FORM 10-K405
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended Dec. 31, 2001
OR
Virginia 52-1188014
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Commercial Place,
Norfolk, Virginia 23510-2191
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (757) 629-2680
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
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Norfolk Southern Corporation
Common Stock (Par Value $1.00) New York Stock Exchange
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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-K405 or any amendment to this Form 10-K405. (X)
The aggregate market value of the voting stock held by nonaffiliates as of January 31, 2002: $8,716,403,555.
The number of shares outstanding of each of the registrant's classes of common stock, as of January 31, 2002: 386,536,743 (excluding 21,169,125 shares held by registrant's consolidated subsidiaries).
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement 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.
TABLE OF CONTENTS
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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS) Page
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Part I. 1. Business 4
2. Properties 4
3. Legal Proceedings 19
4. Submission of Matters to a Vote of Security Holders 19
Executive Officers of the Registrant 19
Part II. 5. Market for Registrant's Common Stock and
Related Stockholder Matters 22
6. Selected Financial Data 23
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25
7A. Quantitative and Qualitative Disclosures
About Market Risk 48
8. Financial Statements and Supplementary Data 50
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 83
Part III. 10. Directors and Executive Officers of the Registrant 84
11. Executive Compensation 84
12. Security Ownership of Certain Beneficial Owners
and Management 84
13. Certain Relationships and Related Transactions 84
Part IV. 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 85
Index to Consolidated Financial Statement Schedule 85
Power of Attorney 91
Signatures 91
Exhibit Index 95
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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
and
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 with the approval of the transaction by the Interstate Commerce Commission (ICC) (now the Surface Transportation Board [STB]).
Effective Dec. 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). Effective Sept. 1, 1998, NW was merged with and into Norfolk Southern Railway. As of Dec. 31, 2001, all the common stock of Norfolk Southern Railway and 22.5 percent of its voting preferred stock (resulting in 95.2 percent voting control) was owned directly by Norfolk Southern.
Through a jointly owned entity, Norfolk Southern and CSX Corporation (CSX) own the stock of Conrail Inc., which owns the major freight railroad in the Northeast. Norfolk Southern has a 58% economic and 50% voting interest in the jointly owned entity. See also the discussion concerning operation of a portion of Conrail's rail assets, below.
On March 28, 1998, Norfolk Southern closed the sale of its motor carrier company, North American Van Lines, Inc. (NAVL) (see "Discontinued Operations" on Page 38 and Note 17 on Page 79). NAVL's results are presented as "Discontinued operations" in the accompanying financial information.
Unless indicated otherwise, Norfolk Southern and its subsidiaries are referred to collectively as NS.
OPERATION OF A PORTION OF THE CONRAIL RAIL ASSETS - On June 1, 1999, Norfolk Southern and CSX, through their respective railroad subsidiaries, began operating separate portions of Conrail's rail routes and assets. Substantially all such assets are owned by two wholly owned subsidiaries of Consolidated Rail Corporation (CRC); one of those subsidiaries, Pennsylvania Lines LLC (PRR), has entered into
various operating and leasing arrangements, more particularly described in Note 2 on Page 58, with Norfolk Southern Railway. Certain rail assets (Shared Assets Areas) still are owned by CRC, which operates them for joint and exclusive use by Norfolk Southern Railway and the rail subsidiary of CSX.
Operation of the PRR routes and assets increased the size of the system over which Norfolk Southern Railway provides service by nearly 50% and afforded access to the New York metropolitan area, to much of the Northeast and to most of the major East Coast ports north of Norfolk, Virginia. Also, the leasing arrangements with PRR augmented Norfolk Southern Railway's locomotive, freight car and intermodal fleet.
RAILROAD OPERATIONS - As of Dec. 31, 2001, NS' railroads operated approximately 21,500 miles of road in the states of Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia, and in the Province of Ontario, Canada. Of this total, about 12,000 miles are owned with the balance operated under lease or trackage rights; most of this total is main line track. In addition, its railroads operate almost 17,000 miles of passing, industrial, yard and side tracks.
In addition to the lines leased from Conrail previously discussed, NS' railroads have major leased lines between Cincinnati, Ohio, and Chattanooga, Tennessee, and operate over trackage owned by North Carolina Railway Company (NCRR).
The Cincinnati-Chattanooga lease, covering about 335 miles, expires in 2026, and is subject to an option to extend the lease for an additional 25 years, at terms to be agreed upon.
Operations over the approximately 330 miles of tracks of NCRR, previously under a 100-year lease which expired on Dec. 31, 1994, are now under a trackage rights agreement. The term of the agreement is 15 years with NS' railroads having the right to renew for two additional 15-year periods.
NS' railroads carry raw materials, intermediate products and finished goods primarily in the Southeast, East and Midwest, and to and from the rest of the United States and parts of Canada. They also transport overseas freight through several Atlantic and Gulf Coast ports. Atlantic ports served by NS include: Norfolk, Virginia; Morehead City, North Carolina; Charleston, South Carolina; Savannah and Brunswick, Georgia; Jacksonville, Florida; Baltimore, Maryland; Philadelphia, Pennsylvania/ Camden, New Jersey; Wilmington, Delaware;
and the Ports of New York/New Jersey. Gulf Coast ports served include Mobile, Alabama, and New Orleans, Louisiana.
The lines of NS' railroads reach most of the larger industrial and trading centers of the Southeast, Northeast, Mid-Atlantic region and Midwest. Chicago, Norfolk, Detroit, Atlanta, Metropolitan New York City, Jacksonville, Kansas City (Missouri), Baltimore, Buffalo, Charleston, Cleveland, Columbus, Philadelphia, Pittsburgh, Toledo, Greensboro, Charlotte and Savannah are among the leading centers originating and terminating freight traffic on the system. In addition, haulage arrangements with connecting carriers allow NS' railroads to provide single-line service to and from additional markets, including haulage provided by Florida East Coast Railway Company to serve south Florida, including the port cities of Miami, West Palm Beach and Fort Lauderdale; and The Kansas City Southern Railway Company to provide transcontinental intermodal service via a connection with the Burlington Northern and Santa Fe Railway Company. Service is provided to New England, including the Port of Boston, via haulage and interline arrangements with Canadian Pacific Railway Company and Guilford Transportation Industries. The system's lines also reach many individual industries, electric generating facilities, mines (in western Virginia, eastern Kentucky, southern and northern West Virginia and western Pennsylvania), distribution centers, transload facilities and other businesses located in smaller communities in its service area. The traffic corridors carrying the heaviest volumes of freight include those from the New York City area to Chicago (via Allentown and Pittsburgh); Chicago to Jacksonville (via Cincinnati, Chattanooga and Atlanta); Appalachian coal fields of Virginia, West Virginia and Kentucky, to Norfolk and Sandusky, Ohio; Buffalo to Chicago and Kansas City; and Memphis to Chattanooga. Chicago, Memphis, Sidney/Salem, New Orleans, Kansas City, Buffalo, St. Louis and Meridian are major gateways for interterritorial system traffic.
TRIPLE CROWN OPERATIONS - Until April 1993, NS' intermodal subsidiary, Triple Crown Services, Inc. (TCS), offered intermodal service using RoadRailer (Registered Trademark hereinafter abbreviated RT) equipment and domestic containers. RoadRailer(RT) units are enclosed vans that 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 in which subsidiaries of NS and Conrail are equal partners. RoadRailer(RT) equipment owned or leased by TCS (which was renamed TCS Leasing, Inc.) is operated by TCSC. From April 1, 1993, to June 1, 1999, the revenues of TCSC were not consolidated with the results of NS; however, effective June 1, 1999, NS gained control of TCSC and, therefore, now includes TCSC's results in its consolidated financial statements. TCSC offers door-to-door intermodal service using RoadRailer(RT) equipment in major traffic corridors, including those between the Midwest and the Northeast, the Midwest and the Southeast and the Midwest and Texas/Mexico.
RAILWAY OPERATING REVENUES - NS' total railway operating revenues
were $6.2 billion in 2001. Revenue, shipments and revenue yield by
principal railway operating revenue sources for the past five years are
set forth in the following table.
Year Ended December 31,
Principal Sources of --------------------------------------------------------
Railway Operating
Revenues 2001 2000 1999 1998 1997
-------------------- ---- ---- ---- ---- ----
(Revenues in millions, shipments in thousands, revenue yield in dollars per shipment)
COAL
Revenues $ 1,521 $ 1,435 $ 1,322 $ 1,252 $ 1,301
% of total revenues 25% 23% 25% 29% 31%
Shipments 1,695 1,687 1,519 1,310 1,324
% of total shipments 26% 25% 25% 27% 28%
Revenue Yield $ 897 $ 850 $ 870 $ 955 $ 983
AUTOMOTIVE
Revenues $ 885 $ 921 $ 746 $ 577 $ 492
% of total revenues 14% 15% 14% 13% 11%
Shipments 622 692 611 487 361
% of total shipments 9% 10% 10% 10% 7%
Revenue Yield $ 1,423 $ 1,331 $ 1,220 $ 1,186 $ 1,364
CHEMICALS
Revenues $ 752 $ 756 $ 641 $ 492 $ 504
% of total revenues 12% 13% 12% 12% 12%
Shipments 432 453 394 315 316
% of total shipments 6% 6% 7% 7% 7%
Revenue Yield $ 1,742 $ 1,668 $ 1,627 $ 1,559 $ 1,595
METALS/CONSTRUCTION
Revenues $ 674 $ 689 $ 567 $ 375 $ 369
% of total revenues 11% 11% 11% 9% 9%
Shipments 703 757 587 372 374
% of total shipments 11% 11% 10% 8% 8%
Revenue Yield $ 959 $ 911 $ 965 $ 1,008 $ 987
PAPER/CLAY/FOREST
Revenues $ 612 $ 630 $ 578 $ 535 $ 539
% of total revenues 10% 10% 11% 13% 13%
Shipments 450 491 465 445 457
% of total shipments 7% 7% 8% 9% 10%
Revenue Yield $ 1,357 $ 1,285 $ 1,243 $ 1,202 $ 1,178
AGR./CONSUMER PRODUCTS/GOVT.
Revenues $ 603 $ 609 $ 539 $ 468 $ 476
% of total revenues 10% 10% 11% 11% 11%
Shipments 509 525 489 441 455
% of total shipments 8% 8% 8% 9% 9%
Revenue Yield $ 1,185 $ 1,160 $ 1,103 $ 1,063 $ 1,046
8
Year Ended December 31,
Principal Sources of --------------------------------------------------------
Railway Operating
Revenues 2001 2000 1999 1998 1997
-------------------- ---- ---- ---- ---- ----
(Revenues in millions, shipments in thousands, revenue yield in dollars per shipment)
INTERMODAL
(Trailers, Containers
and RoadRailers)
Revenues $ 1,123 $ 1,119 $ 849 $ 555 $ 568
% of total revenues 18% 18% 16% 13% 13%
Shipments 2,214 2,242 1,896 1,443 1,472
% of total shipments 33% 33% 32% 30% 31%
Revenue Yield $ 507 $ 499 $ 448 $ 385 $ 386
Total Railway Operating
Revenues $ 6,170 $ 6,159 $ 5,242 $ 4,254 $ 4,249
Total Railway Shipments 6,625 6,847 5,961 4,813 4,759
Railway Revenue Yield $ 931 $ 900 $ 879 $ 884 $ 893
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COAL TRAFFIC - Coal, coke and iron ore -- most of which is bituminous coal -- is NS' railroads' largest commodity group as measured by revenues. The railroads originated 155 million tons of coal, coke and iron ore in 2001 and handled a total of 178 million tons. Revenues from coal, coke and iron ore accounted for about 25 percent of NS' total railway operating revenues in 2001.
The following table shows total coal, coke and iron ore tonnage originated on line, received from connections and handled for the past five years:
Tons of Coal, Coke and Iron Ore (Millions)
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2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Originated 155 156 138 119 119
Received 23 19 20 15 15
---- ---- ---- ---- ----
Handled 178 175 158 134 134
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Of the 155 million tons of coal, coke and iron ore originated at
ports or on lines operated by NS' railroads in 2001, the approximate
breakdown by origin state was as follows:
Origin State Millions of Tons
------------ ----------------
West Virginia 49
Virginia 32
Pennsylvania 26
Kentucky 24
Ohio 8
Indiana 7
Alabama 4
Illinois 4
Other 1
---
155
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Of the 178 million tons handled, NS moved approximately 14 million tons for export, primarily through NS' pier facilities at Norfolk (Lamberts Point), Virginia; 20 million tons to domestic and Canadian steel industries; 133 million tons of steam coal to electric utilities; and 11 million tons to other industrial and miscellaneous users.
Total coal handled through all system ports in 2001 was 37 million tons. Of this total, 14 million tons (including coastwise traffic) moved through Lamberts Point, 3 million tons moved through the Baltimore Terminal, 10 million tons moved to various docks on the Ohio River, and 10 million tons moved to various Lake Erie ports. Other than coal for export, virtually all coal handled by NS' railroads was terminated in states situated east of the Mississippi River.
The quantities of NS export coal handled through Lamberts Point for the past five years were as follows:
Export Coal through Lamberts Point
(Millions of tons)
----------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
12 16 17 24 28
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See the discussion of coal traffic, by type of coal, in Part II, Item 7, "Management's Discussion and Analysis."
MERCHANDISE TRAFFIC - The merchandise traffic group consists of intermodal and general merchandise, which is comprised of five major commodity groupings: automotive; chemicals; paper, clay and forest products; metals and construction; and agriculture, consumer products and government. Total merchandise revenues in 2001 were $4.6 billion, a 2 percent decrease, compared with 2000. Merchandise carloads and intermodal units handled in 2001 were 4.93 million, compared with 5.16 million handled in 2000, a decrease of 4 percent. Revenues and carloads in all general merchandise groups declined, a result of the weak economy. Intermodal revenues were up $4 million, despite a 1 percent decline in traffic volume.
In 2001, 156 million tons of merchandise freight, or approximately 68 percent of total merchandise tonnage handled by NS, originated online. The balance of merchandise traffic was received from connecting carriers, 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.
See the discussion of general merchandise rail traffic by commodity group and intermodal rail traffic in Part II, Item 7, "Management's Discussion and Analysis."
RAIL OPERATING STATISTICS - The following table sets forth certain
statistics relating to NS' railroads' operations for the past five years,
including operations in the Northern Region that commenced June 1, 1999:
Year Ended December 31,
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2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Revenue ton miles (billions) 182 197 167 135 137
Freight train miles
traveled (millions) 70.0 74.4 61.5 53.0 49.7
Revenue per ton mile $0.0339 $0.0312 $0.0315 $0.0316 $0.0310
Revenue tons per train 2,604 2,653 2,710 2,539 2,755
Revenue ton miles
per man-hour worked 3,023 2,888 2,577 2,659 2,930
Percentage ratio of
railway operating
expenses to railway
operating revenues 83.7% 89.7% 86.3% 75.3% 71.5%
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FREIGHT RATES - In 2001, NS' railroads continued their reliance on private contracts and exempt price quotes as their predominant pricing mechanisms. Thus, a major portion of NS' railroads' freight business is not currently 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 2001, NS' railroads were found by the STB not to be "revenue adequate" based on results for the year 2000. A railroad is "revenue adequate" under the applicable law when its return on net investment exceeds the rail industry's composite cost of capital.
PASSENGER OPERATIONS - Regularly scheduled passenger trains are operated by Amtrak on NS' lines between Alexandria and New Orleans, and between Greensboro and Selma, North Carolina. Commuter trains are operated on the NS line between Manassas and Alexandria under contract with two transportation commissions of the Commonwealth of Virginia. NS also leases the Chicago to Manhattan, Illinois, line to the Commuter Rail Division of the Regional Transportation Authority of Northeast Illinois. Since June 1, 1999, Norfolk Southern Railway has operated former Conrail lines on which Amtrak conducts regularly
scheduled passenger operations between Chicago, Illinois, and Detroit, Michigan, and between Chicago and Harrisburg, Pennsylvania.
Also since June 1, 1999, through its operation of PRR's routes, Norfolk Southern Railway has been providing freight service over former Conrail lines with significant ongoing Amtrak and commuter passenger operations, and is conducting freight operations over some trackage owned by Amtrak or by New Jersey Transit, the Southeastern Pennsylvania Transportation Authority, Metro-North Commuter Railway Company and Maryland DOT. Finally, passenger operations are conducted either by Amtrak or by the commuter agencies over trackage owned by Pennsylvania Lines LLC, or by Conrail in the Shared Assets Areas.
NONCARRIER OPERATIONS - NS' noncarrier subsidiaries engage principally in telecommunications; the acquisition, leasing and management of coal, oil, gas and minerals; the development of commercial real estate; and the leasing or sale of rail property and equipment. In 2001, 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. 131.
RAILWAY PROPERTY:
EQUIPMENT - As of Dec. 31, 2001, 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 2,260 1,048 3,308 11,031,600
Switching 106 113 219 319,800
Auxiliary units 59 18 77 0
------ ------ ------- ----------
Total locomotives 2,425 1,179 3,604 11,351,400
====== ====== ======= ==========
Freight Cars: (Tons)
Hopper 19,868 4,987 24,855 2,613,619
Box 17,629 4,666 22,295 1,735,275
Covered Hopper 10,439 3,035 13,474 1,468,158
Gondola 27,998 10,362 38,360 4,107,632
Flat 3,711 1,495 5,206 379,822
Caboose 174 77 251 0
Other 3,392 0 3,392 173,580
------ ------ ------- ----------
Total freight cars 83,211 24,622 107,833 10,478,086
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Other:
Work equipment 4,971 1,642 6,613
Vehicles 3,391 1,306 4,697
Highway trailers
and containers 403 8,053 8,456
RoadRailers(RT) 5,577 0 5,577
Miscellaneous 1,441 9,698 11,139
------ ------ -------
Total other 15,783 20,699 36,482
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* Includes equipment leased to outside parties and equipment subject to equipment trusts, conditional sale agreements and capitalized leases.
** Includes 982 locomotives, 17,640 freight cars and 2,957 units of other equipment leased from PRR.
The following table indicates the number and year built for locomotives
and freight cars owned at Dec. 31, 2001:
Year Built
----------------------------------------------------------------
1991- 1985- 1984 &
2001 2000 1999 1998 1997 1996 1990 Before Total
---- ---- ---- ---- ---- ---- ---- ------ -----
Locomotives:
Number of
units 110 60 147 119 120 407 381 1,081 2,425
Percent of
fleet 4% 2% 6% 5% 5% 17% 16% 45% 100%
Freight cars:
Number of
units -- 106 503 1,567 1,076 6,344 5,132 68,483 83,211
Percent of
fleet -- --% 1% 2% 1% 8% 6% 82% 100%
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As of Dec. 31, 2001, the average age of the locomotive fleet was 15.7 years. During 2001, 126 locomotives, the average age of which was 22.4 years, were retired. The average age of the freight car fleet at Dec. 31, 2001, was 25.4 years. During 2001, 4,407 freight cars were retired. Since 1988, about 29,000 coal cars have been rebodied. As a result, the remaining serviceability of the freight car fleet is greater than may be inferred from the high percentage of freight cars built in earlier years.
Annual Average Bad Order Ratio
-----------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Freight Cars
(excluding cabooses):
NS Rail 6.9% 5.7% 3.7% 4.1% 4.6%
Locomotives:
NS Rail 5.8% 5.5% 5.3% 4.3% 5.0%
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Ongoing freight car and locomotive maintenance programs are intended to ensure the highest standards of safety, reliability, customer satisfaction and equipment marketability. In past years, the freight car bad order ratio reflected the storage of certain types of cars that were not in high demand. The ratio had declined more recently as a result of a disposition program for underutilized, unserviceable and overage revenue cars. The ratio rose in 2000 and 2001 as a result of decreased maintenance activity. The locomotive bad order ratio also includes units out of service for routine maintenance and modifications. The increase in the locomotive bad order ratio in 1999 was primarily due to the maintenance requirements of units being rented to meet short-term needs and to weather-related failures. The ratio remained high in 2000 as maintenance activities were curtailed in response to a slowing economy. The higher ratio in 2001 reflected units out of service related to the resumption of maintenance and modification activities.
TRACKAGE - All NS trackage is standard gauge, and the rail in approximately 97 percent of the main line trackage (including first, second, third and branch main tracks, all excluding trackage rights) ranges from 100 to 155 pounds per yard. Of the approximately 31,300 miles of track maintained as of Dec. 31, 2001, about 21,200 were laid with welded rail.
The density of traffic on running tracks (including passing tracks
but excluding trackage rights) during 2001 was as follows:
Gross tons of
freight carried
per track mile Track miles of Percent
(Millions) running tracks of total
--------------- -------------- --------
0-4 6,044 27
5-19 7,769 35
20 and over 8,629 38
------ ---
22,442 100
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The following table summarizes certain information about NS' track
roadway additions and replacements during the past five years:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Track miles of rail installed 254 390 403 429 451
Miles of track surfaced 3,836 3,687 5,087 4,715 4,703
New crossties installed
(millions) 1.5 1.5 2.3 2.0 2.2
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MICROWAVE SYSTEM - The NS microwave system, consisting of 7,282 radio route miles, 442 active stations and 4 passive repeater stations, provides communications between most operating locations. The microwave system is used primarily for voice communications, VHF radio control circuits, data and facsimile transmissions, traffic control operations and AEI data transmissions.
TRAFFIC CONTROL - Of a total of 21,500 route miles operated by NS, excluding trackage rights over foreign lines, 11,486 miles are signalized including 8,521 miles of centralized traffic control (CTC) and 2,965 miles of automatic block signals. Of the 8,521 miles of CTC, 1,870 miles are controlled by data radio originating at 147 base station radio sites.
COMPUTERS - Data processing facilities connect the yards, terminals, transportation offices, rolling stock repair points, sales offices and other key system locations to the central computer complex in Atlanta, Georgia. 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, these facilities afford substantial capacity for, and are 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 - The railroads have extensive facilities for support of operations, including freight depots, car construction shops, maintenance shops, office buildings, and signals and communications facilities.
ENCUMBRANCES - Certain railroad equipment is subject to the prior lien of equipment financing obligations amounting to approximately $895 million as of Dec. 31, 2001, and $816 million at Dec. 31, 2000.
CAPITAL EXPENDITURES - Capital expenditures for road, equipment and other property for the past five years were as follows (including capitalized leases):
Capital Expenditures
-------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In millions of dollars)
Road $ 505 $ 557 $ 559 $ 612 $ 599
Equipment 233 146 349 442 306
Other property 8 28 4 6 24
------ ------ ------ ------ ------
Total $ 746 $ 731 $ 912 $ 1,060 $ 929
====== ====== ====== ====== ======
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Capital spending and maintenance programs are and have been designed to assure the ability to provide safe, efficient and reliable transportation services. For 2002, NS has budgeted $705 million of capital spending. See the discussion following "Cash used for investing activities," on Page 40 in Part II, Item 7, "Management's Discussion and Analysis."
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. See the discussion of "Environmental Matters" on Page 45 in Part II, Item 7, "Management's Discussion and Analysis," and in Note 18 to the Consolidated Financial Statements on Page 79.
EMPLOYEES - NS employed an average of 30,894 employees in 2001, compared with an average of 33,738 in 2000. The decrease reflects the effects of the early retirement and work-force reduction programs in 2000. The approximate average cost per employee during 2001 was $52,000 in wages and $21,000 in employee benefits.
Approximately 85 percent of NS' railroad employees are covered by collective bargaining agreements with 15 different labor unions. See the discussion of "Labor Agreements" on Page 43 in Part II, Item 7, "Management's Discussion and Analysis."
GOVERNMENT REGULATION - In addition to environmental, safety, securities and other regulations generally applicable to all businesses, NS' railroads are subject to regulation by the STB, which succeeded the ICC on Jan. 1, 1996. The STB has jurisdiction over some rates, routes, conditions of service and the extension or abandonment of rail lines. The STB 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 railroads, begun over two decades ago by the ICC under the Staggers Rail Act of 1980, has continued under the STB. Significant exemptions 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 effectively remove those shipments from regulation as well. About 75 percent of NS' freight revenues come from either exempt traffic or traffic moving under transportation contracts.
Efforts may be made in 2002 to re-subject the rail industry to unwarranted federal economic regulation. The Staggers Rail Act of 1980, which substantially reduced such regulation, encouraged and enabled rail carriers to innovate and to compete for business, thereby contributing to the economic health of the nation and to the revitalization of the industry. Accordingly, NS will oppose efforts to reimpose unwarranted economic regulation.
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 also 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; both operate throughout much of the same territory. Other railroads also operate in parts of the territory. NS also competes with motor carriers, water carriers and with shippers who have the additional option of handling their own goods in private carriage.
Certain cooperative strategies between railroads and between railroads and motor carriers enable carriers to compete more effectively in specific markets.
None.
There were no matters submitted to a vote of security holders during the fourth quarter of 2001.
Norfolk Southern's executive officers generally are elected and designated 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. Executive officers also may be elected and designated throughout the year as the Board of Directors considers appropriate. 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 February 1, 2002, relating to the executive officers.
Business Experience During Past
Name, Age, Present Position Five Years
--------------------------- -------------------------------
David R. Goode, 61, Present position since September
Chairman, President and 1992.
Chief Executive Officer
L. I. Prillaman, 58, Present position since August 1998;
Vice Chairman and prior thereto was Executive Vice
Chief Marketing Officer President-Marketing
Stephen C. Tobias, 57, Present position since August 1998;
Vice Chairman and prior thereto was Executive Vice
Chief Operating Officer President-Operations.
Henry C. Wolf, 59, Present position since August 1998;
Vice Chairman and prior thereto was Executive Vice
Chief Financial Officer President-Finance.
John F. Corcoran, 61, Present position since August 1997;
Senior Vice President- prior thereto was Vice President-
Public Affairs Public Affairs.
20
Business Experience During Past
Name, Age, Present Position Five Years
--------------------------- --------------------------------
John W. Fox, Jr., 54, Present position since April 1, 2001.
Senior Vice President- Served as Senior Vice President -
Coal Services Coal Marketing from December 1999
to April 1, 2001, and prior thereto
was Vice President - Coal Marketing.
James A. Hixon, 48, Present position since February 1,
Senior Vice President- 2001. Served as Senior Vice
Administration President-Employee Relations from
November 1999 to February 1, 2001,
and prior thereto was Vice
President-Taxation.
Henry D. Light, 61, Present position since January 22,
Senior Vice President-Law 2002. Served as Vice President-
Law from April 2000 to January 22,
2002, and prior thereto was General
Counsel-Operations.
James W. McClellan, 62, Present position since August 1998;
Senior Vice President- prior thereto was Vice President-
Planning Strategic Planning.
Kathryn B. McQuade, 45, Present position since April 2000.
Senior Vice President- Served as Vice President-Financial
Financial Planning Planning from August 1998 to
April 2000, and prior thereto was
Vice President-Internal Audit.
Charles W. Moorman, 50, Present position since October 1999;
President-Thoroughbred prior thereto was Vice President-
Technology and Information Technology.
Telecommunications, Inc.
John P. Rathbone, 50, Present position since April 2000;
Senior Vice President prior thereto was Vice President
and Controller and Controller.
Stephen P. Renken, 58, Present position since February 1,
Senior Vice President- 2001. Served as Vice President-
Chief Information Officer Information Technology from
September 1999 to February 1, 2001,
Assistant Vice President-Program
Management from December 1997 to
September 1999, and prior thereto
was a consultant to NS.
