PAGE ONE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-8339
NORFOLK SOUTHERN CORPORATION
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 52-1188014
- ---------------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
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
----------------------
No Change
- ------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (X) Yes ( ) No
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the last practicable date:
Class Outstanding as of October 31, 1996
----- ----------------------------------
Common Stock (par value $1.00) 125,088,459 shares (excluding
7,252,634 shares held by
registrant's consolidated
subsidiaries)
<PAGE> PAGE 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
INDEX
Page
----
Part I. Financial Information:
Item 1. Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1996 and 1995 3
Consolidated Balance Sheets
September 30, 1996, and December 31, 1995 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
Part II. Other Information:
Item 1. Legal Proceedings 19-20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Index to Exhibits 22
<PAGE> PAGE 3
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In millions of dollars except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TRANSPORTATION OPERATING REVENUES:
Railway (Note 6):
Coal $ 327.5 $ 325.7 $ 979.8 $ 950.6
Merchandise 570.3 553.7 1,737.5 1,710.0
Intermodal 122.3 116.6 357.5 351.0
-------- -------- -------- --------
Total railway 1,020.1 996.0 3,074.8 3,011.6
Motor carrier 191.2 187.9 515.3 501.2
-------- -------- -------- --------
Total operating revenues 1,211.3 1,183.9 3,590.1 3,512.8
-------- -------- -------- --------
TRANSPORTATION OPERATING EXPENSES:
Railway:
Compensation and benefits 341.3 359.7 1,069.9 1,091.6
Materials, services and rents 154.7 146.7 465.0 472.5
Depreciation 102.2 98.3 304.1 289.4
Diesel fuel 53.7 45.2 165.8 140.9
Casualties and other claims 28.2 30.7 93.8 91.7
Other 39.6 37.7 113.9 114.1
-------- -------- -------- --------
Total railway 719.7 718.3 2,212.5 2,200.2
Motor carrier 175.9 173.5 490.4 481.3
-------- -------- -------- --------
Total operating expenses 895.6 891.8 2,702.9 2,681.5
-------- -------- -------- --------
Income from operations 315.7 292.1 887.2 831.3
Other income (expense):
Interest income 4.4 6.9 15.3 21.7
Interest expense on debt (28.3) (28.8) (83.9) (85.7)
Other - net 21.6 16.9 68.0 87.4
-------- -------- -------- --------
Total other income (2.3) (5.0) (0.6) 23.4
-------- -------- -------- --------
Income before income taxes 313.4 287.1 886.6 854.7
Provision for income taxes 111.1 103.2 316.7 318.9
-------- -------- -------- --------
NET INCOME $ 202.3 $ 183.9 $ 569.9 $ 535.8
======== ======== ======== ========
<S> <C> <C> <C> <C>
Per share amounts (Note 5):
Net income $ 1.61 $ 1.40 $ 4.49 $ 4.07
Dividends 0.56 0.52 1.68 1.56
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 4
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 187.6 $ 67.7
Short-term investments 173.9 261.3
Accounts receivable - net 775.5 703.5
Materials and supplies 58.1 61.7
Deferred income taxes 151.8 144.7
Other current assets 109.7 103.9
--------- ---------
Total current assets 1,456.6 1,342.8
Investments 273.0 231.7
Properties less accumulated depreciation 9,460.2 9,258.8
Other assets 71.7 71.5
--------- ---------
TOTAL ASSETS $11,261.5 $10,904.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 45.1 $ 45.2
Accounts payable 746.7 732.8
Income and other taxes 204.1 190.8
Other current liabilities 133.7 151.3
Current maturities of long-term debt (Note 3) 78.8 85.7
--------- ---------
Total current liabilities 1,208.4 1,205.8
Long-term debt (Note 3) 1,811.2 1,553.3
Other liabilities 986.8 965.5
Minority interests 49.5 52.2
Deferred income taxes 2,351.0 2,299.0
--------- ---------
TOTAL LIABILITIES 6,406.9 6,075.8
--------- ---------
Stockholders' equity:
Common stock $1.00 per share par value 132.4 136.3
Other capital 459.1 430.9
Retained income 4,283.7 4,282.4
Less treasury stock at cost, 7,252,634 shares (20.6) (20.6)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,854.6 4,829.0
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,261.5 $10,904.8
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 5
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 569.9 $ 535.8
Reconciliation of net income to net cash
provided by operating activities:
Special charge payments (12.6) (9.6)
Depreciation 320.5 308.1
Deferred income taxes 44.3 44.7
Nonoperating gains and losses on properties
and investments (38.9) (56.8)
Changes in assets and liabilities
affecting operations:
Accounts receivable (72.0) (42.2)
Materials and supplies 3.6 (1.2)
Other current assets 24.6 27.5
Current liabilities other than debt 34.8 91.5
Other - net 9.5 16.4
------- -------
Net cash provided by operating activities 883.7 914.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 3) (500.2) (497.6)
Property sales and other transactions 88.8 80.8
Investments and loans (57.0) (54.5)
Investment sales and other transactions 25.5 24.6
Short-term investments - net 85.4 38.6
------- -------
Net cash used for investing activities (357.5) (408.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (213.7) (205.9)
Common stock issued - net 25.8 10.6
Purchase and retirement of common stock (Note 4) (370.5) (238.6)
Proceeds from long-term borrowings (Note 3) 209.6 7.6
Debt repayments (57.5) (63.6)
------- -------
Net cash used for financing activities (406.3) (489.9)
------- -------
Net increase in cash and cash equivalents 119.9 16.2
CASH AND CASH EQUIVALENTS:*
At beginning of year 67.7 57.0
------- -------
At end of period $ 187.6 $ 73.2
======= =======
- ------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 108.8 $ 100.7
Income taxes $ 232.7 $ 219.3
* Cash equivalents are highly liquid investments purchased three months
or less from maturity.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 6
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position as of September 30, 1996, and the results of operations
and cash flows for the nine months ended September 30, 1996, and
1995.
While Management believes that the disclosures presented are
adequate to make the information not misleading, these consolidated
financial statements should be read in conjunction with the
financial statements and notes included in the Corporation's latest
Annual Report on Form 10-K.
2. Contingencies
There have been no significant changes since year-end 1995 in the
matters as discussed in NOTE 17, CONTINGENCIES, appearing in the
NS Annual Report on Form 10-K for 1995, Notes to Consolidated
Financial Statements, beginning on page 74.
