EXHIBIT 99.4
SELECTED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements included herein
present the Corporation's historical balance sheet and income statement
for 1996 adjusted to reflect its acquisition of an interest in Conrail
accounted for under the equity method. See Item 5 of the Corporation's
Current Report on Form 8-K dated April 8, 1997 and filed on April 10,
1997, which is amended hereby. Capitalized terms used herein but not
otherwise defined shall have the meanings assigned thereto in the
Form 8-K.
The equity method of accounting will be used during the period
the Conrail shares are held in a voting trust. The accounting treatment
for the Corporation's investment in Conrail after STB approval is
received will be determined based upon the extent of control that the
Corporation and CSX will individually have over specific Conrail assets
and is expected to be resolved after completion of the more-detailed
definitive documentation to be negotiated between the Corporation and CSX.
The unaudited pro forma financial statements do not reflect
synergies, and accordingly, do not account for any potential increases in
operating income, any estimated cost savings, any adjustments to conform
accounting practices or any one-time costs incurred by either the
Corporation or Conrail to achieve such improvements. The unaudited pro
forma financial statements are prepared for illustrative purposes only
and are not necessarily indicative of the financial position or results
of operations that might have occurred had the applicable transactions
actually taken place on the date indicated, or of future results of
operations or financial position of the stand-alone or combined entities.
Consummation of the Joint Offer by the Corporation and CSX is conditioned
upon, among other things, that prior to the expiration of the Joint
Offer, there shall have been validly tendered and not withdrawn such
number of shares which, together with the shares already beneficially
owned by the Corporation and CSX, constitutes at least a majority of
outstanding shares on a fully diluted basis. Consummation of the
transactions contemplated under the Agreement is conditioned upon, among
other things, approval of the STB.
The Acquisition is reflected in the pro forma balance sheet as if
it had occurred on December 31, 1996, and in the statement of income as if
it had occurred on January 1, 1996. The financial information for Conrail
is for 1996 and was excerpted from the consolidated financial statements of
Conrail included elsewhere herein. Conrail's 1996 results include a special
charge of $135 million (pre-tax) for voluntary separation programs.
The unaudited pro forma financial statements are based on the
historical consolidated financial statements of the Corporation and
Conrail and should be read in conjunction with such historical financial
statements and the notes thereto.
Pro Forma Condensed Consolidated Balance Sheet of the Corporation
As of December 31, 1996
Unaudited
($ in millions)
Pro Forma
Pro Forma with Conrail
Historical Adjustments Investment
---------- ----------- -------------
ASSETS
Current assets........................ $ 1,457 $ $ 1,457
Investments........................... 274 6,011 (1) 6,285
Property and equipment, net........... 9,529 9,529
Other assets.......................... 156 156
--------- ----------- ---------
Total assets....................... $ 11,416 $ 6,011 $ 17,427
========= ========== ===========
LIABILITIES AND EQUITY
Current liabilities................... $ 1,190 1,190
Long-term debt........................ 1,800 6,011 (2) 7,811
Other liabilities .................... 1,037 1,037
Deferred income taxes................. 2,412 2,412
--------- --------- ------------
Total liabilities.................. $ 6,439 $ 6,011 $ 12,450
Stockholders' equity
Common stock.......................... 132 132
Additional paid in capital............ 462 462
Retained earnings..................... 4,404 4,404
Treasury stock........................ (21) (21)
-------- -------------- -----------
Total stockholders' equity......... 4,977 4,977
-------- -------------- -----------
$ 11,416 $ 6,011 $ 17,427
======== ============== ===========
See accompanying Notes to Pro Forma Financial Statements.
Pro Forma Condensed Consolidated Statement of Income of the Corporation
Year ended December 31, 1996
Unaudited
($ in millions, except per share data)
Pro Forma
Pro Forma with Conrail
Historical Adjustments Investment(3)
---------- ----------- -------------
Transportation operating revenues........... $ 5,031 $ $ 5,031
Transportation operating expenses........... 3,834 3,834
----- -----
Income from operations................... 1,197 1,197
Other income - net.......................... 116 122 (4) 238
Interest expense on debt.................... (116) (415)(2) (531)
------- ----- -----
Income before income taxes............... 1,197 (293)(x) 904
Provision for income taxes.................. 427 (154)(5) 273
------ ----- ------
Net income............................... $ 770 $ (139) $ 631
====== ======== ========
Earnings per share.......................... $6.09 $ 4.99
Average number of shares (in thou-
sands)...................................... 126,457 126,457
See accompanying Notes to Pro Forma Financial Statements.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Pursuant to the Agreement, the Corporation will invest approximately
$5.9 billion (including $943 million already expended) to acquire
various Conrail routes and assets or rights thereto. The acquisition
is expected to be financed with a combination of notes and commercial
paper debt. The purchase price has been preliminarily calculated as
follows:
(in millions,
except per
Preliminary Calculation of Purchase Price share data)
Conrail shares outstanding December 31, 1996 89,549
Less: Shares acquired pursuant to CSX's first tender offer (17,775)
Shares acquired pursuant to the Corporation's first
tender offer (8,200)
--------
63,574
Joint tender offer price per share $ 115
--------
Cost of Shares to be acquired pursuant to the
Joint Offer 7,311
Plus: Cost of Shares acquired pursuant to CSX's first
tender offer 1,955
Cost of Shares acquired pursuant to the Corporation's
first tender offer 943
---------
10,209
The Corporation's allocation 58%
---------
5,921
Estimated transaction fees payable by the Corporation 90
---------
Purchase price payable by the Corporation
$ 6,011
(2) Long-term debt has been increased by $6.0 billion to reflect the
financing of the acquisition and related transcation costs. The Pro
Forma Statement of Income reflects the estimated increase in interest
expense, at an estimated 6.9% on that debt. If interest rates vary
by one-eighth of one percent from that assumed, interest expense
would change by $8 million annually.
(3) As described in note 4 below, pro forma amounts reflected in the Pro
Forma Condensed Consolidated Statement of Income were calculated and
presented in accordance with the equity method of accounting.
Excluding the effects of Conrail's one-time after-tax charge of $83
million related to voluntary separation programs and after-tax
merger-related costs of $10 million, pro forma net income and pro
forma earnings per share for 1996 would have been $681 million and
$5.39, respectively.
(4) The equity method of accounting will be applied to the Corporation's
investment in Conrail during the pendency of the voting trust in
accordance with Accounting Principles Board Opinion No. 18, "The
Equity Method of Accounting for Investments in Common Stock."
Accordingly, the Pro Forma Statement of Income includes 58% of
Conrail's 1996 historical net income, adjusted for amortization, net
of tax, of the difference between the Corporation's investment in
Conrail and Conrail's underlying equity in net assets. The
difference is primarily attributable to the estimated fair value of
property and equipment, net of the related deferred taxes and
includes approximately $200 million in goodwill. This adjustment is
based on preliminary estimates of fair values and is likely to
change as additional information in the form of appraisals,
actuarial reports and other valuations are made.
(5) The pro forma income statement includes the tax effect of the
additional interest expense (see Note 2 above) and the tax effect of
the equity income (see note 4 above).