21
Business Experience During Past
Name, Age, Present Position Five Years
--------------------------- -------------------------------
John M. Samuels, 58, Present position since April 2000;
Senior Vice President- Served as Vice President-Operations
Operations Planning and Planning and Budget from January
Support 1998 to April 2000; and prior
thereto was Vice President-
Operating Assets of Conrail.
Donald W. Seale, 49, Present position since December 1999;
Senior Vice President- prior thereto was Vice President-
Merchandise Marketing Merchandise Marketing.
|
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
STOCK PRICE AND DIVIDEND INFORMATION
(Unaudited)
The Common Stock of Norfolk Southern Corporation, owned by 53,042
stockholders of record as of Dec. 31, 2001, 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 2001 and 2000 (prices
quoted in fractions have been rounded to the nearest cent).
Quarter
----------------------------------------------
2001 1st 2nd 3rd 4th
---- --- --- --- ---
Market price
High $ 18.90 $ 24.11 $ 22.60 $ 19.88
Low 13.63 15.80 13.41 15.19
Dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.06
2000 1st 2nd 3rd 4th
---- --- --- --- ---
Market price
High $ 22.75 $ 19.69 $ 19.75 $ 15.63
Low 12.69 14.19 14.13 11.94
Dividends per share $ 0.20 $ 0.20 $ 0.20 $ 0.20
|
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
FIVE-YEAR FINANCIAL REVIEW
1997 - 2001
Page One
2001 2000(1) 1999(2) 1998 1997
---- ---- ---- ---- ----
($ in millions, except per share amounts)
RESULTS OF OPERATIONS
Railway operating revenues $ 6,170 $ 6,159 $ 5,242 $ 4,254 $ 4,249
Railway operating expenses 5,163 5,526 4,524 3,202 3,036
------ ------ ------ ------ ------
Income from
railway operations 1,007 633 718 1,052 1,213
Other income - net 99 168 164 309 170
Interest expense on debt 553 551 531 516 385
------ ------ ------ ------ ------
Income from continuing
operations before
income taxes 553 250 351 845 998
Provision for income taxes 191 78 112 215 299
------ ------ ------ ------ ------
Income from continuing
operations 362 172 239 630 699
Discontinued operations (3) 13 -- -- 104 22
------ ------ ------ ------ ------
Net income $ 375 $ 172 $ 239 $ 734 $ 721
====== ====== ====== ====== ======
PER SHARE DATA
Net income - basic $ 0.97 $ 0.45 $ 0.63 $ 1.94 $ 1.91
Net income - diluted $ 0.97 $ 0.45 $ 0.63 $ 1.93 $ 1.90
Dividends $ 0.24 $ 0.80 $ 0.80 $ 0.80 $ 0.80
Stockholders' equity
at year end $ 15.78 $ 15.16 $ 15.50 $ 15.61 $ 14.44
|
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
FIVE-YEAR FINANCIAL REVIEW
1997 - 2001
Page Two
2001 2000(1) 1999(2) 1998 1997
---- ---- ---- ---- ----
($ in millions, except per share amounts)
FINANCIAL POSITION
Total assets $ 19,418 $ 18,976 $ 19,250 $ 18,180 $ 17,350
Total long-term debt,
including current
maturities $ 7,632 $ 7,636 $ 8,059 $ 7,624 $ 7,459
Stockholders' equity $ 6,090 $ 5,824 $ 5,932 $ 5,921 $ 5,445
OTHER
Capital expenditures $ 746 $ 731 $ 912 $ 1,060 $ 929
Average number of shares
outstanding (thousands) 385,158 383,358 380,606 378,749 376,593
Number of stockholders
at year end 53,042 53,194 51,123 51,727 50,938
Average number of employees:
Rail 30,510 33,344 30,897 24,185 23,323
Nonrail (3) 384 394 269 115 2,494
------- ------- ------- ------- -------
Total 30,894 33,738 31,166 24,300 25,817
======= ======= ======= ======= =======
|
NOTES
(1) 2000 operating expenses include $165 million in work-force reduction
costs for early retirement and separation programs. These costs reduced
net income by $101 million, or 26 cents per diluted share.
(2) On June 1, 1999, NS began operating a substantial portion of Conrail's
properties. As a result, both its railroad route miles and the number
of its railroad employees increased by approximately 50% on that date.
(3) In 1998, NS sold all the common stock of its motor carrier subsidiary,
North American Van Lines, Inc. (NAVL), for $207 million and recorded
a $90 million pretax ($105 million, or 28 cents per diluted share,
after-tax) gain. Accordingly, NAVL's results of operations, financial
position and cash flows are presented as "Discontinued operations."
Results in 2001 include an additional after-tax gain of $13 million,
or 3 cents per diluted share, that resulted from the expiration of
certain indemnities contained in the sales agreement.
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 51 and the Five-Year Financial Review beginning on Page 23.
SUMMARIZED RESULTS OF OPERATIONS
Net income in 2000 was $172 million, down 28%. Excluding the
$101 million after-tax cost of the work-force reductions, net income
would have been $273 million, up 14%. The increase resulted from gains
from the sale of nonoperating properties (see Note 3 on Page 61) and
higher income from railway operations, compared with a weak 1999.
Diluted earnings per share were 45 cents, down 29%. Excluding the
effects of the work-force reduction costs, diluted earnings per share
were up 13%.
DETAILED RESULTS OF OPERATIONS
RAILWAY OPERATIING REVENUES BY MARKET GROUP
($ in millions) 2001 2000 1999
-------------- ---- ---- ----
Coal $ 1,521 $ 1,435 $ 1,322
General merchandise:
Automotive 885 921 746
Chemicals 752 756 641
Metals/construction 674 689 567
Paper/clay/forest 612 630 578
Agriculture/consumer products/government 603 609 539
------ ------ ------
General merchandise 3,526 3,605 3,071
Intermodal 1,123 1,119 849
------ ------ ------
Total $ 6,170 $ 6,159 $ 5,242
====== ====== ======
|
In 2001, revenues fell for all the general merchandise market groups. However, a 6% increase in coal revenues offset the effects of the lower general merchandise revenues. As shown in the following table, higher revenue yields offset the effects of lower traffic volume.
RAILWAY OPERATING REVENUE VARIANCE ANALYSIS
Increases (Decreases)
($ in millions) 2001 vs. 2000 2000 vs. 1999
-------------- ------------- -------------
Volume $ (200) $ 779
Revenue per unit/mix 211 138
----- -----
Total $ 11 $ 917
===== =====
|
Revenue per unit increased in all market groups, principally due to
rate increases, use of higher-capacity equipment and favorable changes in
the mix of traffic.
In 2000, revenues increased for all market groups, reflecting a full
year of handling Northern Region traffic. Revenues improved for the last
seven months, a comparison that fully includes the Northern Region in both
years, reflecting recovery of most of the diverted traffic and new business.
However, weakness in the economy resulted in lower revenues very late in the
year. Revenue per unit improved in most market groups, principally due to the
effects of Northern Region traffic and increased rates. About half of the
revenue per unit increase for the intermodal market group was attributable to
the effects of the consolidation of Triple Crown Services Company (TCS)
revenues (see discussion of intermodal revenues below).
COAL tonnage increased 2% in 2001 and revenues increased 6%. Revenue per
unit increased 6%, a result of rate increases, including lower volume-related
refunds on export coal shipments, gains in tonnage per car and favorable
changes to the mix of traffic (less shorter-haul business). Coal, coke and
iron ore revenues represented 25% of total railway operating revenues in 2001,
and 83% of NS' coal shipments originated on lines it operated.
In 2000, coal tonnage increased 11%, and revenues increased 9%,
reflecting a full year of Northern Region traffic. Revenue per unit declined,
a result of a higher proportion of traffic with a shorter length of haul,
principally attributable to a full year of Northern Region operations.
TOTAL COAL, COKE AND IRON ORE TONNAGE
(In millions of tons) 2001 2000 1999
-------------------- ---- ---- ----
Utility 133 119 108
Export 14 20 18
Domestic metallurgical 20 25 22
Other 11 11 10
--- --- ---
Total 178 175 158
=== === ===
|
Utility coal traffic increased 11% in 2001, reflecting higher demand
for coal-fired electricity and the effects of very high natural gas prices
early in the year. High demand for electricity, a volatile market for
natural gas and production problems at a number of large mines in the East
late in 2000 combined to increase the demand for coal early in 2001 with a
resulting increase in coal prices. Utility coal traffic volume also
benefited from the shifting of coal that traditionally would have been
bound for export to the domestic market.
In 2000, utility coal traffic increased 11%, reflecting a full year
of Northern Region operations. The effects of expanded operations were
somewhat offset by coal production problems at several NS-served mines,
unanticipated outages at some NS-served utility plants, large stockpiles
at the beginning of the year and mild summer weather in portions of NS'
service territory.
The near-term outlook for utility coal remains positive. U.S.
demand for electricity continues to grow rapidly, and coal-fired
generation remains the cheapest marginal source of electricity. Several
underutilized coal-fired power plants are making the transition
from peak-only generation to full-time generation. In addition, although
natural gas prices have returned to more normal levels, the volatility of
natural gas prices may improve the long-term competitive position of
coal-fired generation.
Phase II of Title IV of the Clean Air Act Amendments of 1990, which
imposes more stringent limits on sulfur dioxide emissions, took effect on
Jan. 1, 2000. Many of the mines served by NS produce coals that satisfy
Phase II requirements. In addition, substantial banks of sulfur dioxide
allowances held by many NS-served utilities should continue to provide a
market for other NS-served mines for many years. However, several federal
environmental regulatory initiatives continued to be pursued during 2001,
including "new source review" for older coal-fired plants. Many of the
rules that have been promulgated to date are in litigation. If the rules
survive litigation and are implemented, they could increase the cost
of coal-fired generation and potentially adversely affect the value of
the sulfur dioxide allowance bank.
The Bush Administration rejected in 2001 the Kyoto Protocol and
withdrew U.S. participation in that process. If implemented, the proposed
Kyoto limits on greenhouse gases could have put additional cost pressures
on coal-fired generation. The U.S. withdrawal from the Kyoto process has
renewed interest in building coal-fired generation plants.
The 1999 decision by a federal district court judge in West Virginia
holding that some common mountaintop mining practices in the coal industry
are illegal was overturned in April 2001 by the U.S. Fourth Circuit
Court of Appeals. In January 2002, the U.S. Supreme Court refused to
hear an appeal of the case.
Export coal tonnage declined 30% in 2001. The rapid rise of domestic
utility coal prices early in the year enticed many foreign-market
suppliers to place much of their 2001 production in the domestic utility
markets. In addition, production difficulties at several large NS-served
mines and flooding in West Virginia in July significantly reduced the
supply of low volatile coal. The combination of these factors resulted
in most of the decline in shipments of export coal. Steam coal exported
through Baltimore declined 32%, and export metallurgical coals through
Norfolk declined by 30%. Demand for steam coal to export strengthened
in the last half of 2001; however, the strong U.S. demand limited NS'
participation in this market. Demand for coking coal to export continued
to soften, as steel production moved from traditional NS markets in
Europe to Asia, which in recent years has been supplied by Australian
or Canadian coals.
In 2000, export coal tonnage increased 8%, a result of a full year
of access to Baltimore through the Northern Region, mitigated by lower
tonnage through Norfolk. Several additional factors also adversely
affected export coal traffic volume. Delayed settlements between buyers
and sellers in the spring postponed shipments of some export tonnage.
Foreign buyers ultimately intended to purchase additional U.S.
metallurgical coal, but production capacity available for export had
been diminished by two years of dramatically lower prices. Toward the
end of 2000, production difficulties at several large NS-served mines
significantly reduced tonnage available for export. Limited supplies
overall prevented other coal producers from providing substitute coal.
Export coal tonnage is expected to continue to be limited by supply
and subject to the fluctuations of the world market. While the
consolidation of Australian producers should help stabilize that supply
channel, new Australian production could displace U.S.
volumes to Europe absent any increase in demand. Moreover, Chinese participation in Pacific Rim markets could displace Australian coals there and force that tonnage to Europe.
Domestic metallurgical coal, coke and iron ore traffic decreased 18%
in 2001, due to a decline in the market for domestic steel. The softening
economy and an increase in steel imports drastically cut blast furnace
production, sharply reducing the demand for coking coal, iron ore and coke.
The increase in imported steel also resulted in lower prices that put
pressure on the U.S. steel industry and led to plant closures and
bankruptcies that included some NS customers.
In 2000, domestic metallurgical coal, coke and iron ore traffic
increased 17%, due to a full year of Northern Region operations. In
addition, increased production in the first half of the year and gains
in NS market share contributed to the higher traffic. However, the
softening economy and increased steel imports diminished blast furnace
production rates, sharply reducing demand for raw materials.
Domestic metallurgical coal, coke and iron ore traffic is expected
to continue to suffer from the decline in demand for domestically produced
steel. However, the United States has applied a tariff on imported coke,
which has reduced its entry to the U.S. market. Moreover, the U.S.
International Trade Commission has recommended that President Bush take
similar action on imported steel. But long-term demand is expected to
continue to decline, due to advanced technologies that allow production of
steel using less coke.
Other coal traffic, principally steam coal shipped to manufacturing plants, increased 6% in 2001 and 4% in 2000. The gain in 2001 resulted from new and increased business from industrial customers. The increase in 2000 reflected a full year of handling Northern Region traffic; however, this was mitigated by the loss of some traffic to competitors.
COAL
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999
---- ---- ----
$1,521 $1,435 $1,322
|
Revenues increased $86 million, or 6%, in 2001, primarily due to increased utility coal traffic volume and higher revenue per unit. This group includes utility coal, export coal, domestic metallurgical coal and industrial coal, coke and iron ore.
GENERAL MERCHANDISE traffic volume (carloads) decreased 7% in 2001, and revenues decreased 2%, principally due to the effects of the weak economy. In 2000, traffic volume increased 15%, and revenues increased 17%, reflecting a full year of operating the Northern Region.
Automotive traffic volume decreased 10%, and revenues declined 4% in
2001, principally due to a 10% drop in vehicle production. Revenue per unit
increased 7%, principally due to rate increases, efficiencies gained from the
redesign of the mixing center network and use of higher capacity equipment.
In 2000, automotive traffic volume increased 13%, and revenues increased
23%, reflecting a full year of Northern Region operations, record vehicle
production and the recapture of business diverted because of service issues
after the Closing Date. The carload increase was less than the revenue
increase principally due to the effects of a redesign of the mixing center
network. This redesign improves vehicle velocity through the network and
includes changes in traffic flows that resulted in a decline in carloads,
with no corresponding decrease in revenues.
Ford Motor Company, NS' largest customer, has announced potential
reductions in vehicle production which could affect NS volumes. However,
automotive revenues in 2002 are expected to be comparable to those of 2001,
as light vehicle production is predicted to be flat.
AUTOMOTIVE
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999
---- ---- ----
$ 885 $ 921 $ 746
|
Revenues decreased $36 million, or 4%, in 2001, due to a 10% drop in traffic volume. Revenue per unit increased, principally due to rate increases and improved efficiency. This group includes finished vehicles for BMW, DaimlerChrysler, Ford Motor Company, General Motors, Honda, Isuzu, Jaguar, Land Rover, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Saab, Subaru, Suzuki, Toyota and Volkswagen, and auto parts for Ford Motor Company, General Motors, Mercedes-Benz and Toyota.
Chemicals traffic volume decreased 5%, and revenues decreased 1% in
2001. The weak economy depressed shipments of petroleum, plastics,
industrial and miscellaneous chemicals. These declines were partially
offset by new business through NS' Thoroughbred Bulk Transfer (TBT)
facilities that handle chemicals and bulk commodities for customers not
located on NS-served lines. Revenue per unit increased due to higher rates
and a favorable change in the mix of traffic (more longer-haul moves).
In 2000, chemicals traffic volume increased 15%, and revenues
increased 18%, due to a full year of Northern Region operations and the
return of traffic that had been diverted because of service issues after
the Closing Date. Shipments of miscellaneous chemicals, chlorine, caustic
soda and plastics continued to rebound, but sulfur carloads were down due
to weak fertilizer markets. Chemicals shipments continued to increase
through NS' TBT facilities.
Chemicals revenues are expected to continue to be adversely affected
until the economy recovers. However, NS expects to benefit from new business
and improved yields.
CHEMICALS
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999
---- ---- ----
$ 752 $ 756 $ 641
|
Revenues decreased $4 million, or 1%, in 2001, due to lower traffic volumes that resulted from the weak economy. This group includes sulfur and related chemicals, petroleum products, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes and municipal wastes.
Metals and construction traffic volume decreased 7%, and revenues
declined 2% in 2001, reflecting weakness in the steel and construction
industries. The steel industry recession, which began in 2000, has
resulted in excess capacity and the closing of numerous steel mills.
Revenue per unit increased due to higher rates and favorable changes in
the mix of traffic.
In 2000, metals and construction traffic volume increased 29%, and
revenues increased 22%, reflecting a full year of operations over the
expanded system. Revenue per unit declined, largely due to a change in the
mix of traffic. Metals traffic benefited from increased shipments of sheet
steel, imported slab steel and ferrous scrap; however, this was tempered
by a significant slowdown in the steel industry in the last half of the
year. Construction traffic benefited from continued strength in housing
starts and highway construction.
Metals and construction revenues are expected to suffer from the
effects of a continued softness in the steel market. However, increased
highway construction in NS' service area is expected to mitigate the
drop in metals demand.
METALS AND CONSTRUCTION
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999
---- ---- ----
$ 674 $ 689 $ 567
|
Revenues decreased $15 million, or 2%, in 2001, principally due to weakness in the steel industry. Revenue per unit increased due to higher rates and favorable changes in the mix of traffic. This group includes steel, aluminum products, machinery, scrap metals, cement, aggregates, bricks and minerals.
Paper, clay and forest products traffic volume declined 8%, and revenues decreased 3%, in 2001, primarily due to a weakened paper market. Paper shipments were adversely affected by reduced production at many NS-served paper mills, a result of sluggish newspaper advertising and soft demand for paper. Lumber traffic began the year weak,
improved in late summer, but softened late in the year due to short-term
weakness in housing starts. Revenue per unit increased principally due to
higher rates.
In 2000, paper, clay and forest products traffic volume increased 5%,
and revenues increased 9%, principally due to the effects of a full year
of Northern Region operations. Consolidation in the paper industry and a
weakening paper market in the second half of the year contributed to lower
carloads during the summer months and into the fall. Weak demand for paper
production inputs, such as scrap paper and wood pulp, was tempered by
stronger demand for newsprint and printing paper.
Paper, clay and forest products revenues are expected to continue to
be adversely affected by weak demand in 2002, due to continued consolidations
and little anticipated capacity expansion through 2003. NS is pursuing new
business using MODALGISTICS(SM), its supply-chain focused business unit
formed in February 2001.
PAPER, CLAY AND FOREST PRODUCTS
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999
---- ---- ----
$ 612 $ 630 $ 578
|
Revenues decreased $18 million, or 3%, in 2001, primarily due to a weakened paper market. Revenue per unit benefited from higher rates. This group includes lumber and wood products, pulpboard and paper products, woodfibers, woodpulp, scrap paper and clay. NS serves 66 paper mills, 105 paper distribution centers and more than 100 lumber reload centers.
Agriculture, consumer products and government traffic volume decreased
3%, and revenues declined 1% in 2001, primarily due to reduced shipments of
fertilizer. This decline was due to soft farm demand, record high natural
gas prices early in the year (which curtailed production of certain
fertilizers) and increased imports. This was mitigated by traffic volume
increases for grain, flour, wheat and canned goods. The revenue per unit
increase was primarily due to favorable changes in the mix of traffic.
In 2000, agriculture, consumer products and government traffic volume
increased 7%, and revenues increased 13%, due to the effects of a full year
of Northern Region traffic and modest growth in the Southeast markets. Rate
increases and more longer-haul (higher revenue-per-unit) traffic also
contributed to the revenue increase. Grain traffic benefited from new
shuttle-train service that improved service to new and expanded Southeast
feed mills. In addition, traffic increased for Midwest grain and sweeteners
and consumer goods from the West.
Agriculture, consumer products and government revenues in 2002 are
expected to be comparable to those of 2001. Continued weakness in the
fertilizer market is expected to offset gains in the Southeast feed
markets and new business.
AGRICULTURE, CONSUMER PRODUCTS AND GOVERNMENT
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999 ---- ---- ---- $ 603 $ 609 $ 539 |
Revenues decreased $6 million, or 1%, in 2001, principally due to soft farm demand, depressed fertilizer production and increased imports. This group includes soybeans, wheat, corn, fertilizers, animal and poultry feed, food oils, flour, beverages, canned goods, sweeteners, consumer products and items for the military.
INTERMODAL traffic volume decreased 1%, but revenues increased slightly
in 2001. Domestic traffic volume was up in the first half of the year, but
demand increasingly weakened as the year progressed, which eroded NS' base
of traffic. New business supported by the opening of three new terminals and
other initiatives mitigated the effects of the weakened economy. International
traffic, which accounts for about half of intermodal volume, grew slightly as
U.S. imports slowed with the economy. TCS traffic volume increased 1% despite
economic conditions, as it continued to benefit from reliable, trucklike
service. Intermodal revenue per unit dropped later in the year, reflecting the
expiration of fuel surcharges that were implemented late in 2000 and the
introduction of new shorter-haul business.
In 2000, intermodal traffic volume increased 18%, and revenues
increased 32%, primarily due to a full year of Northern Region traffic and
the consolidation of TCS revenues (see Note 2 on Page 58). About half of the
improvement in revenue per unit resulted from the effects of consolidating
TCS. Prior to June 1, 1999, NS revenues included only the amounts for rail
services it performed under contract to TCS, but NS volume included most
TCS units. Also contributing to the revenue-per-unit improvement were rate
increases throughout the year on domestic business and the implementation
of fuel surcharges later in the year. In addition, increased demand, new
business and improved service contributed to the gains, as major customers,
including UPS, JB Hunt, Hub Group and Maersk, increased volumes. Despite
weak demand in the first quarter and the loss in December 1999 of a major
customer, NS had regained its market share by the second quarter. Domestic
and premium business volumes benefited from service improvements and
expansion initiatives. International traffic, which accounts for about
half of intermodal volume, grew 5%, notwithstanding the loss of business
from a major customer. TCS traffic increased 3%, as it recovered from
service shortcomings after the Closing Date.
Intermodal revenues are expected to benefit from continued
improvements in service and the terminal capacity added in 2001.
INTERMODAL
(Shown as a graph in the Annual Report to Stockholders)
(millions)
2001 2000 1999
---- ---- ----
$ 1,123 $ 1,119 $ 849
|
Revenues increased $4 million in 2001, despite a 1% drop in traffic volume. This group handles trailers, domestic and international containers, TCS equipment and equipment for intermodal marketing companies, international steamship lines, truckers and other shippers.
The following table shows the changes in railway operating expenses summarized by major classifications.
RAILWAY OPERATING EXPENSES
Increases (Decreases)
($ in millions) 2001 vs. 2000 2000 vs. 1999
-------------- ------------- -------------
Compensation and benefits * $ (220) $ 379
Materials, services and rents (1) 171
Conrail rents and services (57) 167
Depreciation 11 28
Diesel fuel (66) 223
Casualties and other claims 1 4
Other (31) 30
----- -----
Total $ (363) $1,002
===== =====
|
* Includes $165 million of work-force reduction costs in 2000.
Compensation and benefits represented 39% of total railway operating
expenses and decreased 10% in 2001, but increased 20% in 2000. Both
comparisons reflect the $165 million of work-force reduction costs in 2000.
Excluding those costs, compensation and benefits decreased 3% in 2001, but
increased 12% in 2000.
The 3% decline in 2001 reflected savings attributable to the reduced
size of the work force. These savings were somewhat offset by higher wages
and benefit costs for union employees, higher incentive compensation and
reduced pension income.
The 12% increase in 2000 was largely attributable to the effects of
a full year of expanded operations and higher wages and benefit costs for
union employees. These increases were mitigated by higher pension income and
the absence of the $49 million incurred in 1999 for the Special Work
Incentive Program (SWIP) for union employees in the third quarter of 1999.
Pension income was higher in 2000 largely due to the transfer of assets
from the Conrail pension plan after the Closing Date. NS has substantial
unrecognized gains related to its overfunded pension plan; amortization
of these gains will continue to be included in "Compensation and
benefits" expenses (see Note 11 on Page 68).
The Railroad Retirement and Survivors' Improvement Act, which took
effect on Jan. 1, 2002, provides for a phased reduction of the employers'
portions of Tier II Railroad Retirement payroll taxes. The phase-in calls
for a reduction from 16.1% in 2001 to 15.6% in 2002, 14.2% in 2003 and
13.1% in 2004. In addition, the supplemental annuity tax was eliminated.
These changes are expected to result in a $21 million reduction to payroll
tax expenses in 2002. The new law allows for investment of Tier II assets
in a diversified portfolio through the newly established National Railroad
Retirement Investment Trust. The law also provides a mechanism for
automatic adjustment of Tier II payroll taxes should the trust assets
fall below a four-year reserve or exceed a six-year reserve.
Materials, services and rents includes items used for the maintenance
of the railroad's lines, structures and equipment; the costs of services
purchased from outside contractors, including the net costs of operating
joint (or leased) facilities with other railroads; and the net cost of
equipment rentals. This category of expenses decreased slightly in 2001,
but increased 13% in 2000.
In 2001, the effects of lower equipment rents were largely offset
by higher costs for purchased services, including expenses for software,
consulting and legal fees. The increase in 2000 was mostly attributable
to the effects of a full year of Northern Region operations and the
consolidation of TCS and was mitigated by the absence of significant costs
incurred in 1999 related to the service issues encountered after the
Closing Date.
Equipment rents, which includes the cost to NS of using equipment
(mostly freight cars) owned by other railroads or private owners, less the
rent paid to NS for the use of its equipment, decreased 11% in 2001, but
increased 22% in 2000. The decline in 2001 was principally due to shorter
car cycle times that resulted in fewer car days on line and fewer freight
car and locomotive leases. The 2000 increase was principally due to the
effects of a full year of expanded operations but was mitigated by a
favorable comparison for the last seven months, as expenses in 1999 were
high due to the service issues encountered after the Closing Date.
Locomotive and equipment repair costs increased in 2001, principally
due to renewed maintenance activity. This trend is expected to continue in
2002, driven by higher expenses for freight car repairs. In 2000,
maintenance costs increased, reflecting a full year of Northern Region
operations; however, the increase was tempered by reduced maintenance
activities, a result of cost control efforts.
Conrail rents and services, a new category of expense beginning in 1999, arose from the expansion of operations on the Closing Date and amounted to $421 million in 2001, $478 million in 2000 and $311 million in 1999. This item includes amounts due to PRR and CRC for use of their operating properties and equipment and CRC's operation of the Shared Assets Areas. Also included is NS' equity in Conrail's net earnings since the Closing Date, plus the additional amortization related to the difference between NS' investment in Conrail and its underlying equity (see Note 2 on Page 58). The decline in 2001 reflected higher Conrail earnings and lower expenses in the Shared Assets Areas (see "Conrail's Results of Operations, Financial Condition and Liquidity," below). Expenses in 2000 included a full year of operations over Conrail's lines, compared with seven months in 1999.
Depreciation expense was up 2% in 2001 and 6% in 2000. Increases in both years were due to property additions, reflecting substantial levels of capital spending (see Note 1, "Properties," on Page 57 for NS' depreciation policy). A periodic review of depreciation rates is being finalized, and rates are expected to be somewhat lower.
