<PAGE>
UNITED STATES
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 period ended June 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Act of 1934
For the transition period from __________ to __________
Commission file number 0-15768
NORTH CAROLINA RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-6003280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Fayetteville Street Mall, Suite 600
P. O. Box 2248, Raleigh, North Carolina 27602
(Address of principal executive offices) (Zip Code)
(919) 829-7355
(Registrant's telephone number, including area code)
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 practical date.
Common Stock, $.50 par Value--4,283,470 shares as of
March 31, 1995.
The total number of pages contained in this document is 16 pages.
1
<PAGE>
INDEX
NORTH CAROLINA RAILROAD COMPANY
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Balance Sheets - June 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . 3
Statements of Income - Three months ended June 30,
1995 and June 30, 1994 and six months ended
June 30, 1995 and June 30, 1994 . . . . . . . . . . . 4
Statements of Shareholders' Equity -
Six months ended June 30, 1995
and June 30, 1994 . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows -
Six months ended June 30, 1995 and
June 30, 1994 . . . . . . . . . . . . . . . . . . . 6
Notes to financial statements -
June 30, 1995 . . . . . . . . . . . . . . . . . . . 7
Item 2. The Registrant's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . 9
PART II. OTHER INFORMATION
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 15
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
BALANCE SHEETS (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
<S> <C> <C>
----------- ------------
ASSETS
Cash and cash equivalents $1,980,133 $ 1,615,284
Rent receivable 122,803 246,030
Interest receivable and other assets 67,054 65,400
----------- ------------
TOTAL CURRENT ASSETS 2,169,990 1,926,714
PROPERTIES
Roadway and land--Note B 7,848,842 7,848,842
Buildings and equipment 236,369 236,369
Less accumulated depreciation (295,977) (292,395)
------------ ------------
7,789,234 7,792,816
------------ ------------
OTHER ASSETS
Lease negotiation costs 497,202 365,267
------------ ------------
$10,456,426 $10,084,797
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and accounts payable
$ 360,893 $ 421,026
Income taxes payable 180,000 -0-
Dividends payable -0- 128,504
Unearned rental income 40,661 -0-
----------- -----------
TOTAL CURRENT LIABILITIES 581,554 549,530
DEFERRED INCOME TAXES 1,219,651 1,214,451
SHAREHOLDERS' EQUITY
Common stock, par value $0.50 per
share--10,000,000 shares
authorized, 4,283,470
shares issued and outstanding 2,141,735 2,141,735
Additional paid-in capital 3,588,455 3,588,455
Retained earnings 2,925,031 2,590,626
----------- ------------
8,655,221 8,320,816
----------- ------------
COMMITMENTS AND CONTINGENCIES--Note C
$10,456,426 $10,084,797
=========== ============
</TABLE>
See notes to financial statements.
3
<PAGE>
STATEMENTS OF INCOME (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Lease of roadway and land
$ 183,694 $ 160,794 $ 352,263 $ 321,497
Interest income 20,429 20,484 51,933 39,059
Rental income -0- 1,080 3,150 2,160
Gain on sale of real estate 473,956 -0- 473,956 -0-
Other 34,015 31,088 64,250 41,875
---------- ---------- ---------- ----------
712,094 213,446 945,552 404,591
Expenses:
Salaries and administrative 56,394 68,789 117,500 130,268
Professional fees 53,390 44,213 169,618 133,288
Insurance and taxes 14,038 13,006 26,599 24,770
Depreciation 1,791 2,061 3,583 3,855
Other 41,531 29,033 86,647 49,800
---------- ---------- ---------- ----------
167,144 157,102 403,947 341,981
---------- ---------- ---------- ----------
INCOME BEFORE INCOME 544,950 56,344 541,605 62,610
TAXES
Income taxes:
Current 202,000 5,830 202,000 5,830
Deferred 2,600 2,600 5,200 5,200
--------- --------- ---------- ----------
204,600 8,430 207,200 11,030
--------- --------- ---------- ----------
NET INCOME $ 340,350 $ 47,914 $ 334,405 $ 51,580
========= ========== ========== ==========
Earnings per share: $ 0.08 $ 0.01 $ 0.08 $ 0.01
====== ====== ====== =====
</TABLE>
See notes to financial statements.
