PAGE 1
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, 1995.
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 29, 1996: $10,445,649,457
The number of shares outstanding of each of the registrant's classes
of common stock, as of February 29, 1996: 128,175,173 (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 1, 1996) 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 22
4. Submission of Matters to a Vote of Security
Holders 22
Executive Officers of the Registrant 23
Part II 5. Market for Registrant's Common Stock and
Related Stockholder Matters 27
6. Selected Financial Data 28
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 35
8. Financial Statements and Supplementary Data 50
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 77
Part III 10. Directors and Executive Officers of the
Registrant 77
11. Executive Compensation 77
12. Security Ownership of Certain Beneficial
Owners and Management 77
13. Certain Relationships and Related
Transactions 77
Part IV 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K 78
Index to Consolidated Financial Statement
Schedule 78
Power of Attorney 82
Signatures 82
Exhibit Index 86
<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 29, 1996, 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 12 percent of its
voting preferred stock (resulting in 94.6 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. During 1993, NAVL underwent a restructuring (see discussion
on page 6 and in Note 15 of Notes to Consolidated Financial Statements
on page 73) 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, 1995, NS'
railroads operated more than 14,500 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, 12,208 miles are owned with the balance operated under
lease or trackage rights; most of this total are main line track.
In addition, NS' railroads operate approximately 11,000 miles of
passing, industrial, yard and side tracks.
<PAGE> PAGE 5
NS' railroads have major leased lines between Cincinnati,
Ohio, and Chattanooga, Tennessee, and in the State of North
Carolina.
The Cincinnati-Chattanooga lease, covering about 335
miles, expires in 2026, and is subject to an option to extend the
lease for an additional 25 years, at terms to be agreed upon.
The North Carolina leases, covering approximately
330 miles, expired by their terms at the end of 1994. Following
extensive negotiations, the terms of renewal contained in a Lease
Extension Agreement were approved by the respective parties' boards
of directors in August 1995, and, subject to a court challenge as to
the presence of the required quorum of private stockholders ("Quorum
Challenge"), by the stockholders of North Carolina Railroad Company
(NCRR) at their meeting in December. Also, certain NCRR
stockholders earlier had filed four separate, and still-pending,
derivative actions challenging the adequacy of the new rental terms,
which provide for an annual rental of $8.0 million in 1995, with
adjustments for inflation in each of the succeeding years of the
lease. Pending resolution of the Quorum Challenge, NS' railroads
continue to operate over NCRR lines under the rental terms contained
in the Lease Extension Agreement. If the Quorum Challenge is
successful, and if the NCRR is unable to obtain stockholder approval
of the Lease Extension Agreement at a subsequent meeting, NS'
railroads could be required to operate over these NCRR lines under
conditions prescribed by regulatory authority, or they might operate
over one or more alternate routes. Whatever the ultimate resolution
of this matter, it is not expected to have a material effect on NS'
consolidated financial position.
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, a haulage
arrangement with the Florida East Coast Railway allows NS' railroads
to provide single-line service to and from south Florida, including
the port cities of Miami, West Palm Beach and Fort Lauderdale. The
system's lines also reach many individual 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).
<PAGE> PAGE 6
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
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 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 1995, the RS and HVP divisions conducted operations
through a network of over 400 agents at approximately 700 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 170 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
<PAGE> PAGE 7
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 and Canada are assigned to the
RS Division. The remaining international operations, which include
subsidiaries in the United States, Germany and the United Kingdom,
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 $4.67 billion in 1995. These revenues were
received for the transportation of revenue freight: 280.6 million tons
by rail and 1.2 million tons by motor carrier. Of the rail tonnage,
219.4 million tons originated on line, 242.7 million tons terminated
on line (including 187.1 million tons of local traffic -- originating
and terminating on line) and approximately 5.6 million tons was
overhead traffic (neither originating nor terminating on line).
<TABLE>
Revenue and revenue ton mile (one ton of freight moved one
mile) contributions by principal transportation operating revenue
sources for the period 1991 through 1995 are set forth in the
following table:
<CAPTION>
Year Ended December 31,
Principal Sources of ------------------------------------------------
Transportation
Operating Revenues 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ----
(Revenues in Millions, and Revenue Ton Miles in Billions)
<S> <C> <C> <C> <C> <C>
COAL
Revenues............... $1,240.3 $1,262.5 $1,213.3 $1,296.0 $1,330.3
% of total
transportation
operating revenues.... 26.6% 27.6% 27.2% 28.1% 29.9%
Revenue ton miles...... 43.1 43.8 41.4 41.9 42.7
% of total revenue
ton miles............. 33.5% 35.4% 36.2% 37.4% 39.5%
</TABLE>
<PAGE> PAGE 8
<TABLE>
<CAPTION>
Year Ended December 31,
Principal Sources of ------------------------------------------------
Transportation
Operating Revenues 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ----
(Revenues in Millions, and Revenue Ton Miles in Billions)
<S> <C> <C> <C> <C> <C>
PAPER/FOREST
Revenues............... $ 519.8 $ 505.4 $ 502.7 $ 499.5 $ 476.1
% of total
transportation
operating revenues.... 11.1% 11.0% 11.3% 10.9% 10.7%
Revenue ton miles...... 15.5 15.3 15.1 14.7 13.6
% of total revenue
ton miles............. 12.0% 12.3% 13.2% 13.1% 12.6%
CHEMICALS
Revenues............... $ 513.5 $ 512.2 $ 472.9 $ 471.7 $ 449.7
% of total
transportation
operating revenues.... 11.0% 11.2% 10.6% 10.2% 10.1%
Revenue ton miles...... 16.7 16.7 14.7 14.3 13.6
% of total revenue
ton miles............. 13.0% 13.5% 12.8% 12.8% 12.6%
AUTOMOTIVE
Revenues............... $ 454.1 $ 432.1 $ 429.5 $ 401.5 $ 325.9
% of total
transportation
operating revenues.... 9.7% 9.4% 9.6% 8.7% 7.3%
Revenue ton miles...... 4.3 4.2 4.2 3.7 3.0
% of total revenue
ton miles............. 3.3% 3.4% 3.7% 3.3% 2.8%
AGRICULTURE
Revenues............... $ 359.0 $ 347.5 $ 319.7 $ 301.4 $ 293.6
% of total
transportation
operating revenues.... 7.7% 7.6% 7.2% 6.6% 6.6%
Revenue ton miles...... 16.7 15.6 13.6 12.6 12.2
% of total revenue
ton miles............. 13.0% 12.6% 11.9% 11.3% 11.3%
METALS/CONSTRUCTION
Revenues............... $ 339.5 $ 321.4 $ 296.1 $ 276.3 $ 274.0
% of total
transportation
operating revenues.... 7.3% 7.0% 6.7% 6.0% 6.1%
Revenue ton miles...... 11.3 10.4 9.6 8.5 8.2
% of total revenue
ton miles............. 8.8% 8.4% 8.4% 7.6% 7.6%
</TABLE>
<PAGE> PAGE 9
<TABLE>
<CAPTION>
Year Ended December 31,
Principal Sources of ------------------------------------------------
Transportation
Operating Revenues 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ----
(Revenues in Millions, and Revenue Ton Miles in Billions)
<S> <C> <C> <C> <C> <C>
INTERMODAL
(Trailers and Containers)
Revenues............... $ 470.5 $ 425.6 $ 372.0 $ 341.0 $ 324.6
% of total
transportation
operating revenues.... 10.1% 9.3% 8.3% 7.4% 7.3%
Revenue ton miles...... 19.5 16.3 13.0 11.9 10.4
% of total revenue
ton miles............. 15.1% 13.2% 11.4% 10.6% 9.6%
OTHER INTERMODAL RELATED*
Revenues............... $ -- $ -- $ 18.2 $ 67.9 $ 56.0
% of total
transportation
operating revenues.... -- -- 0.4% 1.5% 1.3%
Revenue ton miles...... -- -- -- -- --
-------- -------- -------- -------- --------
Total Railway Freight
Revenues.............. $3,896.7 $3,806.7 $3,624.4 $3,655.3 $3,530.2
Total Railway Revenue
Ton Miles 127.1 122.3 111.6 107.6 103.7
OTHER RAILWAY OPERATING
Revenues, principally
switching and
demurrage.............. $ 115.1 $ 111.4 $ 121.5 $ 121.7 $ 123.8
% of total
transportation
operating revenues.... 2.5% 2.4% 2.7% 2.6% 2.8%
-------- -------- -------- -------- --------
Total Railway Operating
Revenues.............. $4,011.8 $3,918.1 $3,745.9 $3,777.0 $3,654.0
MOTOR CARRIER**
Revenues............... $ 656.2 $ 663.2 $ 714.2 $ 829.6 $ 797.3
% of total
transportation
operating revenues.... 14.0% 14.5% 16.0% 18.0% 17.9%
Revenue Ton Miles...... 1.7 1.5 2.7 4.4 4.4
% of total revenue
ton miles............. 1.3% 1.2% 2.4% 3.9% 4.0%
-------- -------- -------- -------- --------
Total Transportation
Operating Revenues..... $4,668.0 $4,581.3 $4,460.1 $4,606.6 $4,451.3
Total Revenue Ton Miles.. 128.8 123.8 114.3 112.0 108.1
Note: Revenue ton miles (RTMs) for 1991 and 1992 have been restated from
a one-month delayed basis to a current-month basis.
* See discussion on page 11 regarding TCSC revenues.
** See discussion on page 4 regarding motor carrier restructuring.
</TABLE>
<PAGE> PAGE 10
COAL TRAFFIC - Coal, coke and iron ore--most of which is
bituminous coal--is NS' railroads' principal commodity group. NS'
railroads originated 114.2 million tons of coal, coke and iron ore in
1995 and handled a total of 125.1 million tons. Originated tonnage
decreased 0.4 percent from 114.7 million tons in 1994, and total tons
handled decreased 0.6 percent from 125.9 million tons in 1994.
Revenues from coal, coke and iron ore, which accounted for 27 percent
of NS' total transportation operating revenues and 34 percent of total
revenue ton miles in 1995, were $1.24 billion, a decrease of 2 percent
from $1.26 billion in 1994.
<TABLE>
The following table shows total coal tonnage originated on-
line, received from connections and handled for the five years ended
December 31, 1995:
<CAPTION>
Tons of Coal (Millions)
---------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Originated 111.2 112.0 109.7 115.5 116.8
Received 10.8 11.1 5.9 6.3 6.5
----- ----- ----- ----- -----
Handled 122.0 123.1 115.6 121.8 123.3
</TABLE>
Of the 111.2 million tons of coal originating on NS railroad
lines in 1995, the approximate breakdown by origin state is as
follows: 41.2 million tons from West Virginia, 34.4 million tons
from Virginia, 23.1 million tons from Kentucky, 7.1 million tons from
Illinois, 3.6 million tons from Alabama, 1.6 million tons from
Tennessee, and 0.2 million tons from Indiana. Of this NS-origin coal,
approximately 25.7 million tons moved for export, principally through
NS pier facilities at Norfolk (Lamberts Point), Va.; 18.6 million tons
moved to domestic and Canadian steel industries; 58.7 million tons of
steam coal moved to electric utilities; and 8.2 million tons moved to
other industrial and miscellaneous users. NS' railroads moved
9.4 million tons of originated coal to various docks on the Ohio River
for further movement by barge and 3.3 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 1995
was 41.7 million. Of this total, 69 percent moved through the pier
facilities at Lamberts Point. In 1995, total tonnage handled at
Lamberts Point, including coastwise traffic, was 28.9 million tons, a
4 percent increase from the 27.8 million tons handled in 1994.
<PAGE> PAGE 11
<TABLE>
For the five years ended December 31, 1995, the quantities
of NS coal handled only for export through Lamberts Point were as
follows:
<CAPTION>
Export Coal through Lamberts Point
(Millions of tons)
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Originated 25.4 23.9 24.6 30.8 34.3
Handled 25.5 24.1 24.9 31.2 34.6
</TABLE>
See the discussion of coal traffic, by type of coal, in
Part II, Item 7, "Management's Discussion and Analysis," on page 35.
MERCHANDISE RAIL TRAFFIC - The merchandise traffic group
consists of Intermodal and five major commodity groupings
(Paper/Forest; Chemicals; Automotive; Agriculture; and
Metals/Construction). Total NS railroad merchandise revenues
increased in 1995 to $2.66 billion, a 4 percent increase over 1994.
Railroad merchandise carloads handled in 1995 were 3.18 million,
compared with 3.03 million handled in 1994, an increase of 5 percent.
Intermodal results, for 1993 and later, 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 subsidiary of NS. Because NS owns only 50 percent of
TCSC, its revenues are not consolidated. NS' intermodal revenues
include only revenues for rail service NS provides the partnership.
Excluding this partnership effect, 1994 intermodal revenues increased
14%, compared with 1993.
In 1995, 105.2 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 truck, 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 in 1995 over 1994, and in 1994 over 1993. The
biggest gains in 1995 were in Intermodal, up $44.9 million;
Automotive, up $22.0 million; and Metals/Construction, up
$18.1 million.
See the discussion of merchandise rail traffic by commodity
group in Part II, Item 7, "Management's Discussion and Analysis," on
page 35.
<PAGE> PAGE 12
MOTOR CARRIER TRAFFIC - Motor carrier revenues declined
1 percent to $656.2 million in 1995. Gains in the HVP division were
offset by reductions in RS. In 1994, motor carrier revenues were
$663.2 million, down 7 percent from 1993, which included six months of
revenues from truckload operations prior to the restructuring of NAVL
(see page 6). Adjusted for the effect of discontinued truckload
operations in 1993, motor carrier operating revenues in 1994 increased
15 percent.
DOMESTIC OPERATIONS now are conducted through NAVL's RS and
HVP divisions. In 1995, total domestic shipments for these divisions
were 381,121, up 0.5 percent from 1994. Further comments about each
division follow.
Domestic shipments of used household goods transported by
the RS Division fall into three market categories. Approximately
51 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 11 percent is derived from military,
government and other sources. Total domestic RS Division shipments in
1995 represented 29 percent of the NAVL domestic motor carrier
shipments transported by the two primary divisions. Total domestic
revenues from this division were down 4 percent, compared with 1994,
and represented 42 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 1995, including TL and LTL, represented
71 percent of the NAVL domestic motor carrier shipments transported by
the two primary divisions. Revenues from this division were down
2 percent from 1994 levels and represented 46 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 and Germany. Foreign operations involving the transportation
of used household goods and selected general and specialized
commodities generated revenues of $81.8 million in 1995, up 15 percent
from 1994. Revenues from foreign operations represented 12 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,
----------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rail revenue ton
miles (billions) 127.1 122.3 111.6 107.6 103.7
Freight train miles
traveled (millions) 48.5 46.0 43.3 41.1 37.8
Revenue per ton mile $0.0307 $0.0311 $0.0325 $0.0340 $0.0341
Revenue tons per train 2,622 2,655 2,577 2,618 2,743
Revenue ton miles
per man-hour worked 2,690 2,579 2,304 2,184 2,023
Percentage ratio of
railway operating
expenses to railway
operating revenues 73.5 73.4 75.6 75.5 78.3*
* Excluding a special charge in 1991 which increased railway operating
expenses by $483 million.
</TABLE>
FREIGHT RATES - In 1995 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. This situation is not expected to change in 1996
after the January 1 termination of the ICC and transfer of its
functions to a new agency, the Surface Transportation Board (STB).
In 1995, the ICC found NS' railroads "revenue inadequate"
based on results for the year 1994. 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 revenue adequacy measure is used by the STB as one of
the factors in its determination of reasonableness of regulated
rates.
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,
1995, domestic contract carriage agreements accounted for the
following percentage of shipments: RS Division, 31 percent and HVP
Division, 81 percent.
<PAGE> PAGE 14
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 1995,
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.
<PAGE> PAGE 15
RAILWAY PROPERTY:
<TABLE>
EQUIPMENT - As of December 31, 1995, 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 1,908 0 1,908 5,799,700
Switching 143 0 143 210,000
Auxiliary units 62 0 62 0
-------- ------- -------- ----------
Total locomotives 2,113 0 2,113 6,009,700
======== ======= ======== ==========
Freight Cars: (Tons)
Hopper 29,780 41 29,821 2,943,996
Box 22,918 376 23,294 1,772,693
Covered Hopper 13,757 1,174 14,931 1,482,080
Gondola 21,388 105 21,493 2,259,854
Flat 4,234 825 5,059 360,061
Caboose 261 0 261 0
Other 2,065 4 2,069 143,590
-------- ------- -------- ----------
Total freight cars 94,403 2,525 96,928 8,962,274
======== ======= ======== ==========
Other:
Work equipment 6,963 5 6,968
Vehicles 3,826 0 3,826
Highway trailers 2,182 1,986 4,168
RoadRailers(RT) 923 0 923
Miscellaneous 1,624 0 1,624
-------- ------- --------
Total other 15,518 1,991 17,509
======== ======= ========
* 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, 1995:
<CAPTION>
Year Built
----------------------------------------------------------------
1985- 1979- 1978 &
1995 1994 1993 1992 1991 1990 1984 Before Total
---- ---- ---- ---- ---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locomotives:
Number of
units 125 25 31 55 53 398 432 994 2,113
Percent of
fleet 5.9 1.2 1.5 2.6 2.5 18.8 20.4 47.1 100.0
Freight cars:
Number of
units 931 845 935 580 786 5,000 14,253 71,073 94,403
Percent of
fleet 1.0 0.9 1.0 0.6 0.8 5.3 15.1 75.3 100.0
</TABLE>
The average age of the freight car fleet at December 31,
1995, was 22.0 years. During 1995, NS retired 7,247 freight cars. As
of December 31, 1995, the average age of the locomotive fleet was
15.7 years. During 1995, NS retired 67 locomotives, the average age
of which was 22.6 years. Since 1988, NS has rebodied more than
20,500 coal cars. As a result, the remaining serviceability of the
freight car fleet is greater than is inferable from the high
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,
the bad order ratio reflects 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. In this connection, NS began an orderly disposition of up to
17,000 freight cars in October 1994. Through the end of 1995, 7,272
of these cars had been sold.
<TABLE>
<CAPTION>
Annual Average*
-------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Freight Cars (excluding cabooses):
NS Rail 5.8% 6.7% 7.3% 7.6% 6.5%
All Class I railroads 6.0* 7.3 7.1 7.5 7.3
Locomotives:
NS Rail 4.7 4.7 4.3 4.4 4.3
* In 1995, the industry bad order ratio was as of June 1, 1995.
Prior years' industry ratios were based on a monthly average.
</TABLE>
<PAGE> PAGE 17
TRACKAGE - All NS trackage is standard gauge, and the rail
in approximately 95 percent of the main line trackage (including
first, second, third and branch main tracks, all excluding trackage
rights) is rail ranging from 100 to 140 pounds per yard. Of the
22,514 miles of track maintained by NS as of December 31, 1995, 15,787
were laid with welded rail.
<TABLE>
The density of traffic on NS running tracks (main line
trackage plus passing tracks) during 1995 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 4,966 31
5-19 4,822 30
20 and over 6,387 39
------ ---
16,175 100
* Excludes trackage rights.
</TABLE>
<TABLE>
The following table summarizes certain information about NS'
track roadway additions and replacements during the last five years:
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Track miles of rail installed 403 480 574 660 679
Miles of track surfaced 4,668 4,760 5,048 5,690 5,646
New crossties installed (millions) 2.0 1.7 1.6 1.9 1.9
</TABLE>
MICROWAVE SYSTEM - The NS microwave system, consisting of
6,600 radio path miles, 376 active stations and 5 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 service
for approximately 17,200 individual telephone 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.
TRAFFIC CONTROL - Of a total of 12,885 road miles operated
by NS, excluding trackage rights over foreign lines, 5,400 road miles
are governed by centralized traffic control systems (of which
100 miles are controlled by data radio from eight microwave site
locations) and 2,800 road miles are equipped for automatic block
system operation.
<PAGE> PAGE 18
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, 1995, agents and owner-operators together
supplied 3,519 tractors, representing 97 percent of the U.S. power
equipment operated in NAVL service. Also as of December 31, 1995,
NAVL owned 3,097 trailer units, representing 54 percent of the U.S.
trailer fleet in NAVL service. The remaining 46 percent was provided
mainly by agents and owner-operators. Agents and owner-operators also
provided 1,081 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 1995, approximately 14,000 work orders
were completed at NAVL's facility in Fort Wayne. As of December 31,
1995, the average age of trailer equipment in the NAVL fleet was
8.4 years.
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.
<PAGE> PAGE 19
ENCUMBRANCES - Certain railroad equipment is subject to the
prior lien of equipment financing obligations amounting to
approximately $545.4 million as of December 31, 1995, and
$521.9 million at December 31, 1994. In addition, a significant
portion of NS' properties is subject to liens securing, as of
December 31, 1995, and 1994, approximately $77.2 million and
$83.9 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, 1995, NAVL
had $18.4 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, 1995, NS' capital expenditures for road, equipment and
other property were as follows:
<CAPTION>
Capital Expenditures
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In millions of dollars)
<S> <C> <C> <C> <C> <C>
Transportation property
Road $ 385.7 $ 384.6 $ 417.9 $ 426.5 $ 395.4
Equipment 344.3 245.9 240.5 281.3 235.2
Other property 33.4 82.4 10.8 8.3 82.8
------- ------- ------- ------- -------
Total $ 763.4 $ 712.9 $ 669.2 $ 716.1 $ 713.4
======= ======= ======= ======= =======
</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 1996, NS is planning
$708 million of capital spending, of which $699 million will be for
railway projects and $9 million for motor carrier property. NS
anticipates that a portion of its locomotive acquisitions in 1996 will
be financed using capitalized leases similar to the 1995 leases (see
note 6 on page 63). In 1996, equipment financing needs may be
somewhat lower than in 1995, as proceeds from the sale of freight cars
will be used for some equipment acquisitions. Looking further ahead,
total rail and motor carrier spending are expected to continue to be
similar to 1994 and 1995 levels. 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 35, and in
Note 17 to the Consolidated Financial Statements on page 74.
