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PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------------
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-8339
NORFOLK SOUTHERN CORPORATION
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 52-1188014
------------------------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Commercial Place, Norfolk, Virginia 23510-2191
------------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 629-2680
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
Norfolk Southern Corporation
Common Stock (Par Value $1.00) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by nonaffiliates
as of February 28, 1994: $9,531,338,460
The number of shares outstanding of each of the registrant's classes
of common stock, as of February 28, 1994: 138,143,035 (excluding
7,252,634 shares held by registrant's consolidated subsidiaries)
PAGE 2
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement (to be dated
April 4, 1994) to be filed electronically pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year are
incorporated by reference in Part III.
PAGE 3
TABLE OF CONTENTS
-----------------
Item Page
---- ----
Part I 1. Business...................................... 4
2. Properties.................................... 4
3. Legal Proceedings............................. 28
4. Submission of Matters to a Vote of Security
Holders.................................... 29
Executive Officers of the Registrant.......... 30
Part II 5. Market for Registrant's Common Stock and
Related Stockholder Matters................ 34
6. Selected Financial Data....................... 35
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 39
8. Financial Statements and Supplementary Data... 39
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... 40
Part III 10. Directors and Executive Officers of the
Registrant................................. 41
11. Executive Compensation........................ 41
12. Security Ownership of Certain Beneficial
Owners and Management...................... 41
13. Certain Relationships and Related
Transactions............................... 41
Part IV 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................ 42
Index to Consolidated Financial Statement
Schedules.................................. 42
Power of Attorney.............................................. 46
Signatures..................................................... 46
Exhibit Index.................................................. 96
PAGE 4
PART I
Item 1. Business.
- ------ --------
and
Item 2. Properties.
- ------ ----------
GENERAL. Norfolk Southern Corporation (Norfolk Southern)
was incorporated on July 23, 1980, under the laws of the Commonwealth
of Virginia. On June l, 1982, Norfolk Southern acquired control of
two major operating railroads, Norfolk and Western Railway Company
(NW) and Southern Railway Company (Southern). In accordance with an
Agreement of Merger and Reorganization dated as of July 31, 1980, and
related Plans of Merger, and the approval of the transaction by the
Interstate Commerce Commission (ICC), each issued share of NW's common
stock was converted into one share of Norfolk Southern Common Stock
and each issued share of Southern common stock was converted into
1.9 shares of Norfolk Southern Common Stock. The outstanding shares of
Southern's preferred stock remained outstanding without change.
Effective December 31, 1990, Norfolk Southern transferred
all the common stock of NW to Southern, and Southern's name was
changed to Norfolk Southern Railway Company (Norfolk Southern
Railway). As of February 28, 1994, all the common stock of NW
(100 percent voting control) is owned by Norfolk Southern Railway, and
all the common stock of Norfolk Southern Railway and 7.1 percent of
its preferred stock (resulting in 94.3 percent voting control) are
owned directly by Norfolk Southern.
On June 21, 1985, Norfolk Southern acquired control of
North American Van Lines, Inc. and its subsidiaries (NAVL), a
diversified motor carrier. In accordance with an Acquisition
Agreement dated May 2, 1984, and the approval of the transaction by
the ICC, Norfolk Southern acquired all the issued and outstanding
common stock of NAVL from PepsiCo, Inc. During 1993, NAVL underwent a
restructuring (see discussion on page 7 and in Note 3 of Notes to
Consolidated Financial Statements on page 74) designed to enhance its
opportunities to return to profitability.
Unless indicated otherwise, Norfolk Southern and its
subsidiaries are referred to collectively as NS.
STOCK PURCHASE PROGRAMS. Norfolk Southern announced on
November 24, 1987, that its Board of Directors had authorized the
purchase of up to 20 million shares of Norfolk Southern's common stock
through the end of 1990. This program was completed in November 1989.
On October 24, 1989, the Board of Directors authorized the purchase of
up to an additional 45 million shares of common stock. Purchases
under these programs initially were made with internally generated
cash. Beginning in May 1990, some purchases were financed with
proceeds from the sale of short-term notes pursuant to the commercial
paper program discussed below. On January 29, 1992, Norfolk Southern
announced that, primarily related to issues surrounding the 1991
special charge (see Note 15 of Notes to Consolidated Financial
PAGE 5
Statements on page 85), the purchase program would continue, but at a
slower pace and over a longer authorized period with purchases
dependent on market conditions, the economy, cash needs and
alternative investment opportunities. As of December 31, 1993,
33.6 million shares had been purchased pursuant to the current program
resulting in a total of 53.6 million shares purchased and retired
since 1987 at a cost of approximately $2.2 billion. If all 45 million
shares are purchased under the current program, the number of
outstanding shares of common stock will have been reduced by about one
third since 1987. Purchases are made in regular brokerage
transactions on the open market at prevailing market prices and
otherwise in accordance with Securities and Exchange Commission
regulations.
In June 1989, Norfolk Southern announced that it intended
to purchase up to 250,000 shares of Norfolk Southern Railway's $2.60
Cumulative Preferred Stock, Series A, during the subsequent two-year
period. In May 1991, Norfolk Southern extended the previously
announced stock purchase program through 1993. In March 1994, Norfolk
Southern announced that it would continue purchasing up to 250,000
shares of the stock through 1996. From June 2, 1989, through
December 31, 1993, Norfolk Southern had purchased 77,626 shares of the
preferred stock at a total cost of approximately $2.67 million.
COMMERCIAL PAPER PROGRAM AND DEBT ISSUANCE. In May 1990,
Norfolk Southern established a commercial paper program principally to
finance the purchase and retirement of its common stock. Commercial
paper debt is due within one year, but a portion has been classified
as long-term because Norfolk Southern has the ability and intends to
refinance its commercial paper on a long-term basis, either by issuing
additional commercial paper (supported by a revolving credit
agreement) or by replacing commercial paper notes with long-term debt.
The original $350 million credit agreement was replaced effective
June 9, 1992, by a credit agreement expiring June 9, 1995, having a
credit limit of $400 million. The agreement provides for interest on
borrowings at prevailing short-term rates and contains customary
financial covenants, including principally a minimum tangible net
worth requirement of $3 billion and a restriction on the creation or
assumption of certain liens.
Norfolk Southern intends to replace the current credit
agreement with a new agreement during the first half of 1994. It is
expected that the new credit agreement will have a term of five years,
a credit limit of $500 million and covenants similar to those included
in the current agreement.
In January 1991, Norfolk Southern filed with the Securities
and Exchange Commission a shelf registration statement on Form S-3
covering the issuance of up to $750 million principal amount of
unsecured debt securities. On March 13, 1991, Norfolk Southern issued
and sold $250 million principal amount of its 9 percent Notes due
March 1, 2021 (9% Notes). The 9% Notes are not redeemable prior to
PAGE 6
maturity and are not entitled to any sinking fund. Proceeds from the
sale of the 9% Notes were used to purchase and retire shares of
Norfolk Southern Common Stock and to retire short-term commercial
paper debt issued to fund previous share purchases.
On February 26, 1992, Norfolk Southern issued and sold
$250 million principal amount of its 7-7/8 percent Notes due
February 15, 2004 (7-7/8% Notes). The 7-7/8% Notes are not redeemable
prior to maturity and are not entitled to any sinking fund. Proceeds
from the sale of the 7-7/8% Notes were used to purchase and retire
shares of Norfolk Southern Common Stock and to retire short-term
commercial paper debt.
RAILROAD OPERATIONS. As of December 31, 1993, NS'
railroads operated 14,589 miles of road in the states of Alabama,
Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Maryland, Michigan, Mississippi, Missouri, New York, North Carolina,
Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West
Virginia, and the Province of Ontario, Canada. Of this total,
12,761 miles are owned, 677 miles are leased and 1,151 miles are
operated under trackage rights. Of the operated mileage, 11,870
miles are main line and 2,719 miles are branch line. In addition,
NS' railroads operate approximately 11,266 miles of passing,
industrial, yard and side tracks.
NS' railroads have major leased lines in North Carolina and
between Cincinnati, Oh., and Chattanooga, Tn. The North Carolina
leases, covering approximately 300 miles, expire at the end of 1994,
and NS' railroads are discussing possible renewals with the lessor. If
these leases are not renewed, NS' railroads could be required to
continue using the lines subject to conditions prescribed by the ICC or
they might find it necessary ultimately to operate over an alternate
route or routes. It is not expected that the resolution of this
matter, whether resulting in renewal of the leases, continued use of
the leased lines under prescribed conditions or operation over one or
more alternate routes, will have a material effect on NS' consolidated
financial position. The Cincinnati-Chattanooga lease, covering about
335 miles, expires in 2026, subject to an option to extend the lease
for an additional 25 years at terms to be agreed upon.
NS' lines carry raw materials, intermediate products and
finished goods primarily in the Southeast and Midwest and to and
from the rest of the United States and parts of Canada. These lines
also transport overseas freight through several Atlantic and Gulf
Coast ports. Atlantic ports served by NS include: Norfolk, Va.;
Morehead City, N.C.; Charleston, S.C.; Savannah and Brunswick, Ga.;
and Jacksonville, Fl. Gulf Coast ports served include: Mobile,
Al., and New Orleans, La.
The lines of NS' railroads reach most of the larger
industrial and trading centers of the Southeast and Midwest, with
the exception of those in central and southern Florida. Atlanta,
PAGE 7
Birmingham, New Orleans, Memphis, St. Louis, Kansas City (Missouri),
Chicago, Detroit, Cincinnati, Buffalo, Norfolk, Charleston, Savannah
and Jacksonville are among the leading centers originating and
terminating freight traffic on the system. In addition to serving
other established centers, its lines reach many industries, mines
(in western Virginia, eastern Kentucky and southern West Virginia)
and businesses located in smaller communities in its service area.
The traffic corridors carrying the heaviest volumes of freight
include those from the Appalachian coal fields of Virginia, West
Virginia and Kentucky to Norfolk and Sandusky, Oh.; Buffalo to
Chicago and Kansas City; Chicago to Jacksonville (via Cincinnati,
Chattanooga and Atlanta); and Washington, D.C./Hagerstown, Md., to
New Orleans (via Atlanta and Birmingham).
Buffalo, Chicago, Hagerstown, Jacksonville, Kansas City,
Memphis, New Orleans and St. Louis are major gateways for
interterritorial system traffic.
MOTOR CARRIER OPERATIONS. NAVL's principal transportation
activity is the domestic, irregular route common and contract carriage
of used household goods and special commodities between points in the
United States. NAVL also operates as an intrastate carrier of
property in 17 states.
