-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QvIEJBPD/Rczs7vD/XYHLKjVh2UtNn5PEcW4AvWMmWqkQ0mKvGgRgsrqUuksJGei swgD/QZEBMjYWMmZgfk83w== 0000897732-96-000019.txt : 19960806 0000897732-96-000019.hdr.sgml : 19960806 ACCESSION NUMBER: 0000897732-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960805 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONRAIL INC CENTRAL INDEX KEY: 0000897732 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 232728514 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12184 FILM NUMBER: 96603904 BUSINESS ADDRESS: STREET 1: TWO COMMERCE SQ STREET 2: P O BOX 41417 CITY: PHILADELPHIA STATE: PA ZIP: 19101-1417 BUSINESS PHONE: 2152094434 MAIL ADDRESS: STREET 1: P.O. BOX 41429 STREET 2: 2001 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19101-1429 10-Q 1 10Q -BODY 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 June 30, 1996 ------------- 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 ------- 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 - ---------------------------------------------------------------------- (Registrant's telephone number, including area code) - ---------------------------------------------------------------------- (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 Conrail Inc. common stock outstanding (as of July 15, 1996) 81,066,843 CONRAIL INC. INDEX Page Number ------------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Statements of Income - Quarters and six months ended June 30, 1996 and 1995 3 Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 4 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Report of Independent Accountants 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 - 2 - 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 Six Months Ended June 30, June 30, ---------------- ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ [S] [C] [C] [C] [C] Revenues $949 $923 $1,838 $1,812 Operating expenses Way and structures 119 117 259 251 Equipment 199 187 418 388 Transportation 355 330 717 673 General and administrative 87 109 186 206 Voluntary separation programs 135 135 ---- ---- ------ ------ Total operating expenses 895 743 1,715 1,518 ---- ---- ------ ------ Income from operations 54 180 123 294 Interest expense (46) (50) (93) (98) Other income, net 30 35 58 60 ---- ---- ------ ------ Income before income taxes 38 165 88 256 Income taxes 12 42 31 78 ---- ---- ------ ------ Net income $ 26 $123 $ 57 $ 178 ==== ==== ====== ====== Net income per common share Primary $ .30 $1.52 $ .66 $2.17 Fully diluted .29 1.37 .64 1.98 Dividends per common share $ .425 $.375 $ .85 $ .75 Weighted average number of shares used in computing earnings per share (thousands) Primary 77,485 78,710 77,748 78,903 Fully diluted 87,230 88,569 87,499 88,765 Ratio of earnings to fixed charges 1.57x 3.42x 1.66x 2.92x See accompanying notes. - 3 - CONRAIL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) [CAPTION] ($ In Millions) June 30, December 31, 1996 1995 -------- ------------ [S] [C] [C] ASSETS Current assets Cash and cash equivalents $ 28 $ 73 Accounts receivable 667 614 Deferred tax assets 337 333 Material and supplies 156 158 Other current assets 35 28 ------ ------ Total current assets 1,223 1,206 Property and equipment, net 6,446 6,408 Other assets 672 810 ------ ------ Total assets $8,341 $8,424 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings 35 89 Current maturities of long-term debt 156 181 Accounts payable 153 113 Wages and employee benefits 192 183 Casualty reserves 114 110 Accrued and other current liabilities 563 494 ------ ------ Total current liabilities 1,213 1,170 Long-term debt 1,887 1,911 Casualty reserves 213 217 Deferred income taxes 1,408 1,393 Special income tax obligation 393 440 Other liabilities 328 316 ------ ------ Total liabilities 5,442 5,447 ------ ------ Stockholders' equity Series A ESOP convertible junior preferred stock 281 282 Unearned ESOP compensation (227) (233) Common stock 86 85 Additional paid-in capital 2,184 2,187 Employee benefits trust (306) (329) Retained earnings 1,157 1,176 ------ ------ 3,175 3,168 Treasury stock (276) (191) ------ ------ Total stockholders' equity 2,899 2,977 ------ ------ Total liabilities and stockholders' equity $8,341 $8,424 ====== ====== See accompanying notes. - 4 - CONRAIL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) [CAPTION] ($ In Millions) Six Months Ended June 30, ---------------- 1996 1995 ----- ----- [S] [C] [C] Cash flows from