EMPLOYEES - NS employed an average of 26,944 employees in
1995, compared with an average of 27,168 in 1994. The approximate
average cost per employee during 1995 was $42,835 in wages and $17,792
in employee benefits. Approximately 74 percent of these employees are
represented by various labor organizations. A tentative settlement
was reached with the United Transportation Union, which represents the
largest number of employees in the railroad industry. The settlement
requires ratification by the members before acceptance. The
negotiation of this settlement demonstrated that national handling
produces the quickest path to agreement. Negotiations with the other
unions are progressing.
GOVERNMENT REGULATION - In addition to environmental,
safety, securities and other regulations generally applicable to all
businesses, NS' railroads are subject to regulation by the Surface
Transportation Board (STB), which succeeded the ICC on January
1, 1996. The STB has jurisdiction over some rates, routes, conditions
of service, and the extension or abandonment of rail lines. The STB
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 railroads, begun
over a decade ago by the ICC under the Staggers Rail Act of 1980, is
expected to continue under the STB. Thus it appears that additional
rail business will be exempted from regulation in the future.
Significant exemptions 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, which no longer require regulatory
approval, effectively remove those shipments from regulation as well.
Over 80 percent of NS' freight revenues come from either exempt
traffic or traffic moving under transportation contracts.
For motor carrier operations conducted by NAVL, the
Department of Transportation and the STB are the principal regulatory
entities. The STB exercises jurisdiction over the relationship
between carriers and owner-operators, and carrier practices and common
carrier rates 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.
<PAGE> PAGE 22
Item 3. Legal Proceedings.
- ------ -----------------
North Carolina - Fiber Optic Cable. In October 1995, two
individuals, on behalf of themselves and all others similarly
situated, instituted an action in the United States District Court for
the Western District of North Carolina against Sprint Communications
Company, L.P. and Norfolk Southern Railway Company. Plaintiffs allege
they sustained RICO and trespass damages in the amount of $100 million
(trebled) as a result of the defendants' installing, pursuant to an
agreement, fiber optic cable on property in which the plaintiffs
further allege the Railway's only property right was an easement for
railway operations. Management, after consulting with its legal
counsel, is of the opinion that the Railway has meritorious defenses
to both the RICO and trespass claims and that ultimate liability,
should there be any, will not materially affect the consolidated
financial position of NS.
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 1995.
<PAGE> PAGE 23
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, 1996, relating to
these officers:
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
David R. Goode, 55, Present position since September
Chairman, President and 1992. Served as President from
Chief Executive Officer October 1991 to September 1992,
and prior thereto was Executive
Vice President-Administration.
John R. Turbyfill, 64, Present position since June 1993.
Vice Chairman Served prior thereto as
Executive Vice President-
Finance.
D. Henry Watts, 64, Present position since October
Vice Chairman 1995. Served prior thereto as
Executive Vice President-
Marketing.
James C. Bishop, Jr., 59, Present position since March 1,
Executive Vice President-Law 1996. Served prior thereto as
Vice President-Law.
R. Alan Brogan, 55, 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, and prior
thereto was Vice President-
Material Management and Property
Services.
L. I. Prillaman, 52, Executive Present position since October
Vice President-Marketing 1995. Served as Vice President-
Properties from December 1992 to
October 1995, and prior thereto
was Vice President and
Controller.
Stephen C. Tobias, 51, Present position since July 1994.
Executive Vice President- Served as Senior Vice President-
Operations Operations from October 1993 to
July 1994, Vice President-
Strategic Planning from December
1992 to October 1993, and prior
thereto was Vice President-
Transportation.
<PAGE> PAGE 24
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
Henry C. Wolf, 53, Executive Present position since June 1993.
Vice President-Finance Served prior thereto as Vice
President-Taxation.
William B. Bales, 61, Senior Present position since October
Vice President-International 1995. Served as Vice President-
Coal Marketing from August 1993
to October 1995, and prior
thereto was Vice President-Coal
and Ore Traffic.
Paul N. Austin, 52, Vice Present position since June 1994.
President-Personnel Served as Assistant Vice
President-Personnel from
February 1993 to June 1994, and
prior thereto was Director
Compensation.
John F. Corcoran, 55, Vice Present position since March 1992.
President-Public Affairs Served prior thereto as
Assistant Vice President-Public
Affairs.
David A. Cox, 59, Vice Present position since December
President-Properties 1995. Served prior thereto as
Assistant Vice President-
Industrial Development.
Thomas L. Finkbiner, 43, Present position since August
Vice President-Intermodal 1993. Served as Senior Assistant
Vice President-International and
Intermodal from April to August
1993, and prior thereto was
Assistant Vice President-
International and Intermodal.
John W. Fox, Jr., 48, Vice Present position since October
President-Coal Marketing 1995. Served as Assistant Vice
President-Coal Marketing from
August 1993 to October 1995, and
prior thereto was General
Manager Eastern Region.
Thomas J. Golian, 62, Present position since October
Vice President 1995. Served as Executive
Assistant to the Chairman,
President and CEO from April
1993 to October 1995, and prior
thereto was Special Assistant to
the President.
<PAGE> PAGE 25
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
James L. Granum, 59, Vice Present position since March 1992.
President-Public Affairs Served prior thereto as Assistant
Vice President-Public Affairs.
James A. Hixon, 42, Vice Present position since June 1993.
President-Taxation Served prior thereto as Assistant
Vice President-Tax Counsel.
Jon L. Manetta, 57, Vice Present position since December
President-Transportation & 1995. Served as Vice President-
Mechanical Transportation from June 1994 to
December 1995, Assistant Vice
President-Transportation from
October 1993 to June 1994,
Assistant Vice President-
Strategic Planning from January
to October 1993, Director Joint
Facilities and Budget from March
1992 to January 1993, and prior
thereto was Assistant Terminal
Superintendent-Transportation.
Harold C. Mauney, Jr., 57, 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 was
General Manager-Intermodal
Transportation Services.
Donald W. Mayberry, 52, Present position since December
Vice President-Research and 1995. Served prior thereto as
Tests Vice President-Mechanical.
James W. McClellan, 56, 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 was Director-
Corporate Development.
Kathryn B. McQuade, 39, Present position since December
Vice President-Internal Audit 1992. Served as Director-Income
Tax Administration from May 1991
to December 1992, and prior
thereto was Director-Federal
Income Tax Administration.
<PAGE> PAGE 26
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
Charles W. Moorman, 44, 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, and
prior thereto was Senior Director
Transportation Planning.
Phillip R. Ogden, 55, Vice Present position since December
President-Engineering 1992. Served prior thereto as
Assistant Vice President-
Maintenance.
Magda A. Ratajski, 45, Vice Present position since July 1984.
President-Public Relations
John P. Rathbone, 44, Vice Present position since December
President and Controller 1992. Served prior thereto as
Assistant Vice President-
Internal Audit.
William J. Romig, 51, Vice Present position since April 1992.
President and Treasurer Served prior thereto as
Assistant Vice President-
Finance.
Donald W. Seale, 43, Vice Present position since August
President-Merchandise 1993. Served as Assistant Vice
Marketing President-Sales and Service from
May 1992 to August 1993, and
prior thereto was Director-
Metals, Waste and Construction.
Robert S. Spenski, 61, Vice Present position since June 1994.
President-Labor Relations Served prior thereto as Senior
Assistant Vice President-Labor
Relations.
Dezora M. Martin, 48, Present position since April 1995.
Corporate Secretary Served as Assistant Corporate
Secretary-NS from October 1993
to April 1995, and prior thereto
was Assistant Corporate
Secretary-Planning.
<PAGE> PAGE 27
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
(Unaudited)
The common stock of Norfolk Southern Corporation, owned by
53,401 stockholders of record as of December 31, 1995, 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 1995 and 1994.
<CAPTION>
Quarter
--------------------------------------
1995 1st 2nd 3rd 4th
---- --- --- --- ---
<S> <C> <C> <C> <C>
Market price
High $ 68-1/8 $ 68-1/2 $ 77-3/8 $ 81-5/8
Low 60-1/2 62-3/4 67-1/8 72-1/4
Dividends per share $0.52 $0.52 $0.52 $0.52
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 $0.48
</TABLE>
<PAGE> PAGE 28
Item 6. Selected Financial Data.
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1992 - 1995
Page One
<CAPTION>
1995 1994 1993 (1) 1992
---- ---- ---- ----
($ in millions, except per share amounts)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Transportation operating
revenues:
Railway operating
revenues $ 4,011.8 $ 3,918.1 $ 3,745.9 $ 3,777.0
Motor carrier operating
revenues 656.2 663.2 714.2 829.6
--------- --------- --------- ---------
Total transportation
operating revenues 4,668.0 4,581.3 4,460.1 4,606.6
Transportation operating
expenses:
Railway operating
expenses 2,950.0 2,874.8 2,830.6 2,850.8
Motor carrier operating
expenses 631.7 641.1 769.1 869.3
Special charge -- -- -- --
--------- --------- --------- ---------
Total transportation
operating expenses 3,581.7 3,515.9 3,599.7 3,720.1
Income from
operations 1,086.3 1,065.4 860.4 886.5
Other income - net 141.8 85.2 136.8 97.8
Interest expense on debt 113.4 101.6 98.6 109.0
--------- --------- --------- ---------
Income before income
taxes 1,114.7 1,049.0 898.6 875.3
Provision for income taxes 402.0 381.2 349.9 317.6
--------- --------- --------- ---------
Income before
accounting changes 712.7 667.8 548.7 557.7
Cumulative effect of
accounting changes -- -- 223.3 --
--------- --------- --------- ---------
Net income $ 712.7 $ 667.8 $ 772.0 $ 557.7
========= ========= ========= =========
</TABLE>
<PAGE> PAGE 29
Item 6. Selected Financial Data. (continued)
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1992 - 1995
Page Two
<CAPTION>
1995 1994 1993 (1) 1992
---- ---- ---- ----
($ in millions, except per share amounts)
<S> <C> <C> <C> <C>
PER SHARE DATA:
Earnings $ 5.44 $ 4.90 $ 5.54 $ 3.94
Dividends $ 2.08 $ 1.92 $ 1.86 $ 1.80
Stockholders' equity at
year end $ 37.42 $ 35.19 $ 33.36 $ 30.16
FINANCIAL POSITION:
Total assets $10,904.8 $10,587.8 $10,519.8 $10,400.5
Total long-term debt,
including current
maturities $ 1,639.0 $ 1,619.8 $ 1,595.2 $ 1,648.9
Stockholders' equity $ 4,829.0 $ 4,684.8 $ 4,620.7 $ 4,232.6
OTHER:
Capital expenditures $ 763.4 $ 712.9 $ 669.2 $ 716.1
Average number of shares
outstanding (thousands) 130,996 136,301 139,414 141,459
Number of stockholders at
year end 53,401 52,442 51,884 51,200
Average number of employees:
Rail 24,488 24,710 25,531 25,650
Nonrail 2,456 2,458 3,773 4,485
--------- --------- --------- ---------
Total 26,944 27,168 29,304 30,135
========= ========= ========= =========
(1) 1993 results include a $54 million increase in the provision for
income taxes reflecting a 1% increase in the federal income tax
rate, which reduced net income by $54 million, or $0.39 per share
(see Note 3 on page 60). 1993 motor carrier expenses include a
$50 million restructuring charge for the disposition of two NAVL
businesses (see Note 15 on page 73). The cumulative effect of
accounting changes (see Note 1 on page 58) increased 1993
earnings by $223 million, or $1.60 per share.
</TABLE>
<PAGE> PAGE 30
Item 6. Selected Financial Data. (continued)
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1988 - 1991
Page One
<CAPTION>
1991 (2) 1990 1989 1988
---- ---- ---- ----
($ in millions, except per share amounts)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Transportation operating
revenues:
Railway operating
revenues $ 3,654.0 $ 3,786.0 $ 3,694.1 $ 3,616.6
Motor carrier operating
revenues 797.3 831.0 841.9 845.0
--------- --------- --------- ---------
Total transportation
operating revenues 4,451.3 4,617.0 4,536.0 4,461.6
Transportation operating
expenses:
Railway operating
expenses 2,862.2 2,969.4 2,864.4 2,679.7
Motor carrier operating
expenses 797.1 839.5 846.4 836.6
Special charge 680.0 -- -- --
--------- --------- --------- ---------
Total transportation
operating expenses 4,339.3 3,808.9 3,710.8 3,516.3
Income from
operations 112.0 808.1 825.2 945.3
Other income - net 131.3 145.3 158.2 108.4
Interest expense on debt 99.7 78.0 50.7 53.1
--------- --------- --------- ---------
Income before income
taxes 143.6 875.4 932.7 1,000.6
Provision for income taxes 113.9 319.3 326.5 365.5
--------- --------- --------- ---------
Income before
accounting changes 29.7 556.1 606.2 635.1
Cumulative effect of
accounting changes -- -- -- --
--------- --------- --------- ---------
Net income $ 29.7 $ 556.1 $ 606.2 $ 635.1
========= ========= ========= =========
</TABLE>
<PAGE> PAGE 31
Item 6. Selected Financial Data. (continued)
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1988 - 1991
Page Two
<CAPTION>
1991 (2) 1990 1989 1988
---- ---- ---- ----
($ in millions, except per share amounts)
<S> <C> <C> <C> <C>
PER SHARE DATA:
Earnings $ 0.20 $ 3.43 $ 3.48 $ 3.51
Dividends $ 1.60 $ 1.52 $ 1.38 $ 1.26
Stockholders' equity at
year end $ 28.64 $ 31.57 $ 30.44 $ 28.74
FINANCIAL POSITION:
Total assets $10,148.1 $10,523.0 $10,244.3 $10,059.1
Total long-term debt,
including current
maturities $ 1,389.2 $ 1,125.2 $ 841.1 $ 780.9
Stockholders' equity $ 4,093.4 $ 4,911.9 $ 5,168.6 $ 5,152.6
OTHER:
Capital expenditures $ 713.4 $ 696.9 $ 651.7 $ 528.8
Average number of shares
outstanding (thousands) 147,759 162,095 174,370 181,038
Number of stockholders at
year end 53,725 56,187 61,630 64,974
Average number of employees:
Rail 27,366 28,697 29,667 30,330
Nonrail 4,586 4,584 4,645 4,209
--------- --------- --------- ---------
Total 31,952 33,281 34,312 34,539
========= ========= ========= =========
(2) 1991 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 $3.37 per share.
</TABLE>
<PAGE> PAGE 32
Item 6. Selected Financial Data. (continued)
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1985 - 1987
Page One
<CAPTION>
1987 (3) 1986 1985 (4)
---- ---- ----
($ in millions, except per share amounts)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Transportation operating
revenues:
Railway operating
revenues $ 3,335.6 $ 3,327.8 $ 3,434.8
Motor carrier operating
revenues 777.2 748.6 390.3
--------- --------- ---------
Total transportation
operating revenues 4,112.8 4,076.4 3,825.1
Transportation operating
expenses:
Railway operating
expenses 2,652.8 2,665.9 2,740.1
Motor carrier operating
expenses 734.5 708.5 366.0
Special charge 620.4 -- --
--------- --------- ---------
Total transportation
operating expenses 4,007.7 3,374.4 3,106.1
Income from
operations 105.1 702.0 719.0
Other income - net 232.9 215.8 171.7
Interest expense on debt 58.5 61.8 68.5
--------- --------- ---------
Income before income
taxes 279.5 856.0 822.2
Provision for income taxes 107.1 337.3 322.0
--------- --------- ---------
Income before
accounting changes 172.4 518.7 500.2
Cumulative effect of
accounting changes -- -- --
--------- --------- ---------
Net income $ 172.4 $ 518.7 $ 500.2
========= ========= =========
</TABLE>
<PAGE> PAGE 33
Item 6. Selected Financial Data. (continued)
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
ELEVEN-YEAR FINANCIAL REVIEW
1985 - 1987
Page Two
<CAPTION>
1987 (3) 1986 1985 (4)
---- ---- ----
($ in millions, except per share amounts)
<S> <C> <C> <C>
PER SHARE DATA:
Earnings $ 0.91 $ 2.74 $ 2.65
Dividends $ 1.20 $1.13-1/3 $1.13-1/3
Stockholders' equity at
year end $ 26.48 $ 26.78 $ 25.20
FINANCIAL POSITION:
Total assets $ 9,831.6 $ 9,752.4 $ 9,768.6
Total long-term debt,
including current
maturities $ 795.0 $ 891.3 $ 941.0
Stockholders' equity $ 4,979.4 $ 5,070.8 $ 4,761.5
OTHER:
Capital expenditures $ 562.9 $ 698.4 $ 738.6
Average number of shares
outstanding (thousands) 189,464 189,217 188,867
Number of stockholders at
year end 68,121 65,832 71,325
Average number of employees:
Rail 32,563 34,857 36,415
Nonrail 3,539 3,440 3,379
--------- --------- ---------
Total 36,102 38,297 39,794
========= ========= =========
(3) 1987 transportation operating expenses include a $620 million
special charge, principally related to railroad restructuring
costs. This charge reduced net income by $352 million, or $1.86
per share.
(4) Includes NAVL from the acquisition date of June 21, 1985.
All per share amounts have been restated to reflect the March 6, 1987,
3-for-1 stock split.
</TABLE>
<PAGE> PAGE 34
Item 6. Selected Financial Data. (continued)
- ------ -----------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Table of Graphs
Included with the
Eleven-Year Financial Review
The following financial information appears as four (4)
separate graphs following the Eleven-Year Financial Review in the 1994
Norfolk Southern Corporation Annual Report to Stockholders.
<CAPTION>
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM RAILWAY OPERATIONS
(railway operating
revenues - railway
operating expenses)
($ millions) $1,095.4* $1,043.3 $915.3 $926.2 $791.8*** $816.6
RETURN ON EQUITY
(net income divided by
average stockholders'
equity) 15.4%* 14.4% 13.7%** 13.4% 11.1%*** 11.0%
DIVIDENDS PER SHARE
(dollars) $ 2.08 $ 1.92 $ 1.86 $ 1.80 $ 1.60 $ 1.52
* Excludes $33.6 million ($20.4 million after-tax) charge for early
retirement program.
** Excludes the cumulative effects of required accounting changes and the
prior years' effect of the federal income tax increase.
*** Excludes special charge.
</TABLE>
<TABLE>
<CAPTION>
10 5 1
Years Years Year
----- ----- ----
TOTAL RETURN TO STOCKHOLDERS
(from dividends and
appreciation)
<S> <C> <C> <C>
NS 15.1% 17.2% 34.0%
S&P 500 14.9% 16.6% 37.6%
</TABLE>
<PAGE> PAGE 35
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 52 and
the Eleven-Year Financial Review beginning on page 28.
SUMMARIZED RESULTS OF OPERATIONS
1995 Compared with 1994
- -----------------------
Net income in 1995 was a record $712.7 million, up 7% over 1994
earnings of $667.8 million. Excluding a $20.4 million after-tax charge
for an early retirement program in 1995, net income would have been
$733.1 million, up 10%. These results were driven primarily by improved
income from railway operations, up $52.1 million, or 5% (excluding the
early retirement charge), and by greater nonoperating income, up $56.6
million, or 66%. Railway operating revenues increased $93.7 million, or
2%, while railway operating expenses, excluding the early retirement
charge, were up only $41.6 million, or 1%. Income from motor carrier
operations of $24.5 million was $2.4 million, or 11%, higher than in
1994. Nonoperating income of $141.8 million was up $56.6 million, due to
a $30.5 million ($18.8 million after-tax) gain resulting from the partial
redemption of a real estate partnership interest and a $26.2 million
increase in gains on property sales (see Note 2 on page 59). Interest
expense on debt was up $11.8 million, or 12%, largely a result of higher
rates of interest on commercial paper debt.
1994 Compared with 1993
- -----------------------
Net income was $667.8 million in 1994, compared with $772.0 million
in 1993. However, 1993 net income was increased by $223.3 million,
related to the implementation of required accounting changes (see Note 1
on page 57), and reduced by $46.2 million for the prior years' effect of
a federal income tax rate increase (see Note 3 on page 60). Excluding the
effects of the 1993 accounting changes and the tax rate increase, 1993
net income was $594.9 million, and 1994 net income was up 12%.
Income from railway operations produced most of the improvement,
increasing $128.0 million, or 14%. These results reflected 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 73). Nonoperating income was $85.2 million, compared
with $136.8 million in 1993, principally a result of reduced gains on
sales of stock and property.
DETAILED RESULTS OF OPERATIONS
Railway Operating Revenues
- --------------------------
Railway operating revenues were $4.01 billion in 1995, compared with
$3.92 billion in 1994 and $3.75 billion in 1993. The $93.7 million
improvement in 1995, compared with 1994, was largely attributable to
increases in the intermodal ($44.9 million), automotive ($22.0 million)
and metals/construction ($18.1 million) market groups. The $172.2 million
improvement in 1994, compared with 1993, was primarily attributable to
increases in the intermodal, coal and chemicals market groups.
<PAGE> PAGE 36
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
<TABLE>
<CAPTION>
The following table presents a three-year comparison of revenues by
market group.
RAILWAY OPERATING REVENUES BY MARKET GROUP
($ in millions)
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Coal $1,240.3 $1,262.5 $1,213.3
Paper/forest 519.8 505.4 502.7
Chemicals 513.5 512.2 472.9
Automotive 454.1 432.1 429.5
Agriculture 359.0 347.5 319.7
Metals/construction 339.5 321.4 296.1
Intermodal 470.5 425.6 390.2
-------- -------- --------
Freight revenues 3,896.7 3,806.7 3,624.4
Other - principally
switching and
demurrage 115.1 111.4 121.5
-------- -------- --------
Total $4,011.8 $3,918.1 $3,745.9
======== ======== ========
</TABLE>
Traffic volume changes in 1995 were mixed, with improvements in
automotive, agriculture, metals/construction and intermodal partially
offsetting declines in the other three market groups. Traffic volume
increased or remained steady for all market groups in 1994. These volume
gains accounted for most of the revenue improvement in 1995 and all the
improvement in 1994 as illustrated by the following table.
<TABLE>
RAILWAY OPERATING REVENUE VARIANCE ANALYSIS
Increases (Decreases)
($ in millions)
<CAPTION>
1995 vs. 1994 1994 vs. 1993
------------- -------------
<S> <C> <C>
Traffic volume $ 62.6 $ 195.1
Revenue per unit 31.1 (22.9)
-------- --------
Total $ 93.7 $ 172.2
======== ========
</TABLE>
Average revenue per unit rose in 1995 due to moderate rate
increases. The revenue per unit variance in 1994 was principally
attributable to growth in shorter haul and double-stack business, both of
which generally have lower average rates.
