FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For Transition Period from _________________ to ____________________
Commission File No. 1-9064
CONSOLIDATED RAIL CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23 1989084
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2001 Market Street, Two Commerce Square
Philadelphia, Pennsylvania 19101-1417
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 209-4000
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Securities registered pursuant to Section 12(b) of the Act: NONE
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
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Aggregate market value of voting stock held by non-affiliates of the
Registrant (as of March 1, 1994): $0.
Shares of Common Stock Outstanding (as of March 1, 1994): 100 Shares, all
of which are held by the parent of the Registrant
DOCUMENTS INCORPORATED BY REFERENCE: NONE
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(J)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
<PAGE>
TABLE OF CONTENTS
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Item Page
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Part I 1. Business....................................... 1
2. Properties..................................... 3
3. Legal Proceedings.............................. 4
4. Submission of Matters to a Vote of Security
Holders..................................... 10
Part II 5. Market for Registrant's Common Equity and
Related Stockholder Matters................. 10
6. Selected Financial Data........................ 10
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 10
8. Financial Statements and Supplementary Data..... 15
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...... 40
Part III 10. Directors and Executive Officers of the
Registrant.................................. 40
11. Executive Compensation......................... 40
12. Security Ownership of Certain Beneficial
Owners and Management....................... 40
13. Certain Relationships and Related Transactions. 40
Part IV 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................... 41
Power of Attorney............................................. 44
Signatures.................................................... 44
Exhibit Index................................................. 46
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PART I
Item 1. Business.
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GENERAL. Consolidated Rail Corporation ("the Company") is a
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Pennsylvania corporation incorporated on February 10, 1976 to
acquire, pursuant to the Regional Rail Reorganization Act of 1973,
the rail properties of many of the railroads in the northeast and
midwest region of the United States that had gone bankrupt during
the early 1970's, the largest of which was the Penn Central
Transportation Company. Pursuant to the Conrail Privatization Act,
the United States Government sold 85% of the Company's common stock
in a public offering on March 26, 1987. The remaining 15% of the
Company's common stock, which was then held in connection with an
employee stock ownership plan, was distributed to then present and
former employees or their beneficiaries in 1987.
On July 1, 1993, pursuant to an Agreement and Plan of Merger
approved by the shareholders of the Company on May 26, 1993, each
share of the Company's common stock that was issued and outstanding
or held in the treasury, and each share of the Company's
outstanding preferred stock, all of which were held by the Non-
union Employee Stock Ownership Plan (the "ESOP"), were
automatically converted into one share of the common stock and
preferred stock, respectively, of Conrail Inc., a Pennsylvania
corporation incorporated on February 12, 1993. On July 1, 1993,
Conrail Inc. became the publicly held entity and holding company of
the Company, which remains Conrail Inc.'s only significant
subsidiary and primary asset.
RAIL OPERATIONS. The Company provides freight transportation
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services within the northeast and midwest United States. The
Company interchanges freight with other United States and Canadian
railroads for transport to destinations within and outside the
Company's service region. The Company operates no significant line
of business other than the freight railroad business and does not
provide common carrier passenger or commuter train service.
The Company serves a heavily industrial region that is marked
by dense population centers which constitute a substantial market
for consumer durable and non-durable goods, and a market for raw
materials used in manufacturing and by electric utilities. The
Company's traffic levels are substantially affected by its ability
to compete with trucks and other railroads, the economic strength
of the industries and metropolitan areas that produce and consume
the freight the Company hauls, and the traffic generated by the
Company's connecting railroads. The Company remains dependent on
non-bulk traffic, which tends to generate higher revenues than bulk
commodities, but also involves higher costs and is more vulnerable
to truck competition.
<PAGE>
The Company's significant freight commodity groups include
chemicals and related products, coal, intermodal, automotive parts
and finished vehicles, metals and related products, food and grain
products, and forest products.
In late 1993, the Company announced the reorganization of its
Marketing and Sales and Operating Departments into four service
networks: Intermodal Service, Automotive Service, Unit Trains
Service and Core Service. The Unit Trains network will handle coal
and ore traffic, with the remaining commodities, other than
automobiles and intermodal, to be handled by the Core network.
Effective in 1994, each of these groups controls the integrated
planning, pricing and operating functions that will enable them to
tailor services, develop products and make capital investments
directed toward the special requirements of their respective
customers.
GOVERNMENT REGULATION. The Company is subject to
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environmental, safety and other regulations generally applicable to
all businesses, and its rail operations are also regulated by the
Interstate Commerce Commission ("ICC"), the Federal Railroad
Administration ("FRA"), state Departments of Transportation and
some state and local regulatory agencies.
The ICC has jurisdiction over, among other things, rates
charged for certain traffic movements, service levels, freight car
rents, and issuance or guarantee of railroad securities. It also
has jurisdiction over the situations and terms under which one
railroad may gain access to another railroad's traffic or
facilities, extension or abandonment of rail lines, consolidation,
merger, or acquisition of control of rail common carriers and of
other carriers by rail common carriers and labor protection
provisions in connection with the foregoing.
Federal regulation of rates and services has been reduced.
The ICC has deregulated rates for intermodal traffic, most boxcar
traffic and, most recently, a series of miscellaneous commodities,
including steel and automobiles. In addition, railroads are free
to negotiate contracts with shippers setting rates, service
standards and the terms for movements of other kinds of traffic.
As a result, railroads have greater flexibility in adjusting rates
and services to meet revenue needs and competitive conditions.
The FRA has jurisdiction over safety and railroad equipment
standards.
The Company's operations are also subject to a variety of
governmental laws and regulations relating to the protection of the
environment. In addition to being involved as a potentially
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responsible party at numerous Superfund sites (see Item 3 - "Legal
Proceedings"), the Company is subject to increasing regulation of
its transportation and handling of certain hazardous and non-
hazardous commodities and waste, which has resulted in additional
administrative and operating costs. See Note 12 to the
Consolidated Financial Statements elsewhere in this Annual Report.
Item 2. Properties.
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As of December 31, 1993, the Company (excluding its
subsidiaries) maintained 20,109 miles of track including track for
crossovers, turnouts, second main, other main, passing and switch
track, on its 11,831 mile route system. Of total route miles,
9,961 are owned, 56 are leased or operated under contract and 1,814
are operated under trackage rights, including approximately 300
miles operated pursuant to an easement over Amtrak's Northeast
Corridor. As of December 31, 1993, virtually all track over which
at least 10 million gross tons moved annually (6,276 track miles)
was heavy-weight rail of at least 127 pounds per yard, and
approximately 98% of such track had continuous welded rail.
Continuous welded rail reduces track maintenance costs and, in
general, permits trains to travel at higher speeds. As of December
31, 1993, the Company had 9,412 miles of continuous welded rail on
track it maintained.
As of December 31, 1993, all of the 5,647 track miles
maintained for fast freight traffic had a maximum operating speed
of 50 MPH or more, and 33% had a maximum operating speed of at
least 70 MPH. As of December 31, 1993, approximately 96% of the
track over which at least 10 million gross tons moved annually was
governed by automatic signal systems. In all, as of December 31,
1993, 7,610 miles of track were controlled by automatic signal
systems.
The Company owns (or uses subject to capitalized leases) 2,187
locomotives with an average age of 16.6 years and 60,017 freight
cars of various types (including 17,595 freight cars under
operating leases) with an average age of 21.0 years.
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Item 3. Legal Proceedings.
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Occupational Disease Litigation. The Company has been named
-------------------------------
as a defendant in lawsuits filed pursuant to the provisions of the
Federal Employers' Liability Act ("FELA") by persons alleging
(1) personal injury or death caused by exposure to asbestos in
connection with railroad employment; (2) complete or partial loss
of hearing caused by exposure to excessive noise in the course of
railroad employment; and (3) repetitive motion injury in connection
with railroad employment. As of December 31, 1993, the Company is
a defendant in 694 pending asbestosis suits, 1,262 pending hearing
loss suits and 16 pending repetitive motion injury suits, and had
notice of 609 potential asbestosis claims, 4,746 potential hearing
loss claims and 1,049 potential repetitive motion injury claims.
The Company expects to be named as a defendant in a
significant number of occupational disease cases in the future.
Structure and Crossing Removal Disputes in Connection With
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Lines Abandoned Under NERSA. The Company may be responsible, in
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whole or in part, for the costs of removal of several hundred
overhead and underpass crossings located on railroad lines it has
abandoned under the Northeast Rail Service Act of 1981 ("NERSA")
(and, in some instances, responsible for the removal of the lines
of railroad themselves as well as appurtenant structures). The
Company's liability for the removal of such lines, crossings and
structures will be determined on a case-by-case basis. Some states
have imposed upon the Company the obligation to remove certain
crossings.
In 1989, an organization of interests that own property under
and adjacent to the Company's elevated West 30th Street rail line
running along the west side of lower Manhattan filed a petition
with the ICC seeking to force the Company to abandon the line and
finance its removal, which could cost in excess of $30 million.
The ICC voted in January 1992 to grant the property owners'
petition, subject to the owners posting a bond indemnifying the
Company for any demolition costs exceeding $7 million. The
property owners have refused to post the bond. The parties have
appealed to the United States Court of Appeals for the District of
Columbia.
Withdrawal from RCAF Master Tariff. The Rail Cost Adjustment
----------------------------------
Factor ("RCAF") is an index of rail costs issued by the ICC
according to which railroads may adjust their regulated rates for
inflation and cost increases free of regulatory interference. In
March 1989, the ICC decided to offset the quarterly RCAF by the
entirety of the average rail industry productivity gain, in a
proceeding previously disclosed by the Company in its quarterly
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<PAGE>
report on Form 10-Q for the period ended June 30, 1992
("Productivity Adjustment to Cost Recovery Process").
On January 1, 1990, the Company ceased applying RCAF increases
to its regulated rates, by ending its participation in the RCAF
master tariff. Effective July 1, 1990, the Company published a
series of independent rate increases approximately equal to its
increases in costs as reflected by the RCAF. The Company's action
was contested, but was upheld by the ICC. Since July 1, 1990, the
Company has continued to make independent selective increases to
its regulated rates. These regulated rates will continue to be
subject to individual challenge to the extent the levels of the
increases exceed those previously permitted pursuant to the RCAF
and no other statutory provisions bar ICC jurisdiction.
In January 1991, the ICC commenced a proceeding at the request
of a shippers' organization to clarify the legal effect of the
Company's (and other railroads') withdrawal from the RCAF master
tariff, including the shippers' assertion that railroads thereby
lose protection from challenge for rates previously adjusted under
these procedures. In April 1991, the Company individually opposed
and participated in the rail industry's opposition to the petition.
A decision is awaited.
Engelhart v. Consolidated Rail Corp. In connection with the
-----------------------------------
Special Voluntary Retirement Program offered to certain employees
in late 1989 and early 1990, the Company used surplus funds in its
overfunded Supplemental Pension Plan ("Plan") to fund certain
aspects of that program. In December 1992, certain former
employees of the Company brought suit challenging the use of
surplus Plan funds (i) to pay administrative Plan expenses
previously paid by the Company, (ii) to fund the Special Voluntary
Retirement Program, and (iii) to pay life insurance and medical
insurance premiums of former employees as improper and unlawful,
and alleging that employees who have made contributions to the Plan
or its predecessor plans are entitled to share in the surplus
assets of the Plan. In August 1993, the federal district court
granted the Company's Motion to Dismiss the majority of counts in
the complaint, but declined to dismiss the issue of the Company's
use of Plan assets to pay administrative expenses of the Plan,
which are estimated to be approximately $25 million as of December
31, 1993. However, the Company believes that the use of surplus
Plan assets for this purpose is lawful and proper. The Company
intends to use surplus Plan assets in a similar manner in
connection with its 1994 early retirement program.
Environmental Litigation. The Company is subject to various
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federal, state and local laws and regulations regarding
environmental matters. In certain instances, the Company has
received notices of violations of such laws and regulations and
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either has taken or plans to take appropriate steps to address the
problems cited or to contest the allegations of violation. As of
December 31, 1993, the Company had received inquiries from
governmental agencies or had been identified, together with other
companies, as a potentially responsible party for cleanup and/or
removal costs due to its status as an alleged transporter,
generator or property owner at 114 locations throughout the
country. However, the Company, through its own investigations and
assessments, believes it may have some potential responsibility at
only 54 of these sites. The significant environmental proceedings,
including Superfund sites, are discussed below.
United States v. Southeastern Pennsylvania Transportation
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Authority ("SEPTA"), National Railroad Passenger Corporation
- ------------------------------------------------------------
("Amtrak"), and Consolidated Rail Corp. In March 1986, the United
- --------------------------------------
States Environmental Protection Agency ("EPA") filed an action in
the United States District Court for the Eastern District of
Pennsylvania for cost recovery, injunctive relief, and a
declaratory judgment against the Company, Southeastern Pennsylvania
Transportation Authority ("SEPTA") and National Railroad Passenger
Corp. ("Amtrak") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA" or "Superfund
Law"), as amended. In 1990, the Pennsylvania Department of
Environmental Resources intervened as a plaintiff. Suit is based
on the release or threatened release at the Paoli Railroad Yard,
Paoli, Chester County, Pennsylvania, of polychlorinated biphenyls
("PCBs"), a listed hazardous substance under CERCLA. The Company
is sued in its capacity as the operator of the rail yard from April
1, 1976 through December 31, 1982, under an agreement with SEPTA to
provide commuter rail service. In March 1992, Penn Central brought
suit before the Special Court arguing that the terms of the
transfer of its properties to the Company did not contemplate
environmental liability for conditions existing at the time of the
transfer. The Special Court has determined it has jurisdiction to
hear the matter. In February 1993, Penn Central petitioned the
district court to stay all proceedings with respect to it pending
the outcome of the proceeding before the Special Court. The EPA
has responded by filing a petition to stay the district court
proceeding in its entirety pending resolution of the Special Court
proceeding. Motions and cross-motions for summary judgment by the
parties are pending.
Pursuant to a series of partial preliminary consent decrees,
defendants have performed a series of cleanup actions both on and
off-site and have conducted a Remedial Investigation/Feasibility
Study ("RI/FS"). As of December 31, 1993, the cost of the RI/FS
and of the interim cleanup measures performed by the three
defendants is approximately $9 million. Those costs have been
shared equally among the three defendants but are subject to
reallocation. All work done to date has been performed subject to
6
<PAGE>
a denial of liability and without waiving any defense to the
governmental claim for cleanup costs or other relief.
On September 16, 1992, the EPA issued a Special Notice Letter
to the Company, SEPTA, Amtrak and Penn Central Corporation
requesting the parties to provide, within 60 days, a good-faith
offer to perform all necessary remediation of the Paoli rail yard
site, as well as reimbursement of approximately $2.6 million in
past response costs of the EPA. The EPA estimates that its
remediation plan as set forth in its Record of Decision will cost
approximately $28 million. On November 16, 1992, the parties
submitted an offer to pay a portion of the estimated cost of the
remediation action selected by the EPA. On January 8, 1993, the EPA
rejected the parties' offer on several bases, including that the
proposal addressed only a portion of the EPA's recommended remedy
for the site. The EPA may now issue an administrative order
directing any party to carry out its remediation plan, subject to
treble damages and daily penalties for failure to comply without
sufficient cause. The estimated cost of the Company's portion of
the parties' proposed remedy was included in the 1991 special
charge and subsequent adjustments to accruals.
