(The following story by Christopher Dinsmore appeared on the Virginian-Pilot website on December 18.)
NORFOLK, Va. — Piling on the charges to its fourth-quarter results, Norfolk Southern Corp. announced Wednesday that it would take an $80 million charge to write down the value of its telecommunications assets by 73 percent.
After taxes, the charge will take a $50 million bite, or 13 cents a share, out of the Norfolk-based railroad?s earnings.
The railroad already had said on Nov. 5 that it would take a $107 million charge to cover the costs of a voluntary separation program that reduced its management ranks by 13 percent.
“This charge recognizes the reduced value of telecommunications assets based on prevailing market conditions in the telecommunications industry,” said David R. Goode, Norfolk Southern?s chairman, president and chief executive officer, in a statement.
However, the railroad remains committed to its participation in the industry, Goode added.
Dominion Resources Inc., the Richmond-based energy producer, wrote off its telecom business in September, taking a $650 million charge against third-quarter earnings and putting the business up for sale.
Norfolk Southern owns 1,600 miles of fiber-optic lines strung along its eastern U.S. rail corridors through a subsidiary, Thoroughbred Technology and Telecommunications, or T-Cubed.
The write-down slashes the value of that network to about $30 million from $110 million, said Robert C. Fort, Norfolk Southern?s vice president of public relations.
“Obviously we still see some potential there,” Fort said.
Norfolk Southern established T-Cubed in 1999 to take advantage of the growing demand for telecom infrastructure, but too much capacity was being built, and the industry has since stumbled into a massive restructuring.
In its latest quarterly 10-Q filing with the Securities and Exchange Commission, Norfolk Southern said it was evaluating T-Cubed?s value because the telecom industry “continues to experience a severe downturn.”
The railroad operates 21,500 miles of rail lines in 22 states and Ontario, Canada. It is scheduled to announce its fourth-quarter and 2003 earnings on Jan. 28.
Analysts estimate the railroad will earn about 37 cents a share before the charges, according Zacks Investment Research Inc. Norfolk Southern stock ended the day up 3 cents at $23.47 a share in New York Stock Exchange trading.
(Bloomberg News contributed to this report.)