10-K 1 nsc13.htm



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K

 

(X)       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended DECEMBER 31, 2013

 

(   )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ___________ to___________

 

Commission file number 1-8339

 

 

NORFOLK SOUTHERN CORPORATION
(Exact name of registrant as specified in its charter)

 

Virginia
(State or other jurisdiction of incorporation)

52-1188014
(IRS Employer Identification No.)

Three Commercial Place
Norfolk, Virginia
(Address of principal executive offices)


23510-2191
Zip Code

Registrant’s telephone number, including area code:

(757) 629-2680

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each Class

Name of each exchange on which registered

Norfolk Southern Corporation

 

Common Stock (Par Value $1.00)

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (X)  No (  )

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (  )  No (X)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or Section 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months.  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 the Form 10-K or any amendment to this Form 10-K.  (X)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or smaller reporting company. See definitions of  “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (X)        Accelerated filer (  )        Non-accelerated filer (  )        Smaller reporting company (  )

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes (  )   No (X)

 

The aggregate market value of the voting common equity held by non-affiliates at June 30, 2013, was $22,587,575,039 (based on the closing price as quoted on the New York Stock Exchange on that date).

 

The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2014: 309,715,149 (excluding 20,320,777 shares held by the registrant's consolidated subsidiaries).

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

Portions of the Registrant’s definitive proxy statements to be filed electronically pursuant to Regulation 14A not later than 120 days after the end of the fiscal year, are incorporated herein by reference in Part III.




 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

Page

Part I.

Items 1 and 2.

Business and Properties

 

K3

 

Item 1A.

Risk Factors

 

K13

 

Item 1B.

Unresolved Staff Comments

 

K16

 

Item 3.

Legal Proceedings

 

K17

 

Item 4.

Mine Safety Disclosures

 

K17

 

 

Executive Officers of the Registrant

 

K18

 

 

 

 

 

Part II.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and

 

 

 

 

  Issuer Purchases of Equity Securities

 

K19

 

Item 6.

Selected Financial Data

 

K20

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and

 

 

 

 

  Results of Operations

 

K21

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

 

K38

 

Item 8.

Financial Statements and Supplementary Data

 

K39

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and

 

 

 

 

  Financial Disclosure

 

K79

 

Item 9A.

Controls and Procedures

 

K79

 

Item 9B.

Other Information

 

K79

 

 

 

 

 

Part III.

Item 10.

Directors, Executive Officers, and Corporate Governance

 

K80

 

Item 11.

Executive Compensation

 

K80

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management

 

 

 

 

  and Related Stockholder Matters

 

K81

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

K84

 

Item 14.

Principal Accountant Fees and Services

 

K84

 

 

 

 

 

Part IV.

Item 15.

Exhibits and Financial Statements Schedules

 

K85

 

 

 

 

 

 

 

Power of Attorney

 

K97

 

 

 

 

 

 

 

Signatures

 

K97

 




PART I

 

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

 

Item 1.  Business and Item 2.  Properties

 

GENERAL – Norfolk Southern Corporation is a Norfolk, Virginia based company that owns a major freight railroad, Norfolk Southern Railway Company.  Norfolk Southern Corporation was incorporated on July 23, 1980, under the laws of the Commonwealth of Virginia.  Our common stock (Common Stock) is listed on the New York Stock Exchange (NYSE) under the symbol “NSC.”

 

Unless indicated otherwise, Norfolk Southern Corporation and its subsidiaries, including Norfolk Southern Railway Company, are referred to collectively as NS, we, us, and our. 

 

We are primarily engaged in the rail transportation of raw materials, intermediate products, and finished goods primarily in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the United States.  We also transport overseas freight through several Atlantic and Gulf Coast ports.  We provide comprehensive logistics services and offer the most extensive intermodal network in the eastern half of the United States.

 

We make available free of charge through our website, www.nscorp.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (SEC).  In addition, the following documents are available on our website and in print to any shareholder who requests them:

         Corporate Governance Guidelines

         Charters of the Committees of the Board of Directors

         The Thoroughbred Code of Ethics

         Code of Ethical Conduct for Senior Financial Officers

         Categorical Independence Standards for Directors

 



RAILROAD OPERATIONSAt December 31, 2013, our railroads operated approximately 20,000 miles of road in 22 states and the District of Columbia.

 

Our system reaches many individual industries, electric generating facilities, mines (in western Virginia, eastern Kentucky, southern and northern West Virginia, western Pennsylvania, and southern Illinois and Indiana), distribution centers, transload facilities, and other businesses located in our service area.

 

Corridors with heaviest freight volume:

         New York City area to Chicago (via Allentown and Pittsburgh)

         Chicago to Macon (via Cincinnati, Chattanooga, and Atlanta)

         Appalachian coal fields of Virginia, West Virginia, and Kentucky to Norfolk, Virginia and Sandusky, Ohio

         Cleveland to Kansas City

         Birmingham to Meridian

         Memphis to Chattanooga



The miles operated, which include major leased lines between Cincinnati, Ohio, and Chattanooga, Tennessee, and an exclusive operating agreement for trackage rights over property owned by North Carolina Railroad Company, were as follows:

 

 

Mileage Operated at December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Second

 

Passing

 

 

 

 

 

 

 

and

 

Track,

 

 

 

 

 

Miles

 

Other

 

Crossovers 

 

Way and

 

 

 

of

 

Main

 

and

 

Yard

 

 

 

Road

 

Track

 

Turnouts

 

Switching 

 

Total 

 

 

 

 

 

 

 

 

 

 

Owned

15,181 

 

2,750 

 

1,989 

 

8,281 

 

28,201 

Operated under lease, contract or trackage rights

4,780 

 

1,910 

 

397 

 

831 

 

7,918 

 

 

 

 

 

 

 

 

 

 

  Total

19,961 

 

4,660 

 

2,386 

 

9,112 

 

36,119 

 

 

 

 

 

 

 

 

 

 

Triple Crown Operations Triple Crown Services Company (Triple Crown), one of our subsidiaries, provides bimodal truckload transportation service primarily utilizing RoadRailer® trailers, a hybrid technology that facilitates both over-the-road and on-the-rail transportation utilizing enclosed trailers that are pulled over the highways in tractor-trailer configuration and over the rails by locomotives.  In addition, Triple Crown utilizes conventional trailers that are also moved on rail flatcars.  Triple Crown provides service in the eastern United States, as well as Ontario and Quebec, through a network of terminals strategically located in 13 cities.

 

The following table sets forth certain statistics relating to our railroads’ operations for the past 5 years:

 

 

Years ended December 31,

 

2013

 

2012

 

2011

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

Revenue ton miles (billions)

194

 

186

 

192

 

182

 

159

Freight train miles traveled (millions)

74.8

 

76.3

 

75.7

 

72.6

 

67.5

Revenue per ton mile

$0.0581 

 

$0.0595 

 

$0.0582 

 

$0.0523 

 

$0.0503 

Revenue ton miles per employee-hour worked

3,376

 

3,153

 

3,207

 

3,218

 

2,900

Ratio of railway operating expenses to railway operating revenues

71.0%

 

71.7%

 

71.2%

 

71.9%

 

75.4%

 

RAILWAY OPERATING REVENUES Total railway operating revenues were $11.2 billion in 2013.  Following is an overview of our three major market groups.

 

COAL Coal is our largest commodity group as measured by revenues.  Revenues from coal accounted for about 23% of our total railway operating revenues in 2013.  We handled 150.1 million tons, or 1.3 million carloads, in 2013, most of which originated on our lines from major eastern coal basins, with the balance from major western coal basins received via the Memphis and Chicago gateways.  Our coal franchise supports the electric generation market, serving approximately 100 coal generation plants, as well as the export, metallurgical and industrial markets, primarily through direct rail and river, lake, and coastal facilities, including various terminals on the Ohio River, Lambert’s Point in Norfolk, Virginia, the Port of Baltimore, and Lake Erie.

 

See the discussion of coal revenues and tonnage, by type of coal, in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 



GENERAL MERCHANDISE Our general merchandise market group is composed of five major commodity groupings:  

         Chemicals includes sulfur and related chemicals, petroleum products (including crude oil), chlorine and bleaching compounds, plastics, rubber, industrial chemicals, and chemical wastes.  