4
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Earnings Shareholders'
Stock Capital Restricted Unrestricted Equity
----------------------- ------------------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $2,141,735 $3,588,455 $ 509,778 $2,102,207 $8,342,175
Net income
5,800 45,780 51,580
------------ ---------- ------------- ---------- -----------
Balance at June 30, 1994 $2,141,735 $3,588,455 $ 515,578 $2,147,987 $8,393,755
============ ========== =========== =========== ===========
Balance at January 1, 1995 $2,141,735 $3,588,455 $ -0- $2,590,626 $8,320,816
Net income -0- 334,405 334,405
------------ ---------- ------------ ---------- -----------
Balance at June 30, 1995 $2,141,735 $3,588,455 $ -0- $2,925,031 $8,655,221
============ ========== =========== ========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENTS OF CASH FLOWS (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1994
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 334,405 $ 51,580
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 5,200 5,200
Depreciation 3,583 3,855
Change in operating assets and liabilities:
Rent receivable 123,227 250,771
Interest receivable and other assets (1,654) 30,371
Accrued expenses and accounts payable (60,134) 14,944
Income taxes payable 180,000 -0-
Unearned rental income 40,661 40,671
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 625,288 397,392
INVESTING ACTIVITIES
Increase in restricted assets -0- (5,800)
Purchase of equipment -0-
(1,487)
Lease negotiation costs (131,935) -0-
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (131,935) (7,287)
FINANCING ACTIVITIES
Dividends paid (128,504) -0-
---------- ---------
NET CASH USED IN FINANCING ACTIVITIES (128,504) -0-
INCREASE IN CASH AND CASH EQUIVALENTS 364,849 390,105
Cash and cash equivalents at beginning of period 1,615,284 912,655
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,980,133 $1,302,760
========== ===========
</TABLE>
See notes to financial statements.
6
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
June 30, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, the financial statements
contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position and
results of operations of North Carolina Railroad Company (the "Company"
or "NCRR") as of and for each of the periods presented.
These financial statements should be read in conjunction
with the financial statements and notes included in the
Company's audited financial statements for 1994.
PROPERTIES: Buildings and equipment are reported at cost.
Depreciation is computed on the straight-line method over
the estimated useful lives of the assets.
Properties in the roadway and land account are carried at an amount
which approximates the 1916 valuation by the Interstate Commerce
Commission. Virtually all the property in the roadway and land account
is leased either to the Norfolk Southern Railway Company ("Norfolk
Southern Railway") or the Atlantic and East Carolina Railway Company
("AECR") (See Note B). Norfolk Southern Railway is a subsidiary of
Norfolk Southern Corporation. AECR is a subsidiary of Norfolk Southern
Railway. These properties are not depreciated because they represent
fully depreciated roadway or non-depreciable land.
REVENUE RECOGNITION: Revenue is reflected in the statements of income when
earned in accordance with the Company's lease arrangements
on the accrual method. Excess lease revenue related to the
1939 lease with AECR is estimated and recognized based upon
the previous quarter's billed traffic.
INCOME TAXES: Income tax expense is disproportionate to income before
income taxes because the lessee of certain of the properties, pursuant
to the terms of the 1895 Lease, pays all income taxes attributable to
the lease arrangement. The Company considers the lessee's share of the
amortization of roadway costs to be a permanent difference and no
deferred taxes are provided thereon.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include
investments in high quality commercial paper and U. S.
Treasury Bills with maturities not exceeding one year.
LEASE/TRANSACTION COSTS: Certain lease negotiation costs have been
capitalized and will be amortized over the life of any lease
extension agreements, if consummated.
RESTRICTED RETAINED EARNINGS: Under terms of its lease agreement
with AECR, the Company had maintained a restricted cash account. All
restrictions expired on December 31, 1994, and the assets became the
property of the Company. Accordingly, these assets are no longer
classified as restricted.
