Document/Exhibit Description Pages Size
1: 10-Q Nsc 10-Q 2nd Qtr 99 31 120K
2: EX-10.1 Amendment No. 1 4 13K
3: EX-10.2 Amendment No. 2 7 28K
4: EX-10.3 Operating Agreement 37 155K
5: EX-10.4 N. Jersey Saa 51 166K
6: EX-10.5 S. Jersey Saa 49 166K
7: EX-10.6 Detroit Saa 50 164K
8: EX-10.7 Monongahela Usage Agreement 53 112K
9: EX-27 2nd Qtr 99 EX-27 Nsc Financial Data Schedule 1 7K
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, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-8339
NORFOLK SOUTHERN CORPORATION
-------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 52-1188014
----------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia 23510-2191
----------------------------------- ---------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (757) 629-2680
----------------------
No Change
-------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (X) Yes ( ) No
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the last practicable date:
Class Outstanding as of July 31, 1999
----- ---------------------------------
Common Stock (par value $1.00) 380,477,530 (excluding 21,627,902
shares held by registrant's
consolidated subsidiaries)
PAGE 2
INDEX
-----
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Page
----
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months and Six Months Ended
June 30, 1999 and 1998 3-4
Consolidated Balance Sheets
June 30, 1999, and December 31, 1998 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 6-7
Notes to Consolidated Financial Statements 8-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-26
Part II. Other Information:
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 27
Item 4. Submission of Matters to a Vote of
Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28-29
Signatures 30
Index to Exhibits 31
PAGE 3
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
------ --------------------
[Download Table]
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Railway operating revenues:
Coal $ 298 $ 316 $ 580 $ 639
General merchandise 723 622 1,346 1,227
Intermodal 173 141 298 279
------- ------- ------- -------
TOTAL RAILWAY OPERATING
REVENUES 1,194 1,079 2,224 2,145
------- ------- ------- -------
Railway operating expenses:
Compensation and benefits 413 365 781 761
Materials, services, and rents 287 206 483 396
Conrail rents and services
(Note 3) 51 -- 51 --
Depreciation 117 109 231 216
Diesel fuel 48 45 85 93
Casualties and other claims 29 22 64 52
Other 51 39 94 83
------- ------- ------- -------
TOTAL RAILWAY OPERATING
EXPENSES 996 786 1,789 1,601
------- ------- ------- -------
Income from railway
operations 198 293 435 544
Equity in earnings of Conrail
(Note 3) 22 50 49 82
Other income - net 26 39 48 72
Interest expense on debt (131) (127) (259) (255)
------- ------- ------- -------
Income from continuing
operations before income
taxes 115 255 273 443
Provision for income taxes 38 68 84 124
------- ------- ------- -------
Income from continuing
operations 77 187 189 319
------- ------- ------- -------
Discontinued operations (Note 4):
Loss from motor carrier
operations, net of taxes -- -- -- (1)
Gain on sale of motor carrier,
net of taxes -- -- -- 98
------- ------- ------- -------
Income from discontinued
operations -- -- -- 97
------- ------- ------- -------
NET INCOME $ 77 $ 187 $ 189 $ 416
======= ======= ======= =======
PAGE 4
Item 1. Financial Statements. (continued)
------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (continued)
($ in millions except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Per share amounts (Note 6):
Income from continuing
operations, basic $ 0.20 $ 0.49 $ 0.50 $ 0.84
Income from continuing
operations, diluted 0.20 0.48 0.50 0.83
Net income, basic 0.20 0.49 0.50 1.10
Net income, diluted 0.20 0.48 0.50 1.09
Dividends 0.20 0.20 0.40 0.40
See accompanying notes to consolidated financial statements.
PAGE 5
Item 1. Financial Statements. (continued)
------ --------------------
[Download Table]
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
June 30, December 31,
1999 1998
------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 105 $ 5
Short-term investments 17 58
Accounts receivable, net of allowance
for doubtful accounts of $5 million and
$4 million, respectively 716 519
Materials and supplies 54 59
Deferred income taxes 137 141
Other current assets 158 131
------- -------
Total current assets 1,187 913
Investment in Conrail (Note 3) 6,261 6,210
Properties less accumulated depreciation 10,869 10,477
Other assets 557 580
------- -------
TOTAL ASSETS $18,874 $18,180
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 810 $ 600
Income and other taxes 199 151
Other current liabilities 239 225
Current maturities of long-term debt
(Note 5) 571 141
------- -------
Total current liabilities 1,819 1,117
Long-term debt (Note 5) 7,393 7,483
Other liabilities 1,076 1,065
Minority interests 51 49
Deferred income taxes 2,554 2,545
------- -------
TOTAL LIABILITIES 12,893 12,259
------- -------
Stockholders' equity:
Common stock $1.00 per share par value,
1,350,000,000 shares authorized;
issued 402,059,998 shares and
401,031,994 shares, respectively 402 401
Additional paid-in capital 320 296
Accumulated other comprehensive income
(Note 7) (10) (8)
Retained income 5,289 5,252
Less treasury stock at cost, 21,627,902
shares (20) (20)
------- -------
TOTAL STOCKHOLDERS' EQUITY 5,981 5,921
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $18,874 $18,180
======= =======
See accompanying notes to consolidated financial statements.
