PAGE 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1996 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission file number 1-8339 NORFOLK SOUTHERN CORPORATION - ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 52-1188014 - ---------------------------------------- ------------------------------- (State or other jurisdiction of (IRS Employer 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 ---------------------- No Change - ------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No The number of shares outstanding of each of the registrant's classes of Common Stock, as of the last practicable date: Class Outstanding as of July 31, 1996 ----- -------------------------------- Common Stock (par value $1.00) 126,040,258 shares (excluding 7,252,634 shares held by registrant's consolidated subsidiaries)
PAGE 2 NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS) INDEX Page ---- Part I. Financial Information: Item 1. Consolidated Statements of Income Three Months and Six Months Ended June 30, 1996 and 1995 3 Consolidated Balance Sheets June 30, 1996, and December 31, 1995 4 Consolidated Statements of Cash Flows Six Months Ended June 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Index to Exhibits 18
PAGE 3 PART I. FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements. - ------ -------------------- <TABLE> NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In millions of dollars except per share amounts) (Unaudited) <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 -------- -------- -------- -------- <S> <C> <C> <C> <C> TRANSPORTATION OPERATING REVENUES: Railway (Note 6): Coal $ 328.5 $ 318.0 $ 652.3 $ 624.9 Merchandise 593.1 578.7 1,167.2 1,156.3 Intermodal 116.4 119.7 235.2 234.4 -------- -------- -------- -------- Total railway 1,038.0 1,016.4 2,054.7 2,015.6 Motor carrier 179.3 173.8 324.1 313.3 -------- -------- -------- -------- Total operating revenues 1,217.3 1,190.2 2,378.8 2,328.9 -------- -------- -------- -------- TRANSPORTATION OPERATING EXPENSES: Railway: Compensation and benefits 351.3 356.6 728.6 731.9 Materials, services and rents 158.4 162.7 310.3 325.8 Depreciation 101.6 96.7 201.9 191.1 Diesel fuel 56.7 47.0 112.1 95.7 Casualties and other claims 30.9 28.8 65.6 61.0 Other 39.1 40.9 74.3 76.4 -------- -------- -------- -------- Total railway 738.0 732.7 1,492.8 1,481.9 Motor carrier 168.8 167.4 314.5 307.8 -------- -------- -------- -------- Total operating expenses 906.8 900.1 1,807.3 1,789.7 -------- -------- -------- -------- Income from operations 310.5 290.1 571.5 539.2 Other income (expense): Interest income 5.1 8.6 10.9 14.8 Interest expense on debt (28.0) (28.6) (55.6) (56.9) Other - net 18.8 21.0 46.4 70.5 -------- -------- -------- -------- Total other income (4.1) 1.0 1.7 28.4 -------- -------- -------- -------- Income before income taxes 306.4 291.1 573.2 567.6 Provision for income taxes 106.9 109.9 205.6 215.7 -------- -------- -------- -------- NET INCOME $ 199.5 $ 181.2 $ 367.6 $ 351.9 ======== ======== ======== ======== <S> <C> <C> <C> <C> Per share amounts (Note 5): Net income $ 1.57 $ 1.38 $ 2.88 $ 2.67 Dividends 0.56 0.52 1.12 1.04 See accompanying notes to consolidated financial statements. </TABLE>
PAGE 4 Item 1. Financial Statements. (continued) - ------ -------------------- <TABLE> NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In millions of dollars) (Unaudited) <CAPTION> June 30, December 31, 1996 1995 ------------ ------------ <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 52.7 $ 67.7 Short-term investments 184.8 261.3 Accounts receivable - net 736.0 703.5 Materials and supplies 62.5 61.7 Deferred income taxes 150.4 144.7 Other current assets 94.2 103.9 --------- --------- Total current assets 1,280.6 1,342.8 Investments 261.7 231.7 Properties less accumulated depreciation 9,441.1 9,258.8 Other assets 70.0 71.5 --------- --------- TOTAL ASSETS $11,053.4 $10,904.8 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 45.2 $ 45.2 Accounts payable 747.8 732.8 Income and other taxes 204.1 190.8 Other current liabilities 151.3 151.3 Current maturities of long-term debt (Note 3) 82.2 85.7 --------- --------- Total current liabilities 1,230.6 1,205.8 Long-term debt (Note 3) 1,637.8 1,553.3 Other liabilities 985.6 965.5 Minority interests 49.8 52.2 Deferred income taxes 2,313.6 2,299.0 --------- --------- TOTAL LIABILITIES 6,217.4 6,075.8 --------- --------- Stockholders' equity: Common stock $1.00 per share par value 133.7 136.3 Other capital 452.0 430.9 Retained income 4,270.9 4,282.4 Less treasury stock at cost, 7,252,634 shares (20.6) (20.6) --------- --------- TOTAL STOCKHOLDERS' EQUITY 4,836.0 4,829.0 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,053.4 $10,904.8 ========= ========= See accompanying notes to consolidated financial statements. </TABLE>