3. Long-Term Debt
MEDIUM-TERM NOTES
-----------------
During September 1996, NS issued and sold $200 million principal
amount of Medium-Term Notes due September 15, 2006, under its
$750 million shelf registration statement filed in 1991. Of these
notes, $100 million has an interest rate of 7.4 percent and the
other $100 million, an interest rate of 7.22 percent. The notes
are not redeemable prior to maturity and are not entitled to any
sinking fund. Including the notes issued in September,
$700 million principal amount of debt has been issued and sold
under the 1991 shelf registration.
CAPITAL LEASE OBLIGATIONS
-------------------------
During the first nine months of 1996 and 1995, an NS rail
subsidiary entered into capital leases covering new locomotives.
The related capital lease obligations totaling $107.8 million in
1996 and $104.5 million in 1995 were reflected in the Consolidated
Balance Sheets as debt and, because they were non-cash
transactions, were excluded from the Consolidated Statements of
Cash Flows. The lease obligations carry stated interest rates
between 6.20 percent and 6.75 percent for those entered into in
1996, and between 8.23 percent and 8.60 percent for those entered
into in 1995. All 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
<PAGE> PAGE 7
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
3. Long-Term Debt (continued)
Rate and are reset every six months with realized gains or losses
accounted for as an adjustment of interest expense over the terms
of the leases. As a result, NS is exposed to the market risk
associated with fluctuations in interest rates. To date, the
effects of the rate fluctuations 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.
4. Stock Purchase Programs
In January 1996, the Board of Directors authorized the purchase and
retirement of up to 30 million shares of common stock. NS
completed its purchases (45 million shares) under a 1989
authorization on March 8, 1996, and completed in 1989 an initial
program for 20 million shares which began in 1987. Since the first
purchases in December 1987 through September 30, 1996, NS has
purchased and retired 68,416,000 shares of its common stock at a
cost of $3.2 billion (see also Note 8).
5. Earnings Per Share
<TABLE>
"Earnings per share" is computed by dividing net income by the
weighted average number of common shares outstanding as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Average number of
shares outstanding 125,605 130,578 126,912 131,532
</TABLE>
Recent decreases in the average number of outstanding shares of NS
common stock are the result of the stock purchase program described
in Note 4.
6. Reclassification of Railway Revenues
Beginning in 1996, revenues previously reported as "Other railway
revenues" (principally switching and demurrage) are included in
each of the respective commodity groups. 1995 revenues have been
reclassified to conform with the current presentation.
<PAGE> PAGE 8
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7. Lease Commitments
On July 29, 1996, implementation of the Lease Extension Agreement
between Norfolk Southern Railway Company (NS Rail) and North
Carolina Railroad Company (NCRR) was enjoined by a federal court,
which ruled that a quorum of private stockholders was not present
at the NCRR stockholders' meeting at which the Agreement was
approved. In light of the Federal Court's injunction of NCRR from
entering into the lease extension agreement which had been
negotiated between NCRR and NS Rail, NCRR has elected to file,
against NS Rail and affiliated companies, a lawsuit in state court
to resolve contractual and environmental issues and an action in
the Surface Transportation Board (STB) to determine appropriate
compensation for NS Rail's continued use of the line. Pending
resolution of the STB proceedings, NS Rail will continue to
discharge its common carrier obligations by operating over the
lines of NCRR. Final resolution of these matters is not expected
to have a material effect on NS' consolidated financial position or
results of operations.
8. Subsequent Events
PROPOSED ACQUISITION OF CONRAIL INC.
------------------------------------
On October 23, 1996, NS announced its intention to commence an
all-cash tender offer for Conrail Inc., a Pennsylvania corporation
(Conrail). On October 24, 1996, Atlantic Acquisition Corporation,
a Pennsylvania corporation and a wholly owned subsidiary of NS,
offered to purchase all outstanding shares of (i) common stock,
par value $1.00 per share, and (ii) Series A ESOP Convertible
Junior Preferred Stock, without par value (collectively, the Shares),
of Conrail including, in each case, the associated Common Stock
Purchase Rights, at a price of $100 per share, net to the seller in
cash, without interest, or approximately $9.1 billion in the
aggregate. NS intends ultimately to effect a merger in which all
remaining Conrail shareholders also will receive the same cash
price paid in the tender offer. Shares tendered in the offer or
acquired in any subsequent merger would be held in a voting trust
pending regulatory approval by the STB. The offer followed the
October 15 announcement that Conrail had entered into a merger
agreement with CSX Corporation (CSX), whereby Conrail stockholders
would receive $92.50 cash per share for up to 40 percent of their
Shares and receive CSX common stock for the balance of their
Shares. Based on the October 15, 1996, closing price of CSX
common stock in NYSE composite trading (the Closing Price), the
aggregate value of the CSX transaction was approximately
$8.1 billion. On November 5, 1996, Conrail's Board of Directors
unanimously reaffirmed its conclusion that the merger with CSX
is in Conrail's best interest and rejected NS' offer. On
November 6, 1996, CSX and Conrail announced that they had
amended the terms of their merger agreement. Under the revised
terms, CSX raised the cash portion of its offer to $110 per
Share and left unchanged the ratio pursuant to which certain
Conrail stockholders would receive shares of CSX common
<PAGE> PAGE 9
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
8. Subsequent Events (continued)
PROPOSED ACQUISITION OF CONRAIL INC. (continued)
------------------------------------
stock - an offer valued at approximately $8.4 billion in the
aggregate based on the November 6, 1996, Closing Price of
CSX common stock. On November 8, 1996, NS announced that it had
increased to $110 per share, or approximately $10.0 billion in the
aggregate, its all-cash offer. On November 13, Conrail reaffirmed
its commitment to the merger with CSX and recommended that its
stockholders not tender into the increased NS offer.
NS' tender offer is conditioned upon, among other things, the
receipt by NS of an informal written opinion from the staff of the
STB that the use of the voting trust is consistent with the
policies of the STB, NS having obtained sufficient financing for
the tender offer and subsequent merger, the valid tender of a
majority of Conrail's shares on a fully diluted basis, Subchapter
25F of Pennsylvania's Business Corporation Law not being applicable
to the offer, Conrail's Rights Agreement (or poison pill) having
been redeemed or otherwise made inapplicable to NS' tender offer,
the merger agreement between CSX and Conrail having been terminated
in accordance with its terms or otherwise, and other conditions.
The full terms and conditions of the tender offer and certain other
disclosures, to all of which the foregoing summary is subject, are
set forth in documents filed on October 24 and November 8 with the
Securities and Exchange Commission. See also Part II, Item 1,
"Legal Proceedings" on page 19.
STOCK PURCHASE PROGRAM
----------------------
On October 23, 1996, NS announced that the share purchase program
authorized by the Board of Directors in January 1996 had been
suspended.
