01—Abstract
Summary
Summary of the 10-K filed February 6, 2017. Cited figures are marked; the original filing is the authoritative source.
Norfolk Southern Corporation (NSC) filed its 2016 10-K on February 6, 2017, providing a comprehensive overview of its operations and financial performance for the year ending December 30, 2016.
The report highlights NSC's position as a leading transportation company with a vast freight railroad network spanning approximately 19,500 miles across 22 states. The company's primary business involves the rail transportation of a diverse range of goods, including raw materials, intermediate products, and finished goods, serving major industrial and consumer markets primarily in the eastern half of the United States. Financially, 2016 presented a mixed operational landscape for NSC.
While railway operating revenues saw a decrease compared to prior years, the company achieved a record-low railway operating ratio of 68.9%a due to disciplined cost control and productivity savings. This operational efficiency allowed for improved service levels and asset utilization, despite broader economic challenges.
The report details revenue streams from merchandise, intermodal, and coal, with merchandise accounting for the largest portion. The company's strategic plan continues to focus on efficiency gains, service quality, and increased returns on capital, with projections for revenue growth in 2017 driven by expected volume increases in coal and intermodal markets.
02—Key points
Key Highlights
- Norfolk Southern operated approximately 19,500 miles of railroad track across 22 states, serving a significant portion of the eastern United States.
- Total railway operating revenues for 2016 were $9.9 billion, a decrease from $10.5 billion in 2015 and $11.6 billion in 2014, primarily driven by lower volume and reduced fuel surcharges.
- The company achieved a record-low railway operating ratio of 68.9% in 2016, down from 72.6% in 2015, reflecting strong cost control and productivity savings.
- Merchandise revenue was the largest contributor, accounting for 63% of total railway operating revenues, followed by Intermodal (22%) and Coal (15%).
- Capital expenditures for property additions were $1.9 billion in 2016, with a budgeted $1.9 billion for 2017, focused on infrastructure, equipment, and technology.
- The company continued to invest in Positive Train Control (PTC) systems, budgeting $240 million for implementation in 2017.
- Approximately 80% of railroad employees are covered by collective bargaining agreements, with national negotiations ongoing with various labor unions.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 6, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $9.89B$10.51B | −5.9% |
| Operating Expenses | $6.88B$7.63B | −9.8% |
| Operating Income | $3.01B$2.88B | +4.3% |
| Interest Expense | $563.00M$545.00M | +3.3% |
| Net Income | $1.67B$1.56B | +7.2% |
| EPS (Basic) | $5.66$5.13 | +10.3% |
| EPS (Diluted) | $5.62$5.10 | +10.2% |
| Shares Outstanding (Basic) | 293.90M301.90M | −2.6% |
| Shares Outstanding (Diluted) | 296.00M304.40M | −2.8% |
05—Questions
Frequently Asked Questions
What were Norfolk Southern's main revenue drivers in 2016?
In 2016, Norfolk Southern's main revenue drivers were merchandise (63% of total railway operating revenues), intermodal (22%), and coal (15%). Merchandise revenue is diversified across chemicals, agriculture/consumer products/government, metals/construction, automotive, and paper/clay/forest products.
How did Norfolk Southern manage its expenses in 2016?
Norfolk Southern focused on disciplined cost control and achieved productivity savings. This led to a significant reduction in railway operating expenses, resulting in a record-low railway operating ratio of 68.9% for 2016. Specific expense reductions were noted in compensation and benefits, purchased services and rents, fuel, and materials.
What are Norfolk Southern's key investments and capital expenditure plans?
In 2016, property additions totaled $1.9 billion. For 2017, the company budgeted $1.9 billion for property additions, including investments in normalized replacement of rail, ties, and ballast, bridge improvements, new and rebuilt locomotives, freight cars, intermodal capacity, facility upgrades, and continued implementation of Positive Train Control (PTC) systems.
What are the main risks and challenges facing Norfolk Southern?
Key risks include government regulation (potential for increased economic regulation), safety and security mandates (such as Positive Train Control implementation costs), environmental liabilities, competition from other transportation modes, general economic conditions affecting commodity demand, energy price volatility, labor relations, and the potential for severe weather events or terrorism.
06—Continue