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 JUNE 30, 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 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 (804) 629-2680
--------------------
No Change
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
----- -----
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the last practicable date:
Class Outstanding as of July 31, 1994
----- -------------------------------
Common Stock (par value $1.00) 136,240,527 shares (excluding
7,252,634 shares held by
registrant's consolidated
subsidiaries)
PAGE 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
INDEX
Page
----
Part I. Financial Information:
Item 1. Consolidated Statements of Income
Three Months and Six Months Ended
June 30, 1994 and 1993 3-4
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PartII. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
PAGE 3
PART I. FINANCIAL INFORMATION
------------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In millions of dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
-------- -------- -------- --------
TRANSPORTATION OPERATING REVENUES:
Railway:
Coal $ 322.5 $ 314.8 $ 627.4 $ 606.4
Merchandise 648.6 616.9 1,258.0 1,222.3
Other 26.7 31.5 54.7 63.5
-------- -------- -------- --------
Total railway 997.8 963.2 1,940.1 1,892.2
Motor carrier (Note 5) 163.6 207.2 298.1 393.7
-------- -------- -------- --------
Total transportation
operating revenues 1,161.4 1,170.4 2,238.2 2,285.9
-------- -------- -------- --------
TRANSPORTATION OPERATING EXPENSES:
Railway:
Compensation and benefits 341.7 351.0 693.1 702.7
Materials, services and rents 165.3 162.7 326.3 335.3
Depreciation 95.0 90.0 188.3 178.7
Diesel fuel 46.7 45.8 92.4 90.6
Casualties and other claims 37.5 29.8 66.6 60.2
Other 39.0 32.6 76.5 67.5
-------- -------- -------- --------
Total railway 725.2 711.9 1,443.2 1,435.0
Motor carrier (Note 5) 157.9 267.7 294.4 466.5
-------- -------- -------- --------
Total transportation
operating expenses 883.1 979.6 1,737.6 1,901.5
-------- -------- -------- --------
Income from operations 278.3 190.8 500.6 384.4
Other income (expense):
Interest income 5.6 6.1 11.3 12.7
Interest expense on debt (24.0) (24.4) (47.7) (50.2)
Other-net 18.6 25.8 39.6 72.4
-------- -------- -------- --------
Total other income (expense) 0.2 7.5 3.2 34.9
-------- -------- -------- --------
Income before income taxes
and cumulative effects of
accounting changes 278.5 198.3 503.8 419.3
Provision for income taxes 100.0 43.1 180.4 125.2
-------- -------- -------- --------
Income before accounting
changes 178.5 155.2 323.4 294.1
Cumulative effects on years prior
to 1993 of changes in accounting
principles (Note 7) for:
Income taxes -- -- -- 466.8
Postretirement benefits other than
pensions; and postemployment
benefits - net of taxes -- -- -- (243.5)
-------- -------- -------- --------
NET INCOME $ 178.5 $ 155.2 $ 323.4 $ 517.4
======== ======== ======== ========
PAGE 4
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Continued)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
-------- -------- -------- --------
Per share amounts (Note 8):
Earnings per share before
accounting changes $ 1.30 $ 1.11 $ 2.35 $ 2.10
Cumulative effects on years prior
to 1993 of changes in accounting
principles for:
Income taxes -- -- -- 3.34
Postretirement benefits other
than pensions; and
postemployment benefits -
net of taxes -- -- -- (1.74)
-------- -------- -------- --------
EARNINGS PER SHARE $ 1.30 $ 1.11 $ 2.35 $ 3.70
======== ======== ======== ========
DIVIDENDS PER SHARE $ 0.48 $ 0.45 $ 0.96 $ 0.90
See accompanying notes to consolidated financial statements.
