SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995
--------------
or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ ------
Commission file number 1-12184
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CONRAIL INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2728514
- --------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Market Street, Philadelphia, Pennsylvania 19101
- --------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 209-4000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares of common stock outstanding (as of April 28, 1995)
78,325,940
<PAGE>
CONRAIL INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION -----------
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters ended
March 31, 1995 and 1994 3
Condensed Consolidated Balance
Sheets - March 31, 1995 and
December 31, 1994 4
Condensed Consolidated Statements
of Cash Flows - Quarters ended
March 31, 1995 and 1994 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
CONRAIL INC.
Item 1. Financial Statements.
--------------------
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
($ In Millions Except Per Share Data)
Quarters ended
March 31,
-------------------
1995 1994
----- -----
<S> <C> <C>
Revenues $ 889 $ 847
----- -----
Operating expenses
Way and structures 134 144
Equipment 201 210
Transportation 343 350
General and administrative 97 91
Early retirement program 84
----- -----
Total operating expenses 775 879
----- -----
Income (loss) from operations 114 (32)
Interest expense (48) (47)
Other income, net 25 26
----- -----
Income (loss) before income taxes 91 (53)
Income taxes (benefits) 36 (21)
----- -----
Net income (loss) $ 55 $ (32)
===== =====
Net income (loss) per common share
Primary $ .66 $(.45)
Fully diluted .61 (.45)
Dividends per common share $.375 $.325
Weighted average number of shares used in
computing earnings (loss) per share (thousands)
Primary 79,095 79,629
Fully diluted 88,966 79,629
Ratio of earnings to fixed charges 2.39x -
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
CONRAIL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
($ In Millions) March 31, December 31,
1995 1994
---------- ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 36 $ 43
Accounts receivable 634 646
Deferred tax assets 249 249
Material and supplies 177 164
Other current assets 20 23
------ ------
Total current assets 1,116 1,125
Property and equipment, net 6,564 6,498
Other assets 753 699
------ ------
Total assets $8,433 $8,322
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings 179 112
Current maturities of long-term debt 128 130
Accounts payable 148 119
Wages and employee benefits 153 169
Casualty reserves 96 103
Accrued and other current liabilities 546 568
------ ------
Total current liabilities 1,250 1,201
Long-term debt 1,977 1,940
Casualty reserves 210 212
Deferred income taxes 1,242 1,203
Special income tax obligation 495 513
Other liabilities 327 328
------ ------
Total liabilities 5,501 5,397
------ ------
Stockholders' equity
Series A ESOP convertible junior
preferred stock 283 283
Unearned ESOP compensation (240) (243)
Common stock 80 80
Additional paid-in capital 1,852 1,848
Retained earnings 1,078 1,056
------ ------
3,053 3,024
Treasury stock (121) (99)
------ ------
Total stockholders' equity 2,932 2,925
------ ------
Total liabilities and
stockholders' equity $8,433 $8,322
====== ======
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
CONRAIL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
($ In Millions)
Quarters ended
March 31,
----------------
1995 1994
----- -----
<S> <C> <C>
Cash flows from operating activities $ 137 $ 62
----- -----
Cash flows from investing activities
Property and equipment acquisitions (85) (68)
Other (41) (2)
----- -----
Net cash used in investing activities (126) (70)
----- -----
Cash flows from financing activities
Repurchase of common stock (22) (24)
Net proceeds from short-term borrowings 67 33
Payment of capital lease and equipment obligations (17) (18)
Proceeds from medium-term notes 50
Payment of medium-term notes (5) (5)
Dividends paid on common stock (30) (26)
Dividends paid on preferred stock (10) (5)
Other (1) 8
----- -----
Net cash provided by (used in) financing
activities (18) 13
----- -----
Increase (decrease) in cash and cash equivalents (7) 5
Cash and cash equivalents
Beginning of period 43 38
----- -----
End of period $ 36 $ 43
===== =====
See accompanying notes.
</TABLE>
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<PAGE>
CONRAIL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The unaudited financial statements contained herein present
the consolidated financial position of Conrail Inc. (the
"Company") as of March 31, 1995 and December 31, 1994, and the
consolidated results of operations and cash flows for the quarters
ended March 31, 1995 and 1994. In the opinion of management,
these financial statements include all adjustments, consisting of
normal recurring adjustments necessary to present fairly the
results for the interim periods included.
The rules and regulations of the Securities and Exchange
Commission permit certain information and footnote disclosures,
ordinarily required by generally accepted accounting principles,
to be condensed or omitted from interim financial reports.
Accordingly, the financial statements included herein should be
read in conjunction with the audited financial statements and
notes for the year ended December 31, 1994, presented in the
Company's Annual Report on Form 10-K.