<PAGE> PAGE 10
Item 2. 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
RESULTS OF OPERATIONS
Net Income
- ----------
"Net income" for the third quarter of 1996 was a record $202.3 million,
up $18.4 million, or 10 percent, compared with $183.9 million in last
year's third quarter. "Net income" for the nine months ended
September 30, 1996, was a record $569.9 million, a $34.1 million, or
6 percent, increase. Increased "Income from operations," up 8 percent
for the third quarter and 7 percent for the first nine months, was
principally responsible for both improvements. A lower effective
income tax rate (see "Income Taxes") also contributed to the year-to-
date improvement.
<TABLE>
Railway Operating Revenues
- --------------------------
Third-quarter "Railway operating revenues" were a record $1.02 billion,
a $24.1 million, or 2 percent, increase over the same period last year.
"Railway operating revenues" for the first nine months were
$3.07 billion, also a record, up $63.2 million, or 2 percent, compared
with the same period last year. The increases in operating revenues were
due to:
<CAPTION>
Third Quarter First Nine Months
1996 vs. 1995 1996 vs. 1995
Increase (Decrease) Increase (Decrease)
------------------ ------------------
(In millions of dollars)
<S> <C> <C>
Traffic volume (carloads) $ 40.6 $ 40.5
Revenue per unit (16.5) 22.7
------ ------
$ 24.1 $ 63.2
====== ======
</TABLE>
<PAGE> PAGE 11
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
<TABLE>
Revenues and carloads for the commodity groups were as follows (see
Note 6 on page 7 for a discussion of revenue reclassifications):
<CAPTION>
Revenues
-------------------------------------------
Third Quarter Nine Months
1996 1995 1996 1995
--------- --------- --------- ---------
($ in millions)
<S> <C> <C> <C> <C>
Coal $ 327.5 $ 325.7 $ 979.8 $ 950.6
Chemicals 140.0 127.9 419.3 402.5
Paper/forest 130.1 137.3 388.5 409.1
Automotive 112.2 99.1 364.2 337.6
Agriculture 94.4 98.7 293.1 293.4
Metals/construction 93.6 90.7 272.4 267.4
-------- -------- -------- --------
General merchandise 570.3 553.7 1,737.5 1,710.0
Intermodal 122.3 116.6 357.5 351.0
-------- -------- -------- --------
Total $1,020.1 $ 996.0 $3,074.8 $3,011.6
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Carloads
-------------------------------------------
Third Quarter Nine Months
1996 1995 1996 1995
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Coal 333.4 319.9 987.5 951.9
Chemicals 95.6 87.5 282.5 274.8
Paper/forest 111.6 116.0 329.8 349.9
Automotive 83.5 70.9 263.1 245.3
Agriculture 91.6 96.9 275.5 292.0
Metals/construction 96.3 95.5 277.8 283.2
-------- -------- -------- --------
General merchandise 478.6 466.8 1,428.7 1,445.2
Intermodal 334.1 313.9 976.5 938.1
-------- -------- -------- --------
Total 1,146.1 1,100.6 3,392.7 3,335.2
======== ======== ======== ========
</TABLE>
<PAGE> PAGE 12
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Coal
- ----
Third-quarter coal revenues were $1.8 million, or 1 percent, above
third-quarter 1995, and were $29.2 million, or 3 percent, higher for
the first nine months. Increased traffic volume was responsible for
these improvements, as carloads were 4 percent ahead of both last
year's third quarter and first nine months. Lower average revenue per
car, largely the result of an increased proportion of utility traffic,
offset most of the revenue increase generated by the improved third-
quarter traffic volume. Domestic utility coal led the volume gains, a
result of downtime at certain nuclear power plants and increased
generation at several NS-served utilities. Third-quarter export coal
traffic volumes declined compared with a strong third quarter last
year, partly due to vessel timing.
Domestic utility coal traffic is projected to remain strong in the
fourth quarter due to expected continued downtime at nuclear power
plants and increased winter demand. Fourth-quarter export coal volume
is expected to benefit as the vessel timing, which unfavorably affected
the third quarter, reverses in the fourth quarter.
General Merchandise
- -------------------
Third-quarter general merchandise revenues increased $16.6 million, or
3 percent, over last year, and were $27.5 million, or 2 percent, above
the first nine months of 1995. Increased automotive and chemicals
traffic volume was principally responsible for both improvements.
Automotive led the growth, climbing $13.1 million, or 13 percent, for
the quarter, and $26.6 million, or 8 percent, for the first nine
months. NS' automotive revenues continued to benefit from a
combination of increased production at selected plants that produce
popular cars and trucks; production at the GM assembly plant in
Wentzville, Mo., which was down two years for retooling; and BMW
production at the new Greer, S.C., plant. Fourth-quarter automotive
revenues are expected to continue to benefit from these factors.
Revenues in the chemicals group were up $12.1 million, or 9 percent, for
the quarter and $16.8 million, or 4 percent, for the first nine months,
largely a result of increased traffic volume in fertilizers and plastics.
Chemical revenues are expected to remain ahead of last year, benefiting
from increased demand.
Revenues from metals/construction traffic were up $2.9 million, or
3 percent, for the quarter, and $5.0 million, or 2 percent, for the first
nine months. Higher average revenue per car was principally responsible
for the improvements in both periods.
<PAGE> PAGE 13
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Paper/forest revenues decreased $7.2 million, or 5 percent, for the
quarter, and were $20.6 million, or 5 percent, lower for the first nine
months. Declines in NS' paper/forest traffic continue to reflect the
overall softness in the U.S. paper industry.
Revenues in the agriculture group were down $4.3 million, or 4 percent,
in the third quarter, and were roughly flat for the first nine months.
The third-quarter decline was the result of lower traffic volume due to
very low supplies of grain following last year's poor harvest.
Fourth-quarter agriculture revenues are projected to be ahead of last
year, a result of an improvement in this year's harvest.
Intermodal
- ----------
Third-quarter intermodal revenues increased $5.7 million, or 5 percent,
compared with last year, and were $6.5 million, or 2 percent, higher
for the first nine months. Traffic volume was up 6 percent and
4 percent for the quarter and nine months, respectively, due to the
continued conversion of domestic freight from trailers to efficient
double-stack containers. NS' intermodal traffic is expected to
continue this positive growth trend in the fourth quarter.
Railway Operating Expenses
- --------------------------
"Railway operating expenses" increased $1.4 million in the third
quarter of 1996, and $12.3 million, or 1 percent, for the first nine
months, compared with the same periods last year.
