10-QPeriod: Q3 FY2009

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2009

Filed October 30, 2009For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a significant decline in net income for the third quarter and the first nine months of 2009, largely attributed to the weakening economic environment. Railway operating revenues decreased by 29% in the third quarter and 28% for the nine-month period, primarily driven by lower traffic volumes across all segments, particularly in coal and general merchandise, and reduced fuel surcharge revenue. Operating expenses were also reduced by 25% in the quarter and 24% for the nine months, mainly due to lower volume-related costs, decreased fuel prices, and expense reduction initiatives, though this was partially offset by increased wage rates and pension expenses. Despite the challenging economic climate, NSC maintained a strong liquidity position with $999 million in cash and cash equivalents as of September 30, 2009. The company actively managed its financial condition by issuing new debt to fund operations and capital expenditures, while also suspending share repurchases. Management remains focused on operational efficiency and safety, positioning NSC to capitalize on future economic recovery.

Financial Highlights

44 data points
Beta

Revenue

$2.06B

Net Income

$303.00M

14.7% Net Margin

EPS (Diluted)

$0.81

Total Assets

$27.07B

Cash & Equivalents

$999.00M

Free Cash Flow

$379.00M

Financial Statements
Beta
Revenue$2.06B
Operating Expenses$1.50B
Operating Income$562.00M
Interest Expense$118.00M
Net Income$303.00M
EPS (Basic)$0.82
EPS (Diluted)$0.81
Shares Outstanding (Basic)367.30M
Shares Outstanding (Diluted)372.50M

Key Highlights

  • 1Net income for the third quarter of 2009 was $303 million, a decrease of 42% compared to $520 million in the third quarter of 2008.
  • 2Railway operating revenues declined 29% in Q3 2009 to $2.1 billion, driven by a 20% decrease in volumes and lower fuel surcharges.
  • 3Operating expenses decreased by 25% in Q3 2009 to $1.5 billion, primarily due to lower volume-related expenses and reduced fuel prices.
  • 4The railway operating ratio worsened to 72.8% in Q3 2009 from 69.1% in Q3 2008, indicating higher operating expenses relative to revenues.
  • 5Cash provided by operating activities for the first nine months of 2009 was $1.4 billion, down from $2.1 billion in the prior year period.
  • 6Total assets grew to $27.1 billion as of September 30, 2009, from $26.3 billion at the end of 2008, with an increase in cash and investments.
  • 7Long-term debt increased to $6.7 billion from $6.2 billion, reflecting new debt issuances.

Frequently Asked Questions

The primary reason for the decline in net income was the significant decrease in railway operating revenues, down 29% year-over-year, which was driven by a 20% decrease in traffic volumes and lower fuel surcharge revenue, reflecting the challenging economic conditions of the period.

Norfolk Southern implemented significant cost-saving measures, reducing operating expenses by 25% in the third quarter. This was achieved through lower volume-related costs, favorable fuel prices, and other expense reduction initiatives, helping to partially offset the revenue decline.

The company maintained a strong liquidity position, with cash and cash equivalents totaling $999 million as of September 30, 2009. Management is using cash from operations and proceeds from new debt issuances to fund capital expenditures, debt maturities, and dividends, while share repurchases were suspended.

While Norfolk Southern is involved in various legal proceedings and environmental matters, including ongoing litigation and assessments related to environmental laws, the company's management believes that the recorded liabilities are adequate and that the ultimate resolution of these matters is unlikely to have a material adverse effect on its financial position, results of operations, or liquidity. However, the inherent uncertainties in these matters mean that unfavorable outcomes could still occur.