PAGE ONE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------------
FORM 10-K405
(X)ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994.
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-8339
NORFOLK SOUTHERN CORPORATION
-----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 52-1188014
------------------------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Commercial Place, Norfolk, Virginia 23510-2191
------------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 629-2680
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
Norfolk Southern Corporation
Common Stock (Par Value $1.00) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K405 or any amendment to this Form 10-K405. (x)
The aggregate market value of the voting stock held by nonaffiliates
as of February 28, 1995: $8,755,508,161
The number of shares outstanding of each of the registrant's classes
of common stock, as of February 28, 1995: 132,416,136 (excluding
7,252,634 shares held by registrant's consolidated subsidiaries)
<PAGE> PAGE 2
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement (to be
dated April 3, 1995) to be filed electronically pursuant to Regulation
14A not later than 120 days after the end of the fiscal year are
incorporated by reference in Part III.
<PAGE> PAGE 3
TABLE OF CONTENTS
-----------------
Item Page
---- ----
Part I 1. Business 4
2. Properties 4
3. Legal Proceedings 21
4. Submission of Matters to a Vote of Security
Holders 21
Executive Officers of the Registrant 22
Part II 5. Market for Registrant's Common Stock and
Related Stockholder Matters 26
6. Selected Financial Data 27
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 34
8. Financial Statements and Supplementary Data 48
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 75
Part III 10. Directors and Executive Officers of the
Registrant 75
11. Executive Compensation 75
12. Security Ownership of Certain Beneficial
Owners and Management 75
13. Certain Relationships and Related
Transactions 75
Part IV 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K 76
Index to Consolidated Financial Statement
Schedule 76
Power of Attorney 80
Signatures 80
Exhibit Index 84
<PAGE> PAGE 4
PART I
Item 1. Business.
------ --------
and
Item 2. Properties.
------ ----------
GENERAL - Norfolk Southern Corporation (Norfolk Southern)
was incorporated on July 23, 1980, under the laws of the Commonwealth
of Virginia. On June l, 1982, Norfolk Southern acquired control of
two major operating railroads, Norfolk and Western Railway Company
(NW) and Southern Railway Company (Southern). In accordance with an
Agreement of Merger and Reorganization dated as of July 31, 1980, and
related Plans of Merger, and with the approval of the transaction by
the Interstate Commerce Commission (ICC), each issued share of NW's
common stock was converted into one share of Norfolk Southern Common
Stock and each issued share of Southern common stock was converted
into l.9 shares of Norfolk Southern Common Stock. The outstanding
shares of Southern's preferred stock remained outstanding without
change.
Effective December 31, 1990, Norfolk Southern transferred
all the common stock of NW to Southern, and Southern's name was
changed to Norfolk Southern Railway Company (Norfolk Southern
Railway). As of February 28, 1995, all the common stock of NW
(100 percent voting control) is owned by Norfolk Southern Railway, and
all the common stock of Norfolk Southern Railway and 9.6 percent of
its preferred stock (resulting in 94.4 percent voting control) are
owned directly by Norfolk Southern.
On June 21, 1985, Norfolk Southern acquired control of North
American Van Lines, Inc. and its subsidiaries (NAVL), a diversified
motor carrier. In accordance with an Acquisition Agreement dated May
2, 1984, and with the approval of the transaction by the ICC, Norfolk
Southern acquired all the issued and outstanding common stock of NAVL
from PepsiCo, Inc. During 1993, NAVL underwent a restructuring (see
discussion on page 6 and in Note 15 of Notes to Consolidated Financial
Statements on page 71) designed to enhance its opportunities to return
to profitability.
Unless indicated otherwise, Norfolk Southern and its
subsidiaries are referred to collectively as NS.
RAILROAD OPERATIONS - As of December 31, 1994, NS'
railroads operated 14,652 miles of road in the states of Alabama,
Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Maryland, Michigan, Mississippi, Missouri, New York, North Carolina,
Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West
Virginia, and the Province of Ontario, Canada. Of this total,
12,780 miles are owned, 677 miles are leased and 1,195 miles are
operated under trackage rights; also, of this total, 11,991 miles
are main line and 2,661 miles are branch line. In addition, NS'
railroads operate approximately 10,907 miles of passing, industrial,
yard and side tracks.
<PAGE> PAGE 5
NS' railroads have major leased lines in North Carolina and
between Cincinnati, Ohio, and Chattanooga, Tennessee. The North
Carolina leases, covering approximately 300 miles, expired by their
terms at the end of 1994. However, NS expects these leases to be
renewed or extended and NS' railroads have reached tentative
understandings for such renewal or extension. The tentative
arrangements call for payment of an annual rental of $8 million in
1995, with inflation adjustments in succeeding years. Pending the
approval of a form of lease extension agreement by the parties, NS'
railroads continue to operate over these lines under the terms of the
expired leases. If these leases ultimately are not renewed or
extended, NS' railroads could be required to continue using the lines
subject to conditions prescribed by the ICC or they might find it
necessary to operate over an alternate route or routes. It is not
expected that the resolution of this matter (whether resulting in
renewal or extension of the leases, continued use of the leased lines
under prescribed conditions or operation over one or more alternate
routes) will have a material effect on NS' consolidated financial
position.
The Cincinnati-Chattanooga lease, covering about 335 miles,
expires in 2026, subject to an option to extend the lease for an
additional 25 years at terms to be agreed upon.
NS' lines carry raw materials, intermediate products and
finished goods primarily in the Southeast and Midwest and to and
from the rest of the United States and parts of Canada. These lines
also transport overseas freight through several Atlantic and Gulf
Coast ports. Atlantic ports served by NS include: Norfolk, Va.;
Morehead City, N.C.; Charleston, S.C.; Savannah and Brunswick, Ga.;
and Jacksonville, Fl. Gulf Coast ports served include: Mobile,
Al., and New Orleans, La.
The lines of NS' railroads reach most of the larger
industrial and trading centers of the Southeast and Midwest, with
the exception of those in central and southern Florida. Atlanta,
Birmingham, New Orleans, Memphis, St. Louis, Kansas City (Missouri),
Chicago, Detroit, Cincinnati, Buffalo, Norfolk, Charleston, Savannah
and Jacksonville are among the leading centers originating and
terminating freight traffic on the system. In addition to serving
other established centers, the system's lines reach many industries,
mines (in western Virginia, eastern Kentucky and southern West
Virginia) and businesses located in smaller communities in its
service area. The traffic corridors carrying the heaviest volumes
of freight include those from the Appalachian coal fields of
Virginia, West Virginia and Kentucky to Norfolk and Sandusky, Oh.;
Buffalo to Chicago and Kansas City; Chicago to Jacksonville (via
Cincinnati, Chattanooga and Atlanta); and Washington,
D.C./Hagerstown, Md., to New Orleans (via Atlanta and Birmingham).
Buffalo, Chicago, Hagerstown, Jacksonville, Kansas City,
Memphis, New Orleans and St. Louis are major gateways for
interterritorial system traffic.
NS rail subsidiaries and other railroads have entered into
service interruption agreements, effective December 30, 1994,
providing indemnities to parties affected by a strike over specified
industry issues. If NS were so affected, it could receive daily
<PAGE> PAGE 6
indemnities from non-affected parties; if parties other than NS were
affected, NS could be required to pay indemnities to those parties.
If NS were required to pay the maximum amount of indemnities
required of it under these agreements--an event considered unlikely
at this time--such liability should not exceed approximately $85
million.
MOTOR CARRIER OPERATIONS - DOMESTIC OPERATIONS - NAVL's
principal transportation activity now is the domestic, irregular route
common and contract carriage of used household goods and special
commodities between points in the United States. NAVL also operates
as an intrastate carrier of property in 19 states.
Prior to its restructuring in 1993, NAVL's domestic motor
carrier business was organized into three primary divisions:
Relocation Services (RS) specializing in residential relocation of
used household goods; High Value Products (HVP) specializing in office
and industrial relocations and transporting exhibits; and Commercial
Transport (CT) specializing in the transportation of truckload
shipments of general commodities. In 1993, NAVL underwent a
restructuring involving termination of the CT Division and sale of the
operations of Tran-Star, Inc. (Tran-Star), NAVL's refrigerated
trucking subsidiary. In 1993, NAVL discontinued CT's operations,
transferred some parts of CT's business to other divisions and began
selling CT's assets that were not needed in NAVL's other operations.
The sale of Tran-Star's operations was completed on December 31, 1993.
During 1994, the RS and HVP divisions conducted operations
through agents at 696 locations in the United States. Agents are
local moving and storage companies that provide NAVL with such
services as solicitation, packing and warehousing in connection with
the movement of household goods and specialized products. NAVL's
future domestic operations are expected to be conducted principally
through the RS and HVP divisions.
Customized Logistics Services (CLS) was established in 1993
as an operating unit of the HVP Division. CLS' business is to focus
NAVL's resources to respond to a variety of customer needs for
integrated logistics services. The services include emergency parts
order fulfillment, time-definite transportation and in-transit
merge programs.
FOREIGN OPERATIONS - NAVL's foreign operations are conducted
through the RS and HVP Divisions and through foreign subsidiaries,
including North American Van Lines Canada, Ltd. The latter subsidiary
provides motor carrier service for the transportation of used
household goods and specialized commodities between most points in
Canada through a network of approximately 179 agent locations. NAVL's
international operations consist primarily of forwarding used
household goods to and from the United States and between foreign
countries through a network of approximately 330 foreign agents and
representatives. NAVL's international operations are structurally
aligned with the services provided by its domestic operating
divisions. All international household goods operations and related
subsidiaries in Alaska, Canada and Panama are assigned to the RS
Division. The remaining international operations, which include
subsidiaries in the United States, Germany and the United Kingdom,
<PAGE> PAGE 7
are involved in the transportation of selected general and
specialized commodities and are assigned to the HVP Division.
TRIPLE CROWN OPERATIONS - Until April 1993, Norfolk
Southern's intermodal subsidiary, Triple Crown Services, Inc. (TCS),
offered intermodal service using RoadRailer (Registered
Trademark) (RT) equipment and domestic containers. RoadRailer(RT)
units are enclosed vans which can be pulled over highways in tractor-
trailer configuration and over the rails by locomotives. On April 1,
1993, the business, name and operations of TCS were transferred to
Triple Crown Services Company (TCSC), a partnership in which
subsidiaries of Norfolk Southern and Consolidated Rail Corporation
(CR) are equal partners. RoadRailer(RT) equipment owned or leased by
TCS (which was renamed TCS Leasing, Inc.) is operated by TCSC.
Because NS indirectly owns only 50 percent of TCSC, the revenues of
TCSC are not consolidated with the results of NS. TCSC offers door-to-
door intermodal service using RoadRailer(RT) equipment and domestic
containers in the corridors previously served by TCS, as well as
service to the New York and New Jersey markets via CR. Major traffic
corridors include those between New York and Chicago, Chicago and
Atlanta, and Atlanta and New York.
TRANSPORTATION OPERATING REVENUES - NS' total transportation
operating revenues were $4.58 billion in 1994. These revenues were
received for the transportation of revenue freight: 282.7 million tons
by rail and 0.9 million tons by motor carrier. Of the rail tonnage,
approximately 221.9 million tons originated on line, approximately
242.8 million tons terminated on line (including 187.9 million tons of
local traffic -- originating and terminating on line) and
approximately 5.9 million tons was overhead traffic (neither
originating nor terminating on line).
Revenue and revenue ton mile (one ton of freight moved one
mile) contributions by principal transportation operating revenue
sources for the period 1990 through 1994 are set forth in the
following table:
<TABLE>
<CAPTION>
Year Ended December 31,
Principal Sources of ----------------------------------------------------
Transportation Operating
Revenues 1994 1993 1992 1991 1990
------------------------- ---- ---- ---- ---- ----
(Revenues in Millions, and Revenue Ton Miles in Billions)
<S> <C> <C> <C> <C> <C>
COAL
Revenues............... $1,262.5 $1,213.3 $1,296.0 $1,330.3 $1,408.8
% of total
transportation
operating revenues.... 27.6% 27.2% 28.1% 29.9% 30.5%
Revenue ton miles...... 43.8 41.4 41.9 42.7 46.0
% of total revenue
ton miles............. 35.5% 36.2% 37.4% 39.5% 41.5%
</TABLE>
<PAGE> PAGE 8
<TABLE>
<CAPTION>
Year Ended December 31,
Principal Sources of ----------------------------------------------------
Transportation Operating
Revenues 1994 1993 1992 1991 1990
------------------------- ---- ---- ---- ---- ----
(Revenues in Millions, and Revenue Ton Miles in Billions)
<S> <C> <C> <C> <C> <C>
CHEMICALS
Revenues............... $ 512.2 $ 472.9 $ 471.7 $ 449.7 $ 443.9
% of total
transportation
operating revenues.... 11.2% 10.6% 10.2% 10.1% 9.6%
Revenue ton miles...... 16.7 14.7 14.3 13.6 12.8
% of total revenue
ton miles............. 13.5% 12.8% 12.8% 12.6% 11.5%
PAPER/FOREST
Revenues............... $ 505.4 $ 502.7 $ 499.5 $ 476.1 $ 486.5
% of total
transportation
operating revenues.... 11.0% 11.3% 10.9% 10.7% 10.5%
Revenue ton miles...... 15.3 15.1 14.7 13.6 13.3
% of total revenue
ton miles............. 12.4% 13.2% 13.1% 12.6% 12.0%
AUTOMOTIVE
Revenues............... $ 432.1 $ 429.5 $ 401.5 $ 325.9 $ 367.9
% of total
transportation
operating revenues.... 9.4% 9.6% 8.7% 7.3% 8.0%
Revenue ton miles...... 4.2 4.2 3.7 3.0 3.7
% of total revenue
ton miles............. 3.4% 3.7% 3.3% 2.8% 3.3%
AGRICULTURE
Revenues............... $ 347.5 $ 319.7 $ 301.4 $ 293.6 $ 299.6
% of total
transportation
operating revenues.... 7.6% 7.2% 6.6% 6.6% 6.5%
Revenue ton miles...... 15.6 13.6 12.6 12.2 11.3
% of total revenue
ton miles............. 12.6% 11.9% 11.3% 11.3% 10.2%
METALS/CONSTRUCTION
Revenues............... $ 321.4 $ 296.1 $ 276.3 $ 274.0 $ 305.6
% of total
transportation
operating revenues.... 7.0% 6.7% 6.0% 6.1% 6.6%
Revenue ton miles...... 10.4 9.6 8.5 8.2 9.1
% of total revenue
ton miles............. 8.4% 8.4% 7.6% 7.6% 8.2%
</TABLE>
<PAGE> PAGE 9
<TABLE>
<CAPTION>
Year Ended December 31,
Principal Sources of ----------------------------------------------------
Transportation Operating
Revenues 1994 1993 1992 1991 1990
------------------------- ---- ---- ---- ---- ----
(Revenues in Millions, and Revenue Ton Miles in Billions)
<S> <C> <C> <C> <C> <C>
INTERMODAL
(Trailers and Containers)
Revenues............... $ 425.6 $ 372.0 $ 341.0 $ 324.6 $ 300.1
% of total
transportation
operating revenues.... 9.3% 8.3% 7.4% 7.3% 6.5%
Revenue ton miles...... 16.3 13.0 11.9 10.4 10.1
% of total revenue
ton miles............. 13.2% 11.4% 10.6% 9.6% 9.1%
OTHER INTERMODAL RELATED*
Revenues............... $ -- $ 18.2* $ 67.9 $ 56.0 $ 50.8
% of total
transportation
operating revenues.... -- 0.4% 1.5% 1.3% 1.1%
Revenue ton miles...... -- -- -- -- --
-------- -------- -------- -------- --------
Total Railway Freight
Revenues.............. $3,806.7 $3,624.4 $3,655.3 $3,530.2 $3,663.2
Railway revenue ton miles 122.3 111.6 107.6 103.7 106.3
OTHER RAILWAY OPERATING
Revenues, principally
switching and
demurrage.............. $ 111.4 $ 121.5 $ 121.7 $ 123.8 $ 122.8
% of total
transportation
operating revenues.... 2.4% 2.7% 2.6% 2.8% 2.7%
-------- -------- -------- -------- --------
Total Railway Operating
Revenues.............. $3,918.1 $3,745.9 $3,777.0 $3,654.0 $3,786.0
MOTOR CARRIER**
Revenues............... $ 663.2 $ 714.2 $ 829.6 $ 797.3 $ 831.0
% of total
transportation
operating revenues.... 14.5% 16.0% 18.0% 17.9% 18.0%
Revenue Ton Miles...... 1.2 2.7 4.4 4.4 4.7
% of total revenue
ton miles............. 1.0% 2.4% 3.9% 4.0% 4.2%
-------- -------- -------- -------- --------
Total Transportation
Operating Revenues..... $4,581.3 $4,460.1 $4,606.6 $4,451.3 $4,617.0
Total Revenue Ton Miles.. 123.5 114.3 112.0 108.1 111.0
Note: Revenue ton miles (RTMs) for 1990 have been restated from "shortest
distance" miles to "actual route" miles. RTMs for 1990 through
1992 have been restated from a "one-month-delayed" basis to a
"current-month" basis.
* See discussion on page 7 regarding TCSC revenues.
** See discussion on page 6 regarding motor carrier restructuring.
</TABLE>
<PAGE> PAGE 10
COAL TRAFFIC - Ranked by tons handled, coal, coke and iron
ore--most of which is bituminous coal--is NS' railroads' principal
commodity group. NS' railroads originated 114.7 million tons of coal,
coke and iron ore in 1994 and handled a total of 125.9 million tons.
Originated tonnage increased 2.3 percent from 112.1 million tons in
1993, and total tons handled increased 6.7 percent from 118.0 million
tons in 1993. Revenues from coal, coke and iron ore, which accounted
for 28 percent of NS' total transportation operating revenues and
36 percent of total revenue ton miles in 1994, were $1.26 billion, an
increase of 4 percent from $1.21 billion in 1993.
The following table shows total coal tonnage originated on-
line, received from connections and handled for the five years ended
December 31, 1994:
<TABLE>
<CAPTION>
Tons of Coal (Millions)
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Originated 112.0 109.7 115.5 116.8 126.6
Received 11.1 5.9 6.3 6.5 6.8
----- ----- ----- ----- -----
Handled 123.1 115.6 121.8 123.3 133.4
Note: Coal tonnage for 1990 has been restated from a "settled"
basis to a "movement" basis.
</TABLE>
Of the 112.0 million tons of coal originating on NS railroad
lines in 1994, the approximate breakdown by origin state is as
follows: 41.2 million tons from West Virginia, 36.5 million tons
from Virginia, 23.6 million tons from Kentucky, 5.7 million tons from
Alabama, 3.0 million tons from Illinois, 1.5 million tons from
Tennessee, and 0.5 million tons from Indiana. Of this NS-origin coal,
approximately 25.0 million tons moved for export, principally through
NS pier facilities at Norfolk (Lamberts Point), Va.; 18.3 million tons
moved to domestic and Canadian steel industries; 59.8 million tons of
steam coal moved to electric utilities; and 8.9 million tons moved to
other industrial and miscellaneous users. NS' railroads moved
10.4 million tons of originated coal to various docks on the Ohio
River for further movement by barge and 5.2 million tons to various
Lake Erie ports. Other than coal for export, virtually all coal
handled by NS' railroads was terminated in states situated east of the
Mississippi River.
Total coal tonnage handled through all system ports in 1994
was 43.6 million. Of this total, 64 percent moved through the pier
facilities at Lamberts Point. In 1994, total tonnage handled at
Lamberts Point, including coastwise traffic, was 27.8 million tons, a
0.7 percent increase from the 27.6 million tons handled in 1993.
<PAGE> PAGE 11
For the five years ended December 31, 1994, the quantities
of NS coal handled only for export through Lamberts Point were as
follows:
<TABLE>
Export Coal through Lamberts Point
(Millions of tons)
--------------------------------------------
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Originated 23.9 24.6 30.8 34.3 35.1
Handled 24.1 24.9 31.2 34.6 35.4
</TABLE>
See the discussion of coal traffic, by type of coal, in
Part II, Item 7, "Management's Discussion and Analysis," on page 34.
MERCHANDISE RAIL TRAFFIC - The merchandise traffic group
consists of Intermodal and five major commodity groupings (Chemicals;
Paper/Forest; Automotive; Agriculture; and Metals/Construction).
Total NS railroad merchandise revenues increased in 1994 to
$2.54 billion, a 6 percent increase over 1993. Railroad merchandise
carloads handled in 1994 were 3.03 million, compared with 2.82 million
handled in 1993, an increase of 8 percent.
Intermodal results reflect the effect of the formation, in
April 1993, of TCSC, a partnership between NS and Conrail subsidiaries
(see also page 7). This partnership provides RoadRailer(RT) and
domestic container services previously offered by a wholly owned NS
subsidiary. Because NS owns only 50 percent of TCSC, its revenues are
not consolidated, and NS' 1994 and 1993 intermodal revenues include
only revenues for rail service provided by NS to the partnership.
Excluding this partnership effect, 1994 intermodal revenues increased
14%, compared with 1993, and 1993 intermodal revenues increased 10
percent, compared with 1992.
In 1994, 106.4 million tons of merchandise freight, or
approximately 68 percent of total rail merchandise tonnage handled by
NS, originated on line. The balance of NS' railroad merchandise
traffic was received from connecting carriers (mostly railroads, with
some intermodal, water and highway as well), usually at
interterritorial gateways. The principal interchange points for NS-
received traffic included Chicago, Memphis, New Orleans, Cincinnati,
Kansas City, Detroit, Hagerstown, St. Louis/East St. Louis and
Louisville.
Revenues in all six market groups comprising merchandise
traffic improved over 1993, with four of the six increasing by 8% or
more. The biggest gains were in Intermodal, up $53.6 million
(adjusted for the effect of the TCSC partnership); Chemicals, up $39.3
million; Agriculture, up $27.8 million; and Metals/Construction, up
$25.3 million.
See the discussion of merchandise rail traffic by commodity
group in Part II, Item 7, "Management's Discussion and Analysis," on
page 34.
<PAGE> PAGE 12
MOTOR CARRIER TRAFFIC - NAVL's traffic volume decreased
during 1994 due to the restructuring in 1993 (see page 6). Total
motor carrier revenues were $663.2 million, down 7 percent from 1993,
which included six months of revenues from the subsequently discontinued
operations prior to the restructuring of NAVL. Adjusted for the effect
of discontinued truckload operations in 1993, motor carrier operating
revenues in 1994 increased 15 percent. NAVL's expenses decreased
17 percent in 1994, also resulting from the restructuring.
DOMESTIC OPERATIONS now are conducted through NAVL's RS and
HVP divisions. In 1994, total domestic shipments for these divisions
were 379,294, up 8 percent from 1993. Further comments about each
division follow.
Domestic shipments of used household goods transported by
the RS Division fall into three market categories. Approximately
50 percent of the domestic shipment volume comes from the sale of
moving services to individual consumers. Another 38 percent comes
from corporations and other businesses that pay for the relocation of
their employees. The remaining 12 percent is derived from military,
government and other sources. Total domestic RS Division shipments in
1994 represented 31 percent of the NAVL domestic motor carrier
shipments transported by the two primary divisions. Total domestic
revenues from this division were up 5 percent, compared with 1993, and
represented 43 percent of total revenues from operations.
The HVP Division specializes in providing transportation
services in less-than-truckload (LTL) and truckload (TL) quantities of
sensitive products. These products are divided into the following
categories: office furniture and equipment, exhibits and displays,
electronic equipment, industrial machinery, commercial relocation, LTL
furniture and selected general commodities. Total HVP Division
shipments transported in 1994, including TL and LTL, represented
69 percent of the NAVL domestic motor carrier shipments transported by
the two primary divisions. Revenues from this division were up
29 percent from 1993 levels and represented 46 percent of total
revenues from operations.
The operations of the CT Division were discontinued in 1993.
Total CT Division shipments transported in 1993 represented 36 percent
of NAVL's total domestic motor carrier shipments transported for the
entire year by the three primary divisions. Revenues from this
division were down 50 percent in 1993 compared with 1992 levels and
represented 19 percent of total revenues from operations.
FOREIGN OPERATIONS include NAVL's Canadian subsidiary, North
American Van Lines Canada, Ltd., as well as operating subsidiaries in
England, Germany and Panama. Foreign operations involving the
transportation of used household goods and selected general and
specialized commodities generated revenues of $71.1 million in 1994,
up 3 percent from 1993. Revenues from foreign operations represented
11 percent of NAVL's total revenues.
<PAGE> PAGE 13
<TABLE>
RAIL OPERATING STATISTICS - The following table sets forth
certain statistics relating to NS' railroad operations during the
periods indicated:
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rail revenue ton
miles (billions) 122.3 111.6 107.6 103.7 106.3
Freight train miles
traveled (millions) 46.0 43.3 41.1 37.8 36.8
Revenue tons per carload 65.6 65.1 66.0 66.7 68.7
Revenue per ton mile $0.0311 $0.0325 $0.0340 $0.0341 $0.0345
Revenue tons per train 2,655 2,577 2,618 2,743 2,884
Revenue ton miles
per man-hour worked 2,579 2,304 2,184 2,023 1,955
Percentage ratio of
railway operating
expenses to railway
operating revenues 73.4 75.6 75.5 78.3* 78.4
Note: Revenue ton miles (RTMs) for 1990 have been restated from a
"shortest route" basis to an "actual route" basis. RTMs for
1990 through 1992 have been restated from a "one-month delay"
basis to a "current-month" basis.
* Excluding a special charge in 1991 which increased railway
operating expenses by $483 million.
</TABLE>
FREIGHT RATES - In 1994 NS' railroads continued their
reliance on private contracts and exempt price quotes as their
predominant pricing mechanisms. Thus, a major portion of NS'
railroads' freight business is not economically regulated by the
government. In general, market forces have been substituted for
government regulation and now are the primary determinant of rail
service prices. Proposals pending in Congress in early 1995 would
further reduce rate regulation of railroads.
In 1994, the ICC found NS' railroads "revenue inadequate"
based on results for the year 1993. A railroad is "revenue
inadequate" under the Interstate Commerce Act when its return on net
investment does not exceed the rail industry's composite cost of
capital. The absence of "revenue adequacy" lets a railroad use a
provision in the Interstate Commerce Act allowing increases in
regulated rates by a specific percentage. However, with the
decreasing importance of regulated tariff traffic to NS' railroads,
the ICC's "revenue adequacy" findings have less impact than
formerly.
<PAGE> PAGE 14
Pricing and service flexibility afforded by the Motor
Carrier Act of 1980 and the Household Goods Transportation Act of
1980 has resulted in NAVL's increased emphasis on innovative pricing
action in order to remain competitive. Since 1980, NAVL has
increasingly operated as a contract carrier. As of December 31,
1994, domestic contract carriage agreements accounted for the
following percentage of shipments: RS Division, 28 percent and
HVP Division, 80 percent.
PASSENGER OPERATIONS - Regularly scheduled passenger
operations on NS' lines consist of Amtrak trains operating between
Alexandria and New Orleans, and between Charlotte and Selma, N.C.
Former Amtrak operations between East St. Louis and Centralia, Il.,
were discontinued by Amtrak on November 3, 1993. Commuter trains
continued operations on the NS line between Manassas and Alexandria
under contract with two transportation commissions of the
Commonwealth of Virginia, providing for reimbursement of related
expenses incurred by NS. During 1993, a lease of the Chicago to
Manhattan, Il., line to the Commuter Rail Division of the Regional
Transportation Authority of Northeast Illinois replaced an agreement
under which NS had provided commuter rail service for the Authority.
NONCARRIER OPERATIONS - Norfolk Southern's noncarrier
subsidiaries engage principally in the acquisition and subsequent leasing
of coal, oil, gas and timberlands, the development of commercial real
estate and the leasing or sale of rail property and equipment. In 1994,
no such noncarrier subsidiary or industry segment grouping of noncarrier
subsidiaries met the requirements for a reportable business segment set
forth in Statement of Financial Accounting Standards No. 14.
In January 1994, certain Norfolk Southern subsidiaries
purchased rights with respect to an estimated 210 million recoverable
tons of coal located primarily in eastern Kentucky and southern West
Virginia. The cash purchase price for the acquisition was $71 million.
These coal reserves have been leased to various producers who operate and
mine the properties under long-term leases providing royalty income to NS.
<PAGE> PAGE 15
<TABLE>
RAILWAY PROPERTY:
EQUIPMENT - As of December 31, 1994, NS owned or leased the
following units of equipment:
<CAPTION>
Number of Units
-------------------------------- Capacity
Owned* Leased Total of Equipment
----- ------ ----- ------------
<S> <C> <C> <C> <C>
Type of Equipment
-----------------
Locomotives: (Horsepower)
Multiple purpose 1,833 6 1,839 5,424,950
Switching 155 -- 155 228,550
Auxiliary units 67 -- 67 --
------- ------ ------- ---------
Total locomotives 2,055 6 2,061 5,653,500
======= ====== ======= =========
Freight Cars: (Tons)
Hopper 36,499 -- 36,499 3,607,549
Box 23,153 232 23,385 1,765,937
Covered Hopper 15,466 685 16,151 1,593,735
Gondola 18,478 50 18,528 1,754,900
Flat 4,336 53 4,389 306,750
Caboose 333 -- 333 --
Other 2,314 774 3,088 199,922
------- ------ ------- ---------
Total freight cars 100,579 1,794 102,373 9,228,793
======= ====== ======= =========
Other:
Work equipment 6,640 5 6,645
Vehicles 3,971 -- 3,971
Highway trailers 3,225 1,997 5,222
RoadRailers(RT) 997 -- 997
Miscellaneous 1,472 -- 1,472
------- ------ -------
Total other 16,305 2,002 18,307
======= ====== =======
* Includes railroad equipment leased to outside parties and railroad
equipment subject to equipment trusts, conditional sale agreements
and capitalized leases.
