UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
( ) 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 (IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia 23510-2191
- ---------------------------------------- -------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (804) 629-2680
------------------
No Change
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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. (X) Yes ( ) No
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the last practicable date:
Class Outstanding as of April 30, 1995
----- --------------------------------
Common Stock (par value $1.00) 131,978,551 shares (excluding
7,252,634 shares held by
registrant's consolidated
subsidiaries)
<PAGE> PAGE 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
INDEX
Page
----
Part I. Financial Information:
Item 1. Consolidated Statements of Income
Three Months Ended March 31, 1995 and 1994 3
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PartII. Other Information:
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Index to Exhibits 14
<PAGE> PAGE 3
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In millions of dollars except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
--------- ---------
<S> <C> <C>
TRANSPORTATION OPERATING REVENUES:
Railway:
Coal $ 300.3 $ 304.9
Merchandise 670.2 609.4
Other 28.7 28.0
--------- --------
Total railway 999.2 942.3
Motor carrier 139.5 134.5
--------- --------
Total transportation operating revenues 1,138.7 1,076.8
--------- --------
TRANSPORTATION OPERATING EXPENSES:
Railway:
Compensation and benefits 375.3 351.4
Materials, services and rents 163.1 161.0
Depreciation 94.4 93.3
Diesel fuel 48.7 45.7
Casualties and other claims 32.2 29.1
Other 35.5 37.5
--------- --------
Total railway 749.2 718.0
Motor carrier 140.4 136.5
--------- --------
Total transportation operating expenses 889.6 854.5
--------- --------
Income from operations 249.1 222.3
Other income (expense):
Interest income 6.2 5.7
Interest expense on debt (28.3) (23.7)
Other - net 49.5 21.0
--------- --------
Total other income 27.4 3.0
--------- --------
Income before income taxes 276.5 225.3
Provision for income taxes 105.8 80.4
--------- --------
NET INCOME $ 170.7 $ 144.9
========= ========
Per share amounts (Note 5):
Net income $ 1.29 $ 1.05
Dividends 0.52 0.48
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 4
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
(Unaudited)
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 117.9 $ 57.0
Short-term investments 224.0 249.7
Accounts receivable - net 708.7 726.6
Materials and supplies 67.0 61.9
Deferred income taxes 132.9 137.0
Other current assets 101.5 105.3
--------- ---------
Total current assets 1,352.0 1,337.5
Investments 199.8 172.8
Properties less accumulated depreciation 9,158.7 8,987.1
Other assets 89.4 90.4
--------- ---------
TOTAL ASSETS $10,799.9 $10,587.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 42.1 $ 44.9
Accounts payable 674.1 704.1
Income and other taxes 250.7 168.5
Other current liabilities 145.7 142.3
Current maturities of long-term debt (Note 3) 70.2 72.0
--------- ---------
Total current liabilities 1,182.8 1,131.8
Long-term debt (Note 3) 1,635.1 1,547.8
Other liabilities 977.7 961.9
Minority interests 52.9 53.5
Deferred income taxes 2,218.0 2,208.0
--------- ---------
TOTAL LIABILITIES 6,066.5 5,903.0
--------- ---------
Stockholders' equity:
Common stock $1.00 per share par value 139.5 140.4
Other capital 419.0 410.4
Retained income 4,195.5 4,154.6
Less treasury stock at cost, 7,252,634 shares (20.6) (20.6)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,733.4 4,684.8
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,799.9 $10,587.8
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 5
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 170.7 $ 144.9
Reconciliation of net income to net cash
provided by operating activities:
Special charge payments (2.8) (23.8)
Depreciation 101.0 100.2
Deferred income taxes 12.7 3.3
Nonoperating gains and losses on properties
and investments (40.8) (4.8)
Changes in assets and liabilities affecting
operations:
Accounts receivable 22.9 (8.6)
Materials and supplies (5.1) (2.1)
Other current assets 3.8 (1.1)
Current liabilities other than debt 68.3 22.6
Other - net 8.2 (7.1)
------- -------
Net cash provided by operating activities 338.9 223.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 3) (183.2) (190.9)
Property sales and other transactions 31.4 33.1
Investments and loans (24.3) (19.2)
Investment sales and other transactions 23.8 34.9
Short-term investments - net 27.7 65.7
------- -------
Net cash used for investing activities (124.6) (76.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (69.0) (66.3)
Common stock issued - net 1.9 8.0
Purchase and retirement of common stock (71.9) (44.3)
Proceeds from long-term borrowings 7.6 --
Debt repayments (22.0) (17.3)
------- -------
Net cash used for financing activities (153.4) (119.9)
------- -------
Net increase in cash and cash equivalents 60.9 27.2
CASH AND CASH EQUIVALENTS:*
At beginning of year 57.0 80.5
------- -------
At end of period $ 117.9 $ 107.7
======= =======
- --------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 39.7 $ 37.7
Income taxes $ 3.7 $ 7.5
* Cash equivalents are highly liquid investments purchased three months or
less from maturity.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 6
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position as of March 31, 1995, and the results of operations and cash
flows for the three months ended March 31, 1995 and 1994.