PAGE 5
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
(Unaudited)
June 30, December 31,
1994 1993
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents (Note 4) $ 306.6 $ 80.5
Short-term investments 179.9 177.7
Accounts receivable - net 744.9 729.9
Materials and supplies 73.2 70.3
Deferred income taxes 144.1 177.7
Other current assets (Note 4) 86.0 327.4
--------- ---------
Total current assets 1,534.7 1,563.5
Investments 165.2 160.3
Properties less accumulated depreciation 8,823.0 8,730.7
Other assets 68.2 65.3
--------- ---------
TOTAL ASSETS $10,591.1 $10,519.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 3) $ 46.5 $ 149.5
Accounts payable 689.3 653.6
Income and other taxes 166.6 135.3
Other current liabilities 154.9 145.8
Current maturities of long-term debt 113.8 113.7
--------- ---------
Total current liabilities 1,171.1 1,197.9
Long-term debt (Note 3) 1,546.0 1,481.5
Other liabilities 1,001.8 1,035.4
Minority interests 53.6 54.5
Deferred income taxes - net 2,124.1 2,129.8
--------- ---------
TOTAL LIABILITIES 5,896.6 5,899.1
--------- ---------
Stockholders' equity:
Common stock $1.00 per share par value 143.9 145.7
Other capital 419.4 417.1
Retained income 4,151.8 4,078.5
Less treasury stock at cost, 7,252,634 shares (20.6) (20.6)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,694.5 4,620.7
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,591.1 $10,519.8
========= =========
See accompanying notes to consolidated financial statements.
PAGE 6
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of dollars)
(Unaudited)
Six Months Ended
June 30,
1994 1993
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 323.4 $ 517.4
Reconciliation of net income to net cash
provided by operating activities:
Net cumulative effects of changes in
accounting principles -- (223.3)
Special charge payments (28.0) (20.1)
Depreciation 203.0 208.9
Deferred income taxes 18.9 (30.3)
Nonoperating gains and losses on properties
and investments (9.7) (49.7)
Changes in assets and liabilities affecting
operations:
Accounts receivable (25.2) 3.8
Materials and supplies (2.9) (5.1)
Other current assets 2.7 24.2
Current liabilities other than debt 63.2 8.4
Other - net (0.5) 44.7
------- -------
Net cash provided by operating activities 544.9 478.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (314.8) (331.6)
Property sales and other transactions 59.3 58.6
Investments and loans (33.8) (43.9)
Investment sales and other transactions 260.3 29.7
Short-term investments - net (1.8) 41.1
------- -------
Net cash used for investing activities (30.8) (246.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (132.4) (126.1)
Common stock issued - net 8.1 9.0
Purchase and retirement of common stock (124.6) (62.3)
Long-term debt proceeds -- 15.0
Debt repayments (39.1) (40.2)
------- -------
Net cash used for financing activities (288.0) (204.6)
------- -------
Net increase in cash and cash equivalents 226.1 28.2
CASH AND CASH EQUIVALENTS:*
At beginning of year 80.5 111.8
------- -------
At end of period $ 306.6 $ 140.0
======= =======
- ---------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 47.1 $ 54.6
Income taxes $ 109.3 $ 162.1
* Cash equivalents are highly liquid investments purchased three months or
less from maturity.
See accompanying notes to consolidated financial statements.
PAGE 7
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1994, and the results of operations and cash
flows for the six months ended June 30, 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 Corporation's latest Annual
Report on Form 10-K.
2. Contingencies
There have been no significant changes since year end 1993 in matters
discussed in NOTE 16, CONTINGENCIES, appearing in the NS Annual
Report on Form 10-K for 1993, Notes to Consolidated Financial
Statements, beginning on page 86. An update of the status of certain
legal proceedings was included in Part I, Item 3 - Legal Proceedings,
of the NS Annual Report on Form 10-K for 1993, and in Part II,
Item 1 - Legal Proceedings, of the Form 10-Q for the first quarter of
1994.
3. Commercial Paper Program
Since 1990, NS has had a revolving credit agreement supporting its
commercial paper program. On March 29, 1994, NS entered into a new
credit agreement effective through March 29, 1999, which increased
the credit limit under its revolving credit facility from $400 million
to $500 million. A portion of commercial paper outstanding, to
the extent of the revolving credit agreement, is classified as
long-term debt. Accordingly, the amount of commercial paper notes
classified as long-term debt in the Consolidated Balance Sheet
increased to $500 million in 1994.
4. Investments
The planned borrowing of the cash surrender value of certain
corporate owned life insurance policies, amounting to approximately
$220 million, resulted in this amount's being reclassified in the
December 31, 1993, Consolidated Balance Sheet from Investments to
Other current assets. The borrowing, which was completed in May
1994, resulted in the decline in Other current assets with a
corresponding increase in Cash and Short-term investments.