PAGE 5 Item 1. Financial Statements. (continued) - ------ -------------------- <TABLE> NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In millions of dollars) (Unaudited) <CAPTION> Six Months Ended June 30, 1996 1995 -------- -------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 367.6 $ 351.9 Reconciliation of net income to net cash provided by operating activities: Special charge payments (9.0) (7.0) Depreciation 212.8 203.6 Deferred income taxes 9.1 35.2 Nonoperating gains and losses on properties and investments (24.3) (49.0) Changes in assets and liabilities affecting operations: Accounts receivable (32.5) (3.9) Materials and supplies (0.8) (7.8) Other current assets 27.6 17.5 Current liabilities other than debt 51.8 70.4 Other - net 8.1 12.8 ------- ------- Net cash provided by operating activities 610.4 623.7 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (Note 3) (337.4) (332.7) Property sales and other transactions 55.9 53.6 Investments and loans (41.6) (39.6) Investment sales and other transactions 14.4 24.2 Short-term investments - net 74.1 33.4 ------- ------- Net cash used for investing activities (234.6) (261.1) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends (143.1) (137.7) Common stock issued - net 16.0 4.7 Purchase and retirement of common stock (Note 4) (246.0) (153.7) Proceeds from long-term borrowings (Note 3) 9.6 7.6 Debt repayments (27.3) (36.5) ------- ------- Net cash used for financing activities (390.8) (315.6) ------- ------- Net increase (decrease) in cash and cash equivalents (15.0) 47.0 CASH AND CASH EQUIVALENTS:* At beginning of year 67.7 57.0 ------- ------- At end of period $ 52.7 $ 104.0 ======= ======= - ------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amounts capitalized) $ 67.4 $ 56.6 Income taxes $ 161.1 $ 127.5 * Cash equivalents are highly liquid investments purchased three months or less from maturity. See accompanying notes to consolidated financial statements. </TABLE>
PAGE 6 Item 1. Financial Statements. (continued) - ------ -------------------- NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. In the opinion of Management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 1996, and the results of operations and cash flows for the six months ended June 30, 1996, and 1995. While Management believes that the disclosures presented are adequate to make the information not misleading, these consolidated financial statements should be read in conjunction with the financial statements and notes included in the Corporation's latest Annual Report on Form 10-K. 2. Contingencies There have been no significant changes since year-end 1995 in the matters as discussed in NOTE 17, CONTINGENCIES, appearing in the NS Annual Report on Form 10-K for 1995, Notes to Consolidated Financial Statements, beginning on page 74. 3. Capital Lease Obligations During the first half of 1996 and 1995, an NS rail subsidiary entered into capital leases covering new locomotives. The related capital lease obligations totaling $107.8 million in 1996 and $104.5 million in 1995 were reflected in the Consolidated Balance Sheets as debt and, because they were non-cash transactions, were excluded from the Consolidated Statements of Cash Flows. The lease obligations carry stated interest rates between 6.20 percent and 6.75 percent for those entered into in 1996, and between 8.23 percent and 8.60 percent for those entered into in 1995. All were converted to variable rate obligations using interest rate swap agreements. The interest rates on these obligations are based on the six-month London Interbank Offered Rate and are reset every six months with realized gains or losses accounted for as an adjustment of interest expense over the terms of the leases. As a result, NS is exposed to the market risk associated with fluctuations in interest rates. To date, the effects of the rate fluctuations have been favorable. Counterparties to the interest rate swap agreements are major financial institutions believed by Management to be credit-worthy. NS' use of interest rate swaps has been limited to those discussed above.