</TABLE>
<PAGE> PAGE 16
<TABLE>
The following table indicates the number and age of locomo-
tives and freight cars owned by NS at December 31, 1994:
<CAPTION>
Year Built
----------------------------------------------------------------
1984- 1978- 1977 &
1994 1993 1992 1991 1990 1989 1983 Before Total
---- ---- ---- ---- ---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locomotives:
Number of
units 25 31 55 53 46 413 535 897 2,055
Percent of
fleet 1.2 1.5 2.7 2.6 2.2 20.1 26.0 43.7 100.0
Freight cars:
Number of
units 788 931 581 787 1,729 3,275 17,097 75,391 100,579
Percent of
fleet 0.8 0.9 0.6 0.8 1.7 3.3 17.0 74.9 100.0
</TABLE>
The average age of the freight car fleet at December 31,
1994, was 21.9 years. During 1994, NS retired 3,333 freight cars. As
of December 31, 1994, the average age of the locomotive fleet was
15.8 years. During 1994, NS retired 24 locomotives, the average age
of which was 23.6 years. Since 1988, NS has rebodied more than
17,200 coal cars. As a result, the remaining serviceability of the
freight car fleet is greater than is indicated by the percentage of
freight cars built in earlier years.
NS continues freight car and locomotive maintenance programs
to ensure the highest standards of safety, reliability, customer
satisfaction and equipment marketability. In recent years, as
illustrated in the table below, the bad order ratio has risen or
remained fairly stable primarily due to the storage of certain types
of cars which are not in high demand. Funds were not spent to repair
cars for which present and future customers' needs could be adequately
met without such repair programs. Also, NS' own standards of what
constitutes a "serviceable" car have risen, and NS continues its
disposition program for underutilized, unserviceable and overage cars.
<TABLE>
<CAPTION>
Annual Average
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Freight Cars (excluding cabooses):
NS 6.7% 7.3% 7.6% 6.5% 6.4%
All Class I railroads 7.3 7.1 7.5 7.3 7.7
Locomotives:
NS 4.7 4.3 4.4 4.3 4.2
Note: Since 1992, the locomotive bad order ratio has been calculated
excluding stored locomotives. Years prior to 1992 have been
restated to conform to this presentation.
</TABLE>
<PAGE> PAGE 17
TRACKAGE - All NS trackage is standard gauge, and the rail
in approximately 96 percent of the main line trackage (including
first, second, third and branch main tracks, all excluding trackage
rights) is heavyweight rail ranging from 90 to 155 pounds per yard.
Of the 23,172 miles of track maintained by NS as of December 31, 1994,
15,712 were laid with welded rail.
<TABLE>
The density of traffic on NS running tracks (main line
trackage plus passing tracks) during 1994 was as follows:
<CAPTION>
Gross tons of
freight carried
per track mile Track miles Percent
(Millions) of running tracks* of total
--------------- ----------------- --------
<S> <C> <C>
0-4 5,478 32
5-19 5,289 32
20 and over 5,993 36
------ ---
16,760 100
*Excludes trackage rights.
</TABLE>
<TABLE>
The following table summarizes certain information about NS'
track roadway additions and replacements during the last five years:
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Track miles of rail installed 480 574 660 679 743
Crossties installed (millions) 1.7 1.6 1.9 1.9 1.9
Miles of track surfaced 4,760 5,048 5,690 5,646 5,844
</TABLE>
MICROWAVE SYSTEM - The NS microwave system, consisting of
6,584 radio path miles, 374 active stations and 7 passive repeater
stations, provides communications for Norfolk, Buffalo, Detroit, Fort
Wayne, Chicago, Kansas City, St. Louis, Washington, D.C., Atlanta, New
Orleans, Jacksonville, Memphis, Cincinnati and most operating
locations between these cities. The microwave system provides
approximately 2,168,990 individual voice channel miles of circuits.
The microwave system is used principally for voice communications,
VHF radio control circuits, data and facsimile transmissions, traffic
control operations, AEI data transmissions and relay of intelligence
from defective equipment detectors. Extension of microwave
communications to low density or operations support facilities is
accomplished via microwave interface to buried fiber-optic or copper
cables.
<PAGE> PAGE 18
TRAFFIC CONTROL - Of a total of 13,457 road miles operated
by NS, excluding trackage rights over foreign lines, 5,274 road miles
are governed by centralized traffic control systems (of which 81 miles
are controlled by data radio from seven microwave site locations) and
2,734 road miles are equipped for automatic block system operation.
COMPUTERS - Data processing facilities connect the yards,
terminals, transportation offices, rolling stock repair points, sales
offices and other key locations on NS to the central computer complex
in Atlanta, Ga. System operating and traffic data are compiled and
stored to provide customers with information on their shipments
throughout the system. Data processing facilities are capable of
providing current information on the location of every train and each
car on line, as well as related waybill and other train and car
movement data. Additionally, this facility affords substantial
capacity for, and is utilized to assist management in the performance
of, a wide variety of functions and services, including payroll, car
and revenue accounting, billing, material management activities and
controls, and special studies.
OTHER - NS has extensive facilities for support of railroad
operations, including freight depots, car construction shops,
maintenance shops, office buildings, and signals and communications
facilities.
MOTOR CARRIER PROPERTY:
REAL ESTATE - NAVL owns and leases real estate in support of
its operations. Principal real estate holdings include NAVL's
headquarters complex and warehouse and vehicle maintenance facilities
in Fort Wayne, Indiana, vehicle maintenance facilities in Fontana,
California, and terminal facilities in Grand Rapids, Michigan, and
Great Falls, Montana. NAVL also leases facilities throughout the
United States for sales offices, maintenance facilities and for
warehouse, terminal and distribution center operations.
EQUIPMENT - NAVL relies extensively on independent
contractors (owner-operators) who supply the power equipment
(tractors) used to pull NAVL trailers. Agents also provide a
substantial portion of NAVL's equipment needs, particularly for the
transportation of household goods, by furnishing tractors and trailers
on either a permanent or an intermittent lease basis.
As of December 31, 1994, agents and owner-operators together
supplied 3,531 tractors, representing 97 percent of the U.S. power
equipment operated in NAVL service. Also as of December 31, 1994,
NAVL owned 3,028 trailer units, representing 55 percent of the U.S.
trailer fleet in NAVL service. The remaining 45 percent was provided
mainly by agents and owner-operators. Agents and owner-operators also
provided 1,088 straight trucks, or 98 percent of such units in NAVL
service.
NAVL has an extensive program for the repair and maintenance
of its trailer equipment. In 1994, work orders on approximately
15,475 trailers were completed at NAVL's facility in Fort Wayne. As
of December 31, 1994, the average age of trailer equipment in the NAVL
fleet was 7.9 years.
<PAGE> PAGE 19
COMPUTERS - NAVL relies extensively on data processing
facilities for shipment planning and dispatch functions as well as
shipment tracing. Data processing capabilities are also utilized in
revenue processing functions, driver and agent account settlement
activity, and internal accounting and record keeping service.
ENCUMBRANCES - Certain railroad equipment is subject to the
prior lien of equipment financing obligations amounting to
approximately $520.9 million as of December 31, 1994, and
$551.4 million at December 31, 1993. In addition, a significant
portion of NS' properties is subject to liens securing, as of December
31, 1994, and 1993, approximately $83.9 million and $125.9 million of
mortgage debt, respectively.
Many of the tractors utilized in NAVL service are purchased
by NAVL from manufacturers and resold to agents and owner-operators
under a NAVL-sponsored financing program. At December 31, 1994, NAVL
had $21.3 million in such tractor contracts receivable. This program
allows NAVL to generate the funds necessary to purchase the tractors
and to resell them under favorable financing terms. The equipment is
sold under conditional sales contracts with the agents and owner-
operators.
<TABLE>
CAPITAL EXPENDITURES - During the five calendar years ended
December 31, 1994, NS' capital expenditures for road, equipment and
other property were as follows:
<CAPTION>
Capital Expenditures
-------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In millions of dollars)
<S> <C> <C> <C> <C> <C>
Transportation property
Road $ 384.6 $ 417.9 $ 426.5 $ 395.4 $ 391.5
Equipment 245.9 240.5 281.3 235.2 295.5
Other property 82.4 10.8 8.3 82.8 9.9
------- ------- ------- ------- -------
Total $ 712.9 $ 669.2 $ 716.1 $ 713.4 $ 696.9
======= ======= ======= ======= =======
</TABLE>
NS' capital spending and maintenance programs are and have
been designed to assure NS' ability to provide safe, efficient and
reliable transportation services. For 1995, NS is planning $695 million
of capital spending, of which $686 million will be for railway
projects and $9 million for motor carrier property. NS anticipates
new equipment financing of approximately $110 million in 1995.
Looking further ahead, total rail and motor carrier capital spending
is expected to remain in the $600 to $700 million range for the next
few years. A substantial portion of future capital spending is
expected to be funded through internally generated cash, although debt
financing will continue as the primary funding source for equipment
acquisitions.
<PAGE> PAGE 20
ENVIRONMENTAL MATTERS - Compliance with federal, state and
local laws and regulations relating to the protection of the
environment is a principal NS goal. To date, such compliance has not
affected materially NS' capital additions, earnings, liquidity or
competitive position.
See the discussion of "Environmental Matters" in Part II,
Item 7, "Management's Discussion and Analysis" on page 34, and in
Note 17 to the Consolidated Financial Statements on page 72.
EMPLOYEES - NS employed an average of 27,168 employees in
1994, compared with an average of 29,304 in 1993. The approximate
average cost per employee during 1994 was $40,667 in wages and $17,417
in employee benefits. Approximately 75 percent of these employees are
represented by various labor organizations.
GOVERNMENT REGULATION - In addition to environmental,
safety, securities and other regulations generally applicable to all
businesses, NS' railroads are subject to regulation by the ICC,
various state regulatory agencies and the Department of
Transportation. The ICC has jurisdiction over many rates, routes,
conditions of service, and the extension or abandonment of rail lines.
The ICC also has jurisdiction over the consolidation, merger or
acquisition of control of and by rail common carriers. The Department
of Transportation regulates certain track and mechanical equipment
standards.
The relaxation of economic regulation of the railroads by
the ICC, started over a decade ago under the Staggers Rail Act of
1980, has continued. The ICC has recently authorized the partial
deregulation of the charges railroads pay for the use of rail cars.
NS is expected to benefit from the deprescription of car hire because
it owns older cars of types which are in high demand. These cars will
likely bring higher rentals under deprescription than under regulated
rates.
Certain revenue transactions and classes of traffic have
been exempted from ICC regulation. Those most significant for NS'
railroads are TOFC/COFC (i.e., "piggyback") business, rail boxcar
traffic, lumber, manufactured steel, automobiles and certain bulk
commodities such as sand, gravel, pulpwood and wood chips for paper
manufacturing. Transportation contracts on regulated shipments, after
approval by the ICC, effectively remove those shipments from
regulation as well. Over 80 percent of NS' freight revenues come from
either exempt traffic or traffic moving under ICC-approved
transportation contracts.
In early 1995, Congress had under consideration proposals
for additional reductions in economic regulation of railroads,
including proposals for "sunsetting" the ICC and transferring
its remaining functions to another agency.
For motor carrier operations conducted by NAVL, the ICC and
Department of Transportation remain the principal regulatory entities.
The ICC continues to exercise jurisdiction over common carrier rates,
the relationship between carriers and owner-operators, and carrier
practices relating to the transportation of household goods. The
primary focus of the Department of Transportation is on driver
qualification and safety standards, including maximum trailer length
and width.
<PAGE> PAGE 21
COMPETITION - There is continuing strong competition among
rail, water and highway carriers. Price is usually only one factor of
importance as shippers and receivers choose a transport mode and
specific hauling company. Inventory carrying costs, service
reliability, ease of handling and the desire to avoid loss and damage
during transit are increasingly important considerations, especially
for higher valued finished goods, machinery and consumer products.
Even for raw materials, semi-finished goods and work-in-process,
users are increasingly sensitive to transport arrangements which
minimize problems at successive production stages.
NS' primary rail competitor is the CSX system; both operate
throughout much of the same territory. Other railroads also operate
in parts of the territory. NS also competes with motor carriers,
water carriers and with shippers who have the additional option of
handling their own goods in private carriage. Increasingly,
cooperative strategies between railroads (such as the TCSC partnership
involving NS and CR, see page 7) and between railroads and motor
carriers enable carriers to compete more effectively in specific
markets.
NAVL continues to face vigorous competition due to
deregulation and overcapacity in the industry that will keep profits
at a modest level. While service remains a key issue, many shippers
now place greater emphasis on price. For the RS Division, contract
carriage and volume discount programs dominate the corporate
relocation segment, and guaranteed price options are common to the
individual consumer segment. Contract carriage agreements are also
utilized extensively by the HVP Division to meet the service and price
requirements of its customers.
Item 3. Legal Proceedings.
------ -----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
------ ----------------------------------------------------
There were no matters submitted to a vote of security
holders during the fourth quarter of 1994.
<PAGE> PAGE 22
Executive Officers of the Registrant.
-------------------------------------
Norfolk Southern's officers are elected annually by the
Board of Directors at its first meeting held after the annual meeting
of stockholders, and they hold office until their successors are
elected. There are no family relationships among the officers, nor
any arrangement or understanding between any officer and any other
person pursuant to which the officer was selected. The following
table sets forth certain information, as of March 1, 1995, relating to
these officers:
Business Experience during
Name, Age, Present Position past 5 Years
--------------------------- ------------------------------------
David R. Goode, 54, Present position since September
Chairman, President and 1992. Served as President from
Chief Executive Officer October 1991 to September 1992,
Executive Vice President-
Administration from January to
October 1991 and prior thereto as
Vice President-Taxation.
John R. Turbyfill, 63, Present position since June 1993.
Vice Chairman Served prior thereto as Executive
Vice President-Finance.
R. Alan Brogan, 54, Executive Present position since December
Vice President-Transportation 1992. Served as Vice President-
Logistics (and President-North Quality Management from April
American Van Lines, Inc.) 1991 to December 1992, Vice
President-Material Management and
Property Services from July 1990
to April 1991, and prior thereto
as Vice President-Material
Management.
John S. Shannon, 64, Executive Present position since June
Vice President-Law 1982.
Stephen C. Tobias, 50, Present position since July
Executive Vice President- 1994. Served as Senior Vice
Operations President-Operations from October
1993 to July 1994, Vice President-
Strategic Planning from December
1992 to October 1993, and prior
thereto as Vice President-
Transportation.
D. Henry Watts, 63, Executive Present position since July
Vice President-Marketing 1986.
<PAGE> PAGE 23
Business Experience during
Name, Age, Present Position past 5 Years
--------------------------- ------------------------------------
Henry C. Wolf, 52, Executive Present position since June 1993.
Vice President-Finance Served as Vice President-Taxation
from January 1991 to June 1993,
and prior thereto as Assistant
Vice President-Tax Counsel.
Paul N. Austin, 51, Vice Present position since June 1994.
President-Personnel Served as Assistant Vice
President-Personnel from February
1993 to June 1994, and prior
thereto as Director Compensation.
William B. Bales, 60, Vice Present position since August 1993.
President-Coal Marketing Served prior thereto as Vice
President-Coal and Ore Traffic.
James C. Bishop, Jr., 58, Present position since August
Vice President-Law 1989.
John F. Corcoran, 54, Vice- Present position since March 1992.
President-Public Affairs Served prior thereto as Assistant
Vice President-Public Affairs.
Thomas L. Finkbiner, 42, Present position since August 1993.
Vice President-Intermodal Served as Senior Assistant Vice
President-International and
Intermodal from April to August
1993, and prior thereto as
Assistant Vice President-
International and Intermodal.
James L. Granum, 58, Vice Present position since March 1992.
President-Public Affairs Served prior thereto as Assistant
Vice President-Public Affairs.
James A. Hixon, 41, Vice Present position since June 1993.
President-Taxation Served as Assistant Vice
President-Tax Counsel from
January 1991 to June 1993, and
prior thereto as General Tax
Attorney.
Jon L. Manetta, 57, Vice Present position since June 1994.
President-Transportation Served as Assistant Vice
President-Transportation from
October 1993 to June 1994,
Assistant Vice President-
Strategic Planning from January
1993 to October 1993, Director
Joint Facilities and Budget from
March 1992 to January 1993,
Assistant Terminal Superintendent-
Transportation from January 1991
to March 1992, and prior thereto
as Assistant Superintendent-St.
Louis Terminal.
<PAGE> PAGE 24
Business Experience during
Name, Age, Present Position past 5 Years
--------------------------- ------------------------------------
Harold C. Mauney, Jr., 56, Present position since December
Vice President-Quality 1992. Served as Assistant Vice
Management President-Quality Management from
April 1991 to December 1992, and
prior thereto as General Manager-
Intermodal Transportation
Services.
Donald W. Mayberry, 51, Present position since October
Vice President-Mechanical 1987.
James W. McClellan, 55, Vice Present position since October
President-Strategic Planning 1993. Served as Assistant Vice
President-Corporate Planning from
March 1992 to October 1993, and
prior thereto as Director-
Corporate Development.
Kathryn B. McQuade, 38, Present position since December
Vice President-Internal Audit 1992. Served as Director-Income
Tax Administration from May 1991
to December 1992, and prior
thereto as Director-Federal
Income Tax Administration.
Charles W. Moorman, 43, Vice Present position since October
President-Information 1993. Served as Vice President-
Technology Employee Relations from December
1992 to October 1993, Vice
President-Personnel and Labor
Relations from February to
December 1992, Assistant Vice
President-Stations, Terminals and
Transportation Planning from March
1991 to February 1992, Senior
Director Transportation Planning
from March 1990 to March 1991, and
prior thereto as Director,
Transportation Planning.
Phillip R. Ogden, 54, Vice Present position since December
President-Engineering 1992. Served as Assistant Vice
President-Maintenance from
November 1990 to December 1992,
and prior thereto as Chief
Engineer-Line Maintenance North.
<PAGE> PAGE 25
Business Experience during
Name, Age, Present Position past 5 Years
--------------------------- ------------------------------------
L. I. Prillaman, Jr., 51, Present position since December
Vice President-Properties 1992. Served prior thereto as
Vice President and Controller.
Magda A. Ratajski, 44, Vice Present position since July 1984.
President-Public Relations
John P. Rathbone, 43, Vice Present position since December
President and Controller 1992. Served prior thereto as
Assistant Vice President-Internal
Audit.
William J. Romig, 50, Vice Present position since April 1992.
President and Treasurer Served prior thereto as Assistant
Vice President-Finance.
Donald W. Seale, 42, Vice Present position since August 1993.
President-Merchandise Served as Assistant Vice
Marketing President-Sales and Service from
May 1992 to August 1993, Director-
Metals, Waste and Construction
from March 1990 to May 1992, and
prior thereto as Director-
Marketing Development.
Powell F. Sigmon, 55, Vice Present position since January 1995.
President-Research and Served as Vice President-Safety,
Tests Environmental and Research
Development from October 1993 to
January 1995, Assistant Vice
President-Mechanical (Car) from
January 1991 to October 1993, and
prior thereto as General Manager-
Mechanical Facilities.
Robert S. Spenski, 60, Vice Present position since June 1994.
President-Labor Relations Served prior thereto as Senior
Assistant Vice President-Labor
Relations.
Donald E. Middleton, 64, Present position since June
Corporate Secretary 1982.
<PAGE> PAGE 26
PART II
Item 5. Market for Registrant's Common Stock and Related
------- ------------------------------------------------
Stockholder Matters.
-------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
STOCK PRICE AND DIVIDEND INFORMATION
The common stock of Norfolk Southern Corporation, owned by
52,442 stockholders of record as of December 31, 1994, is traded on
the New York Stock Exchange with the symbol NSC. The following table
shows the high and low sales prices and dividends per share, by
quarter, for 1994 and 1993.
Quarter
--------------------------------------
<CAPTION>
1994 1st 2nd 3rd 4th
---- --- --- --- ---
<S> <C> <C> <C> <C>
Market price
High $ 74-3/4 $ 67-3/8 $ 65-1/2 $ 64-5/8
Low 62-3/4 59-3/4 58-1/2 59
Dividends per share $0.48 $0.48 $0.48 $0.48
1993 1st 2nd 3rd 4th
---- --- --- --- ---
<S> <C> <C> <C> <C>
Market price
High $ 66-5/8 $ 66-3/8 $ 69-7/8 $ 72-3/8
Low 59-5/8 59-1/4 61-1/2 64-5/8
Dividends per share $0.45 $0.45 $0.48 $0.48
</TABLE>
<PAGE> PAGE 27
Item 6. Selected Financial Data.
------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1991 - 1994
Page One
<CAPTION>
1994 1993 (1) 1992 1991 (2)
---- ---- ---- ----
(In millions of dollars, except per share amounts)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Transportation operating
revenues:
Railway operating
revenues $ 3,918.1 $ 3,745.9 $ 3,777.0 $ 3,654.0
Motor carrier operating
revenues 663.2 714.2 829.6 797.3
--------- --------- --------- ---------
Total transportation
operating revenues 4,581.3 4,460.1 4,606.6 4,451.3
Transportation operating
expenses:
Railway operating
expenses 2,874.8 2,830.6 2,850.8 2,862.2
Motor carrier operating
expenses 641.1 769.1 869.3 797.1
Special charge -- -- -- 680.0
--------- --------- --------- ---------
Total transportation
operating expenses 3,515.9 3,599.7 3,720.1 4,339.3
Income from
operations 1,065.4 860.4 886.5 112.0
Other income - net 85.2 136.8 97.8 131.3
Interest expense on debt 101.6 98.6 109.0 99.7
--------- --------- --------- ---------
Income before income
taxes 1,049.0 898.6 875.3 143.6
Provision for income taxes 381.2 349.9 317.6 113.9
--------- --------- --------- ---------
Income before
accounting changes 667.8 548.7 557.7 29.7
Cumulative effect of
accounting changes -- 223.3 -- --
--------- --------- --------- ---------
Net income $ 667.8 $ 772.0 $ 557.7 $ 29.7
========= ========= ========= =========
</TABLE>
<PAGE> PAGE 28
Item 6. Selected Financial Data. (continued)
------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1991 - 1994
Page Two
<CAPTION>
1994 1993 (1) 1992 1991 (2)
---- ---- ---- ----
(In millions of dollars, except per share amounts)
<S> <C> <C> <C> <C>
PER SHARE DATA:
Earnings $ 4.90 $ 5.54 $ 3.94 $ 0.20
Dividends $ 1.92 $ 1.86 $ 1.80 $ 1.60
Stockholders' equity at
year end $ 35.19 $ 33.36 $ 30.16 $ 28.64
FINANCIAL POSITION:
Total assets $10,587.8 $10,519.8 $10,400.5 $10,148.1
Total long-term debt,
including current
maturities $ 1,619.8 $ 1,595.2 $ 1,648.9 $ 1,389.2
Stockholders' equity $ 4,684.8 $ 4,620.7 $ 4,232.6 $ 4,093.4
OTHER:
Capital expenditures $ 712.9 $ 669.2 $ 716.1 $ 713.4
Average number of shares
outstanding (thousands) 136,301 139,414 141,459 147,759
Number of stockholders at
year end 52,442 51,884 51,200 53,725
Average number of employees:
Rail 24,710 25,531 25,650 27,366
Nonrail 2,458 3,773 4,485 4,586
--------- --------- --------- ---------
Total 27,168 29,304 30,135 31,952
========= ========= ========= =========
(1) 1993's results include a $54 million increase in the provision
for income taxes reflecting a 1% increase in the federal income
tax rate retroactive to January 1, 1993, which reduced net income
by $54 million, or $0.39 per share (see Note 3 on page 58).
1993's motor carrier expenses include a $50 million restructuring
charge for the disposition of two NAVL businesses (see Note 15 on
page 71). The cumulative effect of accounting changes (see Note 1
on page 56) increased 1993's earnings by $223 million, or $1.60
per share.
(2) 1991's transportation operating expenses include a $680 million
special charge, primarily comprised of costs for labor force
reductions and the write-down of the goodwill portion of NS'
investment in NAVL. This charge reduced net income by $498
million, or $3.37 per share.
</TABLE>
<PAGE> PAGE 29
Item 6. Selected Financial Data. (continued)
------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1987 - 1990
Page One
<CAPTION>
1990 1989 1988 1987 (3)
---- ---- ---- ----
(In millions of dollars, except per share amounts)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Transportation operating
revenues:
Railway operating
revenues $ 3,786.0 $ 3,694.1 $ 3,616.6 $ 3,335.6
Motor carrier operating
revenues 831.0 841.9 845.0 777.2
--------- --------- --------- ---------
Total transportation
operating revenues 4,617.0 4,536.0 4,461.6 4,112.8
Transportation operating
expenses:
Railway operating
expenses 2,969.4 2,864.4 2,679.7 2,652.8
Motor carrier operating
expenses 839.5 846.4 836.6 734.5
Special charge -- -- -- 620.4
--------- --------- --------- ---------
Total transportation
operating expenses 3,808.9 3,710.8 3,516.3 4,007.7
Income from
operations 808.1 825.2 945.3 105.1
Other income - net 145.3 158.2 108.4 232.9
Interest expense on debt 78.0 50.7 53.1 58.5
--------- --------- --------- ---------
Income before income
taxes 875.4 932.7 1,000.6 279.5
Provision for income taxes 319.3 326.5 365.5 107.1
--------- --------- --------- ---------
Income before
accounting changes 556.1 606.2 635.1 172.4
Cumulative effect of
accounting changes -- -- -- --
--------- --------- --------- ---------
Net income $ 556.1 $ 606.2 $ 635.1 $ 172.4
========= ========= ========= =========
</TABLE>
<PAGE> PAGE 30
Item 6. Selected Financial Data. (continued)
------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1987 - 1990
Page Two
<CAPTION>
1990 1989 1988 1987 (3)
---- ---- ---- ----
(In millions of dollars, except per share amounts)
<S> <C> <C> <C> <C>
PER SHARE DATA:
Earnings $ 3.43 $ 3.48 $ 3.51 $ 0.91
Dividends $ 1.52 $ 1.38 $ 1.26 $ 1.20
Stockholders' equity at
year end $ 31.57 $ 30.44 $ 28.74 $ 26.48
FINANCIAL POSITION:
Total assets $10,523.0 $10,244.3 $10,059.1 $ 9,831.6
Total long-term debt,
including current
maturities $ 1,125.2 $ 841.1 $ 780.9 $ 795.0
Stockholders' equity $ 4,911.9 $ 5,168.6 $ 5,152.6 $ 4,979.4
OTHER:
Capital expenditures $ 696.9 $ 651.7 $ 528.8 $ 562.9
Average number of shares
outstanding (thousands) 162,095 174,370 181,038 189,464
Number of stockholders at
year end 56,187 61,630 64,974 68,121
Average number of employees:
Rail 28,697 29,667 30,330 32,563
Nonrail 4,584 4,645 4,209 3,539
--------- --------- --------- ---------
Total 33,281 34,312 34,539 36,102
========= ========= ========= =========
(3) 1987's transportation operating expenses include a $620 million
special charge, principally related to railroad restructuring
costs. This charge reduced net income by $352 million, or $1.86
per share.
</TABLE>
<PAGE> PAGE 31
Item 6. Selected Financial Data. (continued)
------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1984 - 1986
Page One
<CAPTION>
1986 1985 (4) 1984
---- ---- ----
(In millions of dollars, except
per share amounts)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Transportation operating
revenues:
Railway operating
revenues $ 3,327.8 $ 3,434.8 $ 3,524.6
Motor carrier operating
revenues 748.6 390.3 --
--------- --------- ---------
Total transportation
operating revenues 4,076.4 3,825.1 3,524.6
Transportation operating
expenses:
Railway operating
expenses 2,665.9 2,740.1 2,790.6
Motor carrier operating
expenses 708.5 366.0 --
Special charge -- -- --
--------- --------- ---------
Total transportation
operating expenses 3,374.4 3,106.1 2,790.6
Income from
operations 702.0 719.0 734.0
Other income - net 215.8 171.7 173.5
Interest expense on debt 61.8 68.5 68.3
--------- --------- ---------
Income before income
taxes 856.0 822.2 839.2
Provision for income taxes 337.3 322.0 357.0
--------- --------- ---------
Income before
accounting changes 518.7 500.2 482.2
Cumulative effect of
accounting changes -- -- --
--------- --------- ---------
Net income $ 518.7 $ 500.2 $ 482.2
========= ========= =========
</TABLE>
<PAGE> PAGE 32
Item 6. Selected Financial Data. (continued)
------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1984 - 1986
Page Two
<CAPTION>
1986 1985 (4) 1984
---- ---- ----
(In millions of dollars, except
per share amounts)
<S> <C> <C> <C>
PER SHARE DATA:
Earnings $ 2.74 $ 2.65 $ 2.55
Dividends $1.13-1/3 $1.13-1/3 $1.06-2/3
Stockholders' equity at
year end $ 26.78 $ 25.20 $ 23.69
FINANCIAL POSITION:
Total assets $ 9,752.4 $ 9,768.6 $ 8,660.9
Total long-term debt,
including current
maturities $ 891.3 $ 941.0 $ 961.2
Stockholders' equity $ 5,070.8 $ 4,761.5 $ 4,472.6
OTHER:
Capital expenditures $ 698.4 $ 738.6 $ 473.6
Average number of shares
outstanding (thousands) 189,217 188,867 188,795
Number of stockholders at
year end 65,832 71,325 74,723
Average number of employees:
Rail 34,857 36,415 37,476
Nonrail 3,440 3,379 522
--------- --------- ---------
Total 38,297 39,794 37,998
========= ========= =========
(4) Includes NAVL from the acquisition date of June 21, 1985.
