SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1994
or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission file number 1-9064
CONSOLIDATED RAIL CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1989084
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Market Street, Philadelphia, Pennsylvania 19101
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(Address of principal executive offices)
(Zip Code)
(215) 209-4000
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of common stock outstanding (as of July 31, 1994) 100*
Registrant meets the conditions set forth in general instructions
H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the
reduced disclosure format.
* Consolidated Rail Corporation is a wholly-owned subsidiary of
Conrail Inc. (CRR).
<PAGE>
CONSOLIDATED RAIL CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters and six months
ended June 30, 1994 and 1993 3
Condensed Consolidated Balance
Sheets - June 30, 1994 and
December 31, 1993 4
Condensed Consolidated Statements
of Cash Flows - Six months ended
June 30, 1994 and 1993 5
Notes to Condensed Consolidated
Financial Statements 6
Reports of Independent Accountants 8
Item 2. Management's Analysis of Results
of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Financial Statements.
--------------------
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
($ In Millions)
Quarters Ended Six Months Ended
June 30, June 30,
-------------- ----------------
1994 1993 1994 1993
---- ---- ------ ------
<S> <C> <C> <C> <C>
Revenues $949 $873 $1,792 $1,689
Operating expenses
Way and structures 121 122 265 258
Equipment 209 178 420 354
Transportation 340 320 688 642
General and administrative 90 95 179 192
Early retirement program 84
---- ---- ------ ------
Total operating expenses 760 715 1,636 1,446
---- ---- ------ ------
Income from operations 189 158 156 243
Interest expense (44) (46) (88) (90)
Other income, net 21 25 47 57
---- ---- ------ ------
Income before income taxes and the
cumulative effect of changes in
accounting principles 166 137 115 210
Income taxes 65 52 47 79
---- ---- ------ ------
Income before the cumulative effect
of changes in accounting principles 101 85 68 131
Cumulative effect of changes in
accounting principles (74)
---- ---- ------ ------
Net income $101 $ 85 $ 68 $ 57
==== ==== ====== ======
Ratio of earnings to fixed charges 4.04x 3.65x 2.00x 2.96x
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
($ In Millions) June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 20 $ 26
Accounts receivable 739 649
Deferred tax assets 230 218
Material and supplies 157 132
Other current assets 25 20
------ ------
Total current assets 1,171 1,045
Property and equipment, net 6,348 6,313
Other assets 644 552
------ ------
Total assets $8,163 $7,910
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 185 79
Current maturities of long-term debt 118 146
Accounts payable 67 84
Wages and employee benefits 194 185
Casualty reserves 96 93
Accrued and other current liabilities 530 487
------ ------
Total current liabilities 1,190 1,074
Long-term debt 1,971 1,959
Casualty reserves 204 132
Deferred income taxes 1,130 1,084
Special income tax obligation 544 575
Other liabilities 338 343
------ ------
Total liabilities 5,377 5,167
====== ======
Stockholder's equity
Common stock
Additional paid-in capital 2,125 2,123
Note receivable from ESOP (308) (308)
Retained earnings 969 928
------ ------
Total stockholder's equity 2,786 2,743
------ ------
Total liabilities and
stockholder's equity $8,163 $7,910
====== ======
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
($ In Millions)
Six Months Ended
June 30,
----------------
1994 1993
----- -----
<S> <C> <C>
Cash flows from operating activities $ 121 $ 117
----- -----
Cash flows from investing activities
Property and equipment acquisitions (181) (202)
Loans to and investments in affiliates (24)
Proceeds from disposals of properties 11 7
Other (26) (27)
----- -----
Net cash used in investing activities (196) (246)
----- -----
Cash flows from financing activities
Repurchase of common stock (32)
Net proceeds from (repayment of) short-term
borrowings 105 (67)
Net proceeds from (payment of) medium-term notes 10 (1)
Proceeds from long-term debt 305
Payment of capital lease and equipment obligations (37) (44)
Dividends paid on common stock (26) (44)
Dividends paid on preferred stock (11)
Other 17 7
----- -----
Net cash from financing activities 69 113
----- -----
Decrease in cash and cash equivalents (6) (16)
Cash and cash equivalents
Beginning of period 26 40
----- -----
End of period $ 20 $ 24
===== =====
See accompanying notes.