NOTE B--LEASES ON ROADWAY AND LAND
The Company leases its roadway and land under two leases to Norfolk
Southern Railway and one lease to AECR.
The first lease to Norfolk Southern Railway (the "1895 Lease") expired on
January 1, 1995, and provided for an annual lease rental of $286,000.
Under the terms of the lease, all income, property and
franchise taxes are paid by the lessee.
The Company leased additional roadway and land to AECR (the "1939
Lease") under the terms of an original lease dated August
30, 1939 between Atlantic and North Carolina Railroad
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
NORTH CAROLINA RAILROAD COMPANY
NOTE B--LEASES ON ROADWAY AND LAND (continued)
Company and AECR. The original lease was amended on August 29, 1954, and
provided for an expiration date of December 31, 1994. The lessee is
responsible for all state and federal taxes imposed upon the lessee on account
of the operation of the railroad. The lessor is responsible for certain ad
valorem property taxes, income taxes assessed against it, and payroll
taxes on account of its employees. Under the terms of this lease, AECR
pays an annual fixed lease rental of $60,500 plus annual excess lease
rentals based upon operating revenues in excess of $475,000. The
Company and Norfolk Southern Railway have conducted intensive
negotiations over the terms of a definitive agreement to extend the 1895
and 1939 Leases. Thus far, the negotiations have not successfully
produced a definitive agreement satisfactory to the Company and Norfolk
Southern Railway, but negotiations are continuing.
The second lease to Norfolk Southern Railway expires on December 31, 2067,
and provides for an annual lease rental of $81,319 through December 31, 2017
for certain properties in Charlotte, North Carolina. Beginning on
January 1, 2018, 6% of the appraised value of the property will be the
annual lease rental for the remainder of the lease. Under the terms of
the lease, all taxes connected with the property, except income taxes,
are paid by the lessee.
NOTE C--COMMITMENTS AND CONTINGENCIES
During the fourth quarter of 1989, the Company was notified by the North
Carolina Department of Environment, Health, and Natural Resources ("DEHNR") of a
possible abandoned pesticide disposal site on property owned by the Company in
Johnston County, North Carolina. It is believed that the site was used
by a predecessor owner to burn and/or bury surplus pesticides from the
predecessor's business, which was not located at the site. In January,
1994, DEHNR initiated a lawsuit against the Company and other parties
seeking reimbursement of $84,354 in response costs incurred by DEHNR and
remediation of the site. On February 1, 1995, the Court granted partial
summary judgment holding all of the defendants, including the Company,
jointly and severally liable for the site. The Court has not yet ruled
on apportionment of liability or cost sharing among the defendants.
According to a preliminary study conducted by the Company, the estimated
costs of remediation range between $500,000 to in excess of $2,000,000.
The Company will vigorously defend the action brought by DEHNR and will
aggressively pursue any other parties who may be liable for any
remediation, removal, or clean-up. The ultimate costs of any
remediation, removal, or clean-up are not known. However, if such costs
are not paid by other parties, the financial position of the Company
would be materially adversely affected.
Four shareholder derivative actions were filed in the United States District
Court for the Eastern District of North Carolina during December 1994
and January and February 1995 by shareholders of the Company. The
complaints name the directors of the Company as defendants and the
Company as "nominal defendant." Two of the actions seek to enjoin a
purported lease between the Company and Norfolk Southern Railway and
seek to recover for the Company unspecified damages and other relief
from the directors. Two other actions seek similar relief and also name
the State of North Carolina, the Governor of North Carolina, and Norfolk
Southern Railway as defendants. The Company's officers and directors
are indemnified in the bylaws of the Company for certain claims and
liabilities alleged in the actions, including the defense costs and
expenses. The Company notified its directors and officers insurance
carrier of claims as a result of the actions, which claims have been
acknowledged by the insurance carrier. The directors and officers
insurance policy has an aggregate limit of $5,000,000 and a $75,000
retention per occurrence.
