PAGE 1
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, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-8339
NORFOLK SOUTHERN CORPORATION
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 52-1188014
- ----------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia 23510-2191
- ----------------------------------- ---------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (757) 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 latest practicable date:
Class Outstanding as of October 31, 1999
----- ----------------------------------
Common Stock (par value $1.00) 380,627,779 (excluding 21,627,902
shares held by registrant's
consolidated subsidiaries)
<PAGE> PAGE 2
INDEX
-----
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Page
----
Part I. Financial Information:
Item 1. Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1999 and 1998 3-4
Consolidated Balance Sheets
September 30, 1999, and December 31, 1998 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999
and 1998 6-7
Notes to Consolidated Financial Statements 8-15
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 16-27
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
Index to Exhibits 30
<PAGE> PAGE 3
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Railway operating revenues:
Coal $ 369 $ 321 $ 949 $ 960
General merchandise 864 597 2,210 1,824
Intermodal 267 130 565 409
------- ------- ------- -------
TOTAL RAILWAY OPERATING
REVENUES 1,500 1,048 3,724 3,193
------- ------- ------- -------
Railway operating expenses:
Compensation and benefits 574 370 1,355 1,131
Materials, services, and rents 354 206 837 602
Conrail rents and services
(Note 3) 141 -- 192 --
Depreciation 121 112 352 328
Diesel fuel 74 41 159 134
Casualties and other claims 36 21 100 73
Other 54 40 148 123
------- ------- ------- -------
TOTAL RAILWAY OPERATING
EXPENSES 1,354 790 3,143 2,391
------- ------- ------- -------
Income from railway
operations 146 258 581 802
Equity in earnings of Conrail
(Note 3) -- 53 49 135
Other income - net 24 19 72 91
Interest expense on debt (134) (129) (393) (384)
------- ------- ------- -------
Income from continuing
operations before
income taxes 36 201 309 644
Provision for income taxes 17 50 101 174
------- ------- ------- -------
Income from continuing
operations 19 151 208 470
------- ------- ------- -------
Discontinued operations (Note 4):
Loss from motor carrier
operations, net of taxes -- -- -- (1)
Gain on sale of motor carrier,
net of taxes -- 7 -- 105
------- ------- ------- -------
Income from discontinued
operations -- 7 -- 104
------- ------- ------- -------
NET INCOME $ 19 $ 158 $ 208 $ 574
======= ======= ======= =======
<PAGE> PAGE 4
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (continued)
($ in millions except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Per share amounts (Note 6):
Income from continuing
operations, basic $ 0.05 $ 0.40 $ 0.55 $ 1.24
Income from continuing
operations, diluted 0.05 0.40 0.55 1.23
Net income, basic 0.05 0.42 0.55 1.52
Net income, diluted 0.05 0.42 0.55 1.51
Dividends 0.20 0.20 0.60 0.60
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> PAGE 5
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41 $ 5
Short-term investments 15 58
Accounts receivable, net of allowance for
doubtful accounts of $5 million and
$4 million, respectively 906 519
Materials and supplies 77 59
Deferred income taxes 143 141
Other current assets 134 131
------- -------
Total current assets 1,316 913
Investment in Conrail (Note 3) 6,141 6,210
Properties less accumulated depreciation 10,903 10,477
Other assets 757 580
------- -------
TOTAL ASSETS $19,117 $18,180
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 3) $ 83 $ --
Accounts payable 896 600
Income and other taxes 178 151
Other current liabilities 325 225
Current maturities of long-term debt (Note 5) 572 141
------- -------
Total current liabilities 2,054 1,117
Long-term debt (Note 5) 7,329 7,483
Other liabilities 1,105 1,065
Minority interests 51 49
Deferred income taxes 2,653 2,545
------- -------
TOTAL LIABILITIES 13,192 12,259
------- -------
Stockholders' equity:
Common stock $1.00 per share par value,
1,350,000,000 shares authorized;
issued 402,202,604 shares and
401,031,994 shares, respectively 402 401
Additional paid-in capital 324 296
Accumulated other comprehensive income
(Note 7) (12) (8)
Retained income 5,231 5,252
Less treasury stock at cost, 21,627,902 shares (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 5,925 5,921
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $19,117 $18,180
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> PAGE 6
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 208 $ 574
Reconciliation of net income to net cash provided
by continuing operations:
Depreciation 363 337
Deferred income taxes 52 51
Equity in earnings of Conrail (Note 3) (23) (135)
Nonoperating gains and losses on properties
and investments (28) (41)
Income from discontinued operations -- (104)
Changes in assets and liabilities affecting
operations:
Accounts receivable (371) 9
Materials and supplies (16) --
Other current assets 39 34
Current liabilities other than debt 345 67
Other - net (3) (31)
------- -------
Net cash provided by continuing operations 566 761
Net cash used for discontinued operations -- (2)
------- -------
Net cash provided by operating activities 566 759
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 5) (712) (685)
Property sales and other transactions 73 59
Investment in Conrail (2) (38)
Investments, including short-term (103) (108)
Investment sales and other transactions 180 108
Proceeds from sale of motor carrier (Note 4) -- 207
------- -------
Net cash used for investing activities (564) (457)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (228) (227)
Common stock issued - net 18 29
Proceeds from borrowings (Note 5) 848 133
Debt repayments (604) (164)
------- -------
Net cash provided by (used for)
financing activities 34 (229)
------- -------
Net increase in cash and cash equivalents 36 73
CASH AND CASH EQUIVALENTS:*
At beginning of year 5 34
------- -------
At end of period $ 41 $ 107
======= =======
<PAGE> PAGE 7
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
($ in millions)
(Unaudited)
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 312 $ 323
Income taxes $ 17 $ 78
</TABLE>
* Cash equivalents represent all highly liquid investments
purchased three months or less from maturity.