United States v. Consolidated Rail Corp. The EPA has
---------------------------------------
listed the Company's Elkhart Yard in Indiana on the National
Priorities List. The EPA contends that chemicals have migrated
from the yard and contaminated drinking wells in the area. On
February 14, 1990, the EPA filed a civil action against the Company
in the U.S. District Court for the Northern District of Indiana
seeking recovery of approximately $345,000 for costs incurred in
protecting the water supply. In addition, the EPA seeks a
declaratory judgment against the Company for all future costs
incurred in responding to the release or threatened release of
hazardous substances from the site. The Company believes it is not
the sole source and may not be a contributing source to the
contamination alleged by the EPA. The Company filed a third-party
action joining Penn Central as a defendant, to which Penn Central
has responded by filing a declaratory judgment action in Special
Court. (See previous discussion regarding the Special Court under
"United States v. SEPTA, et al"). On July 7, 1992, the EPA issued
an order requiring the Company and Penn Central to implement the
interim remedy set forth in the Record of Decision. The Company is
performing the interim remedy in compliance with the EPA order and
is simultaneously in litigation with the EPA over the
implementation of the remedy. Penn Central has declined to
participate. The estimated cost of remediation was included in the
Company's 1991 special charge and subsequent adjustments to
accruals.
United States v. Consolidated Rail Corp., et al. The Company
-----------------------------------------------
has been identified as the fifth largest generator of waste oil at
7
<PAGE>
the Berks Associates Superfund site in Douglasville, Pennsylvania.
In addition, the Company has become aware that it and its
predecessor, Penn Central, owned a small portion of land that was
leased to the operator of the Berks site. As such, the Company's
liability could increase due to its questionable status as both an
owner and a generator. In August 1991, the EPA issued an
administrative order against the Company and thirty-five other
entities mandating the implementation of an approximately
$2 million partial remedy and filed a complaint in the U.S.
District Court for the recovery of approximately $8 million in
costs incurred by the government. The parties have negotiated an
administrative order with the EPA and have filed an answer to the
civil action. A group of potentially responsible parties
(including the Company) undertook compliance with the
administrative order. The Company and the 35 other defendants have
filed a third-party complaint against approximately 630 entities
seeking contribution for the costs of the remedy and government
costs. The Company, along with other defendants, is negotiating a
settlement with the EPA. On June 30, 1993, the EPA issued another
administrative order against the Company and 33 other entities,
mandating the remediation of the southern portion of the site. The
effective date of the order has been delayed in light of the
negotiations.
The most expensive aspect of the remediation of the site is
the clean-up of Source Area 2, which the government estimates at
between $45 and $55 million. This Source Area was closed prior to
the Company's incorporation, and therefore the Company has
maintained that it is not liable for the cost of remediating Source
Area 2.
United States v. Consolidated Rail Corp., et al. The Company
-----------------------------------------------
is a potentially responsible party ("PRP"), along with more than 50
other parties, in the United Scrap Lead federal Superfund action in
Troy, Ohio, where substantial quantities of batteries were disposed
of over a period of several years. The EPA sued the Company and
nine other parties in August 1991 in the Southern District of Ohio
for the recovery of approximately $2 million in past costs. The
Company and other PRP's have commissioned treatability studies.
The court has imposed a stay to discuss whether this matter can be
settled. The parties are negotiating over the nature of the
remediation to be undertaken at the site.
Commonwealth of Massachusetts v. Consolidated Rail Corp. On
-------------------------------------------------------
April 21, 1992, the Massachusetts Attorney General filed suit in
Superior Court of Massachusetts alleging the Company's violation of
the Massachusetts Clean Air Act and its implementing regulations by
allowing diesel engines to idle unnecessarily and/or in excess of
thirty minutes. On May 4, 1992, the court entered a preliminary
injunction, the terms of which are substantially consistent with
8
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the Company's existing idling policy. The Attorney General
subsequently filed a complaint alleging the Company's violation of
the preliminary injunction. On February 2, 1993, the parties
entered into a partial settlement agreement; however, the Attorney
General has alleged that the Company has failed to comply with
certain provisions of the settlement.
United States v. Consolidated Rail Corp., The Monongahela
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Railway Company, et al. On September 30, 1992, Region VIII of the
- ----------------------
EPA filed an administrative action for civil penalties against the
Company and its former wholly-owned subsidiary, The Monongahela
Railway Company (now merged into the Company), under the Toxic
Substances Control Act for allegedly improper handling of a
shipment of PCB contaminated soil. The other railroads in the
movement and the shipper were served with similar complaints. The
Company is currently negotiating with EPA.
New York State Department of Environmental Conservation Order
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On Consent. On February 18, 1993, the New York State Department of
- ----------
Environmental Conservation ("NYSDEC") served the Company with a
draft Order on Consent requiring the payment of fines in connection
with its inspection of Selkirk Yard. The Order also seeks
compensation for the hiring of three full-time NYSDEC employees to
monitor the Company's compliance at Selkirk and two other rail
yards in New York. The Company is negotiating the terms of the
Order with NYSDEC.
Conway Yard, Pittsburgh. In 1991, the Company received
-----------------------
Notices of Violation ("NOV") from the Pennsylvania Department of
Environmental Resources ("PADER") alleging violations of the Clean
Streams Act for discharges of oil into the Ohio River. In
September 1993, PADER sent to the Company a draft Consent Order and
Agreement requiring a comprehensive site remediation for soil,
ground water, surface waters and sediments at the Conway rail yard
and requiring the payment of an undisclosed amount of civil fines
in connection with violations at the yard, including continuing
ground water contamination. The Company and PADER are negotiating
the extent of the investigation and remediation to be undertaken at
the yard.
Other. In addition to the above proceedings, the Company has
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been named in various legal proceedings arising out of its
activities as an employer and as an operator of a freight railroad,
including personal injury actions brought by its employees under
FELA, as well as administrative proceedings with and investigation
by government agencies.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly in certain matters described
above in which substantial damages are or may be sought, the
9
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Company cannot state what the eventual outcomes of such legal
proceedings will be. Certain of these matters, if determined
adversely to the Company, could result in the imposition of
substantial damage awards against, or increased costs to, the
Company that could have a material adverse effect on the Company's
results of operations and financial position. The Company's
management believes, however, based on current knowledge, that such
legal proceedings will not have a material adverse effect on the
Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
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Information omitted in accordance with General Instruction
J(2)(c).
PART II
Item 5. Market for Registrant's Common Equity
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and Related Stockholder Matters.
-------------------------------
All of the common stock of the Company is held by Conrail Inc.
Accordingly, there is no market for the Company's common stock.
Item 6. Selected Financial Data.
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Information omitted in accordance with General Instruction
J(2)(a).
Item 7. Management's Discussion and Analysis of Financial
- ------ -------------------------------------------------
Condition and Results of Operations.
-----------------------------------
See General Instruction J (2)(a).
Results of Operations
- ---------------------
1993 Compared with 1992
Net income for 1993 was $164 million compared with 1992 net
income of $282 million. The decrease in net income is attributable
primarily to the following unusual or one-time charges in 1993:
one-time after tax charges of $70 million for adoption of required
changes in accounting for income taxes and postretirement benefits
other than pensions; the reserve for intercompany receivables
related to the planned disposition of Concord Resources Group,
Inc., ("Concord") a subsidiary of Conrail Inc., $58 million (net of
estimated income tax benefits of $31 million); and the one-time
effects on deferred taxes of the increase in the 1993 federal
10
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corporate income tax rate, $34 million (see Notes 1, 3, 7 and 8 to
the Consolidated Financial Statements elsewhere in this Annual
Report). Absent these charges, the Company's net income for 1993
would have been $326 million.
Operating revenues (primarily freight line haul revenues, but
also including switching, demurrage and incidental revenues)
increased $93 million, or 2.8%, from $3,345 million in 1992 to
$3,438 million in 1993. A 5.0% increase in traffic volume, as
measured in units (freight cars and intermodal trailers and
containers), primarily as the result of improvement in the economy
and growth in the Company's market share, resulted in a $160 million
increase in revenues that was partially offset by a 1.6% decrease in
average revenue per unit which reduced revenues $54 million. The
decline in average revenue per unit is attributable to decreases in
average rates which reduced revenue by $62 million, partially offset
by a favorable mix of traffic which increased revenues $8 million.
Traffic volume increases occurred in the following freight commodity
groups: automotive parts and finished vehicles, 13.4%; intermodal,
11.2%; forest products, 6.5%; chemicals and related products, 6.4%;
metals and related products, 5.1%; and food and grain products,
3.6%. Coal traffic decreased 9.2%. Switching, demurrage and
incidental revenues decreased $13 million.
Operating expenses increased $34 million, or 1.2%, from $2,811
million in 1992 to $2,845 million in 1993. The following table
sets forth the operating expenses for the two years:
<TABLE>
<CAPTION>
Increase
(In Millions) 1993 1992 (Decrease)
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<S> <C> <C> <C>
Compensation and benefits $1,228 $1,237 $ (9)
Fuel 178 173 5
Material and supplies 194 197 (3)
Equipment rents 305 290 15
Depreciation and amortization 282 295 (13)
Casualties and insurance 134 133 1
Other 524 486 38
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$2,845 $2,811 $ 34
====== ====== ====
</TABLE>
Compensation and benefits costs decreased $9 million, or 0.7%,
with relatively stable employment levels. The decrease is
attributable primarily to a decrease in payroll taxes, partially
offset by increases in fringe benefit costs and increased wage
rates. Compensation and benefits as a percent of revenues was
35.7% in 1993 compared with 37.0% in 1992.
11
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The increase of $15 million, or 5.2%, in equipment rents
reflects the effects of new operating leases for equipment and the
increase in traffic volume, partially offset by improvement in
equipment utilization.
Depreciation and amortization expense decreased $13 million,
or 4.4%, primarily due to lower depreciation rates for locomotives
and freight cars as a result of a depreciation study required by
the Interstate Commerce Commission.
Other operating expenses increased $38 million, or 7.8%,
primarily due to increases in property and corporate taxes,
increases in write-downs of uncollectible accounts, and a reduction
in 1992 due to reducing accruals related to a 1991 special charge
with no corresponding reduction in 1993.
The Company's operating ratio (operating expenses as a percent
of revenues) was 82.8% for 1993 compared with 84.0% for 1992.
The reserve for intercompany receivables of $89 million
relates to advances made to Concord.
Other income, net, (representing interest and rental income,
property sales and other non-operating items, net) increased $16
million, or 16.3%, from $98 million in 1992 to $114 million in
1993, principally due to higher gains from property sales and
increased equity income as a result of higher net income of the
Company's affiliated companies.
Liquidity and Capital Resources
- -------------------------------
The Company's cas and cash equivalents decreased $14 million,
from $40 million at December 31, 1992 to $26 million at
December 31, 1993. Cash generated from operations, and borrowings
are the Company's principal sources of liquidity and are used
primarily for capital expenditures, debt service, and dividends.
Operating activities provided cash of $495 million in 1993,
compared with $496 million in 1992 and $570 million in 1991.
Issuance of long-term debt provided cash of $485 million in 1993.
The principal uses of cash in 1993 were for property and equipment
acquisitions, $566 million, payment of long-term debt including
capital lease and equipment obligations, $195 million, and the net
repayment of commercial paper, $48 million. Through June 30, 1993,
at which time the Company's common stock was converted to Conrail
Inc. common stock, $32 million was used for the repurchase of
common stock. The Company also paid $142 million in cash dividends
on common and preferred stock, including $87 million to Conrail
Inc. during the last six months of 1993.
12
<PAGE>
A working capital (current assets less current liabilities)
deficiency of $29 million existed at December 31, 1993, compared
with a deficiency of $489 million at December 31, 1992. The
decrease in the deficiency is attributable primarily to the
increase of $57 million in accounts receivable; the recording of
$218 million of current deferred tax assets as a result of adopting
SFAS 109 (see Note 7 to the Consolidated Financial Statements
elsewhere in this Annual Report); and reductions in short-term
borrowings, $48 million, current maturities of long-term debt, $61
million, and accrued and other current liabilities, $86 million.
Management believes that the Company's financial position allows it
sufficient access to credit sources on investment grade terms, and,
if necessary, additional intermediate or long-term debt could be
issued for working capital requirements.
During 1993, the Company issued an additional $114 million of
commercial paper and repaid $162 million. Of the remaining $179
million outstanding at December 31, 1993, $100 million is
classified as long-term debt since it is expected to be refinanced
through subsequent issuances of commercial paper and is supported
by a long-term credit facility.
In February 1993, the Company issued $94 million of Pass
Through Certificates to finance the acquisition of equipment. Of
these certificates, $54 million are direct obligations of the
Company and are secured by the acquired equipment. The remaining
$40 million of certificates were issued to finance equipment which
the Company will utilize under a capital lease, and while such
certificates are not direct obligations of or guaranteed by the
Company, the amounts payable by the Company under the lease will be
sufficient to pay principal and interest on the certificates.
The Company issued $79 million of medium-term notes during the
first quarter of 1993 under a shelf registration statement filed in
April 1990. In May 1993, the Company sold $250 million of 7 7/8%
Debentures due 2043 under the same shelf registration statement.
During 1993, the Company redeemed $85 million of medium-term notes
that were issued in 1988 and 1989.
In June 1993, Conrail Inc. and the Company filed a new shelf
registration statement on Form S-3 which will enable the Company to
issue up to $500 million in debt securities or Conrail Inc. to issue
up to $500 million in convertible debt or equity securities. The
Company issued approximately $63 million of 1993 Equipment Trust
Certificates, Series A, in September 1993, under this registration
statement. The certificates were used to finance approximately 80%
of the cost of certain rebuilt and new freight cars, which the
Company will utilize under an operating lease. Although the
certificates are not direct obligations of, or guaranteed by the
13
<PAGE>
Company, the amounts payable by the Company under the lease will be
sufficient to pay principal and interest on the certificates.
In November 1993, the Company issued $102 million of 1993
Equipment Trust Certificates, Series B, to finance approximately 85%
of the cost of 80 new locomotives. These certificates are direct
obligations of the Company and were not issued pursuant to the 1993
shelf registration statement.
During the third quarter of 1993, the Company reached a settlement
with the Internal Revenue Service related to the audit of the Company's
consolidated federal income tax returns for the fiscal years 1987
through 1989. Under the settlement, the Company paid $51 million,
including interest (see Note 7 to the Consolidated Financial Statements
elsewhere in this Annual Report).
Capital Expenditures
- --------------------
Capital expenditures totalled $650 million, $491 million and
$398 million in 1993, 1992 and 1991, respectively. Of these
capital expenditures, the Company directly financed $232 million in
1993, $13 million in 1992, and $76 million in 1991 through private
third-party financing. In addition, the proceeds of notes and
debentures sold in those years, $329 million, $80 million, and $30
million, respectively, were available to fund capital expenditures.
Capital expenditures for 1993, $650 million, exceeded planned
expenditures by $100 million principally due to the accelerated
acquisition of locomotives originally expected to be acquired in
1994. Capital expenditures for 1994 are expected to be
approximately $490 million.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholder and Board of Directors
Consolidated Rail Corporation
We have audited the consolidated financial statements and
financial statement schedules of Consolidated Rail Corporation and
subsidiaries listed in Item 14(a) of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Consolidated Rail Corporation and subsidiaries as of
December 31, 1993 and 1992, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its methods for accounting for income taxes and
postretirement benefits other than pensions in 1993.
