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, 1998
( ) 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
incorporation or organization) Identification No.)
Three Commercial Place
Norfolk, Virginia 23510-2191
- ---------------------------------------- ------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (757) 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, 1998
----- ---------------------------------
Common Stock (par value $1.00) 16,668,997
<PAGE> PAGE 2
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)
INDEX
-----
Page
----
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets as of
March 31, 1998, and December 31, 1997 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 5-6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits 19
<PAGE> PAGE 3
PART I. FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements.
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Income
($ in millions)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
------- -------
<S> <C> <C>
RAILWAY OPERATING REVENUES:
Coal $ 323 $ 326
General merchandise 605 594
Intermodal 138 126
------- -------
Railway operating revenues 1,066 1,046
------- -------
RAILWAY OPERATING EXPENSES:
Compensation and benefits 396 362
Materials, services and rents 191 170
Depreciation 106 102
Diesel fuel 48 63
Casualties and other claims 30 29
Other 44 38
------- -------
Railway operating expenses 815 764
------- -------
Income from railway operations 251 282
Charge for credit facility costs (Note 3) -- (77)
Other income - net 20 6
Interest expense on debt (5) (9)
------- -------
Income before income taxes 266 202
Provision for income taxes 98 74
------- -------
NET INCOME $ 168 $ 128
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 4
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Balance Sheets
($ in millions)
(Unaudited)
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 146 $ 7
Short-term investments 106 120
Accounts receivable - net 544 539
Materials and supplies 64 58
Deferred income taxes 100 100
Other current assets 112 117
-------- --------
Total current assets 1,072 941
Due from NS - net (Note 3) 408 447
Investments 1,102 930
Properties less accumulated depreciation 9,622 9,447
Other assets 78 62
-------- --------
TOTAL ASSETS $ 12,282 $ 11,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 27 $ 27
Accounts payable 572 586
Income and other taxes 204 149
Other current liabilities 99 98
Current maturities of long-term debt 62 59
-------- --------
Total current liabilities 964 919
Long-term debt (Note 4) 602 547
Other liabilities 850 846
Minority interests 2 2
Deferred income taxes 3,209 3,121
-------- --------
TOTAL LIABILITIES 5,627 5,435
-------- --------
Stockholders' equity:
Serial preferred stock 55 55
Common stock 167 167
Additional paid-in capital 525 525
Accumulated other comprehensive income (Note 6) 510 414
Retained income 5,398 5,231
-------- --------
TOTAL STOCKHOLDERS' EQUITY 6,655 6,392
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,282 $ 11,827
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 5
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 168 $ 128
Reconciliation of net income to net cash
provided by operating activities:
Depreciation 106 102
Deferred income taxes 14 9
Charge for credit facility costs (Note 3) -- 77
Nonoperating gains on property sales (13) (2)
Changes in assets and liabilities
affecting operations:
Accounts receivable (15) (41)
Materials and supplies (6) (2)
Other current assets 9 10
Current liabilities other than debt 41 22
Other - net 29 (5)
----- -----
Net cash provided by
operating activities 333 298
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 4) (223) (226)
Property sales and other transactions 10 14
Investments, including short-term (33) (116)
Investment sales and other transactions 26 101
----- -----
Net cash used for
investing activities (220) (227)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (Note 3) (1) (1)
Credit facility costs paid -- (71)
Advances and repayments to NS (8) (99)
Advances and repayments from NS 46 37
Proceeds from long-term borrowings (Note 4) 2 1
Long-term debt repayments (13) (12)
----- -----
Net cash provided by (used for)
financing activities 26 (145)
----- -----
Net increase (decrease) in cash
and cash equivalents 139 (74)
CASH AND CASH EQUIVALENTS:*
At beginning of year 7 172
----- -----
At end of period $ 146 $ 98
===== =====
</TABLE>
<PAGE> PAGE 6
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Cash Flows (continued)
($ in millions)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------ ------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 13 $ 15
Income taxes $ -- $ 4
* Cash equivalents are highly liquid investments purchased three months or
less from maturity.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> PAGE 7
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Notes to Consolidated Financial Statements
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position as of March 31, 1998, and results of operations and cash
flows for the three months ended March 31, 1998 and 1997.