</TABLE>
<PAGE> PAGE 33
Item 6. Selected Financial Data. (continued)
------ -----------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Table of Graphs
Included with the
Eleven-Year Financial Review
The following financial information appears as four (4)
separate graphs following the Eleven-Year Financial Review in the 1994
Norfolk Southern Corporation Annual Report to Stockholders.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM RAILWAY OPERATIONS
(railway operating revenues -
railway operating expenses)
($ millions) $1,043.3 $915.3 $926.2 $791.8* $816.6 $829.7
DIVIDENDS PER SHARE
(dollars) $1.92 $1.86 $1.80 $1.60 $1.52 $1.38
RETURN ON EQUITY
(net income divided by
average stockholders'
equity) 14.4% 13.7%** 13.4% 11.1%* 11.0% 11.7%
* Excludes special charge.
** Excludes the cumulative effects of required accounting changes
and the prior years' effect of the federal income tax increase.
</TABLE>
<TABLE>
<CAPTION>
10 8 6 4 2
Years Years Years Years Years
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
TOTAL RETURN TO STOCKHOLDERS
(from dividends and
appreciation)
NS 16.8% 14.2% 15.9% 13.7% 2.6%
S&P 500 14.4% 11.9% 12.2% 11.9% 5.6%
</TABLE>
<PAGE> PAGE 34
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations.
-----------------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes beginning on page 50 and
the Eleven-Year Financial Review beginning on page 27. The Condensed
Summary provides a brief overview of results of operations, and the text
beginning under "Results of Operations" is a more detailed analysis.
CONDENSED SUMMARY OF RESULTS OF OPERATIONS
1994 Compared with 1993
-----------------------
Net income was $667.8 million, or $4.90 per share, in 1994, compared
with $772.0 million, or $5.54 per share, in 1993. However, net income in
1993 was increased by $223.3 million, or $1.60 per share, related to the
implementation of required accounting changes (see Note 1 on page 56) and
reduced by $46.2 million, or $0.33 per share, for the prior years' effect
of a federal income tax rate increase (see Note 3 on page 58). Excluding
the effect of the 1993 accounting changes and the tax rate increase,
1994's net income was 12% above the $594.9 million in 1993, and earnings
per share were 15% above the $4.27 in 1993, both setting records for NS.
Income from railway operations rose $128.0 million, or 14%, compared
with 1993, producing most of the improvement. These results reflect a 5%
increase in railway operating revenues (largely due to higher traffic
volume) combined with only a 2% increase in railway operating expenses.
Income from motor carrier operations improved to $22.1 million in 1994,
compared with a $4.6 million loss in 1993 (excluding the 1993
restructuring charge, see Note 15 on page 71). Nonoperating income was
$85.2 million, compared with $136.8 million in 1993 (see Note 2 on
page 58), principally a result of reduced gains on sales of stock and
property.
1993 Compared with 1992
-----------------------
Net income was $772.0 million in 1993, compared with $557.7 million
in 1992. However, as discussed previously, results for 1993 were
significantly affected by required accounting changes and by an increase
in the federal income tax rate. Excluding the effect of the accounting
changes and the tax rate increase related to prior years, 1993 earnings
would have been $594.9 million, or $4.27 per share, a $37.2 million, or
7%, increase over 1992. Income from railway operations in 1993 was about
even with 1992. Railway operating revenues declined 1%, primarily as a
result of lower coal traffic levels and a reduced share of certain
intermodal revenues after formation of Triple Crown Services Company
(TCSC), a partnership between NS and Consolidated Rail Corporation
(Conrail) subsidiaries. Motor carrier operations resulted in a $54.9
million loss in 1993, largely due to a restructuring of NAVL (see Note 15
on page 71), which resulted in the disposition of two of its businesses.
Offsetting the decline in income from operations was a $39.0 million
increase in nonoperating income, due principally to gains from sales of
stock and property (see Note 2 on page 58).
<PAGE> PAGE 35
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
<TABLE>
TRANSPORTATION OPERATING REVENUES AND EXPENSES
(Shown as a graph in the Annual Report to Stockholders)
(In millions of dollars)
<CAPTION>
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $4,581.3 $4,460.1 $4,606.6 $4,451.3 $4,617.0 $4,536.0
Expenses 3,515.9 3,599.7 3,720.1 4,339.3* 3,808.9 3,710.8
* Includes special charge.
</TABLE>
RESULTS OF OPERATIONS
Railway Operating Revenues
--------------------------
Railway operating revenues were $3.92 billion in 1994, compared with
$3.75 billion in 1993 and $3.78 billion in 1992. The following table
presents a three-year comparison of revenues by market group and reflects
(in Intermodal) the effect of the formation in April 1993 of TCSC. This
partnership provides RoadRailer(RT) and domestic container services
previously offered by a wholly owned NS subsidiary. Since NS owns only
50% of TCSC, its revenues are not consolidated, and NS' intermodal
revenues include only revenues for rail service provided by NS to the
partnership. Excluding this partnership effect, 1994 intermodal revenues
increased 14%, compared with 1993, and 1993 intermodal revenues were up
10%, compared with 1992.
<TABLE>
RAILWAY OPERATING REVENUES BY MARKET GROUP
(In millions of dollars)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Coal $1,262.5 $1,213.3 $1,296.0
Chemicals 512.2 472.9 471.7
Paper/forest 505.4 502.7 499.5
Automotive 432.1 429.5 401.5
Agriculture 347.5 319.7 301.4
Metals/construction 321.4 296.1 276.3
Intermodal 425.6 390.2 408.9
-------- -------- --------
Freight revenues 3,806.7 3,624.4 3,655.3
Other, principally switching
and demurrage 111.4 121.5 121.7
-------- -------- --------
Total $3,918.1 $3,745.9 $3,777.0
======== ======== ========
</TABLE>
Traffic volume increased or remained steady for all market groups in
1994 and increased for all market groups except coal in 1993. The revenue
per unit/mix variance in both years was attributable to: (1) shorter haul
business that has a lower average rate; (2) increased double-stack
business that has a lower average rate; and (3) the effect of the TCSC
partnership previously described.
<PAGE> PAGE 36
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
<TABLE>
RAILWAY OPERATING REVENUE VARIANCE ANALYSIS
Increases (Decreases)
(In millions of dollars)
<CAPTION>
1994 vs. 1993 1993 vs. 1992
------------- -------------
<S> <C> <C>
Traffic volume (carloads) $ 251.7 $ 68.3
Revenue per unit/mix (79.5) (99.4)
------- -------
Total $ 172.2 $ (31.1)
======= =======
</TABLE>
Some of the fastest growing market segments are in shorter haul,
repetitive movements. This type of traffic complements NS' efforts to
improve asset utilization and demonstrates that efficient operations can
generate profit opportunities in nontraditional markets.
COAL (including coke and iron ore) traffic volume in 1994 increased
5%, and revenues, which represented 32% of total railway operating
revenues, were up 4% from 1993. Coal accounted for about 98% of this
market group's volume, and 91% of coal shipments originated on NS' lines.
As shown in the following table, the decline in steel coal was more than
offset by a significant increase in utility coal, up 16%, compared with
1993.
<TABLE>
TOTAL COAL TONNAGE
(In millions of tons)
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Utility 70.2 60.6 61.0
Export 25.2 25.7 32.6
Steel 18.8 20.5 19.4
Other 8.9 8.8 8.8
----- ----- -----
Total 123.1 115.6 121.8
===== ===== =====
</TABLE>
Utility coal traffic was up early in the year as a result of bitter
weather and the resulting depletion of plant stockpiles. The pace at
which 1994 outperformed 1993 slowed as the weather normalized, power
generation demand lessened and coal inventories grew. New movements of
western coal into Georgia also contributed to the 1994 increase. NS
handled five million tons of western coal in 1994, and this volume is
expected to increase in 1995.
The favorable outlook for utility coal reflects increasing demand
for low-sulfur coal as utilities seek to comply with Clean Air Act
Amendments. A high proportion of the mines served by NS produce low-
sulfur coal. The January 1, 1995, Phase I deadline under the Clean Air
Act has already caused an increase in NS' low-sulfur coal handlings.
This trend is expected to accelerate as the Phase II deadline of January
1, 2000, approaches.
Export coal traffic at the beginning of 1994 continued to reflect
the poor demand seen in 1993. Shipments remained depressed as a result of
the weak European economy and strong competition from other producing
countries. Excess world capacity pushed coal prices lower in early 1994.
However, by mid-1994, U.S. coal supplies for the export market had been
reduced due to a strong domestic market and mine closings. Economic
recovery in Europe and Japan improved demand for steel and electricity,
and within a short time the coal supply-demand situation tightened. By
the end of 1994, delivery times were longer and prices had risen.
<PAGE> PAGE 37
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Continued economic growth in the Far East and Europe is expected to
increase demand for U.S. coal, especially steam coal. Reduced mining
subsidies in Europe, primarily in Germany, may reduce European coal
production. On the other hand, overseas demand for coal used in
steelmaking is expected to be flat in the short term and to decline over
the longer term as new technologies slowly diminish the need for this
type of coal. On balance, U.S. coal exports are expected to increase, but
at rates below those seen in previous economic recoveries.
During 1994, NS completed modifications to the two shiploaders at
Pier 6 in Norfolk, Va., enabling large vessels to be loaded more quickly.
Steel coal domestic traffic was reduced by the closing of one coke
battery and extended maintenance at another battery. These batteries
produce coke for making steel; however, because advancing technologies
allow for production of steel with little or no coke, this domestic
market is expected to decline slowly.
Coal volume in 1993 decreased 6%, compared with 1992, and revenues
also were down 6%. The export coal market was weak for all of 1993.
Additionally, stockpiles were at high levels in the United Kingdom, and
two Italian generating stations were closed all year. A UMWA strike,
settled in December 1993, although not widespread at mines served by NS,
idled four operations heavily oriented toward export shipments. In
contrast to the export market, domestic coal remained steady in 1993,
compared with 1992, as extended periods of warmer-than-usual summer
temperatures in the Southeast resulted in increased business for a number
of utility customers. NS also did well in 1993 in the domestic steel
market. While total volumes in this market remained flat, compared with
1992, NS was able to increase its market share.
MERCHANDISE traffic volume in 1994 increased 8%, and revenues
(excluding, for comparative purposes, the effect of the TCSC partnership;
see page 35) increased by $151.3 million, or 6%, compared with 1993.
Merchandise carloads handled in 1994 were 3.0 million, compared with 2.8
million in 1993. Revenues in all six market groups comprising merchandise
traffic improved over 1993, with four of the six increasing 8% or more.
CHEMICALS traffic rose 9% over 1993, and revenues increased 8%. A
strong economy strengthened the demand for chemicals, and shipments of
fertilizer and plastics were stronger in 1994 than in recent years. NS is
continuing its expansion of rail-truck bulk distribution facilities to
handle a variety of dry and liquid products. One new Thoroughbred Bulk
Transfer facility opened in 1994, and construction started on five more.
These facilities should play an important part in fostering the growth of
chemicals traffic in 1995 and beyond.
PAPER/FOREST traffic and revenues were both about even with 1993,
reflecting weak production, severe winter weather and floods in south
Georgia. Some of the weakness in paper was offset by an 8% gain in lumber
traffic, in part due to the opening of five new lumber distribution
centers. These centers facilitate combined rail-truck movements of lumber
and wood products to retail outlets. A resumption of moderate growth is
expected as paper market conditions improve and distribution center
traffic increases.
AUTOMOTIVE traffic remained steady in 1994, compared with 1993, and
revenues increased to their highest level in NS' history. NS' revenues
from automotive traffic have grown 32% since 1991, although only 1% of
this growth occurred in 1994. Traffic volume in 1994 was adversely
affected by retooling at four plants located on NS' lines. These plants
are scheduled to resume production between early 1995 and mid-1996.
During 1994, NS implemented a number of train coordination projects with
Conrail and Florida East Coast Railway to improve transit times for the
growing network of automotive assembly plants. Over the next few years,
growth in NS' automotive traffic is expected to resume as the plant
retoolings are completed and new plants come on line. Production began at
Toyota's second Georgetown, Ky., plant in March 1994 and at BMW's new
facility in Greer, S.C., in September 1994. Mercedes' plant in Alabama is
expected to come on line in 1997.
<PAGE> PAGE 38
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
AGRICULTURE traffic rose 7%, and revenues increased 9%. Early in the
year, favorable harvest conditions in NS sourcing areas and poor
conditions elsewhere boosted traffic. Later in the year, NS traffic
levels also were very strong, reflecting record corn and soybean harvests
and aggressive programs to increase car utilization through greater use
of 50- and 100-car unit trains. Agriculture has become a growth market
for NS, with revenues increasing 21% during the last five years. This
group is expected to continue to grow as poultry consumption, with the
commensurate rise in demand for feed grain, increases. In 1995, three new
feed mills are expected to open along NS' lines. NS is continuing efforts
to locate new poultry processing facilities along its lines. Growth also
is expected from short-haul movements diverted from truck due to improved
train service.
METALS/CONSTRUCTION traffic and revenues both rose 9%. Most of the
revenue gain was in shipments of steel, as this industry had its best
year since 1973. Business also increased because of new steel plants and
from aluminum traffic diverted from truck. Late in 1994, NS began sheet-
steel movements to Mexico under a new six-year contract. Construction
markets were strong, with output up 5%. Movements of sand and gravel were
up 13% due to increased highway repair and construction activity. Growth
prospects for metals/construction appear good. Business is expected to
benefit from new steel plants on NS' lines, new municipal solid waste
movements and the increased business to Mexico.
INTERMODAL traffic rose 13%, and revenues (adjusted for the effect
of the TCSC partnership) increased 14%, compared with 1993. Intermodal is
NS' fastest growing line of business, achieving record levels of volume,
revenue and profitability in 1994. Intermodal growth in 1994 was led by
an increase in trailer-on-flatcar (TOFC) business and, in particular, the
less-than-truckload segment. Notably, these customers, generally major
trucking companies, tend to use their own trailers rather than NS'
trailers. During 1994, these trucking companies switched substantial
amounts of business from highway to rail. This trend is expected to
continue in 1995 and beyond, although at a rate lower than that
experienced in 1994. Containers-on-flatcar (COFC) business also improved
in 1994. The export container segment, NS' largest COFC market, improved
as the economies in Europe recovered and the countries in the
Asia/Pacific region experienced rapid growth in production. Revenues from
domestic COFC movements also improved, as NS increased its market share.
Much of this growth was related to aggressive facility and transit-time
improvements, including expanding or upgrading five terminal facilities.
Current capacity, combined with three planned terminal expansions, will
accommodate an expected growth in COFC and double-stack business.
During 1993, all six merchandise market groups showed improvement
over 1992. Traffic volume increased 6% and revenues increased $104.6
million, or 5%. The largest revenue increases were in the intermodal
group, up $34.1 million, or 10% (excluding the TCSC effect), the
automotive group, up $28.0 million, or 7%, and metals/construction, up
$19.8 million, or 7%.
The 1993 growth in intermodal was led by a 21% increase in Triple
Crown(RT) activity due to strong automotive shipments and expansion of
service to the Northeast. COFC revenues were up 6% compared with 1992, a
smaller increase than in previous years due to recessions in Europe and
Japan. TOFC revenues were up 11%, boosted by gains from haulage
arrangements with truckload carriers. The 1993 growth in automotive
traffic was primarily due to strong demand for vehicles produced at
plants served by NS. In addition, NS benefited from a full year of
production at the Ford/Nissan plant located near Avon Lake, Ohio.
Successful marketing efforts, such as the program with GM for just-in-
time movement of auto parts, also contributed to the higher traffic
levels in 1993. The improvement in the metals/construction group in 1993,
compared with 1992, was largely a result of increased iron and steel
shipments related to strong industry production and new plants located on
NS' lines. Shipments of construction commodities also were strong due to
a recovery in housing.
<PAGE> PAGE 39
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Railway Operating Expenses
--------------------------
Railway operating expenses in 1994 totaled $2.9 billion, only 2%
higher than 1993, despite a 7% increase in traffic volume. Railway
operating expenses in 1993 were $2.8 billion, a 1% decline compared with
1992, despite a 2% increase in traffic volume.
The 1994 NS railway operating ratio continued to be the best among
the major railroads in the United States and improved by more than two
full points compared with 1993.
<TABLE>
RAILWAY OPERATING RATIO
(Shown as a graph in the Annual Report to Stockholders)
(Railway operating expenses divided by railway operating revenues)
<CAPTION>
1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C>
73.4% 75.6% 75.5% 78.3%* 78.4% 77.5%
* Excludes special charge.
</TABLE>
The following table shows the changes in railway operating expenses
summarized by major classifications.
<TABLE>
RAILWAY OPERATING EXPENSES
Increases (Decreases)
(In millions of dollars)
<CAPTION>
1994 vs. 1993 1993 vs. 1992
------------- -------------
<S> <C> <C>
Compensation and benefits $ (19.4) $ 11.3
Materials, services and rents 10.7 (44.1)
Depreciation 12.4 22.2
Diesel fuel 9.0 (3.2)
Casualties and other claims 16.0 (1.9)
Other 15.5 (4.5)
------- -------
Total $ 44.2 $ (20.2)
======= =======
</TABLE>
COMPENSATION AND BENEFITS represents about half of total railway
operating expenses and declined 1% in 1994, compared with 1993, but
increased 1% in 1993, compared with 1992.
The 1994 decline was principally a result of (1) lower accruals for
stock-based compensation plans as a result of a lower stock price; (2)
reduced accruals for postretirement benefits resulting from a change in
the benefit plan's creditable service period (see Note 11 on page 67);
(3) the expiration of the Railroad Retirement Repayment Tax in June 1993;
(4) the early retirement program in 1993 (see Note 10 on page 65); and
(5) productivity improvements as a result of continuing reductions in
train crew sizes.
The slightly higher expenses in 1993, compared with 1992, were
mainly due to accruals for postretirement and postemployment benefits
that, prior to 1993, were accounted for on a pay-as-you-go basis (see
"Required Accounting Changes" in Note 1 on page 56) and to higher costs
for stock-based compensation plans. A voluntary early retirement program
was completed in 1993, which resulted in a $42.4 million charge in
compensation and benefits expense (see Note 10 on page 65). Also in 1993,
a $46 million credit was recorded in compensation and benefits,
reflecting a partial reversal of the 1991 special charge (see Note 16 on
page 72).
<PAGE> PAGE 40
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
MATERIALS, SERVICES AND RENTS consists of items used for maintenance
of road (rail line and related structures) and equipment (locomotives and
freight cars); equipment rents representing the cost to NS of using
freight equipment owned by other railroads or private owners, less the
rent paid to NS for the use of its equipment; and the cost of services
purchased from outside contractors, including the net costs of operating
joint (or leased) facilities with other railroads. This category
increased 2% in 1994, compared with 1993, but declined 6% in 1993,
compared with 1992. The 1994 increase was principally due to higher joint-
facility and leased-road costs and to increased locomotive repair costs,
resulting mostly from higher traffic volume. However, a decrease in usage
by other railroads of NS' facilities also contributed to the increase in
joint facilities expense. The cost of leasing lines of road is expected
to increase in the future as a result of tentative understandings reached
with respect to certain North Carolina leases (see Note 8 on page 64).
Partly offsetting these increases was a decline in equipment rent
expenses resulting from the partial deprescription (deregulation by the
ICC) of car hire rates among railroads. NS expects additional future
benefits as deprescription is fully implemented.
The decrease in 1993's materials, services and rents, compared with
1992, was largely due to the inclusion in 1992 of certain expenses which,
subsequent to March 31, 1993, were incurred by TCSC (see discussion on
page 35).
DEPRECIATION expense (see Note 1 "Properties" on page 56 for NS'
depreciation policy) was up 3% in 1994, compared with 1993, and 7% in
1993, compared with 1992. The increases in both periods were due to
property additions, reflecting substantial levels of capital spending
during the three-year period ended December 31, 1994.
DIESEL FUEL costs increased 5% in 1994, compared with 1993, but
declined 2% in 1993, compared with 1992. The 1994 increase was entirely
due to increased consumption, driven by a 7% increase in carloadings. On
average, 1994's prices were slightly lower than 1993's. NS uses
substantial quantities of diesel fuel; therefore, changes in price or
consumption have a significant impact on the cost of providing
transportation services. Diesel fuel expenses declined in 1993, compared
with 1992, mainly due to a lower price offset partially by increased
consumption.
CASUALTIES AND OTHER CLAIMS (including insurance costs, estimates of
costs related to personal injury, property damage and environmental
matters) increased 13% in 1994, compared with 1993, but decreased 2% in
1993, compared with 1992. The 1994 increase was primarily attributable to
environmental cleanup costs associated with a tankcar leak (see also
"Environmental Matters" on page 45) and to higher personal injury claim
settlement costs. By far the largest component, personal injury expenses,
which relates primarily to the cost of on-the-job employee injuries, has
shown a favorable trend in the number of incidents since 1990, reflecting
success in reducing accidental employee injuries. Unfortunately, the
favorable trend in the number of accidental injuries has been more than
offset by increased claim costs and higher costs related to non-
accidental "occupational" claims.
The rail industry remains uniquely susceptible to both accidental
injury and occupational claims because of an outmoded law, the Federal
Employers' Liability Act (FELA), originally passed in 1908 and applicable
only to railroads. This law provides the sole basis for compensating
railroad employees who sustain job-related injuries. The system produces
results that are unpredictable, inconsistent and frequently unfair, at a
cost to the rail industry that is two or three times greater than that
under the no-fault workers' compensation systems to which non-rail
competitors are universally subject. The railroads have been unsuccessful
so far in efforts to persuade Congress to replace the FELA with a no-
fault workers' compensation act.
OTHER expenses increased 12% in 1994, compared with 1993, and
declined 3% in 1993, compared with 1992. The increase over 1993 was due
to favorable property tax settlements in 1993 and to higher relocation
expenses in 1994 related to new job assignments following 1993's early
retirement program. The 1993 decline was largely the result of favorable
settlements of issues related to property and other taxes.
<PAGE> PAGE 41
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Motor Carrier Results
---------------------
Motor carrier operating income was $22.1 million in 1994, compared
with operating losses of $54.9 million in 1993 and $39.7 million in 1992.
The large loss reported in 1993 was almost entirely attributable to a
restructuring of the business as described below. The continuing
operations, comprising Relocation Services (RS) and High Value Products
(HVP), produced operating income of $22.1 million in 1994 and $14.4
million in 1993, and an operating loss of $9.3 million in 1992.
A restructuring decision was made in 1993 due to persistently poor
performance in the general commodities operations despite repeated
turnaround efforts. The restructuring led to the liquidation of the
Commercial Transport (CT) Division and the sale of Tran-Star (TS), a
refrigerated carrier. A restructuring charge of $50.3 million was
recorded in 1993 (see Note 15 on page 71).
The following table presents a three-year comparison of revenues by
principal operations.
<TABLE>
MOTOR CARRIER OPERATING REVENUES BY PRINCIPAL OPERATIONS
(In millions of dollars)
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Relocation Services (RS) $ 325.5 $ 315.3 $ 315.4
High Value Products (HVP) 337.7 262.2 243.3
Commercial Transport (CT)* -- 105.3 218.5
Tran-Star (TS)* -- 31.4 52.4
------- ------- -------
Total $ 663.2 $ 714.2 $ 829.6
======= ======= =======
* See restructuring discussion in Note 15 on page 71.
</TABLE>
RS' revenues depend on four primary segments of household goods
transportation: corporate national accounts, interstate C.O.D. movements,
military business and international relocations. RS' 1994 revenues
increased 3% over 1993 and were even in 1993, compared with 1992. Volume
gains were achieved in the military and C.O.D. segments; however, prices
were flat. The domestic market-share gains were partly offset by lower
revenues from Canadian operations. Revenues in 1993 were adversely
affected by a decline in domestic military volume and fewer Canadian
shipments. These decreases were partly offset by gains in the
international household relocation segment. The continued downsizing of
U.S. corporations and changes in policy relative to military staffing
levels are likely to result in ongoing pressure on this division's
operating revenues.
HVP's main line of business is transporting office products and
other sensitive equipment, as well as exhibits and displays. A Customized
Logistic Services (CLS) segment provides integrated logistics expertise.
A Blanketwrap segment that had been part of the discontinued CT Division
provides specialized handling of uncartoned truckload freight. HVP's
revenues increased 29% in 1994, compared with 1993, and 8% in 1993,
compared with 1992. The increase in 1994 was due to (1) the inclusion of
Blanketwrap, which was in HVP for only two months of 1993, and (2) to CLS
which was awarded a significant logistics contract by IBM in third
quarter 1993. The 1993 revenue increase was largely due to the IBM
contract, two months of Blanketwrap revenues and expansion of air freight
services into several new markets. HVP may benefit from a continued
increase in movements of office products and other sensitive commodities,
<PAGE> PAGE 42
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
such as medical equipment; however, a trend toward smaller shipment sizes
could subject this operation to increasing competition from other
specialized carriers. Additional growth in the CLS segment is possible as
more shippers look to carriers like NAVL to provide logistics expertise
to reduce overall shipping and handling costs.
Motor carrier operating expenses as a percentage of revenues were
97%, 108% and 105%, respectively, in 1994, 1993 and 1992. In 1993 and
1992, the highly unfavorable operating ratios were caused largely by
losses sustained in the truckload operations, which more than offset
positive results of RS and HVP. The high operating ratio in 1993 also was
attributable to the restructuring charge and in 1992 to increased
reserves for casualty claims, litigation and workers' compensation.
Operating expenses for 1992 included a $27 million accrual to record
actuarially determined reserve increases for casualty claims and workers'
compensation.
NAVL's continuing operations generated operating ratios of 97% in
1994 and 1993 and 99% in 1992, excluding the insurance reserve
adjustments. Due to deregulation and overcapacity in the industry, motor
carriers will continue to face vigorous competition that will keep
margins at a modest level.
Other Income-Net
----------------
Nonoperating income decreased $51.6 million, or 38%, in 1994,
compared with 1993, but increased $39.0 million, or 40%, in 1993,
compared with 1992 (see Note 2 on page 58). These fluctuations
principally arose because of large gains on sales of stock and property
in 1993.
Interest Expense on Debt
------------------------
Interest expense on debt increased 3% in 1994, compared with 1993,
but declined 10% in 1993, compared with 1992. The 1994 increase was due
to a higher rate of interest on commercial paper debt (see Note 6 on
page 62) and a decrease in the amount of capitalized interest (see Note 5
on page 61). The 1993 decline was due to lower levels of equipment debt
and lower interest rates on commercial paper debt.
Income Taxes
------------
Income tax expense in 1994 was $381.2 million for an effective rate
of 36.3%, compared with an effective rate of 38.9% in 1993 and 36.3% in
1992. Income tax expense in 1994 and 1993 was accrued under Statement of
Financial Accounting Standards No. 109, rather than under the prior
accounting rules (see "Required Accounting Changes" in Note 1 on
page 56). Absent the federal income tax rate increase imposed by the
Revenue Reconciliation Act of 1993, income tax expense in 1993 would have
been $295.8 million for an effective rate of 32.9%.
The effective rate in 1994 benefited from favorable adjustments
resulting from settlement of the consolidated federal income tax years
1988 and 1989; from an adjustment to the valuation allowance for deferred
tax assets; and from a favorable adjustment upon filing the 1993 tax
return. Deferred tax expense was an unusually high proportion of total
tax expense in 1994. A corresponding reduction is reflected in 1994's
current tax expense for the effects of expenditures that affect book and
tax accounts in different years, primarily in the areas of compensation,
discontinued operations and property.
The low effective rate of 32.9% in 1993 (excluding the tax rate
increase) was partly due to tax benefits related to the motor carrier
restructuring (see Note 15 on page 71). Current income tax expense in
1993 was a higher proportion of total taxes, primarily because of tax
payments made in anticipation of Revenue Agent Reports for the 1988-1989
federal income tax audit. Deferred tax expense for 1993, compared to
1992, decreased primarily for the same reason (see Note 3 on page 58 for
the components of income tax expense).
<PAGE> PAGE 43
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Required Accounting Changes
---------------------------
Effective January 1, 1994, NS adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115). SFAS 115 did not have a significant
effect on NS (see also Note 1 on page 56).
Effective January 1, 1993, NS adopted required accounting for
postretirement benefits other than pensions, postemployment benefits and
income taxes (see Note 1 on page 56 for a discussion of these accounting
changes). The net cumulative effect of these non-cash adjustments
increased 1993's net income by $223.3 million, or $1.60 per share.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION refers to the assets, liabilities and
stockholders' equity of an organization (see Consolidated Balance Sheets
on page 52). LIQUIDITY refers to the ability of an organization to
generate adequate amounts of cash, principally from operating results or
through borrowing power, to meet its short-term and long-term cash
requirements (see Consolidated Statements of Cash Flows on page 53).
CAPITAL RESOURCES refers to the ability of an organization to raise funds
through the sale of either debt or equity (stock) securities.
<TABLE>
<CAPTION>
($ in millions) 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and short-term
investments $306.7 $258.2 $378.1 $464.7 $624.8
Current assets to
current liabilities 1.2 1.3 1.2 1.1 1.3
Working capital $205.7 $365.6 $214.7 $128.5 $375.0
Debt to total
capitalization 26.2% 27.4% 29.8% 29.5% 20.9%
Return on average
stockholders' equity 14.4% 13.7%* 13.4% 11.1%** 11.0%
* Excluding the cumulative effects of required accounting changes
and the prior years' effect of the federal income tax rate
increase.
