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 SEPTEMBER 30, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file numbers 1-743; 1-3744; 1-4793; 1,546-2
NORFOLK SOUTHERN RAILWAY COMPANY
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 53-6002016
- ---------------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia 23510-2191
- ---------------------------------------- --------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (804) 629-2682
-------------------------
No Change
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. (X) Yes ( ) No
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the last practicable date:
Class Outstanding as of October 31, 1995
----- ----------------------------------
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. Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1995 and 1994 3
Consolidated Balance Sheets
September 30, 1995, and December 31, 1994 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
PAGE 3
PART I. FINANCIAL INFORMATION
-------------------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Income
(In millions of dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
RAILWAY OPERATING REVENUES:
Coal $ 318.5 $ 325.0 $ 930.1 $ 952.4
Merchandise 647.3 622.7 1,994.7 1,880.7
Other 30.2 28.1 86.8 82.8
------- ------- -------- --------
Railway operating revenues 996.0 975.8 3,011.6 2,915.9
------- ------- -------- --------
RAILWAY OPERATING EXPENSES:
Compensation and benefits 359.7 340.4 1,091.6 1,033.5
Materials, services and rents 148.1 162.7 476.0 493.7
Depreciation 96.9 90.3 284.9 269.3
Diesel fuel 45.2 47.3 140.9 139.7
Casualties and other claims 30.5 36.4 91.5 103.0
Other 37.7 32.5 114.1 109.0
------- ------- -------- --------
Railway operating expenses 718.1 709.6 2,199.0 2,148.2
------- ------- -------- --------
Income from railway operations 277.9 266.2 812.6 767.7
Other income (expense):
Interest income 9.5 9.2 25.4 23.4
Interest expense on debt (8.7) (8.4) (24.9) (21.5)
Other - net 2.7 (3.5) 4.1 11.2
------- ------- -------- --------
Other income (expense) 3.5 (2.7) 4.6 13.1
------- ------- -------- --------
Income before income taxes 281.4 263.5 817.2 780.8
Provision for income taxes 87.5 98.8 289.7 286.5
------- ------- -------- --------
NET INCOME $ 193.9 $ 164.7 $ 527.5 $ 494.3
======= ======= ======== ========
See accompanying notes to consolidated financial statements.
PAGE 4
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Balance Sheets
(In millions of dollars)
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 58.2 $ 33.8
Short-term investments (Note 5) 120.9 147.1
Accounts receivable - net 562.8 552.7
Materials and supplies 60.7 58.5
Deferred income taxes 96.2 91.1
Other current assets 56.6 89.8
--------- ---------
Total current assets 955.4 973.0
Due from NS (Note 3) 449.2 201.7
Investments (Note 5) 735.9 598.4
Properties less accumulated depreciation 8,733.7 8,493.4
Other assets 14.6 22.7
--------- ---------
TOTAL ASSETS $10,888.8 $10,289.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 27.2 $ 27.2
Accounts payable 545.2 529.3
Income and other taxes 171.0 119.1
Other current liabilities 130.1 118.0
Current maturities of long-term debt (Note 4) 57.3 65.8
--------- ---------
Total current liabilities 930.8 859.4
Long-term debt (Note 4) 529.6 474.0
Other liabilities 877.9 868.2
Minority interests 2.1 2.1
Deferred income taxes (Notes 3 and 5) 2,736.0 2,645.0
--------- ---------
TOTAL LIABILITIES 5,076.4 4,848.7
--------- ---------
Stockholders' equity:
Serial preferred stock $50 stated value 54.8 54.8
Common stock $10 stated value 166.7 166.7
Other capital 515.0 515.0
Unrealized gain on marketable
securities (Note 5) 316.8 253.1
Retained income 4,759.1 4,450.9
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 5,812.4 5,440.5
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,888.8 $10,289.2
========= =========
See accompanying notes to consolidated financial statements.