5. Motor Carrier Restructuring
In mid-1993, NS began a restructuring of its motor carrier
subsidiary, North American Van Lines, Inc. (NAVL). The restructuring
of NAVL's truckload business resulted in the liquidation or transfer
to other divisions of most of the Commercial Transport Division's
assets and, in December 1993, the sale of Tran-Star's (refrigerated
trucking) operations. Accordingly, 1994's motor carrier revenues and
expenses reflect the results of the remaining NAVL operations.
PAGE 8
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Motor Carrier Restructuring (continued)
In the second quarter of 1993, as a result of these planned
dispositions, NS recorded a $50.3 million pretax ($32.8 million after-
tax) charge and recognized an additional tax benefit of $31.5 million
associated with the restructuring. The estimated costs of the
restructuring included projected operating losses during the phase-
out period, as well as labor, equipment and facility-related costs.
6. Share Purchase Programs
Since 1987, the Board of Directors has authorized the purchase and
retirement of up to 65 million shares of common stock. Purchases
under the programs initially were made with internally generated
cash. Beginning in May 1990, some purchases were financed with
proceeds from the sale of short-term commercial paper notes. In
February 1992 and March 1991, long-term notes totaling $500 million
were issued in part to repay portions of the commercial paper notes,
as well as to provide funds for additional purchases. Since the
first purchases in December 1987 through June 30, 1994, NS has
purchased and retired 55,579,300 shares of its common stock at a cost
of approximately $2.3 billion. Future purchases are dependent on
market conditions, the economy, cash needs and alternative investment
opportunities.
7. Required Accounting Changes
1994
----
Effective January 1, 1994, NS adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). SFAS 115 addresses the
accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. The effect on NS, which had no impact on earnings,
resulted in a $6.3 million increase in stockholders' equity as of
January 1, 1994, ($2.6 million as of June 30, 1994) reflecting
unrealized appreciation on certain investments, net of the related
deferred taxes.
1993
----
Effective January 1, 1993, NS 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 pretax expenses $360.2 million ($223.8 million after-tax),
and $31.8 million ($19.7 million after-tax), respectively, reducing
earnings per share for the first six months of 1993 by $1.74.
PAGE 9
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Required Accounting Changes (continued)
Also effective January 1, 1993, NS 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 net income and earnings per share
by $466.8 million and $3.34, respectively, for the first six months
of 1993.
The effect on net income and earnings per share as a result of
implementing the accounting changes was to increase net income and
earnings per share by $223.3 million and $1.60 per share,
respectively.
8. Earnings Per Share
Earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding as follows:
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
---- ---- ---- ----
(In thousands)
Average number of
shares outstanding 137,165 139,659 137,662 139,904
Recent decreases in the average number of outstanding shares of NS
common stock are the result of the share purchase program described
in Note 6.
PAGE 10
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net Income
- ----------
Net income increased $23.3 million, or 15 percent, in the second quarter
of 1994, compared with the second quarter of 1993. Last year's results
reflected a $50.3 million pretax restructuring charge which was largely
offset by tax benefits related to the restructuring of NAVL, NS' wholly
owned motor carrier subsidiary (see Note 5).
Net income for the six months ended June 30, 1994, was up $29.3 million, or
10 percent, over the same period last year, excluding cumulative accounting
adjustments which increased 1993 net income (see Note 7).
Railway Operating Revenues
- --------------------------
Railway operating revenues increased $34.6 million, or 4 percent, in the
second quarter, and $47.9 million, or 3 percent, for the six months ended
June 30, 1994, compared with the same periods last year. The increases in
operating revenues were due to:
Second Quarter First Six Months
1994 vs. 1993 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
------------------ ------------------
(In millions of dollars)
Traffic volume (carloads) $ 65.2 $ 104.7
Revenue per unit/mix (25.8) (48.0)
Other (4.8) (8.8)
------- -------
$ 34.6 $ 47.9
======= =======
PAGE 11
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The principal revenue commodity groups and changes from the prior year
were as follows:
Second Quarter First Six Months
1994 vs. 1993 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
------------------ ------------------
(In millions of dollars)
Coal $ 7.7 $ 21.0
Merchandise:
Automotive (9.4) (9.0)
Intermodal 13.6 3.5 *
Metals/construction 7.1 7.9
Paper/forest 3.4 (0.7)
Agriculture 7.4 16.8
Chemicals 9.6 17.2
Other, principally switching
and demurrage (4.8) (8.8)
------- -------
$ 34.6 $ 47.9
======= =======
* See discussion of "Merchandise" for the effects related to
the Triple Crown Services Company (TCSC) partnership.