Prior to its restructuring in 1993, NAVL's domestic motor
carrier business was organized into three primary divisions:
Relocation Services (RS) specializing in residential relocation of
household goods; High Value Products (HVP) specializing in office and
industrial relocations and transporting exhibits; and Commercial
Transport (CT) specializing in the transportation of truckload
shipments of general commodities. In 1993, NAVL underwent a
restructuring involving termination of the CT Division and sale of the
operations of Tran-Star, Inc. (Tran-Star), NAVL's refrigerated
trucking subsidiary. In 1993, NAVL discontinued CT's operations,
transferred some parts of CT's business to other divisions and began
selling CT's assets that are not needed in NAVL's other operations.
The sale of Tran-Star's operations was completed on December 31, 1993.
During 1993, the RS and HVP divisions conducted operations through
agents at 707 locations in the United States. Agents are local moving
and storage companies that provide NAVL with such services as
solicitation, packing and warehousing in connection with the movement
of household goods and specialized products. NAVL's domestic
operations are expected to be conducted principally through the RS and
HVP divisions in 1994 and thereafter.
Customized Logistics Services (CLS) was established in 1993
as an operating unit of the HVP Division. CLS' business is to focus
NAVL's resources to respond to a variety of customer needs for
integrated logistics services. The services include emergency parts
order fulfillment, time definite transportation, and returns and
merchandise recycling services.
PAGE 8
NAVL's foreign operations are conducted through the RS and
HVP Divisions and through foreign subsidiaries, including North
American Van Lines Canada, Ltd. The latter subsidiary provides motor
carrier service for the transportation of used household goods and
specialized commodities between most points in Canada through a
network of approximately 182 agent locations. NAVL's international
operations consist primarily of forwarding used household goods to and
from the United States and between foreign countries through a network
of approximately 350 foreign agents and representatives. NAVL's
international operations are structured to align them with the
services provided by its domestic operating divisions. All
international household goods operations and related subsidiaries in
Alaska, Canada and Panama are assigned to the RS Division. The
remaining international operations, which include subsidiaries in the
United States, Germany and the United Kingdom, are involved in the
transportation of selected general and specialized commodities and are
assigned to the HVP Division.
The RS Division successfully completed its negotiations in
the first quarter of 1992 to form a joint venture company known as UTS
Europe Holding BV (UTS). The new entity, which is headquartered in
Amsterdam, Netherlands, has been handling intra-European movement of
household goods since March 1, 1992. NAVL has a 40 percent interest
in UTS which is comprised of approximately 70 individual shareholders
in 65 locations throughout Europe. To date, national and regional
organizations have been formed under the UTS banner in Germany and the
Netherlands (founding members), with an 8 percent and 5 percent
interest in UTS, respectively. In addition, the United Kingdom
(8 percent interest in UTS), Belgium (5 percent interest) and the
Scandinavian countries (5 percent interest) have also formed under the
UTS banner.
TRIPLE CROWN OPERATIONS. Until April 1993, Norfolk
Southern's intermodal subsidiary, Triple Crown Services, Inc. (TCS),
offered intermodal service using RoadRailer (Registered
Trademark) (RT) equipment and domestic containers. RoadRailer(RT)
units are enclosed vans which can be pulled over highways in tractor-
trailer configuration and over the rails by locomotives. On April 1,
1993, the business, name and operations of TCS were transferred to
Triple Crown Services Company (TCSC), a partnership formed by
subsidiaries of Norfolk Southern and Consolidated Rail Corporation
(CR). RoadRailer(RT) equipment owned or leased by TCS (which was
renamed TCS Leasing, Inc.) is operated by TCSC. Because NS indirectly
owns only 50 percent of TCSC (an affiliate of CR also owns
50 percent), the revenues of TCSC are not consolidated with the
results of NS. TCSC offers door-to-door intermodal service using
RoadRailer(RT) equipment and domestic containers in the corridors
previously served by TCS, as well as service to the New York and New
Jersey markets via CR. Major traffic corridors include those between
New York and Chicago, Chicago and Atlanta and Atlanta and New York.
PAGE 9
TRANSPORTATION OPERATING REVENUES. NS' total
transportation operating revenues were $4.5 billion in 1993. These
revenues were received for the transportation of revenue freight:
262.3 million tons by rail and 3.2 million tons by motor carrier. Of
the rail tonnage, approximately 210.4 million tons originated on line,
approximately 222.8 million tons terminated on line (including
177.1 million tons of local traffic -- originating and terminating on
line) and approximately 6.2 million tons was overhead traffic (neither
originating nor terminating on line).
Revenue and revenue ton mile (one ton of freight moved one
mile) contributions by principal transportation operating revenue
sources for the period 1989 through 1993 are set forth in the
following table:
Year Ended December 31,
Principal Transportation ---------------------------------------------------
Operating Revenue Sources 1993 1992 1991 1990 1989
- ------------------------- ---- ---- ---- ---- ----
(Revenues in Millions and Revenue Ton Miles in Billions)
COAL
Revenues............... $1,213.3 $1,296.0 $1,330.3 $1,408.8 $1,299.0
% of total
transportation
operating revenues.... 27.2% 28.1% 29.9% 30.5% 28.7%
Revenue ton miles...... 41.4 41.9 42.7 46.0 41.8
PAPER/FOREST
Revenues............... $ 502.7 $ 499.5 $ 476.1 $ 486.5 $ 481.1
% of total
transportation
operating revenues.... 11.3% 10.9% 10.7% 10.5% 10.6%
Revenue ton miles...... 15.1 14.7 13.6 13.3 13.8
CHEMICALS
Revenues............... $ 472.9 $ 471.7 $ 449.7 $ 443.9 $ 436.9
% of total
transportation
operating revenues.... 10.6% 10.2% 10.1% 9.6% 9.6%
Revenue ton miles...... 14.7 14.3 13.6 12.8 12.2
AUTOMOTIVE
Revenues............... $ 429.5 $ 401.5 $ 325.9 $ 367.9 $ 407.2
% of total
transportation
operating revenues.... 9.6% 8.7% 7.3% 8.0% 9.0%
Revenue ton miles...... 4.2 3.7 3.0 3.7 4.1
AGRICULTURE
Revenues............... $ 319.7 $ 301.4 $ 293.6 $ 299.6 $ 286.8
% of total
transportation
operating revenues.... 7.2% 6.6% 6.6% 6.5% 6.3%
Revenue ton miles...... 13.6 12.6 12.2 11.3 12.1
PAGE 10
Principal Year Ended December 31,
Transportation Operating ---------------------------------------------------
Revenue Sources (cont'd) 1993 1992 1991 1990 1989
- ------------------------- ---- ---- ---- ---- ----
(Revenues in Millions and Revenue Ton Miles in Billions)
METALS/CONSTRUCTION
Revenues............... $ 296.1 $ 276.3 $ 274.0 $ 305.6 $ 317.9
% of total
transportation
operating revenues.... 6.7% 6.0% 6.1% 6.6% 7.0%
Revenue ton miles...... 9.6 8.5 8.2 9.1 9.2
INTERMODAL
(Trailers and Containers)
Revenues............... $ 371.9 $ 341.0 $ 324.7 $ 300.1 $ 309.9
% of total
transportation
operating revenues.... 8.3% 7.4% 7.3% 6.5% 6.8%
Revenue ton miles...... 13.0 11.9 10.4 10.1 9.9
OTHER INTERMODAL RELATED
Revenues............... $ 18.3* $ 67.9 $ 55.9 $ 50.9 $ 41.2
% of total
transportation
operating revenues.... 0.4% 1.5% 1.3% 1.1% 0.9%
Revenue ton miles...... -- -- -- -- --
-------- -------- -------- -------- --------
Total Railway Freight
Revenues.............. $3,624.4 $3,655.3 $3,530.2 $3,663.3 $3,580.0
Railway revenue ton miles 111.6 107.6 103.7 106.3 103.1
OTHER RAILWAY OPERATING
Revenues............... $ 121.5 $ 121.7 $ 123.8 $ 122.7 $ 114.1
% of total
transportation
operating revenues.... 2.7% 2.6% 2.8% 2.7% 2.5%
-------- -------- -------- -------- --------
Total Railway Operating
Revenues.............. $3,745.9 $3,777.0 $3,654.0 $3,786.0 $3,694.1
MOTOR CARRIER
Revenues............... $ 714.2 $ 829.6 $ 797.3 $ 831.0 $ 841.9
% of total
transportation
operating revenues.... 16.0% 18.0% 17.9% 18.0% 18.6%
Revenue Ton Miles...... 2.7 4.4 4.4 4.7 4.8
-------- -------- -------- -------- --------
Total Transportation
Operating Revenues..... $4,460.1 $4,606.6 $4,451.3 $4,617.0 $4,536.0
Total Revenue Ton Miles.. 114.3 112.0 108.1 111.0 107.9
Note: Revenue ton miles (RTMs) for 1989 and 1990 have been restated from
"shortest distance" miles to "actual route" miles. RTMs for 1990
through 1992 have been restated from a one-month-delay basis to
a current-month basis.
* See discussion on page 12 regarding Triple Crown(RT) revenues.
PAGE 11
COAL TRAFFIC - The commodity group moving in largest
tonnage volume over NS' railroads is coal, coke and iron ore, most of
which is bituminous coal. NS' railroads originated 112.1 million tons
of coal, coke and iron ore in 1993 and handled a total of
118.0 million tons. Originated tonnage decreased 5 percent from
118.0 million tons in 1992, and total tons handled decreased 5 percent
from 124.4 million tons. Revenues from coal, coke and iron ore, which
accounted for 27 percent of NS' total transportation operating
revenues and 36 percent of total revenue ton miles in 1993, were
$1.21 billion, a decrease of 6 percent from $1.30 billion in 1992.
The following table shows total coal tonnage originated on
NS' lines, received from connections and handled for the five years
ended December 31, 1993:
Tons of Coal (Millions)
---------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Originated 109.8 115.5 116.8 126.6 116.2
Received 5.9 6.3 6.5 6.8 4.2
----- ----- ----- ----- -----
Handled 115.7 121.8 123.3 133.4 120.4
Note: Coal tonnage for 1989 and 1990 has been restated from
a settled basis to a movement basis.
Of the 109.8 million tons of coal originating on NS
railroad lines in 1993, the approximate breakdown is as follows:
37.9 million tons from West Virginia, 37.6 million tons came from
Virginia, 22.9 million tons from Kentucky, 7.6 million tons from
Alabama, 1.7 million tons from Tennessee, 1.1 million tons from
Illinois, and 1.0 million tons from Indiana. Of this NS-origin coal,
approximately 25.3 million tons moved for export, principally through
NS pier facilities at Norfolk (Lamberts Point), Va.; 20.1 million tons
moved to domestic and Canadian steel industries; 55.6 million tons of
steam coal moved to electric utilities; and 8.8 million tons moved to
other industrial and miscellaneous users. NS' railroads moved
9.7 million tons of originated coal to various docks on the Ohio River
for further movement by barge and 5.1 million tons to various Lake
Erie ports. Other than coal moving for export, virtually all coal
tonnage handled by NS' railroads was terminated in states situated
east of the Mississippi River.