8
<PAGE>
Item 2. The Registrant's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
A majority of the Registrant's assets are subject to two railroad operating
leases dating to 1895 and 1939. Information about the leases has been
disclosed by the Registrant in prior quarterly and annual reports to
the Securities and Exchange Commission. There was little change in
liquidity, capital resources, or asset position from the end of the
fiscal year 1994 to June 30, 1995. The Registrant's lessees pay for
maintenance and all operating railroad equipment. Therefore, the
Registrant does not anticipate any need for substantial capital
expenditures unless the 1895 and 1939 Leases are not extended. The
Registrant is negotiating for extension of the leases. (See Note B to
the financial statements.) The Registrant does not foresee any need for
funds during 1995 which cannot be met primarily from its income from
leases or in part from available cash in the regular course of business,
except that (1) in the event the Registrant and Norfolk Southern
litigate issues before the Interstate Commerce Commission ("ICC"),
claims under the 1895 and 1939 Leases, or other matters, the Registrant
may be required to finance part of the litigation expenses, and (2) if
the Registrant seeks qualification as a Real Estate Investment Trust
("REIT") for income tax purposes, the Registrant may be required to
finance a portion of accumulated earnings and profits required to be
distributed to the Registrant's shareholders in the first year of REIT
status.
Results of Operations
Results of operations for the period covered hereby reflect rental
payments to the Registrant pursuant to the terms of the 1895 Lease and
1939 Lease under a temporary arrangement between the Registrant and the
lessees which continues the rental and other terms of the Leases. The
Registrant is negotiating for an extension of the Leases, the terms of
which will take into account the difference between the rental under the
Leases and any increased rental.
Total revenues increased from $213,446 for the second quarter of 1994 as
compared to $712,094 for the second quarter of 1995, and increased from
$404,591 for the six month period ended June 30, 1994 to $945,552 for
the same period ended June 30, 1995.
Revenues from leases of roadway and land increased from $160,794 for the
three month period ended June 30, 1994 to $183,694 for the same period ended
June 30, 1995 and increased from $321,497 for the six month period ended
June 30, 1994 to $352,263 for the same period ended June 30, 1995.
The slight increases in revenues from leases of roadway
and land were attributable to estimated increases in excess rental
revenues from the 1939 Lease. The 1939 Lease rental estimate is based
upon AECR previous quarter's billed traffic, plus or minus adjustment to
actual revenues as the amounts are determined during the year. AECR
revenue estimates are furnished by Norfolk Southern Corporation. See
Note B to the financial statements.
9
<PAGE>
Interest income decreased slightly from $20,484 for the
three month period ended June 30, 1994 to $20,429 for the
same period ended June 30, 1995, and increased from $39,059
for the six month period ended June 30, 1994 to $51,933 for
the same period ended June 30, 1995. The increase in
interest income is attributable to an increase in levels of
invested cash.
Gain on sale of real estate increased from $-0- for the
three month period ended June 30, 1994 to $473,956 for the
same period ended June 30, 1995, and increased by the same
amount for the six month period ended June 30, 1994 as
compared to the same period ended June 30, 1995. The
increase is attributable to the sale of approximately 16
acres of land located in Johnston County, North Carolina.
Other income increased from $31,088 for the three month
period ended June 30, 1994 to $34,015 for the same period
ended June 30, 1995, and increased from $41,875 for the six
month period ended June 30, 1994 to $64,250 for the same
period ended June 30, 1995. The Registrant's other income
is derived primarily from proceeds of condemnations of the
Registrant's properties.
Salary and administrative expenses decreased from $68,789
for the second quarter of 1994 as compared to $56,394 for
the second quarter of 1995, and decreased from $130,268 for
the six month period ended June 30, 1994 to $117,500 for the
same period ended June 30, 1995. The decreases are
attributable primarily to reduced meeting fees and expenses.