Diesel fuel expenses decreased 14% in 2001, but increased 87% in 2000. The decline in 2001 was the result of an 8% drop in consumption and a 7% decline in the average price per gallon. Expenses in 2001 include $8 million related to the hedging program initiated in the second quarter (see "Market Risks and Hedging Activities," below and Note 16 on Page 77). The increase in 2000 expenses resulted from a 61% rise in the average price per gallon and higher consumption that reflected a full year of Northern Region operations.
Casualties and other claims expenses (including the estimates of costs
related to personal injury, property damage and environmental matters)
increased slightly in 2001 and 3% in 2000.
The largest component of casualties and other claims expense is
personal injury costs. In 2001, cases involving occupational injuries
comprised about 31% of the total employee injury cases settled and 15% of
the total settlement payments made. Injuries of this type are not generally
caused by a specific accident or event, but, rather, result from a claimed
exposure over time. Many such claims are being asserted by former or
retired employees, some of whom have not been actively employed in the
rail industry for decades. NS continues to work actively to eliminate all
employee injuries and to reduce the associated costs.
The rail industry remains uniquely susceptible to litigation
involving job-related accidental injury and occupational claims because
of an outmoded law, the Federal Employers' Liability Act (FELA),
originally passed in 1908 and applicable only to railroads. This law,
which covers employee claims for job-related injuries, promotes an
adversarial claims environment and produces results that are
unpredictable and inconsistent. The railroads have been unsuccessful
so far in efforts to persuade Congress to replace FELA with a no-fault
workers' compensation system.
NS maintains substantial amounts of commercial insurance for
potential third-party liability and property damage claims. It also
retains reasonable levels of risk through self-insurance.
Other expenses decreased 13% in 2001, but increased 14% in 2000. The decline in 2001 was principally due to lower bad debt costs, reduced franchise and property taxes, and lower travel and employee-relocation expenses. The increase in 2000 reflected a full year of Northern Region operations and higher bad debt expense.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities, NS' principal source of
liquidity, was $654 million in 2001, compared with $1.3 billion in 2000
and $533 million in 1999. Results in 2000 reflect the commencement of a
program under which accounts receivable are sold on a revolving basis
(see Note 5 on Page 63). Excluding the infusion of cash from this program,
operating cash flow declined $300 million in 2001. The decrease primarily
resulted from an $88 million reduction in the amount of accounts receivable
sold, higher tax payments including amounts applicable to prior years, an
increase in telecommunication receivables, bonus payments in 2001 (no such
payments in 2000) and the timing of payrolls. A significant portion of
payments made to PRR (which are included in "Conrail Rents and Services"
and, therefore, are a use of cash in "Cash provided by operating
activities") are borrowed back from a PRR subsidiary and, therefore, are
a source of cash in "Proceeds from borrowings." In 2001, NS' net cash flow
from these borrowings amounted to $250 million. The improvement in cash
provided by operating activities in 2000 resulted primarily from favorable
changes in working capital, including an improvement in collection of
accounts receivable, a lengthening of accounts payable and the lack of
bonus payments.
The large changes in "Accounts receivable" and "Current liabilities
other than debt" in the 1999 cash flow statement primarily resulted from
the commencement of operations in the Northern Region. In addition,
collection of accounts receivable had slowed.
NS' working capital deficit was $1.3 billion at Dec. 31, 2001,
compared with $1.0 billion at Dec. 31, 2000. The increase resulted
principally from a higher amount of debt due within one year. Debt due
in 2002 is expected to be paid using cash generated from operations
(including sales of accounts receivable), cash on hand and proceeds
from borrowings. Part of the working capital deficit at Dec. 31, 2001,
arises from a $373 million balance in "Notes and accounts payable to
Conrail" that is not expected to be repaid in 2002.
NS currently has the capability to increase the amount of accounts
receivable being sold under the revolving sale program to meet its more
immediate working capital needs. During 2001, the amount of receivables
NS could sell under this program ranged from $345 million to $468 million,
and the amount of receivables NS sold ranged from $300 million to
$402 million. Moreover, NS has the capability to issue up to $1 billion
of commercial paper (see Note 8 on Page 65); however, any reduction in
its credit rating could limit NS' ability to access the commercial paper
markets (see also the discussion of financing activities, below).
NS expects to generate sufficient cash flow from operations to meet
its ongoing obligations. This expectation is based on a view that the
economy will remain flat for the first half of 2002 and resume growth in
the third and fourth quarters.
NS' contractual obligations related to its long-term debt
(including capital leases), operating leases and agreements with CRC
are as follows:
2003- 2005- 2007 and
($ in millions) Total 2002 2004 2006 Subsequent
-------------- ----- ---- ---- ---- ----------
Long-term debt and
capital leases $ 7,632 $ 605 $ 705 $ 706 $ 5,616
Operating leases 890 113 172 117 488
Agreements with CRC 775 27 62 68 618
------ ----- ----- ----- ------
Total $ 9,297 $ 745 $ 939 $ 891 $ 6,722
====== ===== ===== ===== ======
|
NS also has contractual obligations to PRR as disclosed in Note 2 on Page 58. However, NS has the ability to borrow back funds from PRR to the extent they are not needed to fund contractual obligations at Conrail. As an indirect owner of Conrail, NS may need to make capital contributions, loans or advances to Conrail to fund its contractual obligations. The following table presents 58% of Conrail's contractual obligations for long-term debt (including capital leases) and operating leases.
2003- 2005- 2007 and
($ in millions) Total 2002 2004 2006 Subsequent
-------------- ----- ---- ---- ---- ----------
Long-term debt and
capital leases $ 705 $ 35 $ 62 $ 48 $ 560
Operating leases 369 36 61 64 208
------ ----- ----- ----- -----
Total $ 1,074 $ 71 $ 123 $ 112 $ 768
====== ===== ===== ===== =====
|
NS also has two transactions not included in the balance sheets or in the previous table of its contractual obligations consisting of an accounts receivable sale program (see Note 5 on Page 63) and an operating lease covering 140 locomotives (see Note 9 on Page 67).
Under the accounts receivable sale program, NS sells without recourse
undivided ownership interests in a pool of accounts receivable to two
unrelated buyers. NS has no ownership interest in the buyers. The buyers
issued debt to fund their initial purchase, and NS used the proceeds it
received from the initial purchase primarily to pay down its outstanding
debt. NS has no obligation related to the buyers' debt, and there is no
existing obligation to repurchase sold receivables. Upon termination of
the program, the buyers would cease purchasing new receivables and
collections related to the sold receivables would be retained by the buyers.
The operating lease covering the 140 locomotives is renewable annually
at NS' option and expires in 2008. The lessor is not related to NS and its
owner has a substantive residual equity capital investment at risk in the
entity. The lessor owns the locomotives and issued debt to finance their
purchase. NS has no obligation related to the debt. NS has the option to
purchase the locomotives, but also can return them to the lessor. The
return provisions of the lease are not so onerous as to preclude this
option. If NS does not purchase the locomotives at the end of the maximum
lease term, it is liable for any shortfall in the then fair value of the
locomotives and a specified residual value. NS does not expect to be
required to make any payments under this provision.
Cash used for investing activities increased slightly in 2001, but
decreased slightly in 2000. Property additions were up 2% in 2001,
following a large decline in 2000 that reflected the absence of
significant locomotive purchases, as fleet additions were accomplished
by operating lease. Investing activities in 1999 included approximately
$140 million more of borrowings against the net cash surrender value of
corporate-owned life insurance than in 2000. Property additions account
for most of the recurring spending in this category.
The following tables show capital spending and track and equipment
statistics for the past five years.
CAPITAL EXPENDITURES
($ in millions) 2001 2000 1999 1998 1997
-------------- ---- ---- ---- ---- ----
Road $ 505 $ 557 $ 559 $ 612 $ 599
Equipment 233 146 349 442 306
Other property 8 28 4 6 24
---- ---- ---- ----- ----
Total $ 746 $ 731 $ 912 $1,060 $ 929
==== ==== ==== ===== ====
|
Capital expenditures increased 2% in 2001, but decreased 20% in 2000. Outlays in 2001 included amounts for locomotive purchases that were somewhat offset by lower expenditures for freight car purchases and roadway projects. The decline in 2000 reflected lower capital expenditures for locomotives as a result of the operating lease. In both years, spending for road included fiber-optic infrastructure that is expected to be completed in 2002 (see "Telecommunications Subsidiary," below).
TRACK STRUCTURE STATISTICS (CAPITAL AND MAINTENANCE)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Track miles of rail installed 254 390 403 429 451
Miles of track surfaced 3,836 3,687 5,087 4,715 4,703
New crossties installed (millions) 1.5 1.5 2.3 2.0 2.2
|
AVERAGE AGE OF OWNED RAILWAY EQUIPMENT
(Years) 2001 2000 1999 1998 1997
------ ---- ---- ---- ---- ----
Freight cars 25.4 24.6 23.8 23.6 23.0
Locomotives 15.7 16.1 15.4 15.4 15.3
Retired locomotives 22.4 24.5 22.7 20.6 23.3
|
The table above excludes equipment leased from PRR (see Note 2 on
Page 58), which comprises 16% of the freight car fleet and 27% of the
locomotive fleet.
The higher average age of owned locomotives in 2000 reflects the fact
that locomotives leased in 2000 are not included in the statistic. The 1998
decrease in the average age of retired locomotives resulted from a
disproportionate share of early retirements as well as retention of older
units in anticipation of the Closing Date.
Through its coal car rebody program, which was suspended in 2000,
NS converted about 29,000 hopper cars into high-capacity steel gondolas
or hoppers. As a result, the remaining service life of the freight-car
fleet is greater than may be inferred from the increasing average age
shown in the table above.
For 2002, NS has budgeted $705 million for capital expenditures.
The anticipated spending includes $482 million for roadway projects, of
which $366 million is for track and bridge program work. Also included
are projects for marketing and industrial development initiatives and
continuing investments in intermodal infrastructure. Equipment spending
of $173 million includes the purchase of 50 locomotives and upgrades to
existing units, and projects related to computers and information
technology, including additional security and backup systems. NS
issued in February 2002 debt secured by the locomotives.
Cash provided by financing activities in 2001 was $151 million, and
reflects the effects of the reduction to the dividend in January 2001.
Financing activities included loan transactions with a PRR subsidiary that
resulted in net borrowings of $250 million in 2001 and net repayments of
$72 million in 2000 (see Note 2 on Page 58). Excluding these borrowings,
debt was reduced $20 million in 2001 and $422 million in 2000. The
substantial net reduction of debt in 2000 was accomplished in part with
the proceeds from the sale of accounts receivable. NS' debt-to-total
capitalization ratio (excluding notes payable to Conrail) at year end
was 55.6% in 2001 and 56.7% in 2000.
NS currently has in place a new $1 billion, five-year credit
facility, which replaced the facility that would have expired in May 2002.
The new agreement provides for borrowings at prevailing rates and
includes financial covenants similar to the old
facility (see Note 8 on Page 65). In addition, NS has issued only $250 million of debt under its $1 billion shelf registration that became effective in April 2001.
CONRAIL'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY
Through May 31, 1999, Conrail's results of operations include freight
line-haul revenues and related expenses. After the Closing Date, June 1, 1999,
its results reflect its new structure and operations (see Note 2 on Page 58).
Currently, Conrail's major sources of operating revenues are operating fees
and rents from NSR and CSXT. The composition of Conrail's operating expenses
also changed.
Conrail's net income was $174 million in 2001, compared with
$170 million in 2000 and $26 million in 1999 (see Note 2 on Page 58). Results
in 1999 included $180 million of expenses ($121 million after taxes),
principally to increase certain components of its casualty liability based
on an actuarial valuation, to adjust certain litigation and environmental
liabilities related to settlements and completion of site reviews and a
credit adjustment related to the assumption of a lease obligation by CSX.
Excluding the effects of these items, net income would have been
$147 million in 1999.
The improvement in 2001 reflected lower casualties and other claims
expenses, a favorable adjustment to state income tax reserves and
environmental and insurance settlements in Conrail's favor. These positive
items were offset in part by the absence of significant gains from the sale
of property. The 2000 increase reflected a $37 million after-tax gain from
a property sale and the absence of significant transition-related expenses.
Conrail's operating revenues were $903 million in 2001, $985 million
in 2000 and $2.2 billion in 1999. The decline in 2001 resulted from lower
revenues at Conrail's Indiana Harbor Belt subsidiary, the expiration of
certain equipment leases and lower operating fees, largely because of
reduced operating costs in the Shared Assets Areas. The decline in 2000
was attributable to the change in operations.
Conrail's operating expenses were $639 million in 2001,
$749 million in 2000 and $2.0 billion in 1999. The decline in 2001 was
primarily due to lower expenses for materials, services and rents;
casualties and other claims; and compensation and benefits. The decrease
in 2000 was principally due to the change in operations and the absence
of the $180 million of expenses discussed above and $60 million of
transition-related expenses (principally technology integration costs
and employee stay bonuses).
Conrail's cash provided by operations increased $140 million,
or 39%, in 2001, but decreased $34 million, or 9%, in 2000. The 2001
increase was principally due to a $50 million cash payment for
transferring to a third party certain rights to license, manage and
market signboard advertising on Conrail's property for 25 years and
proceeds from a favorable insurance settlement. The 2000 reduction
reflected the change in operations and payment of one-time items owed
to NSR and CSXT. Cash generated from operations is Conrail's principal
source of liquidity and is primarily used for debt repayments and capital
expenditures. Debt repayments totaled $61 million in 2001 and $318 million
in 2000. Capital expenditures totaled $47 million in 2001 and $220 million
in 2000.
Conrail had working capital of $438 million at Dec. 31, 2001,
compared with $85 million at Dec. 31, 2000, including $687 million and
$323 million, respectively, of amounts receivable from NS and CSX. Conrail
is not an SEC registrant and, therefore,
presently cannot issue any publicly traded securities. Conrail is expected
to have sufficient cash flow to meet its ongoing obligations.
NS' equity in earnings of Conrail, net of amortization, was
$44 million in 2001, $21 million in 2000 and $17 million in 1999. NS'
other comprehensive loss for 2001, as shown in the Consolidated Statement
of Changes in Stockholders' Equity on Page 55, included $41 million for
its portion of Conrail's other comprehensive loss (see Note 13 on Page 74).
OTHER MATTERS
permitted NS and the unions to propose such changes in late 1999; negotiations at the national level commenced shortly thereafter. The outcome of these negotiations is uncertain. However, agreements have been reached with the Brotherhood of Maintenance of Way Employes, which represents about 4,400 NS employees, and with the Brotherhood of Locomotive Engineers, which represents about 5,000 NS employees. In addition, a tentative national agreement (subject to ratification) has been reached with the United Transportation Union, which represents about 7,000 NS employees. The tentative national agreement reached with the International Brotherhood of Electrical Workers, which represents about 1,000 NS employees, was not ratified.
Counterparties to the interest rate swaps and Japanese banks holding yen deposits are major financial institutions believed by management to be creditworthy.
estimated reliably at this time. Moreover, lawsuits and claims involving
these and other unidentified environmental sites and matters are likely to
arise from time to time. The resulting liabilities could have a significant
effect on financial condition, results of operations or liquidity in a
particular year or quarter.
However, based on an assessment of known facts and circumstances,
management believes that it is unlikely that any known matters, either
individually or in the aggregate, will have a material adverse effect on
NS' financial position, results of operations or liquidity.
Utility Deregulation -- Deregulation of the electrical utility industry is expected to increase competition among electric power generators; deregulation over time would permit wholesalers and possibly retailers of electric power to sell or purchase increasing quantities of power to or from distant parties. The effects of deregulation on NS and on its customers cannot be predicted with certainty; however, NS serves a number of efficient power producers and is working diligently to ensure that its customers remain competitive in this evolving environment.
Carbon-Based Fuel -- There is growing concern in some quarters that emissions resulting from burning carbon-based fuel, including coal, are contributing to global warming and causing other environmental changes. To the extent that these concerns evolve into a consensus among policy-makers, the impact could be either a reduction in the demand
for coal or imposition of more stringent regulations on emissions, which might result in making coal a less economical source of power generation or make permitting of coal-fired facilities even more difficult. The revenues and net income of NSR and other railroads that move large quantities of coal could be affected adversely.
The information required by this item is included in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Page 44 under the heading "Market Risks and Hedging Activities."
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)
2001
----
Railway operating revenues $ 1,540 $ 1,592 $ 1,508 $ 1,530
Income from railway operations 205 282 245 275
Net income 74* 107 79 115
Earnings per share -
Basic and diluted $ 0.19* $ 0.28 $ 0.20 $ 0.30
2000
----
Railway operating revenues $ 1,508 $ 1,592 $ 1,535 $ 1,524
Income from railway operations 28 278 211 116
Net income (loss) (48) 116 99 5
Earnings (loss) per share -
Basic and diluted $ (0.12) $ 0.30 $ 0.26 $ 0.01
* Includes a $13 million, or 3 cents per share, after-tax gain related to
the 1998 sale of NS' motor carrier subsidiary (see Note 17 on Page 79).
|
Item 8. Financial Statements and Supplementary Data. (continued)
------ -------------------------------------------
Index to Financial Statements: Page
----------------------------- ----
Consolidated Statements of Income
Years ended December 31, 2001, 2000 and 1999 51
Consolidated Balance Sheets
As of December 31, 2001 and 2000 52
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999 53
Consolidated Statements of Changes in
Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999 55
Notes to Consolidated Financial Statements 56
Independent Auditors' Report 82
The Index to Consolidated Financial Statement Schedule
appears in Item 14 on Page 85.
|
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31,
2001 2000 1999
---- ---- ----
($ in millions, except earnings per share)
RAILWAY OPERATING REVENUES $ 6,170 $ 6,159 $ 5,242
RAILWAY OPERATING EXPENSES
Compensation and benefits (Note 11) 2,014 2,234 1,855
Materials, services and rents 1,444 1,445 1,274
Conrail rents and services (Note 2) 421 478 311
Depreciation 514 503 475
Diesel fuel 412 478 255
Casualties and other claims 143 142 138
Other 215 246 216
-------- -------- --------
Total railway operating expenses 5,163 5,526 4,524
-------- -------- --------
Income from railway operations 1,007 633 718
Equity in earnings of Conrail (Note 2) -- -- 49
Other income - net (Note 3) 99 168 115
Interest expense on debt (Note 6) (553) (551) (531)
-------- -------- --------
Income from continuing
operations before income taxes 553 250 351
Provision for income taxes (Note 4) 191 78 112
-------- -------- --------
Income from continuing operations 362 172 239
Discontinued operations - gain on sale of
motor carrier, net of taxes (Note 17) 13 -- --
-------- -------- --------
NET INCOME $ 375 $ 172 $ 239
======== ======== ========
EARNINGS PER SHARE (Note 14)
Income from continuing operations -
Basic and diluted $ 0.94 $ 0.45 $ 0.63
Net income - Basic and diluted $ 0.97 $ 0.45 $ 0.63
|
See accompanying Notes to Consolidated Financial Statements.
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
2001 2000
---- ----
($ in millions)
ASSETS
Current assets:
Cash and cash equivalents $ 204 $ --
Short-term investments -- 2
Accounts receivable, net (Note 5) 475 411
Due from Conrail (Note 2) 8 31
Materials and supplies 90 91
Deferred income taxes (Note 4) 162 182
Other current assets 108 132
------ ------
Total current assets 1,047 849
Investment in Conrail (Note 2) 6,161 6,154
Properties less accumulated depreciation (Note 6) 11,208 11,105
Other assets 1,002 868
------ ------
TOTAL ASSETS $19,418 $18,976
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable (Note 7) $ 848 $ 925
Income and other taxes 312 251
Notes and accounts payable to Conrail (Note 2) 373 155
Other current liabilities (Note 7) 248 259
Current maturities of long-term debt (Note 8) 605 297
------ ------
Total current liabilities 2,386 1,887
Long-term debt (Note 8) 7,027 7,339
Other liabilities (Note 10) 1,089 1,131
Minority interests 45 50
Deferred income taxes (Note 4) 2,781 2,745
------ ------
TOTAL LIABILITIES 13,328 13,152
------ ------
Stockholders' equity:
Common stock $1.00 per share par value,
1,350,000,000 shares authorized; issued
407,000,871 and 405,421,447 shares,
respectively 407 405
Additional paid-in capital 423 392
Accumulated other comprehensive loss (Note 13) (55) (6)
Retained income 5,335 5,053
Less treasury stock at cost, 21,169,125 and
21,363,974 shares, respectively (20) (20)
------ ------
TOTAL STOCKHOLDERS' EQUITY 6,090 5,824
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,418 $18,976
====== ======
|
See accompanying Notes to Consolidated Financial Statements.
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
2001 2000 1999
---- ---- ----
($ in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 375 $ 172 $ 239
Reconciliation of net income to
net cash provided by operating
activities:
Depreciation 527 517 489
Deferred income taxes 44 2 85
Equity in earnings of Conrail (44) (21) (17)
Gains and losses on properties
and investments (59) (160) (62)
Income from discontinued operations (13) -- --
Changes in assets and liabilities
affecting operations:
Accounts receivable (Note 5) (74) 446 (322)
Materials and supplies 1 9 (40)
Other current assets and due
from Conrail 46 60 (50)
Current liabilities other than debt (27) 220 259
Other - net (Note 11) (122) 97 (48)
------ ------ ------
Net cash provided by
operating activities 654 1,342 533
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (746) (731) (912)
Property sales and other transactions 156 137 104
Investments, including short-term (99) (77) (126)
Investment sales and other transactions 88 90 343
------ ------ ------
Net cash used for
investing activities (601) (581) (591)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (93) (306) (304)
Common stock issued - net 14 2 14
Proceeds from borrowings 1,995 1,055 1,110
Debt repayments (1,765) (1,549) (730)
------ ------ ------
Net cash provided by (used for)
financing activities 151 (798) 90
Net increase (decrease) in cash
and cash equivalents 204 (37) 32
CASH AND CASH EQUIVALENTS
At beginning of year -- 37 5
------ ------ ------
At end of year $ 204 $ -- $ 37
====== ====== ======
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(continued)
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years ended December 31,
2001 2000 1999
---- ---- ----
($ in millions)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amounts capitalized) $ 550 $ 543 $ 520
Income taxes $ 74 $ 5 $ 16
|
See accompanying Notes to Consolidated Financial Statements.
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Accumu-
lated
Addi- Other
tional Compre-
Common Paid-In hensive Retained Treasury
Stock Capital Loss Income Stock Total
----- ------- ---- ------ ----- -----
($ in millions, except per share amounts)
BALANCE DECEMBER 31, 1998 $ 401 $ 296 $ (8) $ 5,252 $ (20) $ 5,921
Comprehensive income - 1999
Net income 239 239
Other comprehensive
loss (Note 13) (3) (3)
------
Total comprehensive
income 236
Dividends on Common Stock,
$0.80 per share (304) (304)
Other (Notes 11 and 12) 3 76 79
------ ------ ------ ------ ------ ------
BALANCE DECEMBER 31, 1999 404 372 (11) 5,187 (20) 5,932
Comprehensive income - 2000
Net income 172 172
Other comprehensive
income (Note 13) 5 5
------
Total comprehensive
income 177
Dividends on Common Stock,
$0.80 per share (306) (306)
Other (Notes 11 and 12) 1 20 21
------ ------ ------ ------ ------ ------
BALANCE DECEMBER 31, 2000 $ 405 $ 392 $ (6) $ 5,053 $ (20) $ 5,824
Comprehensive income - 2001
Net income 375 375
Other comprehensive
loss (Note 13) (49) (49)
------
Total comprehensive
income 326
Dividends on Common Stock,
$0.24 per share (93) (93)
Other (Notes 11 and 12) 2 31 33
------ ------ ------ ------ ------ ------
BALANCE DECEMBER 31, 2001 $ 407 $ 423 $ (55) $ 5,335 $ (20) $ 6,090
====== ====== ====== ====== ====== ======
|
See accompanying Notes to Consolidated Financial Statements.
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following Notes are an integral part of the Consolidated Financial Statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments, where NS has the ability to exercise significant influence over but does not control the entity, are accounted for using the equity method in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock."
2. INVESTMENT IN CONRAIL AND OPERATIONS OVER ITS LINES
PRR Oper. PRR Lease SAA
($ in millions) Agmt. Agmts. Agmts.
-------------- --------- --------- --------
2002 $ 196 $ 131 $ 27
2003 217 109 30
2004 238 93 32
2005 246 72 34
2006 246 57 34
2007 and subsequent years 4,530 171 618
--------- --------- --------
Total $ 5,673 $ 633 $ 775
========= ========= ========
|
Operating lease expense related to the agreements, which is included
in "Conrail rents and services," amounted to $467 million in 2001,
$502 million in 2000 and $273 million in 1999.
On the Closing Date, both NS' railroad route miles and its railroad
employees increased approximately 50 percent. NSR and CSXT now provide
substantially all rail freight services on Conrail's route system, perform
most services incident to customer freight contracts and employ the
majority of Conrail's former work force. As a result, NSR receives all
freight revenues and incurs all expenses on the PRR lines.
Summarized Consolidated Statements of Income - Conrail
------------------------------------------------------
($ in millions) 2001 2000 1999
--------------- ---- ---- ----
Operating revenues $ 903 $ 985 $ 2,174
Operating expenses 639 749 2,046
------ ------ -------
Operating income 264 236 128
Other - net (6) 31 (83)
------ ------ -------
Income before income taxes 258 267 45
Provision for income taxes 84 97 19
------ ------ -------
Net income $ 174 $ 170 $ 26
====== ====== =======
|
Note: Conrail's results for 2000 included gains from the sale of property
that had been written up to fair market value in the allocation of NS'
investment in Conrail. Accordingly, the gains related to that fair-value
write-up, totaling $17 million after taxes, were excluded in determining
NS' equity in Conrail's net income. Conrail's results in 1999 included
after-tax expenses of $121 million, principally: (1) to increase certain
components of its casualty reserves based on an actuarial valuation,
(2) to adjust certain litigation and environmental reserves related to
settlements and completion of site reviews and (3) to adjust a credit
related to the assumption of a lease obligation by CSX. These 1999 items
were considered in the allocation of NS' investment in Conrail to the
fair values of Conrail's assets and liabilities and, accordingly, were
excluded in determining NS' equity in Conrail's net income.
Summarized Consolidated Balance Sheets - Conrail
-------------------------------------------------
December 31,
($ in millions) 2001 2000
--------------- ---- ----
Assets:
Current assets $ 846 $ 520
Noncurrent assets 7,236 7,540
------ ------
Total assets $ 8,082 $ 8,060
====== ======
Liabilities and stockholders' equity:
Current liabilities $ 408 $ 435
Noncurrent liabilities 3,569 3,643
Stockholders' equity 4,105 3,982
------ ------
Total liabilities and stockholders' equity $ 8,082 $ 8,060
====== ======
|
Note: Current assets include demand notes and receivables from NS and CSX totaling $687 million at Dec. 31, 2001, and $323 million at Dec. 31, 2000. Current liabilities include amounts payable to NS and CSX totaling $12 million at Dec. 31, 2001, and $31 million at Dec. 31, 2000.
3. OTHER INCOME - NET
($ in millions) 2001 2000 1999
-------------- ---- ---- ----
Income from natural resources:
Royalties from coal $ 52 $ 55 $ 59
Gains from sale of timber, oil
and gas rights and interests - 101 -
Nonoperating depletion
and depreciation (13) (13) (14)
------ ----- ------
Subtotal 39 143 45
Gains from sale of properties
and investments 59 59 62
Rental income 40 40 34
Interest income 15 11 8
Other interest expense 1 (39) (30)
Sale of accounts receivable
(Note 5) (17) (23) -
Taxes on nonoperating property (11) (9) (7)
Corporate-owned life insurance - net 6 - (3)
Equity in undistributed earnings
of partnerships (8) 3 1
Charitable contributions (4) (4) -
Other - net (21) (13) 5
------ ----- ------
Total $ 99 $ 168 $ 115
====== ===== ======
|
"Other current assets" in the Consolidated Balance Sheets includes prepaid interest on corporate-owned life insurance borrowings of $45 million at Dec. 31, 2001, and $43 million at Dec. 31, 2000.