COAL
- ----
The improvement in the coal commodity group resulted primarily from gains
in the domestic utility market, as utility coal traffic volume increased
20 percent in the second quarter and 21 percent for the first six months
of 1994, compared with 1993. The growth principally was due to the
rebuilding of utility stockpiles, which remain below normal levels at
many NS-served generating plants, and to new business. Utility coal
traffic for the remainder of 1994 is anticipated to remain ahead of last
year, as abnormally hot weather in the NS service region, a growing U.S.
economy, and the need for low-sulfur coal to meet Clean Air Act
requirements are expected to spur demand. The year-to-date gains in
utility coal traffic were offset partially by weakness in export and
metallurgical shipments in both the second quarter and first six months.
Export demand continued to be depressed due to the weak European economy
and intense price competition from foreign producers, while the demand
for metallurgical coal suffered from reduced coking activity by domestic
steel producers at certain facilities located on NS' lines. Looking
ahead, demand for export coal is expected to pick up gradually as an
anticipated recovery in the European economy materializes. However, the
extent of any gains will be influenced significantly by global coal
prices, technological changes and European energy policy.
MERCHANDISE
- -----------
All merchandise commodity groups, except for automotive (and paper/forest
year-to-date) showed improvement over last year. The intermodal group
produced the largest revenue increases, as revenues climbed 15 percent and
PAGE 12
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
12 percent, respectively, for the second quarter and the six-month
periods, compared to the same periods in 1993 (adjusted to exclude
nonrail Triple Crown revenues in 1993). Year-to-date intermodal revenue
comparisons were affected significantly by a change in reporting as a
result of the TCSC partnership with Conrail which began April 1, 1993.
Because Norfolk Southern Corporation indirectly owns 50 percent of TCSC,
its revenues are not consolidated. Accordingly, NS' intermodal operating
revenues after first quarter 1993 include only those revenues for rail
service provided to the partnership. Second quarter and year-to-date
intermodal traffic volume was up 12 percent and 9 percent, respectively,
compared with last year. The agriculture commodity group also produced
strong gains, with revenue increases of 9 percent for the quarter and
11 percent year-to-date, compared with 1993. A strong midwestern grain
and soybean harvest, coupled with increased activity to on-line poultry
producers, was responsible for the improvements. Chemicals performed
well for both the quarter and year-to-date, with revenues and carloads up
8 percent and 10 percent for the quarter and 7 percent and 8 percent year-
to-date, respectively, over 1993. Increased shipments of fertilizer
principally were responsible for the gains. Rounding out the second
quarter improvements, metals/construction revenues rose 9 percent on a
15 percent increase in carloads, primarily resulting from strong regional
growth in highway projects and other construction, while paper/forest
revenues and traffic volume were up 3 percent and 2 percent,
respectively. Automotive results in 1994 have been disappointing,
largely due to retooling downtimes at plants served by NS. Automotive
revenues and traffic volume declined 8 percent and 7 percent in the
second quarter and 4 percent year-to-date, compared with 1993.
Automotive traffic is expected to recover slowly, however, as new plants
currently under construction come on line and retoolings at existing
plants on NS' lines are completed.
Railway Operating Expenses
- --------------------------
Railway operating expenses increased $13.3 million, or 2 percent, in the
second quarter of 1994, but were up only $8.2 million, or less than
1 percent, for the first half, compared with last year. The principal
increases for the quarter were in casualties and other claims, up
$7.7 million, or 26 percent, primarily due to a $5.0 million accrual for
estimated environmental clean-up costs associated with a tank car leak
which occurred during the quarter; other expenses which were $6.4 million,
or 20 percent higher than second quarter 1993, which had benefited from a
favorable property tax settlement; and depreciation, which was up
$5.0 million, or 6 percent, due to increased investments in plant and
equipment. Smaller increases were recorded in materials, services and
rents, and in diesel fuel, which, respectively, were up $2.6 million, and
$0.9 million, or 2 percent, primarily reflecting higher traffic volume, as
carloadings for the quarter were 7 percent above 1993 levels. Partially
offsetting these increases was a $9.3 million, or 3 percent, reduction in
compensation and benefits expenses, principally due to lower employment
taxes associated with the expiration in June 1993 of the Railroad
Retirement Repayment Tax and to reduced accruals for postretirement
benefits resulting from a change in the benefit plan's creditable service
period.
