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, 1997
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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 April 30, 1997)
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, 1997 and 1996 3
Condensed Consolidated Balance
Sheets - March 31, 1997 and
December 31, 1996 4
Condensed Consolidated Statements
of Cash Flows - Quarters ended
March 31, 1997 and 1996 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 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ In Millions)
Quarters ended
March 31,
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1997 1996
---- ----
Revenues $ 898 $ 884
----- -----
Operating expenses
Way and structures 124 140
Equipment 202 219
Transportation 348 358
General and administrative 109 99
----- -----
Total operating expenses 783 816
----- -----
Income from operations 115 68
Interest expense (42) (44)
Other income, net 23 23
----- -----
Income before income taxes 96 47
Income taxes 36 18
----- -----
Net income $ 60 $ 29
===== =====
Ratio of earnings to fixed charges 2.57x 1.73x
See accompanying notes.
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<PAGE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ In Millions) March 31, December 31,
1997 1996
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ASSETS
Current assets
Cash and cash equivalents $ 18 $ 17
Accounts receivable 661 629
Deferred tax assets 285 285
Material and supplies 141 139
Other current assets 33 22
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Total current assets 1,138 1,092
Property and equipment, net 6,599 6,590
Other assets 686 671
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Total assets $8,423 $8,353
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 65 99
Current maturities of long-term debt 82 130
Accounts payable 178 160
Wages and employee benefits 167 143
Casualty reserves 136 138
Accrued and other current liabilities 479 445
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Total current liabilities 1,107 1,115
Long-term debt 1,889 1,876
Casualty reserves 195 190
Deferred income taxes 1,526 1,484
Special income tax obligation 330 346
Other liabilities 300 307
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Total liabilities 5,347 5,318
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Stockholder's equity
Preferred stock
Common stock
Additional paid-in capital 2,157 2,151
Note receivable from ESOP (291) (294)
Retained earnings 1,210 1,178
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Total stockholder's equity 3,076 3,035
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Total liabilities and
stockholder's equity $8,423 $8,353
====== ======
See accompanying notes.
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<PAGE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ In Millions)
Quarters ended
March 31,
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1997 1996
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Cash flows from operating activities $ 166 $ 99
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Cash flows from investing activities
Property and equipment acquisitions (41) (18)
Other (4) (17)
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Net cash used in investing activities (45) (35)
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Cash flows from financing activities
Net proceeds from (repayment of)
short-term borrowings (34) 45
Payment of long-term debt (63) (97)
Dividends paid on common stock (27) (62)
Other 4 5
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Net cash used in financing activities (120) (109)
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Increase (decrease) in cash and cash equivalents 1 (45)
Cash and cash equivalents
Beginning of period 17 58
----- -----
End of period $ 18 $ 13
===== =====
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 March 31, 1997 and December 31, 1996, and the
consolidated results of operations and cash flows for the three-
month periods ended March 31, 1997 and 1996. 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, 1996, presented in the Company's Annual
Report on Form 10-K.
2. In January 1997, the Company assumed $31 million of Equipment
Trust Certificates, at an interest rate of 8.31%, due 2012, to finance
the lease buyout of 20 locomotives from Locomotive Management
Services, a general partnership of which the Company holds a fifty
percent interest.
3. Effective April 1, 1997, the Company's Board of Directors
authorized the vesting of all stock options and performance shares
outstanding in connection with the proposed acquisition of the
Company's parent, Conrail Inc., by CSX Corporation and Norfolk
Southern Corporation. The vesting of the performance shares will
result in an $18 million charge to operating expenses in April 1997,
while the vesting of stock options will not have an income statement
effect.
4. Information regarding contingent liabilities and litigation was
included in Note 14 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, 1996. There have been no material
developments with respect to these matters during the first three
months of 1997, except as disclosed in the Annual Report on Form 10-
K or elsewhere herein.
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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 March 31, 1997 and the related condensed
consolidated statements of income and cash flows for the three
months ended March 31, 1997 and March 31, 1996. 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, 1996,
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 21, 1997, except as to Note
2 to the consolidated financial statements, which is as of March 7,
1997, 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, 1996, 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
April 16, 1997
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<PAGE>
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Analysis of Results of Operations
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Proposed Merger
---------------
On April 8, 1997, the Company's parent, Conrail Inc. ("Conrail") and
CSX Corporation ("CSX") entered into the Fourth Amendment (the
"Fourth Amendment") to the Merger Agreement (as amended through the
Fourth Amendment, the "Merger Agreement") which facilitated CSX and
Norfolk Southern Corporation ("NSC") entering into an agreement with
respect to their joint acquisition of Conrail as contemplated by the
Third Amendment to the Merger Agreement, dated as of March 7, 1997.
The terms of the CSX-NSC Agreement are embodied in a letter
agreement dated as of April 8, 1997 (the "CSX/NSC Letter
Agreement").
The CSX/NSC Letter Agreement provides, among other things, (i) for
the termination of the NSC's outstanding offer to purchase Conrail
shares and the dismissal of litigation between CSX and NSC, (ii)
that Conrail will, after the effective time of its merger into a
wholly-owned subsidiary of CSX, become a direct or indirect jointly-
owned subsidiary of CSX and NSC, (iii) that CSX and NSC will jointly
acquire, for $115 in cash, all Conrail shares not already owned by
CSX and NSC through a tender offer scheduled to close on May 23,
1997 and subsequent merger, and (iv) that Conrail is expected to
continue to be managed by its existing Board of Directors until the
requisite approval of the Surface Transportation Board is obtained,
at which time CSX and NSC will be separately allocated certain of
Conrail's railroad assets and will jointly operate certain other
railroad operations of Conrail.