See accompanying notes to consolidated financial statements.
<PAGE> PAGE 8
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
Corporation's financial position as of Sept. 30, 1999, and
results of operations and cash flows for the nine months ended
Sept. 30, 1999 and 1998.
Although Management believes that the disclosures presented are
adequate to make the information not misleading, these
consolidated financial statements should be read in conjunction
with: (a) the financial statements and notes included in the
Corporation's latest Annual Report on Form 10-K and in subsequent
Quarterly Reports on Form 10-Q, and (b) any Current Reports on
Form 8-K.
2. Commitments and Contingencies
There have been no significant changes since year-end 1998 in the
matters discussed in Note 16, COMMITMENTS AND CONTINGENCIES,
appearing in the NS Annual Report on Form 10-K for 1998, Notes to
Consolidated Financial Statements, beginning on page 80.
3. Investment in Conrail and Operations Over Its Lines
Overview
--------
NS and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail),
whose primary subsidiary is Consolidated Rail Corporation (CRC),
the major railroad in the Northeast. From May 23, 1997, the date
NS and CSX completed their acquisition of Conrail stock, until
June 1, 1999, Conrail's operations continued substantially
unchanged while NS and CSX awaited regulatory approvals and
thereafter devoted significant effort to prepare for the
integration of the respective Conrail routes and assets to be
leased to their railroad subsidiaries, Norfolk Southern Railway
Company (NSR) and CSX Transportation, Inc. (CSXT). From time to
time, NS and CSX, as the indirect owners of Conrail, may need to
provide some of Conrail's cash requirements through capital
contributions, loans, or advances.
Commencement of Operations
--------------------------
On June 1, 1999 (the "Closing Date"), NSR and CSXT began
operating the Conrail routes and assets leased to them pursuant
to operating and lease agreements.
<PAGE> PAGE 9
Item 1. Financial Statements. (continued)
- ------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
The Operating Agreement between NSR and Pennsylvania Lines LLC
(PRR), a wholly owned subsidiary of CRC, governs substantially
all nonequipment assets to be operated by NSR and has an initial
25-year term, renewable at the option of NSR for two five-year
terms. Payments under the Operating Agreement are based on
appraised values that are subject to adjustment every six years
to reflect changes in such values. NSR also has leased or
subleased for varying terms from PRR a number of equipment assets
at rentals based on appraised values. NSR's payments to PRR
under the Operating Agreement and lease agreements currently
amount to approximately $340 million annually. In addition, all
costs necessary to operate and maintain the PRR assets are borne
by NSR. CSXT has entered into comparable arrangements, for the
operation and use of certain other CRC assets, with another
wholly owned CRC subsidiary.
NSR and CSXT also have entered into agreements with CRC governing
other Conrail properties that continue to be owned and operated
by Conrail (the "Shared Assets Areas"). NSR and CSXT pay CRC a
fee for joint and exclusive access to the Shared Assets Areas.
In addition, NSR and CSXT pay, based on usage, the costs incurred
by CRC to operate the Shared Assets Areas.
As a result of these transactions, both NS' railroad route miles
and its railroad employees increased by approximately 50 percent,
effective June 1, 1999. NSR and CSXT now provide substantially
all rail freight services on Conrail's route system, perform or
are responsible for performing most services incident to customer
freight contracts, and employ the majority of Conrail's former
work force. Consequently, NSR began to receive all freight
revenues and incur all operating expenses on the PRR lines it now
operates.
Since June 1, 1999, difficulties in NSR's integration of the PRR
routes and assets have affected adversely both revenues and
expenses. The higher expenses included the cost of a special
incentive program available to unionized employees for much of
the third quarter, higher labor costs and equipment rents, and
service alteration costs to meet the needs of shippers. A long-
term failure by NSR to integrate successfully these PRR
properties could have a substantial adverse impact on NS'
financial position, results of operations, and liquidity.
Accounting Treatment
--------------------
NS is applying the equity method of accounting to its investment
in Conrail in accordance with APB No. 18, "The Equity Method of
Accounting for Investments in Common Stock."
In August 1998, the effective date of the STB decision approving
the Conrail transaction, NS' investment in Conrail exceeded its
58 percent of Conrail's net equity by $4.1 billion. This excess
<PAGE> PAGE 10
Item 1. Financial Statements. (continued)
- ------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
has been allocated to the fair values of Conrail's assets and
liabilities, using the principles of purchase accounting, as
follows:
Property, equipment, and investments
in railroads $ 6,708
Other assets, principally pension and
other employee benefit plans and trusts 224
Debt revaluation and other liabilities (209)
Deferred taxes (2,585)
-------
Total $ 4,138
=======
NS is amortizing the excess of the purchase price over Conrail's
net equity using the principles of purchase accounting, based
primarily on the estimated remaining useful lives of Conrail's
property and equipment, including the related deferred tax effect
of the differences in tax and accounting bases for certain
assets. At Sept. 30, 1999, the difference between NS' investment
in Conrail and its share of Conrail's underlying net equity was
$4.0 billion.
NS' investment in Conrail includes $187 million ($115 million
after taxes) of costs that will be paid by NSR. These costs
consist principally of: (1) contractual obligations to Conrail
employees imposed by the STB when it approved the transaction and
(2) costs to relocate Conrail employees. Most of these costs are
expected to be paid in the two years following the Closing Date;
$56 million are classified on NS' balance sheet as "Current
liabilities." However, certain contractual obligations by their
terms will be paid out over a longer period and are classified as
"Other liabilities" on NS' balance sheet. Through Sept. 30,
1999, NS has paid $23 million of these costs.
