FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For Transition Period from _________________ to ____________________
Commission File No. 1-12184
CONRAIL INC.
------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23 2728514
- --------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2001 Market Street, Two Commerce Square
Philadelphia, Pennsylvania 19101-1417
- --------------------------------------- ----------
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (215) 209-4000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Conrail Inc. New York Stock Exchange
Common Stock (Par Value $1.00) Philadelphia Stock Exchange
and Common Stock Purchase Rights ---------------------------
- --------------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant (as of March 1, 1994): $4,842,644,454
Shares of Common Stock outstanding (as of March 1, 1994): 79,647,656
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for Annual Meeting of Shareholders to be held on
May 18, 1994 - Part III
<PAGE>
TABLE OF CONTENTS
-----------------
Item Page
---- ----
Part I 1. Business...................................... 1
2. Properties.................................... 1
3. Legal Proceedings............................. 15
4. Submission of Matters to a Vote of Security
Holders.................................... 21
Executive Officers of the Registrant........... 21
Part II 5. Market for Registrant's Common Equity and
Related Stockholder Matters................. 24
6. Selected Financial Data........................ 24
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 27
8. Financial Statements and Supplementary Data.... 37
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...... 60
Part III 10. Directors and Executive Officers of the
Registrant.................................. 60
11. Executive Compensation......................... 60
12. Security Ownership of Certain Beneficial
Owners and Management....................... 60
13. Certain Relationships and Related Transactions. 60
Part IV 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................... 61
Power of Attorney............................................. 66
Signatures.................................................... 66
Exhibit Index................................................. 68
i
<PAGE>
PART I
Item 1. Business.
- ------ --------
and
Item 2. Properties.
- ------ ----------
GENERAL. On July 1, 1993, pursuant to an Agreement and Plan of
-------
Merger approved by the shareholders of Consolidated Rail Corporation
on May 26, 1993, each share of Consolidated Rail Corporation common
stock that was issued and outstanding or held in the treasury, and
each outstanding share of Consolidated Rail Corporation preferred
stock, all of which were held by the Non-union Employee Stock
Ownership Plan (the "ESOP"), were automatically converted into one
share of common stock and preferred stock, respectively, of Conrail
Inc., which was incorporated in Pennsylvania on February 12, 1993 to
be the holding company of Consolidated Rail Corporation. On July 1,
1993, Conrail Inc. became the publicly held entity and holding
company of Consolidated Rail Corporation, which remains Conrail
Inc.'s only significant subsidiary and primary asset.
Consolidated Rail Corporation is a Pennsylvania corporation
incorporated on February 10, 1976 to acquire, pursuant to the
Regional Rail Reorganization Act of 1973, the rail properties of
many of the railroads in the northeast and midwest region of the
United States which had gone bankrupt during the early 1970's, the
largest of which was the Penn Central Transportation Company.
Reports on Form 10-K for years prior to 1993 were filed by
Consolidated Rail Corporation, and historic data presented herein
and therein reflect the results of Consolidated Rail Corporation for
those time periods. Unless otherwise indicated, references to
Conrail prior to July 1, 1993 denote Consolidated Rail Corporation
and its consolidated subsidiaries, and references to Conrail after
July 1, 1993 denote Conrail Inc. and its consolidated subsidiaries.
RAIL OPERATIONS. Conrail, through its wholly-owned subsidiary
---------------
Consolidated Rail Corporation, provides freight transportation
services within the northeast and midwest United States. Conrail
interchanges freight with other United States and Canadian railroads
for transport to destinations within and outside Conrail's service
region. Conrail operates no significant line of business other than
the freight railroad business and does not provide common carrier
passenger or commuter train service.
Conrail serves a heavily industrial region that is marked by
dense population centers which constitute a substantial market for
consumer durable and non-durable goods, and a market for raw
materials used in manufacturing and by electric utilities.
Conrail's traffic levels are substantially affected by its ability
to compete with trucks, the economic strength of the industries and
metropolitan areas that produce and consume the freight Conrail
<PAGE>
hauls, and the traffic generated by Conrail's connecting railroads.
Conrail remains dependent on non-bulk traffic, which tends to
generate higher revenues than bulk commodities, but also involves
higher costs and is more vulnerable to truck competition. Conrail
expects the national economy to continue to grow slowly and its
traffic levels to reflect such growth. See Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - 1994 Outlook."
Conrail's significant freight commodity groups include
chemicals and related products, coal, intermodal, automotive parts
and finished vehicles, metals and related products, food and grain
products, and forest products. Revenues for these freight commodity
groups for 1989 through 1993, together with total annual traffic
volumes, are set forth in the following tables.
2
<PAGE>
<TABLE>
FREIGHT COMMODITY GROUPS - REVENUES
($ in Millions)
<CAPTION>
Years ended December 31,
----------------------------------------
Freight Commodity Groups 1993 1992 1991 1990(1) 1989(1)
- ------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Chemicals and related products
Revenues..................... $ 588 $ 574 $ 557 $ 578 $ 565
Percent of total............. 17.8% 18.0% 17.9% 18.0% 17.5%
Coal
Revenues..................... $ 482 $ 555 $ 548 $ 520 $ 493
Percent of total............. 14.6% 17.4% 17.6% 16.2% 15.4%
Intermodal
Revenues..................... $ 621 $ 570 $ 546 $ 554 $ 547
Percent of total............. 18.8% 17.9% 17.6% 17.2% 17.0%
Automotive parts and finished
vehicles
Revenues..................... $ 503 $ 442 $ 412 $ 481 $ 513
Percent of total............. 15.3% 13.9% 13.2% 14.9% 15.9%
Metals and related products
Revenues..................... $ 399 $ 371 $ 374 $ 402 $ 390
Percent of total............. 12.1% 11.6% 12.0% 12.5% 12.1%
Food and grain products
Revenues..................... $ 345 $ 333 $ 322 $ 324 $ 332
Percent of total............. 10.5% 10.4% 10.4% 10.1% 10.3%
Forest products
Revenues..................... $ 286 $ 278 $ 279 $ 295 $ 313
Percent of total............. 8.7% 8.7% 9.0% 9.2% 9.7%
Other
Revenues..................... $ 73 $ 68 $ 71 $ 61 $ 67
Percent of total............. 2.2% 2.1% 2.3% 1.9% 2.1%
Total line haul revenue...... $ 3,297 $ 3,191 $ 3,109 $ 3,215 $ 3,220
Miscellaneous revenue(2)..... 156 154 143 157 191
------- ------- ------- ------- -------
Total freight revenue........ $ 3,453 $ 3,345 $ 3,252 $ 3,372 $ 3,411
======= ======= ======= ======= =======
<FN>
(1) Results for 1990 reflect a reclassification of certain commodities
within freight commodity groups in 1990. None of these changes is
significant; however, results for 1989 have been restated on the
same basis for comparison purposes.
(2) Includes switching, demurrage and other miscellaneous revenues.
</TABLE>
3
<PAGE>
<TABLE>
FREIGHT COMMODITY GROUPS - VOLUME IN UNITS
(FREIGHT CARS AND INTERMODAL TRAILERS AND CONTAINERS)
(In Thousands)
<CAPTION>
Freight Commodity Groups 1993 1992 1991 1990 1989
- ------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Chemicals and related
products................. 387 371 364 391 376
Coal........................ 670 730 767 756 708
Intermodal.................. 1,357 1,220 1,108 1,138 1,123
Automotive parts and
finished vehicles........ 360 319 289 321 344
Metals and related products. 500 476 461 513 508
Food and grain products..... 272 262 251 255 263
Forest products............. 262 246 246 256 265
Other....................... 95 92 93 80 91
----- ----- ----- ----- ------
All freight................. 3,903 3,716 3,579 3,710 3,678
===== ===== ===== ===== =====
</TABLE>
Chemicals and Related Products. This group consists of a wide
------------------------------
variety of commodities, including agricultural and organic
chemicals, fertilizers, plastic pellets, soda ash, construction
minerals, and petroleum products. The majority of traffic is joint-
line and the primary flows are between Louisiana and Texas, on the
one hand, and Delaware, New Jersey, and Pennsylvania on the other.
This segment's customer base and origin/destination pair mix are
both large and diverse, with none occupying a dominant position in
terms of Conrail's traffic volume or revenues. Conrail's chemical
traffic fluctuated moderately from 1989 through 1993, but has
increased in each of the last two years. In 1993, a 6.4% increase
in volume resulted in a 3.5% increase in revenues compared with
1992.
Conrail's chemical traffic includes chlorine, smaller volumes
of other hazardous chemicals and non-hazardous substances which, if
spilled or released into the atmosphere, could be dangerous and
could result in significant liability to Conrail. Under
catastrophic circumstances, such liability could exceed Conrail's
$250 million in insurance coverage for such accidents. It is
impossible to eliminate the risk of such liability; however, Conrail
has not experienced any significant liability as a result of an
accident involving chlorine or any other such substance and has
safety procedures designed to prevent the occurrence of such
accidents, or limit their impact should they occur.
Increasing regulation by federal, state and local governments
of the transportation and handling of hazardous and non-hazardous
substances and waste has increased the administrative burden and
costs of transporting certain commodities in this group.
4
<PAGE>
Coal. In 1993, revenues for this group declined from 1992 by
----
13.9%, reflecting a 9.2% decline in traffic volume. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Strategic Business Plan."
Utility coal traffic makes up the majority of Conrail's coal
business and was adversely affected by decreased coal production
resulting from an eight month strike at unionized coal mines.
Utility coal moves from mines located on and off Conrail's system to
electric utilities located on Conrail. Annual traffic volumes
fluctuate with the inventory practices of the electric utilities,
their use of alternative sources of energy and the weather. In
1993, coal traffic decreased as utilities depleted much of their
coal stockpiles and did not replenish them due to the strike. In
addition, the utilities in Conrail's service territory increased
their use of nuclear fuel to near capacity levels.
The federal acid rain legislation enacted in October 1990,
which requires electric utilities to significantly limit sulphur
dioxide emissions from their generating plants by burning lower
sulphur coal or installing emissions control devices, has reduced
demand for the higher sulphur coal from mines on Conrail's system,
particularly in central Pennsylvania. However, the decline in the
volume of coal from mines located on Conrail is being offset, in
part, by an increase in Conrail's handling of lower sulphur coal
from sources on Conrail lines formerly owned by The Monongahela
Railway Company (now merged into Conrail) and from off-line sources
to utilities located on Conrail's system.
Metallurgical, industrial/cogeneration and export coal
represent the three remaining segments of Conrail's coal traffic
with volumes essentially equal in each of these areas. Conrail's
traffic volume and revenue from metallurgical coal increased
slightly in 1993 due to gains in market share, after having declined
in each year since 1989 as the domestic steel industry eliminated
inefficient production capacity.
Conrail's traffic volume and revenue for industrial/cogenera-
tion coal also increased slightly in 1993, although growth in this
area is not expected to be as strong as originally projected, as a
result of slow growth by cogeneration facilities.
Export coal traffic declined approximately 35% from 1992, a
year in which export volumes had declined 16% from the record levels
of 1991. The 1993 declines were, in significant part, the result of
the coal strike, which created increased domestic demand for coal
historically used for export, as well as continuing competition by
exports from South Africa and the former Soviet republics.
5
<PAGE>
Intermodal. Conrail continues to be one of the rail industry's
----------
leaders in handling intermodal traffic, with revenues increasing 9%
in 1993 and significantly higher volumes, 11.2%, over 1992. For the
sixth consecutive year, Conrail handled over 1 million units of
intermodal traffic.
Conrail's intermodal traffic consists of three segments. The
first segment is Conrail's premium service traffic which principally
involves shipments for the U.S. Postal Service, United Parcel
Service and less-than-truck-load companies. The four-year U.S.
Postal Service contracts for over 1,000 origin-destination points,
which were awarded in July 1989, were renewed in July 1993 for a
period extending to July 1995. During 1991, the Postal Service
implemented incentive rates permitting its bulk mail customers to
receive discounts for providing their own transportation to
destination Postal Service facilities. This change has reduced
Conrail's postal traffic; however, Conrail has offset this decline,
in part, by increased traffic directly from bulk mailers.
The second segment is domestic traffic, which includes a
variety of commodities and customers. Most of the 15% growth in
this segment in 1993 was attributable either to market share gains
through new partnerships with major nationwide truckload carriers,
or to RoadRailer growth through Triple Crown Services Company, a
joint venture with Norfolk Southern Corporation.
International container traffic constitutes the third segment
of Conrail's intermodal traffic. International container traffic
chiefly involves goods produced in the Pacific Basin and shipped by
rail from west coast ports to east coast markets. Conrail and its
western railroad connections are able to participate in this traffic
because they have established superior transit times compared with
the all-water route through the Panama Canal. Conrail also
participates in traffic moving through Atlantic ports for import and
export trade with European and Mediterranean markets. Conrail's
Atlantic traffic increased 14% over 1992 levels.
Automotive Parts and Finished Vehicles. Conrail's automotive
--------------------------------------
parts and finished vehicles traffic continues to benefit from the
strengthening domestic economy and the approximately 10% increase in
North American vehicle production in 1993 over 1992. Reflecting
this increase in domestic production, finished vehicles volume
increased 21%, while automotive parts volume increased 4.5%. Total
1993 volume increased 13.4% from 1992, with 1993 revenues 14.3%
higher than 1992. In terms of revenues, General Motors and Ford
were among Conrail's five largest customers in 1993; Chrysler was
among Conrail's ten largest customers.
6
<PAGE>
This commodity group, especially the automotive parts segment,
is subject to vigorous truck competition. The increase in
automotive parts traffic represents, in addition to increased
production, Conrail's gain in market share through the use of new
products and logistics services.
In 1993, Conrail's automotive parts and finished vehicles
traffic was favorably affected by the increased strength of the yen
against the U.S. dollar, which created incentives for foreign-based
domestic manufacturers to shift additional production to the United
States and to export domestically produced vehicles. Conrail also
expects the enactment of the North American Free Trade Agreement to
continue to increase its automotive parts and vehicle traffic to and
from Mexico.
Metals and Related Products. This commodity group includes
---------------------------
metals (such as iron, steel, and aluminum), iron ores, scrap metal,
and coke from coal. An increase in traffic volume in 1993 of 5.1%
resulted in increased revenue of 7.5% from 1992 levels. Revenue
from metals traffic, which accounted for approximately $310 of the
$399 million for this group, increased approximately 13% on
increased volume of approximately 16.5%. Increases in volume due to
gains in market share from trucks were partially offset by declining
revenues from shorter hauls.
Conrail serves directly, or via short line switching carriers,
many of the nation's largest active integrated steel production
facilities, as well as the major sources of scrap, the raw material
used by mini-mills located both on and off Conrail to make steel.
Although a significant portion of the active domestic steel industry
is along the Cleveland-Chicago corridor on Conrail's system, the
traditional domestic steel industry (using integrated steel
production facilities) continues to eliminate inefficient production
capacity, which has adversely affected the volume of raw materials
for steel production handled by Conrail, and could continue to do
so. In 1993, coke and iron ore revenue declined approximately 9% on
decreased volumes of 11% compared to 1992 levels.
Food and Grain Products. This commodity group includes fresh
-----------------------
and processed food products moving primarily in boxcars, and grain
and grain products moving in covered hopper and tank cars. In 1993,
food and grain revenue increased 3.7% on increased volume of 3.6%,
primarily as the result of substantial increases in export grain
traffic. Grain and grain products generated $240 million of the
$345 million in revenue in 1993. Export grain traffic, which is
highly variable and depends on the value of the U.S. dollar and the
size of domestic and international grain harvests, increased
significantly (approximately 60%) over 1992, a year in which traffic
declined 25% from 1991 levels. Food products revenue and volume
declined approximately 4.5%.
7
<PAGE>
Forest Products. This commodity group includes paper and wood
---------------
products moving in boxcars and certain lumber and related products
moving on flatcars. These commodities generated $286 million in
revenue in 1993, representing increased revenue of 3.0% on increased
volume of 6.5% over 1992 levels.
Other. Other commodity groups include miscellaneous
-----
commodities that are transported in boxcars, such as general
manufactured goods, and stone and construction materials. These
commodities generated $73 million in revenue in 1993. Volume
remained stable compared with 1992 levels.
The Service Group System. In late 1993, Conrail announced the
------------------------
reorganization of its Marketing and Sales and Operating Departments
into four service networks: Intermodal Service, Automotive Service,
Unit Trains Service and Core Service. The Unit Trains network will
handle coal and ore traffic, with the remaining commodities, other
than automobiles and intermodal, to be handled by the Core network.
Effective in 1994, each of these groups controls the integrated
planning, pricing and operating functions that will enable them to
tailor services, develop products and make capital investments
directed toward the special requirements of their respective
customers. Beginning in 1994, Conrail's traffic and revenue
statistics will be reported on a service group basis.
8
<PAGE>
Certain Statistics. The following tables provide various
------------------
measurements relating to Conrail's rail operations from 1989 through
1993:
<TABLE>
<CAPTION>
PRODUCTIVITY DATA
Years ended December 31,
------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating ratio (1)..... 82.9% 84.0% 108.0% 87.3% 94.2%
Compensation and
benefits ratio........ 35.6% 37.0% 37.9% 40.0% 42.2%
Employees
(average)............. 25,406 25,380 25,852 27,787 31,574
Gross ton miles
per freight employee
hour worked (2)(3).... 3,805 3,746 3,717 3,513 3,139
Gross ton miles per
freight train hour
(thousands)(2)(3)..... 119.0 122.1 120.0 112.1 104.6
Gross ton miles per
locomotive in service
(millions)(2)(3)...... 102.4 107.1 107.6 103.4 98.8
Gross ton miles per
gallon of fuel (2).... 745 770 776 741 710
<FN>
- ---------
(1) Without the $719 million special charge in 1991, Conrail's
operating ratio (operating expenses as a percent of revenues)
would have been 85.9%. Without the $234 million special charge
in 1989, Conrail's operating ratio for 1989 would have been
87.3%. See Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 10 to
the Consolidated Financial Statements elsewhere in this Annual
Report.