4. INCOME TAXES
Provision for Income Taxes
--------------------------
($ in millions) 2001 2000 1999
--------------- ---- ---- ----
Current:
Federal $ 125 $ 65 $ 18
State 22 11 9
------ ------ ------
Total current taxes 147 76 27
Deferred:
Federal 35 1 78
State 9 1 7
------ ------ ------
Total deferred taxes 44 2 85
------ ------ ------
Provision for income taxes $ 191 $ 78 $ 112
====== ====== ======
|
2001 2000 1999
($ in millions) Amount % Amount % Amount %
--------------- ------ -- ------ -- ------ --
Federal income tax
at statutory rate $ 194 35 $ 87 35 $ 123 35
State income taxes,
net of federal tax
benefit 20 4 8 3 10 3
Equity in earnings
of Conrail (16) (3) (7) (3) (6) (2)
Corporate-owned
life insurance (3) - (2) (1) 1 -
Other - net (4) (1) (8) (3) (16) (4)
------ -- ------ -- ------ --
Provision for income taxes $ 191 35 $ 78 31 $ 112 32
====== == ====== == ====== ==
|
December 31,
($ in millions) 2001 2000
--------------- ---- ----
Deferred tax assets:
Reserves, including casualty and other claims $ 158 $ 158
Employee benefits 75 104
Retiree health and death benefit obligation 137 139
Taxes, including state and property 221 200
Other 22 28
----- -----
Total gross deferred tax assets 613 629
Less valuation allowance (18) (12)
----- -----
Net deferred tax assets 595 617
----- -----
Deferred tax liabilities:
Property (3,126) (3,117)
Other (88) (63)
----- -----
Total gross deferred tax liabilities (3,214) (3,180)
----- -----
Net deferred tax liability (2,619) (2,563)
Net current deferred tax assets 162 182
----- -----
Net long-term deferred tax liability $(2,781) $(2,745)
===== =====
|
Except for amounts for which a valuation allowance has been provided, management believes the other deferred tax assets will be realized. The total valuation allowance increased $6 million in 2001, $3 million in 2000 and $6 million in 1999.
5. ACCOUNTS RECEIVABLE
Beginning in May 2000, a bankruptcy-remote special purpose
subsidiary of NS sold without recourse undivided ownership interests in a
pool of accounts receivable totaling approximately $700 million. Upon
commencement of this program, NS received cash proceeds of $460 million.
The buyers have a priority collection interest in the entire pool of
receivables and, as a result, NS has retained credit risk to the extent
the pool exceeds the amount sold. NS services and collects the receivables
on behalf of the buyers; however, no servicing asset or liability has been
recognized because the benefits of servicing are estimated to be just
adequate to compensate NS for its responsibilities. Payments collected
from sold receivables can be reinvested in new accounts receivable on
behalf of the buyers. Should NS' credit rating drop below investment grade,
the buyers have the right to discontinue this reinvestment.
At Dec. 31, 2001 and 2000, $300 million and $388 million,
respectively, had been sold under this arrangement and, therefore, are not
included in "Accounts receivable, net," on the consolidated balance sheet.
The fees associated with the sale, which are based on the buyers'
financing costs, are included in "Other income - net" (see Note 3). NS'
retained interest, which is included in "Accounts receivable, net," is
recorded at fair value using estimates of dilution based on NS' historical
experience. These estimates are adjusted regularly based on NS' actual
experience with the pool, including defaults and credit deterioration. NS
has historically experienced very low levels of default. If historical
dilution percentages were to increase one percentage point, the value of
NS' retained interest would be reduced by approximately $7 million.
NS' allowance for doubtful accounts was $5 million at Dec. 31, 2001,
and $7 million at Dec. 31, 2000.
6. PROPERTIES
December 31, Depreciation
($ in millions) 2001 2000 Rate for 2001
--------------- ---- ---- -------------
Railway property:
Road $ 10,452 $ 10,078 3.0%
Equipment 5,559 5,588 4.1%
Other property 632 653 3.2%
------- -------
16,643 16,319
Less: Accumulated depreciation 5,435 5,214
------- -------
Net properties $ 11,208 $ 11,105
======= =======
|
Included in properties are approximately $110 million in
telecommunications assets consisting of fiber optic conduit. Because of the
significant economic downturn in the telecommunications industry during the
year, NS evaluated the recoverability of these assets at Dec. 31, 2001.
Based on known facts and circumstances, management believes that its
ultimate investment in these assets, which is expected to total
approximately $130 million upon completion of the network, will
be recovered.
Equipment includes $474 million at Dec. 31, 2001 and 2000, of
assets recorded pursuant to capital leases. Other property includes the
costs of obtaining rights to natural resources of $341 million at
Dec. 31, 2001 and 2000.
7. CURRENT LIABILITIES
December 31,
($ in millions) 2001 2000
--------------- ---- ----
Accounts payable:
Accounts and wages payable $ 385 $ 427
Casualty and other claims 192 223
Equipment rents payable - net 130 134
Vacation liability 118 117
Other 23 24
------- -------
Total $ 848 $ 925
======= =======
Other current liabilities:
Interest payable $ 118 $ 131
Accrued Conrail-related costs (Note 2) 35 47
Liabilities for forwarded traffic 35 40
Retiree health and death
benefit obligation (Note 11) 24 24
Derivative instruments 17 -
Other 19 17
------- -------
Total $ 248 $ 259
======= =======
|
8. LONG-TERM DEBT
December 31,
($ in millions) 2001 2000
--------------- ---- ----
Notes at average rates and maturities as follows:
6.69%, maturing 2002 to 2006 $ 1,500 $ 1,450
7.20%, maturing 2007 to 2011 1,750 1,450
8.10%, maturing 2017 to 2021 800 800
7.54%, maturing 2027 to 2031 1,500 800
7.05%, maturing 2037 750 750
7.90%, maturing 2097 350 350
Commercial paper - 1,132
Equipment obligations at an average rate of 5.9%,
maturing to 2014 579 473
Capitalized leases at an average rate of 2.8%,
maturing to 2015 316 343
Other debt at an average rate of 6.6%,
maturing to 2019 119 119
Discounts and premiums, net (32) (31)
------- -------
Total long-term debt $ 7,632 $ 7,636
Current maturities (605) (297)
------- -------
Long-term debt less current maturities $ 7,027 $ 7,339
======= =======
Long-term debt maturities subsequent to 2002
are as follows:
2003 $ 357
2004 348
2005 401
2006 305
2007 and subsequent years 5,616
-------
Total $ 7,027
=======
|
Each holder of a 2037 note may require NS to redeem all or part of the
note at face value, plus accrued and unpaid interest, on May 1, 2004.
The railroad equipment obligations and the capitalized leases are
secured by liens on the underlying equipment.
Certain lease obligations require the maintenance of yen-denominated
deposits, which are pledged to the lessor to satisfy yen-denominated lease
payments. These deposits are included in "Other assets" on the balance
sheet and totaled $78 million at Dec. 31, 2001, and $90 million at
Dec. 31, 2000.
9. LEASE COMMITMENTS
NS is committed under long-term lease agreements, which expire on various dates through 2067, for equipment, lines of road and other property. The following amounts do not include payments to PRR under the Operating Agreement and lease agreements or to CRC under the SAA agreements (see Note 2). Future minimum lease payments and operating lease expense, other than to PRR and CRC, are as follows:
Operating Capital
($ in millions) Leases Leases
--------------- --------- -------
2002 $ 113 $ 47
2003 97 49
2004 75 48
2005 65 51
2006 52 57
2007 and subsequent years 488 123
------- -------
Total $ 890 $ 375
=======
Less imputed interest on capital leases
at an average rate of 7.1% 59
-------
Present value of minimum lease payments
included in debt $ 316
=======
|
Operating Lease Expense
-----------------------
($ in millions) 2001 2000 1999
--------------- ---- ---- ----
Minimum rents $ 149 $ 167 $ 118
Contingent rents 55 61 61
------- ------- -------
Total $ 204 $ 228 $ 179
======= ======= =======
|
During 2000, NS entered into an operating lease for 140 locomotives, which is renewable annually at NS' option, has a maximum term of eight years and includes purchase options. Because the fixed, noncancellable term of the lease is one year, future minimum lease payments in the table above do not include amounts related to this lease. However, operating lease expense for 2001 in the table above does include $18 million related to this lease. If NS does not purchase the locomotives at the end of the maximum lease term, it is liable for any shortfall in the then fair value of the locomotives and a specified residual value. NS does not expect to be required to make any payments under this provision.
10. OTHER LIABILITIES
December 31,
($ in millions) 2001 2000
--------------- ---- ----
Retiree health and death
benefit obligation (Note 11) $ 291 $ 291
Casualty and other claims 265 262
Deferred compensation 147 148
Net pension obligations (Note 11) 79 83
Accrued Conrail-related costs (Note 2) 46 72
Other 261 275
-------- --------
Total $ 1,089 $ 1,131
======== ========
|
11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Norfolk Southern and certain subsidiaries have both funded and unfunded defined benefit pension plans covering principally salaried employees. Norfolk Southern and certain subsidiaries also provide specified health care and death benefits to eligible retired employees and their dependents. Under the present plans, which may be amended or terminated at NS' option, a defined percentage of health care expenses is covered, reduced by any deductibles, copayments, Medicare payments and, in some cases, coverage provided under other group insurance policies.
Pension Benefits Other Benefits
($ in millions) 2001 2000 2001 2000
--------------- ---- ---- ---- ----
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at
beginning of year $ 1,312 $ 1,058 $ 445 $ 340
Cost of early retirement benefits - 119 - 14
Service cost 15 18 14 15
Interest cost 94 79 33 27
Amendment 6 21 - -
Legislative changes (19) - - -
Actuarial (gains) losses 36 120 21 79
Benefits paid (120) (103) (34) (30)
------- ------- ------- -------
Benefit obligation at end of year 1,324 1,312 479 445
------- ------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year 1,999 2,072 126 152
Actual return on plan assets (74) 30 (8) (5)
Employer contribution 7 8 34 9
401(h) account transfer (14) (8) - -
Benefits paid (120) (103) (34) (30)
------- ------- ------- -------
Fair value of plan
assets at end of year 1,798 1,999 118 126
------- ------- ------- -------
Funded status 474 687 (361) (319)
Unrecognized initial net asset - (3) - -
Unrecognized (gain) loss (142) (478) 46 4
Unrecognized prior
service cost (benefit) 30 47 - -
------- ------- ------- -------
Net amount recognized $ 362 $ 253 $ (315) $ (315)
======= ======= ======= =======
Amounts recognized in the
Consolidated Balance
Sheets consist of:
Prepaid benefit cost $ 426 $ 315 $ - $ -
Accrued benefit liability (79) (83) (315) (315)
Accumulated other
comprehensive income 15 21 - -
------- ------- ------- -------
Net amount recognized $ 362 $ 253 $ (315) $ (315)
======= ======= ======= =======
|
Of the pension plans included above, the unfunded pension plans were
the only plans with an accumulated benefit obligation in excess of plan
assets. These plans' accumulated benefit obligations were $79 million at
Dec. 31, 2001, and $83 million at Dec. 31, 2000. These plans' projected
benefit obligations were $89 million at Dec. 31, 2001 and 2000. Because of
the nature of such plans, there are no plan assets.
NS received Section 401(h) account transfers, from pension assets, of
$14 million in 2001 and $8 million in 2000 as reimbursement for medical
payments for retirees.
Legislative changes primarily resulting from the December 2001 amendment
to the Railroad Retirement Act ("The Act") increased benefits payable to
certain retirees covered by The Act. Since employees' pension benefits
paid by NS are offset by a portion of benefits paid under The Act, the
amendment served to reduce NS' obligation by approximately $19 million at
Dec. 31, 2001.
During 2001, NS amended its qualified and nonqualified pension plans to
enhance benefits to certain NS employees. The amendments increased the
pension benefit obligation by $6 million at Dec. 31, 2001.
During 2000, NS amended its qualified pension plan to allow for the
payment of qualifying disability benefits. The amendment increased the
pension benefit obligation by $21 million at Dec. 31, 2000.
Pension and other postretirement benefit costs are determined based
on actuarial valuations that reflect appropriate assumptions as of the
measurement date, ordinarily the beginning of each year. The funded status
of the plans is determined using appropriate assumptions as of each year end.
During 1999, NS received assets from the Conrail pension plan and assumed
certain related liabilities. As a result, the measurement dates for
determining pension costs were Jan. 1, 1999, and Aug. 31, 1999; the costs
reflect discount rates of 6.75% and 7.75%, respectively, and other
assumptions appropriate at those dates. A summary of the major
assumptions follows:
2001 2000 1999
---- ---- ----
Funded status:
Discount rate 7.25% 7.50% 7.75%
Future salary increases 5% 5% 5%
Pension cost:
Discount rate 7.50% 7.75% 6.75%
Return on assets in plans 10% 10% 10%
Future salary increases 5% 5% 5%
|
Pension and Other Postretirement Benefit Costs Components
---------------------------------------------------------
($ in millions) 2001 2000 1999
--------------- ---- ---- ----
PENSION BENEFITS
Service cost $ 15 $ 18 $ 17
Interest cost 94 79 73
Cost of early retirement programs - 119 -
Expected return on plan assets (202) (192) (152)
Amortization of prior service cost 4 4 4
Amortization of initial net asset (3) (7) (7)
Recognized net actuarial (gain) loss (24) (38) (22)
------ ------ ------
Net cost (benefit) $ (116) $ (17) $ (87)
====== ====== ======
OTHER POSTRETIREMENT BENEFITS
Service cost $ 14 $ 15 $ 11
Interest cost 33 27 23
Cost of early retirement programs - 14 -
Expected return on plan assets (13) (14) (12)
Amortization of prior service cost - - (12)
Recognized net actuarial (gain) loss - (4) (2)
------ ------ ------
Net cost $ 34 $ 38 $ 8
====== ====== ======
|
For measurement purposes, increases in the per capita cost of covered
health care benefits were assumed to be 7.0% for 2002 and 6.0% for 2003.
It is assumed the rate will decrease gradually to an ultimate rate of 5.0%
for 2004 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported in the financial statements. To illustrate, a one-
percentage-point change in the assumed health care cost trend would have
the following effects:
One percentage point
($ in millions) Increase Decrease
-------------------- -------- --------
Increase (decrease) in:
Total service and interest cost components $ 5 $ (4)
Postretirement benefit obligation $ 42 $ (36)
|
Under collective bargaining agreements, NS and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible union employees. Premiums under this plan are expensed as incurred and amounted to $10 million in 2001, $7 million in 2000 and $5 million in 1999.
12. STOCK-BASED COMPENSATION
Under the stockholder-approved Long-Term Incentive Plan (LTIP), a
committee of nonemployee directors of the Board may grant stock options,
stock appreciation rights (SARs), restricted stock and performance share
units (PSUs), up to a maximum 88,025,000 shares of Norfolk Southern Common
Stock (Common Stock). Under the Board-approved Thoroughbred Stock Option
Plan (TSOP), the committee may grant stock options up to a maximum of
6,000,000 shares of Common Stock. Options may be granted for a term not to
exceed 10 years, but may not be exercised prior to the first anniversary
of the date of grant. Options are exercisable at the fair market value of
Common Stock on the date of grant.
The LTIP also permits the payment -- on a current or a deferred basis
and in cash or in stock -- of dividend equivalents on shares of Common
Stock covered by options or PSUs in an amount commensurate with dividends
paid on Common Stock. Tax absorption payments also are authorized in
amounts estimated to equal the federal and state income taxes applicable
to shares of Common Stock issued subject to a share retention agreement.
Stock Option Activity
---------------------
Weighted Average
Option Shares Exercise Price
------------- ----------------
Balance 12/31/98 13,059,048 $ 25.48
Granted 9,150,400 30.09
Exercised (859,085) 17.10
Canceled (234,000) 29.84
----------
Balance 12/31/99 21,116,363 27.77
Granted 7,705,800 16.94
Exercised (273,813) 13.95
Canceled (427,400) 26.84
----------
Balance 12/31/00 28,120,950 24.96
Granted 6,985,000 15.48
Exercised (1,079,902) 16.58
Canceled (612,525) 26.51
----------
Balance 12/31/01 33,413,523 $ 23.21
==========
|
Of the total options outstanding at Dec. 31, 2001, 26 million were vested and have a weighted-average exercise price of $25.25.
Stock Options Outstanding
-------------------------
Exercise Price Number Weighted Average
------------------------------------ Outstanding Remaining
Range Weighted Average at 12/31/01 Contractual Life
----- ---------------- ----------- ----------------
$15.48 to $16.94 $16.22 14,143,232 8.6 years
18.81 to 21.08 20.56 2,691,350 1.8 years
24.31 to 27.69 26.83 7,821,600 5.7 years
29.46 to 33.25 32.10 8,757,341 6.3 years
---------------- ------ ---------- -----------------
$15.48 to $33.25 $23.21 33,413,523 6.8 years
==========
|
2001 2000 1999
---- ---- ----
Available for future
grants 12/31:
LTIP 30,816,365 2,554,584 10,512,997
TSOP 2,535,000 2,488,700 2,349,600
Shares of Common Stock
issued:
LTIP 1,146,346 395,626 1,086,288
TSOP - - -
|
13. STOCKHOLDERS' EQUITY
Balance Net Balance
at Beginning Gain Reclassification at End
($ in millions) of Year (Loss) Adjustments of Year
------------- ------- ---- ----------- -------
December 31, 2001
-----------------
Unrealized gains on securities $ 7 $ (1) $ - $ 6
Cash flow hedges - (16) 5 (11)
Minimum pension liability (13) (37) - (50)
------ ------ ------ -----
Accumulated other comprehensive loss $ (6) $ (54) $ 5 $ (55)
====== ====== ====== =====
December 31, 2000
-----------------
Unrealized gains on securities $ 2 $ 5 $ - $ 7
Minimum pension liability (13) - - (13)
------ ------ ------ -----
Accumulated other comprehensive loss $ (11) $ 5 $ - $ (6)
====== ====== ====== =====
|
"Other comprehensive income (loss)" reported in the Consolidated Statements of Changes in Stockholders' Equity consisted of the following:
Pretax Tax (Expense) Net-of-Tax
($ in millions) Amount Benefit Amount
------------- ------ ------- ------
Year ended 12/31/01
-------------------
Net gain (loss) arising during the year:
Cash flow hedges $ (27) $ 11 $ (16)
Less reclassification adjustments 8 (3) 5
----- ------ ------
Subtotal (19) 8 (11)
Unrealized gains (losses) on securities (1) - (1)
Minimum pension liability (35) (2) (37)
----- ------ ------
Other comprehensive income (loss) $ (55) $ 6 $ (49)
===== ====== ======
Year ended 12/31/00
-------------------
Net gain (loss) arising during the year:
Unrealized gains (losses)
on securities $ 7 $ (2) $ 5
----- ------ ------
Other comprehensive income (loss) $ 7 $ (2) $ 5
===== ====== ======
Year ended 12/31/99
-------------------
Net gain (loss) arising during the year:
Unrealized gains (losses)
on securities $ (6) $ 1 $ (5)
Minimum pension liability 2 - 2
----- ------ ------
Other comprehensive income (loss) $ (4) $ 1 $ (3)
===== ====== ======
|
In 2001, Conrail recorded a $70 million loss in other comprehensive income related to an increase in its minimum pension liability. NS' "Other comprehensive loss" for 2001 and its "Accumulated other comprehensive loss" at Dec. 31, 2001, include $41 million arising from this Conrail adjustment.
14. EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted earnings per share:
($ in millions except per share,
shares in millions) 2001 2000 1999
-------------------------------- ---- ---- ----
Basic earnings per share:
Income available to common
stockholders for basic and
diluted computations $ 375 $ 172 $ 239
------ ------ ------
Weighted-average shares outstanding 385 383 381
------ ------ ------
Basic earnings per share $ 0.97 $ 0.45 $ 0.63
------ ------ ------
Diluted earnings per share:
Weighted-average shares
outstanding per above 385 383 381
Dilutive effect of outstanding
options, PSUs and SARs (as
determined by the application
of the treasury stock method) 1 - 1
------ ------ ------
Adjusted weighted-average
shares outstanding 386 383 382
------ ------ ------
Diluted earnings per share $ 0.97 $ 0.45 $ 0.63
====== ====== ======
|
These calculations exclude options the exercise price of which
exceeded the average market price of Common Stock as follows: in 2001,
20 million in the fourth quarter, 19 million in each of the third and
second quarters, and 28 million in the first quarter; in 2000,
28 million in the fourth, third and first quarters, and 20 million
in the second quarter; and in 1999, 17 million in the fourth quarter,
9 million in the third quarter, 7 million in the second quarter and
5 million in the first quarter.
There are no adjustments to "Net income" or "Income from
continuing operations" for the diluted earnings per share computations.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of "Cash and cash equivalents," "Short-term investments," "Accounts receivable" and "Accounts payable" approximate carrying values because of the short maturity of these financial instruments. The fair value of corporate-owned life insurance approximates carrying value. The carrying amounts and estimated fair values for the remaining financial instruments, excluding derivatives (see Note 16) and investments accounted for under the equity method in accordance with APB Opinion No. 18, consisted of the following at Dec. 31:
2001 2000
---- ----
Carrying Fair Carrying Fair
($ in millions) Amount Value Amount Value
--------------- -------- ----- -------- -----
Investments $ 44 $ 51 $ 49 $ 56
Notes receivable 93 98 93 93
Long-term debt (7,632) (8,067) (7,636) (7,809)
|
Quoted market prices were used to determine the fair value of
marketable securities; underlying net assets were used to estimate the fair
value of other investments. The fair values of notes receivable are based
on future discounted cash flows. The fair values of debt were estimated
based on quoted market prices or discounted cash flows using current interest
rates for debt with similar terms, company rating and remaining maturity.
Carrying amounts of marketable securities reflect unrealized holding
gains of $10 million on Dec. 31, 2001, and $11 million on Dec. 31, 2000.
Sales of "available-for-sale" securities were immaterial for years ended
Dec. 31, 2001 and 2000.
16. DERIVATIVE FINANCIAL INSTRUMENTS
On Jan. 1, 2001, NS adopted Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), as amended by Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" (SFAS 138). The Statements establish accounting and reporting
standards for derivative instruments and hedging activities, requiring that
all derivatives be recognized in the financial statements as either assets
or liabilities and that they be measured at fair value. Changes in fair
value are recorded as adjustments to the assets or liabilities being hedged
in "Other comprehensive income," or in current earnings, depending on
whether the derivative is designated and qualifies for hedge accounting,
the type of hedge transaction represented and the effectiveness of the
hedge. The adoption of SFAS 133 and SFAS 138 resulted in the recognition
of a $5 million asset and a $5 million increase in long-term debt as of
Jan. 1, 2001.
NS uses derivative financial instruments to reduce the risk of
volatility in its diesel fuel costs and to manage its overall exposure to
fluctuations in interest rates. NS does not engage in the trading of
derivatives. Management has determined that its derivative financial
instruments qualify as either fair-value or cash-flow hedges, having
values that highly correlate with the underlying hedged exposures, and
has designated such instruments as hedging transactions. Credit risk
related to the derivative financial instruments is considered to be
minimal and is managed by requiring high credit standards for
counterparties and periodic settlements.
NS entered into two types of diesel fuel derivative transactions in
2001. Management has designated these derivative instruments as cash-flow
hedges of the exposure to variability in expected future cash flows
attributable to fluctuations in diesel fuel prices. In 2001, NS purchased
eight monthly call options at a strike price of 84 cents per gallon of
Nymex No. 2 heating oil. The cost of the monthly options, which expired
serially through Dec. 31, 2001, was amortized as a component of diesel
fuel expense. Because the price of diesel fuel did not reach the strike
price at any time during the period the options were outstanding, NS did
not record any benefit related to these transactions. During 2001, NS entered
into 222 fuel swaps for approximately 370 million gallons at an average price
of approximately 68 cents per gallon of Nymex No. 2 heating oil. As of
Dec. 31, 2001, outstanding swaps covered approximately 32 percent and
21 percent of estimated fuel purchases for the years 2002 and
2003, respectively.
NS' fuel hedging activity resulted in a net increase in 2001 diesel
fuel expense of $8 million. Ineffectiveness related to the use of diesel
fuel hedges in 2001 was less than $1 million.
December 31,
($ in millions) 2001 2000
--------------- ---- ----
Interest rate hedges:
Gross fair market asset position $ 12 $ 5
Gross fair market (liability) position - -
Fuel hedges:
Gross fair market asset position - -
Gross fair market (liability) position (19) -
----- -----
Total net asset (liability) position $ (7) $ 5
===== =====
|
17. DISCONTINUED OPERATIONS - MOTOR CARRIER
On March 28, 1998, NS sold all the common stock of North American Van Lines, Inc. (NAVL), its motor carrier subsidiary. Results in 2001 include an additional after-tax gain of $13 million, or 3 cents per share, that resulted from the expiration of certain indemnities contained in the sales agreement.
18. COMMITMENTS AND CONTINGENCIES
NS' balance sheets included liabilities for environmental exposures in
the amount of $33 million at Dec. 31, 2001, and $36 million at Dec. 31, 2000
(of which $8 million was accounted for as a current liability in each year).
At Dec. 31, 2001, the liability represented NS' estimate of the probable
cleanup and remediation costs based on available information at 126
identified locations. On that date, 10 sites accounted for $17 million of
the liability, and no individual site was considered to be material. NS
anticipates that much of this liability will be paid out over five years;
however, some costs will be paid out over a longer period.
At some of the 126 locations, certain NS subsidiaries, usually in
conjunction with a number of other parties, have been identified as
potentially responsible parties by the Environmental Protection Agency
(EPA) or similar state authorities under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, or comparable state
statutes, which often impose joint and several liability for cleanup costs.
With respect to known environmental sites (whether identified by NS
or by the EPA or comparable state authorities), estimates of NS' ultimate
potential financial exposure for a given site or in the aggregate for all
such sites are necessarily imprecise because of the widely varying costs of
currently available cleanup techniques, the likely development of new
cleanup technologies, the difficulty of determining in advance the nature
and full extent of contamination and each potential participant's share of
any estimated loss (and that participant's ability to bear it), and evolving
statutory and regulatory standards governing liability.
The risk of incurring environmental liability - for acts and omissions,
past, present and future - is inherent in the railroad business. Some of
the commodities in NS' traffic mix, particularly those classified as
hazardous materials, can pose special risks that NS and its subsidiaries
work diligently to minimize. In addition, several NS subsidiaries own, or
have owned, land used as operating property, or which is leased or may
have been leased and operated by others, or held for sale. Because
environmental problems may exist on these properties that are latent or
undisclosed, there can be no assurance that NS will not incur
environmentally related liabilities or costs with respect to one or more
of them, the amount and materiality of which cannot be estimated reliably
at this time. Moreover, lawsuits and claims involving these and other
now-unidentified environmental sites and matters are likely to arise from
time to time. The resulting liabilities could have a significant effect
on financial condition, results of operations or liquidity in a particular
year or quarter.
However, based on its assessment of the facts and circumstances now
known, management believes that it has recorded the probable costs for
dealing with those environmental matters of which the Corporation is aware.