PAGE 6
Item 1. Financial Statements. (continued)
------ --------------------
[Download Table]
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
Six Months Ended
June 30,
----------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 189 $ 416
Reconciliation of net income to net cash provided
by continuing operations:
Depreciation 239 222
Deferred income taxes 22 8
Equity in earnings of Conrail (Note 3) (41) (82)
Nonoperating gains and losses on properties
and investments (17) (32)
Income from discontinued operations -- (97)
Changes in assets and liabilities affecting
operations:
Accounts receivable (181) 19
Materials and supplies 7 (3)
Other current assets 23 27
Current liabilities other than debt 211 6
Other - net (26) (30)
------- -------
Net cash provided by continuing operations 426 454
Net cash used for discontinued operations -- (2)
------- -------
Net cash provided by operating activities 426 452
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 5) (536) (472)
Property sales and other transactions 40 31
Investment in Conrail (2) (33)
Investments, including short-term (90) (73)
Investment sales and other transactions 172 72
Proceeds from sale of motor carrier (Note 4) -- 200
------- -------
Net cash used for investing activities (416) (275)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (152) (151)
Common stock issued - net 15 28
Commercial paper proceeds 173 129
Proceeds from long-term borrowings (Note 5) 584 4
Debt repayments (530) (135)
------- -------
Net cash provided by (used for)
financing activities 90 (125)
------- -------
Net increase in cash and cash equivalents 100 52
CASH AND CASH EQUIVALENTS:*
At beginning of year 5 34
------- -------
At end of period $ 105 $ 86
======= =======
PAGE 7
Item 1. Financial Statements. (continued)
------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
($ in millions)
(Unaudited)
Six Months Ended
June 30,
----------------
1999 1998
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 260 $ 258
Income taxes $ 7 $ 67
* Cash equivalents represent all highly liquid investments
purchased three months or less from maturity.
See accompanying notes to consolidated financial statements.
PAGE 8
Item 1. Financial Statements. (continued)
------ --------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the
Corporation's financial position as of June 30, 1999, and results
of operations and cash flows for the six months ended June 30,
1999 and 1998.
Although Management believes that the disclosures presented are
adequate to make the information not misleading, these
consolidated financial statements should be read in conjunction
with: (a) the financial statements and notes included in the
Corporation's latest Annual Report on Form 10-K and in subsequent
Quarterly Report on Form 10-Q, and (b) any Current Reports on
Form 8-K.
2. Commitments and Contingencies
There have been no significant changes since year-end 1998 in the
matters discussed in NOTE 17, COMMITMENTS AND CONTINGENCIES,
appearing in the NS Annual Report on Form 10-K for 1998, Notes to
Consolidated Financial Statements, beginning on page 80.
In July 1999, NS announced that it had made a special incentive
program available to its 30,000 employees who are represented by
labor unions. The program, which runs through early September,
provides an incentive to covered employees who remain available
for service throughout certain defined periods. Employees can
earn a maximum incentive of $3,000, payable, to the extent
possible, in the form of contributions of NS Common Stock to each
employee's 401(k) account. The total cost of the program will
depend upon the extent of employee participation and will be
reflected in NS' results of operations for the third quarter.
3. Investment in Conrail and Operations Over Its Lines
Overview
--------
NS and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail),
whose primary subsidiary is Consolidated Rail Corporation (CRC),
the major railroad in the Northeast. From May 23, 1997, the date
NS and CSX completed their acquisition of Conrail stock, until
June 1, 1999, Conrail's operations continued substantially
unchanged while NS and CSX awaited regulatory approvals and
thereafter devoted significant effort to prepare for the
integration of the respective Conrail routes and assets to be
leased to their railroad subsidiaries, Norfolk Southern Railway
Company (NSR) and CSX Transportation, Inc. (CSXT). From time to
time, NS and CSX, as the indirect owners of Conrail, may need to
fund Conrail's cash requirements through capital contributions,
loans, or advances.
PAGE 9
Item 1. Financial Statements. (continued)
------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
Commencement of Operations
--------------------------
On June 1, 1999 (the "Closing Date"), NSR and CSXT began
operating the Conrail routes and assets leased to them pursuant
to operating and lease agreements entered into in accordance with
the Transaction Agreement between NS and CSX.
The Operating Agreement between NSR and Pennsylvania Lines LLC
(PRR), a wholly owned subsidiary of CRC, governs substantially
all nonequipment assets to be used by NSR and has an initial
25-year term, renewable at the option of NSR for two 5-year
terms. Payments under the Operating Agreement are based on
appraised values that are subject to adjustment every six years
to reflect changes in such values. NSR has also leased or
subleased for varying term lengths from PRR a number of equipment
assets at rentals based on appraised values. NSR's payments to
PRR under the Operating Agreement and lease agreements currently
amount to approximately $340 million annually. In addition, all
costs necessary to operate and maintain the PRR assets will be
borne by NSR. CSXT has entered into comparable arrangements, for
the operation and use of other CRC assets, with another wholly
owned CRC subsidiary.
NSR and CSXT also have entered into agreements with CRC governing
other Conrail properties that continue to be owned and operated
by Conrail (the "Shared Assets Areas"). NSR and CSXT pay CRC
a fee for joint and exclusive access to the Shared Assets Areas.
In addition, NSR and CSXT pay, based on usage, the costs incurred
by CRC to operate the Shared Assets Areas.
As a result of these transactions, effective June 1, 1999, railroad
route miles operated by NSR and railroad employees increased by
approximately 50 percent. NSR and CSXT now provide substantially
all rail freight services on Conrail's route system, perform or
are responsible for performing most services incident to customer
freight contracts, and employ the majority of Conrail's former
work force. Consequently, NSR began to receive all freight
revenue and incur all operating expenses on the Conrail lines it
now operates.
During the month of June, congestion and other inefficiencies
resulting from difficulties in NSR's integration of the new
routes and operations adversely affected second-quarter revenues
and expenses. The higher expenses included service alteration
costs to meet the immediate needs of shippers, as well as higher
labor costs and equipment rents. A long-term failure by NSR to
integrate successfully the portion of Conrail that it is now
operating could have a substantial adverse impact on NS'
financial position, results of operations, and liquidity.
PAGE 10
Item 1. Financial Statements. (continued)
------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
Accounting Treatment
--------------------
NS is applying the equity method of accounting to its investment
in Conrail in accordance with APB No. 18, "The Equity Method of
Accounting for Investments in Common Stock." NS is amortizing
the excess of the purchase price over Conrail's net equity using
the principles of purchase accounting, based primarily on the
estimated remaining useful lives of Conrail's property and
equipment, including the related deferred tax effect of the
differences in tax and accounting bases for certain assets. At
June 30, 1999, the difference between NS' investment in Conrail
and its share of Conrail's underlying net equity was
$4.0 billion, and the related amortization amounted to
$72 million annually.
Conrail's underlying net equity reflects liabilities recognized
by Conrail primarily for separations of nonunion employees and to
satisfy change-in-control obligations.