The increase in year-to-date railway operating expenses resulted from
higher depreciation, diesel fuel, casualties and other claims, and other
expenses, partially offset by lower compensation and benefits, and
materials, services
PAGE 13
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
and rents expenses. Leading the year-to-date increases was a $9.6 million,
or 5 percent, rise in depreciation expense due to a greater capital base.
Other expenses were up $9.0 million, or 13 percent, due to a combination
of the effect of the favorable property tax settlement in 1993, and
higher relocation expenses in the first quarter of 1994 related to new
job assignments following the early retirement program offered last
fall. Casualties and other claims increased $6.4 million, or 11 percent,
primarily due to the accrual for environmental clean-up costs which
occurred in the second quarter, while diesel fuel expenses were up
$1.8 million, or 2 percent, resulting from increased consumption related
to higher traffic volume.
The largest year-to-date decrease was in compensation and benefits expense
which was $9.6 million, or 1 percent, lower than last year due to the
elimination of the Railroad Retirement Repayment Tax after second quarter
1993, and to reduced postretirement benefits costs. Materials, services
and rents declined $9.0 million, or 3 percent, due to the absence in 1994
of certain Triple Crown expenses which were reflected in last year's first
quarter and now are borne by the TCSC partnership.
Although it appears that the July flooding in the Southeast will not have
a significant impact on revenues, some NS railway facilities and equipment
have sustained damage, particularly in the state of Georgia. The total
damage costs are uncertain, but costs to repair or replace railway
facilities and equipment (much of which may be capitalized) are estimated
at $20 million which will not have a material effect on NS' results of
operations.
Motor Carrier Operating Revenues
- --------------------------------
Motor carrier operating revenues decreased $43.6 million, or 21 percent,
for the second quarter and $95.6 million, or 24 percent, for the first
six months, compared with the same periods last year. However, due to
last year's restructuring of NAVL (see Note 5), motor carrier revenues
and expenses in 1994 included only the Relocation Services (RS) and High
Value Products (HVP) divisions (representing continuing operations);
whereas, second quarter and year-to-date 1993 results reflected the
operations of the Commercial Transport (CT) Division and Tran-Star, Inc.
Motor carrier revenues from continuing operations were up $24.1 million,
or 17 percent, for the quarter and $41.1 million, or 16 percent, for the
first half. The HVP Division provided nearly all of the increase, with
revenues up $23.2 million in the quarter and $39.4 million year-to-date.
However, a substantial portion of the increases in the HVP Division was
due to the inclusion of certain specialized freight business which
previously was part of the discontinued CT Division.
Motor Carrier Operating Expenses
- --------------------------------
Motor carrier operating expenses decreased $109.8 million, or 41 percent,
for the second quarter and $172.1 million, or 37 percent, for the first
six months, compared with the same periods last year. However, motor
carrier operating expenses from continuing operations (see related
discussion in Motor Carrier Operating Revenue and Note 5) increased
$17.3 million, or 12 percent, in the second quarter, and $34.0 million,
or 13 percent, for the six months ended June 30, 1994, compared with the
PAGE 14
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
same periods last year. All of the increase was associated with higher
volume and with higher expenses in the HVP Division that resulted from
the addition of specialized freight business from the discontinued
CT Division.
Other Income (Expense)
- ----------------------
Other income (expense) was down $7.3 million, or 97 percent, and
$31.7 million, or 91 percent, respectively, from second quarter and year-
to-date 1993. Most of the decrease compared with last year was in the
other-net category, which was down $7.2 million for the quarter and
$32.8 million year-to-date. Significantly lower gains on property
dispositions and the absence of gains on investment sales caused most of
the 1994 decline. Interest income was down $0.5 million, or 8 percent,
and $1.4 million, or 11 percent, for the second quarter and year-to-date,
respectively, primarily due to lower average rates earned on invested
cash. Interest expense on debt declined $0.4 million, or 2 percent, and
$2.5 million, or 5 percent, for the second quarter and year-to-date,
respectively, due to reductions in total debt outstanding.