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 24, 1994
15
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31,
--------------------------
($ In Millions Except Per Share Data) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Revenues $3,438 $3,345 $3,252
------ ------ ------
Operating expenses
Way and structures 491 465 484
Equipment 703 692 663
Transportation 1,273 1,306 1,306
General and administrative 378 348 341
Special charge (Note 10) 719
------ ------ ------
Total operating expenses 2,845 2,811 3,513
------ ------ ------
Income (loss) from operations 593 534 (261)
Interest expense (177) (172) (181)
Reserve of intercompany receivables
(Note 3) (89)
Other income, net (Note 11) 114 98 107
------ ------ ------
Income (loss) before income taxes
and the cumulative effect of
changes in accounting principles 441 460 (335)
Income taxes (benefits) (Note 7) 207 178 (128)
------ ------ ------
Income (loss) before the cumulative
effect of changes in accounting
principles 234 282 (207)
Cumulative effect of changes in
accounting principles (Notes 1, 7 and 8) (70)
------ ------ ------
Net income (loss) $ 164 $ 282 $ (207)
====== ====== ======
Net income (loss) per common share
(Note 1)
Primary $ 3.28 $(2.70)
Fully diluted 2.99 (2.70)
Ratio of earnings to fixed charges
(Note 1) 3.00x 3.33x -
</TABLE>
See accompanying notes.
16
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
---------------
($ In Millions) 1993 1992
ASSETS ------ ------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 26 $ 40
Accounts receivable 649 592
Deferred tax assets (Note 7) 218
Material and supplies 132 121
Other current assets 20 37
------ ------
Total current assets 1,045 790
Property and equipment, net (Note 4) 6,313 6,013
Other assets 552 512
------ ------
Total assets $7,910 $7,315
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 79 127
Current maturities of long-term debt (Note 6) 146 207
Accounts payable 84 63
Wages and employee benefits 185 199
Casualty reserves 93 110
Accrued and other current liabilities (Note 5) 487 573
------ ------
Total current liabilities 1,074 1,279
Long-term debt (Note 6) 1,959 1,577
Casualty reserves 132 153
Deferred income taxes (Note 7) 1,084 644
Special income tax obligation (Note 7) 575 569
Other liabilities 343 345
------ ------
Total liabilities 5,167 4,567
------ ------
Commitments and contingencies (Note 12)
Stockholder's equity (Notes 2 and 9)
Preferred stock (no par value; 15,000,000
shares authorized; no shares issued)
Series A ESOP convertible junior preferred
stock (no par value; 10,000,000 shares
authorized; 9,960,527 shares issued and
outstanding in 1992) 287
Unearned ESOP compensation (263)
Common stock ($1 par value; 250,000,000
shares authorized; 100 and 83,431,747
shares issued, respectively; 100 and
79,741,745 shares outstanding, respectively) 83
Additional paid-in capital 2,123 1,888
Note receivable from ESOP (308)
Retained earnings 928 903
------ ------
2,743 2,898
Treasury stock, at cost (3,690,002 shares
in 1992) (150)
------ ------
Total stockholder's equity 2,743 2,748
------ ------
Total liabilities and stockholder's equity $7,910 $7,315
====== ======
</TABLE>
See accompanying notes.
17
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<CAPTION>
Series A Unearned Additional Note
Preferred ESOP Common Paid-in Receivable Retained Treasury
($ In Millions Except Per Share Data) Stock Compensation Stock Capital From ESOP Earnings Stock
--------- ------------ ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1991 $288 $(281) $ 41 $1,877 $1,004
Amortization 8
Net loss (207)
Common dividends, $.85 per share (70)
Preferred dividends, $2.165 per
share (21)
Common shares acquired $ (19)
Exercise of stock options 24
Other 8 9
---- ---- ---- ------ ----- ------ -----
Balance, December 31, 1991 288 (273) 41 1,909 715 (19)
Amortization 10
Net income 282
Common dividends, $1.00 per share (81)
Preferred dividends, $2.165 per
share (21)
Common stock split (Note 2) 42 (42)
Common shares acquired (131)
Exercise of stock options 12
Other (1) 9 8
---- ---- ---- ------ ----- ------ -----
Balance, December 31, 1992 287 (263) 83 1,888 903 (150)
Amortization 5
Net income 164
Common dividends (Note 3) (131)
Preferred dividends, $1.0825
per share (11)
Common shares acquired (32)
Exercise of stock options 1 6
Common shares reclassified as
unissued (1) (1) 2
Corporate reorganization (Note 2) (287) 258 (84) 226 $(307) 180
Other 4 (1) 4
---- ---- ---- ------ ----- ------ -----
Balance, December 31, 1993 $ - $ - $ - $2,123 $(308) $ 928 $ -
==== ==== ==== ====== ===== ====== =====
</TABLE>
See accompanying notes.
18
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
------------------------
($ In Millions) 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 164 $ 282 $(207)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Reserve of intercompany receivables 89
Cumulative effect of accounting changes 70
Depreciation and amortization 282 295 307
Deferred income taxes 224 208 (25)
Special income tax obligation (50) (58) (169)
Gains from sales of property (20) (6) (9)
Pension credit (43) (42) (45)
Special charge 719
Changes in:
Accounts receivable (57) (5) (61)
Accounts and wages payable 7 (153) 95
Settlement of tax audit (51)
Other (120) (25) (35)
----- ----- -----
Net cash provided by operating activities 495 496 570
----- ----- -----
Cash flows from investing activities
Property and equipment acquisitions (566) (466) (314)
Proceeds from disposals of properties 23 25 27
Net loans and investments in Concord (13) (14) (73)
Other (32) (4) (36)
----- ----- -----
Net cash used in investing activities (588) (459) (396)
----- ----- -----
Cash flows from financing activities
Repurchase of common stock (32) (131) (19)
Proceeds from commercial paper 114 380 96
Repayment of commercial paper (162) (203) (96)
Payment of capital lease and equipment
obligations (109) (113) (128)
Proceeds from long-term debt 485 80 30
Payment of long-term debt (86) (53)
Dividends on common stock (131) (81) (70)
Dividends on Series A preferred stock (11) (21) (21)
Proceeds from stock options and other 11 12 24
----- ----- -----
Net cash provided by (used in) financing
activities 79 (130) (184)
----- ----- -----
Decrease in cash and cash equivalents (14) (93) (10)
Cash and cash equivalents
Beginning of year 40 133 143
----- ----- -----
End of year $ 26 $ 40 $ 133
===== ===== =====
</TABLE>
See accompanying notes.
19
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Industry
--------
Consolidated Rail Corporation (the "Company"), operates a
freight railroad system in the Northeast-Midwest quadrant of
the United States and the Province of Quebec.
Principles of Consolidation
---------------------------
The consolidated financial statements include the Company and
majority-owned subsidiaries. Investments in 20% to 50% owned
companies are accounted for by the equity method.
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 mainly of fuel oil and items for
maintenance of property and equipment, and are valued at the
lower of cost, principally weighted average, or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is
provided using the composite straight-line method. 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.
Revenue Recognition
-------------------
Revenue is recognized proportionally as a shipment moves on
the the Company's system from origin to destination.
Earnings Per Share
------------------
Earnings per share amounts are not presented for 1993 as the
Company became a wholly owned subsidiary of Conrail Inc. on
July 1, 1993 (Note 2). For 1992 and 1991, primary earnings
(loss) per share are based on net income (loss) adjusted for
the effects of preferred dividends net of income tax
benefits, divided by the weighted average number of shares
outstanding during the period including the dilutive effect
of stock options. Fully diluted earnings (loss) per share
assume conversion of Series A ESOP Convertible Junior
Preferred Stock ("ESOP Stock") into common stock unless they
are antidilutive as they were in 1991. Net income amounts
20
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
applicable to fully diluted earnings per share in 1992 have
been adjusted by the increase, net of income tax benefits, in
ESOP-related expenses assuming conversion of all ESOP Stock
to common stock. The weighted average number of shares of
common stock outstanding during each of the two years ended
December 31, 1992 are as follows:
1992 1991
---------- ----------
Primary weighted
average shares 81,743,648 81,883,970
Fully diluted weighted
average shares 91,856,193 81,883,970
Ratio of Earnings to Fixed Charges
----------------------------------
Earnings used in computing the ratio of earnings to fixed
charges represent income before income taxes plus fixed
charges, less equity in undistributed earnings of 20% to 50%
owned companies. Fixed charges represent interest expense
together with interest capitalized and a portion of rent under
long-term operating leases representative of an interest
factor. In 1991, when the Company recorded a special charge
(Note 10), earnings were insufficient to cover fixed charges.
New Accounting Standards
------------------------
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("SFAS 106")
(Note 8) and Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109") (Note 7).
As a result, the Company recorded cumulative after tax charges
of $22 million and $48 million for SFAS 106 and SFAS 109,
respectively.
In November 1992, the Financial Accounting Standards Board
issued a standard (SFAS 112) related to accounting for
postemployment benefits, which is effective January 1994.
This standard requires employers to recognize their obligation
to provide salary continuation, supplemental unemployment
benefits, and other benefits provided after employment but
before retirement when certain conditions are met. The
Company has determined that this standard would not have a
material effect on its financial statements.
2. Corporate Reorganization and Presentation
-----------------------------------------
In May 1993, the shareholders of the Company approved a plan
for the adoption of a holding company structure. Under the
Plan, each share of the Company's common stock which was
21
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
issued and outstanding or held in the treasury of the Company,
and each share of the Company's preferred stock, all of which
were held by the Non-union Employee Stock Ownership Plan (the
"ESOP"), were automatically converted into one share of common
stock and one share of preferred stock, respectively, of a
newly created holding company, Conrail Inc. on July 1, 1993.
As a result, effective July 1, 1993, Conrail Inc. became the
publicly held entity and the Company became a wholly-owned
subsidiary of Conrail Inc.
The promissory note receivable, plus accrued interest, which
the Company received in 1990 from the ESOP in exchange for its
preferred shares remained with the Company and is recorded in
the stockholder's equity section of its balance sheet.
As part of the establishment of the holding company, a wholly-
owned subsidiary of the Company was transferred to Conrail
Inc. The financial position and results of operations of this
subsidiary are not material to the accompanying consolidated
financial statements.
In 1992, the Company's Board of Directors authorized a two-for-
one common stock split which was effected in the form of a
common stock dividend. An amount equal to the par value of
the common shares issued was transferred from additional paid-
in capital to the common stock account. In addition, a stock
dividend on the ESOP Stock in the amount of one share of ESOP
Stock for each share of ESOP Stock outstanding was also
distributed.
All references in the financial statements with regard to the
number of shares, and related dividends and per share amounts
for both common stock (including treasury shares) and ESOP
Stock have been restated to reflect the stock split. Stock
compensation and other plans that provide for the issuance of
common stock, ESOP Stock, or an amount equivalent to their
respective fair market values, have also been amended to
reflect the stock split.
3. Related Party Transactions
--------------------------
The Company engages in various transactions with Conrail Inc.
The Company funds the cash requirements of Conrail Inc.,
primarily through cash dividends, which in 1993 totalled $87
million (excluding $44 million paid to shareholders prior to
July 1, 1993). The Company is obligated to pay a management
fee to Conrail Inc. equal to the amount of preferred dividends
declared by the holding company in connection with the ESOP
which totalled $11 million in 1993 and is recorded in "Other
income, net" on the consolidated statement of income (Notes 8
22
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and 11). Advances between the two companies accrue interest
at the Federal Reserve Bank's 30-day average interest rate.
The resulting interest income and interest expense on advances
to and from Conrail Inc. were immaterial to the Company's
financial statements. A summary of the Company's transactions
with Conrail Inc. are as follows:
(In Millions)
Short-term receivable $ 9
Short-term payable 21
In September 1993, the Company recorded a reserve of $89
million relating to advances made to Concord Resources Group,
Inc. ("Concord"), a subsidiary of Conrail Inc.
4. Property and Equipment
----------------------
<TABLE>
<CAPTION>
December 31,
-----------------
1993 1992
------- -------
(In Millions)
<S> <C> <C>
Roadway $ 6,547 $ 6,465
Equipment 1,101 908
Less: Accumulated depreciation (1,521) (1,527)
Allowance for disposition (255) (277)
------- -------
5,872 5,569
------- -------
Capital leases (primarily equipment) 1,104 1,132
Accumulated amortization (663) (688)
------- -------
441 444
------- -------
$ 6,313 $ 6,013
======= =======
</TABLE>
The Company acquired equipment and incurred related long-term
debt under various capital leases of $75 million in 1993, $13
million in 1992, and $76 million in 1991.
23
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Accrued and Other Current Liabilities
-------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------
1993 1992
---- ----
(In Millions)
<S> <C> <C>
Freight settlements due others $ 62 $ 65
Equipment rents (primarily car hire) 79 70
Unearned freight revenue 79 80
Property and corporate taxes 85 66
Special income tax obligation 49
Other 182 243
---- ----
$487 $573
==== ====
</TABLE>
6. Long-Term Debt
--------------
Long-term debt outstanding, including the weighted average
interest rates at December 31, 1993, is composed of the
following:
<TABLE>
<CAPTION>
December 31,
----------------
1993 1992
------ ------
(In Millions)
<S> <C> <C>
Capital leases $ 561 $ 584
Medium-term notes payable,
6.52%, due 1994 to 1998 225 231
Notes payable, 9.75%, due 2000 250 250
Debentures payable, 7.88%, due 2043 250
Debentures payable, 9.75%, due 2020 544 544
Equipment and other obligations, 8.51% 175 75
Commercial paper, 3.33% 100 100
------ ------
2,105 1,784
Less current portion (146) (207)
------ -----
$1,959 $1,577
====== ======
</TABLE>
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 $1,782 million in 1993 and $1,310 million in 1992, compared
with carrying values of $1,544 million and $1,200 million in
1993 and 1992, respectively.
The Company's noncancelable long-term leases generally include
options to purchase at fair value and to extend the terms.
24
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Capital leases have been discounted at rates which average
8.3% and are collateralized by assets with a net book value of
$439 million at December 31, 1993.
Minimum commitments, exclusive of executory costs borne by the
Company, are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In Millions)
<S> <C> <C>
1994 $ 110 $ 93
1995 105 94
1996 95 92
1997 84 74
1998 78 73
1999-2015 318 611
----- ------
Total 790 $1,037
Less interest portion (229) ======
-----
Present value $ 561
=====
</TABLE>
Operating lease rent expense was $88 million in 1993, $71
million in 1992, and $50 million in 1991.
The Company filed a shelf registration statement on Form S-3
with the Securities and Exchange Commission in April 1990 for
$1.25 billion of debt securities. In May 1993, the Company
issued $250 million of 7 7/8% Debentures Due 2043, and has $11
million remaining to be issued under this shelf registration
at December 31, 1993. In June 1993, the Company and Conrail
Inc. filed a new shelf registration statement on Form S-3
which will enable the Company to issue up to $500 million in
debt securities or Conrail Inc. to issue up to $500 million in
convertible debt or equity securities.
In February 1993, the Company issued $94 million of Pass
Through Certificates, Series 1993-A1 and 1993-A2 to finance
the acquisition of equipment. The Series 1993-A1
certificates, $41 million, have an interest rate of 5.71%, and
Series 1993-A2 certificates, $53 million, have an interest
rate of 6.86%. Certificates issued in the amount of $54
million are direct obligations of the Company and are secured
by the acquired equipment. The remaining certificates, $40
million, were issued to finance equipment which the Company
will utilize under a capital lease, and while such
certificates are not direct obligations of, or guaranteed by
the Company, the amounts payable by the Company under the
lease will be sufficient to pay principal and interest on the
certificates.