NS' investment in Conrail includes $187 million ($115 million
after taxes) of costs that will be paid by NS' railroad
subsidiary. These costs consist principally of: (1) contractual
obligations to Conrail employees imposed by the STB when it
approved the transaction and (2) costs to relocate Conrail
employees. Most of these costs are expected to be paid in the
two years following the Closing Date; $60 million are classified
on NS' balance sheet as "Current liabilities." However, certain
contractual obligations by their terms will be paid out over a
longer period and are classified as "Other liabilities" on NS'
balance sheet. Through June 30, 1999, NS has paid $10 million of
these costs.
The liabilities recorded by NS and Conrail are based on estimates
of separation, relocation, and other labor-related contractual
obligations to Conrail employees. These liability estimates,
along with the fair value allocation, may be modified as more
information becomes available. As a consequence, amounts ultimately
included in the allocation could differ from the original estimates;
however, any such differences are not now expected to be material
to NS' financial position, results of operations, or liquidity.
As definitive plans are determined and communicated, costs, if
any, for severing or relocating NS employees and for disposing of
NS facilities will be charged to operating expense.
Effective June 1, 1999, NS' consolidated financial statements
include the consolidated financial position and results of Triple
Crown Services Company (TCS), a partnership in which subsidiaries
of NS and PRR are equal partners. As a result, NS' total assets
increased by approximately $140 million (including $121 million
of properties, mostly RoadRailer (RT) equipment), and NS' total
liabilities increased by approximately $130 million (including
$109 million of long-term debt).
PAGE 11
Item 1. Financial Statements. (continued)
------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
Related Party Transactions
--------------------------
"Conrail rents and services," a new line on the income statements
beginning June 1, 1999, includes: (1) expenses for amounts due
to PRR and CRC for use of operating properties and equipment,
operation of the Shared Assets Areas, and continued operation of
certain facilities during a transition period; and (2) NS' equity
in the earnings (or loss) of Conrail, net of amortization.
"Other current assets" includes $39 million due from CRC for its
vacation liability related to the portion of its work force that
became NS employees on the Closing Date. NS increased its
vacation liability accordingly, and will pay these employees as
they take vacation.
"Accounts payable" includes $43 million due to PRR and CRC
related to expenses included in "Conrail rents and services," as
discussed above.
Until the Closing Date, NSR and CRC had transactions with each
other in the course of handling interline traffic. Most of the
amounts receivable or payable related to these transactions have
been satisfied.
Summary Financial Information - Conrail
---------------------------------------
The following summary financial information for Conrail was
provided by Conrail's management and should be read in
conjunction with Conrail's audited financial statements included
as an exhibit to NS' Annual Report on Form 10-K for 1998 filed
with the Securities and Exchange Commission.
Conrail's operating results were significantly affected by the
integration of its routes and assets with those of NSR and
CSXT, effective June 1, 1999. Conrail's results of operations
include freight line-haul revenues and related expenses
through May 31, 1999, but reflect its new structure and
operations for the month of June. Conrail's major sources of
operating revenues are now from NSR and CSXT. The composition of
Conrail's operating expenses has changed also. Accordingly,
meaningful comparisons to 1998's results are difficult.
PAGE 12
Item 1. Financial Statements. (continued)
------ --------------------
3. Investment in Conrail and Operations Over Its Lines (continued)
[Download Table]
Summarized Consolidated Statements of Income - Conrail
------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
(Unaudited)
Operating revenues $ 737 $ 983 $ 1,653 $ 1,910
Operating expenses 798 777 1,568 1,544
------- ------- ------- -------
Operating income
(loss) (61) 206 85 366
Other-net (23) (20) (45) (43)
------- ------- ------- -------
Income (loss) before
income taxes (84) 186 40 323
Provision for income
taxes (21) 71 27 123
------- ------- ------- -------
Net income (loss) $ (63) $ 115 $ 13 $ 200
======= ======= ======= =======
Note: Conrail's results for the three months and six months ended
June 30, 1999, include $117 million of after-tax expenses,
principally an increase to certain components of its casualty
reserves based on a recently completed actuarial valuation.
These items were considered in the fair-value allocation of NS'
investment in Conrail, and, accordingly, were excluded in
determining NS' equity in Conrail's net income.
[Download Table]
Summarized Consolidated Balance Sheets - Conrail
------------------------------------------------
June 30, December 31,
1999 1998
------- -----------
($ in millions)
(Unaudited)
Assets
Current assets $ 893 $ 1,005
Noncurrent assets 7,788 8,039
-------- --------
Total assets $ 8,681 $ 9,044
======== ========
Liabilities and stockholders'
equity
Current liabilities $ 1,048 $ 1,207
Noncurrent liabilities 3,772 4,037
Stockholders' equity 3,861 3,800
-------- --------
Total liabilities and
stockholders' equity $ 8,681 $ 9,044
======== ========
PAGE 13
Item 1. Financial Statements. (continued)
------ --------------------
4. Discontinued Operations - Motor Carrier
During the first quarter of 1998, NS sold all the common stock of
North American Van Lines, Inc. (NAVL), its motor carrier
subsidiary. Proceeds from the sale in that quarter were
$200 million, resulting in an $83 million pretax gain
($98 million, or $0.26 per share, after taxes). The higher
after-tax gain was the result of differences between book and tax
bases and the realization of deferred tax benefits. In the third
quarter of 1998, as a result of a purchase price adjustment, NS
recorded an additional $7 million ($0.02 per share) after-tax gain.
NAVL's results of operation and cash flows are presented as
"Discontinued operations" in the accompanying 1998 financial
statements. NAVL's operations in the first quarter of 1998
generated revenues of $207 million and a loss of $1 million.
5. Long-Term Debt
Term Notes
----------
In April 1999, NS issued $400 million of 6.2 percent, 10-year
term notes under its November 1998 $1 billion shelf registration
and received $396 million of net proceeds.
