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, 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 July 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 Six Months Ended
June 30, 1995 and 1994 3
Consolidated Balance Sheets
June 30, 1995, and December 31, 1994 4
Consolidated Statements of Cash Flows
Six Months Ended June 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 10-14
PartII. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Index to Exhibits 17
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
--------- --------- --------- ---------
RAILWAY OPERATING REVENUES:
Coal $ 311.3 $ 322.5 $ 611.6 $ 627.4
Merchandise 677.2 648.6 1,347.4 1,258.0
Other 27.9 26.7 56.6 54.7
-------- -------- -------- --------
Railway operating revenues 1,016.4 997.8 2,015.6 1,940.1
-------- -------- -------- --------
RAILWAY OPERATING EXPENSES:
Compensation and benefits 356.6 341.7 731.9 693.1
Materials, services and rents 163.7 167.6 327.9 331.0
Depreciation 95.1 90.3 188.0 179.0
Diesel fuel 47.0 46.7 95.7 92.4
Casualties and other claims 28.8 37.5 61.0 66.6
Other 40.9 39.0 76.4 76.5
-------- -------- -------- --------
Railway operating expenses 732.1 722.8 1,480.9 1,438.6
-------- -------- -------- --------
Income from railway operations 284.3 275.0 534.7 501.5
Other income (expense):
Interest income 9.5 8.1 15.9 14.2
Interest expense on debt (8.4) (6.4) (16.2) (13.1)
Other - net 3.0 5.6 1.4 14.7
-------- -------- -------- --------
Other income (expense) 4.1 7.3 1.1 15.8
-------- -------- -------- --------
Income before income taxes 288.4 282.3 535.8 517.3
Provision for income taxes 108.1 104.9 202.2 187.7
-------- -------- -------- --------
NET INCOME $ 180.3 $ 177.4 $ 333.6 $ 329.6
======== ======== ======== ========
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)
June 30, December 31,
1995 1994
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 83.8 $ 33.8
Short-term investments (Note 5) 127.4 147.1
Accounts receivable - net 549.3 552.7
Materials and supplies 66.9 58.5
Deferred income taxes 91.4 91.1
Other current assets 68.9 89.8
--------- ---------
Total current assets 987.7 973.0
Due from NS (Note 3) 333.9 201.7
Investments (Note 5) 668.4 598.4
Properties less accumulated depreciation 8,702.1 8,493.4
Other assets 11.1 22.7
--------- ---------
TOTAL ASSETS $10,703.2 $10,289.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 27.2 $ 27.2
Accounts payable 528.0 529.3
Income and other taxes 163.4 119.1
Other current liabilities 127.9 118.0
Current maturities of long-term debt (Note 4) 61.6 65.8
--------- ---------
Total current liabilities 908.1 859.4
Long-term debt (Note 4) 552.3 474.0
Other liabilities 884.1 868.2
Minority interests 1.5 2.1
Deferred income taxes (Notes 3 and 5) 2,698.5 2,645.0
--------- ---------
TOTAL LIABILITIES 5,044.5 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) 284.5 253.1
Retained income 4,637.7 4,450.9
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 5,658.7 5,440.5
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,703.2 $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)
Six Months Ended
June 30,
---------------------
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 333.6 $ 329.6
Reconciliation of net income to net cash
provided by operating activities:
Special charge payments (7.0) (28.0)
Depreciation 188.5 179.4
Deferred income taxes 32.8 20.9
Nonoperating gains on property sales (2.6) (4.0)
Changes in assets and liabilities affecting
operations:
Accounts receivable 3.4 (28.1)
Materials and supplies (8.4) (2.6)
Other current assets 20.9 14.8
Current liabilities other than debt 52.9 87.1
Other - net 26.4 (5.0)
------- -------
Net cash provided by operating activities 640.5 564.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (Note 4) (325.4) (253.6)
Property sales and other transactions 35.5 19.9
Investment purchases (38.6) (27.5)
Investment sales and other transactions 18.3 239.4
Advances due from NS (132.2) (99.9)
Short-term investments - net 21.9 10.4
------- -------
Net cash used for investing activities (420.5) (111.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (146.8) (140.9)
Proceeds from long-term borrowings 7.6 --
Debt repayments (30.8) (27.1)
------- -------
Net cash used for financing activities (170.0) (168.0)
------- -------
Net increase in cash and cash equivalents 50.0 284.8
CASH AND CASH EQUIVALENTS:*
At beginning of year 33.8 2.3
------- -------
At end of period $ 83.8 $ 287.1
======= =======
---------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized) $ 23.8 $ 18.5
Income taxes $ 115.4 $ 103.2
* 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 June 30, 1995, and the results of operations and cash flows for
the six months ended June 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
---------------------
June 30, 1995 December 31, 1994
------------------- ------------------
Average Average
Interest Interest
Balance Rate Balance Rate
------- -------- ------- --------
Due from NS:
Advances $ 483.7 4.6% $ 336.3 2.6%
Due to NS:
Notes and advances 149.8 7.0% 134.6 5.7%
------- -------
Due from NS - net $ 333.9 $ 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 June 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
$261.0 million.