         Agriculture, consumer products, and government includes soybeans, wheat, corn, fertilizer, livestock and poultry feed, food oils, flour, beverages, canned goods, sweeteners, consumer products, ethanol, transportation equipment, and items for the U.S. military.  

         Metals and construction includes steel, aluminum products, machinery, scrap metals, cement, aggregates, sand, and minerals

         Automotive includes finished vehicles for BMW, Chrysler, Ford, General Motors, Honda, Hyundai, Mercedes-Benz, Mitsubishi, Subaru, Toyota, and Volkswagen, and auto parts for BMW, Chrysler, Ford, General Motors, Honda, Hyundai, Mazda, Mitsubishi, Nissan, Subaru, Toyota, and Volkswagen. 

         Paper, clay and forest products includes lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper, and clay.

 

In 2013, 119 million tons of general merchandise freight, or approximately 62% of total general merchandise tonnage we handled, originated on our lines.  The balance of general merchandise freight was received from connecting carriers at interterritorial gateways.  Our principal interchange points for received freight included Chicago, New Orleans, East St. Louis, Memphis, Detroit, Kansas City, Buffalo, Toledo, and Meridian.  General merchandise carloads handled in 2013 were 2.4 million, the revenues from which accounted for 56% of our total railway operating revenues.

 

See the discussion of general merchandise revenues by commodity group in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

INTERMODAL Our intermodal market group consists of shipments moving in trailers, domestic and international containers, and RoadRailer® equipment.  These shipments are handled on behalf of intermodal marketing companies, international steamship lines, truckers, and other shippers.  Intermodal units handled in 2013 were 3.6 million, the revenues from which accounted for 21% of our total railway operating revenues.

 

See the discussion of intermodal revenues in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

FREIGHT RATES Private contracts and exempt price quotes are our predominant pricing mechanisms.  Thus, a major portion of our freight business is not economically regulated by the federal government.  In general, market forces are the primary determinant of rail service prices.

 

In 2013, our railroads were found by the U.S. Surface Transportation Board (STB), the regulatory board that has broad jurisdiction over railroad practices, to be “revenue adequate” on an annual basis based on results for the year 2012The STB has not made its revenue adequacy determination for the year 2013A railroad is “revenue adequate” on an annual basis under the applicable law when its return on net investment exceeds the rail industry’s composite cost of capital.  This determination is made pursuant to a statutory requirement. 

 

 



PASSENGER OPERATIONS Amtrak operates regularly scheduled passenger trains on our lines between the following locations:

         Alexandria and Lynchburg, Virginia

         Alexandria, Virginia and New Orleans, Louisiana

         Alexandria and Orange, Virginia

         Petersburg and Norfolk, Virginia

         Raleigh and Charlotte, North Carolina

         Selma and Charlotte, North Carolina

         Chicago, Illinois, and Porter, Indiana

         Chicago, Illinois, and Cleveland, Ohio

         Chicago, Illinois, and Pittsburgh, Pennsylvania

         Kalamazoo and Battle Creek, Michigan

         Kalamazoo and Detroit, Michigan

         Pittsburgh and Harrisburg, Pennsylvania

 

Two transportation commissions of the Commonwealth of Virginia operate commuter trains on our line between Manassas and Alexandria.

 

We lease the Chicago to Manhattan, Illinois, line to the Commuter Rail Division of the Regional Transportation Authority of Northeast Illinois (METRA).

 

We operate freight service over lines with significant ongoing Amtrak and commuter passenger operations, and conduct freight operations over trackage owned or leased by:

         Amtrak

         New Jersey Transit

         Southeastern Pennsylvania Transportation Authority

         Metro-North Commuter Railroad Company

         Maryland Department of Transportation

 

Amtrak and various commuter agencies conduct passenger operations over trackage owned by Conrail in the Shared Assets Areas (Note 5 to the Consolidated Financial Statements).

   

NONCARRIER OPERATIONS Our noncarrier subsidiaries engage principally in the acquisition, leasing, and management of coal, oil, gas and minerals; the development of commercial real estate; telecommunications; and the leasing or sale of rail property and equipment.  In 2013, no such noncarrier subsidiary or industry segment grouping of noncarrier subsidiaries met the requirements for a reportable business segment under relevant authoritative accounting guidance. 

 

RAILWAY PROPERTY

 

Our railroad system extends across 22 states and the District of Columbia.  The railroad infrastructure makes us capital intensive with net property of approximately $27 billion on a historical cost basis. 

 

Property Additions Property additions for the past five years were as follows (including capitalized leases):

 

 

2013

 

2012

 

2011

 

2010

 

2009

 

($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Road and all other property

$ 

1,421 

 

$ 

1,465 

 

$ 

1,222 

 

$ 

1,153 

 

$ 

1,128 

Equipment

 

550 

 

 

776 

 

 

938 

 

 

317 

 

 

171 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total

$ 

1,971 

 

$ 

2,241 

 

$ 

2,160 

 

$ 

1,470 

 

$ 

1,299 



Our capital spending and replacement programs are and have been designed to assure the ability to provide safe, efficient, and reliable rail transportation services.  For 2014, we have budgeted $2.2 billion of property additions.

 

We have invested and will continue to invest in various projects and corridor initiatives to expand our rail network to increase capacity and improve transit times, while returning value to shareholders.  Initiatives include the following:

         The Crescent Corridor consists of a program of projects for infrastructure and other facility improvements geared toward creating seamless, high-capacity intermodal routes spanning 11 states from New Jersey to Louisiana and offering truck-competitive service along several major interstate highway corridors, including I-81, I-85, I-20, I-40, I-59, I-78, and I-75.

         The Heartland Corridor is a seamless, high-capacity intermodal route across Virginia and West Virginia to Midwest markets.

         Meridian Speedway LLC, a joint venture with Kansas City Southern, owns and operates a 320-mile rail line between Meridian, Mississippi and Shreveport, Louisiana designed to increase capacity and improve service.

         Pan Am Southern LLC, a joint venture with Pan Am Railways, Inc., owns and operates a 155-mile main line track that runs between Mechanicville, New York and Ayer, Massachusetts, along with 281 miles of secondary and branch lines, including trackage rights in New York, Connecticut, Massachusetts, New Hampshire, and Vermont designed to increase intermodal and automotive capacity.

         The MidAmerica Corridor is an arrangement between us and Canadian National Railway (CN) to share track between Chicago, St. Louis, Kentucky, and Mississippi in order to establish more efficient routes for shipments moving between the Midwest and Southeast, including potential shipments from CN-served Illinois Basin coal producers to southeastern utility plants we serve.

         The CREATE project is a public-private partnership to reduce rail and highway congestion and add freight and passenger capacity in the metropolitan Chicago area.  We and other railroads have agreed to participate in CREATE.



Equipment At December 31, 2013, we owned or leased the following units of equipment:

 

 

 

 

 

 

 

 

Capacity of

 

Owned(1)

 

Leased(2)

 

Total

 

Equipment

 

 

 

 

 

 

 

(Horsepower)

Locomotives:

 

 

 

 

 

 

 

  Multiple purpose

3,877 

 

79 

 

3,956 

 

14,479,300 

  Auxiliary units

131 

 

- 

 

131 

 

- 

  Switching

105 

 

- 

 

105 

 

157,750 

 

 

 

 

 

 

 

 

     Total locomotives

4,113 

 

79 

 

4,192 

 

14,637,050 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Tons)

Freight cars:

 

 

 

 

 

 

 

  Gondola

30,933 

 

3,533 

 

34,466 

 

3,748,088 

  Hopper

13,072 

 

523 

 

13,595 

 

1,514,656 

  Box

11,340 

 

1,378 

 

12,718 

 

1,062,685 

  Covered hopper

10,251 

 

158 

 

10,409 

 

1,149,345 

  Flat

2,362 

 

1,129 

 

3,491 

 

323,910 

  Other

4,602 

 

14 

 

4,616 

 

221,441 

 

 

 

 

 

 

 

 

     Total freight cars

72,560 

 

6,735 

 

79,295 

 

8,020,125 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

  Highway trailers and containers

9,553 

 

8,623 

 

18,176 

 

 

  RoadRailer®

6,350 

 

27 

 

6,377 

 

 

  Work equipment

4,547 

 

243 

 

4,790 

 

 

  Vehicles

3,785 

 

- 

 

3,785 

 

 

  Miscellaneous

15,050 

 

7,778 

 

22,828 

 

 

 

 

 

 

 

 

 

 

     Total other

39,285 

 

16,671 

 

55,956 

 

 

 

(1)

 

Includes equipment leased to outside parties and equipment subject to equipment trusts, conditional sale agreements, and capitalized leases.