Total NS coal tonnage handled through all system ports in
1993 was 42.4 million. Of this total, 65 percent moved through the
pier facilities at Lamberts Point. In 1993, total tonnage handled at
Lamberts Point, including coastwise traffic, was 27.6 million tons, a
20 percent decrease from the 34.7 million tons handled in 1992.
PAGE 12
The quantities of NS coal handled for export only through
Lamberts Point for the five years ended December 31, 1993, were as
follows:
Export Coal through Lamberts Point
(Millions of tons)
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Originated 24.6 30.8 34.3 35.1 30.9
Handled 24.9 31.2 34.6 35.4 31.4
The recession in Europe and high stockpiles of coal
overseas continued to affect NS' railroads' export coal shipments in
1993, as did the UMWA strike at several mines served by NS. Domestic
coal was essentially flat, compared with 1992, although the market for
utility coals increased slightly because of the hot weather in our
service region and continued spot tonnage purchases. Increased
shipments to steel producers were attributed to strike-related
problems encountered by suppliers served by other carriers; the
industrial market stayed even with the previous year.
MERCHANDISE RAIL TRAFFIC - The merchandise traffic group
consists of Intermodal and five major commodity groupings
(Paper/Forest; Chemicals; Automotive; Agriculture; and
Metals/Construction). Total NS railroad merchandise revenues
increased in 1993 to $2.41 billion, a 2 percent increase over 1992.
Railroad merchandise carloads handled in 1993 were 2.82 million,
compared with 2.66 million handled in 1992, an increase of 6 percent.
Intermodal results reflect the effect of the formation, in
April 1993, of Triple Crown Services Company (TCSC), a partnership
between NS and Conrail subsidiaries (see also page 8). This
partnership provides RoadRailer(RT) and domestic container services
previously offered by a wholly owned NS subsidiary. Because NS owns
only 50 percent of TCSC, its revenues are not consolidated, and NS'
1993 intermodal revenues include only revenues for rail service
provided by NS to the partnership. Excluding this partnership effect,
intermodal revenues would have increased 10 percent, and merchandise
revenues would have increased 5 percent.
In 1993, 97.8 million tons of merchandise freight, or
approximately 68 percent of total rail merchandise tonnage handled by
NS, originated on line. The balance of NS' railroad merchandise
traffic was received from connecting carriers (mostly railroads, with
some intermodal, water and highway as well), usually at
interterritorial gateways. The principal interchange points for NS-
received traffic included Chicago, Memphis, New Orleans, Cincinnati,
Kansas City, Detroit, Hagerstown, St. Louis/East St. Louis, and
Louisville.
PAGE 13
The economy improved in 1993, but the pace of recovery was
still below the average of post-war recoveries. All merchandise
commodity groups showed improvement over 1992. The biggest gains were
in Intermodal, up $34.1 million (adjusted for the effect of the TCSC
partnership with Conrail); Automotive, up $28.0 million; Metals/
Construction, up $19.8 million and Agriculture, up $18.3 million.
There were smaller gains in Paper/Forest and Chemicals.
PAPER/FOREST traffic (including paper, paperboard, wood
pulp, pulpwood, wood chips, lumber, kaolin clay and waste paper)
accounted for 11 percent of NS' total transportation operating
revenues and 13 percent of total revenue ton miles during 1993.
Compared with 1992, Paper/Forest revenues increased 1 percent and
revenue ton miles increased 3 percent.
Weak domestic and overseas demand for paper depressed NS
shipments for much of the year. Lumber, however, posted a 4 percent
gain in revenue due to a strong recovery in housing construction.
Moderate growth, somewhat higher than industry production, is expected
over the next few years due to growth in market share.
CHEMICALS traffic (including petroleum products, plastics,
fertilizers, nonmetallic minerals, sulfur, chloral-alkali chemicals,
rubber, miscellaneous chemicals and waste/hazardous chemicals)
accounted for 11 percent of NS' total transportation operating
revenues and 13 percent of total revenue ton miles during 1993.
Compared with 1992, NS' total revenue for chemicals was up 0.3 percent
and revenue ton miles increased 3 percent. The lower gain in revenue
was due to a change in the mix of traffic.
Gains in general chemicals and plastics were offset by
weakness in movements of export fertilizer due to sluggish conditions
overseas. Stronger growth is expected in 1994 and beyond, paced by
additional rail-truck distribution facilities for bulk chemicals.
While environmental concerns could adversely affect production of
pesticides and chlorine, increased environmental awareness is likely
to have a positive impact on movements of recyclables, hazardous
wastes and alternative fuels such as ethanol.
AUTOMOTIVE traffic (including motor vehicles, vehicle
parts, miscellaneous transportation and ordnance, and tires) accounted
for 10 percent of NS' total transportation operating revenues and
4 percent of revenue ton miles during 1993. Compared with 1992, NS
Automotive revenues increased 7 percent and revenue ton miles
increased 14 percent.
PAGE 14
The gain was due to strong demand for vehicles produced at
plants served by NS. NS' largest customer, Ford Motor Company,
produced the top-selling automobile and truck in 1993. In addition,
NS benefited from a full year of production at the Ford/Nissan plant
located near Avon Lake, Oh. Successful marketing efforts, such as an
innovative program with GM for just-in-time movement of auto parts,
also contributed to the gain.
Further growth in Automotive is expected in 1994 and
beyond, as U.S. automotive production is anticipated to increase for
the next few years. Within this growing market, NS will pursue
innovative marketing programs and aggressive industrial development.
From 1994 to 1997, operations will begin at three new or expanded
automotive assembly plants located on NS--the second Toyota Plant at
Georgetown, Ky., in 1994; BMW at Greer, S.C., in 1995; and Mercedes-
Benz at Tuscaloosa, Al., in 1997. The retooling of GM's Wentzville,
Mo., and Doraville, Ga., plants for van production should also
increase traffic.
AGRICULTURE traffic (including grains and soybeans, feed
and feed ingredients, sweeteners, beverages, consumer products, and
various other agricultural and food commodities) accounted for
7 percent of NS' total transportation operating revenues and 12 percent
of total revenue ton miles during 1993. Compared with 1992,
agricultural revenues increased 6 percent and revenue ton miles
increased 8 percent.
In the early part of the year, NS benefited from a record
harvest, that continued well into 1993. During the summer, the flood
in the Midwest diverted traffic to rail that formerly moved by barge.
In the fall, good crop conditions in NS' sourcing areas and poor
conditions elsewhere produced strong NS traffic gains.
Although the special conditions present during 1993 are not
likely to recur in 1994, a small increase in agriculture revenue is
expected, driven by growth in poultry production in the Southeast, a
prime NS feed grain market.
METALS/CONSTRUCTION traffic (including aluminum ore, iron
and steel, aluminum products, scrap metal, machinery, sand and gravel,
cement, brick, miscellaneous construction, and nonhazardous waste)
accounted for 7 percent of NS' total transportation operating revenues
and 9 percent of total revenue ton miles during 1993. Compared with
1992, NS' total revenues for Metals/Construction were up 7 percent and
revenue ton miles were up 13 percent.
Most of the revenue gain was in shipments of iron and
steel, where strong industry production and new plants located on NS'
lines boosted revenue $10 million. Shipments of construction
commodities were also strong due to a recovery in housing.
PAGE 15
Further gains are expected over the next few years. NS has
initiatives under way intended to win back truck business in aluminum,
and several new movements of municipal solid waste are expected.
INTERMODAL traffic (including trailers, containers, and
Triple Crown) accounted for 8 percent of NS' total transportation
operating revenues and 11 percent of total revenue ton miles during
1993. Compared with 1992, intermodal revenues increased 9 percent,
and revenue ton miles increased 9 percent.
Intermodal growth in 1993 was led by a 21 percent increase
in Triple Crown activity due to strong automotive shipments and
expansion of service to the Northeast through the partnership with
Conrail. Container revenues were up 6 percent, a smaller increase
than previous years due to less international traffic caused by the
continuing recession in Europe and Japan. Trailer revenue was up
11 percent, boosted by gains from haulage arrangements with truckload
carriers.
Strong growth is expected in 1994 and for the next several
years. TCSC should continue to grow as service is expanded to
additional markets. Container growth is expected to improve as
recoveries overseas produce steady growth in international shipments.
Trailer business also is expected to grow, as leading truckload
carriers, such as Schneider National and J.B. Hunt, use rail for the
long-haul portion of their shipments.
OTHER INTERMODAL primarily consists of drayage from or to
rail points and is exclusively related to Triple Crown activity (see
discussion of new partnership on page 12). The figures shown for 1993
reflect the results of NS' wholly owned subsidiary which performed
RoadRailer(RT) services only for the first three months of 1993 (up to
the inception of the TCSC partnership).
MOTOR CARRIER TRAFFIC - NAVL's traffic volume decreased
during 1993; total revenues from operations were $714.2 million, down
13.9 percent from 1992, including a 16.2 percent decrease resulting
from NAVL's restructuring. NAVL's expenses decreased 11.5 percent in
1993, also resulting from the restructuring.
NAVL's domestic motor carrier operations are conducted
primarily through its RS and HVP divisions. In 1993, total domestic
shipments for these divisions, including the CT Division through
June 25, 1993, numbered 550,207, down 12.8 percent from 1992,
resulting from the restructuring. Further comments about each
division follow.
PAGE 16
Domestic shipments of used household goods transported by
the RS Division fall into three market categories. Approximately
50 percent of the domestic shipment volume comes from the sale of
moving services to individual consumers. Another 35 percent comes
from corporations and other businesses that pay for the relocation of
their employees. The remaining 15 percent is derived from military,
government and other sources. Total domestic RS Division shipments in
1993 represented 21 percent of the NAVL domestic motor carrier
shipments transported by the three primary divisions. Total domestic
revenues from this division were down 2 percent, compared with 1992,
and represented 38 percent of total revenues from operations.
The HVP Division specializes in providing transportation
services in less-than-truckload (LTL) and truckload (TL) quantities to
manufacturers of sensitive products. These products are divided into
the following categories: office furniture and equipment, exhibits
and displays, electronic equipment, industrial machinery, commercial
relocation, LTL furniture and selected general commodities. Total
HVP Division shipments transported in 1993, including TL and LTL,
represented 43 percent of the NAVL domestic motor carrier shipments
transported by the three primary divisions. Revenues from this
division were up 15 percent from 1992 levels and represented
33 percent of total revenues from operations.
The operations of the CT Division were discontinued in
1993. Total CT Division shipments transported in 1993 represented
36 percent of NAVL's total domestic motor carrier shipments
transported for the entire year by the three primary divisions.
Revenues from this division were down 50 percent from 1992 levels and
represented 19 percent of total revenues from operations.