Professional fees increased from $44,213 for the second
quarter of 1994 to $53,390 for the second quarter of 1995,
and increased from $133,288 for the six month period ended
June 30, 1994 to $169,618 for the same period ended June 30,
1995. The increases in professional fees are attributable
to increases in fees and expenses associated with the
Registrant's renegotiation of its leases with Norfolk
Southern Railway, attorneys' fees in litigation matters, and
evaluation of REIT qualification. The Registrant expects to
continue to incur substantially greater professional and
investment banking fees and expenses in future periods until
resolution of matters related to current and future leases
or other transactions. The majority of such fees are
currently being capitalized for income tax purposes.
Insurance and taxes remained relatively constant at
$13,006 for the second quarter of 1994 as compared to
$14,038 for the second quarter of 1995, and $24,770 for the
six month period ended June 30, 1994 as compared to $26,599
for the same period ended June 30, 1995 . The Registrant
expects to incur higher property tax expense in future
periods if any properties are excluded from a lease
extension agreement and separately managed by the
Registrant.
10
<PAGE>
Other expenses increased from $29,033 for the second
quarter of 1994 to $41,531 for the second quarter of 1995,
and increased from $49,800 for the six month period ended
June 30, 1994 to $86,647 for the same period ended June 30,
1995. The increases in other expenses are attributable to
increases in outside consultants' fees and other expenses
associated with the termination of the 1895 and 1939 Leases
and negotiations with Norfolk Southern Railway. The
Registrant expects to continue to incur substantial
consultants' fees and other expenses in future periods at
least until the resolution of all matters related to current
and future leases or other transactions.
Current income taxes increased from $5,830 for the second
quarter of 1994 to $202,000 the second quarter of 1995, and
increased by the same amounts for the six month period ended
June 30, 1994 as compared to the same period ended June 30,
1995. The increases are attributable to gains on the sale of
real estate during the second quarter. Deferred income taxes
also remained constant at $2,600 for the second quarter of 1994
as compared to the second quarter of 1995 and remained constant
at $5,200 for the six month period ended June 30, 1994 as
compared to the same period ended June 30, 1995. Under the 1895
Lease, all taxes attributable to the 1895 Lease, including income
taxes, are paid by Norfolk Southern Railway as lessee.
The Registrant and its lessees are responsible for
compliance with state, federal, local or other provisions
relating to discharge of materials or the protection of the
environment. The risk of incurring environmental liability
is inherent in conducting railroad operations. Some of the
commodities which are transported over the Registrant's
railroad lines are classified as hazardous materials. The
1895 and 1939 Leases did not make provision for the lessees
to disclose environmental problems affecting the
Registrant's properties. Environmental problems may exist on
properties owned by the Registrant which are known to the
lessees but have not been disclosed to the Registrant or
which are unknown to the lessee or the Registrant. State
and federal environmental provisions may impose joint and
several liability upon the Registrant and its lessees and
sublessees for environmental damage or clean up (or
associated costs) of any real properties owned by the
Registrant and adjoining properties if the source of any
problem is the property of the Registrant. The Registrant
believes that damage or clean up (or the associated costs)
would be the responsibility of the lessees and any
sublessees or other parties who may have created any
actionable environmental condition. However, if such
parties are not able to meet their responsibilities, under
certain statutes, regulations, and rules, the Registrant
could ultimately be held responsible for any remediation,
removal, or cleanup of the property it owns.
The status of one such site is disclosed in Item 3 "Legal
Proceedings." According to a preliminary study conducted by
the Registrant, the estimated costs of remediation range
between $500,000 to in excess of $2,000,000. At this time,
the Registrant does not know the total amount of its
financial exposure, the timing of the resolution of the
matter, or the extent to which the Registrant's
11
<PAGE>
potential exposure may be reduced by contribution or
indemnification from other parties. The Registrant does not
have insurance to minimize its potential exposure. Legal
expenses and the costs of remediation, removal, or cleanup
represent a possible substantial future drain on the
financial resources of the Registrant which cannot be
quantified at this time. Any future remediation, removal, or
cleanup at the site should have no effect upon railroad
operations.
