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 March 31, 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
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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
- - ---------------------------------------------------------------------
(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 April 30, 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters ended
March 31, 1994 and 1993 3
Condensed Consolidated Balance
Sheets - March 31, 1994 and
December 31, 1993 4
Condensed Consolidated Statements
of Cash Flows - Quarters ended
March 31, 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 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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
March 31,
--------------
1994 1993
----- -----
<S> <C> <C>
Revenues $ 843 $ 816
----- -----
Operating expenses
Way and structures 144 136
Equipment 211 176
Transportation 348 322
General and administrative 89 97
Early retirement program 84
----- -----
Total operating expenses 876 731
----- -----
Income (loss) from operations (33) 85
Interest expense (44) (44)
Other income, net 26 32
----- -----
Income (loss) before income taxes and the
cumulative effect of changes in accounting
principles (51) 73
Income taxes (benefits) (18) 27
----- -----
Income (loss) before the cumulative effect
of changes in accounting principles (33) 46
Cumulative effect of changes in accounting
principles (74)
----- -----
Net loss $ (33) $ (28)
===== =====
Ratio of earnings to fixed charges - 2.25x
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
($ In Millions) March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 32 $ 26
Accounts receivable 662 649
Deferred tax assets 228 218
Material and supplies 153 132
Other current assets 26 20
------ ------
Total current assets 1,101 1,045
Property and equipment, net 6,308 6,313
Other assets 590 552
------ ------
Total assets $7,999 $7,910
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 112 79
Current maturities of long-term debt 154 146
Accounts payable 95 84
Wages and employee benefits 179 185
Casualty reserves 96 93
Accrued and other current liabilities 500 487
------ ------
Total current liabilities 1,136 1,074
Long-term debt 1,985 1,959
Casualty reserves 210 132
Deferred income taxes 1,086 1,084
Special income tax obligation 560 575
Other liabilities 337 343
------ ------
Total liabilities 5,314 5,167
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Stockholder's equity
Common stock
Additional paid-in capital 2,124 2,123
Note receivable from ESOP (308) (308)
Retained earnings 869 928
------ ------
Total stockholder's equity 2,685 2,743
------ ------
Total liabilities and
stockholder's equity $7,999 $7,910
====== ======
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
($ In Millions)
Quarters ended
March 31,
---------------
1994 1993
----- -----
<S> <C> <C>
Cash flows from operating activities $ 29 $ 33
----- -----
Cash flows from investing activities
Property and equipment acquisitions (68) (80)
Other 2 (35)
----- -----
Net cash used in investing activities (66) (115)
----- -----
Cash flows from financing activities
Repurchase of common stock (10)
Net proceeds from (repayment of)short-term
borrowings 33 (21)
Payment of capital lease and equipment obligations (18) (24)
Proceeds from medium-term notes 50 79
Payment of medium-term notes (5)
Proceeds from long-term debt 54
Dividends paid on common stock (26) (22)
Dividends paid on preferred stock (5)
Other 9 5
----- -----
Net cash from financing activities 43 56
----- -----
Increase (decrease) in cash and cash equivalents 6 (26)
Cash and cash equivalents
Beginning of period 26 40
----- -----
End of period $ 32 $ 14
===== =====
</TABLE>
See accompanying notes.
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 March 31, 1994 and
December 31, 1993, and the consolidated results of operations
and cash flows for the quarters ended March 31, 1994 and 1993.
In the opinion of management, these financial statements include
all adjustments, consisting of normal recurring adjustments and
the cumulative effect 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. In April 1994, the Company entered into a $500 million
uncollateralized bank credit agreement with a group of banks to
replace the $300 million credit facility that would have expired
in the first quarter of 1995. The new credit agreement, which
will be used for general corporate purposes and to support the
Company's commercial paper program, provides for a $350 million
revolving credit facility with a five year maturity and a $150
million revolving credit facility with a one year maturity.
6
<PAGE>
Both credit facilities require interest to be paid on amounts
borrowed at rates based on various defined short-term rates and
an annual maximum fee of .125% of the facility amounts. The new
credit agreement contains, among other conditions, restrictive
covenants relating to a debt ratio and consolidated tangible net
worth. There were no borrowings outstanding under the prior
credit agreement at March 31, 1994.