</TABLE>
5
<PAGE>
CONSOLIDATED RAIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The unaudited financial statements contained herein present the
consolidated financial position of Consolidated Rail Corporation (the
"Company") as of June 30, 1994 and December 31, 1993, the consolidated
results of operations for the three and six-month periods ending
June 30, 1994 and 1993 and the consolidated cash flows for the six-month
periods ended June 30, 1994 and 1993. In the opinion of management,
these financial statements include all adjustments, consisting of normal
recurring adjustments, and the cumulative effects of changes in
accounting principles mentioned in Note 3, necessary to present fairly
the results for the interim periods included.
The rules and regulations of the Securities and Exchange Commission
permit certain information and footnote disclosures, ordinarily
required by generally accepted accounting principles, to be condensed
or omitted from interim financial reports. Accordingly, the financial
statements included herein should be read in conjunction with the
audited financial statements and notes for the year ended December 31,
1993, presented in the Company's Annual Report on Form 10-K.
2. During the first quarter of 1994, the Company recorded a charge of
$51 million (after tax benefits of $33 million) for a non-union
employee voluntary early retirement program and related costs. The
majority of the cost of the early retirement program will be paid from
the Company's overfunded pension plan.
3. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." As a
result, the Company recorded cumulative after tax charges totalling $74
million in the first quarter of 1993. The one-time charge was reduced
to $70 million in the third quarter of 1993. The decrease reflected
the adjustment for the change in income tax accounting for a subsidiary
which was transferred to Conrail Inc. as a result of the corporate
reorganization that occurred in the third quarter of 1993.
4. On July 20 1994, the Company paid a dividend of $68 million on its
common stock to Conrail Inc.
6
<PAGE>
5. In June 1994, the Company issued $15 million of Medium-Term Notes
with an interest rate of 6.33%, maturing in 1996, pursuant to a
registration statement on Form S-3.
In July 1994, the Company issued approximately $49 million of 1994
Equipment Trust Certificates, Series A, with interest rates ranging
from 5.5% to 7.6%, maturing annually from 1995 to 2009. The
certificates were used to finance approximately 85% of the total
purchase price of 36 locomotives.
6. Information regarding contingent liabilities and litigation was
included in Note 12 to Consolidated Financial Statements and Part I,
Item 3 - Legal Proceedings in the Company's Annual Report on Form 10-K
for the year ended December 31, 1993. There have been no material
developments with respect to these matters during the first six months
of 1994, except as disclosed in that Annual Report on Form 10-K and the
quarterly report on Form 10-Q for the three months ended March 31,
1994.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholder and Board of Directors of
Consolidated Rail Corporation
We have reviewed the accompanying condensed consolidated balance sheet
of Consolidated Rail Corporation and its subsidiaries (the "Company")
as of June 30, 1994 and the related condensed consolidated statements
of income for the three and six months ended June 30, 1994 and the
condensed consolidated statement of cash flows for the six months
ended June 30, 1994. The Company's condensed consolidated statements
of income for the three and six months ended June 30, 1993 and the
condensed consolidated statement of cash flows for the six months
ended June 30, 1993 were reviewed by other independent accountants,
whose report dated July 21, 1993, disclosed that no material
modifications should have been made to the interim financial
information for it to be in conformity with generally accepted
accounting principles. This financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying interim financial information
for it to be in conformity with generally accepted accounting
principles.
The Company's consolidated balance sheet as of December 31, 1993 and
the related consolidated statements of income, stockholder's equity
and cash flows for the year then ended (not presented herein) were
audited by other independent accountants, whose report dated
January 24, 1994 expressed an unqualified opinion on those statements
and included an explanatory paragraph describing the Company's change
in methods for accounting for income taxes and postretirement benefits
other than pensions in 1993.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, PA 19103
July 20, 1994
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholder and Board of Directors of
Consolidated Rail Corporation
We have made a review of the condensed consolidated balance sheet of
Consolidated Rail Corporation and subsidiaries as of June 30, 1993,
and the related condensed consolidated statements of income for the
three and six-month periods ended June 30, 1993, and the condensed
consolidated statement of cash flows for the six-month period ended
June 30, 1993, in accordance with standards established by the
American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of
interim financial information, applying analytical procedures to
financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope
than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of
December 31, 1993, and the related consolidated statements of
income, stockholder's equity and cash flows for the year then ended
(not presented herein); and in our report, dated January 24, 1994,
we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31,
1993, is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 24, 1994
9
<PAGE>
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Analysis of Results of Operations
----------------------------------------------
Results of Operations
---------------------
First Six Months of 1994 compared with First Six Months of 1993
---------------------------------------------------------------
Net income for the first six months of 1994 was $68 million, an
increase of $11 million, or 19.3%, from $57 million for the
first six months of 1993. Net income for the first six months
of 1994 includes the effects of a one-time charge of $51 million
(net of tax benefits of $33 million) relating to a non-union
voluntary early retirement program and related costs which the
Company recorded during the first quarter of 1994 (see Note 2 to
the Condensed Consolidated Financial Statements). Net income
for the first six months of 1993 includes the effects of one-
time charges in the first quarter of $74 million (net of tax
benefits of $14 million) for adoption of required changes in
accounting for income taxes and postretirement benefits other
than pensions (see Note 3 to the Condensed Consolidated
Financial Statements).