Effective June 1, 1999, NS' consolidated financial statements
include the consolidated financial position and results of Triple
Crown Services Company (TCS), a partnership in which subsidiaries
of NS and PRR are partners. As a result, NS' total assets
increased by approximately $140 million (including $121 million
of properties, mostly RoadRailer (RT) equipment), and NS' total
liabilities increased by approximately $130 million (including
$109 million of long-term debt).
Related Party Transactions
--------------------------
Until the Closing Date, NSR and CRC had transactions with each
other in the course of handling interline traffic. Most of the
amounts receivable or payable related to these transactions have
been satisfied.
<PAGE> PAGE 11
Item 1. Financial Statements. (continued)
- ------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
NS provides to Conrail certain general and administrative support
functions, the fees for which are billed in accordance with
several service-provider arrangements.
"Conrail rents and services," a new line on the income statements
beginning June 1, 1999, includes: (1) expenses for amounts due
to PRR and CRC for use by NSR of operating properties and
equipment, operation of the Shared Assets Areas, and continued
operation of certain facilities during a transition period; and
(2) NS' equity in the earnings (or loss) of Conrail, net of
amortization.
"Other current assets" includes $51 million due from CRC,
$39 million of which is for its vacation liability related to the
portion of its work force that became NS employees on the Closing
Date. NS increased its vacation liability accordingly, and will
pay these employees as they take vacation.
"Accounts payable" includes $82 million due to PRR and CRC
related to expenses included in "Conrail rents and services," as
discussed above.
"Short-term debt" represents $83 million of interest-bearing
loans made to NS by a PRR subsidiary, payable on demand.
Summary Financial Information - Conrail
---------------------------------------
The following summary financial information for Conrail should be
read in conjunction with Conrail's audited financial statements
included as an exhibit to NS' Annual Report on Form 10-K for 1998
filed with the Securities and Exchange Commission.
Conrail's operating results were significantly affected by the
June 1, 1999, integration of PRR's and NYC's routes and assets
with those of NSR and CSXT. Conrail's results of operations
include freight line-haul revenues and related expenses
through May 31, 1999, but reflect its new structure and
operations since June. Conrail's major sources of operating
revenues are now from NSR and CSXT. The composition of
Conrail's operating expenses has changed also. Accordingly,
meaningful comparisons to 1998's results are difficult.
<PAGE> PAGE 12
Item 1. Financial Statements. (continued)
- ------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
<TABLE>
Summarized Consolidated Statements Of Income - Conrail
------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
(Unaudited)
<S> <C> <C> <C> <C>
Operating revenues $ 259 $ 976 $ 1,912 $ 2,886
Operating expenses 323 1,058 1,891 2,602
------- ------- ------- -------
Operating income (loss) (64) (82) 21 284
Other-net (21) (23) (66) (66)
------- ------- ------- -------
Income (loss) before
income taxes (85) (105) (45) 218
Provision for income taxes (36) (40) (9) 83
------- ------- ------- -------
Net income (loss) $ (49) $ (65) $ (36) $ 135
======= ======= ======= =======
</TABLE>
Note: Conrail's results in 1999 included after-tax expenses of
$51 million in the third quarter and $117 million in the second
quarter, principally to increase certain components of its
casualty reserves based on an actuarial valuation and adjustments
to certain litigation and environmental reserves related to
settlements and completion of site reviews. Conrail's results in
1998 included a $187 million after-tax charge in the third
quarter, primarily for estimated severance obligations to
nonunion employees. These items were considered in the
allocation of NS' investment in Conrail to the fair values of
Conrail's assets and liabilities using the principles of purchase
accounting and, accordingly, were excluded in determining NS'
equity in Conrail's net income.
<PAGE> PAGE 13
Item 1. Financial Statements. (continued)
- ------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
<TABLE>
Summarized Consolidated Balance Sheets - Conrail
------------------------------------------------
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
($ in millions)
(Unaudited)
<S> <C> <C>
Assets
Current assets $ 773 $ 1,005
Noncurrent assets 7,642 8,039
------- -------
Total assets $ 8,415 $ 9,044
======= =======
Liabilities and stockholders' equity
Current liabilities $ 826 $ 1,207
Noncurrent liabilities 3,828 4,037
Stockholders' equity 3,761 3,800
------- -------
Total liabilities and
stockholders' equity $ 8,415 $ 9,044
======= =======
</TABLE>
4. Discontinued Operations - Motor Carrier
During the first quarter of 1998, NS sold all the common stock of
North American Van Lines, Inc. (NAVL), its motor carrier
subsidiary. Proceeds from the sale in that quarter were
$200 million, resulting in an $83 million pretax gain
($98 million, or $0.26 per share, after taxes). The higher
after-tax gain was the result of differences between book and tax
bases and the realization of deferred tax benefits. In the third
quarter of 1998, as a result of a purchase price adjustment, NS
recorded an additional after-tax gain of $7 million ($0.02 per
share).
NAVL's results of operation and cash flows are presented as
"Discontinued operations" in the accompanying 1998 financial
statements. NAVL's operations in the first quarter of 1998
generated revenues of $207 million and a loss of $1 million.
5. Long-Term Debt
Term Notes
----------
In April 1999, NS issued $400 million of 6.2 percent, 10-year
term Senior Notes under its November 1998 $1 billion shelf
registration and received net proceeds of $396 million.