FOREIGN OPERATIONS include NAVL's Canadian subsidiary,
North American Van Lines Canada, Ltd., as well as operating
subsidiaries in England, Germany and Panama. Foreign operations
involving the transportation of household goods and selected general
and specialized commodities generated revenues of $69.5 million in
1993, down 10 percent from 1992. Revenues from foreign operations
represented 10 percent of NAVL's total revenue.
PAGE 17
RAIL OPERATING STATISTICS. The following table sets forth
certain statistics relating to NS' railroad operations during the
periods indicated:
Year Ended December 31,
----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Rail revenue ton
miles (billions) 111.6 107.6 103.7 106.3 103.1
Freight train miles
traveled (millions) 43.3 41.1 37.8 36.8 39.2
Revenue tons per carload 65.1 66.0 66.7 68.7 66.8
Revenue per ton mile $0.0325 $0.0340 $0.0341 $0.0345 $0.0347
Revenue tons per train 2,577 2,618 2,743 2,884 2,629
Revenue ton miles
per man-hour worked 2,304 2,184 2,023 1,955 1,835
Percentage ratio of
railway operating
expenses to railway
operating revenues 75.6 75.5 78.3* 78.4 77.5
Note:Revenue ton miles (RTMs) for 1989 through 1990 have been
restated from a "shortest route" basis to an "actual route"
basis. RTMs for 1990 through 1992 have been restated from a
one-month delay basis to a current-month basis.
* Excluding the special charge in 1991 which increased railway
operating expenses by $483 million (see Note 15 of Notes to
Consolidated Financial Statements, page 85).
FREIGHT RATES. In the pricing of freight services, NS'
railroads continued in 1993 to increase reliance on private
contracts which, coupled with traffic that has been exempted from
regulation by the ICC (e.g., boxcar and intermodal traffic),
presently account for over 80 percent of freight operating revenues.
Thus, a major portion of NS' railroads' freight business is not
economically regulated by the government. In general, market forces
have been substituted for government regulation and now are the
primary determinant of rail service prices.
In 1993, the ICC found NS' railroads "revenue adequate"
based on results for the year 1992. A railroad is "revenue
adequate" under the Interstate Commerce Act when its return on net
investment exceeds the rail industry's cost of capital. The
condition of "revenue adequacy" determines whether a railroad can
take advantage of a provision in the Interstate Commerce Act
allowing freedom to increase regulated rates by a specific
percentage. However, with the decreasing importance of regulated
tariff traffic to NS' railroads, the ICC's "revenue adequacy"
findings have less impact than formerly.
PAGE 18
Pricing and service flexibility afforded by the Motor
Carrier Act of 1980 and the Household Goods Transportation Act of
1980 has resulted in NAVL's increased emphasis on innovative pricing
action in order to remain competitive. Since 1980, NAVL has
increasingly operated as a contract carrier. As of December 31,
1993, domestic contract carriage agreements accounted for the
following percentage of shipments: RS Division, 31.9 percent and
HVP Division, 72.7 percent; the CT Division was discontinued in June
of 1993.
PASSENGER OPERATIONS. Regularly scheduled passenger
operations on NS' lines consist of Amtrak trains operating between
Alexandria and New Orleans, and between Charlotte and Selma, N.C.
Former Amtrak operations between East St. Louis and Centralia, Il.,
were discontinued by Amtrak November 3, 1993. Commuter trains
continued operations on the NS line between Manassas and Alexandria
under contract with two transportation commissions of the
Commonwealth of Virginia, providing for reimbursement of related
expenses incurred by NS. During 1993, a lease of the Chicago to
Manhattan, Il., line to the Commuter Rail Division of the Regional
Transportation Authority of Northeast Illinois replaced a purchase
of service agreement by which NS had provided commuter rail service
for the Authority.
OTHER RAILWAY OPERATIONS. Revenues from switching,
demurrage and miscellaneous services amounted to $121.5 million, or
approximately 3 percent of total transportation operating revenues,
during 1993 and $121.7 million, or approximately 3 percent of total
transportation operating revenues, in 1992.
NONCARRIER OPERATIONS. Norfolk Southern's noncarrier
subsidiaries engage principally in the acquisition and subsequent leasing
of coal, oil, gas and timberlands, the development of commercial real
estate and the leasing or sale of rail property and equipment. In 1993,
no such noncarrier subsidiary or industry segment grouping of noncarrier
subsidiaries met the requirements for a reportable business segment set
forth in Statement of Financial Accounting Standards No. 14.
In January 1994, certain Norfolk Southern subsidiaries
purchased rights with respect to an estimated 210 million recoverable
tons of coal located primarily in eastern Kentucky and southern West
Virginia. The cash purchase price for the acquisition was $71 million.
These coal reserves have been leased to various producers who are to
operate and mine the properties under long-term leases providing royalty
income to NS.
PAGE 19
RAILWAY PROPERTY.
EQUIPMENT - As of December 31, 1993, NS owned or leased the
following units of equipment:
Number of Units
------------------------------- Capacity
Owned* Leased Total of Equipment
----- ------ ----- ------------
Type of Equipment
- -----------------
Locomotives: (Horsepower)
Multiple purpose 1,810 -- 1,810 5,311,200
Switching 163 -- 163 240,250
Auxiliary units 80 -- 80 --
--------- ------- -------- ----------
Total locomotives 2,053 -- 2,053 5,551,450
========= ======= ======== ==========
Freight Cars: (Tons)
Hopper 40,638 129 40,767 4,030,445
Box 23,213 2 23,215 1,664,481
Covered Hopper 15,636 554 16,190 1,603,126
Gondola 15,780 50 15,830 1,474,009
Flat 4,683 6 4,689 295,259
Caboose 375 -- 375 --
Other 2,648 830 3,478 343,697
--------- ------- -------- ----------
Total freight cars 102,973 1,571 104,544 9,411,017
========= ======= ======== ==========
Other:
Work equipment 6,956 5 6,961
Vehicles 3,939 -- 3,939
Highway trailers 3,393 2,000 5,393
RoadRailers(RT) 1,944 -- 1,944
Miscellaneous 1,069 -- 1,069
--------- ------- --------
Total other 17,301 2,005 19,306
========= ======= ========
* Includes equipment leased to outside parties and equipment subject
to equipment trusts, conditional sale agreements and capitalized
leases.
PAGE 20
The following table indicates the number and age of locomo
tives and freight cars owned or leased by NS at December 31, 1993:
Year Built
----------------------------------------------------------------
1983- 1977- 1976 &
1993 1992 1991 1990 1989 1988 1982 Before Total
---- ---- ---- ---- ---- ---- ---- ------ -----
Locomotives:
Number of
units 31 55 53 46 80 338 607 843 2,053
Percent of
fleet 1.5 2.7 2.6 2.2 3.9 16.5 29.5 41.1 100.0
Freight cars:
Number of
units 787 502 557 1,737 2,066 2,736 20,826 75,333 104,544
Percent of
fleet 0.8 0.5 0.5 1.7 2.0 2.6 19.9 72.0 100.0
The average age of the freight car fleet at December 31,
1993, was 20.8 years. During 1993, NS retired 5,576 freight cars. As
of December 31, 1993, the average age of the locomotive fleet was
14.6 years. During 1993, NS retired 37 locomotives, the average age
of which was 24.7 years. Since 1989, NS has rebodied over 14,000 coal
cars. As a result, the remaining serviceability of the freight car
fleet is greater than is indicated by the percentage of freight cars
built in earlier years.
NS continues freight car and locomotive maintenance
programs to ensure the highest standards of safety, reliability,
customer satisfaction and equipment marketability. In recent years,
as illustrated in the table below, the bad order ratio has risen or
remained fairly stable primarily due to the storage of certain types
of cars which are not in high demand. Funds were not spent to repair
cars for which present and future customers' needs could be adequately
met without such repair programs. Also, NS' own standards of what
constitutes a "serviceable" car have risen, and NS continues a
rational disposition program for underutilized, unserviceable and
overage cars.
Annual Average
--------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Freight Cars (excluding cabooses):
NS 7.3% 7.6% 6.5% 6.4% 6.3%
All Class I railroads 7.1 7.5 7.3 7.7 8.4
Locomotives:
NS 4.3 4.4 4.3 4.2 4.3
Note: Since 1992, the locomotive bad order ratio has been calculated
excluding stored locomotives. Years prior to 1992 have been
restated to conform to this presentation.
PAGE 21
TRACKAGE - All NS trackage is standard gauge, and the rail
in approximately 95 percent of the main line trackage (including
first, second, third and branch main tracks, all excluding trackage
rights) is heavyweight rail ranging from 90 to 155 pounds per yard.
Of the 23,512 miles of track maintained by NS as of December 31, 1993,
15,621 were laid with welded rail.
The density of traffic on NS running tracks (main line
trackage plus passing tracks) during 1993 was as follows:
Gross tons of
freight carried
per track mile Track miles Percent
(Millions) of running tracks* of total
---------------- ----------------- --------
0-4 5,614 34
5-19 5,404 32
20 and over 5,751 34
------ ---
16,769 100
*Excludes trackage rights
The following table summarizes certain information about
NS' track roadway additions and replacements during the last five
years:
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Track miles of rail installed 574 660 679 743 718
Crossties installed (millions) 1.6 1.9 1.9 1.9 2.0
Miles of track surfaced 5,048 5,690 5,646 5,844 5,708
MICROWAVE SYSTEM - The NS microwave system, consisting of
6,584 radio path miles, 374 active stations and 7 passive repeater
stations, provides communication services between Norfolk, Buffalo,
Detroit, Fort Wayne, Chicago, Kansas City, St. Louis, Washington,
D.C., Atlanta, New Orleans, Jacksonville, Memphis, Cincinnati and most
operating locations between these cities. The microwave system
provides approximately 2,152,600 individual voice channel miles of
circuits, and NS began a conversion of the system from analog to
digital technology in 1993. Conversion is under way on all microwave
facilities between St. Louis, Mo., and Danville, Ky.; the process is
also under way between Roanoke and Norfolk, Va. The microwave
communication system is used principally for voice communications,
VHF radio control circuits, data and facsimile transmissions, traffic
control operations, AEI data transmissions, and relay of intelligence
from defective equipment detectors. Extension of microwave
communications to low density or operations support facilities is
accomplished via microwave interface to buried fiber-optic or copper
cables.
PAGE 22
TRAFFIC CONTROL - Of a total of 13,438 road miles operated
by NS, excluding trackage rights over foreign lines, 5,274
road miles are governed by centralized traffic control systems and
2,734 road miles are equipped for automatic block system operation.
COMPUTERS - Data processing facilities connect the yards,
terminals, transportation offices, rolling stock repair points, sales
offices and other key locations on NS to the central computer complex
in Atlanta, Ga. System operating and traffic data are compiled and
stored to provide customers with information on their shipments
throughout the system. Data processing facilities are capable of
providing current information on the location of every train and each
car on line, as well as related waybill and other train and car
movement data. Additionally, this facility affords substantial
capacity for, and is utilized to assist management in the performance
of, a wide variety of functions and services, including payroll, car
and revenue accounting, billing, material management activities and
controls, and special studies.
