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, 1998
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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, 1998)
100
<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, 1998 and 1997 3
Condensed Consolidated Balance
Sheets - March 31, 1998 and
December 31, 1997 4
Condensed Consolidated Statements
of Cash Flows - Quarters ended
March 31, 1998 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
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.
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<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ In Millions)
<CAPTION>
Quarters ended
March 31
--------------
1998 1997
---- ----
<S> <C> <C>
Revenues $921 $898
---- ----
Operating expenses
Way and structures 124 124
Equipment 187 202
Transportation 350 348
General and administrative 71 87
Merger-related compensation costs 25 -
Merger costs 4 22
---- ----
Total operating expenses 761 783
---- ----
Income from operations 160 115
Interest expense (41) (42)
Other income, net 18 23
---- ----
Income before income taxes 137 96
Income taxes 52 36
---- ----
Net income $ 85 $ 60
==== ====
Ratio of earnings to fixed charges 3.44x 2.57x
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ In Millions) March 31, December 31,
<CAPTION> 1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 110 $ 87
Accounts receivable 624 649
Deferred tax assets 107 107
Material and supplies 121 104
Other current assets 6 12
------ ------
Total current assets 968 959
Property and equipment, net 6,861 6,829
Other assets 688 676
------ ------
Total assets $8,517 $8,464
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt 123 112
Accounts payable 206 161
Wages and employee benefits 344 366
Casualty reserves 110 139
Accrued and other current liabilities 465 479
------ ------
Total current liabilities 1,248 1,257
Long-term debt 1,703 1,732
Casualty reserves 197 198
Deferred income taxes 1,489 1,462
Special income tax obligation 268 283
Other liabilities 506 511
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Total liabilities 5,411 5,443
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Stockholder's equity
Preferred stock
Common stock
Additional paid-in capital 1,864 1,864
Retained earnings 1,242 1,157
------ ------
Total stockholder's equity 3,106 3,021
------ ------
Total liabilities and
stockholder's equity $8,517 $8,464
====== ======
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ In Millions)
<CAPTION>
Quarters ended
March 31,
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1998 1997
----- -----
<S> <C> <C>
Cash flows from operating activities $138 $166
---- ----
Cash flows from investing activities
Property and equipment acquisitions (98) (41)
Other - (4)
---- ----
Net cash used in investing activities (98) (45)
---- ----
Cash flows from financing activities
Net repayment of short-term borrowings - (34)
Payment of long-term debt (17) (63)
Dividends paid on common stock - (27)
Other - 4
---- ----
Net cash used in financing activities (17) (120)
---- ----
Increase in cash and cash equivalents 23 1
Cash and cash equivalents
Beginning of period 87 17
---- ----
End of period $110 $ 18
==== ====
</TABLE>
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, 1998 and December 31, 1997, and the
consolidated results of operations and cash flows for the three-
month periods ended March 31, 1998 and 1997. 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. Merger costs
have been reclassified in the 1997 condensed consolidated statement
of income to conform to the current year presentation.
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, 1997, presented in the Company's Annual
Report on Form 10-K.
2. During the first quarter of 1998, the Company recorded a charge
of $21 million ($14 million after income taxes) representing a
portion of an amount to be paid to certain non-union employees as an
incentive to continue their employment with the Company through the
effective date of the requisite Surface Transportation Board
approval of the joint acquisition of Conrail Inc. ("Conrail"), the
Company's parent, by CSX Corporation and Norfolk Southern
Corporation, and subsequent transition period. The Company recorded
a charge of $49 million ($31 million after income taxes) for the
year ended December 31, 1997, related to these incentive payments.
The total amount of such payments is expected to be approximately
$125 million and will continue to be accrued ratably through the
fourth quarter of 1998.
The Company has also recorded merger-related compensation costs of
$4 million ($2 million after income taxes) representing payments
made to certain middle management employees as provided in the
amended merger agreement.
3. Merger costs of $4 million ($2 million after income taxes) and
$22 million ($14 million after income taxes) were incurred in the
first quarters of 1998 and 1997, respectively, in connection with
the acquisition of Conrail.
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<PAGE>
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, 1997. There have been no material
developments with respect to these matters during the first three
months of 1998, 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, 1998 and the related condensed
consolidated statements of income and cash flows for the three
months ended March 31, 1998 and March 31, 1997. 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, 1997,
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 19, 1998, 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, 1997, 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 15, 1998
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<PAGE>
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
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and of Results of Operations.
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Overview
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Net income for Consolidated Rail Corporation, (the "Company") was $85
million for the first quarter of 1998 as compared with $60 million for
the first quarter of 1997. The results for the first quarters of 1998
and 1997 include merger-related costs of $29 million ($18 million
after income taxes) and $22 million ($14 million after income taxes),
respectively, resulting from the acquisition of the Company's parent,
Conrail Inc. (see Notes 2 and 3 to the Condensed Consolidated
Financial Statements). Without the merger-related costs, the
Company's net income for the first quarters of 1998 and 1997 would
have been $103 million and $74 million, respectively.
Increases in traffic volume and operating revenues and reductions of
certain operating expenses contributed to the favorable operating
results for the first quarter of 1998 versus the same quarter of
1997. The operating ratio (operating expenses as a percent of
revenues before merger-related costs) was 79.6% for the first
quarter of 1998 as compared with an operating ratio (excluding
merger costs) of 84.7% for the first quarter of 1997.
Results of Operations
---------------------
First Quarter 1998 compared with First Quarter 1997
---------------------------------------------------
Net income for the first quarter of 1998 was $85 million compared
with net income for the first quarter of 1997 of $60 million.