(2) Excluding subsidiaries.
(3) Locomotive weight not included.
</TABLE>
<TABLE>
<CAPTION>
QUALITY OF SERVICE DATA(1)
Years ended December 31,
------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Miles of track under
slow order................ 62 73 90 158 234
Locomotive out of service
ratio..................... 8.3% 8.8% 7.8% 6.8% 6.9%
Freight cars requiring
heavy repairs............. 4.7% 4.0% 2.9% 2.6% 2.5%
Reportable train accidents (2) 155 148 183 149 150
Cost of loss and damage
incidents as a percent
of revenue................ .39% .39% .39% .37% .37%
<FN>
- ----------------
(1) Excluding subsidiaries.
(2) Reportable train accidents for 1992 has been restated to
include 6 incidents that occurred in 1992, but were reported in
1993.
</TABLE>
9
<PAGE>
COMPETITION. Conrail's rail operations face significant
-----------
competition from trucks, from the availability of the same or
substitute goods made by producers located at points not served by
Conrail, and from other railroads. The trucking industry is
especially competitive in this part of the country because, on
average, freight in this region is moved shorter distances than in
the West, and the cost characteristics of the railroad and trucking
industries generally make trucks more competitive over shorter
distances.
Price and service competition from trucks is especially evident
in the movement of intermodal freight, auto parts, and finished
steel. Competition from trucks has been increased by the passage of
legislation removing certain barriers to entry into the trucking
business and allowing the use of wider, longer, and heavier trailers
and multiple trailer combinations. The introduction of larger
trailers and multiple trailer combinations in recent years has
substantially increased productivity in the trucking industry. Any
future legislation permitting further increases in truck capacity
could have a substantial adverse effect on the competitiveness of
railroads.
CSX Corporation and Norfolk Southern Corporation are Conrail's
principal railroad competitors. Conrail is also subject to competi-
tion from smaller, regional railroads. The assets of the Delaware &
Hudson Railway Company ("D&H"), a regional competitor of Conrail's,
have been purchased by a subsidiary of CP Rail, a large Canadian
railroad. CP Rail's use of D&H's former tracks, coupled with addi-
tional trackage rights it has obtained, has resulted in increased
rail competition in Conrail's service area. The consummation of a
merger or joint cooperation agreement between CP Rail and Canadian
National Railroad could result in increased competition in certain
portions of Conrail's service territory, depending upon the nature
and terms of any such arrangement. In addition, certain of
Conrail's railroad competitors have become multi-modal
transportation companies by purchasing previously independent water
carriers or small shipment motor carriers, or both, and have thereby
extended their operations into Conrail's service area.
An important influence on Conrail's competitive position is
government regulation as administered by the Interstate Commerce
Commission ("ICC"). Prior to 1980, regulation significantly
inhibited the ability of railroads to respond to changing
transportation markets. The Staggers Rail Act of 1980 ("Staggers
Act") substantially reduced the restrictions of regulation. In
particular, railroads were given more freedom to reduce costs and
adjust prices, which enabled them to compete more effectively and to
raise prices for traffic previously carried at a loss or at below
market prices. Under the Staggers Act, the ICC also has deregulated
a significant amount of railroad traffic, including intermodal and
most boxcar traffic, finished vehicles and miscellaneous commodities
moving in other types of equipment.
10
<PAGE>
The Staggers Act further enhanced railroads' competitive
options by permitting the use of railroad-shipper contracts for
traffic still regulated by the ICC, under which the parties can set
the price, service standards and term for a special transportation
movement. These contracts generally provide for prices lower than
tariff rates and usually do not guarantee that any given amount of
freight will be shipped during their term. As of December 31, 1993,
Conrail was a party to 3,962 such contracts for regulated traffic,
which Conrail estimates accounted for 35% of its line-haul revenues
in 1993. Although some contracts have a term longer than one year,
most contracts are for one year or less. The majority of Conrail's
multi-year contracts are subject to cost-related adjustments that
provide for flat percentage increases. The cost-based provisions in
certain of these contracts are tied to indices under the
jurisdiction of the ICC. Action by the ICC to adjust these indices
for productivity gains by the railroads has had an adverse impact on
Conrail's ability to recover costs under such contracts, which
accounted for less than 3% of Conrail's line haul revenues in 1993.
For a discussion of regulation of the railroad industry, see
"Government Regulation" and Item 3 - "Legal Proceedings - Conrail
Withdrawal from RCAF Master Tariff."
PROPERTY. Conrail directly holds no real property. The only
--------
significant property holdings are those of Consolidated Rail
Corporation. However, a subsidiary of Conrail owns an 81.25%
interest in Concord Resources Group, Inc. ("Concord"), whose assets
include property used for the treatment and storage of hazardous
waste. Conrail plans to dispose of Concord. See Note 3 to the
Consolidated Financial Statements elsewhere in this Annual Report.
As of December 31, 1993, Consolidated Rail Corporation
(excluding its subsidiaries) maintained 20,109 miles of track
including track for crossovers, turnouts, second main, other main,
passing and switch track, on its 11,831 mile route system. Of total
route miles, 9,961 are owned, 56 are leased or operated under
contract and 1,814 are operated under trackage rights, including
approximately 300 miles operated pursuant to an easement over
Amtrak's Northeast Corridor. As of December 31, 1993, virtually all
track over which at least 10 million gross tons moved annually
(6,276 track miles) was heavy-weight rail of at least 127 pounds per
yard, and approximately 98% of such track had continuous welded
rail. Continuous welded rail reduces track maintenance costs and,
in general, permits trains to travel at higher speeds. As of
December 31, 1993, Conrail had 9,412 miles of continuous welded rail
on track it maintained.
As of December 31, 1993, all of the 5,647 track miles
maintained for fast freight traffic had a maximum operating speed of
50 MPH or more, and 33% had a maximum operating speed of at least 70
MPH. As of December 31, 1993, approximately 96% of the track over
which at least 10 million gross tons moved annually was governed by
11
<PAGE>
automatic signal systems. In all, as of December 31, 1993, 7,610
miles of track were controlled by automatic signal systems.
As a result of the strategic planning process, certain under-
utilized rail lines and other facilities were identified for
disposal in order to avoid future capital costs and to improve
Conrail's return on assets. The expected losses upon disposition of
such assets were included in the 1991 special charge. See Note 10
to the Consolidated Financial Statements elsewhere in this Annual
Report. As the new Service Group structure is implemented,
additional assets not required to support the structure may be
identified.
The following table indicates the number of locomotives and
freight cars owned (or subject to capitalized leases) and includes
17,595 freight cars used by Conrail under operating leases. These
total figures are as of December 31, 1993, and include stored or
surplus units, but exclude subsidiaries, which have an immaterial
number of locomotives and freight cars:
<TABLE>
LOCOMOTIVES AND FREIGHT CARS
----------------------------
<CAPTION>
Number of Units
----------------------
Total Stored(1)
------ ---------
<S> <C> <C>
LOCOMOTIVES........................ 2,187 61
----- ----
Road............................. 1,911 30
Switching........................ 276 31
Total Surplus(2)
------ ---------
FREIGHT CARS....................... 60,017 10,488
------ ------
Box.............................. 9,245 1,368
Covered Hopper................... 4,953 527
Open Hopper...................... 17,821 5,501
Gondola.......................... 14,163 2,267
Coil Steel....................... 4,478 226
Multi-Level...................... 5,288 129
Flat and Other................... 4,069 470
<FN>
- -----------
(1) Serviceable locomotives not required for current operations on
December 31, 1993. The number of locomotives stored during
1993 fluctuated between 54 and 150 due to variations in traffic
and fleet adjustments.
(2) Freight cars which did not move during the seven days
immediately preceding December 31, 1993 and which were
available for loading. The number of surplus freight cars
during 1993 fluctuated due to variations in traffic and fleet
adjustments. December 31, 1993 was a date on which a
relatively high number of freight cars were surplus as a result
of low traffic.
</TABLE>
On December 31, 1993, the average age of Conrail's road
locomotives, not including stored-serviceable units, was 15.3 years.
The average age of the total locomotive fleet was 16.6 years, and
the average age of the total freight car fleet was 21.0 years.
12
<PAGE>
CAPITAL EXPENDITURES. The following tables provide information
--------------------
concerning capital expenditures from 1989 through 1993:
<TABLE>
CAPITAL EXPENDITURES
(In Millions)
<CAPTION>
Years ended December 31,
------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Track rehabilitation........ $207 $275 $186 $194 $278
Rolling stock and transportation
equipment................... 314 57 127 89 217
Other(1).................... 129 159 85 98 183
---- ---- ---- ---- ----
Total....................... $650 $491 $398 $381 $678
==== ==== ==== ==== ====
Subsidiaries (included in
Total)...................... $ 3 $ 12 $ 12 $ 5 $ 13
<FN>
- ------------
(1)Includes communications and signals, bridges and tunnels,
computers and telecommunications, and other improvements.
</TABLE>
<TABLE>
TRACK REHABILITATION
<CAPTION>
Years ended December 31,
-------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Track miles surfaced...... 3,154 3,671 3,247 3,228 3,989
Track miles of rail laid.. 201 312 78 72 207
Ties installed (millions). 1.0 1.4 1.2 1.2 1.4
</TABLE>
EMPLOYEES AND LABOR. Including subsidiaries, Conrail's average
-------------------
number of employees for 1993 was 25,406. Consolidated Rail
Corporation (excluding subsidiaries) averaged 24,596 employees in
1993, 86% of whom are represented by a total of 15 labor
organizations and are covered by 23 separate collective bargaining
agreements, all of which contain a moratorium clause providing that
neither party may serve a notice seeking to revise the agreement
prior to November 1, 1994.
Under a decision by the U.S. Supreme Court on April 28, 1987,
rail unions have the right, under the Railway Labor Act and other
federal laws, to engage in secondary picketing against any railroad.
As a result, a labor dispute between one railroad and a union can
cause a strike to spread to any other railroad, or to all other
railroads, whether or not the union has a collective bargaining
agreement or a dispute with such other railroads. There is also the
potential that railroads may be subject to secondary picketing in
the event of a strike in the airline industry, which, like the
railroad industry, is subject to the Railway Labor Act.
13
<PAGE>
Should Conrail or its subsidiaries be the subject of a strike
or secondary picketing, Conrail's rail operations could be severely
curtailed or stopped.
GOVERNMENT REGULATION. Conrail is subject to environmental,
---------------------
safety, and other regulations generally applicable to all
businesses, and its rail operations are also regulated by the ICC,
the Federal Railroad Administration ("FRA"), state Departments of
Transportation and some state and local regulatory agencies.
The ICC has jurisdiction over, among other things, rates
charged for certain traffic movements, service levels, freight car
rents, and issuance or guarantee of railroad securities. It also
has jurisdiction over the situations and terms under which one
railroad may gain access to another railroad's traffic or
facilities, extension or abandonment of rail lines, consolidation,
merger, or acquisition of control of rail common carriers and of
other carriers by rail common carriers, and labor protection
provisions in connection with the foregoing.
Under the Staggers Act, federal regulation of rates and
services has been reduced. The ICC has deregulated rates for
intermodal traffic, most boxcar traffic, and, most recently, a
series of miscellaneous commodities, including steel and
automobiles. In addition, railroads are free to negotiate contracts
with shippers setting rates, service standards and the terms for
movements of other kinds of traffic. See "Competition." As a
result, railroads have greater flexibility in adjusting rates and
services to meet revenue needs and competitive conditions.
The FRA has jurisdiction over safety and railroad equipment
standards.
Conrail's rail operations are also subject to a variety of
governmental laws and regulations relating to the protection of the
environment. In addition to Consolidated Rail Corporation being
involved as a potentially responsible party at numerous Superfund
sites (see Item 3 - "Legal Proceedings"), increasing regulation of
the transportation and handling of certain hazardous and non-
hazardous commodities and waste has resulted in additional
administrative and operating costs. Also, by 1995, the United
States Environmental Protection Agency must issue regulations
applicable to new locomotive emissions. Locomotive engines (other
than those defined as new) may be regulated by the states based on
standards and procedures currently being developed by the state of
California. Depending upon the standards adopted, additional
investments will likely be required to bring other than new
locomotives into compliance. Except as it relates to the 1991
special charge, compliance with existing laws and regulations
relating to the protection of the environment has not had a material
effect on Conrail's capital expenditures, earnings or competitive
condition. See "Item 7 - Management's Discussion and Analysis of
14
<PAGE>
Financial Condition and Results of Operations - Environmental
Matters" and Notes 10 and 12 to the Consolidated Financial
Statements elsewhere in this Annual Report.
Item 3. Legal Proceedings. References to Conrail in "Item 3. Legal
- ------ -----------------
Proceedings" shall denote Consolidated Rail Corporation unless
otherwise expressly noted.
Occupational Disease Litigation. Conrail has been named as a
-------------------------------
defendant in lawsuits filed pursuant to the provisions of the
Federal Employers' Liability Act ("FELA") by persons alleging
(1) personal injury or death caused by exposure to asbestos in
connection with railroad employment; (2) complete or partial loss of
hearing caused by exposure to excessive noise in the course of
railroad employment; and (3) repetitive motion injury in connection
with railroad employment. As of December 31, 1993, Conrail is a
defendant in 694 pending asbestosis suits, 1,262 pending hearing
loss suits and 16 pending repetitive motion injury suits, and had
notice of 609 potential asbestosis claims, 4,746 potential hearing
loss claims and 1,049 potential repetitive motion injury claims.
Conrail expects to be named as a defendant in a significant
number of occupational disease cases in the future.
Structure and Crossing Removal Disputes in Connection With
----------------------------------------------------------
Lines Abandoned Under NERSA. Conrail may be responsible, in whole
- ---------------------------
or in part, for the costs of removal of several hundred overhead and
underpass crossings located on railroad lines it has abandoned under
the Northeast Rail Service Act of 1981 ("NERSA") (and, in some
instances, responsible for the removal of the lines of railroad
themselves as well as appurtenant structures). Conrail's liability
for the removal of such lines, crossings and structures will be
determined on a case-by-case basis. Some states have imposed upon
Conrail the obligation to remove certain crossings.
In 1989, an organization of interests that own property under
and adjacent to Conrail's elevated West 30th Street rail line
running along the west side of lower Manhattan filed a petition with
the ICC seeking to force Conrail to abandon the line and finance its
removal, which could cost in excess of $30 million. The ICC voted
in January 1992 to grant the property owners' petition, subject to
the owners posting a bond indemnifying Conrail for any demolition
costs exceeding $7 million. The property owners have refused to
post the bond. The parties have appealed to the United States Court
of Appeals for the District of Columbia.
Conrail Withdrawal from RCAF Master Tariff. The Rail Cost
------------------------------------------
Adjustment Factor ("RCAF") is an index of rail costs issued by the
ICC according to which railroads may adjust their regulated rates
for inflation and cost increases free of regulatory interference.
In March 1989, the ICC decided to offset the quarterly RCAF by the
15
<PAGE>
entirety of the average rail industry productivity gain, in a
proceeding previously disclosed by Conrail in its quarterly report
on Form 10-Q for the period ended June 30, 1992 ("Productivity
Adjustment to Cost Recovery Process").
On January 1, 1990, Conrail ceased applying RCAF increases to
its regulated rates, by ending its participation in the RCAF master
tariff. Effective July 1, 1990, Conrail published a series of inde-
pendent rate increases approximately equal to its increases in costs
as reflected by the RCAF. Conrail's action was contested, but was
upheld by the ICC. Since July 1, 1990, Conrail has continued to
make independent selective increases to its regulated rates. These
regulated rates will continue to be subject to individual challenge
to the extent the levels of the increases exceed those previously
permitted pursuant to the RCAF and no other statutory provisions bar
ICC jurisdiction.
In January 1991, the ICC commenced a proceeding at the request
of a shippers' organization to clarify the legal effect of Conrail's
(and other railroads') withdrawal from the RCAF master tariff,
including the shippers' assertion that railroads thereby lose
protection from challenge for rates previously adjusted under these
procedures. In April 1991, Conrail individually opposed and
participated in the rail industry's opposition to the petition. A
decision is awaited.
Engelhart v. Conrail. In connection with the Special Voluntary
--------------------
Retirement Program offered to certain employees in late 1989 and
early 1990, Conrail used surplus funds in its overfunded
Supplemental Pension Plan ("Plan") to fund certain aspects of that
program. In December 1992, certain former Conrail employees brought
suit challenging the use of surplus Plan funds (i) to pay
administrative Plan expenses previously paid by Conrail, (ii) to
fund the Special Voluntary Retirement Program, and (iii) to pay life
insurance and medical insurance premiums of former employees as
improper and unlawful, and alleging that employees who have made
contributions to the Plan or its predecessor plans are entitled to
share in the surplus assets of the Plan. In August 1993, the
federal district court granted Conrail's Motion to Dismiss the
majority of counts in the complaint, but declined to dismiss the
issue of Conrail's use of Plan assets to pay administrative expenses
of the Plan, which are estimated to be approximately $25 million as
of December 31, 1993. However, Conrail believes that the use of
surplus Plan assets for this purpose is lawful and proper. Conrail
intends to use surplus Plan assets in a similar manner in connection
with the 1994 early retirement program. (See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations - 1994 Outlook.")
