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, 1995
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or
( )Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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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
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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)
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(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, 1995)
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 and six months
ended June 30, 1995 and 1994 3
Condensed Consolidated Balance
Sheets - June 30, 1995 and
December 31, 1994 4
Condensed Consolidated Statements
of Cash Flows - Six months ended
June 30, 1995 and 1994 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 7
Item 2. Management's Analysis of Results
of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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,
-------------- ----------------
1995 1994 1995 1994
---- ---- ------ ------
<S> <C> <C> <C> <C>
Revenues $918 $949 $1,803 $1,792
Operating expenses
Way and structures 118 121 252 265
Equipment 186 209 388 420
Transportation 327 340 667 688
General and administrative 108 90 204 179
Early retirement program 84
---- ---- ------ ------
Total operating expenses 739 760 1,511 1,636
---- ---- ------ ------
Income from operations 179 189 292 156
Interest expense (48) (44) (94) (88)
Other income, net 32 21 57 47
---- ---- ------ ------
Income before income taxes 163 166 255 115
Income taxes 43 65 82 47
---- ---- ------ ------
Net income $120 $101 $ 173 $ 68
==== ==== ====== ======
Ratio of earnings to fixed charges 3.48x 4.04x 2.98x 2.00x
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
($ In Millions) June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 34 $ 31
Accounts receivable 635 650
Deferred tax assets 241 241
Material and supplies 173 164
Other current assets 36 23
------ ------
Total current assets 1,119 1,109
Property and equipment, net 6,659 6,498
Other assets 802 676
------ ------
Total assets $8,580 $8,283
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 214 112
Current maturities of long-term debt 115 130
Accounts payable 120 122
Wages and employee benefits 175 169
Casualty reserves 100 103
Accrued and other current liabilities 531 549
------ ------
Total current liabilities 1,255 1,185
Long-term debt 2,068 1,940
Casualty reserves 212 212
Deferred income taxes 1,282 1,212
Special income tax obligation 476 513
Other liabilities 316 328
------ ------
Total liabilities 5,609 5,390
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Stockholder's equity
Preferred stock
Common stock
Additional paid-in capital 2,129 2,128
Note receivable from ESOP (306) (312)
Retained earnings 1,148 1,077
------ ------
Total stockholder's equity 2,971 2,893
------ ------
Total liabilities and
stockholder's equity $8,580 $8,283
====== ======
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
($ In Millions)
Six Months Ended
June 30,
----------------
1995 1994
----- -----
<S> <C> <C>
Cash flows from operating activities $ 277 $ 121
----- -----
Cash flows from investing activities
Property and equipment acquisitions (224) (181)
Payments for capital lease buyouts (56)
Other (39) (15)
----- -----
Net cash used in investing activities (319) (196)
----- -----
Cash flows from financing activities
Net proceeds from short-term borrowings 102 105
Net proceeds from medium-term notes 10 10
Proceeds from long-term debt 55
Payment of capital lease and equipment obligations (33) (37)
Dividends paid on common stock (102) (26)
Other 13 17
----- -----
Net cash provided by financing activities 45 69
----- -----
Increase (decrease) in cash and cash equivalents 3 (6)
Cash and cash equivalents
Beginning of period 31 26
----- -----
End of period $ 34 $ 20
===== =====
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, 1995 and December 31,
1994, the consolidated results of operations for the three and
six-month periods ending June 30, 1995 and 1994 and the
consolidated cash flows for the six-month periods ended June 30,
1995 and 1994. In the opinion of management, these financial
statements include all adjustments, consisting of normal
recurring adjustments 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, 1994, presented in the
Company's Annual Report on Form 10-K.
2. As a result of a decrease in a state income tax rate enacted
during the second quarter of 1995, income tax expense for the
quarter and six months ended June 30, 1995 was reduced by $21
million representing the effects of adjusting deferred income
taxes and the special income tax obligation for the rate decrease
as required under SFAS 109, "Accounting for Income Taxes".