operating activities $ 329 $ 306 ----- ----- Cash flows from investing activities Property and equipment acquisitions (117) (224) Payments for capital lease buyouts (17) (56) Other (11) (48) ----- ----- Net cash used in investing activities (145) (328) ----- ----- Cash flows from financing activities Repurchase of common stock (85) (39) Net proceeds from (reductions in) short-term borrowings (54) 102 Loans from and redemptions of insurance policies 95 Proceeds from long-term debt 85 Payment of long-term debt (113) (53) Dividends paid on common stock (69) (59) Dividends paid on preferred stock (10) (16) Other 7 5 ----- ----- Net cash provided by (used in) financing activities (229) 25 ----- ----- Increase (decrease) in cash and cash equivalents (45) 3 Cash and cash equivalents Beginning of period 73 43 ----- ----- End of period $ 28 $ 46 ===== ===== See accompanying notes. - 5 - 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 June 30, 1996 and December 31, 1995, the consolidated results of operations for the three and six-month periods ending June 30, 1996 and 1995 and the consolidated cash flows for the six-month periods ended June 30, 1996 and 1995. In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments and the voluntary separation programs charge mentioned in Note 2, 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. During the second quarter of 1996, the Company recorded a charge of $135 million (before tax benefits of $52 million) consisting of termination benefits to be paid to non-union employees participating in the voluntary retirement and separation programs ("voluntary separation programs") of $102 million and losses on long-term non-cancellable leases for office space no longer required as a result of the reductions in the Company's workforce. The charge increased from the Company's original estimate in May 1996 of approximately $100 million, primarily due to changes in estimates related to losses on the long-term leases. A total of 879 applications were accepted from eligible employees under both programs. Approximately $90 million of the termination benefits to be paid under the voluntary separation programs will be paid from the Company's overfunded pension plan. 3. As a result of a decrease in a state income tax rate enacted during the second quarter of 1995, income tax expense for the quarter and six months ended June 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 Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". - 6 - 4. In April 1996, Consolidated Rail Corporation, the Company's principal subsidiary, issued $50 million of Pass-Through Certificates at a rate of 6.96% to finance equipment. Although the certificates are not direct obligations of, or guaranteed by Consolidated Rail Corporation, amounts payable under two related capital leases will be sufficient to pay principal and interest on the certificates. In July 1996, Consolidated Rail Corporation issued $26 million of 1996 Equipment Trust Certificates, Series A, with interest rates ranging from 6.0% to 7.48%, maturing annually from 1997 to 2011. The certificates were used to finance approximately 85% of the total purchase price of twenty locomotives. 5. In June 1996, the Company borrowed $69 million against the cash surrender value of its company-owned life insurance policies which it maintains on certain of its non-union employees. The Company also redeemed the remaining excess cash surrender value of $26 million. 6. In April 1995, the Board of Directors approved a $250 million multi- year stock repurchase program. During the six months of 1996, the Company acquired 1,184,204 shares for $85 million under this program, and at June 30, 1996, $164 million remained available from this authorization. 7. 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. Material developments with respect to these and other matters are discussed in "Other Matters" in the Management's Discussion and Analysis and in Part II, Item I - Legal Proceedings in this Form 10-Q. - 7 - 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 June 30, 1996 and the related condensed consolidated statements of income for the three and six months ended June 30, 1996 and June 30, 1995 and the condensed consolidated statements of cash flows for the six months ended June 30, 1996 and June 30, 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 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, 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 July 17, 1996 - 8 - 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") was $26 million for the second quarter of 1996 compared with $123 million for the second quarter of 1995. Net income for the second quarter of 1996 includes a one-time charge of $83 million (net of $52 million of tax benefits) related to voluntary separation programs and related costs (see Note 2 to the Condensed Consolidated Financial Statements). Results for the second quarter of 1995 include recognition of a $21 million reduction in income taxes related to a decrease in a state income tax rate enacted during the quarter (see Note 3 to the Condensed Consolidated Financial Statements). Without the aforementioned items, Conrail's net income for the second quarters of 1996 and 1995 would have been $109 million and $102 million, respectively. Net income for the first six months of 1996 was $57 million compared with $178 million for the first six months of 1995. Conrail's net income for the first six months excluding the one-time charge of $83 million in 1996 and the $21 million tax benefit in 1995, would have been $140 million and $157 million for 1996 and 1995, respectively. Net income per common share for the second quarter of 1996 was $.30 on a primary basis and $.29 on a fully diluted basis compared with $1.52 and $1.37 on the same bases for the second quarter of 1995. Without the effect of the one-time voluntary separation programs charge, net income per share for the second quarter of 1996 would have been $1.37 on a primary basis and $1.25 on a fully diluted basis. Without the effect of the state tax reduction, net income per common share for the second quarter of 1995 would have been $1.25 on a primary basis and $1.14 on a fully diluted basis. Net income per common share for the six months of 1996 was $.66 on a primary basis and $.64 on a fully diluted basis, compared with $2.17 and $1.98 on the respective bases for the same six- month period of 1995. Without the one-time charge in the first six months of 1996, net income per common share would have been $1.72 on a primary basis and $1.59 on a fully diluted basis. Excluding the one- time tax benefit for the first six months of 1995, net income per common share would have been $1.91 on a primary basis and $1.74 on a fully diluted basis. Traffic volume and revenues increased 2.2% and 2.8%, respectively, for the second quarter of 1996, compared with the second quarter of 1995. Traffic volume was unchanged and revenues increased 1.4% for the first half of 1996, compared with the same period of 1995. The Company has lowered its 1996 annual projection of line haul revenue growth to between 2.0% and 3.0% from between 3.0% and 4.0%. The lower than expected revenue growth and the higher than expected operating expenses (excluding the one-time charge for the voluntary separation programs) - 9 - during the first half of 1996 will prevent the Company from achieving its original operating ratio (operating expenses as a percent of revenues excluding one-time charges) goal of 77.5% for 1996. Second Quarter 1996 compared with Second Quarter 1995 - ----------------------------------------------------- Net income for the second quarter of 1996 was $26 million after the net income effects of $83 million for the one-time charge for the voluntary separation programs (see Note 2 to the Condensed Consolidated Financial Statements). Net income for the second quarter of 1995 was $123 million, which includes the effects of a one-time tax benefit of $21 million (see Note 3 to the Condensed Consolidated Financial Statements). Operating revenues (primarily freight line haul revenues, but also including switching, demurrage and incidental revenues) increased $26 million, or 2.8%, from $923 million in the second quarter of 1995 to $949 million in the second quarter of 1996. A 2.2% increase in traffic volume in units (freight cars and intermodal trailers and containers) resulted in a $19 million increase in revenues. Average revenue per unit increased revenues by $5 million due to increases in average rates. Other revenues increased $2 million. Operating expenses increased $152 million (including the $135 million charge related to the voluntary separation programs), or 20.5%, from $743 million in the second quarter of 1995 to $895 million in the second quarter of 1996. The following table sets forth the operating expenses for the two periods: Second Quarter -------------- Increase ($ In Millions) 1996 1995 (Decrease) ---- ---- -------- Compensation