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 September 30, 1995
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or
( )Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission file number 1-9064
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CONSOLIDATED RAIL CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1989084
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Market Street, Philadelphia, Pennsylvania 19101
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(Address of principal executive offices)
(Zip Code)
(215) 209-4000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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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 October 31, 1995)
100*
Registrant meets the conditions set forth in general instructions H(1)
(a) and (b) of Form 10-Q and is therefore filing this form with the
reduced disclosure format.
* Consolidated Rail Corporation is a wholly-owned subsidiary of Conrail
Inc. (CRR).
CONSOLIDATED RAIL CORPORATION
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters and nine months
ended September 30, 1995 and 1994 3
Condensed Consolidated Balance
Sheets - September 30, 1995 and
December 31, 1994 4
Condensed Consolidated Statements
of Cash Flows - Nine months ended
September 30, 1995 and 1994 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 7
Item 2. Management's Analysis of Results
of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
PART I. FINANCIAL INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 1. Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($ In Millions)
Quarters Ended Nine Months Ended
September 30, September 30,
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1995 1994 1995 1994
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Revenues $919 $943 $2,722 $2,735
Operating expenses
Way and structures 116 122 368 387
Equipment 188 204 576 624
Transportation 316 341 983 1,029
General and administrative 91 84 295 263
Early retirement program 84
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Total operating expenses 711 751 2,222 2,387
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Income from operations 208 192 500 348
Interest expense (46) (45) (140) (133)
Other income, net 20 24 77 71
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Income before income taxes 182 171 437 286
Income taxes 67 67 149 114
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Net income $115 $104 $ 288 $ 172
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Ratio of earnings to fixed charges 4.07x 4.13x 3.33x 2.71x
See accompanying notes.
3
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ In Millions) September 30, December 31,
1995 1994
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ASSETS
Current assets
Cash and cash equivalents $ 68 $ 31
Accounts receivable 669 650
Deferred tax assets 241 241
Material and supplies 165 164
Other current assets 30 23
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Total current assets 1,173 1,109
Property and equipment, net 6,680 6,498
Other assets 792 676
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Total assets $8,645 $8,283
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term borrowings 174 112
Current maturities of long-term debt 114 130
Accounts payable 179 122
Wages and employee benefits 175 169
Casualty reserves 107 103
Accrued and other current liabilities 497 549
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Total current liabilities 1,246 1,185
Long-term debt 2,037 1,940
Casualty reserves 208 212
Deferred income taxes 1,336 1,212
Special income tax obligation 459 513
Other liabilities 328 328
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Total liabilities 5,614 5,390
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Stockholder's equity
Preferred stock
Common stock
Additional paid-in capital 2,130 2,128
Note receivable from ESOP (306) (312)
Retained earnings 1,207 1,077
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Total stockholder's equity 3,031 2,893
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Total liabilities and
stockholder's equity $8,645 $8,283
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See accompanying notes.
4
CONSOLIDATED RAIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ In Millions)
Nine Months Ended
September 30,
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1995 1994
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Cash flows from operating activities $ 481 $ 393
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Cash flows from investing activities
Property and equipment acquisitions (327) (371)
Net payments for capital lease buyouts (26)
Other (29) (39)
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Net cash used in investing activities (382) (410)
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Cash flows from financing activities
Net proceeds from short-term borrowings 62 107
Proceeds from long-term debt 85 114
Payment of long-term debt (75) (120)
Dividends paid on common stock (157) (94)
Other 23 23
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Net cash provided by (used in)
financing activities (62) 30
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Increase in cash and cash equivalents 37 13
Cash and cash equivalents
Beginning of period 31 26
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End of period $ 68 $ 39
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See accompanying notes.
5
CONSOLIDATED RAIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The unaudited financial statements contained herein present
the consolidated financial position of Consolidated Rail
Corporation (the "Company") as of September 30, 1995 and
December 31, 1994, the consolidated results of operations for the
three and nine-month periods ending September 30, 1995 and 1994
and the consolidated cash flows for the nine-month periods ended
September 30, 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. As a result of a decrease in a state income tax rate enacted
during the second quarter of 1995, income tax expense for the
nine months ended September 30, 1995 was reduced by $21 million
representing the effects of adjusting deferred income taxes and
the special income tax obligation for the rate decrease as
required under SFAS 109, "Accounting for Income Taxes".
3. 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
is being paid from the Company's overfunded pension plan.
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 nine months of 1995, except as disclosed in the
Annual Report on Form 10-K and the quarterly report on Form 10-Q
for the periods ended June 30, 1995.
