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, 1996
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 1-12184
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CONRAIL INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2728514
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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 April 30, 1996)
81,595,476.
CONRAIL INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION -----------
Item 1. Financial Statements:
Condensed Consolidated Statements
of Income - Quarters ended
March 31, 1996 and 1995 3
Condensed Consolidated Balance
Sheets - March 31, 1996 and
December 31, 1995 4
Condensed Consolidated Statements
of Cash Flows - Quarters ended
March 31, 1996 and 1995 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 11
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
CONRAIL INC.
Item 1. Financial Statements.
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
[CAPTION]
($ In Millions Except Per Share Data)
Quarters ended
March 31,
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1996 1995
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[S] [C] [C]
Revenues $ 889 $ 889
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Operating expenses
Way and structures 140 134
Equipment 219 201
Transportation 362 343
General and administrative 99 97
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Total operating expenses 820 775
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Income from operations 69 114
Interest expense (47) (48)
Other income, net 28 25
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Income before income taxes 50 91
Income taxes 19 36
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Net income $ 31 $ 55
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Net income per common share
Primary $ .36 $ .66
Fully diluted .35 .61
Dividends per common share $.425 $.375
Weighted average number of shares used in
computing earnings per share (thousands)
Primary 78,002 79,095
Fully diluted 87,759 88,966
Ratio of earnings to fixed charges 1.75x 2.39x
See accompanying notes.
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CONRAIL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
[CAPTION]
($ In Millions)
March 31, December 31,
1996 1995
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[S] [C] [C]
ASSETS
Current assets
Cash and cash equivalents $ 27 $ 73
Accounts receivable 664 614
Deferred tax assets 335 333
Material and supplies 157 158
Other current assets 30 28
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Total current assets 1,213 1,206
Property and equipment, net 6,384 6,408
Other assets 835 810
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Total assets $8,432 $8,424
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings 134 89
Current maturities of long-term debt 150 181
Accounts payable 169 113
Wages and employee benefits 172 183
Casualty reserves 111 110
Accrued and other current liabilities 515 494
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Total current liabilities 1,251 1,170
Long-term debt 1,873 1,911
Casualty reserves 215 217
Deferred income taxes 1,428 1,393
Special income tax obligation 417 440
Other liabilities 304 316
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Total liabilities 5,488 5,447
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Stockholders' equity
Series A ESOP convertible junior
preferred stock 281 282
Unearned ESOP compensation (229) (233)
Common stock 86 85
Additional paid-in capital 2,202 2,187
Employee benefits trust (333) (329)
Retained earnings 1,169 1,176
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3,176 3,168
Treasury stock (232) (191)
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Total stockholders' equity 2,944 2,977
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Total liabilities and
stockholders' equity $8,432 $8,424
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See accompanying notes.
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CONRAIL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
[CAPTION]
($ In Millions)
March 31,
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1996 1995
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[S] [C] [C]
Cash flows from operating activities $ 121 $ 137
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Cash flows from investing activities
Property and equipment acquisitions (18) (85)
Other (16) (41)
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Net cash used in investing activities (34) (126)
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Cash flows from financing activities
Repurchase of common stock (41) (22)
Net proceeds from short-term borrowings 45 67
Payment of long-term debt (97) (22)
Dividends paid on common stock (35) (30)
Dividends paid on preferred stock (10) (10)
Other 5 (1)
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Net cash used in financing activities (133) (18)
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Decrease in cash and cash equivalents (46) (7)
Cash and cash equivalents
Beginning of period 73 43
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End of period $ 27 $ 36
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See accompanying notes.
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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, 1996 and December 31, 1995, and the
consolidated results of operations and cash flows for the three-
month periods ended March 31, 1996 and 1995. 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, 1995, presented in the
Company's Annual Report on Form 10-K.
2. On February 21, 1996, the Board of Directors approved a
voluntary early retirement program and voluntary separation
program for eligible members of the non-union workforce. Eligible
employees had until April 23, 1996 to apply for the programs. A
total of 879 applications have been accepted under both programs.
The Company estimates that the costs of the programs will be
approximately $100 million and will be recorded in the second
quarter of 1996. The majority of the costs of these programs will
be paid from the Company's overfunded pension plan.
3. In April 1995, the Board of Directors approved a $250 million
multi-year stock repurchase program. During the first quarter of
1996, the Company acquired 560,308 shares for approximately $41
million under this program, and at March 31, 1996, approximately
$208 million remained available from this authorization.
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, 1995. There have
been no material developments with respect to these matters during
the first three months of 1996, except as disclosed in the Annual
Report on Form 10-K or elsewhere herein.
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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, 1996 and the related condensed consolidated statements of
income and cash flows for the three months ended March 31, 1996 and
March 31, 1995. 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, 1995,
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 22, 1996, except as to
paragraphs five and six of Note 12 to the consolidated financial
statements which are as of February 21, 1996, 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, 1995, 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 17, 1996
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CONRAIL INC.
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations.
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Results of Operations
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Overview
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Net income for Conrail Inc. ("Conrail" or "the Company") for the
first quarter of 1996 was $31 million ($.36 per share, primary and
$.35 per share fully diluted basis) compared with net income of
$55 million ($.66 per share, primary and $.61 per share, fully
diluted basis) for the first quarter of 1995.