<PAGE> PAGE 14
Item 1. Financial Statements. (continued)
- ------ --------------------
5. Long-Term Debt (continued)
Equipment Trust Certificates
----------------------------
NSR issued equipment trust certificates in March and June 1999
and received net proceeds of $188 million. The certificates
mature serially in the years 2000 through 2014, inclusive, and
carry a weighted-average interest rate of 6.6 percent. Proceeds
were used to acquire locomotives and freight cars, and, at
Sept. 30, 1999, $14 million of the proceeds were included in
"Other assets" and will be used later in the year to acquire
additional equipment.
Capital Lease Obligations
-------------------------
During the first nine months of 1998, NSR entered into capital
leases covering new locomotives. The related capital lease
obligations, totaling $127 million, were reflected in the
Consolidated Balance Sheet as debt and, because they were noncash
transactions, were excluded from the Consolidated Statement of
Cash Flows.
6. Earnings Per Share
<TABLE>
The following table sets forth the reconciliation of the number
of weighted-average shares outstanding used in the calculations
of basic and diluted earnings per share.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Weighted-average shares
outstanding 381 379 380 379
Dilutive effect of
outstanding options and
performance share units
(as determined by the
application of the
treasury stock method) 1 2 2 2
---- ---- ---- ----
Diluted weighted-average
shares outstanding 382 381 382 381
==== ==== ==== ====
</TABLE>
There are no adjustments to "Net income" or "Income from
continuing operations" for the diluted earnings per share
computations. The calculations above exclude options whose
exercise price exceeded the average market price for Common Stock.
These totaled 5 million options in the first quarter, 7 million
options in the second quarter, and 9 million options in the third
quarter.
<PAGE> PAGE 15
Item 1. Financial Statements. (continued)
- ------ --------------------
7. Comprehensive Income
<TABLE>
NS' total comprehensive income was as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C>
Net income $ 19 $ 158 $ 208 $ 574
Other comprehensive income (2) (1) (4) --
----- ----- ----- -----
Total comprehensive
income $ 17 $ 157 $ 204 $ 574
===== ===== ===== =====
</TABLE>
For NS, "Other comprehensive income" is the unrealized gains and
losses on certain investments in debt and equity securities.
<PAGE> PAGE 16
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
In the following sections, NS provides data for corresponding periods
in 1998 and, in some cases, indicates the percent of variance between
the 1999 and 1998 data. However, NS cautions that all such data
should be considered in light of the substantially different operating
contexts to which they relate.
COMMENCEMENT OF OPERATIONS OVER CONRAIL'S LINES
On June 1, 1999, NS' railroad subsidiary (NSR) began operating a
portion of Conrail's properties (NSR's new "Northern Region") under
various agreements with Pennsylvania Lines LLC (PRR), a wholly owned
subsidiary of Consolidated Rail Corporation (CRC) (see Note 3). As a
result, railroad route miles operated by NSR and railroad employees
increased by approximately 50 percent. Results for the first nine
months of 1999 reflect five months (January through May) of operating
the former Norfolk Southern railroad system, plus NS' share of
Conrail's earnings, and four months (June through September) of
operating the new Norfolk Southern railroad system, which includes the
Northern Region.
Since June 1, 1999, system congestion and other difficulties have
complicated integration of the new routes. NSR has made progress in
reducing congestion and continues to work diligently to resolve the
operational issues and to reduce and clear the congestion. This
effort has required additional labor and equipment resources, and the
need for such additional resources is expected to continue until the
congestion is cleared. In addition, some freight has been diverted
from NSR, and, in some cases, NSR has incurred service alteration
costs to meet the needs of shippers. The resulting decrease in
revenues, coupled with increased costs, has negatively affected NS'
results since June, and these effects will continue until the
operational issues have been resolved. A long-term failure by NSR to
integrate successfully the Northern Region could have a substantial
adverse impact on NS' financial position, results of operations, and
liquidity.
RESULTS OF OPERATIONS
Net Income
- ----------
Net income for the third quarter of 1999 was $19 million, down
$139 million, or 88 percent, compared with the third quarter of 1998.
For the first nine months of 1999, net income was $208 million,
$366 million, or 64 percent, below last year. Net income for the
first nine months of 1998 included a $105 million after-tax gain from
the sale of NS' motor carrier subsidiary, including $7 million
recorded in the third quarter, which was reported in "Discontinued
operations" (see Note 4). "Income from continuing operations"
<PAGE> PAGE 17
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
declined $132 million, or 87 percent, for the quarter, and $262 million,
or 56 percent, for the first nine months. The declines in both periods
were largely attributable to lower income from railway operations.
The system congestion and related traffic diversions arising from the
integration difficulties are estimated to have reduced operating income by
$175 million in the third quarter and by $267 million since June 1,
1999.
Railway Operating Revenues
- --------------------------
<TABLE>
Third-quarter railway operating revenues were $1,500 million in 1999
and were $1,048 million in 1998. Railway operating revenues were
$3,724 million for the first nine months of 1999, and were
$3,193 million for the first nine months of 1998. As shown in the
table below, the improvements were principally due to higher traffic
volume, largely the result of the commencement of operations in the
Northern Region. The revenue per unit variances reflect the
consolidation of Triple Crown Services Company's (TCS) revenues,
beginning June 1, 1999. Traffic diversions related to the operational
difficulties resulted in estimated revenue losses of $73 million in
the third quarter and $113 million since June 1, 1999, principally in
the general merchandise commodity groups.