Further, management believes that it is unlikely that any identified
matters, either individually or in the aggregate, will have a material
adverse effect on NS' financial position, results of operations or
liquidity.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Norfolk Southern Corporation:
We have audited the consolidated financial statements of Norfolk Southern Corporation and subsidiaries as listed in the index in Item 8. In connection with our audits of the consolidated financial statements, we have also audited the consolidated financial statement schedule listed in Item 14(a)2. These consolidated financial statements and this consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and this consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Norfolk Southern Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP Norfolk, Virginia January 21, 2002 |
None.
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
and
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, for the Norfolk Southern Annual Meeting of Stockholders to be held on May 9, 2002, 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 hereof beginning on Page 19 under "Executive Officers of the Registrant."
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
(A) The following documents are filed as part of this report:
1. Index to Consolidated Financial Statements: Page
------------------------------------------ ----
Consolidated Statements of Income
Years ended December 31, 2001, 2000, and 1999 51
Consolidated Balance Sheets
As of December 31, 2001 and 2000 52
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000, and 1999 53
Consolidated Statements of Changes in
Stockholders' Equity
Years ended December 31, 2001, 2000, and 1999 55
Notes to Consolidated Financial Statements 56
Independent Auditors' Report 82
|
2. Financial Statement Schedule:
The following consolidated financial statement schedule
should be read in connection with the consolidated
financial statements:
Index to Consolidated Financial Statement Schedule Page
-------------------------------------------------- ----
Schedule II - Valuation and Qualifying Accounts 93
Schedules other than the one listed above are omitted
either because they are not required or are inapplicable, or because
the information is included in the consolidated financial statements
or related notes.
|
Item 14. Exhibits, Financial Statement Schedule and
------- ------------------------------------------
Reports on Form 8-K. (continued)
-------------------
3. Exhibits
Exhibit
Number Description
------- -----------------------------------------------------------
3 Articles of Incorporation and Bylaws -
3(i) The Restated Articles of Incorporation of Norfolk Southern
Corporation are incorporated by reference to Exhibit 3(i)
to Norfolk Southern Corporation's 10-K filed on March 5, 2001.
3(ii) The Bylaws of Norfolk Southern Corporation, as amended
January 22, 2002, are filed herewith.
4 Instruments Defining the Rights of Security Holders,
Including Indentures -
(a) Indenture, dated as of January 15, 1991, from Norfolk
Southern Corporation to First Trust of New York,
National Association, as Trustee, related to the
issuance of notes in the principal amount of $750 million,
incorporated by reference to Exhibit 4.1 to Norfolk
Southern Corporation's Registration Statement on Form S-3
(No. 33-38595).
(b) First Supplemental Indenture, dated May 19, 1997,
between Norfolk Southern Corporation and First Trust of
New York, National Association, as Trustee, related to
the issuance of notes in the principal amount of
$4.3 billion, is incorporated herein by reference to
Exhibit 1.1(d) to Norfolk Southern Corporation's Form 8-K
filed on May 21, 1997.
(c) Second Supplemental Indenture, dated April 26, 1999,
between Norfolk Southern Corporation and U.S. Bank Trust
National Association, as Trustee, related to the
issuance of notes in the principal amount of $400 million,
is incorporated herein by reference to Exhibit 1.1(c)
to Norfolk Southern Corporation's Form 8-K filed on
April 30, 1999.
(d) Third Supplemental Indenture, dated May 23, 2000,
between Norfolk Southern Corporation and U.S. Bank Trust
National Association, as Trustee, related to the issuance
of notes in the principal amount of $600 million, is
incorporated herein by reference to Exhibit 4.1 to
Norfolk Southern Corporation's Form 8-K filed on
May 25, 2000.
(e) Fourth Supplemental Indenture, dated as of February 6,
2001, between Norfolk Southern Corporation and U.S. Bank
Trust National Association, as Trustee, related to the
issuance of notes in the principal amount of $1 billion,
is incorporated herein by reference to Exhibit 4.1 to
Norfolk Southern Corporation's Form 8-K filed on
February 7, 2001.
(f) Fifth Supplemental Indenture, dated as of July 5, 2001,
between Norfolk Southern Corporation and U.S. Bank Trust
National Association, as Trustee, related to the issuance
of notes in the principal amount of $250 million, is
incorporated herein by reference to Exhibit 4.1 to
Norfolk Southern Corporation's Form 8-K filed on
July 5, 2001.
(g) Rights Agreement, dated as of September 26, 2000, between
Norfolk Southern Corporation and The Bank of New York,
with exhibits thereto, is incorporated herein by reference
to Exhibit 4 to Norfolk Southern Corporation's Form 8-K
filed on September 26, 2000.
87
Item 14. Exhibits, Financial Statement Schedule and
------- ------------------------------------------
Reports on Form 8-K. (continued)
-------------------
3. Exhibits (continued)
Exhibit
Number Description
------- ------------------------------------------------------------
|
In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of other instruments of Norfolk Southern Corporation 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 Transaction Agreement, dated as of June 10, 1997, by and among CSX, CSX Transportation, Inc., Registrant, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, with certain schedules thereto, is incorporated herein by reference from Exhibit 10 to Norfolk Southern Corporation's Form 8-K filed on June 30, 1997.
(b) Amendment No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC is incorporated herein by reference from Exhibit 10.1 to Norfolk Southern Corporation's Form 10-Q filed on August 11, 1999.
(c) Amendment No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC is incorporated herein by reference from Exhibit 10.2 to Norfolk Southern Corporation's Form 10-Q filed on August 11, 1999.
(d) Operating Agreement, dated as of June 1, 1999, by and between Pennsylvania Lines LLC and Norfolk Southern Railway Company is incorporated herein by reference from Exhibit 10.3 to Norfolk Southern Corporation's Form 10-Q filed on August 11, 1999.
(e) Amendment No. 1, dated as of September 29, 2001, to Operating Agreement, dated as of June 1, 1999, by and between Pennsylvania Lines LLC and Norfolk Southern Railway Company, is filed herewith.
(f) Shared Assets Area Operating Agreement for North Jersey, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.4 to Norfolk Southern Corporation's Form 10-Q filed on August 11, 1999.
(g) Shared Assets Area Operating Agreement for South Jersey/Philadelphia, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.5 to Norfolk Southern Corporation's Form 10-Q filed on August 11, 1999.
(h) Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.6 to Norfolk Southern Corporation's Form 10-Q filed on August 11, 1999.
3. Exhibits (continued)
Exhibit
Number Description
------- ------------------------------------------------------------
10 Material Contracts (continued) -
(i) Amendment No. 1, dated as of June 1, 2000, to the Shared
Assets Areas Operating Agreement for North Jersey, South
Jersey/Philadelphia and Detroit, dated as of June 1,
1999, by and among Consolidated Rail Corporation,
CSX Transportation, Inc. and Norfolk Southern Railway
Company, with exhibit thereto, is incorporated herein by
reference to Exhibit 10(h) to Norfolk Southern
Corporation's 10-K filed on March 5, 2001.
(j) Amendment No. 2, dated as January 1, 2001, to the Shared
Assets Area Operating Agreements for North Jersey, South
Jersey/Philadelphia and Detroit, dated as of June 1,
1999, by and among Consolidated Rail Corporation,
CSX Transportation, Inc. and Norfolk Southern Railway
Company, with exhibit thereto, is filed herewith.
(k) Monongahela Usage Agreement, dated as of June 1, 1999,
by and among CSX Transportation, Inc., Norfolk Southern
Railway Company, Pennsylvania Lines LLC and New York
Central Lines LLC, with exhibit thereto, is incorporated
herein by reference from Exhibit 10.7 to Norfolk Southern
Corporation's Form 10-Q filed on August 11, 1999.
(l) The Agreement, entered into as of July 27, 1999, between
North Carolina Railroad Company and Norfolk Southern
Railway Company, is incorporated herein by reference
from Exhibit 10(i) to Norfolk Southern Corporation's
Form 10-K filed on March 6, 2000.
(m) The Supplementary Agreement, entered into as of January 1,
1987, between the Trustees of the Cincinnati Southern
Railway and The Cincinnati, New Orleans and Texas Pacific
Railway Company (the latter a wholly owned subsidiary of
Norfolk Southern Railway Company) - extending and
amending a Lease, dated as of October 11, 1881 - is
incorporated by reference to Exhibit 10(k) to Norfolk
Southern Corporation's Form 10-K filed on March 5, 2001.
(n) The Norfolk Southern Corporation Executive Management
Incentive Plan, effective January 25, 2000, is incorporated
by reference herein from Exhibit 10(l) to Norfolk Southern
Corporation's Form 10-K filed on March 6, 2000.
(o) The Norfolk Southern Corporation Long-Term Incentive Plan,
as amended effective January 23, 2001, is incorporated
herein by reference to Exhibit 10(m) to Norfolk Southern
Corporation's Form 10-K filed on March 5, 2001.
(p) The Norfolk Southern Corporation Officers' Deferred
Compensation Plan, as amended effective September 26,
2000, is incorporated herein by reference to Exhibit
10(n) to Norfolk Southern Corporation's Form 10-K
filed on March 5, 2001.
(q) The Norfolk Southern Corporation Executives' Deferred
Compensation Plan, as amended effective January 20, 2001,
is incorporated herein by reference to Exhibit 10(o) to
Norfolk Southern Corporation's Form 10-K filed on
March 5, 2001.
89
Item 14. Exhibits, Financial Statement Schedule and
------- ------------------------------------------
Reports on Form 8-K. (continued)
-------------------
3. Exhibits (continued)
Exhibit
Number Description
------- ------------------------------------------------------------
10 Material Contracts (continued) -
(r) The Directors' Deferred Fee Plan of Norfolk Southern
Corporation, as amended effective January 23, 2001,
is incorporated herein by reference to Exhibit 10(p)
to Norfolk Southern Corporation's Form 10-K filed on
March 5, 2001.
(s) The Norfolk Southern Corporation Directors' Restricted
Stock Plan, effective January 1, 1994, as restated
November 24, 1998, is incorporated herein by reference
from Exhibit 10(h) to Norfolk Southern Corporation's
Form 10-K filed on March 24, 1999.
(t) Form of Severance Agreement, dated as of June 1, 1996,
between Norfolk Southern Corporation and certain
executive officers (including those defined as "named
executive officers" and identified in the Corporation's
Proxy Statement for the 1997 through 2001 Annual
Meetings of Stockholders) is filed herewith.
(u) Norfolk Southern Corporation Supplemental (formerly,
Excess) Benefit Plan, effective as of August 22, 1999,
is incorporated herein by reference from Exhibit
10(r) to Norfolk Southern Corporation's Form 10-K
filed on March 6, 2000.
(v) The Norfolk Southern Corporation Directors' Charitable
Award Program, effective February 1, 1996, is filed
herewith.
(w) The Norfolk Southern Corporation Outside Directors'
Deferred Stock Unit Program, as amended on
September 23, 1997, is incorporated herein by
reference from Exhibit 10(m) to Norfolk Southern
Corporation's Form 10-K filed on March 25, 1998.
(x) Agreement, dated as of October 1, 2001, providing
enhanced pension benefits to three officers in exchange
for their continued employment with Norfolk Southern
Corporation for two years, is incorporated herein by
reference to Exhibit 10(w) to Norfolk Southern
Corporation's Form 10-Q filed on November 9, 2001.
The agreement was entered into with L. Ike Prillaman,
Vice Chairman and Chief Marketing Officer;
Stephen C. Tobias, Vice Chairman and Chief Operating
Officer; and Henry C. Wolf, Vice Chairman and
Chief Financial Officer.
90
Item 14. Exhibits, Financial Statement Schedule and
------- ------------------------------------------
Reports on Form 8-K. (continued)
-------------------
3. Exhibits (continued)
Exhibit
Number Description
------- ------------------------------------------------------------
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consents of Experts and Counsel -
|
(a) Consent of KPMG LLP.
(b) Consent of KPMG LLP and Ernst & Young LLP.
99 Conrail Inc. 2001 Annual Report to Stockholders.
(B) Reports on Form 8-K.
None
(C) Exhibits.
The Exhibits required by Item 601 of Regulation S-K as listed in Item 14(a)3 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)2 or are otherwise not required or are not applicable.
Each person whose signature appears below under "SIGNATURES" hereby authorizes Henry C. Wolf and Henry D. Light, 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 Henry D. Light, 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.
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 21st day of February, 2002.
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 21st day of February, 2002, 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
------------------------------ Vice Chairman and
(Henry C. Wolf) Chief Financial Officer
(Principal Financial Officer)
92
Signature Title
--------- -----
/s/ John P. Rathbone
------------------------------ Senior Vice President and
(John P. Rathbone) Controller
(Principal Accounting Officer)
/s/ Gerald L. Baliles
------------------------------ Director
(Gerald L. Baliles)
/s/ Carroll A. Campbell, Jr.
------------------------------ Director
(Carroll A. Campbell, Jr.)
/s/ Gene R. Carter
------------------------------ Director
(Gene R. Carter)
/s/ Alston D. Correll
------------------------------ Director
(Alston D. Correll)
/s/ Landon Hilliard
------------------------------ Director
(Landon Hilliard)
/s/ Steven F. Leer
------------------------------ Director
(Steven F. Leer)
/s/ Jane Margaret O'Brien
------------------------------ Director
(Jane Margaret O'Brien)
/s/ Harold W. Pote
------------------------------ Director
(Harold W. Pote)
/s/ J. Paul Reason
------------------------------ Director
(J. Paul Reason)
|
Schedule II
Page 1 of 2
Norfolk Southern Corporation and Subsidiaries
---------------------------------------------
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 2000 and 2001
(In millions of dollars)
Additions charged to
--------------------
Beginning Other Ending
Balance Expenses Accounts Deductions Balance
--------- -------- -------- ---------- -------
Year ended December 31, 1999
----------------------------
Valuation allowance (included
net in deferred tax liability)
for deferred tax assets $ 3 $ 6 $ -- $ -- $ 9
Casualty and other claims
included in other liabilities $ 271 $ 114 $ 9 (1) $ 119 (2) $ 275
Current portion of casualty
and other claims included
in accounts payable $ 144 $ 19 $ 191 (1) $ 173 (3) $ 181
Year ended December 31, 2000
----------------------------
Valuation allowance (included
net in deferred tax liability)
for deferred tax assets $ 9 $ 3 $ -- $ -- $ 12
Casualty and other claims
included in other liabilities $ 275 $ 117 $ 8 (1) $ 138 (2) $ 262
Current portion of casualty
and other claims included
in accounts payable $ 181 $ 19 $ 221 (1) $ 198 (3) $ 223
(1) Includes revenue refunds and overcharges provided through deductions
from operating revenues and transfers from other accounts.
(2) Payments and reclassifications to/from accounts payable.
(3) Payments and reclassifications to/from other liabilities.
|
(continued)
Schedule II
Page 2 of 2
Norfolk Southern Corporation and Subsidiaries
---------------------------------------------
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 2000 and 2001 (continued)
(In millions of dollars)
Additions charged to
--------------------
Beginning Other Ending
Balance Expenses Accounts Deductions Balance
--------- -------- -------- ---------- -------
Year ended December 31, 2001
----------------------------
Valuation allowance (included
net in deferred tax liability)
for deferred tax assets $ 12 $ 6 $ -- $ -- $ 18
Casualty and other claims
included in other liabilities $ 262 $ 110 $ 20 (1) $ 127 (2) $ 265
Current portion of casualty
and other claims included
in accounts payable $ 223 $ 22 $ 142 (1) $ 195 (3) $ 192
|
(1) Includes revenue refunds and overcharges provided through deductions from operating revenues and transfers from other accounts.
(2) Payments and reclassifications to/from accounts payable.
(3) Payments and reclassifications to/from other liabilities.
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)
Electronic
Submission
Exhibit
Number Description Page
--------- ------------------------------------------------------- ----
3(ii) The Bylaws of Norfolk Southern Corporation, as amended
January 22, 2002. 96
10(e) Amendment No. 1, dated as of September 29, 2001, to
Operating Agreement, dated as of June 1, 1999, by and
between Pennsylvania Lines LLC and Norfolk Southern
Railway Company. 109
10(j) Amendment No. 2, dated as January 1, 2001, to the
Shared Assets Area Operating Agreements for North Jersey,
South Jersey/Philadelphia and Detroit, dated as of
June 1, 1999, by and among Consolidated Rail Corporation,
CSX Transportation, Inc. and Norfolk Southern Railway
Company, with exhibit thereto. 111
10(t) Form of Severance Agreement, dated as of June 1, 1996,
between Norfolk Southern Corporation and certain
executive officers (including those defined as "named
executive officers" and identified in the Corporation's
Proxy Statement for the 1997 through 2001 Annual
Meetings of Stockholders). 123
10(v) The Norfolk Southern Corporation Directors' Charitable
Award Program, effective February 1, 1996. 136
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges. 140
21 Subsidiaries of Norfolk Southern Corporation. 141
23 Consent of Experts and Counsel -
(a) Consent of KPMG LLP. 143
(b) Consent of KPMG LLP and Ernst & Young LLP. 144
99 Conrail Inc. 2001 Annual Report to Stockholders. 145
Exhibits 3(ii), 10(e), 10(j), 10(t) and 10(v) are not included in
|
copies assembled for public dissemination. If you have a need for this type of information, we will be pleased to send it to you.
Write to:
Office of Corporate Secretary
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-9219
B Y L A W S
OF
NORFOLK SOUTHERN CORPORATION
AS AMENDED
January 22, 2002
BYLAWS
OF
NORFOLK SOUTHERN CORPORATION
ARTICLE I
Stockholders' Meetings
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the corporation shall be held on such date in March, April, May or June as
the board of directors may designate. If the date of the annual meeting shall
be a legal holiday, the meeting shall be held on the next succeeding day not a
legal holiday.
SECTION 2. Special Meetings. Special meetings of the stockholders shall
be held whenever called by the chief executive officer or by a majority of
the directors.
SECTION 3. Time and Place. All meetings of the stockholders shall be
held at the time and place stated in the notice of meeting.
SECTION 4. Quorum. The holders of a majority of the outstanding shares
of capital stock entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of the stockholders. If less than a quorum
is present at an annual or special meeting, then a majority in interest of the
stockholders present in person or by proxy may from time to time adjourn the
meeting to a fixed time and place, no further notice of any adjourned meeting
being required. Each stockholder shall be entitled to one vote in person or
by proxy for each share entitled to vote then outstanding in his name on the
books of the corporation.
SECTION 5. Record Date. The board of directors may fix in advance a
date as the record date for a determination of stockholders for any purpose,
such date to be not more than seventy days before the meeting or action
requiring a determination of stockholders.
SECTION 6. Conduct of Meetings. The chief executive officer, or any
officer or director he may designate, shall preside over all meetings of the
stockholders. The secretary of the corporation, or an assistant secretary,
shall act as secretary of all the meetings, if present. If the secretary or
an assistant secretary is not present, the chairman of the meeting shall
appoint a secretary.
The board of directors, prior to the annual meeting of the stockholders
each year, shall appoint one or more inspectors of election to act at such
annual meeting and at all other meetings of stockholders held during the
ensuing year. In the event of the failure of the board to make such
appointment or if any inspector of election shall for any reason fail to
attend and to act at such meeting, an inspector or inspectors of election,
as the case may be, may be appointed by the chairman of the meeting. The
inspectors of election shall determine the qualification of voters, the
validity of proxies and the results of ballots.
SECTION 7. Proposals by Stockholders. No business may be transacted
at an annual or special meeting of stockholders other than business that is
either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors or (c) otherwise properly brought before the meeting by a
stockholder (i) who is a stockholder on
the date of the giving of the notice provided for in this Section 7 and on
the record date for the determination of stockholders entitled to vote at
such meeting and (ii) who gives to the corporation notice in writing of the
proposal, provided that such written notice is received at the principal
executive office of the corporation, addressed to the Corporate Secretary,
(A) in the case of an annual meeting, not less than ninety (90) nor more
than one hundred sixty (160) calendar days prior to the anniversary date of
the immediately preceding annual meeting and, (B) in the case of a special
meeting, not later than the tenth calendar day next following the date on
which notice of the holding of the special meeting is mailed to stockholders
or public disclosure of the date of the special meeting was made, whichever
first occurs. The written notice given to the corporation shall include
(i) the specific language on which stockholders will be asked to vote,
(ii) the name and address of such stockholder, (iii) the class or series and
number of shares of the capital stock of the corporation which are owned
beneficially and/or of record by such stockholder, (iv) a representation as
to the existence and nature of any agreement or understanding between the
proposing stockholder and any other person or persons (including their
identities) in connection with bringing the proposal, and (v) a
representation as to any material interest of the proposing stockholder
(and the other person or persons) in the subject matter of the proposal.
The requirements of this Section 7 are in addition to any other
applicable requirements.
ARTICLE II
Board of Directors
SECTION 1. Election, Number and Term. The board of directors shall be
chosen at the annual meeting of the stockholders. The number of directors
shall be ten, and the directors shall be classified and shall hold office for
terms as provided in the articles of incorporation. This number may be
increased or decreased at any time by amendment of these bylaws, but shall
always be a number of not less than three. Directors need not be
stockholders. Directors shall hold office until their successors are elected.
SECTION 2. Quorum. A majority of the number of directors fixed by these
bylaws shall constitute a quorum. If less than a quorum is present at a
meeting, then a majority of those present may adjourn the meeting to a fixed
time and place, no further notice of any adjourned meeting being required.
SECTION 3. Vacancies. Any vacancy arising among the directors,
including a vacancy resulting from an increase by not more than thirty percent
in the number of directors last elected by the stockholders, may be filled by
a majority vote of the remaining directors though less than a quorum unless
sooner filled by the stockholders.
SECTION 4. Meetings. Meetings of the board of directors shall be held at
times fixed by resolution of the board or upon the call of the chief executive
officer or of one-third of the members of the board. Notice of any meeting
not held at a time fixed by a resolution of the board shall be given to each
director at least two days before the meeting at his residence or business
address or by delivering such notice to him or by telephoning or telegraphing
it to
him at least one day before the meeting. Any such notice shall contain the
time and place of the meeting. Meetings may be held without notice if all the
directors are present or those not present waive notice before or after the
meeting. The chief executive officer, or any director he may designate, shall
preside over all meetings.
SECTION 5. Committees. The board of directors may by resolution
designate an executive committee and one or more other committees, each of
which shall consist of two or more directors. Any such committee, to the
extent provided in the resolution of the board of directors and except as
otherwise provided by law, shall have and may exercise the powers and
authority of the board of directors in the management of the business and
affairs of the corporation.
SECTION 6. Nominations of Directors. Except as otherwise provided in
the Articles of Incorporation, only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nominations of persons for election to the board of directors may be made at
any annual meeting of the stockholders (a) by or at the direction of the
board of directors or (b) by any stockholder (i) who is a stockholder on the
date of the giving of the notice provided for in this Section 6 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who gives to the corporation notice in writing of the
nomination, provided that such written notice is received at the principal
executive office of the corporation, addressed to the Corporate Secretary,
not less than ninety (90) nor more than one hundred sixty (160) calendar
days prior to the anniversary date of the immediately preceding annual
meeting. The written notice given to the
corporation shall include all the information about the nominee that would
be required by applicable rules and regulations of the Securities and Exchange
Commission to be included for nominees listed in the proxy statement for such
meeting and shall include (i) the name and address of such stockholder and
(ii) the class or series and number of shares of the capital stock of the
corporation which are owned beneficially and/or of record by such stockholder.
Such notice must be accompanied by a written consent of each proposed nominee
to being named as a nominee and to serve as a director if elected.
ARTICLE III
Officers
SECTION 1. Election, Number and Term. The board of directors, promptly
after its election in each year, may elect a chairman of the board and shall
elect a president (one of whom shall be designated chief executive officer), a
secretary and a treasurer, and may elect one or more vice chairmen and vice
presidents and may appoint such other officers as it may deem proper. Any
officer may hold more than one office except that the same person shall not
be president and secretary. Each officer shall hold office until his successor
is elected or until his death or until he resigns or is removed in the manner
hereinafter provided.
SECTION 2. Removal. Any officer may be removed at any time by the vote
of the board of directors and any officer or agent appointed otherwise than by
the board of directors may be removed by any officer having authority to
appoint that officer or agent.
SECTION 3. Vacancies. Vacancies among the officers elected by the board
of directors shall be filled by the directors.
SECTION 4. The Chief Executive Officer. The chief executive officer,
subject to the control of the board of directors, shall in general supervise
and control all of the business and affairs of the corporation. All officers
and agents, other than officers or agents elected or appointed by the board
of directors, shall be appointed by the chief executive officer or by the
heads of departments, subject to the approval of the chief executive officer.
Unless otherwise specifically provided in these bylaws or by direction of the
board of directors, the chief executive officer or, at his direction, any
officer, employee or agent of the corporation designated by him, may sign and
execute all representations, securities, conveyances of real and personal
property, leases, licenses, releases, contracts and other obligations and
instruments in the name of the corporation.
SECTION 5. The Vice Chairmen and Vice Presidents. The vice chairmen
and the vice presidents shall perform such duties as from time to time may
be assigned to them by the chief executive officer or by the board of
directors. In the absence of the chief executive officer, or in the event
of his death, inability or refusal to act, the officer designated by the
chief executive officer or the board of directors shall perform the duties
of the chief executive officer, and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the chief executive
officer. Any vice chairman or vice president may sign, with the secretary
or an assistant secretary, certificates for shares of the corporation.
SECTION 6. The Secretary. The secretary shall:
(a) keep the minutes of the meetings of the stockholders and the board
of directors in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the
provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation and see that the seal of the corporation is affixed to all
documents the execution of which on behalf of the corporation under its seal
is duly authorized;
(d) keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholders;
(e) sign with the chairman of the board, a vice chairman, the
president, or a vice president, certificates for shares of the corporation,
the issuance of which shall have been authorized by resolution of the
board of directors;
(f) have general charge of the stock transfer books of the
corporation; and
(g) in general perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
chief executive officer or by the board of directors.
SECTION 7. The Treasurer. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine. He shall:
(a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the provisions of
Article IV of these bylaws;
(b) when duly authorized, disperse all moneys belonging
or coming to the corporation; and
(c) in general perform all the duties incident to the office of
treasurer and such other duties as from time to time may be assigned to him
by the chief executive officer or by the board of directors.
SECTION 8. Assistant Secretaries and Assistant Treasurers. The assistant secretaries, when authorized by the board of directors, may sign with the chairman of the board, a vice chairman, the president or a vice president certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the chief executive officer or the board of directors.
SECTION 9. Salaries. The salaries of the officers elected by the board of directors shall be fixed by the board of directors. The salaries of all other officers shall be fixed by the chief executive officer or by the heads of departments, subject to the approval of the chief executive officer.
ARTICLE IV
Checks and Deposits
SECTION 1. Checks and Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors.
SECTION 2. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as may be selected in a manner authorized by the board of directors.
ARTICLE V
Certificate of Stock
Each stockholder shall be entitled to a certificate or certificates of
stock in such form as may be approved by the board of directors signed by the
chairman of the board, a vice chairman, the president or a vice president and
by the secretary or an assistant secretary or the treasurer or any
assistant treasurer.
All transfers of stock of the corporation shall be made upon its books
by surrender of the certificate for the shares transferred accompanied by an
assignment in writing by the holder and may be accomplished either by the
holder in person or by a duly authorized attorney in fact.
In case of the loss, mutilation or destruction of a certificate of stock,
a duplicate certificate may be issued upon such terms not in conflict with law
as the board of directors may prescribe.