(2)

Includes short-term and long-term operating leases. Freight cars include 523 units leased from Consolidated Rail Corporation

 

The following table indicates the number and year built for locomotives and freight cars owned at December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

2004-

 

1999-

 

1998&

 

 

 

2013

 

2012

 

2011

 

2010

 

2009

 

2008

 

2003

 

Before

 

Total

Locomotives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No. of units

50

 

60

 

90

 

42

 

- 

 

568

 

605

 

2,698

 

4,113

% of fleet

1%

 

1%

 

2%

 

1%

 

-%

 

14%

 

15%

 

66%

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Freight cars:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No. of units

- 

 

2,025

 

3,836

 

150

 

513

 

4,031

 

1,537

 

60,468

 

72,560

% of fleet

-%

 

3%

 

5%

 

-% 

 

1%

 

6%

 

2%

 

83%

 

100%

 

 

 



The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2013, and information regarding 2013 retirements:

 

 

Locomotives

 

Freight Cars 

Average age – in service

22.5 years 

 

30.2 years 

Retirements

17 units 

 

6,522 cars 

Average age – retired

38.7 years 

 

42.3 years 

 

 

 

 

Our ongoing locomotive and freight car maintenance programs are intended to ensure the highest standards of safety, reliability, customer satisfaction, and equipment availability.  The locomotive bad order ratio includes all units (owned and leased) out of service for required periodic inspections, unscheduled maintenance and program work which includes such activity as overhauls.

 

 

Annual Average Bad Order Ratio

 

2013

 

2012

 

2011

 

2010

 

2009

Locomotives

7.1%

 

7.1%

 

7.3%

 

6.7%

 

6.1%

Freight cars

4.9%

 

5.3%

 

5.7%

 

5.8%

 

4.5%

 

 

 

 

 

 

 

 

 

 

Encumbrances Certain railroad equipment is subject to the prior lien of equipment financing obligations totaling $15 million at December 31, 2013.

 

Track Maintenance Of the 36,119 total miles of track we operate, we are responsible for maintaining 28,957 miles, with the remainder being operated under trackage rights from other parties responsible for maintenance.

 

Over 82% of the main line trackage (including first, second, third, and branch main tracks, all excluding rail operated pursuant to trackage rights) has rail ranging from 131 to 155 pounds per yard with the standard installation currently at 136 pounds per yard.  Approximately 44% of our lines, excluding rail operated pursuant to trackage rights, carried 20 million or more gross tons per track mile during 2013.

 

The following table summarizes several measurements regarding our track roadway additions and replacements during the past five years:

 

 

2013

 

2012

 

2011

 

2010

 

2009

Track miles of rail installed

549 

 

509 

 

484 

 

422 

 

434 

Miles of track surfaced

5,475 

 

5,642 

 

5,441 

 

5,326 

 

5,568 

New crossties installed (millions)

2.5 

 

2.6 

 

2.7 

 

2.6 

 

2.7 

 

Microwave System Our microwave system, consisting of approximately 6,968 radio route miles, 421 core stations, 30 secondary stations, and five passive repeater stations, provides communications between most operating locations.  We use the microwave system primarily for voice communications, VHF radio control circuits, data and facsimile transmissions, traffic control operations, and AEI data transmissions.

 

Traffic Control Of the approximately 16,500 route miles we dispatch, about 11,025 miles are signalized, including 8,200 miles of centralized traffic control (CTC) and 2,825 miles of automatic block signals.  Of the 8,200 miles of CTC, approximately 6,836 miles are controlled by data radio originating at 336 base station radio sites.

 

Computers A computer network consisting of a centralized production and backup data center near Atlanta, Georgia, and various distributed computers throughout the company connects the yards, terminals, transportation offices, rolling stock repair points, sales offices, and other key system locations.  Operating and traffic data are processed and stored to provide customers with information on their shipments throughout the system.  Computer systems provide 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.  In addition, our computer systems assist us in the performance of a



variety of functions and services, including payroll, car and revenue accounting, billing, sourcing, inventory management activities and controls, and special studies.

 

ENVIRONMENTAL MATTERS Compliance with federal, state, and local laws and regulations relating to the protection of the environment is one our principal goals.  To date, such compliance has not had a material effect on our financial position, results of operations, liquidity, or competitive position.  See “Legal Proceedings,” Part I, Item 3; “Personal Injury, Environmental, and Legal Liabilities” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 16 to the Consolidated Financial Statements.

 

EMPLOYEES The following table shows the average number of employees and the average cost per employee for wages and benefits:

 

 

2013

 

2012

 

2011

 

2010

 

2009

Average number of employees

 

30,103 

 

 

30,943 

 

 

30,329 

 

 

28,559 

 

 

28,593 

Average wage cost per employee

$ 

72,000 

 

$ 

69,000 

 

$ 

71,000 

 

$ 

69,000 

 

$ 

63,000 

Average benefit cost per employee

$ 

40,000 

 

$ 

38,000 

 

$ 

39,000 

 

$ 

37,000 

 

$ 

32,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

More than 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. See the discussion of “Labor Agreements” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 

 

GOVERNMENT REGULATION In addition to environmental, safety, securities, and other regulations generally applicable to all business, our railroads are subject to regulation by the STB.  The STB has jurisdiction over some rates, routes, fuel surcharges, 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 Federal Railroad Administration (FRA) regulates certain track and mechanical equipment standards.

 

The relaxation of economic regulation of railroads, following the Staggers Rail Act of 1980, included exemption from STB regulation of the rates and most service terms for intermodal business (trailer-on-flat-car, container-on-flat-car), rail boxcar shipments, lumber, manufactured steel, automobiles, and certain bulk commodities such as sand, gravel, pulpwood, and wood chips for paper manufacturing.  Further, all shipments that we have under contract are effectively removed from regulation for the duration of the contract.  About 88% of our revenues comes from either exempt shipments or shipments moving under transportation contracts; the remainder comes from shipments moving under public tariff rates.

 

Efforts have been made over the past several years to re-subject the rail industry to increased federal economic regulation, and such efforts are expected to continue in 2014.  The Staggers Rail Act of 1980 substantially balanced the interests of shippers and rail carriers, and encouraged and enabled rail carriers to innovate, invest in their infrastructure, and compete for business, thereby contributing to the economic health of the nation and to the revitalization of the industry.  Accordingly, we will continue to oppose efforts to reimpose increased economic regulation. 

 

Government regulations concerning the safety and security of our railroads are discussed within the “Security of Operations” section contained herein. 

 

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-progress, users are increasingly sensitive to transport arrangements that minimize problems at successive production stages.



 

Our primary rail competitor is CSX Corporation; both railroads operate throughout much of the same territory.  Other railroads also operate in parts of the territory.  We also compete with motor carriers, water carriers, and with shippers who have the additional options of handling their own goods in private carriage, sourcing products from different geographic areas, and using substitute products.

 

Certain marketing strategies among railroads and between railroads and motor carriers enable railroads to compete more effectively in specific markets. 

 

SECURITY OF OPERATIONS We continue to take measures to provide enhanced security for our rail system. Our comprehensive security plan is modeled on and was developed in conjunction with the security plan prepared by the Association of American Railroads (AAR) post September 11, 2001.  The AAR Security Plan defines four Alert Levels and details the actions and countermeasures that are being applied across the railroad industry as a terrorist threat increases or decreases.  The Alert Level actions include countermeasures that will be applied in three general areas:  (1) operations (including transportation, engineering, and mechanical); (2) information technology and communications; and, (3) railroad police.  Although security concerns preclude public disclosure of its contents, our System Security Plan outlines the protocol within our company for all concerned to be notified of AAR Alert Level changes.  All of our Operations Division employees are advised by their supervisors or train dispatchers, as appropriate, of any change in Alert Level and any additional responsibilities they may incur due to such change.