Environmental Litigation. Conrail is subject to various
------------------------
federal, state and local laws and regulations regarding
environmental matters. In certain instances, Conrail has received
16
<PAGE>
notices of violations of such laws and regulations and either has
taken or plans to take appropriate steps to address the problems
cited or to contest the allegations of violation. As of December
31, 1993, Conrail had received inquiries from governmental agencies
or had been identified, together with other companies, as a
potentially responsible party for cleanup and/or removal costs due
to its status as an alleged transporter, generator or property owner
at 114 locations throughout the country. However, Conrail, through
its own investigations and assessments, believes it may have some
potential responsibility at only 54 of these sites. (See Item 7 -
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Environmental Matters.") The significant
environmental proceedings, including Superfund sites, are discussed
below.
United States v. Southeastern Pennsylvania Transportation
---------------------------------------------------------
Authority ("SEPTA"), National Railroad Passenger Corporation
- ------------------------------------------------------------
("Amtrak"), and Consolidated Rail Corporation. In March 1986, the
- ---------------------------------------------
United States Environmental Protection Agency ("EPA") filed an
action in the United States District Court for the Eastern District
of Pennsylvania for cost recovery, injunctive relief, and a
declaratory judgment against Conrail, Southeastern Pennsylvania
Transportation Authority ("SEPTA") and National Railroad Passenger
Corp. ("Amtrak") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA" or "Superfund
Law"), as amended. In 1990, the Pennsylvania Department of
Environmental Resources intervened as a plaintiff. Suit is based on
the release or threatened release at the Paoli Railroad Yard, Paoli,
Chester County, Pennsylvania, of polychlorinated biphenyls
("PCBs"), a listed hazardous substance under CERCLA. Conrail is
sued in its capacity as the operator of the rail yard from April 1,
1976 through December 31, 1982, under an agreement with SEPTA to
provide commuter rail service. In March 1992, Penn Central brought
suit before the Special Court arguing that the terms of the transfer
of its properties to Conrail did not contemplate environmental
liability for conditions existing at the time of the transfer. The
Special Court has determined it has jurisdiction to hear the matter.
In February 1993, Penn Central petitioned the district court to stay
all proceedings with respect to it pending the outcome of the
proceeding before the Special Court. The EPA has responded by
filing a petition to stay the district court proceeding in its
entirety pending resolution of the Special Court proceeding.
Motions and cross-motions for summary judgment by the parties are
pending.
Pursuant to a series of partial preliminary consent decrees,
defendants have performed a series of cleanup actions both on and
off-site and have conducted a Remedial Investigation/Feasibility
Study ("RI/FS"). As of December 31, 1993, the cost of the RI/FS and
of the interim cleanup measures performed by the three defendants is
approximately $9 million. Those costs have been shared equally
among the three defendants but are subject to reallocation. All
17
<PAGE>
work done to date has been performed subject to a denial of
liability and without waiving any defense to the governmental claim
for cleanup costs or other relief.
On September 16, 1992, the EPA issued a Special Notice Letter
to Conrail, SEPTA, Amtrak and Penn Central Corporation requesting
the parties to provide, within 60 days, a good-faith offer to
perform all necessary remediation of the Paoli rail yard site, as
well as reimbursement of approximately $2.6 million in past response
costs of the EPA. The EPA estimates that its remediation plan as
set forth in its Record of Decision will cost approximately $28
million. On November 16, 1992, the parties submitted an offer to
pay a portion of the estimated cost of the remediation action
selected by the EPA. On January 8, 1993, the EPA rejected the
parties' offer on several bases, including that the proposal
addressed only a portion of the EPA's recommended remedy for the
site. The EPA may now issue an administrative order directing any
party to carry out its remediation plan, subject to treble damages
and daily penalties for failure to comply without sufficient cause.
The estimated cost of Conrail's portion of the parties' proposed
remedy was included in the 1991 special charge and subsequent
adjustments to accruals.
United States v. Conrail. The EPA has listed Conrail's
------------------------
Elkhart Yard in Indiana on the National Priorities List. The EPA
contends that chemicals have migrated from the yard and contaminated
drinking wells in the area. On February 14, 1990, the EPA filed a
civil action against Conrail in the U.S. District Court for the
Northern District of Indiana seeking recovery of approximately
$345,000 for costs incurred in protecting the water supply. In
addition, the EPA seeks a declaratory judgment against Conrail for
all future costs incurred in responding to the release or threatened
release of hazardous substances from the site. Conrail believes it
is not the sole source and may not be a contributing source to the
contamination alleged by the EPA. Conrail filed a third-party
action joining Penn Central as a defendant, to which Penn Central
has responded by filing a declaratory judgment action in Special
Court. (See previous discussion regarding the Special Court under
"United States v. SEPTA, et al"). On July 7, 1992, the EPA issued
an order requiring Conrail and Penn Central to implement the interim
remedy set forth in the Record of Decision. Conrail is performing
the interim remedy in compliance with the EPA order and is
simultaneously in litigation with the EPA over the implementation of
the remedy. Penn Central has declined to participate. The
estimated cost of remediation was included in Conrail's 1991 special
charge and subsequent adjustments to accruals.
United States v. Conrail, et al. Conrail has been identified
-------------------------------
as the fifth largest generator of waste oil at the Berks Associates
Superfund site in Douglasville, Pennsylvania. In addition, Conrail
has become aware that it and its predecessor, Penn Central, owned a
small portion of land that was leased to the operator of the Berks
18
<PAGE>
site. As such, Conrail's liability could increase due to its ques-
tionable status as both an owner and a generator. In August 1991,
the EPA issued an administrative order against Conrail and thirty-
five other entities mandating the implementation of an approximately
$2 million partial remedy and filed a complaint in the U.S. District
Court for the recovery of approximately $8 million in costs incurred
by the government. The parties have negotiated an administrative
order with the EPA and have filed an answer to the civil action. A
group of potentially responsible parties (including Conrail)
undertook compliance with the administrative order. Conrail and the
35 other defendants have filed a third-party complaint against
approximately 630 entities seeking contribution for the costs of the
remedy and government costs. Conrail, along with other defendants,
is negotiating a settlement with the EPA. On June 30, 1993, the EPA
issued another administrative order against Conrail and 33 other
entities, mandating the remediation of the southern portion of the
site. The effective date of the order has been delayed in light of
the negotiations.
The most expensive aspect of the remediation of the site is the
clean-up of Source Area 2, which the government estimates at between
$45 and $55 million. This Source Area was closed prior to Conrail's
incorporation, and therefore Conrail has maintained that it is not
liable for the cost of remediating Source Area 2.
United States v. Conrail, et al. Conrail is a potentially
-------------------------------
responsible party ("PRP"), along with more than 50 other parties, in
the United Scrap Lead federal Superfund action in Troy, Ohio, where
substantial quantities of batteries were disposed of over a period
of several years. The EPA sued Conrail and nine other parties in
August 1991 in the Southern District of Ohio for the recovery of
approximately $2 million in past costs. Conrail and other PRP's
have commissioned treatability studies. The court has imposed a
stay to discuss whether this matter can be settled. The parties are
negotiating over the nature of the remediation to be undertaken at
the site.
Commonwealth of Massachusetts v. Conrail. On April 21, 1992,
----------------------------------------
the Massachusetts Attorney General filed suit in Superior Court of
Massachusetts alleging Conrail's violation of the Massachusetts
Clean Air Act and its implementing regulations by allowing diesel
engines to idle unnecessarily and/or in excess of thirty minutes.
On May 4, 1992, the court entered a preliminary injunction, the
terms of which are substantially consistent with Conrail's existing
idling policy. The Attorney General subsequently filed a complaint
alleging Conrail's violation of the preliminary injunction. On
February 2, 1993, the parties entered into a partial settlement
agreement; however, the Attorney General has alleged that Conrail
has failed to comply with certain provisions of the settlement.
19
<PAGE>
United States v. Consolidated Rail Corporation, The Monongahela
---------------------------------------------------------------
Railway Company, et al. On September 30, 1992, Region VIII of the
- ----------------------
EPA filed an administrative action for civil penalties against
Conrail and its former wholly-owned subsidiary, The Monongahela
Railway Company (now merged into Conrail), under the Toxic
Substances Control Act for allegedly improper handling of a shipment
of PCB contaminated soil. The other railroads in the movement and
the shipper were served with similar complaints. Conrail is
currently negotiating with EPA.
New York State Department of Environmental Conservation Order
-------------------------------------------------------------
On Consent. On February 18, 1993, the New York State Department of
- ----------
Environmental Conservation ("NYSDEC") served Conrail with a draft
Order on Consent requiring the payment of fines in connection with
its inspection of Selkirk Yard. The order also seeks compensation
for the hiring of three full-time NYSDEC employees to monitor
Conrail's compliance at Selkirk and two other rail yards in New
York. Conrail is negotiating the terms of the Order with NYSDEC.
Conway Yard, Pittsburgh. In 1991, Conrail received Notices of
-----------------------
Violation ("NOV") from the Pennsylvania Department of Environmental
Resources ("PADER") alleging violations of the Clean Streams Act for
discharges of oil into the Ohio River. In September 1993, PADER
sent to Conrail a draft Consent Order and Agreement requiring a
comprehensive site remediation for soil, ground water, surface
waters and sediments at the Conway rail yard and requiring the
payment of an undisclosed amount of civil fines in connection with
violations at the yard, including continuing ground water
contamination. Conrail and PADER are negotiating the extent of the
investigation and remediation to be undertaken at the yard.
Other. In addition to the above proceedings, Conrail has been
-----
named in various legal proceedings arising out of its activities as
an employer and as an operator of a freight railroad, including
personal injury actions brought by its employees under FELA, as well
as administrative proceedings with and investigation by government
agencies.
In view of the inherent difficulty of predicting the outcome of
legal proceedings, particularly in certain matters described above
in which substantial damages are or may be sought, Conrail cannot
state what the eventual outcomes of such legal proceedings will be.
Certain of these matters, if determined adversely to Conrail, could
result in the imposition of substantial damage awards against, or
increased costs to, Conrail that could have a material adverse
effect on Conrail's results of operations and financial position.
Conrail's management believes, however, based on current knowledge,
that such legal proceedings will not have a material adverse effect
on Conrail's financial position.
20
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
There were no matters submitted to a vote of security holders
during the fourth quarter of 1993.
Executive Officers of the Registrant.
- ------------------------------------
Conrail's officers are elected annually by the Board of
Directors at its first meeting held after the meeting of
shareholders at which directors are elected, and they hold office
until their successors are elected. There are no family
relationships among the officers or directors, nor any arrangement
or understanding between any officer and any other person pursuant
to which the officer was selected. The following table sets forth
certain information, as of March 1, 1994, relating to the executive
officers of Conrail and Consolidated Rail Corporation. An asterisk
(*) indicates that such individual is an officer of Consolidated
Rail Corporation only:
Name, Age, Present Position Business Experience During
- --------------------------- Past 5 Years
----------------------------------------
James A. Hagen, 61, Present position since May 18, 1989.
Chairman, Served as President - CSX Distribution
President and Chief Services, Inc. from March 1988 to April
Executive Officer 1989.
David M. LeVan, 48, Present position since December 1993.
Executive Vice President Served as Senior Vice President -
Operations between July 1992 and December
1993. Served as Senior Vice President-Operating
Systems and Strategies between November 1991 and
June 1992. Served as Senior Vice
President - Corporate Systems between
November 1990 and November 1991. Served
as Vice President - Corporate Strategy
between September 1988 and November 1990.
H. William Brown, 55, Senior Present position since April 1992. Served
Vice President - Finance as Senior Vice President - Finance
and Administration between April 1986 and April 1992.
Gordon H. Kuhn, 43, Senior Present position since December 1993.
Vice President - Core Served as Senior Vice President - Marketing and
Service Group Sales between January 1990 and December 1993.
Served as Vice President - Marketing between
August 1987 and January 1990.
Charles N. Marshall, 52, Present position since January 1990.
Senior Vice President - Served as Senior Vice President -
Development Marketing and Sales between March 1985
and January 1990.
Bruce B. Wilson, 58, Senior Present position since April 1987.
Vice President - Law
John T. Bielan, Jr., 46, Present position since March 1992.
Vice President - Continuous Served as Assistant Vice President - Automotive
Quality Improvement* between April 1989 and March 1992.
21
<PAGE>
Ronald J. Conway, 50, Vice Present position since December 1993.
President - Intermodal Served as Assistant Vice President -
Service Group* Petrochemicals and Minerals between April
1992 and December 1993. Served as
General Manager - Philadelphia Division
between 1989 and April 1992.
Timothy P. Dwyer, 44, Vice Present position since December 1993.
President - Unit Trains Served as General Manager - Philadelphia
Service Group* Division between April 1992 and December 1993.
Served as Assistant Vice President - Metals
between 1989 and April 1992.
Gerald T. Gates, 40, Vice Present position since December 1993.
President - Mechanical* Served as Assistant Vice President -
Operations Planning and Administration
between July 1992 and December 1993.
Served as General Manager - Indianapolis
Division between September 1990 and July 1992.
Served as Assistant General Manager - Albany
Division between 1989 and September 1990.
Donald W. Mattson, 51, Vice Present position since May 1993. Served as
President - Treasurer Vice President - Controller between August
1988 and May 1993.
John A. McKelvey, 42, Vice Present position since May 1993. Served as
President - Controller Vice President - Treasurer between 1988
and May 1993.
William B. Newman, Jr., 43, Present position since 1981.
Vice President and
Washington Counsel*
Frank H. Nichols, 47, Vice Present position since February 1993.
President - Resource Served as Assistant Vice President -
Development* Finance between November 1988 and
February 1993.
Timothy T. O'Toole, 38, Vice Present position since May 1989.
President and General Served as an attorney in the Law
Counsel Department prior to that time.
Richard S. Pyson, 52, Vice Present position since March 1992.
President - Served as Vice President - Engineering
Transportation* between March 1991 and March 1992. Served as
Assistant Vice President - Engineering and
Maintenance between March 1990 and March 1991.
Served as Chief Engineer - Communications and
Signals between 1988 and March 1990.
John M. Samuels, 50, Vice Present position since March 1992.
President - Engineering* Served as Vice President - Continuous
Quality Improvement between April 1990
and March 1992. Served as Assistant Vice
President - Industrial Engineering
between 1980 and April 1990.
Allan Schimmel, 53, Vice Present position since November 1990.
President - Administrative Served as Corporate Secretary and
Services and Corporate Assistant to the Chairman since 1980.
Secretary
Robert E. Swert, 67, Vice Present position since 1981.
President - Labor
Relations*
22
<PAGE>
George P. Turner, 52, Vice Present position since December 1993.
President - Automotive Served as Assistant Vice President -
Service Group* Automotive between April 1992 and December
1993. Served as Assistant Vice President-
Petrochemicals and Minerals between March
1990 and April 1992. Served as Assistant
Vice President - Sales between 1987 and
March 1990.
Ralph von dem Hagen, 49, Present position since September 1989.
Vice President - Customer Served as Assistant Vice President - Car
Service* Management between September 1984 and
September 1989.
Robert O. Wagner, 57, Present position since June 1991.
Vice President - Served as Vice President - Information
Information Systems* Services for Pan American World Airways, Inc.
between 1983 and May 1991. (1)
Jeremy T. Whatmough, 59, Present position since 1979.
Vice President - Materials
and Purchasing*
Gery M. Williams, Jr., 52, Present position since January 1990.
Vice President - State Served as Vice President - Sales between
and Local Affairs* March 1985 and January 1990.
______________________________
(1) On January 8, 1991, Pan American World Airways, Inc. and its
subsidiaries filed petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code in the U.S. Bankruptcy Court for the
Southern District of New York.
23
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
- ------ -------------------------------------
and Related Stockholder Matters.
-------------------------------
Conrail's common stock is listed for trading on the New York
Stock Exchange and the Philadelphia Stock Exchange. The number of
holders of record of Conrail common stock on March 4, 1994 was
19,735. For the high and low sales prices of Conrail's common stock
on the New York Stock Exchange and the frequency and amount of cash
dividends for 1993 and 1992. (See Note 13 to the Consolidated
Financial Statements included elsewhere in this Annual Report.)
Item 6. Selected Financial Data.
- ------ -----------------------
The selected consolidated financial data included in the
following tables have been derived from Conrail's Consolidated
Financial Statements. The consolidated statements of income,
stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1993 and the consolidated balance
sheets as of December 31, 1993 and 1992 appear elsewhere in this
Annual Report and have been audited by Coopers & Lybrand,
independent accountants, as indicated in their report thereon. For
purposes of the following selected consolidated financial data,
references to Conrail reflect the consolidated entities of
Consolidated Rail Corporation for periods prior to July 1, 1993 and
Conrail Inc. for subsequent periods.
The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and related
notes and other financial information included elsewhere in this
Annual Report.
24
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1993(1) 1992 1991 1990(2) 1989
------ ------ ------ ------ ------
(In Millions Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................ $3,453 $3,345 $3,252 $3,372 $3,411
Operating expenses (before special
charge)............................. 2,862 2,811 2,794 2,945 2,979
Special charge(3)................. 719 234
Income (loss) from operations....... 591 534 (261) 427 198
Interest expense.................... (185) (172) (181) (162) (82)
Loss on disposition of subsidiary(4) (80)
0ther income, net................... 114 98 107 121 117
------ ------ ------ ------ ------
Income (loss) before income taxes and
the cumulative effect of changes in
accounting principles............. 440 460 (335) 386 233
Income taxes (benefits)............. 206 178 (128) 139 85
------ ------ ------ ------ ------
Income (loss) before the cumulative
effect of changes in accounting
principles........................ 234 282 (207) 247 148
Cumulative effect of changes in
accounting principles............. (74)
------ ------ ------ ------ ------
Net income (loss)................... $ 160 $ 282 $ (207) $ 247 $ 148
Income (loss) per common share
before the cumulative effect of
changes in accounting principles..