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 the
financial statements and notes included in the Company's latest
Annual Report on Form 10-K.
2. Commitments and Contingencies
There have been no significant changes since year-end 1997 in the
matters as discussed in NOTE 16, COMMITMENTS AND CONTINGENCIES,
appearing in the NS Rail Annual Report on Form 10-K for 1997, Notes
to Consolidated Financial Statements, beginning on page 64.
3. Related Parties
GENERAL
-------
NS is the parent holding company of NS Rail. The costs of
functions performed by NS are charged to NS Rail. Rail operations
are coordinated at the holding company level by the NS Executive
Vice President-Operations.
JOINT ACQUISITION OF CONRAIL INC. (CONRAIL) BY NS
-------------------------------------------------
On February 11, 1997, NS purchased 8.2 million Conrail, Inc.
(Conrail) shares acquired pursuant to NS' prior tender offer. On
May 23, 1997, NS and CSX Corporation (CSX), through a jointly owned
entity, completed the acquisition of Conrail stock tendered pursuant
to their joint tender offer. Conrail stock owned by NS and CSX has
been placed in a voting trust pending approval of the control
transaction by the Surface Transportation Board (STB). The approval
of the STB, while anticipated, cannot be assumed, and a final
decision is not expected to be effective prior to August 1998.
Should the STB not approve the transaction, NS could incur a
significant loss on the disposition of its investment in Conrail.
If approved, the transaction will be consummated as soon as
practicable after STB approval and is contingent upon, among other
things, attainment of necessary labor implementing agreements.
First-quarter 1998 results included Conrail-related integration
costs, which are included in railway operating expenses.
<PAGE> PAGE 8
Item 1. Financial Statements. (continued)
- ------ --------------------
3. Related Parties (continued)
JOINT ACQUISITION OF CONRAIL INC. (CONRAIL) BY NS (continued)
-------------------------------------------------
First-quarter 1997 results included a $77 million pretax charge for
credit facility costs incurred in conjunction with certain now-
terminated commitments to provide financing for NS' then-proposed
acquisition of all Conrail stock.
<TABLE>
INTERCOMPANY ACCOUNTS
---------------------
<CAPTION>
March 31, 1998 December 31, 1997
------------------ -------------------
Average Average
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
($ in millions)
<S> <C> <C> <C> <C>
Due from NS:
Advances $ 731 5% $ 752 5%
Due to NS:
Notes and advances 323 7% 305 7%
----- -----
Due from NS - net $ 408 $ 447
===== =====
</TABLE>
Interest is applied to certain advances at the average NS yield on
short-term investments and to the notes at specified rates.
NON-CASH DIVIDEND
-----------------
In March 1997, NS Rail declared and issued to NS a non-cash
dividend of $147 million, which was settled by reduction of
NS Rail's interest-bearing advances due from NS. Non-cash
dividends are excluded from the Consolidated Statements of Cash
Flows.
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, 1998, and December 31, 1997,
NS Rail had long-term intercompany federal income tax payables
(which are included in "Deferred income taxes" in the Consolidated
Balance Sheets) of $463 million and $443 million, respectively.
CASH REQUIRED FOR NS DEBT
-------------------------
During 1997, NS borrowed $5.8 billion to finance the joint
acquisition, with CSX, of Conrail. A significant portion of the
funding for the interest and repayments on this debt is expected to
be provided by NS Rail.
<PAGE> PAGE 9
Item 1. Financial Statements. (continued)
- ------ --------------------
4. Capital Lease Obligations
During the first quarters of 1998 and 1997, NS Rail entered into
capital leases covering new locomotives. The related capital lease
obligations, totaling $73 million in 1998 and $45 million in 1997,
were reflected in the Consolidated Balance Sheets as debt and,
because they were non-cash transactions, were excluded from the
Consolidated Statements of Cash Flows. The lease obligations carry
stated interest rates of between 6.36% and 6.45% for the leases
entered into in 1998, and 6.83% for the lease entered into in 1997.
All were converted to variable rate obligations using interest rate
swap agreements. The interest rates on these obligations are based
on the six-month London Interbank Offered Rate and are reset every
six months with realized gains or losses accounted for as an
adjustment of interest expense over the terms of the leases. As a
result, NS Rail is exposed to the market risk associated with
fluctuations in interest rates. To date, the effects of the rate
fluctuations have been favorable and not material. Counterparties
to the interest rate swap agreements are major financial
institutions believed by Management to be creditworthy.