OTHER - NS has extensive facilities for support of railroad
operations, including freight depots, car construction shops,
maintenance shops, office buildings, and signals and communications
facilities.
MOTOR CARRIER PROPERTY.
REAL ESTATE - NAVL owns and leases real estate in support
of its operations. Principal real estate holdings include NAVL's
headquarters complex and warehouse and vehicle maintenance facilities
in Fort Wayne, Indiana, vehicle maintenance facilities in Fontana,
California, and terminal facilities in Grand Rapids, Michigan, and
Great Falls, Montana. NAVL also leases facilities throughout the
United States for sales offices, maintenance facilities and for
warehouse, terminal and distribution center operations.
EQUIPMENT - NAVL relies extensively on independent
contractors (owner-operators) who supply the power equipment
(tractors) used to pull NAVL trailers. Agents also provide a
substantial portion of NAVL's equipment needs, particularly for the
transportation of household goods, by furnishing tractors and trailers
on either a permanent or an intermittent lease basis.
As of December 31, 1993, agents and owner-operators
together supplied 4,280 tractors, representing 71 percent of the U.S.
power equipment operated in NAVL service. Also as of December 31,
1993, NAVL owned 6,981 trailer units, representing 73 percent of the
U.S. trailer fleet in NAVL service. The remaining 27 percent was
provided mainly by agents and owner-operators. Agents also provided
1,145 straight trucks, or 97 percent of such units in NAVL service.
PAGE 23
NAVL has an extensive program for the repair and
maintenance of its trailer equipment. In 1993, work orders on
approximately 18,574 trailers were completed at NAVL's facility in
Fort Wayne. As of December 31, 1993, the average age of trailer
equipment in the NAVL fleet was 6.7 years.
COMPUTERS - NAVL relies extensively on data processing
facilities for shipment planning and dispatch functions as well as
shipment tracing. Data processing capabilities are also utilized in
revenue processing functions, driver and agent account settlement
activity, and internal accounting and record keeping service.
In 1993, NAVL continued implementation of
WORLDTRAC(Trademark), a satellite-based mobile communications and
position-reporting system. The system allows NAVL, through computers
installed in cabs, to communicate instantaneously with fleet drivers
while enroute to optimize customer service and to insure customer
retention. The ability to locate a driver and communicate instantly
has resulted in improved equipment utilization. As of December 31,
1993, satellite units were in place on approximately 1,710 tractors
throughout the NAVL fleet. This is a substantial decrease from 1992
due to the discontinuation of the CT Division's operations.
ENCUMBRANCES. A substantial portion of NS' properties is
subject to liens securing, as of December 31, 1993 and 1992,
approximately $125.9 million and $148.5 million of mortgage debt,
respectively. In addition, certain equipment is subject to the prior
lien of equipment financing obligations amounting to approximately
$551.4 million as of December 31, 1993, and $593.7 million at
December 31, 1992.
Many of the tractors utilized in NAVL service are purchased
by NAVL from manufacturers and resold to agents and owner-operators
under a NAVL-sponsored financing program. At December 31, 1993, NAVL
had $27.1 million in such tractor contracts receivable. This program
allows NAVL to generate the funds necessary to purchase the tractors
and to resell them under favorable financing terms. The equipment is
sold under conditional sales contracts with the agents and owner-
operators.
PAGE 24
CAPITAL EXPENDITURES. During the five calendar years ended
December 31, 1993, NS' capital expenditures for road, equipment and
other property were as follows:
Capital Expenditures
-------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(In millions of dollars)
Transportation property
Road $ 417.9 $ 426.5 $ 395.4 $ 391.5 $ 351.5
Equipment 240.5 281.3 235.2 295.5 294.3
Other property 10.8 8.3 82.8 9.9 5.9
------- ------- ------- ------- -------
Total $ 669.2 $ 716.1 $ 713.4* $ 696.9* $ 651.7
======= ======= ======= ======= =======
* Includes noncash property acquisitions of $54.0 million in 1991
and $27.2 million in 1990.
NS' capital spending and maintenance programs are and have
been designed to assure the Corporation's ability to provide safe,
efficient and reliable transportation services. For 1994, NS is
planning $634 million of capital spending, of which $627 million will
be for railway projects and $7 million for motor carrier property. NS
anticipates new equipment financing of approximately $72 million in
1994. Looking further ahead, rail capital spending is likely to
increase moderately over the next few years. The proposed
construction of a $100 million coal ground storage facility in Isle of
Wight County, Va., may affect capital spending in future years.
However, because of delays in the permitting process and reduced
demand for export coal, any significant spending on this project is
not expected until after 1994. In addition to boosting capacity, this
new facility should further increase the efficiency of coal
transportation service and reduce the need for new coal hopper cars.
A substantial portion of future capital spending is expected to be
funded through internally generated cash, although debt financing will
continue as the primary funding source for equipment acquisitions.
In January 1994, NS spent $71 million for coal reserves
(see discussion on page 18).
ENVIRONMENTAL MATTERS. Compliance with federal, state and
local laws and regulations relating to the protection of the
environment is a principal NS goal. To date, such compliance has not
affected materially NS' capital additions, earnings, liquidity or
competitive position.
PAGE 25
Costs for environmental protection for 1993 were
approximately $32.9 million, of which $28.9 million were operating
expenses and $4.0 million were capitalized. Such NS expenditures
historically have been associated with the cleanup of real estate used
for operating and nonoperating purposes, solid/hazardous waste
handling and disposal, water pollution control, asbestos removal
projects and removal/remediation work related to underground tanks.
To promote achievement of NS' environmental objectives and
to assure continuous improvement in its programs, environmental
engineers perform ongoing analyses of all identified sites, and --
after consulting with counsel -- any necessary adjustments to initial
liability estimates are recorded (and expensed or capitalized, as
appropriate). Evaluations of other sites are ongoing. NS also has
established an Environmental Policy Council, composed of senior
managers, to prescribe and direct its environmental initiatives and
undertake environmental awareness programs through which NS employees
will receive training.
Certain NS rail subsidiaries have received notices from the
Environmental Protection Agency that they are potentially responsible
parties under the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA) which generally imposes joint and several
liability for cleanup costs. State agencies also have notified
certain NS rail subsidiaries that they may be potentially responsible
for environmental damages, and in several instances they have agreed
voluntarily to initiate cleanup.
For CERCLA sites and all other known environmental
incidents where loss or liability is probable, NS has recorded an
estimated liability. The amount of that liability, which includes
estimated costs of remediation (and any associated restoration) on a
site-by-site basis, is expected to be paid over several years.
Although the estimated liability usually is expensed in the year it is
recorded, certain expenditures relating to real estate development
projects have been capitalized. Claims, if any, against third parties
for recovery of remediation costs incurred by NS are reflected as
receivables in the balance sheet and not netted against the associated
NS liability.
Estimates of a company's potential financial exposure even
for known environmental claims or incidents are necessarily imprecise
because of the widely varying costs of available remediation
techniques, the difficulty of determining in advance the nature and
extent of contamination and each potential participant's share of an
estimated loss, and evolving statutory and regulatory standards
governing liability.
The risk of incurring environmental liability -- for acts
and omissions, both past and current -- is inherent in railroad
operations. Moreover, some of the commodities, particularly those
PAGE 26
classified as hazardous materials, in NS' traffic mix can pose special
risks, which NS and its subsidiaries work diligently to minimize. In
addition, several NS subsidiaries have land holdings that may be
leased (and operated by others) or held for sale. Because certain
conditions may exist on these properties for which NS ultimately may
bear some financial responsibility, there can be no assurance that NS
will not incur liabilities or costs, the amount and materiality of
which, to a single accounting period or in the aggregate, cannot be
estimated reliably now, related to environmental problems that are
latent or undiscovered.
However, based on its assessments of the facts and
circumstances now known and after consulting with its legal counsel,
Management believes that it has recorded appropriate estimates of
liability for those environmental matters of which NS is aware.
At year end, a grand jury investigation was under way
regarding possible violations of certain environmental statutes in
1989 at Moberly Yard, Moberly, Mo. A more detailed report of this
incident, including information concerning its resolution since year
end, is set forth under the heading "Item 3. Legal Proceedings."
EMPLOYEES. NS employed an average of 29,304 employees in
1993, compared with an average of 30,135 in 1992. The approximate
average cost per employee during 1993 was $39,581 in wages and $18,711
in employee benefits. Approximately 72 percent of these employees are
represented by various labor organizations.
GOVERNMENT REGULATION. In addition to environmental,
safety, securities and other regulations generally applicable to all
businesses, NS' railroads are subject to regulation by the ICC,
various state regulatory agencies and the Department of
Transportation. The ICC has jurisdiction over many rates, routes,
conditions of service, and the extension or abandonment of rail lines.
The ICC also has jurisdiction over the consolidation, merger or
acquisition of control of and by rail common carriers. The Department
of Transportation regulates certain track and mechanical equipment
standards.
The relaxation of economic regulation of the railroads by
the ICC, started over a decade ago under the Staggers Rail Act of
1980, has continued. The ICC has recently authorized the partial
deregulation of the charges railroads pay for the use of rail cars.
Certain transactions and classes of traffic have been exempted from
ICC regulation. Those most significant for NS' railroads are
TOFC/COFC (i.e., "piggyback") business, rail boxcar traffic, lumber,
manufactured steel, automobiles and certain bulk commodities such as
sand, gravel, pulpwood and wood chips for paper manufacturing.
Transportation contracts on regulated shipments, after approval by the
ICC, effectively remove those shipments from regulation as well. Over
80 percent of NS' freight revenues come from either exempt traffic or
traffic moving under ICC approved transportation contracts.
PAGE 27
For motor carrier operations conducted by NAVL, the ICC and
Department of Transportation remain the principal regulatory entities.
The ICC continues to exercise jurisdiction over common carrier rates,
the relationship between carriers and owner-operators, and carrier
practices relating to the transportation of household goods. The
primary focus of the Department of Transportation is on driver
qualification and safety standards, including maximum trailer length
and width.
COMPETITION. There is continuing strong competition among
rail, water and highway carriers. Price is usually only one factor of
importance as shippers and receivers choose a transport mode and
specific hauling company. Inventory carrying costs, service
reliability, ease of handling and the desire to avoid loss and damage
during transit are increasingly important considerations, especially
for higher valued finished goods, machinery, and consumer products.
Even for raw materials, semi-finished goods, and work-in-process,
users are increasingly sensitive to transport arrangements which
minimize problems at successive production stages.
NS' primary rail competitor is the CSX system, which
operates throughout much of the same territory served by NS. Other
railroads also operate in parts of the territory. NS also competes
with motor carriers, water carriers and shippers who have the
additional option of handling their own goods in private carriage.