Traffic volume decreased 2.7%, and total revenues for the first
quarter of 1996 were the same as those for the first quarter of
1995. Difficult operating conditions caused by severe weather
experienced over most of the Company's service area during the
quarter were partly responsible for an increase in operating
expenses of $45 million, or 5.8%, during the first quarter of
1996 as compared with those incurred during the first quarter of
1995.
Conrail has revised its projection of 1996 line-haul revenue
growth to between 3.0% and 4.0% from between 3.5% and 4.5%.
The slightly lower revenue projections for the year and higher operating
expenses for the first quarter of 1996 will make it difficult to achieve
the Company's operating ratio (operating expenses as a percent of revenues)
goal of 77.5% for 1996.
On February 21, 1996, the Board of Directors approved a voluntary
early retirement program and voluntary separation program for
eligible members of the non-union workforce. The Company
estimates that the costs of the programs will be approximately
$100 million and will be recorded in the second quarter of 1996.
The majority of the costs of these programs will be paid from the
Company's overfunded pension plan.
First Quarter 1996 compared with First Quarter 1995
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Net income for the first quarter of 1996 was $31 million
compared with a net income for the first quarter of 1995 of $55
million.
Operating revenues (primarily freight and line-haul revenues,
but also including switching, demurrage and incidental revenues)
remained unchanged at $889 million. A 2.7% decrease in traffic
volume in units (freight cars and intermodal trailers and
containers) resulted in a $23 million decrease in revenues.
Average revenue per unit increased for the quarter, resulting
from increases in average rates, $22 million, partially offset
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by an unfavorable traffic mix, $6 million. Other revenues
increased $7 million.
Operating expenses increased $45 million, or 5.8%, from $775
million in the first quarter of 1995 to $820 million in the
first quarter of 1996. The following table sets forth the
operating expenses for the two periods:
First Quarter
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Increase
($ In Millions) 1996 1995 (Decrease)
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Compensation and benefits $344 $332 $12
Fuel 50 46 4
Material and supplies 60 56 4
Equipment rents 98 85 13
Depreciation and amortization 71 73 (2)
Casualties and insurance 48 39 9
Other 149 144 5
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$820 $775 $45
==== ==== ====
Compensation and benefits as a percent of revenues was 38.7% in
the first quarter of 1996 as compared with 37.4% in the first
quarter of 1995. The increased labor costs of $12 million, or
3.6%, were primarily a result of increased wage rates, increased
train crew costs and the overtime caused by the adverse weather
conditions experienced during the quarter, which were partially
offset by fewer employees in the first quarter of 1996.
Fuel costs increased $4 million, or 8.7%, as a result of higher
average fuel prices during the first quarter of 1996 as compared
with the same quarter of 1995, and these higher prices are
expected to continue in 1996.
The increase of $13 million, or 15.3%, in equipment rents was
primarily caused by the declines in equipment utilization
reflecting the adverse weather conditions experienced during the
quarter, as well as a decrease in locomotives temporarily leased
to other railroads.
Casualties and insurance costs increased $9 million, or 23.1%,
primarily due to an increase in the cost and number of
occupational health claims and to damage to equipment and
property owned by others resulting from several derailments
during the quarter. Employee injuries were about the same in
both quarters.
The Company's operating ratio was 92.3% for the first quarter of
1996 compared with 87.2% for the first quarter of 1995.
Liquidity and Capital Resources
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The Company's cash and cash equivalents decreased $46 million in
the first quarter of 1996, from $73 million at December 31, 1995
to $27 million at March 31, 1996. Cash generated from
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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 1996, operating activities provided cash of
$121 million and net short-term borrowings provided $45 million.
The principal uses of cash during the quarter were for: payment
of long-term debt, $97 million; cash dividends on common and
preferred stock, $45 million; repurchase of common stock, $41
million; and property and equipment acquisitions, $18 million.
A working capital (current assets less current liabilities)
deficiency of $38 million existed at March 31, 1996 as compared
with working capital of $36 million at December 31, 1995.
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 April 1995, the Board of Directors approved a $250 million
multi-year stock repurchase program. During the first quarter of
1996, the Company acquired 560,308 shares for approximately $41
million under this program, and at March 31, 1996, approximately
$208 million remained available from this authorization.
During the first quarter of 1996, Consolidated Rail Corporation
issued $45 million of commercial paper. At March 31, 1996, $234
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.
Other Matters
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Consolidated Rail Corporation, through the National Carriers'
Conference Committee, is in various stages of negotiations with
the labor organizations representing its unionized workforce.
On May 8, 1996, the President appointed an Emergency Board to
investigate disputes between the railroads and the
Transportation Communications International Union ("TCU"), who
otherwise would have been entitled to strike. Conrail cannot
predict the outcome of the labor negotiations with the TCU or
its other unions at this time.
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PART II. OTHER INFORMATION
CONRAIL INC.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
3.1 Amended Articles of Incorporation of Conrail Inc.
11 Statement of earnings 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
On February 21, 1996, the Company filed a report
on Form 8-K reporting the following under "Item 5.
Other Events,": On February 21, 1996, the Company
issued a press release announcing early
retirement and voluntary separation programs to be
undertaken by its wholly-owned subsidiary,
Consolidated Rail Corporation, and commenting on the
effect of severe winter weather and sluggish economic
conditions on first quarter performance.
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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/ Timothy T. O'Toole
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Timothy T. O'Toole
Senior Vice President - Finance
(Principal Financial Officer)
Date: May 13, 1996
EXHIBIT INDEX
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Exhibit
No.
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3.1 Amended Articles of
Incorporation of Conrail Inc.
11 Statement of earnings 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.