Primary........................... $2.74 $ 3.28 $(2.70) $ 2.55 $ 1.09
Fully diluted..................... 2.51 2.99 (2.70) 2.39 1.09
Cumulative effect of changes in
accounting principles.............
Primary........................... (.92)
Fully diluted..................... (.81)
Net income (loss) per common share (5)
Primary........................... 1.82 3.28 (2.70) 2.55 1.09
Fully diluted..................... 1.70 2.99 (2.70) 2.39 1.09
Dividends per common share (5) 1.20 1.00 .85 .75 . 65
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1993 1992 1991 1990(2) 1989
----- ------ ------ ------ -----
(In Millions)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
temporary cash investments........ $ 38 $ 40 $ 135 $ 153 $ 502
Working capital (deficit)........... (13) (489) (286) (216) 153
Total assets........................ 7,948 7,315 7,096 7,245 7,471
Other noncurrent liabilities (net of
current maturities of debt)....... 2,433 2,075 2,215 2,012 1,190
Deferred income tax................. 1.081 644 429 454 316
Special income tax obligation....... 575 569 627 796 844
Stockholders' equity................ 2,784 2,748 2,661 2,929 4,044
</TABLE>
25
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
1. Conrail adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"), and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"), effective January 1, 1993. As a result, in the
first quarter of 1993 Conrail recorded cumulative after-tax
charges of $22 million and $52 million, respectively. In
addition, as a result of the increase in the federal corporate
income tax rate from 34% to 35%, effective January 1, 1993,
income tax expense includes $34 million of a retroactive nature,
primarily for the effects of adjusting deferred income taxes and
the special income tax obligation for the rate increase as
required under SFAS 109. See Notes 1, 7 and 8 to the
Consolidated Financial Statements included elsewhere in this
Annual Report.
2. In 1990, Conrail completed a financial restructuring plan which
included a Dutch auction tender offer, the establishment of an
employee stock ownership plan for non-union employees ("Non-union
ESOP") and a related open market common stock purchase program.
Through the Dutch auction tender offer, Conrail purchased 44.64
million shares of its outstanding common stock at a price of
$24.50 per share, or an aggregate of $1.094 billion. In March
1990, Conrail issued 9,979,562 shares of Series A ESOP
Convertible Junior Preferred stock to the Non-union ESOP in
exchange for a promissory note of $288 million. In connection
with its restructuring, Conrail acquired 8,715,902 shares of its
common stock in the open market for $200 million. The cost of
the restructuring was financed with approximately $450 million of
available funds, $50 million in short-term borrowings (commercial
paper) and with proceeds from the sale of $250 million principal
amount of 9 3/4% Notes due 2000 and $550 million principal amount
of 9 3/4% Debentures due 2020.
3. Included in 1991 operating expenses is a special charge
totalling $719 million, which reduced net income by $447 million.
Without the special charge, net income would have been
$240 million ($2.73 and $2.48 per share, primary and fully
diluted, respectively). The 1989 special charge of $234 million
reduced net income by $147 million ($1.08 per share). The 1991
special charge is described in Note 10 to the Consolidated
Financial Statements included elsewhere in this Annual Report.
The 1989 special charge included $109 million related to a non-
union employee reduction program; a $92 million increase in
casualty reserves based on an actuarial valuation; and $33 million
for realignment and consolidation of certain administrative and
operating functions.
4. In 1993, Conrail committed to a plan for the disposition of its
investment in Concord Resources Group, Inc. Pursuant to this
plan, Conrail recorded an estimated loss of $80 million for the
26
<PAGE>
disposition of its investment, including $19 million for
operating losses expected to be incurred during the phase-out
period and disposition costs. Conrail also recorded estimated
federal tax benefits of $30 million relating to the disposition.
See Note 3 to the Consolidated Financial Statements included
elsewhere in this Annual Report.
5. Net income (loss) and dividends per common share include the
effects of the common stock split which is described in Note 2 to
the Consolidated Financial Statements included elsewhere in this
Annual Report. The calculations of income (loss) per common share
for 1993, 1992 and 1991 are shown in Exhibit 11, Part IV included
elsewhere in this Annual Report.
Item 7. Management's Discussion and Analysis of Financial
- ------ -------------------------------------------------
Condition and Results of Operations.
-----------------------------------
Overview
- --------
For 1993, Conrail's net income was $160 million compared with
net income of $282 million for 1992, and a net loss of $207 million
for 1991. Results for 1993 include the effects of recording one-
time after tax charges of $74 million for adoption of required
changes in accounting for income taxes and postretirement benefits
other than pensions; the estimated net loss on the planned
disposition of Concord Resources Group, Inc. ("Concord"), $50
million; and the one-time effects on deferred taxes of the increase
in the 1993 federal corporate income tax rate, $34 million (see
Notes 1, 3, 7 and 8 to the Consolidated Financial Statements
elsewhere in this Annual Report). Absent these charges, Conrail's
net income for 1993 would have been $318 million. The results for
1991 included the effects of a $719 million special charge ($447
million after income taxes); without the special charge, net income
for 1991 would have been $240 million.
The 1993 results were favorably affected by an improvement in
traffic volume (5.0%) and operating revenues (3.2%) compared with
1992, primarily due to the improvement in the economy and an
increase in Conrail's market share. In addition, effective cost
reduction and containment programs enabled Conrail to limit the
increase in its operating expenses to 1.8% over 1992.
Traffic volume and operating revenues increased in 1992
compared with 1991 (3.8% and 2.9%, respectively), and the increase
in Conrail's operating expenses (excluding the 1991 special charge)
was less than one percent over 1991, despite higher traffic volume.
27
<PAGE>
Holding Company Formation
- -------------------------
In May 1993, the shareholders of Consolidated Rail Corporation
approved a plan for the adoption of a holding company structure.
Under the plan, each share of Consolidated Rail Corporation common
stock that was issued and outstanding or held in the treasury and
each share of Consolidated Rail Corporation Series A ESOP
Convertible Junior Preferred Stock ("ESOP Stock") held by the Non-
union Employee Stock Ownership Plan were automatically converted on
July 1, 1993 into one share of common stock and one share of ESOP
Stock, respectively, of a newly created holding company, Conrail
Inc. As a result, Conrail Inc. became the publicly held entity
effective July 1, 1993. The change in corporate structure does not
represent a change in operations or Strategic Business Plan (see
Strategic Business Plan). On July 1, 1993, Conrail Inc. had the
- -----------------------
same consolidated operations, assets, liabilities and stockholders'
equity as Consolidated Rail Corporation had on June 30, 1993. In
this Annual Report, references to the "Company" or "Conrail" will
denote the consolidated entities Consolidated Rail Corporation for
periods prior to July 1, 1993 and Conrail Inc. for subsequent
periods (see Note 2 to the Consolidated Financial Statements
elsewhere in this Annual Report).
Strategic Business Plan
- -----------------------
Conrail's Strategic Business Plan (the "Plan") for the five
year period 1992-1996 set specific 1996 financial goals of an
operating ratio (operating expenses as a percent of revenues) of 80%
and a return on funded assets at least equal to Conrail's cost of
capital. The Plan also targeted revenue growth of $1 billion for
that time period. During the second quarter of 1993, Conrail
reevaluated the Plan's assumptions, including changes that had
occurred or were expected to occur in economic conditions, demand
for products of customers served by Conrail and Conrail's market
share in each of the industry segments served. Consequently,
Conrail revised its revenue growth target to $600 million by 1996.
About half of the difference was due to a change in the anticipated
demand for coal attributable to slower growth in electrical demand
than previously expected, fewer cogeneration plants planned and
delays in the start-up of others, and the impact of world
competitive market conditions on U.S. coal exports. Changes in the
general forecast for the U.S. economy accounted for the remaining
difference. Conrail expects an average real annual growth rate for
industrial production of 2.8% for the 1991-1996 period, versus the
3.3% originally projected, and inflation is projected at 2.4%
annually for the period, compared to an original projection of 3.4%.
Industrial production growth affects freight traffic volume, and
annual inflation affects freight revenue. Despite the lower revenue
target, Conrail's financial goal for 1996 of a return on funded
assets equal to its cost of capital remains unchanged, which, if
achieved, will require an operating ratio of 78.5% in 1996, based on
current assumptions.
28
<PAGE>
For 1993, Conrail achieved an operating ratio of 82.9% and a
return on funded assets of approximately 9.0% compared to its cost
of capital of 11%.
1994 Outlook
- ------------
Conrail expects the 1994 economy to continue its slow growth.
Despite signs of a strengthening economy in the fourth quarter of
1993, there is still uncertainty as to whether that pace can be
sustained throughout 1994. Conrail's 1994 plans are based on an
assumption of 3.0% growth in real gross domestic product and 3.4%
growth in industrial production. A key Conrail goal for 1994 is to
achieve an operating ratio of 81.5%, excluding any one-time charges.
On December 15, 1993, the Board of Directors approved a
voluntary early retirement program for eligible members of its non-
union workforce. Eligible employees had until February 28, 1994 to
elect to retire under the program, and the cost of the program is
expected to have a material adverse effect on the results of
operations for the first quarter of 1994. The transaction will not
significantly affect Conrail's cash position as approximately 85% of
the cost will be paid from the Company's overfunded pension plan
(see Notes 8 and 12 to the Consolidated Financial Statements
elsewhere in this Annual Report). Conrail has announced that 330
employees, or 80% of those eligible, accepted the voluntary
retirement program for non-union employees. Preliminary estimates
of the cost of the program were between $75 million and $85 million
before taxes. In addition, the Company expects the extreme winter
weather in January, February and early March of 1994 to have a
substantial adverse effect on first quarter earnings.
Conrail expects to implement the service group structure
without replacing most of the employees who elected to retire under
the non-union employee retirement program. The Company is also
reviewing its current utilization of assets required to support the
new structure with the goal of identifying excess assets. If
identified, certain of such assets may be written down to their
realizable values, resulting in a charge to operations. (See
Item 1 - "Business - The Service Group System.")
Results of Operations
- ---------------------
1993 Compared with 1992
Net income for 1993 was $160 million ($1.82 per share, primary
and $1.70 per share, fully diluted) compared with 1992 net income of
$282 million ($3.28 per share, primary and $2.99 per share, fully
diluted). The decrease in net income is attributable primarily to
the following unusual or one-time charges in 1993: one-time after
tax charges of $74 million for adoption of required changes in
accounting for income taxes and postretirement benefits other than
pensions; the recording of the estimated net loss on the disposition
29
<PAGE>
of Concord, $50 million; and the one-time effects on deferred taxes
of the increase in the 1993 federal corporate income tax rate, $34
million (see Notes 1, 3, 7 and 8 to the Consolidated Financial
Statements elsewhere in this Annual Report). Absent these charges,
Conrail's net income for 1993 would have been $318 million ($3.78
per share, primary and $3.43 per share, fully diluted).
Operating revenues (primarily freight line haul revenues, but
also including switching, demurrage and incidental revenues)
increased $108 million, or 3.2%, from $3,345 million in 1992 to
$3,453 million in 1993. A 5.0% increase in traffic volume, as
measured in units (freight cars and intermodal trailers and
containers), resulted in a $160 million increase in revenues that was
partially offset by a 1.6% decrease in average revenue per unit which
reduced revenues $54 million. The decline in average revenue per
unit is attributable to decreases in average rates which reduced
revenue by $62 million, partially offset by a favorable mix of
traffic which increased revenues $8 million. Traffic volume
increases occurred in the following freight commodity groups:
automotive parts and finished vehicles, 13.4%; intermodal, 11.2%;
forest products, 6.5%; chemicals and related products, 6.4%; metals
and related products, 5.1%; and food and grain products, 3.6%. Coal
traffic decreased 9.2%. Switching, demurrage and incidental revenues
increased $2 million.
Operating expenses increased $51 million, or 1.8%, from $2,811
million in 1992 to $2,862 million in 1993. The following table sets
forth the operating expenses for the two years:
<TABLE>
<CAPTION>
Increase
(In Millions) 1993 1992 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Compensation and benefits $1,229 $1,237 $ (8)
Fuel 178 173 5
Material and supplies 194 197 (3)
Equipment rents 305 290 15
Depreciation and amortization 284 295 (11)
Casualties and insurance 131 133 (2)
Other 541 486 55
------ ------ ----
$2,862 $2,811 $ 51
====== ====== ====
</TABLE>
Compensation and benefits costs decreased $8 million, or 0.6%,
with relatively stable employment levels. The decrease is
attributable primarily to a decrease in payroll taxes, partially
offset by increases in fringe benefit costs and increased wage
rates. Compensation and benefits as a percent of revenues was 35.6%
in 1993 compared with 37.0% in 1992.
The increase of $15 million, or 5.2%, in equipment rents
reflects the effects of new operating leases for equipment and the
increase in traffic volume, partially offset by improvement in
equipment utilization.
30
<PAGE>
Depreciation and amortization expense decreased $11 million, or
3.7%, primarily due to lower depreciation rates for locomotives and
freight cars as a result of a depreciation study required by the
Interstate Commerce Commission.
Other operating expenses increased $55 million, or 11.3%,
primarily due to increases in property and corporate taxes,
increases in write-downs of uncollectible accounts, and a reduction
in 1992 due to reducing accruals related to the 1991 special charge
with no corresponding reduction in 1993.
Conrail's operating ratio was 82.9% for 1993 compared with
84.0% for 1992.
Interest expense increased $13 million, or 7.6%, from $172
million in 1992 to $185 million in 1993 due to the net addition of
long-term debt in 1993.
The loss on disposition of subsidiary, $80 million, represents
Conrail's estimated gross loss on the planned disposition of Concord
(see Note 3 to the Consolidated Financial Statements elsewhere in
this Annual Report).
Other income, net, (representing interest and rental income,
property sales and other non-operating items, net) increased $16
million, or 16.3%, from $98 million in 1992 to $114 million in 1993,
principally due to higher gains from property sales and increased
equity income as a result of higher net income of Conrail's
affiliated companies.
1992 Compared with 1991
Net income for 1992 was $282 million ($3.28 per share, primary
and $2.99 per share, fully diluted) compared with a 1991 net loss of
$207 million ($2.70 loss per share, primary and fully diluted). The
net loss for 1991 included the effects of a $719 million special
charge which reduced after-tax earnings by $447 million (see Note 10
to the Consolidated Financial Statements elsewhere in this Annual
Report). Without the special charge, net income for 1991 would have
been $240 million, and net income per common share would have been
$2.73 primary and $2.48 fully diluted. Based on events which
occurred in the third quarter of 1992, certain accruals related to
the 1991 special charge were adjusted, reducing 1992 operating
expenses by $11 million.
Operating revenues increased $93 million, or 2.9%, from $3,252
million in 1991 to $3,345 million in 1992. A 3.8% increase in
traffic volume resulted in a $119 million increase in revenues. The
increase in traffic volume was partially offset by a 1.1% decrease
in average revenue per unit, attributable to both decreases in
average rates and an unfavorable traffic mix, which reduced revenues
$37 million. Traffic volume increases occurred in the following freight
31
<PAGE>
commodity groups: automotive parts and finished vehicles,
10.3%; intermodal, 10.1%; food and grain products, 4.6%; metals and
related products, 3.2%; and chemicals and related products, 2.1%.
Coal traffic decreased 4.9%. Switching, demurrage and incidental
revenues increased $11 million.
Operating expenses decreased $702 million from $3,513 million
in 1991, which included a $719 million special charge, to
$2,811 million in 1992. Excluding the 1991 special charge,
operating expenses increased $17 million, or 0.6%. The following
table sets forth the operating expenses for the two years:
<TABLE>
Increase
(In Millions) 1992 1991 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Compensation and benefits $1,237 $1,233 $ 4
Fuel 173 187 (14)
Material and supplies 197 180 17
Equipment rents 290 279 11
Depreciation and amortization 295 307 (12)
Casualties and insurance 133 122 11
Other 486 486 -
------ ------ ------
2,811 2,794 17
Special charge 719 (719)
------ ------ ------
$2,811 $3,513 $ (702)
====== ====== ======
</TABLE>
Although there was only a $4 million increase in compensation
and benefits, the results were affected by the settlement in 1992 of
labor contracts covering the majority of Conrail's union employees.
Increased wage rates were partially offset by reduced fringe benefit
costs and lower employment levels principally attributable to
reduced crew sizes under the new labor agreement with the United
Transportation Union. Compensation and benefits as a percent of
revenues was 37.0% in 1992 compared with 37.9% in 1991.
Fuel costs decreased $14 million, or 7.5%, principally as a
result of significantly lower average fuel prices, primarily in the
first six months of 1992, $23 million. Prices in 1991 had been
adversely affected by the war in the Persian Gulf. An increase in
consumption due to increased traffic levels, $9 million, partially
offset the lower fuel prices.
The increase of $17 million, or 9.4%, in material and supplies
costs was due to a planned increase in programs for repairs and
maintenance of locomotives and freight cars, and, to a lesser
extent, increased traffic volumes.
The increase of $11 million, or 3.9%, in equipment rents
reflects the effects of new operating leases for equipment and the
increase in traffic volume.
