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, 1996
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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
----------------------------------------------------
(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)
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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, 1996)
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, 1996 and 1995 3
Condensed Consolidated Balance
Sheets - June 30, 1996 and
December 31, 1995 4
Condensed Consolidated Statements
of Cash Flows - Six months ended
June 30, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 8
Item 2. Management's Analysis of Results
of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Financial Statements.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
[CAPTION]
($ In Millions)
Quarters Ended Six Months Ended
June 30, June 30,
-------------- ----------------
1996 1995 1996 1995
---- ---- ------ ------
[S] [C] [C] [C] [C]
Revenues $943 $918 $1,827 $1,803
Operating expenses
Way and structures 119 118 259 252
Equipment 200 186 419 388
Transportation 350 327 708 667
General and administrative 85 108 184 204
Voluntary separation programs 135 135
---- ---- ------ ------
Total operating expenses 889 739 1,705 1,511
---- ---- ------ ------
Income from operations 54 179 122 292
Interest expense (44) (48) (88) (94)
Other income, net 24 32 47 57
---- ---- ------ ------
Income before income taxes 34 163 81 255
Income taxes 11 43 29 82
---- ---- ------ ------
Net income $ 23 $120 $ 52 $ 173
==== ==== ====== ======
Ratio of earnings to fixed charges 1.54x 3.48x 1.64x 2.98x
See accompanying notes.
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<PAGE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
[CAPTION]
($ In Millions) June 30, December 31,
1996 1995
-------- ------------
[S] [C] [C]
ASSETS
Current assets
Cash and cash equivalents $ 15 $ 58
Accounts receivable 681 624
Deferred tax assets 329 325
Material and supplies 156 158
Other current assets 33 26
------ ------
Total current assets 1,214 1,191
Property and equipment, net 6,445 6,408
Other assets 649 788
------ ------
Total assets $8,308 $8,387
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 35 89
Current maturities of long-term debt 156 181
Accounts payable 174 126
Wages and employee benefits 192 182
Casualty reserves 111 107
Accrued and other current liabilities 563 492
------ ------
Total current liabilities 1,231 1,177
Long-term debt 1,887 1,911
Casualty reserves 213 217
Deferred income taxes 1,415 1,401
Special income tax obligation 393 440
Other liabilities 321 312
------ ------
Total liabilities 5,460 5,458
------ ------
Stockholder's equity
Preferred stock
Common stock
Additional paid-in capital 2,133 2,130
Note receivable from ESOP (301) (305)
Retained earnings 1,016 1,104
------ ------
Total stockholder's equity 2,848 2,929
------ ------
Total liabilities and
stockholder's equity $8,308 $8,387
====== ======
See accompanying notes.
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<PAGE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
[CAPTION]
($ In Millions)
Six Months Ended
June 30,
----------------
1996 1995
----- -----
[S] [C] [C]
Cash flows from operating activities $ 305 $ 277
----- -----
Cash flows from investing activities
Property and equipment acquisitions (117) (224)
Payments for capital lease buyouts (17) (56)
Other (11) (39)
----- -----
Net cash used in investing activities (145) (319)
----- -----
Cash flows from financing activities
Net proceeds from (reductions in)
short-term borrowings (54) 102
Loans from and redemptions of insurance policies 95
Proceeds from long-term debt 85
Payment of long-term debt (109) (53)
Dividends paid on common stock (141) (102)
Other 6 13
----- -----
Net cash provided by (used in) financing
activities (203) 45
----- -----
Increase (decrease) in cash and cash equivalents (43) 3
Cash and cash equivalents
Beginning of period 58 31
----- -----
End of period $ 15 $ 34
===== =====
See accompanying notes.
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<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, 1996 and December 31, 1995, the consolidated
results of operations for the three and six-month periods ending
June 30, 1996 and 1995 and the consolidated cash flows for the six-month
periods ended June 30, 1996 and 1995. In the opinion of management,
these financial statements include all adjustments, consisting of normal
recurring adjustments and the voluntary separations charge mentioned in
Note 2, 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, 1995, presented in
the Company's Annual Report on Form 10-K.
2. During the second quarter of 1996, the Company recorded a charge of
$135 million (before tax benefits of $52 million) consisting of
termination benefits to be paid to non-union employees participating in
the voluntary retirement and separation programs ("voluntary separation
programs") of $102 million and losses on long-term non-cancellable
leases for office space no longer required as a result of the reductions
in the Company's workforce. The charge increased from the Company's
original estimate in May 1996 of approximately $100 million, primarily
due to changes in estimates related to losses on the long-term leases.
A total of 879 applications were accepted from eligible employees under
both programs. Approximately $90 million of the termination benefits to
be paid under the voluntary separation programs will be paid from the
Company's overfunded pension plan.
