<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file numbers 1-743; 1-3744; 1-4793; 1-546-2
NORFOLK SOUTHERN RAILWAY COMPANY
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 53-6002016
- ----------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia 23510-2191
- ----------------------------------- ---------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (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 April 30, 2000
----- --------------------------------
Common Stock (par value $1.00) 16,668,997
Page 2
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)
INDEX
-----
Page
----
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets as of
March 31, 2000, and December 31, 1999 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Part II. Other Information:
Item 3. Quantitative and Qualitative Disclosures
About Market Risks 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index to Exhibits 20
Page 3
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
- ------ --------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Income
($ in millions)
(Unaudited)
Three Months Ended
March 31,
--------------------
2000 1999
---- ----
Railway operating revenues:
Coal $ 343 $ 282
General merchandise 910 623
Intermodal 206 125
------ ------
TOTAL RAILWAY OPERATING REVENUES 1,459 1,030
Railway operating expenses:
Compensation and benefits (Note 3) 651 368
Materials, services and rents 331 197
Conrail rents and services (Note 4) 131 --
Depreciation 121 113
Diesel fuel 115 37
Casualties and other claims 32 35
Other 84 58
------ ------
TOTAL RAILWAY OPERATING EXPENSES 1,465 808
------ ------
Income (loss) from railway operations (6) 222
Other income - net (33) 15
Interest expense on debt (10) (7)
------ ------
Income (loss) before income taxes (49) 230
Provision (benefit) for income taxes (19) 84
------ ------
NET INCOME (LOSS) $ (30) $ 146
====== ======
See accompanying notes to Consolidated Financial Statements.
Page 4
Item 1. Financial Statements. (continued)
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NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Balance Sheets
($ in millions)
(Unaudited)
March 31, December 31,
2000 1999
-------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 34 $ --
Short-term investments 12 12
Accounts receivable, net of allowance for
doubtful accounts of $6 million and
$5 million, respectively 786 681
Due from Conrail (Note 4) 10 77
Materials and supplies 117 98
Deferred income taxes 138 124
Other current assets 133 144
------- -------
Total current assets 1,230 1,136
------- -------
Investments (Note 6) 495 624
Properties less accumulated depreciation 10,401 10,390
Other assets 424 482
------- -------
TOTAL ASSETS $12,550 $12,632
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 846 $ 787
Income and other taxes 145 132
Due to NS - net (Note 4) 474 483
Notes and accounts payable to Conrail (Note 4) 216 184
Other current liabilities 155 152
Current maturities of long-term debt 85 85
------- -------
Total current liabilities 1,921 1,823
------- -------
Long-term debt 765 781
Other liabilities 1,052 1,044
Minority interests 3 3
Deferred income taxes 3,539 3,596
------- -------
TOTAL LIABILITIES 7,280 7,247
------- -------
(continued)
Page 5
Item 1. Financial Statements. (continued)
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NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Balance Sheets (continued)
($ in millions)
(Unaudited)
March 31, December 31,
2000 1999
-------- -----------
Stockholders' equity:
Serial preferred stock 55 55
Common stock 167 167
Additional paid-in capital 673 673
Accumulated other comprehensive income
(Note 6) 174 259
Retained income 4,201 4,231
------- -------
TOTAL STOCKHOLDERS' EQUITY 5,270 5,385
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $12,550 $12,632
======= =======
See accompanying notes to Consolidated Financial Statements.
Page 6
Item 1. Financial Statements. (continued)
- ------ --------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (30) $ 146
Reconciliation of net income to net cash provided
by operating activities:
Depreciation 121 114
Deferred income taxes (28) 19
Nonoperating gains on property sales (3) (5)
Changes in assets and liabilities affecting
operations:
Accounts receivable (105) (48)
Materials and supplies (19) 4
Other current assets and due from Conrail 88 (2)
Income tax liabilities 10 69
Other short-term liabilities 105 (39)
Other - net (Note 3) 49 6
-------- --------
Net cash provided by operating
activities 188 264
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (168) (263)
Property sales and other transactions 30 9
Investments, including short-term (20) (44)
Investment sales and other transactions 32 31
-------- --------
Net cash used for investing activities (126) (267)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (Note 4) (1) (1)
Advances and repayments to NS (37) (17)
Advances and repayments from NS 28 22
Proceeds from borrowings 68 94
Debt repayments (86) (15)
-------- --------
Net cash provided by (used for)
financing activities (28) 83
-------- --------
Net increase in cash and cash
equivalents 34 80
CASH AND CASH EQUIVALENTS:*
At beginning of year -- --
-------- --------
At end of period $ 34 $ 80
======== ========
(continued)
Page 7
Item 1. Financial Statements. (continued)
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NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Cash Flows (continued)
($ in millions)
(Unaudited)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 52 $ 16
Income taxes $ (1) $ (4)
* 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 RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Notes to Consolidated Financial Statements
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's
financial position as of March 31, 2000, and results of
operations and cash flows for the three months ended March 31,
2000 and 1999.