** Excluding special charge.
</TABLE>
CASH PROVIDED BY OPERATING ACTIVITIES, which is NS' principal source
of liquidity, increased $269.7 million, or 31%, in 1994, compared with
1993, but declined $83.6 million, or 9%, in 1993, compared with 1992.
Since the NS consolidation in 1982, cash provided by operating activities
has been sufficient to fund dividend requirements, debt repayments and a
significant portion of capital spending (see Consolidated Statements of
Cash Flows on page 53). The improvement in 1994 was primarily a result of
increased income from operations, which was $205 million higher than
1993, and to lower income tax payments. The 1993 decline was largely
attributable to the timing of tax payments, which were $139.9 million
higher than in 1992, due to payments related to the 1988-1989 federal
income tax audit, higher 1993 earnings and the fact that 1992's tax
payments had been low.
Implementation of the labor portion of the 1991 special charge also
contributed to the fluctuations in cash provided by operations. In 1994,
1993 and 1992, $41.9 million, $36.1 million and $134.7 million,
respectively, were used for labor costs related to the special charge.
The lower payments in 1994 and 1993 were partly due to the failure to
reach agreement on terms for certain further labor savings. This
situation also led to a partial reversal of the 1991 special charge (see
Note 16 on page 72). Looking ahead, the labor portion of the special
charge is expected to require approximately $30 million in each of the
<PAGE> PAGE 44
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
next two years to achieve productivity gains permitted by the agreements.
NS regards this cash outflow as an investment because, in view of the
high cost of labor and fringe benefits, these payments produce
significant future labor savings. In 1994, it is estimated that NS'
expenses were reduced by $130 million as a result of these programs,
and upon full implementation of the labor agreements, there will be
additional savings of about $20 million per year.
CASH USED FOR INVESTING ACTIVITIES increased 4% in 1994, compared
with 1993, but declined 30% in 1993, compared with 1992. Property
additions account for most of the spending in this category. In 1994,
property additions included $71 million for the acquisition of coal
reserves in West Virginia and Kentucky. Excluding this large property
acquisition, 1994's rail and motor carrier capital expenditures were 4%
below 1993. Efforts to hold down capital spending while increasing
business are ongoing as NS seeks to maximize utilization of its assets.
In this connection, NS continues to review its route network to identify
areas where efficiencies can be achieved by coordinated agreements with
other railroads, or through sales or abandonments. Large borrowings on
corporate-owned life insurance, reflected in "Investment sales and other
transactions" in the Consolidated Statements of Cash Flows (see Note 4 on
page 61), offset much of the use of cash for property additions in 1994.
In 1993, a combination of higher proceeds from sales of property and
investments and lower capital spending was responsible for the
improvement compared with 1992.
<TABLE>
CAPITAL EXPENDITURES
(Shown as a graph in the Annual Report to Stockholders)
(In millions of dollars)
<CAPTION>
1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Road $384.6 $417.9 $426.5 $395.4 $391.5 $351.5
Equipment 245.9 240.5 281.3 235.2 295.5 294.3
Other property 82.4 10.8 8.3 82.8 9.9 5.9
------ ------ ------ ------ ------ ------
Total $712.9 $669.2 $716.1 $713.4 $696.9 $651.7
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
The table above shows capital spending over the past six years, and
the following table summarizes track maintenance statistics and the
average ages of railway equipment.
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Track miles of rail
installed 480 574 660 679 743
Miles of track surfaced 4,760 5,048 5,690 5,646 5,844
New crossties installed
(millions) 1.7 1.6 1.9 1.9 1.9
Freight car fleet (years) 21.9 21.3 20.9 20.2 19.9
Locomotive fleet (years) 15.8 15.1 14.5 14.2 14.8
</TABLE>
<PAGE> PAGE 45
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
The average age of locomotives retired during 1994 was 23.6 years.
Since 1988, NS has rebodied more than 17,200 coal cars and plans to
continue that program at the rate of about 3,500 cars per year for the
next several years. This work, performed at NS' Roanoke Car Shop,
converts hopper cars into high-capacity steel gondolas or hoppers. As a
result, the remaining serviceability of the freight car fleet is greater
than indicated by the increasing average age shown above.
For 1995, NS is planning $695 million of capital spending, of which
$686 million will be for railway projects and $9 million for motor
carrier property. NS anticipates new equipment financing of approximately
$110 million in 1995. Barring unforeseen events, total rail and motor
carrier capital spending is expected to remain in the $600 to $700
million range for the next few years. A substantial portion of future
capital spending is expected to be funded through internally generated
cash, although debt financing will continue as the primary funding source
for equipment acquisitions.
CASH USED FOR FINANCING ACTIVITIES increased 56% in 1994, compared
with 1993, and 32% in 1993, compared with 1992. The 1994 increase was a
result of increased purchases under the stock purchase program (see Note
13 on page 71). Cash spent since 1987 to purchase and retire stock
totaled $2.5 billion, of which $344.8 million, $138.1 million and $177.2
million was spent in 1994, 1993 and 1992, respectively. During 1994 and
1993, a significant portion of this total spending was from cash
reserves, although purchases in 1994 were funded partially by the
corporate-owned life insurance proceeds. The 1992 stock purchases were
funded largely through issuance of debt. Debt activity over the past five
years was as follows:
<TABLE>
<CAPTION>
($ in millions) 1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
New debt $ 41.4 $ 54.9 $342.8 $622.2 $556.9
Debt repaid 123.6 108.6 255.3 210.4 100.8
</TABLE>
Debt requirements for 1995 are expected to increase related to the
planned acquisition of 125 locomotives and to continuation of the stock
purchase program.
Hedging Activities
------------------
Certain subsidiaries of NS have entered into hedging transactions
relating to diesel fuel purchases and foreign exchange transactions. The
notional amount of agreements settled from 1992 through 1994 was less
than $2 million, and outstanding agreements at December 31, 1994, were
less than $5 million.
ENVIRONMENTAL MATTERS
NS is subject to various jurisdictions' environmental laws and
regulations. It is NS' policy to record a liability where such liability
or loss is probable and can be reasonably estimated. Claims, if any,
against third parties for recovery of cleanup costs incurred by NS are
reflected as receivables in the balance sheet and are not netted against
the associated NS liability. Environmental engineers participate in
ongoing evaluations of all identified sites, and--after consulting with
counsel--any necessary adjustments to initial liability estimates are
made. NS also has established an Environmental Policy Council, composed
of senior managers, to prescribe and direct its environmental
initiatives.
Operating expenses for environmental protection totaled
approximately $20 million in 1994 and are anticipated to decrease in
1995. Expenses in 1994 included $10.5 million associated with emergency
response and cleanup resulting from release of arsenic acid from a
tankcar leased by the shipper from a third party. Capital expenditures
for environmental projects amounted to approximately $4 million in 1994
and are expected to be approximately $4 million in 1995. As of December
31, 1994, NS' balance sheet included a reserve for environmental
exposures in the amount of $50 million (of which $13 million is accounted
<PAGE> PAGE 46
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
for as a current liability), which is NS' best estimate of ultimate
liability at 80 identified locations. On that date, eight sites
accounted for $23 million of the reserve, and no individual site
was considered to be material. NS anticipates that the majority of
this liability will be paid out over five years; however, some costs
will be paid out over a longer period.
At many of the 80 locations, certain NS subsidiaries, usually
in conjunction with a number of other parties, have been identified as
potentially responsible parties by the Environmental Protection Agency
(EPA) or similar state authorities under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, or comparable state
statutes, which often impose joint and several liability for cleanup
costs.
With respect to known environmental sites (whether identified
by NS or by the EPA or comparable state authorities), estimates of NS'
ultimate potential financial exposure for a given site or in the
aggregate for all such sites are necessarily imprecise because of the
widely varying costs of currently available cleanup techniques, the
likely development of new cleanup technologies, the difficulty of
determining in advance the nature and full extent of contamination and
each potential participant's share of any estimated loss (and that
participant's ability to bear it) and evolving statutory and regulatory
standards governing liability.
The risk of incurring environmental liability--for acts and
omissions, past, present and future--is inherent in the railroad
business. Some of the commodities, particularly those classified as
hazardous materials, in NS' traffic mix can pose special risks that NS
and its subsidiaries work diligently to minimize. In addition, several NS
subsidiaries have land holdings that serve as operating property, or
which are leased or may have been leased and operated by others, or held
for sale. Because certain conditions may exist on these properties
related to environmental problems that are latent or undisclosed, there
can be no assurance that NS will not incur liabilities or costs with
respect to one or more of them, the amount and materiality of which
cannot be estimated reliably now. Moreover, lawsuits and claims involving
these and other now-unidentified environmental sites and matters are
likely to arise from time to time. The resulting liabilities could have a
significant effect on financial condition, results of operations or
liquidity in a particular year or quarter.
However, based on its assessments of the facts and
circumstances now known and, after consulting with its legal counsel,
Management believes that it has recorded appropriate estimates of
liability for those environmental matters of which the Corporation is
aware. Further, Management believes that it is unlikely that any
identified matters, either individually or in aggregate, will have a
material adverse effect on NS' financial position, results of operations
or liquidity.
INFLATION
Generally accepted accounting principles require the use of
historical costs in preparing financial statements. This approach
disregards the effects of inflation on the replacement cost of property
and equipment. NS, a capital-intensive company, has approximately
$13 billion invested in such assets. The replacement costs of these
assets, as well as the related depreciation expense, would be
substantially greater than the amounts reported on the basis of
historical costs.
<PAGE> PAGE 47
Item 7. Management's Discussion and Analysis of Financial
------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
INDUSTRY TRENDS
- Negotiations at the national level on agreements with the major
labor organizations were under way during 1994, but no new
agreements have been concluded. The outcome of these negotiations
is uncertain at this time.
- The Interstate Commerce Commission (ICC) may be abolished or its
role substantially redefined. Whether and to what extent the
ICC's traditional regulatory functions will be carried out at the
federal level--and if so, by what agency or agencies--remain
unclear and are a source of uncertainty.
- NS and other railroads are continuing to seek opportunities to
share traffic routes and facilities, furthering the goals of
providing seamless service to customers and maximizing efficiency
of the respective railroads.
- NS and the rail industry are continuing their efforts to replace
the FELA with no-fault workers' compensation laws comparable to
those covering employees in other industries.
- There have been some recent merger and consolidation overtures
within the railroad industry. NS is closely monitoring this
activity in light of its own long-term strategic objectives to
protect the interests of its stockholders.
<PAGE> PAGE 48
Item 8. Financial Statements and Supplementary Data.
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
<CAPTION>
Three Months Ended
-------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In millions of dollars except per share amounts)
<S> <C> <C> <C> <C>
1994
----
Transportation
operating revenues $1,076.8 $1,161.4 $1,171.2 $1,171.9
Income from operations 222.3 278.3 277.5 287.3
Net income 144.9 178.5 168.3 176.1
Earnings per share $ 1.05 $ 1.30 $ 1.24 $ 1.31
1993*
----
Transportation
operating revenues $1,115.5 $1,170.4 $1,088.9 $1,085.3
Income from operations 193.6 190.8 225.4 250.6
Income before
accounting changes* 138.9 155.2 95.2 159.4
Net income 362.2 155.2 95.2 159.4
Earnings per share
before accounting
changes 0.99 1.11 0.69 1.15
Earnings per share
after accounting
changes $ 2.59 $ 1.11 $ 0.69 $ 1.15
* 1993's results include implementation of required accounting
changes (see Note 1 on page 56) that resulted in a $223.3
million, or $1.60 per share, increase in first quarter net income
(originally reported as $1.59 per share due to more shares
outstanding; see Note 13 on page 71). Additionally, 1993's
results include the effect of a 1% increase in the federal income
tax rate that resulted in a $54.1 million, or $0.39 per share,
decrease in net income, principally reflected in the third
quarter (see Note 3 on page 58).
</TABLE>
<PAGE> PAGE 49
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
Index to Financial Statements: Page
----------------------------- ----
Consolidated Statements of Income
Years ended December 31, 1994, 1993 and 1992 50-51
Consolidated Balance Sheets
As of December 31, 1994 and 1993 52
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992 53-54
Consolidated Statements of Changes in
Stockholders' Equity Years ended
December 31, 1994, 1993 and 1992 55
Notes to Consolidated Financial Statements 56-73
Independent Auditors' Report 74
The Index to Consolidated Financial Statement Schedule
appears in Item 14 on page 76.
<PAGE> PAGE 50
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Years ended December 31,
----------------------------
1994 1993 1992
-------- -------- --------
(In millions of dollars,
except earnings per share)
<S> <C> <C> <C>
Transportation operating revenues:
Railway $3,918.1 $3,745.9 $3,777.0
Motor carrier (Note 15) 663.2 714.2 829.6
-------- -------- --------
Total transportation operating revenues 4,581.3 4,460.1 4,606.6
-------- -------- --------
Transportation operating expenses:
Railway:
Compensation and benefits (Notes 10, 11 and 16) 1,371.1 1,390.5 1,379.2
Materials, services and rents 660.4 649.7 693.8
Depreciation 374.3 361.9 339.7
Diesel fuel 188.3 179.3 182.5
Casualties and other claims 135.1 119.1 121.0
Other 145.6 130.1 134.6
Motor carrier (Note 15) 641.1 769.1 869.3
-------- -------- --------
Total transportation operating expenses 3,515.9 3,599.7 3,720.1
-------- -------- --------
Income from operations 1,065.4 860.4 886.5
Other income - net (Note 2) 85.2 136.8 97.8
Interest expense on debt (Note 5) 101.6 98.6 109.0
-------- -------- --------
Income before income taxes
and accounting changes 1,049.0 898.6 875.3
Provision for income taxes (Note 3):
Income taxes 381.2 303.7 317.6
Adjustment of net deferred tax liability
for federal rate increase -- 46.2 --
-------- -------- --------
Total income taxes 381.2 349.9 317.6
-------- -------- --------
Income before accounting changes 667.8 548.7 557.7
Cumulative effect on years prior to 1993 of
changes in accounting principles
(Note 1) for:
Income taxes -- 466.8 --
Postretirement benefits other than
pensions; and postemployment
benefits - net of taxes -- (243.5) --
-------- -------- --------
Net income $ 667.8 $ 772.0 $ 557.7
======== ======== ========
(Continued)
</TABLE>
<PAGE> PAGE 51
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (continued)
<CAPTION>
Years ended December 31,
----------------------------
1994 1993 1992
-------- -------- --------
(In millions of dollars,
except earnings per share)
<S> <C> <C> <C>
Earnings per share amounts (Note 13):
Earnings per share before
accounting changes (Note 1) $ 4.90 $ 3.94 $ 3.94
Cumulative effect on years prior to 1993
of changes in accounting principles for:
Income taxes -- 3.34 --
Postretirement benefits other than
pensions; and postemployment benefits -- (1.74) --
-------- -------- --------
Earnings per share $ 4.90 $ 5.54 $ 3.94
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 52
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
<CAPTION>
As of December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 57.0 $ 80.5
Short-term investments 249.7 177.7
Accounts receivable net of allowance for
doubtful accounts of $21.9 million and
$22.6 million, respectively 726.6 729.9
Materials and supplies 61.9 70.3
Deferred income taxes (Note 3) 137.0 177.7
Other current assets (Notes 4 and 15) 105.3 327.4
--------- ---------
Total current assets 1,337.5 1,563.5
--------- ---------
Investments (Note 4) 172.8 160.3
Properties less accumulated depreciation (Note 5) 8,987.1 8,730.7
Other assets 90.4 65.3
--------- ---------
Total assets $10,587.8 $10,519.8
========= =========
Liabilities and stockholders' equity
Current liabilities:
Short-term debt (Note 6) $ 44.9 $ 149.5
Accounts payable (Note 7) 704.1 653.6
Income and other taxes 168.5 135.3
Other current liabilities (Note 7) 142.3 145.8
Current maturities of long-term debt (Note 6) 72.0 113.7
--------- ---------
Total current liabilities 1,131.8 1,197.9
--------- ---------
Long-term debt (Note 6) 1,547.8 1,481.5
Other liabilities (Note 9) 961.9 1,035.4
Minority interests 53.5 54.5
Deferred income taxes (Note 3) 2,208.0 2,129.8
--------- ---------
Total liabilities 5,903.0 5,899.1
--------- ---------
Stockholders' equity:
Common stock $1.00 per share par value,
450,000,000 shares authorized; issued
140,386,027 shares and
145,747,340 shares, respectively 140.4 145.7
Other capital 410.4 417.1
Retained income 4,154.6 4,078.5
Less treasury stock at cost, 7,252,634 shares (20.6) (20.6)
--------- ---------
Total stockholders' equity 4,684.8 4,620.7
--------- ---------
Total liabilities and stockholders' equity $10,587.8 $10,519.8
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 53
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of dollars)
<CAPTION>
Years ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 667.8 $ 772.0 $ 557.7
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes
in accounting principles -- (223.3) --
Special charge payments (41.9) (36.1) (134.7)
Depreciation 403.8 405.5 396.6
Deferred income taxes 112.7 56.2 64.1
Nonoperating gains and losses
on properties and investments (17.0) (73.2) (20.0)
Changes in assets and liabilities
affecting operations:
Accounts receivable (12.9) 18.1 (23.7)
Materials and supplies 8.4 9.8 (10.5)
Other current assets (17.8) 4.0 3.9
Current liabilities other than debt 55.5 (37.4) 63.3
Other - net (14.3) (21.0) 61.5
------- ------- -------
Net cash provided by operating activities 1,144.3 874.6 958.2
Cash flows from investing activities:
Property additions (712.9) (669.2) (716.1)
Property sales and other transactions 86.1 124.4 67.0
Investments and loans (58.7) (95.5) (70.6)
Investment sales and other transactions 272.0 81.6 4.4
Short-term investments - net (74.4) 88.6 40.2
------- ------- -------
Net cash used for investing activities (487.9) (470.1) (675.1)
Cash flows from financing activities:
Dividends (262.7) (259.7) (255.0)
Common stock issued - net 9.8 15.7 15.2
Purchase and retirement of common stock (344.8) (138.1) (177.2)
Commercial paper proceeds -- 1.3 29.5
Long-term debt proceeds 41.4 53.6 313.3
Debt repayments (123.6) (108.6) (255.3)
------- ------- -------
Net cash used for financing activities (679.9) (435.8) (329.5)
Net decrease in cash and cash equivalents (23.5) (31.3) (46.4)
Cash and cash equivalents:
At beginning of year 80.5 111.8 158.2
------- ------- -------
At end of year $ 57.0 $ 80.5 $ 111.8
======= ======= =======
(Continued)
</TABLE>
<PAGE> PAGE 54
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In millions of dollars)
<CAPTION>
Years ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 114.3 $ 140.1 $ 112.7
Income taxes $ 226.4 $ 350.7 $ 210.8
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 55
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In millions of dollars)
<CAPTION>
Common Other Retained Treasury
Stock Capital Income Stock Total
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1991 $ 150.2 $ 400.8 $3,563.0 $ (20.6) $4,093.4
Net income - 1992 557.7 557.7
Dividends on common stock
$1.80 per share (255.0) (255.0)
Purchase and retirement of
common stock (3.0) (8.2) (167.9) (179.1)
Other 0.4 15.2 15.6
------- ------- -------- ------- --------
Balance December 31, 1992 147.6 407.8 3,697.8 (20.6) 4,232.6
Net income - 1993 772.0 772.0
Dividends on common stock
$1.86 per share (259.7) (259.7)
Purchase and retirement of
common stock (2.2) (6.1) (131.6) (139.9)
Other 0.3 15.4 15.7
------- ------- -------- ------- --------
Balance December 31, 1993 145.7 417.1 4,078.5 (20.6) 4,620.7
Net income - 1994 667.8 667.8
Dividends on common stock
$1.92 per share (262.7) (262.7)
Purchase and retirement of
common stock (5.5) (16.3) (327.8) (349.6)
Other 0.2 9.6 (1.2) 8.6
------- ------- -------- ------- --------
Balance December 31, 1994 $ 140.4 $ 410.4 $4,154.6 $ (20.6) $4,684.8
======= ======= ======== ======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 56
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following notes are an integral part of the consolidated financial
statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include Norfolk Southern
Corporation (Norfolk Southern) and its majority-owned and controlled
subsidiaries (collectively NS). The major subsidiaries are Norfolk
Southern Railway Company and North American Van Lines, Inc. (NAVL). All
significant intercompany balances and transactions have been eliminated
in consolidation.
Cash Equivalents
----------------
"Cash equivalents" are highly liquid investments purchased three
months or less from maturity.
Investments
-----------
"Investments" are reported at amortized cost or fair value depending
upon their classification as held-to-maturity, trading or available-for-
sale securities in accordance with SFAS No. 115 (see "Required Accounting
Changes").
Materials and Supplies
----------------------
"Materials and supplies," consisting mainly of fuel oil and items
for maintenance of property and equipment, are stated at average cost.
The cost of materials and supplies expected to be used in capital
additions or improvements is included in "Properties."
Properties
----------
"Properties" are stated principally at cost and are depreciated
using group depreciation. Rail is primarily depreciated on the basis of
use measured by gross ton miles. The effect of this method is to write
off these assets over 42 years on average. Other properties are
depreciated generally using the straight-line method over estimated
service lives at annual rates that range from 1% to 25%. In 1994, the
overall depreciation rate averaged 2.7% for roadway and 4.3% for
equipment. NS capitalizes interest on major capital projects during the
period of their construction. Maintenance expense is recognized when
repairs are performed. When properties other than land are sold or
retired in the ordinary course of business, the cost of the assets, net
of sale proceeds or salvage, is charged to accumulated depreciation
rather than recognized through income. Gains and losses on disposal of
land, a nondepreciable asset, are included in other income (see Note 2).
Revenue Recognition
-------------------
Revenue is recognized proportionally as a shipment moves from origin
to destination.
<PAGE> PAGE 57
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share
------------------
"Earnings per share" are computed by dividing net income by the
weighted average number of common shares outstanding during the
respective periods. Recent decreases in the number of shares outstanding
are the result of the stock purchase program described in Note 13.
Required Accounting Changes
---------------------------
1994 - Effective January 1, 1994, NS adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115), which addresses the accounting and
reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. The
implementation of SFAS 115 had no impact on earnings and resulted in a
$6.3 million increase in stockholders' equity, as of January 1, 1994 (and
a $1.2 million decrease as of December 31, 1994), reflecting unrealized
market changes in certain investments, net of the related deferred taxes.
1993 - Effective January 1, 1993, NS adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106), and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (SFAS 112). SFAS 106 requires accrual of the cost of specified
health care and death benefits over an employee's creditable service
period rather than, as was the previously prevailing practice, accounting
for such expenses on a pay-as-you-go basis. SFAS 112 requires recognition
of the cost of benefits payable to former or inactive employees after
employment but before retirement on an accrual basis. For NS, such
postemployment benefits consist principally of benefit obligations under
the long-term disability plan. NS recognized the effects of these changes
in accounting on the immediate recognition basis. The cumulative effect
on years prior to 1993 of adopting SFAS 106 and SFAS 112 increased pretax
expenses $360.2 million ($223.8 million after-tax), and $31.8 million
($19.7 million after-tax), respectively (see also Note 11).
Also effective January 1, 1993, NS adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
SFAS 109 requires a liability approach for measuring deferred tax assets
and liabilities based on differences between the financial statement and
tax bases of assets and liabilities at each balance sheet date using
enacted tax rates in effect when those differences are expected to
reverse. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Under the deferred method, which
applied for 1992 and prior years, deferred income taxes were recognized
for income and expense items that were reported in different years for
financial reporting purposes and income tax purposes using the tax rate
applicable for the year of the calculation, and deferred taxes were not
adjusted for subsequent changes in tax rates. The cumulative effect on
years prior to 1993 of adopting SFAS 109 increased net income $466.8
million (see also Note 3).
The effect on net income and earnings per share of implementing the
accounting changes was to increase net income and earnings per share
$223.3 million and $1.60 per share, respectively.
<PAGE> PAGE 58
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
2. OTHER INCOME - NET
<CAPTION>
1994 1993 1992
------- ------- -------
(In millions of dollars)
<S> <C> <C> <C>
Interest income $ 25.5 $ 25.1 $ 35.4
Royalties from coal 61.0 55.7 55.6
Rental income 19.6 21.1 22.4
Gains from sale of properties 17.0 38.6 20.0
Corporate-owned life insurance - net 7.7 10.8 12.3
Other interest expense (19.7) (27.4) (25.5)
Non-rail depletion and depreciation (11.6) (8.9) (8.3)
Taxes on nonoperating property (8.2) (7.7) (8.3)
Gains from sale of stocks -- 34.6 --
Other - net (6.1) (5.1) (5.8)
------- ------- -------
Total $ 85.2 $ 136.8 $ 97.8
======= ======= =======
</TABLE>
<TABLE>
3. INCOME TAXES
Provision for Income Taxes
--------------------------
<CAPTION>
1994 1993 1992
------- ------- -------
(In millions of dollars)
<S> <C> <C> <C>
Current:
Federal $ 226.4 $ 250.2 $ 218.7
State 42.1 43.5 34.8
------- ------- -------
Total current taxes 268.5 293.7 253.5
Deferred:
Federal 99.0 (2.4) 53.6
State 13.7 12.4 10.5
Adjustment of net deferred
tax liability for federal
rate increase -- 46.2 --
------- ------- -------
Total deferred taxes 112.7 56.2 64.1
------- ------- -------
Provision for income taxes $ 381.2 $ 349.9 $ 317.6
======= ======= =======
</TABLE>
1993 Federal Income Tax Rate Increase
-------------------------------------
In August 1993, Congress enacted the Revenue Reconciliation Act of
1993, which increased the federal corporate income tax rate from 34% to
35%, retroactive to January 1, 1993. The tax rate increase had two
components which, as required by SFAS 109, were recognized in 1993's
earnings.
The first component relates to the increased income tax rate's
effect on 1993's earnings, which increased the provision for income taxes
and reduced net income by $7.9 million, or $0.06 per share. The second
component increased the provision for the net deferred tax liability in
the Consolidated Balance Sheet, which reduced net income by $46.2
million, or $0.33 per share. Excluding the one-time non-cash charge of
$0.33 per share, 1993's earnings per share before accounting changes
would have been $4.27.
<PAGE> PAGE 59
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
3. INCOME TAXES (continued)
<TABLE>
Reconciliation of Statutory Rate to Effective Rate
--------------------------------------------------
Total income taxes as reflected in the Consolidated Statements of
Income differ from the amounts computed by applying the statutory federal
corporate tax rate as follows:
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
(In millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
at statutory rate $ 367.2 35.0 $ 314.5 35.0 $ 297.6 34.0
State income taxes,
net of federal tax
benefit 36.1 3.4 37.2 4.1 30.0 3.4
Motor carrier
restructuring -- -- (36.8) (4.1) -- --
Corporate-owned
life insurance (10.5) (1.0) (9.8) (1.1) (9.2) (1.0)
Other - net (11.6) (1.1) (1.4) (0.1) (0.8) (0.1)
------- ---- ------- ---- ------- ----
381.2 36.3 303.7 33.8 317.6 36.3
Adjustment of net
deferred tax lia-
bility for federal
rate increase -- -- 46.2 5.1 -- --
------- ---- ------- ---- ------- ----
Provision for
income taxes $ 381.2 36.3 $ 349.9 38.9 $ 317.6 36.3
======= ==== ======= ==== ======= ====
</TABLE>
Deferred Income Tax Expense
---------------------------
Some income and expense items are reported differently for financial
reporting and income tax purposes. Provisions for deferred income taxes
were made in recognition of these differences in accordance with SFAS 109
for 1994 and 1993 (see Note 1) and with APB Opinion No. 11 for 1992.
The components of deferred income tax expense for 1992 were as
follows: employee separation costs, $49.7 million; property-related
adjustments, principally depreciation, $45.8 million; casualty and other
claims, $(14.6) million; tax benefit leases, $(7.2) million; employee
benefits, $(5.6) million; and other items-net, $(4.0) million--a total of
$64.1 million.
<PAGE> PAGE 60
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
3. INCOME TAXES (continued)
<TABLE>
Deferred Tax Assets and Liabilities
-----------------------------------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1994 and 1993, were as follows:
<CAPTION>
December 31,
---------------------
1994 1993
--------- ---------
(In millions of dollars)
<S> <C> <C>
Deferred tax assets:
Reserves, including casualty and other claims $ 204.0 $ 220.7
Employee benefits 176.5 187.7
Postretirement benefits other
than pension and postemployment
benefits 142.1 157.9
Taxes, including state and property 165.2 163.0
Other 23.4 37.1
--------- ---------
Total gross deferred tax assets 711.2 766.4
Less valuation allowance (1.4) (10.9)
--------- ---------
Net deferred tax assets 709.8 755.5
--------- ---------
Deferred tax liabilities:
Property (2,744.3) (2,665.7)
Other (36.5) (41.9)
--------- ---------
Total gross deferred tax liabilities (2,780.8) (2,707.6)
--------- ---------
Net deferred tax liability (2,071.0) (1,952.1)
Net current deferred tax assets 137.0 177.7
--------- ---------
Net long-term deferred tax liability $(2,208.0) $(2,129.8)
========= =========
</TABLE>
Except for amounts for which a valuation allowance is provided,
Management believes the other deferred tax assets will be realized. The
valuation allowance for deferred tax assets as of January 1, 1993, was
$9.8 million. The net change in the total valuation allowance was a $9.5
million decrease for 1994 and a $1.1 million increase for 1993.
Internal Revenue Service (IRS) Reviews
--------------------------------------
Consolidated federal income tax returns have been examined and
Revenue Agent Reports have been received for all years up to and
including 1989. The consolidated federal income tax returns for 1990
through 1992 are being audited by the IRS. Management believes that
adequate provision has been made for any additional taxes and interest
thereon that might arise as a result of these examinations.