and benefits $309 $322 $(13) Fuel 52 41 11 Material and supplies 46 43 3 Equipment rents 95 83 12 Depreciation and amortization 70 73 (3) Casualties and insurance 45 37 8 Other 143 144 (1) Voluntary separation programs 135 135 ---- ---- ---- $895 $743 $152 ==== ==== ==== Compensation and benefits as a percent of revenues was 32.6% in the second quarter of 1996 as compared with 34.8% in the second quarter of 1995. The decrease in labor costs of $13 million, or 4.0%, was mainly attributable to lower employment levels in the second quarter of 1996 and the absence of approximately $4 million in severance costs associated with a workforce reduction of approximately 600 employees in the second quarter of 1995. -10- Fuel costs increased $11 million, or 26.8%, primarily as a result of higher fuel prices. Equipment rents increased $12 million, or 14.5%, principally as a result of declines in equipment utilization and increases in car hire rates. In the second quarter of 1996, the Company recorded a one-time charge of $135 million for the voluntary separation programs and related costs (see Note 2 to the Condensed Consolidated Financial Statements). Conrail's operating ratio was 94.3% for the second quarter of 1996, compared with 80.5% for the second quarter of 1995. Without the charge for the voluntary separation programs, the operating ratio for the second quarter of 1996 would have been 80.0%. The Company's effective income tax rate for the second quarter of 1996 (including the effects of the voluntary separation programs charge) was 31.6% compared with 25.5% for the second quarter of 1995. The increase is primarily related to the inclusion of a $21 million reduction in income taxes in the second quarter of 1995 resulting from a decrease in a state income tax rate enacted during that quarter (see Note 3 to the Condensed Consolidated Financial Statements). First Six Months of 1996 compared with First Six Months of 1995 - --------------------------------------------------------------- Net income for the first six months of 1996 was $57 million and included the aforementioned second quarter one-time after-tax charge of $83 million (see Note 2 to the Condensed Consolidated Financial Statements). Net income for the first six months of 1995 was $178 million which included the aforementioned tax benefit of $21 million recorded during the second quarter (see Note 3 to the Condensed Consolidated Financial Statements). Operating revenues increased $26 million, or 1.4%, to $1,838 million for the first six months of 1996 from $1,812 million for the first six months of 1995. A .3% decrease in traffic volume resulted in $4 million lower revenues. Average revenue per unit increased revenues by $21 million for the period, with higher average rates providing $27 million, while an unfavorable traffic mix caused a $6 million decrease. Other revenues increased $9 million. Operating expenses increased $197 million, or 13.0%, to $1,715 million in the first six months of 1996, from $1,518 million in the first six months of 1995. The following table sets forth the operating expenses for the two periods: -11- First Six Months ---------------- Increase ($ In Millions) 1996 1995 (Decrease) ------ ------ -------- Compensation and benefits $ 653 $ 654 $ (1) Fuel 102 87 15 Material and supplies 106 99 7 Equipment rents 193 168 25 Depreciation and amortization 141 146 (5) Casualties and insurance 93 76 17 Other 292 288 4 Voluntary separation programs 135 135 ------ ------ ---- $1,715 $1,518 $197 ====== ====== ==== Compensation and benefits as a percent of revenues was 35.5% in the first six months of 1996 as compared with 36.0% in the first six months of 1995. Reductions in employment levels were essentially offset by increased wage costs, increased train crew costs and overtime caused by adverse weather conditions experienced during the first quarter of 1996. Fuel costs increased $15 million, or 17.2%, due in the most part to higher fuel prices, which are expected to be lower than current levels in the second half of 1996, but higher than those in the second half of 1995. Equipment rents increased $25 million, or 14.9%, primarily as a result of declines in equipment utilization, increased car hire rates and a decrease in locomotives temporarily leased to other railroads in the first quarter of 1996. Casualties and insurance costs increased $17 million, or 22.4%, primarily due to an increase in the cost and number of occupational health claims, the cost