 

Our plan also effectively addresses and complies with U.S. Department of Transportation (DOT) security regulations pertaining to training and security plans with respect to the transportation of hazardous materials.  As part of the plan, security awareness training is given to all railroad employees who directly affect hazardous material transportation safety, and this training is integrated into recurring hazardous material training and re-certification programs.  Toward that end, we, working closely with the National Transit Institute at Rutgers University, developed a four-module uniform national training program.  We have also worked with the Transportation Security Administration (TSA) in developing other industry training programs.  More in-depth security training has been given to select employees of ours who have been given specific security responsibilities, and additional, location-specific security plans are in place for certain metropolitan areas and each of the six port facilities we serve.  With respect to the ports, each facility plan has been approved by the applicable Captain of the Port and remains subject to inspection by the U.S. Coast Guard.

 

Additionally, we continue to engage in close and regular coordination with numerous federal and state agencies, including the U.S. Department of Homeland Security (DHS), the TSA, the Federal Bureau of Investigation (FBI), the FRA, the U.S. Coast Guard, U.S. Customs and Border Protection, and various state Homeland Security offices.  As one notable example, one of our Police Special Agents in Charge (SAC), under the auspices of the AAR, continues to serve at the National Joint Terrorism Task Force (NJTTF) operated by the FBI, and located at the National Counter Terrorism Center (NCTC) in Arlington, Virginia to represent and serve as liaison to the North American rail industry.  This arrangement improves logistical flow of vital security and law enforcement information with respect to the rail industry as a whole, while having the post filled by one of our SACs also serves to foster a strong working relationship between us and the FBI.  We also are a member of the Customs-Trade Partnership Against Terrorism (C-TPAT) program sponsored by U.S. Customs.  C-TPAT allows us to work closely with U.S. Customs and our customers to develop measures that will help ensure the integrity of freight shipments moving on our railroads, particularly those moving to or from a foreign country.  Based on participation in C-TPAT, we have ensured that our plan meets all current applicable security recommendations made by U.S. Customs.

 

Similarly, we continue to be guided in our operations by various supplemental security action items issued by DHS and DOT, U.S. Coast Guard Maritime Security requirements, as well as voluntary security action items developed in collaboration with TSA, DOT, and the freight railroads. Many of the action items are based on lessons learned from DHS and DOT security assessments of rail corridors in High Threat Urban Areas (HTUA). Particular attention is aimed at reducing risk in HTUA by:  (1) the establishment of secure storage areas for rail



cars carrying toxic-by-inhalation (TIH) materials; (2) the expedited movement of trains transporting rail cars carrying TIH materials; (3) the minimization of unattended loaded tank cars carrying TIH materials; and (4) cooperation with federal, state, local and tribal governments to identify, through risk assessments, those locations where security risks are the highest.  These action items and our compliance initiatives are outlined in the various departmental sections of our System Security Plan.  We have taken appropriate actions to be compliant with the TSA Final Security Rule addressing Rail Security Sensitive Materials (RSSM) to ensure these shipments are properly inspected and that positive chain-of-custody is maintained when required.  We are in compliance with the Pipeline and Hazardous Materials Safety Administration (PHMSA) rail-routing regulations outlined in Docket HM-232E.  We conduct ongoing route evaluations.  In 2011, as part of the FRA’s bi-annual review, this methodology and selected routes were found to be compliant with the regulation.  The next review by the FRA is expected mid-year 2014.

 

In 2013, through participation in the Transportation Community Awareness and Emergency Response (TRANSCAER) Program, we provided rail accident response training to approximately 4,900 emergency responders, such as local police and fire personnel. Our other training efforts throughout 2013 included participation in 17 drills for local, state, and federal agencies.  We also have ongoing programs to sponsor local emergency responders at the Security and Emergency Response Training Course conducted at the AAR Transportation Technology Center in Pueblo, Colorado.

 

Improvements in equipment design also are expected to play a role in enhancing rail security.  PHMSA, in coordination with the FRA, has amended the Hazardous Materials Regulations to prescribe enhanced safety for rail transportation of TIH materials, has provided interim design standards for railroad tank cars.  The rule mandates commodity-specific improvements in safety features and design standards for newly manufactured DOT specification tank cars and an improved top fittings performance standard.  The interim standards established in this rule will enhance the accident survivability of TIH tank cars. 

 

Item 1A. Risk Factors

 

We are subject to significant governmental legislation and regulation over commercial, operating and environmental matters.  Railroads are subject to the enactment of laws by Congress that could increase economic regulation of the industry.  Railroads presently are subject to commercial regulation by the Surface Transportation Board (STB), which has jurisdiction over some rates, routes, fuel surcharges, 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.  Additional economic regulation of the rail industry by Congress or the STB, whether under new or existing laws, could have a significant negative impact on our ability to determine prices for rail services and result in a material adverse effect in the future on our financial position, results of operations, or liquidity in a particular year or quarter.  This potential material adverse effect could also result in reduced capital spending on our rail network or abandonment of lines.

 

Railroads are subject to safety and security regulation by the U.S. Department of Transportation and the U.S. Department of Homeland Security, which regulate most aspects of our operations.  Compliance with the Rail Safety Improvement Act of 2008 will result in additional operating costs associated with the statutorily mandated implementation of positive train control by 2015.  In addition to increased capital expenditures, implementation may result in reduced operational efficiency and service levels, as well as increased compensation and benefits expenses, and increased claims and litigation costs.

 

Our operations are subject to extensive federal and state environmental laws and regulations concerning, among other things, emissions to the air; discharges to waterways or groundwater supplies; handling, storage, transportation, and disposal of waste and other materials; and the cleanup of hazardous material or petroleum releases.  The risk of incurring environmental liability for acts and omissions, past, present, and future is inherent in the railroad business.  This risk includes property owned by us, whether currently or in the past, that is or has been subject to a variety of uses, including our railroad operations and other industrial activity by past owners or our past and present tenants.



 

Environmental problems that are latent or undisclosed may exist on these properties, and we could incur environmental liabilities or costs, the amount and materiality of which cannot be estimated reliably at this time, with respect to one or more of these properties.  Moreover, lawsuits and claims involving other unidentified environmental sites and matters are likely to arise from time to time, and the resulting liabilities could have a significant effect on our financial position, results of operations, or liquidity in a particular year or quarter.

 

As a common carrier by rail, we must offer to transport hazardous materials, regardless of risk. Transportation of certain hazardous materials could create catastrophic losses in terms of personal injury and property (including environmental) damage, and compromise critical parts of our rail network.  A catastrophic rail accident involving hazardous materials could have a material adverse effect on our financial position, results of operations, or liquidity to the extent not covered by insurance.  We have obtained insurance for potential losses for third-party liability and first-party property damages; however, insurance is available from a limited number of insurers and may not continue to be available or, if available, may not be obtainable on terms acceptable to us.

 

We may be affected by terrorism or war.  Any terrorist attack, or other similar event, any government response thereto, and war or risk of war could cause significant business interruption and may adversely affect our financial position, results of operations, or liquidity in a particular year or quarter.  Because we play a critical role in the nation’s transportation system, we could become the target of such an attack or have a significant role in the government’s preemptive approach or response to an attack or war.

 

Although we currently maintain insurance coverage for third-party liability arising out of war and acts of terrorism, we maintain only limited insurance coverage for first-party property damage and damage to property in our care, custody, or control caused by certain acts of terrorism.  In addition, premiums for some or all of our current insurance programs covering these losses could increase dramatically, or insurance coverage for certain losses could be unavailable to us in the future.

 

We may be affected by general economic conditions.  Prolonged negative changes in domestic and global economic conditions affecting the producers and consumers of the commodities we carry may have an adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.  Economic conditions resulting in bankruptcies of one or more large customers could have a significant impact on our financial position, results of operations, or liquidity in a particular year or quarter.

 

We may be affected by climate change legislation or regulation.  Concern over climate change has led to significant federal, state, and international legislative and regulatory efforts to limit greenhouse gas (GHG) emissions.  Moreover, even without such legislation or regulation, government incentives and adverse publicity relating to GHGs could affect certain of our customers and the markets for certain of the commodities we carry.  Restrictions, caps, taxes, or other controls on GHG emissions, including diesel exhaust, could significantly increase our operating costs, decrease the amount of traffic handled, and decrease the value of coal reserves we own, and thus could have an adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.  Such restrictions could affect our customers that (1) use commodities that we carry to produce energy, including coal, (2) use significant amounts of energy in producing or delivering the commodities we carry, or (3) manufacture or produce goods that consume significant amounts of energy.