Depreciation and amortization expense decreased $12 million, or
3.9%, due principally to asset reductions relating to lease
expirations and property sales, partially offset by an increase in
32
<PAGE>
depreciable assets in 1992.
The increase in casualties and insurance of $11 million, or
9.0%, was primarily due to an increase in occupational health claims
expense based on an assessment of both the total number of expected
claims and the anticipated costs to settle such claims.
The special charge of $719 million included in 1991 operating
expenses is discussed more fully in Note 10 to the Consolidated
Financial Statements elsewhere in this Annual Report.
Conrail's operating ratio was 84.0% for 1992 compared with
108.0% for 1991. The 1991 operating ratio would have been 85.9% in
the absence of the special charge.
The reduction in interest expense, $9 million, or 5.0%, from
$181 million in 1991 to $172 million in 1992, was due to capital
lease expirations and lower interest rates. Other income, net also
decreased $9 million, or 8.4%, from $107 million in 1991 to $98
million in 1992, primarily due to losses of Concord (see Note 3 to
the Consolidated Financial Statements elsewhere in this Annual
Report), and a decrease in interest income, partially offset by an
increase in rental income.
Liquidity and Capital Resources
- -------------------------------
Conrail's cash and cash equivalents decreased $2 million, from
$40 million at December 31, 1992 to $38 million at December 31,
1993. Cash generated from operations, principally from its wholly-
owned subsidiary, Consolidated Rail Corporation, and borrowings are
Conrail's principal sources of liquidity and are used primarily for
capital expenditures, debt service, and dividends. Operating
activities provided cash of $504 million in 1993, compared with
$496 million in 1992 and $570 million in 1991. Issuance of long-
term debt provided cash of $485 million in 1993. The principal uses
of cash in 1993 were for property and equipment acquisitions, $566
million, payment of long-term debt including capital lease and
equipment obligations, $195 million, the repurchase of common stock,
$64 million, net repayment of commercial paper, $48 million, and
cash dividends on preferred and common stock, $117 million.
A working capital (current assets less current liabilities)
deficiency of $13 million existed at December 31, 1993, compared
with a deficiency of $489 million at December 31, 1992. The
decrease in the deficiency is attributable primarily to the increase
of $52 million in accounts receivable; the recording of $227 million
of current deferred tax assets as a result of adopting SFAS 109 (see
Note 7 to the Consolidated Financial Statements elsewhere in this
Annual Report); and reductions in short-term borrowings, $48
million, current maturities of long-term debt, $61 million, and
accrued and other current liabilities, $63 million. Management
believes that Conrail's financial position allows it sufficient
33
<PAGE>
access to credit sources on investment grade terms, and, if
necessary, additional intermediate or long-term debt could be issued
for working capital requirements.
In July 1992, Conrail began a common stock repurchase program
of up to $100 million. At December 31, 1992, Conrail had acquired
1,208,004 shares for $50 million under this program. This program
was completed in September 1993, at a total of 2,150,293 shares. In
July 1993, Conrail's Board of Directors authorized a new $100
million repurchase program, under which Conrail had acquired 237,855
shares for approximately $14 million through December 31, 1993.
During 1993, Conrail issued an additional $114 million of
commercial paper and repaid $162 million. Of the remaining $179
million outstanding at December 31, 1993, $100 million is classified
as long-term debt since it is expected to be refinanced through
subsequent issuances of commercial paper and is supported by a long-
term credit facility.
In February 1993, Conrail issued $94 million of Pass Through
Certificates to finance the acquisition of equipment. Of these
certificates, $54 million are direct obligations of Conrail and are
secured by the acquired equipment. The remaining $40 million of
certificates were issued to finance equipment which Conrail will
utilize under a capital lease, and while such certificates are not
direct obligations of or guaranteed by Conrail, the amounts payable
by Conrail under the lease will be sufficient to pay principal and
interest on the certificates.
Conrail issued $79 million of medium-term notes during the first
quarter of 1993 under a shelf registration statement filed in April
1990. In May 1993, Conrail sold $250 million of 7 7/8% Debentures
due 2043 under the same shelf registration statement. During 1993,
Conrail redeemed $85 million of medium-term notes that were issued in
1988 and 1989.
In June 1993, Conrail and Consolidated Rail Corporation filed a
new shelf registration statement on Form S-3 which will enable
Consolidated Rail Corporation to issue up to $500 million in debt
securities or Conrail to issue up to $500 million in convertible debt
or equity securities. Consolidated Rail Corporation issued
approximately $63 million of 1993 Equipment Trust Certificates,
Series A, in September 1993, under this registration statement. The
certificates were used to finance approximately 80% of the cost of
certain rebuilt and new freight cars, which Consolidated Rail
Corporation will utilize under an operating lease. Although the
certificates are not direct obligations of, or guaranteed by
34
<PAGE>
Consolidated Rail Corporation, the amounts payable by Consolidated
Rail Corporation under the lease will be sufficient to pay principal
and interest on the certificates.
In November 1993, Consolidated Rail Corportion issued $102
million of 1993 Equipment Trust Certificates, Series B, to finance
approximately 85% of the cost of 80 new locomotives. These
certificates are direct obligations of Consolidated Rail Corporation
and were not issued pursuant to the 1993 shelf registration
statement.
During the third quarter of 1993, Conrail reached a settlement
with the Internal Revenue Service related to the audit of Conrail's
consolidated federal income tax returns for the fiscal years 1987
through 1989. Under the settlement, Conrail paid $51 million,
including interest (see Note 7 to the Consolidated Financial
Statements elsewhere in this Annual Report).
Capital Expenditures
- --------------------
Capital expenditures totalled $650 million, $491 million and
$398 million in 1993, 1992 and 1991, respectively. Of these capital
expenditures, Conrail directly financed $232 million in 1993, $13
million in 1992, and $76 million in 1991 through private third-party
financing. In addition, the proceeds of notes and debentures sold
in those years, $329 million, $80 million, and $30 million,
respectively, were available to fund capital expenditures.
Capital expenditures for 1993, $650 million, exceeded planned
expenditures by $100 million principally due to the accelerated
acquisition of locomotives originally expected to be acquired in
1994. Capital expenditures for 1994 are expected to be
approximately $490 million.
Inflation
- ---------
Generally accepted accounting principles require the use of
historical costs in preparing financial statements. This approach
does not consider the effects of inflation on the costs of replacing
assets. The replacement cost of Conrail's property and equipment is
substantially higher than its historical cost basis. Similarly,
depreciation expense on a replacement cost basis would be
substantially in excess of the amount recorded under generally
accepted accounting principles.
Environmental Matters
- ---------------------
Conrail's operations and property are subject to various
federal, state and local laws regulating the environment.
Consolidated Rail Corporation is a party to numerous proceedings
brought by regulatory agencies and private parties under federal,
state and local laws, including Superfund laws, and has also received
35
<PAGE>
inquiries from governmental agencies with respect to other potential
environmental issues. As of December 31, 1993, Consolidated Rail
Corporation had received, together with other companies, notices of
its involvement as a potentially responsible party or requests for
information under the Superfund laws with respect to cleanup and/or
removal costs due to its status as an alleged transporter, generator
or property owner at 114 locations throughout the country. However,
based on currently available information, Conrail believes
Consolidated Rail Corporation may have some potential responsibility
at only 54 of these sites. Due to the number of parties involved at
many of these sites, the wide range of costs of the possible
remediation alternatives, changing technology and the length of time
over which these matters develop, it is not always possible to
estimate Consolidated Rail Corporation's liability for the costs
associated with the assessment and remediation of contaminated
sites. At December 31, 1993 Conrail had accrued $77 million for
estimated future environmental expenses. Although Conrail's
operating results and liquidity could be significantly affected in
any quarterly or annual reporting period in which Consolidated Rail
Corporation was held principally liable in certain of these actions,
Conrail believes the ultimate liability for these matters will not
materially affect its financial condition. (See Note 12 to the
Consolidated Financial Statements elsewhere in this Annual Report).
Consolidated Rail Corporation spent $7 million in each of 1992 and
1993 for environmental remediation and anticipates spending a
similar amount in 1994. In addition, Consolidated Rail
Corporation's capital expenditures for environmental control and
abatement projects were approximately $2 million in 1993, and are
anticipated to be approximately $6 million in 1994.
Conrail has an Environmental Quality Department, the mission of
which is to institute and promote compliance with environmentally
sound operating practices and to monitor and assess the status of
sites where liability under environmental laws may exist.
36
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
Conrail Inc.
We have audited the consolidated financial statements and
financial statement schedules of Conrail Inc. and subsidiaries listed
in Item 14(a) of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Conrail Inc. and subsidiaries as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its methods for accounting for income taxes and
postretirement benefits other than pensions in 1993.
COOPERS & LYBRAND
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 24, 1994
37
<PAGE>
<TABLE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31,
--------------------------
($ In Millions Except Per Share Data) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Revenues $3,453 $3,345 $3,252
------ ------ ------
Operating expenses
Way and structures 492 465 484
Equipment 703 692 663
Transportation 1,283 1,306 1,306
General and administrative 384 348 341
Special charge (Note 10) 719
------ ------ ------
Total operating expenses 2,862 2,811 3,513
------ ------ ------
Income (loss) from operations 591 534 (261)
Interest expense (185) (172) (181)
Loss on disposition of subsidiary
(Note 3) (80)
Other income, net (Note 11) 114 98 107
------ ------ ------
Income (loss) before income taxes
and the cumulative effect of
changes in accounting principles 440 460 (335)
Income taxes (benefits) (Note 7) 206 178 (128)
------ ------ ------
Income (loss) before the cumulative
effect of changes in accounting
principles 234 282 (207)
Cumulative effect of changes in
accounting principles (Notes 1, 7 and 8) (74)
------ ------ ------
Net income (loss) $ 160 $ 282 $ (207)
====== ====== ======
Income (loss) per common share
(Notes 1 and 2)
Before the cumulative effect of
changes in accounting principles
Primary $ 2.74 $ 3.28 $(2.70)
Fully diluted 2.51 2.99 (2.70)
Cumulative effect of changes in
accounting principles
Primary ( .92)
Fully diluted ( .81)
Net income (loss) per common share
Primary $ 1.82 $ 3.28 $(2.70)
Fully diluted 1.70 2.99 (2.70)
Ratio of earnings to fixed charges
(Note 1) 2.98x 3.33x -
See accompanying notes.
</TABLE>
38
<PAGE>
<TABLE>
CONRAIL INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
---------------
($ In Millions) 1993 1992
ASSETS ------ ------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 38 $ 40
Accounts receivable 644 592
Deferred tax assets (Note 7) 227
Material and supplies 132 121
Other current assets 21 37
------ ------
Total current assets 1,062 790
Property and equipment, net (Note 4) 6,313 6,013
Other assets 573 512
------ ------
Total assets $7,948 $7,315
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings 79 127
Current maturities of long-term debt (Note 6) 146 207
Accounts payable 62 63
Wages and employee benefits 185 199
Casualty reserves 93 110
Accrued and other current liabilities (Note 5) 510 573
------ ------
Total current liabilities 1,075 1,279
Long-term debt (Note 6) 1,959 1,577
Casualty reserves 132 153
Deferred income taxes (Note 7) 1,081 644
Special income tax obligation (Note 7) 575 569
Other liabilities 342 345
------ ------
Total liabilities 5,164 4,567
------ ------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 2 and 9)
Preferred stock (no par value; 15,000,000
shares authorized; no shares issued)
Series A ESOP convertible junior preferred
stock (no par value; 10,000,000 shares
authorized; 9,945,934 and 9,960,527 shares
issued and outstanding, respectively) 286 287
Unearned ESOP compensation (253) (263)
Common stock ($1 par value; 250,000,000
shares authorized; 79,658,734 and 83,431,747
shares issued, respectively; 79,574,989 and
79,741,745 shares outstanding, respectively) 80 83
Additional paid-in capital 1,819 1,888
Retained earnings 857 903
------ ------
2,789 2,898
Treasury stock, at cost (83,745 and
3,690,002 shares, respectively) (5) (150)
------ ------
Total stockholders' equity 2,784 2,748
------ ------
Total liabilities and stockholders' equity $7,948 $7,315
See accompanying notes.
</TABLE>
39
<PAGE>
<TABLE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Series A Unearned Additional
Preferred ESOP Common Paid-in Retained Treasury
($ In Millions Except Per Share Data) Stock Compensation Stock Capital Earnings Stock
--------- ------------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1991 $288 $(281) $ 41 $1,877 $1,004
Amortization 8
Net loss (207)
Common dividends, $.85 per share (Note 2) (70)
Preferred dividends, $2.165 per share (Note 2) (21)
Common shares acquired $ (19)
Exercise of stock options 24
Other 8 9
---- ----- ---- ------ ------ -----
Balance, December 31, 1991 288 (273) 41 1,909 715 (19)
Amortization 10
Net income 282
Common dividends, $1.00 per share (81)
Preferred dividends, $2.165 per share (21)
Common stock split (Note 2) 42 (42)
Common shares acquired (131)
Exercise of stock options 12
Other (1) 9 8
---- ----- ---- ------ ------ -----
Balance, December 31, 1992 287 (263) 83 1,888 903 (150)
Amortization 10
Net income 160
Common dividends, $1.20 per share (96)
Preferred dividends, $2.165 per share (21)
Common shares acquired (64)
Exercise of stock options 1 20
Common shares reclassified as unissued (4) (107) (98) 209
Other (1) 18 9
---- ----- ---- ------ ------ -----
Balance, December 31, 1993 $286 $(253) $ 80 $1,819 $ 857 $ (5)
==== ===== ==== ====== ====== =====
See accompanying notes.
</TABLE>
40
<PAGE>
<TABLE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
-------------------------
($ In Millions) 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 160 $ 282 $(207)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss on disposition of Concord 80
Cumulative effect of accounting changes 74
Depreciation and amortization 284 295 307
Deferred income taxes 221 208 (25)
Special income tax obligation (50) (58) (169)
Gains from sales of property (20) (6) (9)
Pension credit (43) (42) (45)
Special charge 719
Changes in:
Accounts receivable (52) (5) (61)
Accounts and wages payable (15) (153) 95
Settlement of tax audit (51)
Other (84) (25) (35)
----- ----- -----
Net cash provided by operating activities 504 496 570
----- ----- -----
Cash flows from investing activities
Property and equipment acquisitions (566) (466) (314)
Proceeds from disposals of properties 23 25 27
Net loans and investments in Concord (13) (14) (73)
Other (32) (4) (36)
----- ----- -----
Net cash used in investing activities (588) (459) (396)
----- ----- -----
Cash flows from financing activities
Repurchase of common stock (64) (131) (19)
Proceeds from commercial paper 114 380 96
Repayment of commercial paper (162) (203) (96)
Payment of capital lease and equipment
obligations (109) (113) (128)
Proceeds from long-term debt 485 80 30
Payment of long-term debt (86) (53)
Dividends on common stock (96) (81) (70)
Dividends on Series A preferred stock (21) (21) (21)
Proceeds from stock options and other 21 12 24
----- ----- -----
Net cash provided by (used in) financing
activities 82 (130) (184)
----- ----- -----
Decrease in cash and cash equivalents (2) (93) (10)
Cash and cash equivalents
Beginning of year 40 133 143
----- ----- -----
End of year $ 38 $ 40 $ 133
===== ===== =====
See accompanying notes.
</TABLE>
41
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Industry
--------
Conrail Inc. ("Conrail") is a holding company of which the principal
subsidiary is Consolidated Rail Corporation ("CRC"), a freight
railroad which operates in the Northeast-Midwest quadrant of the
United States and the Province of Quebec.
Principles of Consolidation
---------------------------
The consolidated financial statements include Conrail and majority-
owned subsidiaries. Investments in 20% to 50% owned companies are
accounted for by the equity method.
Cash Equivalents
----------------
Cash equivalents consist of commercial paper, certificates of
deposit and other liquid securities purchased with a maturity of
three months or less, and are stated at cost which approximates
market value.
Material and Supplies
---------------------
Material and supplies consist mainly of fuel oil and items for
maintenance of property and equipment, and are valued at the lower
of cost, principally weighted average, or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is
provided using the composite straight-line method. The cost (net of
salvage) of depreciable property retired or replaced in the ordinary
course of business is charged to accumulated depreciation and no
gain or loss is recognized.
Revenue Recognition
-------------------
Revenue is recognized proportionally as a shipment moves on the
Conrail system from origin to destination.
Earnings Per Share
------------------
Primary earnings (loss) per share are based on net income (loss)
adjusted for the effects of preferred dividends net of income tax
benefits, divided by the weighted average number of shares
outstanding during the period including the dilutive effect of
stock options. Fully diluted earnings (loss) per share assume
42
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
conversion of Series A ESOP Convertible Junior Preferred Stock
("ESOP Stock") into Conrail common stock unless they are
antidilutive as they were in 1991. Net income amounts applicable
to fully diluted earnings per share in 1993 and 1992 have been
adjusted by the increase, net of income tax benefits, in ESOP-
related expenses assuming conversion of all ESOP Stock to common
stock. The weighted average number of shares of common stock
outstanding (Note 2) during each of the most recent three years
ended December 31, 1993 are as follows:
1993 1992 1991
---------- ---------- ----------
Primary weighted
average shares 80,646,495 81,743,648 81,883,970
Fully diluted weighted
average shares 90,835,982 91,856,193 81,883,970
Ratio of Earnings to Fixed Charges
----------------------------------
Earnings used in computing the ratio of earnings to fixed charges
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. In 1991, when CRC recorded a
special charge (Note 10), earnings were insufficient to cover fixed
charges.