Increasingly, cooperative strategies between railroads (such as the
TCSC partnership involving NS and CR, see page 8) and between
railroads and motor carriers enable carriers to compete more
effectively in specific markets.
NAVL continues to face vigorous competition due to
deregulation and overcapacity in the industry that will keep profits
at a modest level. While service remains a key issue, many shippers
now place greater emphasis on price. For the RS Division, contract
carriage and volume discount programs dominate the corporate
relocation segment, and guaranteed price options are common to the
individual consumer segment. Contract carriage agreements are also
utilized extensively by the HVP Division to meet the service and price
requirements of its customers.
PAGE 28
Item 3. Legal Proceedings
- ------ -----------------
New Orleans, Louisiana - Tank Car Fire. A number of
lawsuits have been filed as a result of a tank car fire which occurred
in New Orleans, La., on September 9, 1987, and resulted in the
evacuation of many residents of the surrounding area. Plaintiffs
allege that they were injured and sustained other economic loss when a
chemical called butadiene leaked from a tank car under the control of
either CSX Transportation, Inc., or New Orleans Terminal Company (a
subsidiary of Norfolk Southern Railway) or both. In addition to the
rail defendants, defendants in one or more of the suits include the
City of New Orleans, the owner of the tank car (General American
Transportation Corporation), the loader of the tank car (GATX
Terminals Corporation), and the shipper (Mitsui & Co. (USA Inc.)).
The suits, which are pending in the Civil District Court for the
parish of Orleans, seek damages ranging from $10,000 to
$20,000,000,000. Management, after consulting with its legal counsel,
is of the opinion that ultimate liability will not materially affect
the consolidated financial position of NS. This matter has been
reported previously by Norfolk Southern in Part II, Item 1, of its
Form 10-Q Reports for the quarters ending September 30, 1987, and
March 31, 1990; and in Part I, Item 3, of its Form 10-K Annual Reports
for 1987, 1988, 1989, 1990, 1991 and 1992.
Moberly, Missouri - Burial of Paint and Solvent. On or
about May 16 and May 23, 1991, respectively, certain employees and NW
were served with subpoenas duces tecum requiring production of various
documents and information, all related to a federal grand jury's
investigation of possible violations of certain environmental statutes
in 1989 at Moberly Yard, Moberly, Mo. A search warrant also was
served on NW at Moberly, and various company records were seized. A
second subpoena duces tecum was served on September 19, 1991,
concerning the relationship between Norfolk Southern Corporation and
NW. The investigation resulted from employees' having buried
containers of paint and one container of solvent.
NW management first learned of the incident in June 1990
from the Missouri Department of Natural Resources ("DNR"). Promptly
thereafter, NW initiated appropriate remediation efforts and notified
the National Response Center. The burial of paint and solvent
violated long-standing NW policy and instructions.
NW cooperated fully with the DNR; at year end 1993, the
grand jury's investigation was continuing. The paint and paint cans
(along with the single drum which contained a solvent and appears not
to have leaked) and any associated contaminated dirt have been
excavated and properly disposed of under the DNR's direction.
PAGE 29
On February 23, 1994, NW settled this matter with the
federal and state governments by pleading guilty to a single violation
of the federal Resource Conservation and Recovery Act and by making or
committing to make penalty and restitution payments of up to
$4,400,000. Of that amount, $1.7 million is to purchase equipment for
state environmental enforcement purposes and, in line with NW's
suggestion, $1.0 million is for the Katy Trail State Park which was
damaged severely in the 1993 Missouri River flood. In addition, NW
made certain commitments with respect to an organization-wide
environmental awareness program.
Management believes the February 23 settlements conclude
this matter and expects to make no further reports about it. This
matter has been reported previously by Norfolk Southern in Part II,
Item 1, of its Form 10-Q Report for the quarter ending June 30, 1991,
and in Part I, Item 3, of its Form 10-K Annual Reports for 1991 and
1992.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ----------------------------------------------------
There were no matters submitted to a vote of security
holders during the fourth quarter of 1993.
PAGE 30
Executive Officers of the Registrant.
- -------------------------------------
Norfolk Southern's officers are elected annually by the
Board of Directors at its first meeting held after the annual meeting
of stockholders, and they hold office until their successors are
elected. There are no family relationships among the officers, nor
any arrangement or understanding between any officer and any other
person pursuant to which the officer was selected. The following
table sets forth certain information, as of March 1, 1994, relating to
these officers:
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
David R. Goode, 53, Present position since September
Chairman, President and 1992. Served as President from
Chief Executive Officer October 1991 to September 1992,
Executive Vice President-
Administration from January to
October 1991 and prior thereto as
Vice President-Taxation.
John R. Turbyfill, 62, Present position since June 1993.
Vice Chairman Served prior thereto as Executive
Vice President-Finance.
R. Alan Brogan, 53, Executive Present position since December
Vice President-Transportation 1992. Served as Vice President-
Logistics and President-North Quality Management from April
American Van Lines, Inc. 1991 to December 1992, Vice
President-Material Management and
Property Services from July 1990
to April 1991, and prior thereto
as Vice President-Material
Management.
Paul R. Rudder, 61, Present position since March
Executive Vice President- 1990. Served as Senior Vice
Operations President-Operations from
October 1989 to March 1990, and
prior thereto as Vice President-
Engineering.
John S. Shannon, 63, Executive Present position since June 1982.
Vice President-Law
Thomas C. Sheller, 63, Present position since October
Executive Vice President- 1991. Served prior thereto as
Administration Vice President-Personnel and
Labor Relations.
PAGE 31
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
D. Henry Watts, 62, Executive Present position since July 1986.
Vice President-Marketing
Henry C. Wolf, 51, Executive Present position since June 1993.
Vice President-Finance Served as Vice President-Taxation
from January 1991 to June 1993,
and prior thereto as Assistant
Vice President-Tax Counsel.
Stephen C. Tobias, 49, Senior Present position since October
Vice President-Operations 1993. Served as Vice President-
Strategic Planning from December
1992 to October 1993, Vice
President-Transportation from
October 1989 to December 1992,
and prior thereto as General
Manager-Western Lines.
William B. Bales, 59, Vice Present position since August 1993.
President-Coal Marketing Served prior thereto as Vice
President-Coal and Ore Traffic.
James C. Bishop, Jr., 57, Present position since August
Vice President-Law 1989. Served prior thereto as
Senior General Solicitor.
John F. Corcoran, 53, Vice- Present position since March 1992.
President-Public Affairs Served prior thereto as Assistant
Vice President-Public Affairs.
Thomas L. Finkbiner, 41, Present position since August 1993.
Vice President-Intermodal Served as Senior Assistant Vice
President-International and
Intermodal from April to August
1993, and prior thereto as
Assistant Vice President-
International and Intermodal.
James L. Granum, 57, Vice- Present position since March 1992.
President-Public Affairs Served prior thereto as Assistant
Vice President-Public Affairs.
James A. Hixon, 40, Vice Present position since June 1993.
President-Taxation Served as Assistant Vice
President-Tax Counsel from
January 1991 to June 1993, and
prior thereto as General Tax
Attorney.
PAGE 32
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
Harold C. Mauney, Jr., 55, Present position since December
Vice President-Quality 1992. Served as Assistant Vice
Management President-Quality Management from
April 1991 to December 1992, and
prior thereto as General Manager-
Intermodal Transportation
Services.
Donald W. Mayberry, 50, Present position since October 1987.
Vice President-Mechanical
James W. McClellan, 54, Vice Present position since October
President-Strategic Planning 1993. Served as Assistant Vice
President-Corporate Planning from
March 1992 to October 1993, and
prior thereto as Director-
Corporate Development.
Kathryn B. McQuade, 37, Present position since December
Vice President-Internal Audit 1992. Served as Director-Income
Tax Administration from May 1991
to December 1992, and prior
thereto as Director-Federal
Income Tax Administration.
Charles W. Moorman, 42, Vice Present position since October
President-Information 1993. Served as Vice President-
Technology Employee Relations from December
1992 to October 1993, Vice
President-Personnel and Labor
Relations from February to
December 1992, Assistant Vice
President-Stations, Terminals and
Transportation Planning from March
1991 to February 1992, Senior
Director Transportation Planning
from March 1990 to March 1991, and
prior thereto as Director,
Transportation Planning.
Phillip R. Ogden, 53, Vice Present position since December
President-Engineering 1992. Served as Assistant Vice
President-Maintenance from
November 1990 to December 1992,
Chief Engineer-Line Maintenance
North from February 1989 to
November 1990, and prior thereto
as Chief Engineer-Program
Maintenance.
PAGE 33
Business Experience during
Name, Age, Present Position past 5 Years
- --------------------------- ------------------------------------
L. I. Prillaman, Jr., 50, Present position since December
Vice President-Properties 1992. Served as Vice President
and Controller from May 1988 to
December 1992 and prior thereto
as Vice President-Accounting.
Magda A. Ratajski, 43, Vice Present position since July 1984.
President-Public Relations
John P. Rathbone, 42, Vice Present position since December
President and Controller 1992. Served as Assistant Vice
President-Internal Audit from
January 1990 to December 1992,
and prior thereto as Director-
Internal Audit.
William J. Romig, 49, Vice Present position since April 1992.
President and Treasurer Served prior thereto as Assistant
Vice President-Finance.
Donald W. Seale, 41, Vice Present position since August 1993.
President-Merchandise Served as Assistant Vice
Marketing President-Sales and Service from
May 1992 to August 1993, Director-
Metals, Waste and Construction
from March 1990 to May 1992, and
prior thereto as Director-
Marketing Development.
Powell F. Sigmon, 54, Vice Present position since October
President-Safety, Environ- 1993. Served as Assistant Vice
mental and Research President-Mechanical (Car) from
Development January 1991 to October 1993, and
prior thereto as General Manager-
Mechanical Facilities.
Donald E. Middleton, 63, Present position since June 1982.
Corporate Secretary
PAGE 34
PART II
Item 5. Market for Registrant's Common Stock and Related
- ------- ------------------------------------------------
Stockholder Matters.
-------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
STOCK PRICE AND DIVIDEND INFORMATION
The common stock of Norfolk Southern Corporation, owned by 51,884
stockholders of record as of December 31, 1993, is traded on the New
York Stock Exchange with the symbol NSC. The following table shows
the high and low sales prices and dividends per share, by quarter, for
1993 and 1992.
Quarter
--------------------------------------
1993 1st 2nd 3rd 4th
---- --- --- --- ---
Market price
High $ 66-5/8 $ 66-3/8 $ 69-7/8 $ 72-3/8
Low 59-5/8 59-1/4 61-1/2 64-5/8
Dividends per share $0.45 $0.45 $0.48 $0.48
1992 1st 2nd 3rd 4th
---- --- --- --- ---
Market price
High $ 61-7/8 $ 67-1/2 $ 65 $ 64-1/2
Low 55-1/2 57-1/8 53-1/4 53-5/8
Dividends per share $0.45 $0.45 $0.45 $0.45
PAGE 35
Item 6. Selected Financial Data.