The largest increase was in "Diesel fuel," which was up $8.5 million,
or 19 percent, for the quarter, and $24.9 million, or 18 percent, for
the first nine months. The increases were primarily due to increased
price per gallon, up 15 percent and 14 percent for the quarter and nine
months, respectively.
"Materials, services and rents" increased $8.0 million, or 5 percent,
for the third quarter, but decreased $7.5 million, or 2 percent, for
the first nine months. The third-quarter increase was primarily due to
higher equipment rents related largely to growth in intermodal traffic
and the absence of rental income on locomotives leased to UP in 1995.
Hurricane Fran, which disrupted some operations during September, also
contributed to the increase. The decrease for the first nine months
was principally the result of lower locomotive and freight car
maintenance costs.
"Depreciation" increased $3.9 million, or 4 percent, for the quarter,
and $14.7 million, or 5 percent, for the first nine months due to
additional investment in depreciable assets.
<PAGE> PAGE 14
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
The largest decrease was in "Compensation and benefits," which was
$18.4 million, or 5 percent, and $21.7 million, or 2 percent, below
last year's third quarter and first nine months, respectively. The
reductions were primarily attributable to lower fringe benefit costs,
principally medical benefits, and an adjustment to capitalized labor
costs, chiefly associated with wages payable in connection with the
recently ratified labor agreements. "Compensation and benefits" also
continues to reflect the positive effects of last year's early
retirement program and reduced employment.
"Casualties and other claims" decreased $2.5 million, or 8 percent, in
the third quarter, but increased $2.1 million, or 2 percent, for the
first nine months. The third-quarter decrease was largely the result
of a nonrecurring liability insurance refund, somewhat offset by higher
accruals for environmental remediation. The year-to-date increase was
due to the higher environmental expenses, which more than offset the
insurance refund and favorable personal injury experience.
Motor Carrier Operating Revenues
- --------------------------------
"Motor carrier operating revenues" of $191.2 million for the third
quarter and $515.3 million for the first nine months were $3.3 million,
or 2 percent, and $14.1 million, or 3 percent, respectively, ahead of
the same periods last year. The High Value Products (HVP) Division was
responsible for these improvements, as increased revenues were recorded
in the Division's logistics, European and trucking operations.
Motor Carrier Operating Expenses
- --------------------------------
"Motor carrier operating expenses" were $2.4 million, or 1 percent,
higher for the third quarter, and were $9.1 million, or 2 percent,
higher for the nine months. Both variances were principally a result of
increased volume, with lower claims costs in both HVP and the Relocation
Services (RS) Division mitigating the volume-related increases.
Other Income (Expense)
- ----------------------
"Interest income" was $2.5 million, or 36 percent, lower for the quarter
and $6.4 million, or 29 percent, lower for the first nine months. The
declines were due to a combination of lower interest rates and lower
invested balances in 1996.
"Other-net" increased $4.7 million, or 28 percent, for the quarter, but
decreased $19.4 million, or 22 percent, for the first nine months. The
favorable comparison for the quarter was largely attributable to higher
gains from dispositions of properties and investments, including NS'
investment in a captive insurance company, while the unfavorable first
nine months' variance was due to a $30.5 million ($18.8 million after-
tax) gain recorded in first-quarter 1995, resulting from the partial
redemption of an interest in a real estate partnership.
<PAGE> PAGE 15
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Income Taxes
- ------------
The effective income tax rate for the third quarter was 35.4 percent,
compared with third-quarter 1995's effective rate of 35.9 percent. Both
years reflect favorable adjustments related to the filing of the prior
year's tax return. For the first nine months, the effective rate was
35.7 percent versus 37.3 percent for 1995. The lower effective rate in
1996 resulted from favorable adjustments for settlement of federal income
tax years 1990 through 1992 and continued benefits from Section 29 income
tax credits attributable to investments in certain gas properties.
<TABLE>
FINANCIAL CONDITION AND LIQUIDITY
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
(Dollars in millions)
<S> <C> <C>
Cash and short-term investments $361.5 $329.0
Working capital $248.2 $137.0
Current assets to current
liabilities 1.2 1.1
Debt to total capitalization 28.5% 25.9%
</TABLE>
CASH PROVIDED BY OPERATING ACTIVITIES is NS' principal source of
liquidity and was sufficient to cover cash outflows for dividends, debt
repayments and capital spending (see Consolidated Statements of Cash
Flows on page 5). The decline in cash provided by operations, compared
with the first nine months of 1995, was attributable to tax and interest
payments made as a result of the federal income tax settlement in 1996
(see "Income Taxes"). Accounts receivable increased $72 million,
primarily as a result of higher rail freight receivables.
CASH USED FOR INVESTING ACTIVITIES was affected principally by capital
spending for property additions, which included $33 million and
$30 million in 1996 and 1995, respectively, related to locomotives under
capital leases (see Note 3). "Investments and loans" consisted primarily
of premium payments related to corporate-owned life insurance (COLI),
while "Investment sales and other transactions" principally reflected
borrowing on COLI.
CASH USED FOR FINANCING ACTIVITIES primarily reflected uses of cash
with the largest amount having been spent on the stock purchase
program (see Notes 4 and 8). "Common stock issued" in the first nine
months of 1996 reflected substantially higher proceeds from stock
option exercises. The higher "Proceeds from long-term borrowings"
resulted from amounts received in connection with the issuance and
sale of $200 million principal amount of Medium-Term Notes due
September 15, 2006 (see Note 3).
<PAGE> PAGE 16
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, NS adopted Statement of Financial
Accounting Standards 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 did not have a
material effect on NS' financial statements.
On October 10, 1996, the AICPA issued Statement of Position 96-1,
"Environmental Remediation Liabilities" (SOP 96-1), which is
effective for fiscal years beginning after December 15, 1996.
SOP 96-1 provides guidance with respect to recognition and
measurement of environmental remediation liabilities and disclosure
of such liabilities in financial statements. The impact to NS of
adopting SOP 96-1 is not expected to have a material effect on the
Corporation's financial position or results of operations.
ENVIRONMENTAL MATTERS
During 1995, the EPA alleged that The Alabama Great Southern Railroad
Company ("AGS"), a subsidiary of NS' rail subsidiary, was responsible,
along with several other entities believed to be financially solvent,
for past and future cleanup and monitoring costs at the Bayou Bonfouca
NPL Superfund site located in Slidell, Louisiana. The site was owned
by the parent of an AGS predecessor from 1882 until 1902. Some of the
bridge timbers used in the 1882 construction of the predecessor's
bridge across Lake Pontchartrain were treated at the site. The United
States and the State of Louisiana filed suit to recover all costs
incurred (estimated in the complaint at around $100 million) and
unspecified amounts to be incurred. Defendants in that suit include
AGS and all other entities the EPA earlier identified as potentially
responsible parties. AGS believes it never owned, operated or had any
other culpable connection to the site and denies responsibility. AGS
has now entered into settlement negotiations with the Justice
Department in an effort to avoid litigation costs. At this juncture, a
settlement with the Justice Department and Louisiana is expected to be
at a level immaterial to NS' financial statements.
