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 September 30, 1996
( ) 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
(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
(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 October 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters and nine months
ended September 30, 1996 and 1995 3
Condensed Consolidated Balance
Sheets - September 30, 1996 and
December 31, 1995 4
Condensed Consolidated Statements
of Cash Flows - Nine months ended
September 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 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ In Millions)
Quarters Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues $ 923 $ 919 $2,750 $2,722
Operating expenses
Way and structures 106 116 365 368
Equipment 195 188 614 576
Transportation 323 316 1,031 983
General and administrative 65 91 249 295
Voluntary separation
programs 135
---- ----- ------ -----
Total operating expenses 689 711 2,394 2,222
---- ----- ------ -----
Income from operations 234 208 356 500
Interest expense (43) (46) (131) (140)
Other income, net 21 20 68 77
----- ----- ------ ------
Income before income taxes 212 182 293 437
Income taxes 75 67 104 149
------ ------ ------ ------
Net income $ 137 $ 115 $ 189 $ 288
====== ======= ====== =======
Ratio of earnings to fixed
charges 4.76x 4.07x 2.64x 3.33x
See accompanying notes.
<PAGE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in millions)
September 30, December 31,
1996 1995
------ -----
ASSETS
Current assets
Cash and cash equivalents $ 20 $ 58
Accounts receivable 670 624
Deferred tax assets 329 325
Material and supplies 144 158
Other current assets 28 26
---- ----
Total current assets 1,191 1,191
Property and equipment, net 6,494 6,408
Other assets 670 788
----- -----
Total assets $ 8,355 $ 8,387
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 65 89
Current maturities of long-term debt 138 181
Accounts payable 180 126
Wages and employee benefits 188 182
Casualty reserves 123 107
Accrued and other current liabilities 573 492
----- -----
Total current liabilities 1,267 1,177
Long-term debt 1,891 1,911
Casualty reserves 204 217
Deferred income taxes 1,426 1,401
Special income tax obligation 369 440
Other liabilities 309 312
----- -----
Total liabilities 5,466 5,458
------- ------
Stockholder's equity
Preferred stock
Common stock
Additional paid-in capital 2,134 2,130
Note receivable from ESOP (297) (305)
Retained earnings 1,052 1,104
------- -------
Total stockholder's equity 2,889 2,929
------- -------
Total liabilities and stockholder's
equity $ 8,355 $ 8,387
======= =======
See accompanying notes.
<PAGE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities $ 502 $ 481
---- ----
Cash flows from investing activities
Property and equipment acquisitions (233) (327)
Payments for capital lease buyouts (20) (26)
Other (10) (29)
----- -----
Net cash used in investing activities (263) (382)
------ ------
Cash flows from financing activities
Net proceeds from (reductions in) short-term
borrowings (24) 62
Loans from and redemptions of insurance
policies 95
Proceeds from long-term debt 26 85
Payment of long-term debt (153) (75)
Dividends paid on common stock (241) (157)
Other 20 23
----- -----
Net cash used in financing activities (277) (62)
------ -----
Increase (decrease) in cash and cash equivalents (38) 37
Cash and cash equivalents
Beginning of period 58 31
------ -----
End of period $ 20 $ 68
====== ======
See accompanying notes.
<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 September 30, 1996 and
December 31, 1995, the consolidated results of operations for the
three and nine-month periods ending September 30, 1996 and 1995
and the consolidated cash flows for the nine-month periods ended
September 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. 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
nine months ended September 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 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 finance approximately 85% of the
total purchase price of twenty locomotives.
<PAGE>
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.
<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 September 30, 1996 and the related condensed
consolidated statements of income for the three and nine-month
periods ended September 30, 1996 and September 30, 1995 and the
condensed consolidated statements of cash flows for the nine
months ended September 30, 1996 and September 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
October 16, 1996
<PAGE>
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Analysis of Results of Operations
Results of Operations
First Nine Months of 1996 compared with First Nine Months of 1995
Net income for the first nine months of 1996 was $189 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 nine months of 1995 was
$288 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 $28 million, or 1.0%, to $2,750
million for the first nine months of 1996 from $2,722 million
for the first nine months of 1995. A 1.3% increase in traffic
volume resulted in a $32 million increase in revenues. Average
revenue per unit decreased revenues by $4 million for the
period, with an unfavorable traffic mix causing a $20 million
decrease, partially offset by higher average rates providing $16
million. Other revenues were unchanged.