to settle employee injury and road crossing accident claims, and damage to equipment and property owned by others from several derailments in the first quarter of 1996. Conrail's operating ratio was 93.3% for the first six months of 1996, compared with 83.8% for the first six months of 1995. Without the $135 million one-time charge for the voluntary separation programs, the operating ratio for the first six months of 1996 would have been 85.9%. The Company's effective income tax rate for the first six months of 1996 was 35.2% compared with 30.5% for the same period of 1995. The increase 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 3 to the Condensed Consolidated Financial Statements). Liquidity and Capital Resources - ------------------------------- The Company's cash and cash equivalents decreased $45 million in the first six months of 1996, from $73 million at December 31, 1995 to -12- $28 million at June 30, 1996. Cash generated from operations, primarily from its wholly-owned subsidiary, Consolidated Rail Corporation, and borrowings by Consolidated Rail Corporation have been the Company's principal sources of liquidity and are used primarily for capital expenditures, debt service and dividends. In the first six months of 1996, operating activities provided cash of $329 million and loans from and redemptions of insurance policies provided $95 million. The principal uses of cash were as follows: property and equipment acquisitions, $117 million; payment of long-term debt, $113 million; repurchase of common stock, $85 million; and cash dividends on common and preferred stock, $79 million. Working capital (current assets less current liabilities) of $10 million existed at June 30, 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. During the first six months of 1996, Consolidated Rail Corporation issued $45 million of commercial paper and repaid $99 million. At June 30, 1996, $135 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. In April 1996, Consolidated Rail Corporation issued $50 million of Pass- Through Certificates at a rate of 6.96% to finance equipment. Although the certificates are not direct obligations of, or guaranteed by Consolidated Rail Corporation, amounts payable under two related capital leases will be sufficient to pay principal and interest on the certificates. In July 1996, Consolidated Rail Corporation issued $26 million of 1996 Equipment Trust Certificates, Series A, with interest rates ranging from 6.0% to 7.48%, maturing annually from 1997 to 2011. The certificates were used to finance approximately 85% of the total purchase price of twenty locomotives. In June 1996, Consolidated Rail Corporation borrowed $69 million against the cash surrender value of its company-owned life insurance policies which it maintains on certain of its non-union employees. The Company also redeemed the remaining excess cash surrender value of $26 million. Both transactions resulted in an increase of $95 million in cash for the first six months of 1996. In April 1995, the Board of Directors approved a $250 million multi- year stock repurchase program. During the first six months of 1996, the Company acquired 1,184,204 shares for approximately $85 million under this program, and at June 30, 1996, approximately $164 million remained available from this authorization. On July 17, 1996, the Company's Board of Directors declared a quarterly dividend of $.475 per common share, an increase of $.05 per -13- share, commencing with the dividend payable September 16, 1996, to shareholders of record on August 30, 1996. Other Matters - -------------- Consolidated Rail Corporation ("CRC") has recently received three adverse jury verdicts related to railroad crossing accidents in Ohio that include significant punitive damage awards that collectively approximate $40 million. CRC believes the punitive damage awards in the referenced cases are improper and that it has meritorious defenses and plans to appeal. The Company is not presently able to reasonably estimate the ultimate outcome of these cases, and accordingly, no expense for such awards has been recorded as of June 30, 1996. Consolidated Rail Corporation has reached tentative labor agreements with approximately 70% of its unionized work force. Certain of these agreements, which were the product of national bargaining, are subject to industry-wide ratification by the union membership. Conrail expects that these agreements ultimately will be ratified; however, in the