COAL traffic volume declined 1%, and revenues were down 2%, from
1994. In 1995, coal revenues represented 31% of total railway operating
revenues, and 91% of coal shipments originated on NS' lines. As shown in
the following table, coal tonnage by type remained stable in 1995,
compared with 1994. However, utility coal tonnage in 1994 increased
significantly.
<PAGE> PAGE 37
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
<TABLE>
TOTAL COAL TONNAGE
(In millions of tons)
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Utility 69.1 70.2 60.6
Export 25.8 25.2 25.7
Steel 18.9 18.8 20.5
Other 8.2 8.9 8.8
----- ----- -----
Total 122.0 123.1 115.6
===== ===== =====
</TABLE>
Utility coal traffic had been expected to grow in 1995, but instead
decreased slightly due to moderate weather throughout much of the NS
service region during the first half of the year and to sustained periods
of maximum generation from several Southeastern nuclear power plants. The
mild weather pattern actually began in third-quarter 1994, causing a
number of NS' utility customers to start 1995 with high coal inventories.
However, inventories began to normalize, as seasonal weather returned to
the service region in midsummer, and nuclear plants began to power down
for refueling and repairs in third-quarter 1995. Compliance with Phase I
of the Clean Air Act Amendments, which took effect on January 1, 1995,
increased shipments of both NS- and foreign-line-originated, low-sulfur
coal. A significant proportion of the mines served by NS produce coal
that satisfies both Phase I and the more stringent Phase II requirements,
which take effect on January 1, 2000.
In 1994, utility coal traffic was up early in the year as a result
of bitter weather and the resulting depletion of coal stockpiles. The
pace at which 1994 outperformed 1993 slowed as the weather normalized.
New movements of western coal into Georgia also contributed to the 1994
increase.
The near-term outlook for utility coal is favorable, as most NS-
served utilities began 1996 with normal or somewhat low inventory levels.
The long-term outlook is less certain due to the deregulation and ongoing
restructuring of the utility industry, although low-sulfur coal traffic
should increase with the approach of the Phase II deadline of the Clean
Air Act.
Export coal traffic in 1995 benefited from the continued recovery of
the European steel-producing economy. Demand from other parts of the
world also improved. Brazil, Belgium, France, Romania and Japan took
increased amounts of NS coal. In addition, NS began handling
metallurgical coal for steel production in Mexico. Congestion and high
barge rates on the Mississippi River caused an increase in movements to
NS' coal piers in Norfolk, Va.
Export coal traffic at the beginning of 1994 reflected the poor
demand also seen in 1993. Shipments remained somewhat depressed as a
result of the weak European economy and strong competition from other
producing countries. Economic recovery in Europe and Japan improved
demand for steel and electricity, and the coal supply-demand situation
tightened during 1994. As a result, delivery times were longer and prices
rose during 1994.
A recent softening in world demand for steel could limit near-term
growth in export metallurgical coal shipments. However, demand for export
steam coal is increasing, and NS is working to increase participation in
this market.
<PAGE> PAGE 38
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Steel coal domestic traffic was up slightly in 1995 due to
completion of extended coke oven work at one facility and continued
strong demand for domestic coke for making steel. In 1994, traffic was
reduced by the closing of one coke battery. Advanced technologies that
allow production of steel with little or no coke could cause this market
to decline slowly over the long term. However, NS could participate in
the movement of non-coking coal used by technologies such as pulverized
coal injection.
Other coal consists of traffic for industries that burn coal to
generate energy used in manufacturing processes and often for the
production of electricity for in-plant use and outside sales. Lower
demand for electricity due to mild weather, as discussed above, continued
to affect this market in 1995. In addition, some industries switched to
natural gas as a fuel source. This market is expected to remain stable in
coming years, as growth through innovative packaged delivery services
offsets some additional loss to natural gas.
<TABLE>
COAL
(Shown as a graph in the Annual Report to Stockholders)
This group comprises utility coal, export coal, domestic
metallurgical coal, industrial coal, coke and iron ore.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Export $ 338.3 $ 329.2 $ 351.9 $ 467.5 $ 522.9 $ 511.8
Domestic 902.0 933.3 861.4 828.5 807.4 897.0
-------- -------- -------- -------- -------- --------
$1,240.3 $1,262.5 $1,213.3 $1,296.0 $1,330.3 $1,408.8
======== ======== ======== ======== ======== ========
</TABLE>
MERCHANDISE traffic volume rose 5%, and revenues increased by $112.2
million, or 4%, compared with 1994. Merchandise traffic volume in 1994
increased 8%, and revenues, excluding, for comparative purposes, the
effect of the Triple Crown Services Company (TCSC) partnership (see
discussion on page 41), increased by $151.3 million, or 6%, compared with
1993. All six market groups comprising merchandise traffic reported
increased revenues in 1995 over 1994 and in 1994 over 1993.
PAPER/FOREST traffic declined 1%; however, revenues were up 3%,
compared with 1994. Paper and pulpwood products traffic was even with
1994, while lumber traffic suffered from weak housing starts in 1995. For
1994, paper/forest volume and revenues were about even with 1993,
reflecting weak paper production, severe winter weather and floods in
south Georgia. Some of the weakness in paper was offset by a gain in
lumber traffic due, in part, to the opening of five new lumber
distribution centers in 1994. Moderate growth is expected for 1996 based
on the anticipated completion of several wood-chip mills and an
improvement in housing starts.
<TABLE>
PAPER/FOREST
(Shown as a graph in the Annual Report to Stockholders)
This group comprises lumber and wood products, pulpboard and
paper products, wood fibers, woodpulp, scrap paper and clay.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 519.8 $ 505.4 $ 502.7 $ 499.5 $ 476.1 $ 486.5
</TABLE>
<PAGE> PAGE 39
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
CHEMICALS traffic and revenues showed little change compared with
1994. Increases for general chemicals were overshadowed by weakness in
the plastics and fertilizer markets. However, 1994 showed a 9% traffic
increase and an 8% revenue increase, compared with 1993. The demand for
chemicals increased in 1994, and shipments of fertilizer and plastics
were stronger than prior years. A resumption of moderate growth is
expected for 1996, as the fertilizer and plastics markets strengthen and
demand for liquefied petroleum gas grows.
<TABLE>
CHEMICALS
(Shown as a graph in the Annual Report to Stockholders)
This group comprises fertilizers, sulfur and related chemicals,
petroleum products, chlorine and bleaching compounds, plastics,
industrial chemicals, chemical wastes and bulk products.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 513.5 $ 512.2 $ 472.9 $ 471.7 $ 449.7 $ 443.9
</TABLE>
AUTOMOTIVE traffic rose 3%, and revenues--their highest in NS'
history--increased 5% over 1994. This growth occurred even though some
plants served by NS were shut down or operating at reduced capacity.
These effects were mitigated by strong production at selected plants that
produce popular cars and trucks. In 1994, automotive traffic had remained
steady, and revenues increased 1%, compared with 1993, due to retooling
downtime at four plants. Moderate growth is expected to continue in 1996,
as plant retoolings are completed and new plants come on line. The GM
plant at Wentzville, Mo., should resume production early in 1996 after
remaining down for two years. NS also should see more traffic from the
expanded Toyota plant at Georgetown, Ky.; from BMW's new facility at
Greer, S.C.; and in 1997, from the Mercedes plant under construction in
Tuscaloosa, Ala.
<TABLE>
AUTOMOTIVE
(Shown as a graph in the Annual Report to Stockholders)
This group comprises finished vehicles for BMW, Chrysler, Ford, General
Motors, Honda, Isuzu, Jaguar, Land Rover, Mazda, Mitsubishi, Nissan,
Saab, Subaru, Suzuki, Toyota and Volkswagen, and parts for Chrysler,
Ford, General Motors and Toyota.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 454.1 $ 432.1 $ 429.5 $ 401.5 $ 325.9 $ 367.9
</TABLE>
AGRICULTURE traffic rose 2%, and revenues increased 3%, compared
with a strong 1994. This growth was driven by a 6% increase in grain and
soybean traffic, a result of higher shipments from the Midwest to the
Southeast primarily for the poultry industry.
Agriculture traffic in 1994 rose 7%, and revenues increased 9%. This
performance reflected record corn and soybean harvests and improved car
utilization through greater use of 50- and 100-car unit trains. This
market group is expected to continue to grow as poultry consumption
increases, with a commensurate rise in demand for feed grain. Industrial
development efforts may bring several new feed mills on line in 1996.
<PAGE> PAGE 40
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
<TABLE>
AGRICULTURE
(Shown as a graph in the Annual Report to Stockholders)
This group comprises grain, soybeans, wheat, corn, animal and poultry
feed, food oils, flour, beverages, canned goods, sweeteners and consumer
products.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 359.0 $ 347.5 $ 319.7 $ 301.4 $ 293.6 $ 299.6
</TABLE>
METALS/CONSTRUCTION traffic rose slightly, and revenues were up 6%.
Most of the revenue increase was in the steel and aluminum markets,
driven by strong demand, improved pricing and traffic from a new steel
mini-mill in Butler, Ind. These results were partially offset by reduced
demand for construction products, reflecting postponement of some highway
projects and general weakness in residential construction.
Metals/construction traffic in 1994 was strong, with both volume and
revenues increasing 9%, compared with 1993. Most of the revenue gain was
in shipments of steel due to exceptionally strong industry demand.
Increased housing starts and new projects, such as at the Chesapeake Bay
Bridge Tunnel, may improve construction traffic in 1996. Moderate growth
is expected for metals.
<TABLE>
METALS/CONSTRUCTION
(Shown as a graph in the Annual Report to Stockholders)
This group comprises steel, aluminum products, machinery, scrap metals,
cement, aggregates, bricks, minerals and municipal wastes.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 339.5 $ 321.4 $ 296.1 $ 276.3 $ 274.0 $ 305.6
</TABLE>
INTERMODAL volume rose 12%, and revenues increased 11%. Although
intermodal traffic levels nationwide declined in 1995, NS intermodal
achieved record levels of volume, revenues and profitability, led by
container shipments in both domestic and international service. During
1995, a seven-year agreement with Hanjin Shipping Company was signed
under which NS will handle nearly all of Hanjin's international container
business in NS' territory east of the Mississippi River. EMP, the
container equipment-sharing arrangement with Union Pacific and Conrail,
contributed significantly to domestic growth. Almost all the increase in
international container business was attributable to new services,
thereby increasing NS' market share. Domestic business was augmented by
growth in the trucking segment, as both truckload and less-than-truckload
companies increased their use of NS intermodal. Additionally, intermodal
marketing companies increased their business on NS. Service and facility
improvements are expected to result in a further market-share increase in
1996.
<PAGE> PAGE 41
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Intermodal traffic in 1994 rose 13%, and revenues rose 9%, compared
with 1993. However, revenues reflect 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 subsidiary of NS.
Because NS owns only 50% of TCSC, its revenues are not consolidated. NS'
intermodal revenues include only revenues for rail service NS provides
the partnership. Excluding this partnership effect, 1994 intermodal
revenues increased 14%, compared with 1993. As was the case in 1995, the
1994 growth in intermodal was led by an increase in container business.
The export container segment improved, as the economies in Europe
recovered and countries in the Asia/Pacific region experienced rapid
growth in production. Revenues from domestic container 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.
<TABLE>
INTERMODAL
(Shown as a graph in the Annual Report to Stockholders)
This group handles trailers, containers and Triple Crown (RT) equipment
tendered by intermodal marketing companies, international steamship lines
and truckers.
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 470.5 $ 425.6 $ 390.2 $ 408.9 $ 380.6 $ 350.9
</TABLE>
Railway Operating Expenses
- --------------------------
Railway operating expenses in 1995 totaled $2.95 billion, an
increase of $75.2 million. However, 1995 expenses included a $33.6
million charge for an early retirement program (see Note 10 on page 67).
Excluding the early retirement charge, 1995 railway operating expenses
were up only $41.6 million, or 1%, on a 3% increase in traffic volume.
Similarly, railway operating expenses in 1994 were $2.87 billion, a 2%
increase, compared with 1993, despite a 7% increase in traffic volume.
As a result, the NS railway operating ratio, which measures the
percentage of revenues consumed by expenses, was a record 72.7 (excluding
the early retirement charge) and continues to be the best among the major
railroads in the United States.
<TABLE>
The following table shows the changes in railway operating expenses
summarized by major classifications.
RAILWAY OPERATING EXPENSES
Increases (Decreases)
($ in millions)
<CAPTION>
1995 vs. 1994 1994 vs. 1993
------------- -------------
<S> <C> <C>
Compensation and benefits $108.9* $(19.4)
Materials, services and rents (41.9) 10.7
Depreciation 14.7 12.4
Diesel fuel 1.5 9.0
Casualties and other claims (13.7) 16.0
Other 5.7 15.5
------ ------
Total $ 75.2 $ 44.2
====== ======
*Includes $33.6 million early retirement charge.
</TABLE>
<PAGE> PAGE 42
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
COMPENSATION AND BENEFITS, which represents about half of total
railway operating expenses, increased 8% in 1995 and declined 1% in 1994.
The 1995 increase was principally a result of: (1) the early
retirement charge of $33.6 million; (2) higher wages; (3) increased
performance-based compensation accruals, particularly those linked to the
NS stock price, which rose nearly $19 per share in 1995; and (4) higher
health care costs for agreement employees.
The 1994 decline was principally due to (1) lower accruals for
performance-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 69);
(3) the expiration of the Railroad Retirement Repayment Tax in June 1993;
(4) the effect of the early retirement program in 1993 (see Note 10 on
page 67); and (5) productivity improvements as a result of continuing
reductions in train crew sizes.
Materials, services and rents consists of items used for the
maintenance of the railroad's lines, structures and equipment; the cost
of services purchased from outside contractors, including the net costs
of operating joint (or leased) facilities with other railroads; and the
net cost of equipment rentals. This category decreased 6% in 1995 but
increased 2% in 1994.
The 1995 decrease of $41.9 million reflected initiatives to improve
asset utilization that resulted in (1) re-engineering of rail-line and
freight-car maintenance practices that reduced repair and maintenance
expenses and facilitated the closure of two repair facilities; (2)
reduced locomotive repair costs due to older locomotives' being replaced
with new units; (3) disposition of excess freight cars (see "Cash used
for investing activities" on page 46), resulting in a reduction in the
number of freight cars to be maintained; and (4) short-term leasing of
certain older locomotives to other railroads, which reduced net equipment
rental expense. Also contributing to the improvement was a decline in
equipment rental expenses, resulting from the partial deprescription
(deregulation by the ICC) of car-hire rates among railroads, which began
in 1994. These favorable results were somewhat offset by increased
expenses related to the 12% growth in intermodal traffic.
The 1994 increase of $10.7 million 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 other railroads' use of NS' facilities also contributed to the
increase in joint-facilities expense. Partially offsetting these
increases was a decline in equipment rent expenses resulting from the
partial deprescription of car-hire rates.
Depreciation expense (see Note 1 "Properties" on page 57 for NS'
depreciation policy) was up 4% in 1995 and 3% in 1994. The increases in
both periods were due to property additions, reflecting substantial
levels of capital spending over the last several years.
Diesel fuel costs rose 1% in 1995 and 5% in 1994. The 1995 increase
was primarily due to a small increase in the average price paid for
diesel fuel. Because even fuel-efficient locomotives consume substantial
quantities of diesel fuel, a slight price increase translates into large
cost increases. The increase in 1994 diesel fuel costs was entirely
driven by higher consumption, a result of a 7% increase in carloadings.
On average, fuel prices in 1994 were slightly lower than in 1993.
Casualties and other claims (including estimates of costs related to
personal injury, property damage and environmental matters) decreased 10%
in 1995 but increased 13% in 1994 over 1993. Both of these fluctuations
primarily were attributable to environmental clean-up costs in 1994
associated with a tankcar leak.
The largest component of "Casualties and other claims" is personal
injury expense. Although there has been a favorable trend in the number
of accidental injuries since 1990, much of the financial benefit from
this decline unfortunately has been offset by higher costs related to non-
accidental "occupational" claims and by an increase in the cost of third-
party injury claims arising from accidents at grade crossings. NS is
actively involved in efforts to reduce the risk of all accidents and is
placing particular emphasis on programs involving grade-crossing safety.
<PAGE> PAGE 43
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
The rail industry remains uniquely susceptible to job-related
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, which covers employees' claims
for on-the-job injuries, produces results that are unpredictable and
inconsistent, at a far greater cost to the rail industry than the no-
fault workers' compensation system 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 system.
Other expenses increased 4% in 1995, and increased 12% in 1994. The
1995 increase was due to higher sales, use and franchise taxes. The 1994
increase was due to favorable property tax settlements in 1993 and to
higher relocation expenses in 1994 related to new job assignments
following the early retirement program in 1993.
Motor Carrier Results
- ---------------------
Motor carrier operating income was $24.5 million, compared with
$22.1 million in 1994 and with an operating loss of $54.9 million in
1993. The large loss reported in 1993 was almost entirely attributable to
a restructuring of the business as described below. In 1995, because
certain expenses were below original estimates, $3.9 million of the
restructuring charge taken in 1993 was reversed. The ongoing operations,
comprised of Relocation Services (RS) and High Value Products (HVP),
produced operating income of $20.6 million in 1995, $22.1 million in
1994, and $14.4 million in 1993.
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 $50.3 million was
recorded in 1993 (see Note 15 on page 73).
<TABLE>
The following table presents a three-year comparison of revenues by
principal operations.
MOTOR CARRIER OPERATING REVENUES BY PRINCIPAL OPERATIONS
($ in millions)
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Relocation Services (RS) $310.9 $325.5 $315.3
High Value Products (HVP) 345.3 337.7 262.2
Commercial Transport (CT) * -- -- 105.3
Tran-Star (TS) * -- -- 31.4
------ ------ ------
Total $656.2 $663.2 $714.2
====== ====== ======
* See restructuring discussion in Note 15 on page 73.
</TABLE>
RS' revenues depend on four primary segments of household goods
transportation: corporate relocation accounts, individual shipments,
military, and international shipments. RS' 1995 revenues decreased 4%
from 1994 after having increased 3% over 1993. In 1995, international
shipments and domestic corporate account business gained 6% and 5%,
respectively. These gains were more than offset, however, by lower
individual business (6%), lower military volume (17%) and decreased
Canadian volume, primarily military related (30%). Revenue per shipment
improved nearly 3% in 1995. In 1994, volume gains were achieved in the
military and C.O.D. segments, although prices were flat. Domestic market-
share gains were partially offset by reduced revenues from
<PAGE> PAGE 44
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Canadian operations. The total number of household-goods moves industry-
wide has declined about 1% per year in each of the past six years.
Changes in domestic and Canadian policy relating to military staffing
levels may result in additional reduction in the overall number of moves
available in the industry. There are six major van lines in this market,
and competition is likely to remain intense.
HVP's main line of business is transporting office products,
sensitive equipment, and exhibits and displays. A Customized Logistics
Services (CLS) segment provides integrated logistics services. A
Blanketwrap segment, formerly part of the discontinued CT Division,
provides specialized handling of uncartoned truckload freight. HVP's
revenues increased 2%, compared with a strong 1994, and 29% in 1994,
compared with 1993. Traditional HVP business, Blanketwrap and CLS
experienced continued growth with their core accounts in 1995. These
gains were partially offset by a decrease in air-freight revenue due to
the rationalization of certain service centers. 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 major logistics
contract by IBM in third-quarter 1993. In an effort to improve timeliness
and efficiency, HVP expanded its distribution network in 1995 and
increased scheduled services. Additional growth in the CLS segment is
possible, as more shippers look to logistics providers like NAVL to
provide logistics expertise to reduce overall shipping and handling
costs.
Motor carrier operating expenses as a percentage of revenues were
96.3%, 96.7%, and 107.7%, respectively, in 1995, 1994 and 1993. The
highly unfavorable 1993 operating ratio was principally related to losses
sustained in the truckload operations and the restructuring charge
associated with discontinuing those operations.
NAVL's ongoing operations generated operating ratios of 96.9%, 96.7%
and 97.5%, respectively, in 1995, 1994 and 1993. Intense price
competition in the motor carrier industry is likely to keep margins at a
modest level and will require carriers to continue to focus on cost
reductions.
Income Taxes
- ------------
Income tax expense in 1995 was $402.0 million for an effective rate
of 36.1%, compared with an effective rate of 36.3% in 1994 and 38.9% in
1993. Absent the federal income tax rate increase in 1993 (see Note 3 on
page 60), income tax expense that year would have been $295.8 million for
an effective rate of 32.9%.
The below statutory rate in 1995 results from investments in
corporate-owned life insurance and coal-seam gas properties, and
favorable adjustments upon filing the 1994 tax returns. The below
statutory rate in 1994 was due to favorable adjustments resulting from
settlement of federal income tax years 1988 and 1989, an adjustment to
the valuation allowance for deferred tax assets and a favorable
adjustment upon filing the 1993 tax returns. Deferred tax expense was an
unusually high proportion of total tax expense in 1994. A corresponding
reduction is reflected in 1994 current tax expense for the effects of
expenditures that affect book and tax accounts in different years,
primarily in the areas of compensation, motor carrier restructuring and
property.
The low effective rate for 1993 (excluding the rate increase) was
partially due to tax benefits related to the motor carrier restructuring
(see Note 15 on page 73). Also in 1993, current tax expense increased and
deferred tax expense decreased because of tax payments made in
anticipation of Revenue Agent Reports for the 1988-1989 federal tax audit
(see Note 3 on page 60 for the components of income tax expense).
Accounting Changes and New Accounting Pronouncements
- ----------------------------------------------------
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). SFAS 115 did not have a significant
effect on NS (see also Note 1 on page 58).
<PAGE> PAGE 45
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
1993 - Effective January 1, 1993, NS adopted required accounting for
postretirement benefits other than pensions, postemployment benefits and
income taxes (see Note 1 on page 58 for a discussion of these accounting
changes). The net cumulative effect of these non-cash adjustments
increased 1993 net income by $223.3 million, or $1.60 per share.