Tax Benefit Leases
------------------
In January 1995, the United States Tax Court issued a preliminary
decision that would disallow some of the tax benefits an NS subsidiary
purchased from a third party pursuant to a safe harbor lease agreement in
1981. Management continues to believe that NS should realize no loss from
this decision, because the lease agreement provides for full
indemnification if any such disallowance is sustained.
<PAGE> PAGE 61
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
4. INVESTMENTS
<CAPTION>
December 31,
-----------------
1994 1993
------- -------
(In millions of dollars)
<S> <C> <C>
Long-term portion of corporate-owned life
insurance at net cash surrender value $ 138.6 $ 132.8
Marketable equity securities 3.0 4.7
Other 31.2 22.8
------- -------
Total $ 172.8 $ 160.3
======= =======
</TABLE>
Corporate-Owned Life Insurance
------------------------------
The planned borrowing of $220 million of cash surrender value on
certain corporate-owned life insurance policies resulted in this amount
being reclassified in the December 31, 1993, Consolidated Balance Sheet
from "Investments" to "Other current assets." The borrowing, which was
completed in May 1994, resulted in the decline in "Other current assets."
<TABLE>
5. PROPERTIES
<CAPTION>
December 31,
-------------------------
1994 1993
--------- ---------
(In millions of dollars)
<S> <C> <C>
Transportation property:
Road $ 8,019.6 $ 7,773.3
Equipment 4,626.8 4,573.0
Other property 563.9 479.3
--------- ---------
13,210.3 12,825.6
Less: Accumulated depreciation 4,223.2 4,094.9
--------- ---------
Net properties $ 8,987.1 $ 8,730.7
========= =========
</TABLE>
Capitalized Interest
--------------------
Total interest cost incurred on debt for 1994, 1993 and 1992 was
$119.4 million, $120.2 million and $126.9 million, respectively, of which
$17.8 million, $21.6 million and $17.9 million was capitalized.
<PAGE> PAGE 62
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
6. DEBT
Commercial Paper Program
------------------------
In 1990, NS established a commercial paper program principally to
finance the purchase and retirement of its common stock (see Note 13). As
of December 31, 1994 and 1993, there were $517.3 million and $521.8
million, respectively, principal amount of notes outstanding under this
program.
Commercial paper debt is due within one year, but a portion has been
classified as long-term because NS has the ability and intends to
refinance its commercial paper on a long-term basis, either by issuing
additional commercial paper (supported by a revolving credit agreement)
or by replacing commercial paper notes with long-term debt.
In 1994, NS entered into a new credit agreement effective through
March 29, 1999, which increased the credit limit under its revolving
credit agreement from $400 million to $500 million. Accordingly, the
amount of commercial paper notes classified as "Long-term debt" in the
December 31, 1994, Consolidated Balance Sheet increased to $500 million.
The credit agreement provides for interest on borrowings at prevailing
short-term rates and contains customary financial covenants, including
principally a minimum tangible net worth requirement of $3.3 billion and
a restriction on the creation or assumption of certain liens.
<TABLE>
Short-Term Debt
---------------
<CAPTION>
December 31,
----------------
1994 1993
------ ------
(In millions of dollars)
<S> <C> <C>
Commercial paper notes $ 17.3 $121.8
Other notes 27.2 27.2
Subsidiaries' credit lines 0.4 0.5
------ ------
Total $ 44.9 $149.5
====== ======
</TABLE>
The "other notes" were assumed in connection with the 1990
acquisition of a coal terminal facility. The weighted average interest
rate on these notes was 2.6% in 1994 and 2.3% in 1993.
Shelf Registration
------------------
In 1991, NS filed with the Securities and Exchange Commission a
shelf registration statement on Form S-3 covering the issuance of up to
$750 million principal amount of unsecured debt securities. In March
1991, NS issued and sold $250 million principal amount of its 9% notes
due March 1, 2021. In February 1992, NS issued and sold $250 million
principal amount of its 7-7/8% notes due February 15, 2004. These notes
are not redeemable prior to maturity and are not entitled to any sinking
fund. Proceeds from the sale of these notes were used to purchase and
retire shares of NS common stock, to retire short-term commercial paper
debt issued to fund previous share purchases and for general corporate
purposes.
<PAGE> PAGE 63
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
6. DEBT (continued)
<TABLE>
Long-Term Debt
--------------
<CAPTION>
December 31,
-----------------------
1994 1993
-------- --------
(In millions of dollars)
<S> <C> <C>
Railroad equipment obligations at an
average rate of 8.2% maturing to 2009 $ 520.9 $ 551.4
Notes at an average rate of 8.4%
maturing to 2021 497.3 497.1
Commercial paper classified as long-term
debt at an average rate of 4.3% 500.0 400.0
Mortgage bonds at an average rate of
4.1% maturing to 2003 33.9 74.4
Other debt at an average rate of 8.5%
maturing to 2015 65.7 70.2
Capitalized leases at an average rate of
8.1% maturing to 2000 2.0 2.1
-------- --------
Total long-term debt 1,619.8 1,595.2
-------- --------
Less: Current maturities 72.0 113.7
-------- --------
Long-term debt less current maturities $1,547.8 $1,481.5
======== ========
<S> <C>
Long-term debt matures as follows:
1996 $ 79.9
1997 47.0
1998 103.9
1999 111.2
2000 and subsequent years 1,205.8
--------
Total $1,547.8
========
</TABLE>
A substantial portion of NS' properties and certain investments in
affiliated companies are pledged as collateral for much of the secured
debt.
<PAGE> PAGE 64
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
<TABLE>
7. CURRENT LIABILITIES
<CAPTION>
December 31,
----------------------
1994 1993
------- -------
(In millions of dollars)
<S> <C> <C>
Accounts payable:
Accounts and wages payable $ 363.2 $ 341.3
Casualty and other claims 191.2 185.1
Vacation liability 72.7 69.4
Equipment rents payable - net 67.0 53.9
Other 10.0 3.9
------- -------
Total $ 704.1 $ 653.6
======= =======
Other current liabilities:
Prepaid amounts on forwarded traffic $ 72.8 $ 75.4
Interest payable 38.3 31.7
Retiree health and death benefit
obligation (Note 11) 22.0 20.4
Other 9.2 18.3
------- -------
Total $ 142.3 $ 145.8
======= =======
</TABLE>
<TABLE>
8. LEASE COMMITMENTS
NS is committed under long-term lease agreements, which expire on
various dates through 2067, for equipment, lines of road and other
property. Future minimum operating lease payments are as follows:
<CAPTION>
Operating Lease
Commitments
---------------
(In millions of dollars)
<S> <C>
1995 $ 53.1
1996 49.9
1997 44.2
1998 39.7
1999 32.8
2000 and subsequent years 568.1
-------
Total $ 787.8
=======
</TABLE>
NS has reached tentative understandings for leases on approximately
300 miles of road in North Carolina. The leases call for payment of an
annual rental of $8 million in 1995, with inflation adjustments in
succeeding years. These estimated payments are included in the future
minimum operating lease commitments above.
<PAGE> PAGE 65
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
8. LEASE COMMITMENTS (continued)
<TABLE>
Operating Lease Expense
-----------------------
<CAPTION>
1994 1993 1992
------- ------- -------
(In millions of dollars)
<S> <C> <C> <C>
Minimum rents $ 56.1 $ 42.0 $ 38.8
Contingent rents 45.4 36.1 42.5
------- ------- -------
Total $ 101.5 $ 78.1 $ 81.3
======= ======= =======
</TABLE>
<TABLE>
9. OTHER LIABILITIES
<CAPTION>
December 31,
-------------------
1994 1993
-------- --------
(In millions of dollars)
<S> <C> <C>
Casualty and other claims $ 305.0 $ 321.2
Net pension obligation (Note 10) 91.6 105.7
Retiree health and death benefit
obligation (Note 11) 300.5 307.5
Other liabilities 264.8 301.0
-------- --------
Total $ 961.9 $1,035.4
======== ========
</TABLE>
10. PENSION PLANS
Norfolk Southern and certain subsidiaries have defined benefit
pension plans that principally cover salaried employees. Pension benefits
are based primarily on years of creditable service with NS and
compensation rates near retirement. Contributions to the plans are made
on the basis of not less than the minimum funding standards set forth in
the Employee Retirement Income Security Act of 1974, as amended. Assets
in the plans consist mainly of common stocks.
<TABLE>
Pension Cost (Benefit) Components
---------------------------------
<CAPTION>
1994 1993 1992
------- ------- -------
(In millions of dollars)
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 12.5 $ 13.3 $ 12.9
Interest cost on projected
benefit obligation 62.6 60.8 59.1
Actual return on assets in plans (17.0) (107.4) (69.4)
Net amortization and deferral (62.8) 29.5 (6.2)
------- ------- -------
Net pension benefit $ (4.7) $ (3.8) $ (3.6)
======= ======= =======
</TABLE>
<PAGE> PAGE 66
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
10. PENSION PLANS (continued)
<TABLE>
Pension cost is determined based on an actuarial valuation that
reflects appropriate assumptions as of the beginning of each year. The
funded status of the plans is determined using appropriate assumptions as
of each year end. A summary of the major assumptions follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate for determining
funded status 8.50% 7.25% 8.25%
Future salary increases 6% 6% 6%
Return on assets in plans 9% 9% 9%
</TABLE>
<TABLE>
The funded status of the plans and the amounts reflected in the
accompanying balance sheets were as follows:
<CAPTION>
December 31,
-----------------------------------------
1994 1993
------------------- ------------------
Funded Unfunded Funded Unfunded
Plans Plans Plans Plans
-------- -------- -------- --------
(In millions of dollars)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $ 643.4 $ 41.2 $ 723.6 $ 45.9
Non-vested benefits 4.0 0.2 5.8 0.2
------- ------- ------- -------
Accumulated benefit obligation 647.4 41.4 729.4 46.1
Effect of expected future
salary increases 102.0 9.5 119.3 5.7
------- ------- ------- -------
Projected benefit obligation 749.4 50.9 848.7 51.8
Fair value of assets in plans 892.0 -- 941.2 --
------- ------- ------- -------
Funded status 142.6 (50.9) 92.5 (51.8)
Unrecognized initial net asset (42.4) -- (49.6) --
Unrecognized (gain) loss (159.6) 10.1 (122.6) 15.8
Unrecognized prior service cost 3.8 4.8 8.7 1.3
------- ------- ------- -------
Net pension liability included
in the balance sheets $ (55.6) $ (36.0) $ (71.0) $ (34.7)
======= ======= ======= =======
</TABLE>
Early Retirement Program in 1993
--------------------------------
During 1993, NS completed a voluntary early retirement program for
salaried employees that resulted in a $42.4 million charge in
"Compensation and benefits" expense. The principal benefit for those who
participated in the program was enhanced pension benefits, which are
reflected in the accumulated benefit obligation.
<PAGE> PAGE 67
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
10. PENSION PLANS (continued)
Transfer of Pension Plan Assets
-------------------------------
During 1991, the NS Retirement Plan was amended to establish a
Section 401(h) account for the purpose of transferring a portion of
pension plan assets in excess of the projected actuarial liability to
fund current-year medical payments for retirees. No transfer was made in
1994. Since 1991, $42.5 million has been transferred from the pension
plan to reimburse NS for retirees' medical payments. NS contributed equal
amounts to a Voluntary Employee Beneficiary Association trust in those
years to fund future medical costs for retirees (see Note 11).
401(k) Plan
-----------
Norfolk Southern and certain subsidiaries provide a 401(k) savings
plan for salaried employees. Under the plan, NS matches a portion of the
employee contributions, subject to applicable limitations. NS' expenses
under this plan were $5.1 million, $5.2 million and $4.9 million in 1994,
1993 and 1992, respectively.
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Norfolk Southern and certain subsidiaries provide specified health
care and death benefits to eligible retired employees and their
dependents, principally salaried employees. Under the present plans,
which may be amended or terminated at NS' option, a defined percentage of
health care expenses is covered, reduced by any deductibles, co-payments,
Medicare payments and, in some cases, coverage provided by other group
insurance policies. The cost of such health care coverage to a retiree
may be determined, in part, by the retiree's years of creditable service
with NS prior to retirement. Death benefits are determined based on
various factors, including, in some cases, salary at time of retirement.
NS continues to fund benefit costs principally on a pay-as-you-go
basis. However, in 1991, NS established a Voluntary Employee Beneficiary
Association (VEBA) account to fund a portion of the cost of future health
care benefits for retirees. Although no 401(h) transfer occurred in 1994
(see Note 10), NS made a corporate contribution of $10 million to the
VEBA.
Effective January 1, 1994, NS amended the attribution period for
postretirement health care benefits. The amendment generally provides for
benefits to be determined ratably over a 10-year period based on
creditable service commencing at age 45, or from date of hire if
employment began after age 45. The amendment reduced the accumulated
postretirement health care benefit obligation by $90 million and 1994's
net periodic postretirement benefit cost by $16 million.
<PAGE> PAGE 68
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)
<TABLE>
The following table sets forth these plans' total accumulated
postretirement benefit obligation, reconciled with the accrued
postretirement benefit obligation:
<CAPTION>
December 31,
---------------------------------------------
1994 1993
--------------------- --------------------
Health Health
Care Death Care Death
Benefits Benefits Benefits Benefits
--------- --------- --------- --------
(In millions of dollars)
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 165.0 $ 77.2 $ 176.2 $ 84.3
Fully eligible active
plan participants 13.5 4.7 27.9 8.6
Other active plan participants 36.9 11.2 123.0 16.7
------- ------- ------- -------
Total 215.4 93.1 327.1 109.6
Plan assets at fair value 54.5 -- 44.5 --
------- ------- ------- -------
Funded status (160.9) (93.1) (282.6) (109.6)
Unrecognized loss (gain) 14.8 (4.5) 58.0 17.8
Unrecognized prior
service cost (benefit) (78.7) (0.1) (11.4) (0.1)
------- ------- ------- -------
Accrued postretirement
benefit obligation $(224.8) $ (97.7) $(236.0) $ (91.9)
======= ======= ======= =======
</TABLE>
<TABLE>
A summary of the postretirement benefit cost follows:
<CAPTION>
1994 1993
--------------------- --------------------
Health Health
Care Death Care Death
Benefits Benefits Benefits Benefits
--------- --------- --------- --------
(In millions of dollars)
<S> <C> <C> <C> <C>
Service cost-benefits attributable
to service during the year $ 13.7 $ 0.8 $ 8.0 $ 0.7
Interest cost on accumulated
postretirement benefit obligation 17.3 7.7 22.3 6.8
Actual return on plan assets -- -- (1.9) --
Net amortization and deferral (15.2) 0.6 (0.7) --
------- ------- ------- -------
Net periodic postretirement
benefit cost $ 15.8 $ 9.1 $ 27.7 $ 7.5
======= ======= ======= =======
</TABLE>
<PAGE> PAGE 69
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)
For measurement purposes, a 12% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1994; the
rate in 1995 will be 11.5% and is assumed to decrease gradually to an
ultimate rate of 6% for 2005 and remain at that level thereafter. The
health care cost trend rate has a significant effect on the amounts
reported in the financial statements. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1994, by about $24 million and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost
for the year 1994 by about $4.5 million.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation, the salary increase
assumption and the long-term rate of return on plan assets are the same
as those used for the pension plans (see table of rate assumptions in
Note 10).
The VEBA trust holding the plan assets is not expected to be subject
to federal income taxes as the assets are invested entirely in trust-
owned life insurance.
Under collective bargaining agreements, NS and certain subsidiaries
participate in a multi-employer benefit plan, which provides certain
postretirement health care and life insurance benefits to eligible union
employees. Premiums under this plan are expensed as incurred and amounted
to $4.8 million, $5.3 million and $5.6 million in 1994, 1993 and 1992,
respectively.
12. LONG-TERM INCENTIVE PLAN
Under the stockholder-approved Long-Term Incentive Plan, a
disinterested committee of the Board of Directors may grant stock
options, stock appreciation rights (SARs), and performance share units
(PSUs), up to a maximum 11,675,000 shares of Norfolk Southern common
stock. Grants of SARs and PSUs result in charges to earnings, while
grants of stock options currently have no effect on earnings. Options may
be granted for a term not to exceed 10 years but may not be exercised
prior to the first anniversary date of grant. Options are exercisable at
the fair market value of Norfolk Southern stock on the date of grant.
SARs were granted on a one-for-one basis in tandem with certain of
the stock option shares. Upon the exercise of an SAR, the optionee
receives in common stock or cash or both (as determined by the committee
administering the plan) the amount by which the fair market value of
common stock on the exercise date exceeds the option price. Exercise of
an SAR or option cancels any related option/SAR. During 1991, the
Securities and Exchange Commission issued new regulations under Section
16(b) of the Securities Exchange Act of 1934. In view of these new
regulations, plan participants surrendered, without cash or other
consideration, all outstanding SARs granted after 1988. Consistent with
the new regulations and the surrender of post-1988 SARs, future grants of
SARs are not anticipated at this time. SARs outstanding as of each year
end were as follows: 74,519 in 1994; 95,852 in 1993; and 133,659 in
1992.
<PAGE> PAGE 70
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
12. LONG-TERM INCENTIVE PLAN (continued)
<TABLE>
Stock Option Activity
---------------------
<CAPTION>
Exercise Price
Option Shares Range-Per Share
------------- -------------------
<S> <C> <C> <C> <C>
Balance 12/31/91 2,154,045 $17.46 to $42.75
Granted 680,000 56.44
Exercised (275,652) 17.46 to 42.75
Surrendered for SAR (44,921) 22.25 to 42.75
Cancelled -- -- to --
-----------------------------------
Balance 12/31/92 2,513,472 17.46 to 56.44
Granted 689,750 63.25
Exercised (278,083) 17.46 to 56.44
Surrendered for SAR (28,482) 22.25 to 28.79
Cancelled (1,250) 63.25
-----------------------------------
Balance 12/31/93 2,895,407 17.46 to 63.25
Granted 703,750 72.94
Exercised (93,383) 17.46 to 63.25
Surrendered for SAR (7,472) 22.25 to 28.79
Cancelled -- -- to --
-----------------------------------
Balance 12/31/94 3,498,302 $22.25 to $72.94
Stock options exercisable 12/31:
1992 1,833,472 $17.46 to $42.75
1993 2,205,657 17.46 to 56.44
1994 2,794,552 22.25 to 63.25
</TABLE>
Performance Share Units
-----------------------
Performance share units, which were added to this plan by a 1989
amendment, entitle participants to earn shares of common stock at the end
of a three-year performance cycle based upon achievement of certain
predetermined corporate performance goals. PSU grants totaled 163,000 in
1994; 160,500 in 1993; and 196,000 in 1992. Shares earned and issued may
be subject to share retention agreements and held by NS for up to five
years.
The plan also permits the payment, in cash or in stock, of dividend
equivalents on shares of common stock covered by options and PSUs granted
after January 1, 1989, commensurate with dividends paid on common stock.
Tax absorption payments, in an amount estimated to equal the federal and
state income taxes applicable to shares of common stock issued subject to
a share retention agreement, also are authorized. Dividend equivalents
and tax absorption payments, if made, result in charges to earnings.
<TABLE>
Shares of stock available for future grants or issued in connection
with all features of the Long-Term Incentive Plan were as follows:
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Available for future grants 12/31 2,060,796 2,835,862 3,618,649
Shares of common stock issued 190,060 352,248 366,404
</TABLE>
<PAGE> PAGE 71
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
13. STOCK PURCHASE PROGRAMS
Since 1987, the Board of Directors has authorized the purchase and
retirement of up to 65 million shares of common stock. Purchases under
the programs initially were made with internally generated cash.
Beginning in May 1990, some purchases were financed with proceeds from
the sale of commercial paper notes. In March 1991, $250 million of long-
term notes was issued in part to repay a portion of the commercial paper
notes, as well as to provide funds for additional purchases. An
additional $250 million of long-term notes was issued in February 1992
(see Note 6 for debt details).
The recent decreases in the average number of outstanding common
shares, as disclosed in the Eleven-Year Financial Review on page 30, are
the results of these purchase programs. Since the first purchases in
December 1987 and through December 31, 1994, NS has purchased and retired
59,160,800 shares of its common stock under these programs at a cost of
$2.5 billion. Future purchases are dependent on market conditions, the
economy, cash needs and alternative investment opportunities.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of "Cash and cash equivalents," "Short-term
investments," "Accounts receivable," "Short-term debt" and "Accounts
payable" approximates carrying value because of the short maturity of
these financial instruments.
The fair value of long-term "Investments" approximated $261 million
and $217 million at December 31, 1994, and 1993, respectively. Quoted
market prices were used to determine the fair value of marketable
securities which, beginning in 1994 (see Note 1, "Required Accounting
Changes"), were recorded at fair value. Gross unrealized holding losses
on marketable securities were $2.0 million at December 31, 1994.
Underlying net assets were used to estimate the fair value of non-
marketable investments; however, if any such investment was sold after
the end of the year, its sales price determined its fair value for these
purposes. For the remaining investments, consisting principally of
corporate-owned life insurance, the carrying value approximates fair
value (see Note 4 for carrying values of "Investments").
The fair value of "Long-term debt," including current maturities,
approximated $1.63 billion at December 31, 1994, and $1.74 billion at
December 31, 1993. The fair values of debt were estimated based on quoted
market prices or discounted cash flows using current interest rates for
debt with similar terms, company rating and remaining maturity (see Note
6 for carrying values of "Long-term debt").
15. MOTOR CARRIER RESTRUCTURING IN 1993
In mid-1993, NS began a restructuring of its motor carrier
subsidiary by seeking buyers for the truckload freight portion of NAVL,
which consisted of the Commercial Transport Division (CT), a nationwide
truckload carrier, and Tran-Star (TS), a refrigerated carrier. The
restructuring resulted in the liquidation or transfer to other divisions
of most of CT's assets and, in December 1993, the sale of TS' operations.
NAVL's revenues and expenses after June 30, 1993, reflect the results of
its remaining operations.
In 1993, as a result of these planned dispositions, NS recorded a
$50.3 million pretax ($32.3 million after-tax) charge and recognized an
additional tax benefit of $36.8 million.
The proceeds from the December 31, 1993, sale of TS' operations are
reflected in "Investment sales and other" in the 1993 Consolidated
Statement of Cash Flows. CT's assets remaining at December 31, 1993, were
classified in the Consolidated Balance Sheet in "Other current assets"
and were disposed of during 1994.
<PAGE> PAGE 72
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
16. PARTIAL REVERSAL OF SPECIAL CHARGE IN 1993
Included in 1991 results was a $680 million special charge for labor
force reductions and asset write-downs. However, based on NS' success in
eliminating reserve board positions in 1992 and 1993, and on events
occurring in the third quarter of 1993, the accrual included in the 1991
special charge related to labor was reduced by $46 million and was
reflected as a credit in compensation and benefits expense. The principal
factor contributing to the reversal was the failure in 1993 to reach
agreement on terms for certain further labor savings. Accordingly, it
became apparent that a surplus existed in the labor portion of the
provision established in the 1991 special charge.
17. CONTINGENCIES
Lawsuits
--------
Norfolk Southern and certain subsidiaries are defendants in numerous
lawsuits relating principally to railroad operations. While the final
outcome of these lawsuits cannot be predicted with certainty, it is the
opinion of Management, after consulting with its legal counsel, that the
amount of NS' ultimate liability will not materially affect NS'
consolidated financial position.
Debt Guarantees
---------------
As of December 31, 1994, certain Norfolk Southern subsidiaries are
contingently liable as guarantors with respect to $72.5 million of
indebtedness of related entities.
Change-in-Control Arrangements
------------------------------
Norfolk Southern has compensation agreements with officers and
certain key employees, which become operative only upon a change in
control of the Corporation, as defined in those agreements. The
agreements provide generally for payments based on compensation at the
time of a covered individual's involuntary or other specified termination
and for certain other benefits.
Environmental Matters
---------------------
NS is subject to various jurisdictions' environmental laws and
regulations. It is NS' policy to record a liability where such liability
or loss is probable and can be reasonably estimated. Claims, if any,
against third parties for recovery of cleanup costs incurred by NS are
reflected as receivables in the balance sheet and are not netted against
the associated NS liability. Environmental engineers participate in
ongoing evaluations of all identified sites, and--after consulting with
counsel--any necessary adjustments to initial liability estimates are
made. NS also has established an Environmental Policy Council, composed
of senior managers, to prescribe and direct its environmental
initiatives.
Operating expenses for environmental protection totaled
approximately $20 million in 1994 and are anticipated to decrease in
1995. Expenses in 1994 included $10.5 million associated with
emergency response and cleanup resulting from release of arsenic acid
from a tank car leased by the shipper from a third party. Capital
expenditures for environmental projects amounted to approximately $4
million in 1994 and are expected to be approximately $4 million in
1995. As of December 31, 1994, NS' balance sheet included a reserve
for environmental exposures in the amount of $50 million (of which $13
million is accounted for as a current liability), which is NS' best
estimate of ultimate liability at 80 identified locations. On that date,
<PAGE> PAGE 73
Item 8. Financial Statements and Supplementary Data. (continued)
------- -------------------------------------------
17. CONTINGENCIES (continued)
eight sites accounted for $23 million of the reserve, and no
individual site was considered to be material. NS anticipates that the
majority of this liability will be paid out over five years; however,
some costs will be paid out over a longer period.
At many of the 80 locations, certain NS subsidiaries, usually in
conjunction with a number of other parties, have been identified as
potentially responsible parties by the Environmental Protection Agency
(EPA) or similar state authorities under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, or comparable state
statutes, which often impose joint and several liability for cleanup
costs.
With respect to known environmental sites (whether identified by NS
or by the EPA or comparable state authorities), estimates of NS' ultimate
potential financial exposure for a given site or in the aggregate for all
such sites are necessarily imprecise because of the widely varying costs
of currently available cleanup techniques, the likely development of new
cleanup technologies, the difficulty of determining in advance the nature
and full extent of contamination and each potential participant's share
of any estimated loss (and that participant's ability to bear it) and
evolving statutory and regulatory standards governing liability.
The risk of incurring environmental liability--for acts and
omissions, past, present and future--is inherent in the railroad
business. Some of the commodities, particularly those classified as
hazardous materials, in NS' traffic mix can pose special risks that NS
and its subsidiaries work diligently to minimize. In addition, several NS
subsidiaries have land holdings that serve as operating property, or
which are leased or may have been leased and operated by others, or held
for sale. Because certain conditions may exist on these properties
related to environmental problems that are latent or undisclosed, there
can be no assurance that NS will not incur liabilities or costs with
respect to one or more of them, the amount and materiality of which
cannot be estimated reliably now. Moreover, lawsuits and claims involving
these and other now-unidentified environmental sites and matters are
likely to arise from time to time. The resulting liabilities could have a
significant effect on financial condition, results of operations or
liquidity in a particular year or quarter.
However, based on its assessments of the facts and circumstances now
known and, after consulting with its legal counsel, Management believes
that it has recorded appropriate estimates of liability for those
environmental matters of which the Corporation is aware. Further,
Management believes that it is unlikely that any identified matters,
either individually or in aggregate, will have a material adverse effect
on NS' financial position, results of operations or liquidity.
<PAGE> PAGE 74
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Norfolk Southern Corporation:
We have audited the consolidated financial statements of Norfolk Southern
Corporation and subsidiaries as listed in Item 8. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule listed in Item 14(a)2. These
consolidated financial statements and this consolidated financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and this consolidated financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Norfolk Southern Corporation and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 1, the Company changed its methods of accounting in
1993 by adopting the provisions of the Financial Accounting Standards
Board's Statement 109, Accounting for Income Taxes; Statement 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions;
and Statement 112, Employers' Accounting for Postemployment Benefits.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
January 24, 1995
<PAGE> PAGE 75
Item 9. Changes in and Disagreements with Accountants on Accounting
------- -----------------------------------------------------------
and Financial Disclosure.
------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
------- --------------------------------------------------
Item 11. Executive Compensation.
------- ----------------------
Item 12. Security Ownership of Certain Beneficial Owners
------- -----------------------------------------------
and Management.
--------------
and
Item 13. Certain Relationships and Related Transactions.
------- ----------------------------------------------
In accordance with General Instruction G(3), the information
called for by Part III is incorporated herein by reference from
Norfolk Southern's definitive Proxy Statement, to be dated April 3,
1995, for the Norfolk Southern Annual Meeting of Stockholders to be
held on May 11, 1995, which definitive Proxy Statement will be filed
electronically with the Commission pursuant to Regulation 14A. The
information regarding executive officers called for by Item 401 of
Regulation S-K is included in Part I hereof beginning on page 22 under
"Executive Officers of the Registrant."
<PAGE> PAGE 76
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on
------- -------------------------------------------------------
Form 8-K.
--------
(a) The following documents are filed as part of this report:
1. Index to Financial Statements: Page
----------------------------- ----
Consolidated Statements of Income
Years ended December 31, 1994, 1993 and 1992 50-51
Consolidated Balance Sheets
As of December 31, 1994, and 1993 52
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992 53-54
Consolidated Statements of Changes in
Stockholders' Equity Years ended
December 31, 1994, 1993 and 1992 55
Notes to Consolidated Financial Statements 56-73
Independent Auditors' Report 74
2. Financial Statement Schedule:
The following consolidated financial statement schedule
should be read in connection with the consolidated financial
statements:
Index to Consolidated Financial Statement Schedule Page
-------------------------------------------------- ----
Schedule II - Valuation and Qualifying Accounts 82-83
Schedules other than the one listed above are omitted
either because they are not required or are inapplicable or
because the information is included in the consolidated
financial statements or related notes.