2. During the first quarter of 1994, the Company recorded a
charge of $51 million (after tax benefits of $33 million) for a
non-union employee voluntary early retirement program and related
costs. The majority of the cost of the early retirement program
will be paid from the Company's overfunded pension plan.
3. In July 1994, the Board of Directors authorized a $100
million common stock repurchase program. During the first quarter
of 1995, the Company acquired 396,060 shares for approximately $22
million under this program, and at March 31, 1995, approximately
$70 million remained from the authorization. On April 19, 1995,
the Board of Directors approved an additional $250 million multi-
year stock repurchase program. The Board also approved the
issuance of $250 million in the Company's common stock to a trust
to fund certain employee benefits and other forms of compensation.
4. Information regarding contingent liabilities and litigation
was included in Note 12 to Consolidated Financial Statements and
Part I, Item 3 - Legal Proceedings in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994. There have
been no material developments with respect to these matters during
the first three months of 1995, except as disclosed in the Annual
Report on Form 10-K.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors of
Conrail Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of Conrail Inc. and its subsidiaries (the "Company") as of
March 31, 1995 and the related condensed consolidated statements of
income and cash flows for the three months ended March 31, 1995 and
March 31, 1994. This financial information is the responsibility of
the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying interim financial informa-
tion for it to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994,
and the related consolidated statements of income, of stockholders'
equity and of cash flows for the year then ended (not presented
herein), and in our report dated January 23, 1995 we expressed an
unqualified opinion on those consolidated financial statements and
included an explanatory paragraph describing the Company's change in
methods of accounting for income taxes and postretirement benefits
other than pensions in 1993. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1994, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been
derived.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
April 19, 1995
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<PAGE>
CONRAIL INC.
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
Results of Operations
---------------------
Overview
--------
Net income for Conrail Inc. ("Conrail" or "the Company") for the
first quarter of 1995 was $55 million ($.66 per share, primary and
$.61 per share fully diluted basis) compared with a net loss of
$32 million ($.45 per share, primary and fully diluted basis) for
the first quarter of 1994. The first quarter of 1994 includes a
one-time charge of $51 million (net of $33 million tax benefits)
relating to a non-union voluntary early retirement program and
related costs (see Note 2 to the Condensed Consolidated Financial
Statements). Absent this one-time charge, the Company would have
shown net income of $19 million for the first quarter of 1994
($.20 primary and $.19 fully diluted).
Traffic volume and revenues for the first quarter of 1995
increased 1.6% and 5.0%, respectively, as compared with the
first quarter of 1994. Operating expenses decreased $20
million, or 2.5%, for the first three months of 1995 as compared
with the comparable period of 1994 (excluding the 1994 one-time
early retirement program charge). The Company's operating
expenses for the first quarter of 1994 were unfavorably affected
by difficult operating conditions primarily caused by adverse
weather coincident with the Company's marketing department and
certain of its operating functions being reorganized into four
service groups.
Due to a weakening economy and lower than expected volumes of
less-than-truckload intermodal traffic, the Company has revised
its 1995 projection of between a 2.5% and 3.5% increase in line-
haul revenue to between 2.0% and 3.0% growth, and is currently in
the process of further evaluating this estimate to determine if
addtional downward adjustments are appropriate in light of
recent traffic levels. Despite the lower revenue projections,
the Company has not changed its goal of attaining a 79.5% operating
ratio (operating expenses as a pecent of revenues) for 1995.
The Company is continuing the process of evaluating certain
portions of its route system and other facilities to determine
the extent to which such assets effectively and economically
- 8 -
<PAGE>
support Conrail's operations. It is not possible at this time
to estimate the extent of asset rationalization and other
changes that may ultimately result from this evaluation process
or the effect that such actions may have on the Company's
financial statements.
First Quarter 1995 compared with First Quarter 1994
---------------------------------------------------
Net income for the first quarter of 1995 was $55 million
compared with a net loss for the first quarter of 1994 of $32
million, after the effects of the one-time charge for the early
retirement program (See Note 2 to the Condensed Consolidated
Financial Statements).
Operating revenues (primarily freight and line-haul revenues,
but also including switching, demurrage and incidental revenues)
increased $42 million, or 5.0%, from $847 million in the first
quarter of 1994 to $889 million in the first quarter of 1995. A
1.6% increase in traffic volume in units (freight cars and
intermodal trailers and containers) resulted in a $13 million
increase in revenues. Average revenue per unit also increased
for the quarter, resulting from increases in average rates, $27
million, partially offset by an unfavorable traffic mix and
other miscellaneous factors, $5 million. Switching, demurrage
and incidental revenues increased $7 million.
