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 March 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file numbers 1-743; 1-3744; 1-4793; 1,546-2
NORFOLK SOUTHERN RAILWAY COMPANY
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 53-6002016
- ---------------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia 23510-2191
- ---------------------------------------- ----------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (804) 629-2682
-------------------
No Change
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
------ ------
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the last practicable date:
Class Outstanding as of April 30, 1994
----- --------------------------------
Common Stock (par value $1.00) 16,668,997
<PAGE> PAGE 2
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)
INDEX
Page
----
Part I. Financial Information:
Item 1. Consolidated Statements of Income
Three Months Ended March 31, 1994 and 1993 3
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
PartII. Other Information:
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE> PAGE 3
<TABLE>
PART I. FINANCIAL INFORMATION
-------------------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Income
(In millions of dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
RAILWAY OPERATING REVENUES:
Coal $ 304.9 $ 291.6
Merchandise 609.4 587.2
Other 28.0 32.0
-------- --------
Total railway operating revenues 942.3 910.8
-------- --------
RAILWAY OPERATING EXPENSES:
Compensation and benefits 351.4 350.3
Materials, services and rents 163.4 157.9
Depreciation 88.7 85.2
Diesel fuel 45.7 44.8
Casualties and other claims 29.1 30.4
Other 37.5 34.8
-------- --------
Total railway operating expenses 715.8 703.4
-------- --------
Income from railway operations 226.5 207.4
Other income (expense):
Interest income 6.1 4.8
Interest expense on debt (6.7) (10.1)
Other-net 9.1 31.0
-------- --------
Total other income (expense) 8.5 25.7
-------- --------
Income before income taxes and cumulative
effects of accounting changes 235.0 233.1
Provision for income taxes 82.8 85.6
-------- --------
Income before accounting changes 152.2 147.5
Cumulative effects on years prior to 1993 of changes
in accounting principles (Note 4) for:
Income taxes -- 470.4
Postretirement benefits other than pensions; and
postemployment benefits - net of taxes -- (222.6)
-------- --------
NET INCOME $ 152.2 $ 395.3
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 4
<TABLE>
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Balance Sheets
(In millions of dollars)
(Unaudited)
<CAPTION>
March 31, December 31,
1994 1993
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66.1 $ 2.3
Short-term investments (Note 4) 99.8 149.7
Accounts receivable - net 538.6 522.9
Due from NS (Note 3) 173.3 118.1
Materials and supplies 67.8 65.9
Deferred income taxes 90.0 88.8
Other current assets 293.9 282.2
--------- ---------
Total current assets 1,329.5 1,229.9
Investments and advances (Notes 3 and 4) 814.4 362.2
Properties less accumulated depreciation 8,302.9 8,260.3
Other assets 19.0 20.6
--------- ---------
TOTAL ASSETS $10,465.8 $ 9,873.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 27.2 $ 27.2
Accounts payable 460.0 461.7
Income and other taxes 204.9 141.3
Due to NS (Note 3) 114.0 112.6
Other current liabilities 129.2 114.7
Current maturities of long-term debt 112.4 107.5
--------- ---------
Total current liabilities 1,047.7 965.0
Long-term debt (Note 3) 500.8 497.4
Other liabilities 913.9 945.3
Minority interests 2.3 2.2
Deferred income taxes - net (Note 4) 2,461.9 2,278.2
--------- ---------
TOTAL LIABILITIES 4,926.6 4,688.1
--------- ---------
Stockholders' equity:
Serial preferred stock $50 stated value 54.8 54.8
Common stock $10 stated value 166.7 166.7
Other capital 515.0 515.0
Retained income 4,529.9 4,448.4
Unrealized gain on marketable
securities, net of tax (Note 4) 272.8 --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 5,539.2 5,184.9
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,465.8 $ 9,873.0
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 5
<TABLE>
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Cash Flows
(In millions of dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 152.2 $ 395.3
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net cumulative effects of changes in accounting
principles -- (247.8)
Special charge payments (23.8) (7.2)
Depreciation 88.9 85.4
Deferred income taxes 5.6 2.9
