Norfolk Southern Corporation (NYSE: NSC) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 4, 2022. This is an annual filing, not a standalone fourth-quarter report, and the supplied text does not provide separate Q4 results. Norfolk Southern operates a major freight railroad across 22 states and the District of Columbia, with approximately 19,300 route miles.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Railway operating revenue | $11.142 billion | $9.789 billion |
| Railway operating expenses | $6.695 billion | $6.787 billion |
| Income from railway operations | $4.447 billion | $3.002 billion |
| Net income | $3.005 billion | $2.013 billion |
| Diluted earnings per share | $12.11 | $7.84 |
| Railway operating ratio | 60.1% | 69.3% |
| Cash provided by operating activities | $4.255 billion | $3.637 billion |
| Property additions | $1.470 billion | $1.494 billion |
- Revenue rose 14%; operating expenses declined 1%. Management attributed higher revenue to stronger demand and volume, pricing, fuel surcharges, mix, and intermodal storage charges. The lower operating ratio indicates reduced operating expense per revenue dollar.
- Merchandise revenue increased 10%, intermodal 19%, and coal 25%. Total units increased 5%; coal tonnage rose 14%.
- Cash and cash equivalents were $839 million at year-end, down from $1.115 billion. Working capital was negative $354 million, versus positive $158 million a year earlier.
- Total debt, including current maturities, was $13.840 billion, up from $12.681 billion. Debt-to-total capitalization increased to 50.4% from 46.2%. Interest expense was $646 million, compared with $625 million.
- Cash used in financing was $3.309 billion, including $3.390 billion for share repurchases and $1.028 billion for dividends. The company repurchased 12.7 million shares and paid $4.16 per share in dividends.
Changes versus prior periods and unusual items
- Reported 2021 net income increased 49% and diluted EPS increased 54% from 2020. Comparisons are affected by two 2020 charges: a $385 million loss on disposal of 703 locomotives and a $99 million impairment of an equity-method investment.
- Excluding those charges, 2020 adjusted operating income was $3.486 billion, net income $2.375 billion, diluted EPS $9.25, and operating ratio 64.4%. Against these adjusted figures, 2021 operating income increased 28%, net income 27%, EPS 31%, and the operating ratio improved to 60.1%.
- Fuel expense rose 49% in 2021, primarily because locomotive fuel prices increased 43%; fuel consumption increased 4%. Compensation and benefits rose 3%, while materials and other expense fell 16%.
Outlook, risks, and contingencies
- For 2022, management expected merchandise and intermodal revenue to increase, but coal revenue to decline. It expected an effective tax rate of 23%–24% and property additions of $1.8–$1.9 billion. No consolidated revenue or earnings guidance is stated in the supplied filing text.
- Management said cash on hand and operating cash flow should meet ongoing obligations, with borrowing capacity, access to financing, and ability to reduce capital spending or shareholder distributions as additional flexibility. Available facilities included an $800 million revolver and a $400 million receivables program; neither had borrowings at year-end. The receivables program was due to expire in May 2022.
- Key risks include continuing pandemic effects and supply-chain constraints; employee availability and ongoing national labor negotiations; fuel-price and supply volatility; network capacity and service reliability; cybersecurity disruption; competition and possible increased rail regulation; severe weather and climate-related requirements; and hazardous-material accidents. Management cautioned that a catastrophic accident could exceed insurance coverage.
- Environmental liabilities were $49 million at year-end, based on 88 known locations and projects; the company said no individual site was material. An antitrust lawsuit by a minority owner of a jointly owned terminal railroad presents a reasonably possible loss, but the range could not be estimated. The company said fuel-surcharge litigation was not expected to have a material effect.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The auditor identified capitalization of property expenditures as a critical audit matter, involving judgment over distinguishing capital work from repairs and maintenance.
Most important facts for investors to verify
- Whether 2022 revenue growth, service performance, and cost control matched management’s expectations, particularly amid supply-chain and staffing constraints.
- How much reported earnings growth reflects operating improvement versus the absence of the 2020 locomotive-disposal and investment-impairment charges.
- Progress on leverage, debt maturities, liquidity, and the May 2022 receivables-program renewal, alongside planned capital spending and shareholder returns.
- Developments in labor negotiations, coal supply and demand, fuel costs, regulation, and the disclosed litigation and environmental exposures.