Equipment Trust Certificates
----------------------------
NSR issued equipment trust certificates in March and June 1999
and received $188 million of net proceeds. The certificates
mature serially in the years 2000 through 2014, inclusive, and
carry a weighted-average interest rate of 6.6 percent. Proceeds
were used to acquire locomotives and freight cars, and at June
30, 1999, $21 million of the proceeds were included in "Other
assets" and will be used later in the year to acquire additional
equipment.
Capital Lease Obligations
-------------------------
During the first six months of 1998, a rail subsidiary of NS
entered into capital leases covering new locomotives. The
related capital lease obligations, totaling $127 million, were
reflected in the Consolidated Balance Sheet as debt and, because
they were noncash transactions, were excluded from the
Consolidated Statement of Cash Flows.
PAGE 14
Item 1. Financial Statements. (continued)
------ --------------------
6. Earnings Per Share
[Download Table]
The following table sets forth the reconciliation of the number
of weighted-average shares outstanding used in the calculations
of basic and diluted earnings per share:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions)
Weighted-average shares
outstanding 380 379 380 378
Dilutive effect of
outstanding options and
performance share units
(as determined by the
application of the
treasury stock method) 2 3 2 3
---- ---- ---- ----
Diluted weighted-average
shares outstanding 382 382 382 381
==== ==== ==== ====
There are no adjustments to "Net income" or "Income from
continuing operations" for the diluted earnings per share
computations. The calculations above exclude options on 5 million
shares in the first quarter and on 7 million shares in the second
quarter because their exercise price exceeded the average market
price for Common Stock.
7. Comprehensive Income
[Download Table]
NS' total comprehensive income was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
Net income $ 77 $ 187 $ 189 $ 416
Other comprehensive
income (loss) (2) -- (2) 1
----- ----- ----- -----
Total comprehensive
income $ 75 $ 187 $ 187 $ 417
===== ===== ===== =====
"Other comprehensive income" is the unrealized gains and losses
on certain investments in debt and equity securities.
PAGE 15
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations.
-------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
In the following sections, NS provides data for corresponding periods
in 1998 and, in some cases, indicates the percent of variance between
the 1999 and 1998 data. However, NS does caution that all such data
should be considered in light of the substantially different operating
contexts to which they relate.
COMMENCEMENT OF OPERATIONS OVER CONRAIL'S LINES
On June 1, 1999, NS' railroad subsidiary (NSR) began operating a
portion of Conrail's properties (NSR's new "Northern Region") under
various agreements with Pennsylvania Lines LLC (PRR), a wholly owned
subsidiary of Consolidated Rail Corporation (CRC) (see Note 3). As a
result, railroad route miles operated by NSR and railroad employees
increased by approximately 50 percent. Second-quarter results reflect
two months (April and May) of operating the former Norfolk Southern
railroad system and NS' share of Conrail's earnings, and one month (June)
of operating the new Norfolk Southern system, which includes the Northern
Region.
Moreover, during the month of June, system congestion and other
inefficiencies resulted from difficulties in the integration of the
new routes. NSR has made progress in reducing congestion and
continues to work diligently to resolve the operational issues and
clear the backlog of cars causing the congestion. This effort has
required additional labor and equipment resources, and the need for
such additional resources is expected to continue until the congestion
is cleared. In addition, freight has been diverted from NSR, and in
some cases, NSR has incurred service alteration costs to meet the
immediate needs of shippers. The resulting decrease in revenues and
increase in costs negatively affected NS' second-quarter results, and
NS' financial statements will continue to be so affected until the
operational issues have been resolved.
RESULTS OF OPERATIONS
Net Income
----------
Net income for the second quarter of 1999 was $77 million, down
$110 million, or 59 percent, compared with the second quarter of 1998.
For the first six months of 1999, net income was $189 million,
$130 million, or 41 percent below last year's results for continuing
operations. "Discontinued operations" in 1998 included a $98 million
after-tax gain from the sale of NS' motor carrier subsidiary (see
Note 4). The declines in net income from continuing operations were
largely attributable to lower income from railway operations and lower
Conrail earnings, including an estimated $91 million reduction to
operating income attributable to system congestion and related traffic
diversions arising from difficulties encountered in the commencement
of operations over a portion of Conrail's lines.
PAGE 16
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Railway Operating Revenues
--------------------------
[Download Table]
Second-quarter railway operating revenues were $1,194 million in 1999
and were $1,079 million in 1998. For the first six months, railway
operating revenues were $2,224 million in 1999 and were $2,145 million
in 1998. As shown in the table below, the improvements were due
entirely to higher traffic volume, largely the result of the
commencement of operations in the Northern Region. The revenue per
unit variance for both periods included a $13 million favorable effect
that resulted from the consolidation of Triple Crown Services
Company's (TCS) June revenues (see Note 3). Traffic diversions
related to June's operational difficulties resulted in an estimated
$40 million of lost revenues, principally in the general merchandise
commodity groups.
Second Quarter First Six Months
1999 vs. 1998 1999 vs. 1998
Increase (Decrease) Increase (Decrease)
------------------- -------------------
($ in millions)
Traffic volume (carloads) $ 116 $ 80
Revenue per unit (1) (1)
------ ------
$ 115 $ 79
====== ======
[Download Table]
Revenues and carloads for the commodity groups were as follows:
Revenues
-----------------------------------------
Second Quarter Six Months
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
Coal $ 298 $ 316 $ 580 $ 639
General merchandise:
Automotive 187 145 347 283
Chemicals 166 145 314 291
Paper/clay/forest 139 139 267 276
Metals/construction 126 98 220 189
Agr./consumer prod./govt. 105 95 198 188
------ ------ ------ ------
General merchandise 723 622 1,346 1,227
Intermodal 173 141 298 279
------ ------ ------ ------
Total $1,194 $1,079 $2,224 $2,145
====== ====== ====== ======
PAGE 17
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
[Download Table]
Carloads
-----------------------------------------
Second Quarter Six Months
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
Coal 340 327 640 658
General merchandise:
Automotive 156 127 292 243
Chemicals 114 102 213 204
Paper/clay/forest 112 117 215 233
Metals/construction 126 97 217 185
Agr./consumer prod./govt. 96 86 180 175
----- ----- ----- -----
General merchandise 604 529 1,117 1,040
Intermodal 425 375 771 742
----- ----- ----- -----
Total 1,369 1,231 2,528 2,440
===== ===== ===== =====
Coal
----
Second-quarter coal revenues were $298 million, versus $316 million
last year, and were $580 million for the first six months, versus
$639 million last year. Lower export and domestic metallurgical coal
traffic volume more than offset the combined effects of the Northern
Region traffic and increased utility coal tonnage. In addition,
revenue yields continued to be affected by a change in the mix of
traffic: increased utility coal shipments (especially new shorter-
haul business) and decreased export and domestic metallurgical coal
shipments. Total tonnage handled was 35.0 million tons in the second
quarter, versus 33.7 million tons last year, and was 66.3 million tons
for the first six months, versus 67.7 million tons last year. Export
coal tonnage fell 37 percent for the quarter and 35 percent for the
first six months, as the effects of adverse world economic conditions
and a strong U.S. dollar continued. Domestic steel coal tonnage
declined 4 percent in the second quarter and 11 percent for the first
six months, largely reflecting increased imports of lower-priced steel
and plant closures in the second quarter of 1998. Utility coal
tonnage increased 17 percent in the quarter and 10 percent for the
first six months, principally due to the handling of traffic in the
Northern Region.