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial
Accounting Standards Board (FASB) issued Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). This standard establishes the accounting and
reporting requirements for recognizing and measuring impairment of long-
lived assets to be either held and used or held for disposal. SFAS 121 is
effective for years beginning after December 15, 1995. NS does not expect
SFAS 121 to have a material effect on its financial statements.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). This standard defines a fair-value-
based method of accounting for stock-based compensation plans. However,
the standard also allows measurement of compensation cost using the
intrinsic-value-based method of accounting prescribed in Accounting
Principles Board Opinion No. 25 (APB 25). Companies that choose to retain
APB 25 for measurement will be required to provide pro forma footnote
disclosures effective for 1996 financial statements. NS expects to
continue recording stock-based compensation costs based on APB 25 and,
beginning in 1996, to provide the pro forma disclosures required under
SFAS 123.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION refers to the assets, liabilities and
stockholders' equity of an organization (see Consolidated Balance Sheets
on page 54). LIQUIDITY refers to the ability of an organization to
generate adequate amounts of cash, principally from operating results or
through borrowing power, to meet its short-term and long-term cash
requirements (see Consolidated Statements of Cash Flows on page 55).
CAPITAL RESOURCES refers to the ability of an organization to raise funds
through the sale of either debt or equity (stock) securities.
<TABLE>
<CAPTION>
($ in millions) 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Cash and short-term
investments $329.0 $306.7 $258.2 $378.1 $464.7
Current assets to
current liabilities 1.1 1.2 1.3 1.2 1.1
Debt-to-total
capitalization 25.9% 26.2% 27.4% 29.8% 29.5%
Return on average
stockholders' equity 15.4%* 14.4% 13.7%* 13.4% 11.1%*
* Excluding unusual items: In 1995, the early retirement charge; in
1993, the cumulative effects of required accounting changes and
the prior years' effect of the federal income tax rate increase,
and in 1991, the special charge.
</TABLE>
CASH PROVIDED BY OPERATING ACTIVITIES, which is NS' principal source
of liquidity, increased $93.1 million, or 8%, in 1995, compared with 1994
and $269.7 million, or 31%, in 1994, compared with 1993. 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. The improvement in 1995 was
primarily a result of increased income from operations (excluding the
early retirement charge, a non-cash item) and improved billing and
collection of receivables. The 1994 increase was largely attributable to
increased income from operations and to lower income tax payments.
<PAGE> PAGE 46
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Implementation of the labor portion of the 1991 special charge also
contributed to the fluctuations in cash provided by operations. In 1995,
1994 and 1993, $29.3 million, $41.9 million and $36.1 million,
respectively, were for such labor costs. In 1993, failure to reach
agreement on terms for certain further savings led to a partial reversal
of the 1991 special charge (see Note 16 on page 74). Looking ahead, the
labor portion of the special charge is expected to require approximately
$30 million in 1996 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 savings. In 1995, it is estimated that NS'
expenses were reduced by $160 million as a result of these programs and,
upon full implementation, there should be additional savings of about
$10 million per year.
<TABLE>
CASH PROVIDED BY OPERATIONS
(Shown as a graph in the Annual Report to Stockholders)
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$1,237.4 $1,144.3 $ 874.6 $ 958.2 $ 762.4 $ 994.7
</TABLE>
CASH USED FOR INVESTING ACTIVITIES increased 16% in 1995, compared
with 1994, and was up 4% in 1994, compared with 1993. Property additions
account for most of the spending in this category.
<TABLE>
The following tables show capital spending, track and equipment
statistics for the past five years.
CAPITAL EXPENDITURES
--------------------
(Also Shown as a Graph in the Annual Report to Stockholders)
<CAPTION>
($ in millions) 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Road $ 385.7 $ 384.6 $ 417.9 $ 426.5 $ 395.4
Equipment 344.3 245.9 240.5 281.3 235.2
Other property 33.4 82.4 10.8 8.3 82.8
------- ------- ------- ------- -------
Total $ 763.4 $ 712.9 $ 669.2 $ 716.1 $ 713.4
======= ======= ======= ======= =======
</TABLE>
<TABLE>
TRACK STRUCTURE STATISTICS (CAPITAL AND MAINTENANCE)
----------------------------------------------------
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Track miles of
rail installed 403 480 574 660 679
Miles of track
surfaced 4,668 4,760 5,048 5,690 5,646
New crossties
installed
(millions) 2.0 1.7 1.6 1.9 1.9
</TABLE>
<PAGE> PAGE 47
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
<TABLE>
AVERAGE AGES OF RAILWAY EQUIPMENT
---------------------------------
<CAPTION>
(Years) 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Freight cars 22.0 21.9 21.3 20.9 20.2
Locomotives 15.7 15.8 15.1 14.5 14.2
Retired
locomotives 22.6 23.6 24.7 24.0 27.1
</TABLE>
Since 1988, NS has rebodied more than 20,500 coal cars and plans to
continue that program at the rate of about 3,200 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 service life of the freight car fleet is greater
than is inferable from the increasing average age shown in the table
above.
Efforts to hold down capital spending while increasing business are
ongoing as NS seeks to maximize utilization of its assets. In this
connection, NS began an orderly disposition of up to 17,000 freight cars
in October 1994. Through the end of 1995, 7,272 of these cars were sold,
with proceeds of $42 million included in "Property sales and other
transactions" in the Consolidated Statements of Cash Flows. In 1995 and
1993, this line item reflected proceeds from large land sales (see Note 2
on page 59).
For 1996, NS is planning $708 million of capital spending, of which
$699 million is for railway projects and $9 million is for motor carrier
property. NS anticipates that a portion of its locomotive acquisitions
will be financed using capitalized leases similar to the 1995 leases (see
Note 6 on page 63). In 1996, equipment financing needs are expected to be
somewhat lower than in 1995, as proceeds from the sale of freight cars
may be used for some locomotive acquisitions. Barring unforeseen events,
total rail and motor carrier capital spending are expected to continue to
be similar to 1994 and 1995 levels.
In 1994, large borrowings on corporate-owned life insurance,
reflected in "Investment sales and other transactions" in the
Consolidated Statements of Cash Flows, offset much of the use of cash for
property additions in that year.
CASH USED FOR FINANCING ACTIVITIES declined 3% in 1995, compared
with 1994, but increased 56% in 1994, compared with 1993. The reduction
in 1995 was primarily attributable to lower debt repayments; 1994 had
included the maturity of a large mortgage (see Note 6 on page 63 for debt
maturities). The 1994 increase was a result of increased purchases under
the stock purchase program (see Note 13 on page 73). Cash spent since
1987 to purchase and retire stock totaled $2.9 billion, of which $338.2
million, $344.8 million and $138.1 million was spent in 1995, 1994 and
1993, respectively. Through December 31, 1995, NS had purchased 63.9
million of a total 65 million shares authorized under the stock purchase
programs.
On January 23, 1996, the NS Board authorized a new program to
acquire up to 30 million additional shares of common stock. NS plans to
complete these purchases, dependent on market conditions and other
factors, by the end of the year 2000. Some debt is expected to be issued
to finance a portion of these purchases. Also on January 23, 1996, NS
increased its quarterly dividend, payable in March, from 52 cents to 56
cents per share. The effect of this 7.7% dividend increase on cash
outflows will be offset, to some extent, by a reduction in the number of
shares outstanding as a result of the stock purchase programs.
<TABLE>
CUMULATIVE PURCHASES OF STOCK
(Shown as a graph in the Annual Report to Stockholders)
($ in millions)
<CAPTION>
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$2,865.4 $2,531.5 $2,181.8 $2,041.9 $1,862.8 $1,236.2
</TABLE>
<PAGE> PAGE 48
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
Hedging Activities
- ------------------
Certain NS subsidiaries have entered into hedging transactions
relating to diesel fuel purchases, foreign exchange transactions and
interest rate swaps. The notional amount of diesel fuel and foreign
exchange agreements settled from 1993 through 1995 was less than $2
million, and outstanding agreements at December 31, 1995, were less than
$5 million. As discussed under "Capital Leases" in Note 6 on page 63, NS
has made limited use of interest rate swaps in connection with certain
equipment financings.
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 clean-up 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 oversee and interpret its environmental policy.
Operating expenses for environmental protection totaled
approximately $13 million in 1995 and are anticipated to increase
somewhat in 1996. Capital expenditures for environmental projects
amounted to approximately $8 million in 1995 and are expected to be at
the same level in 1996. As of December 31, 1995, NS' balance sheet
included a reserve for environmental exposures in the amount of $44
million (of which $12 million is accounted for as a current liability),
which is NS' present best estimate of ultimate liability at 96 identified
locations. On that date, eight sites accounted for $16 million of the
reserve, and no individual site was considered to be material. NS
anticipates that much 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 96 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 clean-up
costs.
At one such site, the EPA alleged in 1995 that The Alabama
Great Southern Railroad Company ("AGS"), a subsidiary of NS' rail
subsidiary, is responsible, along with several other entities
believed to be financially solvent, for past and future clean-up
and monitoring costs at the Bayou Bonfouca NPL Superfund site
located in Slidell, La. The site was owned by the parent of an
AGS predecessor from 1882 until 1902. Bridge timbers used in the
1882 construction of the predecessor's bridge across Lake
Pontchartrain were treated at the site. On March 20, 1996, NS
learned that the United States filed suit on March 11 to recover
$100 million and other unspecified amounts from AGS and from some
of--but not from all--the entities it earlier identified as
potentially responsible parties. AGS believes it never owned,
operated or had any other culpable connection to the site and
denies responsibility; however, because the amount of liability,
if any, that ultimately may be assessed against NS or AGS cannot
be estimated reliably at this time, the materiality of such
amount to NS' financial position, results of operation or
liquidity in a particular quarter or year cannot be evaluated.
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
<PAGE> PAGE 49
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations. (continued)
-----------------------------------
of currently available clean-up techniques, the likely development of new
clean-up 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 own or have owned in the past land holdings used 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 cost in preparing financial statements. This approach
disregards the effects of inflation on the replacement cost of property.
NS, a capital-intensive company, has approximately $13.6 billion invested
in such assets. The replacement cost of these assets, as well as the
related depreciation expense, would be substantially greater than the
amounts reported on the basis of historical cost.
INDUSTRY TRENDS
- - A tentative settlement was reached with the United Transportation
Union, which represents the largest number of employees in the
railroad industry. The settlement requires ratification by the members
before acceptance. The negotiation of this settlement demonstrated
that national handling produces the quickest path to agreement.
Negotiations with the other unions are progressing.
- - 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 is closely monitoring recent merger and consolidation activities
within the railroad industry in light of its own long-term strategic
objectives to protect the interests of its stockholders.
- - 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.
<PAGE> PAGE 50
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)
1995
----
<S> <C> <C> <C> <C>
Transportation
operating revenues $1,138.7 $1,190.2 $1,183.9 $1,155.2
Income from operations 249.1 290.1 292.1 255.0
Net income 170.7 181.2 183.9 176.9
Earnings per share $1.29 $1.38 $1.40 $1.37
1994
----
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> PAGE 51
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
Index to Financial Statements: Page
----------------------------- ----
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993 52
Consolidated Balance Sheets
As of December 31, 1995 and 1994 54
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993 55
Consolidated Statements of Changes in
Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993 56
Notes to Consolidated Financial Statements 57
Independent Auditors' Report 76
The Index to Consolidated Financial Statement Schedule appears
in Item 14 on page 78.
<PAGE> PAGE 52
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
($ in millions,
except earnings per share)
<S> <C> <C> <C>
Transportation operating revenues:
Railway $4,011.8 $3,918.1 $3,745.9
Motor carrier (Note 15) 656.2 663.2 714.2
-------- -------- --------
Total transportation
operating revenues 4,668.0 4,581.3 4,460.1
-------- -------- --------
Transportation operating expenses:
Railway:
Compensation and benefits
(Notes 10 and 16) 1,480.0 1,371.1 1,390.5
Materials, services and rents 618.5 660.4 649.7
Depreciation 389.0 374.3 361.9
Diesel fuel 189.8 188.3 179.3
Casualties and other claims 121.4 135.1 119.1
Other 151.3 145.6 130.1
-------- -------- --------
Total railway operating expenses 2,950.0 2,874.8 2,830.6
Motor carrier (Note 15) 631.7 641.1 769.1
-------- -------- --------
Total transportation
operating expenses 3,581.7 3,515.9 3,599.7
-------- -------- --------
Income from operations 1,086.3 1,065.4 860.4
Other income - net (Note 2) 141.8 85.2 136.8
Interest expense on debt (Note 5) 113.4 101.6 98.6
-------- -------- --------
Income before income taxes
and accounting changes 1,114.7 1,049.0 898.6
Provision for income taxes (Note 3):
Income taxes 402.0 381.2 303.7
Adjustment of net deferred tax
liability for federal rate increase -- -- 46.2
-------- -------- --------
Total income taxes 402.0 381.2 349.9
-------- -------- --------
Income before accounting changes 712.7 667.8 548.7
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 $ 712.7 $ 667.8 $ 772.0
======== ======== ========
</TABLE>
<PAGE> PAGE 53
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
($ in millions,
except earnings per share)
<S> <C> <C> <C>
Earnings per share amounts (Note 13):
Earnings per share before
accounting changes $ 5.44 $ 4.90 $ 3.94
Cumulative effect on years prior to
1993 of changes in accounting
principles for (Note 1):
Income taxes -- -- 3.34
Postretirement benefits other
than pensions; and postemployment
benefits -- -- (1.74)
-------- -------- --------
Earnings per share $ 5.44 $ 4.90 $ 5.54
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 54
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
As of December 31,
1995 1994
--------- ---------
($ in millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 67.7 $ 57.0
Short-term investments 261.3 249.7
Accounts receivable net of allowance for
doubtful accounts of $19.1 million and
$21.9 million, respectively 703.5 726.6
Materials and supplies 61.7 61.9
Deferred income taxes (Note 3) 144.7 137.0
Other current assets 103.9 105.3
--------- ---------
Total current assets 1,342.8 1,337.5
--------- ---------
Investments (Note 4) 231.7 172.8
Properties less accumulated
depreciation (Note 5) 9,258.8 8,987.1
Other assets 71.5 90.4
--------- ---------
Total assets $10,904.8 $10,587.8
========= =========
Liabilities and stockholders' equity
Current liabilities:
Short-term debt (Note 6) $ 45.2 $ 44.9
Accounts payable (Note 7) 732.8 704.1
Income and other taxes 190.8 168.5
Other current liabilities (Note 7) 151.3 142.3
Current maturities of long-term debt (Note 6) 85.7 72.0
--------- ---------
Total current liabilities 1,205.8 1,131.8
--------- ---------
Long-term debt (Note 6) 1,553.3 1,547.8
Other liabilities (Note 9) 965.5 961.9
Minority interests 52.2 53.5
Deferred income taxes (Note 3) 2,299.0 2,208.0
--------- ---------
Total liabilities 6,075.8 5,903.0
--------- ---------
Stockholders' equity:
Common stock $1.00 per share par value,
450,000,000 shares authorized; issued
136,285,530 shares and
140,386,027 shares, respectively 136.3 140.4
Other capital 430.9 410.4
Retained income 4,282.4 4,154.6
Less treasury stock at cost, 7,252,634 shares (20.6) (20.6)
--------- ---------
Total stockholders' equity 4,829.0 4,684.8
--------- ---------
Total liabilities and stockholders' equity $10,904.8 $10,587.8
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 55
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Years ended December 31,
1995 1994 1993
-------- -------- --------
($ in millions)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 712.7 $ 667.8 $ 772.0
Reconciliation of net income to
net cash provided by operating activities:
Net cumulative effect of changes
in accounting principles -- -- (223.3)
Special charge payments (29.3) (41.9) (36.1)
Depreciation 413.5 403.8 405.5
Deferred income taxes 66.7 112.7 56.2
Nonoperating gains and losses
on properties and investments (71.8) (17.0) (73.2)
Changes in assets and liabilities
affecting operations:
Accounts receivable 28.1 (12.9) 18.1
Materials and supplies 0.2 8.4 9.8
Other current assets 1.4 (17.8) 4.0
Current liabilities other than debt 84.2 55.5 (37.4)
Other - net 31.7 (14.3) (21.0)
-------- -------- --------
Net cash provided by operating activities 1,237.4 1,144.3 874.6
Cash flows from investing activities:
Property additions (658.9) (712.9) (669.2)
Property sales and other transactions 129.5 86.1 124.4
Investments and loans (67.1) (58.7) (95.5)
Investment sales and other transactions 36.9 272.0 81.6
Short-term investments - net (8.3) (74.4) 88.6
-------- -------- --------
Net cash used for investing activities (567.9) (487.9) (470.1)
Cash flows from financing activities:
Dividends (273.5) (262.7) (259.7)
Common stock issued - net 19.1 9.8 15.7
Purchase and retirement of common stock (338.2) (344.8) (138.1)
Commercial paper proceeds -- -- 1.3
Proceeds from long-term borrowings 7.6 41.4 53.6
Debt repayments (73.8) (123.6) (108.6)
-------- -------- --------
Net cash used for financing activities (658.8) (679.9) (435.8)
Net increase (decrease) in cash
and cash equivalents 10.7 (23.5) (31.3)
Cash and cash equivalents:
At beginning of year 57.0 80.5 111.8
-------- -------- --------
At end of year $ 67.7 $ 57.0 $ 80.5
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 119.4 $ 114.3 $ 140.1
Income taxes $ 282.9 $ 226.4 $ 350.7
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 56
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Common Other Retained Treasury
Stock Capital Income Stock Total
-------- -------- -------- -------- --------
($ in millions)
<S> <C> <C> <C> <C> <C>
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
Net income - 1995 712.7 712.7
Dividends on common stock
$2.08 per share (273.5) (273.5)
Purchase and retirement of
common stock (4.8) (14.3) (314.8) (333.9)
Other 0.7 34.8 3.4 38.9
------- ------- -------- ------- --------
Balance December 31, 1995 $ 136.3 $ 430.9 $4,282.4 $ (20.6) $4,829.0
======= ======= ======== ======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 57
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
Description of Business
- -----------------------
Norfolk Southern Corporation is a Virginia-based holding company
engaged principally in the transportation of freight by rail, primarily
in the Southeast and Midwest, and the operation of a motor carrier
providing household moving and specialized freight handling services in
the United States and Canada. 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.
Rail freight consists of raw materials, intermediate products and
finished goods classified in the following market groups: coal,
paper/forest, chemicals, automotive, agriculture, metals/construction and
intermodal. All groups are approximately equal in size based on revenues
except for coal, which accounts for about one third of railway revenues.
Ultimate destinations for some of the freight and a portion of the coal
shipped are outside the United States.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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" below).
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."
<PAGE> PAGE 58
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 1995, 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 and non-rail
assets, 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 and non-rail assets are included in other income (see
Note 2).
Revenue Recognition
- -------------------
Revenue is recognized proportionally as a shipment moves from origin
to destination.
Earnings Per Share
- ------------------
"Earnings per share" in any period are computed by dividing net
income by the weighted average number of common shares outstanding during
that period. 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
small change in stockholders' equity, 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 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).
<PAGE> PAGE 59
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. 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 $1.60 per share, respectively.
<TABLE>
2. OTHER INCOME - NET
<CAPTION>
1995 1994 1993
------ ------ ------
($ in millions)
<S> <C> <C> <C>
Interest income $ 27.9 $ 25.5 $ 25.1
Royalties from coal 58.6 61.0 55.7
Gains from sale of properties 43.2 17.0 38.6
Gain from partial redemption of
partnership interest 30.5 -- --
Rental income 20.8 19.6 21.1
Corporate-owned life
insurance - net 7.1 7.7 10.8
Other interest expense (23.5) (19.7) (27.4)
Non-rail depletion and depreciation (10.2) (11.6) (8.9)
Taxes on nonoperating property (6.9) (8.2) (7.7)
Gains from sale of stocks -- -- 34.6
Other - net (5.7) (6.1) (5.1)
------ ------ ------
Total $141.8 $ 85.2 $136.8
====== ====== ======
</TABLE>
<PAGE> PAGE 60
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
3. INCOME TAXES
<TABLE>
Provision for Income Taxes
- --------------------------
<CAPTION>
1995 1994 1993
------- ------- -------
($ in millions)
<S> <C> <C> <C>
Current:
Federal $282.6 $226.4 $250.2
State 52.7 42.1 43.5
------ ------ ------
Total current taxes 335.3 268.5 293.7
Deferred:
Federal 57.8 99.0 (2.4)
State 8.9 13.7 12.4
Adjustment of net deferred
tax liability for federal
rate increase -- -- 46.2
------ ------ ------
Total deferred taxes 66.7 112.7 56.2
------ ------ ------
Provision for income taxes $402.0 $381.2 $349.9
====== ====== ======
</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 that, as required by SFAS 109, were recognized in 1993
earnings.
The first component relates to the increased income tax rate's
effect on 1993 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 that year's net income by
$46.2 million, or $0.33 per share. Excluding this one-time, non-cash
charge of $0.33 per share, 1993 earnings per share before accounting
changes would have been $4.27.
<PAGE> PAGE 61
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
3. INCOME TAXES (continued)
<TABLE>
Reconciliation of Statutory Rate to Effective Rate
- --------------------------------------------------
Total income taxes as reflected in the Consolidated Statements of
Income differ from the amounts computed by applying the statutory federal
corporate tax rate as follows:
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
Amount % Amount % Amount %
-------- ---- -------- ---- -------- ----
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
at statutory rate $ 390.1 35.0 $ 367.2 35.0 $ 314.5 35.0
State income taxes, net
of federal tax benefit 40.0 3.6 36.1 3.4 37.2 4.1
Motor carrier
restructuring -- -- -- -- (36.8) (4.1)
Corporate-owned
life insurance (17.0) (1.5) (10.5) (1.0) (9.8) (1.1)
Other - net (11.1) (1.0) (11.6) (1.1) (1.4) (0.1)
------- ---- ------- ---- ------- ----
402.0 36.1 381.2 36.3 303.7 33.8
Adjustment of net
deferred tax lia-
bility for federal
rate increase -- -- -- -- 46.2 5.1
------- ---- ------- ---- ------- ----
Provision for
income taxes $ 402.0 36.1 $ 381.2 36.3 $ 349.9 38.9
======= ==== ======= ==== ======= ====
</TABLE>
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 a subsidiary of NS
purchased from a third party pursuant to a safe harbor lease agreement in
1981. Management continues to believe that NS ultimately should incur no
loss from this decision, because the lease agreement provides for full
indemnification if any such disallowance is sustained.