The board of directors may also appoint one or more transfer agents and registrars and may require stock certificates to be countersigned by a transfer agent or registered by a registrar or may require stock certificates to be both countersigned by a transfer agent and registered by a registrar. If certificates of capital stock of the corporation are signed by a transfer agent or by a registrar (other than the corporation itself or one of its employees), the signature thereon of the officers of the corporation and the seal of the corporation thereon may be facsimiles, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the corporation.
ARTICLE VI
Seal
The seal of the corporation shall be a flat-faced circular die, of which there may be any number of counterparts, with the word "SEAL" and the name of the corporation and the state and year of incorporation engraved thereon.
ARTICLE VII
Fiscal Year
The fiscal year of the corporation shall begin on the first day of January and end on the thirty-first day of December in each year.
ARTICLE VIII
Voting of Stock Held
Unless otherwise ordered by the board of directors, the chief executive officer, or his designee, shall have full power and authority in behalf of the corporation to attend and to act and to vote at any meetings of stockholders of any corporation in which the corporation may hold stock, and at any such meeting shall possess and may exercise any and all the rights and powers incident to the ownership of such stock, which, as the owner thereof, the corporation might have possessed and exercised if present, and may sign proxies on behalf of the corporation with respect to any such meeting or sign consents on behalf of the corporation with respect to corporate actions permitted without a meeting of stockholders. The board of directors, by resolution, from time to time, may confer like powers upon any other person or persons.
ARTICLE IX
Amendments
These bylaws may be altered, amended or repealed and new bylaws may be adopted by the board of directors at any regular or special meeting of the board of directors.
AMENDMENT NO. 1 TO
PRR OPERATING AGREEMENT
This AMENDMENT NO. 1 TO THE PRR OPERATING AGREEMENT (this "Amendment") dated as of September 29, 2001 is by and between PENNSYLVANIA LINES LLC, a Delaware limited liability company, as Owner, and NORFOLK SOUTHERN RAILWAY COMPANY, a Virginia corporation, as Operator.
WHEREAS, Owner and Operator have entered into that certain Operating Agreement dated June 1, 1999 (the "Agreement");
WHEREAS, Owner and Operator have determined to amend the Agreement as set forth herein;
NOW, THEREFORE, the parties hereby amend the Agreement as follows:
Section 6.3 of the Agreement is amended to read as follows:
SECTION 6.3 Confirmation of Settlement Account. Within six (6) months of the crediting of an amount to the Settlement Account, the Appraisal Procedure shall be used to confirm that credits to the Settlement Account were based on the fair market value of the relevant Allocated Assets consistent with the terms of this Agreement. The Settlement Account shall be adjusted consistent with the outcome of the Appraisal Procedure and the payments made pursuant to Section 6.2 hereof shall reflect any such adjustments.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date and year first above written.
PENNSYLVANIA LINES LLC,
as OWNER
By: ______________________________________
Name: ________________________________
Title: ________________________________
NORFOLK SOUTHERN RAILWAY COMPANY,
as OPERATOR
By: ______________________________________
Name: ________________________________
Title: ________________________________
AMENDMENT NO. 2
DATED AS OF JANUARY 1, 2001
OF THE
SHARED ASSETS AREA
OPERATING AGREEMENT
FOR
NORTH JERSEY
Dated as of June 1, 1999
By and Among
CONSOLIDATED RAIL CORPORATION,
CSX TRANSPORTATION, INC. and
NORFOLK SOUTHERN RAILWAY COMPANY
AMENDMENT NO. 2
OF THE
SHARED ASSETS AREA
OPERATING AGREEMENT
FOR
NORTH JERSEY
This AMENDMENT NO. 2 dated as of January 1, 2001
("Amendment No. 2") OF THE SHARED ASSETS AREA OPERATING
AGREEMENT for North Jersey ("Agreement") dated as of
June 1, 1999, is by and among Consolidated Rail
Corporation ("CRC"), CSX Transportation, Inc. ("CSXT")
and Norfolk Southern Railway Company ("NSR").
W I T N E S S E T H:
WHEREAS, the parties have previously entered into the Agreement;
WHEREAS, the parties now desire to amend the Agreement with respect to the funding of capital improvements in the Shared Assets Areas ("SAAs") as more fully set forth below:
WHEREAS, it is the intent of the parties that, except as expressly amended hereby, the Agreement shall remain unamended and in full force and effect;
NOW, THEREFORE, the parties hereby amend the Agreement as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not defined herein shall have the meanings assigned to such terms in the Agreement.
SECTION 2. Amendments of the Agreement. The Agreement
is hereby amended pursuant to and in compliance with
Section 17 as follows:
(a) The text of Section 6(b) is hereby deleted in its entirety and the following substituted therefor:
"(b) CRC Board Approved Projects. Either of two options for initial funding and reimbursement by the Operators may be determined by the CRC Board at the time it approves a particular project. In the event the CRC Board does not specify the method of initial funding and reimbursement in the resolution authorizing the project, then Option One described below shall be the method of such funding and reimbursement.
(i) Option One: Each Operator shall be responsible for an equal share of the initial budgeted funding of each capital improvement project which has been approved by the CRC Board and is included in an approved Capital Expenditure Budget, except as provided in Section 6(c). A final accounting shall be made to adjust the initial budgeted funding to the actual project cost as specified in the Accounting Plan.
(ii) Option Two: CRC shall provide the funding for the
proposed capital improvement project, except as provided in
Section 6(c).
The options for the method of reimbursement are set forth in Section 9(e)(ii)."
(b) The text of Section 9(e)(ii) is hereby deleted in its entirety and the following substituted therefor:
"(ii) With respect to Budgeted Capital Expenditures approved by the CRC Board:
(A) If Option One, as described in Section 6(b), is used for the initial funding of the particular capital improvement project, then one-twelfth (1/12) of fifty percent (50%) of the annual amount of the Budgeted Capital Expenditures for the particular capital improvement project; or
(B) If Option Two is used for the initial funding of the particular capital improvement project, then one hundred and two percent (102%) of fifty percent (50%) of the monthly book depreciation for the particular capital improvement project."
SECTION 3. Effectiveness. This Amendment No. 2 shall become effective as of January 1, 2001 (the "Amendment Date").
SECTION 4. Integration; Confirmation. On and after the Amendment No. 2 Date, each reference in the Agreement to "this Agreement," herein, "hereunder" or words of similar import, and each reference in any Note or other document delivered in connection with the Agreement shall be deemed to be a reference to the Agreement as amended by this Amendment No. 2, and the Agreement as so amended shall be read as a single integrated document. Except as specifically amended by this Amendment No. 2, all other terms and provisions of the Agreement shall continue in full force and effect and unchanged and are hereby confirmed in all respects.
SECTION 5. Confirmation of Agreement. In all respects not inconsistent with the terms and provisions of this Amendment No. 2, the Agreement is hereby ratified, adopted, approved and confirmed.
SECTION 6. Counterparts. This Amendment No. 2 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the day and year first above written.
CSX TRANSPORTATION, INC.
By:
Name:
Title:
NORFOLK SOUTHERN RAILWAY COMPANY
By:
Name:
Title:
CONSOLIDATED RAIL CORPORATION
By:
Name:
Title:
AMENDMENT NO. 2
DATED AS OF JANUARY 1, 2001
OF THE
SHARED ASSETS AREA
OPERATING AGREEMENT
FOR
SOUTH JERSEY/PHILADELPHIA
Dated as of June 1, 1999
By and Among
CONSOLIDATED RAIL CORPORATION,
CSX TRANSPORTATION, INC. and
NORFOLK SOUTHERN RAILWAY COMPANY
AMENDMENT NO. 2
OF THE
SHARED ASSETS AREA
OPERATING AGREEMENT
FOR
SOUTH JERSEY/PHILADELPHIA
This AMENDMENT NO. 2 dated as of January 1, 2001
("Amendment No. 2") OF THE SHARED ASSETS AREA OPERATING
AGREEMENT for South Jersey/Philadelphia ("Agreement") dated
as of June 1, 1999, is by and among Consolidated Rail
Corporation ("CRC"), CSX Transportation, Inc. ("CSXT") and
Norfolk Southern Railway Company ("NSR").
W I T N E S S E T H:
WHEREAS, the parties have previously entered into the Agreement;
WHEREAS, the parties now desire to amend the Agreement with respect to the funding of capital improvements in the Shared Assets Areas ("SAAs") as more fully set forth below:
WHEREAS, it is the intent of the parties that, except as expressly amended hereby, the Agreement shall remain unamended and in full force and effect;
NOW, THEREFORE, the parties hereby amend the Agreement as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not defined herein shall have the meanings assigned to such terms in the Agreement.
SECTION 2. Amendments of the Agreement. The Agreement is hereby amended pursuant to and in compliance with Section 17 as follows:
(a) The text of Section 6(b) is hereby deleted in its entirety and the following substituted therefor:
"(b) CRC Board Approved Projects. Either of two options for initial funding and reimbursement by the Operators may be determined by the CRC Board at the time it approves a particular project. In the event the CRC Board does not specify the method of initial funding and reimbursement in the resolution authorizing the project, then Option One described below shall be the method of such funding and reimbursement.
(i) Option One: Each Operator shall be responsible for an equal share of the initial budgeted funding of each capital improvement
project which has been approved by the CRC Board and is included in an approved Capital Expenditure Budget, except as provided in Section 6(c). A final accounting shall be made to adjust the initial budgeted funding to the actual project cost as specified in the Accounting Plan.
(ii) Option Two: CRC shall provide the funding for the
proposed capital improvement project, except as provided in
Section 6(c).
The options for the method of reimbursement are set forth in Section 9(e)(ii)."
(b) The text of Section 9(e)(ii) is hereby deleted in its entirety and the following substituted therefor:
"(ii) With respect to Budgeted Capital Expenditures approved by the CRC Board:
(A) If Option One, as described in Section 6(b), is used for the initial funding of the particular capital improvement project, then one-twelfth (1/12) of fifty percent (50%) of the annual amount of the Budgeted Capital Expenditures for the particular capital improvement project; or
(B) If Option Two is used for the initial funding of the particular capital improvement project, then one hundred and two percent (102%) of fifty percent (50%) of the monthly book depreciation for the particular capital improvement project."
SECTION 3. Effectiveness. This Amendment No. 2 shall become effective as of January 1, 2001 (the "Amendment Date").
SECTION 4. Integration; Confirmation. On and after the Amendment No. 2 Date, each reference in the Agreement to "this Agreement," herein, "hereunder" or words of similar import, and each reference in any Note or other document delivered in connection with the Agreement shall be deemed to be a reference to the Agreement as amended by this Amendment No. 2, and the Agreement as so amended shall be read as a single integrated document. Except as specifically amended by this Amendment No. 2, all other terms and provisions of the Agreement shall continue in full force and effect and unchanged and are hereby confirmed in all respects.
SECTION 5. Confirmation of Agreement. In all respects not inconsistent with the terms and provisions of this Amendment No. 2, the Agreement is hereby ratified, adopted, approved and confirmed.
SECTION 6. Counterparts. This Amendment No. 2 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the day and year first above written.
CSX TRANSPORTATION, INC.
By:
Name:
Title:
NORFOLK SOUTHERN RAILWAY COMPANY
By:
Name:
Title:
CONSOLIDATED RAIL CORPORATION
By:
Name:
Title:
AMENDMENT NO. 2
DATED AS OF JANUARY 1, 2001
OF THE
SHARED ASSETS AREA
OPERATING AGREEMENT
FOR
DETROIT
Dated as of June 1, 1999
By and Among
CONSOLIDATED RAIL CORPORATION,
CSX TRANSPORTATION, INC. and
NORFOLK SOUTHERN RAILWAY COMPANY
AMENDMENT NO. 2
OF THE
SHARED ASSETS AREA
OPERATING AGREEMENT
FOR
DETROIT
This AMENDMENT NO. 2 dated as of January 1, 2001 ("Amendment No. 2")
OF THE SHARED ASSETS AREA OPERATING AGREEMENT for Detroit ("Agreement")
dated as of June 1, 1999, is by and among Consolidated Rail Corporation
("CRC"), CSX Transportation, Inc. ("CSXT") and Norfolk Southern Railway
Company ("NSR").
W I T N E S S E T H:
WHEREAS, the parties have previously entered into the Agreement;
WHEREAS, the parties now desire to amend the Agreement with respect to the funding of capital improvements in the Shared Assets Areas ("SAAs") as more fully set forth below:
WHEREAS, it is the intent of the parties that, except as expressly amended hereby, the Agreement shall remain unamended and in full force and effect;
NOW, THEREFORE, the parties hereby amend the Agreement as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not defined herein shall have the meanings assigned to such terms in the Agreement.
SECTION 2. Amendments of the Agreement. The Agreement
is hereby amended pursuant to and in compliance with
Section 17 as follows:
(a) The text of Section 6(b) is hereby deleted in its entirety and the following substituted therefor:
"(b) CRC Board Approved Projects. Either of two options for initial funding and reimbursement by the Operators may be determined by the CRC Board at the time it approves a particular project. In the event the CRC Board does not specify the method of initial funding and reimbursement in the resolution authorizing the project, then Option One described below shall be the method of such funding and reimbursement.
(i) Option One: Each Operator shall be responsible for an equal share of the initial budgeted funding of each capital improvement project which has been approved by the CRC Board and is included in an approved Capital Expenditure Budget, except as provided
in Section 6(c). A final accounting shall be made to adjust the initial budgeted funding to the actual project cost as specified in the Accounting Plan.
(ii) Option Two: CRC shall provide the funding for the
proposed capital improvement project, except as provided in
Section 6(c).
The options for the method of reimbursement are set forth in Section 9(e)(ii)."
(b) The text of Section 9(e)(ii) is hereby deleted in its entirety and the following substituted therefor:
"(ii) With respect to Budgeted Capital Expenditures approved by the CRC Board:
(A) If Option One, as described in Section 6(b), is used for the initial funding of the particular capital improvement project, then one-twelfth (1/12) of fifty percent (50%) of the annual amount of the Budgeted Capital Expenditures for the particular capital improvement project; or
(B) If Option Two is used for the initial funding of the particular capital improvement project, then one hundred and two percent (102%) of fifty percent (50%) of the monthly book depreciation for the particular capital improvement project."
SECTION 3. Effectiveness. This Amendment No. 2 shall become effective as of January 1, 2001 (the "Amendment Date").
SECTION 4. Integration; Confirmation. On and after the Amendment No. 2 Date, each reference in the Agreement to "this Agreement," herein, "hereunder" or words of similar import, and each reference in any Note or other document delivered in connection with the Agreement shall be deemed to be a reference to the Agreement as amended by this Amendment No. 2, and the Agreement as so amended shall be read as a single integrated document. Except as specifically amended by this Amendment No. 2, all other terms and provisions of the Agreement shall continue in full force and effect and unchanged and are hereby confirmed in all respects.
SECTION 5. Confirmation of Agreement. In all respects not inconsistent with the terms and provisions of this Amendment No. 2, the Agreement is hereby ratified, adopted, approved and confirmed.
SECTION 6. Counterparts. This Amendment No. 2 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the day and year first above written.
CSX TRANSPORTATION, INC.
By:
Name:
Title:
NORFOLK SOUTHERN RAILWAY COMPANY
By:
Name:
Title:
CONSOLIDATED RAIL CORPORATION
By:
Name:
Title:
AGREEMENT {Officers}
This agreement, dated as of June 1, 1996 (Agreement), between Norfolk Southern Corporation (Corporation) and _____________ (1) memorializes your entitlement to certain rights and benefits hereinafter detailed that mature upon, and only upon, your Termination (this and other terms not defined in the text are defined in Attachment A hereto) following a Change in Control and your commitment not to engage in Competing Employment for certain periods; (2) absent such Termination, is not intended to affect, and shall not be construed as affecting, the compensation and benefits you are entitled to receive; and (3) is not under any circumstances a contract or guarantee of employment with the Corporation. Moreover, upon the happening of such conditions, your rights under any and all employee retirement income or welfare benefit policies, plans, programs or arrangements of the Corporation in which you participate shall be governed by the terms thereof and, except as herein expressly provided, shall not be enlarged hereunder or otherwise affected hereby.
The Agreement's terms and protections reflect the Corporation's beliefs that, in the event of a potential Change in Control, (1) the best interests of its stockholders require management focus and continuity; and (2) such focus and continuity will be enhanced by providing economic protection to officers and other key employees whose employment is most likely to be affected adversely by such a change. At the recommendation of its Compensation and Nominating Committee (Committee), which is composed entirely of non-employee directors, the Board of Directors of the Corporation (Board) has directed the Corporation to offer this Agreement to you.
As consideration for the Corporation's offer of this Agreement, and by your acceptance of it, you hereby covenant and agree as follows:
(i) for the three-year period that begins on the date of this Agreement, you will engage in no Competing Employment (provided, however, that if (a) prior to a Change in Control your employment with the Corporation is terminated for Cause or because of your inadequate performance of assigned duties or for other similar reasons - each as determined by the Corporation's chief legal officer serving at the time - or (b) your Termination Date is within such three-year period, the restriction imposed by this subparagraph (i) shall cease to apply as of your Termination Date), and your undertaking in this respect may be enforced by appropriate court orders and decrees, including without limitation those calling for injunctions and specific performance;
(ii) in the event you (a) are Terminated following a Change in Control and (b) accept any benefits provided for in Article III or Article IV of this Agreement, you will engage in no Competing Employment for the one-year period that begins on your Termination Date;
(iii) you waive, forego and otherwise renounce, on your behalf and that of any individual or organization that does or may claim through you, any and all benefits (including without limitation any prior notice of agreement termination therein provided) to which you may or would be entitled under and
by virtue of any other agreement, including amendments and supplements thereto, as in effect on the date hereof between you and the Corporation affording you benefits in the event of your Termination, with the result that all and any such agreements, from and after the date hereof, shall have no force and effect; and
(iv) if, prior to a Change in Control, a modification in the nature
of your responsibilities with the Corporation (Reassignment) results in a
change in the maximum percen-tage of your salary that may be earned as
incentive compensation (Participation Level), upon the effective date of
your Reassignment (Reassignment Date), you will become and be eligible to
receive only those benefits following a Change in Control as are other
individuals at the Participation Level applicable to your new position,
provided, however, that the three-year period provided for in subparagraph
(i) above shall not be extended because of your Reassignment; the
Corporation hereby undertakes to furnish you a new agreement or to furnish
an amendment or supplement to this Agreement, to reflect your changed
benefits, but its failure or omission to do so shall not affect the
benefits to which, under this subparagraph (iv), you are entitled upon and
after such Reassignment Date.
I. Effective Date and Term
The Agreement is effective and its term (Term) begins on the date hereof; its Term ends (provided, however, that the three-year prohibition on engaging in Competing Employment that begins on the date of this Agreement, including the exceptions, set out in subparagraph (i) of the third paragraph of the preamble shall continue to apply) on the earliest of:
(i) the date, prior to a Change in Control, you cease to be an employee of the Corporation;
(ii) the date, prior to a Change in Control, you cease to be eligible to participate in the Corporation's Executive Management Incentive Plan or Management Incentive Plan, or any successor plan[s] or program[s]; and
(iii) the date, prior to a Change in Control, that is twenty-four (24) months after you or the Corporation gives notice to the other of the termination of this Agreement, provided, however, that if a Change in Control occurs during the Term hereof, this Agreement shall terminate after a period of twenty-four (24) months, beginning on the first day of the month next following the month in which the Change in Control occurs (such period - plus the portion of the month, following the Change in Control, in which the Change in Control occurs - the Change in Control Period).
II. Binding on Successors
The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization, share exchange or otherwise) to all or substantially all of the business and/or assets of the Corporation (Successor; and such result, Succession) by agreement, in form and substance satisfactory to the Corporation's chief legal officer or his designee(s), serving immediately prior to the Change in Control, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Corporation would have been required to perform it had no such Succession occurred. This Agreement shall be binding upon and inure to the benefit of the Corporation and any Successor (and, from and after any such Succession, that Successor shall be deemed the "Corporation" for purposes of this Agreement), but otherwise the Corporation shall not assign or transfer any of its rights, or delegate any of its duties or obligations, hereunder.
III. Protection Afforded by the Agreement During the Change in Control Period
Except as limited by subparagraph (ix) concerning retirement, in the event of your Termination during the Change in Control Period, the Corporation shall (1) pay you within ten (10) business days after your Termination Date the amounts indicated in subparagraphs (i), (ii), (iii), (iv) and (vii); (2) continue to provide the Additional Benefits detailed in subparagraph (v); (3) timely pay, afford or deliver the other amounts, credits or instruments called for in subparagraphs (vi) and (viii); and (4) pay and provide the Tax Assistance Payments and other benefits defined and called for herein:
(i) Severance Pay. In lieu of, and in full satisfaction of any and all claims you have or may have thereafter to receive cash compensation or awards under or otherwise to participate in or under any feature of any compensation policy, plan, program or arrangement of the Corporation, you shall receive a lump-sum payment (Severance Pay) equal to three (3) times the sum of:
(a) an amount equal to your Base Pay (determined in accordance with Item (D)(ii) in Attachment A); and
(b) an amount equal to your Incentive Pay (determined in accordance with Item (L) in Attachment A).
(ii) Long-Term Compensation
(a) Performance Share Unit Equivalent. In lieu of your having any entitlement (which entitlement, upon your receipt of the benefit herein provided, hereby is waived in full) to receive unearned Performance Share Units (as that term is defined in the Norfolk Southern Corporation Long-Term Incentive Plan, or successor plan[s] or program[s])that you have been awarded and as to which a performance cycle has not been completed on your Termination Date, you shall receive for each incomplete cycle a cash payment
equal to the Performance Share Unit Equivalent (determined in accordance with Item N in Attachment A).
(b) Option Equivalent. Except in the case of persons at the time subject to Section 16 of the Securities Exchange Act of 1934 (Officers), for each option granted to you by the Corporation which on your Termination Date is exercisable but remains unexercised (and by its terms, no longer can be exercised), you shall receive a cash payment equal to the Option Equivalent (determined in accordance with Item M in Attachment A). To protect and assure to the full extent practicable the intended value of options exercisable at the time by Officers, effective on the date Notice of Termination (for reasons other than Cause) is given, any requirement contained in any agreement(s) between such Officer and the Corporation that such Officer exercise an option only during a specified period (other than any provision concerning the date on which the option first is or becomes exercisable) hereby is waived.
(c) Accelerated Dividend Equivalent. As to each option, performance share unit or other instrument you hold on the date Notice of Termination (for reasons other than Cause) is given as to which the right to receive dividend equivalents then exists, you shall receive an amount equal to the Accelerated Dividend Equivalent (determined in accordance with Item A in Attachment A), provided, however, that the Corporation's obligation to make the payment herein provided for shall mature on your Termination Date.
(iii) Deferred Compensation Equivalent. In lieu of your having any entitlement to receive payments under the terms of the Officers' Deferred Compensation Plan (or any successor plan[s] or program[s]), which entitlement, upon your receipt of the benefit herein provided, hereby is waived in full, you shall receive an amount equal to the Deferred Compensation Equivalent (determined in accordance with Item J in Attachment A).
(iv) Vacation Equivalent. In lieu of your having any entitlement to receive payments or other compensation for vacation to which you would have been or might have become entitled in and following the year that includes your Termination Date, which entitlement, upon your receipt of the benefit herein provided, hereby is waived in full, you shall receive an amount equal to the Vacation Equivalent (determined in accordance with Item T in Attachment A).
(v) Additional Benefits. For the thirty-six (36) months next following your Termination Date, the Corporation shall arrange to provide you with Additional Benefits substantially similar to those you were entitled to receive immediately prior to your Termination Date (and if and to the extent that such benefits shall not or cannot be paid or provided under any policy, plan, program or arrangements of the Corporation for whatever reason, the Corporation shall itself pay or provide for the payment of such Additional Benefits to you, your dependents and your beneficiaries). Without otherwise limiting the purposes or effects of the provisions under the caption "No
Mitigation Obligation," infra, Additional Benefits to which you are entitled pursuant to the first sentence of this subparagraph (v) shall be reduced to the extent you actually receive comparable Additional Benefits from another employer during such period following your Termination Date, and you shall report to the Corporation any such benefits actually received.
(vi) Post-Retirement Life Insurance Benefit. If on your Termination Date you are not eligible - or, if eligible, you have elected not to - retire pursuant to subparagraph (ix) of this Article III, in lieu of your entitlement at retirement to receive benefits of any kind under the Corporation's Executive Life Insurance Plan, which entitlement, upon your receipt of the benefit herein provided, hereby is waived in full, you shall receive, as soon as practicable after your Termination Date, a fully paid policy in the face amount and determined in accordance with Item P in Attachment A, and the Corporation shall pay to or on your behalf the cash benefit, also determined in accordance with Item P in Attachment A.
If on your Termination Date you are eligible, and elect, to retire pursuant to subparagraph (ix) of this Article III, you shall receive the policy and cash benefit determined in accordance with Item P of Attachment A, provided, however, that such policy and the related cash payment shall not be distributed or made until such policy would have been distributed under the terms of the Executive Life Insurance Plan or its successor(s), as in effect on the day immediately preceding the date of the Change in Control.
(vii) Prorata Incentive Pay. In lieu of your having any entitlement (which entitlement, upon your receipt of the benefit herein provided, hereby is waived in full) to receive payments or other compensation under the terms of the Executive Management Incentive Plan or the Management Incentive Plan (or successor plan[s] or program[s]) in respect of your employment during the year that includes your Termination Date, you shall receive an amount equal to Prorata Incentive Pay (determined in accordance with Item Q in Attachment A).
(viii) (a) Creditable Service for Retirement. For purposes of determining your creditable service under the Corporation's various retirement plans, including without limitation any agreement(s) with you providing retirement income, you shall receive additional creditable service, based on your age on your Termination Date, as follows:
(1) Age 50 - 54: as if you had been employed until you
were 60;
(2) Age 55 - 59: as if you had been employed until you
were 62; and
(3) All others: three (3) additional years,
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provided, however, that such creditable service shall not be greater than the
number that is equal to the number of months (calculated in accordance with
the terms of the applicable plan) between (i) your Termination Date and
(ii) the date on which you would attain the mandatory retirement age in
effect at the time of the Change in Control. Your rights under such
programs and plans shall be governed by the terms thereof and, except as
herein expressly provided, shall not be enlarged hereunder or otherwise affected hereby.
(b) Final Average Compensation for Retirement. For purposes of
determining your final average compensation under the Corporation's various
plans (including without limitation any agreement(s) with you) providing
retirement income, the amount of Severance Pay provided for in subparagraph
(i) of this Article III shall be included, and the payments made pursuant to
subparagraph (i) shall be deemed to have been made over the number of annual
periods equal to the multiple used to determine the gross amount of your
Severance Pay, provided, however, that your final average compensation shall
not include amounts paid or payable pursuant to subparagraph (iv) (to the
extent they are an Additional Vacation Equivalent) and subparagraph (vii) of
this Article III.
(ix) Special Proviso for Those Eligible to Retire. If on your Termination Date you are eligible to retire under the provisions of any of the Corporation's retirement plans (excluding any special, temporary early retirement amendment[s]), as in effect either on the day immediately preceding the Change in Control or on your Termination Date, you may elect to retire on your Termination Date by giving the Corporation written notice as provided in this subparagraph (ix). Not later than two (2) business days following, but not including, the date on which Notice of Termination is given (whether by you or by the Corporation), the Corporation shall advise you in writing of your right herein provided to elect to retire. If you wish to exercise that right, you must so advise the Cor-poration prior to your Termination Date on an election form it provides and in the manner prescribed under Article X.