Operating revenues increased $103 million, or 6.1%, to $1,792
million from $1,689 million for the first six months of 1993.
A 9.0% increase in traffic volume resulted in a $145 million
increase in revenues that was partially offset by a 1.9%
decrease in average revenue per unit which reduced revenues by
$34 million. The decline in average revenue per unit was caused
by an unfavorable traffic mix and decreases in average rates,
which lowered revenues by $24 million and $10 million,
respectively. Other revenues decreased $8 million.
Operating expenses increased $190 million, including $84 million
related to the non-union voluntary early retirement program and
related costs, or 13.1%, to $1,636 million from $1,446 million
for the first six months of 1993. The following table shows the
operating expenses for the periods:
10
<PAGE>
First Six Months
---------------- Increase
($ In Millions) 1994 1993 (Decrease)
------ ------ ----------
Compensation and benefits $ 652 $ 632 $ 20
Fuel 94 87 7
Material and supplies 113 107 6
Equipment rents 193 150 43
Depreciation and amortization 139 141 (2)
Casualties and insurance 85 65 20
Other 276 264 12
Early retirement program 84 84
------ ------ ----
$1,636 $1,446 $190
====== ====== ====
Compensation and benefits as a percent of revenues were 36.4% in
the first six months of 1994 and 37.4% in the first six months
of 1993. The compensation and benefits increase of $20 million,
or 3.2%, was attributable primarily to increased overtime caused
by the adverse weather conditions and service disruptions
experienced in the first quarter of 1994.
The increase of $43 million, or 28.7%, in equipment rents is
primarily attributable to increased traffic volume and new
operating leases, as well as the effects of crowded serving
yards and train delays caused by adverse weather conditions
experienced in the first quarter of 1994.
Casualties and insurance costs increased $20 million, or 30.8%,
due to an increase in personal injury claims expense based on
higher expected costs to settle claims along with an increase in
the number of personal injury claims, which increase occurred in
the first quarter of 1994. The Company continues to experience
increasing costs associated with the resolution of personal
injury and occupational illness claims, despite the recent
decline in the actual number of lost-time injuries. As a
result, the Company has formed a new Risk Management Department
to consolidate all facets of personal injury risk management and
to review its safety practices, the process by which it resolves
claims, and the costs of such claims. The Company is continuing
the process of reviewing the adequacy of its personal injury
reserves.
Other operating expenses increased $12 million, or 4.5%,
primarily due to increases in lease rentals and property and
corporate taxes, as well as higher snow removal costs in the
first quarter of 1994.
In the first quarter of 1994, the Company incurred a one-time
pre-tax charge of $84 million for the non-union voluntary early
retirement program and related costs (see Note 2 to the
Condensed Consolidated Financial Statements).
11
<PAGE>
Conrail's operating ratio (operating expenses as a percent of
revenues) was 91.3% for the first six months of 1994, compared
with 85.6% for the first six months of 1993. Without the $84
million one-time charge for the early retirement program, the
operating ratio for the first six months of 1994 would have been
86.6%. The Company's financial goal of achieving an 81.5%
operating ratio (excluding non-recurring charges) for the full
year has not changed but continues to be evaluated as the year
progresses.
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents decreased $6 million in
the first six months of 1994, from $26 million at December 31,
1993 to $20 million at June 30, 1994. 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. In the first six months of 1994,
operating activities provided cash of $121 million and net
proceeds from short-term borrowings and medium-term notes
provided $115 million. The principal uses of cash were for
property and equipment acquisitions, $181 million; payment of
capital lease and equipment obligations, $37 million; and cash
dividends paid to Conrail Inc., $26 million.
A working capital (current assets less current liabilities)
deficiency of $19 million existed at June 30, 1994 as compared
with a deficiency of $29 million at December 31, 1993.
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 obtained for working capital requirements.
During the first six months of 1994, the Company issued $169
million of commercial paper and repaid $64 million. At June 30,
1994, $285 million of commercial paper remained outstanding, of
which $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 June 1994, the Company issued $15 million of Medium-Term
Notes with an interest rate of 6.33%, maturing in 1996, pursuant
to a registration statement on Form S-3.