6
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholder and Board of Directors of
Consolidated Rail Corporation
We have reviewed the accompanying condensed consolidated balance
sheet of Consolidated Rail Corporation and its subsidiaries (the
"Company") as of September 30, 1995 and the related condensed
consolidated statements of income for the three and nine months ended
September 30, 1995 and September 30, 1994 and the condensed
consolidated statements of cash flows for the nine months ended
September 30, 1995 and September 30, 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 information
for it to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and
the related consolidated statements of income, of stockholder's equity
and of cash flows for the year then ended (not presented herein), and
in our report dated January 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
October 18, 1995
7
CONSOLIDATED RAIL CORPORATION
Item 2. Management's Analysis of Results of Operations.
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Results of Operations
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First Nine Months of 1995 compared with First Nine Months of 1994
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Net income for the first nine months of 1995 was $288 million which
included the tax benefit of $21 million recorded during the second
quarter (see Note 2 to the Condensed Consolidated Financial Statements).
Net income for the first nine months of 1994 was $172 million and
included the one-time after-tax charge of $51 million related to the
early retirement program (see Note 3 to the Condensed Consolidated
Financial Statements).
Operating revenues (primarily freight line haul revenue, but also
including switching, demurrage and incidental revenues) decreased $13
million, or .5%, to $2,722 million for the first nine months of 1995
from $2,735 million for the first nine months of 1994. A 4.7% decrease
in traffic volume resulted in a $122 million decrease in revenues that
was partially offset by revenue increases related to higher average
rates, $80 million, and favorable traffic mix, $17 million. Other
revenues increased $12 million.
Operating expenses decreased $165 million, or 6.9%, from $2,387
million in the first nine months of 1994, which included the $84
million charge related to the non-union voluntary early retirement
program and related costs, to $2,222 million in the first nine months of
1995. The following table sets forth the operating expenses for the two
periods:
First Nine Months
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Increase
($ In Millions) 1995 1994 (Decrease)
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Compensation and benefits $ 957 $ 957 $ -
Fuel 125 140 (15)
Material and supplies 134 162 (28)
Equipment rents 259 289 (30)
Depreciation and amortization 220 208 12
Casualties and insurance 125 145 (20)
Other 402 402 -
Early retirement program 84 (84)
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$2,222 $2,387 $(165)
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Compensation and benefits as a percent of revenues was 35.2% in the
first nine months of 1995 as compared with 35.0% in the first nine
months of 1994.
8
Fuel costs decreased $15 million, or 10.7%, as a result of lower traffic
volume, greater efficiencies and lower average fuel prices.
The decrease of $28 million, or 17.3%, in material and supplies cost was
attributable to a lower level of repair and maintenance expenditures.
Equipment rents decreased $30 million, or 10.4%, primarily as a result
of fewer foreign cars on line and improved equipment utilization.
Casualties and insurance costs were lower by $20 million, or 13.8%,
primarily as a result of an unfavorable year-to-date estimated cost per
claim adjustment made in the third quarter of 1994 and fewer employee
personal injury claims in 1995, which were partially offset by several
large adverse verdicts in 1995.
The Company's operating ratio (operating expenses as a percent of
revenues) was 81.6% for the first nine months of 1995, compared with
87.3% for the first nine months of 1994. Without the $84 million one-
time charge for the early retirement program, the operating ratio for
the first nine months of 1994 would have been 84.2%.
Other income, net increased $6 million, or 8.5%, primarily due to an $8
million gain from a property sale completed during the second quarter of
1995.
The Company's effective income tax rate for the first nine months
of 1995 was 34.1% compared with 39.9% for the same period of 1994.
The decrease is primarily related to a $21 million reduction in
income taxes as a result of a decrease in a state income tax rate
which was enacted during the second quarter of 1995 (see Note 2 to
the Condensed Consolidated Financial Statements).
9
PART II. OTHER INFORMATION
CONSOLIDATED RAIL CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits
12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
(b) Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED RAIL CORPORATION
Registrant
/S/ Bruce B. Wilson
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Bruce B. Wilson
Senior Vice President - Law
/S/ H. W. Brown
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H. W. Brown
Senior Vice President -
Finance and Administration
(Principal Financial Officer)
Date: November 9, 1995
11
EXHIBIT INDEX
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Exhibit
No.
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12 Computations of the ratio of earnings to
fixed charges.
15 Letter re unaudited interim financial
information from Price Waterhouse LLP.
27 Financial data schedule.
12