 

We face competition from other transportation providers.  We are subject to competition from motor carriers, railroads and, to a lesser extent, ships, barges, and pipelines, on the basis of transit time, pricing, and quality and reliability of service.  While we have used primarily internal resources to build or acquire and maintain our rail system, trucks and barges have been able to use public rights-of-way maintained by public entities.  Any future improvements or expenditures materially increasing the quality or reducing the cost of alternative modes of transportation in the regions in which we operate, or legislation granting materially greater latitude for motor carriers with respect to size or weight limitations, could have a material adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.

 



The operations of carriers with which we interchange may adversely affect our operations.  Our ability to provide rail service to customers in the U.S. and Canada depends in large part upon our ability to maintain cooperative relationships with connecting carriers with respect to, among other matters, freight rates, revenue division, car supply and locomotive availability, data exchange and communications, reciprocal switching, interchange, and trackage rights. Deterioration in the operations of or service provided by connecting carriers, or in our relationship with those connecting carriers, could result in our inability to meet our customers’ demands or require us to use alternate train routes, which could result in significant additional costs and network inefficiencies.

 

We rely on technology and technology improvements in our business operations.  If we experience significant disruption or failure of one or more of our information technology systems, including computer hardware, software, and communications equipment, we could experience a service interruption, a security breach, or other operational difficultiesAdditionally, if we do not have sufficient capital to acquire new technology or we are unable to implement new technology, we may suffer a competitive disadvantage within the rail industry and with companies providing other modes of transportation service.  Any of these factors could have a material adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.

 

The vast majority of our employees belong to labor unions, and labor agreements, strikes, or work stoppages could adversely affect our operations.  More than 80% of our railroad employees are covered by collective bargaining agreements with various labor unions.  If unionized workers were to engage in a strike, work stoppage, or other slowdown, we could experience a significant disruption of our operations.  Additionally, future national labor agreements, or renegotiation of labor agreements or provisions of labor agreements, could significantly increase our costs for healthcare, wages, and other benefits.  Any of these factors could have a material adverse impact on our financial position, results of operations, or liquidity in a particular year or quarter.

 

We may be subject to various claims and lawsuits that could result in significant expenditures.  The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury, commercial disputes, freight loss and other property damage, and other matters.  Job-related personal injury and occupational claims are subject to the Federal Employer’s Liability Act (FELA), which is applicable only to railroads. FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with a no-fault worker’s compensation system.  The variability inherent in this system could result in actual costs being very different from the liability recorded.

 

Any material changes to current litigation trends or a catastrophic rail accident involving any or all of freight loss  property damage, personal injury, and environmental liability could have a material adverse effect on our financial position, results of operations, or liquidity to the extent not covered by insurance.  We have obtained insurance for potential losses for third-party liability and first-party property damages.  Specified levels of risk are retained on a self-insurance basis (currently up to $50 million and above $1 billion per occurrence and/or policy year for bodily injury and property damage to third parties and up to $25 million and above $175 million per occurrence and/or policy year for property owned by us or in our care, custody, or control).  Insurance is available from a limited number of insurers and may not continue to be available or, if available, may not be obtainable on terms acceptable to us.

 

Severe weather could result in significant business interruptions and expenditures.  Severe weather conditions and other natural phenomena, including hurricanes, floods, fires, and earthquakes, may cause significant business interruptions and result in increased costs, increased liabilities, and decreased revenues, which could have an adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.

 

Unpredictability of demand for rail services resulting in the unavailability of qualified personnel could adversely affect our operational efficiency and ability to meet demand.  Workforce demographics, training requirements, and the availability of qualified personnel, particularly engineers and trainmen, could each have a



negative impact on our ability to meet demand for rail service.  Unpredictable increases in demand for rail services may exacerbate such risks, which could have a negative impact on our operational efficiency and otherwise have a material adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.

 

We may be affected by supply constraints resulting from disruptions in the fuel markets or the nature of some of our supplier markets.  We consumed 477 million gallons of diesel fuel in 2013.  Fuel availability could be affected by any limitation in the fuel supply or by any imposition of mandatory allocation or rationing regulations.  A severe fuel supply shortage arising from production curtailments, increased demand in existing or emerging foreign markets, disruption of oil imports, disruption of domestic refinery production, damage to refinery or pipeline infrastructure, political unrest, war or other factors, could have a material adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.  Also, such an event could impact us as well as our customers and other transportation companies.

 

Due to the capital intensive nature and industry-specific requirements of the rail industry, high barriers of entry exist for potential new suppliers of core railroad items, such as locomotives and rolling stock equipment. Additionally, we compete with other industries for available capacity and raw materials used in the production of certain track materials, such as rail and ties.  Changes in the competitive landscapes of these limited-supplier markets could result in increased prices or significant shortages of materials that could have a material adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter.

 

The state of capital markets could adversely affect our liquidity.  From time-to-time we rely on the capital markets to provide some of our capital requirements, including the issuance of long-term debt instruments and commercial paper, as well as the sale of certain receivables.  Significant instability or disruptions of the capital markets, including the credit markets, or deterioration of our financial condition due to internal or external factors could restrict or eliminate our access to, and/or significantly increase the cost of, various financing sources, including bank credit facilities and issuance of corporate bonds.  Instability or disruptions of the capital markets and deterioration of our financial condition, alone or in combination, could also result in a reduction in our credit rating to below investment grade, which could prohibit or restrict us from accessing external sources of short- and long-term debt financing and/or significantly increase the associated costs.

 

Item 1B. Unresolved Staff Comments

 

None.

 




Item 3. Legal Proceedings

 

On November 6, 2007, various antitrust class actions filed against us and other Class I railroads in various Federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation.  On June 21, 2012, the court certified the case as a class action.  The defendant railroads appealed this certification, and on August 9, 2013, the Court of Appeals for the District of Columbia vacated the District Court’s decision and remanded the case for further consideration.  We believe the allegations in the complaints are without merit and intend to vigorously defend the cases.  We do not believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity.  A lawsuit containing similar allegations against us and four other major railroads that was filed on March 25, 2008, in the U.S. District Court for the District of Minnesota was voluntarily dismissed by the plaintiff subject to a tolling agreement entered into in August 2008, and most recently extended in August 2013.

 

We received a Notice of Violation (NOV) issued by the Tennessee Department of Environmental Conservation concerning soil runoff in connection with construction of the Memphis Regional Intermodal Facility in Rossville, Tennessee.  Although we will contest liability and the imposition of any penalties, we describe this matter here consistent with SEC rules and requirements concerning governmental proceedings with respect to environmental laws and regulations.  We do not believe that the outcome of this proceeding will have a material effect on our financial position, results of operations, or liquidity.

 

Item 4. Mine Safety Disclosures

 

Not applicable.




Executive Officers of the Registrant

 

Our 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 our 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, at February 1, 2014, relating to our officers.

 

Name, Age, Present Position

 

Business Experience During Past Five Years

 

 

 

Charles W. Moorman, 61,
  Chairman and
  Chief Executive Officer

 

Present position since February 1, 2006.

 

 

 

James A. Squires, 52,
  President

 

 

 

 

Present position since June 1, 2013.

  Served as Executive Vice Administration from

  August 1, 2012 to June 1, 2013 .
  Served as Executive Vice President – Finance and Chief

  Financial Officer from July 1, 2007 to August 1, 2012.  

 

 

 

Deborah H. Butler, 59,
  Executive Vice President –
  Planning and Chief
  Information Officer

 

Present position since June 1, 2007.

 


 

 

 

 

Cindy C. Earhart, 52,
  Executive Vice President –
  Administration

 

Present position since June 1, 2013.

  Served as Vice President Human Resources from

  March 1, 2007 to June 1, 2013.

 

 

 

James A. Hixon, 60,
  Executive Vice President –
  Law and Corporate Relations

 

Present position since October 1, 2005.

 

 

 

 

 

Mark D. Manion, 61,
  Executive Vice President and
  Chief Operating Officer

 

Present position since April 1, 2009.
  Served as Executive Vice President – Operations from

  October 1, 2004  to April 1, 2009.

 

 

 

Donald W. Seale, 61,
  Executive Vice President and

  Chief Marketing Officer

 

Present position since April 1, 2006.

 

 

 

Marta R. Stewart, 56,
  Executive Vice President –
  Finance and Chief Financial Officer

 

Present position since November 1, 2013.
  Served as Vice President and Treasurer from April 1, 2009

  to November 1, 2013.  Served as Vice President and

  Controller from December 1, 2003 to April 1, 2009.