PAGE 5
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Consolidated Statements of Cash Flows
(In millions of dollars)
(Unaudited)
Nine Months Ended
September 30,
---------------------
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 527.5 $ 494.3
Reconciliation of net income to net cash
provided by operating activities:
Special charge payments (9.6) (30.2)
Depreciation 285.5 269.9
Deferred income taxes 23.6 69.9
Nonoperating gains on property sales (6.1) (4.9)
Changes in assets and liabilities affecting
operations:
Accounts receivable (10.1) (15.2)
Materials and supplies (2.2) 4.3
Other current assets 33.2 23.4
Current liabilities other than debt 79.9 14.2
Other - net 41.7 81.5
------- -------
Net cash provided by operating activities 963.4 907.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 4) (478.2) (425.7)
Property sales and other transactions 62.4 4.9
Investment purchases (53.0) (36.2)
Investment sales and other transactions 18.7 239.8
Advances due from NS (247.5) (274.2)
Short-term investments - net 28.3 (32.3)
------- -------
Net cash used for investing activities (669.3) (523.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (219.3) (210.5)
Proceeds from long-term borrowings 7.6 41.4
Debt repayments (58.0) (95.5)
------- -------
Net cash used for financing activities (269.7) (264.6)
------- -------
Net increase in cash and cash equivalents 24.4 118.9
CASH AND CASH EQUIVALENTS:*
At beginning of year 33.8 2.3
------- -------
At end of period $ 58.2 $ 121.2
======= =======
- -----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 37.8 $ 34.8
Income taxes $ 207.0 $ 179.6
* Cash equivalents are highly liquid investments purchased three months or
less from maturity.
See accompanying notes to consolidated financial statements.
PAGE 6
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Notes to Consolidated Financial Statements
(All tables in millions of dollars)
1. In the opinion of Management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
as of September 30, 1995, and the results of operations and cash flows
for the nine months ended September 30, 1995, and 1994.
While Management believes that the disclosures presented are adequate
to make the information not misleading, these consolidated financial
statements should be read in conjunction with the financial statements
and notes included in the Company's latest Annual Report on Form 10-K.
2. Contingencies
There have been no significant changes since year-end 1994 in the
matters as discussed in Note 17, CONTINGENCIES, appearing in the
NS Rail Annual Report on Form 10-K for 1994, Notes to Consolidated
Financial Statements, beginning on page 59.
3. Related Parties
GENERAL
-------
Norfolk Southern Corporation (NS) is the parent holding company of
NS Rail. The costs of functions performed by NS are allocated to
NS Rail. Rail operations are coordinated at the holding company level
by the NS Executive Vice President-Operations.
INTERCOMPANY ACCOUNTS
---------------------
September 30, 1995 December 31, 1994
------------------ -------------------
Average Average
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
Due from NS:
Advances $ 600.7 4.2 % $ 336.3 2.6%
Due to NS:
Notes and advances 151.5 6.7 % 134.6 5.7%
------- -------
Due from NS - net $ 449.2 $ 201.7
======= =======
Interest is applied to certain advances at the average NS yield on
short-term investments and to the notes at specified rates.
PAGE 7
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Notes to Consolidated Financial Statements
(All tables in millions of dollars)
3. Related Parties (continued)
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 September 30, 1995, and December 31, 1994, NS
Rail had intercompany federal income tax payables (which are included
in "Deferred income taxes" in the Consolidated Balance Sheets) of
$264.9 million and $261.0 million, respectively.
CASH REQUIRED FOR NS STOCK PURCHASE PROGRAM AND NS DEBT
-------------------------------------------------------
Since 1987, the NS Board of Directors has authorized the purchase and
retirement of up to 65 million shares of NS common stock. Purchases
under the programs have been made with internally generated cash and
through issuances of debt by NS. Since the first purchases in
December 1987 through September 30, 1995, NS has purchased and retired
62,638,800 shares of its common stock at a cost of approximately
$2.8 billion. Future purchases are dependent on market conditions,
the economy, cash needs and alternative investment opportunities.