PAGE 7 Item 1. Financial Statements. (continued) - ------ -------------------- NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 4. Stock Purchase Programs In January 1996, the Board of Directors authorized the purchase and retirement of up to 30 million shares of common stock. NS completed its purchases (45 million shares) under a 1989 authorization on March 8, 1996. Combined with the initial program for 20 million shares which began in 1987 and was completed in 1989, total shares purchased and retired under the closed programs totaled 65 million shares. The new program is expected to be completed by the end of the year 2000. Since the first purchases in December 1987 through June 30, 1996, NS has purchased and retired 66,921,200 shares of its common stock at a cost of $3.1 billion. Future purchases are dependent on market conditions, the economy, cash needs and alternative investment opportunities. 5. Earnings Per Share <TABLE> "Earnings per share" is computed by dividing net income by the weighted average number of common shares outstanding as follows: <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- (In thousands) <S> <C> <C> <C> <C> Average number of shares outstanding 126,915 131,525 127,565 132,009 </TABLE> Recent decreases in the average number of outstanding shares of NS common stock are the result of the stock purchase program described in Note 4. 6. Reclassification of Railway Revenues Beginning in 1996, revenues previously reported as "Other railway revenues" (principally switching and demurrage) are included in each of the respective commodity groups. 1995 revenues have been reclassified to conform with the current presentation. 7. Lease Commitments On July 29, 1996, implementation of the Lease Extension Agreement between Norfolk Southern Railway Company (NS Rail) and North Carolina Railroad Company (NCRR) was enjoined by a federal court, which ruled that a quorum of private stockholders was not present at the NCRR stockholders' meeting at which the Agreement was approved. While the parties seek to resolve this matter, NS Rail continues to discharge its common carrier obligations by operating over the lines of NCRR. As reported in the past, final resolution is not expected to have a material effect on NS' consolidated financial position.
PAGE 8 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. ------------------------- NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net Income - ---------- "Net income" for the second quarter of 1996 was a record $199.5 million, up $18.3 million, or 10 percent, compared with $181.2 million in last year's second quarter. "Net income" for the six months ended June 30, 1996, was also a record $367.6 million, a $15.7 million, or 4 percent, increase. Increased "Income from operations," up 7 percent for the second quarter and 6 percent for the first six months, and a lower effective income tax rate (see "Income Taxes") were responsible for the improvements. <TABLE> Railway Operating Revenues - -------------------------- Second-quarter "Railway operating revenues" were a record $1.04 billion, a $21.6 million, or 2 percent, increase over the same period last year. "Railway operating revenues" for the first six months were $2.05 billion, up $39.1 million, or 2 percent, compared with the same period last year. The increases in operating revenues were due to: <CAPTION> Second Quarter First Six Months 1996 vs. 1995 1996 vs. 1995 Increase (Decrease) Increase (Decrease) ------------------ ------------------ (In millions of dollars) <S> <C> <C> Traffic volume (carloads) $ 16.6 $ -- Revenue per unit 5.0 39.1 ------- ------- $ 21.6 $ 39.1 ======= ======= </TABLE>
PAGE 9 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. (continued) ------------------------- <TABLE> The principal revenue commodity groups were as follows (see Note 6 on page 7 for a discussion of revenue reclassifications): <CAPTION> Revenues ------------------------------------------- Second Quarter Six Months 1996 1995 1996 1995 -------- -------- -------- -------- ($ in millions) <S> <C> <C> <C> <C> Coal $ 328.5 $ 318.0 $ 652.3 $ 624.9 Paper/forest 128.7 138.3 258.4 271.8 Chemicals 138.9 134.0 279.3 274.6 Automotive 133.7 118.8 252.0 238.5 Agriculture 97.1 97.5 198.7 194.7 Metals/construction 94.7 90.1 178.8 176.7 -------- -------- -------- -------- General merchandise 593.1 578.7 1,167.2 1,156.3 Intermodal 116.4 119.7 235.2 234.4 -------- -------- -------- -------- Total $1,038.0 $1,016.4 $2,054.7 $2,015.6 ======== ======== ======== ======== </TABLE> <TABLE> The principal revenue commodity carloads were as follows: <CAPTION> Carloads ------------------------------------------- Second Quarter Six Months 1996 1995 1996 1995 -------- -------- -------- -------- (in thousands) <S> <C> <C> <C> <C> Coal 334.5 313.6 654.1 632.0 Paper/forest 108.4 117.9 218.2 233.9 Chemicals 91.4 92.0 186.9 187.3 Automotive 95.8 87.7 179.6 174.4 Agriculture 90.8 96.6 183.9 195.1 Metals/construction 97.7 97.7 181.5 187.7 -------- -------- -------- -------- General merchandise 484.1 491.9 950.1 978.4 Intermodal 323.2 317.3 642.4 624.2 -------- -------- -------- -------- Total 1,141.8 1,122.8 2,246.6 2,234.6 ======== ======== ======== ======== </TABLE>
PAGE 10 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. (continued) ------------------------- Coal - ---- Second-quarter coal revenues were $10.5 million, or 3 percent, above second quarter 1995, and were $27.4 million, or 4 percent, higher for the first six months. Increased traffic volume was principally responsible for the improvements, as carloads were 7 percent and 3 percent ahead of last year's second quarter and first six months, respectively. Lower average revenue per car, largely the result of an increased proportion of utility traffic, offset some of the revenue increase generated by improved second-quarter traffic volume. Domestic utility coal led the volume gains, as customers rebuilt depleted stockpiles. Second-quarter export and industrial coal traffic volumes were also strong, continuing the first quarter's favorable trend. Additional gains in domestic utility coal traffic are expected in the second half of 1996, as customers continue to rebuild stockpiles and demand increases during the customary peak electricity-generating months of July and August. NS' export coal volume is projected to fluctuate in the coming months, but is expected to trend upward overall for the remainder of the year. General Merchandise - ------------------- Second-quarter general merchandise revenues increased $14.4 million, or 2 percent, over last year and were $10.9 million, or 1 percent, above the first six months of 1995. Higher revenue yields in all five major merchandise commodity groups produced the improvements. Automotive, which was the only commodity group also to report increased traffic volume, led the growth, climbing $14.9 million, or 13 percent, for the quarter and $13.5 million, or 6 percent, for the first six months. NS' automotive revenues benefited from a combination of increased production at selected plants that produce popular cars and trucks, production at the GM assembly plant in Wentzville, Mo., which was down two years for retooling, and new BMW production at Greer, S.C. Automotive revenues for 1996 are expected to surpass 1995's levels, barring disruptions which could result from the expiration in September of the current labor contract between the Big Three automakers and the United Auto Workers' Union. Revenues in the chemicals group were up $4.9 million, or 4 percent, for the quarter and $4.7 million, or 2 percent, for the first six months. Higher average revenues more than offset small declines in traffic volume for both the second quarter and first six months. Chemical revenues are expected to remain ahead of last year, benefiting from increasing demand. Revenues from metals/construction traffic were up $4.6 million, or 5 percent, for the quarter and $2.1 million, or 1 percent, for the first six months. Traffic volume, which was down 7 percent in the first quarter, began improving in the second quarter and is expected to continue to pick up in the third quarter as a result of higher overall construction activity and increased metals production,
PAGE 11 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. (continued) ------------------------- including the new SDI steel mini-mill located on NS' line in Butler, Ind. Revenues in the agriculture group were flat in the second quarter and were $4.0 million, or 2 percent, higher for the first six months. Higher average revenues due to longer hauls and a profitability improvement program more than offset volume declines in grain, soybeans and feed traffic for the first six months. Paper/forest revenues decreased $9.6 million, or 7 percent, for the quarter and were $13.4 million, or 5 percent, lower for the first six months. Declines in NS' paper/forest traffic reflected the overall softness in the U.S. paper industry during the first half