<PAGE> PAGE 77
Item 14. Exhibits, Financial Statement Schedule, and Reports on
------- -------------------------------------------------------
Form 8-K.
--------
3. Exhibits
Exhibit
Number Description
------- -------------------------------------------------
3 Articles of Incorporation and Bylaws -
3(i) The Restated Articles of Incorporation of Norfolk
Southern are incorporated herein by reference
from Exhibit 1 of Norfolk Southern's Form 10-Q
report for the quarter ended September 30, 1989.
3(ii) The Bylaws of Norfolk Southern, as last amended
January 24, 1995, are incorporated herein by
reference from Exhibit 4 of Norfolk Southern's
Registration Statement on Form S-8, filed
electronically on January 25, 1995.
4 Instruments Defining the Rights of Security
Holders, Including Indentures -
In accordance with Item 601(b)(4)(iii) of
Regulation S-K, copies of instruments of Norfolk
Southern and its subsidiaries with respect to the
rights of holders of long-term debt are not filed
herewith, or incorporated by reference, but will
be furnished to the Commission upon request.
10 Material Contracts -
(a) The Supplementary Agreement, entered into as
of January 1, 1987, between the Trustees of the
Cincinnati Southern Railway and The Cincinnati,
New Orleans and Texas Pacific Railway Company
(the latter a wholly owned subsidiary of Norfolk
Southern Railway) - extending and amending a Lease,
dated as of October 11, 1881 (both the Lease and
Supplementary Agreement, formerly incorporated by
reference from Exhibit 10(b) of Southern's 1987
Annual Report on Form 10-K) - is filed herewith
electronically.
<PAGE> PAGE 78
Item 14. Exhibits, Financial Statement Schedule, and Reports on
------- -------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
------- -------------------------------------------------
Management Compensation Plans
-----------------------------
(b) The Norfolk Southern Corporation
Management Incentive Plan, formerly incorporated
by reference from Exhibit 10(h) of Norfolk
Southern's 1987 Annual Report on Form 10-K, is
filed herewith electronically.
(c) The Norfolk Southern Corporation Long-Term
Incentive Plan is incorporated herein by reference
from Appendix A to Norfolk Southern's definitive
Proxy Statement dated April 3, 1989, for the
Norfolk Southern Annual Meeting of Stockholders
held May 11, 1989.
(d) The Norfolk Southern Corporation Officers'
Deferred Compensation Plan is incorporated
herein by reference from Exhibit 10(g) of
Norfolk Southern's 1993 Annual Report on Form 10-K.
(e) The Directors' Deferred Fee Plan of
Norfolk Southern Corporation is incorporated
herein by reference from Exhibit 10(h) of
Norfolk Southern's 1993 Annual Report on Form 10-K.
(f) The Norfolk Southern Corporation Directors'
Restricted Stock Plan effective January 26, 1994,
is incorporated herein by reference from Exhibit 99
to Norfolk Southern's Form S-8 filed electronically
on January 26, 1994.
(g) Form of Severance Agreement, dated as of
September 1, 1994, between the Corporation and
certain executive officers: D. R. Goode,
J. R. Turbyfill, R. A. Brogan, J. S. Shannon,
S. C. Tobias, D. H. Watts and H. C. Wolf
is incorporated herein by reference from
Exhibit 10 to Norfolk Southern's Form 10-Q
Report for the quarter ended September 30, 1994.
(h) The Excess Benefit Plan of Norfolk
Southern Corporation and Participating Subsidiary
Companies, formerly incorporated by reference
from Exhibit 10(k) of Norfolk Southern's 1988
Annual Report on Form 10-K, is filed herewith
electronically.
<PAGE> PAGE 79
Item 14. Exhibits, Financial Statement Schedule, and Reports on
------- -------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
------- -------------------------------------------------
(i) The Directors' Pension Plan of Norfolk
Southern Corporation is incorporated herein by
reference from Exhibit 10(l) of Norfolk
Southern's 1989 Annual Report on Form 10-K.
11 Statement re: Computation of Earnings Per Share.
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consents of Experts and Counsel -
Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the three
months ended December 31, 1994.
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-K
as listed in Item 14(a)3 are filed herewith or
incorporated herein by reference.
(d) Financial Statement Schedules.
Financial statement schedules and separate
financial statements specified by this Item are
included in Item 14(a)2 or are otherwise not
required or are not applicable.
<PAGE> PAGE 80
POWER OF ATTORNEY
-----------------
Each person whose signature appears below under "SIGNATURES"
hereby authorizes Henry C. Wolf and John S. Shannon, or either of
them, to execute in the name of each such person, and to file, any
amendment to this report and hereby appoints Henry C. Wolf and
John S. Shannon, or either of them, as attorneys-in-fact to sign on
his or her behalf, individually and in each capacity stated below, and
to file, any and all amendments to this report.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Norfolk Southern Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 28th day of March, 1995.
NORFOLK SOUTHERN CORPORATION
By /s/ David R. Goode
-----------------------------------------
(David R. Goode, Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below on this 28th day of March,
1995, by the following persons on behalf of Norfolk Southern
Corporation and in the capacities indicated.
Signature Title
--------- -----
/s/ David R. Goode
------------------------------ Chairman, President and Chief
(David R. Goode) Executive Officer and Director
(Principal Executive Officer)
/s/ Henry C. Wolf
------------------------------ Executive Vice President-Finance
(Henry C. Wolf) (Principal Financial Officer)
/s/ John P. Rathbone
------------------------------ Vice President and Controller
(John P. Rathbone) (Principal Accounting Officer)
/s/ Gerald L. Baliles
------------------------------ Director
(Gerald L. Baliles)
<PAGE> PAGE 81
Signature Title
--------- -----
------------------------------ Director
(Gene R. Carter)
/s/ L. E. Coleman
------------------------------ Director
(L. E. Coleman)
/s/ T. Marshall Hahn, Jr.
------------------------------ Director
(T. Marshall Hahn, Jr.)
/s/ Landon Hilliard
------------------------------ Director
(Landon Hilliard)
/s/ E. B. Leisenring, Jr.
------------------------------ Director
(E. B. Leisenring, Jr.)
/s/ Arnold B. McKinnon
------------------------------ Director
(Arnold B. McKinnon)
/s/ Robert E. McNair
------------------------------ Director
(Robert E. McNair)
/s/ Jane Margaret O'Brien
------------------------------ Director
(Jane Margaret O'Brien)
------------------------------ Director
(Harold W. Pote)
<PAGE> PAGE 82
<TABLE>
Schedule II
Page 1 of 2
Norfolk Southern Corporation and Subsidiaries
---------------------------------------------
Valuation and Qualifying Accounts
Years Ended December 31, 1992, 1993 and 1994
(In millions of dollars)
<CAPTION>
Additions charged to
--------------------
Beginning Other Ending
Balance Expenses Accounts Deductions Balance
--------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992
----------------------------
Valuation accounts deducted
from balance sheet assets -
Reserves for adjustments of
investment in affiliated
and other companies $ 0.3 $ -- $ -- $ -- $ 0.3
Casualty and other claims
included in other
liabilities $263.6 $144.4 $ 3.9 (1) $ 91.0 (2) $320.9
Current portion of casualty
and other claims included
in accounts payable $214.4 $ 63.8 $117.5 (1) $205.1 (3) $190.6
Year ended December 31, 1993
----------------------------
Valuation accounts deducted
from balance sheet assets -
Reserves for adjustments of
investment in affiliated
and other companies $ 0.3 $ -- $ -- $ 0.3 $ --
Valuation allowance (included
net in deferred tax
liability) for deferred tax
assets $ -- $ 10.9 $ -- $ -- $ 10.9
Casualty and other claims
included in other
liabilities $320.9 $125.1 $ 2.9 (1) $127.7 (2) $321.2
Current portion of casualty
and other claims included
in accounts payable $190.6 $ 53.1 $124.9 (1) $183.5 (3) $185.1
(1) Includes revenue overcharges provided through charges to operating
revenues, and transfers from other accounts.
(2) Payments and reclassifications to/from accounts payable.
(3) Payments and reclassifications to/from other liabilities.
(continued)
</TABLE>
<PAGE> PAGE 83
<TABLE>
Schedule II
Page 2 of 2
Norfolk Southern Corporation and Subsidiaries
---------------------------------------------
Valuation and Qualifying Accounts
Years Ended December 31, 1992, 1993 and 1994 (continued)
(In millions of dollars)
<CAPTION>
Additions charged to
--------------------
Beginning Other Ending
Balance Expenses Accounts Deductions Balance
--------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
----------------------------
Valuation allowance (included
net in deferred tax
liability) for deferred tax
assets $ 10.9 $ -- $ -- $ 9.5 $ 1.4
Casualty and other claims
included in other
liabilities $321.2 $120.2 $ 2.5 (1) $138.9 (2) $305.0
Current portion of casualty
and other claims included
in accounts payable $185.1 $ 49.9 $163.7 (1) $207.5 (3) $191.2
(1) Includes revenue overcharges provided through charges to
operating revenues, and transfers from other accounts.
(2) Payments and reclassifications to/from accounts payable.
(3) Payments and reclassifications to/from other liabilities.
</TABLE>
<PAGE> PAGE 84
EXHIBIT INDEX
-------------
Electronic
Submission
Exhibit Page
Number Description Number
---------- ------------------------------------------- ------
10 Material Contracts -
(a) The Supplementary Agreement entered into as
of January 1, 1987, between the Trustees
of the Cincinnati Southern Railway and The
Cincinnati, New Orleans and Texas Pacific
Railway Company. 85-107
(b) The Norfolk Southern Corporation Management
Incentive Plan, as amended effective
January 1, 1988. 108-115
(h) The Excess Benefit Plan of Norfolk Southern
Corporation and Participating Subsidiary
Companies, as amended January 1, 1989. 116-120
11 Statement re: Computation of Earnings Per Share. 121-124
12 Statement re: Computation of Ratio of Earnings
to Fixed Charges. 125
21 Subsidiaries of Norfolk Southern Corporation. 126-128
23 Consent of Independent Auditors. 129
27 Financial Data Schedule (This exhibit is
required to be submitted electronically
pursuant to the rules and regulations of
the Securities and Exchange Commission and
shall not be deemed filed for purposes of
Section 11 of the Securities Act of 1933
or Section 18 of the Securities Exchange
Act of 1934). 130
PAGE 85
EXHIBIT 10(a) PAGE 1 of 23
SUPPLEMENTARY AGREEMENT
THIS SUPPLEMENTARY AGREEMENT is entered into as of January 1,
1987, between the Trustees of the Cincinnati Southern Railway
(hereinafter "Lessor" or "Trustees"), and The Cincinnati, New
Orleans and Texas Pacific Railway Company ("Lessee"), an Ohio corporation,
WITNESSETH:
WHEREAS, the City of Cincinnati, Ohio, is the owner of a line
of railroad known as the Cincinnati Southern Railway and certain
properties which are under the control and jurisdiction of the
Lessor ("Line") and which are leased to Lessee pursuant to a Lease
made and entered into the 11th day of October, 1881, as extended,
modified and supplemented ("Lease"); and
WHEREAS, certain differences have arisen between the Lessor
and Lessee regarding the interpretation, meaning, effect and
performance of certain provisions contained in the aforementioned
Lease and regarding the amount of rental that should be paid
thereunder;
WHEREAS, the shareholder and board of directors of Lessee, at
special meetings, have authorized the undertakings hereinafter set
forth; and
WHEREAS, Southern Railway Company ("SR") and Norfolk Southern
Corporation ("NS"), Virginia corporations, are executing this
Agreement as guarantors of the performance by Lessee of its
obligations hereunder; and
WHEREAS, by an Act of the General Assembly of the State of
Ohio, passed June 23, 1961, the board of trustees of any railway
appointed under the provisions of the Act of May 4, 1869, among
other things, were authorized to modify any existing lease of such
railway in accordance with ordinances of the council of the city
owning such line of railway; and
WHEREAS, Council of the City of Cincinnati on the 5th day of
August, 1987, passed Ordinance No. 309 - 1987, entitled
"Authorizing the Trustees of the Cincinnati Southern Railway to
Execute a Supplementary Agreement with The Cincinnati, New Orleans
and Texas Pacific Railway Company", a copy of which is attached
hereto as Exhibit A;
NOW THEREFORE, it is mutually covenanted and agreed by said
parties each for itself, its or their successors and assigns, as follows:
<PAGE> PAGE 86
EXHIBIT 10(a) PAGE 2 of 23
1. Commencing with the calendar year 1987, Lessee agrees to
pay rent to Lessor in advance, in quarterly installments, on
January 1, April 1, July 1 and October 1 of each year at the
offices of the Treasurer of the City of Cincinnati. The amount of
rental shall be determined as follows:
(a) For the calendar year 1987, the rental shall be
$11,000,000.00. Any quarterly payments, net of payments timely
made in accordance with the existing Lease, which are delayed
pending execution of this Agreement shall be paid within five days
after this Agreement is fully executed and all required approvals
obtained, and shall bear interest at 6% per annum from the date
each applicable quarterly payment was due until the day before its
payment.
(b) For 1988 and subsequent years the annual rent shall
be an amount calculated by multiplying the prior year's rent by a
"Factor" obtained by dividing the Implicit Price Deflator for
Gross National Product ("IPD-GNP") for the prior calendar year by
the IPD-GNP for the year preceding the prior calendar year,
provided, however, that the rent will not be less than
$11,000,000.00 for any year.
For any given year, the denominator of the fraction
used to calculate the Factor will be the same as the numerator of
the fraction used to calculate the previous year's Factor. The
calculations of the Factor to be applied to the previous year's
rent shall be carried out to five places to the right of the
decimal and rounded.
IPD-GNP is developed by the U.S. Department of
Commerce, Bureau of Economic Analysis and is reported in the
publication ECONOMIC INDICATORS prepared for the Joint Economic
Committee by the Council of Economic Advisors.
(c) If, in the rent calculation for the year 1988 or
any subsequent year, the Factor is greater than 1.04, then 1.04
will be the Factor used. If, in the rent calculation for 1988 or
any subsequent year, the Factor as calculated under subparagraph
(b) hereof is less than .96, then .96 will be the Factor used.
(d) Because the IPD-GNP for each calendar year cannot
be available on the first day of the following year, the parties
agree that rent installments in any year will not be adjusted
until after the IPD-GNP for the previous calendar year is
published. Any difference between the installment payment made in
any quarter and what it would have been had the IPD-GNP been known
will be reflected in the rent for the quarter next following the
date the applicable IPD-GNP becomes known.
<PAGE> PAGE 87
EXHIBIT 10(a) PAGE 3 of 23
(e) The following examples are provided to illustrate
the application of the formula:
Example 1: Assuming that the IPD-GNP for the calendar year
--------- 1987 is 113.1, the rent payable in 1988 would be
calculated as follows:
113.1 (IPD-GNP for 1987) = .98864 x $11 mill. =
114.4 (IPD-GNP for 1986) $10.87504 million
The rent would be $11 million since the calculation
would yield a rental less than the agreed upon
floor of $11 million.
Example 2: Assuming that IPD-GNP for the calendar year 1988 is
--------- 117.5, the rent payable in 1989 would be calculated
as follows:
117.5 (IPD-GNP for 1988) = 1.03890 x $11 mill. =
113.1 (IPD-GNP for 1987) $11.42794 million
Example 3: Assuming that the IPD-GNP for the calendar year
--------- 1989 is 124.6, the rent payable in 1990 would be
calculated as follows:
124.6 (IPD-GNP for 1989) = 1.06043
117.5 (IPD-GNP for 1988) 1.04 x $11.4279 mill. =
$11.885058 million
In this example, since a factor of 1.06043 is
produced by the calculation, and 1.04 is the
established cap, the 1.04 factor is to be used.
Example 4: Assuming that the IPD-GNP for the calendar year
--------- 1990 is 117.1, the rent payable in 1991 would be
calculated as follows:
117.1 (IPD-GNP for 1990) = .93981
124.6 (IPD-GNP for 1989) .96 x $11.885058 mill. =
$11.409656 million
In this example, since a factor of .93981 is
produced by the calculation, and .96 is the
established minimum, the .96 factor is to be used.
(f) The rental provided for herein shall be in lieu of
the fixed and contingent rental provided for in the Lease but
shall not affect Lessee's obligation to pay in accordance with the
Supplemental Agreement of November 16, 1961, the principal and
interest on bonds issued to finance certain improvements to the
leased premises.
<PAGE> PAGE 88
EXHIBIT 10(a) PAGE 4 of 23
2. Lessee shall have the option to extend the term of the
Lease for twenty-five (25) years beyond the present expiration
date or until December 31, 2051. Such option shall be exercised
on or before January 1, 2022 by Lessee notifying Lessor in writing
of Lessee's intent to extend the Lease. Within thirty (30) days
after receipt of such notice of intent to extend, Lessor shall
notify Lessee in writing of its proposed rental terms for the
extension period. If such proposed rental terms are acceptable to
Lessee, such acceptance shall be communicated to Lessor in writing
on or before April 1, 2022, and the parties shall execute the
appropriate documents necessary to effect the extension. If the
proposed rental terms are unacceptable to Lessee and the parties
have been unable to reach agreement on different rental terms on
or before June 30, 2022, or such later date as is mutually agreed
to by Lessor and Lessee, either party may submit the issue to
arbitration in accordance with Section 8, in which case the
arbitrators shall determine fair market rental terms for the
leased premises for the period of extension.
Within 90 days after receiving the arbitrators' determination
of the fair market rental terms, Lessor and Lessee shall file
sealed statements with the arbitrators stating whether they accept
the arbitration decision. Such statements are only to be opened
by the arbitrators after both parties have submitted their
statements. If both parties accept the arbitrators'
determination, the parties shall execute the appropriate documents
incorporating such determination necessary to effect the extension.
If Lessee accepts the arbitrators' determination but Lessor
does not, the Lessor may seek to lease or sell the leased property
to another party; however, Lessee shall have a right of first
refusal to extend the Lease or purchase the leased property on the
same terms as any bona fide third party offer received by and
acceptable to Lessor. If Lessor does not obtain a bona fide third
party offer acceptable to it to lease or buy the railway prior to
one year prior to the expiration of the lease term, or prior to
one year after the date of the arbitration determination,
whichever is later, and has not committed to operate the leased
property itself, Lessee shall have the option to extend the Lease
on the terms decided upon in the arbitrators' determination. In
the interim, Lessee shall have the right to continue using the
leased property on the same terms as the current Lease on a year
to year basis.
If Lessee does not accept the arbitrators' determination, the
Lessor may seek to lease or sell the leased property to another
party. If Lessor receives a bona fide third party offer
acceptable to it on terms more favorable to it than the terms of
the arbitrators' determination, Lessee shall have no rights to
extend the Lease. If the best bona fide third party offer
<PAGE> PAGE 89
EXHIBIT 10(a) PAGE 5 of 23
acceptable to Lessor is less favorable to Lessor than the
arbitrators' determination, Lessee shall have a right of first
refusal to extend the lease or purchase the leased property on the
same terms as the third party offer. If the best bona fide third
party offer acceptable to Lessor is equal to the arbitrators'
determination, then Lessee shall have a right of first refusal on
the same terms only if Lessor has also rejected the arbitrators'
determination. If Lessor does not receive a bona fide third party
offer to lease or buy the railway acceptable to Lessor within one
year prior to expiration of the lease term, and Lessor has not
committed to operate the leased property itself, Lessee shall have
the right to continue using the property on the same terms as the
current Lease on a year to year basis. At any time during such
year to year extension, Lessee shall have the option to match any
bona fide third party offer acceptable to Lessor.
The right of first refusal provided for herein shall be
exercised as follows: Lessor shall advise Lessee in writing of
the terms of such bona fide offer. Lessee shall have sixty days
from the date of such notice within which to exercise its right of
first refusal by notifying Lessor in writing of such exercise. If
notice of exercise of the right of first refusal is not given
within such sixty day period, the right of first refusal shall
expire.
3. (a) Lessee may grant to others trackage rights,
easements, licenses and subleases of any part of the leased
premises for any purpose so long as such trackage rights,
easements, licenses and subleases do not extend beyond the term of
the Lease or any extension thereof, do not exceed the rights
granted to Lessee hereunder, are subject to the rights of Lessor
arising from failure by Lessee to comply with the terms of this
Agreement, and do not impair the maintenance or operation of the
Line. The parties agree that at the termination of the Lease, no
hazardous waste material will be stored on the leased premises in
violation of then applicable law. In the event any license,
sublease or other agreement is entered into for installation of a
fiber optics communication system on the leased property, Lessee
agrees to pay Lessor 75% of the revenue attributable to such
license, sublease or agreement. In the event such a system is
part of a fiber optics agreement encompassing rights of way beyond
the leased property, the revenue base used for calculating
Lessor's share shall be determined taking into account the
proportionate mileage of Lessor's property which is part of the
fiber optics agreement, the relative value of such mileage to the
communications system, and any other factors necessary to
determine a fair proportion of the revenue attributable to such
mileage.
<PAGE> PAGE 90
EXHIBIT 10(a) PAGE 6 of 23
(b) The right to develop and use the air space over the
leased property titled in the name of Lessor in the City of
Cincinnati and Kenton County, Kentucky, is reserved to the Lessor,
subject to the requirements of Lessee for clearances and other
protections to prevent interference with Lessee's use of the
leased property. Prior to undertaking development of any of the
said air rights, Lessor will provide Lessee with detailed plans
and specifications for its review. Development and use of such
air rights shall be subject to the express written consent of
Lessee, upon terms and conditions satisfactory to Lessee, which
consent shall not unreasonably be withheld.
(c) The right to develop and use mineral rights
underlying the leased property titled in the name of the Lessor is
reserved to the Lessor, but during the term of the Lease and any
extension, such mineral rights shall not be exercised in a manner
causing interference with Lessee's use of the leased property.
Prior to undertaking development of any of the said mineral
rights, Lessor will provide Lessee with detailed plans and
specifications for Lessee's review. Development and use of such
mineral rights shall be subject to the express written consent of
Lessee, upon terms and conditions satisfactory to Lessee, which
consent shall not unreasonably be withheld.
(d) The parties agree that nothing in the Lease or this
Supplementary Agreement constitutes any impediment to the
acquisition of and exercise of all rights of ownership by Lessee
or its corporate affiliates over any property, subject only to the
requirements of the Lease that, at the termination of the Lease or
any extension, Lessee surrender to the Lessor the line of railway
complete in all respects, and that construction of additional main
or side track be upon rights of way owned by Lessor. At the time
of surrender, the Line shall be in condition equivalent to the
classification established by the Federal Railway Administration
as applied to the Line in the applicable portions of the timetable
for the Southern Railway System Kentucky Division in effect as of
the date of execution hereof (a copy of which is attached hereto
as Exhibit B).
(e) If, at any time during the term of the Lease or any
extension thereof, leased property shall, in the opinion of the
Lessee, not be necessary for the operation of the railroad, then
the Lessee shall have the right to use the same for any other
lawful purposes, and shall have the right to receive as its own
all rents, issues and profits therefrom. At the termination of
the Lease or any extension thereof, Lessee shall surrender the
same to the Lessor with all improvements thereon. Alternatively,
Lessee may at any time declare any such property to be superfluous
and upon written notice to Lessor return such property to Lessor
and release it from the leased premises.
<PAGE> PAGE 91
EXHIBIT 10(a) PAGE 7 of 23
(f) If, at any time during the term of the Lease or any
extension thereof, leased property is condemned or conveyed under
threat of condemnation, the following provisions shall govern:
any award or payment, net of any tax and expenses, shall be held
by Lessee in an interest paying account and used, with its
interest, only to replace the property or improvements taken, or
to acquire additional real property to be titled in the name of
the Lessor and to make improvements thereon for the operation of
the railway, which property shall become part of the leased
property. Lessee shall make an annual accounting of the use of
such funds to Lessor. Any balance in such account at the
termination of the Lease, including any extension or renewal
thereof, shall then become the property of Lessor.
(g) In the event of termination of this Lease or any
extension or renewal thereof, Lessee agrees to grant to Lessor or
any subsequent lessee or purchaser of Lessor's line of railroad in
Cincinnati, Ohio, and Lessor agrees to grant to Lessee or its
successors and assigns, non-exclusive joint use of each other's
rail facilities within the Gest Street Yard in the City of
Cincinnati as necessary for the operation of their respective rail
lines in accordance with the customary terms for such usage and in
exchange for payment of the customary charges received among
railroads for such usage rights.
4. During the term(s) hereby granted Lessee will pay and
save harmless the Lessor from the payment of any costs, expenses,
claims, liabilities, damages and demands whatsoever arising out of
the Lessee's possession, control, management and operation of the
said line of railway and its equipment, or any part of the leased
premises. Lessee assumes the duties, liabilities and obligations
of an owner, doing every act and thing required by law of the
Trustees, their successors or assigns. If Lessee shall be covered
by insurance for any of its obligations set forth in this Section
4, it will, if it can do so without added premium cost, name
Lessor as an additional insured. During the term(s) hereby
granted Lessee also shall provide to Lessor an annual report
summarizing the conditions of the leased premises, the nature of
repairs or replacements made with respect thereto, and the sale of
any rail lines between Cincinnati, Ohio and Chattanooga, Tennessee
during the previous twelve months.
5. Lessee agrees that it will, during the continuance of
the Lease, pay to the Trustees, without deduction from the rent
herein reserved, the sum of one hundred thousand dollars per annum
payable quarterly at the Cincinnati offices of the Trustees of the
Cincinnati Southern Railway to cover the necessary expense
devolving upon the Trustees in conducting the Trustees' affairs.
The amount of this payment shall be adjusted annually, beginning
with the Lease year commencing January 1, 1988, and continuing
every year thereafter during the term of the Lease and any
<PAGE> PAGE 92
EXHIBIT 10(a) PAGE 8 of 23
extension to reflect increases in the Consumer Price Index. For
each such year the expense payment shall be determined by
multiplying the sum of $100,000 by a fraction, the numerator of
which shall be the Consumer Price Index as of the end of the
immediately preceding year, and the denominator of which shall be
the Consumer Price Index as of the end of 1986. If the result of
this calculation is less than or equal to $1OO,OOO, the expense
payment for that year shall be $100,000. If the result of the
calculation exceeds $100,000, the result of the calculation shall
be the expense payment for that year. Any amounts payable under
this Section 5 in excess of $100,000 shall be paid on or before
July 1 of that year.
6. (a) In consideration of the Trustees' full release of
Lessee from any and all claims arising out of or on account of the
prior lease relationship between the parties, Lessee will,
concurrently with the execution of this Agreement and conditioned
upon execution of a similar release of claims by the City of
Cincinnati, pay to the Trustees the sum of six million dollars.
This release shall not apply to Lessor's claims to
ownership of the leased property under the terms of the Lease.
Lessor agrees to defer all such claims existing as of July 15,
1987 until termination of the Lease. Lessor and Lessee agree that
the execution of this Agreement shall not abridge, estop,
compromise, release or waive Lessor's claims with regard to such
ownership rights and that no defense of waiver, laches,
acquiescence, release, estoppel or the like arising on or after
July 15, 1987 with respect to claims existing on that date may be
asserted by reason of Lessor's agreement not to assert or
prosecute such claims at this time. It is the intention of the
parties that these property issues not impede the resolution of
other issues in dispute and that neither party should be
prejudiced by the deferral of issues pertaining to ownership of
property until termination of the Lease.
It is understood and agreed between the parties
that the accrual and/or payment of the six million dollars,
together with the related tax benefit, shall not operate to
increase or decrease the contingent rental for years prior to
1987, as computed in accordance with the November 16, 1961
Supplemental Agreement between the parties.
(b) In further consideration of the execution hereof
and the covenants of Lessor as set forth herein, Lessee agrees to
transfer and convey, by sufficient special warranty deed, to
Lessor and the successors and assigns thereof, certain Riverfront
real estate situated in the City of Cincinnati, Hamilton County,
Ohio, described on Attachment C hereto. Said deed shall be
executed by Lessee and delivered to Lessor no later than ninety
days after execution of this Supplementary Agreement and receipt
<PAGE> PAGE 93
EXHIBIT 10(a) PAGE 9 of 23
of all necessary approvals. Such property shall constitute part
of the leased property, except that air rights over said property
shall be reserved to Lessor as provided in Section 3(b) hereof.
7. As security for the faithful performance by the Lessee
of the terms of this Contract, but not in limitation of other
rights of the Lessor, Lessee agrees to deposit with the Lessor a
surety bond or bonds issued by an insurer or insurers having a
certificate of authority to act as surety in the State of Ohio in
the amount of $5,500,000.00. During any lease year that the
annual rental exceeds $11,000,000, the amount of the surety bond
for such year shall be increased by $500,000 for each full
$1,000,000 that such year's rent exceeds $11,000,000. Such surety
bond or bonds shall be renewed annually as of the date the rent is
calculated.
In consideration hereof, and in further consideration of the
other covenants herein by Lessee, Norfolk Southern Corporation,
and Southern Railway Company, the Mortgage by Lessee to Lessor,
dated October 11, 1881, as subsequently confirmed and extended, is
hereby cancelled, and shall be of no further force or effect.
Likewise, Clause 7 of the 1881 Indenture, creating the lien
secured by the said Mortgage, is hereby abrogated and annulled.
8. (a) If, during the term(s) hereby granted or upon the
expiration or other termination thereof, any disagreement,
dispute, controversy or difference shall arise between the parties
hereto concerning the construction of the Lease as modified and
supplemented by this Agreement, or the rights of either party
thereunder, it shall be submitted to arbitration pursuant to the
Federal Arbitration Act, 9 U.S.C. Sections 1-14, by three disinterested
persons, to be chosen one by each of the parties hereto and one by
the two so chosen.