25
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In September 1993, the Company issued approximately $63
million of 5.98% 1993 Equipment Trust Certificates, Series A,
due 2013, pursuant to the 1993 registration statement. The
certificates were used to finance approximately 80% of the
cost of certain rebuilt and new freight cars, which the
Company will utilize under an operating lease. Although the
certificates are not direct obligations of, or guaranteed by
the Company, amounts payable by the Company under the lease
will be sufficient to pay principal and interest on the
certificates. In November 1993, the Company issued $102
million of 1993 Equipment Trust Certificates, Series B, with
interest rates ranging from 3.57% to 5.90%, maturing annually
from 1994 through 2008. These certificates are obligations of
the Company issued for the purchase of locomotives which will
serve as collateral for the obligations.
Equipment and other obligations mature in 1994 through 2013
and are collateralized by assets with a net book value of $200
million at December 31, 1993. Maturities of long-term debt
other than capital leases and commercial paper are $74 million
in 1994, $62 million in 1995, $95 million in 1996, $10 million
in 1997, $40 million in 1998, and $1,163 million in total from
1999 through 2043.
The Company had $179 million of commercial paper outstanding
at December 31, 1993. Of the total amount outstanding, $100
million is classified as long-term since it is expected to be
refinanced through subsequent issuances of commercial paper
and is supported by the long-term credit facility mentioned
below.
The Company maintains a $300 million uncollateralized
revolving credit facility with a group of banks under which no
borrowings were outstanding at December 31, 1993. The credit
facility, which expires in 1995, requires interest to be paid
on borrowings at rates based on various defined short-term
market rates and an annual maximum fee of .1% of the facility
amount. The credit facility contains, among other conditions,
restrictive covenants relating to leverage ratio, debt, and
consolidated tangible net worth.
Interest payments were $164 million in 1993, $162 million in
1992, and $167 million in 1991.
26
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Income Taxes
------------
The provisions for (benefits from) income taxes are composed
of the following:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(In Millions)
<S> <C> <C> <C>
Current
Federal $ 24 $ 21 $ 60
State 9 7 6
----- ----- -----
33 28 66
----- ----- -----
Deferred
Federal 192 179 (24)
State 32 29 (1)
----- ----- -----
224 208 (25)
----- ----- -----
Special income tax obligation
Federal (42) (50) (146)
State (8) (8) (23)
----- ----- -----
(50) (58) (169)
----- ----- -----
$207 $178 $(128)
===== ===== ======
</TABLE>
Effective January 1, 1993, the Company adopted the provisions
of SFAS 109 which requires a liability approach for measuring
deferred tax assets and liabilities based on differences
between the financial statement and tax bases of assets and
liabilities at each balance sheet date using enacted tax rates
in effect when those differences are expected to reverse. As
a result, the Company recorded a cumulative adjustment of $48
million. The primary effects of the adoption of this standard
on the balance sheet were the recording of a current deferred
tax asset of $147 million with a corresponding increase in the
long-term deferred income tax liability and the net deferred
income tax liabilities related to the cumulative accounting
adjustment for the adoption of SFAS 109 and SFAS 106 (Note 8).
Prior years' financial statements have not been restated to
apply the provisions of the new standard.
In conjunction with the public sale in 1987 of the 85% of the
Company's common stock owned by the U.S. Government, federal
legislation was enacted which resulted in a reduction of the
tax basis of certain of the Company's assets, particularly
property and equipment, thereby substantially decreasing tax
depreciation deductions and increasing future federal income
tax payments. Also, net operating loss and investment tax
27
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
credit carryforwards were cancelled. As a result of the sale-
related transactions, a special income tax obligation was
recorded in 1987 based on an estimated effective federal and
state income tax rate of 37.0%.
As a result of the increase in the federal corporate income
tax rate from 34% to 35% enacted August 10, 1993, and
effective January 1, 1993, income tax expense for 1993 was
increased by $38 million, of which $34 million related to the
effects of adjusting deferred income taxes and the special
income tax obligation for the rate increase.
The Company and its subsidiaries will be included in the
consolidated federal income tax return filed by Conrail Inc. for
periods subsequent to July 1, 1993. The consolidated federal
income tax expense or benefit will be allocated to the Company and
its subsidiaries as though the Company filed a separate
consolidated tax return.
During the third quarter of 1993, the Company reached a settlement
with the Internal Revenue Service related to the audit of the
Company's consolidated federal income tax returns for the fiscal
years 1987 through 1989. Under the settlement, the Company paid
$51 million, including interest, all of which had been previously
provided for in prior years resulting in no income statement
effect in 1993. Federal and state income tax payments were $39
million in 1993 (excluding tax settlement), $31 million in 1992,
and $45 million in 1991.
Significant components of the Company's special income tax
obligation and deferred income tax liabilities and (assets)
as of December 31, 1993 are as follows:
28
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
Current assets (primarily accounts receivable)
$ (23)
Current liabilities (primarily accrued
liabilities and casualty reserves) (163)
Reserve of intercompany receivables (31)
Miscellaneous (1)
------
Current deferred tax asset, net $ (218)
======
Noncurrent liabilities:
Property and equipment 1,875
Other long-term assets (primarily prepaid
pension asset) 74
Miscellaneous 16
------
1,965
------
Noncurrent assets:
Nondeductible reserves and other liabilities
(125)
Equipment obligations (44)
Tax benefit transfer receivable (42)
Alternative minimum tax credits (77)
Miscellaneous (18)
------
(306)
------
Special income tax obligation and deferred
income tax liabilities, net $1,659
======
</TABLE>
The tax effects of each source of deferred income taxes and
special income tax obligation (disclosure for 1993 is not
required nor applicable under SFAS 109)are as follows:
1992 1991
----- -----
(In Millions)
Deferred taxes
Tax depreciation over book $ 84 $ 130
Other property transactions 80 61
Casualty, wage and other accruals 78 (152)
Alternative minimum tax (40) (58)
Other 6 (6)
----- -----
$208 $ (25)
===== =====
Special income tax obligation
Reduced tax basis depreciation (31) (35)
Other property transactions (27) (134)
---- -----
$(58) $(169)
==== =====
29
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 1993, the Company has approximately $77
million of alternative minimum tax credits available to
offset future U.S. federal income taxes on an indefinite
carryforward basis.
Deferred income taxes and the special income tax obligation
for 1991 include reductions of $159 million and $113 million,
respectively, related to the 1991 Special Charge (Note 10).
Reconciliations of the U.S. statutory tax rates with the
effective tax rates follow:
1993 1992 1991
----- ----- ------
Statutory tax rate 35.0% 34.0% (34.0)%
State income taxes,
net of federal benefit 5.1 3.9 (3.5)
Effect of federal tax increase
on deferred taxes 7.7
Other (0.9) .8 (.7)
----- ----- -----
Effective tax rate 46.9% 38.7% (38.2)%
===== ===== =====
8. Employee Benefits
-----------------
Pension Plans
-------------
The Company and certain subsidiaries maintain defined
benefit pension plans which are noncontributory for all non-
union employees and generally contributory for participating
union employees. Benefits are based primarily on credited
years of service and the level of compensation near
retirement. Funding is based on the minimum amount required
by the Employee Retirement Income Security Act of 1974.
Pension credits include the following components:
<TABLE>
<CAPTION>
1993 1992 1991
----- ---- -----
(In Millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 8 $ 7 $ 6
Interest cost on projected benefit obligation 46 45 42
Return on plan assets - actual (124) (66) (175)
- deferred 42 (13) 100
Net amortization and deferral (15) (15) (18)
----- ---- -----
$ (43) $(42) $ (45)
===== ==== =====
</TABLE>
30
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The funded status of the pension plans and the amounts
reflected in the balance sheets are as follows:
<TABLE>
<CAPTION>
1993 1992
------ -----
(In Millions)
<S> <C> <C>
Accumulated benefit obligation ($532 million
and $505 million vested, respectively) $ 537 $ 506
====== =====
Market value of plan assets 1,043 977
Projected benefit obligation (632) (580)
------ -----
Plan assets in excess of projected
benefit obligation 411 397
Unrecognized prior service cost 43 61
Unrecognized transition net asset (159) (179)
Unrecognized net gain (101) (124)
------ -----
Net prepaid pension cost $ 194 $ 155
====== =====
</TABLE>
The assumed weighted average discount rates used in 1993 and
in 1992 are 7.25% and 8.0%, respectively, and the rate of
increase in future compensation levels used in determining
the actuarial present value of the projected benefit
obligation as of December 31, 1993 and 1992 is 6.0%. The
expected long-term rate of return on plan assets (primarily
equity securities) in 1993 and 1992 is 9.0%.
Savings Plans
-------------
The Company and certain subsidiaries also provide 401(k)
savings plans for union and non-union employees. Under the
Non-union ESOP, 100% of employee contributions are matched in
the form of Conrail Inc. ESOP Stock (Note 2) for the first 6%
of a participating employee's base pay. Under the union
employee plan, employee contributions are not matched by the
Company. Savings plan expense, including Non-union ESOP
expense, was $5 million in 1993 and $4 million in 1992 and
1991.
In connection with the Non-union ESOP, the Company issued
9,979,562 of the authorized 10 million shares of its ESOP
Stock to the Non-union ESOP in exchange for a 20 year
promissory note with interest at 9.55% from the Non-union
ESOP in the principal amount of $288 million. In addition,
unearned ESOP compensation of $288 million was recognized as
a charge to stockholders' equity coincident with the Non-
union ESOP's issuance of its $288 million promissory note to
the Company. The debt of the Non-union ESOP was recorded by
the Company and offset against the promissory note from the
Non-union ESOP. Prior to the corporate reorganization
31
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Note 2), unearned ESOP compensation was charged to expense
as shares of ESOP Stock were allocated to participants. An
amount equivalent to the preferred dividends declared on the
ESOP Stock partially offset compensation and interest expense
related to the Non-union ESOP.
In conjunction with the formation of the holding company on
July 1, 1993 (Note 2), each share of the Company's preferred
stock, all of which were held by the Non-union ESOP, was
automatically converted into one share of preferred stock of
Conrail Inc. and the debt of the Non-union ESOP and the
unearned ESOP compensation accounts were transferred to
Conrail Inc. The promissory note receivable from the Non-
union ESOP plus the accrued interest were reclassified by the
Company to the stockholder's equity section of its balance
sheet. Unearned ESOP compensation is now amortized and
charged to the Company by Conrail Inc. as shares of ESOP Stock
are allocated to participants. An amount equivalent to the
preferred dividends declared on the ESOP Stock proportionally
offsets compensation expense of the Company and interest
expense of Conrail Inc. related to the Non-union ESOP.
Conrail Inc. makes dividend payments at a rate of 7.51% on the
ESOP Stock and Consolidated Rail Corporation makes additional
contributions in an aggregate amount sufficient to enable the
Non-union ESOP to make the required interest and principal
payments on its note.
Interest expense incurred by the Non-union ESOP on its debt to
the Company before the corporate reorganization on July 1,
1993 (Note 2) was $15 million in 1993, and $28 million in 1992
and 1991. Compensation expense related to the Non-union ESOP
was $10 million in 1993, $9 million in 1992, and $8 million in
1991. Preferred dividends paid to the Non-union ESOP by the
Company prior to the corporate reorganization (Note 2) were
$11 million in 1993, and $21 million in 1992 and 1991. The
Company received debt service payments from the Non-union ESOP
of $26 million in 1993, and $21 million in 1992 and 1991.
Postretirement Benefits Other Than Pensions
-------------------------------------------
The Company provides health and life insurance benefits to
certain eligible retired non-union employees. Certain non-
union employees are eligible for retiree medical benefits,
while substantially all non-union employees are eligible for
retiree life insurance benefits. Generally, company-provided
health care benefits terminate when covered individuals reach
age 65.
Retiree medical benefits are funded by a combination of
32
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company and retiree contributions. The cost of medical
benefits provided by the Company as self-insurer was
previously recognized as claims and administrative expenses
were paid. Retiree life insurance benefits are provided by
insurance companies whose premiums are based on claims paid
during the year and the cost of such benefits was previously
recognized as the annual insurance premium. The expense of
providing both non-union retiree medical and life insurance
benefits for 1992 and 1991 was $5 million and $2 million,
respectively.
Retiree life insurance plan assets consist of a retiree life
insurance reserve held in the Company's group life insurance
policy. There are no plan assets for the retiree health
benefits plan.
Effective January 1, 1993, the Company adopted SFAS 106, which
requires that the cost of retiree benefits other than pensions be
accrued during the period of employment rather than when benefits
are paid. The Company elected the immediate recognition method
allowed under the statement and accordingly recorded a
cumulative, one-time charge of $22 million (net of tax benefits
of $14 million). This accrual was in addition to the remaining
balance of $21 million which had been accrued for postretirement
health benefits for employees who participated in the Company's
1989 non-union voluntary retirement program. The accumulated
postretirement obligation at January 1, 1993 was $41 million for
the medical plan and $21 million for the life insurance plan.
Plan assets attributed to the life insurance plan at January 1,
1993 totalled $5 million.
33
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following sets forth the plan's funded status reconciled with
amounts reported in the Company's balance sheet at
December 31, 1993:
<TABLE>
<CAPTION>
Life
Medical Insurance
Plan Plan
------- ---------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $31 $16
Fully eligible active plan participants 9 1
Other active plan participants 2 6
--- ---
Accumulated benefit obligation 42 23
Market value of plan assets (6)
Accumulated benefit obligation in excess of --- ---
plan assets 42 17
Unrecognized losses (3) (2)
Accrued benefit cost recognized in the --- ---
Consolidated Balance Sheet $39 $15
=== ===
Net periodic postretirement benefit cost
for 1993, primarily interest cost $ 3 $ 1
=== ===
</TABLE>
An 11.5 percent rate of increase in per capita costs of covered
health care benefits was assumed for 1994, gradually decreasing
to 6 percent by the year 2008. Increasing the assumed health
care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by $4 million and would have
an immaterial effect on the service cost and interest cost
components of net periodic postretirement benefit cost for
1993. A discount rate of 7.0% was used to determine the
accumulated postretirement benefit obligations for both the
medical and life insurance plans. The assumed rate of
compensation increase is 5.0%.
9. Capital Stock
-------------
The Company is authorized to issue 25 million shares of
preferred stock with no par value. The Board of Directors
has the authority to divide the preferred stock into series
and to determine the rights and preferences of each.
As a result of the holding company structure that became
effective on July 1, 1993 (Note 2), each share of the
Company's common stock which was issued and outstanding or
held in the treasury of the Company, was automatically
converted into one share of Conrail Inc. common stock.
Subsequent to July 1, 1993, the Company had 100 shares of
common stock outstanding, all held by Conrail Inc. All of
34
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the long-term incentive plans of the Company were amended to
reflect the use of Conrail Inc.'s common stock.
The activity and status of treasury stock follow:
1993 1992 1991
--------- --------- -------
Shares, beginning of year 3,690,002 546,400
Acquired 611,182 3,143,602 546,400
Reclassified as authorized
but unissued (43,800)
Corporate reorganization
(Note 2) (4,257,384)
--------- --------- -------
Shares, end of year - 3,690,002 546,400
Conrail Inc.'s 1987 Long-Term Incentive Plan (the "1987
Incentive Plan") authorizes the granting to the Company's
officers and key employees of up to 4 million shares of Conrail
Inc. common stock through stock options, stock appreciation
rights, and awards of restricted or performance shares. A stock
option is exercisable for a specified term commencing after
grant at a price not less than the fair market value of the
stock on the date of grant. The 1987 Incentive Plan also
provides for the granting of Conrail Inc. stock to employees,
contingent on either a specified period of employment or
achievement of certain financial or performance goals.