Coal revenues for the remainder of the year are expected to continue
to be adversely affected by weak demand for export coal. However,
with the addition of traffic in the Northern Region, total coal
revenues are expected to be higher than in the same period last year.
PAGE 18
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
General Merchandise
-------------------
Second-quarter general merchandise revenues were $723 million, versus
$622 million last year, and were $1,346 million for the first six
months, versus $1,227 million last year. Traffic volume increased
14 percent for the quarter and 7 percent for the first six months,
principally due to the addition of traffic in the Northern Region and
to continued strength in automotive traffic. Average revenue per unit
increased 2 percent in both periods, due to a longer average length of
haul and changes in traffic mix.
General merchandise revenues for the remainder of the year are
expected to be up almost 50 percent, versus the same period last year,
largely as a result of traffic in the Northern Region.
Intermodal
----------
Second-quarter intermodal revenues were $173 million, versus
$141 million last year, and were $298 million for the first six
months, versus $279 million last year. Traffic volume increased
13 percent for the quarter and 4 percent for the first six months,
largely due to the addition of Northern Region traffic and to the
consolidation of TCS' June revenues. Average revenue per unit
increased 9 percent in the quarter and 3 percent in the first six
months, due to the effects of consolidating TCS' revenues.
TCS provides door-to-door intermodal service using containers and
RoadRailer (RT) equipment, which can be pulled over the highways in
tractor-trailer configuration and over the rails by locomotives. TCS
is a partnership in which subsidiaries of NS and PRR are equal
partners. Prior to June 1, 1999, NS' revenues included only the
amounts for rail services it performed under contract for TCS.
For the remainder of the year, intermodal revenues are expected nearly
to double, versus the same period last year, reflecting the traffic in
the Northern Region and the consolidation of TCS' revenues.
Railway Operating Expenses
--------------------------
Second-quarter railway operating expenses were $996 million, up
$210 million, or 27 percent, compared with last year. For the first
six months, railway operating expenses were $1,789 million, up
$188 million, or 12 percent. Both increases were due to the
commencement of operations in the Northern Region and to an estimated
$60 million of additional costs arising from the operational
difficulties and resulting congestion.
"Materials, services, and rents" increased $81 million, or 39 percent,
in the second quarter, and $87 million, or 22 percent, for the first
six months, compared with the same periods last year. The increases
resulted from additional costs due to the system congestion, including
PAGE 19
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
an estimated $29 million for alternate transportation to meet critical
customer needs and an estimated $8 million for equipment rents;
expenses related to the Northern Region; and the effect of the
consolidation of TCS.
"Conrail rents and services," a new category of expense, amounted to
$51 million and represented costs incurred in June associated with the
operation of a portion of Conrail's routes and assets. This item
includes amounts due to PRR and CRC related to: (1) use of their
operating properties and equipment, (2) CRC's operation of the Shared
Assets Areas, and (3) CRC's operation of certain transition
facilities. Also included is NS' equity in Conrail's net loss in
June, plus additional amortization related to the difference between
NS' investment in Conrail and its underlying equity.
"Compensation and benefits" expense increased $48 million, or
13 percent, in the second quarter, and $20 million, or 3 percent, for
the first six months, compared with the same periods last year. Both
increases were attributable to the 50 percent increase in NS' work
force in June, upon commencement of operations in the Northern Region,
and to an estimated $15 million of higher labor costs associated with
the operational difficulties and system congestion. The effects of
these increases were mitigated by reduced incentive compensation
expenses.
"Other" expenses increased $12 million, or 31 percent, in the second
quarter, and $11 million, or 13 percent, for the first six months,
compared with the same periods last year. The increases reflect
favorable property tax adjustments last year for which there was no
comparable adjustment in 1999 as well as higher travel costs this
year associated with the integration of the Northern Region.
"Casualties and other claims" increased $7 million, or 32 percent, in
the second quarter, and $12 million, or 23 percent, for the first six
months, compared with the same periods last year. The increases were
largely attributable to: (1) the commencement of operations in the
Northern Region and the resulting congestion, (2) settlement in the
first quarter related to an environmental site in Slidell, La., and
(3) damages to automobiles being transported in a train that derailed
in the first quarter.
"Diesel fuel" expense increased $3 million, or 7 percent, in the
second quarter, but decreased $8 million, or 9 percent, for the first
six months, compared with the same periods last year. The increase
for the quarter was due to higher consumption in June attributable to
operations in the Northern Region, which more than offset lower
consumption in April and May that resulted from lower traffic volume.
The decrease for the first six months was due to a 23 percent decline
in the average price per gallon in the first quarter that more than
offset the increased consumption in the second quarter.
