NORFOLK SOUTHERN CORP - FORM 8-K - EX-99.2 - 2Q 2016 FINANCIAL STATEMENTS

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EX-99.1 - PRESS RELEASE - NORFOLK SOUTHERN CORP	nspr-072716.htm
8-K - 8-K - NORFOLK SOUTHERN CORP	ns8k072716.htm

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



	Second Quarter				First Six Months
	2016		2015		2016		2015
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,577	$	1,627	$	3,126	$	3,147
Intermodal		538		633		1,060		1,225
Coal		339		453		688		908
Total railway operating revenues		2,454		2,713		4,874		5,280

Railway operating expenses
Compensation and benefits		667		724		1,390		1,507
Purchased services and rents		384		438		763		861
Fuel		174		255		323		519
Depreciation		257		247		509		492
Materials and other		202		235		396		481

Total railway operating expenses		1,684		1,899		3,381		3,860

Income from railway operations		770		814		1,493		1,420

Other income – net		4		19		20		40
Interest expense on debt		138		134		277		266

Income before income taxes		636		699		1,236		1,194

Provision for income taxes
Current		174		243		343		416
Deferred		57		23		101		35
Total income taxes		231		266		444		451

Net income	$	405	$	433	$	792	$	743

Earnings per share
Basic	$	1.37	$	1.43	$	2.67	$	2.43
Diluted		1.36		1.41		2.65		2.41

Weighted average shares outstanding (note 1)
Basic		294.7		302.9		296.0		304.8
Diluted		296.6		305.5		297.7		307.5

See accompanying notes to consolidated financial statements.

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



	Second Quarter						First Six Months
	2016			2015			2016			2015
	($ in millions)

Net income	$	405		$	433		$	792		$	743
Other comprehensive income, before tax:
Pension and other postretirement benefits		6			11			13			21
Other comprehensive income (loss) of
equity investees		1			—			—			(4	)

Other comprehensive income, before tax		7			11			13			17
Income tax expense related to items of other
comprehensive income		(2	)		(5	)		(5	)		(8	)

Other comprehensive income, net of tax		5			6			8			9

Total comprehensive income	$	410		$	439		$	800		$	752

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)



	June 30,			December 31,
	2016			2015
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	866		$	1,101
Accounts receivable – net		985			946
Materials and supplies		306			271
Other current assets		82			194
Total current assets (note 2)		2,239			2,512

Investments		2,639			2,572
Properties less accumulated depreciation of $11,586 and
$11,478, respectively		29,387			28,992
Other assets		69			63

Total assets	$	34,334		$	34,139

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,085		$	1,091
Short-term debt		—			200
Income and other taxes		205			203
Other current liabilities		267			237
Current maturities of long-term debt		550			500
Total current liabilities		2,107			2,231

Long-term debt		9,549			9,393
Other liabilities		1,358			1,385
Deferred income taxes (note 2)		9,047			8,942

Total liabilities		22,061			21,951

Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 293,549,767 and 297,795,016 shares,
respectively, net of treasury shares		295			299
Additional paid-in capital		2,146			2,143
Accumulated other comprehensive loss		(437	)		(445	)
Retained income		10,269			10,191

Total stockholders’ equity		12,273			12,188

Total liabilities and stockholders’ equity	$	34,334		$	34,139

See accompanying notes to consolidated financial statements.

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



	First Six Months
	2016			2015
	($ in millions)
Cash flows from operating activities
Net income	$	792		$	743
Reconciliation of net income to net cash provided by operating activities:
Depreciation		511			494
Deferred income taxes		101			35
Gains and losses on properties		(7	)		(18	)
Changes in assets and liabilities affecting operations:
Accounts receivable		(17	)		—
Materials and supplies		(35	)		(41	)
Other current assets		103			282
Current liabilities other than debt (note 3)		25			27
Other – net		(41	)		(21	)

Net cash provided by operating activities		1,432			1,501

Cash flows from investing activities
Property additions		(932	)		(886	)
Property sales and other transactions		40			32
Investment purchases		(23	)		(3	)
Investment sales and other transactions		3			5

Net cash used in investing activities		(912	)		(852	)

Cash flows from financing activities
Dividends		(350	)		(360	)
Common stock transactions (note 3)		1			—
Purchase and retirement of common stock (note 1)		(400	)		(765	)
Proceeds from borrowings – net		594			494
Debt repayments		(600	)		(102	)

Net cash used in financing activities		(755	)		(733	)

Net decrease in cash and cash equivalents		(235	)		(84	)

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

At end of period	$	866		$	889

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	260		$	249
Income taxes (net of refunds)		251			55

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Stock Repurchase Program

We repurchased and retired 5.0 million and 7.4 million shares of common stock under our stock repurchase program in the first six months of 2016 and 2015, respectively, at a cost of $400 million and $765 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 156.1 million shares at a total cost of $9.9 billion.

2. 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 $110 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 June 30, 2016. We retrospectively presented the December 31, 2015, Consolidated Balance Sheet and related disclosures 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.

3. 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 $6 million recognized in the "Provision for income taxes" line item for the six months ended June 30, 2016. The classification requirements on the Consolidated Statements of Cash Flows for the adoption of ASU 2016-09 resulted in a $23 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 six months of 2016. We retrospectively presented the Consolidated Statements of Cash Flows for the first six months of 2015 to reflect a $28 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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