<PAGE> PAGE 62
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
3. INCOME TAXES (continued)
Deferred Tax Assets and Liabilities
- -----------------------------------
Certain items are reported in different periods for financial
reporting and income tax purposes. Deferred tax assets and liabilities
were recorded in recognition of these differences in accordance with SFAS
109.
<TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities were as follows:
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
($ in millions)
<S> <C> <C>
Deferred tax assets:
Reserves, including casualty and
other claims $ 189.3 $ 204.0
Employee benefits 196.1 176.5
Postretirement benefits other than
pension and postemployment
benefits 148.3 142.1
Taxes, including state and property 170.3 165.2
Other 59.1 23.4
--------- ---------
Total gross deferred tax assets 763.1 711.2
Less valuation allowance (1.5) (1.4)
--------- ---------
Net deferred tax assets 761.6 709.8
--------- ---------
Deferred tax liabilities:
Property (2,821.5) (2,744.3)
Other (94.4) (36.5)
--------- ---------
Total gross deferred
tax liabilities (2,915.9) (2,780.8)
--------- ---------
Net deferred tax liability (2,154.3) (2,071.0)
Net current deferred tax assets 144.7 137.0
--------- ---------
Net long-term deferred
tax liability $(2,299.0) $(2,208.0)
========= =========
</TABLE>
Except for amounts for which a valuation allowance is provided,
Management believes the 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 $0.1
million increase for 1995, a $9.5 million decrease for 1994 and a $1.1
million increase for 1993.
<PAGE> PAGE 63
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
4. INVESTMENTS
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
($ in millions)
<S> <C> <C>
Corporate-owned life insurance
at net cash surrender value $ 175.2 $ 138.6
Marketable equity securities 5.2 3.0
Other 51.3 31.2
--------- ---------
Total $ 231.7 $ 172.8
========= =========
</TABLE>
<TABLE>
5. PROPERTIES
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
($ in millions)
<S> <C> <C>
Transportation property:
Road $ 8,235.7 $ 8,019.6
Equipment 4,775.7 4,626.8
Other property 573.7 563.9
--------- ---------
13,585.1 13,210.3
Less: Accumulated depreciation 4,326.3 4,223.2
--------- ---------
Net properties $ 9,258.8 $ 8,987.1
========= =========
</TABLE>
Capitalized Interest
- --------------------
Total interest cost incurred on debt in 1995, 1994 and 1993 was
$127.4 million, $119.4 million and $120.2 million, respectively, of which
$14.0 million, $17.8 million and $21.6 million was capitalized.
6. DEBT
Commercial Paper Program
- ------------------------
NS' commercial paper debt totaled $518.0 million and $517.3 million
as of December 31, 1995 and 1994, respectively.
Commercial paper debt is due within one year, but $500 million has
been classified as long-term because NS has the ability through its $500
million revolving credit back-up facility to convert this obligation into
longer term debt. NS intends to refinance the commercial paper either by
issuing additional commercial paper or by replacing commercial paper
notes with long-term debt.
The $500 million credit agreement is effective through 1999,
provides for interest on borrowings at prevailing rates and contains
customary financial covenants, including principally a minimum tangible
net worth requirement of $3.3 billion and a restriction on the creation
or assumption of certain liens.
<PAGE> PAGE 64
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
6. DEBT (continued)
<TABLE>
Short-Term Debt
- ---------------
<CAPTION>
December 31,
---------------------
1995 1994
------ ------
($ in millions)
<S> <C> <C>
Commercial paper notes $ 18.0 $ 17.3
Other notes 27.2 27.2
Subsidiaries' credit lines -- 0.4
------ ------
Total $ 45.2 $ 44.9
====== ======
</TABLE>
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.
Capital Leases Obligations
- --------------------------
During the first quarter of 1995, an NS rail subsidiary entered into
capital leases covering new locomotives. The related capital lease
obligations totaling $104.5 million were reflected in the Consolidated
Balance Sheet as debt and, because they were non-cash transactions, were
excluded from the Consolidated Statement of Cash Flows. The lease
obligations carry an average stated interest rate of 8.4% but were
converted to variable rate obligations using interest rate swap
agreements. The interest rates on these obligations are based on the six-
month London Interbank Offered Rate and are reset every six months with
changes in interest rates accounted for as an adjustment of interest
expense. As a result, NS is exposed to the market risk associated with
fluctuations in interest rates. To date, while such rate fluctuations
have been nominal, their effects have been favorable. Counterparties to
the interest rate swap agreements are major financial institutions
believed by Management to be credit-worthy. NS' use of interest rate
swaps has been limited to those discussed above.
<PAGE> PAGE 65
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
6. DEBT (continued)
<TABLE>
Long-Term Debt
- --------------
<CAPTION>
December 31,
------------------
1995 1994
-------- --------
($ in millions)
<S> <C> <C>
Railroad equipment obligations at an
average rate of 8.0% maturing to 2009 $ 444.6 $ 520.9
Notes at an average rate of 8.4%
maturing to 2021 497.5 497.3
Commercial paper classified as long-term
debt at an average rate of 5.9% 500.0 500.0
Capitalized leases at an average rate of
6.5% maturing to 2015 100.9 2.0
Mortgage bonds at an average rate of
4.2% maturing to 2003 27.5 33.9
Other debt at an average rate of 8.6%
maturing to 2015 68.5 65.7
-------- --------
Total long-term debt 1,639.0 1,619.8
-------- --------
Less: Current maturities 85.7 72.0
-------- --------
Long-term debt less current
maturities $1,553.3 $1,547.8
======== ========
<S> <C>
Long-term debt matures as follows:
1997 $ 49.5
1998 107.1
1999 119.4
2000 49.3
2001 and subsequent years 1,228.0
--------
Total $1,553.3
========
</TABLE>
A substantial portion of NS' properties and certain investments in
affiliated companies are pledged as collateral for much of the secured
debt.
<PAGE> PAGE 66
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
<TABLE>
7. CURRENT LIABILITIES
<CAPTION>
December 31,
------------------
1995 1994
-------- --------
($ in millions)
<S> <C> <C>
Accounts payable:
Accounts and wages payable $ 385.2 $ 363.2
Casualty and other claims 197.4 191.2
Vacation liability 74.4 72.7
Equipment rents payable - net 62.0 67.0
Other 13.8 10.0
------- -------
Total $ 732.8 $ 704.1
======= =======
Other current liabilities:
Prepaid amounts on forwarded traffic $ 69.7 $ 72.8
Interest payable 42.8 38.3
Retiree health and death benefit
obligation (Note 11) 25.3 22.0
Other 13.5 9.2
------- -------
Total $ 151.3 $ 142.3
======= =======
</TABLE>
8. LEASE COMMITMENTS
<TABLE>
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 lease payments are as follows:
<CAPTION>
Operating Leases Capital Leases
---------------- --------------
($ in millions)
<S> <C> <C>
1996 $ 56.6 $ 15.0
1997 53.8 14.9
1998 45.5 14.9
1999 33.4 14.9
2000 31.8 14.8
2001 and subsequent years 583.8 80.5
------- -------
Total $ 804.9 155.0
=======
Less imputed interest
on capital leases at an
average rate of 8.4% 54.1
-------
Present value of minimum
lease payments included
in debt $ 100.9
=======
</TABLE>
<PAGE> PAGE 67
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
8. LEASE COMMITMENTS (continued)
<TABLE>
Operating Lease Expense
- -----------------------
<CAPTION>
1995 1994 1993
-------- -------- --------
($ in millions)
<S> <C> <C> <C>
Minimum rents $ 67.8 $ 56.1 $ 42.0
Contingent rents 36.0 45.4 36.1
------- ------- -------
Total $ 103.8 $ 101.5 $ 78.1
======= ======= =======
</TABLE>
<TABLE>
9. OTHER LIABILITIES
<CAPTION>
December 31,
------------------
1995 1994
-------- --------
($ in millions)
<S> <C> <C>
Casualty and other claims $ 286.5 $ 305.0
Net pension obligation (Note 10) 102.2 91.6
Retiree health and death benefit
obligation (Note 11) 307.4 300.5
Other 269.4 264.8
------- -------
Total $ 965.5 $ 961.9
======= =======
</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>
1995 1994 1993
-------- -------- --------
($ in millions)
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 11.5 $ 12.5 $ 13.3
Interest cost on projected
benefit obligation 68.0 62.6 60.8
Actual return on assets in plans (263.4) (17.0) (107.4)
Net amortization and deferral 177.0 (62.8) 29.5
------- ------- -------
Net pension benefit (6.9) (4.7) (3.8)
Cost of early retirement benefits 23.4 -- 38.7
------- ------- -------
Total $ 16.5 $ (4.7) $ 34.9
======= ======= =======
</TABLE>
<PAGE> PAGE 68
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>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Discount rate for determining
funded status 7.25% 8.50% 7.25%
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,
----------------------------------------
1995 1994
------------------ ------------------
Funded Unfunded Funded Unfunded
Plans Plans Plans Plans
-------- -------- -------- --------
($ in millions)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $ 812.5 $ 51.7 $ 643.4 $ 41.2
Non-vested benefits 6.6 0.3 4.0 0.2
------- ------- ------- -------
Accumulated benefit
obligation 819.1 52.0 647.4 41.4
Effect of expected future
salary increases 115.3 11.5 102.0 9.5
------- ------- ------- -------
Projected benefit
obligation 934.4 63.5 749.4 50.9
Fair value of assets in plans 1,088.8 -- 892.0 --
------- ------- ------- -------
Funded status 154.4 (63.5) 142.6 (50.9)
Unrecognized initial
net asset (35.9) -- (42.4) --
Unrecognized (gain) loss (169.2) 21.5 (159.6) 10.1
Unrecognized prior
service cost (12.8) 3.3 3.8 4.8
------- ------- ------- -------
Net pension liability
included in the
balance sheets $ (63.5) $ (38.7) $ (55.6) $ (36.0)
======= ======= ======= =======
</TABLE>
<PAGE> PAGE 69
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
10. PENSION PLANS (continued)
Early Retirement Programs
- -------------------------
During 1995 and 1993, NS completed voluntary early retirement
programs for salaried employees. The principal benefit for those who
participated in these programs was enhanced pension benefits, which are
reflected in the accumulated benefit obligation. The charge for these
programs is included in "Compensation and benefits" expense and was
$33.6 million in 1995 (including $8.3 million related to postretirement
benefits other than pensions) and $42.4 million in 1993. The 1995 program
was accepted by 272 employees; the 1993 program, by 378 employees.
401(k) Plans
- ------------
Norfolk Southern and certain subsidiaries provide 401(k) savings
plans for employees. Under the plans, NS matches a portion of the
employee contributions, subject to applicable limitations. NS' expenses
under these plans were $7.0 million, $5.1 million and $5.2 million in
1995, 1994 and 1993, 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. 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. NS last made a corporate contribution of $10
million in 1994 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 $90 million, which will
be amortized as a reduction in annual cost on a pro rata basis over a six-
year period.
<PAGE> PAGE 70
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)
<TABLE>
A summary of the postretirement benefit cost follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
($ in millions)
<S> <C> <C> <C>
Service cost-benefits
attributable to service
during the year $ 10.2 $ 14.5 $ 8.7
Interest cost on accumulated
postretirement benefit
obligation 28.6 25.0 29.1
Actual return on plan assets (17.6) -- (1.9)
Net amortization and deferral 0.9 (14.6) (0.7)
------- ------- -------
Net postretirement
benefit cost $ 22.1 $ 24.9 $ 35.2
Cost of early retirement
benefits 8.3 -- --
------- ------- -------
Total $ 30.4 $ 24.9 $ 35.2
======= ======= =======
</TABLE>
<TABLE>
The following table sets forth these plans' total accumulated
postretirement benefit obligation, reconciled with the accrued
postretirement benefit obligation:
<CAPTION>
December 31,
-----------------------------------------
1995 1994
------------------ ------------------
Health Health
Care Death Care Death
Benefits Benefits Benefits Benefits
-------- -------- -------- --------
($ in millions)
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 225.6 $ 83.8 $ 165.0 $ 77.2
Fully eligible active
plan participants 23.9 8.0 13.5 4.7
Other active plan
participants 52.7 12.8 36.9 11.2
------- ------- ------- -------
Total 302.2 104.6 215.4 93.1
Plan assets at fair value 72.1 -- 54.5 --
------- ------- ------- -------
Funded status (230.1) (104.6) (160.9) (93.1)
Unrecognized loss (gain) 59.4 4.1 14.8 (4.5)
Unrecognized prior
service cost (benefit) (61.5) -- (78.7) (0.1)
------- ------- ------- -------
Accrued postretirement
benefit obligation $(232.2) $(100.5) $(224.8) $ (97.7)
======= ======= ======= =======
</TABLE>
<PAGE> PAGE 71
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)
For measurement purposes, an 11% increase in the per capita cost of
covered health care benefits was assumed for 1996. The rate was assumed
to decrease gradually to an ultimate rate of 5.5% and remain at that
level for 2005 and 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, 1995, by about
$35 million and the aggregate of the service and interest cost components
of net postretirement benefit cost for the year 1995 by about $4 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 $3.7 million, $4.8 million and $5.3 million in 1995, 1994 and 1993,
respectively.
12. LONG-TERM INCENTIVE PLAN
Under the Long-Term Incentive Plan approved by stockholders at their
1995 annual meeting, 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 17,675,000 shares of
Norfolk Southern common stock. Grants of SARs and PSUs result in charges
to earnings, while grants of stock options 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.
The plan also permits the payment--on a current or a deferred basis
and in cash or in stock--of dividend equivalents on shares of common
stock covered by options or PSUs granted after December 31, 1989, in an
amount 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 operating expenses.
Through 1991, SARs were granted on a one-for-one basis in tandem
with certain stock options. Upon the exercise of an SAR, the optionee
receives in common stock or cash or both 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.
Because of regulations issued by the Securities and Exchange Commission
in 1991, plan participants surrendered, without cash or other
consideration, all outstanding SARs granted after 1988. Future grants of
SARs are not anticipated at this time. SARs outstanding as of each year
end were as follows: 46,562 in 1995; 74,519 in 1994; and 95,852 in 1993.
<PAGE> PAGE 72
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 12/31/92 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
Granted 718,250 62.50
Exercised (656,743) 22.25 to 72.94
Surrendered for SAR (13,440) 22.25 to 28.79
Cancelled (3,750) 62.50 to 72.94
---------
Balance 12/31/95 3,542,619 $22.25 to $72.94
Stock options exercisable 12/31:
<S> <C> <C> <C> <C>
1993 2,205,657 $17.46 to $56.44
1994 2,794,552 22.25 to 63.25
1995 2,825,619 22.25 to 72.94
</TABLE>
Performance Share Units
- -----------------------
PSUs were added to the Long-Term Incentive Plan as approved in 1989
and amended in 1995. PSUs 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
252,500 in 1995; 163,000 in 1994; and 160,500 in 1993. Shares earned and
issued may be subject to share retention agreements and held by NS for up
to five years.
<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>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Available for future
grants 12/31 7,143,126 2,060,796 2,835,862
Shares of common
stock issued 807,760 190,060 352,248
</TABLE>
<PAGE> PAGE 73
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 have been made with internally generated cash, and with
proceeds from the sale of commercial paper notes and from the issuance of
long-term debt.
The decreases in the average number of outstanding common shares are
the result of these purchase programs. Since the first purchases in
December 1987 and through December 31, 1995, NS has purchased and retired
63,932,000 shares of its common stock under these programs at a cost of
$2.9 billion. Future purchase decisions are dependent on market
conditions, the economy, cash needs and alternative investment
opportunities.
On January 23, 1996, the NS Board authorized a new program to
acquire up to 30 million additional shares of common stock.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of "Cash and cash equivalents," "Short-term
investments," "Accounts receivable," "Short-term debt" and "Accounts
payable" approximate carrying values because of the short maturity of
these financial instruments. "Short-term investments" are reported at
fair value in accordance with SFAS 115 (see Note 1). At December 31, 1995
and 1994, all "short-term investments" were designated as available for
sale.
The fair value of long-term "Investments" approximated $297 million
and $261 million at December 31, 1995 and 1994, 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. Marketable securities reflect
$3.5 million of unrealized holding gains at December 31, 1995, and $2.0
million of unrealized holding losses 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 $1.77 billion at December 31, 1995, and $1.63 billion at
December 31, 1994. 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.
<PAGE> PAGE 74
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, which 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, 1995, certain Norfolk Southern subsidiaries are
contingently liable as guarantors with respect to $66 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 clean-up 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 oversee and interpret its environmental policy.
As of December 31, 1995, NS' balance sheet included a reserve for
environmental exposures in the amount of $44 million (of which $12
million is accounted for as a current liability), which is NS' present
best estimate of ultimate liability at 96 identified locations. On that
date, eight sites accounted for $16 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.
<PAGE> PAGE 75
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
17. CONTINGENCIES (continued)
At many of the 96 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 clean-up
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 clean-up techniques, the likely development of new
clean-up 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 own, or have owned in the past, land holdings used 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 76
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, 1995 and
1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995, 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 23, 1996
<PAGE> PAGE 77
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 1, 1996, for the Norfolk Southern Annual Meeting of Stockholders
to be held on May 9, 1996, 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 23 under
"Executive Officers of the Registrant."
<PAGE> PAGE 78
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, 1995, 1994 and 1993 52
Consolidated Balance Sheets
As of December 31, 1995 and 1994 54
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993 55
Consolidated Statements of Changes in
Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993 56
Notes to Consolidated Financial Statements 57
Independent Auditors' Report 76
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 84
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 79
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 Corporation, formerly incorporated by
reference from Exhibit 1 to Norfolk Southern's
Form 10-Q report for the quarter ended
September 30, 1989, are filed herewith electronically.
3(ii) The Bylaws of Norfolk Southern Corporation, as
amended January 24, 1995, are incorporated herein
by reference from Exhibit 4 to the Corporation'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 Corporation 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) to Southern's 1987
Annual Report on Form 10-K) - is incorporated herein
by reference from Exhibit 10(a) to Norfolk Southern's
1994 Annual Report on Form 10-K.
Management Compensation Plans
-----------------------------
(b) The Norfolk Southern Corporation
Management Incentive Plan, as amended effective
January 1, 1996, is filed herewith electronically.
<PAGE> PAGE 80
Item 14. Exhibits, Financial Statement Schedule, and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
- ------- ------------------------------------------------------
(c) The Norfolk Southern Corporation
Executive Management Incentive Plan, effective
January 1, 1996, is filed herewith electronically.
(d) The Norfolk Southern Corporation
Long-Term Incentive Plan as amended effective
January 23, 1996, is filed herewith electronically.
(e) The Norfolk Southern Corporation Officers'
Deferred Compensation Plan is incorporated
herein by reference from Exhibit 10(g) to
Norfolk Southern's 1993 Annual Report on Form 10-K.
(f) The Directors' Deferred Fee Plan of
Norfolk Southern Corporation is incorporated
herein by reference from Exhibit 10(h) to
Norfolk Southern's 1993 Annual Report on Form 10-K.
(g) 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.
(h) Form of Severance Agreement, dated as of
September 1, 1994, between Norfolk Southern
Corporation and certain executive officers
(including those defined as "named executive
officers" and identified in the Corporation's
Proxy Statement for the 1996 Annual Meeting of
Stockholders) is incorporated herein by reference
from Exhibit 10 to Norfolk Southern's Form 10-Q
Report for the quarter ended September 30, 1994.
(i) The Excess Benefit Plan of Norfolk
Southern Corporation and Participating Subsidiary
Companies, is incorporated herein by reference
from Exhibit 10(h) to Norfolk Southern's 1994
Annual Report on Form 10-K.
(j) The Excess Long-Term Disability Plan of
Norfolk Southern Corporation and Participating
Subsidiary Companies, effective October 1, 1995,
is filed herewith electronically.
<PAGE> PAGE 81
Item 14. Exhibits, Financial Statement Schedule, and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
- ------- -----------------------------------------------------
11 Statement re: Computation of Per Share Earnings.
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, 1995.
(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 82
POWER OF ATTORNEY
-----------------
Each person whose signature appears below under "SIGNATURES"
hereby authorizes Henry C. Wolf and James C. Bishop, Jr., 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
James C. Bishop, Jr., 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 26th day of March, 1996.
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 26th day of March,
1996, 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 83
Signature Title
--------- -----
/s/ Gene R. Carter
- ------------------------------ 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)
/s/ Harold W. Pote
- ------------------------------ Director
(Harold W. Pote)
<PAGE> PAGE 84
<TABLE>
Schedule II
Page 1 of 2
Norfolk Southern Corporation and Subsidiaries
---------------------------------------------
Valuation and Qualifying Accounts
Years Ended December 31, 1993, 1994 and 1995
(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, 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
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>
(continued)
<PAGE> PAGE 85
<TABLE>
Schedule II
Page 2 of 2
Norfolk Southern Corporation and Subsidiaries
---------------------------------------------
Valuation and Qualifying Accounts
Years Ended December 31, 1993, 1994 and 1995 (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, 1995
- ----------------------------
Valuation allowance (included
net in deferred tax
liability) for deferred tax
assets $ 1.4 $ -- $ 0.1 $ -- $ 1.5
Casualty and other claims
included in other
liabilities $305.0 $ 99.5 $ 3.1 (1) $121.1 (2) $286.5
Current portion of casualty
and other claims included
in accounts payable $191.2 $ 63.6 $172.6 (1) $230.0 (3) $197.4
(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 86
EXHIBIT INDEX
-------------
Electronic
Submission
Exhibit Page
Number Description Number
- ---------- ------------------------------------------------- ------
3(i) The Restated Articles of Incorporation of
Norfolk Southern Corporation, effective
October 30, 1989. 87-95
10(b) The Norfolk Southern Corporation Management
Incentive Plan, as amended effective
January 1, 1996. 96-102
10(c) The Norfolk Southern Corporation Executive
Management Incentive Plan, effective
January 1, 1996. 103-106
10(d) The Norfolk Southern Corporation Long-Term
Incentive Plan, as amended effective
January 23, 1996. 107-122
10(j) The Excess Long-Term Disability Plan of
Norfolk Southern Corporation and Participating
Subsidiary Companies, effective October 1, 1995. 123-125
11 Statement re: Computation of Per Share Earnings. 126-129
12 Statement re: Computation of Ratio of Earnings
to Fixed Charges. 130
21 Subsidiaries of Norfolk Southern Corporation. 131-133
23 Consent of Independent Auditors. 134
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). 135
<PAGE> PAGE 87
EXHIBIT 3(i) Page 1 of 9
NORFOLK SOUTHERN CORPORATION
ARTICLES OF RESTATEMENT
The following restatement of the Corporation's Articles of
Incorporation, which contains as an amendment not requiring shareholder
approval a new Article VII, was adopted by the Board of Directors at a
meeting held on October 24, 1989:
RESTATED ARTICLES OF INCORPORATION
OF
NORFOLK SOUTHERN CORPORATION
ARTICLE I
The name of the Corporation is NORFOLK SOUTHERN CORPORATION.