(b) The party desiring such arbitration shall give
written notice thereof by certified or registered mail to the
other party and shall in such notice name the arbitrator selected
by it and state precisely the matter or matters to be resolved
through arbitration. Within 20 days after receipt of such notice,
the other party shall name its arbitrator to the party which gave
notice, and may also state additional matters then to be
arbitrated, such notification and statement also to be in writing
and given by certified or registered mail. In case the other
party fails or refuses to name an arbitrator, upon application of
the party giving such written notice the arbitrator shall be
appointed by the Chief Judge, then sitting, of the United States
District Court for the Southern District of Ohio, at Cincinnati,
Ohio, or of any Court succeeding to its jurisdiction. In the
event the Chief Judge declines to make such an appointment, the
arbitrator shall be named by the Arbitration Committee of the
American Arbitration Association, presently headquartered at
<PAGE> PAGE 94
EXHIBIT 10(a) PAGE 10 of 23
140 West Fifty-First Street, New York, New York 10020. Only
matters so stated by the parties shall be considered or decided by
the arbitrators.
(c) Said two arbitrators so selected shall, within 20
days after the selection of the second arbitrator, select a third
arbitrator. In case the two arbitrators shall fail to agree
within 20 days upon a third arbitrator, the third arbitrator shall
be appointed in the manner provided in paragraph (b) of this
Section 8.
(d) The three arbitrators so selected shall, as soon as
possible after their selection is completed, but not more than 60
days thereafter, meet to hear and decide the matter or matters
submitted to them and shall give to each side of the controversy
not less than 30 days' notice in writing, by certified or
registered mail, of the time and place of such hearing.
(e) After hearing both parties to the controversy and
taking such testimony, making such further investigation as may be
deemed necessary and considering such briefs as either party may
submit within 20 days after the close of the hearing, the
arbitrators shall make in writing, within 30 days, their award
upon the matter or matters submitted to them and shall serve a
copy of such award, by certified or registered mail, upon each of
the parties to the controversy. Such written award, approved and
signed by not less than two of such arbitrators, shall be final
and binding upon the parties to the controversy and each shall
promptly conform thereto. Until the arbitrators have made their
determination of the matter or matters submitted to them, the
business, settlements and payments to be transacted and made under
this Agreement shall continue to be transacted and made in the
manner and form existing prior to the arising of such questions.
No resort may be had to any court regarding such arbitration
except to compel arbitration, to enforce an award or by way of
appeal on the grounds set forth in 9 U.S.C. Sections 10 and 11.
(f) In the case of the death, disability,
disqualification or refusal of any arbitrator, his successor shall
be chosen within 10 days thereafter by the party selecting him,
or, if he be the third arbitrator selected, by the two arbitrators
already selected and acting. If either party fails or refuses
to select an arbitrator willing to hear the controversy within said
10 day period, or to select a successor to a deceased, disabled or
disqualified arbitrator within the prescribed ten (10) day period,
a replacement for such arbitrator shall be named in the manner set
forth in paragraph (b) of this Section 8.
<PAGE> PAGE 95
EXHIBIT 10(a) PAGE 11 of 23
(g) Each party shall pay the compensation, costs, fees
and expenses of its arbitrator, witnesses, exhibits and counsel.
The compensation, costs, and expenses of the third arbitrator, the
stenographic records, if any, and one copy of a transcript for
each arbitrator and each party shall be borne equally by the
parties hereto.
(h) The Commercial Arbitration Rules of the American
Arbitration Association shall apply except to the extent the same
may be inconsistent with this Article.
(i) The award rendered by the arbitrators shall be
final, and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction over the parties.
9. In the event that either party believes the other has
breached any provision of the Lease as modified and supplemented
by this Agreement, the following procedure shall be followed:
(a) The party claiming breach shall give the other
party notice in writing referencing this Section 9, setting forth
the particular provision it claims to have been breached, and
stating the operative facts supporting such claim of breach and
the dollar amount (if applicable) by which that party claims to
have been damaged by such breach.
(b) The responding party shall within 30 days of
receiving such notice either: (i) admit the breach and the
claimed damages, if any; (ii) admit the breach but deny the
claimed damages; or (iii) deny the breach.
(c) (i) If a party admits a breach and concurs in the
amount of any claimed damages, it shall immediately discontinue
any continuing breach and pay the amount of the claimed damages.
(ii) If a party admits a breach but denies the claimed damages, it
shall immediately discontinue any continuing breach.
(d) Either party may demand arbitration, in accordance
with Section 8, as to any issue of breach or damages which is not
admitted. The arbitrators shall determine if a breach occurred
and, if so, (i) shall reduce the breach to an award of money
damages, if any such damages are determined to have been incurred;
(ii) order specific performance of the duty or duties breached;
and/or (iii) order the discontinuance of any continuing breach.
(e) Upon receipt of the arbitration decision, any party
that has been found in breach of the Lease shall discontinue any
continuing breach and shall pay the damaged party any monetary
award determined by the arbitrators. If within 30 days after
receipt of the arbitration decision either the breach (if it is a
continuing breach) is not discontinued or the damage award, if
<PAGE> PAGE 96
EXHIBIT 10(a) PAGE 12 of 23
any, is not paid, the aggrieved party may declare the Lease
forfeited and exercise all legal rights available to it to end the
tenancy and/or recover any unpaid damages.
(f) Anything in the Lease and this Agreement to the
contrary notwithstanding, when the claimed breach is nonpayment of
rent and the amount due is not disputed, Lessor shall give Lessee
notice of such breach in writing in accordance with subsection (a)
of this Section; if payment of the rental is not made or an
agreement for payment of the rental is not reached within 30 days
of such notice, Lessor, at its option and without prior resort to
arbitration, may declare the Lease forfeited and exercise all
legal rights available to it to end the tenancy and/or recover
damages.
(g) The Lease may not be forfeited except as specified
in this Section 9.
(h) If a claiming party shall be entitled to
arbitration under paragraph (d) above with regard to a claimed
breach of the Lease and/or a refusal to admit damages of which
notice has been given in accordance with subparagraph (a) hereof,
and, with knowledge of same, shall fail to seek arbitration for 30
days after the right to arbitration becomes known to the claiming
party, then such party's claims shall be deemed waived.
10. The Lease and all the covenants and agreements of this
Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto; provided,
however, that no assignment of the Lease shall be made by the
Lessee unless the assignee shall, by instrument in writing
executed by such assignee and delivered to the Lessor, expressly
assume all of the obligations of the Lessee hereunder. Neither
any such assignment nor the execution and delivery by any such
assignee of any such instrument of assumption shall, except with
the express written consent of the Lessor (which, in the case of
liquidation of the Lessee, shall not be unreasonably withheld),
relieve the Lessee or its guarantors from any of its or their
obligations hereunder. Nothing in this paragraph shall be
construed to prevent the transfer of the rights of the Lessee
under the Lease in connection with a merger or consolidation or
other transfer of all of its assets if the corporation remaining
or resulting from such merger or consolidation, or to which assets
are transferred, shall execute and deliver to the Lessor a written
instrument of assumption as above provided, (sic)
11. The covenants and agreements herein contained are made
subject to any valid existing or future law and to the lawful
exercise of power thereunder by any public authority, whether by
way of authorization, prohibition or otherwise.
<PAGE> PAGE 97
EXHIBIT 10(a) PAGE 13 of 23
12. The Lease is to remain in full force and effect, except
insofar as it is inconsistent with or expressly modified by these
presents, and except that Clause 6 of the October 11, 1881
Indenture and Sections 8, 9, 1O and 11 of the 1902 Contract of
Modification and Extension of Lease are expressly abrogated and
annulled.
13. Lessee, for itself, its successors and assigns, hereby
covenants that it will keep and perform all the covenants,
stipulations and agreements of the Lease and of this Supplementary
Agreement, and will not evade or violate any of the same.
14. Except as otherwise provided herein, notice called for
under the terms of this Supplementary Agreement shall be in
writing, delivered by certified or registered mail, at the
following addresses:
For Lessor:
President
Board of Trustees
Cincinnati Southern Railway
635 West Seventh Street
Suite 300
Cincinnati, Ohio 45203
and
Office of the City Solicitor
City of Cincinnati
214 City Hall
801 Plum Street
Cincinnati, Ohio 45202
For Lessee:
President
The Cincinnati, New Orleans and Texas Pacific Railway
Company
635 West Seventh Street
Suite 300
Cincinnati, Ohio 45203
President
The Cincinnati, New Orleans and Texas Pacific Railway
Company
One Commercial Place
Norfolk, Virginia 23510
<PAGE> PAGE 98
EXHIBIT 10(a) PAGE 14 of 23
Guarantors:
President
Southern Railway Company
One Commercial Place
Norfolk, Virginia 23510
Chief Executive Officer
Norfolk Southern Corporation
One Commercial Place
Norfolk, Virginia 23510
15. SR as the holder of all the common stock of Lessee and
NS as the holder of all the common stock of SR each hereby
guarantees to Lessor that the Lessee will fully perform all of its
obligations under the Lease and this Supplementary Agreement, and
jointly and severally agree with Lessor to make Lessor whole for
any loss suffered by it as a result of the failure of Lessee to so
perform. Any claim made by Lessor under this guarantee shall, if
not agreed to by SR and NS, be subject to arbitration under the
provisions of Section 8 hereof, which arbitration decision shall
be binding upon Lessor and upon SR and NS as guarantors of the
obligations of Lessee herein.
16. This Supplementary Agreement is subject to approval or
exemption from approval by the Interstate Commerce Commission of
the undertakings by Lessee and Guarantors of the obligations
herein, as may be required by 49 U.S.C. Sections 11301 and 11343
et seq., and such decision having become final.
IN WITNESS WHEREOF, Theodore M. Berry, Robert W. Hilton, Jr.,
Roger W. Ach, II, Paul W. Sylvester, and Benjamin Gettler,
Trustees of the Cincinnati Southern Railway, authorized by
Ordinance No. 309 1987 of the City of Cincinnati and by resolution
of said Board of Trustees of the Cincinnati Southern Railway have
on this 5th day of August, 1987, affixed their hands; The
Cincinnati, New Orleans and Texas Pacific Railway Company has upon
this same day caused this Supplementary Agreement to be signed and
sealed by its President as the act and deed of The Cincinnati, New
Orleans and Texas Pacific Railway Company and its corporate seal
to be affixed by its Secretary.
<PAGE> PAGE 99
EXHIBIT 10(a) PAGE 15 of 23
Executed in quintuplicate, upon the day and year above
mentioned.
THE LESSOR:
/s/ Theodore M. Berry
-----------------------------
Theodore M. Berry
/s/ Robert W. Hilton, Jr.
-----------------------------
Robert W. Hilton, Jr.
/s/ Roger W. Ach, II
-----------------------------
Roger W. Ach, II
WITNESS:
/s/ Janet [Illegible] /s/ Paul W. Sylvester
----------------------------- -----------------------------
Paul W. Sylvester
/s/ [Illegible] /s/ Benjamin Gettler
----------------------------- -----------------------------
Benjamin Gettler
Trustees of the Cincinnati
Southern Railway
THE LESSEE:
THE CINCINNATI, NEW ORLEANS AND
TEXAS PACIFIC RAILWAY COMPANY
ATTEST:
/s/ Mahlon D. Edwards By: /s/ H. H. Hall
----------------------------- -----------------------------
Secretary President
<PAGE> PAGE 100
EXHIBIT 10(a) PAGE 16 of 23
GUARANTORS OF LESSEE:
SOUTHERN RAILWAY COMPANY
ATTEST:
/s/ Mahlon D. Edwards /s/ Arnold B. McKinnon
----------------------------- -----------------------------
Secretary President and
Chief Executive Officer
NORFOLK SOUTHERN CORPORATION
ATTEST:
/s/ Mahlon D. Edwards /s/ Arnold B. McKinnon
----------------------------- -----------------------------
Assistant Secretary Chief Executive Officer
Chairman, President and
Chief Executive Officer
State of Ohio )
) SS:
Hamilton County )
Before me a Notary Public, in and for said County, personally
appeared the above named Theodore M. Berry, Robert W. Hilton, Jr.,
Roger W. Ach, II, Paul W. Sylvester, and Benjamin Gettler, the
duly appointed, qualified and acting Trustees of the Cincinnati
Southern Railway, who acknowledged that they did sign the
foregoing instrument on behalf of and pursuant to the direction
and in accordance with the authorization of the City of Cincinnati
and that the same is their free act and deed as such Trustees, and
for the uses and purposes therein set forth.
In testimony whereof, I have hereunto subscribed my name and
affixed my official seal at Cincinnati, Ohio this 5th day of
August, 1987.
/s/ Nancy C. Cody
-----------------------------
Notary Public
Commission has no expiration
date.
<PAGE> PAGE 101
EXHIBIT 10(a) PAGE 17 of 23
State of Virginia )
) SS:
City of Norfolk )
Before me, a Notary Public, in and for said City, personally
appeared H. H. Hall, President, and Mahlon D. Edwards, Secretary,
of The Cincinnati, New Orleans and Texas Pacific Railway Company,
the corporation which executed the foregoing instrument, who
acknowledged that the seal affixed to said instrument is the
corporate seal of said corporation, that they did sign and seal
such instrument as President and Secretary of said corporation and
by authority of its Board of Directors and that said instrument is
their free act and deed as such President and Secretary, and the
free act and deed of The Cincinnati, New Orleans and Texas Pacific
Railway Company.
In testimony whereof, I have hereunto subscribed my name and
affixed my official seal at Norfolk, Virginia, this 13th day of
August, 1987.
/s/ Doris L. Whitson
-----------------------------
Notary Public
Commission Expires: July 16, 1990.
State of Virginia )
) SS:
City of Norfolk )
Before me, a Notary Public, in and for said City, personally
appeared Arnold B. McKinnon, Chairman, President and Chief
Executive Officer, and Mahlon D. Edwards, Assistant Secretary, of
the Norfolk Southern Corporation, the corporation which executed
the foregoing instrument, who acknowledged that the seal affixed
to said instrument is the corporate seal of said corporation, that
they did sign and seal such instrument as Chairman, President and
Chief Executive Officer and Assistant Secretary on behalf of said
corporation and by authority of its Board of Directors and that
said instrument is their free act and deed as such Chairman,
President and Chief Executive Officer and Assistant Secretary,
and the free act and deed of the Norfolk Southern Corporation.
<PAGE> PAGE 102
EXHIBIT 10(a) PAGE 18 of 23
In testimony whereof, I have hereunto subscribed my name and
affixed my official seal at Norfolk, Virginia, this 13th day of
August, 1987.
/s/ Doris L. Whitson
-----------------------------
Notary Public
Commission Expires: July 16, 1990.
State of Virginia )
) SS:
City of Norfolk )
Before me, a Notary Public, in and for said City, personally
appeared Arnold B. McKinnon, President and Chief Executive
Officer, and Mahlon D. Edwards, Secretary, of the Southern Railway
Company, the corporation which executed the foregoing instrument,
who acknowledged that the seal affixed to said instrument is the
corporate seal of said corporation, that they did sign and seal
such instrument as President and Chief Executive Officer and
Secretary on behalf of said corporation and by authority of its
Board of Directors and that said instrument is their free act and
deed as such President and Chief Executive Officer and Secretary,
and the free act and deed of the Southern Railway Company.
In testimony whereof, I have hereunto subscribed my name and
affixed my official seal at Norfolk, Virginia, this 13th day of
August, 1987.
/s/ Doris L. Whitson
-----------------------------
Notary Public
Commission Expires: July 16, 1990.
<PAGE> PAGE 103
EXHIBIT 10(a) PAGE 19 of 23
COUNCIL OF THE CITY OF CINCINNATI
---------------------------------
STATE OF OHIO
-------------
OFFICE OF THE CLERK OF COUNCIL
------------------------------
I HEREBY CERTIFY that the foregoing
transcript is correctly copied from the books,
papers and journals of the City of Cincinnati,
State of Ohio, kept under authority and by the
direction of the Council thereof.
ORDINANCE NO. 309-1987 (emergency) passed by
Council, City of Cincinnati, State of Ohio, in
session on August 5, 1987: "Authorizing the
Trustees of the Cincinnati Southern Railway to
execute a Supplementary Agreement with The
Cincinnati, New Orleans and Texas-Pacific
Railway Company and authorizing and directing
the City Manager and the City Solicitor to
execute a release of claims by the City of
Cincinnati against the Cincinnati, New Orleans
& Texas-Pacific Railway Company."
IN TESTIMONY WHEREOF I have hereunto set my
name and affixed the seal of the office of the
Clerk of Council this 10th day of August in
the year Nineteen-Hundred and Eighty-Seven.
/s/ Sandy L. Sherman
-----------------------------
Clerk of Council
Sandy L. Sherman
[SEAL]
<PAGE> PAGE 104
EXHIBIT 10(a) PAGE 20 of 23
E M E R G E N C Y
- - - - - - - - -
CITY OF CINCINNATI
AN ORDINANCE NO. 309 - 1987
Authorizing the Trustees of the Cincinnati Southern Railway to
execute a Supplementary Agreement with the Cincinnati, New Orleans
& Texas-Pacific Railway Company and authorizing and directing the
City Manager and the City Solicitor to execute a release of claims
by the City of Cincinnati against the Cincinnati, New Orleans &
Texas-Pacific Railway Company.
WHEREAS:
The City of Cincinnati, Ohio is the owner of a line of
railroad known as the Cincinnati Southern Railway and certain
properties which are under the control and jurisdiction of the
Trustees of the Cincinnati Southern Railway and which are leased
to the Cincinnati, New Orleans & Texas Pacific Railway Company
pursuant to a Lease made and entered into the 11th day of October,
1881, and previously extended, modified and supplemented.
Certain differences have arisen between the Lessor and Lessee
regarding the interpretation, meaning, effect and performance of
certain provisions contained in the Lease and regarding the amount
of rental that should be paid thereunder.
The Trustees of the Cincinnati Southern Railway, the lessor,
the New Orleans and Texas-Pacific Railway, the lessee, and the
Southern Railway Company and the Norfolk Southern Corporation, as
guarantors, on July 15, 1987 entered into a Memorandum of
Understanding, pursuant to which they each agreed to seek
authority to enter into the Supplementary Agreement modifying the
terms and increasing the rental for the lease of Cincinnati
Southern Railway.
The Trustees have made a report to Council recommending the
approval of the Supplementary Agreement.
By an Act of the General Assembly of the State of Ohio,
S.B. No. 562, 129 v. 573, among other things, the Trustees were
authorized to modify any existing lease of such railway in
accordance with ordinances of the Council of the City of
Cincinnati.
<PAGE> PAGE 105
EXHIBIT 10(a) PAGE 21 of 23
Council finds the proposed Supplementary Agreement to be in
the best interests of the City and the general public.
NOW, THEREFORE, BE IT ORDAINED by the Council of the City of
Cincinnati, State of Ohio:
Section 1. The Trustees of the Cincinnati Southern Railway
are hereby authorized to execute the Supplementary Agreement, a
copy of which is attached hereto, marked "Exhibit A," and by this
reference made a part hereof as if fully set forth herein,
modifying the terms and increasing the rental of the Lease of the
Cincinnati Southern Railway made and entered into the 11th day of
October, 1881, as previously extended, modified and supplemented.
Section 2. Simultaneously with the execution of the
Supplementary Agreement by all parties thereto, the City Manager
and the City Solicitor are authorized and directed to execute the
Release of Claims by the City of Cincinnati Against the
Cincinnati, New Orleans & Texas Pacific Railway Company, a copy of
which is attached hereto, marked "Exhibit B," and by this
reference made part hereof as if fully set forth herein.
Section 3. This ordinance is hereby declared to be an
emergency measure necessary for the immediate preservation of the
public peace, health, safety and welfare and shall go into
immediate effect. The reason for the necessity of immediate
effect is the need to authorize the Trustees of the Cincinnati to
execute this Supplementary Agreement and thereby settle the
differences between the Trustees and the Lessee and to secure the
advantage of the rental increases provided therein at the earliest
possible time.
Passed August 5 A.D., 1987
/s/ Charles J. Luken
-----------------------------
Mayor
ATTEST:
/s/ Sandy L. Sherman
-----------------------------
Clerk
I hereby certify that Ordinance No. 309-1987 was provided in the
City Bulletin in accordance with the Charter on 8-18-87.
/s/ Sandy L. Sherman
-----------------------------
Clerk of Council
<PAGE> PAGE 106
EXHIBIT 10(a) PAGE 22 of 23
IT IS CERTIFIED, that the following is a true and correct copy of
action taken by unanimous written Consent of the Executive
Committee of the Board of Directors of The Cincinnati, New
Orleans, and Texas Pacific Railway Company on July 28, 1987, which
action has not been amended or rescinded and is in full force and
effect as of the date hereof:
RESOLVED, that to end certain disputes and differences with
the City of Cincinnati, Ohio (City) and the Trustees of the
Cincinnati Southern Railway (CSR) concerning the adequacy of the
rental paid under, and the interpretation of, the lease pursuant
to which The Cincinnati, New Orleans and Texas Pacific Railway
Company (the Company) operates the 335-mile line of railroad owned
by the City, a supplementary agreement between CSR and the Company
be executed, in the name and on behalf of the Company, by the
President or any Vice President, such supplementary agreement to:
(a) be dated as of January 1, 1987, and take effect on the
earliest practicable date following receipt of all necessary
regulatory approvals or exemptions from regulation; (b) modify or
eliminate certain obsolete and obscure provisions of the 1881
lease as previously modified, supplemented and extended; (c)
permit the Company greater latitude in its operation of the line
of railroad as part of Southern Railway System and in its use of
the leased premises; (d) confer upon the Company an option to
extend the lease for twenty-five years from its present
termination on December 31, 2026; (e) cancel the mortgage securing
the payment of the rent and the keeping of the covenants of the
lease by the Company and substitute for the mortgage a surety bond
equal to one-half year's rent and the guarantees of the Company's
performance by Southern Railway Company (Southern) as holder of
all the Company's common stock, and by Norfolk Southern
Corporation (Norfolk Southern) as holder of all the common stock
of Southern; (f) increase the annual rental from an average of
$3.5 million to a minimum of $11 million, which may escalate up to
four percent annually under a formula tied to the Implicit Price
Deflator for Gross National Product developed by the U.S.
Department of Commerce; (g) increase the annual compensation
provided to the Trustees from $12,000 to $100,OOO annually with
escalation tied to the Consumer Price Index; (h) provide for
sharing between the parties to the lease of any proceeds from the
use of the leased line for a fiber optics communications system;
(i) provide for payment of $6 million to the Trustees in
consideration of releases to be executed by the Trustees and the
City to settle past claims against the Company, Southern and
Norfolk Southern arising out of or on account of the prior lease
relationship, subject to deferral of certain property claims until
the termination of the lease; and (j) contain such other terms and
conditions as the officer executing the supplementary agreement
may approve.
<PAGE> PAGE 107
EXHIBIT 10(a) PAGE 23 of 23
RESOLVED, that the Company make application to or file any
necessary petition or notice with the Interstate Commerce
Commission (which may be a joint application, joint petition, or
joint notice with Southern and Norfolk Southern) seeking approval
or exemption from regulation, or take any other action before the
Interstate Commerce Commission or any other governmental agency
having jurisdiction with respect to any necessary authority to
enter into said supplementary agreement to the lease, and that the
proper officers of the Company be and each of them is hereby
authorized to execute such application, petition, or notice,
including any amendments or supplements which may be necessary or
desirable on behalf of the Company, under its corporate seal where
proper.
RESOLVED, that the proper officers of the Company are
severally authorized in the name and on behalf of the Company to
take such other action as in their judgment may be necessary or
desirable fully to carry out the intent and to accomplish the
purposes of the foregoing resolution and to execute, deliver and
record such documents, certificates, leases, opinions or other
instruments as in their judgment may be necessary or desirable
fully to carry out said intent and to accomplish said purposes,
including, but not limited to, execution of a conveyance to the
Trustees of certain land in the riverfront area of the City of
Cincinnati known as parcels 108, 132 and 134 of the Company
valuation map V-1 Ohio/L5, which land will become part of the
leased premises.
RESOLVED, that all action taken by the proper officers of the
Company in connection with the foregoing resolutions be, and the
same hereby is, authorized, approved, ratified, and confirmed.
Witness my hand and the seal of the Company this 28th day of
July, 1987.
/s/ Mahlon D. Edwards
-----------------------------
Mahlon D. Edwards
Corporate Secretary
PAGE 108
EXHIBIT 10(b) PAGE 1 of 8
NORFOLK SOUTHERN CORPORATION
MANAGEMENT INCENTIVE PLAN
AS AMENDED EFFECTIVE JANUARY 1, 1988
I. PURPOSE OF THE PLAN
It is the purpose of the Norfolk Southern Corporation
Management Incentive Plan (Plan) to enhance increased
profitability for Norfolk Southern Corporation by rewarding
executive personnel of Norfolk Southern Corporation and its
affiliates with a bonus for collectively striving to attain and
surpass profit objectives.
II. ADMINISTRATION OF THE PLAN
The Compensation and Nominating Committee of the Board of
Directors of Norfolk Southern Corporation shall administer and
interpret this Plan and, from time to time, adopt such rules and
regulations and make such recommendations to the Board of
Directors concerning Plan changes as are deemed necessary to
insure effective implementation of this Plan.
No executive may simultaneously participate in more than
one Norfolk Southern Corporation Incentive Group.
III. RECOMMENDATION TO THE BOARD OF DIRECTORS
The Compensation and Nominating Committee shall recommend
to the Board of Directors:
A. The Incentive Groups for the incentive year,
B. The maximum bonus level for each Incentive Group for
the incentive year, and
C. The amount of bonus fund carryover, if available, to
be applied for the incentive year.
IV. TYPE OF INCENTIVE BONUS
By December 22 of the year prior to the incentive year,
each participant must elect to receive any incentive bonus which
may be awarded to him for the incentive year either 100% cash or
deferred in whole or in part. A participant shall be permitted
to defer only 25%, 50%, 75% or 100% of his bonus for any
<PAGE> PAGE 109
EXHIBIT 10(b) PAGE 2 of 8
incentive year. If 100% cash, the entire amount of the bonus
for the incentive year shall be distributed to the participant,
or his beneficiary, as hereinafter defined on or before March 1
of the year following the incentive year. If deferred in whole
or in part, the amount deferred shall be allocated to the
participant's deferred savings account on or before March 1 of
the year following the incentive year and the remainder, if any,
shall be distributed in cash to the participant or his
beneficiary on or before March 2 of the year following the
incentive year. However, all amounts deferred under this Plan
shall be allocated to the Norfolk Southern Corporation Officers'
Deferred Compensation Plan and such deferrals will be governed
by the provisions of that plan.
Failure on the part of the participating executive to
elect a deferral by December 22 of the year prior to the
incentive year, either in whole or in part for the incentive
year, shall be deemed to constitute an election by such
participant to receive his entire incentive bonus for the
incentive year as a cash bonus.
The Board of Directors shall have the right to reject all
deferral elections if, in its sole discretion, it shall
determine prior to the close of an incentive year that deferral
has become inadvisable, and, if such right shall be exercised,
all incentive bonuses earned under the Plan for such year shall
be payable in cash, as provided for in the third sentence of
this Article IV.
V. INCENTIVE BONUS FUND
A bonus fund shall be determined and made available
annually for each incentive year equal to 0.75% of Pre-tax Net
Income (Norfolk Southern's income before state and federal
income taxes as reported in the annual consolidated financial
statements for the incentive year plus interest expense on debt
due after one year) when the return on Average Invested Capital
(the average of Norfolk Southern stockholders' equity plus debt
due after one year at the beginning and end of the incentive
year) equals 10%, and 1.5% of Pre-tax Net Income when the return
on Average Invested Capital equals or exceeds 20%. At any
intermediate level of return on Average Invested Capital between
10% and 20%, the bonus fund shall be calculated at an
interpolated percentage of Pre-tax Net Income between the 0.75%
minimum and 1.5% maximum levels. In computing Pre-tax Net
Income, all accounting adjustments, restatements or
reclassifications necessary in accordance with Generally
Accepted Accounting Principles shall first be made and, further,
such Pre-tax Net Income shall be adjusted for any expenses
attributable to bonuses paid or accrued under this Plan, for any
<PAGE> PAGE 110
EXHIBIT 10(b) PAGE 3 of 8
contributions to the Norfolk Southern PAYSOP or for any other
item determined by the Compensation and Nominating Committee of
the Board of Directors to be of an unusual nature.
The amount of the bonus fund determined for any incentive
year which is not absorbed fully by bonus awards pursuant to
Article VI will be carried over to subsequent incentive years
and may thereafter be later awarded at the discretion of the
Board of Directors.
VI. BONUS AWARDS
The total bonus fund available to be awarded for the
incentive year pursuant to the formula set forth in Article V
shall be divided among each Incentive Group in proportion to the
relative maximum bonus payable for that Incentive Group and the
percentage bonus allocable to each Incentive Group participant
shall be determined by multiplying the bonus fund allocated to
that Incentive Group by the ratio of the participant's total
salary paid during the incentive year to the total salaries paid
to all participants in that Incentive Group. The Chief
Executive Officer may review and adjust the bonus award of any
Senior, General or Middle Management Incentive Group participant
between 75% and 125% based on the individual's performance,
subject to the availability of bonus fund carryovers needed to
absorb any net increase in the amount of awards for the
applicable Incentive Group and to the review and approval of the
Compensation and Nominating Committee of the Board at its
discretion. The Compensation and Nominating Committee of the
Board shall review the performance of the Plan participants in
the Executive Management Incentive Group and may, at its
discretion, adjust the bonus award of any such participant
between 75% and 125%, subject to the availability of bonus fund
carryovers needed to absorb any net increase in the amount of
awards for this Incentive Group. In no event, however, may the
total bonus award to any Incentive Group for an incentive year
exceed the maximum bonus level for that Incentive Group as
determined by the Board of Directors upon the recommendation of
the Compensation and Nominating Committee.