Nonoperating gains and losses on properties (0.6) (26.6)
Changes in assets and liabilities affecting
operations:
Accounts receivable (15.7) (16.5)
Materials and supplies (1.9) (6.5)
Other current assets 5.3 11.4
Current liabilities other than debt
and amounts due to NS 59.3 25.3
Other - net (6.2) 4.9
------- -------
Net cash provided by operating activities 263.1 220.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (136.4) (136.6)
Property sales and other transactions 5.5 29.2
Investment purchases (4.1) (20.1)
Investment sales and other transactions 0.3 0.5
Short-term advances and note - NS (53.8) 5.5
Short-term investments - net 51.6 (3.6)
------- -------
Net cash used in investing activities (136.9) (125.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (70.7) (67.1)
Long-term debt issued 22.0 --
Repayments of long-term debt (13.7) (17.4)
------- -------
Net cash used in financing activities (62.4) (84.5)
------- -------
Net increase in cash and cash equivalents 63.8 11.0
CASH AND CASH EQUIVALENTS:*
At beginning of year 2.3 11.5
------- -------
At end of period $ 66.1 $ 22.5
======= =======
- ----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 11.7 $ 13.7
Income taxes $ 6.2 $ 34.6
* Cash equivalents are highly liquid investments purchased three months or
less from maturity.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 6
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 1994, and the results of operations and cash flows for
the three months ended March 31, 1994 and 1993.
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 Company's latest Annual Report on Form 10-K.
2. Contingencies
There have been no significant changes since year end 1993 in the
matters as discussed in NOTE 16, CONTINGENCIES, appearing in the NS
Rail Annual Report on Form 10-K for 1993, Notes to Consolidated
Financial Statements, beginning on page 74. An update of the status of
certain legal proceedings was included in Part I, Item 3 - Legal
Proceedings, of the NS Rail Annual Report on Form 10-K for 1993, and in
Part II, Item 1 - Legal Proceedings, of this Form 10-Q.
3. Related Parties
GENERAL
-------
Norfolk Southern Corporation (NS) is the parent holding company of NS
Rail. The costs of functions performed by NS are allocated to its rail
operating subsidiaries. Rail operations are coordinated at the holding
company level by the NS Executive Vice President-Operations.
<TABLE>
INTERCOMPANY ACCOUNTS
---------------------
<CAPTION>
March 31, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
Due from NS:
Short-term advances $ 173.3 $ 118.1
Long-term advances included in
investments and advances 202.1 202.1
Due to NS:
Short-term note 114.0 112.6
Long-term note included in
long-term debt 22.0 --
</TABLE>
Interest is applied to short-term advances at the average NS yield on
short-term investments. Interest on long-term advances and on the
short-term and long-term notes payable are at varying, specified rates.
INTERCOMPANY FEDERAL INCOME TAX ACCOUNTS
----------------------------------------
In accordance with the NS Tax Allocation Agreement, intercompany
federal income tax accounts are recorded between companies in the NS
consolidated group. At March 31, 1994 and December 31, 1993, NS Rail
had intercompany federal income tax payables (which are included in
"Deferred income taxes" in the Consolidated Balance Sheets) of
$175.1 million.
<PAGE> PAGE 7
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
3. Related Parties (continued)
CASH REQUIRED FOR NS SHARE PURCHASE PROGRAM AND NS DEBT
-------------------------------------------------------
Since 1987, the NS Board of Directors has authorized the purchase and
retirement of up to 65 million shares of NS common stock. Purchases
under the programs initially were made with internally generated cash.
Beginning in May 1990, NS financed some purchases with proceeds from
the sale of NS commercial paper notes. As of March 31, 1994, and
December 31, 1993, NS had recorded $521.4 million and $521.8 million,
respectively, of notes under this program. Additionally, under a
registration statement filed with the Securities and Exchange
Commission covering the issuance of unsecured debt securities in an
aggregate principal amount of up to $750 million, NS has issued long-
term debt in part to repay portions of the commercial paper notes and
to fund additional share purchases. As of March 31, 1994, NS had
outstanding $500 million of long-term debt under this registration.