3. 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
is being paid from the Company's overfunded pension plan.
4. 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, 1994. Material
developments with respect to these and other matters are
discussed in Part II, Item I - Legal Proceedings in this Form
10-Q.
6
<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, 1995 and the related condensed consolidated
statements of income for the three and six months ended June 30, 1995
and June 30, 1994 and the condensed consolidated statements of cash
flows for the six months ended June 30, 1995 and June 30, 1994. 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.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and
the related consolidated statements of income, of stockholder's equity
and of cash flows for the year then ended (not presented herein), and
in our report dated January 23, 1995 we expressed an unqualified
opinion on those consolidated financial statements and included an
explanatory paragraph describing the Company's change in methods of
accounting for income taxes and postretirement benefits other than
pensions in 1993. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31,
1994, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
July 19, 1995
7
<PAGE>
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Analysis of Results of Operations
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Results of Operations
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First Six Months of 1995 compared with First Six Months of 1994
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Net income for the first six months of 1995 was $173 million and
includes recognition of a $21 million tax benefit related to a decrease
in a state income tax rate enacted during the second quarter (see Note 2
to the Condensed Consolidated Financial Statements). Net income for the
first six months of 1994 was $68 million and included the one-time
charge of $51 million (net of tax benefits of $33 million) related to the
early retirement program (see Note 3 to the Condensed Consolidated
Financial Statements).
Operating revenues (primarily freight line haul revenue, but also
including switching, demurrage and incidental revenues) increased $11
million, or less than 1%, to $1,803 million for the first six months of
1995 from $1,792 million for the first six months of 1994. A 3.0%
decrease in traffic volume in units (freight cars and intermodal
trailers and containers) resulted in a $51 million decrease in revenues
that was completely offset by an increase in revenues resulting from a
$47 million increase in average rates and a favorable traffic mix of $4
million. Switching, demurrage and incidental revenues increased $11
million.
Operating expenses decreased $125 million, or 7.6%, from $1,636
million in the first six months of 1994, which included the $84
million charge related to the non-union voluntary early retirement
program and related costs, to $1,511 million in the first six
months of 1995. The following table sets forth the operating
expenses for the two periods:
First Six Months
----------------
Increase
($ In Millions) 1995 1994 (Decrease)
------ ------ --------
Compensation and benefits $ 653 $ 652 $ 1
Fuel 87 94 (7)
Material and supplies 99 113 (14)
Equipment rents 168 193 (25)
Depreciation and amortization 146 139 7
Casualties and insurance 78 85 (7)
Other 280 276 4
Early retirement program 84 (84)
------ ------ -----
$1,511 $1,636 $(125)
====== ====== =====
Compensation and benefits as a percent of revenues was 36.2% in the
first six months of 1995 as compared with 36.4% in the first six months
of 1994.
8
<PAGE>
The decrease of $14 million, or 12.4%, in material and supplies cost was
attributable to a lower level of repair and maintenance expenditures
caused primarily by declining traffic volumes.
Equipment rents decreased $25 million, or 13.0%, primarily as a result
of improved equipment utilization and lower traffic volumes.
The Company's operating ratio (operating expenses as a percent of
revenues) was 83.8% for the first six months of 1995, compared with
91.3% for the first six months of 1994. 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%.
Other income, net, increased $10 million, or 21.3%, primarily due to an
$8 million gain from a property sale completed during the second quarter
of 1995.
The Company's effective income tax rate for the first six months
of 1995 was 32.2% compared with 40.9% for the same period of 1994.
The decrease is primarily related to a $21 million reduction in
the Company's deferred income taxes and special income tax
obligation which were adjusted to reflect a decrease in a state
income tax rate which was enacted during the quarter (see Note 2
to the Condensed Consolidated Financial Statements).
9
<PAGE>
PART II. OTHER INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Legal Proceedings.