PAGE 20
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
The railway operating ratio was 83.4 percent in the second quarter,
versus 72.8 percent last year, and was 80.4 percent for the first six
months, versus 74.6 percent last year. The operating difficulties and
related system congestion and traffic diversions are estimated to have
increased the railway operating ratio by about 7 percentage points and
3-1/2 percentage points for the quarter and first six months,
respectively. The remaining increases in the railway operating ratio
were principally attributable to the change in traffic mix related to
increased resource-intensive traffic, such as automotive and
intermodal, and decreased coal traffic.
The railway operating ratio is expected to continue to show the
adverse effects of the system congestion and related traffic
diversions until the operating difficulties are fully resolved.
Moreover, NS' third-quarter railway operating expenses will include
amounts related to a special incentive program for its agreement
employees (see Note 2).
Equity in Earnings of Conrail
-----------------------------
As discussed above, beginning in June, NS' equity in Conrail's
earnings or loss and the related amortization is included in "Conrail
rents and services," a component of railway operating expenses.
"Equity in earnings of Conrail" includes amounts recorded through May
1999. Due to this change in reporting coupled with lower Conrail
earnings, "Equity in earnings of Conrail" decreased significantly in
the second quarter and first six months of 1999 (see "Conrail's
Results of Operations, Financial Condition, and Liquidity," below).
Other Income - Net
------------------
"Other income - net" was $13 million lower in the second quarter and
was $24 million lower for the first six months, compared with the same
periods last year. The second-quarter decrease was largely
attributable to the effect of favorable adjustments last year to
interest accruals on possible federal income tax liabilities resulting
from the settlement of the 1993 and 1994 tax-year audits. The
unfavorable six-month comparison was due to lower gains from the sale
of properties and investments as well as to the effect of the
favorable adjustments last year.
Provision for Income Taxes
--------------------------
The effective income tax rate was 33.0 percent in the second quarter,
compared with 26.7 percent last year, and was 30.8 percent for the
first six months, compared with 28.0 percent last year. Excluding NS'
equity in Conrail's after-tax earnings, the effective rates for 1999
were 37.6 percent for the second quarter and 36.2 percent for the
first six months, compared with 33.2 percent for the second quarter of
1998 and 34.3 percent for the first six months. The higher effective
rates for both periods of 1999 resulted from the effects of favorable
adjustments to income tax expenses in 1998 upon settlement of the 1993
and 1994 federal income tax audits.
PAGE 21
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Discontinued Operations
-----------------------
"Income from discontinued operations" for the first six months of
1998 included a $98 million gain from the sale of NS' motor carrier
subsidiary (see Note 4).
[Download Table]
FINANCIAL CONDITION AND LIQUIDITY
June 30, December 31,
1999 1998
------- -----------
($ in millions)
Cash and short-term investments $ 122 $ 63
Working capital deficit $ 632 $ 204
Current assets to current liabilities 0.7 0.8
Debt-to-total capitalization 57.1% 56.3%
CASH PROVIDED BY OPERATING ACTIVITIES is NS' principal source of
liquidity (see Consolidated Statements of Cash Flows on page 6). The
decrease in "Net cash provided by operating activities" in the first
six months of 1999, compared with the same period last year, was
principally due to lower income from railway operations, mitigated by
lower income tax payments. The large changes in "Accounts receivable"
and "Current liabilities other than debt" in this year's cash flow
statement principally resulted from the June 1 commencement of
operations in the Northern Region. NS' working capital deficit of
$632 million at June 30, 1999, included $400 million of notes due
May 1, 2000. NS has the capability to issue commercial paper to meet
its more immediate working capital needs (see the discussion of financing
activities, below). In addition, NS has $600 million of capacity
remaining under its November 1998 $1 billion shelf registration.
CASH USED FOR INVESTING ACTIVITIES increased substantially for the
first six months of 1999, compared with the same period last year that
included $200 million of proceeds from the sale of a subsidiary
(see Note 4). Capital expenditures were 7 percent lower in the
current year; however, "Property additions" increased, reflecting a
change in financing methods: in 1998, locomotives were acquired under
capital leases, which were excluded from the Consolidated Statements
of Cash Flows because they were noncash transactions; in 1999,
locomotives and freight cars were financed through the sale of
equipment trust certificates (see Note 5).
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES in the first six
months of 1999 included proceeds from the sale of 10-year notes and
equipment trust certificates (see Note 5). "Debt repayments" in 1999
includes $499 million of reductions in outstanding commercial paper.
NS expects to issue commercial paper as working capital needs arise
and to repay such commercial paper as resources become available or by
issuing additional commercial paper. In addition, PRR could advance
funds to NS.
PAGE 22
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
CONRAIL'S RESULTS OF OPERATIONS, FINANCIAL CONDITION, AND LIQUIDITY
As discussed above and in Note 3, effective June 1, 1999, NSR and CSXT
began operating most of Conrail's routes and assets in accordance with
operating and lease agreements with Conrail subsidiaries.
Accordingly, direct comparisons with 1998's results are difficult.
Conrail recorded a second-quarter net loss of $63 million, versus net
income of $115 million last year. For the first six months, net
income was $13 million in 1999, versus $200 million in 1998. Results
in 1999 included $117 million of after-tax expenses, principally based
on a recently completed actuarial valuation of certain components of
its casualty reserves. Excluding the effects of these expenses,
Conrail's net income would have been down $61 million in the quarter
and $70 million for the first six months, principally due to costs
related to the wind-down of certain functions and lower income from
railway operations during the first five months of 1999.
Operating revenues were $737 million in the second quarter and
$1,653 million for the first six months, versus $983 million and
$1,910 million, respectively, for the same periods last year,
reflecting the change in operations. Operating expenses (excluding
the expenses discussed above) declined $149 million in the second
quarter and $146 million for the first six months, reflecting the
change in operations, mitigated by the effects of transition-related
expenses. It is expected that Conrail's operations for the remainder
of the year will generate a net loss, principally due to expenses
related to: (1) the integration of its railroad system with those of
NSR and CSXT, and (2) wind-down of numerous functions that will not be
required to support NSR's and CSXT's operations after a transition
period. The net loss is not expected to affect Conrail's ability to
operate its ongoing business activities for the benefit of NS and CSX
or its ability to meet its other obligations.