PROPOSED ACQUISITION OF CONRAIL INC.
On October 23, 1996, NS announced its intention to commence an all-cash
tender offer for Conrail Inc., a Pennsylvania corporation (Conrail). On
October 24, 1996, Atlantic Acquisition Corporation, a Pennsylvania
corporation and a wholly owned subsidiary of NS, offered to purchase
<PAGE> PAGE 17
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
all outstanding shares of (i) common stock, par value $1.00 per share,
and (ii) Series A ESOP Convertible Junior Preferred Stock, without par
value (collectively, the Shares), of Conrail including, in each
case, the associated Common Stock Purchase Rights, at a price of $100
per share, net to the seller in cash, without interest, or approximately
$9.1 billion in the aggregate. NS intends ultimately to effect a merger
in which all remaining Conrail shareholders also will receive the same
cash price paid in the tender offer. Shares tendered in the offer or
acquired in any subsequent merger would be held in a voting trust
pending regulatory approval by the STB. The offer followed the
October 15 announcement that Conrail had entered into a merger
agreement with CSX Corporation (CSX), whereby Conrail stockholders
would receive $92.50 cash per share for up to 40 percent of their
Shares and receive CSX common stock for the balance of their Shares.
Based on the October 15, 1996, closing price of CSX common stock in
NYSE composite trading (the Closing Price), the aggregate value of
the CSX transaction was approximately $8.1 billion. On November 5,
1996, Conrail's Board of Directors unanimously reaffirmed its
conclusion that the merger with CSX is in Conrail's best interest
and rejected NS' offer. On November 6, 1996, CSX and Conrail
announced that they had amended the terms of their merger agreement.
Under the revised terms, CSX raised the cash portion of its offer to
$110 per Share and left unchanged the ratio pursuant to which certain
Conrail stockholders would receive shares of CSX common stock - an
offer valued at approximately $8.4 billion in the aggregate based on
the November 6, 1996, Closing Price of CSX common stock. On November 8,
1996, NS announced that it had increased to $110 per share, or
approximately $10.0 billion in the aggregate, its all-cash offer. On
November 13, Conrail reaffirmed its commitment to the merger with CSX and
recommended that its stockholders not tender into the increased NS offer.
NS' tender offer is conditioned upon, among other things, the receipt
by NS of an informal written opinion from the staff of the STB that the
use of the voting trust is consistent with the policies of the STB, NS
having obtained sufficient financing for the tender offer and
subsequent merger, the valid tender of a majority of Conrail's shares
on a fully diluted basis, Subchapter 25F of Pennsylvania's Business
Corporation Law not being applicable to the offer, Conrail's Rights
Agreement (or poison pill) having been redeemed or otherwise made
inapplicable to NS' tender offer, the merger agreement between CSX and
Conrail having been terminated in accordance with its terms or
otherwise, and other conditions. The full terms and conditions of the
tender offer and certain other disclosures, to all of which the
foregoing summary is subject, are set forth in documents filed on
October 24 and November 8 with the Securities and Exchange Commission.
See also Part II, Item 1, "Legal Proceedings" on page 19.
NS expects future cash flows of the merged entity to be sufficient to
service and retire the acquisition and related debt.
<PAGE> PAGE 18
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
The STB has 15 months after accepting NS' application to acquire control
of Conrail to decide whether or not to approve the application or impose
conditions. If the STB does not approve or if NS deems the conditions
imposed by the STB too onerous, NS would have the right to and could be
required to sell all Conrail shares held in the voting trust. Such a
disposition could result in a significant loss in and over the period
of disposition.
STOCK PURCHASE PROGRAM
On October 23, 1996, NS announced that the share purchase program
authorized by the Board of Directors in January 1996 had been
suspended.
<PAGE> PAGE 19
PART II. OTHER INFORMATION
---------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings.
- ------ -----------------
Conrail. On October 15, 1996, Conrail Inc. ("Conrail") and CSX
Corporation ("CSX") announced an agreement to merge, in connection with
which CSX announced its intention to commence a multi-tier tender offer
for shares of Conrail stock in return for cash and shares of CSX stock.
On October 23, 1996, NS announced it would make a competing, all-cash
tender offer for all shares of Conrail stock; on the same date, NS,
Atlantic Acquisition Corporation (a wholly owned Pennsylvania
subsidiary of NS) and a Conrail stockholder who is an NS employee
(such parties together, the "Plaintiffs") filed a complaint against
Conrail and its directors and against CSX (such parties together,
the "Defendants") in the United States District Court for the
Eastern District of Pennsylvania. Plaintiffs sought, among other
things, certain declaratory and injunctive relief and alleged various
breaches of fiduciary duty and violations of certain federal securities
laws. The District Court set a November 12 hearing date - two days
prior to the date then set for a Special Meeting at which Conrail
stockholders were to be asked to approve an amendment to the
Articles of Incorporation that ultimately would be necessary to
permit CSX to acquire sufficient shares of Conrail stock virtually
to assure approval of that merger.
On October 30, 1996, Plaintiffs amended the complaint. In addition to
the allegations cited in the original complaint, the amended complaint
alleges, among other things, that provisions in the merger agreement
between Conrail and CSX, which prohibit the Conrail Board from redeeming
the rights issuable under a Conrail-adopted rights plan (Conrail's
"Poison Pill") and from amending or otherwise taking further action with
respect to the Conrail rights plan, are ultra vires under Pennsylvania
law and constitute a breach of the Conrail directors' fiduciary duties
of loyalty and care; that the tender offer materials distributed by
Conrail and CSX misrepresented key terms of the Conrail rights plan
necessary to an understanding of the effects of that plan; that the
provisions of the merger agreement between Conrail and CSX which
prohibit the Conrail directors from withdrawing their recommendation
that Conrail stockholders accept and approve the proposed CSX
transaction and from terminating the merger agreement between Conrail
and CSX for a period of 180 days from the date of execution of that
agreement are ultra vires under Pennsylvania law and constitute a
breach of the Conrail directors' fiduciary duties of loyalty and care;
and that CSX has knowingly participated in the illegal conduct of
Conrail and its directors. In the amended complaint, Plaintiffs seek
certain declaratory and injunctive relief in addition to that sought
pursuant to the original complaint.