of the year. Some recovery in this market is projected for the second half of 1996, although revenues in this group are expected to continue to lag last year's performance. Intermodal - ---------- Second-quarter intermodal revenues declined $3.3 million, or 3 percent, compared with last year, but were $0.8 million higher for the first six months. Traffic volume was up 2 percent and 3 percent for the quarter and six months, respectively; however, these volume gains were more than offset by lower average revenue per unit. The decline in average revenues was largely due to a change in traffic mix from trailers to containers which have lower average revenues but generally produce higher margins. NS' intermodal traffic is expected to continue the first half's positive growth trend into the third quarter. Railway Operating Expenses - -------------------------- "Railway operating expenses" increased $5.3 million, or 1 percent, in the second quarter of 1996, and $10.9 million, or 1 percent, for the first six months, compared with the same periods last year. The largest increase was in "Diesel fuel," which was up $9.7 million, or 21 percent, for the quarter and $16.4 million, or 17 percent, for the first six months. The increases were primarily due to higher price per gallon, up 16 percent and 14 percent for the quarter and six months, respectively. The price of diesel fuel, which peaked in April of this year at the highest level since the Persian Gulf crisis in 1991, began to decline during the second quarter. "Depreciation" increased $4.9 million, or 5 percent, for the quarter and $10.8 million, or 6 percent, for the first six months due to a combination of investment in additional depreciable assets and higher overall depreciation rates.
PAGE 12 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. (continued) ------------------------- "Casualties and other claims" were up $2.1 million, or 7 percent, in the second quarter and $4.6 million, or 8 percent, for the first six months. These increases were largely due to the effect of a $3.0 million favorable adjustment made to the personal injury reserve in June of 1995. Absent this adjustment, 1996's casualties and other claims expenses were comparable with last year, as increases in environmental-related accruals offset reductions in personal injury costs. The largest decrease was in expenses for "Materials, services and rents" which were $4.3 million, or 3 percent, and $15.5 million, or 5 percent, below last year's second quarter and first six months, respectively. The reductions were primarily attributable to: (1) lower locomotive maintenance costs, largely resulting from the replacement of older locomotives with new units and (2) lower freight car maintenance costs, reflecting favorable results from ongoing programs both to reduce the number of cars in the fleet and to reengineer freight car maintenance practices. "Other" expense declined $1.8 million, or 4 percent, for the quarter and $2.1 million, or 3 percent, for the first six months. The favorable comparisons were due to relocation costs related to last year's shop closings which are reflected in 1995's expenses. Motor Carrier Operating Revenues - -------------------------------- "Motor carrier operating revenues" of $179.3 million for the second quarter and $324.1 million for the first six months were $5.5 million and $10.8 million, or 3 percent, ahead of the same periods last year. The High Value Products (HVP) Division was responsible for these improvements, as increased revenues were recorded in the Division's logistics, European operations and trucking operations. Motor Carrier Operating Expenses - -------------------------------- "Motor carrier operating expenses" were $1.4 million, or 1 percent, higher for the second quarter and were $6.7 million, or 2 percent, higher for the six months. Both variances were principally a result of increased volume, with lower claims costs in both HVP and RS partially mitigating the volume-related increases. Other Income (Expense) - ---------------------- "Interest income" was $3.5 million, or 41 percent, lower for the quarter and $3.9 million, or 26 percent, lower for the six months. The declines were principally due to a combination of: (1) last year's $1.7 million of interest related to a settlement in June 1995 between the major railroads and the Internal Revenue Service regarding a Supplemental Annuity Tax (man-hour) issue, and (2) lower interest rates in 1996 on invested balances.