The Fourth Amendment also provides that, following April 8, 1997,
Conrail's Board of Directors will not declare, and Conrail will not
pay, any dividend on Conrail's capital stock with a record date on
or prior to May 30, 1997.
In light of the pending acquisition of Conrail by CSX and NSC,
Standard & Poor's rating agency has downgraded the Company's
long-term unsecured debt to BBB and its secured equipment trust
certificates to A, while affirming the Company's A1 commercial
paper rating. Moody's Investors Service has rated the Company's
long-term unsecured debt as Baa2, its secured equipment trust
certificates as A1 and its commercial paper as P-2.
Results of Operations
---------------------
First Quarter 1997 compared with First Quarter 1996
---------------------------------------------------
Net income for the first quarter of 1997 was $60 million compared
with net income for the first quarter of 1996 of $29 million.
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<PAGE>
Included in net income for the first quarter of 1997 were merger-
related costs of $14 million (net of $8 million of tax benefits).
Without these costs, net income would have been $74 million.
Operating revenues (primarily freight and line-haul revenues, but
also including switching, demurrage and incidental revenues)
increased $14 million, or 1.6%, from $884 million in the first
quarter of 1996 to $898 million in the first quarter of 1997. A 4.9%
increase in traffic volume in units (freight cars and intermodal
trailers and containers) resulted in a $41 million increase in
revenues. However, a decline in average revenue per unit decreased
revenues by $22 million for the quarter, due to decreases in average
rates, $14 million, and an unfavorable traffic mix, $8 million.
Operating expenses decreased $33 million, or 4.0%, from $816 million
in the first quarter of 1996 to $783 million in the first quarter of
1997. The following table sets forth the operating expenses for the
two periods:
First Quarter
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Increase
($ In Millions) 1997 1996 (Decrease)
---- ---- ----------
Compensation and benefits $313 $343 $(30)
Fuel 57 50 7
Material and supplies 49 60 (11)
Equipment rents 92 98 (6)
Depreciation and amortization 73 71 2
Casualties and insurance 39 48 (9)
Other 160 146 14
---- ---- ----
$783 $816 $(33)
==== ==== ====
Compensation and benefits decreased $30 million, or 8.7%, primarily
as a result of reductions in employment levels and other employee-
related costs, as well as lower accruals for wage increases and less
weather-related overtime costs occurring during the first quarter of
1997 as compared with the same period of 1996. Compensation and
benefits as a percent of revenues was 34.9% in the first quarter of
1997 as compared with 38.8% in the first quarter of 1996.
Fuel costs increased $7 million, or 14.0%, as a result of higher
average fuel prices during the first quarter of 1997 as compared
with the same quarter of 1996. Fuel prices are expected to decline
during the remainder of 1997.
The decline in material and supplies costs of $11 million, or 18.3%,
was mostly attributable to a higher level of expenditures for
repairs and maintenance of locomotives and freight cars in the first
quarter of 1996 due to adverse weather conditions and an increase in
the allocation of material used in capital vs. maintenance projects
in the first quarter of 1997.
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<PAGE>
Casualties and insurance costs decreased $9 million, or 18.8%,
primarily due to reductions in employee injuries and loss and damage
claims.
Other expenses increased $14 million, or 9.6%, primarily as a result
of merger-related costs of $22 million incurred in connection with
the proposed acquisition of Conrail Inc. by CSX and NSC.
The Company's operating ratio (operating expenses as a percent of
revenues) was 87.2% for the first quarter of 1997 compared with
92.3% for the first quarter of 1996. Excluding the merger-related
costs, the operating ratio for the first quarter of 1997 would have
been 84.7%.
Other Matters
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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 Conrail'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.
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<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
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<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/ Timothy T. O'Toole
-------------------------------
Timothy T. O'Toole
Senior Vice President - Law
/s/ John A. McKelvey
-------------------------------
John A. McKelvey
Senior Vice President - Finance
(Principal Financial Officer)
Date: May 9, 1997
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<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.
<PAGE>
Exhibit 12
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CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
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($ In Millions)
Quarters ended
March 31,
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1997 1996
---- ----
Earnings
--------
Pre-tax income $ 96 $ 47
Add:
Interest expense 42 44
Rental expense interest factor 16 15
Less equity in undistributed earnings
of 20-50% owned companies (5) (4)
---- ----
Earnings available for fixed charges 149 102
==== ====
Fixed charges
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Interest expense 42 44
Rental expense interest factor 16 15
---- ----
Fixed charges $ 58 $ 59
==== ====
Ratio of earnings to fixed charges 2.57x 1.73x
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.
<PAGE>
Exhibit 15
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May 9, 1997
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 16, 1997 (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
April 16, 1997 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)
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 661
<ALLOWANCES> 0
<INVENTORY> 141
<CURRENT-ASSETS> 1,138
<PP&E> 6,599
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,423
<CURRENT-LIABILITIES> 1,107
<BONDS> 1,889
0
0
<COMMON> 0
<OTHER-SE> 3,076
<TOTAL-LIABILITY-AND-EQUITY> 8,423
<SALES> 0
<TOTAL-REVENUES> 898
<CGS> 0
<TOTAL-COSTS> 783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 96
<INCOME-TAX> 36
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