Inflation affects the Registrant primarily through
increased salary, administrative, property tax, and
insurance expenses. The Registrant's primary sources of
revenue, rental from the 1895 Lease and 1939 Lease, increase
only to the extent changes in the general inflation rate
increase the excess rental payments under the 1939 Lease,
which are based on a percentage of the lessee's operating
revenues. Revenues from the 1895 Lease do not increase or
decrease with changes in the inflation rate. The Registrant
expects to offset any negative effects of inflation not
offset by increased excess rental payments by controlling
current expenses. The Registrant is also seeking inflation
protection provisions in connection with its negotiations
for a lease extension agreement.
PART II. OTHER INFORMATION
Item 3. Legal Proceedings
Except as described below, there are no legal proceedings
pending to which the Registrant is a party that are material
to the operation of the Registrant.
Peele Site
During the fourth quarter of 1989, the Registrant was
notified by the North Carolina Department of Environment,
Health, and Natural Resources ("DEHNR") that DEHNR had been
notified of a possible abandoned pesticide disposal site on
property owned by the Registrant in Johnston County, North
Carolina. Information about the site has been disclosed by
the Registrant in prior quarterly and annual reports to the
Securities and Exchange Commission. Since 1991, the site
had been included in the DEHNR Inactive Hazardous Waste
Sites Priority List. The sites on the Priority List are
ranked in decreasing order of danger to the public health
and environment based on a ranking system administered by
DEHNR. In February 1995, the site ranked 98 out of a total
of 158 sites on the Priority List.
In January, 1994, DEHNR initiated a lawsuit against the
Registrant and other parties seeking reimbursement of
$84,354 in response costs incurred by DEHNR and remediation
of the site. On February 1, 1995, the Court granted partial
summary judgement holding all of the defendants,
including the Registrant, jointly and severally liable.
12
<PAGE>
The Court has not yet ruled on apportionment of liability or
cost sharing among the defendants. According to a
preliminary study conducted by the Registrant, the estimated
costs of remediation range between $500,000 to in excess of
$2,000,000. The Registrant will vigorously defend the
action by DEHNR, and will aggressively pursue any other
parties who may be liable for any remediation, removal, or
clean-up. The ultimate costs of any remediation, removal,
or clean-up are not known. However, if such costs are not
paid by other parties, the financial position of the
Registrant would be materially adversely affected.
Charlotte Convention Center Litigation
On December 10, 1991, the Registrant initiated a lawsuit
in the Mecklenburg County, North Carolina, Superior Court
regarding its railroad corridor through downtown Charlotte.
The Registrant alleged that both the City of Charlotte and
Norfolk Southern Railway have breached contract obligations
and obligations based on real property rights to the
Registrant. The litigation has been disclosed by the
Registrant in prior quarterly and annual reports to the
Securities and Exchange Commission.
On December 7, 1993, the North Carolina Court of Appeals
ruled against the defendants' appeal and against the
Registrant's cross-appeal. Norfolk Southern Railway then
petitioned the Supreme Court of North Carolina to review the
decision of the North Carolina Court of Appeals, which
petition was denied. Norfolk Southern Railway then
petitioned the United States Supreme Court for review. On
June 12, 1995, the United States Supreme Court denied the
petition, and the lawsuit will continue in Superior Court,
Mecklenburg County, North Carolina.
Shareholder Litigation
Four shareholder derivative actions were filed in the
United States District Court for the Eastern District of
North Carolina during December 1994 and January and February
1995 by shareholders of the Registrant. The complaints name
the directors of the Registrant as defendants and the
Registrant as "nominal defendant". Two of the actions, Kahn
v. North Carolina Railroad Co., et al. ("Kahn"), Civil
Action No. 5:94-CV-936-F(2) and Norberg v. North Carolina
Railroad Co., et al. ("Norberg"), Civil Action No.
5-95-CV-96-F(2) seek to enjoin a purported lease between the
Registrant and Norfolk Southern Railway and to recover for
the Registrant unspecified damages and other relief from the
directors. Two other actions, Werner, et al. v. North
Carolina Railroad Co., et al. ("Werner"), Civil Action No.