5. Tax Benefit Leases
In January 1995, the United States Tax Court issued a preliminary
decision that would disallow some of the tax benefits a subsidiary of
NS Rail purchased from a third party in 1981 pursuant to a safe harbor
lease agreement. The Tax Court finalized this decision in February
1997, and the Fourth Circuit Court of Appeals affirmed it. A
petition for rehearing and request that the case be heard by the full
court has been filed, but there is no assurance that the petition
will be granted. Management continues to believe that NS Rail
ultimately should incur no loss from this decision because the
lease agreement provides for full indemnification if any such
disallowance is sustained.
6. Comprehensive Income
Effective January 1, 1998, NS Rail adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income."
This Statement requires that all items that are recognized under
accounting standards as components of comprehensive income be
reported in an annual financial statement displayed with the same
prominence as other annual financial statements. Condensed
financial statements of interim periods are to include a total for
comprehensive income. NS Rail's total comprehensive income was as
follows:
<PAGE> PAGE 10
Item 1. Financial Statements. (continued)
- ------ --------------------
6. Comprehensive Income (continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
-------- --------
($ in millions)
<S> <C> <C>
Net income $ 168 $ 128
Other comprehensive income 96 (13)
----- -----
Total comprehensive income $ 264 $ 115
===== =====
For NS Rail, "Other comprehensive income" is the unrealized gains
and losses on certain investments in debt and equity securities,
principally NS common stock. "Accumulated other comprehensive
income" included in "Stockholders' equity" was $510 million as of
March 31, 1998, and $414 million as of December 31, 1997.
</TABLE>
<TABLE>
7. Norfolk and Western Railway Company and Subsidiaries (NW)--
Summarized Consolidated Financial Information
SUMMARIZED CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
-------- --------
($ in millions)
(Unaudited)
<S> <C> <C>
Railway operating revenues $ 522 $ 499
Railway operating expenses 381 358
----- -----
Income from railway operations 141 141
Other - net 27 (19)
----- -----
Income before income taxes 168 122
Provision for income taxes 61 44
----- -----
Net income $ 107 $ 78
===== =====
</TABLE>
<PAGE> PAGE 11
Item 1. Financial Statements. (continued)
- ------ --------------------
<TABLE>
7. Norfolk and Western Railway Company and Subsidiaries (NW)--
Summarized Consolidated Financial Information (continued)
SUMMARIZED CONSOLIDATED BALANCE SHEETS
--------------------------------------
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
($ in millions)
(Unaudited)
<S> <C> <C>
Assets
Current assets $ 373 $ 391
Noncurrent assets 6,436 6,129
------ ------
Total assets $6,809 $6,520
====== ======
Liabilities and stockholder's equity
Current liabilities $ 322 $ 269
Noncurrent liabilities 1,870 1,824
Stockholder's equity 4,617 4,427
------ ------
Total liabilities and
stockholder's equity $6,809 $6,520
====== ======
</TABLE>
<PAGE> PAGE 12
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations.
-------------------------
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" for the first quarter of 1998 was $168 million, an increase
of $40 million, compared with first-quarter 1997. Included in 1997's
results was a $77 million ($50 million after-tax) charge for costs
related to a now-terminated credit agreement which had been established
and maintained by NS to purchase all Conrail shares (see Note 3, "Joint
Acquisition of Conrail by NS"). Excluding the effect of the charge,
first-quarter 1998 net income was down $10 million, or 6 percent,
compared with the same period last year, due to a $31 million, or
11 percent, decrease in operating income, partly offset by an $18 million
increase in nonoperating income.
<TABLE>
Railway Operating Revenues
- --------------------------
First-quarter railway operating revenues were $1,066 million, up
$20 million, or 2 percent, compared with last year. As shown in the table
below, the improvement was due entirely to increased traffic volume.