Provision for Income Taxes
- --------------------------
The provision for income taxes in second quarter 1994 totaled
$100.0 million, for an effective tax rate of 35.9 percent, compared with
an effective tax rate of 21.7 percent in 1993. For the first six months
of 1994, income taxes were $180.4 million for an effective tax rate of
35.8 percent, compared with an effective tax rate of 29.9 percent in
1993. The unusually low effective rates in 1993 were related to tax
benefits associated with the NAVL restructuring (see Note 5). Income tax
provisions for second quarter and year-to-date 1994 benefited from
several minor adjustments primarily related to prior years. The
effective tax rate in 1994 benefited in the first quarter from
favorable adjustments resulting from an audit settlement of the
consolidated federal income tax returns for the years 1988 and 1989,
and in the second quarter from an adjustment to the valuation allowance
for a deferred tax asset.
FINANCIAL CONDITION AND LIQUIDITY
June 30, 1994 December 31, 1993
------------- -----------------
(In millions of dollars)
Cash and short-term investments $486.5 $258.2
Working capital $363.6 $365.6
Current ratio 1.3 1.3
Debt to total capitalization 26.7% 27.4%
PAGE 15
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
CASH FLOWS FROM OPERATING ACTIVITIES are NS' principal source of
liquidity and were sufficient to cover cash outflows for dividends, debt
repayments and capital spending (see Consolidated Statements of Cash
Flows on page 6). The increase in cash provided by operating activities
compared with the first six months of 1993 was primarily due to lower
income tax payments made in 1994 combined with higher income from
operations.
CASH FLOWS FROM INVESTING ACTIVITIES were affected principally by
capital spending for property additions which included approximately
$71 million for the first quarter acquisition of coal reserves in West
Virginia and Kentucky. Absent this large property acquisition, railway
and motor carrier capital expenditures, as anticipated, were well below
last year. Property sales and other transactions principally reflects
proceeds from dispositions of nonoperating property, while Investment
sales and other transactions primarily reflects gains on the sale of
investment securities and borrowings on corporate owned life
insurance (COLI). Approximately $220.0 million of COLI cash surrender
value, which was reflected in Other current assets in the December 31,
1993, Consolidated Balance Sheet, was borrowed in second quarter 1994
and is principally responsible for the source of cash which resulted in
a large decrease in Net cash used for investing activities in 1994,
compared with last year.
CASH FLOWS FROM FINANCING ACTIVITIES reflect primarily uses of cash, as
no debt was issued for the six months ended June 30, 1994. Open-market
purchases of NS common stock continued in accordance with the share
purchase program described in Note 6.
PAGE 16
PART II - OTHER INFORMATION
----------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Registrant's annual meeting of stockholders was held on May 12,
1994, at which meeting one director was elected to the class whose term
will expire in 1995, four directors were elected to the class whose term
will expire in 1997, and the appointment of independent public accountants
was ratified.
The five nominees for directors, who were uncontested, were elected
by the following vote:
One-Year Term
--------------------------------------------------------------------
FOR AUTHORITY WITHHELD
--- ------------------
Jane Margaret O'Brien 117,390,461 votes 1,786,792 votes
Three-Year Term
--------------------------------------------------------------------
FOR AUTHORITY WITHHELD
--- ------------------
* William J. Crowe, Jr. 117,323,685 votes 1,853,568 votes
David R. Goode 117,564,153 votes 1,613,100 votes
Robert E. McNair 117,486,194 votes 1,691,059 votes
Harold W. Pote 117,496,773 votes 1,680,480 votes
* Admiral Crowe resigned effective May 15, 1994, to become Ambassador
to the Court of St. James.
The appointment of KPMG Peat Marwick, independent public
accountants, was ratified by the following vote:
FOR: 117,330,882 shares AGAINST: 1,364,641 shares
ABSTAINED: 481,730 shares
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months
ended June 30, 1994.