<PAGE> PAGE 20
Item 1. Legal Proceedings. (continued)
- ------ -----------------
On November 1, Plaintiffs requested that the District Court temporarily
enjoin the Defendants from taking, or in certain instances to require
them to take, certain actions, including taking the steps necessary to
prevent a "Distribution Date" from occurring under the Conrail rights
plan. At the hearing on November 4 to hear arguments concerning
Plaintiffs' motion, Conrail advised that its directors earlier that day
had adopted a resolution deferring the "Distribution Date" under that
plan.
As a result of Conrail's announcement that its Special Meeting had been
rescheduled from November 14, the District Court moved its hearing from
November 12 to November 18. At that hearing, Plaintiffs also will seek
to enjoin the CSX offer from expiring on November 20 and CSX from
acquiring shares pursuant to the CSX offer.
The value of NS' offer for Conrail is approximately $10 billion in
cash; analysts estimate the value of the last CSX offer (part cash and
part stock) at about $8.4 billion. Although the final outcome of these
competing efforts to acquire Conrail - including any relief that may be
granted by the District Court and any conditions that may be imposed
by the Surface Transportation Board - cannot be predicted with
certainty, NS will continue to take all the steps it believes necessary
and desirable to protect the interests of its stockholders, rail
patrons and the general public by seeking to assure the presence of
balanced and competitive rail service in the East.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
Bylaws as amended effective July 23, 1996
Computation of Per Share Earnings
Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE> PAGE 21
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NORFOLK SOUTHERN CORPORATION
-----------------------------------------
(Registrant)
Date: November 13, 1996 /s/ Dezora M. Martin
------------------- -----------------------------------------
Dezora M. Martin
Corporate Secretary (Signature)
Date: November 13, 1996 /s/ John P. Rathbone
------------------- -----------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
<PAGE> PAGE 22
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Electronic
Submission
Exhibit
Number Description Page Number
- ----------- ----------------------------------------- -----------
3(ii) Bylaws of Norfolk Southern Corporation
as amended effective July 23, 1996 23-30
11 Statement re Computation of Per Share
Earnings 31-32
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.) 33
<PAGE> PAGE 23
EXHIBIT 3(ii) TITLE PAGE
B Y L A W S
OF
NORFOLK SOUTHERN CORPORATION
AS AMENDED
JULY 23, 1996
<PAGE> PAGE 24
EXHIBIT 3(ii) Page 1 of 7
BYLAWS
OF
NORFOLK SOUTHERN CORPORATION
ARTICLE I
Stockholders' Meetings
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of the corporation shall be held on such date in March,
April, May or June as the board of directors may designate. If the date
of the annual meeting shall be a legal holiday, the meeting shall be held
on the next succeeding day not a legal holiday.
SECTION 2. Special Meetings. Special meetings of the
stockholders shall be held whenever called by the chief executive officer
or by a majority of the directors.
SECTION 3. Time and Place. All meetings of the stockholders
shall be held at the time and place stated in the notice of meeting.
SECTION 4. Quorum. The holders of a majority of the
outstanding shares of capital stock entitled to vote, represented in
person or by proxy, shall constitute a quorum at any meeting of the
stockholders. If less than a quorum is present at an annual or special
meeting, then a majority in interest of the stockholders present in
person or by proxy may from time to time adjourn the meeting to a fixed
time and place, no further notice of any adjourned meeting being
required. Each stockholder shall be entitled to one vote in person
or by proxy for each share entitled to vote then outstanding in his
name on the books of the corporation.
SECTION 5. Record Date. The board of directors may fix in
advance a date as the record date for a determination of stockholders for
any purpose, such date to be not more than seventy days before the
meeting or action requiring a determination of stockholders.
SECTION 6. Conduct of Meetings. The chief executive officer,
or any officer or director he may designate, shall preside over all
meetings of the stockholders. The secretary of the corporation, or an
assistant secretary, shall act as secretary of all the meetings, if
present. If the secretary or an assistant secretary is not present, the
chairman of the meeting shall appoint a secretary.
<PAGE> PAGE 25
EXHIBIT 3(ii) Page 2 of 7
The board of directors, prior to the annual meeting of the
stockholders each year, shall appoint one or more inspectors of election
to act at such annual meeting and at all other meetings of stockholders
held during the ensuing year. In the event of the failure of the board
to make such appointment or if any inspector of election shall for any
reason fail to attend and to act at such meeting, an inspector or
inspectors of election, as the case may be, may be appointed by the
chairman of the meeting. The inspectors of election shall determine the
qualification of voters, the validity of proxies and the results of
ballots.
SECTION 7. Proposals by Stockholders. No business may be
transacted at an annual or special meeting of stockholders other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of
directors, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors or (c) otherwise properly brought
before the meeting by a stockholder (i) who is a stockholder on the date
of the giving of the notice provided for in this Section 7 and on the
record date for the determination of stockholders entitled to vote at
such meeting and (ii) who gives to the corporation notice in writing of
the proposal, provided that such written notice is received at the
principal executive office of the corporation, addressed to the Corporate
Secretary, (A) in the case of an annual meeting, not less than ninety
(90) nor more than one hundred sixty (160) calendar days prior to the
anniversary date of the immediately preceding annual meeting and, (B) in
the case of a special meeting, not later than the tenth calendar day next
following the date on which notice of the holding of the special meeting
is mailed to stockholders or public disclosure of the date of the special
meeting was made, whichever first occurs. The written notice given to
the corporation shall include (i) the specific language on which
stockholders will be asked to vote, (ii) the name and address of such
stockholder, (iii) the class or series and number of shares of the
capital stock of the corporation which are owned beneficially and/or of
record by such stockholder, (iv) a representation as to the existence and
nature of any agreement or understanding between the proposing
stockholder and any other person or persons (including their identities)
in connection with bringing the proposal, and (v) a representation as to
any material interest of the proposing stockholder (and the other person
or persons) in the subject matter of the proposal. The requirements of
this Section 7 are in addition to any other applicable requirements.
ARTICLE II
Board of Directors
SECTION 1. Election, Number and Term. The board of directors
shall be chosen at the annual meeting of the stockholders. The number of
the directors shall be eleven, and the directors shall be classified and
shall hold office for terms as provided in the articles of incorporation.
This number may be increased or decreased at any time by amendment of
these bylaws, but shall always be a number of not less than three.
Directors need not be stockholders. Directors shall hold office until
their successors are elected.