<CAPTION>
Third Quarter First Nine Months
1999 vs. 1998 1999 vs. 1998
Increase (Decrease) Increase (Decrease)
------------------- -------------------
($ in millions)
<S> <C> <C>
Traffic volume $ 405 $ 488
Revenue per unit 47 43
------ ------
$ 452 $ 531
====== ======
</TABLE>
<PAGE> PAGE 18
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Revenues and carloads for the commodity groups were as follows:
<TABLE>
Revenues
----------------------------------------
<CAPTION>
Third Quarter Nine Months
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
<S> <C> <C> <C> <C>
Coal $ 369 $ 321 $ 949 $ 960
General merchandise:
Automotive 190 129 537 412
Chemicals 206 145 520 436
Paper/clay/forest 159 133 426 409
Metals/construction 181 97 401 286
Agr./consumer prod./govt. 128 93 326 281
------- ------- ------- -------
General merchandise 864 597 2,210 1,824
Intermodal 267 130 565 409
------- ------- ------- -------
Total $ 1,500 $ 1,048 $ 3,724 $ 3,193
======= ======= ======= =======
</TABLE>
<TABLE>
Carloads
-------------------------------------
<CAPTION>
Third Quarter Nine Months
1999 1998 1999 1998
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Coal 438 337 1,078 994
General merchandise:
Automotive 155 110 446 354
Chemicals 129 100 342 304
Paper/clay/forest 126 111 341 344
Metals/construction 187 99 404 284
Agr./consumer prod./govt. 114 86 294 261
----- ----- ----- -----
General merchandise 711 506 1,827 1,547
Intermodal 565 350 1,337 1,092
----- ----- ----- -----
Total 1,714 1,193 4,242 3,633
===== ===== ===== =====
</TABLE>
<PAGE> PAGE 19
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
After Dec. 1, 1999, some of the customers NSR serves in the Northern
Region as successor to CRC contracts can elect to switch to CSXT.
Likewise, some of CSXT's customers can switch to NSR. NS does not
expect there to be a significant adverse effect from these potential
traffic shifts.
Coal
- ----
Coal revenues were $369 million in the third quarter, versus
$321 million last year, and were $949 million for the first nine
months, versus $960 million last year. The increase for the quarter
was due to the addition of Northern Region traffic. The decrease for
the first nine months reflected lower export coal traffic volume that
more than offset the combined effects of the Northern Region traffic
volume and increased utility coal tonnage. Revenue yields have been
affected by a change in the mix of traffic: Northern Region traffic
and increased utility coal shipments (especially new shorter-haul
business) and decreased export coal shipments. Total tonnage handled
was 45.5 million tons in the third quarter, versus 34.3 million tons
last year, and was 111.8 million tons for the first nine months,
versus 102.0 million tons last year. Utility coal tonnage increased
46 percent in the quarter and 23 percent for the first nine months,
principally due to the handling of traffic in the Northern Region.
Domestic metallurgical coal, coke, and iron ore traffic volume
increased 31 percent in the quarter and 3 percent for the first nine
months, reflecting Northern Region traffic, partially offset by the
effects of increased imports of lower-priced iron ore and steel and
coke plant closures in the second quarter of 1998. Export coal
tonnage fell 20 percent for the quarter and 31 percent for the first
nine months, reflecting continued strong competition and weak demand
in overseas markets and a strong U.S. dollar.
Fourth-quarter coal revenues are expected to be adversely affected by
weak demand for export coal. However, with the addition of traffic in
the Northern Region, total coal revenues are expected to be higher
than in the same period last year.
A recent decision by a federal district court judge in West Virginia
holds that some common mining practices in the coal industry are
illegal. If sustained, the decision could have an adverse effect on
coal mining operations and on NS' coal traffic, revenues, and royalties.
General Merchandise
- -------------------
General merchandise revenues were $864 million in the third quarter,
versus $597 million last year, and were $2,210 million for the first
nine months, versus $1,824 million last year. Traffic volume
increased 40 percent for the quarter and 18 percent for the first nine
months, principally due to the addition of traffic in the Northern
Region. Average revenue per unit increased 3 percent for both
periods, due to a longer average haul and an overall favorable change
in traffic mix.
<PAGE> PAGE 20
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Fourth-quarter general merchandise revenues are expected to exceed
those of last year, continuing to reflect Northern Region traffic.
Intermodal
- ----------
Intermodal revenues were $267 million in the third quarter, versus
$130 million last year, and were $565 million for the first nine
months, versus $409 million last year. Traffic volume increased
61 percent for the quarter and 22 percent for the first nine months,
largely due to the addition of Northern Region traffic and the
consolidation of TCS' revenues, beginning on June 1. Average revenue
per unit increased 26 percent in the quarter and 13 percent for the
first nine months, due to the effects of consolidating TCS' revenues
and a favorable change in the mix of traffic.
TCS provides door-to-door intermodal service using containers and
RoadRailer (RT) equipment, which can be pulled over the highways in
tractor-trailer configuration and over the rails by locomotives. TCS
is a partnership in which subsidiaries of NS and PRR are partners.
Prior to June 1, 1999, NS' revenues included only the amounts for rail
services it performed under contract for TCS.
Fourth-quarter intermodal revenues are expected to be well above those
of last year, continuing to reflect the Northern Region traffic and
the consolidation of TCS' revenues.
Railway Operating Expenses
- --------------------------
Third-quarter railway operating expenses were $1,354 million, up
$564 million, or 71 percent, compared with last year. For the first
nine months, railway operating expenses were $3,143 million, up
$752 million, or 31 percent. Both increases reflected the
commencement of operations in the Northern Region. It is estimated
that additional costs of $116 million in the quarter and $176 million
for the first nine months were incurred related to integration
difficulties.
"Compensation and benefits" expense increased $204 million, or
55 percent, in the third quarter, and $224 million, or 20 percent, for
the first nine months. Both increases were attributable to: (1) the
50 percent increase in NS' work force in June, upon commencement of
operations in the Northern Region; and (2) costs associated with
integration difficulties, principally a special work incentive program
that increased expenses $49 million. The program was in effect for
much of the third quarter, and the incentives, newly-issued Norfolk
Southern Common Stock, will be paid in the fourth quarter. The
effects of these increases were partially mitigated by lower
performance-based incentive compensation.