Conrail's working capital deficit was $155 million at June 30, 1999,
versus a deficit of $202 million at Dec. 31, 1998. In addition to cash
flow from operations, the improvement in working capital resulted in
part from the reclassification of certain employee obligations,
partially offset by the reclassification of $250 million of long-term
debt to current liabilities, reflecting the maturity of the debt in
June 2000. Conrail should continue to have sufficient cash flow to
meet its ongoing obligations, notwithstanding the change in the nature
of its operations.
YEAR-2000 COMPLIANCE
General
-------
In October 1995, NS initiated a project to review and modify, as
necessary, its computer applications, hardware, and other equipment to
make them Year-2000 compliant. NS has engaged outside consultants and
independent contractors to assist with its Year-2000 project. The
PAGE 23
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
progress of the project is reviewed regularly by NS' senior management
and by the Board's Audit Committee. The project is organized into
three principal areas: mainframe systems, nonmainframe systems, and
enterprise systems (operations and embedded processors), and for each
such system involves: inventory, assessment, remediation, testing,
and implementation. NS expects to have all business-critical systems
remediated, tested, and implemented in the third quarter of 1999.
State of Readiness
------------------
The inventory and assessment phases have been completed. The
remediation phase is over 99 percent complete, and the testing and
implementation phases are about 65 percent complete. The remaining
items to be addressed are principally purchased software products and
system integration testing.
For mainframe systems, all noncompliant business-critical applications
have been remediated, unit tested, and placed back into production
(implemented). System integration testing is expected to be completed
in the third quarter of 1999.
For nonmainframe and enterprise systems, all business-critical
applications have been inventoried and assessed, and remediation is
over 99 percent complete. For both types of systems, testing and
implementation are expected to be completed in the third quarter.
NS also has initiated formal communications with third parties having
a substantial relationship to its business (including other railroads,
significant suppliers, larger customers, and financial institutions)
to determine the extent to which NS may be vulnerable to any such
third parties' failure to achieve Year-2000 compliance. Thus far, NS
has no information that indicates a significant third party may be
unable to provide goods or services or to request NS' services because
of Year-2000 compliance issues. NS will continue to monitor the
progress of such third parties' Year-2000 compliance efforts and
develop contingency plans as warranted.
Cost
----
NS has allocated existing information technology resources and has
incurred incremental costs, mostly for contract programmers and
consultants, in connection with its Year-2000 compliance project.
Since the project began, Management estimates that up to 10 percent of
NS' in-house programming resources have been used for Year-2000
compliance efforts. The effects of deferring other information
technology projects to accommodate the Year-2000 effort have been
minor. Incremental costs incurred through June 30, 1999, which were
expensed, are immaterial to NS' results of operations. Total
incremental costs are expected to be approximately $25 million.
PAGE 24
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Contingency Plans
-----------------
In all areas, the project includes extensive testing to ensure that
remediation successfully addresses Year-2000 compliance. NS has
established a series of initiatives to focus on business-critical
systems to ensure continued operations in the event of a Year-2000
problem. In addition, contingency plans are being developed where
warranted.
Conrail
-------
NS is implementing its own information technology systems on the
portion of Conrail's routes and assets it is operating. While some
systems are operational, others -- particularly the transportation
systems -- will be integrated geographically during the remainder of
1999. Accordingly, some of Conrail's systems have been modified to be
compatible with NS' systems during the interim period. Moreover, in
the Shared Assets Areas, some of Conrail's existing systems still are
being used, and, therefore, must be compatible with both NS' and CSX's
systems. NS is continuing to work with Conrail and CSX to address
compatibility issues.
NS also is working with Conrail and CSX to ensure that certain Conrail
computer applications, hardware, and other equipment are Year-2000
compliant. Conrail's core transportation system is being made
Year-2000 compliant, with a projected completion date for all
programming and testing of September 1999. Conrail's other
information technology systems are expected to be replaced by NS and
CSX systems by Dec. 1, 1999. A delay in replacing these systems,
which are not Year-2000 compliant, could result in their failure.
Conrail also has under way a project to inventory, assess, and
remediate all of its business-critical enterprise systems that will
continue to support its post Closing Date operations. This Conrail
project is scheduled for completion in the third quarter of 1999.
Risks
-----
Failure to achieve Year-2000 compliance -- by NS, other railroads, its
principal suppliers and customers, and certain financial institutions
with which it has relationships -- could negatively affect NS' ability
to conduct business for an extended period. Management believes that
NS will be successful in its Year-2000 compliance effort; however,
there can be no assurance that all NS information technology systems
and components will be fully Year-2000 compliant. In addition, other
companies on which NS systems and operations rely may or may not be
fully compliant on a timely basis, and any such failure could have
a material adverse effect on NS' financial position, results of
operations, or liquidity.
PAGE 25
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133." Because of this
deferral, NS expects to adopt SFAS No. 133 effective Jan. 1, 2001.
LITIGATION
The Corporation and certain subsidiaries are defendants in numerous
lawsuits relating principally to railroad operations.
On Sept. 8, 1997, a state court jury in New Orleans returned a verdict
awarding $175 million in punitive damages against The Alabama Great
Southern Railroad Company (AGS), a subsidiary of Norfolk Southern
Railway Company, all of the common stock of which is owned by NS.
The verdict was returned in a class action suit involving some 8,000
individuals who claim to have been damaged as the result of an
explosion and fire that occurred in New Orleans on Sept. 9, 1987, when
a chemical called butadiene leaked from a tankcar.
The jury verdict awarded a total of nearly $3.2 billion in punitive
damages against four other defendants in the same case: two rail
carriers, the owner of the car, and the shipper. Previously, the jury
had awarded nearly $2 million in compensatory damages to 20 of the
more than 8,000 individual plaintiffs.
On May 21, 1999, AGS and four of the nine defendants reached an
agreement to settle this litigation. The four remaining defendants
are not parties to the settlement agreement, and the litigation will
continue against those defendants. Because it involves a class
action, the settlement is subject to final approval by the trial
court, and to possible appeals.