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 June 30, 1995, NS has purchased and retired
61,431,800 shares of its common stock at a cost of approximately
$2.7 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
also may be issued for general corporate purposes, also will come
principally from NS Rail.
4. Capital Leases
During the first quarter of 1995, NS Rail entered into capital leases
covering 114 new locomotives having a total cost of $134.9 million.
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, plus 35 basis points, and will be reset every
six months with realized gains or losses accounted for as an adjustment
of interest expense over the terms of the leases.
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 June 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 June 30, 1995, as follows:
Gross
Unrealized
Cost Holding Gain Fair Value
------- -------------- ----------
Short-term securities,
principally U.S. Treasury
securities $ 242.2 $ 0.7 $ 242.9
Equity securities:
7.3 million shares of NS stock 20.6 468.0 488.6
Other -- 0.6 0.6
Total unrealized holding gains increased $51.8 million during the first
six months of 1995. The increased gains primarily reflect the change
in NS' stock price from $60-5/8 per share at December 31, 1994, to
$67-3/8 per share at June 30, 1995. "Stockholders' equity" for the first
six months increased $31.4 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 Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
------- ------- ------- -------
(In millions of dollars)
(Unaudited)
Railway operating revenues $ 490.9 $ 465.1 $ 965.4 $ 921.0
Railway operating expenses 360.5 345.5 725.5 700.2
------- ------- ------- -------
Income from operations 130.4 119.6 239.9 220.8
Other - net 11.0 7.3 17.0 20.7
------- ------- ------- -------
Income before
income taxes 141.4 126.9 256.9 241.5
Provision for income taxes 53.0 48.9 96.4 86.7
------- ------- ------- -------
Net income $ 88.4 $ 78.0 $ 160.5 $ 154.8
======= ======= ======= =======
SUMMARIZED CONSOLIDATED BALANCE SHEETS
--------------------------------------
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
Assets
Current assets $ 357.6 $ 330.0
Noncurrent assets 4,562.2 4,439.6
-------- --------
Total assets $4,919.8 $4,769.6
======== ========
Liabilities and stockholder's equity
Current liabilities $ 207.5 $ 178.6
Noncurrent liabilities 1,611.9 1,590.0
Stockholder's equity 3,100.4 3,001.0
-------- --------
Total liabilities and
stockholder's equity $4,919.8 $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" increased $2.9 million, or 2 percent, in the second quarter of
1995, and $4.0 million, or 1 percent, for the first half, compared with the
same periods last year. This was NS Rail's best second-quarter net income
and reflects improved income from operations, which was up $9.3 million,
or 3 percent. First-half net income also set a record with a $33.2 million,
or 7 percent, improvement in income from operations.
Railway Operating Revenues
--------------------------
"Railway operating revenues" increased $18.6 million, or 2 percent, in the
second quarter and $75.5 million, or 4 percent, for the six months ended
June 30, 1995, compared with the same periods last year. The increases in
operating revenues were due to:
Second Quarter First Six Months
1995 vs. 1994 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
------------------ ------------------
(In millions of dollars)
Traffic volume (carloads) $ 19.3 $ 106.3
Revenue per unit/mix (1.9) (32.7)
Other 1.2 1.9
------- -------
$ 18.6 $ 75.5
======= =======
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:
Second Quarter First Six Months
1995 vs. 1994 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
------------------ ------------------
(In millions of dollars)
Coal $ (11.2) $ (15.8)
Merchandise:
Intermodal 12.8 30.3
Automotive 9.0 20.9
Paper/forest 4.4 11.8
Metals/construction 2.5 14.5
Agriculture 2.4 5.7
Chemicals (2.5) 6.2
Other, principally switching
and demurrage 1.2 1.9
------- -------
$ 18.6 $ 75.5
======= =======
Coal
----
Most of the decline in coal revenues compared with last year was
attributable to lower domestic utility coal shipments. High stockpiles at
coal-fired generating plants, a result of unseasonably mild weather through
June, and an increase in nuclear power generation combined to lower demand
for utility coal. The unfavorable comparison was also partly a result of
relatively strong demand last year, as utilities were rebuilding depleted
stockpiles during the first half of 1994. On the positive side, coal
shipments began to recover somewhat during the second quarter, as the
effects of the continuing economic recovery in Europe translated into a
modest increase in demand for export coal.