event that agreements are not ratified, the union membership would be free to strike, which could severely curtail or shut down the operations of the railroads that are the subject of the strike. Except for the historical information contained herein, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that may cause actual results to differ, including but not limited to the effect of economic conditions, competition, regulation and weather on Conrail's operations, customers, service and prices, and other factors discussed elsewhere in this report and, from time to time, in other reports filed with the Securities and Exchange Commission. -14- PART II. OTHER INFORMATION CONRAIL INC. Item 1. Legal Proceedings. ----------------- Punitive Damage Awards in Ohio Crossing Accident Cases Consolidated Rail Corporation has recently received adverse jury verdicts in three separate crossing accident cases in Ohio: Garrett and Gollihue v Consolidated Rail Corp.; Wightman v Consolidated Rail Corp.; and Moore, et al. v Consolidated Rail Corp. In each case, the jury awarded substantial punitive damages in connection with property damage resulting from the accidents. Collectively, the total punitive damage awards total approximately $40 million, based on property damage that totals less than $5,000. Conrail believes that, ultimately, these awards should not be sustainable due to their failure to bear a reasonable relationship to the amount of physical property damage involved, and plans to appeal. Ohio law prohibits the award of punitive damages in connection with a wrongful death action. -15- Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- (a) The Registrant held its Annual Meeting of Shareholders on May 15, 1996. (b) Proxies for the meeting were solicited pursuant to Rule 14A; there was no solicitation in opposition to management's nominees for directors as listed in such Proxy Statement and all such nominees were elected. (c) Listed below is each matter voted on at the Registrant's Annual Meeting as fully described in the Registrant's Proxy Statement solicited pursuant to Rule 14A. Following are the results of the voting and the number of votes cast for each matter. (i) The election of four directors in Class III to serve until the Annual Meeting of Shareholders in 1999 and until their successors are elected and take office. All nominees were elected by majority vote and the number of votes cast for each follows (there were no broker non-votes): Common Preferred ---------- --------- Claude S. Brinegar For 71,857,941 8,820,751 Withheld 1,013,980 934,108 ---------- --------- Total 72,871,921 9,754,859 ========== ========= Daniel B. Burke For 71,857,333 8,820,751 Withheld 1,014,588 934,108 ---------- --------- Total 72,871,921 9,754,859 ========== ========= -16- Roger S. Hillas For 71,830,838 8,773,977 Withheld 1,041,083 980,882 ---------- --------- Total 72,871,921 9,754,859 ========== ========= E. Bradley Jones For 71,848,461 8,806,316 Withheld 1,023,460 948,543 ---------- --------- Total 72,871,921 9,754,859 ========== ========= (ii) Approval of the Amendment of the Conrail 1991 Long- Term Incentive Plan ("the Plan"). The Plan was passed by majority vote and the number of votes cast follows: Common Preferred ---------- --------- For 55,538,125 7,129,859 Against 16,273,498 2,276,210 Abstentions 1,060,298 348,790 ---------- --------- Total 72,871,921 9,754,859 ========== ========= (iii) Ratification of the appointment of Price Waterhouse LLP as the independent accountants for the year 1996. The appointment of Price Waterhouse LLP was ratified by majority vote and the number of votes cast follows (there were no broker non-votes): Common Preferred ---------- --------- For 72,334,392 8,989,576 Against 294,264 458,160 Abstentions 243,265 307,123 ---------- --------- Total 72,871,921 9,754,859 ========== ========= -17- Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits 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 None -18- 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 ------------------------------- Timothy T. O'Toole Senior Vice President - Finance (Principal Financial Officer) Date: August 5, 1996 -19- EXHIBIT INDEX ------------- Exhibit No. - ------- 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. EX-11 2 Exhibit 11 ---------- CONRAIL INC. ------------ EARNINGS PER SHARE COMPUTATIONS ------------------------------- [CAPTION] ($ In Millions Except Per Share) Quarters Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Net