Operating expenses decreased $104 million, or 11.8%, from $879
million in the first quarter of 1994, which included the $84
million charge related to the non-union voluntary early
retirement program and related costs, to $775 million in the
first quarter of 1995. The following table sets forth the
operating expenses for the two periods:
First Quarter
-------------
Increase
($ In Millions) 1995 1994 (Decrease)
---- ---- ----------
Compensation and benefits $332 $341 $ (9)
Fuel 46 47 (1)
Material and supplies 56 62 (6)
Equipment rents 85 91 (6)
Depreciation and amortization 73 70 3
Casualties and insurance 39 45 (6)
Other 144 139 5
Early retirement program 84 (84)
---- ---- ------
$775 $879 $ (104)
==== ==== ======
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<PAGE>
Compensation and benefits as a percent of revenues was 37.4% in
the first quarter of 1995 as compared with 40.3% in the first
quarter of 1994. The decrease in labor costs of $9 million, or
2.6%, was primarily due to savings from lower employment levels
and a decrease in payroll taxes, partially offset by increases
in fringe benefit costs.
The decrease of $6 million, or 9.7%, in material and supplies
cost was mostly attributable to a lower level of expenditures
for repairs and maintenance of locomotives.
Equipment rents decreased $6 million, or 6.6%, principally as a
result of improvements in equipment utilization.
Casualties and insurance costs decreased by $6 million, or
13.3%, primarily due to a lower frequency of employee injuries.
In the first quarter of 1994, the Company incurred a one-time
charge of $84 million for the non-union voluntary early
retirement program and related costs (see Note 2 to the
Condensed Consolidated Financial Statements).
The Company's operating ratio was 87.2% for the first quarter of
1995 compared with 103.8% for the first quarter of 1994.
Without the one-time charge for the early retirement program,
the operating ratio for the first quarter of 1994 would have
been 93.8%.
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents decreased $7 million in
the first quarter of 1995, from $43 million at December 31, 1994
to $36 million at March 31, 1995. Cash generated from
operations, primarily from its wholly-owned subsidiary,
Consolidated Rail Corporation, and borrowings have been the
Company's principal sources of liquidity and are used primarily
for capital expenditures, debt service and dividends. In the
first quarter of 1995, operating activities provided cash of
$137 million and net short-term borrowings provided $67 million.
The principal uses of cash during the quarter were for:
property and equipment acquisitions, $85 million; cash dividends
on common and preferred stock, $40 million; repurchase of common
stock, $22 million; and payment of capital lease and equipment
obligations, $17 million.
- 10 -
<PAGE>
A working capital (current assets less current liabilities)
deficiency of $134 million existed at March 31, 1995 as compared
with a deficiency of $76 million at December 31, 1994.
Management believes that the Company's financial position allows
it sufficient access to credit sources on investment grade
terms, and, if necessary, additional intermediate or long-term
debt could be obtained for working capital requirements.
In July 1994, the Company announced a third common stock
repurchase program of up to $100 million. During the first
quarter of 1995, 396,060 shares were acquired for $22 million,
bringing the total acquired under this program through March 31,
1995 to 571,560 shares at a cost of $30 million. On April 19,
1995, the Board of Directors approved an additional $250 million
multi-year stock repurchase program. The Board also approved
the issuance of $250 million in the Company's common stock to a
trust to fund certain employee benefits and other forms of
compensation.
During the first quarter of 1995, Consolidated Rail Corporation
issued $45 million of commercial paper and repaid $8 million.
At March 31, 1995, $249 million of commercial paper remained
outstanding, of which $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.
During March 1995, Consolidated Rail Corporation borrowed $30
million under its uncollateralized bank credit agreement at an
interest rate of 6.4%, which was repaid in April 1995.
- 11 -
<PAGE>
PART II. OTHER INFORMATION
CONRAIL INC.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
11 Statement of earnings (loss) per
share computations.
12 Computations of the ratio of
earnings to fixed charges.
15 Letter re unaudited interim
financial information from Price Waterhouse LLP.
27 Financial data schedule.
(b) Reports on Form 8-K
None
- 12 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONRAIL INC.
Registrant
/s/ Bruce B. Wilson
------------------------------
Bruce B. Wilson
Senior Vice President - Law
/s/ H. W. Brown
------------------------------
H. W. Brown
Senior Vice President -
Finance and Administration
(Principal Financial Officer)
Date: May 11, 1995
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No.
-------
11 Statement of earnings (loss)
per share computations.
12 Computations of the ratio of
earnings to fixed charges.
15 Letter re unaudited interim
financial information from
Price Waterhouse LLP.
27 Financial data schedule.
<PAGE>
<TABLE>
Exhibit 11
----------
CONRAIL INC.