ARTICLE II
The purpose for which the Corporation is organized is to
transact any lawful business not required to be specifically stated in
the Articles of Incorporation.
ARTICLE III
The Corporation shall have authority to issue four hundred
fifty million (450,000,000) shares of Common Stock, par value $1 per
share, and twenty-five million (25,000,000) shares of Serial Preferred
Stock, without par value.
A. Serial Preferred Stock
1. Issuance in Series. The Board of Directors is hereby
empowered to cause the Serial Preferred Stock of the Corporation to be
issued in series with such of the variations permitted by clauses (a)-
(h), both inclusive, of this Section 1 as shall have been fixed and
determined by the Board of Directors with respect to any series prior to
the issue of any shares of such series.
The shares of the Serial Preferred Stock of different series
may vary as to:
(a) the number of shares constituting such series and the
designation of such series, which shall be such as to distinguish the
shares thereof from the shares of all other series and classes;
(b) the rate of dividend, the time of payment and, if
cumulative, the dates from which dividends shall be cumulative, and the
extent of participation rights, if any;
<PAGE> PAGE 88
EXHIBIT 3(i) Page 2 of 9
(c) any right to vote with holders of shares of any other
series or class and any right to vote as a class, either generally or as
a condition to specified corporate action;
(d) the price at and the terms and conditions on which shares
may be redeemed;
(e) the amount payable upon shares in event of involuntary
liquidation;
(f) the amount payable upon shares in event of voluntary
liquidation;
(g) any sinking fund provisions for the redemption or purchase
of shares; and
(h) the terms and conditions on which shares may be converted,
if the shares of any series are issued with the privilege of conversion.
The shares of all series of Serial Preferred Stock shall be
identical except as, within the limitations set forth above in this
Section 1, shall have been fixed and determined by the Board of Directors
prior to the issuance thereof.
2. Dividends. The holders of the Serial Preferred Stock of
each series shall be entitled to receive, if and when declared payable by
the Board of Directors, dividends in lawful money of the United States of
America, at the dividend rate for such series, and not exceeding such
rate except to the extent of any participation right. Such dividends
shall be payable on such dates as shall be fixed for such series.
Dividends, if cumulative and in arrears, shall not bear interest.
No dividends shall be declared or paid upon or set apart for
the Common Stock or for stock of any other class hereafter created
ranking junior to the Serial Preferred Stock in respect of dividends or
assets (hereinafter called Junior Stock), and no shares of Serial
Preferred Stock, Common Stock or Junior Stock shall be purchased,
redeemed or otherwise reacquired for a consideration, nor shall any funds
be set aside for or paid to any sinking fund therefor, unless and until
(i) full dividends on the outstanding Serial Preferred Stock at the
dividend rate or rates therefor, together with the full additional amount
required by any participation right, shall have been paid or declared and
set apart for payment with respect to all past dividend periods, to the
extent that the holders of the Serial Preferred Stock are entitled to
dividends with respect to any past dividend period, and the current
dividend period, and (ii) all mandatory sinking fund payments that shall
have become due in respect of any series of the Serial Preferred Stock
shall have been made. Unless full dividends with respect to all past
dividend periods on the outstanding Serial Preferred Stock at the
dividend rate or rates therefor, to the extent that holders of the Serial
Preferred Stock are entitled to dividends with respect to any particular
past dividend period, together with the full additional amount required
<PAGE> PAGE 89
EXHIBIT 3(i) Page 3 of 9
by any participation right, shall have been paid or declared
and set apart for payment and all mandatory sinking fund payments
that shall have become due in respect of any series of the Serial
Preferred Stock shall have been made, no distributions shall be
made to the holders of the Serial Preferred Stock of any series
unless distributions are made to the holders of the Serial Preferred
Stock of all series then outstanding in proportion to the aggregate
amounts of the deficiencies in payments due to the respective series,
and all payments shall be applied, first, to dividends accrued and
in arrears, next, to any amount required by any participation right,
and, finally, to mandatory sinking fund payments. The terms "current
dividend period" and "past dividend period" mean, if two or more series
of Serial Preferred Stock having different dividend periods are at the
time outstanding, the current dividend period or any past dividend
period, as the case may be, with respect to each such series.
3. Preference on Liquidation. In the event of any
liquidation, dissolution or winding up of the Corporation, the holders of
the Serial Preferred Stock of each series shall be entitled to receive,
for each share thereof, the fixed liquidation price for such series,
plus, in case such liquidation, dissolution or winding up shall have been
voluntary, the fixed liquidation premium for such series, if any,
together in all cases with a sum equal to all dividends accrued or in
arrears thereon and the full additional amount required by any
participation right, before any distribution of the assets shall be made
to holders of the Common Stock or Junior Stock; but the holders of the
Serial Preferred Stock shall be entitled to no further participation in
such distribution. If, upon any such liquidation, dissolution or winding
up, the assets distributable among the holders of the Serial Preferred
Stock shall be insufficient to permit the payment of the full
preferential amounts aforesaid, then such assets shall be distributed
among the holders of the Serial Preferred Stock then outstanding ratably
in proportion to the full preferential amounts to which they are
respectively entitled. For the purposes of this Section 3, the
expression "dividends accrued or in arrears" means, in respect of each
share of the Serial Preferred Stock of any series at a particular time,
an amount equal to the product of the rate of dividend per annum
applicable to the shares of such series multiplied by the number of years
and any fractional part of a year that shall have elapsed from the date
when dividends on such shares became cumulative to the particular time in
question less the total amount of dividends actually paid on the shares
of such series or declared and set apart for payment thereon; provided,
however, that, if the dividends on such shares shall not be fully
cumulative, such expression shall mean the dividends, if any, cumulative
in respect of such shares for the period stated in the articles of serial
designation creating such shares less all dividends paid in or with
respect to such period.
<PAGE> PAGE 90
EXHIBIT 3(i) Page 4 of 9
B. Common Stock
1. Subject to the provisions of law and the rights of holders
of shares at the time outstanding of all classes of stock having prior
rights as to dividends, the holders of Common Stock at the time
outstanding shall be entitled to receive such dividends at such times and
in such amounts as the Board of Directors may deem advisable.
2. In the event of any liquidation, dissolution or winding up
(whether voluntary or involuntary) of the Corporation, after the payment
or provision for payment in full of all debts and other liabilities of
the Corporation and all preferential amounts to which the holders of
shares at the time outstanding of all classes of stock having prior
rights thereto shall be entitled, the remaining net assets of the
Corporation shall be distributed ratably among the holders of the shares
at the time outstanding of Common Stock.
3. The holders of Common Stock shall be entitled to one vote
per share on all matters.
ARTICLE IV
No holder of capital stock of the Corporation of any class
shall have any preemptive right to subscribe to or purchase (i) any
shares of capital stock of the Corporation, (ii) any securities
convertible into such shares or (iii) any options, warrants or rights to
purchase such shares or securities convertible into such shares.
ARTICLE V
The number of directors, unless otherwise fixed by the bylaws,
shall be sixteen. The directors shall be divided into three classes, one
of which shall be composed of six directors and two of which shall be
composed of five directors. At each annual meeting of stockholders, the
number of directors to be elected shall be equal to the number of
directors whose terms of office then expire, except that, if the total
number of directors shall have been increased or decreased, the number of
directors then to be elected shall be as nearly as possible one-third of
the total number of directors, and each director shall hold office until
the third succeeding annual meeting after his election; provided,
however, that at no election shall a greater number of directors be
elected than the number of vacancies then existing, and provided further
that, upon any increase in the total number of directors, the additional
vacancies shall be so assigned by the Board of Directors to classes that
the number of directors of each class shall be as nearly equal as
possible and the vacancies shall be filled for terms corresponding to the
classes to which the vacancies are so assigned. Each director shall hold
office until his successor shall have been elected, and the terms of
<PAGE> PAGE 91
EXHIBIT 3(i) Page 5 of 9
office of directors elected by the Board of Directors to succeed
former directors shall expire at the next stockholders' meeting at
which directors are elected.
ARTICLE VI
1. In this Article:
"expenses" includes, without limitation, counsel fees.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine (including any excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect to a
proceeding.
"party" includes, without limitation, an individual who was,
is, or is threatened to be made a named defendant or respondent in a
proceeding.
"proceeding" means any threatened, pending, or completed
action, suit, or proceeding whether civil, criminal, administrative, or
investigative and whether formal or informal.
2. To the full extent that the Virginia Stock Corporation
Act, as it exists on the date hereof or as hereafter amended, permits the
limitation or elimination of the liability of directors and officers, no
director or officer of the Corporation made a party to any proceeding
shall be liable to the Corporation or its stockholders for monetary
damages arising out of any transaction, occurrence or course of conduct,
whether occurring prior or subsequent to the effective date of this
Article.
3. To the full extent permitted by the Virginia Stock
Corporation Act, as it exists on the date hereof or as hereafter amended,
the Corporation shall indemnify any person who was or is a party to any
proceeding, including a proceeding brought by or in the right of the
Corporation, by reason of the fact that he is or was a director or
officer of the Corporation, or while serving as such director or officer,
is or was serving at the request of the Corporation as a director,
trustee, partner or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against any
liability incurred by him in connection with such proceeding. A person
shall be considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties
on, or otherwise involve services by, him to the plan or to participants
in or beneficiaries of the plan. To the same extent, the Board of
Directors is hereby empowered, by a majority vote of a quorum of
disinterested directors, to enter into a contract to indemnify any
director or officer against liability and/or to advance or reimburse his
<PAGE> PAGE 92
EXHIBIT 3(i) Page 6 of 9
expenses in respect of any proceedings arising from any act or omission,
whether occurring before or after the execution of such contract.
4. The provisions of this Article shall be applicable to all
proceedings commenced after it becomes effective, arising from any act or
omission, whether occurring before or after such effective date. No
amendment or repeal of this Article shall impair or otherwise diminish
the rights provided under this Article (including those created by
contract) with respect to any act or omission occurring prior to such
amendment or repeal. The Corporation shall promptly take all such
actions and make all such determinations and authorizations as shall be
necessary or appropriate to comply with its obligation to make any
indemnity against liability, or to advance any expenses, under this
Article and shall promptly pay or reimburse all reasonable expenses,
including attorneys' fees, incurred by any such director or officer in
connection with such actions and determinations or proceedings of any
kind arising therefrom.
5. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that the director or
officer did not meet any standard of conduct that is a prerequisite to
the limitation or elimination of liability provided in Section 2 or to
his entitlement to indemnification under Section 3 of this Article.
6. Any indemnification under Section 3 of this Article
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
is proper in the circumstances because the proposed indemnitee has met
any standard of conduct that is a prerequisite to his entitlement to
indemnification under Section 3 of this Article.
The determination shall be made:
(a) By the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under subsection (a) of this
section, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at the time
parties to the proceeding;
(c) By special legal counsel:
(i) Selected by the Board of Directors or its
committee in the manner prescribed in subsection (a)
or (b) of this section; or
(ii) If a quorum of the Board of Directors cannot
be obtained under subsection (a) of this section and a
<PAGE> PAGE 93
EXHIBIT 3(i) Page 7 of 9
committee cannot be designated under subsection (b) of
this section, selected by a majority vote of the full
Board of Directors, in which selection directors who
are parties may participate; or
(d) By the stockholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may
not be voted on the determination.
Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is appropriate, except that if the
determination is made by special legal counsel, such authorizations and
evaluations shall be made by those entitled under subsection (c) of this
section to select counsel.
Notwithstanding the foregoing, in the event there has been a
change in the composition of a majority of the Board of Directors after
the date of the alleged act or omission with respect to which
indemnification, an advance or reimbursement is claimed, any
determination as to such indemnification, advance or reimbursement shall
be made by special legal counsel agreed upon by the Board of Directors
and the proposed indemnitee. If the Board of Directors and the proposed
indemnitee are unable to agree upon such special legal counsel, the Board
of Directors and the proposed indemnitee each shall select a nominee, and
the nominees shall select such special legal counsel.
7. (a) The Corporation shall pay for or reimburse the
reasonable expenses incurred by a director or officer (and may do so for
a person referred to in Section 8 of this Article) who is a party to a
proceeding in advance of final disposition of the proceeding or the
making of any determination under Section 3 if the director, officer or
person furnishes the Corporation:
(i) a written statement, executed personally, of
his good faith belief that he has met any standard of
conduct that is a prerequisite to his entitlement to
indemnification under Section 3 of this Article; and
(ii) a written undertaking, executed personally
or on his behalf, to repay the advance if it is
ultimately determined that he did not meet such
standard of conduct.
(b) The undertaking required by paragraph (ii) of subsection
(a) of this section shall be an unlimited general obligation but need not
be secured and may be accepted without reference to financial ability to
make repayment.
(c) Authorizations of payments under this section shall be made
by the persons specified in Section 6.
<PAGE> PAGE 94
EXHIBIT 3(i) Page 8 of 9
8. The Board of Directors is hereby empowered, by majority
vote of a quorum consisting of disinterested directors, to cause the
Corporation to indemnify or contract to indemnify any person not
specified in Section 3 of this Article who was, is or may become a party
to any proceeding, by reason of the fact that he is or was an employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, to the same or a lesser extent as if such person were
specified as one to whom indemnification is granted in Section 3. The
provisions of Sections 4 through 6 of this Article shall be applicable to
any indemnification provided hereafter pursuant to this section.
9. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed by
it in accordance with this Article and may also procure insurance, in
such amounts as the Board of Directors may determine, on behalf of any
person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
any liability asserted against or incurred by him in any such capacity or
arising from his status as such, whether or not the Corporation would
have power to indemnify him against such liability under the provisions
of this Article.
10. Every reference herein to directors, officers, employees
or agents shall include former directors, officers, employees and agents
and their respective heirs, executors and administrators. The
indemnification hereby provided and provided hereafter pursuant to the
power hereby conferred by this Article on the Board of Directors shall
not be exclusive of any other rights to which any person may be entitled,
including any right under policies of insurance that may be purchased and
maintained by the Corporation or others, with respect to claims, issues
or matters in relation to which the Corporation would not have the power
to indemnify such person under the provisions of this Article. Nothing
herein shall prevent or restrict the power of the Corporation to make or
provide for any further indemnity, or provisions for determining
entitlement to indemnity, pursuant to one or more indemnification
agreements, bylaws, or other arrangements (including, without limitation,
creation of trust funds or security interests funded by letters of credit
or other means) approved by the Board of Directors (whether or not any of
the directors of the Corporation shall be a party to or beneficiary of
any such agreements, bylaws or arrangements); provided, however, that any
provision of such agreements, bylaws or other arrangements shall not be
effective if and to the extent that it is determined to be contrary to
this Article or applicable laws of the Commonwealth of Virginia, but
other provisions of any such agreements, bylaws or other arrangements
shall not be affected by any such determination.
<PAGE> PAGE 95
EXHIBIT 3(i) Page 9 of 9
11. Each provision of this Article shall be severable, and an
adverse determination as to any such provision shall in no way affect the
validity of any other provision.
ARTICLE VII
The shareholder vote required, of each voting group entitled to
vote thereon, to approve an amendment to the Corporation's Articles of
Incorporation is a majority of all votes entitled to be cast by that
voting group, unless the Board of Directors conditions approval of such
an amendment upon a greater vote.
Dated: October 24, 1989
NORFOLK SOUTHERN CORPORATION
By
------------------------------
Arnold B. McKinnon
Chairman of the Board, President
and Chief Executive Officer
[SEAL]
Attest
--------------------------
Donald E. Middleton
Secretary
<PAGE> PAGE 96
EXHIBIT 10(b) Page 1 of 7
NORFOLK SOUTHERN CORPORATION
MANAGEMENT INCENTIVE PLAN
AS AMENDED EFFECTIVE JANUARY 1, 1996
Section 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.
Section 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.
Section 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, and
B. The maximum bonus level for each Incentive Group for the
incentive year.
Section 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 or her 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 the bonus for any incentive year. If the participant
elects to receive 100% cash, the entire amount of the bonus for the
incentive year shall be distributed to the participant, or his or her
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
<PAGE> PAGE 97
EXHIBIT 10(b) Page 2 of 7
and the remainder, if any, shall be distributed in cash to the
participant or his or her 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 participant 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 the 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.
Section V. INCENTIVE BONUS FUND
A single bonus fund representing a combined fund for both this Plan
and the Executive Management Incentive Plan 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, special charges and restructuring
charges, and unusual or infrequent accounting adjustments which are
significant, and restatements or reclassifications, all as determined in
accordance with Generally Accepted Accounting Principles, which would
have the effect of reducing Pre-tax Net Income, shall be excluded, but
such Pre-tax Net Income shall be adjusted for any expenses attributable
to bonuses paid or accrued under this Plan and the Executive Management
Incentive Plan. The Compensation and Nominating Committee of the Board
of Directors shall have the right to reduce the bonus fund for all or any
portion of such excluded accounting adjustments, restatements or
reclassifications, or by any other amount the Compensation and Nominating
Committee deems appropriate.
<PAGE> PAGE 98
EXHIBIT 10(b) Page 3 of 7
The portion of the total bonus fund available to be awarded under
this Plan for the incentive year shall be determined by multiplying the
total bonus fund by a fraction whose numerator is the sum of the maximum
bonus payable to all Plan participants eligible to receive a bonus award
and whose denominator is the sum of the maximum bonus payable to all
employees eligible to receive a bonus award under this Plan or the
Executive Management Incentive Plan.
The Plan portion of the total 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 under this Plan at the discretion of the
Chief Executive Officer.
Section VI. BONUS AWARDS
The portion of the total bonus fund available to be awarded under
this Plan for the incentive year pursuant to the formula set forth in
Article V shall be divided among each Incentive Group under this Plan in
proportion to the maximum bonus payable for that Incentive Group, and
the percentage bonus allocable to each Incentive Group participant in
this Plan 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 Incentive Group participant between 0% 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. In no event, however, may
the total bonus award to all Incentive Groups for an incentive year
exceed the maximum bonus levels for all Incentive Groups 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
or her termination and through the end of the calendar month in which
employment terminates but excludes any cash paid with respect to such
participant's unused vacation.
<PAGE> PAGE 99
EXHIBIT 10(b) Page 4 of 7
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.
Section 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.
Section 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 participant's deferred bonus credits and determining the
amounts payable by Norfolk Southern Corporation under this Plan. The
deferred savings account for a participant shall not be deemed to
constitute either in whole or in part a trust fund for the benefit of
such participant.
<PAGE> PAGE 100
EXHIBIT 10(b) Page 5 of 7
Section IX. RESTRICTIONS ON DEFERRED SAVINGS ACCOUNT
The credits allocated to a participant'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.
Section 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.
Section XI. DISTRIBUTION WITH RESPECT TO DEFERRED CREDITS
During the first 10 years following a participant's termination of
employment, the credits in his or her deferred savings account shall be
periodically converted into cash, as provided for below, and distributed
to that participant, or to his or her 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 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 Vice President-
Personnel, 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
<PAGE> PAGE 101
EXHIBIT 10(b) Page 6 of 7
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 participant or his or her
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 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.
Section 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 or her 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
<PAGE> PAGE 102
EXHIBIT 10(b) Page 7 of 7
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 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.
Section XIII. NO GUARANTEE OF CONTINUANCE OF EMPLOYMENT
Nothing contained in this Plan or in any designation of a
participant 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 participant
for any period whatsoever.
Section 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 that no such amendment
or termination shall deprive a participant or beneficiary of any rights
hereunder theretofore legally accrued, and no such termination shall be
effective for the year in which such resolution is adopted.
Section 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> PAGE 103
EXHIBIT 10(c) Page 1 of 4
NORFOLK SOUTHERN CORPORATION
EXECUTIVE MANAGEMENT INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
Section I. PURPOSE OF THE PLAN
It is the purpose of the Norfolk Southern Corporation Executive
Management Incentive Plan (Plan) to enhance increased profitability for
Norfolk Southern Corporation by rewarding certain officers elected by the
Board of Directors of Norfolk Southern Corporation and its affiliates
with a bonus for collectively striving to attain and surpass profit
objectives.
Section 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.
Section 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, which Groups
shall consist of Board-elected officers at the level of
Vice President and above, and
B. The maximum bonus level for each Incentive Group for the
incentive year.
Section 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 or her 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 the bonus for any incentive year. If the participant
elects to receive 100% cash, the entire amount of the bonus for the
incentive year shall be distributed to the participant, or his or her
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 Norfolk Southern Corporation
<PAGE> PAGE 104
EXHIBIT 10(c) Page 2 of 4
Officers' Deferred Compensation Plan (and such deferrals will be
governed by the provisions of that plan) 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 or her beneficiary on
or before March 2 of the year following the incentive year.
Failure on the part of the participant 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 the 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.
Section V. INCENTIVE BONUS FUND
A single bonus fund representing a combined fund for both this Plan
and the Management Incentive Plan 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, special charges and restructuring
charges, and unusual or infrequent accounting adjustments which are
significant, and restatements or reclassifications, all as determined in
accordance with Generally Accepted Accounting Principles, which would
have the effect of reducing Pre-tax Net Income, shall be excluded, but
such Pre-tax Net Income shall be adjusted for any expenses attributable
to bonuses paid or accrued under this Plan and the Management Incentive
Plan. The Compensation and Nominating Committee of the Board of
Directors shall have the right to reduce the bonus fund for all or any
portion of such excluded accounting adjustments, restatements or
reclassifications, or by any other amount the Compensation and Nominating
Committee deems appropriate.