New Accounting Standards
------------------------
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") (Note 8)
and Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109") (Note 7). As a result, the Company
recorded cumulative after tax charges of $22 million and $52 million
for SFAS 106 and SFAS 109, respectively.
In November 1992, the Financial Accounting Standards Board issued a
standard ("SFAS 112") related to accounting for postemployment
benefits, which is effective January 1994. This standard requires
employers to recognize their obligation to provide salary
continuation, supplemental unemployment benefits, and other benefits
provided after employment but before retirement when certain
conditions are met. The Company has determined that this standard
would not have a material effect on its financial statements.
43
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Corporate Structure and Presentation
------------------------------------
In May 1993, the shareholders of CRC approved a plan for the adoption
of a holding company structure. Under the plan, each share of CRC
common stock that was issued and outstanding or held in the treasury
of CRC, and each share of CRC ESOP Stock, all of which were held by
the Non-union Employee Stock Ownership Plan (the "Non-union ESOP"),
were automatically converted on July 1, 1993, into one share of
common stock and one share of ESOP Stock, respectively, of a newly
created holding company, Conrail Inc. As a result, Conrail Inc.
became the publicly held entity effective July 1, 1993.
The change in corporate structure does not represent a change in the
operations or financial position of the consolidated entity. On
July 1, 1993, Conrail had the same consolidated operations, assets,
liabilities and stockholders' equity as CRC had on June 30, 1993.
In this report, references to the "Company" will denote the
consolidated entities Consolidated Rail Corporation for periods
prior to July 1, 1993 and Conrail Inc. for subsequent periods.
In 1992, the Company's Board of Directors authorized a two-for-one
common stock split which was effected in the form of a common stock
dividend. An amount equal to the par value of the common shares
issued was transferred from additional paid-in capital to the common
stock account. In addition, a stock dividend on the ESOP Stock in
the amount of one share of ESOP Stock for each share of ESOP Stock
outstanding was also distributed, and the number of authorized
shares of ESOP Stock was increased from 7.5 million to 10 million
shares.
All references in the financial statements with regard to the number
of shares, and related dividends and per share amounts for both
common stock (including treasury shares) and ESOP Stock have been
restated to reflect the stock split. Stock compensation and other
plans that provide for the issuance of common stock, ESOP Stock, or
an amount equivalent to their respective fair market values, have
also been amended to reflect the stock split.
3. Disposition of Subsidiary
-------------------------
In 1992, the Company acquired additional common shares of its
affiliate, Concord Resources Group, Inc. ("Concord") increasing its
ownership from 50% to 81.25%. In 1993, the Company committed to a
plan for the disposition of its investment in Concord. Pursuant to
this plan, the Company recorded the estimated loss of $80 million in
September 1993 for the disposition of its investment, including $19
million for operating losses expected to be incurred during the
phase-out period and disposition costs. The Company also recorded
estimated federal tax benefits of $30 million relating to the
disposition.
44
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Property and Equipment
----------------------
<TABLE>
<CAPTION>
December 31,
--------------------
1993 1992
------- --------
(In Millions)
<S> <C> <C>
Roadway $ 6,548 $ 6,465
Equipment 1,102 908
Less: Accumulated depreciation (1,522) (1,527)
Allowance for disposition (256) (277)
------- -------
5,872 5,569
------- -------
Capital leases (primarily
equipment) 1,104 1,132
Accumulated amortization (663) (688)
------- -------
441 444
------- -------
$ 6,313 $ 6,013
======= =======
</TABLE>
Conrail acquired equipment and incurred related long-term debt under
various capital leases of $75 million in 1993, $13 million in 1992,
and $76 million in 1991.
5. Accrued and Other Current Liabilities
-------------------------------------
<TABLE>
<CAPTION>
December 31
---------------
1993 1992
----- -----
(In Millions)
<S> <C> <C>
Freight settlements due others $ 62 $ 65
Equipment rents (primarily car hire) 79 70
Unearned freight revenue 79 80
Property and corporate taxes 85 66
Special income tax obligation 49
Other 205 243
----- -----
$510 $573
===== =====
</TABLE>
45
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-Term Debt
--------------
Long-term debt outstanding, including the weighted average interest
rates at December 31, 1993, is composed of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1993 1992
------ -------
(In Millions)
<S> <C> <C>
Capital leases $ 561 $ 584
Medium-term notes payable,
6.52%, due 1994 to 1998 225 231
Notes payable, 9.75%, due 2000 250 250
Debentures payable, 7.88%, due 2043 250
Debentures payable, 9.75%, due 2020 544 544
Equipment and other obligations, 8.51% 175 75
Commercial paper, 3.33% 100 100
------ ------
2,105 1,784
Less current portion (146) (207)
------ ------
$1,959 $1,577
====== ======
</TABLE>
Using current market prices when available, or a valuation based
on the yield to maturity of comparable debt instruments having
similar characteristics, credit rating and maturity, the total
fair value of the Company's long-term debt, including the current
portion, but excluding capital leases, is $1,782 million in 1993
and $1,310 million in 1992, compared with carrying values of
$1,544 million and $1,200 million in 1993 and 1992, respectively.
The Company's noncancelable long-term leases generally include
options to purchase at fair value and to extend the terms.
Capital leases have been discounted at rates which average 8.3%
and are collateralized by assets with a net book value of $439
million at December 31, 1993.
46
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Minimum commitments, exclusive of executory costs borne by the
Company, are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In Millions)
<S> <C> <C>
1994 $110 $ 93
1995 105 94
1996 95 92
1997 84 74
1998 78 73
1999-2015 318 611
------- ---------
Total 790 $1,037
=========
Less interest portion (229)
-------
Present value $561
=======
</TABLE>
Operating lease rent expense was $88 million in 1993, $71
million in 1992, and $50 million in 1991.
The Company filed a shelf registration statement on Form S-3
with the Securities and Exchange Commission in April 1990 for
$1.25 billion of debt securities. In May 1993, the Company
issued $250 million of 7 7/8% Debentures Due 2043, and has $11
million remaining to be issued under this shelf registration at
December 31, 1993. In June 1993, the Company and CRC filed a
new shelf registration statement on Form S-3 which will enable
CRC to issue up to $500 million in debt securities or the
Company to issue up to $500 million in convertible debt or
equity securities.
In February 1993, the Company issued $94 million of Pass Through
Certificates, Series 1993-A1 and 1993-A2 to finance the
acquisition of equipment. The Series 1993-A1 certificates, $41
million, have an interest rate of 5.71%, and Series 1993-A2
certificates, $53 million, have an interest rate of 6.86%.
Certificates issued in the amount of $54 million are direct
obligations of the Company and are secured by the acquired
equipment. The remaining certificates, $40 million, were issued
to finance equipment which the Company will utilize under a
capital lease, and while such certificates are not direct
obligations of, or guaranteed by the Company, the amounts
payable by the Company under the lease will be sufficient to pay
principal and interest on the certificates.
In September 1993, CRC issued approximately $63 million of 5.98%
1993 Equipment Trust Certificates, Series A, due 2013, pursuant
to the 1993 registration statement. The certificates were used
to finance approximately 80% of the cost of certain rebuilt and
new freight cars, which CRC will utilize under an operating
47
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
lease. Although the certificates are not direct obligations of,
or guaranteed by CRC, amounts payable by CRC under the lease
will be sufficient to pay principal and interest on the
certificates. In November 1993, CRC issued $102 million of 1993
Equipment Trust Certificates, Series B, with interest rates
ranging from 3.57% to 5.90%, maturing annually from 1994 through
2008. These certificates are obligations of CRC issued for the
purchase of locomotives which will serve as collateral for the
obligations.
Equipment and other obligations mature in 1994 through 2013 and
are collateralized by assets with a net book value of $200
million at December 31, 1993. Maturities of long-term debt
other than capital leases and commercial paper are $74 million
in 1994, $62 million in 1995, $95 million in 1996, $10 million
in 1997, $40 million in 1998, and $1,163 million in total from
1999 through 2043.
Conrail had $179 million of commercial paper outstanding at
December 31, 1993. Of the total amount outstanding, $100
million is classified as long-term since it is expected to be
refinanced through subsequent issuances of commercial paper and
is supported by the long-term credit facility mentioned below.
The Company maintains a $300 million uncollateralized revolving
credit facility with a group of banks under which no borrowings
were outstanding at December 31, 1993. The credit facility,
which expires in 1995, requires interest to be paid on
borrowings at rates based on various defined short-term market
rates and an annual maximum fee of .1% of the facility amount.
The credit facility contains, among other conditions,
restrictive covenants relating to leverage ratio, debt, and
consolidated tangible net worth.
Interest payments were $164 million in 1993, $162 million in
1992, and $167 million in 1991.
48
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Income Taxes
------------
The provisions for (benefits from) income taxes are composed of
the following:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(In Millions)
<S> <C> <C> <C>
Current
Federal $ 25 $ 21 $ 60
State 10 7 6
----- ----- -----
35 28 66
----- ----- -----
Deferred
Federal 189 179 (24)
State 32 29 (1)
----- ----- -----
221 208 (25)
----- ----- -----
Special income tax obligation
Federal (42) (50) (146)
State (8) (8) (23)
----- ----- -----
(50) (58) (169)
----- ----- -----
$206 $178 $(128)
===== ===== =====
</TABLE>
Effective January 1, 1993, the Company adopted the provisions of
SFAS 109 which requires a liability approach for measuring
deferred tax assets and liabilities based on differences between
the financial statement and tax bases of assets and liabilities
at each balance sheet date using enacted tax rates in effect
when those differences are expected to reverse. As a result,
the Company recorded a cumulative adjustment of $52 million.
The primary effects of the adoption of this standard on the
balance sheet were the recording of a current deferred tax asset
of $147 million with a corresponding increase in the long-term
deferred income tax liability and the net deferred income tax
liabilities related to the cumulative accounting adjustment for
the adoption of SFAS 109 and SFAS 106 (Note 8). Prior years'
financial statements have not been restated to apply the
provisions of the new standard.
In conjunction with the public sale in 1987 of the 85% of the
Company's common stock owned by the U.S. Government, federal
legislation was enacted which resulted in a reduction of the tax
basis of certain of the Company's assets, particularly property
and equipment, thereby substantially decreasing tax depreciation
deductions and increasing future federal income tax payments.
Also, net operating loss and investment tax credit carryforwards
were cancelled. As a result of the sale-related transactions, a
special income tax obligation was recorded in 1987 based on an
estimated effective federal and state income tax rate of 37.0%.
49
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As a result of the increase in the federal corporate income tax
rate from 34% to 35% enacted August 10, 1993, and effective
January 1, 1993, income tax expense for 1993 was increased by
$38 million, of which $34 million related to the effects of
adjusting deferred income taxes and the special income tax
obligation for the rate increase.
During the third quarter of 1993, the Company reached a
settlement with the Internal Revenue Service related to the
audit of the Company's consolidated federal income tax returns
for the fiscal years 1987 through 1989. Under the settlement,
the Company paid $51 million, including interest, all of which
had been previously provided for in prior years resulting in no
income statement effect in 1993. Federal and state income tax
payments were $39 million in 1993 (excluding tax settlement),
$31 million in 1992, and $45 million in 1991.
Significant components of the Company's special income tax
obligation and deferred income tax liabilities and (assets) as
of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
Current assets (primarily accounts receivable) $ (23)
Current liabilities (primarily accrued
liabilities and casualty reserves) (163)
Tax benefits related to disposition of subsidiary (30)
Net operating loss carryforwards (11)
-------
Current deferred tax asset, net $ (227)
=======
Noncurrent liabilities:
Property and equipment 1,875
Other long-term assets (primarily prepaid
pension asset) 74
Miscellaneous 17
-------
1,966
Noncurrent assets: -------
Nondeductible reserves and other liabilities (125)
Equipment obligations (44)
Tax benefit transfer receivable (42)
Alternative minimum tax credits (77)
Miscellaneous (22)
-------
(310)
-------
Special income tax obligation and deferred
income tax liabilities, net $1,656
=======
</TABLE>
50
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The tax effects of each source of deferred income taxes and
special income tax obligation (disclosure for 1993 is not
required nor applicable under SFAS 109)are as follows:
<TABLE>
<CAPTION>
1992 1991
----- -----
(In Millions)
<S> <C> <C>
Deferred taxes
Tax depreciation over book $ 84 $ 130
Other property transactions 80 61
Casualty, wage and other accruals 78 (152)
Alternative minimum tax (40) (58)
Other 6 (6)
----- -----
$208 $ (25)
===== =====
Special income tax obligation
Reduced tax basis depreciation (31) (35)
Other property transactions (27) (134)
----- -----
$(58) $(169)
===== =====
</TABLE>
As of December 31, 1993, the Company has approximately $77
million of alternative minimum tax credits available to offset
future U.S. federal income taxes on an indefinite carryforward
basis.
Deferred income taxes and the special income tax obligation for
1991 include reductions of $159 million and $113 million,
respectively, related to the 1991 Special Charge (Note 10).
Reconciliations of the U.S. statutory tax rates with the
effective tax rates follow:
1993 1992 1991
----- ----- -----
Statutory tax rate 35.0% 34.0% (34.0)%
State income taxes,
net of federal benefit 5.1 3.9 (3.5)
Effect of federal tax increase
on deferred taxes 7.7
Other (1.0) .8 (.7)
----- ----- -----
Effective tax rate 46.8% 38.7% (38.2)%
===== ===== =====
8. Employee Benefits
-----------------
Pension Plans
-------------
The Company and certain subsidiaries maintain defined benefit
pension plans which are noncontributory for all non-union
employees and generally contributory for participating union
employees. Benefits are based primarily on credited years of
service and the level of compensation near retirement. Funding
is based on the minimum amount required by the Employee
51
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retirement Income Security Act of 1974.
Pension credits include the following components:
1993 1992 1991
----- ----- ----
(In Millions)
Service cost - benefits earned during the period $ 8 $ 7 $ 6
Interest cost on projected benefit obligation 46 45 42
Return on plan assets - actual (124) (66) (175)
- deferred 42 (13) 100
Net amortization and deferral (15) (15) (18)
---- ---- ----
$(43) $(42) $(45)
==== ==== ====
The funded status of the pension plans and the amounts reflected
in the balance sheets are as follows:
1993 1992
------ ------
(In Millions)
Accumulated benefit obligation ($532 million
and $505 million vested, respectively) $ 537 $ 506
====== ======
Market value of plan assets 1,043 977
Projected benefit obligation (632) (580)
------ ------
Plan assets in excess of projected
benefit obligation 411 397
Unrecognized prior service cost 43 61
Unrecognized transition net asset (159) (179)
Unrecognized net gain (101) (124)
------ ------
Net prepaid pension cost $ 194 $ 155
====== ======
The assumed weighted average discount rates used in 1993 and in
1992 are 7.25% and 8.0%, respectively, and the rate of increase
in future compensation levels used in determining the actuarial
present value of the projected benefit obligation as of
December 31, 1993 and 1992 is 6.0%. The expected long-term rate
of return on plan assets (primarily equity securities) in 1993
and 1992 is 9.0%.
Savings Plans
-------------
The Company and certain subsidiaries also provide 401(k) savings
plans for union and non-union employees. Under the Non-union
ESOP, 100% of employee contributions are matched in the form of
ESOP Stock for the first 6% of a participating employee's base
pay. Under the union employee plan, employee contributions are
not matched by the Company. Savings plan expense, including Non-
union ESOP expense, was $5 million in 1993 and $4 million in
1992 and 1991.
52
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the Non-union ESOP, the Company issued
9,979,562 of the authorized 10 million shares of its ESOP Stock
to the Non-union ESOP in exchange for a 20 year promissory note
with interest at 9.55% from the Non-union ESOP in the principal
amount of $288 million. In addition, unearned ESOP compensation
of $288 million was recognized as a charge to stockholders'
equity coincident with the Non-union ESOP's issuance of its
$288 million promissory note to the Company. The debt of the
Non-union ESOP was recorded by the Company and offset against
the promissory note from the Non-union ESOP. Unearned ESOP
compensation is charged to expense as shares of ESOP Stock are
allocated to participants. An amount equivalent to the
preferred dividends declared on the ESOP Stock partially offsets
compensation and interest expense related to the Non-union ESOP.
The Company is obligated to make dividend payments at a rate of
7.51% on the ESOP Stock and additional contributions in an
aggregate amount sufficient to enable the Non-union ESOP to make
the required interest and principal payments on its note to the
Company.
Interest expense incurred by the Non-union ESOP on its debt to
the Company was $29 million in 1993, and $28 million in 1992 and
1991. Compensation expense related to the Non-union ESOP was
$10 million in 1993, $9 million in 1992, and $8 million in 1991.
Preferred dividends paid to the Non-union ESOP were $21 million
in 1993, 1992 and 1991. The Company received debt service
payments from the Non-union ESOP of $26 million in 1993, and $21
million in 1992 and 1991.
Postretirement Benefits Other Than Pensions
-------------------------------------------
The Company provides health and life insurance benefits to
certain eligible retired non-union employees. Certain non-union
employees are eligible for retiree medical benefits, while
substantially all non-union employees are eligible for retiree
life insurance benefits. Generally, company-provided health
care benefits terminate when covered individuals reach age 65.
Retiree medical benefits are funded by a combination of Company
and retiree contributions. The cost of medical benefits provided
by the Company as self-insurer was previously recognized as
claims and administrative expenses were paid. Retiree life
insurance benefits are provided by insurance companies whose
premiums are based on claims paid during the year and the cost
of such benefits was previously recognized as the annual
insurance premium. The expense of providing both non-union
retiree medical and life insurance benefits for 1992 and 1991
was $5 million and $2 million, respectively.