Conrail Inc.'s 1991 Long-Term Incentive Plan (the "1991
Incentive Plan") authorizes the granting to the Company's
officers and key employees of up to 3.2 million shares of
Conrail Inc. common stock, through stock options, stock
appreciation rights and awards of restricted or performance
shares. As of December 31, 1993, Conrail Inc. had granted
169,005 shares of restricted stock under the incentive plans.
35
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The activity and status of stock options under the incentive
plans follow:
Non-qualified Stock Options
--------------------------------
Option Price Shares
Per Share Under Option
----------------- ------------
Balance, January 1, 1991 $14.000 - $25.065 3,271,920
Granted $24.530 - $36.595 339,400
Exercised $14.000 - $25.065 (1,361,922)
Cancelled $14.000 - $25.065 (83,718)
---------
Balance, December 31, 1991 $14.000 - $36.595 2,165,680
Granted $42.625 - $45.125 1,383,600
Exercised $14.000 - $25.063 (674,652)
Cancelled $42.625 (3,750)
---------
Balance, December 31, 1992 $14.000 - $45.125 2,870,878
Granted $49.375 - $60.500 73,027
Exercised $14.000 - $53.875 (928,822)
Cancelled $31.813 - $45.125 (48,762)
---------
Balance, December 31, 1993 $14.000 - $60.500 1,966,321
=========
Exercisable, December 31, 1993 $14.000 - $53.875 995,827
=========
Available for future grants
December 31, 1992 1,792,726
=========
December 31, 1993 1,698,036
=========
10.1991 Special Charge
-------------------
In 1991, the Company recorded in operating expenses a special
charge totalling $719 million which was composed of $362
million for disposition of certain under-utilized rail lines
and other facilities, $212 million for labor settlements
primarily representing certain expected costs associated with
a new labor agreement that reduced the size of train crews,
$57 million for certain environmental clean up costs, and $88
million for legal matters including settlement of the Amtrak
collision with the Company at Chase, Maryland in January
1987. The 1991 special charge reduced net income by $447
million, and without the special charge net income would have
been $240 million ($2.73 and $2.48 per share, primary and
fully diluted, respectively).
36
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11.Other Income, Net
-----------------
1993 1992 1991
---- ----- ----
(In Millions)
Interest income $ 40 $ 40 $ 48
Rental income 56 60 53
Property sales, net 20 6 9
Management fee (11)
Other, net 9 (8) (3)
---- ---- ----
$114 $ 98 $107
==== ==== ====
12.Commitments and Contingencies
-----------------------------
Non-union Voluntary Retirement Program
--------------------------------------
On December 15, 1993, the Board of Directors approved a
voluntary early retirement program for eligible members of
its non-union workforce. The eligible employees have until
February 28, 1994 to elect to retire under the program, and
based on the results of a similar program completed in 1990,
the cost of the program is expected to have a material effect
on the income statement for the first quarter of 1994. The
transaction will not significantly affect the Company's cash
position as approximately 85% of the cost will be paid from
the Company's overfunded pension plan (Note 8).
Environmental
-------------
The Company is subject to various federal, state and local
laws and regulations regarding environmental matters. The
Company 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 been
named as a potentially responsible party in many governmental
investigations and actions for the cleanup and removal of
hazardous substances due to its alleged involvement as either
a transporter, generator or property owner. 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 the Company's
liability for the costs associated with the assessment and
remediation of contaminated sites. Although the Company's
operating results and liquidity could be significantly
affected in any quarterly or annual reporting period if it
were held principally liable in certain of these actions, at
December 31, 1993, the Company had accrued $77 million, an
37
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 believes the
ultimate liability for these matters will not materially
affect its consolidated financial condition.
The Environmental Quality Department of the Company is
charged with promoting the Company's compliance with laws and
regulations affecting the environment and instituting
environmentally sound operating practices. The department
monitors the status of the sites where the Company is alleged
to have liability and continually reviews the information
available and assesses the adequacy of the recorded
liability.
Other Contingencies
-------------------
The Company is involved in various legal actions, principally
relating to occupational health claims, personal injuries,
casualties, property damage and loss and damage. The Company
has recorded liabilities on its balance sheet for amounts
sufficient to cover the expected payments for such actions.
At December 31, 1993 these liabilities are presented net of
estimated insurance recoveries of approximately $80 million.
The Company may be contingently liable for approximately $102
million at December 31, 1993 under indemnification provisions
related to sales of tax benefits.
38
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Condensed Quarterly Data (Unaudited)
------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
--------------- -------------- -------------- --------------
1993 1992 1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------ ------ ------
($ In Millions Except Per Share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $816 $798 $873 $843 $842 $847 $907 $857
Income from operations 85 81 158 144 159 147 191 162
Income before the
cumulative effect of
changes in accounting
principles 46 38 85 77 4 75 99 92
Net income (loss) (28) 38 85 77 8 75 99 92
Income per common share
before the cumulative
effect of changes in
accounting principles:
Primary .52 .42 1.01 .90 - .88 - 1.10
Fully diluted .52 .39 .92 .82 - .81 - .99
Net income (loss) per
common share:
Primary (.39) .42 1.01 .90 - .88 - 1.10
Fully diluted (.39) .39 .92 .82 - .81 - .99
Ratio of earnings to
fixed charges 2.25x 2.29x 3.65x 3.55x 2.13x 3.50x 3.82x 3.94x
Dividends per common
share .275 .225 .275 .225 - .275 - .275
Market prices per
common share
(New York Stock
Exchange)
High 60 1/2 44 59 7/8 47 3/8 - 46 1/2 - 48 3/8
Low 47 1/2 39 1/2 50 39 1/2 - 37 1/2 - 36 1/4
</TABLE>
Due to the formation of the holding company (Note 2), earnings,
dividends, and market price per share amounts are not presented
for periods subsequent to July 1, 1993.
Effective January 1, 1993, the Company adopted SFAS 106 and
SFAS 109, related to the accounting for postretirement benefits
other than pensions and income taxes, respectively. As a
result, the Company recorded cumulative after tax charges
totalling $74 million in the first quarter of 1993. The
cumulative after tax charges were reduced to $70 million as a
result of the transfer of a wholly owned subsidiary to Conrail
Inc. (Notes 1, 7 and 8).
In September 1993, the Company recorded a reserve of $89
million relating to advances made to Concord Resources Group,
Inc., a subsidiary of Conrail Inc. Also, in the third quarter,
as a result of the increase in the federal corporate income tax
rate enacted August 10, 1993 and effective January 1, 1993,
income tax expense for the third quarter of 1993, includes a
charge of $36 million, primarily related to the adjustment of
deferred taxes and the special income tax obligation as
required by SFAS 109 (Note 7).
39
<PAGE>
Item 9. Changes in and Disagreements with Accountants
- ------- ----------------------------------------------
on Accounting and Financial Disclosure.
--------------------------------------
Previously reported in the Company's Current Report on Form
8-K, filed February 18, 1994.
PART III
Item 10. Directors and Executive Officers
- ------- --------------------------------
of the Registrant.
-----------------
Information Omitted in Accordance with
General Instruction J(2)(c).
Item 11. Executive Compensation.
- ------- ----------------------
Information Omitted in Accordance with
General Instruction J(2)(c).
Item 12. Security Ownership of Certain Beneficial
- ------- ----------------------------------------
Owners and Management.
---------------------
Information Omitted in Accordance with
General Instruction J(2)(c).
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Information Omitted in Accordance with
General Instruction J(2)(c).
40
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement
- ------- -----------------------------
Schedules, and Reports on Form 8-K.
----------------------------------
(a) The following documents are filed as a part of this report:
1. Financial Statements:
Page
----
Report of Independent Accountants..................... 15
Consolidated Statements of Income for each of the
three years in the period ended December 31, 1993... 16
Consolidated Balance Sheets at December 31, 1993
and 1992 ........................................... 17
Consolidated Statements of Stockholders'
Equity for each of the three years in the
period ended December 31, 1993...................... 18
Consolidated Statements of Cash Flows for each of
the three years in the period ended
December 31, 1993 .................................. 19
Notes to Consolidated Financial Statements............ 20
2. Financial Statement Schedules:
The following financial statement schedules should be
read in connection with the financial statements listed
in Item 14(a)1 above.
Index to Financial Statement Schedules
--------------------------------------
Page
----
Schedule V - Property, Plant and Equipment...... S-1
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property,
Plant and Equipment.............. S-2
Schedule VIII - Valuation and Qualifying Accounts.. S-3
Schedule X - Supplementary Income Statement
Information...................... S-4
Schedules other than those listed above are omitted for
reasons that they are not required, are not applicable, or
the information is included in the financial statements or
related notes.
3. Exhibits:
Exhibit No.
----------
2 Agreement and Plan of Merger among Consolidated Rail
Corporation, Conrail Inc. and Conrail Subsidiary
41
<PAGE>
Corporation, dated as of February 17, 1993, filed as
Appendix A to the Proxy Statement of the Registrant,
dated April 16, 1993 and incorporated herein by
reference.
3.1 Amended and Restated Articles of Incorporation of the
Registrant as amended through December 31, 1992,
filed as Exhibit 3.1 to the Registrant's Report on
Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.
3.2 By-Laws of the Registrant, as amended through
December 31, 1993.
4.1 Articles of Incorporation of the Registrant filed as
Exhibit 3.1 to the Registrant's Report on Form 10-K
for the year ended December 31, 1992 and incorporated
herein by reference.
4.2 Form of Certificate of Common Stock, par value $1.00
per share, of the Registrant, filed as Exhibit 4.7 to
the Registrant's Registration Statement on Form S-8
(No. 33-19155) and incorporated herein by reference.
4.3 Form of Indenture between the Registrant and The
First National Bank of Chicago, as Trustee, with
respect to the issuance of up to $1.25 billion
aggregate principal amount of the Registrant's debt
securities, filed as Exhibit 4 to the Registrant's
Registration Statement on Form S-3 (Registration No.
33-34040) and incorporated herein by reference.
In accordance with Item 601(b)(4)(iii) of Regulation
S-K, copies of instruments of the Registrant with
respect to the rights of holders of certain long-term
debt are not filed herewith, or incorporated by
reference, but will be furnished to the Commission
upon request.
10.1 Second Amended and Restated Northeast Corridor
Freight Operating Agreement dated October 1, 1986
between National Railroad Passenger Corporation and
Consolidated Rail Corporation, filed as Exhibit 10.1
to the Registrant's Registration Statement on Form S-
1 (Registration No. 33-11995) and incorporated herein
by reference.
10.2 Letter agreements dated September 30, 1982 and July
19, 1986 between Consolidated Rail Corporation and
The Penn Central Corporation, filed as Exhibit 10.5
to the Registrant's Registration Statement on Form S-
1 (Registration No. 33-11995) and incorporated herein
by reference.
42
<PAGE>
10.3 Letter agreement dated March 16, 1988 between Consoli
dated Rail Corporation and Penn Central Corporation
relating to hearing loss litigation, filed as Exhibit
19.1 to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1988 and
incorporated herein by reference.
Management Compensation Plans and Contracts
-------------------------------------------
10.4 Retirement Plan for Non-employee Directors as amended
February 21, 1990, filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989 and incorporated herein by
reference.
11 Statement of earnings (loss) per share computations.
12 Computation of the ratio of earnings to fixed
charges.
23 Consent of Independent Accountants.
24 Each of the officers and directors signing this
Annual Report on Form 10-K has signed a power of
attorney, contained on page 44 hereof, with respect
to amendments to this Annual Report.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated October 7, 1993, filed in
connection with the Registrant's issuance of $63,156,000
of 5.98% 1993-A Equipment Trust Certificates Due 2013
pursuant to its current Registration Statement on Form S-3
(No. 33-64670).
(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 state
ments specified by this Item are included in Item 14(a)2
or are otherwise omitted for reasons that they are not
required or are not applicable.
43
<PAGE>
POWER OF ATTORNEY
-----------------
Each person whose signature appears below under "SIGNATURES" here
by authorizes H. William Brown and Bruce B. Wilson, or either of them,
to execute in the name of each such person, and to file, any amendment
to this report and hereby appoints H. William Brown and Bruce B. Wil
son, or either of them, as attorneys-in-fact to sign on his or her
behalf, individually and in each capacity stated below, and to file
any and all amendments to this report.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securi
ties Exchange Act 1934, Consolidated Rail Corporation has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CONSOLIDATED RAIL CORPORATION.
Date: March 16, 1994
By James A. Hagen
-----------------------------
James A. Hagen
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 16th day of March,
1994, by the following persons on behalf of Consolidated Rail
Corporation and in the capacities indicated.
Signature Title
- --------- -----
James A. Hagen Chairman, President and Chief
- -------------- Executive Officer and
James A. Hagen (Principal Executive Officer)
Director
H. William Brown Senior Vice President - Finance
- ---------------- and Administration
H. William Brown (Principal Financial Officer)
John A. McKelvey Vice President - Controller
- ---------------- (Principal Accounting Officer)
John A. McKelvey
44
<PAGE>
H. Furlong Baldwin Director
- ------------------
H. Furlong Baldwin
Claude S. Brinegar Director
- ------------------
Claude S. Brinegar
Daniel B. Burke Director
- ---------------
Daniel B. Burke
Kathleen Foley Feldstein Director
- ------------------------
Kathleen Foley Feldstein
Roger S. Hillas Director
- ---------------
Roger S. Hillas
E. Bradley Jones Director
- ----------------
E. Bradley Jones
David B. Lewis Director
- --------------
David B. Lewis
John C. Marous Director
- --------------
John C. Marous
William G. Milliken Director
- -------------------
William G. Milliken
Raymond T. Schuler Director
- ------------------
Raymond T. Schuler
David H. Swanson Director
- ----------------
David H. Swanson
45
<PAGE>
E-1
EXHIBIT INDEX
Page Number in SEC
Sequential Numbering
Exhibit No. System
- ----------- ---------------------
3.2 By-laws of the Registrant, as amended
through December 31, 1993
11 Statement of earnings (loss) per share
computations
12 Computation of the ratio of earnings
to fixed charges
23 Consent of Independent Accountants
Exhibits 2, 3.1, 4.1, 4.2, 4.3, 10.1, 10.2, 10.3 and 10.4 are
incorporated herein by reference. Powers of attorney with respect
to amendments to this Annual Report are contained on page 44.
46
Exhibit 3.2
CONSOLIDATED RAIL CORPORATION
A PENNSYLVANIA CORPORATION
BY-LAWS
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office
-----------------
of Consolidated Rail Corporation (the "Corporation") in the
Commonwealth of Pennsylvania shall be at 6 Penn Center Plaza,
Philadelphia, Pennsylvania 19103 or at such other place as the Board
of Directors of the Corporation (the "Board") may specify in a
statement of change of registered office filed with the Department
of State of the Commonwealth of Pennsylvania.
Section 1.2. Other Offices. The Corporation may also
-------------
have an office or offices at such other place or places either
within or without the Commonwealth of Pennsylvania as the Board may
from time to time determine or the business of the Corporation
requires.