<PAGE> PAGE 105
EXHIBIT 10(c) Page 3 of 4
The portion of the total bonus fund available to be awarded under
this Plan for the incentive year shall be determined by multiplying the
total bonus fund by a fraction whose numerator is the sum of the maximum
bonus payable to all Plan participants eligible to receive a bonus award
and whose denominator is the sum of the maximum bonus payable to all
employees eligible to receive a bonus award under this Plan or the
Management Incentive Plan.
Section VI. BONUS AWARDS
The portion of the total bonus fund available to be awarded under
this Plan for the incentive year pursuant to the formula set forth in
Article V shall be divided among each Incentive Group under this Plan in
proportion to the maximum bonus payable for that Incentive Group, and
the percentage bonus allocable to each Incentive Group participant in
this Plan 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. However, no participant may be awarded a bonus
which exceeds 50% of the bonus fund. The Compensation and Nominating
Committee of the Board may review the performance of the Plan
participants and may, at its discretion, reduce the bonus award of any
such participant between 0% and 100%, based on the individual's
performance.
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
or her termination and through the end of the calendar month in which
employment terminates but excludes any cash paid with 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.
Section VII. DESIGNATION OF BENEFICIARY
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
<PAGE> PAGE 106
EXHIBIT 10(c) Page 4 of 4
incompetency or death of the participant. A participant may designate
both primary and 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 Vice President-
Personnel, 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.
Section VIII. NO GUARANTEE OF CONTINUANCE OF EMPLOYMENT
Nothing contained in this Plan or in any designation of a
participant 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 participant
for any period whatsoever.
Section IX. 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 that no such amendment
or termination shall deprive a participant or beneficiary of any rights
hereunder theretofore legally accrued, and no such termination shall be
effective for the year in which such resolution is adopted.
<PAGE> PAGE 107
EXHIBIT 10(d) Page 1 of 16
NORFOLK SOUTHERN CORPORATION
LONG-TERM INCENTIVE PLAN
AS AMENDED EFFECTIVE JANUARY 24, 1995
(subject to stockholder approval)
Section 1. PURPOSE
The purpose of the Long-Term Incentive Plan, as amended (the "Plan"), is
to promote the success of Norfolk Southern Corporation (the
"Corporation") and to provide an opportunity for officers and other key
employees of the Corporation and its Subsidiary Companies (as hereinafter
defined) to acquire or increase a proprietary interest in the Corporation
and thereby to provide an additional incentive to officers and other key
employees to devote their maximum efforts and skills to the advancement,
betterment, and prosperity of the Corporation and its shareholders. The
Plan provides for the grant of incentive stock options, non-qualified
stock options, stock appreciation rights, performance share units,
performance shares, and shares of the Corporation's common stock
(restricted pursuant to the provisions of Section 9 of the Plan), in
accordance with the terms and conditions set forth below.
Section 2. DEFINITIONS
The terms used herein shall have the following meanings unless otherwise
specified or unless a different meaning is clearly required by the
context:
Award Any one or more of the following: Incentive Stock Option;
Non-qualified Stock Option; Stock Appreciation Right;
Restricted Shares; Performance Share Units; and
Performance Shares.
Beneficiary The person or persons designated in writing by the
Participant as his Beneficiary in respect of Awards or, in
the absence of such a designation or if the designated
person or persons predecease the Participant, the person
or persons who shall acquire the Participant's rights in
respect of Awards by bequest or inheritance in accordance
with the applicable laws of descent and distribution. In
order to be effective, a Participant's designation of a
Beneficiary must be on file with the Corporation before
the Participant's death. Any such designation may be
revoked and a new designation substituted therefor by the
Participant at any time before his death without the
consent of the previously designated Beneficiary.
<PAGE> PAGE 108
EXHIBIT 10(d) Page 2 of 16
Board of The Board of Directors of the Corporation.
Directors
Code The Internal Revenue Code of 1986, as amended from time to
time.
Committee The Compensation and Nominating Committee of the Board of
Directors.
Common Stock The Common Stock of the Corporation.
Disability A disability that enables the Participant to be eligible
for and receive a disability benefit under the Long-Term
Disability Plan of the Corporation or a long-term
disability plan of a Subsidiary Company (whichever is
applicable), as amended from time to time.
Exercise With respect to a Stock Appreciation Right, all of the
Gain shares of Common Stock received upon exercise of the
Shares Stock Appreciation Right.
With respect to an Option, the portion of the shares of
Common Stock received upon exercise of the Option equal to
the excess of the Fair Market Value, as of the exercise
date, over the Option price, multiplied by the number of
shares purchased under the Option on the exercise date,
divided by such Fair Market Value, and rounded down to the
nearest whole number of shares.
Fair Market The value of Common Stock on a particular date as measured
Value by the mean of the high and low prices at which it is
traded on such date as reported in the Composite
Transactions for such date by The Wall Street Journal, or,
if Common Stock was not traded on such date, on the next
preceding day on which Common Stock was traded.
Incentive An Option that complies with the terms and conditions set
Stock forth in Section 422(b) of the Code and is designated by
Option the Committee as an Incentive Stock Option.
Non-qualified An Option granted under the Plan other than an Incentive
Stock Option Stock Option.
Option Any option to purchase Common Stock granted pursuant to
the provisions of Section 6 or Section 7 of the Plan.
Optionee A Participant who is the holder of an Option.
<PAGE> PAGE 109
EXHIBIT 10(d) Page 3 of 16
Participant Any officer or key employee of the Corporation or a
Subsidiary Company selected by the Committee to
participate in the Plan.
Performance The period of time, designated by the Committee, over
Cycle which Performance Shares may be earned.
Performance Shares of Common Stock granted pursuant to Section 10 of
Shares the Plan, which may be made subject to the restrictions
and other terms and conditions prescribed in Section 11 of
the Plan.
Performance Contingent rights to receive Performance Shares pursuant
Share Units to Section 10 of the Plan.
Restricted Shares of Common Stock granted pursuant to Section 9 of
Shares the Plan and subject to the restrictions and other terms
and conditions set forth therein.
Restriction A period of time not less than twenty-four (24) nor more
Period than sixty (60) months, to be determined within those
limits by the Committee in its sole discretion, commencing
on the date as of which Restricted Shares are granted,
during which the restrictions imposed by paragraph (b) of
Section 9 of the Plan shall apply. The Committee shall
determine the length of the Restriction Period at the time
that the Restricted Shares are granted.
Retirement Retirement from the Corporation or a Subsidiary Company
pursuant to the provisions of the Retirement Plan of the
Corporation or a retirement plan of a Subsidiary Company
(whichever is applicable), as amended from time to time.
Share An agreement entered into pursuant to Section 11 of
Retention the Plan.
Agreement
Stock The right, granted pursuant to the provisions of Section 8
Appreciation of the Plan, to receive a payment equal to the excess of
Right the Fair Market Value of Common Stock over the Option
price of such Common Stock, as specified in Section 8 of
the Plan.
Subsidiary A corporation of which at least eighty percent (80%) of
Company the total combined voting power of all classes of stock
entitled to vote is owned, directly or indirectly, by the
Corporation.
<PAGE> PAGE 110
EXHIBIT 10(d) Page 4 of 16
Section 3. ADMINISTRATION
The Plan shall be administered by the Committee, which, subject to the
limitations set forth herein, shall have the full and complete authority
and sole discretion from time to time to construe and interpret the Plan;
to select the officers and other key employees who shall be granted
Awards under the Plan; to determine the type, size, terms, and conditions
of the Award or Awards to be granted to each such Participant; to
authorize the grant of such Awards pursuant to the Plan; to give a
Participant an election to surrender an Award in exchange for the grant
of a new Award; to adopt, amend and rescind rules and regulations
relating to the Plan; and to make all other determinations and take all
other action it may deem necessary or advisable for the implementation
and administration of the Plan. The Committee may authorize the grant of
more than one type of Award, and Awards subject to differing terms and
conditions, to any eligible employee. The Committee's decision to
authorize the grant of an Award to an employee at any time shall not
require the Committee to authorize the grant of an Award to that employee
at any other time or to any other employee at any time; nor shall its
determination with respect to the size, type, or terms and conditions of
the Award to be granted to an employee at any time require it to
authorize the grant of an Award of the same type or size or with the same
terms and conditions to that employee at any other time or to any other
employee at any time. The Committee shall not be precluded from
authorizing the grant of an Award to any eligible employee solely because
the employee previously may have been granted an Award of any kind under
the Plan.
All determinations of the Committee shall be by a majority of its members
and shall be final, conclusive and binding. Each member of the Committee,
while serving as such, shall be considered to be acting in his capacity
as a director of the Corporation, and no member of the Committee shall be
liable for any action taken or decision made in good faith with respect
to the implementation or administration of the Plan.
Section 4. ELIGIBILITY
To be eligible for selection by the Committee to participate in the Plan,
an individual must be a full-time salaried officer or key employee of the
Corporation, or of a Subsidiary Company, on the date on which the
Committee authorizes the grant to such individual of an Award. A
director of the Corporation shall not be eligible to participate in the
Plan unless he is a full-time salaried officer of the Corporation or a
Subsidiary Company.
<PAGE> PAGE 111
EXHIBIT 10(d) Page 5 of 16
Section 5. SHARES AVAILABLE
Subject to the provisions of Section 13 of the Plan, no more than an
aggregate of 17,675,000 shares of Common Stock may be issued pursuant to
the Plan. Such shares shall be provided from shares of Common Stock
authorized but not issued. Any shares of Common Stock which were subject
to an Option, a Stock Appreciation Right, or a Performance Share Unit,
and which were not issued prior to the expiration of the Award shall
thereafter again be available for award under the Plan. Upon the
forfeiture of any Restricted Shares, the forfeited shares of Common Stock
shall thereafter be available for award under the Plan. Notwithstanding
any other provision to the contrary, no Participant may be awarded a
grant in any one year, which, when added to any other grant of Options,
Restricted Shares, and Performance Share Units in the same year, shall
exceed 250,000 shares of Common Stock. If an Option is canceled, the
canceled Option continues to count against the maximum number of shares
for which Options may be granted to a Participant in any year.
Section 6. INCENTIVE STOCK OPTIONS
(a) General - The Committee may authorize the grant of Incentive
Stock Options subject to the terms and conditions set forth in this
Section 6. The grant of an Incentive Stock Option shall be evidenced by
a written Incentive Stock Option Agreement between the Corporation and
the Optionee, setting forth the number of shares of Common Stock subject
to the Incentive Stock Option evidenced thereby and the terms,
conditions, and restrictions applicable thereto. The issuance of shares
of Common Stock pursuant to an Incentive Stock Option also shall be
subject to the provisions of any Share Retention Agreement that may be
required by the Committee under Section 11 of the Plan.
(b) Option Price - The Committee shall determine the Option price
for each share of Common Stock purchased under an Option, but, subject to
the provisions of Section 13 of the Plan, in no event shall the Option
price be less than one hundred percent (100%) of the Fair Market Value of
the Common Stock on the date the Option is granted.
(c) Duration of Options - The Committee shall fix the term or
duration of Options, provided that such term shall not exceed ten (10)
years from the date the Option is granted, and that such term shall be
subject to earlier termination pursuant to the provisions of paragraph
(g) of this Section 6 or paragraph (e) of Section 8 of the Plan.
(d) Non-transferability of Options - Options are not transferable
other than by will or the applicable laws of descent and distribution
following the death of the Optionee. Options may be exercised during the
lifetime of the Optionee only by him, and following his death only by his
Beneficiary.
<PAGE> PAGE 112
EXHIBIT 10(d) Page 6 of 16
(e) Exercise of Options - The Committee shall determine the time or
times at which Options may be exercised; provided that such time or times
shall not occur before the latest of:
(i) the first anniversary of the date on which the Option
was granted;
(ii) approval of the Plan, as hereby amended, by the
stockholders of the Corporation in the manner provided under Section
15(a) of the Plan; and
(iii) the effectiveness of any registration statement required
to be filed under the Securities Act of 1933 for the registration of the
Common Stock to be issued upon exercise of the Option.
(f) Payment of Option Price - The purchase price of Common Stock
upon exercise of an Option shall be paid in full to the Corporation at
the time of the exercise of the Option in cash or, at the discretion of
the Committee and subject to any limitations or requirements that the
Committee may adopt, by the surrender to the Corporation of shares of
previously acquired Common Stock, which have been held by the Optionee
for at least twelve (12) months and which shall be valued at Fair Market
Value on the date that the Option is exercised, or, at the discretion of
the Committee, by a combination of cash and such Common Stock.
(g) Termination of Options - No Option shall be exercisable after
it expires. Each Option shall expire upon the earliest of:
(i) the expiration of the term for which the Option was
granted;
(ii) (A) in the case of an Optionee whose employment with the
Corporation or a Subsidiary Company is terminated due to Retirement,
Disability or death, the expiration of thirty-six (36) months after such
termination of employment, or
(B) in the case of an Optionee whose employment with the
Corporation or a Subsidiary Company is terminated for any reason other
than Retirement, Disability, or death, at the close of business on the
last day of active service by the Optionee with the Corporation or a
Subsidiary Company; or
(iii) with the Optionee's consent, the grant of a new Award to
replace the Option.
(h) Limitation on Exercisability - The aggregate Fair Market Value
(determined as of the time the Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options (granted on or
after January 1, 1987) are exercisable for the first time by the Optionee
during any calendar year shall not exceed $100,000.
<PAGE> PAGE 113
EXHIBIT 10(d) Page 7 of 16
(i) Order of Exercise - An Incentive Stock Option granted prior to
January 1, 1987, shall not be exercisable while there is outstanding any
Incentive Stock Option which was granted to the Optionee before the grant
of the first-mentioned Incentive Stock Option. For this purpose, an
Incentive Stock Option shall be treated as outstanding until it is
exercised in full or expires in accordance with paragraph (c) of this
Section 6.
As used in paragraphs (h) and (i) of this Section 6, the term
Incentive Stock Option shall mean an option to purchase stock which is
granted pursuant to the provisions of this Plan or of any other plan of
the Corporation or of a parent or subsidiary corporation (as defined by
Section 424(f) of the Code) and which complies with the terms and
conditions set forth in Section 422(b) of the Code.
Section 7. NON-QUALIFIED STOCK OPTIONS
The Committee may authorize the grant of Non-qualified Stock Options
subject to the terms and conditions specified in this Section 7. The
grant of a Non-qualified Stock Option shall be evidenced by a written
Non-qualified Stock Option Agreement between the Corporation and the
Optionee, setting forth the number of shares of Common Stock subject to
the Non-qualified Stock Option evidenced thereby and the terms,
conditions, and restrictions applicable thereto. Non-qualified Stock
Options granted pursuant to the provisions of this Section 7 shall be
subject to the terms, conditions, and restrictions set forth in
paragraphs (b) and (d) through (g) of Section 6 of the Plan. The
limitations set forth in paragraphs (c), (h) and (i) of Section 6 of the
Plan shall not apply to Non-qualified Stock Options. The issuance of
shares of Common Stock pursuant to a Non-qualified Stock Option also
shall be subject to the provisions of any Share Retention Agreement that
may be required by the Committee under Section 11 of the Plan.
Section 8. STOCK APPRECIATION RIGHTS
(a) General - The Committee may grant a Stock Appreciation Right to
a Participant in connection with an Option, or portion thereof as
determined by the Committee, subject to the terms and conditions set
forth in this Section 8. The Stock Appreciation Right may be granted at
the time of grant of the related Option and shall be subject to the same
terms and conditions as the related Option, except as this Section 8 may
otherwise provide. The grant of a Stock Appreciation Right shall be
evidenced either by provisions in the Option agreement evidencing the
related Option or by a written Stock Appreciation Right Agreement between
the Corporation and the Optionee, identifying the related Option,
specifying the number of shares of Common Stock subject thereto, and
setting forth the terms and conditions applicable to the Stock
Appreciation Right.
<PAGE> PAGE 114
EXHIBIT 10(d) Page 8 of 16
(b) Exercise - A Stock Appreciation Right shall be exercisable only
at such time or times, to such extent, and by such persons, as the Option
to which it relates shall be exercisable; provided that:
(i) if the Committee determines that all or part of a
payment in respect of a Stock Appreciation Right shall be made in cash,
the Stock Appreciation Right shall not be exercised before the expiration
of one (1) year from the date on which it was granted; provided, however,
that this subparagraph (i) shall not apply if the death or Disability of
the Optionee occurs within one (1) year after the grant of the Stock
Appreciation Right;
(ii) if the Committee determines that all or part of a payment
in respect of a Stock Appreciation Right shall be made in cash, such
exercise may occur only on a day that is at least three (3) and no more
than twelve (12) business days after the date on which the Corporation
first made publicly available its most recent regular quarterly or annual
financial statements; and
(iii) a Stock Appreciation Right granted in connection with an
Incentive Stock Option may not be exercised on any date on which the Fair
Market Value of a share of Common Stock is less than or equal to the
Option price per share under the related Incentive Stock Option.
A Stock Appreciation Right shall be exercised by surrendering the
related Option, or the portion thereof pertaining to the shares with
respect to which the Stock Appreciation Right is exercised, and providing
the Corporation with a written notice in such form and containing such
information (including the number of shares of Common Stock with respect
to which the Stock Appreciation Right is being exercised) as the
Committee may specify. The date on which the Corporation receives such
notice shall be the date on which the related Option, or portion thereof,
shall be deemed surrendered and the Stock Appreciation Right shall be
deemed exercised.
(c) Payment - Upon exercise of a Stock Appreciation Right in the
manner provided in paragraph (b) of this Section 8, the Optionee shall be
entitled to receive Exercise Gain Shares equal to the number of shares of
Common Stock that have an aggregate Fair Market Value on the exercise
date equal to the amount by which the Fair Market Value of a share of
Common Stock on the exercise date exceeds the Option price per share of
the related Option, multiplied by the number of shares covered by the
related Option, or portion thereof, surrendered in connection with the
exercise of the Stock Appreciation Right. The Exercise Gain Shares shall
be subject to the provisions of any Share Retention Agreement that may be
required by the Committee under Section 11 of the Plan. In the sole
discretion of the Committee, all or part of the payment in respect of a
Stock Appreciation Right may be made in cash in lieu of Exercise Gain
Shares.
<PAGE> PAGE 115
EXHIBIT 10(d) Page 9 of 16
(d) Termination of Right - A Stock Appreciation Right shall expire,
unless previously exercised or canceled, upon the expiration of the
Option to which it relates.
(e) Effect of Exercise - A Stock Appreciation Right shall be
canceled when, and to the extent that, the related Option is exercised,
and an Option shall be canceled when, and to the extent that, the Option
is surrendered to the Corporation upon the exercise of a related Stock
Appreciation Right.
Section 9. RESTRICTED SHARES
(a) General - The Committee, in its sole discretion, may from time
to time authorize the grant of Restricted Shares to a Participant. A
certificate or certificates representing the number of Restricted Shares
granted shall be registered in the name of the Participant. Until the
expiration of the Restriction Period or the lapse of restrictions in the
manner provided in paragraph (d) or paragraph (e) of this Section 9, the
certificate or certificates shall be held by the Corporation for the
account of the Participant, and the Participant shall have beneficial
ownership of the Restricted Shares, including the right to receive
dividends on, and the right to vote, the Restricted Shares.
(b) Restrictions - Until the expiration of the Restriction Period
or the lapse of restrictions in the manner provided in paragraph (d) or
paragraph (e) of this Section 9, Restricted Shares shall be subject to
the following restrictions and any additional restrictions that the
Committee, in its sole discretion, may from time to time deem desirable
in furtherance of the objectives of the Plan:
(i) the Participant shall not be entitled to receive the
certificate or certificates representing the Restricted Shares;
(ii) the Restricted Shares may not be sold, transferred,
assigned, pledged, conveyed, hypothecated, or otherwise disposed of; and
(iii) the Restricted Shares may be forfeited immediately as
provided in paragraph (d) of this Section 9.
(c) Distribution of Restricted Shares - If a Participant to whom
Restricted Shares have been granted remains in the continuous employment
of the Corporation or a Subsidiary Company during the entire Restriction
Period, upon the expiration of the Restriction Period all restrictions
applicable to the Restricted Shares shall lapse, and the certificate or
certificates representing the shares of Common Stock that were granted to
the Participant in the form of Restricted Shares shall be delivered to
the Participant.
<PAGE> PAGE 116
EXHIBIT 10(d) Page 10 of 16
(d) Termination of Employment - If the employment of a Participant
is terminated for any reason other than the Retirement, Disability, or
death of the Participant in service before the expiration of the
Restriction Period, the Restricted Shares shall be forfeited immediately
and all rights of the Participant to such shares shall terminate
immediately without further obligation on the part of the Corporation or
any Subsidiary Company. If the Participant's employment is terminated by
reason of the Retirement, Disability, or death of the Participant in
service before the expiration of the Restriction Period, the number of
Restricted Shares held by the Corporation for the Participant's account
shall be reduced by the proportion of the Restriction Period remaining
after the Participant's termination of employment; the restrictions on
the balance of such Restricted Shares shall lapse on the date the
Participant's employment terminated; and the certificate or certificates
representing the shares of Common Stock upon which the restrictions have
lapsed shall be delivered to the Participant (or, in the event of the
Participant's death, to his Beneficiary).
(e) Waiver of Restrictions - The Committee, in its sole discretion,
may waive any or all restrictions with respect to Restricted Shares.
Section 10. PERFORMANCE SHARES
The Committee, in its sole discretion, may from time to time authorize
the grant of Performance Share Units to a Participant. Performance Share
Units shall entitle the Participant to Performance Shares (or cash in
lieu thereof) upon the achievement of such performance goals as may be
established by the Committee at the time of grant for three equally
weighted performance criteria: (a) the Corporation's total stockholder
return as compared to the S&P 500 Index; (b) the Corporation's operating
ratio; and (c) the Corporation's return on average capital invested. At
such time as it is certified by the Committee that the performance goals
established by the Committee have been attained or otherwise satisfied,
the Committee shall authorize the payment of cash in lieu of Performance
Shares or the issuance of Performance Shares registered in the name of
the Participant, subject to the provisions of any Share Retention
Agreement that may be required by the Committee under Section 11 of the
Plan, or both.