"Materials, services, and rents" increased $148 million, or 72 percent,
in the third quarter, and $235 million, or 39 percent, for the first
nine months. Both increases reflected the commencement of operations in
<PAGE> PAGE 21
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
the Northern Region, including expenses arising from integration
difficulties such as higher equipment rents, expenses related to
short-term locomotive leases, and costs for alternate transportation
to meet the critical needs of customers, and the effect of the
consolidation of TCS.
"Conrail rents and services," a new category of expense, amounted to
$141 million in the third quarter and $192 million for the first nine
months. This item includes amounts due to PRR and CRC related to:
(1) use of their operating properties and equipment, (2) CRC's
operation of the Shared Assets Areas, and (3) CRC's operation of
certain transition facilities. Also included is NS' equity in
Conrail's net earnings or loss since June 1, plus additional
amortization related to the difference between NS' investment in
Conrail and its underlying equity (see Note 3).
"Diesel fuel" expense increased $33 million, or 80 percent, in the
third quarter, and $25 million, or 19 percent, for the first nine
months. Consumption increased 39 percent for the quarter and
15 percent for the first nine months, principally due to the higher
traffic volume resulting from operations in the Northern Region. The
average price per gallon increased 32 percent in the quarter and
3 percent for the first nine months.
"Casualties and other claims" increased $15 million, or 71 percent, in
the third quarter, and $27 million, or 37 percent, for the first nine
months. Both increases were principally attributable to the
commencement of operations in the Northern Region. The increase for
the first nine months also reflected a settlement in the first quarter
related to an environmental site in Slidell, La., and damages to
automobiles being transported in a train that derailed in the first
quarter.
"Other" expenses increased $14 million, or 35 percent, in the third
quarter, and $25 million, or 20 percent, for the first nine months.
Both increases resulted largely from the commencement of operations in
the Northern Region.
The railway operating ratio was 90.3 percent in the third quarter,
versus 75.4 percent last year, and was 84.4 percent for the first nine
months, versus 74.9 percent last year. It is estimated that the
combination of integration difficulties and related system congestion
and traffic diversions increased the railway operating ratio by about
10.7 percentage points in the third quarter and 6.5 percentage points
for the first nine months. The remaining increases in the railway
operating ratio were principally attributable to the change in traffic
mix related to the increased resource-intensive traffic, such as
automotive and intermodal, and the new traffic in the Northern Region,
coupled with decreased export coal traffic.
The railway operating ratio is expected to continue to be affected
adversely until service and operations improve.
<PAGE> PAGE 22
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Equity in Earnings of Conrail
- -----------------------------
As discussed above, beginning in June, NS' equity in Conrail's
earnings or loss and the related amortization is included in "Conrail
rents and services," a new component of railway operating expenses.
As a result of both this change in reporting and lower Conrail
earnings, "Equity in earnings of Conrail" was significantly lower for
the first nine months of 1999, compared with last year.
Other Income - Net
- ------------------
"Other income - net" was $5 million higher in the third quarter, but
was $19 million lower for the first nine months. The increase for the
quarter was principally due to higher rental income and gains from
property sales. The decrease for the first nine months resulted
primarily from lower gains from the sale of properties and investments
and the effect of favorable adjustments last year to interest accruals
on possible federal income tax liabilities resulting from the
settlement of the 1993 and 1994 tax-year audits.
Provision for Income Taxes
- --------------------------
The effective income tax rate was 47.2 percent in the third quarter,
compared with 24.9 percent last year, and was 32.7 percent for the
first nine months, compared with 27.0 percent last year. Excluding
NS' equity in Conrail's after-tax earnings or loss, the effective
rates for 1999 were 31.5 percent in the quarter and 35.3 percent in
the first nine months, compared with 33.8 percent and 34.2 percent in
the respective periods of 1998. The favorable comparison for the
quarter resulted from tax credits that had a magnified effect on the
effective rate calculation due to lower pretax income. The increase
for the first nine months was due to the effects of favorable
adjustments to income tax expenses in 1998 upon settlement of the 1993
and 1994 federal income tax audits.
Discontinued Operations
- -----------------------
"Income from discontinued operations" for the first nine months of
1998 included a $105 million gain from the sale of NS' motor carrier
subsidiary (see Note 4).
<TABLE>
FINANCIAL CONDITION AND LIQUIDITY
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
($ in millions)
<S> <C> <C>
Cash and short-term investments $ 56 $ 63
Working capital deficit $ 738 $ 204
Current assets to current
liabilities 0.6 0.8
Debt-to-total capitalization 57.4% 56.3%
</TABLE>
<PAGE> PAGE 23
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
CASH PROVIDED BY OPERATING ACTIVITIES is NS' principal source of
liquidity (see Consolidated Statements of Cash Flows on page 6). The
decrease in "Net cash provided by operating activities" in the first
nine months of 1999 was principally due to lower income from railway
operations, mitigated by lower income tax payments. The large changes
in "Accounts receivable" and "Current liabilities other than debt" in
the 1999 cash flow statement primarily resulted from the June 1
commencement of operations in the Northern Region. In addition,
collection of accounts receivable has slowed. NS' working capital
deficit of $738 million at September 30, 1999, included $400 million
of notes due May 1, 2000. NS currently has the capability to issue
commercial paper to meet its more immediate working capital needs (see
the discussion of financing activities, below).