While Management believes that the disclosures presented are adequate
to make the information not misleading, these consolidated financial
statements should be read in conjunction with the financial
statements and notes included in the Corporation's latest Annual
Report on Form 10-K.
2. Contingencies
There have been no significant changes since year end 1994 in the
matters as discussed in NOTE 17, CONTINGENCIES, appearing in the NS
Annual Report on Form 10-K for 1994, Notes to Consolidated Financial
Statements, beginning on page 72.
3. Capital Leases
During the first quarter of 1995, an NS rail subsidiary entered into
capital leases covering 114 new locomotives having a total cost of
$134.9 million. The related capital lease obligations totaling
$104.5 million were reflected in the Consolidated Balance Sheet as
debt and, because they were non-cash transactions, were excluded from
the Consolidated Statement of Cash Flows. The lease obligations
carry stated interest rates between 8.23 percent and 8.60 percent but
were converted to variable rate obligations using interest rate swap
agreements. The interest rates on these obligations are based on the
six-month London Interbank Offered Rate, plus 35 basis points, and
will be reset every six months with realized gains or losses
accounted for as an adjustment of interest expense over the terms of
the leases.
4. Stock Purchase Programs
Since 1987, the Board of Directors has authorized the purchase and
retirement of up to 65 million shares of NS common stock. Purchases
under the programs have been made with a combination of internally
generated cash and through the issuance of debt. Since the first
purchases in December 1987 through March 31, 1995, NS has purchased
and retired 60,205,100 shares of its common stock under these
programs at a cost of approximately $2.6 billion. Future purchases
are dependent on market conditions, the economy, cash needs and
alternative investment opportunities.
<PAGE> PAGE 7
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings Per Share
<TABLE>
"Earnings per share" is computed by dividing net income by the
weighted average number of common shares outstanding as follows:
<CAPTION>
Three Months Ended
March 31,
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Average number of shares outstanding 132,494 138,159
</TABLE>
Recent decreases in the average number of outstanding shares of NS
common stock are the result of the stock purchase program described
in Note 4.
<PAGE> PAGE 8
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net Income
- ----------
"Net income" increased $25.8 million, or 18 percent, in the first quarter
of 1995, compared with the same period last year. This represents NS'
best first-quarter net income and reflects improved income from railway
operations of $25.7 million and from nonoperating sources of
$24.4 million.
<TABLE>
Railway Operating Revenues
- --------------------------
First-quarter "Railway operating revenues" increased $56.9 million, or
6 percent, compared with the same period last year.
This change in operating revenues was due to:
<CAPTION>
First Quarter
1995 vs. 1994
Increase (Decrease)
------------------
(In millions of dollars)
<S> <C>
Traffic volume (carloads) $ 87.8
Revenue per unit/mix (31.6)
Other 0.7
-------
$ 56.9
=======
</TABLE>
<TABLE>
The principal revenue commodity groups and changes from the prior year
were as follows:
<CAPTION>
First Quarter
1995 vs. 1994
Increase (Decrease)
------------------
(In millions of dollars)
<S> <C>
Coal $ (4.6)
Merchandise:
Intermodal 17.5
Metals/construction 12.0
Automotive 11.9
Chemicals 8.7
Paper/forest 7.4
Agriculture 3.3
Other, principally switching
and demurrage 0.7
-------
$ 56.9
=======
</TABLE>
<PAGE> PAGE 9
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Coal
- ----
The decline in coal revenues compared with last year was attributable to
a weather-related decrease in long-haul utility coal shipments and
continued weakness in export coal. Severe winter weather in the first
quarter of 1994 created high demand for utility coal, while this year's
mild weather resulted in much lower burn rates at utilities served by NS.