If the employment of a participant who is employed by
Norfolk Southern Corporation or its affiliates during the
incentive year terminates prior to the end of such year by
reason of (1) death, or (2) normal retirement, early retirement
or total disability under applicable Norfolk Southern
Corporation plans and policies, then the phrase "total salary
paid during the incentive year" means base salary paid to the
participant during that portion of such year of employment prior
to his termination and through the end of the calendar month in
which employment terminates but excludes any cash paid with
<PAGE> PAGE 111
EXHIBIT 10(b) PAGE 4 of 8
respect to such participant's unused vacation. No incentive bonus
for any incentive year shall be awarded or paid to any participant
whose employment with Norfolk Southern Corporation and all its
affiliates terminates before the end of such incentive year for
a reason other than one of those specifically stated in the
preceding sentence.
If a participant becomes eligible for the Plan during the
year or becomes eligible for a different Incentive Group, then
the amount of the award shall be adjusted proportionally to
reflect such changes.
VII. CALCULATION OF CREDITS TO BE ALLOCATED
The credit allocated to a participant's deferred savings
account for any incentive year is calculated by dividing the
actual dollar value of the deferred bonus for such year by the
average of the closing prices for Norfolk Southern Corporation
Common Stock on the New York Stock Exchange for all of the
trading days in December of such year. Such credits were
calculated to the nearest one hundredth of a credit.
However, solely at the discretion of the Compensation and
Nominating Committee, the calculation of all credits allocated
to the deferred savings account of a participant in active
service on January 1, 1987, may be changed from a credit based
on the price of Norfolk Southern Corporation Common Stock to a
cash credit. A one-time request for such a change in the method
of calculating credits may be made by the participant by March
16, 1987, and, if approved by the Compensation and Nominating
Committee, the balance of the participant's deferred savings
account as of February 28, 1987, including amounts deferred for
incentive year 1986, shall be converted to a cash credit based
on the New York Stock Exchange closing price for Norfolk
Southern Corporation Common Stock on February 27, 1987, and
shall thereafter accrue an amount equivalent to interest
(Interest), compounded annually, at the rate of fifteen percent
(15%).
All amounts deferred under this Plan are allocated to the
Norfolk Southern Corporation Officers' Deferred Compensation
Plan and are governed by the provisions thereof.
VIII. NATURE OF DEFERRED SAVINGS ACCOUNT
The deferred savings account is merely a bookkeeping
account maintained by Norfolk Southern Corporation for the
express purpose of recording a participating executive's deferred
bonus credits and determining the amounts payable by Norfolk
<PAGE> PAGE 112
EXHIBIT 10(b) PAGE 5 of 8
Southern Corporation under this Plan. The deferred savings
account for a participating executive shall not be deemed to
constitute either in whole or in part a trust fund for the
benefit of such participating executive.
IX. RESTRICTIONS ON DEFERRED SAVINGS ACCOUNT
The credits allocated to a participating executive's
deferred savings account under this Plan are restricted in that
they shall not be sold, assigned, transferred or pledged as
collateral for a loan or as security for the performance of any
other obligation or for any other purpose, or exchanged or
otherwise disposed of.
X. CHANGES IN CREDIT
Unless the Compensation and Nominating Committee has
changed the calculation of credit under Article VII to an amount
equivalent to Interest, if at any time a cash dividend is paid,
or if a stock dividend, a stock split, a combination or other
change occurs with respect to Norfolk Southern Corporation
Common Stock, the number of credits in a participant's deferred
savings account shall be increased or decreased so as to give
effect to such cash dividend, stock dividend, stock split,
combination or other change. Any such change shall be reflected
in each such account during the calendar year in which it
occurs. Any new or changed credits resulting therefrom shall be
calculated to the nearest one hundredth of a credit and shall be
subject to the restrictions and provisions set forth herein
applicable thereto.
XI. DISTRIBUTION WITH RESPECT TO DEFERRED CREDITS
During the first 10 years following a participant's
termination of employment, the credits in his deferred savings
account shall be periodically converted into cash, as provided
for below, and distributed to that participant, or to his
beneficiary as hereinafter defined, pursuant to the following
provisions. In any event, distribution of such cash to the
participant shall be completed by the end of the 10-year period.
For the purpose of this Plan a beneficiary shall be either
(1) the named beneficiary or beneficiaries designated as
hereinafter provided for by the participant, or (2) in the
absence of any such designation, including absence by revocation
of any previous designation, a legal representative of the
participant, duly appointed in the case of incompetency or death
of the participant. A participant may designate both primary and
<PAGE> PAGE 113
EXHIBIT 10(b) PAGE 6 of 8
contingent named beneficiaries. A participant may revoke or
change any designation. To be effective, the designation of a
named beneficiary or beneficiaries, or any change in or
revocation of any designation, must be on a form provided by
Norfolk Southern Corporation signed by the participant and filed
with the Office of the Executive Vice President-Administration,
Norfolk Southern Corporation, prior to the death of such
participant. Any such designation, change or revocation shall
be ineffective to invalidate any cash payment made or other
action taken by Norfolk Southern Corporation pursuant to this
Plan prior to the receipt of same by Norfolk Southern
Corporation. The determination by Norfolk Southern Corporation
of a beneficiary or beneficiaries, or the identity thereof, or
the rights of same, based on proof by affidavit or other written
evidence satisfactory to Norfolk Southern Corporation shall be
conclusive as to the liability of Norfolk Southern Corporation
and any payment made in accordance therewith shall discharge
Norfolk Southern Corporation of its obligation under this Plan
for such payment.
Norfolk Southern Corporation shall make a payment each
calendar month within the 10-year period to the participating
executive or his beneficiary, computed as follows:
Upon termination of employment, the number of credits in
the deferred savings account of such participant shall be
ascertained. Thereafter, there shall be added to such account
the number of additional credits, if any, due to be allocated
thereto as a result of any incentive bonus awarded such
participant for any incentive year, or portion of such year,
preceding termination of employment. Any change in credits
referred to in Article X occurring between such participant's
termination of employment and the end of the 10-year period will
be reflected in such account. Each monthly payment payable in
any calendar year shall be an amount equal to the number of
credits in such account as of January 1 that year, multiplied by
the average of the closing prices for Norfolk Southern
Corporation Common Stock on the New York Stock Exchange for all
of the days in December of the previous calendar year for which
there is a closing price, multiplied by a fraction the numerator
of which is "1" and the denominator of which is the number of
monthly payments remaining to be paid in the 10-year period as
of January 1 of the calendar year. The number of credits in
such account shall be reduced effective January 1 of each year
during the 10-year period by the credit equivalent of the
payments made during the previous year. However, in the event
the calculation of the credit allocated to the deferred savings
account of a participant is changed from a credit based on the
price of Norfolk Southern Corporation Common Stock to a cash
<PAGE> PAGE 114
EXHIBIT 10(b) PAGE 7 of 8
credit based on Interest, then the monthly payment shall be an
amount sufficient to amortize the participant's deferred savings
account together with Interest over the 10-year period.
If the deferred savings account on January 1 of the year
following termination contains a value as calculated above of
less than $10,000, the entire amount will be paid in full within
45 days in lieu of payment over a 10-year period as outlined in
the preceding paragraph.
XII. DISTRIBUTION IN CASE OF TERMINATION
The Board of Directors, in its sole discretion, may
authorize and direct Norfolk Southern Corporation to make
payments after termination of employment of a participant to
such participant or his beneficiary in a lump sum or over a
period other than that provided for in Article XI, and to charge
such payments against the participant's deferred savings
account. Such accelerated distribution may be made only (1) in
the event of a financial emergency which is beyond the control
of the participant if disallowance of the accelerated
distribution would result in severe financial hardship to the
participant or beneficiary, and only in an amount necessary to
satisfy the financial emergency, or (2) if in the written
opinion of counsel, payment in accordance with Article XI could
create a conflict of interest for the participant or his
beneficiary; provided, that all amounts due to the participant
or beneficiary under this Plan shall in all events be paid to
the participant or beneficiary by the end of the 10-year period
referred to in Article XI. No participant or beneficiary who is
also a member of the Board of Directors shall participate in any
decision of the Board to make accelerated payments under this
Article XII.
XIII. NO GUARANTEE OF CONTINUANCE OF EMPLOYMENT
Nothing contained in this Plan or in any designation of a
participating executive hereunder shall constitute or be deemed
to constitute any evidence of an agreement or obligation on the
part of Norfolk Southern Corporation or its affiliates to
continue to employ any such participating executive for any
period whatsoever.
XIV. AMENDMENT TO AND TERMINATION OF PLAN
Norfolk Southern Corporation reserves the right at any
time by a resolution duly adopted by its Board of Directors to
amend this Plan in any manner or to terminate it at any time, except
<PAGE> PAGE 115
EXHIBIT 10(b) PAGE 8 of 8
that no such amendment or termination shall deprive a
participant or his beneficiary of any rights hereunder
theretofore legally accrued, and no such termination shall be
effective for the year in which such resolution is adopted.
XV. RECALCULATION EVENTS
Norfolk Southern Corporation's commitment to accrue and
pay Interest as provided in Article VII is facilitated by the
purchase of corporate-owned life insurance. If the Compensation
and Nominating Committee, in its sole discretion, determines
that any change whatsoever in Federal, State or local law, or in
its application or interpretation, has materially affected, or
will materially affect, the ability of Norfolk Southern
Corporation to recover the cost of providing the benefits
otherwise payable under the Plan, then if the Compensation and
Nominating Committee so elects, a Recalculation Event shall be
deemed to have occurred. If a Recalculation Event occurs, then
Interest shall be recalculated and restated using a lower rate
of Interest determined by the Compensation and Nominating
Committee, but which shall be not less than seven and one-half
percent (7-1/2%).
PAGE 116
EXHIBIT 10(h) PAGE 1 of 5
EXCESS BENEFIT PLAN
OF
NORFOLK SOUTHERN CORPORATION
AND
PARTICIPATING SUBSIDIARY COMPANIES
(as amended January 1, 1989)
ARTICLE I. INTRODUCTION
--------- ------------
Norfolk Southern Corporation has established this Excess
Benefit Plan ("Plan") effective June 1, 1982, ("Effective
Date") to provide retirement benefits to eligible employees
in excess of those provided for by the Retirement Plan of
Norfolk Southern Corporation and Participating Subsidiary
Companies. This Plan is the successor to and supersedes, as
of the Effective Date, the following plans:
Excess Benefit Plan of Norfolk and Western Railway Company
Southern Railway System Supplemental Retirement Plan
Norfolk and Western Railway Company Executives Contingent
Compensation Plan Pension Resolution
ARTICLE II. DEFINITIONS
---------- -----------
NSC Norfolk Southern Corporation, a Virginia
corporation.
Pension The Pension Committee of the Board of Directors
Committee of NSC.
Retirement Retirement Plan of Norfolk Southern Corporation
Plan and Participating Subsidiary Companies.
Member A person entitled to participate in the
Retirement Plan.
Participating Each subsidiary or affiliated company of NSC
Subsidiary which is a Participating Subsidiary in the
Retirement Plan shall automatically
participate in the Plan.
Participant A Member of the Retirement Plan who is eligible
to participate under Article III.
<PAGE> PAGE 117
EXHIBIT 10(h) PAGE 2 of 5
Deferred Amounts the receipt of which a Participant
Compensation elects to defer under the:
Deferred Compensation Plan of Norfolk
and Western Railway Company
Southern Railway System Executive,
General or Middle Management Incentive
Plan
Norfolk Southern Corporation Management
Incentive Plan
Norfolk Southern Corporation Officers'
Deferred Compensation Plan
NW Pension Resolutions adopted by the Board of Directors of
Resolutions Norfolk and Western Railway Company at its
meetings held on January 23, 1968, June 24,
1969, November 25, 1969, January 26, 1971,
and April 23, 1974, authorizing the
respective payments of additional pension
benefits to five Members.
Average Final Compensation as defined in Article II of the
Compensation Retirement Plan.
ARTICLE III. ELIGIBILITY
----------- -----------
1. The following Members of the Retirement Plan shall be
eligible to participate in the Plan on or after the
Effective Date:
(a) Any Member of the Retirement Plan whose
benefit computed under Article VI of the
Retirement Plan without regard to the maximum
limitation on benefits imposed by Section 415 of
the Internal Revenue Code exceeds such maximum
limitation on benefits;
(b) Any Member of the Retirement Plan whose
benefit computed under Article VI of the
Retirement Plan disregards amounts of Deferred
Compensation in the computation of his Average
Final Compensation;
(c) Any Member of the Retirement Plan entitled to
receive a pension benefit, in excess of the
benefit computed under the provisions of the
Retirement Plan, pursuant to an NW Pension
Resolution;
<PAGE> PAGE 118
EXHIBIT 10(h) PAGE 3 of 5
(d) Any Member of the Retirement Plan entitled to
receive a pension benefit, in excess of the
benefit computed under the provisions of the
Retirement Plan, pursuant to a resolution adopted
by the Board of Directors of NSC;
(e) Any Member of the Retirement Plan whose
Compensation exceeds the limitation contained in
Section 401(a)(17) of the Internal Revenue Code; or
(f) Any Member protected by the Pension Benefits
Standard Act of Canada whose benefit computed
under Article VI of the Retirement Plan exceeds
$60,000.
2. Any participant of the Excess Benefit Plan of Norfolk and
Western Railway Company or the Southern Railway System
Supplemental Retirement Plan or any individual covered
by the Norfolk and Western Railway Company Executive
Contingent Compensation Plan Pension Resolution, dated
September 24, 1968, shall become a Participant on the
Effective Date.
ARTICLE IV. EXCESS BENEFIT
---------- --------------
1. A Participant shall, upon retirement under the Retirement
Plan, be entitled to receive a monthly benefit equal
to the excess of
(a) The monthly benefit under Article VI of the
Retirement Plan if such benefit had been computed
(i) Without regard to the limitation
imposed by Section 415 of the Internal
Revenue Code and provided for in Section 1
of Article VII of the Retirement Plan;
(ii) Without regard to the limitation
of Compensation imposed by Section
401(a)(17) of the Internal Revenue Code;
(iii) Without regard to the $60,000 limitation on
benefits payable to Members protected by the
Pension Benefits Standard Act of Canada;
(iv) By including in the calculation of Average
Monthly Final Compensation amounts of Deferred
Compensation, if any; and
<PAGE> PAGE 119
EXHIBIT 10(h) PAGE 4 of 5
(v) By including service credits and applying
any offsets provided for under any NW Pension
Resolution, if any, over
(b) The monthly benefit actually payable under
the Retirement Plan.
2. A Participant shall, upon retirement under the Retirement
Plan, be entitled to receive a monthly benefit, in
excess of the benefit otherwise payable under the
Retirement Plan and in addition to any amount payable
pursuant to Section 1 of this Article IV, in an amount
so provided by a resolution adopted by the Board of
Directors of NSC, if any.
3. Any survivorship option which has been elected or is in
force under Article VIII of the Retirement Plan at the
time of a Participant's death shall be deemed to have
been elected or be in force under this Plan.
4. The payment of excess benefits under the Plan shall be made
in a manner consistent with the provisions of the
Retirement Plan, and shall continue for the same period
of time.
ARTICLE V. FUNDING
--------- -------
The benefits under the Plan shall be paid in cash from the
general funds of NSC or its Participating Subsidiary, and no special
or separate fund shall be established or other segregation of assets
made to assure such payments. Nothing contained in the Plan shall
create or be construed to create a trust of any kind. To the extent
that any person acquires a right to receive payments under the terms
of the Plan, such right shall be no greater than the right of an
unsecured creditor of NSC or its Participating Subsidiary.
ARTICLE VI. ADMINISTRATION
---------- --------------
1. The Plan shall be administered by the Pension Committee,
which is composed of three or more NSC directors
appointed by the NSC Board who are not eligible to
participate in the Plan and who shall serve at the
pleasure of the Board. Each member of the Pension
Committee, while serving as such, shall be considered
to be acting in his capacity as a director of NSC.
<PAGE> PAGE 120
EXHIBIT 10(h) PAGE 5 of 5
2. The Pension Committee shall from time to time adopt rules
and regulations determined to be necessary to insure
the effective implementation of the Plan.
3. The Pension Committee shall have the power to interpret the
Plan. Any disputed question arising under the Plan,
including questions of construction and interpretation,
shall be determined conclusively and finally by the
Pension Committee.
ARTICLE VII. RIGHTS AND RESTRICTIONS
----------- -----------------------
1. Participants in the Plan shall have only those rights in
respect of the Plan specifically set forth herein.
2. This Plan shall not be deemed to constitute a contract
between NSC or any Participating Company and any
Participant or surviving spouse of a deceased
Participant, nor shall it be construed to be
consideration for or an inducement or condition of the
employment of any Participant. Nothing contained
herein shall be deemed to give any Participant the
right to continued employment.
3. Benefits payable hereunder shall not be subject in any
manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any
attempt to accomplish any of these mentioned acts shall
be void. Benefits shall not be subjected to attachment
or other legal process or debts of the retired
Participant or surviving spouse.
ARTICLE VIII. AMENDMENTS AND TERMINATIONS
------------ ---------------------------
The Board or Directors of NSC, in its sole
discretion, may at any time modify or amend any provisions
of the Plan or may suspend or terminate the Plan, in whole
or in part, but no such action shall retroactively impair
or otherwise adversely affect the rights of any person to
benefits under the Plan which have accrued prior to the
date of such action, as determined by the Pension
Committee.
<PAGE> PAGE 121
<TABLE>
EXHIBIT 11 PAGE 1 of 4
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Computation for Statements of Income
------------------------------------
Income before cumulative effects of
changes in accounting principles $ 667.8 $ 548.7 $ 557.7
-------- -------- --------
Cumulative effects of changes in
accounting principles -- 223.3 --
-------- -------- --------
Weighted average number of shares
outstanding 136.3 139.4 141.5
-------- -------- --------
Primary earnings per share:
Income before accounting changes $ 4.90 $ 3.94 $ 3.94
Cumulative effects of accounting
changes -- 1.60 --
-------- -------- --------
Net income $ 4.90 $ 5.54 $ 3.94
======== ======== ========
Additional Primary Computation
------------------------------
Income before cumulative effects of
changes in accounting principles $ 667.8 $ 548.7 $ 557.7
-------- -------- --------
Cumulative effects of changes in
accounting principles -- 223.3 --
Adjustment to weighted average number
of shares outstanding:
Weighted average number of shares
outstanding per primary
computation above 136.3 139.4 141.5
Dilutive effect of outstanding
options, stock appreciation
rights (SARs) and performance
share units (PSUs) (as determined
by the application of the
treasury stock method) (1) 1.1 1.2 1.1
-------- -------- --------
Weighted average number of
shares outstanding, as
adjusted 137.4 140.6 142.6
======== ======== ========
</TABLE>
<PAGE> PAGE 122
<TABLE>
EXHIBIT 11 PAGE 2 of 4
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Primary earnings per share,
as adjusted (2):
Income before accounting changes $ 4.86 $ 3.90 $ 3.91
Cumulative effects of accounting
changes -- 1.59 --
-------- -------- --------
Net income $ 4.86 $ 5.49 $ 3.91
======== ======== ========
(1) See Note 12 of Notes to Consolidated Financial Statements on page 69
for a description of the Long-Term Incentive Plan.
(2) These calculations are submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because they result in dilution of less than
3 percent.
</TABLE>
<PAGE> PAGE 123
<TABLE>
EXHIBIT 11 PAGE 3 of 4
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Fully Diluted Computation
-------------------------
Income before cumulative effects
of changes in accounting
principles, per primary
computation $ 667.8 $ 548.7 $ 557.7
Adjustment to increase earnings
to requisite level to earn
maximum PSUs, net of tax effect 93.0 162.1 167.9
-------- -------- --------
Income before cumulative effects,
as adjusted 760.8 710.8 725.6
Cumulative effects of changes in
accounting principles -- 223.3 --
-------- -------- --------
Net income, as adjusted $ 760.8 $ 934.1 $ 725.6
======== ======== ========
Adjustment to weighted average
number of shares outstanding, as
adjusted for additional primary
calculation:
Weighted average number of
shares outstanding, as
adjusted per additional
primary computation on page 1 137.4 140.6 142.6
Additional dilutive effect of
outstanding options and SARs
(as determined by the
application of the treasury
stock method using period
end market price) -- 0.2 --
Additional shares issuable at
maximum level for PSUs 0.1 0.2 0.2
-------- -------- --------
Weighted average number of
shares, as adjusted 137.5 141.0 142.8
-------- -------- --------
</TABLE>
<PAGE> PAGE 124
<TABLE>
EXHIBIT 11 PAGE 4 of 4
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Fully diluted earnings per share (3):
Income before accounting changes $ 5.53 $ 5.04 $ 5.08
Cumulative effects of accounting
changes -- 1.58 --
-------- -------- --------
Net income $ 5.53 $ 6.62 $ 5.08
======== ======== =======
(3) These calculations are submitted in accordance with Regulation S-K
item 601(b)(11) although they are contrary to paragraph 40 of APB
Opinion No. 15 because they produce an anti-dilutive result.
</TABLE>
<PAGE> PAGE 125
<TABLE>
EXHIBIT 12 PAGE 1 of 1
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
<CAPTION>
Year ended December 31
-----------------------------------------------
1994 1993 1992 1991 (1) 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before income
taxes as reported $1,049.0 $ 898.6 $ 875.3 $ 143.6 $ 875.4
Add:
Total interest expenses
(as detailed below) 159.9 160.7 161.6 151.4 121.4
Income (loss) of
partially owned
entities (2) 0.6 (2.6) 2.0 1.3 0.8
Subsidiaries' preferred
dividend requirement 2.7 2.7 2.7 3.3 3.2
-------- -------- -------- -------- --------
Income before income
taxes, as adjusted $1,212.2 $1,059.4 $1,041.6 $ 299.6 $1,000.8
======== ======== ======== ======== ========
FIXED CHARGES
Interest expense on debt $ 101.6 $ 98.6 $ 109.0 $ 99.7 $ 78.0
Other interest expense 31.8 38.7 33.0 34.8 26.6
Calculated interest
portion of rent expense 26.5 23.4 19.6 16.9 16.8
-------- -------- -------- -------- --------
Total interest
expenses 159.9 160.7 161.6 151.4 121.4
Capitalized interest 17.8 21.7 17.9 19.3 17.8
Subsidiaries' preferred
dividend requirement
on a pretax basis 4.2 4.3 4.2 4.9 5.2
-------- -------- -------- -------- --------
Total fixed charges $ 181.9 $ 186.7 $ 183.7 $ 175.6 $ 144.4
======== ======== ======== ======== ========
RATIO OF EARNINGS TO
FIXED CHARGES 6.66 5.67 5.67 1.71(1) 6.93
(1) Included in 1991 results is a special charge that increased
transportation operating expenses by $680 million.
(2) Includes the distributed income of 20%-49% owned entities, net of
equity recorded in undistributed income and the minority income of
consolidated entities which have fixed charges.
The computations do not include $0.3 million of interest expense related
to $7.8 million of debt guaranteed for a less than 50% owned entity.
</TABLE>
<PAGE> PAGE 126
EXHIBIT 21 PAGE 1 of 3
NAME AND STATE OF INCORPORATION OF SUBSIDIARIES
OF NORFOLK SOUTHERN CORPORATION
AS OF MARCH 1, 1995
Agency Media Services, Inc., Indiana
Atlantic Investment Company, Delaware
Lamberts Point Barge Company, Inc., Virginia
Norfolk Southern Properties, Inc., Virginia
Norfolk Southern Railway Company, Virginia
North American Van Lines, Inc., Delaware
NS Crown Services, Inc., Virginia
NS Fiber Optics, Inc., Virginia
NS Transportation Brokerage Corporation, Virginia
Pocahontas Development Corporation, Kentucky
Pocahontas Land Corporation, Virginia
TCS Leasing, Inc., Oklahoma
Norfolk Southern Railway Company subsidiaries:
Airforce Pipeline, Inc., North Carolina
Alabama Great Southern Railroad Company, The; Alabama
Atlanta and Charlotte Air Line Railway Company, The; Georgia,
North Carolina, South Carolina
Atlantic and East Carolina Railway Company, North Carolina
Camp Lejeune Railroad Company, North Carolina
Central of Georgia Railroad Company, Georgia
Chesapeake Western Railway, Virginia
Cincinnati, New Orleans and Texas Pacific Railway Company, The;
Ohio
Citico Realty Company, Virginia
Elberton Southern Railway Company, Georgia
Georgia Midland Railway Company, The; Georgia
Georgia Southern and Florida Railway Company, Georgia
High Point, Randleman, Asheboro and Southern Railroad
Company, North Carolina
Interstate Railroad Company, Virginia
Memphis and Charleston Railway Company, Mississippi
Mobile and Birmingham Railroad Company, Alabama
Norfolk and Portsmouth Belt Line Railroad Company, Virginia
Norfolk and Western Railway Company, Virginia
North Carolina Midland Railroad Company, The; North Carolina
Rail Investment Company, Delaware
Richmond-Washington Company, Delaware
Shenandoah-Virginia Corporation, Virginia
South Western Rail Road Company, The; Georgia
<PAGE> PAGE 127
EXHIBIT 21 PAGE 2 of 3
Southern Rail Terminals, Inc., Georgia
Southern Rail Terminals of North Carolina, Inc., North Carolina
Southern Railway-Carolina Division, South Carolina
Southern Region Coal Transport, Inc., Alabama
Southern Region Materials Supply, Inc., Georgia
Southern Region Motor Transport, Inc., Georgia
State University Railroad Company, North Carolina
Tennessee, Alabama & Georgia Railway Company, Delaware
Tennessee Railway Company, Tennessee
Toledo Belt Railway Company, The; Ohio
Virginia and Southwestern Railway Company, Virginia
Yadkin Railroad Company, North Carolina
Norfolk Southern Properties, Inc. subsidiaries:
Alexandria-Southern Properties, Inc., Virginia
Arrowood-Southern Company, North Carolina
Arrowood Southern Executive Park, Inc., North Carolina
Carlyle CA Corporation, Virginia
Carlyle Development Corporation, Virginia
Charlotte-Southern Corporation, North Carolina
Charlotte-Southern Hotel Corporation, North Carolina
Lambert's Point Docks, Incorporated, Virginia
NS-Charlotte Tower Corporation, North Carolina
Nickel Plate Improvement Company, Inc., The; Indiana
Norfolk Southern Industrial Development Corp., Virginia
Sandusky Dock Corporation, Virginia
Southern Region Industrial Realty, Inc., Georgia
Virginia Holding Corporation, Virginia
North American Van Lines, Inc. domestic subsidiaries:
A Five Star Forwarding, Inc., Delaware
A Three Rivers Forwarding, Inc., Indiana
Alaska USA Van Lines, Inc., Indiana
Americas Quality Van Lines, Inc., Indiana
City Storage & Transfer, Inc., Colorado
Fleet Insurance Management, Inc., Indiana
FrontRunner Worldwide, Inc., Delaware
Great Falls North American, Inc., Montana
NACAL, Inc., California
NALOG, Inc., Delaware
NAVTRANS Container Lines, Inc., Florida
NAVTRANS International Freight Forwarding, Inc., Indiana
NorAm Forwarding, Inc., Indiana
North American Distribution Systems, Inc., Indiana
North American Forwarding, Inc., Indiana
North American Logistics, Ltd., Indiana
<PAGE> PAGE 128
EXHIBIT 21 PAGE 3 of 3
North American Moving & Storage, Inc., Indiana
North American Transport Insurance Company, Indiana
North American Van Lines of Texas, Inc., Texas
Relocation Management Systems, Inc., Delaware
North American Van Lines, Inc. foreign subsidiaries:
Cavalier Moving & Storage Co. Ltd., Canada
Cold Lake Moving & Storage Ltd., Alberta
Curry Moving & Storage Ltd., Ontario
Midi-Data Speditions GmbH, Germany
NAVPAN, S.A., Panama
NAVTRANS International Speditions GmbH, Germany
North American Van Lines Ltd., United Kingdom
North American Van Lines Canada Ltd., Canada
North American Van Lines (Alberta) Ltd., Alberta
North American Van Lines (Atlantic) Ltd., Nova Scotia
Star Storage Ltd., Manitoba
Tru-Flite Transportation Systems Inc., Canada
Westlake Moving & Storage, Ltd., Ontario
Westmount Moving & Storage, Inc. (Demanagement Et
Entreposage Westmount), Quebec
153843 Canada Inc., Canada
Note: Of the above subsidiaries, only Norfolk Southern Railway
Company and Norfolk and Western Railway Company meet the
Commission's "significant subsidiary" test.
<PAGE> PAGE 129
EXHIBIT 23 PAGE 1 of 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Norfolk Southern Corporation:
We consent to incorporation by reference in Registration Statements
Nos. 33-44188, 33-30157, 33-556, 33-25713, 33-52031, and 33-57417 on
Form S-8 and Registration Statement No. 33-38595 on Form S-3 of
Norfolk Southern Corporation of our report dated January 24, 1995,
relating to the consolidated balance sheets of Norfolk Southern
Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, changes in
stockholders' equity, and cash flows and the related consolidated
financial statement schedule for each of the years in the three-
year period ended December 31, 1994, which report appears in the
December 31, 1994 annual report on Form 10-K405 of Norfolk Southern
Corporation. Our report refers to changes in accounting methods
related to income taxes, postretirement benefits and postemployment
benefits.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
March 28, 1995
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