<CAPTION>
First Quarter
1998 vs. 1997
Increase (Decrease)
------------------
($ in millions)
<S> <C>
Traffic volume (carloads) $ 47
Revenue per unit (27)
-----
$ 20
=====
</TABLE>
<PAGE> PAGE 13
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
<TABLE>
Revenues and carloads for the commodity groups were as follows:
<CAPTION>
Revenues Carloads
1998 1997 1998 1997
---- ---- ---- ----
($ in millions) (in thousands)
<S> <C> <C> <C> <C>
Coal $ 323 $ 326 331 328
Chemicals 146 147 102 101
Automotive 138 124 116 92
Paper/clay/forest 137 135 116 115
Agri./govt./consumer 93 99 89 91
Metals/construction 91 89 88 87
------ ------ ----- -----
General merchandise 605 594 511 486
Intermodal 138 126 367 342
------ ------ ----- -----
Total $1,066 $1,046 1,209 1,156
====== ====== ===== =====
</TABLE>
Coal
- ----
First-quarter coal revenues of $323 million were $3 million, or
1 percent, below last year. Total tonnage handled increased 3 percent,
as gains in utility and coke traffic more than offset declines in export
volume and domestic metallurgical traffic. Most of the utility growth
was in shorter-haul (lower average revenue) traffic. Export tonnage was
down 3 percent, compared with a strong first quarter last year.
Coal revenues for all of 1998 are expected to continue to be about even
with those of 1997.
General Merchandise
- -------------------
First-quarter general merchandise revenues were $605 million, $11 million,
or 2 percent, higher than last year. Automotive revenues increased
$14 million, or 11 percent, due primarily to the ramp-up of the Ford
mixing centers. Most of the mixing center traffic is shorter-haul and,
therefore, lower revenue per car, which contributed to the overall decline
in revenue per unit. Automotive revenues were less than expected due to
slower than anticipated ramp-up of the mixing centers, industrywide
bilevel equipment shortages, and some softening in automotive production.
By the end of the quarter, mixing center vehicle flow had improved, and
operations were continuing to add volume. Agriculture revenues declined
$6 million, or 6 percent, mostly due to decreased grain traffic resulting
from excess supplies of export grain, the strong U.S. dollar, and reduced
Asian demand.
General merchandise revenues are expected to post moderate gains for the
remainder of the year, supported by mixing center traffic and progress in
overcoming Western rail service problems.
<PAGE> PAGE 14
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Intermodal
- ----------
First-quarter intermodal revenues were $138 million, up $12 million, or
10 percent, compared with last year. The improvement was primarily the
result of a 7 percent increase in traffic volume. Container and
RoadRailer(RT) volume posted double-digit increases, while trailer
volume declined 5 percent. International container volume was strong
due to increased imports and extremely bad weather in Canada that forced
business to Norfolk. Domestic container volumes were less than expected
due, at least in part, to service problems in the West.
Intermodal revenues are expected to continue to post increases in 1998,
although not the double-digit growth of the first quarter.
Railway Operating Expenses
- --------------------------
First-quarter railway operating expenses were $815 million, up
$51 million, or 7 percent, compared with last year. The increase
resulted principally from higher carloadings, up 5 percent compared with
last year, higher stock-based compensation expenses and Conrail
integration costs.
The largest increase was in "Compensation and benefits" expense, up
$34 million, or 9 percent, due to higher wage rates, Conrail integration
costs, and increased stock-based compensation expenses, a result of the
23 percent increase in the NS stock price during the quarter.
"Materials, service and rents" expense increased $21 million, or
12 percent, due to increased traffic levels that have affected locomotive
and car repair costs and equipment rents, Conrail integration expenses,
and start-up costs related to the automotive mixing centers.
"Other expenses" increased $6 million, or 16 percent, largely a result of
the effect of a favorable adjustment for property taxes made last year.
"Diesel fuel" expense decreased $15 million, or 24 percent, primarily due
to a 25 percent decline in the average price per gallon. The benefit of
the lower price was partially offset by higher consumption related to the
increase in traffic.
The 2 percent increase in railway operating revenues, coupled with the
7 percent increase in railway operating expenses, produced a railway
operating ratio of 76.5 percent, compared with last year's first-quarter
record of 73.1 percent. The increase was principally a result of the
Conrail integration costs and the higher stock-based compensation
expenses. Excluding the effect of these items, the first-quarter
railway operating ratio would have been 73.3 percent, slightly higher
than last year, mostly because of the automotive mixing center start-up
costs.