The decline in long-haul traffic was partially offset by an increase in
short-haul utility business, including NS' new COLTainer rail-truck
service. The overall comparative weakness in utility coal traffic was
somewhat mitigated by increased movements of metallurgical coal. Higher
metallurgical traffic is largely due to the return to service of certain
facilities which were experiencing downtime last year.
Looking ahead, the utility coal market in 1995 is expected to recover
slowly with the return of more seasonal weather patterns and
temperatures. However, most of the gain is not expected to occur until
the second half of the year due to high utility stockpiles. The export
coal market is expected to be mixed, with lower rates offsetting
increased demand, although some improvement over 1994's depressed results
is expected.
Merchandise
- -----------
All merchandise commodity groups showed improvement over last year's
first quarter, as overall merchandise traffic volume was up 12 percent.
The largest increase was in intermodal, with revenues up 18 percent on a
23 percent increase in traffic. Intermodal, which has been NS' fastest
growing line of business in 1995, is expected to continue to expand as
additional business is shifted from trucks, and capacity improvements
generate growth from existing sources. The metals/construction and
automotive groups also posted strong first-quarter gains, compared with
last year, with revenues up 17 percent and 11 percent, respectively.
Both groups benefited from an overall improvement in the economy, with
metals/construction also gaining from new production facilities coming
on-line. Revenues from metals/construction traffic are expected to
continue ahead of last year, as growth is projected in construction and
steel output. Automotive volume and revenues are expected to decline
somewhat due to lower production and planned retooling downtime.
Railway Operating Expenses
- --------------------------
First-quarter "Railway operating expenses" increased $31.2 million, or
4 percent, compared with the same period last year. The largest increase
was in "Compensation and benefits" which was up $23.9 million, or
7 percent. The higher labor costs were partly due to the 10 percent
increase in total rail traffic. Other factors were: (1) a 4 percent wage
increase, effective July 1, 1994, for agreement employees; (2) higher
health care costs for agreement employees due to the absorption last year
of the cash surplus in a multi-railroad insurance fund; and (3) increased
accruals for stock-based compensation, a result of the rise in the NS
stock price during the first quarter of 1995. "Casualties and other
claims" increased $3.1 million, or 11 percent, over expenses in the
<PAGE> PAGE 10
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
first quarter of 1994, which were unusually low due to favorable development
experience related to claims filed in past years. "Diesel fuel" expenses
were up $3.0 million, or 7 percent, largely due to higher consumption
related to increased traffic. "Other expenses" declined $2.0 million, or
5 percent, due to lower employee moving expenses which had been unusually
high in the first quarter of 1994 due to the early retirement program in
the fall of 1993.
Motor Carrier Operating Revenues
- --------------------------------
First-quarter "Motor carrier operating revenues" increased $5.0 million,
or 4 percent, compared with the same period last year, with all of the
increase attributable to the High Value Products (HVP) Division.
Motor Carrier Operating Expenses
- --------------------------------
"Motor carrier operating expenses" rose $3.9 million, or 3 percent,
compared with the same period last year, principally due to volume-
related expense increases in the HVP Division.
Other Income (Expense)
- ----------------------
"Other income (expense)" was up $24.4 million over first quarter 1994,
due to a $30.5 million ($18.8 million after-tax) gain (mostly non-cash)
resulting from the partial redemption of a real estate partnership
interest. "Interest income" was up $0.5 million, or 9 percent, due to
higher invested cash balances. "Interest expense on debt" increased
$4.6 million, or 19 percent, mainly due to higher rates on commercial
paper debt.
Income Taxes
- ------------
The "Provision for income taxes" in first quarter 1995 totaled
$105.8 million, for an effective rate of 38.3 percent, compared with an
effective rate of 35.7 percent last year. The lower effective rate in
first quarter 1994 was due to an adjustment in federal income tax reserves
related to prior years.
<TABLE>
FINANCIAL CONDITION AND LIQUIDITY
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
(Dollars in millions)
<S> <C> <C>
Cash and short-term investments $341.9 $306.7
Working capital $169.2 $205.7
Current ratio 1.1 1.2
Debt to total capitalization 27.0% 26.2%
</TABLE>
<PAGE> PAGE 11
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
CASH FLOWS FROM OPERATING ACTIVITIES are NS' principal source of
liquidity and were sufficient to cover cash outflows for dividends, debt
repayments and capital spending (see Consolidated Statements of Cash
Flows on page 5). The increase in cash provided by operating activities
compared with first quarter 1994 was primarily due to higher income from
operations and to lower special charge payments.