5:94-CV-943-F(1) and Taran v. North Carolina Railroad Co.,
et al. ("Taran"), Civil Action No. 5:95-CV-17-F(1), seek
similar relief and also name the State of North Carolina,
the Governor of North Carolina, and Norfolk Southern Railway
as defendants. On March 30, 1995, the court consolidated
the actions into one proceeding. The Registrant,
13
<PAGE>
along with the co-defendants, have filed motions to dismiss
the actions. The court has not yet ruled on the motions.
The Kahn and Norberg actions allege misconduct by the
directors of the Registrant, including breach of fiduciary
duty, mismanagement, and waste of corporate assets. The
Werner and Taran actions assert similar claims, allege
collusion between the State of North Carolina and Norfolk
Southern Railway producing a below-market lease rental rate,
and assert that the State of North Carolina has condemned
the Registrant's properties for public uses for the benefit
of the State. The Registrant's officers and directors are
indemnified in the bylaws of the Registrant for certain
claims and liabilities alleged in the actions, including the
defense costs and expenses. The Registrant notified its
directors and officers insurance carrier of claims as a
result of the actions, which claims have been acknowledged
by the insurance carrier. The directors and officers
insurance policy has an aggregate limit of $5,000,000 and a
$75,000 retention per occurrence. The Registrant also
notified its general liability insurance carrier of claims
as a result of the shareholder actions, which claims were
denied.
The Registrant will oppose the actions brought by the
plaintiffs to the extent the actions seek to enjoin any
lease arrangement or seek recovery against the Registrant or
seek any remedy against the best interests of Registrant or
its shareholders.
Item 5. Other Information
In a letter to shareholders dated July 11, 1995, the
Registrant announced that the 1995 annual meeting of
shareholders would be postponed until such time as it is
determined if and when the Registrant will have a definitive
agreement to submit to the shareholders for approval.
In July, 1995, the Registrant settled a claim for a lump
sum tax benefit payment due upon the expiration of the 1895
Lease from Norfolk Southern Railway pursuant to a 1982 tax
benefit agreement between the Registrant and Norfolk
Southern Railway. Under the terms of the settlement
agreement, the Registrant received a lump sum payment in the
amount of $671,771, plus interest in the amount of $19,475,
and Norfolk Southern Railway agreed to reimburse the
Registrant for any income taxes owed by the Registrant on
the lump sum payment.
At a meeting of the Board of Directors on July 13, 1995,
Chauncey W. Lever, a director of the Registrant, was elected
Assistant Secretary/Treasurer to replace Van Wyck Webb, who
resigned as Assistant Secretary/Treasurer. Pursuant to the
bylaws of the Registrant, Mr. Lever was elected to the
position by the directors elected by shareholders other than
the State of North Carolina. Mr. Webb will remain a
director of the Registrant.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There are no changes to exhibits from the
Registrant's Form 10-K for the period ended June 30, 1995.
(b) Reports on Form 8-K
None.
15
<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.
NORTH CAROLINA RAILROAD COMPANY
DATE: August 9, 1995 /s/ John F. McNair, III
John F. McNair, III
President
DATE: August 9, 1995 /s/ Lynn T. McConnell
Lynn T. McConnell, Treasurer and
Principal Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000813794
<NAME> NORTH CAROLINA RAILROAD CO.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,980,133
<SECURITIES> 0
<RECEIVABLES> 189,857
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,169,990
<PP&E> 8,085,211
<DEPRECIATION> (295,977)
<TOTAL-ASSETS> 10,456,426
<CURRENT-LIABILITIES> 581,554
<BONDS> 0
<COMMON> 2,141,735
0
0
<OTHER-SE> 6,513,486
<TOTAL-LIABILITY-AND-EQUITY> 10,456,426
<SALES> 0
<TOTAL-REVENUES> 945,552
<CGS> 0
<TOTAL-COSTS> 403,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 541,605
<INCOME-TAX> 207,200
<INCOME-CONTINUING> 334,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 334,405
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>