Section 1.3. Principal Office. In accordance with
----------------
Section 301(b) of the Regional Rail Reorganization act of 1973, as
amended, the principal office of the Corporation shall be located in
Philadelphia, Pennsylvania.
ARTICLE II
MEETINGS OF THE SHAREHOLDERS
Section 2.1. Place. All meetings of the shareholders
-----
shall be held at such places, either within or without the
Commonwealth of Pennsylvania, as the Board may from time to time
determine. Shareholders are not permitted to act without a meeting.
Section 2.2. Annual Meeting. A meeting of the
--------------
shareholders for the election of directors and the transaction of
such other business as may be properly brought before the meeting
shall be held on the third Wednesday in April in each calendar year
or, if that be a legal holiday, on the first day thereafter that is
not a legal holiday, or on such other date as the Board shall
designate. If the annual meeting is not called and held within six
months after the third Wednesday in April, or such other date as the
Board has designated in any specific year, any shareholder may call
a meeting of shareholders for the election of directors at any time
after the expiration of the six-month period commencing on the third
Wednesday in April, or such designated date, as the case may be.
Elections of directors, whether at annual meetings or special
meetings, need not be by written ballot, except upon demand by a
shareholder entitled to vote at the election and before the voting
<PAGE>
begins.
Section 2.3. Special meetings. Special meetings of the
----------------
shareholders, for any purpose or purposes, may be called at any time
by the Chief Executive Officer of the Corporation or by the Board,
upon written request delivered to the Secretary of the Corporation.
In addition, an "interested shareholder" (as defined in Section
2553 of the Pennsylvania Business Corporation Law of 1988 as it may
from time to time be amended (the "1988 BCL")) may, upon written
request delivered to the Secretary of the Corporation, call a
special meeting for the purposes of approving a business combination
under either subsection (3) or (4) of Section 2555 of the 1988 BCL.
Any request for a special meeting of shareholders shall state the
general nature of the business to be transacted at the meeting.
Upon receipt of any such request, it shall be the duty of the
Secretary of the Corporation to give notice, in a manner consistent
with Section 2.5 of these By-laws, of a special meeting of the
shareholders to be held at such time as the Secretary of the
Corporation may fix, which time may not be, in the case of a special
meeting of shareholders called pursuant to a statutory right, more
than sixty (60) days after receipt by the Secretary of the
Corporation of such request. If the Secretary of the Corporation
shall neglect or refuse to fix the time of the meeting and give
notice thereof, the person or persons calling the meeting may do so.
Section 2.4. Scope of Special Meetings. Business
-------------------------
transacted at any special meeting shall be confined to the business
stated in the notice.
Section 2.5. Notice. Written notice of any meeting of
------
the shareholders, stating the place, the date and hour thereof and
the matters to be voted on at such meeting, shall be give in a
manner consistent with the applicable provisions of Section 14 of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, or any successor act or regulation (the
"Exchange Act"), by, or at the direction of, the Secretary of the
Corporation or, in the absence of the Secretary of the Corporation,
any Assistant Secretary of the Corporation, at least twenty (20)
days before the date named for such meeting, to each shareholder
entitled to vote thereat on the date fixed as a record date in
accordance with Section 7.1 of these By-laws, or if no record date
be fixed, then of record thirty (30) days next preceding the date of
the meeting, at such address as appears on the transfer books of the
Corporation. Any notice of any meeting of shareholders shall state
that, for purposes of any meeting that has been previously adjourned
for one or more periods aggregating at least fifteen (15) days
because of an absence of a quorum, the shareholders entitled to vote
who attend such a meeting, although less than a quorum pursuant to
Section 2.6 of these By-laws, shall nevertheless constitute a quorum
for the purposes of acting upon any matter set forth in the original
notice of the meeting which was so adjourned.
2
<PAGE>
Section 2.6. Quorum. The shareholders present in person
------
or by proxy, entitled to cast a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted
upon at the meeting, shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the Corporation
owned by it, directly or indirectly, shall not be counted in
determining the total number of outstanding shares for quorum
purposes. The shareholders present in person or by proxy at a duly
organized meeting of shareholders can continue to conduct the
business of the meeting until the adjournment thereof,
notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. If a meeting of shareholders cannot be organized
because a quorum has not attended, the shareholders present in
person or by proxy may, except as otherwise provided by the 1988 BCL
and subject to the provisions of Section 2.7 of these By-laws,
adjourn the meeting to such time and place as they may determine.
Section 2.7. Adjournment. Any meeting of the
-----------
shareholders, including one at which directors are to be elected,
may be adjourned for such period as the shareholders present in
person or by proxy and entitled to vote shall direct. Unless
otherwise provided in a by-law adopted by the shareholders, the
shareholders entitled to vote present in person or by proxy,
although less than a quorum pursuant to Section 2.6 of these By-
laws, shall nevertheless constitute a quorum for the purpose of
(i) electing directors at a meeting called for the election of
directors that has been previously adjourned for lack of a quorum,
and (ii) acting, at a meeting that has been previously adjourned for
one or more periods aggregating at least fifteen (15) days because
of an absence of a quorum, upon any matter set forth in the original
notice of the meeting that was adjourned, provided that such
original notice shall have complied with the last sentence of
Section 2.5 of these By-laws. Other than as provided in the last
sentence of Section 2.5 of these By-laws, no notice of any adjourned
meeting or the business to be conducted threat need be give other
than an announcement at the meeting at which the adjournment is
taken, unless the Board fixes a new record date for the adjourned
meeting. At any adjourned meeting at which a quorum shall be
present, any business may be transacted that might have been
transacted at the meeting as originally noticed.
Section 2.8. Majority Vote. Any matter brought before a
-------------
duly organized meeting of shareholders for a vote of the
shareholders shall be decided by a majority of the votes cast at
such meeting by the shareholders present in person or by proxy and
entitled to vote thereon, unless the matter is one for which a
different vote is required by express provision of (i) the 1988 BCL,
(ii) the Amended and Restated Articles of Incorporation of the Corporation
as they may from time to time be amended (the "Articles") or (iii) a
by-law adopted by the shareholders, in any of which cases such
express provision shall govern and control the decision on such
matter.
3
<PAGE>
Section 2.9. Voting Rights. Except as otherwise
-------------
provided by statute or the Articles, at every meeting of the
shareholders every shareholder entitled to vote shall have the right
to one vote for each share having voting power standing in his name
on the books of the Corporation. Shares of the Corporation owned by
it, directly or indirectly, shall not be voted.
Section 2.10. Proxies. Every shareholder entitled to
-------
vote at a meeting of the shareholders may authorize another person
or persons to act for him by proxy. Every proxy shall be executed
in writing by the shareholder, or by the shareholder's duly
authorized attorney-in-fact, and filed with the Secretary of the
Corporation. The presence of, or vote or other action at a meeting
of shareholders by a proxy of, a shareholder shall constitute the
presence of, or vote or action by the shareholder. A proxy, unless
coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy to
the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the Secretary of the
Corporation. No unrevoked proxy shall be valid after three (3)
years from the date of its execution, unless a longer time is
expressly provided therein. A proxy shall not be revoked by the
death or incapacity of the maker unless, before the vote is counted,
written notice of such death or incapacity is given to the Secretary
of the Corporation.
Section 2.11. Voting Lists. The officer or agent having
------------
charge of the transfer books for securities of the Corporation shall
either (i) make a complete list of the shareholders entitled to vote
at each meeting of shareholders, arranged in alphabetical order,
with the address of, and the number of shares of stock held by, each
shareholder, which list shall be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting, or (ii)
otherwise make such information available at the meeting.
Section 2.12. Judges of Election. In advance of any
------------------
meeting of the shareholders, the Board may appoint judges of
election, who need not be shareholders, to act at such meeting or
any adjournment thereof. If judges of election are not so
appointed, the presiding officer of the meeting may, and on the
request of any shareholder or his proxy shall, make such appointment
at the meeting. The number of judges shall be one or three, as
determined by the Board. No person who is a candidate for office
shall act as a judge. The judges of election shall do all such acts
as may be proper to conduct the election or vote with fairness to
all shareholders, and shall make a written report of any matter
determined by them and execute a certificate of any fact found by
them, if requested by the presiding officer of the meeting or any
shareholder of the proxy of any shareholder. If there be three
judges of election, the decision, act or certificate of a majority
shall be effective in all respects as the decision, act or
4
<PAGE>
certificate of all.
Section 2.13. No Participation by Conference Call. No
-----------------------------------
shareholder may participate in any meeting of shareholders by means
of conference telephone or similar communications equipment.
Section 2.14. Presiding Officer. At each meeting of the
-----------------
shareholders, the Chairman of the Board, or, in his absence, his
designee, or, in their absence, a presiding officer chosen by a
majority of the votes cast by the shareholders present in person or
by proxy and entitled to vote at such meeting, shall act as
presiding officer of the meeting and shall have plenary power in
conducting the meeting with regard to setting an agenda, keeping
order, limiting debate and prescribing such rules of the meeting as
from time to time are useful and proper. The Secretary or an
Assistant Secretary of the Corporation, or, in the absence of the
Secretary and all Assistant Secretaries, a person whom the presiding
officer of such meeting shall appoint, shall act as secretary of the
meeting and keep the minutes thereof.
ARTICLE III
DIRECTORS
Section 3.1. Number of Directors and Classification of
-----------------------------------------
Board. The Board shall consist of thirteen members. Except as
- -----
provided in Section 3.4 of these By-laws in the case of vacancies,
directors shall be elected by the shareholders. The directors shall
be classified with respect to the time for which they shall
severally hold office by dividing them into three classes, one of
which shall consist of five members and two of which shall consist
of four members each. Each class of directors shall serve for a
term of three years, which terms shall commence in three consecutive
years. At each annual meeting of the shareholders the successors to
the class of directors whose term expires that year shall be elected
to hold office for the term of three years and until his successor
is elected and qualified or until his earlier death, resignation or
removal, so that the term of office of one class of directors shall
expire in each year. If at any meeting of shareholders, directors
of more than one class are to be elected, each class of directors
shall be elected in a separate election.
Section 3.2. Qualifications. Directors shall be natural
--------------
persons of full age and need not be residents of the Commonwealth of
Pennsylvania or security holders of the corporation
Section 3.3. Nominations of Directors. Nominees for
------------------------
election to the Board shall be selected by the Board or a committee
of the Board to which the Board has delegated the authority to make
such selections pursuant to Section 3.12 of these By-laws. The
Board or such committee, as the case may be, will consider written
recommendations from shareholders for nominees for election to the
Board provided any such recommendation, together with (i) such
5
<PAGE>
information regarding each nominee as would be required to be
included in a proxy statement filed pursuant to the Exchange Act,
(ii) a description of all arrangement or understandings among the
recommending shareholder and each nominee and any other person with
respect to such nomination, and (iii) the consent of each nominee to
serve as a director of the Corporation if so elected, is received by
the Secretary of the Corporation by, in the case of an annual
meeting of shareholders, not later than the date specified in the
most recent proxy statement of the Corporation as the date by which
shareholder proposals for consideration at the next annual meeting
of shareholders must be received, and, in the case of a special
meeting of shareholders, not later than the tenth day after the
giving of notice of such meeting. Only persons duly nominated for
election to the Board in accordance with this Section 3.3 and
persons with respect to whose nominations proxies have been
solicited pursuant to a proxy statement filed pursuant to the
Exchange Act shall be eligible for election to the Board.
Section 3.4. Vacancies. Vacancies in the Board shall be
---------
filled by a majority of the remaining members of the Board though
less than a quorum, and each director so elected shall serve until
the next selection of the class for which such director was chosen,
and until a successor has been selected and qualified or until such
director's earlier death, resignation or removal. If one or more
directors resign from the Board effective at a future date, the
directors then in office, including those who have so resigned,
shall have the power to fill the vacancies by a majority vote, such
vote to take effect when the resignations become effective.
Section 3.5. Powers. The business and affairs of the
------
Corporation shall be managed under the direction of the Board which
may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Articles or
by these By-laws directed or required to be exercised and done by the
shareholders.
Section 3.6. Place of meetings. Meetings of the Board
-----------------
may be held at such places within or without the Commonwealth of
Pennsylvania as, in the case of a regular meeting, the Board may
from time to time designate, or, in the case of a special meeting,
as may be designated in the notice calling the meeting.
Section 3.7. First Meeting of Newly Elected Board. The
------------------------------------
first meeting of each newly elected Board shall be held as soon as
practicable after the meeting of shareholders at which such
directors were elected, and if held on the day and at the place
where the annual meeting of the shareholders was held, no notice
shall be required other than announcement at the annual meeting of
shareholders. If such first meeting of the newly-elected Board is
not so held, notice of such meeting shall be given in the same
manner as set forth in Section 3.8 of these By-laws with respect to
notice of regular meetings of the Board.
6
<PAGE>
Section 3.8. Regular Meetings of the Board. Regular
-----------------------------
meetings of the Board may be held at such times and places as shall
be determined from time to time by resolution of at least a majority
of the whole Board at a duly convened meeting, or by unanimous
written consent. Notice of each regular meeting of the Board shall
specify the date, place and hour of the meeting, as well as the
general nature of the business to be conducted at the meeting, and
shall be given to each director, to his or her address or telex,
TWX, telecopier or telephone number as supplied by such director to
the Corporation for the purpose of notice, at least twenty-four (24)
hours before the meeting if given personally or by telephone, telex,
TWX (with answerback received) or telecopier, at least forty-eight
(48) hours before the meeting if given by telegram (with messenger
service specified), express mail (postage prepaid) or courier
service (charges prepaid), and at least five (5) days before the
meeting if given by first class mail (postage prepaid). If the
notice is sent by mail, telegraph or courier service, it shall be
deemed to have been given to the person entitled thereto when
deposited in the United States mail or with a telegraph office or
courier service for delivery to that person, or, in the case of
telex or TWX, when dispatched.
Section 3.9. Special Meetings of the Board. Special
-----------------------------
meetings of the Board may be called by the Chief Executive Officer,
and shall be called by the Chief Executive Officer or by the
Secretary on the written request of two directors. Notice of the
date, place and hour of each special meeting of the Board shall be
given within the same time and in the same manner provided for
notice of regular meetings in Section 3.8 of these By-laws, and
shall also specify the general nature of the business to be
conducted at such meeting.
Section 3.10. Quorum of the Board. At all meetings of
-------------------
the Board the presence of a majority of the directors in office
shall constitute a quorum for the transaction of business, and the
acts of a majority of the directors present at the meeting at which
a quorum is present shall be the acts of the Board. If a quorum
shall not be present at any meeting of directors, the directors
present thereat may adjourn the meeting. It shall not be necessary
to give any notice of the adjourned meeting or of the business to be
transacted thereat other than by announcement at the meeting at
which such adjournment is taken.
Section 3.11. Organization. At each meeting of the Board
------------
the Chief Executive Officer, or, in his absence, a director chosen
by a majority of the directors present, shall act as chairman. The
Secretary, or in his absence, an Assistant Secretary of the
Corporation, or in the absence of the Secretary and all Assistant
Secretaries, a person whom the chairman of such meeting shall
appoint, shall act a secretary of such meeting and keep the minutes
thereof.