Since the first purchases in December 1987 through March 31, 1994, NS
has purchased and retired 54,235,600 shares of its common stock under
these programs. Future purchases are dependent on market conditions,
the economy, cash needs and alternative investment opportunities.
Consistent with earlier purchases, a significant portion of the funding
for future NS stock purchases, either in the form of direct cash or
cash used for debt service, will come from NS Rail through intercompany
advances or dividends to NS. Cash required to service NS debt, which
may also be issued for general corporate purposes, also will come
principally from NS Rail.
TRANSFER OF SUBSIDIARY IN 1993
------------------------------
In April 1993, NS Rail transferred to NS its $104.7 million equity
interest in a subsidiary company. This company, along with its wholly
owned subsidiaries, consists primarily of nonrail real estate assets
(although some rail assets were also involved). The transfer was
accounted for as a reduction of NS Rail's retained earnings,
representing the book value of the net assets of the companies
transferred.
4. Required Accounting Changes
1994
----
Effective January 1, 1994, NS Rail adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). SFAS 115 requires corporations
to change the method of reporting for investments in debt and certain
equity securities from lower of cost or market to classifying and
accounting for such investments in one of three categories: "trading,"
"available for sale" or "held to maturity." The carrying value and
timing of gain/loss realization is dependent upon the categorization of
the investment.
<PAGE> PAGE 8
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
4. Required Accounting Changes (continued)
<TABLE>
Under SFAS 115, NS Rail increased the reported carrying value of
certain short-term and long-term investments classified as "available
for sale" at March 31, 1994, as follows:
<CAPTION>
Gross
Unrealized
Cost Holding Gains Fair Value
---- ------------- ----------
<S> <C> <C> <C>
Short-term securities,
principally U.S. Treasury
securities $ 98.1 $ 1.7 $ 99.8
Equity securities -
7.3 million shares
of NS stock 20.6 448.1 468.7
</TABLE>
This reporting change, which had no income statement effect, was
responsible for the large increase in "Investments and advances" in the
Consolidated Balance Sheet at March 31, 1994. Carrying value
adjustments, which are noncash transactions, are not included in the
Consolidated Statement of Cash Flows. The total unrealized holding
gain on NS Rail's investments classified as "available for sale" at
March 31, 1994, net of related deferred taxes of $177.0 million, is
reflected as a separate component of stockholders' equity in the
Consolidated Balance Sheet at March 31, 1994.
Total gross unrealized holding gains from the implementation date of
January 1, 1994, through March 31, 1994, declined $43.4 million. The
reduced gains primarily reflect the change in NS stock price from
$70-1/2/share at December 31, 1993, to $64-5/8/share at March 31, 1994.
Stockholders' equity for the quarter decreased $26.3 million as a
result.
1993
----
Effective January 1, 1993, NS Rail adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106), and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (SFAS 112). The cumulative effects for years prior to 1993
of adopting SFAS 106 and SFAS 112 increased first quarter 1993 pretax
expenses $336.3 million ($208.4 million after-tax), and $22.8 million
($14.2 million after-tax), respectively.
Also effective January 1, 1993, NS Rail adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
SFAS 109 required a change from the deferred method of accounting for
income taxes to the asset and liability method of accounting for income
taxes. The cumulative effect on years prior to 1993 of adopting
SFAS 109 increased first quarter 1993 net income by $470.4 million.