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
Company's latest Annual Report on Form 10-K, and (b) any Current
Reports on Form 8-K.
2. Commitments and Contingencies
There have been no significant changes since year-end 1999 in the
matters as discussed in NOTE 15, COMMITMENTS AND CONTINGENCIES,
appearing in the NS Rail Annual Report on Form 10-K for 1999,
Notes to Consolidated Financial Statements, beginning on page 62.
3. Workforce Reduction Charge
"Compensation and benefits" expenses include a $101 million
workforce reduction charge which lowered net income by
$62 million. Most of the charge resulted from a voluntary
early retirement program, which was accepted by 919 of 1,180
eligible employees. The retirements were effective March 1,
2000, and most of the related benefits will be paid from the
overfunded pension plan. As a result, there was a noncash
reduction to NS Rail's pension plan asset. Reductions in union
personnel were achieved primarily through furloughs, and some
of these employees are entitled to postemployment benefits.
The charge includes an accrual for these amounts for the period
until these employees return to work as a result of normal
attrition.
4. Related Parties
General
-------
NS is the parent holding company of NS Rail. The costs of
functions performed by NS are charged to NS Rail, and NS charges
NS Rail a revenue-based licensing fee for use of certain
intangible assets owned by NS. Rail operations are coordinated
at the holding company level by the NS Vice Chairman and Chief
Operating Officer.
NS Rail owns 21,627,902 shares of NS common stock.
Page 9
Item 1. Financial Statements. (continued)
- ------ --------------------
4. Related Parties (continued)
Operations Over Conrail's Lines
-------------------------------
Overview -- NS and CSX Corporation (CSX) jointly own Conrail
Inc. (Conrail), whose primary subsidiary is Consolidated Rail
Corporation (CRC). 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 prepared 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).
Commencement of Operations -- On June 1, 1999 (the "Closing
Date"), NSR began operating the routes and assets of
Pennsylvania Lines LLC (PRR), a wholly owned subsidiary of CRC,
under various leasing and operating arrangements. Costs
necessary to operate and maintain the PRR assets, including
leasehold improvements, are borne by NSR. CSXT operates the
routes and assets of another CRC subsidiary under comparable
terms. Certain other Conrail routes and assets (the "Shared
Assets Areas") continue to be operated by CRC for the joint and
exclusive benefit of NSR and CSXT. In addition to a fee paid
for the joint and exclusive access, NSR and CSXT pay, based on
usage, the costs incurred by CRC to operate the Shared Assets
Areas.
NSR and CSXT now provide substantially all rail freight
services on Conrail's route system, are responsible for
performing most services incident to customer rail
transportation contracts, and employ the majority of Conrail's
former workforce. As a result, on the Closing Date, both
NS Rail's route miles and its employees increased by
approximately 50 percent.
NS Rail accrued in the second quarter of 1999 $168 million
($103 million after taxes) for contractual obligations,
principally to former Conrail employees. Most of these costs are
expected to be paid in the two years following the Closing Date,
and $42 million of such is classified on NS Rail's 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 Rail's balance
sheet. Through March 31, 2000, NS Rail has paid $28 million of
these costs. In addition, NS Rail has incurred $10 million and
expects to incur an additional $9 million of costs for
relocations of former Conrail employees.
Page 10
Item 1. Financial Statements. (continued)
- ------ --------------------
4. Related Parties (continued)
NS Rail provides certain general and administrative support
functions to Conrail, the fees for which are billed in
accordance with several service-provider arrangements.
"Conrail rents and services," a line added to the income
statements beginning June 1, 1999, includes expenses for
amounts due to PRR and CRC for use by NSR of operating
properties and equipment, operation of the Shared Assets Areas,
and continued operation of certain facilities during a
transition period.
"Notes and accounts payable to Conrail" includes $120 million
of interest-bearing loans made to NS Rail by a PRR subsidiary,
payable on demand. The interest rate for these loans is
variable and was 6.3% at March 31, 2000. Also included is
$96 million due to PRR and CRC related to expenses included in
"Conrail rents and services," as discussed above.
