SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 12, 1997
NORFOLK SOUTHERN CORPORATION
(Exact name of Registrant as specified in its charter)
Virginia 1-8339 52-1188014
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
Three Commercial Place
Norfolk, Virginia 23510-2191
(Address of principal executive offices)
757) 629-2600
(Registrant's telephone number)
No Change
(Former name or former address, if changed since last report)
This Current Report on Form 8-K/A amends the Current Report
on Form 8-K of Norfolk Southern Corporation (the "Registrant")
dated April 8, 1997, and filed on April 10, 1997, as amended by
the Current Report on Form 8-K/A of the Registrant, dated and
filed on May 1, 1997.
Item 7(c). Exhibits.
23.1 Consent of Price Waterhouse LLP relating to the
financial statements of Conrail Inc.
99.4 Pro forma consolidated financial statements of the
Registrant as of and for the year ended December
31, 1996, adjusted to reflect its acquisition of
an interest in Conrail Inc.
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 hereunto duly
authorized.
Dated: May 12, 1997
NORFOLK SOUTHERN CORPORATION
(Registrant)
By: /s/ Dezora M. Martin
Dezora M. Martin
Corporate Secretary
EXHIBIT INDEX
Exhibit
Number Description
23.1 Consent of Price Waterhouse LLP relating to the
financial statements of Conrail Inc.
99.4 Pro forma consolidated financial statements of the
Registrant as of and for the year ended December
31, 1996, adjusted to reflect its acquisition of
an interest in Conrail Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Current Report
on Form 8-K/A of Norfolk Southern Corporation dated May 12, 1997, and in
the Current Report on Form 8-K/A of Norfolk Southern Railway Company
dated May 12, 1997, of our report dated January 21, 1997, except as to
Note 2, which is as of March 7, 1997, on the consolidated financial
statements of Conrail Inc. for the year ended December 31, 1996,
appearing on page 6 of the Form 8-K/A of Norfolk Southern Corporation
dated May 1, 1997.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
May 12, 1997
EXHIBIT 99.4
SELECTED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements included herein
present the Corporation's historical balance sheet and income statement
for 1996 adjusted to reflect its acquisition of an interest in Conrail
accounted for under the equity method. See item 5 of the Corporation's
Current Report on Form 8-K dated April 8, 1997 and filed on April 10,
1997, as previously amended by the Corporation's Current Report on Form
8-K/A dated and filed May 1, 1997. Capitalized terms used herein but not
otherwise defined shall have the meanings assigned thereto in the Form
8-K.
The Corporation intends to use the equity method of accounting
for its interest in Conrail following consummation of the Joint Offer and
during the period Conrail shares are held in a voting trust--a period
that will extend at least until the effective date of the STB's decision
approving the transactions contemplated by the Agreement (if such
approval is obtained). The Corporation and CSX have requested a 255-day
review period. However, other interested parties have requested either a
365-day review period or the maximum period permitted under the
statute--16 months. The Corporation and CSX intend to file a joint
application with the STB in June; therefore, even under the accelerated
schedule requested by the Corporation and CSX, an STB decision is not
likely prior to March 1, 1998, and could be delayed until as late as
October 1998 if the maximum statutory period is used.
The Corporation and CSX will have, respectively, a 58 percent
and a 42 percent economic interest in--and each will exercise a 50
percent voting interest in--the entity formed to acquire Conrail shares.
Under the Agreement subject to STB approval, the Corporation will operate
routes and assets (or rights therein or thereto) that generated
approximately 58 percent of Conrail's 1995 revenues, pursuant to leasing,
operating, partnership or other arrangements to be negotiated and
implemented between the Corporation and CSX. Each of the Corporation and
CSX will have the right to appoint 50 percent of that entity's directors
and will be entitled to appoint full-time Co-Chief Executive Officers.
The equity method will be used for the investment in Conrail
until the transaction has been approved by the STB and the voting trust
is dissolved. The method of accounting for the investment in Conrail
subsequent to the voting trust being dissolved will depend on the
ownership arrangement that is ultimately negotiated between the
Corporation and CSX, and approved by the STB, and the determination of
whether and how controlling financial interests will be established for
selected assets, liabilities and operations of Conrail. Additionally, the
terms of leases, operating, partnership and other arrangements, yet to be
negotiated, will impact the accounting. It is also expected that some of
the assets and operations of Conrail will remain subject to joint control
by the Corporation and CSX and thus will continue to be accounted for
using the equity method of accounting post STB approval.
The Joint Offer for Conrail shares expires on May 23, 1997,
unless extended, and the tendered shares will be paid for soon
thereafter. As required by Accounting Principles Board Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock" (APB
18), the excess of the Corporation's purchase price over the underlying
net assets acquired will be amortized over appropriate periods based on a
preliminary analysis of the underlying net assets of Conrail. To the
extent specific assets and liabilities are allocated to Conrail entities
over which the Corporation will have a controlling financial interest,
the allocation will be redesignated to follow the method in which the
investment is accounted for subsequent to the approval of such by the
STB.