Looking ahead, the export market for coal shipped over NS Rail's lines
appears to have firmed, and the slow growth which began in the second
quarter is expected to continue into the second half of the year. Limited
improvement is anticipated in domestic utility shipments, however, as high
stockpiles and greater nuclear power generation are expected to continue to
hold down short-term demand.
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 second quarter)
produced higher revenues compared with last year. The largest increases
were in the intermodal group, with revenue gains of $12.8 million, or
12 percent, for the second quarter, and $30.3 million, or 15 percent, for
the first six months. Within the intermodal group, container traffic
continued to post strong growth in the second quarter; however, a softening
economy and the effects of last year's strike by truckers reduced the
growth in trailer traffic volume, compared with second quarter 1994. NS
Rail's intermodal traffic business is expected to continue ahead of last
year's pace, although a slowing economy may limit the overall gains in the
second half of the year.
The automotive group also produced strong results for both the quarter and
the first six months, with revenues climbing $9.0 million, or 8 percent,
and $20.9 million, or 10 percent, respectively, over last year. NS Rail's
automotive traffic in 1995 has benefited from both an improved economy and
increased market share. Looking ahead, however, growth in automotive
volume and revenues is expected to slow somewhat in the second half of the
year, as automakers reduce production due to sales declines and planned
retooling downtime. Metals/construction revenues rose $2.5 million, or
3 percent, in the second quarter, and $14.5 million, or 9 percent, for the
first six months, compared with the prior year. Paper/forest revenues were
up $4.4 million, or 3 percent, for the quarter, and $11.8 million, or
5 percent, for the first six months. The improvements were primarily due
to higher average revenues per shipment, as second-quarter traffic volume
in the metals/construction group declined 2 percent, and was flat for the
paper/forest group. Agriculture revenues were up $2.4 million and
$5.7 million, or 3 percent, for the second quarter and year-to-date,
respectively. The gains were largely due to traffic carried over from last
year's record corn and soybean harvests. Chemicals was the only
merchandise commodity with lower results in the second quarter, down
$2.5 million, or 2 percent, a result of heavy rains in the Midwest, which
caused a decline in fertilizer shipments. However, for the first half,
chemical revenues were up $6.2 million, or 2 percent, compared with last
year. The outlook for the remainder of the year is for modest growth in
NS Rail's chemicals traffic, however, as overall demand is expected to
track the domestic economy.
Railway Operating Expenses
--------------------------
"Railway operating expenses" increased $9.3 million, or 1 percent, in the
second quarter of 1995, and $42.3 million, or 3 percent, for the first
half, compared with the same periods last year. During the second quarter
of 1995, NS Rail recorded a $7 million charge for the costs related to the
closing of two car repair shops. These costs are reflected in
"Compensation and benefits" ($2.8 million), for separations and transfers;
in "Materials, services and rents" ($0.5 million); and in "Other" expense
($3.7 million), for relocation costs.
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
The largest expense increase for the quarter was in "Compensation and
benefits" which was up $14.9 million, or 4 percent. The main factors
contributing to this increase were: (1) higher wage rates, including a
4 percent increase, effective July 1, 1994, for agreement employees;
(2) higher health care costs for agreement employees due to the absorption
last year of the cash surplus in a multi-railroad insurance fund;
(3) increased accruals for stock-based compensation, a result of the rise
in the price of NS stock; and (4) voluntary separation charges related to
the shop closings. Partially offsetting these increases was a one-time
recovery of railroad retirement supplemental annuity taxes totaling
$5.3 million, resulting from a settlement between the major railroads and
the Internal Revenue Service. Smaller increases in second-quarter expenses
were recorded in "Depreciation," up $4.8 million, or 5 percent, due to a
larger capital base, and in "Other" expense, which was up $1.9 million, or
5 percent, due to the charges related to shop closings. These increases
were offset partially by a reduction in "Casualties and claims" expense,
which declined $8.7 million, or 23 percent, due to a combination of:
(1) the effect of last year's $5 million accrual for environmental clean-up
costs associated with a tank car leak; and (2) favorable experience in
settling personal injury claims.
