | 243 | 98.1 | 102.8 | 2,557 | 2,362 | ||||||||||||||||||
| Merchandise | 1,686 | 1,605 | 598.2 | 606.1 | 2,819 | 2,647 | ||||||||||||||||||
| Intermodal | 719 | 678 | 1,071.0 | 1,049.2 | 671 | 647 | ||||||||||||||||||
| Coal | 435 | 434 | 236.3 | 249.1 | 1,839 | 1,743 | ||||||||||||||||||
| Total | $ | 2,840 | $ | 2,717 | 1,905.5 | 1,904.4 | 1,490 | 1,427 | ||||||||||||||||
| Second Quarter | ||||||||||||||||||||||||
| Agriculture, forest and consumer products | $ | 577 | $ | 629 | 200.6 | 221.7 | $ | 2,875 | $ | 2,839 | ||||||||||||||
| Chemicals | 544 | 396 | 153.7 | 108.1 | 3,541 | 3,670 | ||||||||||||||||||
| Metals and construction | 384 | 440 | 182.1 | 221.0 | 2,104 | 1,986 | ||||||||||||||||||
| Automotive | 251 | 253 | 101.8 | 104.7 | 2,471 | 2,421 | ||||||||||||||||||
| Merchandise | 1,756 | 1,718 | 638.2 | 655.5 | 2,751 | 2,621 | ||||||||||||||||||
| Intermodal | 701 | 714 | 1,048.5 | 1,091.8 | 668 | 654 | ||||||||||||||||||
| Coal | 468 | 466 | 258.3 | 273.6 | 1,815 | 1,704 | ||||||||||||||||||
| Total | $ | 2,925 | $ | 2,898 | 1,945.0 | 2,020.9 | 1,504 | 1,434 | ||||||||||||||||
| Third Quarter | ||||||||||||||||||||||||
| Agriculture, forest and consumer products | $ | 572 | $ | 653 | 191.7 | 223.2 | $ | 2,984 | $ | 2,926 | ||||||||||||||
| Chemicals | 535 | 426 | 148.2 | 114.6 | 3,609 | 3,719 | ||||||||||||||||||
| Metals and construction | 377 | 413 | 182.5 | 209.6 | 2,066 | 1,972 | ||||||||||||||||||
| Automotive | 247 | 245 | 99.5 | 98.4 | 2,480 | 2,486 | ||||||||||||||||||
| Merchandise | 1,731 | 1,737 | 621.9 | 645.8 | 2,783 | 2,690 | ||||||||||||||||||
| Intermodal | 707 | 746 | 1,059.9 | 1,116.2 | 668 | 669 | ||||||||||||||||||
| Coal | 403 | 464 | 218.7 | 255.8 | 1,842 | 1,812 | ||||||||||||||||||
| Total | $ | 2,841 | $ | 2,947 | 1,900.5 | 2,017.8 | 1,495 | 1,461 | ||||||||||||||||
| Fourth Quarter | ||||||||||||||||||||||||
| Agriculture, forest and consumer products | $ | 549 | $ | 647 | 180.7 | 217.6 | $ | 3,036 | $ | 2,974 | ||||||||||||||
| Chemicals | 506 | 412 | 142.0 | 112.7 | 3,565 | 3,652 | ||||||||||||||||||
| Metals and construction | 330 | 375 | 156.1 | 183.4 | 2,119 | 2,044 | ||||||||||||||||||
| Automotive | 245 | 250 | 95.3 | 98.0 | 2,563 | 2,550 | ||||||||||||||||||
| Merchandise | 1,630 | 1,684 | 574.1 | 611.7 | 2,839 | 2,752 | ||||||||||||||||||
| Intermodal | 697 | 755 | 1,027.8 | 1,118.5 | 678 | 675 | ||||||||||||||||||
| Coal | 363 | 457 | 200.7 | 255.0 | 1,811 | 1,792 | ||||||||||||||||||
| Total | $ | 2,690 | $ | 2,896 | 1,802.6 | 1,985.2 | 1,492 | 1,458 | ||||||||||||||||
| Year | ||||||||||||||||||||||||
| Agriculture, forest and consumer products | $ | 2,256 | $ | 2,523 | 763.7 | 873.7 | $ | 2,953 | $ | 2,888 | ||||||||||||||
| Chemicals | 2,092 | 1,634 | 588.9 | 441.9 | 3,553 | 3,697 | ||||||||||||||||||
| Metals and construction | 1,461 | 1,596 | 685.1 | 799.6 | 2,133 | 1,996 | ||||||||||||||||||
| Automotive | 994 | 991 | 394.7 | 403.9 | 2,517 | 2,453 | ||||||||||||||||||
| Merchandise | 6,803 | 6,744 | 2,432.4 | 2,519.1 | 2,797 | 2,677 | ||||||||||||||||||
| Intermodal | 2,824 | 2,893 | 4,207.2 | 4,375.7 | 671 | 661 | ||||||||||||||||||
| Coal | 1,669 | 1,821 | 914.0 | 1,033.5 | 1,826 | 1,762 | ||||||||||||||||||
| Total | $ | 11,296 | $ | 11,458 | 7,553.6 | 7,928.3 | 1,495 | 1,445 | ||||||||||||||||