-----------------
United States v. Consolidated Rail Corporation, et al. On May 25, 1995,
------------------------------------------------------
the Company executed a Partial Consent Order in which it agreed to pay
$800,000 in civil penalties in order to resolve alleged violations of the
Clean Air Act and National Emission Standard for Hazardous Air
Pollutants in connection with the alleged release of asbestos during the
renovation of a grain storage facility. This matter was last reported
in the Company's Report on Form 10-K for the year ended December 31,
1994.
Beacon Park, Massachusetts On July 24, 1995, the Company agreed to
--------------------------
plead guilty to charges that it violated the Clean Water Act in
connection with the permitting and operation of a waste water
discharge facility at Beacon Park, Massachusetts and the
unauthorized discharge of oil from the facility into the Charles
River. The Company has agreed to pay $2.75 million in fines
($250,000 of which are suspended) and to make a $250,000 donation
to a local environmental foundation. The majority of these
amounts were accrued prior to June 30, 1995. This matter was last
reported in the Company's Report on Form 10-K for the year ended
December 31, 1994.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED RAIL CORPORATION
Registrant
/S/ Bruce B. Wilson
-------------------------------
Bruce B. Wilson
Senior Vice President - Law
/S/ H. W. Brown
-------------------------------
H. W. Brown
Senior Vice President -
Finance and Administration
(Principal Financial Officer)
Date: August 4, 1995
12
<PAGE>
EXHIBIT INDEX
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Exhibit
No.
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12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
13
<PAGE>
Exhibit 12
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<TABLE>
CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
($ In Millions)
Quarters Ended Six Months Ended
June 30, June 30,
-------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
Earnings
--------
<S> <C> <C> <C> <C>
Pre-tax income $163 $166 $255 $115
Add:
Interest expense 48 44 94 88
Rental expense interest factor 16 9 30 18
Less equity in undistributed
earnings of 20%-50% owned companies (4) (5) (9) (9)
---- ---- ---- ----
Earnings available for fixed charges $223 $214 $370 $212
==== ==== ==== ====
Fixed charges
-------------
Interest expense 48 44 94 88
Rental expense interest factor 16 9 30 18
---- ---- ---- ----
Fixed charges $ 64 $ 53 $124 $106
==== ==== ==== ====
Ratio of earnings to fixed charges 3.48x 4.04x 2.98x 2.00x
<FN>
For purposes of computing the ratio of earning to fixed charges,
earnings represent income before income taxes plus fixed charges, less
equity in undistributed earnings of 20% to 50% owned companies. Fixed
charges represent interest expense together with any interest
capitalized and a portion of rent under long-term operating leases
representative of an interest factor.
</FN>
</TABLE>
<PAGE>
Exhibit 15
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August 4, 1995
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Sirs:
We are aware that Consolidated Rail Corporation has
incorporated by reference our report dated July 19, 1995
(issued pursuant to the provisions of Statement of
Auditing Standards No. 71) in the Prospectus constituting
part of the:
* Registration Statement on Form S-3 No. 33-34040
* Registration Statement on Form S-3 No. 33-64670.
We are also aware of our responsibilities under the
Securities Act of 1933 and that pursuant to Rule 436(c) our
report dated July 19, 1995 shall not be considered part of a
registration statement prepared or certified by us or a
report prepared or certified by us within the meaning of
Sections 7 and 11 of the Securities Act of 1933.
Very truly yours,
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
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CONSOLIDATED RAIL CORPORATION
FINANCIAL DATA SCHEDULE
($ In Millions Except Per Share)
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
<S> <C>
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 635
<ALLOWANCES> 0
<INVENTORY> 173
<CURRENT-ASSETS> 1,119
<PP&E> 6,659
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,580
<CURRENT-LIABILITIES> 1,255
<BONDS> 2,068
0
0
<COMMON> 0
<OTHER-SE> 2,971
<TOTAL-LIABILITY-AND-EQUITY> 8,580
<SALES> 0
<TOTAL-REVENUES> 1,803
<CGS> 0
<TOTAL-COSTS> 1,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 255
<INCOME-TAX> 82
<INCOME-CONTINUING> 173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