Consistent with earlier purchases, a significant portion of the funding
for future NS stock purchases, either in the form of direct cash or
cash used for debt service, will come from NS Rail through intercompany
advances or dividends to NS. Cash required to service NS debt, which
may be issued as well for general corporate purposes, will come
principally from NS Rail.
4. Capital Leases
During the first quarter of 1995, NS Rail entered into capital leases
covering new locomotives. The related capital lease obligations
totaling $104.5 million were reflected in the Consolidated Balance
Sheet as debt and, because they were non-cash transactions, were
excluded from the Consolidated Statement of Cash Flows. The lease
obligations carry stated interest rates between 8.23 percent and
8.60 percent but were converted to variable rate obligations using
interest rate swap agreements. The interest rates on these obligations
are based on the six-month London Interbank Offered Rate and are reset
every six months with realized gains or losses accounted for as an
adjustment of interest expense over the terms of the leases. As a
result, NS Rail is exposed to the market risk associated with
fluctuations in interest rates. To date, while such rate fluctuations
have been nominal, their effects have been favorable.
PAGE 8
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Notes to Consolidated Financial Statements
(All tables in millions of dollars)
5. Required Accounting Change in 1994
Effective January 1, 1994, NS Rail adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115), which addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.
For NS Rail, SFAS 115 affects only balance sheet accounts and has no
impact on earnings. The total unrealized holding gain on NS Rail's
investments classified as "available for sale" at September 30, 1995,
and December 31, 1994, net of related deferred taxes, is reflected as a
separate component of "Stockholders' equity" in the Consolidated
Balance Sheets. Carrying value adjustments, which are non-cash
transactions, are not included in the Consolidated Statements of Cash
Flows.
Under SFAS 115, NS Rail increased the reported carrying value of
certain short-term and long-term investments classified as "available
for sale" at September 30, 1995, as follows:
Gross
Unrealized
Cost Holding Gain Fair Value
------- ------------- ----------
Short-term securities,
principally U.S. Treasury
securities $ 202.1 $ 0.5 $ 202.6
Equity securities:
7.3 million shares of NS stock 20.6 521.5 542.1
Other -- 0.6 0.6
Total unrealized holding gains increased $105.1 million during the
first nine months of 1995. The increased gains reflect primarily the
change in NS' stock price from $60-5/8 per share at December 31, 1994,
to $74-3/4 per share at September 30, 1995. "Stockholders' equity" for
the first nine months increased $63.7 million as a result.
PAGE 9
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Notes to Consolidated Financial Statements
(All tables in millions of dollars)
6. Norfolk and Western Railway Company and Subsidiaries (NW)--Summarized
Consolidated Financial Information
SUMMARIZED CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1995 1994 1995 1994
-------- -------- -------- --------
(In millions of dollars)
(Unaudited)
Railway operating revenues $ 469.7 $ 454.3 $1,435.1 $1,375.3
Railway operating expenses 354.5 340.0 1,080.0 1,040.2
------- ------- -------- --------
Income from operations 115.2 114.3 355.1 335.1
Other - net 10.7 1.1 27.7 21.8
------- ------- -------- --------
Income before
income taxes 125.9 115.4 382.8 356.9
Provision for income taxes 36.9 40.2 133.3 126.9
------- ------- -------- --------
Net income $ 89.0 $ 75.2 $ 249.5 $ 230.0
======= ======= ======== ========
SUMMARIZED CONSOLIDATED BALANCE SHEETS
--------------------------------------
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
Assets
Current assets $ 296.0 $ 330.0
Noncurrent assets 4,707.9 4,439.6
-------- --------
Total assets $5,003.9 $4,769.6
======== ========
Liabilities and stockholder's equity
Current liabilities $ 232.7 $ 178.6
Noncurrent liabilities 1,610.9 1,590.0
Stockholder's equity 3,160.3 3,001.0
-------- --------
Total liabilities and
stockholder's equity $5,003.9 $4,769.6
======== ========
PAGE 10
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net Income
- ----------
"Net income" for the third quarter was $193.9 million, the highest for any
quarter in NS Rail's history and $29.2 million, or 18 percent, above third-
quarter 1994. Contributing to the 1995 third-quarter record were a
$11.7 million, or 4 percent, increase in "Income from railway operations"
and a substantially lower effective tax rate, primarily as a result of
adjustments for federal income tax liabilities due affiliates.