12
<PAGE>
In July 1994, the Company issued approximately $49 million of
1994 Equipment Trust Certificates, Series A, with interest rates
ranging from 5.5% to 7.6%, maturing annually from 1995 to 2009.
The certificates were used to finance approximately 85% of the
total purchase price of 36 locomotives.
On July 20, 1994, the Company paid a dividend of $68 million on
its common stock to Conrail Inc.
Other Matters
-------------
The United Transportation Union ("UTU") is currently involved in
a work stoppage that is confined to the Soo Line Railroad. The
Company has been advised that the strike may spread in the near
future to the Delaware & Hudson Railroad (an affiliate of the
Soo Line), a carrier with which Conrail shares facilities and
which has trackage rights over Conrail. In such event,
Conrail's operations may be adversely affected or Conrail may be
the subject of secondary picketing which, in turn, could result
in Conrail's operations in those areas being severely curtailed
for the duration of the picketing.
13
<PAGE>
PART II. OTHER INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
12 Computations of the ratio of earnings to
fixed charges.
15.a Letter re unaudited interim financial
information from Price Waterhouse.
15.b Letter re unaudited interim financial
information from Coopers & Lybrand.
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONSOLIDATED RAIL CORPORATION
Registrant
/s/ Bruce B. Wilson
-------------------
Bruce B. Wilson
Senior Vice President - Law
/s/ H. W. Brown
-------------------
H. W. Brown
Senior Vice President -
Finance and Administration
(Principal Financial Officer)
Date: July 29, 1994
15
<PAGE>
EXHIBIT INDEX
Page Number in
Exhibit SEC Sequential
No. Numbering System
------ ----------------
12 Computations of the ratio of
earnings to fixed charges.
15.a Letter re unaudited interim
financial information from Price
Waterhouse.
15.b Letter re unaudited interim
financial information from
Coopers & Lybrand.
<TABLE>
Exhibit 12
----------
CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
($ In Millions)
<CAPTION>
Quarters Ended Six Months Ended
June 30, June 30,
-------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings
- --------
Pre-tax income $166 $137 $115 $210
Add:
Interest expense 44 46 88 90
Rental expense interest factor 9 5 18 12
Less equity in undistributed (earnings)
loss of 20-50% owned companies (5) 2 (9) (7)
---- ---- ---- ----
Earnings available for fixed charges $214 $190 $212 $305
==== ==== ==== ====
Fixed charges
- -------------
Interest expense 44 46 88 90
Rental expense interest factor 9 5 18 12
Capitalized interest 1 1
---- ---- ---- ----
Fixed charges $ 53 $ 52 $106 $103
==== ==== ==== ====
Ratio of earnings to fixed charges 4.04x 3.65x 2.00x 2.96x
<FN>
For purposes of computing the ratio of earnings to fixed
charges, earnings represent income before income taxes plus
fixed charges, less equity in undistributed (earnings) loss of
20% to 50% owned companies. Fixed charges represent interest
expense together with any interest capitalized and a portion
of rent under long-term operating leases representative of an
interest factor.
</FN>
</TABLE>
Exhibit 15.a
------------
July 29, 1994
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Sirs:
We are aware that Consolidated Rail Corporation has
incorporated by reference our report dated July 20, 1994
(issued pursuant to the provisions of Statement of
Auditing Standards No. 71) in the following registration
statements:
Registration Statement on Form S-3 No. 33-34040
Registration Statement on Form S-3 No. 33-64670.
We are also aware of our responsibilities under the
Securities Act of 1933 and that pursuant to Rule 436(c)
our report dated July 20, 1994 shall not be considered
part of a registration statement prepared or certified
by us or a report prepared or certified by us within the
meaning of Sections 7 and 11 of the Securities Act of
1933.
Very truly yours,
PRICE WATERHOUSE
Exhibit 15.b
------------
July 29, 1994
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Consolidated Rail Corporation
Registration on Form S-3 (Registration Form No. 33-34040 and
Registration Form No. 33-64670)
We are aware that our report dated January 24, 1994 on
our review of interim financial information of
Consolidated Rail Corporation and subsidiaries for the
three and six-month periods ended June 30, 1993 and
included in the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1994 will be incorporated
by reference in the registration statements. Pursuant to
Rule 436(c) under the Securities Act of 1933, this report
should not be considered a part of the registration
statements prepared or certified by us within the meaning
of Sections 7 and 11 of that Act.
COOPERS & LYBRAND