53
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retiree life insurance plan assets consist of a retiree life
insurance reserve held in the Company's group life insurance
policy. There are no plan assets for the retiree health
benefits plan.
Effective January 1, 1993, the Company adopted SFAS 106, which
requires that the cost of retiree benefits other than pensions
be accrued during the period of employment rather than when
benefits are paid. The Company elected the immediate
recognition method allowed under the statement and accordingly
recorded a cumulative, one-time charge of $22 million (net of
tax benefits of $14 million). This accrual was in addition to
the remaining balance of $21 million which had been accrued for
postretirement health benefits for employees who participated in
the Company's 1989 non-union voluntary retirement program. The
accumulated postretirement obligation at January 1, 1993 was $41
million for the medical plan and $21 million for the life
insurance plan. Plan assets attributed to the life insurance
plan at January 1, 1993 totalled $5 million.
The following sets forth the plan's funded status reconciled
with amounts reported in the Company's balance sheet at
December 31, 1993:
Life
Medical Insurance
Plan Plan
------- ---------
(In Millions)
Accumulated postretirement benefit obligation:
Retirees $31 $16
Fully eligible active plan participants 9 1
Other active plan participants 2 6
--- ---
Accumulated benefit obligation 42 23
Market value of plan assets
(6)
--- ---
Accumulated benefit obligation in excess of plan 42 17
assets
Unrecognized losses (3) (2)
Accrued benefit cost recognized in the --- ---
Consolidated Balance Sheet $39 $15
=== ===
Net periodic postretirement benefit cost
for 1993, primarily interest cost $ 3 $ 1
=== ===
An 11.5% rate of increase in per capita costs of covered health
care benefits was assumed for 1994, gradually decreasing to 6% by
the year 2008. Increasing the assumed health care cost trend
rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31,
1993 by $4 million and would have an immaterial effect on the
service cost and interest cost components of net periodic
postretirement benefit cost for 1993. A discount rate of 7.0%
was used to determine the accumulated postretirement benefit
54
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
obligations for both the medical and life insurance plans. The
assumed rate of compensation increase is 5.0%.
9. Capital Stock
-------------
The Company is authorized to issue 25 million shares of preferred
stock with no par value. The Board of Directors has the
authority to divide the preferred stock into series and to
determine the rights and preferences of each.
The Company cannot pay dividends on its common stock unless full
cumulative dividends have been paid on its ESOP Stock, and no
distributions can be made to the holders of common stock upon
liquidation or dissolution of the Company unless the holders of
the ESOP Stock have received a cash liquidation payment of
$28.84375 per share, plus unpaid dividends up to the date of such
payment. The ESOP Stock is convertible into common stock on a
share-for-share basis and is entitled to one vote per share,
voting together as a single class with common stock on all
matters.
In September 1993, the $100 million 1992 stock repurchase program
was completed at a total of 2,150,293 shares. On July 21, 1993,
the Board of Directors authorized an additional $100 million
repurchase program. At December 31, 1993, the Company had
acquired 237,855 shares for approximately $14 million under this
program.
During 1993, the Company reclassified 4,787,579 shares of
repurchased common stock (treasury stock) as authorized but
unissued.
The activity and status of treasury stock follow:
1993 1992 1991
--------- --------- -------
Shares, beginning of year 3,690,002 546,400
Acquired 1,181,322 3,143,602 546,400
Reclassified as authorized
but unissued (4,787,579)
--------- --------- -------
Shares, end of year 83,745 3,690,002 546,400
========= ========= =======
The Company's 1987 Long-Term Incentive Plan (the "1987 Incentive
Plan") authorizes the granting to officers and key employees of
up to 4 million shares of common stock through stock options,
stock appreciation rights, and awards of restricted or
performance shares. A stock option is exercisable for a
specified term commencing after grant at a price not less than
the fair market value of the stock on the date of grant. The
55
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1987 Incentive Plan also provides for the granting of stock to
employees, contingent on either a specified period of employment
or achievement of certain financial or performance goals.
The Company's 1991 Long-Term Incentive Plan (the "1991 Incentive
Plan") authorizes the granting to officers and key employees of
up to 3.2 million shares of common stock, through stock options,
stock appreciation rights and awards of restricted or performance
shares. The Company has granted 169,005 shares of restricted
stock under its incentive plans through December 31, 1993.
The activity and status of stock options under the incentive
plans follow:
<TABLE>
<CAPTION>
Non-qualified Stock Options
----------------------------------
Option Price Shares
Per Share Under Option
----------------- --------------
<S> <C> <C>
Balance, January 1, 1991 $14.000 - $25.065 3,271,920
Granted $24.530 - $36.595 339,400
Exercised $14.000 - $25.065 (1,361,922)
Cancelled $14.000 - $25.065 (83,718)
---------
Balance, December 31, 1991 $14.000 - $36.595 2,165,680
Granted $42.625 - $45.125 1,383,600
Exercised $14.000 - $25.063 (674,652)
Cancelled $42.625 (3,750)
---------
Balance, December 31, 1992 $14.000 - $45.125 2,870,878
Granted $49.375 - $60.500 73,027
Exercised $14.000 - $53.875 (928,822)
Cancelled $31.813 - $45.125 (48,762)
---------
Balance, December 31, 1993 $14.000 - $60.500 1,966,321
=========
Exercisable, December 31, 1993 $14.000 - $53.875 995,827
=========
Available for future grants
December 31, 1992 1,792,726
=========
December 31, 1993 1,698,036
=========
</TABLE>
In 1989, the Company declared a dividend of one common share
purchase right (the "Right") on each outstanding share of common
stock. The Rights are not exercisable or transferable apart
from the common stock until the occurrence of certain events
arising out of an actual or potential acquisition of 10% or more
of the Company's common stock, and would at such time provide
the holder with certain additional entitlements. If the Rights
become exercisable, each Right will entitle stockholders to
56
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
purchase one share of common stock at an exercise price of
$52.50. At the Company's option, the Rights are redeemable
prior to becoming exercisable at one-half cent ($.005) per
Right. The Rights expire in July 1999 and do not have any
voting privileges or rights to receive dividends.
10.1991 Special Charge
-------------------
In 1991, the Company recorded in operating expenses a special
charge totalling $719 million which was composed of $362 million
for disposition of certain under-utilized rail lines and other
facilities, $212 million for labor settlements primarily
representing certain expected costs associated with a new labor
agreement that reduced the size of train crews, $57 million for
certain environmental clean up costs, and $88 million for legal
matters including settlement of the Amtrak-Conrail collision at
Chase, Maryland in January 1987. The 1991 special charge
reduced net income by $447 million, and without the special
charge net income would have been $240 million ($2.73 and $2.48
per share, primary and fully diluted, respectively).
11.Other Income, Net
-----------------
1993 1992 1991
---- ---- ----
(In Millions)
Interest income $ 39 $ 40 $ 48
Rental income 56 60 53
Property sales 20 6 9
Other, net (1) (8) (3)
---- ---- ----
$114 $ 98 $107
==== ==== ====
12.Commitments and Contingencies
-----------------------------
Non-union Voluntary Retirement Program
--------------------------------------
On December 15, 1993, the Board of Directors approved a voluntary
early retirement program for eligible members of its non-union
workforce. The eligible employees had until February 28, 1994 to
elect to retire under the program, and based on the results of a
similar program completed in 1990, the cost of the program is
expected to have a material effect on the income statement for
the first quarter of 1994. The transaction will not
significantly affect the Company's cash position as approximately
85% of the cost will be paid from the Company's overfunded
pension plan (Note 8).
57
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Environmental
-------------
The Company is subject to various federal, state and local laws
and regulations regarding environmental matters. CRC is a party
to various proceedings brought by both regulatory agencies and
private parties under federal, state and local laws, including
Superfund laws, and has also been named as a potentially
responsible party in many governmental investigations and actions
for the cleanup and removal of hazardous substances due to its
alleged involvement as either a transporter, generator or
property owner. Due to the number of parties involved at many of
these sites, the wide range of costs of possible remediation
alternatives, the changing technology and the length of time over
which these matters develop, it is often not possible to estimate
CRC's liability for the costs associated with the assessment and
remediation of contaminated sites. Although the Company's
operating results and liquidity could be significantly affected
in any quarterly or annual reporting period if CRC were held
principally liable in certain of these actions, at December 31,
1993, the Company had accrued $77 million, an amount it believes
is sufficient to cover the probable liability and remediation
costs that will be incurred at Superfund sites and other sites
based on known information and using various estimating
techniques. The Company believes the ultimate liability for
these matters will not materially affect its consolidated
financial condition.
The Environmental Quality Department of the Company is charged
with promoting the Company's compliance with laws and regulations
affecting the environment and instituting environmentally sound
operating practices. The department monitors the status of the
sites where the Company is alleged to have liability and
continually reviews the information available and assesses the
adequacy of the recorded liability.
Other Contingencies
-------------------
The Company is involved in various legal actions, principally
relating to occupational health claims, personal injuries,
casualties, property damage and loss and damage. The Company has
recorded liabilities on its balance sheet for amounts sufficient
to cover the expected payments for such actions. At December 31,
1993 these liabilities are presented net of estimated insurance
recoveries of approximately $80 million.
Conrail may be contingently liable for approximately $102 million
at December 31, 1993 under indemnification provisions related to
sales of tax benefits.
58
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13.Condensed Quarterly Data (Unaudited)
-----------------------------------
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------------- -------------- -------------- --------------
1993 1992 1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------ ------ ------
($ In Millions Except Per Share - Note 2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $816 $798 $873 $843 $854 $847 $910 $857
Income from operations 85 81 158 144 156 147 192 162
Income before the
cumulative effect of
changes in accounting
principles 46 38 85 77 (3) 75 106 92
Net income (loss) (28) 38 85 77 (3) 75 106 92
Income (loss) per common
share before
the cumulative effect of
changes in
accounting principles:
Primary .52 .42 1.01 .90 (.07) .88 1.27 1.10
Fully diluted .52 .39 .92 .82 (.07) .81 1.16 .99
Net income (loss) per
common share:
Primary (.39) .42 1.01 .90 (.07) .88 1.27 1.10
Fully diluted (.39) .39 .92 .82 (.07) .81 1.16 .99
Ratio of earnings to fixed
charges 2.25x 2.29x 3.65x 3.55x 2.02x 3.50x 3.86x 3.94x
Dividends per common share .275 .225 .275 .225 .325 .275 .325 .275
Market prices per common
share (New York Stock
Exchange)
High 60 1/2 44 59 7/8 47 3/8 59 3/8 46 1/2 67 1/2 48 3/8
Low 47 1/2 39 1/2 50 39 1/2 49 37 1/2 57 1/8 36 1/4
</TABLE>
Effective January 1, 1993, the Company adopted SFAS 106 and SFAS
109, related to the accounting for postretirement benefits other
than pensions and income taxes, respectively. As a result, the
Company recorded cumulative after tax charges totalling $74
million ($.91 per share, primary and fully diluted) in the first
quarter of 1993 (Notes 1, 7 and 8).
During the third quarter of 1993, the Company recorded an
estimated loss for the disposition of its investment in its
subsidiary, Concord Resources Group, Inc. (Note 3). As a
result, net income for the quarter was reduced by the loss of
$80 million less the estimated tax benefits of $30 million.
Also, in the third quarter, as a result of the increase in the
federal corporate income tax rate enacted August 10, 1993 and
effective January 1, 1993, income tax expense for the third
quarter of 1993, includes a charge of $36 million, primarily
related to the adjustment of deferred taxes and the special
income tax obligation as required by SFAS 109 (Note 7). Without
these two charges, net income per common share for the third
quarter of 1993 would have been $1.00 on a primary basis and
$.91 on a fully diluted basis.
59
<PAGE>
Item 9. Changes in and Disagreements with Accountants
- ------ ---------------------------------------------
on Accounting and Financial Disclosure.
--------------------------------------
Previously reported in Conrail's Current Report on Form
8-K, filed February 18, 1994.
PART III
Item 10. Directors and Executive Officers
- ------- --------------------------------
of the Registrant.
-----------------
Item 11. Executive Compensation.
- ------- ----------------------
Item 12. Security Ownership of Certain Beneficial
- ------- ----------------------------------------
Owners and Management.
---------------------
and
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
In accordance with General Instruction G(3), the information
called for by Part III is incorporated herein by reference from
Conrail's definitive Proxy Statement for the Conrail Annual Meeting
of Shareholders to be held on May 18, 1994, which definitive Proxy
Statement will be filed with the Commission pursuant to Regulation
14A. The information regarding executive officers called for by
Item 401 of Regulation S-K is included in Part I under "Executive
Officers of the Registrant."
60
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement
- ------- -----------------------------
Schedules, and Reports on Form 8-K.
----------------------------------
(a) The following documents are filed as a part of this report:
1. Financial Statements: Page
----
Report of Independent Accountants..................... 37
Consolidated Statements of Income for each of the
three years in the period ended December 31, 1993... 38
Consolidated Balance Sheets at December 31, 1993
and 1992 ........................................... 39
Consolidated Statements of Stockholders'
Equity for each of the three years in the
period ended December 31, 1993...................... 40
Consolidated Statements of Cash Flows for each of
the three years in the period ended
December 31, 1993 .................................. 41
Notes to Consolidated Financial Statements............ 42
2. Financial Statement Schedules:
The following financial statement schedules should be
read in connection with the financial statements listed
in Item 14(a)1 above.
Index to Financial Statement Schedules
-------------------------------------- Page
----
Schedule V - Property, Plant and Equipment...... S-1
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of
Property, Plant and Equipment.... S-2
Schedule VIII - Valuation and Qualifying Accounts... S-3
Schedule X - Supplementary Income Statement
Information...................... S-4
Schedules other than those listed above are omitted for
reasons that they are not required, are not applicable, or
the information is included in the financial statements or
related notes.
61
<PAGE>
3. Exhibits:
Exhibit No.
----------
2. Agreement and Plan of Merger among Consolidated Rail
Corporation, Conrail Inc. and Conrail Subsidiary
Corporation dated as of February 17, 1993, filed as
Appendix A to the Proxy Statement of Consolidated Rail
Corporation, dated April 16, 1993 and incorporated
herein by reference.
3.1 Articles of Incorporation of the Registrant filed as
Appendix B to the Proxy Statement of Consolidated Rail
Corporation, dated April 16, 1993 and incorporated
herein by reference.
3.2 By-Laws of the Registrant, filed as Exhibit 3.3(ii) to
the Registrant's Form 8-B, dated July 13, 1993 and
incorporated herein by reference.
4.1 Articles of Incorporation of the Registrant filed as
Appendix B to the Proxy Statement of Consolidated Rail
Corporation, dated April 16, 1993 and incorporated
herein by reference.
4.2 Form of Certificate of Common Stock, par value $1.00
per share, of the Registrant, filed as Exhibit
3.4(i)(c) to the Registrant's Form 8-B dated July 13,
1993 and incorporated herein by reference.
4.3 Form of Certificate of Series A ESOP Convertible
Junior Preferred Stock, no par value, of the
Registrant filed as Exhibit 3.4(i)(d) to the
Registrant's Form 8-B dated July 13, 1993 and
incorporated herein by reference.
4.4 Rights Agreement dated as of July 19, 1989, between
Consolidated Rail Corporation and First Chicago Trust
Company of New York, together with Form of Right
Certificate and Summary of Rights to Purchase Common
Shares as exhibits thereto, filed as Exhibit 1 to
Consolidated Rail Corporation's Form 8-K dated July
31, 1989 and incorporated herein by reference.
4.5 Amendment to Rights Agreement dated as of March 21,
1990, filed as Exhibit 4.5 to Consolidated Rail
Corporation's Report on Form 8-K dated March 27, 1990
and incorporated herein by reference.
4.6 Amendment, Assignment and Assumption Agreement, dated
as of February 17, 1993, with respect to the Rights
62
<PAGE>
Agreement, filed as Exhibit 3.4(i)(g) to the
Registrant's Form 8-B dated July 13, 1993 and
incorporated herein by reference.
4.7 Form of Indenture between Consolidated Rail
Corporation and The First National Bank of Chicago, as
Trustee, with respect to the issuance of up to $1.25
billion aggregate principal amount of Consolidated
Rail Corporation's debt securities, filed as Exhibit 4
to Consolidated Rail Corporation's Registration
Statement on Form S-3 (Registration No. 33-34040) and
incorporated herein by reference.
In accordance with Item 601(b)(4)(iii) of Regulation S-
K, copies of instruments of the Registrant and its
subsidiaries with respect to the rights of holders of
certain long-term debt are not filed herewith, or
incorporated by reference, but will be furnished to
the Commission upon request.
10.1 Second Amended and Restated Northeast Corridor Freight
Operating Agreement dated October 1, 1986 between
National Railroad Passenger Corporation and
Consolidated Rail Corporation, filed as Exhibit 10.1
to Consolidated Rail Corporation's Registration
Statement on Form S-1 (Registration No. 33-11995) and
incorporated herein by reference.
10.2 Letter agreements dated September 30, 1982 and July
19, 1986 between Consolidated Rail Corporation and The
Penn Central Corporation, filed as Exhibit 10.5 to
Consolidated Rail Corporation's Registration Statement
on Form S-1 (Registration No. 33-11995) and
incorporated herein by reference.
10.3 Letter agreement dated March 16, 1988 between Consoli-
dated Rail Corporation and Penn Central Corporation re-
lating to hearing loss litigation, filed as Exhibit
19.1 to Consolidated Rail Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1988 and incorporated herein by reference.