If and only if you make this election, your retirement will be deemed to have occurred simultaneously with your Termination Date (provided, however, that the "effective date" of such retirement for purposes of such retirement plans shall be as provided under such plans), and, instead of your having the rights provided in this Article III, your rights shall be governed by the retiree (or any specific change in control) provisions of the respective, applicable plans (as to each, on the terms most favorable to you under such plan [excluding any special, temporary early retirement amendment(s)]) as in effect either immediately preceding the Change in Control or on your Termination Date), provided, however, that if you make the election herein afforded, you shall still receive the payments called for in subparagraphs (i) and (ii)(a), (ii)(c) and (iii), and the benefits described in subparagraph (viii).
There shall be no right of setoff or counterclaim in respect of any claim, debt or obligation against any payment to, or benefit for, you provided for in this Agreement, except as expressly provided in subsection (v).
Without limiting your rights to arbitration, at law or in equity, if the Corporation fails on a timely basis to make any payment required to be made pursuant to provisions under this Article III, the Corporation shall pay interest on the amount thereof at an annualized rate of interest equal to
three percent (3%) above the then-applicable Prime Rate ("Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its prime rate).
IV. Certain Tax Payments by the Corporation
Notwithstanding anything in the Agreement to the contrary, in the event of (a) your Termination during the Change in Control Period and (b) the determination (as hereinafter provided) that any required payment by the Corporation to or for your benefit, whether paid or payable pursuant to the terms of the Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right, or similar right, or the lapse or termination of any restriction on the vesting or exercisability of any of the foregoing including without limitation acceleration of the termination of Share Retention Agreements under the Corporation's Long-Term Incentive Plan (individually and collectively, Payment), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (Code) or any successor provision thereto by reason of the Payment's being considered "contingent on a change in ownership or control" of the Corporation within the meaning of Section 280G of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (collectively, Excise Tax), then you shall be entitled to receive an additional payment or payments (individually or collectively, Tax Assistance Payment), which shall include an amount such that, after you pay (1) all taxes (including any interest or penalties imposed with respect to such taxes) and (2) any Excise Tax imposed upon the Tax Assistance Payment, you retain so much of the Tax Assistance Payment as is equal to the Excise Tax imposed on the Payment.
Subject to the provisions hereinafter concerning your providing notice of a claim by the Internal Revenue Service, all determinations required to be made under these provisions, including whether an Excise Tax is payable by you, the amount of such Excise Tax and whether the Corporation is required to pay you a Tax Assistance Payment and the amount of such Tax Assistance Payment, if any, shall be made by a nationally recognized accounting firm you, in your sole discretion, select (Accounting Firm). You shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both you and the Corporation within thirty (30) days after the Termination Date, if applicable, and any such other time or times as you or the Corporation may request. If the Accounting Firm determines that any Excise Tax is payable by you, the Corporation shall pay the required Tax Assistance Payment to you within ten (10) business days after the Corporation receives such determination and calculations with respect to any Payment to you.
Any federal tax returns you file shall be prepared and filed on a basis consistent with the determination of the Accounting Firm with respect to the Excise Tax payable by you. If the Accounting Firm determines that you are required to pay no Excise Tax, it shall (at the same time it makes such determination) furnish you and the Corporation an opinion that you have substantial authority not to report any Excise Tax on your federal income tax return. However, in view of uncertainty concerning application of Section 4999 of the Code (or any successor provision thereto) at the time of any
determination made hereunder by the Accounting Firm, it is possible that a Tax Assistance Payment that should have been made by the Corporation will not have been made (Underpayment), consistent with the calculations required to be made hereunder. In the event the Corporation exhausts or fails to pursue its remedies pursuant to the provisions concerning notice of a claim by the Internal Revenue Service, and you thereafter are required to make a payment of any Excise Tax, you shall direct the Accounting Firm to determine the amount of the Underpayment and to submit its determination and detailed supporting calculations as promptly as possible both to you and to the Corporation, which shall pay the amount of such Underpayment to you or for your benefit within ten (10) business days following the Corporation's receipt of such determination and calculations.
Each of you and the Corporation shall provide the Accounting Firm access to and copies of any books, records and documents in your or its possession, as the case may be, reasonably requested by the Accounting Firm, and shall otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination and calculations required or contemplated hereunder.
The Corporation shall bear the fees and expenses of the Accounting Firm for services hereunder. If, for any reason, you initially pay such fees and expenses, the Corporation shall reimburse you the full amount of the same within ten (10) business days following receipt from you of a statement and reasonable evidence of your payment thereof.
You shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the Corporation to pay a Tax Assistance Payment. You shall give such notification as promptly as practicable, but in no event later than the tenth (10th) business day next following your receipt of such claim, and you further shall apprise the Corporation of the nature of such claim and the date on which it is required to be paid (in each case, to the extent known to you). You shall not pay or otherwise satisfy such claim prior to the earlier of (a) the expiration of the thirty (30)-calendar-day period next following the date on which you give notice to the Corporation or (b) the date any payment of the amount with respect to such claim is due. If the Corporation notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall:
(1) provide the Corporation any written records or documents in your possession relating to such claim and reasonably requested by the Corporation;
(2) take such action in connection with contesting such claim as the Corporation reasonably shall request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Corporation;
(3) cooperate with the Corporation in good faith in order effectively to contest such claim; and
(4) permit the Corporation to participate in any proceedings relating to such claim, provided, however, that the Corporation directly shall bear and pay all costs and expenses (including without limitation, interest and penalties) incurred in connection with such contest and shall indemnify you and hold you harmless, on an after-tax basis, from and against any and all Excise Tax or income tax (including without limitation, interest and penalties with respect thereto), imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing, the Corporation shall control all proceedings taken in connection with the contest of any claim contemplated by these provisions and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that you may participate therein at your own cost and expense) and may, at its option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs you to pay the tax claimed and to sue for a refund, the Corporation shall advance the amount of such payment to you, and pay on a current basis all costs of litigation, including without limitation attorneys' fees, on an interest-free basis and shall agree to and shall indemnify you and hold you harmless, on an after-tax basis, from any Excise Tax or income tax, including without limitation, interest and penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for your taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of any such contested claim shall be limited to issues with respect to which a Tax Assistance Payment would be payable hereunder, and you shall be entitled to settle or to contest, as the case may be, any other issue(s) raised by the Internal Revenue Service or any other taxing authority.
If, after you receive an amount advanced by the Corporation pursuant to provisions of the last full paragraph, you receive any refund with respect to such claim, you shall (subject to the Corporation's complying with any applicable provisions of the same paragraph) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after you receive such an amount advanced by the Corporation, a determination is made that you shall not be entitled to any refund with respect to such claim and the Corporation does not notify you in writing of its intent to contest such denial or refund prior to expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid, and the amount of such advance shall offset, to the extent thereof, the amount of the Tax Assistance Payment the Corporation is required to pay you hereunder.
V. No Mitigation Obligation
You and the Corporation agree that payments made by the Corporation pursuant to this Agreement will be liquidated damages (and in lieu of any claim for any breach whatsoever of this Agreement by the Corporation) and that you will not be required to mitigate the amount of any such payment by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever, other than from Competing Employment, create any mitigation, offset reduction or other obligation on your part hereunder or otherwise, except as expressly provided in the materials, supra, concerning Additional Benefits.
VI. Arbitration
Except as otherwise expressly provided under the caption "Certain Tax Payments by the Corporation," any controversy or claim between you and the Corporation arising out of or relating to the existence, enforceability, terms or application of this Agreement or any breach or alleged breach thereof, shall be settled by three (3) arbitrators, one of whom shall be appointed by the Corporation, one by you and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the third arbitrator required to be appointed hereunder, then such arbitrator shall be appointed by the Chief Judge of the United States District Court for the district having jurisdiction of the city or other municipality in which the arbitration is to be held. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators, which shall be as hereinbefore provided. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators shall have no authority to award punitive, incidental or consequential damages, and they shall apply the substantive law of the Commonwealth of Virginia in reaching a decision.
If you determine in good faith to retain legal counsel and/or to incur other reasonable costs or expenses in connection with any such arbitration or to enforce any or all of your rights under this Agreement or under any arbitration award, the Corporation shall pay all such attorneys' fees, costs and expenses you incur in connection with non-frivolous applications to interpret or enforce your rights, including enforcement of any arbitration award in court, regardless of the final outcome. In addition, during the pendency of such arbitration, the Corporation will continue to pay you, with the customary frequency, the greater of your Base Pay as in effect immediately prior to the Change in Control or immediately prior to your Termination and to provide Benefits until the controversy or claim finally is resolved in accordance herewith. These payments and the provision of Benefits hereunder shall be in addition to, and not in derogation or mitigation of any other payment or benefit due you under this Agreement.
Notwithstanding any other provision hereof, the parties' respective rights and obligations under this Caption will survive a termination or expiration of this Agreement or the Termination of your employment for any reason whatsoever.
VII. Employment Rights
Nothing expressed or implied in this Agreement shall create any right or duty on your part or that of the Corporation to have you remain in the employment of the Corporation prior to or following any Change in Control.
VIII. Withholding of Taxes
The Corporation may withhold from any amounts payable under this Agreement all federal, state, city, local or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
IX. Personal Nature of Agreement
This Agreement is personal in nature, and neither you nor the Corporation (except as provided under the caption "Binding on Successors"), without the prior written consent of the other, shall assign or transfer any of its rights, or delegate any of its duties or obligations, except as expressly provided under this caption. Without limiting the generality and effect of the foregoing, your right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by will or by the laws of descent and distribution; in no event shall the Corporation have any obligation or liability to recognize or honor any attempted assignment or transfer that is contrary hereto.
X. Notice
For all purposes of this Agreement, except as otherwise expressly
provided in subparagraph (ix) of Article III, all communications, including
without limitation, notices, consents, requests and approvals, provided for
herein shall be in writing and shall be deemed to have been duly given when
(1) actually delivered or (2) if mailed, five (5) business days after having
been mailed by United States registered or certified mail, return receipt
requested, postage prepaid,
(i) if to the Corporation, to the attention of its Corporate Secretary at its principal executive office at the time, and
(ii) if to you, at the address at the time on file with the Corporation as your principal residence address, or
(iii) in either case, to such other address as either the Corporation or you shall have furnished the other in writing and in accordance herewith, provided, however, that notices of change of address hereunder shall be effective only upon actual receipt.
XI. Governing Law
The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Virginia, without giving effect to the Commonwealth's principles of conflicts of law, save those permitting the parties to an agreement to stipulate the substantive law applicable to the agreement and the procedural law applicable to suits, actions or proceedings relating to it.
XII. Validity/Severability
If any provision of this Agreement or the application of any provision hereof to any person (including a Person) or circumstance is held invalid, illegal or unenforceable, the remainder of this Agreement and the application of such provision to any other person (including a Person) shall not be affected, and the provision(s) so held to be invalid, illegal or unenforceable shall be reformed or excised in good faith by the Corporation, without the necessity of your agreeing thereto, to the extent (and only to the extent) necessary to make it or them valid, legal or enforceable.
XIII. Miscellaneous
No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in a writing signed by you and the Corporation. No waiver by either party hereto at any time of any breach or of compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.
XIV. Counterparts
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Board of Directors of the Corporation has directed that this Agreement be executed and delivered on its behalf by one or more officers of the Corporation thereunto duly authorized, as of the day and year first above written, and you have indicated your acceptance of and intent to be bound by this Agreement in the space provided below.
NORFOLK SOUTHERN CORPORATION
By__________________________________
Name: H. C. Wolf
Title: EVP Finance
ATTEST
{SEAL}
Accepted:
By____________________________________
Name:_________________________________
(Please print full name)
Being the same individual named
in the preamble hereto and
referred to as "You" in the text.
NORFOLK SOUTHERN CORPORATION
DIRECTORS' CHARITABLE AWARD PROGRAM
Purpose To promote the interests of Norfolk Southern
Corporation and its Directors in supporting
charitable and educational organizations, and
to provide an additional source of funding for
the Norfolk Southern Foundation (Foundation).
Eligibility All Directors serving on, or elected after,
February 1, 1996.
Contribution Directors serving on February 1, 1996:
Amount $500,000
Directors elected after February 1, 1996:
vest in 20% increments over a 5 year period
in accordance with the attached table.
Eligible Educational, scientific, literary, cultural
Organizations and other organizations with similar non-
religious purposes, contributions to which are
deductible for Federal income tax purposes
(excluding a private foundation founded,
maintained or operated by a Director or a member
of the Directors' immediate family).
The Corporation reserves the right to decline to
make a contribution to any organization, if (1)
the contribution will not be deductible for
Federal income tax purposes at the time it will
be made, or (2) the Corporation in its sole
discretion, exercised in good faith by persons
other than Directors, determines that making
a contribution to such organization will not be
in the Corporation's best interest.
137
Number of Each Director may nominate, on forms provided by
Charities the Corporation or its agent, up to five (5)
Eligible Organizations to receive an aggregate
amount up to the Contribution Amount following
that Director's death. The Director may revoke
any such nomination(s), make a new nomination
or nominations, or modify the amount designated
for any nominee at any time.
Payments Following a Director's death, the Corporation will
make ratable payments, in an aggregate annual
amount not to exceed one fifth of the Contribution
Amount, to each of the Eligible Organizations that,
according to records maintained by the Corporation
or its agent, were the deceased Director's
nominees immediately prior to death. Amounts
unpaid for reason of ineligibility will be paid
prorata to the Director's other nominees, or if
there are no other qualified nominees, then to
the Foundation.
Funding The Corporation will be the beneficiary of a
$1 million, corporate-owned joint-life insurance
policy on each Director. Death benefits will be
paid to the Corporation, and the Corporation
will donate up to the Contribution Amount to no
more than five Eligible Organizations nominated
by the Director and the balance to the Foundation.
Termination The Corporation reserves the right, in its sole
discretion, to alter, amend, modify or terminate
the program at any time. However, in the event
of a change in Control of the Corporation (as
defined on Attachment A), the Corporation
immediately will donate in a lump sum the
Contribution Amount in accordance with the then
current nominations of each living Director and
the amount of any unpaid Contribution Amount to
eligible nominees of a deceased Director.
138
Administration The program will be administered by the
Corporation's Corporate Secretary (or designated
agent) whose interpretations and decisions will
be final and binding on the Corporation and the
Director.
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DIRECTORS ELECTED
AFTER 2/1/96
Full Contribution
Months of Service Amount
Less than 12 $ 0
12-23 100,000
24-35 200,000
36-47 300,000
48-59 400,000
60 or more 500,000
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Attachment A
For purposes of the Directors' Charitable Award Program, a Change in Control shall occur if:
(i) any person, other than the Corporation or a Subsidiary Company* or any employee benefit plan sponsored by the Corporation or a Subsidiary Company, shall become the beneficial owner of, or obtain voting control over, 20% or more of the Corporation's outstanding Common Stock;
(ii) the stockholders of the Corporation shall approve (A) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of Common Stock would be converted into cash, securities, or other property, other than a merger of the Corporation in which holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as immediately before, or (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation; or
(iii) there shall have been a change in the composition of the Board of Directors such that within any period of two (2) consecutive years or less individuals who at the beginning of such period constituted such Board, together with any new directors whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, shall for any reason no longer constitute a majority of the directors of the Corporation.
* "Subsidiary Company" means a corporation of which at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote is owned, directly or indirectly, by the Corporation.
EXHIBIT 12, Page 1 of 1
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
Year ended December 31
------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
EARNINGS
Income from continuing
operations before income
taxes as reported $ 553 $ 250 $ 351 $ 845 $ 998
Add:
Total interest expenses
(as detailed below) 674 721 708 688 530
Amortization of
capitalized interest 5 5 4 3 3
Income (loss) of
partially owned
entities (1) 39 60 47 165 113
Subsidiaries' preferred
dividend requirement 2 2 2 2 2
------- ------ ------ ------ ------
Income before
income taxes,
as adjusted $ 1,273 $ 1,038 $ 1,112 $ 1,703 $ 1,646
======= ====== ====== ====== ======
FIXED CHARGES
Interest expense on debt $ 553 $ 551 $ 531 $ 516 $ 385
Other interest expense 2 42 35 27 32
Calculated interest
portion of rent expense 41 40 35 31 30
NS' share of Conrail interest 78 88 107 114 83
------- ------ ------ ------ ------
Total interest
expenses 674 721 708 688 530
Capitalized interest 17 18 15 21 17
Subsidiaries' preferred
dividend requirement
on a pretax basis 4 4 4 4 4
------- ------ ------ ------ ------
Total fixed charges $ 695 $ 743 $ 727 $ 713 $ 551
======= ====== ====== ====== ======
RATIO OF EARNINGS TO
FIXED CHARGES 1.83 1.40 1.53 2.39 2.99
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(1) Includes: (a) the distributed income of 20%-49% owned entities, net of equity recorded in undistributed income and the minority income of consolidated entities which have fixed charges; and (b) NS' share of Conrail's income before income taxes, net of equity in earnings of Conrail included in NS' income from continuing operations before taxes as reported.
The computations do not include $0.3 million of interest expense related to $7.8 million of debt guaranteed for a less than 50% owned entity.
EXHIBIT 21, Page 1 of 2
NAME AND STATE OF INCORPORATION OF SUBSIDIARIES
OF NORFOLK SOUTHERN CORPORATION
AS OF FEBRUARY 1, 2002
Agency Media Services, Inc., Indiana
Atlantic Acquisition Corporation, Pennsylvania
Atlantic Investment Company, Delaware
Norfolk Southern Properties, Inc., Virginia
Norfolk Southern Railway Company, Virginia
Northern Horizons Insurance Company, Vermont
NS Fiber Optics, Inc., Virginia
NS Transportation Brokerage Corporation, Virginia
PDC Timber LLC, Delaware
PLC Timber LLC, Delaware
Pocahontas Development Corporation, Kentucky
Pocahontas Land Corporation, Virginia
Scioto Fuels, LLC, Virginia
TCS Leasing, Inc., Oklahoma
T-Cubed of North America, Inc., Delaware
T-Cubed of South Carolina, Inc., South Carolina
T-Cubed of Virginia, Inc., Virginia
Thoroughbred Direct Intermodal Services, Inc. Pennsylvania
Thoroughbred Funding, Inc., Virginia
Thoroughbred Technology and Telecommunications, Inc., Virginia
Transworks Company, Indiana
Transworks Inc., Virginia
Transworks of Indiana, Inc., Indiana
Triple Crown Services Company
Norfolk Southern Railway Company subsidiaries:
Airforce Pipeline, Inc., North Carolina
Alabama Great Southern LLC, Virginia
Alabama Great Southern Railroad Company, The; Alabama
Atlantic and East Carolina Railway Company, North Carolina
Camp Lejeune Railroad Company, North Carolina
Central of Georgia LLC, Virginia
Central of Georgia Railroad Company, Georgia
Chesapeake Western Railway, Virginia
Cincinnati, New Orleans and Texas Pacific Railway Company, The; Ohio
Citico Realty Company, Virginia
Georgia Southern and Florida Railway Company, Georgia
High Point, Randleman, Asheboro and Southern Railroad Company,
North Carolina
Interstate Railroad Company, Virginia
Lamberts Point Barge Company, Inc., Virginia
Memphis and Charleston Railway Company, Mississippi
Mobile and Birmingham Railroad Company, Alabama
Norfolk and Portsmouth Belt Line Railroad Company, Virginia
Norfolk Southern International, Inc., Virginia
North Carolina Midland Railroad Company, The; North Carolina
Rail Investment Company, Delaware
EXHIBIT 21, Page 2 of 2
Norfolk Southern Railway Company subsidiaries (continued):
Rail Technologies, Inc., Georgia
Shenandoah-Virginia Corporation, Virginia
South Western Rail Road Company, The; Georgia
Southern Rail Terminals, Inc., Georgia
Southern Rail Terminals of North Carolina, Inc., North Carolina
Southern Region Coal Transport, Inc., Alabama
Southern Region Materials Supply, Inc., Georgia
State University Railroad Company, North Carolina
Tennessee, Alabama & Georgia Railway Company, Delaware
Tennessee Railway Company, Tennessee
Virginia and Southwestern Railway Company, Virginia
Wheelersburg Terminal LLC, Virginia
Yadkin Railroad Company, North Carolina
Norfolk Southern Properties, Inc. subsidiaries:
Alexandria-Southern Properties, Inc., Virginia
Arrowood-Southern Company, North Carolina
Arrowood Southern Executive Park, Inc., North Carolina
Carlyle CA Corporation, Virginia
Carlyle Development Corporation, Virginia
Charlotte-Southern Corporation, North Carolina
Charlotte-Southern Hotel Corporation, North Carolina
Lambert's Point Docks, Incorporated, Virginia
Nickel Plate Improvement Company, Inc., The; Indiana
NKPI Management, Inc., Indiana
Norfolk Southern Industrial Development Corp., Virginia
Norfolk Southern Tower, LLC, Virginia
Northmont Limited Partnership, Georgia
NS-Charlotte Tower Corporation, North Carolina
NS Gas Properties, Inc., Virginia
NS Gas Properties, II, Inc., Virginia
Sandusky Dock Corporation, Virginia
Southern Region Industrial Realty, Inc., Georgia
SRIR Timber LLC, Delaware
Virginia Holding Corporation, Virginia
NOTE: Of the above subsidiaries, each of which is more than 50% owned, only Norfolk Southern Railway Company meets the Commission's "significant subsidiary" test. This list does not include CRR Holdings, LLC, in which Norfolk Southern Corporation has 50% voting control; Conrail Inc. and Consolidated Rail Corporation are subsidiaries of CRR Holdings, LLC.
EXHIBIT 23(a), Page 1 of 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Norfolk Southern Corporation:
We consent to incorporation by reference in Registration Statements Nos. 33-52031, 333-40993, 333-60722, 333-71321 and 333-78939 on Form S-8 and Registration Statements Nos. 333-57872 and 333-57872-01 on Form S-3 of Norfolk Southern Corporation of our report dated January 21, 2002, relating to the consolidated balance sheets of Norfolk Southern Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in stockholders' equity and cash flows, and the related consolidated financial statement schedule for each of the years in the three-year period ended December 31, 2001, which report appears in the December 31, 2001, Annual Report on Form 10-K of Norfolk Southern Corporation.
/s/ KPMG LLP Norfolk, Virginia February 20, 2002 |
EXHIBIT 23(b), Page 1 of 1
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in Registration Statements Nos. 33-52031, 333-40993, 333-60722, 333-71321 and 333-78939 on Form S-8 and Registration Statements Nos. 333-57872 and 333-57872-01 on Form S-3 of Norfolk Southern Corporation of our report dated January 21, 2002, relating to the consolidated balance sheets of Conrail Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and cash flows, for each of the years in the three-year period ended December 31, 2001, which report appears in the December 31, 2001, Annual Report on Form 10-K of Norfolk Southern Corporation.
/s/ KPMG LLP /s/ Ernst & Young LLP KPMG LLP Ernst & Young LLP Norfolk, Virginia Jacksonville, Florida |
February 20, 2002 February 20, 2002
Exhibit 99, Page 1 of 26
CONRAIL INC.
2001 ANNUAL REPORT TO STOCKHOLDERS
Exhibit 99, Page 2 of 26
REPORT OF MANAGEMENT
The Stockholders
Conrail Inc.
Management is responsible for the preparation, integrity and objectivity of the Company's consolidated financial statements. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgment.
The Company maintains a system of internal accounting controls and procedures, which is continually reviewed and supported by written policies and guidelines and supplemented by internal audit services. The system provides reasonable assurance that assets are safeguarded against loss from unauthorized use and that the books and records reflect the transactions of the Company and are reliable for the preparation of financial statements. The concept of reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the benefits derived and also recognizes that the evaluation of these factors necessarily requires estimates and judgments by management.
The Company's consolidated financial statements are audited by its independent accountants. Their audit is conducted in accordance with auditing standards generally accepted in the United States of America and includes a study and evaluation of the Company's system of internal accounting controls to determine the nature, timing and extent of the auditing procedures required for expressing an opinion on the Company's financial statements.
The Company's Board of Directors, which is comprised of an equal number of directors from Norfolk Southern Corporation ("NSC") and CSX Corporation ("CSX"), pursues its oversight responsibilities for the consolidated financial statements and corporate conduct through periodic meetings with and written reports from the Company's management.
/s/ Gregory R. Weber Gregory R. Weber President and Chief Executive Officer /s/ Patrick F. Rogers Patrick F. Rogers Assistant Vice President- Accounting and Tax January 21, 2002 |
Exhibit 99, Page 3 of 26
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Conrail Inc.:
We have audited the accompanying consolidated balance sheets of Conrail Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Conrail Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP /s/ Ernst & Young LLP KPMG LLP Ernst & Young LLP Norfolk, Virginia Jacksonville, Florida January 21, 2002 |
Exhibit 99, Page 4 of 26
CONRAIL INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
($ In Millions) 2001 2000 1999
-------------- ---- ---- ----
Revenues - NSC/CSX (Note 2) $ 823 $ 886 $ 549
Revenues - Third parties 80 99 1,625
------ ------ ------
Total operating revenues 903 985 2,174
------ ------ ------
Operating expenses (Note 3)
Compensation and benefits 158 195 645
Fuel 7 10 63
Material, services and rents 143 162 590
Depreciation and amortization 325 331 328
Casualties and insurance (13) 33 228
Other 19 18 192
------ ------ ------
Total operating expenses 639 749 2,046
------ ------ ------
Income from operations 264 236 128
Interest expense (109) (124) (150)
Other income, net (Note 10) 103 155 67
------ ------ ------
Income before income taxes 258 267 45
Income taxes (Note 7) 84 97 19
------ ------ ------
Net income $ 174 $ 170 $ 26
====== ====== ======
|
See accompanying notes to the consolidated financial statements.
Exhibit 99, Page 5 of 26
CONRAIL INC.
CONSOLIDATED BALANCE SHEETS
December 31,
($ In Millions) 2001 2000
-------------- ---- ----
ASSETS
Current assets
Cash and cash equivalents $ 34 $ 50
Accounts receivable 32 33
Due from NSC/CSX (Note 2) 172 232
Notes receivable from NSC/CSX (Note 2) 515 91
Material and supplies 9 9
Deferred tax assets (Note 7) 76 96
Other current assets 8 9
------ ------
Total current assets 846 520
Property and equipment, net (Note 4) 6,688 6,996
Other assets 548 544
------ ------
Total assets $ 8,082 $ 8,060
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt (Note 6) 60 61
Accounts payable 41 68
Due to NSC/CSX (Note 2) 12 31
Wages and employee benefits 37 42
Casualty reserves 101 127
Accrued and other current liabilities (Note 5) 157 106
------ ------
Total current liabilities 408 435
Long-term debt (Note 6) 1,156 1,229
Casualty reserves 134 189
Deferred income taxes (Note 7) 1,833 1,938
Other liabilities 446 287
------ ------
Total liabilities 3,977 4,078
------ ------
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 3, 8 and 9)
Common stock ($1 par value; 100 shares
authorized, issued and outstanding) -- --
Additional paid-in capital 2,221 2,222
Unearned ESOP compensation -- (20)
Retained earnings 1,954 1,780
Accumulated other comprehensive loss (70) --
------ ------
Total stockholders' equity 4,105 3,982
------ ------
Total liabilities and stockholders' equity $ 8,082 $ 8,060
====== ======
|
See accompanying notes to the consolidated financial statements.