-----------
EARNINGS (LOSS) PER SHARE COMPUTATIONS
--------------------------------------
<CAPTION>
($ In Millions Except Per Share)
Quarters ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Net income (loss)
-----------------
Primary
Net income (loss) $ 55 $(32)
Dividends declared on Series A
ESOP convertible junior preferred
stock (ESOP Stock), net of
tax benefits (3) (3)
---- ----
$ 52 $(35)
==== ====
Fully diluted
Income (loss) 55 (32)
Dividends declared on ESOP Stock,
net of tax benefits (3)
Nondiscretionary adjustment (1) (1)
---- ----
$ 54 $(35)
==== ====
Weighted average number of shares
---------------------------------
Primary
Weighted average number of
common shares outstanding 78,598,669 79,628,510
Effect of shares issuable under
employee stock compensation plans (2) 496,599 -
---------- ----------
79,095,268 79,628,510
========== ==========
Fully diluted
Weighted average number of
common shares outstanding 78,598,669 79,628,510
Series A ESOP convertible
junior preferred (3) 9,821,354 -
Effect of shares issuable under
employee stock compensation plans (2) 545,607 -
---------- ----------
88,965,630 79,628,510
========== ==========
Net income (loss) per common share
Primary $ .66 $(.45)
Fully diluted .61 (.45)
</TABLE>
Page 1 of 2
<PAGE>
Exhibit 11
----------
CONRAIL INC.
------------
EARNINGS (LOSS) PER SHARE COMPUTATIONS
--------------------------------------
Notes: 1. Represents the increase, net of income tax benefits,
in ESOP-related expenses assuming conversion of all
ESOP Stock to common stock.
2. The effects of shares issuable under employee stock
compensation plans were antidilutive for the first
quarter of 1994 and were excluded from the per share
calculations.
3. The effects of the assumed conversion of Series A
ESOP convertible junior preferred stock were
antidilutive for the first quarter of 1994 and were
excluded from the per share calculation.
Page 2 of 2
<PAGE>
<TABLE>
Exhibit 12
----------
CONRAIL INC.
-----------
COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------
($ In Millions)
Quarters ended
March 31,
--------------
1995 1994
---- ----
<S> <C> <C>
Earnings
--------
Pre-tax income (loss) $ 91 $(53)
Add:
Interest expense 48 47
Rental expense interest factor 14 9
Less equity in undistributed earnings
of 20-50% owned companies (5) (3)
---- ----
Earnings available for fixed charges 148 -
==== ====
Fixed charges
-------------
Interest expense 48 47
Rental expense interest factor 14 9
---- ----
Fixed charges $ 62 $ 56
==== ====
Ratio of earnings to fixed charges 2.39x -
<FN>
For purposes of computing the ratio of earnings to fixed
charges, earnings represent income before income taxes plus
fixed charges, less equity in undistributed earnings of 20% to
50% owned companies. Fixed charges represent interest expense
together with interest capitalized and a portion of rent under
long-term operating leases representative of an interest factor.
After the one-time charge in the first quarter of 1994, earnings
were insufficient by $56 million to cover fixed charges for the
quarter.
</FN>
</TABLE>
Exhibit 15
----------
May 11 , 1995
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Sirs:
We are aware that Conrail Inc. has incorporated by
reference our report dated April 19, 1995 (issued
pursuant to the provisions of Statement on Auditing
Standards No. 71) in the following registration
statements:
* Registration Statement on Form S-8 No. 33-19155
* Registration Statement on Form S-8 No. 33-44140
* Registration Statement on Form S-8 No. 33-57717
* Registration Statement on Form S-3 No. 33-64670.
We are also aware of our responsibilities under the
Securities Act of 1933 and that pursuant to Rule 436(c)
our report dated April 19, 1995 shall not be considered
part of a registration statement prepared or certified
by us or a report prepared or certified by us within
the meaning of Sections 7 and 11 of the Securities Act
of 1933.
Very truly yours,
PRICE WATERHOUSE LLP
Thirty South Seventheenth Street
Philadelphia, PA 19103
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
----------
CONRAIL INC.
FINANCIAL DATA SCHEDULE
($ In Millions Except Per Share)
<CAPTION>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q.
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Mar-31-1995
<PERIOD-TYPE> 3-MOS
<S> <C>
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 634
<ALLOWANCES> 0
<INVENTORY> 177
<CURRENT-ASSETS> 1,116
<PP&E> 6,564
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,433
<CURRENT-LIABILITIES> 1,250
<BONDS> 1,977
0
283
<COMMON> 80
<OTHER-SE> 2,569
<TOTAL-LIABILITY-AND-EQUITY> 8,433
<SALES> 0
<TOTAL-REVENUES> 889
<CGS> 0
<TOTAL-COSTS> 775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 91
<INCOME-TAX> 36
<INCOME-CONTINUING> 55
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> .66
<EPS-DILUTED> .61
<PAGE>
</TABLE>