PAGE 13 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. (continued) ------------------------- "Other-net" declined $2.2 million, or 10 percent, for the quarter and $24.1 million, or 34 percent, for the first six months. The unfavorable comparison for the quarter was largely attributable to lower income from corporate-owned life insurance, while the unfavorable first six months' variance was due to a $30.5 million ($18.8 million after-tax) gain recorded in first-quarter 1995 resulting from the partial redemption of a real estate partnership interest. Income Taxes - ------------ The effective income tax rate for the second quarter was 34.9 percent, compared with second-quarter 1995's effective rate of 37.8 percent. For the first six months, the effective rate was 35.9 percent versus 38.0 percent for the first six months of 1995. The lower effective rate in 1996 results from investments in coal-seam gas properties, favorable adjustments for settlement of federal income tax years 1990 through 1992 and reductions in state income tax accruals. <TABLE> FINANCIAL CONDITION AND LIQUIDITY <CAPTION> June 30, 1996 December 31, 1995 ------------- ----------------- (Dollars in millions) <S> <C> <C> Cash and short-term investments $237.5 $329.0 Working capital $ 50.0 $137.0 Current assets to current liabilities 1.0 1.1 Debt to total capitalization 26.7% 25.9% </TABLE> CASH PROVIDED BY OPERATING ACTIVITIES is NS' principal source of liquidity and was sufficient to cover cash outflows for dividends, debt repayments and capital spending (see Consolidated Statements of Cash Flows on page 5). The decline in cash provided by operations, compared with the first six months of 1995, was attributable to tax and interest payments made as a result of the federal income tax settlement in 1996 (see "Income Taxes"). The greater use of cash in accounts receivable was primarily attributable to higher rail freight receivables commensurate with increased railway operating revenues. CASH USED FOR INVESTING ACTIVITIES was affected principally by capital spending for property additions, which included $33 million and $30 million in 1996 and 1995, respectively, related to locomotives under capital leases (see Note 3). "Investments and loans" consists primarily of premium payments related to corporate-owned life insurance (COLI), while "Investment sales and other transactions" principally reflects borrowing on COLI.
PAGE 14 Item 2. Management's Discussion and Analysis of Financial Condition - ------ ----------------------------------------------------------- and Results of Operations. (continued) ------------------------- CASH USED FOR FINANCING ACTIVITIES primarily reflects uses of cash with the largest amount having been spent on the stock purchase program (see Note 4). "Common stock issued" in the first half of 1996 reflects substantially higher-than-usual stock option exercises. "Proceeds from long-term borrowings" represents amounts received in connection with capital lease transactions (see Note 3). NEW ACCOUNTING PRONOUNCEMENT Effective January 1, 1996, NS adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). This standard establishes the accounting and reporting requirements for recognizing and measuring impairment of long-lived assets to be either held and used or held for disposal. SFAS 121 did not have a material effect on NS' financial statements. ENVIRONMENTAL MATTERS During 1995, the EPA alleged that The Alabama Great Southern Railroad Company ("AGS"), a subsidiary of NS' rail subsidiary, was responsible, along with several other entities believed to be financially solvent, for past and future clean-up and monitoring costs at the Bayou Bonfouca NPL Superfund site located in Slidell, Louisiana. The site was owned by the parent of an AGS predecessor from 1882 until 1902. Some of the bridge timbers used in the 1882 construction of the predecessor's bridge across Lake Pontchartrain were treated at the site. The United States and the State of Louisiana filed suit to recover all costs incurred (estimated in the complaint at around $100 million) and unspecified amounts to be incurred. Defendants in that suit include AGS and all other entities the EPA earlier identified as potentially responsible parties. AGS believes it never owned, operated or had any other culpable connection to the site and denies responsibility; however, because the amount of liability, if any, that ultimately may be assessed against NS or AGS cannot be estimated reliably at this time, the materiality of such amount to NS' financial position, results of operation or liquidity in a particular quarter or year cannot be evaluated.