5. The Company paid a dividend of $26 million to Conrail Inc.
in the first quarter of 1994.
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.
Material developments with respect to these and other matters
are discussed in Part II, Item 1 - Legal Proceedings in this
Form 10-Q.
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 March 31, 1994 and the related condensed
consolidated statements of income and cash flows for the three
months ended March 31, 1994. The Company's condensed
consolidated statements of income and cash flows
for the three months ended March 31, 1993 were
reviewed by other independent accountants, whose report dated
April 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
April 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
March 31, 1993 and the related condensed consolidated statements
of income and cash flows for the three-month period ended
March 31, 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 Quarter 1994 compared with First Quarter 1993
---------------------------------------------------
Net loss for the first quarter of 1994 was $33 million after the
effects of a one-time charge of $51 million related to a non-
union voluntary early retirement program and related costs which
Consolidated Rail Corporation (the "Company") completed during
the quarter (see Note 2 to the Condensed Consolidated Financial
Statements). Net loss for the first quarter of 1993 was $28
million after the effects of one-time charges of $74 million for
adoption of required changes in accounting principles (see
Note 3 to the Condensed Consolidated Financial Statements). 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.
The Company's first quarter 1994 results were adversely affected
by difficult operating conditions caused by severe winter
weather, which diminished its ability to handle an increase in
traffic volume during the quarter. The poor operating
conditions and greater than anticipated traffic volumes combined
to create a shortage of locomotives and crews. These factors in
conjunction with the simultaneous implementation of the
Company's new service group structure resulted in service
disruptions and increased operating expenses.
Operating revenues (primarily freight line-haul revenues, but
also including switching, demurrage and incidental revenues)
increased $27 million, or 3.3%, from $816 million in the first
quarter of 1993 to $843 million in the first quarter of 1994. A
7.8% increase in traffic volume in units (freight cars and
intermodal trailers and containers) resulted in a $61 million
increase in revenues that was partially offset by a 3.0%
decrease in average revenue per unit which reduced revenue by
$25 million. The decline in average revenue per unit is
attributable to traffic mix and decreases in average rates which
lowered revenue by $7 million and $18 million, respectively.
Incidental revenues decreased $9 million.
Operating expenses increased $145 million (including the $84
million charge related to the non-union voluntary early
retirement program and related costs), or 19.8%, from $731
10
<PAGE>
million in the first quarter of 1993 to $876 million in the
first quarter of 1994. The following table sets forth the
operating expenses for the two periods:
First Quarter
-------------
Increase
($ In Millions) 1994 1993 (Decrease)
---- ---- ----------
Compensation and benefits $341 $323 $ 18
Fuel 47 43 4
Material and supplies 62 57 5
Equipment rents 91 75 16
Depreciation and amortization 70 72 (2)
Casualties and insurance 45 34 11
Other 136 127 9
Early retirement program 84 84
---- ---- ----
$876 $731 $145
==== ==== ====
Compensation and benefits as a percent of revenues was 40.5% in
the first quarter of 1994 and 39.6% in the first quarter of
1993. The labor cost increase of $18 million, or 5.6%, was
attributable primarily to increased overtime caused by the
adverse weather conditions and service disruptions experienced
in the first quarter.
The increase of $16 million, or 21.3%, in equipment rents
primarily reflects the effects of crowded serving yards and
train delays due to adverse weather conditions and higher
traffic volume.
The increase of $11 million, or 32.4%, in casualties and
insurance cost was due to an increase in the number of personal
injury claims plus increases in the average cost per claim.
Also contributing to the increase were costs associated with
loss and damage to lading from train derailments.
Other operating expenses increased $9 million, or 7.1%,
primarily due to increases in lease rentals, snow removal and
property and corporate taxes during the quarter.
In the first quarter of 1994, the Company incurred a one-time
charge of $84 million for the non-union voluntary early
retirement program and related costs (see Note 2 to the
Condensed Consolidated Financial Statements).