Without merger-related costs (see Notes 2 and 3 to the Condensed
Consolidated Financial Statements), net income would have been $103
million and $74 million for the first quarters of 1998 and 1997,
respectively.
Operating revenues (primarily freight and line-haul revenues, but
also including switching, demurrage and incidental revenues)
increased $23 million, or 2.6%, from $898 million in the first
quarter of 1997 to $921 million in the first quarter of 1998. A 5.7%
increase in traffic volume in units (freight cars and intermodal
trailers and containers) resulted in a $49 million increase in
revenues. However, a decline in average revenue per unit decreased
revenues by $24 million for the quarter, due to decreases in average
rates, $15 million, and an unfavorable traffic mix, $9 million.
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<PAGE>
Operating expenses decreased $22 million, or 2.8%, from $783 million
in the first quarter of 1997 to $761 million in the first quarter of
1998. The following table sets forth the operating expenses for the
two periods:
First Quarter
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Increase
($ In Millions) 1998 1997 (Decrease)
---- ---- ----------
Compensation and benefits $322 $313 $ 9
Fuel 44 57 (13)
Material and supplies 44 49 (5)
Equipment rents 82 92 (10)
Depreciation and amortization 76 73 3
Casualties and insurance 35 39 (4)
Other 129 138 (9)
Merger-related compensation 25 25
Merger costs 4 22 (18)
---- ---- ----
$761 $783 $(22)
==== ==== ====
Compensation and benefits increased $9 million, or 2.9%, primarily
as a result of increased wage rates that became effective during the
third quarter of 1997 and increases in other employee-related costs,
including incentive compensation. These increases were partially
offset by increases in capitalized labor for the first quarter of
1998, compared with the first quarter of 1997. Compensation and
benefits as a percent of revenues was 35.0% in the first quarter of
1998, compared with 34.9% in the first quarter of 1997.
Fuel costs decreased $13 million, or 22.8%, mainly as a result of
lower average fuel prices during the first quarter of 1998 as
compared with the same quarter of 1997.
The decline in equipment rents of $10 million, or 10.9%, in the
first quarter of 1998 compared with the first quarter of 1997, was
attributable mostly to lower than previously estimated car hire
settlement costs for prior periods and higher off-line income from
the Company's cars.
The Company's operating ratio was 82.7% for the first quarter of
1998 compared with 87.2% for the first quarter of 1997. Excluding
the merger-related costs, the operating ratios for the first
quarters of 1998 and 1997 would have been 79.6% and 84.7%,
respectively.
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents increased $23 million in the
first quarter of 1998, from $87 million at December 31, 1997 to $110
million at March 31, 1998. Cash generated from operations has been
the Company's principal source of liquidity. In the first quarter
of 1998, operating activities provided cash of $138 million.
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<PAGE>
The principal uses of cash were for property and equipment
acquisitions, $98 million and payment of long-term debt, $17
million.
A working capital (current assets less current liabilities) deficit
of $280 million existed at March 31, 1998, compared with a $298
million deficit at December 31, 1997. Management believes that the
Company's financial position allows it sufficient access to credit
sources on investment grade terms.
In 1997, the Company recorded $159 million of short-term liabilities
and a $221 million long-term liability, and in 1998, has recorded an
additional $21 million short-term liability for certain merger-
related costs, none of which is expected to require the future use
of the Company's cash for settlement.
Forward-Looking Statements
--------------------------
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve
risks and uncertainties that cannot be predicted accurately; that may
be beyond the Company's control and that may cause actual results to
differ. Certain of these risks and uncertainties include, but are not
limited to, the effect of economic conditions, competition, regulation
and weather on the Company's operations, customers, service and prices;
the effect of the Conrail acquisition and the pending regulatory
approval of such acquisition on the Company's operations and business
and other factors discussed elsewhere in this report and, from time to
time, in other reports filed with the Securities and Exchange
Commission.
The forward-looking statements embodied in this report speak only as of
the date of its filing, and the Company disclaims any obligation or
undertaking to disseminate updates or revisions to such statements to
reflect changes in management's expectations or any changes in events,
conditions or circumstances on which such statements are based.
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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
and Government Affairs
/s/ John A. McKelvey
-------------------------------
John A. McKelvey
Senior Vice President - Finance
(Principal Financial Officer)
Date: May 13, 1998
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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>
<TABLE>
Exhibit 12
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CONSOLIDATED RAIL CORPORATION
-----------------------------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
($ In Millions)
<CAPTION>
Quarters ended
March 31,
--------------
1998 1997
---- ----
<S> <C> <C>
Earnings
--------
Pre-tax income $137 $ 96
Add:
Interest expense 41 42
Rental expense interest factor 13 16
Less equity in undistributed earnings
of 20-50% owned companies (5) (5)
---- ----
Earnings available for fixed charges 186 149
==== ====
Fixed charges
-------------
Interest expense 41 42
Rental expense interest factor 13 16
---- ----
Fixed charges $ 54 $ 58
==== ====
Ratio of earnings to fixed charges 3.44x 2.57x
</TABLE>
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 13, 1998
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 15, 1998 (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 15, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<CASH> 110
<SECURITIES> 0
<RECEIVABLES> 624
<ALLOWANCES> 0
<INVENTORY> 121
<CURRENT-ASSETS> 968
<PP&E> 6,861
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,517
<CURRENT-LIABILITIES> 1,248
<BONDS> 1,703
0
0
<COMMON> 0
<OTHER-SE> 3,106
<TOTAL-LIABILITY-AND-EQUITY> 8,517
<SALES> 0
<TOTAL-REVENUES> 921
<CGS> 0
<TOTAL-COSTS> 761
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 137
<INCOME-TAX> 52
<INCOME-CONTINUING> 85
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