Operating expenses increased $172 million, or 7.7%, to $2,394
million in the first nine months of 1996, from $2,222 million in
the first nine months of 1995. The following table sets forth
the operating expenses for the two periods:
First Nine Months
Increase
1996 1995 (Decrease)
($ in millions)
Compensation and benefits $ 938 $ 957 $ (19)
Fuel 146 125 21
Material and supplies 144 134 10
Equipment rents 287 259 28
Depreciation and amortization 212 220 (8)
Casualties and insurance 137 125 12
Other 395 402 (7)
Voluntary separation programs 135 135
------ ------- ------
$2,394 $ 2,222 $ 172
====== ======= ======
Compensation and benefits as a percent of revenues was 34.1% in
the first nine months of 1996 as compared with 35.2% in the
first nine months of 1995. Reductions in employment levels and
other employee-related costs were partially offset by increased
wage costs, increased train crew costs and overtime caused by
adverse weather conditions experienced during the first quarter
of 1996.
<PAGE>
Fuel costs increased $21 million, or 16.8%, due mostly to higher
fuel prices, which are expected to continue to increase into the
fourth quarter.
Equipment rents increased $28 million, or 10.8%, primarily as a
result of declines in equipment utilization and increased car
hire rates.
The Company's operating ratio was 87.1% for the first nine
months of 1996, compared with 81.6% for the first nine months of
1995. Without the $135 million one-time charge for the voluntary
separation programs, the operating ratio for the first nine
months of 1996 would have been 82.1%.
The Company's effective income tax rate for the first nine
months of 1996 was 35.5% compared with 34.1% 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 (see Note 3 to the Condensed Consolidated
Financial Statements).
Other Matters
The Company has received three adverse jury verdicts related to
railroad crossing accidents in Ohio that include significant
punitive damage awards that collectively approximate $40
million. The Company believes the punitive damage awards in the
referenced cases are improper and that it has meritorious
defenses and plans to appeal. The Company is not presently able
to reasonably estimate the ultimate outcome of these cases, and
accordingly, no expense for such awards has been recorded as of
September 30, 1996.
Except for the historical information contained herein, the
matters discussed in this report are forward-looking statements
that involve risks and uncertainties that may cause actual
results to differ, including but not limited to the effect of
economic conditions, competition, regulation and weather on the
Company's operations, customers, service and prices, and other
factors discussed elsewhere in this report and, from time to
time, in other reports filed with the Securities and Exchange
Commission.
<PAGE>
PART II. OTHER INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12 Computations of the ratio of earnings to fixed
charges.
15 Letter re unaudited interim financial information
from Price Waterhouse LLP.
27 Financial data schedule.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONSOLIDATED RAIL CORPORATION
Registrant
/S/ Bruce B. Wilson
----------------------------
Bruce B. Wilson
Senior Vice President - Law
/S/ Timothy T. O'Toole
-----------------------------
Timothy T. O'Toole
Senior Vice President - Finance
(Principal Financial Officer)
Date: November 14, 1996
<PAGE>
EXHIBIT INDEX
Exhibit
No.
12 Computations of the ratio of earnings to fixed charges.
15 Letter re unaudited interim financial information from
Price Waterhouse LLP.
27 Financial data schedule.
Exhibit 12
CONSOLIDATED RAIL CORPORATION
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
($ In Millions)
Quarters Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Earnings
Pre-tax income $ 212 $ 182 $ 293 $ 437
Add:
Interest expense 43 46 131 140
Rental expense
interest factor 12 12 40 42
Less equity in
undistributed losses of
20%-50% owned
companies (5) (4) (12) (13)
----- ----- ----- -----
Earnings available for
fixed charges $ 262 $ 236 $ 452 $ 606
----- ----- ----- -----
Fixed charges
Interest expense 43 46 131 140
Rental expense interest
factor 12 12 40 42
----- ------ ----- ------
Fixed charges $ 55 $ 58 $ 171 $ 182
===== ====== ====== ======
Ratio of earnings to
fixed charges 4.76x 4.07x 2.64x 3.33x
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 any interest
capitalized and a portion of rent under long-term operating leases
representative of an interest factor.
Exhibit 15
November 14, 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 October 16,
1996 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectus constituting
part of the:
o Registration Statement on Form S-3 No. 33-34040
o 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 October 16, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q.
</LEGEND>
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