<PAGE> PAGE 9
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
6. Norfolk and Western Railway Company and Subsidiaries (NW)--Summarized
Consolidated Financial Information
<TABLE>
SUMMARIZED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
March 31,
------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Railway operating revenues $ 455.9 $ 454.1
Railway operating expenses 354.7 346.5
------- -------
Income from operations 101.2 107.6
Other-net 13.4 25.2
------- -------
Income before income taxes and
cumulative effects of accounting
changes 114.6 132.8
Provision for income taxes 37.8 48.9
------- -------
Income before accounting changes 76.8 83.9
------- -------
Cumulative effects on years prior to 1993
of changes in accounting principles for:
Income taxes -- 207.3
Postretirement benefits other than
pensions; and postemployment
benefits - net of taxes -- (115.7)
------- -------
Net income $ 76.8 $ 175.5
======= =======
</TABLE>
<PAGE> PAGE 10
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
6. Norfolk and Western Railway Company and Subsidiaries (NW)--Summarized
Consolidated Financial Information (continued)
<TABLE>
SUMMARIZED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets $ 788.8 $ 703.1
Noncurrent assets 3,930.4 3,860.9
--------- ---------
Total assets $ 4,719.2 $ 4,564.0
========= =========
Liabilities and stockholder's equity
Current liabilities $ 344.7 $ 313.0
Noncurrent liabilities 1,523.3 1,482.7
Stockholder's equity 2,851.2 2,768.3
--------- ---------
Total liabilities and
stockholder's equity $ 4,719.2 $ 4,564.0
========= =========
</TABLE>
Effective January 1, 1994, NW adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). See Note 4 for a discussion of
this new accounting pronouncement. The effect on NW, which was
principally comprised of unrealized gain on its investments in NS
stock, increased Investments (noncurrent assets) by $50.1 million,
Short-term investments (current assets) by $1.8 million, Deferred taxes
(noncurrent liabilities) by $19.4 million, and Stockholder's equity by
$32.5 million.
Effective January 1, 1993, NW adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106), Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109),
and Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112). See Note 4 for a
discussion of these pronouncements. See NW's 1993 Consolidated
Statement of Income for the cumulative effects of these changes.
<PAGE> PAGE 11
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net Income
- ----------
Net income increased $4.7 million, or 3 percent, in first quarter 1994 when
compared with the same period last year, excluding one-time cumulative
accounting adjustments in 1993 (see Note 4).
Railway Operating Revenues
- --------------------------
First quarter railway operating revenues increased $31.5 million, or
3 percent, when compared with the same period last year.
This change in operating revenues was due to:
<TABLE>
<CAPTION>
First Quarter
1994 vs. 1993
Increase (Decrease)
------------------
(In millions of dollars)
<S> <C>
Traffic volume (carloads) $ 38.5
Revenue per unit/mix (3.0)
Other (4.0)
-------
$ 31.5
=======
</TABLE>
The principal revenue commodity groups and changes from the prior year were
as follows:
<TABLE>
<CAPTION>
First Quarter
1994 vs. 1993
Increase (Decrease)
------------------
(In millions of dollars)
<S> <C>
Coal $ 13.3
Merchandise:
Automotive 0.5
Intermodal 8.1
Metals/construction 0.8
Paper/forest (4.0)
Agriculture 9.3
Chemicals 7.5
Other, principally switching
and demurrage (4.0)
-------
$ 31.5
=======
</TABLE>
<PAGE> PAGE 12
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Coal
- ----
Improvement in the coal commodity group principally was due to a 23 percent
increase in utility coal shipments compared with first quarter 1993. NS
Rail's coal business benefited significantly from a rebuilding of utility
stockpiles, which remain relatively low at many of NS Rail's large
southeastern customers. The strength in utility coal partially was offset
by declines in both export and metallurgical coal traffic, where tonnages
were down 10 and 11 percent, respectively, from last year. Export coal
traffic continues to suffer from weak European economies and strong
competition from other producer countries, while lower metallurgical
shipments reflect the closing of a coke battery and maintenance downtime at
certain facilities located on NS Rail's lines.
Looking ahead, demand for utility coal is expected to remain strong, as NS
Rail-served plants continue to rebuild inventories and as the need
increases for low sulfur coal to meet requirements of the Clean Air Act.
Demand for export and metallurgical coals is anticipated to remain
relatively flat for the near term, primarily due to continuing sluggishness
in Europe and the aforementioned closing and service interruptions at NS
Rail-served coking facilities.