3. 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 Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
4. In April 1996, the Company issued $50 million of Pass-Through
Certificates at a rate of 6.96% to finance equipment. Although the
certificates are not direct obligations of, or guaranteed by the
Company, amounts payable under two related capital leases will be
sufficient to pay principal and interest on the certificates.
In July 1996, the Company issued $26 million of 1996 Equipment Trust
Certificates, Series A, with interest rates ranging from 6.0% to 7.48%,
maturing annually from 1997 to 2011. The certificates were used to
- 6 -
<PAGE>
finance approximately 85% of the total purchase price of twenty
locomotives.
5. In June 1996, the Company borrowed $69 million against the cash
surrender value of its company-owned life insurance policies which it
maintains on certain of its non-union employees. The Company also
redeemed the remaining excess cash surrender value of $26 million.
6. Information regarding contingent liabilities and litigation was
included in Note 13 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, 1995. Material developments with
respect to these and other matters are discussed in "Other Matters" in
the Management's Analysis of Results of Operations and Part II, Item I -
Legal Proceedings in this Form 10-Q.
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<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, 1996 and the related condensed consolidated statements of
income for the three and six months ended June 30, 1996 and June 30,
1995 and the condensed consolidated statements of cash flows for the six
months ended June 30, 1996 and June 30, 1995. 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, 1995, 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 22, 1996, except as to paragraphs five and six
of Note 13 to the consolidated financial statements which are as of
February 21, 1996, 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, 1995, 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 17, 1996
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<PAGE>
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Analysis of Results of Operations
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Results of Operations
- ---------------------
First Six Months of 1996 compared with First Six Months of 1995
- ---------------------------------------------------------------
Net income for the first six months of 1996 was $52 million and included
the one-time charge of $83 million (net of tax benefits of $52 million)
related to voluntary separation programs (see Note 2 to the Condensed
Consolidated Financial Statements). 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 3 to the Condensed Consolidated Financial
Statements).
Operating revenues increased $24 million, or 1.3%, to $1,827 million for
the first six months of 1996 from $1,803 million for the first six
months of 1995. A .3% decrease in traffic volume resulted in $4
million lower revenues. Average revenue per unit increased revenues by
$21 million for the period, with higher average rates providing $27
million, while an unfavorable traffic mix caused a $6 million decrease.
Other revenues increased $7 million.
Operating expenses increased $194 million, or 12.8%, to $1,705 million in
the first six months of 1996, from $1,511 million in the first six months
of 1995. The following table sets forth the operating expenses for the
two periods:
First Six Months
----------------
Increase
($ In Millions) 1996 1995 (Decrease)
------ ------ --------
Compensation and benefits $ 652 $ 653 $ (1)
Fuel 102 87 15
Material and supplies 106 99 7
Equipment rents 193 168 25
Depreciation and amortization 141 146 (5)
Casualties and insurance 94 78 16
Other 282 280 2
Voluntary separation programs 135 135
------ ------ -----
$1,705 $1,511 $ 194
====== ====== =====
Compensation and benefits as a percent of revenues was 35.7% in the
first six months of 1996 as compared with 36.2% in the first six months
of 1995. Reductions in employment levels were essentially offset by
increased wage costs, increased train crew costs and overtime caused by
adverse weather conditions experienced during the first quarter of 1996.
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<PAGE>
Fuel costs increased $15 million, or 17.2%, due in the most part to
higher fuel prices, which are expected to be lower than current levels
in the second half of 1996, but higher than those in the second half of
1995.
Equipment rents increased $25 million, or 14.9%, primarily as a result
of declines in equipment utilization, increased car hire rates and a
decrease in locomotives temporarily leased to other railroads in the
first quarter of 1996.
Casualties and insurance costs increased $16 million, or 20.5%,
primarily due to an increase in the cost and number of occupational
health claims, the cost to settle employee injury and road crossing
accident claims, and damage to equipment and property owned by others
from several derailments in the first quarter of 1996.
The Company's operating ratio was 93.3% for the first six months of
1996, compared with 83.8% for the first six months of 1995. Without the
$135 million one-time charge for the voluntary separation programs, the
operating ratio for the first six months of 1996 would have been 85.9%.
The Company's effective income tax rate for the first six months
of 1996 was 35.8% compared with 32.2% for the same period of 1995.
The increase is primarily related to a $21 million reduction in
income taxes as a result of a decrease in a state income tax rate
which was enacted during the second quarter of 1995 (see Note 3 to
the Condensed Consolidated Financial Statements).