Net income of $527.5 million for the nine months ended September 30, 1995,
also a record, was up $33.2 million, or 7 percent, over the comparable
period last year. A 6 percent increase in "Income from railway operations"
was largely responsible for the improvement.
Railway Operating Revenues
- --------------------------
"Railway operating revenues" increased $20.2 million, or 2 percent, in the
third quarter and $95.7 million, or 3 percent, for the nine months ended
September 30, 1995, compared with the same periods last year. The increases
in operating revenues were due to:
Third Quarter First Nine Months
1995 vs. 1994 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
------------------- -------------------
(In millions of dollars)
Traffic volume (carloads) $ 19.8 $ 125.8
Revenue per unit/mix (1.7) (34.1)
Other 2.1 4.0
------- -------
$ 20.2 $ 95.7
======= =======
PAGE 11
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The principal revenue commodity groups and changes from the prior year were
as follows:
Third Quarter First Nine Months
1995 vs. 1994 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
------------------- -------------------
(In millions of dollars)
Coal $ (6.5) $ (22.3)
Merchandise:
Intermodal 9.2 39.5
Agriculture 6.2 11.9
Paper/forest 5.8 17.6
Automotive 4.8 25.7
Metals/construction 4.3 18.8
Chemicals (5.7) 0.5
Other, principally switching
and demurrage 2.1 4.0
------- -------
$ 20.2 $ 95.7
======= =======
Coal
- ----
The comparative decline in NS Rail's coal revenues, for both the third
quarter and first nine months of 1995, resulted from an overall weakness in
shipments of domestic utility coal. Stockpiles at coal-fired generating
plants had been quite high since the summer of 1994. This summer's
relatively hot weather in NS Rail's service region resulted in stockpiles
beginning to moderate. Export coal shipments continued the improvement
begun during the second quarter, as the economic recovery in Europe helped
to generate a 15 percent increase in third-quarter volume and a 5 percent
increase in volume for the first nine months of 1995, compared with last
year.
Looking ahead, the encouraging trends in both the domestic utility and
export markets for coal over NS Rail's lines are expected to continue,
producing moderate traffic growth for the remainder of the year.
PAGE 12
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Merchandise
- -----------
All merchandise commodity groups (except chemicals in the third quarter)
produced higher revenues compared with last year. The intermodal group
continued to produce the greatest gains, with revenues up $9.2 million, or
9 percent, for the third quarter, and up $39.5 million, or 13 percent, for
the first nine months. Container traffic posted the largest gains compared
with last year's third quarter, although a softening domestic economy
resulted in somewhat slower growth compared with the first six months this
year. Strong container shipments and modest improvement in trailer
movements are expected in the fourth quarter.
The agriculture group recorded the second-best revenue increase in the
third quarter, rising $6.2 million, or 8 percent, compared with last year.