PAGE 15 PART II. OTHER INFORMATION --------------------------- NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- Registrant's annual meeting of stockholders was held on May 9, 1996, at which meeting three directors were elected to the class whose term will expire in 1999, and one director was elected to the class whose term will expire in 1997; and the appointment of independent public accountants was ratified. The four nominees for directors, who were uncontested, were elected by the following vote: THREE-YEAR TERM -------------------------------------------------------------------- FOR AUTHORITY WITHHELD --- ------------------ Gerald L. Baliles 105,698,370 votes 1,637,256 votes Gene R. Carter 101,341,682 votes 5,993,944 votes E. B. Leisenring, Jr. 106,101,823 votes 1,233,803 votes ONE-YEAR TERM -------------------------------------------------------------------- FOR AUTHORITY WITHHELD --- ------------------ Arnold B. McKinnon 105,716,116 votes 1,619,510 votes The appointment of KPMG Peat Marwick, LLP, independent public accountants, was ratified by the following vote: FOR: 106,484,425 shares AGAINST: 382,499 shares ABSTAINED: 468,702 shares
PAGE 16 PART II. OTHER INFORMATION --------------------------- NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K. - ------ -------------------------------- (a) Exhibits: Bylaws as amended effective May 9, 1996 Material Contracts: The Directors' Deferred Fee Plan Form of Certain Change-in-Control Agreements Supplemental Benefit Plan Directors' Charitable Award Program Directors' Pension Plan Outside Directors' Deferred Stock Unit Program Computation of Per Share Earnings Financial Data Schedule (b) Reports on Form 8-K: A report on Form 8-K dated May 9, 1996, was filed electronically on May 17, 1996, reporting that the Board of Directors amended the Corporation's Bylaws to require advance written notice to the Corporate Secretary by stockholders wishing, at any stockholders' meeting, (a) to offer for stockholder vote a proposal otherwise appropriate for stockholder action or (b) to nominate one or more persons for election to the Board of Directors.
PAGE 17 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORFOLK SOUTHERN CORPORATION ----------------------------------------- (Registrant) Date: August 9, 1996 /s/ Dezora M. Martin ------------------- ----------------------------------------- Dezora M. Martin Corporate Secretary (Signature) Date: August 9, 1996 /s/ John P. Rathbone ------------------- ----------------------------------------- John P. Rathbone Vice President and Controller (Principal Accounting Officer) (Signature)
PAGE 18 NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS ----------------- Electronic Submission Exhibit Number Description Page Number - ----------- ----------------------------------------- ----------- 3(ii) Bylaws of Norfolk Southern Corporation as amended effective May 9, 1996 19-26 10 Material Contracts - (f) The Directors' Deferred Fee Plan of Norfolk Southern Corporation, effective June 1, 1982, as amended effective May 9, 1996 27-32 (h) Form of Change-in-Control Agreement, dated as of June 1, 1996, between the Corporation and certain executive officers, including those named in the Summary Compensation Table in the Proxy Statement for the Corporation's 1996 Annual Meeting of Stockholders, which was filed electronically on March 27, 1996 33-66 (i) The Norfolk Southern Corporation Supplemental (formerly, Excess) Benefit Plan, as amended effective May 9, 1996 67-71 (j) The Norfolk Southern Corporation Directors' Charitable Award Program, effective February 1, 1996 72-74 (k) The Norfolk Southern Corporation Directors' Pension Plan, as amended effective June 1, 1996 75-76 (l) The Norfolk Southern Corporation Outside Directors' Deferred Stock Unit Program, effective May 9, 1996 77-79 11 Statement re Computation of Per Share Earnings 80-81 27 Financial Data Schedule (This exhibit is required to be submitted electronically pursuant to the rules and regulations of the Securities and Exchange Commission and shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934). 82