 

 

 

Thomas E. Hurlbut, 49,
  Vice President and Controller

 

Present position since November 1, 2013.
  Served as Vice President Audit and Compliance from   

  February 1, 2010 to November 1, 2013.  Served as

  Assistant Vice President Internal Audit from

  February 1, 2008 to February 1, 2010.




PART II

 

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

STOCK PRICE AND DIVIDEND INFORMATION

 

Common Stock is owned by 30,990 stockholders of record as of December 31, 2013 and is traded on the New York Stock Exchange under the symbol “NSC.”   The following table shows the high and low sales prices as reported by Bloomberg L.P. on its internet-based service and dividends per share, by quarter, for 2013 and 2012.

 

 

Quarter

 

 

 

 

 

 

 

 

 

 

 

 

2013

1st

 

2nd

 

3rd

 

4th

Market Price

 

 

 

 

 

 

 

 

 

 

 

  High

$ 

75.59 

 

$ 

79.32 

 

$ 

77.84 

 

$ 

92.87 

  Low

 

61.63 

 

 

69.55 

 

 

70.73 

 

 

75.82 

Dividends per share

 

0.50 

 

 

0.50 

 

 

0.52 

 

 

0.52 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

1st

 

2nd

 

3rd

 

4th

Market Price

 

 

 

 

 

 

 

 

 

 

 

  High

$ 

78.24 

 

$ 

74.41 

 

$ 

75.10 

 

$ 

67.71 

  Low

 

64.45 

 

 

63.67 

 

 

63.63 

 

 

56.34 

Dividends per share

 

0.47 

 

 

0.47 

 

 

0.50 

 

 

0.50 

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

 

 

 

 

 

 

 

 

Total

 

Maximum Number

 

 

 

 

 

 

 

 

 

Number of

 

(or Approximate

 

 

 

 

 

 

 

Shares (or Units)

 

Dollar Value)

 

 

Total Number

 

Average

 

Purchased as

 

of Shares (or Units)

 

 

of Shares

 

Price Paid

 

Part of Publicly

 

that may yet be

 

 

(or Units)

 

per Share

 

Announced Plans

 

Purchased under

Period

 

Purchased

(1)

 

(or Unit)

 

or Programs

(2)

 

the Plans or Programs

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1-31, 2013

 

 

818,038 

 

 

$ 

78.46 

 

 

808,800 

 

 

38,278,367 

 

November 1-30, 2013

 

 

1,024 

 

 

 

87.11 

 

 

- 

 

 

38,278,367 

 

December 1-31, 2013

 

 

4,960 

 

 

 

90.58 

 

 

- 

 

 

38,278,367 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

824,022 

 

 

 

 

 

 

808,800 

 

 

 

 

 

(1)

Of this amount, 15,222 represents shares tendered by employees in connection with the exercise of stock options under the stockholder-approved Long-Term Incentive Plan.

(2)

Our Board of Directors authorized a share repurchase program, pursuant to which up to 125 million shares of Common Stock could be purchased through December 31, 2014.  On August 1, 2012, our Board of Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through December 31, 2017.




Item 6. Selected Financial Data

 

FIVE-YEAR FINANCIAL REVIEW

 

 

2013

 

2012

 

2011

 

2010

 

2009

 

($ in millions, except per share amounts)

RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Railway operating revenues

$

11,245 

 

$

11,040 

 

$

11,172 

 

$

9,516 

 

$

7,969 

Railway operating expenses

 

7,988 

 

 

7,916 

 

 

7,959 

 

 

6,840 

 

 

6,007 

    Income from railway operations

 

3,257 

 

 

3,124 

 

 

3,213 

 

 

2,676 

 

 

1,962 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income – net

 

233 

 

 

129 

 

 

160 

 

 

153 

 

 

127 

Interest expense on debt

 

525 

 

 

495 

 

 

455 

 

 

462 

 

 

467 

    Income before income taxes

 

2,965 

 

 

2,758 

 

 

2,918 

 

 

2,367 

 

 

1,622 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

1,055 

 

 

1,009 

 

 

1,002 

 

 

871 

 

 

588 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net income

$

1,910 

 

$

1,749 

 

$

1,916 

 

$

1,496 

 

$

1,034 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income     – basic

$

6.10 

 

$

5.42 

 

$

5.52 

 

$

4.06 

 

$

2.79 

                       – diluted

 

6.04 

 

 

5.37 

 

 

5.45 

 

 

4.00 

 

 

2.76 

Dividends

 

2.04 

 

 

1.94 

 

 

1.66 

 

 

1.40 

 

 

1.36 

Stockholders’ equity at year end

 

36.55 

 

 

31.08 

 

 

30.00 

 

 

29.85 

 

 

28.06 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL POSITION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

32,483 

 

$

30,342 

 

$

28,538 

 

$

28,199 

 

$

27,369 

Total debt

 

9,448 

 

 

8,682 

 

 

7,540 

 

 

7,025 

 

 

7,153 

Stockholders’ equity

 

11,289 

 

 

9,760 

 

 

9,911 

 

 

10,669 

 

 

10,353 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property additions

$

1,971 

 

$

2,241 

 

$

2,160 

 

$

1,470 

 

$

1,299 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding (thousands)

 

311,916 

 

 

320,864 

 

 

345,484 

 

 

366,522 

 

 

367,077 

Number of stockholders at year end

 

30,990 

 

 

32,347 

 

 

33,381 

 

 

35,416 

 

 

37,486 

Average number of employees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Rail

 

29,698 

 

 

30,543 

 

 

29,933 

 

 

28,160 

 

 

28,173 

    Nonrail

 

405 

 

 

400 

 

 

396 

 

 

399 

 

 

420 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Total

 

30,103 

 

 

30,943 

 

 

30,329 

 

 

28,559 

 

 

28,593 

 

 

 

 

 

 

 

 

 

 

See accompanying consolidated financial statements and notes thereto.




Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Norfolk Southern Corporation and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes and the Selected Financial Data.

 

OVERVIEW

 

We are one of the nation’s premier transportation companies.  Our Norfolk Southern Railway Company subsidiary operates approximately 20,000 miles of road in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers.  We operate the most extensive intermodal network in the East and are a major transporter of coal, automotive, and industrial products. 

 

Our net income increased 9% in 2013, compared with 2012, and earnings per share improved 12%, reflecting improved operating results, a large gain from a nonoperating transaction, and share repurchases.  Higher revenues and increased network efficiencies improved our railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) from 71.7% in 2012 to 71.0% in the current year.

 

Cash provided by operating activities totaled $3.1 billion, which along with proceeds from borrowings and cash on hand, allowed for property additions, dividends, share repurchases, and debt repayments. During 2013, we repurchased 8.3 million shares of Common Stock at a total cost of $627 million. Since inception of our stock repurchase program in 2006, we have repurchased and retired 136.7 million shares of Common Stock at a total cost of $8.1 billion. At December 31, 2013, cash, cash equivalents, and short-term investments totaled $1.6 billion.

 

In 2014, we expect revenues to increase, reflecting higher volumes.  We will continue to focus on safety, cost control, productivity, service levels, operational efficiency, and an ongoing market-based approach to pricing.

 




SUMMARIZED RESULTS OF OPERATIONS

 

2013 Compared with 2012

 

Net income in 2013 was $1.9 billion, or $6.04 per diluted share, up $161 million, or 9%, compared with $1.7 billion, or $5.37 per diluted share, in 2012, a reflection of a 4% increase in income from railway operations, in addition to the favorable impact of the recognition of the gain from the sale of certain assets to the Michigan Department of Transportation (MDOT), which benefited net income by $60 million and earnings per share by $0.19.  Railway operating revenues rose 2%, while operating expenses increased 1%, driven largely by higher volume-related expenses.

 

2012 Compared with 2011

 

Net income in 2012 was $1.7 billion, or $5.37 per diluted share, down $167 million, or 9%, compared with

$1.9 billion, or $5.45 per diluted share, in 2011.  The decrease in net income was due to lower income from railway operations, lower nonoperating income items, higher interest expense on debt, and a higher effective income tax rate (Note 3).  Railway operating revenues decreased modestly, $132 million, reflecting lower average revenue per unit, including fuel surcharges.  Railway operating expenses also decreased modestly, $43 million, largely driven by the absence of the $58 million unfavorable arbitration ruling in 2011 and declines related to network efficiency and productivity gains, offset by higher depreciation and intermodal volume-related expenses.