Strong demand for grain, increased wheat shipments from NS Rail's sourcing
regions and an improved export market combined to produce the gains. The
fourth-quarter outlook is also positive, although this year's harvest is
not expected to match last year's record levels. Revenues in the
paper/forest and metals/construction commodity groups were up $5.8 million
and $4.3 million, or 5 percent, for the quarter, and up $17.6 million and
$18.8 million, or 5 percent and 8 percent, respectively, for the first nine
months. The gains in the paper/forest group were almost entirely due to
higher average revenues per shipment, as traffic volume was flat for both
periods. Higher average revenues also largely were responsible for the
improved results in metals/construction, although some of the year-to-date
gain was due to greater first-quarter traffic volume. Revenues from
automotive traffic were up $4.8 million, or 5 percent, for the quarter and
$25.7 million, or 8 percent, for the first nine months. NS Rail continues
to benefit from improved automotive sales and production in markets it
serves. Automobile traffic is expected to remain ahead of last year,
although projected gains from plants scheduled to come back on line in the
fourth quarter will be somewhat mitigated by retooling downtimes and
production slow-downs at other plants.
Railway Operating Expenses
- --------------------------
"Railway operating expenses" increased $8.5 million, or 1 percent, in the
third quarter of 1995, and $50.8 million, or 2 percent, for the nine-month
period, compared with the same periods last year.
The largest expense increase for the quarter was in "Compensation and
benefits" which rose $19.3 million, or 6 percent. The main factors
contributing to this increase were: (1) higher wage rates; (2) increased
accruals for stock-based compensation, largely a result of the rise in the
price of NS stock; and (3) higher health care costs for agreement employees
due to the absorption last year of the cash surplus in a multi-railroad
insurance fund.
PAGE 13
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Norfolk Southern Corporation)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
On September 26, 1995, NS Rail announced a voluntary retirement program for
certain eligible employees, which 265 of the 475 eligible employees
accepted. The charge for this program will be recorded in fourth-quarter
operating expenses. The effects of this program are expected to produce
annual savings of approximately $16 million.
Third-quarter expenses also saw an increase in "Other" expenses, which were
up $5.2 million, or 16 percent, compared with last year, which had
benefited from favorable sales and use tax settlements. Partially
offsetting these increases were reductions in "Materials, services and
rents" and "Casualties and other claims." "Materials, services and rents"
declined $14.6 million, or 9 percent, due primarily to lower locomotive and
freight car repairs. Greater income from equipment rents related to the
deprescription of car hire and the leasing of locomotives also contributed
to the decline. "Casualties and other claims" was $5.9 million, or
16 percent, lower due to favorable experience in personal injury claims.
The increase in year-to-date "Railway operating expenses" also reflected
higher compensation and benefits costs which were up $58.1 million, or
6 percent, for the same reasons mentioned in the discussion about third-
quarter expenses. "Other" expenses rose $5.1 million, or 5 percent,
compared to 1994, which included favorable sales and use tax adjustments.
The principal decreases in year-to-date railway operating expenses were in
"Materials, services and rents" and "Casualties and other claims."
"Materials, services and rents" declined $17.7 million, or 4 percent, for
the same reasons mentioned in the third-quarter discussion. "Casualties
and other claims" declined $11.5 million, or 11 percent, reflecting this
year's more favorable personal injury claims experience and lower
environmental costs.
Other Income (Expense)
- ----------------------
"Interest income" was $0.3 million, or 3 percent, higher for the quarter
and $2.0 million, or 9 percent, greater for the first nine months due to
higher rates on invested balances.
"Interest expense on debt" increased $0.3 million, or 4 percent, and
$3.4 million, or 16 percent, for the third quarter and year-to-date,
respectively, mainly due to a lower level of capitalized interest.
"Other income-net" was up $6.2 million over third-quarter 1994 but was
$7.1 million lower for the first nine months compared with last year. The
improvement for the quarter was largely due to increased gains on sales of
property and higher rental income, while the year-to-date decline was
largely attributable to favorable interest accrual adjustments which
benefited 1994.
PAGE 14
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
Income Taxes
- ------------
The "Provision for income taxes" in the third quarter of 1995 totaled
$87.5 million, for an effective rate of 31.1 percent, compared with an
effective rate of 37.5 percent last year. For the first nine months of
1995, income taxes were $289.7 million for an effective tax rate of
35.4 percent, compared with an effective tax rate of 36.7 percent in 1994.