Noncash Dividend
-----------------
In March 1999, NS Rail declared and issued to NS a noncash
dividend of $200 million, which was settled by reduction of
NS Rail's interest-bearing advances due from NS. Noncash
dividends are excluded from the Consolidated Statements of Cash
Flows.
Sales of Accounts Receivable
---------------------------
Since Dec. 1, 1999, NS Rail has sold certain of its rail accounts
receivable to NS. These sales are accounted for as secured
borrowings, and the liability is included in "Due to NS - net" in
the Consolidated Balance Sheet. As of March 31, 2000, and
Dec. 31, 1999, "Accounts receivable" included $485 million and
$388 million, respectively, of such sold receivables.
NS Rail services the receivables on behalf of NS for a fee that
approximates the costs of servicing. The fee is reflected in the
discount applied to receivables sold. The discount is included
in "Other income - net" in the Consolidated Statement of Income.
On May 1, 2000, NS sold receivables it had purchased from
NS Rail, and NS Rail sold certain additional accounts receivable
for combined proceeds totaling $460 million. Subsequent sales
will occur as receivables are generated, and NS Rail will service
the accounts on behalf of the purchasers.
Page 11
Item 1. Financial Statements. (continued)
- ------ --------------------
4. Related Parties (continued)
Intercompany Accounts
---------------------
March 31, 2000 December 31, 1999
------------------ ------------------
Average Average
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
($ in millions)
Due from NS:
Advances $ 69 4% $ 75 4%
Due to NS:
Advances (196) 5% (234) 5%
Notes (347) 7% (324) 7%
------ ------
Due to NS - net $ (474) $ (483)
====== ======
Interest is applied to certain advances at the average NS yield
on short-term investments and to the notes at specified rates.
Intercompany Federal Income Tax Accounts
----------------------------------------
In accordance with the NS Tax Allocation Agreement, intercompany
federal income tax accounts are recorded between companies in the
NS consolidated group. At March 31, 2000, and Dec. 31, 1999,
NS Rail had long-term intercompany federal income tax payables
(which are included in "Deferred income taxes" in the
Consolidated Balance Sheets) of $815 million and $809 million,
respectively.
Cash Required for NS Debt
-------------------------
A significant portion of the funding for the interest and
repayments on NS' debt is expected to be provided by NS Rail.
5. Lease Commitment
In March 2000, NS Rail entered into a lease for 79 locomotives,
and committed to lease an additional 61 locomotives to be
delivered in the second quarter. The lease has a maximum term of
eight years and includes purchase options. If NS Rail does not
purchase the locomotives at the end of the lease term, it is
liable for the difference between the then fair-value of the
locomotives and a specified residual value. NS Rail does not
expect that any payments under this provision would be material
to its financial statements.
Page 12
Item 1. Financial Statements. (continued)
- ------ --------------------
6. Comprehensive Income (Loss)
NS Rail's total comprehensive income (loss) was as follows:
Three Months Ended
March 31,
------------------
2000 1999
---- ----
($ in millions)
Net income (loss) $ (30) $ 146
Other comprehensive loss (84) (76)
------ ------
Total comprehensive income (loss) $ (114) $ 70
====== ======
For NS Rail, "Other comprehensive income (loss)" is the
unrealized gains and losses on certain investments in debt and
equity securities, principally NS common stock.
Page 13
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations.
-------------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
OPERATIONS OVER CONRAIL'S LINES
On June 1, 1999 (the "Closing Date"), NS Rail began operating a
substantial portion of Conrail's properties (NS Rail's new "Northern
Region") under various agreements with Pennsylvania Lines LLC (PRR),
a wholly owned subsidiary of Consolidated Rail Corporation (CRC)
(see Note 4). As a result, both railroad route miles operated by
NS Rail and the number of its employees increased approximately
50 percent on that date. Results for the first quarter of 1999
reflect the operation of the former NS Rail system, which did not
include the Northern Region.
Difficulties encountered in the assimilation of the Northern Region
into NS Rail's existing system resulted in system congestion, an
increase in cars on line, increased terminal dwell time and reduced
system velocity. These service issues and the actions taken to
address them increased operating expenses. Moreover, revenues were
lower than expected as some customers diverted traffic to other
modes of transportation. Although system fluidity has improved,
income from railway operations is expected to continue to be
adversely affected until these revenue and expense issues have been
resolved fully.
RESULTS OF OPERATIONS
Net Income
- ----------
First-quarter 2000 results were a net loss of $30 million, compared
with net income of $146 million in the first quarter of 1999. The
loss reflected a $62 million after-tax charge for pension expense
associated with an early retirement program and protective benefits
related to other actions taken to reduce the workforce (see Note 3).