 

DETAILED RESULTS OF OPERATIONS

 

Railway Operating Revenues

 

Railway operating revenues were $11.2 billion in 2013, $11.0 billion in 2012, and $11.2 billion in 2011.  The following table presents a three-year comparison of revenues, volumes, and average revenue per unit by market group.

 

 

Revenues

 

Units

 

Revenue per Unit

 

2013

 

2012

 

2011

 

2013

 

2012

 

2011

 

2013

 

2012

 

2011

 

   ($ in millions)

 

    (in thousands)

 

($ per unit)     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

$

2,543 

 

$

2,879 

 

$

3,458 

 

1,346.7 

 

1,414.1 

 

1,619.6 

 

$

1,888 

 

$

2,036 

 

$

2,135 

General merchandise:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

 

1,667 

 

 

1,467 

 

 

1,368 

 

449.2 

 

388.8 

 

373.7 

 

 

3,711 

 

 

3,772 

 

 

3,662 

Agr./consumer/gov’t.

 

1,467 

 

 

1,446 

 

 

1,439 

 

594.3 

 

595.9 

 

599.4 

 

 

2,468 

 

 

2,427 

 

 

2,400 

Metals/construction

 

1,405 

 

 

1,335 

 

 

1,241 

 

666.9 

 

669.7 

 

665.0 

 

 

2,106 

 

 

1,993 

 

 

1,867 

Automotive

 

984 

 

 

897 

 

 

780 

 

402.1 

 

374.6 

 

332.2 

 

 

2,448 

 

 

2,395 

 

 

2,348 

Paper/clay/forest

 

795 

 

 

775 

 

 

756 

 

309.4 

 

305.8 

 

314.3 

 

 

2,570 

 

 

2,536 

 

 

2,404 

General merchandise

 

6,318 

 

 

5,920 

 

 

5,584 

 

2,421.9 

 

2,334.8 

 

2,284.6 

 

 

2,609 

 

 

2,536 

 

 

2,444 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intermodal

 

2,384 

 

 

2,241 

 

 

2,130 

 

3,572.3 

 

3,358.3 

 

3,210.5 

 

 

667 

 

 

667 

 

 

663 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total

$

11,245 

 

$

11,040 

 

$

11,172 

 

7,340.9 

 

7,107.2 

 

7,114.7 

 

$

1,532 

 

$

1,553 

 

$

1,570 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




Revenues increased $205 million in 2013, but decreased $132 million in 2012.  As reflected in the table below, the increase in 2013 resulted from higher volumes, partially offset by lower average revenue per unit as lower market-based export coal rates, the effects of changes in the mix of business, and slightly lower fuel surcharges more than offset rate increases.  The decrease in 2012 was due to lower average revenue per unit (as the negative effects of changes in the mix of business offset rate increases and slightly higher fuel surcharges) and slightly lower volume.  Fuel surcharge revenue totaled $1,254 million in 2013, $1,278 million in 2012, and $1,255 million in 2011If fuel prices remain at or near year-end 2013 levels, fuel surcharge revenue will be relatively flat in 2014.

 

 

Revenue Variance Analysis

 

Increase (Decrease)

 

 

 

 

 

 

 

 

2013 vs. 2012 

 

 

2012 vs. 2011 

 

($ in millions)

 

 

 

 

 

 

 

Volume (units)

$ 

363 

 

 

$ 

(12)

Revenue per unit

 

(158)

 

 

 

(120)

 

 

 

 

 

 

 

  Total

$ 

205 

 

 

$ 

(132)

 

Many of our negotiated fuel surcharges for coal and industrial products shipments are based on the monthly average price of West Texas Intermediate Crude Oil (WTI Average Price). These surcharges are reset the first day of each calendar month based on the WTI Average Price for the second preceding calendar month. This two-month lag in applying WTI Average Price decreased fuel surcharge revenue by approximately $29 million in 2013, increased fuel surcharge revenue by approximately $39 million in 2012, and decreased fuel surcharge revenue by approximately $44 million in 2011.

 

Two of our customers, DuPont and Sunbelt Chlor Alkai Partnership (“Sunbelt”), have rate reasonableness complaints pending before the Surface Transportation Board (STB) alleging that our tariff rates for transportation of regulated movements are unreasonable.  We dispute these allegations.  Since June 1, 2009, in the case of DuPont, and April 1, 2011, in the case of Sunbelt, we have been billing and collecting amounts based on the challenged tariff rates.  We presently expect resolution of these cases to occur in 2014 and believe the estimate of reasonably possible loss will not have a material effect on our financial position, results of operations, or liquidity.  With regard to rate cases, we record adjustments to revenues in the periods, if and when, such adjustments are probable and estimable.

 

COAL revenues decreased $336 million, or 12%, compared with 2012, reflecting a 5% decrease in carload volume (tonnage hauled declined 4%) primarily due to fewer shipments of utility and domestic metallurgical coal.  Average revenue per unit was down 7%, the result of lower pricing (mainly market-based export coal) and decreased fuel surcharge revenue, partially offset by the positive effect of changes in mix.

 

In 2012, coal revenues decreased $579 million, or 17%, compared with 2011, reflecting a 13% decrease in carload volume (tonnage was 12% lower) primarily due to fewer shipments of utility coal.  Coal average revenue per unit was down 5% compared with 2011, the result of lower pricing (mainly market-based export metallurgical coal) and decreased fuel surcharge revenue, partially offset by the positive effect of changes in mix.

 

For 2014, coal revenues are expected to decrease, although more modestly, due to fewer carloads and lower average revenue per unit.




Coal represented 23% of our revenues in 2013, and 79% of shipments handled originated on our lines.  As shown in the following table, tonnage decreased in our utility and domestic metallurgical markets but increased slightly in our export and industrial markets.

 

 

Coal Tonnage by Market

 

 

 

 

 

 

 

2013

 

2012

 

2011

 

(tons in thousands)

 

 

 

 

 

 

Utility

97,146 

 

101,636 

 

122,004 

Export

28,631 

 

28,304 

 

28,461 

Domestic metallurgical

16,905 

 

18,793 

 

19,702 

Industrial

7,388 

 

7,376 

 

7,713 

 

 

 

 

 

 

  Total

150,070 

 

156,109 

 

177,880 

 

Utility coal tonnage was down 4% in 2013 as compared to 2012.  Utility coal shipments in our southern region decreased due to lower demand as utility stockpiles remained high and natural gas prices remained low.  This decrease was partially offset by increased shipments in our northern region as higher coal burn necessitated stockpile replenishments to maintain targeted levels.

 

In 2012, utility coal tonnage dropped 17%, compared with 2011, reflecting competition from low natural gas prices and reduced electrical demand in NS-served regions.  Additional tonnage declines resulted from plant closures and maintenance.

 

For 2014, we expect utility coal tonnage to decrease driven by continued weak demand as well as the loss of a contract.

 

Export coal tonnage increased 1% in 2013, compared with 2012.  Despite strong global competition, we handled higher export thermal and metallurgical coal shipments as an increase in steel production in developing markets offset weakness in the European market.  Volume through Norfolk was up 2.1 million tons, or 11%, whereas Baltimore volume decreased 1.4 million tons, or 17%.  Other export volume decreased 0.4 million tons, or 36%.

 

In 2012, export coal tonnage decreased 1% compared with 2011, a reflection of weaker global demand for metallurgical coal used in steel production in NS-served markets, in addition to the negative impact of the return of Australian supply, offset in part by increased thermal shipments.  Volume through Norfolk was down 1.3 million tons, or 6%, whereas volume through Baltimore increased 0.3 million tons, or 4%.  Other export coal volume increased 0.8 million tons.

 

For 2014, export coal tonnage is expected to decrease as a result of strong competition in the Western European metallurgical coal market, in addition to soft demand and an oversupply of thermal coal.

 



Domestic metallurgical coal tonnage was down 10% in 2013, compared with 2012, due to weaker domestic steel production, sourcing shifts away from coal origins we serve, and the permanent closure of a steel plant in mid-2012 that impacted the year-over-year comparison for the first half of 2013.

 

In 2012, domestic metallurgical coal tonnage was down 5% compared with 2011, as declines in coke and iron ore shipments (primarily due to the plant closure) offset improved domestic steel production experienced in the first half of 2012.