The lower effective rates in 1995 were a result of an adjustment of
intercompany tax liabilities for affiliates no longer in the NS consolidated
group. This adjustment was made in conjunction with accounting for the
final tax returns of these subsidiaries and resulted in reducing tax
expense by $17.0 million with a corresponding reduction in the intercompany
tax payable to affiliates.
Required Accounting Change
- -------------------------
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This standard establishes the accounting and reporting
requirements for recognizing and measuring impairment of long-lived assets
and related goodwill which either are held and used or are held for
disposal. SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995, and NS Rail plans to implement this change in the first
quarter of 1996. The impact to NS Rail of adopting this new standard is
not currently determinable; however, it is not expected to have a material
effect on the Company's financial position or results of operations.
Environmental Matters
- ---------------------
NS Rail and NS Rail's wholly owned subsidiary, The Alabama Great Southern
Railroad Company ("AGS"), have complied with a recent request from the
Environmental Protection Agency ("EPA") to provide information concerning
any connection they may have had - in the 1880's - to property or the
operations conducted thereon at the Bayou Bonfouca NPL Superfund site
located in Slidell, Louisiana. Since providing such information, NS Rail
has learned informally that the EPA may consider AGS, with several other
entities believed to be solvent, a potentially responsible party with
respect to such site. Any such designation of AGS and any associated
liability will be contested; it is not possible at this time to anticipate
either (a) the amount of any liability that may be asserted against AGS or
(b) as a consequence, the materiality of such amount to NS Rail's financial
position, results of operation or liquidity in a particular quarter or
year.
PAGE 15
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
FINANCIAL CONDITION AND LIQUIDITY
September 30, 1995 December 31, 1994
------------------ -----------------
(Dollars in millions)
Cash and short-term investments $179.1 $180.9
Working capital $24.6 $113.6
Current ratio 1.0 1.1
Debt to total capitalization 9.6% 9.4%
The decline in working capital in the first nine months of 1995 was
principally related to advances made to NS (see Note 3).
CASH FLOWS FROM OPERATING ACTIVITIES are NS Rail's principal source of
liquidity and were sufficient to cover cash outflows for dividends, debt
repayments and capital spending (see Consolidated Statements of Cash Flows
on page 5). The increase in cash provided by operating activities compared
with the first nine months of 1994 was primarily due to higher income from
operations and lower special charge payments.
CASH FLOWS FROM INVESTING ACTIVITIES were affected principally by capital
spending for property additions. "Property sales and other transactions"
primarily reflects salvage proceeds on operating property. "Investment
purchases" consists primarily of premium payments related to corporate
owned life insurance (COLI), while "Investment sales and other
transactions" principally reflects borrowing on COLI.
CASH FLOWS FROM FINANCING ACTIVITIES include "Proceeds from long-term
borrowings" which in 1995 represent amounts received in connection with
capital lease transactions entered into during the first quarter (see
Note 4), and in 1994, reflect an equipment trust issued.
As discussed in Note 3, NS has issued a significant amount of long-term
debt in recent years. Funds to service this debt are expected to come
primarily from NS Rail, NS' principal subsidiary.
PAGE 16
PART II. OTHER INFORMATION
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NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
September 30, 1995.
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SIGNATURES
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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: November 9, 1995 /s/ Sandra T. Pierce
------------------- ------------------------------------------
Sandra T. Pierce
Corporate Secretary (Signature)
Date: November 9, 1995 /s/ John P. Rathbone
------------------- ------------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
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NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Electronic
Submission
Exhibit
Number Description Page Number
- ----------- ----------------------------------------- -----------
27 Financial Data Schedule (This exhibit is
required to be submitted electronically
pursuant to the rules and regulations of
the Securities and Exchange Commission and
shall not be deemed filed for purposes of
Section 11 of the Securities Act of 1933 or
Section 18 of the Securities Exchange Act
of 1934). 19