- ------- -----------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
TEN YEAR FINANCIAL REVIEW
1989 - 1993
Page One
1993(1) 1992 1991(2) 1990 1989
---- ---- ---- ---- ----
(In millions of dollars except per share amounts)
RESULTS OF OPERATIONS:
Transportation
operating revenues $4,460.1 $4,606.6 $4,451.3 $4,617.0 $4,536.0
Transportation
operating expenses 3,599.7 3,720.1 4,339.3 3,808.9 3,710.8
-------- -------- -------- -------- --------
Income from
operations 860.4 886.5 112.0 808.1 825.2
Other income - net 136.8 97.8 131.3 145.3 158.2
Interest expense
on debt 98.6 109.0 99.7 78.0 50.7
-------- -------- -------- -------- --------
Income before
income taxes 898.6 875.3 143.6 875.4 932.7
Provision for
income taxes 349.9 317.6 113.9 319.3 326.5
-------- -------- -------- -------- --------
Income before
accounting changes 548.7 557.7 29.7 556.1 606.2
Cumulative effect of
accounting changes 223.3 -- -- -- --
-------- -------- -------- -------- --------
Net income $ 772.0 $ 557.7 $ 29.7 $ 556.1 $ 606.2
======== ======== ======== ======== ========
PER SHARE DATA:
Earnings before
accounting changes $3.94 $3.94 $0.20 $3.43 $3.48
Earnings $5.54 $3.94 $0.20 $3.43 $3.48
Dividends $1.86 $1.80 $1.60 $1.52 $1.38
Stockholders'
equity at
year end $33.36 $30.16 $28.64 $31.57 $30.44
FINANCIAL POSITION:
Total assets $10,519.8 $10,400.5 $10,148.1 $10,523.0 $10,244.3
Total long-term debt,
including current
maturities $1,595.2 $1,648.9 $1,389.2 $1,125.2 $841.1
Stockholders' equity $4,620.7 $4,232.6 $4,093.4 $4,911.9 $5,168.6
PAGE 36
Item 6. Selected Financial Data. (continued)
- ------- -----------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
TEN YEAR FINANCIAL REVIEW
1989 - 1993
Page Two
1993(1) 1992 1991(2) 1990 1989
---- ---- ---- ---- ----
(In millions of dollars except per share amounts)
OTHER:
Capital expenditures $669.2 $716.1 $713.4* $696.9* $651.7
Average number of
shares outstanding
(thousands) 139,414 141,459 147,759 162,095 174,370
Number of stockholders
at year end 51,884 51,200 53,725 56,187 61,630
Average number
of employees:
Rail 25,531 25,650 27,366 28,697 29,667
Nonrail 3,773 4,485 4,586 4,584 4,645
-------- -------- -------- -------- --------
Total 29,304 30,135 31,952 33,281 34,312
======== ======== ======== ======== ========
(1) 1993's results include a $54.1 million increase in the provision
for income taxes reflecting a 1% increase in the federal income
tax rate retroactive to January 1, 1993, which reduced net income
by $54.1 million, or $0.39 per share (see Note 2 on page 70).
1993's transportation operating expenses include a $50.3 million
motor carrier restructuring charge for the disposition of two
North American Van Lines, Inc. (NAVL), businesses (see Note 3 on
page 74). The cumulative effect of accounting changes (see Note 1
on page 68) increased 1993's earnings per share by $1.60.
(2) 1991's transportation operating expenses include a $680 million
special charge, primarily comprised of costs for labor force
reductions and the write-down of the goodwill portion of NS'
investment in NAVL. This charge reduced net income by $498 million
or $3.37 per share (see Note 15 on page 85).
*Includes noncash property acquisitions of $54 million in 1991 and
$27.2 million in 1990.
PAGE 37
Item 6. Selected Financial Data. (continued)
- ------- -----------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
TEN YEAR FINANCIAL REVIEW
1984 - 1988
Page One
1988 1987(3) 1986 1985(4) 1984
---- ---- ---- ---- ----
(In millions of dollars except per share amounts)
RESULTS OF OPERATIONS:
Transportation
operating revenues $4,461.6 $4,112.8 $4,076.4 $3,825.1 $3,524.6
Transportation
operating expenses 3,516.3 4,007.7 3,374.4 3,106.1 2,790.6
-------- -------- -------- -------- --------
Income from
operations 945.3 105.1 702.0 719.0 734.0
Other income - net 108.4 232.9 215.8 171.7 173.5
Interest expense
on debt 53.1 58.5 61.8 68.5 68.3
-------- -------- -------- -------- --------
Income before
income taxes 1,000.6 279.5 856.0 822.2 839.2
Provision for
income taxes 365.5 107.1 337.3 322.0 357.0
-------- -------- -------- -------- --------
Income before
accounting changes 635.1 172.4 518.7 500.2 482.2
Cumulative effect of
accounting changes -- -- -- -- --
-------- -------- -------- -------- --------
Net income $ 635.1 $ 172.4 $ 518.7 $ 500.2 $ 482.2
======== ======== ======== ======== ========
PER SHARE DATA:
Earnings $3.51 $0.91 $2.74 $2.65 $2.55
Dividends $1.26 $1.20 $1.13-1/3 $1.13-1/3 $1.06-2/3
Stockholders'
equity at
year end $28.74 $26.48 $26.78 $25.20 $23.69
FINANCIAL POSITION:
Total assets $10,059.1 $9,831.6 $9,752.4 $9,768.6 $8,660.9
Total long-term debt,
including current
maturities $780.9 $795.0 $891.3 $941.0 $961.2
Stockholders' equity $5,152.6 $4,979.4 $5,070.8 $4,761.5 $4,472.6
PAGE 38
Item 6. Selected Financial Data. (continued)
- ------- -----------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
TEN YEAR FINANCIAL REVIEW
1984 - 1988
Page Two
1988 1987(3) 1986 1985(4) 1984
---- ---- ---- ---- ----
(In millions of dollars except per share amounts)
OTHER:
Capital expenditures $528.8 $562.9 $698.4 $738.6 $473.6
Average number of
shares outstanding
(thousands) 181,038 189,464 189,217 188,867 188,795
Number of stockholders
at year end 64,974 68,121 65,832 71,325 74,723
Average number
of employees:
Rail 30,330 32,563 34,857 36,415 37,476
Nonrail 4,209 3,539 3,440 3,379 522
-------- -------- -------- -------- --------
Total 34,539 36,102 38,297 39,794 37,998
======== ======== ======== ======== ========
(3) 1987's transportation operating expenses include a $620 million
special charge, principally related to railroad restructuring
costs. This charge reduced net income by $352 million, or $1.86
per share.
(4) Includes NAVL from the acquisition date of June 21, 1985.
All per share amounts have been restated to reflect the March 6, 1987,
3-for-1 stock split.
PAGE 39
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations.
-----------------------------------
See pages 48 - 61 for "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Item 8. Financial Statements and Supplementary Data.
- ------- -------------------------------------------
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
Three Months Ended
---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In millions of dollars except per share amounts)
1993 *
Transportation
operating revenues $1,115.5 $1,170.4 $1,088.9 $1,085.3
Income from operations 193.6 190.8 225.4 250.6
Income before
accounting changes 138.9 155.2 95.2 159.4
Net income 362.2 155.2 95.2 159.4
Earnings per share
before accounting
changes 0.99 1.11 0.69 1.15
Earnings per share
after accounting
changes $ 2.59 $ 1.11 $ 0.69 $ 1.15
1992
Transportation
operating revenues $1,098.2 $1,146.9 $1,188.2 $1,173.3
Income from operations 212.7 230.0 236.4 207.4
Net income 138.7 145.0 145.8 128.2
Earnings per share $ 0.97 $ 1.03 $ 1.03 $ 0.91
* 1993's results include implementation of required accounting
changes (see Note 1 on page 68) which resulted in a $223.8 million,
or $1.60 per share, increase in first quarter net income
(originally reported as $1.59 per share due to more shares
outstanding, see Note 14 on page 85). Additionally, 1993's results
include the effect of a 1% increase in the federal income tax rate
which resulted in a $54.1 million, or $0.39 per share, decrease in
net income, principally reflected in the third quarter (see Note 2
on page 70).
PAGE 40
Item 8. Financial Statements and Supplementary Data. (continued)
- ------- -------------------------------------------
The Index to Financial Statement Schedules appears in
Item 14 on page 42.
The financial statements and related documents for Norfolk
Southern Corporation and Subsidiaries are as follows:
Index to Financial Statements: Page
----------------------------- ----
Consolidated Statements of Income
Years ended December 31, 1993, 1992 and 1991 62-63
Consolidated Balance Sheets
As of December 31, 1993 and 1992 64
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1992 and 1991 65-66
Consolidated Statements of Changes in
Stockholders' Equity Years ended
December 31, 1993, 1992 and 1991 67
Notes to Consolidated Financial Statements 68-87
Independent Auditors' Report 88
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure.
------------------------
None.
PAGE 41
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
Item 11. Executive Compensation.
- ------- ----------------------
Item 12. Security Ownership of Certain Beneficial Owners
- ------- -----------------------------------------------
and Management.
--------------
and
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
In accordance with General Instruction G(3), the
information called for by Part III is incorporated herein by reference
from Norfolk Southern's definitive Proxy Statement, to be dated
April 4, 1994, for the Norfolk Southern Annual Meeting of Stockholders
to be held on May 12, 1994, which definitive Proxy Statement will be
filed electronically with the Commission pursuant to Regulation 14A.
The information regarding executive officers called for by Item 401 of
Regulation S-K is included in Part I beginning on page 30 under
"Executive Officers of the Registrant."
PAGE 42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- ------- -------------------------------------------------------
Form 8-K.
--------
(a) The following documents are filed as part of this report:
1. Financial Statement Schedules:
The following consolidated financial statement schedules
should be read in connection with the consolidated financial
statements:
Index to Consolidated Financial Statement Schedules Page
--------------------------------------------------- ----
Schedule V - Property, Plant and Equipment 89
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment 90
Schedule VII - Guarantees of Securities of Other
Issuers 91
Schedule VIII - Valuation and Qualifying Accounts 92-93
Schedule IX - Short-Term Borrowings 94
Schedule X - Supplementary Income Statement
Information 95
Schedules other than those listed above are omitted for
the reasons that they are not required, are not applicable
or the information is included in the consolidated financial
statements or related notes.
2. Exhibits
Exhibit
Number Description
- ------- -------------------------------------------------
3 Articles of Incorporation and Bylaws -
3(a) The Restated Articles of Incorporation of Norfolk
Southern are incorporated herein by reference
from Exhibit 1 of Norfolk Southern's Form 10-Q
report for the quarter ended September 30, 1989.