 

For 2014, domestic metallurgical coal tonnage is expected to be flat with 2013, as improved steel demand should offset losses due to sourcing shifts.

 

Industrial coal tonnage increased slightly in 2013, compared with 2012, as increased shipments to existing customers was partially offset by weaker industrial demand in the print paper and cement sectors.

 

In 2012, industrial coal tonnage decreased 4% compared to 2011, as weak industrial demand was partially offset by new business.

 

For 2014, industrial coal tonnage is expected to increase slightly due to higher demand in the U.S. industrial sector.

 

GENERAL MERCHANDISE revenues in 2013 increased $398 million, or 7%, compared with 2012, reflecting 4% growth in carload volume and a 3% improvement in average revenue per unit that reflected favorable changes in the mix of traffic (increases in higher-than-average revenue per unit traffic) as well as higher rates and fuel surcharges.  

 

In 2012, general merchandise revenues increased $336 million, or 6%, compared with 2011, reflecting a 4% rise in average revenue per unit as a result of higher rates and fuel surcharges.  Carload volume increased 2%

 

Chemicals revenues in 2013 increased 14%, compared with 2012, reflecting 16% growth in volume partially offset by a 2% decline in average revenue per unit that resulted from the negative effect of the changes in mix due to increased crude oil shipments.  The volume improvement was primarily the result of more carloads of crude oil from the Bakken and Canadian oil fields.  Additionally, there were more carloads of liquefied petroleum gas in the Utica Shale region.

 

In 2012, chemicals revenues grew 7%, compared with 2011, reflecting 4% growth in volume and a 3% increase in average revenue per unit that resulted from higher rates and fuel surcharges.  The volume improvement was largely the result of more carloads of crude oil from the Bakken and Canadian oil fields.  Additionally, there were more carloads of liquefied petroleum gas, as well as higher shipments of plastics driven by greater demand for plastic bottles.  These increases were offset in part by fewer shipments of rock salt as a mild winter resulted in higher inventory levels throughout 2012.

 

For 2014, chemicals revenues are anticipated to increase, largely a result of more shipments of crude oil and asphalt.

 

Agriculture, consumer products, and government revenues increased 1% in 2013, compared with 2012, as a 2% improvement in average revenue per unit (reflecting pricing improvements that were slightly offset by a negative change in mix related to the increase of lower-rated shorter-haul movements of corn) was partially offset by a slight decline in volume.  The volume decline was driven by reduced shipments of soybeans and related products caused by tightened supplies of domestic beans and a strong South American crop, in addition to fewer revenue movements of empty equipment.  Carload volume declines were partially offset by higher shipments of food oils as we handled new business with existing customers and more biodiesel carloads in advance of the anticipated elimination of the biodiesel tax credit.  We also hauled more shipments of fertilizer due to a strong farm economy and increased planting activity.



 

In 2012, agriculture, consumer products, and government revenues were relatively flat, compared with 2011, as higher average revenue per unit was offset by lower volume.  The volume decline was driven by reduced corn shipments (due to plant closures), fewer carloads of fertilizer (led by certain network classification changes), and reduced shipments of wheat to the eastern U.S. (due to customer sourcing changes).  These volume declines were offset in part by more shipments of soybean and soybean meal due to a poor South American bean crop, as well as higher shipments of corn-based feed to Texas.

 

For 2014, agriculture, consumer products, and government revenues are expected to improve as a result of higher average revenue per unit offset in part by a slight decrease in volume.  The projected decline in volume is based primarily on fewer shipments of corn, as we anticipate that strong local production will prompt customer sourcing changes, as well as reduced shipments of wheat feed, with a partial offset by anticipated market share growth in perishables, beverages, and consumer products.

 

Metals and construction revenues increased 5% in 2013, compared with 2012.  The revenue improvement resulted from 6% higher average revenue per unit, which reflected the positive change in mix of business as we transported higher-rated shipments of slag and fractionating sand for natural gas drilling, higher rates, and increased fuel surcharges.  Although we moved more slag and fractionating carloads, volume declined modestly as we handled reduced shipments of iron and steel (driven by fewer import slabs and a steel plant closure during the third quarter of 2012) and scrap metal (a result of weakening demand).  

 

In 2012, metals and construction revenues increased 8%, compared with 2011.  The improvement resulted from 7% higher average revenue per unit, which reflected higher rates and fuel surcharges.  Volume improved 1%, the result of more coil steel shipments driven by increased automotive production.  The mild winter weather experienced in early and late 2012 led to more shipments of cement for construction projects.  There were also higher shipments of fractionating sand for natural gas drilling.  These increases were partially offset by fewer aggregates carloads, primarily driven by weak market conditions in road/highway construction, and as lower coal utility burn led to fewer shipments of scrubber stone.

 

For 2014, metals and construction revenues are expected to increase reflecting higher shipments of fractionating sand and other materials used for natural gas drilling, as well as additional shipments of steel used by the automotive and energy sectors.  Average revenue per unit is also anticipated to improve.   

 

Automotive revenues rose 10% compared to 2012, reflecting 7% growth in volume due to increased vehicle production at plants we serve and new business from existing customers (including both auto parts and finished vehicles).  Average revenue per unit improved 2%, reflecting improved pricing and higher fuel surcharges.

 

In 2012, automotive revenues rose 15%, compared to 2011, reflecting a 13% rise in volume due to increased vehicle production at plants we serve and a 2% improvement in average revenue per unit, including fuel surcharges.

 

For 2014, automotive revenues are expected to grow as a result of volume gains driven by a continued increase in domestic production at plants we serve, in addition to higher average revenue per unit.

 

Paper, clay and forest products revenues increased 3% in 2013, compared with 2012, reflecting 1% gains in both volume and average revenue per unit.  Volume increases for lumber, pulp, and pulpboard were offset by reduced demand for newsprint and paper.

 

In 2012, paper, clay, and forest products revenues increased 3%, compared with 2011, reflecting a 5% improvement in average revenue per unit due to increased rates, which more than offset the effects of a 3% volume decline.  The lower volume was due to reduced shipments of miscellaneous wood driven by the loss of business and fewer carloads of pulp as a result of declining export market demand.



For 2014, paper, clay, and forest products revenues are anticipated to decline as we expect reduced shipments of miscellaneous wood (due to market share loss), in addition to fewer shipments of pulp and graphic paper as demand declines, partially offset by improvements in the housing market and higher average revenue per unit.

 

INTERMODAL revenues increased $143 million, or 6%, compared with 2012, reflecting a 6% growth in volume.  Average revenue per unit was flat.  

 

Domestic volume (including truckload and intermodal marketing companies, Triple Crown Services, and Premium business) improved 7%, the result of continued highway-to-rail conversions and additional business associated with the opening of new intermodal terminals.  International traffic volume grew 6%, due to growth with existing customers as the economy continued to improve.

 

In 2012, intermodal revenues increased $111 million, or 5%, compared with 2011, reflecting 5% growth in volume largely due to increased domestic units resulting from continued highway-to-rail conversions.  Average revenue per unit improved 1% as a result of higher fuel surcharges, partially offset by lower pricing.  Domestic volume increased 8%, reflecting continued highway conversions. International volume declined 1%, as the loss of business from a shipping line was partially offset by growth across remaining international customers.

 

For 2014, intermodal revenues are expected to increase due to higher volume and average revenue per unit as a result of continued highway conversions and growth associated with our new intermodal terminals.

 

Railway Operating Expenses

 

Railway operating expenses in 2013 were $8.0 billion, up $72 million, or 1% compared to 2012.  Expenses in 2012 were $7.9 billion, down $43 million, or 1%, compared to 2011.  In 2013, higher wage rates and volume-related expense increases were offset in part by lower costs resulting from network efficiencies.  For 2012, the decrease reflected the absence of 2011’s $58 million unfavorable arbitration ruling and lower costs due to gains in network efficiency, offset in part by higher volume-related expenses.

 

The following table shows the changes in railway operating expenses summarized by major classifications.

 

 

Operating Expense Variances

 

Increase (Decrease)

 

 

 

 

 

 

 

 

2013 vs. 2012

 

 

2012 vs. 2011

 

($ in millions)   

 

 

 

 

 

 

 

Compensation and benefits

$ 

42 

 

 

$ 

(14)

Fuel

 

36 

 

 

 

(12)

Purchased services and rents

 

25 

 

 

 

(6)

Depreciation