PAGE 17
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: August 10, 1994 /s/ Dezora M. Martin
------------------- -----------------------------------------
Dezora M. Martin
Assistant Corporate Secretary (Signature)
Date: August 10, 1994 /s/ John P. Rathbone
------------------- -----------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
PAGE 18
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Electronic
Submission
Exhibit
Number Description Page
- ----------- ---------------------------------------------- ----
11 Statement re Computation of Earnings Per Share 19-22
PAGE 19
EXHIBIT 11 Page 1
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
-------- -------- ------- -------
Computation for Statements of Income
- ------------------------------------
Income before cumulative effects of
changes in accounting principles $ 178.5 $ 155.2 $ 323.4 $ 294.1
------- ------- ------- -------
Cumulative effects of changes in
accounting principles $ -- $ -- $ -- $ 223.3
------- ------- ------- -------
Weighted average number of shares
outstanding 137.2 139.7 137.7 139.9
------- ------- ------- -------
Primary earnings per share:
Income before accounting changes $ 1.30 $ 1.11 $ 2.35 $ 2.10
Cumulative effects of accounting
changes -- -- -- 1.60
------- ------- ------- -------
Net income $ 1.30 $ 1.11 $ 2.35 $ 3.70
======= ======= ======= =======
Additional Primary Computation
- ------------------------------
Income before cumulative effects of
changes in accounting principles $ 178.5 $ 155.2 $ 323.4 $ 294.1
------- ------- ------- -------
Cumulative effects of changes in
accounting principles $ -- $ -- $ -- $ 223.3
------- ------- ------- -------
Adjustment to weighted average
number of shares outstanding:
Weighted average number of
shares outstanding per
primary computation above 137.2 139.7 137.7 139.9
Dilutive effect of outstanding
options, stock appreciation
rights (SARs) and performance
share units (PSUs) (as
determined by the application
of the treasury stock
method) (F1) 1.1 1.1 1.2 1.2
------- ------- ------- -------
Weighted average number of
shares outstanding,
as adjusted 138.3 140.8 138.9 141.1
======= ======= ======= =======
(F1) See Note 13 of Notes to Consolidated Financial Statements in Norfolk
Southern's 1993 Annual Report on Form 10-K for a description of the
Long-Term Incentive Plan.
PAGE 20
EXHIBIT 11 Page 2
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
-------- -------- ------- -------
Primary earnings per share,
as adjusted (F2):
Income before accounting changes $ 1.29 $ 1.10 $ 2.33 $ 2.09
Cumulative effects of accounting
changes -- -- -- 1.58
------- ------- ------- -------
Net income $ 1.29 $ 1.10 $ 2.33 $ 3.67
======= ======= ======= =======
(F2) These calculations are submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14 of
APB Opinion No. 15 because they result in dilution of less than
3 percent.
PAGE 21
EXHIBIT 11 Page 3
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
-------- -------- ------- -------
Fully Diluted Computation
- -------------------------
Income before cumulative effects
of changes in accounting
principles, per primary
computation $ 178.5 $ 155.2 $ 323.4 $ 294.1
Adjustment to increase earnings
to requisite level to earn
maximum PSUs, net of tax effect 27.0 43.8 48.8 83.0
------- ------- ------- -------
Income before cumulative effects,
as adjusted 205.5 199.0 372.2 377.1
Cumulative effects of changes in
accounting principles -- -- -- 223.3
------- ------- ------- -------
Net income, as adjusted $ 205.5 $ 199.0 $ 372.2 $ 600.4
======= ======= ======= =======
Adjustment to weighted average
number of shares outstanding,
as adjusted for additional
primary calculation:
Weighted average number of
shares outstanding, as
adjusted per additional
primary computation on page 1 138.3 140.8 138.9 141.1
Additional dilutive effect of
outstanding options and SARs
(as determined by the
application of the treasury
stock method using period
end market price) -- 0.1 -- --
Additional shares issuable at
maximum level for PSUs 0.1 0.2 0.1 0.2
------- ------- ------- -------
Weighted average number of
shares, as adjusted 138.4 141.1 139.0 141.3
======= ======= ======= =======
PAGE 22
EXHIBIT 11 Page 4
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
-------- -------- ------- -------
Fully diluted earnings
per share (F3):
Income before accounting changes $ 1.48 $ 1.41 $ 2.68 $ 2.67
Cumulative effects of
accounting changes -- -- -- 1.58
------- ------- ------- -------
Net income $ 1.48 $ 1.41 $ 2.68 $ 4.25
======= ======= ======= =======
(F3) These calculations are submitted in accordance with Regulation S-K
item 601(b)(11) although they are contrary to paragraph 40 of
APB Opinion No. 15 because they produce an anti-dilutive result.