Integration expenses associated with Conrail properties that NS Rail
expects to operate may accelerate as the year progresses.
<PAGE> PAGE 15
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Other Income - Net
- ------------------
"Other income - net" for the first quarter was $20 million, compared with
$6 million in the first quarter of last year. The increase was mostly
attributable to an increase in gains on property sales.
<TABLE>
FINANCIAL CONDITION AND LIQUIDITY
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
($ in millions)
<S> <C> <C>
Cash and short-term investments $ 252 $ 127
Debt-to-total capitalization 9.4% 9.0%
</TABLE>
CASH PROVIDED BY OPERATING ACTIVITIES is NS Rail's principal source of
liquidity and was sufficient to cover the cash outflows for dividends,
debt repayments and capital spending (see Consolidated Statements of
Cash Flows on page 5). The increase in cash provided by operations was
primarily attributable to a smaller increase in accounts receivable and
a smaller decrease in accounts payable, compared with the same period
last year.
CASH USED FOR INVESTING ACTIVITIES decreased slightly in the first quarter
of 1998, compared with last year. Property additions account for most of
the spending in this category.
NS Rail's commitment in prior years to an aggressive capital spending
program should position it well to integrate Conrail operations into its
system. Additional capital spending in the early years following closing
of the transaction will be necessary to achieve a safe and efficient
integration. New connections are required to integrate NS Rail and
Conrail routes. New terminals, improvements to existing terminals, new
sidings and improvements to existing Conrail routes are required to handle
anticipated increases in traffic. NS Rail expects to make whatever
investments in plant, equipment and facilities prove necessary. Following
STB approval of the transaction, NS Rail's ability to assess system needs
will be enhanced, with the result that the timing and amount of
expenditures may differ from earlier estimates.
CASH PROVIDED BY FINANCING ACTIVITIES includes "Proceeds from long-term
borrowings" which represents amounts received in connection with capital
lease transactions (see Note 4). Last year's financing activities
included $71 million of credit facility costs paid and higher advances
and repayments to NS, compared with this year.
NS has issued a significant amount of debt related to its joint
acquisition of Conrail. A significant portion of the funds to service
this debt is expected to come from NS Rail, NS' principal subsidiary.
<PAGE> PAGE 16
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, NS Rail adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (see
Note 6).
During the first quarter of 1998, Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosures about Pension and
Other Postretirement Benefits -- an amendment of FASB Statements No. 87,
88 and 106," was issued. SFAS 132, which NS Rail will adopt in its
1998 annual report, revises disclosures about pension and other
postretirement benefit plans, but does not change the measurement or
recognition of liabilities associated with such plans. Adoption of
SFAS 132 is not expected to have a material effect on NS Rail's
financial statements.
<PAGE> PAGE 17
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE> PAGE 18
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, 1998 /s/ Sandra T. Pierce
------------------- ------------------------------------------
Sandra T. Pierce
Corporate Secretary (Signature)
Date: May 12, 1998 /s/ John P. Rathbone
------------------- ------------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
<PAGE> PAGE 19
INDEX TO EXHIBITS
-----------------
Electronic
Submission
Exhibit
Number Description Page Number
- ----------- ----------------------------------------- -----------
27 Financial Data Schedule
(This exhibit is required to be submitted
electronically pursuant to the rules
and regulations of the Securities and
Exchange Commission and shall not be
deemed filed for purposes of Section 11
of the Securities Act of 1933 or
Section 18 of the Securities Exchange
Act of 1934.) 20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> $ 146
<SECURITIES> 106
<RECEIVABLES> 548
<ALLOWANCES> 4
<INVENTORY> 64
<CURRENT-ASSETS> 1,072
<PP&E> 13,940
<DEPRECIATION> 4,318
<TOTAL-ASSETS> 12,282
<CURRENT-LIABILITIES> 964
<BONDS> 602
<COMMON> 167
0
55
<OTHER-SE> 6,433
<TOTAL-LIABILITY-AND-EQUITY> 12,282
<SALES> 0
<TOTAL-REVENUES> 1,066
<CGS> 0
<TOTAL-COSTS> 815
<OTHER-EXPENSES> (20)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 266
<INCOME-TAX> 98
<INCOME-CONTINUING> 168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