<PAGE> PAGE 26
EXHIBIT 3(ii) Page 3 of 7
SECTION 2. Quorum. A majority of the number of directors
fixed by these bylaws shall constitute a quorum. If less than a quorum
is present at a meeting, then a majority of those present may adjourn the
meeting to a fixed time and place, no further notice of any adjourned
meeting being required.
SECTION 3. Vacancies. Any vacancy arising among the
directors, including a vacancy resulting from an increase by not more
than thirty percent in the number of directors last elected by the
stockholders, may be filled by a majority vote of the remaining directors
though less than a quorum unless sooner filled by the stockholders.
SECTION 4. Meetings. Meetings of the board of directors
shall be held at times fixed by resolution of the board or upon the call
of the chief executive officer or of one-third of the members of the
board. Notice of any meeting not held at a time fixed by a resolution of
the board shall be given to each director at least two days before the
meeting at his residence or business address or by delivering such notice
to him or by telephoning or telegraphing it to him at least one day
before the meeting. Any such notice shall contain the time and place of
the meeting. Meetings may be held without notice if all the directors
are present or those not present waive notice before or after the
meeting. The chief executive officer, or any director he may designate,
shall preside over all meetings.
SECTION 5. Committees. The board of directors may by
resolution designate an executive committee and one or more other
committees, each of which shall consist of two or more directors. Any
such committee, to the extent provided in the resolution of the board of
directors and except as otherwise provided by law, shall have and may
exercise the powers and authority of the board of directors in the
management of the business and affairs of the corporation.
SECTION 6. Nominations of Directors. Except as otherwise
provided in the Articles of Incorporation, only persons who are nominated
in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the board
of directors may be made at any annual meeting of the stockholders (a) by
or at the direction of the board of directors or (b) by any stockholder
(i) who is a stockholder on the date of the giving of the notice provided
for in this Section 6 and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who gives to the
corporation notice in writing of the nomination, provided that such
written notice is received at the principal executive office of the
corporation, addressed to the Corporate Secretary, not less than ninety
(90) nor more than one hundred sixty (160) calendar days prior to the
anniversary date of the immediately preceding annual meeting. The
written notice given to the corporation shall include all the information
about the nominee that would be required by applicable rules and
regulations of the Securities and Exchange Commission to be included for
nominees listed in the proxy statement for such meeting and shall include
(i) the name and address of such stockholder and (ii) the class or series
and number of shares of the capital stock of the corporation which are
owned beneficially and/or of record by such stockholder. Such notice
must be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
<PAGE> PAGE 27
EXHIBIT 3(ii) Page 4 of 7
ARTICLE III
Officers
SECTION 1. Election, Number and Term. The board of
directors, promptly after its election in each year, may elect a chairman
of the board and shall elect a president (one of whom shall be designated
chief executive officer), a secretary and a treasurer, and may elect one
or more vice chairmen and vice presidents and may appoint such other
officers as it may deem proper. Any officer may hold more than one
office except that the same person shall not be president and secretary.
Each officer shall hold office until his successor is elected or until
his death or until he resigns or is removed in the manner hereinafter
provided.
SECTION 2. Removal. Any officer may be removed at any time
by the vote of the board of directors and any officer or agent appointed
otherwise than by the board of directors may be removed by any officer
having authority to appoint that officer or agent.
SECTION 3. Vacancies. Vacancies among the officers elected
by the board of directors shall be filled by the directors.
SECTION 4. The Chief Executive Officer. The chief executive
officer, subject to the control of the board of directors, shall in
general supervise and control all of the business and affairs of the
corporation. All officers and agents, other than officers or agents
elected or appointed by the board of directors, shall be appointed by the
chief executive officer or by the heads of departments, subject to the
approval of the chief executive officer. Unless otherwise specifically
provided in these bylaws or by direction of the board of directors, the
chief executive officer or, at his direction, any officer, employee or
agent of the corporation designated by him, may sign and execute all
representations, securities, conveyances of real and personal property,
leases, licenses, releases, contracts and other obligations and
instruments in the name of the corporation.
SECTION 5. The Vice Chairmen and Vice Presidents. The vice
chairmen and the vice presidents shall perform such duties as from time
to time may be assigned to them by the chief executive officer or by the
board of directors. In the absence of the chief executive officer, or in
the event of his death, inability or refusal to act, the officer
designated by the chief executive officer or the board of directors shall
perform the duties of the chief executive officer, and, when so acting,
shall have all the powers of and be subject to all the restrictions upon
the chief executive officer. Any vice chairman or vice president may
sign, with the secretary or an assistant secretary, certificates for
shares of the corporation.
<PAGE> PAGE 28
EXHIBIT 3(ii) Page 5 of 7
SECTION 6. The Secretary. The secretary shall: (a) keep the
minutes of the meetings of the stockholders and the board of directors in
one or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these bylaws or as
required by law; (c) be custodian of the corporate records and of the
seal of the corporation and see that the seal of the corporation is
affixed to all documents the execution of which on behalf of the
corporation under its seal is duly authorized; (d) keep a register of the
post office address of each stockholder which shall be furnished to the
secretary by such stockholders; (e) sign with the chairman of the board,
a vice chairman, the president, or a vice president, certificates for
shares of the corporation, the issuance of which shall have been
authorized by resolution of the board of directors; (f) have general
charge of the stock transfer books of the corporation; and (g) in general
perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the chief executive
officer or by the board of directors.
SECTION 7. The Treasurer. If required by the board of
directors, the treasurer shall give a bond for the faithful discharge of
his duties in such sum and with such surety or sureties as the board of
directors shall determine. He shall: (a) have charge and custody of and
be responsible for all funds and securities of the corporation; receive
and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Article IV of these
bylaws; (b) when duly authorized, disperse all moneys belonging or coming
to the corporation; and (c) in general perform all the duties incident to
the office of treasurer and such other duties as from time to time may be
assigned to him by the chief executive officer or by the board of
directors.
SECTION 8. Assistant Secretaries and Assistant Treasurers.
The assistant secretaries, when authorized by the board of directors, may
sign with the chairman of the board, a vice chairman, the president or a
vice president certificates for shares of the corporation the issuance of
which shall have been authorized by a resolution of the board of
directors. The assistant treasurers shall respectively, if required by
the board of directors, give bonds for the faithful discharge of their
duties in such sums and with such sureties as the board of directors
shall determine. The assistant secretaries and assistant treasurers, in
general, shall perform such duties as shall be assigned to them by the
secretary or the treasurer, respectively, or by the chief executive
officer or the board of directors.
SECTION 9. Salaries. The salaries of the officers elected by
the board of directors shall be fixed by the board of directors. The
salaries of all other officers shall be fixed by the chief executive
officer or by the heads of departments, subject to the approval of the
chief executive officer.