The increase in year-to-date "Railway operating expenses" was also
primarily due to higher compensation and benefits costs which were up
$38.8 million, or 6 percent, for the same reasons mentioned in the second-
quarter discussion. Other year-to-date increases were in "Depreciation,"
up $9.0 million, or 5 percent, due to a larger capital base, and "Diesel
fuel," up $3.3 million, or 4 percent, due to moderate increases in both
consumption and price per gallon. The principal decrease in year-to-date
railway operating expenses was in "Casualties and other claims" which
declined $5.6 million, or 8 percent, again as a result of costs related to
last year's tank car spill and this year's more favorable personal injury
claims experience.
Other Income (Expense)
----------------------
"Other income (expense)" was down $3.2 million for the second quarter of
1995, and $14.7 million for the first six months, compared with the same
periods last year. The second-quarter decrease was principally a result of
lower gains on property sales, while the year-to-date decline was largely
attributable to the absence of favorable interest accrual adjustments which
benefited 1994, and to a reduction in benefit from corporate-owned life
insurance (COLI). "Interest income" rose $1.4 million, or 17 percent, and
$1.7 million, or 12 percent, respectively, for the quarter and year-to-
date, primarily due to higher rates on invested balances. "Interest
expense on debt" was up $2.0 million, or 31 percent, and $3.1 million, or
24 percent, respectively, mainly due to a lower level of capitalized
interest.
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 second quarter of 1995 totaled
$108.1 million, for an effective rate of 37.5 percent, compared with an
effective rate of 37.2 percent last year. For the first six months of
1995, income taxes were $202.2 million for an effective rate of
37.7 percent, compared with an effective tax rate of 36.3 percent in 1994.
The lower year-to-date effective rate in 1994 was due primarily to a first-
quarter adjustment in federal income tax reserves related to prior years.
FINANCIAL CONDITION AND LIQUIDITY
June 30, 1995 December 31, 1994
-------------- -----------------
(Dollars in millions)
Cash and short-term investments $211.2 $180.9
Working capital $ 79.6 $113.6
Current ratio 1.1 1.1
Debt to total capitalization 10.2% 9.4%
The decrease in working capital in the first six months of 1995 was
principally related to a higher level of property additions, including
approximately $30 million related to locomotives under capital leases
(see Note 4).
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 six 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, which in the first half of 1995 included
approximately $30 million related to locomotives under capital leases
(see Note 4). "Property sales and other transactions" primarily reflects
salvage proceeds on operating property. "Investment purchases" consists
primarily of premium payments related to COLI, while "Investment sales
and other transactions" principally reflects borrowing on COLI.
CASH FLOWS FROM FINANCING ACTIVITIES include "Proceeds from long-term
borrowings" which represent amounts received in connection with capital
lease transactions entered into during the first quarter (see Note 4).
As discussed in Note 3, NS has issued a significant amount of long-term
debt in recent years. The servicing of this debt is expected to be
primarily from NS Rail's funds, as it is NS' principal subsidiary.
PAGE 15
PART II - OTHER INFORMATION
---------------------------
NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Registrant's annual meeting of stockholders was held on May 23,
1995, at which meeting two directors were elected to the class whose term
will expire in 1998, and one director was elected to the class whose term
will expire in 1996.
The three nominees for directors, who were uncontested, were
elected by the following vote:
THREE-YEAR TERM
--------------------------------------------------------------------
FOR AUTHORITY WITHHELD
--- ------------------
David R. Goode 17,537,417 votes 10,067 votes
Stephen C. Tobias 17,539,047 votes 8,437 votes
ONE-YEAR TERM
--------------------------------------------------------------------
FOR AUTHORITY WITHHELD
--- ------------------
Henry C. Wolf 17,539,257 votes 8,227 votes
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 June 30, 1995.
PAGE 16
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: August 9, 1995 /s/ Dezora M. Martin
------------------- ------------------------------------------
Dezora M. Martin
Assistant Corporate Secretary (Signature)
Date: August 9, 1995 /s/ John P. Rathbone
------------------- ------------------------------------------
John P. Rathbone
Vice President and Controller
(Principal Accounting Officer) (Signature)
PAGE 17
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). 18