The Company's operating ratio (operating expenses as a percent
of revenues) was 103.9% for the first quarter of 1994 compared
with 89.6% for the first quarter of 1993. Without the one-time
charge for the early retirement program, the operating ratio for
the first quarter of 1994 would have been 94.0%.
11
<PAGE>
Liquidity and Capital Resources
-------------------------------
Consolidated Rail Corporation's cash and cash equivalents
increased $6 million in the first quarter of 1994, from
$26 million at December 31, 1993 to $32 million at March 31,
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 quarter of 1994, operating activities provided cash of $29
million and net short-term borrowings and proceeds from medium-
term notes provided $83 million.
The principal uses of cash during the quarter were for:
property and equipment acquisitions, $68 million; payment of
capital lease and equipment obligations, $18 million; and cash
dividends paid to Conrail Inc., $26 million.
A working capital (current assets less current liabilities)
deficiency of $35 million existed at March 31, 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 quarter of 1994, the Company issued $243
million of commercial paper and repaid $210 million. At March
31, 1994, $212 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 January 1994, the Company established a $300 million Medium-
Term Note Program under a shelf registration statement filed on
Form S-3 in August 1993. Under this Program, the Company issued
$50 million of medium-term notes during the first quarter of
1994, with an average interest rate of 5.73%.
In April 1994, the Company entered into an uncollateralized bank
credit agreement with a group of banks to replace the $300
million credit facility that would have expired in the first
quarter of 1995. The new credit agreement, which will be used
for general corporate purposes and to support the Company's
commercial paper program, provides for a $350 million revolving
credit facility with a five year maturity and a $150 million
revolving credit facility with a one year maturity.
12
<PAGE>
PART II. OTHER INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Legal Proceedings.
-----------------
United States v. Consolidated Rail Corporation, et al.
-----------------------------------------------------
On March 17, 1994, the United States Department of Justice
("DOJ") served notice that it had filed a complaint in the
Federal District Court for the Eastern District of Pennsylvania
against Consolidated Rail Corporation (the "Company") and two
other parties citing various violations of the Clean Air Act
("CAA") and the National Emission Standard for Hazardous Air
Pollutants ("NESHAP") in connection with the alleged release of
asbestos during the renovation of a grain storage facility. DOJ
seeks civil penalties and injunctive relief against further
violations of CAA and NESHAP.
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
On February 18, 1994, the Company filed a report
on Form 8-K reporting the following under "Item 4.
Change in Registrant's Certifying Accountants,":
On February 16, 1994, the Company dismissed
Coopers & Lybrand as its independent accountants
and engaged Price Waterhouse as its new
independent accountants effective as of that date.
13
<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
Bruce B. Wilson
-----------------------------
Bruce B. Wilson
Senior Vice President - Law
H. W. Brown
-----------------------------
H. W. Brown
Senior Vice President -
Finance and Administration
(Principal Financial Officer)
Date: May 11, 1994
14
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page Number in
No. SEC Sequential
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.
Exhibit 12
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<TABLE>
CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
($ In Millions)
<CAPTION>
Quarters ended
March 31,
--------------
1994 1993
---- ----
<S> <C> <C>
Earnings
--------
Pre-tax income $(51) $ 73
Add:
Interest expense 44 44
Rental expense interest factor 9 7
Less equity in undistributed earnings
of 20-50% owned companies (4) (9)
---- ----
Earnings available for fixed charges (2) $115
==== ====
Fixed charges
-------------
Interest expense 44 44
Rental expense interest factor 9 7
---- ----
Fixed charges $ 53 $ 51
==== ====
Ratio of earnings to fixed charges - 2.25x
<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 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.
</FN>
</TABLE>
Exhibit 15.a
------------
May 11, 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 April 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 April 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.
Yours very truly,
PRICE WATERHOUSE
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, PA 19103
Exhibit 15.b
------------
May 10, 1994
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Consolidated Rail Corporation
Registration on Form S-3 (Registration Form Nos. 33-34040 and
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-month period
ended March 31, 1993 and included in the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 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
COOPERS & LYBRAND