7
<PAGE>
Section 3.12. Committees of Directors. The Board may, by
-----------------------
resolution adopted by a majority of the directors in office,
establish one or more committees, each committee to consist of three
or more of the directors, and may designate one or more directors as
alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee or for the
purposes of any written action by the committee. Any such
committee, to the extent provided in such resolution or in these By-
laws, shall have and may exercise all of the powers and authority of
the Board; provided that no such committee shall have any power or
authority to (i) submit to the shareholders any action requiring the
approval of shareholders under the 1988 BCL, (ii) create or fill
vacancies on the Board, (iii) adopt, amend or repeal By-laws,
(iv) amend or repeal any resolution of the Board that by its terms
in amendable or repealable only by the Board, (v) act on any matter
committed by these By-laws or resolution of the Board to another
committee of the Board, (vi) adopt a plan or an agreement of merger
or consolidation, or (vii) amend the Articles or adopt a resolution
proposing an amendment to the Articles. In the absence or
disqualification of a member or alternate member or members of a
committee, the member or members thereof present at any meeting of
such committee and not disqualified from voting, whether or not a
quorum is present, may unanimously appoint another director to act
at the meeting in place of any absent or disqualified member.
Minutes of all meetings of any committee of the Board shall be kept
by the person designated by such committee to keep such minutes.
Copies of such minutes and any writing setting forth an action taken
by written consent without a meeting shall be distributed to each
member of the Board promptly after such meeting is held or such
action is taken. Each committee of the Board shall serve at the
pleasure of the Board.
Section 3.13. Audit Committee. The Board shall designate
---------------
an Audit Committee, consisting of three of more directors, each of
whom shall be independent of management and free from any
relationship that would interfere with the exercise of independent
judgment as a committee member. It shall be the responsibility of
the Audit Committee to evaluate for, and recommend to, the Board, as
appropriate, the selection of the Corporation's independent
auditors, the scope of the audits to be conducted, and the purpose
and adequacy of reserves; to monitor and make recommendations in
respect to the internal audit program; and to review significant
accounting policies, including any major changes to those policies.
Section 3.14. Ethics Committee. The Board shall designate
----------------
an Ethics Committee, consisting of three or more members, each of
whom shall be independent of management and free from any
relationship that would interfere with the independent judgment as a
committee member. It shall be the responsibility of the Ethics
Committee to review, and recommend to the Board, as appropriate,
matters relating to the business conduct of the corporation and its
employees and other matters of public interest, including
environmental quality, safety and equal employment.
8
<PAGE>
Section 3.15. Nominating Committee. The Board shall
--------------------
designate a Nominating Committee consisting of three or more
members, each of whom shall be independent of management and free
from any relationship that would interfere with the independent
judgment as a committee member. It shall be the responsibility of
the Nominating Committee to recommend to the Board of Directors,
without regard to sex, race, religion or national origin,
individuals to be nominated for election to the Board of Directors,
including the position of Chairman, President, and Chief Executive
Officer; to periodically review Board procedures, making such
recommendations to the Board as may be appropriate, and to provide
for a process through which the performance of the Board of
Directors and its members is reviewed and evaluated, reporting to
the Board of Directors, as appropriate.
Section 3.16. Compensation Committee. The Board shall
----------------------
designate a Compensation Committee, consisting of three or more members,
each of whom shall be independent of management and free from any
relationship that would interfere with the independent judgment as a
committee member. It shall be the responsibility of the
Compensation Committee to review matters relating to compensation
policies and proposed significant changes in the structure of the
organization and personnel and, as appropriate, make recommendations
to the Board of Directors.
Section 3.17 Finance Committee. The Board shall
-----------------
designate a Finance Committee, consisting of five or more members.
It shall be the responsibility of the Finance Committee to review
matters relating to the financial condition and performance of the
corporation, including the financial aspects of pension matters and,
as appropriate, make recommendations to the Board of Directors, and
to exercise, to the extent permitted by the law of Pennsylvania and
the by-laws of the Corporation, the authority of the Board of
Directors in the management of the business and the affairs of the
Corporation on days other than those on which the Board of Directors
meets and to report such actions to the Board of Directors.
Section 3.18. Participation in Board Meetings by
----------------------------------
Telephone. One or more directors may participate in a meeting of
- ---------
the Board or of a committee of the Board by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and all
directors so participating shall be deemed present to the meeting.
Section 3.19. Action by Written Consent of Directors.
--------------------------------------
Any action which may be taken at a meeting of the Board or of the
members of a committee of the Board may be taken without a meeting
if, prior or subsequent to the action, a consent or consents in
writing setting forth the action so taken shall be signed by all of
the directors or the members of the committee, as the case may be,
and filed with the Secretary of the Corporation.
9
<PAGE>
Section 3.20. Compensation of Directors. The Board of
-------------------------
Directors may, by resolution, fix the compensation of directors for
their services. A director may also serve the Corporation in any
other capacity and receive compensation therefor.
Section 3.21. Chairman of the Board. The Board shall
---------------------
appoint a Chairman of the Board who shall, if present, preside at
all meetings of the Board and at all meetings of the shareholders.
ARTICLE IV
OFFICERS
Section 4.1. Principal Officers. The principal officers
------------------
of the Corporation shall be chosen by the Board, and shall include a
Chief Executive Officer, one or more Senior Vice Presidents, one or
more Vice Presidents, a Secretary, and a Treasurer. The Board shall
designate one officer (who need not be a principal officer but shall
not be an assistant officer) to be the chief financial officer of
the Corporation and another officer (who need not be a principal
officer but shall not be an assistant officer) to be the chief
accounting office of the Corporation. All officers shall be natural
persons of full age. Any number of offices may be held by the same
person.
Section 4.2. Election of Principal Officers. The Board,
------------------------------
immediately after each annual meeting of the shareholders, shall
elect the principal officers of the Corporation, each of whom shall
hold office for a term of one year or such other term as the Board
may provide, and until his successor has been elected and qualified
or until his earlier death, resignation of removal. Each principal
officer shall have such authority and perform such duties as the
Board of Directors may from time to time determine.
Section 4.3. Other Officers. The Corporation may have
--------------
such other officers, assistant officers, agents and employees as the
Board or the Chief Executive Officer may deem necessary, each of
whom shall hold office for such period, have such authority and
perform such duties as the Board or the Chief Executive Officer may
from time to time determine. The Board may delegate to any
principal officer the power to appoint or remove and set the
compensation of any such other officers and any such agents or
employees.
Section 4.4. Compensation of Officers. Except as
------------------------
provided in Section 4.3 of these By-laws, the salaries of all
officers of the Corporation shall be fixed by the Board.
Section 4.5. Removal of Officers. Any officer or agent
-------------------
of the Corporation may be removed by the Board with or without
cause, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Vacancies of any office
shall be filled by the Board. Election or appointment of an officer
10
<PAGE>
or agent shall not of itself create contract rights.
Section 4.6. Bonds. If required by the Board, any
-----
officer shall give the Corporation a bond, in such sum and with such
surety of sureties as may be satisfactory to the Board, for the
faithful discharge of the duties of his or her office and for the
restoration to the Corporation, in the case of his or her death,
resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his
or her possession or under his or her control belonging to the
Corporation.
ARTICLE V
SHARE CERTIFICATES
Section 5.1. Certificate for Shares. The certificates
----------------------
representing shares of the Corporation shall be numbered and
registered in a share register as they are issued. The share
register shall exhibit the names and addresses of all registered
holders and the number and class of shares and the series, if any,
held by each.
The certificates shall state that the Corporation is
incorporated under the laws of the Commonwealth of Pennsylvania, the
name of the registered holder and the number and class of shares and
the series, if any, represented thereby. If, under the Articles,
the Corporation is authorized to issue shares of more than one class
or series, each certificate shall set forth, or shall contain a
statement that the Corporation will furnish to any shareholder upon
request and without charge, a full or summary statement of the
designations, voting rights, preferences, limitations and special
rights of the shares of each class or series authorized to be issued
so far as they have been fixed and determined and the authority of
the Board to fix and determine such rights.
Section 5.2. Execution. Every share certificate shall be
---------
executed, by facsimile or otherwise, by or on behalf of the
Corporation by the Chief Executive Officer or by any Senior Vice
President or by the Secretary. In case any officer who has
executed, or whose facsimile signature has been placed upon, any
share certificate shall have ceased to be such officer, because of
death, resignation or otherwise, before the certificate is issued,
it may be issued by the Corporation with the same effect as if the
officer had not ceased to be such at the time of its issue.
ARTICLE VI
SHARE TRANSFER
Section 6.1. Transfer of Shares. Upon presentment to the
------------------
Corporation or its transfer agent of a share certificate duly
endorsed by the appropriate person or accompanied by proper evidence
of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto and the
old certificate cancelled and the transfer registered upon the books
11
<PAGE>
of the Corporation, unless the Corporation or its transfer agent has
a duty to inquire as to adverse claims with respect to such transfer
that has not been discharged or unless the Corporation or its
transfer agent requests reasonable evidence of the rightfulness of
the transfer under the Conrail Privatization Act (P.L. 99-509) or
otherwise and such evidence is not submitted. No person shall
acquire or hold, directly or indirectly, securities of the
corporation in violation of Section 4022 of the Conrail
Privatization Act (P.L. 99-509), and the Corporation shall be
permitted to refuse to recognize any transfer of a security to any
person who is, or as a result of such transfer would be, in
violation of such section. The Corporation shall have no duty to
inquire into adverse claims with respect to transfers of its
securities or the rightfulness thereof unless (a) the Corporation
has received a written notification of an adverse claim at a time
and in a manner that affords the Corporation a reasonable
opportunity to act on it before the issuance of a new, reissued or
re-registered share certificate and the notification identifies the
claimant, the registered owner and the issue of which the share or
shares are a part and provides an address for communications
directed to the claimant; or (b) the Corporation has required and
obtained, with respect to a fiduciary, a copy of a will, trust,
indenture, articles of co-partnership, by-laws or other controlling
instruments, for a purpose other than to obtain appropriate evidence
of the appointment or incumbency of the fiduciary, and such
documents indicate, upon reasonable inspection, the existence of an
adverse claim.
Section 6.2. Discharge of Duty of Inquiry. The
----------------------------
Corporation may discharge any duty of inquiry by any reasonable
means, including notifying an adverse claimant by registered or
certified mail at the address furnished by him or, if there is no
such address, at the claimant's residence or regular place of
business, that the security has been presented for registration of
transfer by a named person, and that the transfer will be registered
unless within thirty (30) days from the date of mailing the
notification, either (a) an appropriate restraining order,
injunction or other process issues from a court of competent
jurisdiction or (b) an indemnity bond, sufficient in the
Corporation's judgment to protect the Corporation and any transfer
agent, registrar or other agent of the Corporation involved from any
loss that it or they may suffer by complying with the adverse claim,
is filed with the Corporation.
ARTICLE VII
RECORD DATE; IDENTITY OF SHAREHOLDERS
Section 7.1. Fixing Record Date. The Board may fix a
------------------
time, not more than ninety (90) days before the date of any meeting
of the shareholders (other than an adjourned meeting) or the date
set for any other purpose, including without limitation, the payment
of any dividend or distribution, the allotment of rights, or any
change or conversion or exchange of securities, as a record date for
12
<PAGE>
the determination of the shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any
such dividend or distribution, or to receive any such allotment of
rights, or to exercise the rights in respect to any such change,
conversion or exchange of securities. Except as otherwise provided
in Section 7.2 of these By-laws, only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to
notice of, and to vote at, such meeting or to receive payment of
such dividend or distribution or to receive such allotment of rights
or to exercise such rights, as the case may be, notwithstanding any
transfer of any securities on the books of the Corporation after any
record date so fixed. When a determination of shareholders of
record has been made as provided in this Section 7.1 for purposes of
a meeting, the determination shall apply to any adjournment of such
meeting unless the Board fixes a new record date for the adjourned
meeting.
Section 7.2. Certification of Nominee. The Board may
------------------------
adopt a procedure whereby a shareholder may certify in writing to
the Secretary of the Corporation that all or a portion of the shares
registered in the name of the shareholder are held for the account
of a specified person or persons. The Board, in adopting such
procedure, may specify (i) the classification of shareholder who may
certify, (ii) the purpose or purposes for which the certification
may be made, (iii) the form of certification and the information to
be contained therein, (iv) as to certifications with respect to a
record date, the date after the record date by which the
certification must be received by the Secretary of the Corporation,
and (v) such other provisions with respect to the procedure as the
Board deems necessary or desirable. Upon receipt by the Secretary
of the Corporation of a certification complying with the procedure,
the persons specified in the certification shall be deemed, for the
purpose or purposes set forth in the certification, to be the
holders of record of the number of shares specified instead of the
person making the certification.
ARTICLE VIII
REGISTERED SHAREHOLDERS
Section 8.1. Registered Shareholders. Before due
-----------------------
presentment for transfer of any security, the Corporation shall
treat the registered owner thereof as the person exclusively
entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, and shall not be bound to
recognize any equitable or other claim or interest in such
securities, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the
Commonwealth of Pennsylvania or Section 7.2 of these By-laws.
ARTICLE IX
LOST CERTIFICATES
Section 9.1. Lost Certificates. If the owner of a share
-----------------
13
<PAGE>
certificate claims that it has been lost, destroyed, or wrongfully
taken, the Corporation shall issue a new certificate in place of the
original certificate if the owner so requests before the Corporation
has notice that the certificate has been acquired by a bona fide
purchaser, and if the owner has filed with the Corporation an
indemnity bond and an affidavit of the facts satisfactory to the
Board or its designated agent, and has complied with such other
reasonable requirements, if any, as the Board may deem appropriate.
ARTICLE X
DISTRIBUTIONS
Section 10.1. Payment. Distributions upon the capital
-------
stock of the Corporation, whether by dividend, purchase or
redemption or other acquisition of its shares, together with stock
dividends and stock splits, may be declared by the Board at any
regular or special meeting of the Board, subject to the limitations
set forth in Section 1551 of the 1988 BCL and Section 4021 of the
Conrail Privatization Act (P.L. 99-509), and may be paid in cash, in
property, or in securities, including debt securities, of the
Corporation except that stock dividends and stock splits may be paid
only in the shares of the Corporation.
Section 10.2. Reserves. Before the making of any
--------
distributions with respect to the capital stock of the Corporation,
there may be set aside out of any funds of the Corporation available
for distributions such sum or sums as the Board from time to time,
in its absolute discretion, deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the Board shall deem conducive to the interests of the
Corporation, and the Board may abolish any such reserve in the
manner in which it was created.
ARTICLE XI
MISCELLANEOUS; LIABILITY AND INDEMNIFICATION
Section 11.1. Checks and Notes. All checks or demands
----------------
for money and notes of the Corporation shall be signed by such
officer or officers as the Board may from time to time designate.
Section 11.2. Fiscal Year. The fiscal year of the
-----------
Corporation shall be as determined by the Board.
Section 11.3. Seal. The corporate seal shall have
----
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Pennsylvania." Such
seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced. The affixation of
the corporate seal shall not be necessary to the valid execution,
assignment or endorsement of any instrument or other document by the
Corporation.
14
<PAGE>
Section 11.4. Waiver of Notice. Whenever any notice is
----------------
required to be given by statute or by the Articles or by these By-
laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed the equivalent of the giving of such
notice. The business to be transacted at the meeting shall be
specified in the waiver of notice of such meeting. Attendance of
any person entitled to notice, either in person or by proxy, at any
meeting shall constitute a waiver of notice of such meeting, except
where any person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of
any business because the
meeting was not lawfully called or convened.
Section 11.5. Continuing Applicability. The provisions of
------------------------
Sections 11.6, 11.7 and 11.8 of these By-laws shall continue as to
any person who has ceased to be a director, officer, other employee
or agent of the Corporation and shall inure to the benefit of the
heirs and personal representatives of such person.