Excluding the effects of the workforce reduction charge, net income
would have been $32 million, down $114 million, or 78 percent,
compared with last year. The decline was principally due to reduced
income from railway operations that resulted from higher diesel fuel
costs, expenses related to efforts to improve service (primarily
locomotive and freight car costs) and a lower proportion of export
coal traffic. Lower nonoperating income, reflecting the discount
charged by NS in its purchase of certain NS Rail receivables (see
Note 4), also contributed to the decline in net income.
Railway Operating Revenues
- --------------------------
First-quarter railway operating revenues were $1,459 million in
2000, and were $1,030 million in 1999. As shown in the following
table, the increase was attributable to higher traffic volume,
largely the result of the commencement of operations in the Northern
Page 14
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Region. The revenue per unit/mix component includes a $53 million
negative variance for coal, reflecting an increase in the proportion of
shorter-haul traffic, coupled with a decline in the proportion of export
coal traffic.
First Quarter
2000 vs. 1999
Increase (Decrease)
------------------
($ in millions)
Traffic volume (carloads) $ 462
Revenue per unit/mix (33)
------
$ 429
======
Revenues and carloads for the commodity groups were as follows
(prior year data has been reclassified to conform to the current
presentation):
Revenues Carloads
2000 1999 2000 1999
---- ---- ---- ----
($ in millions) (in thousands)
Coal $ 343 $ 282 422 301
General merchandise:
Automotive 240 160 183 136
Chemicals 184 125 114 78
Metals/construction 174 94 191 90
Agri./consumer prod./govt. 159 116 134 105
Paper/clay/forest 153 128 126 103
------ ------ ----- -----
General merchandise 910 623 748 512
Intermodal 206 125 508 346
------ ------ ----- -----
Total $1,459 $1,030 1,678 1,159
====== ====== ===== =====
Coal
- ----
Coal revenues were $343 million in the first quarter, versus
$282 million last year. Total tonnage handled increased 12 million
tons, 9 million tons of which was utility coal traffic. The effects
of Northern Region traffic were somewhat offset by lower export
tonnage out of Norfolk, Va., and by reduced utility demand in the
Southeast. Domestic metallurgical coal, coke and iron ore traffic
volume benefited from increased domestic steel production and new
business.
Page 15
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Coal revenues in the second quarter are expected to continue to
reflect an increase related to the addition of Northern Region
traffic, which commenced last June. For the second half of the
year, coal revenues are expected to be slightly higher than in the
comparable period of 1999.
General Merchandise
- -------------------
General merchandise revenues were $910 million in the first quarter,
versus $623 million last year, reflecting principally the addition
of Northern Region traffic. Continued strong automotive demand,
increased metals and construction business, and recovery of some of
the traffic diverted last year also contributed to increased
revenues.
The addition of the Northern Region last June will continue to have
a favorable effect on the year-over-year comparison of general
merchandise revenues in the second quarter. For the second half of
the year, general merchandise revenues are expected to be somewhat
higher than in the comparable period of 1999, reflecting additional
business and higher rates.
Intermodal
- ----------
Intermodal revenues were $206 million in the first quarter, versus
$125 million last year, primarily due to the addition of Northern
Region traffic, increased demand and the recovery of diverted
traffic.
Intermodal revenues for the second quarter will continue to reflect
the addition of the Northern Region. For the second half of the
year, intermodal revenues are expected to be somewhat higher than
last year, as the effects of the loss of APL business late in 1999
are expected to be offset by new business.
Railway Operating Expenses
- --------------------------
First-quarter railway operating expenses were $1,465 million, and
included the $101 million charge related to the workforce reduction
efforts (see Note 3). Excluding the charge, railway operating
expenses increased $556 million, or 69 percent, compared with the
first quarter of 1999. The increase principally resulted from the
commencement of operations in the Northern Region and higher diesel
fuel prices.
"Compensation and benefits" expense increased $283 million,
including the effects of the $101 million workforce reduction
charge. Excluding the charge, compensation and benefits expense
increased $182 million, or 49 percent. The increases principally
resulted from the almost 50 percent increase in the railroad
workforce on the Closing Date, and higher wage rates and medical
costs for union employees. Medical costs in 1999 benefited from
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
premium refunds attributable to a surplus in the national union welfare
benefit plan. Partially offsetting these increases were pension income
that was $22 million higher than first-quarter 1999, lower incentive
compensation and lower nonunion salaries in March following the
voluntary early retirement program.
"Materials, services and rents" increased $134 million, or 68 percent,
primarily due to Northern Region operations and higher locomotive
rents.