Other Matters
- --------------
The Company has recently received three adverse jury verdicts
related to railroad crossing accidents in Ohio that include
significant punitive damage awards that collectively approximate
$40 million. The Company believes the punitive damage awards in
the referenced cases are improper and that it has meritorious
defenses and plans to appeal. The Company is not presently able
to reasonably estimate the ultimate outcome of these cases, and
accordingly, no expense for such awards has been recorded as of
June 30, 1996.
The Company has reached tentative labor agreements with
approximately 70% of its unionized work force. Certain of these
agreements, which were the product of national bargaining, are
subject to industry-wide ratification by the union membership.
The Company expects that these agreements ultimately will be
ratified; however, in the event the agreements are not ratified,
the union membership would be free to strike, which could severely
curtail or shut down the operations of the railroads that are the
subject of the strike.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve
risks and uncertainties that may cause actual results to differ,
including but not limited to the effect of economic conditions,
competition, regulation and weather on the Company's operations,
customers, service and prices, and other factors discussed elsewhere in
this report and, from time to time, in other reports filed with the
Securities and Exchange Commission.
-10-
<PAGE>
PART II. OTHER INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Legal Proceedings.
-----------------
Punitive Damage Awards in Ohio Crossing Accident Cases
The Company has recently received adverse jury verdicts in three
separate crossing accident cases in Ohio: Garrett and Gollihue v
Consolidated Rail Corp.; Wightman v Consolidated Rail Corp.; and Moore,
et al. v Consolidated Rail Corp. In each case, the jury awarded
substantial punitive damages in connection with property damage
resulting from the accidents. Collectively, the total punitive damage
awards total more than $40 million, based on property damage that totals
less than $5,000. The Company believes that, ultimately, these awards
should not be sustainable due to their failure to bear a reasonable
relationship to the amount of physical property damage involved, and
plans to appeal. Ohio law prohibits the award of punitive damages in
connection with a wrongful death action.
-11-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
(b) Reports on Form 8-K
None
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED RAIL CORPORATION
Registrant
/S/ Bruce B. Wilson
-------------------------------
Bruce B. Wilson
Senior Vice President - Law
/S/ Timothy T. O'Toole
-------------------------------
Timothy T. O'Toole
Senior Vice President - Finance
(Principal Financial Officer)
Date: August 5, 1996
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<PAGE>
EXHIBIT INDEX
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Exhibit
No.
- -------
12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
<PAGE>
Exhibit 12
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CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
[CAPTION]
($ In Millions)
<TABLE>
Quarters Six Months
Ended Ended
June 30, June 30,
-------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings
- --------
Pre-tax income $ 34 $163 $ 81 $255
Add:
Interest expense 44 48 88 94
Rental expense interest factor 13 16 28 30
Less equity in undistributed
losses of 20%-50% owned companies (3) (4) (7) (9)
---- ---- ---- ----
Earnings available for fixed charges $ 88 $223 $190 $370
==== ==== ==== ====
Fixed charges
- -------------
Interest expense 44 48 88 94
Rental expense interest factor 13 16 28 30
---- ---- ---- ----
Fixed charges $ 57 $ 64 $116 $124
==== ==== ==== ====
Ratio of earnings to fixed charges 1.54x 3.48x 1.64x 2.98x
</TABLE>
For purposes of computing the ratio of earning to fixed charges,
earnings represent income before income taxes plus fixed charges, less
equity in undistributed earnings of 20% to 50% owned companies. Fixed
charges represent interest expense together with any interest
capitalized and a portion of rent under long-term operating leases
representative of an interest factor.
<PAGE>
Exhibit 15
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August 5, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Sirs:
We are aware that Consolidated Rail Corporation has
incorporated by reference our report dated July 17, 1996
(issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of the:
Registration Statement on Form S-3 No. 33-34040
Registration Statement on Form S-3 No. 33-64670.
We are also aware of our responsibilities under the
Securities Act of 1933 and that pursuant to Rule 436(c) our
report dated July 17, 1996 shall not be considered part of a
registration statement prepared or certified by us or a
report prepared or certified by us within the meaning of
Sections 7 and 11 of the Securities Act of 1933.
Yours very truly,
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
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CONSOLIDATED RAIL CORPORATION
FINANCIAL DATA SCHEDULE
($ In Millions Except Per Share)
<CAPTION>
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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 681
<ALLOWANCES> 0
<INVENTORY> 156
<CURRENT-ASSETS> 1,214
<PP&E> 6,445
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,308
<CURRENT-LIABILITIES> 1,231
<BONDS> 1,887
0
0
<COMMON> 0
<OTHER-SE> 2,848
<TOTAL-LIABILITY-AND-EQUITY> 8,308
<SALES> 0
<TOTAL-REVENUES> 1,827
<CGS> 0
<TOTAL-COSTS> 1,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 81
<INCOME-TAX> 29
<INCOME-CONTINUING> 52
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