Merchandise
- -----------
All merchandise commodity groups showed improvement over last year except
the paper/forest group, which continued to be hurt by weak demand and
overcapacity in the industry. The largest increase was in the agriculture
group, with revenues up 12 percent on a 4 percent increase in carloadings.
The improvements largely resulted from continued strength in long-haul
movements of grain to the southeastern feed market and a large crop in NS
Rail's sourcing regions. Intermodal traffic continued to expand in first
quarter 1994, with carloads up 5 percent. Chemicals traffic also posted
significant gains, as revenues and carloads were up 6 and 7 percent,
respectively, compared with last year, principally due to a strong increase
in fertilizer shipments.
Railway Operating Expenses
- --------------------------
First quarter railway operating expenses increased $12.4 million, or
2 percent, when compared with the same period last year. Results for first
quarter 1994 and first quarter 1993 reflect weather-related increases in
operating expenses. Severe weather added approximately $9 million to 1994
railway operating expenses, and approximately $5 million to expenses last
year. The largest percentage increase in first quarter 1994 railway
operating expenses was in other expense which was up $2.7 million, or
8 percent, principally due to higher relocation expenses related to new job
assignments following the early retirement program in third quarter 1993.
Also increasing was depreciation expense which rose $3.5 million, or
4 percent, due to additional investments in plant and equipment. Partially
offsetting the increases was casualties and other claims costs which
declined $1.3 million, or 4 percent, continuing a favorable trend.
<PAGE> PAGE 13
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Other Income (Expense)
- ----------------------
Other income (expense) was down $17.2 million from first quarter 1993,
principally a result of lower gains from property dispositions. The first
quarter of 1993 included a large property sale.
Income Taxes
- ------------
The provision for income taxes in first quarter 1994 totaled $82.8 million,
for an effective rate of 35.2 percent, compared with an effective rate of
36.7 percent last year. The lower effective rate was due principally to an
adjustment in federal income tax reserves for prior years.
<TABLE>
FINANCIAL CONDITION AND LIQUIDITY
<CAPTION>
March 31, 1994 December 31, 1993
-------------- -----------------
(Dollars in millions)
<S> <C> <C>
Cash and short-term investments $165.9 $152.0
Working capital $281.8 $264.9
Current ratio 1.3 1.3
Debt to total capitalization 12.0% 12.6%
</TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES are NS Rail's principal source of
liquidity and were sufficient to cover cash outflows for dividends, debt
repayments and a significant portion of capital spending (see Consolidated
Statements of Cash Flows on page 5). The increase in cash provided by
operating activities compared with first quarter 1993 was primarily due to
lower income tax payments, combined with higher income from operations.
CASH FLOWS FROM INVESTING ACTIVITIES were affected principally by capital
spending for property additions, which in first quarter 1994 included
approximately $22 million for the acquisition of coal reserves. The
decrease in the use of cash for investment purchases in 1994 compared
with 1993 relates mainly to timing differences in premium payments on
corporate owned life insurance (COLI). During the second quarter of
1994, a large COLI borrowing (approximately $220 million) was made which
will be a significant source of cash in the second quarter Consolidated
Statement of Cash Flows.
As described in Note 3, NS has issued a significant amount of long-term
debt in recent years. The servicing of this debt is expected to be
primarily from NS Rail's funds, as it is NS' principal subsidiary.
<PAGE> PAGE 14
PART II - OTHER INFORMATION
---------------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
Item 1. Legal Proceedings
-----------------
Moberly, Missouri - Burial of Paint and Solvent. As reported by
NS Rail in Part 1, Item 3, of its Form 10-K Annual Report for 1993, and as
more fully described therein, this matter was settled on February 23, 1994.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months
ended March 31, 1994.
<PAGE> PAGE 15
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 RAILWAY COMPANY
------------------------------------------
(Registrant)
Date: May 12, 1994 Dezora M. Martin
------------------- ------------------------------------------
Corporate Secretary (Signature)
Date: May 12, 1994 John P. Rathbone
------------------- ------------------------------------------
Vice President and Controller
(Principal Accounting Officer) (Signature)