CASH FLOWS FROM INVESTING ACTIVITIES were affected principally by
capital spending for property additions, which in first quarter 1995
included approximately $30 million related to locomotives under capital
leases (see Note 3). "Property sales and other transactions" primarily
reflects proceeds from dispositions of nonoperating property.
"Investments and loans" consists primarily of premium payments related
to corporate-owned life insurance (COLI), while "Investment sales and
other transactions" principally reflects borrowing on COLI.
CASH FLOWS FROM FINANCING ACTIVITIES in the first quarter of 1995
primarily reflects uses of cash with the largest amount having been
spent on the stock purchase program (see Note 4). "Proceeds from long-
term borrowings" represents amounts received in connection with capital
lease transactions entered into during the first quarter (see Note 3).
<PAGE> PAGE 12
PART II - OTHER INFORMATION
----------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Computation of Per Share Earnings
Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months
ended March 31, 1995.
<PAGE> PAGE 13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NORFOLK SOUTHERN CORPORATION
-----------------------------------------
(Registrant)
Date: May 10, 1995 /s/ Dezora M. Martin
------------------- -----------------------------------------
Dezora M. Martin
Corporate Secretary (Signature)
Date: May 10, 1995 /s/ John P. Rathbone
------------------- -----------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
<PAGE> PAGE 14
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Electronic
Submission
Exhibit
Number Description Page Number
- ----------- ----------------------------------------- -----------
11 Statement re Computation of Per Share
Earnings 15-16
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). 17
<PAGE> PAGE 15
<TABLE>
EXHIBIT 11, Page 1 of 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except per share amounts)
<CAPTION>
Three Months Ended
March 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
COMPUTATION FOR STATEMENTS OF INCOME
Income before cumulative effects of
changes in accounting principles $ 170.7 $ 144.9
------- -------
Weighted average number of shares outstanding 132.5 138.2
------- -------
Primary earnings per share $ 1.29 $ 1.05
======= =======
ADDITIONAL PRIMARY COMPUTATION
Net income per statements of income $ 170.7 $ 144.9
------- -------
Adjustment to weighted average number
of shares outstanding:
Weighted average number of shares outstanding
per primary computation above 132.5 138.2
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) 1.2 1.3
------- -------
Weighted average number of shares
outstanding, as adjusted 133.7 139.5
======= =======
Primary earnings per share, as adjusted(2): $ 1.28 $ 1.04
======= =======
(1) See Note 12 of Notes to Consolidated Financial Statements in Norfolk
Southern's 1994 Annual Report on Form 10-K 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 16
<TABLE>
EXHIBIT 11, Page 2 of 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except per share amounts)
<CAPTION>
Three Months Ended
March 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
FULLY DILUTED COMPUTATION
Net income per statements of income $ 170.7 $ 144.9
Adjustment to increase earnings to requisite
level to earn maximum PSUs, net of tax effect 12.4 21.7
------- -------
Net income, as adjusted $ 183.1 $ 166.6
======= =======
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 1 133.7 139.5
Additional dilutive effect of outstanding
options and SARs (as determined by
the application of the treasury stock
method using period end market price) 0.1 --
Additional shares issuable at maximum
level for PSUs 0.1 0.1
------- -------
Weighted average number of
shares, as adjusted 133.9 139.6
======= =======
Fully diluted earnings per share(3): $ 1.37 $ 1.19
======= =======
(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 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> $ 118
<SECURITIES> 224
<RECEIVABLES> 729
<ALLOWANCES> 20
<INVENTORY> 67
<CURRENT-ASSETS> 1,352
<PP&E> 13,409
<DEPRECIATION> 4,250
<TOTAL-ASSETS> 10,800
<CURRENT-LIABILITIES> 1,183
<BONDS> 1,635
<COMMON> 140
0
0
<OTHER-SE> 419
<TOTAL-LIABILITY-AND-EQUITY> 10,800
<SALES> 0
<TOTAL-REVENUES> 1,139
<CGS> 0
<TOTAL-COSTS> 890
<OTHER-EXPENSES> (56)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 277
<INCOME-TAX> 106
<INCOME-CONTINUING> 171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 0
</TABLE>