CASH USED FOR INVESTING ACTIVITIES increased significantly in the
first nine months of 1999, compared with the same period last year
that included $207 million of proceeds from the sale of a subsidiary
(see Note 4). Capital expenditures were 10 percent lower in the
current year; however, "Property additions" increased, reflecting a
change in financing methods: in 1999, locomotives and freight cars
were financed through the sale of equipment trust certificates (see
Note 5); in 1998, locomotives were acquired under capital leases,
which were excluded from the Consolidated Statements of Cash Flows
because they were noncash transactions. "Investment sales and other
transactions" includes proceeds from borrowing against the net cash
surrender value of company-owned life insurance.
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES in the first nine
months of 1999 included proceeds from the sale of 10-year Senior Notes
and equipment trust certificates (see Note 5). In addition, "Proceeds
from borrowing" included amounts received from the sale of commercial
paper and loans from a PRR subsidiary, which compose "Short-term debt"
in the Consolidated Balance Sheet. "Debt repayments" in 1999 includes
$539 million of reductions in outstanding commercial paper. NS
expects to issue commercial paper as working capital needs arise and
to repay such commercial paper as resources become available or by
issuing additional commercial paper. In addition, NS has issued only
$400 million of debt under its November 1998 $1 billion shelf
registration.
CONRAIL'S RESULTS OF OPERATIONS, FINANCIAL CONDITION, AND LIQUIDITY
Conrail's operating results were significantly affected by the
June 1, 1999, integration of PRR's and NYC's routes and assets with
those of NSR and CSXT (see Note 3). Conrail's results of
operations include freight line-haul revenues and related expenses
through May 31, 1999, but reflect its new structure and operations
since June. Conrail's major sources of operating revenues are now
from NSR and CSXT. The composition of Conrail's operating expenses
has changed also. Accordingly, meaningful comparisons to 1998's
results are difficult.
<PAGE> PAGE 24
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Conrail recorded a third-quarter net loss of $49 million, versus a net
loss of $65 million in the same period last year. For the first nine
months, Conrail's net loss was $36 million in 1999, versus net income
of $135 million in 1998. Results in 1999 included after-tax expenses
of $51 million in the third quarter and $117 million in the second
quarter, principally to increase certain components of its casualty
reserves based on an actuarial valuation and adjustments to certain
litigation and environmental reserves related to settlements and
completion of site reviews. The environmental reserves include
amounts for claims for remediation and other costs by the
Commonwealth of Pennsylvania related to pre-Closing environmental
sites at the Hollidaysburg and Juniata shops. Results in 1998
included a $187 million after-tax charge, primarily for estimated
nonunion severance obligations. Excluding the effects of these
expenses, Conrail's net income would have been down $120 million in
the quarter and $190 million for the first nine months, principally
due to costs related to the wind-down of certain functions and lower
income from railway operations during the first five months of 1999.
Operating revenues were $259 million in the third quarter and
$1,912 million for the first nine months, versus $976 million and
$2,886 million, respectively, for the same periods last year,
reflecting the change in operations. Operating expenses (excluding
the expenses discussed above) declined $513 million in the third
quarter and $659 million in the first nine months, reflecting the
operation of most of its properties by NSR and CSXT, mitigated by the
effects of transition-related expenses.
Conrail's working capital deficit was $53 million at Sept. 30, 1999,
versus a deficit of $202 million at Dec. 31, 1998. In addition to
cash flow from operations, the improvement in working capital resulted
in part from the reclassification of certain employee obligations,
partially offset by the reclassification of $250 million of long-term
debt to current liabilities, reflecting the maturity of the debt in
June 2000. Conrail should continue to have sufficient cash flow to
meet its ongoing obligations, notwithstanding the change in the nature
of its operations.
YEAR-2000 COMPLIANCE
General
- -------
In October 1995, NS initiated a project to review and modify, as
necessary, its computer applications, hardware, and other equipment to
make them Year-2000 compliant. NS has engaged outside consultants and
independent contractors to assist with its Year-2000 project. The
progress of the project is reviewed regularly by NS' senior management
and by the Board's Audit Committee. The project is organized into
three principal areas: mainframe systems, nonmainframe systems, and
enterprise systems (operations and embedded processors), and for each
such system involves: inventory, assessment, remediation, testing,
and implementation. NS has incorporated all critical PRR assets it
now operates into the project.
<PAGE> PAGE 25
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
State of Readiness
- ------------------
For mainframe systems, all noncompliant business-critical applications
have been remediated, unit tested, and placed back into production
(implemented). System integration testing continues and is expected
to be completed by year-end.
For nonmainframe and enterprise systems, all business-critical items
have been remediated and system testing is substantially complete.
NS also has initiated formal communications with third parties having
a substantial relationship to its business (including other railroads,
significant suppliers, larger customers, and financial institutions)
to determine the extent to which NS may be vulnerable to any such
third parties' failure to achieve Year-2000 compliance. Thus far, NS
has no information that indicates a significant third party may be
unable to provide goods or services or to request NS' services because
of Year-2000 compliance issues. NS will continue to monitor the
progress of such third parties' Year-2000 compliance efforts and
develop contingency plans as warranted.
Cost
- ----
NS has allocated existing information technology resources and has
incurred incremental costs, mostly for contract programmers and
consultants, in connection with its Year-2000 compliance project.
Since the project began, Management estimates that up to 10 percent of
NS' in-house programming resources have been used for Year-2000
compliance efforts. The effects of deferring other information
technology projects to accommodate the Year-2000 effort have been
minor. Incremental costs incurred through Sept. 30, 1999, which were
expensed, are immaterial to NS' results of operations. Total
incremental costs are expected to be approximately $25 million.