If the Participant's employment with the Corporation or a Subsidiary
Company is terminated before the end of a Performance Cycle for any
reason other than Retirement, Disability, or death, the Participant shall
forfeit all rights with respect to any Performance Shares that were being
earned during the Performance Cycle. The Committee, in its sole
discretion, may establish guidelines providing that if a Participant's
employment is terminated before the end of a Performance Cycle by reason
of Disability, or death, the Participant shall be entitled to a prorated
payment with respect to any Performance Shares that were being earned
<PAGE> PAGE 117
EXHIBIT 10(d) Page 11 of 16
during the Performance Cycle. If the Participant's employment is
terminated before the end of a Performance Cycle by reason of Retirement,
the Participant's rights with respect to any Performance Shares being
earned during the Performance Cycle shall, subject to the other
provisions of this Section 10, continue as if the Participant's
employment had continued through the end of the Performance Cycle.
Section 11. SHARE RETENTION AGREEMENTS
(a) General - The Committee, in its sole discretion, may require as
a condition of an Award of an Option, Stock Appreciation Right, or
Performance Share Unit that the Participant and the Corporation enter
into a Share Retention Agreement, which shall provide that the
certificate or certificates representing any Exercise Gain Shares or
Performance Shares, when issued, shall be held by the Secretary of the
Corporation for the benefit of the Participant until such time as the
retention period specified by the Share Retention Agreement has expired
or has been waived by the Committee, whichever occurs first. Each Share
Retention Agreement may include some or all of the terms, conditions and
restrictions set forth in paragraphs (b) through (g) of this Section 11.
(b) Retention Period - Exercise Gain Shares and Performance Shares
that are subject to the Share Retention Agreement may not be sold,
transferred, assigned, pledged, conveyed, hypothecated or otherwise
disposed of within such period of time, of not less than twenty-four (24)
months and not more than sixty (60) months following the date of exercise
(in the case of Exercise Gain Shares) or the date of issuance (in the
case of Performance Shares), as shall be prescribed by the Committee.
(c) Tax Absorption Payment - The Corporation may make a cash
payment, either directly to the Participant or on the Participant's
behalf, in an amount that the Committee estimates to be equal (after
taking into account any Federal and state taxes that the Committee
estimates to be applicable to such cash payment) to any additional
Federal and state income taxes that are imposed upon the Participant as a
result of the issuance of the Exercise Gain Shares or Performance Shares
that are subject to the Share Retention Agreement. In determining the
amount to be paid pursuant to this paragraph (c), the Committee may adopt
such methods and assumptions as it considers appropriate, and it shall
not be required to examine the individual tax liability of each
Participant who has entered into a Share Retention Agreement.
(d) Termination of Employment - If a Participant's employment with
the Corporation or a Subsidiary Company is terminated for any reason
other than Retirement, Disability, or death, Exercise Gain Shares or
Performance Shares subject to the Share Retention Agreement shall
continue to be held, following the Participant's termination of
employment, until the expiration of the retention period specified by the
Share Retention Agreement. If the Participant's employment is terminated
by reason of Retirement or Disability, Exercise Gain Shares and
Performance Shares then held subject to the Share Retention Agreement
<PAGE> PAGE 118
EXHIBIT 10(d) Page 12 of 16
shall continue to be held until the expiration of the applicable
retention period following termination of employment, but any such
retention period shall cease upon the earlier of the Participant's
attainment of age 65 or the expiration of two (2) years after the
Participant's Retirement or Disability, if either of those events
occurs before the expiration of the applicable retention period. If
the Participant dies while Exercise Gain Shares or Performance Shares
are subject to a retention period under the Share Retention Agreement,
such retention period shall expire immediately at the time of death.
(e) Change in Control - Upon a Change in Control, the retention
periods specified by all Share Retention Agreements shall immediately
expire.
A Change in Control shall occur if:
(i) any person, other than the Corporation or a Subsidiary
Company or any employee benefit plan sponsored by the Corporation or a
Subsidiary Company, shall become the beneficial owner of, or obtain
voting control over, 20% or more of the Corporation's outstanding Common
Stock;
(ii) the stockholders of the Corporation shall approve (A)
any consolidation or merger of the Corporation in which the Corporation
is not the continuing or surviving corporation or pursuant to which
shares of Common Stock would be converted into cash, securities, or other
property, other than a merger of the Corporation in which holders of
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately after
the merger as immediately before, or (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions)
of all or substantially all the assets of the Corporation; or
(iii) there shall have been a change in the composition of the
Board of Directors such that within any period of two (2) consecutive
years or less individuals who at the beginning of such period constituted
such Board, together with any new directors whose election, or nomination
for election by the Corporation's stockholders, was approved by a vote of
at least two-thirds of the directors then in office who were directors at
the beginning of such period, shall for any reason no longer constitute a
majority of the directors of the Corporation.
If the expiration of a Share Retention Agreement pursuant to this
paragraph (e) causes a Participant to be subject to an excise tax under
Section 4999 of the Code, or any successor provision thereto (the "Excise
Tax"), the Corporation shall make a cash payment, either directly to the
Participant or on the Participant's behalf, in an amount that the
Committee estimates to be equal (after taking into account any Federal
and state taxes, including interest and penalties, that the Committee
estimates to be applicable to the additional cash payment) to the
additional Excise Tax imposed on the Participant as a result of the
<PAGE> PAGE 119
EXHIBIT 10(d) Page 13 of 16
expiration of the Share Retention Agreement. In determining the amount
to be paid pursuant to this subparagraph, the Committee may adopt such
methods and assumptions as it considers appropriate, and it shall not
be required to examine the individual tax liability of each Participant
to whom this subparagraph applies.
(f) Waiver of Requirements - The Committee, in its sole discretion,
may waive any or all retention periods or other restrictions in the Share
Retention Agreement.
(g) Distribution of Shares - The Secretary of the Corporation shall
promptly distribute the certificate or certificates representing the
Exercise Gain Shares or Performance Shares subject to a Share Retention
Agreement upon expiration of the retention period or other termination or
waiver of the restrictions under this Section 11.
Section 12. DIVIDEND EQUIVALENT PAYMENTS
The Committee may authorize the payment of dividend equivalents on some
or all of the shares of Common Stock covered by Options or Performance
Share Units granted after January 1, 1989, in an amount equal to, and
commensurate with, dividends declared by the Board of Directors and paid
on Common Stock. Dividend equivalents payable on Option shares or on
Performance Share Units under this Section 12 may be paid in cash or in
Common Stock at the discretion of the Committee. The Committee may
authorize the automatic payment of dividend equivalents under this
Section 12 with respect to any Option for all or some portion of its term
by including a specific provision, authorizing such automatic payment, in
the Incentive Stock Option Agreement required under Section 6(a) of the
Plan or the Non-qualified Stock Option Agreement required under Section 7
of the Plan. The Committee may authorize the automatic payment of
dividend equivalents under this Section 12 with respect to any
Performance Share Unit for all or some portion of its term as a term and
condition of the Performance Share Unit grant.
Section 13. CAPITAL ADJUSTMENTS
In the event of a recapitalization, stock split, stock dividend,
exchange, combination, or reclassification of shares, merger,
consolidation, reorganization, or other change in or affecting the
capital structure or capital stock of the Corporation, the Board of
Directors, upon the recommendation of the Committee, may make appropriate
adjustments in the number of shares of Common Stock authorized for the
Plan and in the annual limitation imposed by Section 5 of this Plan; and
<PAGE> PAGE 120
EXHIBIT 10(d) Page 14 of 16
the Committee may make appropriate adjustments in the number of shares
subject to outstanding Options, Stock Appreciation Rights, Restricted
Stock, or Performance Share Unit grants, and in the Option price of
any then outstanding Options, as it deems equitable, in its absolute
discretion, to prevent dilution or enlargement of the rights of
Participants.
Section 14. REGULATORY APPROVALS
The exercise of each Option and Stock Appreciation Right, and the grant
or distribution of Restricted Shares and Performance Shares, shall be
subject to the condition that if at any time the Corporation shall
determine in its discretion that the satisfaction of withholding tax or
other tax liabilities, or the listing, registration, or qualification of
any shares of Common Stock upon any securities exchange or under any
Federal or state law, or the consent or approval of any regulatory body,
is necessary or desirable as a condition of, or in connection with, such
exercise, grant, or distribution, then in any such event such exercise,
grant, or distribution shall not be effective unless such liabilities
have been satisfied or such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation.
Section 15. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date - The Plan, as hereby amended, shall be
effective when approved by the Board of Directors, and Options, Stock
Appreciation Rights, and Performance Share Units may be granted
immediately thereafter; provided, that no Option or Stock Appreciation
Right may be exercised and no Restricted Shares or Performance Shares may
be granted under the Plan unless and until the Plan, as hereby amended,
is approved by the vote of the holders of a majority of the shares of
Common Stock present or represented and entitled to vote at a meeting of
the stockholders of the Corporation, at which a quorum is present, held
within twelve (12) months after the date of adoption of the Plan, as
hereby amended, by the Board of Directors.
(b) Term of the Plan - Awards may be granted from time to time
under the terms and conditions of the Plan, but no Incentive Stock Option
may be granted after the expiration of ten (10) years from the date of
adoption of the Plan, as hereby amended, by the Board of Directors;
provided, that any future amendment to the Plan that is approved by the
stockholders of the Corporation in the manner provided under paragraph
(a) of this Section 15 shall be regarded as creating a new Plan, and an
Incentive Stock Option may be granted under such new Plan until the
expiration of ten (10) years from the earlier of the approval by the
Board of Directors, or the approval by the stockholders of the Corporation,
<PAGE> PAGE 121
EXHIBIT 10(d) Page 15 of 16
of such new Plan. Incentive Stock Options theretofore granted may
extend beyond the expiration of that ten-year period, and the terms
and conditions of the Plan shall continue to apply thereto and to
shares of Common Stock acquired upon the subsequent exercise of an
Incentive Stock Option or related Stock Appreciation Right.
Section 16. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may at any time and from time to time alter or
amend, in whole or in part, any or all of the provisions of the Plan, or
may at any time suspend or terminate the Plan, provided that no change in
any Awards theretofore granted to any Participant may be made which would
impair or diminish the rights of the Participant without the
Participant's consent, and provided further, that no alteration or
amendment may be made without the approval of the holders of a majority
of the Common Stock then outstanding and entitled to vote if such
stockholder approval is necessary to comply with the requirements of any
rules promulgated under Section 16 of the Securities Exchange Act of 1934
or such other Federal or state laws or regulations as may be applicable.
Section 17. MISCELLANEOUS
(a) Fractional Shares - The Corporation shall not be required to
issue or deliver any fractional share of Common Stock upon the exercise
of an Option or Stock Appreciation Right, the award of Performance
Shares, or the payment of a dividend equivalent in Common Stock pursuant
to Section 12 of the Plan, but may pay, in lieu thereof, an amount in
cash equal to the Fair Market Value of such fractional share.
(b) Withholding - The Corporation and its Subsidiary Companies
shall have the right, to the extent permitted by law, to deduct from any
payment of any kind otherwise due to a Participant any Federal, state or
local taxes of any kind required by law to be withheld with respect to
Awards under the Plan, and to the extent any such withholding
requirements are not satisfied, each Participant shall pay to the
Corporation any Federal, state or local taxes of any kind required by law
to be withheld with respect to Awards under the Plan.
(c) Stockholder Rights - No person shall have any rights of a
stockholder by virtue of an Option, Stock Appreciation Right, or
Performance Share Unit except with respect to shares of Common Stock
actually issued to him, and the issuance of shares of Common Stock shall
confer no retroactive right to dividends.
(d) No Contract of Employment - This Plan shall not be deemed to be
an employment contract between the Corporation or any Subsidiary Company
and any Participant or other employee. Nothing contained herein, or in
any agreement, certificate or other document evidencing, providing for,
or setting forth the terms and conditions applicable to any Awards shall
<PAGE> PAGE 122
EXHIBIT 10(d) Page 16 of 16
be deemed to confer upon any Participant or other employee a right to
continue in the employment of the Corporation or any Subsidiary Company,
or to interfere with the right of the Corporation or any Subsidiary
Company to terminate the employment of such Participant or employee at
any time.
(e) Unfunded Plan - Except as may otherwise be provided in the
Plan, the Plan shall be unfunded. Neither the Corporation nor any
Subsidiary Company shall be required to segregate any assets that may be
represented by Options, Stock Appreciation Rights, or Performance Share
Units, and neither the Corporation nor any Subsidiary Company shall be
deemed to be a trustee of any amounts to be paid under an Option, Stock
Appreciation Right, or Performance Share Unit. Any liability of the
Corporation to pay any Participant or Beneficiary with respect to an
Option, Stock Appreciation Right, or Performance Share Unit shall be
based solely upon any contractual obligations created pursuant to the
provisions of the Plan; no such obligation shall be deemed to be secured
by any pledge or encumbrance on any property of the Corporation or a
Subsidiary Company.
(f) Applicable Law - The Plan, its validity, interpretation, and
administration, and the rights and obligations of all persons having an
interest therein, shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, except to the extent that such
laws may be preempted by Federal law.
(g) Gender and Number - Wherever used in the Plan, words in the
masculine form shall be deemed to refer to females as well as to males,
and words in the singular or plural shall be deemed to refer also to the
plural or singular, respectively, as the context may require.
<PAGE> PAGE 123
EXHIBIT 10(j) Page 1 of 3
EXCESS LONG-TERM DISABILITY PLAN
OF
NORFOLK SOUTHERN CORPORATION
AND
PARTICIPATING SUBSIDIARY COMPANIES
(effective October 1, 1995)
ARTICLE I. INTRODUCTION Norfolk Southern Corporation has established
this Excess Long-Term Disability Plan ("Plan") effective October 1, 1995
("Effective Date"), to provide long-term disability benefits to eligible
employees in excess of those provided for by the Long-Term Disability
Plan of Norfolk Southern Corporation and participating subsidiary
companies.
ARTICLE II. DEFINITIONS
NSC Norfolk Southern Corporation, a Virginia corporation.
Long-Term
Disability Plan The Long-Term Disability Plan of Norfolk Southern
Corporation and Participating Subsidiary Companies.
Participating
Subsidiary Each subsidiary or affiliated company of NSC which is
Disability a Participating Subsidiary in the Long-Term
Plan shall automatically participate in the Plan.
Participant An employee of NSC or a Participating Subsidiary who
Disability is eligible to participate in the Long-Term Plan.
Board of Managers A group composed of the same individuals that compose
the Board of Managers of the Long-Term Disability
Plan.
ARTICLE III. ELIGIBILITY
1. Any Participant whose benefit computed under Article III of the
Long-Term Disability Plan without regard to the limit on salary exceeds
the benefit payable under such Article III.
ARTICLE IV. EXCESS BENEFIT
1. A Participant shall, upon commencement of benefits under the
Long-Term Disability Plan, be entitled to receive a monthly benefit equal
to the excess of:
(a) the monthly benefit under Article III of the Long-Term
Disability Plan if such benefit had been computed without regard to the
limitation on salary provided therein; over
(b) the monthly benefit actually payable under the Long-Term
Disability Plan.
<PAGE> PAGE 124
EXHIBIT 10(j) Page 2 of 3
2. The payment of excess benefits under the Plan shall be made in
a manner consistent with the provisions of the Long-Term Disability 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 Board of Managers
("Board"). All determinations of the Board with respect to any matter
hereunder shall be conclusive and binding on all persons.
ARTICLE VII. RIGHTS AND RESTRICTIONS
1. Participants in the Plan shall have only those rights in
respect to the Plan specifically set forth herein.
2. This Plan shall not be deemed to constitute a contract between
NSC or any Participating Subsidiary and any 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 of debts of the Participant.
<PAGE> PAGE 125
EXHIBIT 10(j) Page 3 of 3
ARTICLE VIII. AMENDMENTS AND TERMINATIONS
This Plan may be amended at any time, and retroactively if deemed
necessary or appropriate, by any proper officer of NSC to effect changes
which are, in his or her sole judgment and discretion, ministerial,
substantively administrative, or necessary to comply with statutory or
other legally mandated requirements, and the implementation of which do
not result in a material cost to NSC or to the Plan.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be adopted on
the 26th day of September 1995, effective October 1, 1995.
NORFOLK SOUTHERN CORPORATION
and PARTICIPATING SUBSIDIARY
COMPANIES
By
-------------------------
<PAGE> PAGE 126
EXHIBIT 11 PAGE 1 of 4
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except per share amounts)
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computation for Statements of Income
- ------------------------------------
Income before cumulative effects of
changes in accounting principles $ 712.7 $ 667.8 $ 548.7
-------- -------- --------
Cumulative effects of changes in
accounting principles -- -- 223.3
-------- -------- --------
Weighted average number of shares
outstanding 131.0 136.3 139.4
-------- -------- --------
Primary earnings per share:
Income before accounting changes $ 5.44 $ 4.90 $ 3.94
Cumulative effects of accounting
changes -- -- 1.60
-------- -------- --------
Net income $ 5.44 $ 4.90 $ 5.54
======== ======== ========
Additional Primary Computation
- ------------------------------
Income before cumulative effects of
changes in accounting principles $ 712.7 $ 667.8 $ 548.7
-------- -------- --------
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 131.0 136.3 139.4
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) 1.3 1.1 1.2
-------- -------- --------
Weighted average number of
shares outstanding, as
adjusted 132.3 137.4 140.6
======== ======== ========
</TABLE>
<PAGE> PAGE 127
EXHIBIT 11 PAGE 2 of 4
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except per share amounts)
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary earnings per share,
as adjusted (2):
Income before accounting changes $ 5.39 $ 4.86 $ 3.90
Cumulative effects of accounting
changes -- -- 1.59
-------- -------- --------
Net income $ 5.39 $ 4.86 $ 5.49
======== ======== ========
(1) See Note 12 of Notes to Consolidated Financial Statements on
page 70 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 128
EXHIBIT 11 PAGE 3 of 4
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except per share amounts)
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fully Diluted Computation
- -------------------------
Income before cumulative effects
of changes in accounting
principles, per primary
computation $ 712.7 $ 667.8 $ 548.7
Adjustment to increase earnings
to requisite level to earn
maximum PSUs, net of tax effect 55.3 93.0 162.1
-------- -------- --------
Income before cumulative effects,
as adjusted 768.0 760.8 710.8
Cumulative effects of changes in
accounting principles -- -- 223.3
-------- -------- --------
Net income, as adjusted $ 768.0 $ 760.8 $ 934.1
======== ======== ========
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 1 132.3 137.4 140.6
Additional dilutive effect of
outstanding options and SARs
(as determined by the
application of the treasury
stock method using period
end market price) 0.3 -- 0.2
Additional shares issuable at
maximum level for PSUs 0.1 0.1 0.2
-------- -------- --------
Weighted average number of
shares, as adjusted 132.7 137.5 141.0
-------- -------- --------
</TABLE>
<PAGE> PAGE 129
EXHIBIT 11 PAGE 4 of 4
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except per share amounts)
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fully diluted earnings per share (3):
Income before accounting changes $ 5.79 $ 5.53 $ 5.04
Cumulative effects of accounting
changes -- -- 1.58
-------- -------- --------
Net income $ 5.79 $ 5.53 $ 6.62
======== ======== ========
(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 130
EXHIBIT 12 PAGE 1 of 1
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
<CAPTION>
Year ended December 31
------------------------------------------------
1995 1994 1993 1992 1991 (1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before income
taxes as reported $1,114.7 $1,049.0 $ 898.6 $ 875.3 $ 143.6
Add:
Total interest expenses
(as detailed below) 174.9 159.9 160.7 161.6 151.4
Income (loss) of
partially owned
entities (2) 0.1 0.6 (2.6) 2.0 1.3
Subsidiaries' preferred
dividend requirement 2.6 2.7 2.7 2.7 3.3
-------- -------- -------- -------- --------
Income before income
taxes, as adjusted $1,292.3 $1,212.2 $1,059.4 $1,041.6 $ 299.6
======== ======== ======== ======== ========
FIXED CHARGES
Interest expense on debt $ 113.4 $ 101.6 $ 98.6 $ 109.0 $ 99.7
Other interest expense 31.5 31.8 38.7 33.0 34.8
Calculated interest
portion of rent expense 30.0 26.5 23.4 19.6 16.9
-------- -------- -------- -------- --------
Total interest
expenses 174.9 159.9 160.7 161.6 151.4
Capitalized interest 14.0 17.8 21.7 17.9 19.3
Subsidiaries' preferred
dividend requirement
on a pretax basis 4.1 4.2 4.3 4.2 4.9
-------- -------- -------- -------- --------
Total fixed charges $ 193.0 $ 181.9 $ 186.7 $ 183.7 $ 175.6
======== ======== ======== ======== ========
RATIO OF EARNINGS TO
FIXED CHARGES 6.70 6.66 5.67 5.67 1.71(1)
(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 131
EXHIBIT 21 PAGE 1 of 3
NAME AND STATE OF INCORPORATION OF SUBSIDIARIES
OF NORFOLK SOUTHERN CORPORATION
AS OF MARCH 1, 1996
Agency Media Services, Inc., Indiana
Atlantic Investment Company, Delaware
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
Lamberts Point Barge Company, Inc., 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
Shenandoah-Virginia Corporation, Virginia
South Western Rail Road Company, The; Georgia
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
<PAGE> PAGE 132
EXHIBIT 21 PAGE 2 of 3
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
NS Gas Properties, Inc., 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
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
<PAGE> PAGE 133
EXHIBIT 21 PAGE 3 of 3
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 134
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 23, 1996,
relating to the consolidated balance sheets of Norfolk Southern
Corporation and subsidiaries as of December 31, 1995 and 1994, 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, 1995, which report appears in the
December 31, 1995 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 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 68
<SECURITIES> 261
<RECEIVABLES> 723
<ALLOWANCES> 19
<INVENTORY> 62
<CURRENT-ASSETS> 1,343
<PP&E> 13,585
<DEPRECIATION> 4,326
<TOTAL-ASSETS> 10,905
<CURRENT-LIABILITIES> 1,206
<BONDS> 1,553
<COMMON> 136
0
0
<OTHER-SE> 4,693
<TOTAL-LIABILITY-AND-EQUITY> 10,905
<SALES> 0
<TOTAL-REVENUES> 4,668
<CGS> 0
<TOTAL-COSTS> 3,582
<OTHER-EXPENSES> (142)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 1,115
<INCOME-TAX> 402
<INCOME-CONTINUING> 713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 713
<EPS-PRIMARY> 5.44
<EPS-DILUTED> 0
</TABLE>