income - ---------- Primary Net income $ 26 $123 $ 57 $178 Dividends declared on Series A ESOP convertible junior preferred stock (ESOP Stock), net of tax benefit (3) (4) (6) (7) ---- ---- ---- ---- $ 23 $119 $ 51 $171 ==== ==== ==== ==== Fully diluted Net income 26 123 57 178 Nondiscretionary adjustment (1) (1) (1) (2) ---- ---- ---- ---- $ 26 $122 $ 56 $176 ==== ==== ==== ==== Weighted average number of shares (2) - --------------------------------- Primary Weighted average number of common shares outstanding 76,833,596 78,258,484 77,059,915 78,427,633 Effect of shares issuable under employee stock compensation plans 651,031 451,532 687,738 475,729 ---------- ---------- ---------- ---------- 77,484,627 78,710,016 77,747,653 78,903,362 ========== ========== ========== ========== Fully diluted Weighted average number of common shares outstanding 76,833,596 78,258,484 77,059,915 78,427,633 Series A ESOP convertible junior preferred stock 9,745,435 9,806,989 9,750,952 9,814,132 Effect of shares issuable under employee stock compensation plans 651,031 503,103 687,738 522,785 ---------- ---------- ---------- ---------- 87,230,062 88,568,576 87,498,605 88,764,550 ========== ========== ========== ========== Net income per common share Primary $ .30 $1.52 $ .66 $2.17 Fully diluted .29 1.37 .64 1.98
Page 1 of 2 Exhibit 11 ---------- CONRAIL INC. ------------ EARNINGS PER SHARE COMPUTATIONS ------------------------------- Notes: 1. Represents the increase, net of income tax benefits, in ESOP-related expenses assuming conversion of all ESOP Stock to common stock. 2. Shares held by the Employee Benefits Trust (the "Trust") are not considered outstanding for earnings per share computations until issued by the Trust. Page 2 of 2 EX-12 3 EX-12 Exhibit 12 ---------- CONRAIL INC. ------------ COMPUTATIONS OF THE RATIO OF EARNINGS TO FIXED CHARGES ------------------------------------------------------ [CAPTION] ($ In Millions) Quarters Ended Six Months Ended June 30, June 30, -------------- ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- Earnings - -------- Pre-tax income $ 38 $165 $ 88 $256 Add: Interest expense 46 50 93 98 Rental expense interest factor 14 16 28 30 Less equity in undistributed earnings of 20%-50% owned companies (4) (5) (8) (10) ---- ---- ---- ---- Earnings available for fixed charges $ 94 $226 $201 $374 ==== ==== ==== ==== Fixed charges - ------------- Interest expense 46 50 93 98 Rental expense interest factor 14 16 28 30 ---- ---- ---- ---- Fixed charges $ 60 $ 66 $121 $128 ==== ==== ==== ==== Ratio of earnings to fixed charges 1.57x 3.42x 1.66x 2.92x
For purposes of computing the ratio of earning to fixed charges, earnings represent income before income taxes plus fixed charges, less equity in undistributed earnings of 20% to 50% owned companies. Fixed charges represent interest expense together with any interest capitalized and a portion of rent under long-term operating leases representative of an interest factor. EX-15 4 EX-15 Exhibit 15 ---------- August 5, 1996 Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Dear Sirs: We are aware that Conrail Inc. has incorporated by reference our report dated July 17, 1996 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in the following documents: * Registration Statement on Form S-8 No. 33-19155 * Registration Statement on Form S-8 No. 33-44140 * Registration Statement on Form S-8 No. 33-57717 * Registration Statement on Form S-8 No. 33-60445 * Registration Statement on Form S-8 No. 333-6513 * Prospectus constituting part of Registration Statement on Form S-3 No. 33-64670 * Prospectus constituting part of Registration Statement on Form S-3 No. 33-62929. We are also aware of our responsibilities under the Securities Act of 1933 and that pursuant to Rule 436(c) our report dated July 17, 1996 shall not be considered part of a registration statement prepared or certified by us or a report prepared or certified by us within the meaning of Sections 7 and 11 of the Securities Act of 1933. Yours very truly, PRICE WATERHOUSE LLP Thirty South Seventeenth Street Philadelphia, PA 19103 EX-27 5 EX-27
5 Exhibit 27 ---------- CONRAIL INC. FINANCIAL DATA SCHEDULE ($ In Millions Except Per Share)
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 1,000,000 DEC-31-1996 JAN-01-1996 JUN-30-1996 6-MOS 28 0 667 0 156 1,223 6,446 0 8,341 1,213 1,887 0 281 86 2,532 8,341 0 1,838 0 1,715 0 0 93 88 31 57 0 0 0 57 .66 .64
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