The unaudited pro forma financial statements do not reflect
synergies, and accordingly, do not account for any potential increases in
operating income, any estimated cost savings, any adjustments to conform
accounting practices or any one-time costs incurred by either the
Corporation or Conrail to achieve such improvements. The unaudited pro
forma financial statements are prepared for illustrative purposes only
and are not necessarily indicative of the financial position or results
of operations that might have occurred had the applicable transactions
actually taken place on the date indicated, or of future results of
operations or financial position of the stand alone or combined entities.
Consummation of the Joint Offer by the Corporation and CSX is conditioned
upon, among other things, that prior to the expiration of the Joint
Offer, there shall have been validly tendered and not withdrawn such
number of shares which, together with the shares already beneficially
owned by the Corporation and CSX, constitutes at least a majority of
outstanding shares on a fully diluted basis. Consummation of the
transaction is conditioned upon, among other things, approval of the STB.
The Acquisition is reflected in the pro forma balance sheet as
if it had occurred on December 31, 1996, and in the statement of income
as if it occurred on January 1, 1996. The financial information for
Conrail is for 1996 and was excerpted from the consolidated financial
statements of Conrail included elsewhere herein. Conrail's 1996 results
include a special charge of $135 million (pre-tax) for voluntary
separation programs.
The unaudited pro forma financial statements are based on the
historical consolidated financial statements of the Corporation and
Conrail and should be read in conjunction with such historical financial
statements and the notes thereto.
<TABLE>
<CAPTION>
Pro Forma Consolidated Balance Sheet of the Corporation
As of December 31, 1996
Unaudited
($ in millions)
Pro Forma
Pro Forma with Conrail
Historical Adjustments Investment
ASSETS
<S> <C> <C> <C>
Current assets................. $ 1,457 $ $ 1,457
Investments.................... 274 6,011 (1) 6,285
Property and equipment, net.... 9,529 9,529
Other assets...................
156 156
--------- ---------- --------
Total assets................ $ 11,416 $6,011 $ 17,427
========= ========== ========
LIABILITIES AND EQUITY
Current liabilities............ $ 1,190 1,190
Long-term debt................. 1,800 6,011 (2) 7,811
Other liabilities ............. 1,037 1,037
Deferred income taxes.......... 2,412 2,412
--------- ---------- --------
Total liabilities........... $ 6,439 $6,011 $ 12,450
Stockholders' equity
Common stock................... 132 132
Additional paid in capital..... 462 462
Retained earnings.............. 4,404 4,404
Treasury stock................. (21) (21)
---- ---------- --------
Total stockholders' equity.. 4,977 4,977
-------- ---------- -------
$ 11,416 $ 6,011 $17,427
======== ========== =======
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
Pro Forma Condensed Consolidated Statement of Income of the Corporation
<TABLE>
<CAPTION>
Year ended December 31, 1996
Unaudited
($ in millions, except per share data)
Pro Forma
Pro Forma with Conrail
Historical Adjustments Investment(3)
<S> <C> <C> <C>
Transportation operating revenues........... $ 5,031 $ $ 5,031
Transportation operating expenses........... 3,834 3,834
----- -----
Income from operations................... 1,197 1,197
Other income - net.......................... 116 122 (4) 238
Interest expense on debt.................... (116) (415)(2) (531)
------- ----- -----
Income before income taxes............... 1,197 (293)(x) 904
Provision for income taxes.................. 427 (154)(5) 273
------ ----- ------
Net income............................... $ 770 (139) $ 631
====== ======== ========
Earnings per share.......................... $6.09 $ 4.99
Average number of shares (in thou-
sands)...................................... 126,457 126,457
</TABLE>
See accompanying Notes to Pro Forma Financial Statements.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Pursuant to the Agreement, the Corporation will invest approximately
$5.9 billion (including $943 million already expended) to acquire
various Conrail routes and assets or rights thereto. The acquisition
is expected to be financed with a combination of notes and commercial
paper debt. The purchase price has been preliminarily calculated as
follows:
<TABLE>
<CAPTION>
(in millions,
except per
Preliminary Calculation of Purchase Price share data)
<S> <C>
Conrail shares outstanding December 31, 1996 89,549
Less: Shares acquired pursuant to CSX's first tender offer (17,775)
Shares acquired pursuant to the Corporation's first
tender offer (8,200)
--------
63,574
Joint tender offer price per share $ 115
--------
Cost of Shares to be acquired pursuant to the Joint Offer 7,311
Plus: Cost of Shares acquired pursuant to CSX's first
tender offer 1,955
Cost of Shares acquired pursuant to the Corporation's
first tender offer 943
---------
10,209
The Corporation's allocation 58%
----------
5,921
Estimated transaction fees payable by the Corporation 90
---------
Purchase price payable by the Corporation $ 6,011
</TABLE>
(2) Long-term debt has been increased by $6.0 billion to reflect the
financing of the acquisition and related transaction costs. The
Pro Forma Statement of Income reflects the estimated increase
in interest expense, at an estimated 6.9% which represents the
Corporation's best estimate of the weighted average rates on
commercial paper and term notes to be incurred in connection
with the transaction. If interest rates vary by one-eighth of
one percent from that assumed, interest expense would change by
$8 million annually.