Management Compensation Plans and Contracts
-------------------------------------------
10.4 Consolidated Rail Corporation Annual Profit Incentive
Plan for 1991, filed as Exhibit 10.6 to Consolidated
Rail Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 and incorporated
herein by reference.
63
<PAGE>
10.5 Consolidated Rail Corporation 1992 Annual Performance
Achievement Reward Plan, filed as Exhibit 10.6 to
Consolidated Rail Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.6 Consolidated Rail Corporation 1993 Annual Performance
Achievement Reward Plan, filed as Exhibit 3.10(v) to
the Registrant's Form 8-B dated July 13, 1993 and
incorporated herein by reference.
10.7 Conrail 1987 Long-Term Incentive Plan, filed as
Exhibit 4.4 to Consolidated Rail Corporation's
Registration Statement on Form S-8 (Registration No.
33-19155) and incorporated herein by reference.
10.8 Conrail 1991 Long-Term Incentive Plan, filed as
Exhibit 4.8 to Consolidated Rail Corporation's
Registration Statement on Form S-8 (Registration No.
33-44140) and incorporated herein by reference.
10.9 Employment Agreement between James A. Hagen and
Consolidated Rail Corporation, dated as of April 3,
1989, filed as Exhibit 10.11 to Consolidated Rail
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1989 and incorporated herein by
reference.
10.10 Agreement for Supplemental Employee Retirement Plan
between James A. Hagen and Consolidated Rail
Corporation, dated as of January 17, 1990, filed as
Exhibit 10.12 to Consolidated Rail Corporation's
Annual Report on Form 10-K for the year ended December
31, 1989 and incorporated herein by reference.
10.11 Form of Continuation Agreement between Consolidated
Rail Corporation and each of its officers other than
James A. Hagen, dated as of January 15, 1990, filed as
Exhibit 10.14 to Consolidated Rail Corporation's
Annual Report on Form 10-K for the year ended December
31, 1989 and incorporated herein by reference.
11 Statement of earnings (loss) per share computations.
12 Computation of the ratio of earnings to fixed charges.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
64
<PAGE>
24 Each of the officers and directors signing this Annual
Report on Form 10-K has signed a power of attorney,
contained on page 66 hereof, with respect to
amendments to this Annual Report.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated October 7, 1993, filed in
connection with Consolidated Rail Corporation's issuance of
$63,156,000 of 5.98% 1993-A Equipment Trust Certificates
Due 2013 pursuant to its current Registration Statement on
Form S-3 (No. 33-64670).
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-K as
listed in Item 14(a)3 are filed herewith or incorporated
herein by reference.
(d) Financial Statement Schedules.
Financial statement schedules and separate financial state
ments specified by this Item are included in Item 14(a)2 or
are otherwise omitted for reasons that they are not
required or are not applicable.
65
<PAGE>
POWER OF ATTORNEY
-----------------
Each person whose signature appears below under "SIGNATURES"
hereby authorizes H. William Brown and Bruce B. Wilson, or either of
them, to execute in the name of each such person, and to file, any
amendment to this report and hereby appoints H. William Brown and
Bruce B. Wilson, or either of them, as attorneys-in-fact to sign on
his or her behalf, individually and in each capacity stated below,
and to file any and all amendments to this report.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act 1934, Conrail Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONRAIL INC.
Date: March 16, 1994
By James A. Hagen
-----------------------------
James A. Hagen
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on this 16th day of March,
1994, by the following persons on behalf of Conrail Inc. and in the
capacities indicated.
Signature Title
- --------- -----
James A. Hagen Chairman, President and Chief
- ------------------------ Executive Officer and Director
James A. Hagen (Principal Executive Officer)
H. William Brown Senior Vice President - Finance
- ------------------------ and Administration
H. William Brown (Principal Financial Officer)
John A. McKelvey Vice President - Controller
- ------------------------ (Principal Accounting Officer)
John A. McKelvey
66
<PAGE>
H. Furlong Baldwin Director
- ------------------------
H. Furlong Baldwin
Claude S. Brinegar Director
- ------------------------
Claude S. Brinegar
Daniel S. Burke Director
- ------------------------
Daniel B. Burke
Kathleen Foley Feldstein Director
- ------------------------
Kathleen Foley Feldstein
Roger S. Hillas Director
- ------------------------
Roger S. Hillas
E. Bradley Jones Director
- ------------------------
E. Bradley Jones
David B. Lewis Director
- ------------------------
David B. Lewis
John C. Marous Director
- ------------------------
John C. Marous
William G. Milliken Director
- ------------------------
William G. Milliken
Raymond T. Schuler Director
- ------------------------
Raymond T. Schuler
David H. Swanson Director
- ------------------------
David H. Swanson
67
<PAGE>
E-1
EXHIBIT INDEX
Page Number in SEC
Sequential Numbering
Exhibit No. System
- ----------- --------------------
11 Statement of earnings (loss) per share
computations
12 Computation of the ratio of earnings
to fixed charges
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
Exhibits 2, 3.1, 3.2, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 10.1, 10.2,
10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10 and 10.11 are
incorporated herein by reference. Powers of attorney with respect
to amendments to this Annual Report are contained on page 66.
68
Exhibit 11
----------
<TABLE>
CONRAIL INC.
------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS
--------------------------------------
($ In Millions Except Per Share)
<CAPTION>
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Primary
- -------
Income (loss) before the cumulative
effect of changes in accounting
principles (1) $234 $282 $(207)
Dividends declared on Series A ESOP
convertible junior preferred stock
(ESOP Stock), net of tax benefits (13) (14) (14)
---- ---- ----
221 268 (221)
Charges relative to the cumulative
effect of changes in accounting
principles (1) (74)
---- ---- ----
Adjusted net income (loss) $147 $268 $(221)
==== ==== =====
Fully Diluted
- -------------
Income (loss) before the cumulative
effect of changes in accounting
principles (1) 234 282 (207)
Dividends declared on ESOP Stock,
net of tax benefits (14)
Nondiscretionary adjustment (2) (6) (7)
---- ---- ----
228 275 (221)
Charges relative to the cumulative
effect of changes in accounting
principles (1) (74)
---- ---- ----
Adjusted net income (loss) $154 $275 $(221)
==== ==== =====
</TABLE>
Page 1 of 3
<PAGE>
Exhibit 11
----------
<TABLE>
CONRAIL INC.
------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS
--------------------------------------
($ In Millions Except Per Share)
<CAPTION>
Years ended December 31,
--------------------------------------
1993 1992 1991 (3)
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average number of shares
(4)
Primary
Weighted average number of common
shares outstanding 79,656,302 80,823,000 81,883,970
Effect of shares issuable under
stock option plans 990,193 920,648
---------- ---------- ----------
80,646,495 81,743,648 81,883,970
Fully diluted
Weighted average number of common
shares outstanding 79,656,302 80,823,000 81,883,970
ESOP Stock 9,954,311 9,966,200
Effect of shares issuable under
stock option plans 1,225,369 1,066,993
---------- ---------- ----------
90,835,982 91,856,193 81,883,970
Income (loss) per common share (4)
Before the cumulative effect of
changes in accounting principles
Primary $2.74 $3.28 $(2.70)
Fully diluted 2.51 2.99 (2.70)
Cumulative effect of changes in
accounting principles
Primary (.92)
Fully diluted (.81)
Net income (loss) per common share
Primary $1.82 $3.28 $(2.70)
Fully diluted 1.70 2.99 $(2.70)
</TABLE>
Page 2 of 3
<PAGE>
Exhibit 11
----------
CONRAIL INC.
------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS
--------------------------------------
Notes: 1. The Company adopted Statement of Financial Accounting
Standards No. 106 ("Employers' Accounting for
Postretirement Benefits Other Than Pensions") and
Statement of Financial Accounting Standards No. 109
("Accounting for Income Taxes") effective January 1,
1993. As a result, the Company recorded cumulative
after tax charges of $22 million and $52 million,
respectively.
2. Represents the increase, net of income tax benefits,
in ESOP-related expenses assuming conversion of all
ESOP Stock to common stock.
3. Primary and fully diluted loss per share are based on
the weighted average number of common shares
outstanding and exclude shares issuable under stock
option plans and the conversion of ESOP stock to
common stock since the effects of their inclusion
are antidilutive.
4. The Company's Board of Directors authorized a two-for-
one common stock split which was effected in the
form of a stock dividend distributed on
September 15, 1992. The Board of Directors also
declared a stock dividend on the ESOP Stock in the
amount of one share of ESOP Stock for each share of
ESOP Stock outstanding as of August 31, 1992 and
distributed on September 15, 1992. All references
with regard to the number of shares for common
stock, ESOP Stock, and shares issuable under stock
option plans and per share amounts have been
restated to reflect the stock splits.
Page 3 of 3
Exhibit 12
----------
<TABLE>
CONRAIL INC.
-----------
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------------------------
($ In Millions)
<CAPTION>
Quarters Ended Quarters Ended Quarters Ended Quarters Ended Years Ended
March 31, June 30, September 30, December 31, December 31,
-------------- -------------- -------------- -------------- -----------------
1993 1992 1993 1992 1993 1992 1993 1992 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Earnings
- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) $ 73 $ 61 $137 $124 $ 58 $124 $172 $151 $440 $460 $(335)
Add:
Interest expense 44 43 46 43 48 43 47 43 185 172 181
Rental expense
interest factor 7 6 5 6 5 6 12 8 29 26 19
Less equity in
undistributed
earnings of 20-50%
owned companies (9) 2 2 1 (4) 2 (3) (1) (14) 4 (7)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Earnings available for
fixed charges (loss) $115 $112 $190 $174 $107 $175 $228 $201 $640 $662 $(142)
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Fixed Charges
- -------------
Interest expense 44 43 46 43 48 43 47 43 185 172 181
Rental expense interest
factor 7 6 5 6 5 6 12 8 29 26 19
Capitalized interest 1 1 1 1 1
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Fixed charges $ 51 $ 49 $ 52 $ 49 $ 53 $ 50 $ 59 $ 51 $215 $199 $ 201
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Ratio of earnings to
fixed charges 2.25x 2.29x 3.65x 3.55x 2.02x 3.50x 3.86x 3.94x 2.98x 3.33x -
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<FN>
Note:For the purpose 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. After the 1991 special charge of $719 million,
earnings available for fixed charges for the year ended December 31, 1991 were inadequate
by $343 million.
</TABLE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
CONSOLIDATED RAIL CORPORATION
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the regis-
tration statements of Conrail Inc. and subsidiaries on Forms S-
8 (File Nos. 33-19155 and 33-44140) and on Form S-3 (File No.
33-64670) of our report dated January 24, 1994 on our audits of
the consolidated financial statements and financial statement
schedules of Conrail Inc. and subsidiaries as of December 31,
1993 and 1992 and for each of the three years in the period
ended December 31, 1993, which report is included in this
Annual Report on Form 10-K. We also consent to the reference
to our firm under the caption "Selected Financial Data."
COOPERS & LYBRAND
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 24, 1994
Schedule V
<TABLE>
CONRAIL INC.
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
<CAPTION>
Classification Balance at Other Balance
- -------------- Beginning Additions Changes at End of
of Period at Cost Retirements Add (Deduct) Period
--------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1991
Owned:
Roadway $5,894 $255 $ (80) $ 54 (1)(2)(3) $6,123
Equipment 914 67 (79) 2 (1) 904
------ ---- ----- ---- ------
6,808 322 (159) 56 7,027
------ ---- ----- ---- ------
Capital Leases:
Roadway 66 2 (12) (23)(3) 33
Equipment 1,143 74 (97) 1,120
------ ---- ----- ---- ------
1,209 76 (109) (23) 1,153
------ ---- ----- ---- ------
Total $8,017 $398 $(268) $ 33 $8,180
====== ==== ===== ==== ======
1992
Owned:
Roadway $6,123 $428 $(143) $ 57 (4) $6,465
Equipment 904 49 (45) 908
------ ---- ----- ---- ------
7,027 477 (188) 57 7,373
------ ---- ----- ---- ------
Capital Leases:
Roadway 33 5 (5) 33
Equipment 1,120 9 (30) 1,099
------ ---- ----- ---- ------
1,153 14 (35) 1,132
------ ---- ----- ---- ------
Total $8,180 $491 $(223) $ 57 $8,505
1993
Owned:
Roadway $6,465 $313 $(173) $(57) (4) $6,548
Equipment 908 262 (68) 1,102
------ ---- ----- ---- ------
7,373 575 (241) (57) 7,650
------ ---- ----- ---- ------
Capital Leases:
Roadway 33 3 (8) 28
Equipment 1,099 72 (95) 1,076
------ ---- ----- ------
1,132 75 (103) 1,104
------ ---- ----- ---- ------
Total $8,505 $650 $(344) $(57) $8,754
====== ==== ===== ==== ======
<FN>
(1) Acquisition adjustments related to net assets of The
Monongahela Railway Company acquired in 1990 increased Owned
Roadway, $5 million and Owned Equipment, $2 million.
(2) Change in method of accounting for track structure by a
subsidiary from the retirement-replacement-betterment method to
the depreciation accounting method, resulted in an increase of
$26 million.
(3) Acquisition of assets previously under capital leases.
(4) Net assets of Concord Resources Group, Inc. (Concord). During
1992, Conrail increased its ownership interest in Concord from
50% to 81.25%. During 1993, the Company's management committed
to a plan for disposing of its interest in Concord, and
accordingly, changed to the equity method of accounting for its
investment.
</TABLE>
S-1
<PAGE>
Schedule VI
<TABLE>
CONRAIL INC.
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
<CAPTION>
Additions
Balance at Charged to Other Balance
Beginning Cost and Changes at End of
Description of Period Expenses Retirements Add (Deduct) Period
----------- ---------- ---------- ----------- ------------ ---------
(1)
<S> <C> <C> <C> <C> <C>
1991
Owned:
Roadway $ 891 $ 164 $ (45) $20 $1,030
Equipment 400 62 (69) 4 397
------ ---- ----- --- ------
1,291 226 (114) 24 1,427
------ ---- ----- --- ------
Capital Leases:
Roadway 36 3 (12) (2) 25
Equipment 633 78 (97) 2 616
------ ---- ----- --- ------
669 81 (109) - 641
------ ---- ----- --- ------
Total $1,960 $307 $(223) $24 $2,068
====== ==== ===== === ======
1992
Owned:
Roadway $1,030 $161 $ (75) $ 2 $1,118
Equipment 397 58 (49) 3 409
------ ---- ----- --- ------
1,427 219 (124) 5 1,527
------ ---- ----- --- ------
Capital Leases:
Roadway 25 5 (5) 25
Equipment 616 71 (30) 6 663
------ ---- ----- --- ------
641 76 (35) 6 688
------ ---- ----- --- ------
Total $2,068 $295 $(159) $11 $2,215
====== ==== ===== === ======
1993
Owned:
Roadway $1,118 $161 $(161) $ 2 $1,120
Equipment 409 50 (60) 3 402
------ ---- ----- --- ------
1,527 211 (221) 5 1,522
------ ---- ----- --- ------
Capital Leases:
Roadway 25 3 (8) 20
Equipment 663 70 (95) 5 643
------ ---- ----- --- ------
688 73 (103) 5 663
------ ---- ----- --- ------
Total $2,215 $284 $(324) $10 $2,185
====== ==== ===== === ======
<FN>
(1)All changes represent additions charged to property accounts in
connection with construction projects, except for the following:
1991 -Change in method of accounting for track structure by a
subsidiary from the retirement-replacement-betterment method
to the depreciation accounting method increased Owned Roadway
$9 million. Acquisition of assets previously under Capital
Leases, Roadway increased Owned Roadway $5 million and
adjustments related to the acquisition of a subsidiary
increased Owned Roadway $5 million and Owned Equipment, $2
million.
</TABLE>
S-2
<PAGE>
Schedule VIII
<TABLE>
CONRAIL INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
<CAPTION>
Additions
--------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ---------- ---------- -------- ---------- ---------
(1)
<S> <C> <C> <C> <C> <C>
1991
Casualty reserves
Current........ $116 $ 4 (2) $112
Noncurrent..... 171 $110 $12 125 (3) 168
Allowance for
disposition of
property and 339 18 321
equipment (4).......
1992
Casualty reserves
Current........ 112 2 (2) 110
Noncurrent..... 168 122 11 148 (3) 153
Allowance for
disposition of
property and
equipment (4)....... 321 44 277
1993
Casualty reserves
Current........ 110 17 (2) 93
Noncurrent..... 153 122 11 154 (3) 132
Allowance for
disposition of
property and
equipment (4)....... 277 21 256
<FN>
(1) Charges to property accounts in connection with construction projects.
(2) Includes net transfers from noncurrent.
(3) Transfers to current.
(4) Charge to costs and expenses in 1991 represents a portion of
the 1991 Special Charge (see Note 10 to the Consolidated
Financial Statements). Deductions of $18 million, $27 million
and $21 million in 1991, 1992 and 1993, respectively, represent
net losses on asset dispositions. The remaining $17 million
deduction in 1992 represents a net reduction in disposition
requirements as a result of the decision to retain certain
rail lines.
</TABLE>
S-3
<PAGE>
Schedule X
<TABLE>
CONRAIL INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31,
(In Millions)
<CAPTION>
Items Charged to Costs and Expenses
----- -----------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs............. $512 $495 $478
---- ---- ----
Taxes, other than payroll and income
taxes:
Property....................... 50 46 47
Other.......................... 34 22 30
---- ---- ----
Total $ 84 $ 68 $ 77
==== ==== ====
</TABLE>
S-4