While the final outcome of this matter and other lawsuits cannot be
predicted with certainty, it is the opinion of Management, based on
known facts and circumstances, that the amount of NS' ultimate
liability is unlikely to have a material adverse effect on NS'
financial position, results of operations, or liquidity.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, within the
meaning of the Private Securities Reform Act of 1995, that are based
on current expectations, estimates, and projections. Such forward-
looking statements reflect Management's good-faith evaluation of
information currently available. However, because such statements are
based upon, and therefore can be influenced by, a number of external
variables over which Management has no, or incomplete, control, they
PAGE 26
Item 2. Management's Discussion and Analysis of Financial Condition
------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
are not, and should not be read as being, guarantees of future
performance or of actual future results; nor will they necessarily
prove to be accurate indications of the times at or by which any such
performance or result will be achieved. Accordingly, actual outcomes
and results may differ materially from those expressed in such forward-
looking statements. This caveat has particular importance in the
context of all such statements that relate to Year-2000 compliance and
to the Conrail transaction, including the realization and the timing
of benefits expected to result from its consummation.
The forward-looking statements contained in this filing speak only as
of the date on which they are made, and the Corporation does not
undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date hereof. If the
Corporation does update one or more forward-looking statements, no
inference should be drawn that the Corporation will make additional
updates with respect thereto or with respect to other forward-looking
statements.
PAGE 27
PART II. OTHER INFORMATION
----------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
------ ----------------------------------------------------------
There has been no material change to the disclosures made under
the heading "Market Risks and Hedging Activities" on page 47 of the
Corporation's 1998 Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
------ ---------------------------------------------------
Registrant's annual meeting of stockholders was held on May 13,
1999, at which meeting three directors were elected to the class for a
term of three years, the appointment of independent public accountants
was ratified, and the stockholder proposal was defeated.
The three nominees for directors were elected by the following
vote:
THREE-YEAR TERM
------------------------------------------------------------------
FOR AUTHORITY WITHHELD
--- ------------------
Gerald L. Baliles 319,342,135 votes 9,088,730 votes
Gene R. Carter 323,820,777 votes 4,610,088 votes
Steven F. Leer 321,118,087 votes 7,312,778 votes
The appointment of KPMG LLP, independent public accountants, was
ratified by the following vote:
FOR: 325,950,419 shares AGAINST: 1,228,778 shares
ABSTAINED: 1,251,668 shares
The stockholder proposal concerning elimination of bonuses and
other forms of incentive pay as a means of compensating any employee
of the Corporation was defeated by the following vote:
FOR: 18,647,863 shares AGAINST: 266,763,100 shares
ABSTAINED: 5,848,211 shares
PAGE 28
Item 6. Exhibits and Reports on Form 8-K.
------ --------------------------------
(a) Exhibits:
10.1 Amendment No. 1, dated as of August 22, 1998, to the
Transaction Agreement, dated as of June 10, 1997, by
and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway
Company, Conrail Inc., Consolidated Rail Corporation,
and CRR Holdings LLC, that agreement's having been
filed electronically as Exhibit 10 to Registrant's
Current Report on Form 8-K, dated June 23, 1997.
10.2 Amendment No. 2, dated as of June 1, 1999, to the
Transaction Agreement, dated June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway
Company, Conrail Inc., Consolidated Rail Corporation,
and CRR Holdings LLC, that agreement's having been
filed electronically as Exhibit 10 to Registrant's
Current Report on Form 8-K, dated June 23, 1997.
10.3 Operating Agreement, dated as of June 1, 1999, by and
between Pennsylvania Lines LLC and Norfolk Southern
Railway Company.
10.4 Shared Assets Area Operating Agreement for North
Jersey, dated as of June 1, 1999, by and among
Consolidated Rail Corporation, CSX Transportation,
Inc., and Norfolk Southern Railway Company, with
exhibit thereto.
10.5 Shared Assets Area Operating Agreement for South
Jersey/Philadelphia, dated as of June 1, 1999, by and
among Consolidated Rail Corporation, CSX Transportation,
Inc., and Norfolk Southern Railway Company, with exhibit
thereto.
10.6 Shared Assets Area Operating Agreement for Detroit,
dated as of June 1, 1999, by and among Consolidated
Rail Corporation, CSX Transportation, Inc., and
Norfolk Southern Railway Company, with exhibit thereto.
10.7 Monongahela Usage Agreement, dated as of June 1, 1999,
by and among CSX Transportation, Inc., Norfolk Southern
Railway Company, Pennsylvania Lines LLC, and New York
Central Lines LLC, with exhibit thereto.
27 Financial Data Schedule
PAGE 29
Item 6. Exhibits and Reports on Form 8-K. (continued)
------ --------------------------------
(b) Reports on Form 8-K:
A report on Form 8-K was filed on April 26, 1999, reporting
that on that date, NS would close the sale of a $400 million
offering of 6.20 percent Senior Notes due April 15, 2009.
A report on Form 8-K was filed on April 30, 1999, reporting
that NS had issued and sold $400 million aggregate principal
amount of its 6.20 percent Senior Notes due April 15, 2009.
PAGE 30
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 11, 1999 /s/ Dezora M. Martin
------------------- -----------------------------------------
Dezora M. Martin
Corporate Secretary (Signature)
Date: August 11, 1999 /s/ John P. Rathbone
------------------- -----------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
PAGE 31
INDEX TO EXHIBITS
-----------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Electronic
Submission
Exhibit
Number Description
---------- -------------------------------------------------
10.1 Amendment No. 1, dated as of August 22, 1998, to the
Transaction Agreement, dated as of June 10, 1997.
10.2 Amendment No. 2, dated as of June 1, 1999, to the
Transaction Agreement, dated June 10, 1997.
10.3 Operating Agreement, dated as of June 1, 1999.
10.4 Shared Assets Area Operating Agreement for North Jersey,
dated as of June 1, 1999.
10.5 Shared Assets Area Operating Agreement for South
Jersey/Philadelphia, dated as of June 1, 1999.
10.6 Shared Assets Area Operating Agreement for Detroit,
dated as of June 1, 1999.
10.7 Monongahela Usage Agreement, dated as of June 1, 1999.
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.)
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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