"Conrail rents and services" amounted to $131 million, representing
expenses for use of PRR's assets and CRC's operation of the Shared
Assets Areas (see Note 4).
"Diesel fuel" expense increased $78 million, or 211 percent, due to a
sharp rise in the price per gallon and to increased consumption
related to Northern Region operations. The price per gallon for the
quarter more than doubled -- from an average of 40 cents last year to
more than 85 cents this year. This rise in price was responsible for
approximately $60 million of the $78 million increase.
"Other" expense increased $26 million, or 45 percent, principally due
to higher property and other taxes related to operations in the
Northern Region.
"Casualties and other claims" expense decreased $3 million, or
9 percent, as costs related to the commencement of Northern Region
operations were more than offset by higher expenses last year related
to a settlement associated with a Superfund site and damages to
automobiles being transported in a train that derailed.
The railway operating ratio was 100.4 percent in the first quarter.
Excluding the workforce reduction charge, the operating ratio would
have been 93.5 percent, versus 78.4 percent in the first quarter of
1999. Most of the increase was attributable to the change in traffic
mix (more resource-intensive traffic, such as automotive and
intermodal), the new traffic in the Northern Region and higher fuel
prices. The second-quarter 2000 railway operating ratio is expected
to be more nearly comparable to that of 1999, and for the remainder of
the year, the ratio is expected to improve, compared with 1999's
ratio, which was adversely effected by system congestion and related
traffic diversions after the Closing Date.
Other Income - Net
- ------------------
"Other income - net" was $48 million lower in the first quarter of
2000, compared with last year, primarily due to the effects of
NS Rail's sale of certain accounts receivable, which commenced Dec. 1,
1999 (see Note 4).
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations. (continued)
-------------------------
Provision for Income Taxes
- --------------------------
The first-quarter effective income tax rate was 38.8 percent,
compared with 36.5 percent last year, which benefited from favorable
adjustments to state tax accruals.
FINANCIAL CONDITION AND LIQUIDITY
March 31, Dec. 31,
2000 1999
-------- -------
($ in millions)
Cash and short-term investments $ 46 $ 12
Debt-to-total capitalization 15.5% 15.5%
CASH PROVIDED BY OPERATING ACTIVITIES, NS Rail's principal source of
liquidity, decreased $76 million, or 29 percent, in the first
quarter of 2000, compared with last year. The decline was largely
attributable to NS Rail's dividend of accounts receivable to NS on
Dec. 1, 1999, which resulted in NS' receipt of the cash related to
those receivables. The effects of the decline in operating income
(excluding the noncash workforce reduction charge) were more than
offset by the lack of bonus payments and other favorable changes in
working capital.
CASH USED FOR INVESTING ACTIVITIES declined significantly,
principally due to lower property additions, reflecting the leasing
of locomotives in 2000 (see Note 5). Locomotives were purchased in
1999 using proceeds from the sale of equipment trust certificates.
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES reflects less
proceeds from borrowings in 2000, coupled with higher debt repayments.
NS Rail expects to pay down its indebtedness to PRR in the second
quarter.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that are
based on current expectations, estimates and projections. Such
forward-looking statements reflect Management's good-faith
evaluation of information currently available. However, because
such statements are based upon, and therefore can be influenced by,
a number of external variables over which Management has no, or
incomplete, control, they are not, and should not be read as being,
guarantees of future performance or of actual future results; nor
will they necessarily prove to be accurate indications of the times
at or by which any such performance or result will be achieved.
Accordingly, actual outcomes and results may differ materially from
those expressed in such forward-looking statements. This caveat has
particular importance in the context of all such statements that
relate to the resolution of the service issues, the recapture of
diverted business, the addition of new business, and the ability to
reduce expenses.
Page 18
PART II. OTHER INFORMATION
---------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
- ------ -----------------------------------------------------------
There has been no material change to the disclosures made
under the heading "Market Risks and Hedging Activities" on
page 36 of the Company's 1999 Annual Report on Form 10-K.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
Financial Data Schedule.
(b) Reports on Form 8-K:
None.
Page 19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NORFOLK SOUTHERN RAILWAY COMPANY
------------------------------------------
(Registrant)
Date: May 10, 2000 /s/ Dezora M. Martin
------------------- ------------------------------------------
Dezora M. Martin
Assistant Corporate Secretary (Signature)
Date: May 10, 2000 /s/ John P. Rathbone
------------------- ------------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
Page 21
INDEX TO EXHIBITS
-----------------
Electronic
Submission
Exhibit
Number Description Page
- ----------- ----------------------------------------- ----
27 Financial Data Schedule 21
(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.)
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