3(b) The Bylaws of Norfolk Southern, as last amended
January 25, 1994, are incorporated herein by
reference from Exhibit 4 of Norfolk Southern's
Registration Statement on Form S-8, filed
electronically on January 26, 1994.
PAGE 43
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- ------- -------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
- ------- -------------------------------------------------
4 Instruments Defining the Rights of Security
Holders, Including Indentures -
In accordance with Item 601(b)(4)(iii) of
Regulation S-K, copies of instruments of Norfolk
Southern and its subsidiaries with respect to the
rights of holders of long-term debt are not filed
herewith, or incorporated by reference, but will
be furnished to the Commission upon request.
10 Material Contracts -
(a) The Agreement of Merger and Reorganization
dated as of July 31, 1980, among NWS Enterprises,
Inc. (name changed to Norfolk Southern Corporation
by Certificate of Amendment issued by the State
Corporation Commission of Virginia on November 2,
1981), NW, Norfolk and Western Railroad Company of
Virginia, Southern Railway Company (name changed to
Norfolk Southern Railway Company by Certificate of
Amendment issued by the State Corporation Commission
of Virginia as of December 31, 1990), and Southern
Railroad Company of Virginia and the related Plans
of Merger (Exhibits B and C to the Agreement) are
incorporated herein by reference from Appendix A to
NW's and Southern's definitive Proxy Statements dated
October 1, 1980, for NW's and Southern's Special
Meetings of Stockholders held on November 7, 1980.
(b) The lease between The Cincinnati, New
Orleans and Texas Pacific Railway Company, a
subsidiary of Norfolk Southern Railway, as lessee,
and the Trustees of the Cincinnati Southern
Railway, as lessor, dated as of October 11, 1881,
is incorporated herein by reference from Exhibit 5
of Southern's 1980 Annual Report on Form 10-K.
The Supplementary Agreement to the lease, dated as
of January 1, 1987, is incorporated herein by
reference from Exhibit 10(b) of Southern's 1987
Annual Report on Form 10-K.
PAGE 44
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- ------- -------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
- ------- -------------------------------------------------
(c) The lease between The North Carolina
Railroad Company, as lessor, and Norfolk Southern
Railway, as lessee, dated as of January 1, 1896, is
incorporated herein by reference from Exhibit 6 of
Southern's 1980 Annual Report on Form 10-K.
(d) The lease between Atlantic and North
Carolina Railroad Company (The North Carolina
Railroad Company, successor by merger, September
29, 1989), as lessor, and Atlantic and East Carolina
Railway Company, a subsidiary of Norfolk Southern
Railway, as lessee, dated as of April 20, 1939, is
incorporated herein by reference from Exhibit 7 of
Southern's 1980 Annual Report on Form 10-K.
Management Compensation Plans
-----------------------------
(e) The Norfolk Southern Corporation
Management Incentive Plan is incorporated herein
by reference from Exhibit 10(h) of Norfolk
Southern's 1987 Annual Report on Form 10-K.
(f) The Norfolk Southern Corporation Long-Term
Incentive Plan is incorporated herein by reference
from Appendix A to Norfolk Southern's definitive
Proxy Statement dated April 3, 1989, for the
Norfolk Southern Annual Meeting of Stockholders
held May 11, 1989.
(g) A copy of the Norfolk Southern Corporation
Officers' Deferred Compensation Plan as amended
effective January 1, 1994.
(h) A copy of the Directors' Deferred Fee Plan of
Norfolk Southern Corporation as amended effective
January 1, 1994.
(i) The Norfolk Southern Corporation Directors'
Restricted Stock Plan effective January 26, 1994,
is incorporated herein by reference from Exhibit 99
to Norfolk Southern's Form S-8 filed electronically
on January 26, 1994.
PAGE 45
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- ------- -------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit
Number Description
- ------- -------------------------------------------------
(j) The Excess Benefit Plan of Norfolk
Southern Corporation and Participating Subsidiary
Companies is incorporated herein by reference
from Exhibit 10(k) of Norfolk Southern's 1988
Annual Report on Form 10-K.
(k) The Directors' Pension Plan of Norfolk
Southern Corporation is incorporated herein by
reference from Exhibit 10(l) of Norfolk
Southern's 1989 Annual Report on Form 10-K.
11 Computation of Earnings Per Share
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant.
23 Consents of Experts and Counsel -
Consent of Independent Auditors.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the three months
ended December 31, 1993.
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-K
as listed in Item 14(a)2 are filed herewith or
incorporated herein by reference.
(d) Financial Statement Schedules.
Financial statement schedules and separate financial
statements specified by this Item are included in
Item 14(a)1 or are otherwise not required or are not
applicable.
PAGE 46
POWER OF ATTORNEY
-----------------
Each person whose signature appears below under "SIGNATURES"
hereby authorizes Henry C. Wolf and John S. Shannon, or either of
them, to execute in the name of each such person, and to file, any
amendment to this report and hereby appoints Henry C. Wolf and
John S. Shannon, or either of them, as attorneys-in-fact to sign on
his or her behalf, individually and in each capacity stated below, and
to file, any and all amendments to this report.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Norfolk Southern Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 22nd day of March, 1994.
NORFOLK SOUTHERN CORPORATION
By /s/ David R. Goode
-----------------------------------------
(David R. Goode, Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below on this 22nd day of March,
1994, by the following persons on behalf of Norfolk Southern
Corporation and in the capacities indicated.
Signature Title
--------- -----
/s/ David R. Goode
- ------------------------------ Chairman, President and Chief
(David R. Goode) Executive Officer and Director
(Principal Executive Officer)
/s/ Henry C. Wolf
- ------------------------------ Executive Vice President-Finance
(Henry C. Wolf) (Principal Financial Officer)
/s/ John P. Rathbone
- ------------------------------ Vice President and Controller
(John P. Rathbone) (Principal Accounting Officer)
/s/ Gerald L. Baliles
- ------------------------------ Director
(Gerald L. Baliles)
PAGE 47
Signature Title
--------- -----
/s/ Gene R. Carter
- ------------------------------ Director
(Gene R. Carter)
/s/ L. E. Coleman
- ------------------------------ Director
(L. E. Coleman)
- ------------------------------ Director
(William J. Crowe, Jr.)
/s/ T. Marshall Hahn, Jr.
- ------------------------------ Director
(T. Marshall Hahn, Jr.)
/s/ Landon Hilliard
- ------------------------------ Director
(Landon Hilliard)
/s/ E. B. Leisenring, Jr.
- ------------------------------ Director
(E. B. Leisenring, Jr.)
/s/ Arnold B. McKinnon
- ------------------------------ Director
(Arnold B. McKinnon)
/s/ Robert E. McNair
- ------------------------------ Director
(Robert E. McNair)
/s/ Jane Margaret O'Brien
- ------------------------------ Director
(Jane Margaret O'Brien)
/s/ Harold W. Pote
- ------------------------------ Director
(Harold W. Pote)
PAGE 48
(ITEM 7)
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes beginning on page 62 and
the Ten-Year Financial Review on page 35. The Condensed Summary provides
a brief overview of results of operations, and the text beginning under
"Results of Operations" is a more detailed analytical discussion.
CONDENSED SUMMARY OF RESULTS OF OPERATIONS
1993 Compared with 1992
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Net income was $772.0 million in 1993, a substantial increase over the
$557.7 million reported in 1992. Earnings per share were $5.54 compared
with $3.94 in 1992. Results for 1993 were significantly affected by
required accounting changes (see Note 1 on page 68) and by an increase in
the federal income tax rate (see Note 2 on page 70). Excluding the impact
of the accounting changes and the federal tax rate increase related to
prior years, 1993 earnings would have been $594.9 million, or $4.27 per
share, a $37.2 million, or 7%, increase over 1992. Total transportation
operating revenues decreased 3%, compared with 1992. Railway operating
revenues declined 1%, primarily as a result of lower coal traffic levels
and a reduced share of certain intermodal revenues after formation of a
partnership with Consolidated Rail Corporation (Conrail). Motor carrier
operating revenues declined 14%, due to a restructuring of NAVL (see Note
3 on page 74), which resulted in the disposition of two of its
businesses. Total transportation operating expenses declined 3%, largely
a result of the restructuring of NAVL. Nonoperating income reflected in
the Consolidated Statements of Income as "Other income-net" rose $39.0
million due principally to gains from property and stock sales (see Note
4 on page 74).
1992 Compared with 1991
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Net income was $557.7 million in 1992, a significant increase over the
$29.7 million reported in 1991. Earnings per share were $3.94, compared
with $0.20 in 1991. Earnings in 1991 were adversely affected by a $680
million special charge. Excluding the impact of the special charge in
1991, 1992 earnings increased by $30.3 million, or 6%, compared with
1991. Total transportation operating revenues were up 3%, compared with
1991; railway operating revenues were up 3% despite a decline in coal
traffic, and motor carrier operating revenues increased 4%. Total railway
operating expenses were down less than half of 1%, compared with 1991
(excluding the special charge). Motor carrier operating expenses
increased 9% and resulted in an operating loss of $39.7 million.
Nonoperating income declined $33.5 million, reflecting lower interest
income on less cash available to invest, lower interest rates and reduced
gains on investment-related transactions (see Note 4 on page 74).
Interest expense on debt was up 9% due to new debt issues (see Note 8 on
page 76).
RESULTS OF OPERATIONS
Railway Operating Revenues
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Railway operating revenues were $3.75 billion in 1993, compared with
$3.78 billion in 1992 and $3.65 billion in 1991. The following table
presents a three-year comparison of revenues by market group and reflects
(in Intermodal) the effect of the formation in April 1993 of Triple Crown
Services Company (TCSC), a partnership between NS and Conrail
subsidiaries. This partnership provides RoadRailer(RT) and domestic
container services previously offered by a wholly owned NS subsidiary.
Because NS owns only 50% of TCSC, its revenues are not consolidated, and
NS' intermodal revenues include only revenues for rail service provided
by NS to the partnership. Excluding this partnership effect, intermodal
revenues would have increased 10%, and total railway operating revenues
would have increased 1%.
PAGE 49
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RAILWAY OPERATING REVENUES BY MARKET GROUP
(In millions of dollars)
1993 1992 1991
-------- -------- --------
Coal $1,213.3 $1,296.0 $1,330.3
Paper/forest 502.7 499.5 476.1
Chemicals 472.9 471.7 449.7
Automotive 429.5 401.5 325.9
Agriculture 319.7 301.4 293.6
Metals/construction 296.1 276.3 274.0
Intermodal 390.2 408.9 380.6
-------- -------- --------
Freight revenues 3,624.4 3,655.3 3,530.2
Other, principally switching
and demurrage 121.5 121.7 123.8
-------- -------- --------
Total