Contingency Plans
- -----------------
The project includes system testing, as appropriate, to substantiate
that remediation successfully addresses Year-2000 compliance. NS has
established a series of initiatives to focus on business-critical
items to enable rail operations to continue in the event of a
Year-2000 problem. In addition, contingency plans are being developed
where warranted. NS intends to establish a command center at year-end
to monitor and provide corrective action into the Year-2000, as
necessary.
<PAGE> PAGE 26
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Conrail
- -------
NS is implementing its own information technology systems on the
portion of Conrail's routes and assets it is operating. A majority of
these systems have been implemented and are now operational; two
remaining geographical areas are scheduled to have NS' transportation
systems implemented prior to Dec. 7, 1999. In the Shared Assets
Areas, some of Conrail's existing transportation systems will continue
to be used and, therefore, were remediated, unit tested, and placed
back into production. Testing between NS and Conrail is expected to
be completed in November.
Risks
- -----
Failure to achieve Year-2000 compliance -- by NS, other railroads, its
principal suppliers and customers, and certain financial institutions
with which it has relationships -- could negatively affect NS' ability
to conduct business for an extended period. Management believes that
NS will be successful in its Year-2000 compliance effort; however,
there can be no assurance that all NS information technology systems
and components will be fully Year-2000 compliant. In addition, other
companies on which NS systems and operations rely may or may not be
fully compliant on a timely basis, and any such failure could have
a material adverse effect on NS' financial position, results of
operations, or liquidity.
LITIGATION
The Corporation and certain subsidiaries are defendants in numerous
lawsuits relating principally to railroad operations.
On Sept. 8, 1997, a state court jury in New Orleans returned a verdict
awarding $175 million in punitive damages against The Alabama Great
Southern Railroad Company (AGS), a subsidiary of Norfolk Southern
Railway Company, all of the common stock of which is owned by NS.
The verdict was returned in a class action suit involving some 8,000
individuals who claim to have been damaged as the result of an
explosion and fire that occurred in New Orleans on Sept. 9, 1987, when
the chemical butadiene leaked from a tankcar.
The jury verdict awarded a total of nearly $3.2 billion in punitive
damages against four other defendants in the same case: two rail
carriers, the owner of the car, and the shipper. Previously, the jury
had awarded nearly $2 million in compensatory damages to 20 of the
more than 8,000 individual plaintiffs.
AGS and five of the nine defendants reached an agreement to settle
this litigation. The three remaining defendants are not parties to
the settlement agreement, and the litigation will continue against
those defendants. Because it involves a class action, the settlement
is subject to final approval by the trial court, and to possible
appeals.
<PAGE> PAGE 27
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
While the final outcome of this matter and other lawsuits cannot be
predicted with certainty, it is the opinion of Management, based on
known facts and circumstances, that the amount of NS' ultimate
liability is unlikely to have a material adverse effect on NS'
financial position, results of operations, or liquidity.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, within the
meaning of the Private Securities Reform Act of 1995, that are based
on current expectations, estimates, and projections. Such forward-
looking statements reflect Management's good-faith evaluation of
information currently available. However, because such statements are
based upon, and therefore can be influenced by, a number of external
variables over which Management has no, or incomplete, control, they
are not, and should not be read as being, guarantees of future
performance or of actual future results; nor will they necessarily
prove to be accurate indications of the times at or by which any such
performance or result will be achieved. Accordingly, actual outcomes
and results may differ materially from those expressed in such forward-
looking statements. This caveat has particular importance in the
context of all such statements that relate to Year-2000 compliance and
to the effects of the Conrail integration, including the estimates of
revenue losses and additional expenses incurred to date, as well as
the realization and the timing of benefits expected to result from the
operation of PRR assets.
The forward-looking statements contained in this filing speak only as
of the date on which they are made, and the Corporation does not
undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date hereof. If the
Corporation does update one or more forward-looking statements, no
inference should be drawn that the Corporation will make additional
updates with respect thereto or with respect to other forward-looking
statements.
<PAGE> PAGE 28
PART II. OTHER INFORMATION
----------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
Financial Data Schedule.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on July 7, 1999,
reporting that, in connection with the integration of
the Conrail properties being operated by NS' railroad
subsidiary, NS had made available incentives to
employees covered by collective bargaining agreements.
A report on Form 8-K was filed on July 14, 1999,
reporting that preliminary calculations indicated that
NS' earnings per share for the second quarter would be
below the analysts' consensus.
<PAGE> PAGE 29
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 10, 1999 /s/ Dezora M. Martin
----------------- ------------------------------------
Dezora M. Martin
Corporate Secretary (Signature)
Date: November 10, 1999 /s/ John P. Rathbone
----------------- ------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
<PAGE> PAGE 30
INDEX TO EXHIBITS
-----------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Electronic
Submission
Exhibit
Number Description Page
- ---------- ------------------------------------------- ----
27 Financial Data Schedule. 31
(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).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 41
<SECURITIES> 15
<RECEIVABLES> 911
<ALLOWANCES> 5
<INVENTORY> 77
<CURRENT-ASSETS> 1,316
<PP&E> 15,734
<DEPRECIATION> 4,831
<TOTAL-ASSETS> 19,117
<CURRENT-LIABILITIES> 2,054
<BONDS> 7,329
0
0
<COMMON> 402
<OTHER-SE> 5,523
<TOTAL-LIABILITY-AND-EQUITY> 19,117
<SALES> 0
<TOTAL-REVENUES> 3,724
<CGS> 0
<TOTAL-COSTS> 3,143
<OTHER-EXPENSES> (121)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (393)
<INCOME-PRETAX> 309
<INCOME-TAX> 101
<INCOME-CONTINUING> 208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.55
</TABLE>