(3) As described in note 4 below, pro forma amounts reflected in the
Pro Forma Condensed Consolidated Statement of Income were
calculated and presented in accordance with the equity method
of accounting. Excluding the effects of 58% of Conrail's
one-time after-tax charge of $83 million related to voluntary
separation programs and after-tax merger-related costs of $10
million, pro forma net income and pro forma earnings per share
for 1996 would have been $681 million and $5.39, respectively.
(4) The equity method of accounting will be applied to the
Corporation's investment in Conrail during the pendency of the
voting trust in accordance with APB No. 18, "The Equity Method
of Accounting for Investments in Common Stock." Accordingly,
the Pro Forma Statement of Income includes 58% of Conrail's
1996 historical net income, adjusted for amortization, net of
tax, of the difference between the Corporation's investment in
Conrail and Conrail's underlying equity in net assets. The
difference is primarily attributable to the estimated fair
value of property and equipment, net of the related deferred
taxes and includes approximately $200 million in goodwill. This
adjustment is based on preliminary estimates of fair values and
is likely to change as additional information in the form of
appraisals, actuarial reports and other valuations are made.
<TABLE>
<CAPTION>
Preliminary Allocation of Purchase Price ($ in millions)
----------------------------------------
<S> <C>
Net assets of Conrail Inc. at December 31, 1996 $3,107
The Corporation's economic interest x 58%
--------
$1,802
Fair value adjustments, principally
property and equipment 6,482
Transaction fees 90
Deferred Taxes on fair value adjustments
and transaction fees at 39% (2,563)
Goodwill 200
------
Purchase Price payable by the Corporation $6,011
======
</TABLE>
This allocation is based on preliminary estimates of fair values
and it is likely to change after the agreements are finalized and
regulatory approvals are obtained. An appraisal of the assets is underway
and is expected to be completed by the end of June 1997. To the extent
that specific assets and liabilities are allocated to Conrail entities
over which the Corporation will have a controlling financial interest,
the allocation will be redesignated to follow the method in which the
investment is accounted for subsequent to the approval by the STB. The
Corporation intends to amortize any goodwill resulting from the purchase
over a period of 40 years, the maximum allowable period under generally
accepted accounting principles, which is less than the expected life of
the business acquired. The effect of changes to the final purchase price
allocation are not expected to be material to the results of operations.
Whether the excess of the purchase price over the book value of Conrail's
net assets is assigned to physical assets or goodwill is not expected to
have a significant effect on net income, since railroad assets are
typically long-lived and the goodwill is expected to be amortized over a
period of 40 years.
Detail of Pro Forma Adjustment #4 ($ in millions)
---------------------------------
Conrail Inc. 1996 net income $ 342
The Corporation's economic interest x 58%
-------
$ 198
Estimated additional depreciation (115)
Estimated amortization of goodwill (40-year life) (5)
Estimated amortization of debt organization costs (2)
Tax benefit on the additional depreciation and
amortization at 39% 46
------
Other income - net pro forma adjustment $ 122
======
(5) The pro forma income statement includes the tax effect of the addi
tional interest expense (see Note 2 above) and an additional tax
effect related to equity income.
Tax benefit from additional interest
expense at 39% $( 162)
Additional tax effect on equity income 8
-------
Provision for income taxes pro forma adjustment $ (154)
-------
(6) Summarized Consolidated Conrail Financial Information - Because
of the numerous agreements that must be negotiated and
completed, it is not possible to present some or most of the
Corporation's investment in Conrail based on separate assets,
liabilities and operations. However, the Corporation will have
a 58% interest in the entity formed to acquire Conrail shares.
It is expected that in some form, yet to be determined, the
Corporation will have primary operating interest in the routes
and facilities as described more fully in Section 3 of Exhibit
99.2. The following historical Conrail financial information,
as of and for the year ended December 31, 1996, is presented to
facilitate the estimation of the Corporation's ultimate
economic interest in Conrail:
CONRAIL INC.
Summarized Consolidated Statement of Income
($ in millions)
(Year Ended December 31, 1996)
Revenues $3,714
Operating expenses 3,113*
-------
Income from operations 601
Interest expense (182)
Other income - net 112
-------
Income before income taxes 531
Income taxes 189
------
Net income $ 342
======
* Operating expenses include a $135 million charge for voluntary
separation programs.
CONRAIL INC.
Summarized Consolidated Balance Sheet
($ in millions)
(As of December 31, 1996)
ASSETS:
Current assets $1,117
Property and equipment 6,590
Other assets 695
------
Total assets $8,402
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities $1,092
Long-term debt 1,876
Other long-term liabilities 2,327
------
Total liabilities 5,295
Stockholders' equity 3,107
------
Total liabilities and stockholders'
equity $8,402