Section 11.6. Director's Liability. A director of the
--------------------
Corporation shall not be personally liable for monetary damages as
such for any action taken, or any failure to take any action, unless
(a) such director has breached or failed to perform the duties of
his office under Section 8363 of Title 42 of Pennsylvania
Consolidated Statutes, known as the Directors' Liability Act, and
(b) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness, or unless such liability is
imposed pursuant to a criminal statute or for the payment of taxes.
Section 11.7. Indemnification. The Corporation shall
---------------
indemnify any director or officer and shall have the power by action
of the Board of Directors to indemnify any employee or agent other
than an officer of the Corporation with respect to any threatened,
pending or completed action, suit or proceeding (including actions
by or in right of the Corporation to procure a judgment in its
favor) arising out of, or in connection with, any actual or alleged
act or omission or the status of such indemnified person in his
capacity as a director, officer, employee or agent of the
Corporation or in his capacity as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, if requested to serve in such capacity by the
Corporation, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred, unless the person's action or failure to act
that gave rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness.
Expenses incurred by any director or officer in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation
in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
15
<PAGE>
determined that such director or officer is not entitled to be
indemnified by the Corporation. Expenses incurred by any employee
or agent other than an officer in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon
approval of the Board of Directors and receipt of an undertaking by
or on behalf of such employee or agent to repay such amount if it
shall ultimately be determined that such employee or agent is not
entitled to be indemnified by the Corporation. The Corporation may
purchase and maintain insurance or establish a separate fund for the
purpose of satisfying its indemnification obligations. This Section
11.7 and Section 11.6 shall not apply to any actions filed prior to
their adoption nor to any breach or failure of performance of duty
by any director or officer occurring prior to their adoption.
Section 11.8. Mandatory Indemnification. Without
-------------------------
limiting the foregoing and applicable to any action filed at any
time, with respect to any act, omission or circumstance, the
Corporation shall indemnify any person who was or is a party or
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (including actions by or in
right of the Corporation to procure a judgment in its favor) by
reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred, if such
person has been successful on the merits or otherwise in any such
action or upon a determination in the specific case that such
indemnification is proper in the circumstances because he has met
the applicable standard of conduct set forth in the 1988 BCL. The
Corporation may purchase and maintain insurance for the purposes of
indemnification on behalf of any or all persons to the full extent
permitted under the 1988 BCL.
ARTICLE XII
BY-LAW AMENDMENTS
Section 12.1. Amendments. These By-laws may be altered,
----------
amended or repealed by a majority vote of the shareholders entitled
to vote thereon at any regular or special meeting duly convened
after notice to the shareholders of that purpose, or except for a by-
law on a subject expressly committed to the shareholders by the 1988
BCL, by a majority vote of the members of the Board at any regular
or special meeting duly convened, subject always to the power of the
shareholders to change such action by the directors. Any change in
these By-laws shall take effect when adopted, except as otherwise
provided in the resolution effecting the change.
16
<PAGE>
ARTICLE XIII
STATUTORY EXEMPTIONS
Section 13.1. Exemptions. Subchapter G and Subchapter H
----------
of Chapter 25 of Title 15 of the Pennsylvania Consolidated Statutes
shall not be applicable to the Corporation.
17
Exhibit 11
----------
<TABLE>
CONSOLIDATED RAIL CORPORATION
-----------------------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS (1)
--------------------------------------
($ In Millions Except Per Share)
<CAPTION>
Years ended
December 31,
----------------
1992 1991
------ ------
Primary
- -------
<S> <C> <C>
Income (loss) before the cumulative
effect of changes in accounting
principles $282 $(207)
Dividends declared on Series A ESOP
convertible junior preferred stock
(ESOP Stock), net of tax benefits (14) (14)
------ ------
Net income (loss) $268 $(221)
====== ======
Fully Diluted
- -------------
Income (loss) before the cumulative
effect of changes in accounting
principles 282 (207)
Dividends declared on ESOP Stock,
net of tax benefits (14)
Nondiscretionary adjustment (2) (7)
------ ------
Net income (loss) $275 $(221)
====== ======
</TABLE>
Page 1 of 3
<PAGE>
Exhibit 11
----------
<TABLE>
CONSOLIDATED RAIL CORPORATION
-----------------------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS (1)
--------------------------------------
($ In Millions Except Per Share)
<CAPTION>
Years ended December 31,
------------------------
1992 1991 (3)
---------- ----------
<S> <C> <C>
Weighted average number of shares (4)
Primary
Weighted average number of common
shares outstanding 80,823,000 81,883,970
Effect of shares issuable under
stock option plans 920,648
---------- ----------
81,743,648 81,883,970
========== ==========
Fully diluted
Weighted average number of common
shares outstanding 80,823,000 81,883,970
ESOP Stock 9,966,200
Effect of shares issuable under
stock option plans 1,066,993
---------- ----------
91,856,193 81,883,970
========== ==========
Income (loss) per common share (4)
Primary $3.28 $(2.70)
Fully diluted 2.99 $(2.70)
</TABLE>
Page 2 of 3
<PAGE>
Exhibit 11
----------
CONSOLIDATED RAIL CORPORATION
-----------------------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS
--------------------------------------
Notes: 1. Earnings per share computations are not p
resented for 1993 since Consolidated Rail
Corporation became a wholly-owned subsidiary
of Conrail Inc. on July 1 1993, at which time
Conrail Inc. became the publicly held entity.
2. Represents the increase, net of income tax
benefits, in ESOP-related expenses assuming
conversion of all ESOP Stock to common stock.
3. Primary and fully diluted loss per share are
based on the weighted average number of common
shares outstanding and exclude shares issuable
under stock option plans and the conversion of
ESOP stock to common stock since the effects
of their inclusion are antidilutive.
4. The Company's Board of Directors authorized a
two-for-one common stock split which was
effected in the form of a stock dividend
distributed on September 15, 1992. The Board
of Directors also declared a stock dividend on
the ESOP Stock in the amount of one share of
ESOP Stock for each share of ESOP Stock
outstanding as of August 31, 1992 and
distributed on September 15, 1992. All
references with regard to the number of shares
for common stock, ESOP Stock, and shares
issuable under stock option plans and per
share amounts have been restated to reflect
the stock splits.
Page 3 of 3
Exhibit 12
----------
<TABLE>
CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
($ In Millions)
Quarters Quarters Quarters Quarters
Ended Ended Ended Ended Years Ended
March 31, June 30, September 30, December 31, December 31,
------------ ------------ ------------- ------------ --------------------
1993 1992 1993 1992 1993 1992 1993 1992 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings
--------
Pre-tax income (loss) $ 73 $ 61 $137 $124 $ 70 $124 $161 $151 $441 $460 $(335)
Add:
Interest expense 44 43 46 43 43 43 44 43 177 172 181
Rental expense
interest factor 7 6 5 6 5 6 12 8 29 26 19
Less equity in
undistributed
earnings of 20-50%
owned companies (9) 2 2 1 (16) 2 (3) (1) (26) 4 (7)
Earnings available for
fixed charges (loss) $115 $112 $190 $174 $102 $175 $214 $201 $621 $662 $(142)
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== =====
Fixed Charges
-------------
Interest expense 44 43 46 43 43 43 44 43 177 172 181
Rental expense
interest factor 7 6 5 6 5 6 12 8 29 26 19
Capitalized interest 1 1 1 1 1
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
Fixed charges $ 51 $ 49 $ 52 $ 49 $ 48 $ 50 $ 56 $ 51 $207 $199 $ 201
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== =====
Ratio of earnings to
fixed charges 2.25x 2.29x 3.65x 3.55x 2.13x 3.50x 3.82x 3.94x 3.00x 3.33x -
<FN>
Note: For the purpose of computing the ratio of earnings to fixed charges, earnings
represent income before income taxes plus fixed charges, less equity in undistributed
earnings of 20% to 50% owned companies. Fixed charges represent interest expense together
with interest capitalized and a portion of rent under long-term operating leases
representative of an interest factor. After the 1991 special charge of $719 million,
earnings available for fixed charges for the year ended December 31, 1991 were inadequate
by $343 million.
</TABLE>
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the regis-
tration statements of Consolidated Rail Corporation and subsidi-
aries on Forms S-3 (File Nos. 33-34040 and 33-64670) of our
report dated January 24, 1994 on our audits of the consolidated
financial statements and financial statement schedules of
Consolidated Rail Corporation and subsidiaries as of December 31,
1993 and 1992 and for each of the three years in the period ended
December 31, 1993, which report is included in this Annual Report
on Form 10-K.
COOPERS & LYBRAND
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 24, 1994
Schedule V
<TABLE>
CONSOLIDATED RAIL CORPORATION
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
Classification Balance at Other Balance
- -------------- Beginning Additions Changes at End of
of Period at Cost Retirements Add (Deduct) Period
---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1991
Owned:
Roadway $5,894 $255 $ (80) $ 54 (1)(2)(3) $6,123
Equipment 914 67 (79) 2 (1) 904
------ ---- ----- ---- ------
6,808 322 (159) 56 7,027
------ ---- ----- ---- ------
Capital Leases:
Roadway 66 2 (12) (23)(3) 33
Equipment 1,143 74 (97) 1,120
------ ---- ----- ---- ------
1,209 76 (109) (23) 1,153
------ ---- ----- ---- ------
Total $8,017 $398 $(268) $ 33 $8,180
====== ==== ===== ==== ======
1992
Owned:
Roadway $6,123 $428 $(143) $ 57 (4) $6,465
Equipment 904 49 (45) 908
------ ---- ----- ---- ------
7,027 477 (188) 57 7,373
------ ---- ----- ---- ------
Capital Leases:
Roadway 33 5 (5) 33
Equipment 1,120 9 (30) 1,099
------ ---- ----- ---- ------
1,153 14 (35) 1,132
------ ---- ----- ---- ------
Total $8,180 $491 $(223) $ 57 $8,505
====== ==== ===== ==== ======
1993
Owned:
Roadway $6,465 $313 $(174) $(57)(4) $6,547
Equipment 908 262 (69) 1,101
------ ---- ----- ---- ------
7,373 575 (243) (57) 7,648
------ ---- ----- ---- ------
Capital Leases:
Roadway 33 3 (8) 28
Equipment 1,099 72 (95) 1,076
------ ---- ----- ---- ------
1,132 75 (103) 1,104
------ ---- ----- ---- ------
Total $8,505 $650 $(346) $(57) $8,752
====== ==== ===== ==== ======
<FN>
(1)Acquisition adjustments related to net assets of The
Monongahela Railway Company acquired in 1990 increased Owned
Roadway, $5 million and Owned Equipment, $2 million.
(2)Change in method of accounting for track structure by a
subsidiary from the retirement-replacement-betterment method to
the depreciation accounting method, resulted in an increase of
$26 million.
(3)Acquisition of assets previously under capital leases.
(4)Net assets of Concord Resources Group, Inc. (Concord). During
1992, Conrail increased its ownership interest in Concord from
50% to 81.25%. During 1993, the Company's management committed
to a plan for disposing of its interest in Concord, and
accordingly, changed to the equity method of accounting for its
investment.
</TABLE>
S-1
<PAGE>
Schedule VI
<TABLE>
CONSOLIDATED RAIL CORPORATION
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
Additions
Description Balance at Charged to Other Balance
- ----------- Beginning Cost and Changes at End of
of Period Expenses Retirements Add (Deduct) Period
---------- --------- ----------- ----------- ---------
(1)
<S> <C> <C> <C> <C> <C>
1991
Owned:
Roadway..... $ 891 $164 $ (45) $20 $1,030
Equipment... 400 62 (69) 4 397
------ ---- ----- --- ------
1,291 226 (114) 24 1,427
------ ---- ----- --- ------
Capital Leases:
Roadway..... 36 3 (12) (2) 25
Equipment... 633 78 (97) 2 616
------ ---- ----- --- ------
669 81 (109) - 641
------ ---- ----- --- ------
Total....... $1,960 $307 $(223) $24 $2,068
====== ==== ===== === ======
1992
Owned:
Roadway..... $1,030 $161 $ (75) $ 2 $1,118
Equipment... 397 58 (49) 3 409
------ ---- ----- --- ------
1,427 219 (124) 5 1,527
------ ---- ----- --- ------
Capital Leases:
Roadway..... 25 5 (5) 25
Equipment... 616 71 (30) 6 663
------ ---- ----- --- ------
641 76 (35) 6 688
------ ---- ----- --- ------
Total....... $2,068 $295 $(159) $11 $2,215
====== ==== ===== === ======
1993
Owned:
Roadway..... $1,118 $159 $(160) $ 2 $1,119
Equipment... 409 50 (60) 3 402
------ ---- ----- --- ------
1,527 209 (220) 5 1,521
------ ---- ----- --- ------
Capital Leases:
Roadway..... 25 3 (8) 20
Equipment... 663 70 (95) 5 643
------ ---- ----- --- ------
688 73 (103) 5 663
------ ---- ----- --- ------
Total....... $2,215 $282 $(323) $10 $2,184
====== ==== ===== === ======
<FN>
(1) All changes represent additions charged to property accounts in
connection with construction projects, except for the following:
1991 - Change in method of accounting for track structure by a
subsidiary from the retirement-replacement-betterment method
to the depreciation accounting method increased Owned Roadway
$9 million. Acquisition of assets previously under Capital
Leases, Roadway increased Owned Roadway $5 million and
adjustments related to the acquisition of a subsidiary
increased Owned Roadway $5 million and Owned Equipment, $2
million.
</TABLE>
S-2
<PAGE>
Schedule VIII
<TABLE>
CONSOLIDATED RAIL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
Additions
--------------------
Balancee at Charged to Charged Balance
Description Beginning Costs and to Other At End
- ----------- of Period Expenses Accounts Deductions of Period
----------- ---------- -------- ---------- ---------
(1)
<S> <C> <C> <C> <C> <C>
1991
Casualty reserves
Current....... $116 $ 4 (2) $112
Noncurrent.... 171 $110 $12 125 (3) 168
Allowance for
disposition of
property and
equipment (4)..... 339 18 321
1992
Casualty reserves
Current...... 112 2 (2) 110
Noncurrent... 168 122 11 148 (3) 153
Allowance for
disposition of
property and
equipment (4)..... 321 44 277
1993
Casualty reserves
Current...... 110 17 (2) 93
Noncurrent... 153 122 11 154 (3) 132
Allowance for
disposition of
property and
equipment (4)..... 277 21 256
<FN>
(1) Charges to property accounts in connection with construction
projects.
(2) Includes net transfers from noncurrent.
(3) Transfers to current.
(4) Charge to costs and expenses in 1991 represents a portion of
the 1991 Special Charge (see Note 10 to the Consolidated
Financial Statements). Deductions of $18 million, $27 million
and $21 million in 1991, 1992 and 1993, respectively, represent
net losses on asset dispositions. The remaining $17 million
deduction in 1992 represents a net reduction in disposition
requirements as a result of the decision to retain certain
rail lines.
</TABLE>
S-3
<PAGE>
Schedule X
<TABLE>
CONSOLIDATED RAIL CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31,
(In Millions)
<CAPTION>
Items Charged to Costs and Expenses
----- -----------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs............... $512 $495 $478
==== ==== ====
Taxes, other than payroll and
income taxes:
Property........................ 50 46 47
Other........................... 33 22 30
---- ---- ----
Total......................... $ 83 $ 68 $ 77
==== ==== ====
</TABLE>
S-4