Exhibit 99, Page 6 of 26
CONRAIL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Unearned Other
Paid-In ESOP Retained Comprehensive
($ in Millions) Capital Compensation Earnings Loss Total
-------------- ---------- ------------ -------- ------------- -----
Balance, January 1, 1999 $ 2,291 $ (75) $ 1,584 $ -- $ 3,800
Net Income 26 26
Transfer of portion of prepaid pension
assets to NSC and CSX (Note 8) (54) (54)
Allocation of unearned ESOP compensation 55 55
Other (8) (8)
-------- ------ -------- -------- -------
Balance, December 31, 1999 2,229 (20) 1,610 -- 3,819
Net Income 170 170
Other (7) (7)
-------- ------ -------- -------- -------
Balance, December 31, 2000 2,222 (20) 1,780 -- 3,982
Comprehensive income - 2001
Net Income 174 174
Minimum pension liability, net of
$45 million income taxes (Note 8) (70) (70)
-------
Total comprehensive income 104
Allocation of unearned ESOP compensation (1) 20 19
-------- ------ --------- --------- -------
Balance, December 31, 2001 $ 2,221 $ -- $ 1,954 $ (70) $ 4,105
======== ====== ========= ========= =======
|
See accompanying notes to the consolidated financial statements.
Exhibit 99, Page 7 of 26
CONRAIL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
($ In Millions) 2001 2000 1999
-------------- ---- ---- ----
Cash flows from operating activities
Net income $ 174 $ 170 $ 26
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 325 331 328
Deferred income taxes (18) 101 48
Gains from sales of property (2) (70) (6)
Pension credit (19) (12) (45)
Dividends from affiliated companies -- 55 --
Changes in:
Accounts receivable 1 18 529
Accounts and wages payable (32) 8 (431)
Due from NSC/CSX 60 (36) (196)
Due to NSC/CSX (19) (128) 159
Other 32 (75) (16)
----- ----- -----
Net cash provided by operating
activities 502 362 396
----- ----- -----
Cash flows from investing activities
Property and equipment acquisitions (47) (220) (176)
Notes receivable from NSC/CSX (424) 125 (216)
Proceeds from disposals of properties 14 86 6
Other -- (7) (14)
----- ----- -----
Net cash used in investing
activities (457) (16) (400)
----- ----- -----
Cash flows from financing activities
Payment of long-term debt (61) (318) (112)
----- ----- -----
Net cash used in financing
activities (61) (318) (112)
----- ----- -----
Increase(decrease) in cash and cash equivalents (16) 28 (116)
Cash and cash equivalents
Beginning of year 50 22 138
----- ----- -----
End of year $ 34 $ 50 $ 22
===== ===== =====
|
See accompanying notes to the consolidated financial statements.
Exhibit 99, Page 8 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
Conrail Inc. ("Conrail") is a holding company whose principal subsidiary is Consolidated Rail Corporation ("CRC"), the major freight railroad in the Northeast. Norfolk Southern Corporation ("NSC") and CSX Corporation ("CSX"), the major railroads in the Southeast, jointly control Conrail through their ownership interests in CRR Holdings LLC ("CRR"), whose primary subsidiary is Green Acquisition Corporation ("Green Acquisition"), which owns Conrail. NSC and CSX have equity interests in CRR of 58% and 42%, respectively, and voting interests of 50% each. From May 23, 1997, the date NSC and CSX completed their acquisition of Conrail stock, until June 1, 1999, Conrail's operations continued substantially unchanged while NSC and CSX awaited regulatory approvals and prepared for the integration of their respective Conrail routes and assets to be leased to their railroad subsidiaries, Norfolk Southern Railway Company ("NSR") and CSX Transportation, Inc. ("CSXT"). The operations of CRC substantially changed beginning June 1, 1999, when NSC and CSX began operating a portion of the Conrail properties under operating agreements (the "Closing Date") (Note 2).
Beginning June 1, 1999, Conrail's major sources of operating revenues are operating fees and lease rentals from NSC and CSX. The composition of CRC's operating expenses also reflects this change in operations. As a result, Conrail's 1999 results reflect the freight railroad operations of CRC through May 31, 1999, and reflect Conrail's new structure and operations that commenced on the Closing Date (Note 2).
Principles of Consolidation
The consolidated financial statements include Conrail and majority- owned subsidiaries. Investments in 20% to 50% owned companies are accounted for by the equity method.
Exhibit 99, Page 9 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash Equivalents
Cash equivalents consist of commercial paper, certificates of deposit and other liquid securities purchased with a maturity of three months or less, and are stated at cost which approximates market value.
Material and Supplies
Material and supplies consist of maintenance material valued at the lower of cost or market.
Property and Equipment
Property and equipment are recorded at cost. Expenditures, including those on leased assets, that extend an asset's useful life or increase its utility are capitalized. Maintenance expense is recognized when repairs are performed. Depreciation is provided using the composite straight-line method over estimated service lives. In 2001, the overall depreciation rate averaged 3.5% for all roadway and equipment. The cost (net of salvage) of depreciable property retired or replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is recognized.
Asset Impairment
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Expected future cash flows from the use and disposition of long-lived assets are compared to the current carrying amounts to determine the potential impairment loss.
Revenue Recognition
Revenue prior to June 1, 1999, was recognized proportionally as a shipment moved on the Conrail system from origin to destination. Beginning June 1, 1999, the Company's major sources of revenues are from NSC and CSX, primarily in the form of rental revenues and operating fees which are recognized when earned. Conrail continues to have third party revenues, which are recognized when earned, related to the operations of Indiana Harbor Belt Railroad Company, a 51% owned terminal railroad subsidiary.
Exhibit 99, Page 10 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management reviews its estimates, including those related to the recoverability and useful lives of assets as well as liabilities for litigation, environmental remediation, casualty claims, income taxes, pension and postretirement benefits. Changes in facts and circumstances may result in revised estimates.
2. Related Parties Transactions
Background
On May 23, 1997, NSC and CSX completed their joint acquisition of Conrail stock. On June 17, 1997, NSC and CSX executed an agreement which generally outlines the methods of governing and operating Conrail and its subsidiaries ("Transaction Agreement"). On July 23, 1998, the Surface Transportation Board ("STB") issued a written opinion that permitted NSC and CSX to exercise operating control of Conrail beginning August 22, 1998. On June 1, 1999, NSC and CSX began to operate over certain Conrail lines.
Commencement of Operations by NSR and CSXT
On June 1, 1999, the majority of CRC's routes and assets were segregated into separate subsidiaries of CRC, Pennsylvania Lines LLC ("PRR") and New York Central Lines LLC ("NYC"). PRR and NYC entered into separate but identical operating and lease agreements with NSR and CSXT, respectively, (the "Operating Agreements") which govern substantially all nonequipment assets to be used by NSR and CSXT and have initial 25-year terms, renewable at the options of NSR and CSXT for two 5-year terms. Payments made under the Operating Agreements are based on appraised values that are subject to adjustment every six years to reflect changes in such values. NSR and CSXT have also leased or subleased certain equipment assets at rentals based on appraised values for varying term lengths from PRR and NYC, respectively, as well as from CRC.
Exhibit 99, Page 11 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NSC and CSX have also entered into agreements with CRC governing other Conrail properties that continue to be owned and operated by Conrail ("the Shared Assets Areas"). NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared Assets Areas. In addition, NSR and CSXT pay, based on usage, the costs incurred by CRC to operate the Shared Assets Areas plus a profit factor.
Payments made by NSR to Conrail under the Shared Assets agreements were $168 million and $117 million during 2001 and 2000, respectively, of which $27 million and $17 million, were minimum rents. Payments made by CSXT to Conrail under the Shared Assets agreements were $140 million and $107 million during 2001 and 2000, respectively, of which $19 million and $12 million, were minimum rents.
Payments from NSR under the Operating Agreements to PRR amounted to $331 million and $346 million during 2001 and 2000, respectively. Payments from CSXT under the Operating Agreements to NYC amounted to $241 million and $249 million during 2001 and 2000, respectively. In addition, costs necessary to operate and maintain the related assets under these agreements, including leasehold improvements, are borne by NSR and CSXT.
Future minimum lease payments to be received from NSR/CSXT are as follows:
NSR NSR CSX CSX
($ in millions) To PRR To CRC To NYC To CRC Total
2002 $ 327 $ 27 $ 240 $ 19 $ 613
2003 326 30 235 21 612
2004 331 32 239 23 625
2005 318 34 231 24 607
2006 303 34 221 24 582
2007 and Beyond 4,701 618 3,425 449 9,193
----- --- ----- --- ------
Total $6,306 $775 $4,591 $560 $12,232
===== === ===== === ======
|
Exhibit 99, Page 12 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Related Party Balances and Transactions
"Due from NSC/CSX" at December 31, 2001 and 2000, is primarily comprised of amounts due for the above-described operating and rental activities.
PRR and NYC have interest-bearing notes receivable, payable on demand from NSC and CSX of $301 million and $214 million, respectively, at December 31, 2001, included in the "Notes receivable from NSC/CSX" line item on the balance sheet. The notes receivable balances due from NSC and CSX were $51 million and $40 million, respectively, at December 31, 2000. The interest rates on the notes receivable from NSC and CSX are variable and were both 2.45% at December 31, 2001. Interest income related to the PRR and NYC notes receivable was $13 million in 2001, $10 million in 2000 and $4 million in 1999.
"Due to NSC/CSX" includes amounts related to service provider agreements with both NSC and CSX to provide such services as accounting and administrative processing, personal injury and environmental case handling and other miscellaneous services ("Service Provider Agreements"). Additionally, "Due to NSC/CSX" includes amounts payable for rentals of locomotive and other equipment rentals; rental of various facilities CRC has occupied subsequent to May 31, 1999; and completion of various 1999 capital projects. Also in 2000, CRC paid NSC and CSX $42 million and $24 million, respectively, for CRC's vacation liability related to the portion of its workforce that became NSC and CSX employees subsequent to May 31, 1999.
Exhibit 99, Page 13 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of the "Due to NSC and CSX" activity for the services described above follows:
Payments Payments
to NSC to CSX
($ in millions) 2001 2000 2001 2000
-------------- ---- ---- ---- ----
Service Provider Agreements $ 6 $ 9 $ - $ 2
Material purchases 31 35 - -
Rentals of locomotives and
other equipment 8 8 5 4
Rental of facilities - - 1 5
Capital project activities 17 86 3 122
Vacation liability - 42 - 24
-- --- --- ---
Total payments $62 $180 $ 9 $157
== === === ===
2001 2000 2001 2000
---- ---- ---- ----
Due to "NSC and CSX" at
December 31 $ 9 $ 29 $ 3 $ 2
|
From time to time, NSC and CSX, as the indirect owners of Conrail, may need to provide some of Conrail's cash requirements through capital contributions, loans or advances. Through December 31, 2001 there have been no transactions under these arrangements.
Prior to the Closing Date, the Company interchanged freight with both NSC and CSX for transport to destinations both within and outside of Conrail's service region. The Company shares ownership interests with either one or both railroads in various transportation-related entities, all of which are immaterial to the Company's operating results and financial position.
Exhibit 99, Page 14 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Transition, Acquisition-Related and Other Items
During the fourth quarter of 2001, the Company received cash proceeds totaling $42 million from several London-based insurance carriers as settlement for current and future exposures related to personal injury, occupational, environmental and other claims. The Company ecognized a pretax gain of $14 million, which is included in the Casualties and insurance" line item of the income statement for 2001.
During the second quarter of 2001, the Company received a $50 million cash payment for transferring to a third party certain of its rights to license, manage and market signboard advertising on the Company's property for 25 years. The payment is being recognized into other income on a straight-line basis over the 25 year contract period.
During 2001, accrued termination payments totaling $15 million were made to 107 non-union employees whose non-executive positions were eliminated as a result of the joint acquisition of Conrail. Most of these termination payments have been made in the form of supplemental retirement benefits from the Company's pension plan. During 2000 and 1999 accrued termination payments of $50 million and $77 million were made, respectively. The remaining amount of this liability is expected to be paid out within the next year.
Also during 2001, the Company made final settlement of a long-term liability related to the non-union Employee Stock Ownership (ESOP) termination, which has not required use of the Company's cash for settlement. The liability, the balance of which was $20 million at December 31, 2000, was settled as the remaining cash proceeds held by the ESOP as a result of selling its ESOP preferred stock in conjunction with the joint acqusition, were allocated to eligible participants.
During the first quarter of 2000, the Company completed a significant property sale and recognized a gain of $61 million on the sale ($37 million after income taxes), which is included in "Other income, net" (Note 10).
Exhibit 99, Page 15 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 1999, the Company recorded net expenses of $138 million ($85 million after income taxes) for adjustments to certain litigation and environmental reserves related to settlements and completion of site reviews and, in accordance with the Transaction Agreement, for the method of settlement of certain casualty liabilities based on an actuarial study and for the assumption of a lease obligation by a subsidiary of CSX. The effects of these adjustments are reflected in the "Casualties and insurance" and "Other" operating expense line items of the income statement for 1999.
In 1997, the Company recorded a long-term liability of $110 million in connection with employment "change in control" agreements with certain executives, which became operative as a result of the joint acquisition of Conrail. A portion of the benefits under these agreements, $68 million, was paid in 1998 from the Employee Benefits Trust ("EBT"). In 2001, additional payments of $9 million were made primarily from the Company's pension plan. The remaining amount will be paid out at the discretion of the executives participating in this program.
4. Property and Equipment
December 31,
2001 2000
---- ----
(In millions)
Roadway $ 7,496 $ 7,500
Equipment 1,519 1,573
Less: Accumulated depreciation (2,570) (2,340)
------ ------
6,445 6,733
------ ------
Capital leases (primarily equipment) 616 645
Accumulated amortization (373) (382)
------ ------
243 263
------ ------
$ 6,688 $ 6,996
====== ======
|
Substantially all assets are leased to NSR or CSXT (Note 2).
Exhibit 99, Page 16 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Accrued and Other Current Liabilities
December 31,
2001 2000
---- ----
(In Millions)
Operating leases $ 45 $ 38
Property and corporate taxes 37 36
Income taxes payable 27 (21)
Other 48 53
----- -----
$ 157 $ 106
===== =====
|
6. Long-Term Debt and Leases
Long-term debt
Long-term debt outstanding, including the weighted average interest rates at December 31, 2001, is composed of the following:
December 31,
2001 2000
---- ----
(In Millions)
Capital leases $ 208 $ 262
Debentures payable,7.88%,due 2043 250 250
Debentures payable,9.75%,due 2020 550 550
Equipment and other obligations,6.92% 208 228
------ ------
1,216 1,290
Less current portion (60) (61)
------ ------
$ 1,156 $ 1,229
|
Interest payments were $113 million in 2001, $121 million in 2000 and $149 million in 1999.
Equipment and other obligations mature in 2002 through 2043 and are collateralized by assets with a net book value of $230 million at December 31, 2001. Maturities of long-term debt other than capital leases are $19 million in 2002, $20 million in 2003, $21 million in 2004, $20 million in 2005, $21 million in 2006 and $907 million in total from 2007 through 2043.
Exhibit 99, Page 17 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Leases
The Company's noncancelable long-term leases generally include options to purchase at fair value and to extend the terms. Capital leases have been discounted at rates ranging from 3.09% to 14.26% and are collateralized by assets with a net book value of $243 million at December 31, 2001.
Minimum commitments, exclusive of executory costs borne by the Company, are:
Capital Operating
Leases Leases
------- ---------
(In Millions)
2002 $ 56 $ 62
2003 52 53
2004 53 53
2005 38 56
2006 24 54
2007 - 2025 56 358
----- -----
Total $ 279 $ 636
=====
Less interest portion (71)
-----
Present value $ 208
=====
|
Operating lease rent expense was $70 million in 2001, $75 million in 2000 and $120 million in 1999.
7. Income Taxes
The provisions for income taxes are composed of the following:
2001 2000 1999
---- ---- ----
(In Millions)
Current
Federal $ 77 $ (5) $ (30)
State 25 1 1
----- ----- -----
102 (4) (29)
----- ----- -----
Deferred
Federal (22) 81 52
State 4 20 (4)
----- ----- -----
(18) 101 48
----- ----- -----
$ 84 $ 97 $ 19
===== ===== =====
|
Exhibit 99, Page 18 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reconciliation of the U.S. statutory tax rates with the effective tax rates is as follows:
2001 2000 1999
---- ---- ----
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 4.2 4.2 4.2
Nondeductible transition
and acquisition-related costs - - 23.9
Settlement of state tax issues (3.5) - -
Other (3.1) (2.9) (20.9)
---- ---- -----
Effective tax rate 32.6% 36.3% 42.2%
==== ==== =====
|
The Company has reached final settlements with the Internal Revenue Service ("IRS") related to all of the audits of the Company's consolidated federal income tax returns through fiscal year 1995. The Company's consolidated federal income tax returns for April 30, 1996, December 31, 1996 and May 23, 1997, are currently being examined by the IRS. Federal and state income tax payments were $86 million in 2001, $3 million in 2000 and $38 million in 1999.
Significant components of the Company's deferred income tax liabilities (assets) are as follows:
December 31,
2001 2000
---- ----
(In Millions)
Current assets $ 57 $ 29
Current liabilities (125) (117)
Miscellaneous (8) (8)
----- -----
Current deferred tax asset, net $ (76) $ (96)
===== =====
Noncurrent liabilities:
Property and equipment 2,008 2,049
Other long-term assets (primarily prepaid
pension asset) 127 93
Other (mostly equipment obligations) 64 117
----- -----
2,199 2,259
----- -----
163
Exhibit 99, Page 19 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Noncurrent assets:
Nondeductible reserves and other liabilities (245) (204)
Tax benefit transfer receivable (36) (36)
Other (mostly equity investments) (85) (81)
----- -----
(366) (321)
----- -----
Deferred income tax liabilities, net $1,833 $1,938
===== =====
|
8. Pension and Postretirement Benefits
The Company and its subsidiaries sponsor several qualified and nonqualified pension plans and other postretirement benefit plans for its employees.
During 1999, the Company transferred approximately $350 million and $260 million of pension assets to NSC and CSX, respectively. NSC and CSX also assumed certain pension obligations related to former Conrail employees. The net effect on Conrail's financial statements was to reduce pension assets by $89 million. This transfer resulted in a $35 million reduction of deferred tax liabilities and is reflected as a capital distribution of $54 million.
Exhibit 99, Page 20 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ending December 31, 2001, and a statement of the funded status as of December 31 of both years:
Other Postretirement
Pension Benefits Benefits
---------------- --------------------
(In Millions) 2001 2000 2001 2000
------------ ---- ---- ---- ----
Change in benefit obligation
----------------------------
Net benefit obligation
at beginning of year $ 687 $ 739 $ 37 $ 44
Service cost 2 4 - -
Interest cost 45 51 3 3
Plan participant's contributions - - 5 6
Plan amendments - - - (1)
Actuarial (gains) losses 16 5 - (5)
Benefits paid (88) (112) (9) (10)
----- ----- ----- -----
Net benefit obligation
at end of year $ 662 $ 687 $ 36 $ 37
Change in plan assets
---------------------
Fair value of plan assets
at beginning of year $ 720 $ 791 $ 8 $ 8
Actual return on plan assets (20) 40 1 1
Employer contributions 1 1 3 3
Plan participant's contributions - - 5 6
Benefits paid (88) (112) (9) (10)
----- ----- ----- -----
Fair value of plan assets
at end of year $ 613 $ 720 $ 8 $ 8
Funded status at
end of year $ (49) $ 33 $ (28) $ (29)
Unrecognized transition asset - (2) - -
Unrecognized prior service cost 8 9 (1) (1)
Unrecognized actuarial
(gains)losses 111 8 (11) (12)
----- ----- ----- -----
Net amount recognized at
year end $ 70 $ 48 $ (40) $ (42)
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Exhibit 99, Page 21 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following amounts have been recognized in the balance sheets as of December 31:
Other Postretirement
Pension Benefits Benefits
---------------- --------------------
(In Millions) 2001 2000 2001 2000
------------ ---- ---- ---- ----
Prepaid pension cost $ 110 $ 92 $ - $ -
Accrued benefit cost (163) (44) (40) (42)
Intangible asset 8 - - -
Accumulated other comprehensive loss 115 - - -
----- ----- ----- -----
$ 70 $ 48 $ (40) $ (42)
===== ===== ===== =====
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All of the Company's plans for postretirement benefits other than pensions have no plan assets except for the retiree life insurance plan, which had $8 million of assets in both 2001 and 2000. The aggregate benefit obligation for the postretirement plans other than pensions was $36 million and $37 million at December 31, 2001 and 2000, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $656 million, $655 million and $605 million, respectively, as of December 31, 2001 and $45 million, $45 million and $0, respectively as of December 31, 2000. As required by Statement of Financial Accounting Standard No. 87 "Employers' Accounting for Pensions", the Company recorded an additional minimum liability of $123 million at December 31, 2001. The additional liability was partially offset by an intangible asset to the extent of previously unrecognized prior service costs of $8 million at December 31, 2001. The remaining amount is recorded as a component of stockholders' equity, net of related tax benefits as "Accumulated Other Comprehensive Loss".
Exhibit 99, Page 22 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The assumptions used in the measurement of the Company's benefit obligation are as follows:
Other Postretirement
Pension Benefits Benefits
---------------- --------------------
2001 2000 2001 2000
---- ---- ---- ----
Discount rate 7.25% 7.50% 7.25% 7.50%
Expected return on plan assets 9.00% 9.00% 8.00% 8.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
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A 6.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002, gradually decreasing to 6% by the year 2007.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of a one percentage point increase and (decrease) in the assumed health care cost trend rate on the accumulated postretirement benefit obligation is $1 million and $(1) million, respectively.
The components of the Company's net periodic benefit cost for the plans are as follows:
Other Postretirement
Pension Benefits Benefits
---------------- --------------------
(In Millions) 2001 2000 1999 2001 2000 1999
------------ ---- ---- ---- ---- ---- ----
Service cost $ 2 $ 4 $ 10 $ - $ - $ -
Interest cost 45 51 53 3 3 4
Expected return on assets (66) (70) (94) (1) (1) (1)
Curtailment (gain) loss - - 19 - - (4)
Amortization of:
Transition asset (1) (1) (11) - - -
Prior service cost 1 1 4 - - -
Actuarial (gain)loss (1) 1 (8) (1) (1) -
----- ----- ----- ----- ----- -----
$ (20) $ (14) $ (27) $ 1 $ 1 $ (1)
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Exhibit 99, Page 23 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Savings Plans
The Company and certain subsidiaries provide 401(k) savings plans for union and non-union employees. Under the Company's current non-union savings plan, 50% of employee contributions are matched for the first 6% of a participating employee's base pay and 25% of employee contributions are matched in excess of 10% of a participating employee's base pay. Savings plan expense related to the current non-union savings plan was $1 million in 2001, 2000 and 1999. There is no Company match provision under the union employee plan except for certain unions, which negotiated a Company match as part of their contract provisions.
Incentive Compensation Plans
The Company has an incentive compensation plan for all non-union employees in which employees receive targeted cash awards upon attainment of certain performance criteria established by the Company's Board of Directors. Compensation expense under this plan was $2 million in 2001, $5 million in 2000 and $0 in 1999.
The Company also has a long-term incentive plan under which the Company grants phantom stock options to officers and other key non-union employees. The option price for the phantom shares are equal to the blended fair market value of NSC and CSX common stock at the date of grant. Options will vest one year after grant date and the option term may not exceed ten years. Upon exercise, eligible participants will receive cash payments equal to the appreciation on the composite NSC and CSX common stock fair values. Compensation expense for this plan was $2 million in 2001 and $0 in both 2000 and 1999.
9. Stockholders' equity
Common Stock
On May 23, 1997, the NSC/CSX joint tender offer for the remaining outstanding shares of Conrail's common and preferred stock was concluded, and on June 2, 1997, Conrail became the surviving corporation in a merger with Green Merger Corp. and remained the only subsidiary of Green Acquisition, an entity jointly-owned by NSC and CSX. As a result, the remaining outstanding capital stock of Conrail was acquired by NSC and CSX and Green Acquisition was issued 100 shares of Conrail's common stock.
Exhibit 99, Page 24 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Undistributed Earnings of Equity Investees
"Retained earnings" includes undistributed earnings of equity investees of $180 million, $157 million and $188 million at December 31, 2001, 2000 and 1999, respectively.
10. Other Income, Net
2001 2000 1999
---- ---- ----
(In Millions)
Interest income $ 21 $ 21 $ 19
Rental income 47 45 37
Property sales 2 70 6
Equity earnings of affiliates 24 24 15
Other, net 9 (5) (10)
------ ------ ------
$ 103 $ 155 $ 67
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11. Commitments and Contingencies
Environmental
The Company is subject to various federal, state and local laws and regulations regarding environmental matters. CRC is a party to various proceedings brought by both regulatory agencies and private parties under federal, state and local laws, including Superfund laws, and has also received inquiries from governmental agencies with respect to other potential environmental issues. At December 31, 2001, CRC has received, together with other companies, notices of its involvement as a potentially responsible party or requests for information under the Superfund laws with respect to cleanup and/or removal costs due to its status as an alleged transporter, generator or property owner at 39 locations. However, based on currently available information, the Company believes CRC may have some potential responsibility at only 36 of these sites. Due to the number of parties involved at many of these sites, the wide range of costs of possible remediation alternatives, the changing technology and the length of time over which these matters develop, it is often not possible to estimate CRC's liability for the costs associated with the assessment and remediation of contaminated sites.
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Although the Company's operating results and liquidity could be significantly affected in any quarterly or annual reporting period if CRC were held principally liable in certain of these actions, at December 31, 2001, the Company had accrued $70 million, an amount it believes is sufficient to cover the probable liability and remediation costs that will be incurred at Superfund sites and other sites based on known information and using various estimating techniques. The Company anticipates that much of this liability will be paid out over five years; however some costs will be paid out over a longer period. The Company believes the ultimate liability for these matters will not materially affect its consolidated financial condition.
The Company spent $10 million in 2001 and $9 million each in 2000 and 1999 for environmental remediation and related costs. In addition, the Company's capital expenditures for environmental control and abatement projects were approximately $1 million each in 2000 and 1999.
Casualty
The Company is involved in various legal actions, principally relating to occupational health claims, personal injuries, casualties, property damage and damage to lading. The casualty claim liability is determined actuarially, based upon claims filed and an estimate of claims incurred but not yet reported. During 2001, the Company experienced favorable claims development and, based on the actuarial studies, recorded a net reduction of expense of approximately $12 million, which is included in the "Casualties and insurance" line item of the income statement. While the ultimate amounts of claims incurred are dependent upon future developments, in management's opinion, the recorded liability is adequate to cover expected probable payments. The Company is generally self-insured for casualty claims. Claims in excess of self-insurance levels are insured up to excess coverage limits.
Labor
CRC had 1,544 employees at December 31, 2001; approximately 90% of whom are represented by 12 different labor organizations and are covered by 16 separate collective bargaining agreements. The Company was engaged in collective bargaining at December 31, 2001 with labor organizations representing approximately 79% of its labor force.
Exhibit 99, Page 26 of 26
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Guarantees
CRC currently guarantees the principal and interest payments in the amount of $33 million on Equipment Trust Certificates for Locomotive Management Services, a general partnership of which CRC holds a fifty percent non-controlling interest.
12. Fair Values of Financial Instruments
The fair values of "Cash and cash equivalents," "Accounts receivable," "Notes receivable from NSC/CSX" and "Accounts payable" approximate carrying values because of the short maturity of these financial instruments.
Using current market prices when available, or a valuation based on the yield to maturity of comparable debt instruments having similar characteristics, credit rating and maturity, the total fair value of the Company's long-term debt, including the current portion, but excluding capital leases, is $1,204 million and $1,150 million at December 31, 2001 and 2000, respectively, compared with carrying values of $1,008 million and $1,028 million at December 31, 2001 and 2000, respectively.