<PAGE> PAGE 29
EXHIBIT 3(ii) Page 6 of 7
ARTICLE IV
Checks and Deposits
SECTION 1. Checks and Drafts. All checks, drafts or
other orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the corporation, shall be signed by
such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the
board of directors.
SECTION 2. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of
the corporation in such banks, trust companies or other depositories as
may be selected in a manner authorized by the board of directors.
ARTICLE V
Certificate of Stock
Each stockholder shall be entitled to a certificate or
certificates of stock in such form as may be approved by the board of
directors signed by the chairman of the board, a vice chairman, the
president or a vice president and by the secretary or an assistant
secretary or the treasurer or any assistant treasurer.
All transfers of stock of the corporation shall be made upon
its books by surrender of the certificate for the shares transferred
accompanied by an assignment in writing by the holder and may be
accomplished either by the holder in person or by a duly authorized
attorney in fact.
In case of the loss, mutilation or destruction of a
certificate of stock, a duplicate certificate may be issued upon such
terms not in conflict with law as the board of directors may prescribe.
The board of directors may also appoint one or more transfer
agents and registrars and may require stock certificates to be
countersigned by a transfer agent or registered by a registrar or may
require stock certificates to be both countersigned by a transfer agent
and registered by a registrar. If certificates of capital stock of the
corporation are signed by a transfer agent or by a registrar (other than
the corporation itself or one of its employees), the signature thereon of
the officers of the corporation and the seal of the corporation thereon
may be facsimiles, engraved or printed. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall
have been used on, any such certificate or certificates shall cease to be
such officer or officers of the corporation, whether because of death,
resignation or otherwise, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such officer
or officers of the corporation.
<PAGE> PAGE 30
EXHIBIT 3(ii) Page 7 of 7
ARTICLE VI
Seal
The seal of the corporation shall be a flat-faced circular
die, of which there may be any number of counterparts, with the word
"SEAL" and the name of the corporation and the state and year of
incorporation engraved thereon.
ARTICLE VII
Fiscal Year
The fiscal year of the corporation shall begin on the first
day of January and end on the thirty-first day of December in each year.
ARTICLE VIII
Voting of Stock Held
Unless otherwise ordered by the board of directors, the chief
executive officer, or his designee, shall have full power and authority
in behalf of the corporation to attend and to act and to vote at any
meetings of stockholders of any corporation in which the corporation may
hold stock, and at any such meeting shall possess and may exercise any
and all the rights and powers incident to the ownership of such stock,
which, as the owner thereof, the corporation might have possessed and
exercised if present, and may sign proxies on behalf of the corporation
with respect to any such meeting or sign consents on behalf of the
corporation with respect to corporate actions permitted without a meeting
of stockholders. The board of directors, by resolution, from time to
time, may confer like powers upon any other person or persons.
ARTICLE IX
Amendments
These bylaws may be altered, amended or repealed and new
bylaws may be adopted by the board of directors at any regular or special
meeting of the board of directors.
<PAGE> PAGE 31
<TABLE>
EXHIBIT 11 Page 1 of 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Computation of Per Share Earnings
(In millions except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Computation for Statements of Income
- ------------------------------------
Net income per statements of income $ 202.3 $ 183.9 $ 569.9 $ 535.8
------- ------- ------- -------
Weighted average number of shares
outstanding 125.6 130.6 126.9 131.5
------- ------- ------- -------
Primary earnings per share $ 1.61 $ 1.40 $ 4.49 $ 4.07
======= ======= ======= =======
Additional Primary Computation
- ------------------------------
Net income per statements of income $ 202.3 $ 183.9 $ 569.9 $ 535.8
------- ------- ------- -------
Adjustment to weighted average
number of shares outstanding:
Weighted average number of
shares outstanding per
primary computation above 125.6 130.6 126.9 131.5
Dilutive effect of outstanding
options, stock appreciation
rights (SARs) and performance
share units (PSUs) (as
determined by the application
of the treasury stock
method) (1) 1.5 1.5 1.4 1.3
------- ------- ------- -------
Weighted average number of
shares outstanding,
as adjusted 127.1 132.1 128.3 132.8
======= ======= ======= =======
Primary earnings per share,
as adjusted (2):
Net income $ 1.59 $ 1.39 $ 4.44 $ 4.03
======= ======= ======= =======
(1) See Note 12 of Notes to Consolidated Financial Statements in Norfolk
Southern's 1995 Annual Report on Form 10-K for a description of the
Long-Term Incentive Plan.
(2) These calculations are submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because they result in dilution of less than
3 percent.
</TABLE>
<PAGE> PAGE 32
<TABLE>
EXHIBIT 11 Page 2 of 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Computation of Per Share Earnings
(In millions except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fully Diluted Computation
- -------------------------
Net income per statements of income $ 202.3 $ 183.9 $ 569.9 $ 535.8
Adjustment to increase earnings
to requisite level to earn
maximum PSUs, net of tax effect 29.7 13.5 83.6 39.3
------- ------- ------- -------
Net income, as adjusted $ 232.0 $ 197.4 $ 653.5 $ 575.1
======= ======= ======= =======
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 1 127.1 132.1 128.3 132.8
Additional dilutive effect of
outstanding options and SARs
(as determined by the
application of the treasury
stock method using period
end market price) 0.2 -- 0.3 0.3
Additional shares issuable at
maximum level for PSUs 0.1 0.1 0.1 0.1
------- ------- ------- -------
Weighted average number of
shares, as adjusted 127.4 132.2 128.7 133.2
======= ======= ======= =======
Fully diluted earnings
per share (3): $ 1.82 $ 1.49 $ 5.08 $ 4.32
======= ======= ======= =======
(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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 188
<SECURITIES> 174
<RECEIVABLES> 792
<ALLOWANCES> 16
<INVENTORY> 58
<CURRENT-ASSETS> 1,457
<PP&E> 13,826
<DEPRECIATION> 4,366
<TOTAL-ASSETS> 11,262
<CURRENT-LIABILITIES> 1,208
<BONDS> 1,811
<COMMON> 132
0
0
<OTHER-SE> 4,722
<TOTAL-LIABILITY-AND-EQUITY> 11,262
<SALES> 0
<TOTAL-REVENUES> 3,590
<CGS> 0
<TOTAL-COSTS> 2,703
<OTHER-EXPENSES> (84)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 887
<INCOME-TAX> 317
<INCOME-CONTINUING> 570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 570
<EPS-PRIMARY> 4.49
<EPS-DILUTED> 0
</TABLE>
