Mrs. Dole Says Conrail Earnings Misleading
WASHINGTON (AP) _ Transportation Secretary Elizabeth Dole, questioning the rosy picture painted by Conrail in its 1985 financial statement, said Friday its reported $440 million in earnings are misleading and that the railroad continues to shrink.
Conrail’s cash balance ″increased by only $64 million by the end of 1985,″ Mrs. Dole said in a letter to Sen. Paul Simon, D-Ill., defending her choice of Norfolk Southern Corp. to buy the government-owned freight railroad.
She said net income was misleading and that cash flow was more significant because it reflected deductions for expenditures the railroad needs to keep providing stable service.
In order to reach $64 million, Mrs. Dole said Conrail economized by eliminating 2,400 employees and listing more than 500 miles of lines for potential abandonment.
Conrail management has lobbied vigorously against a merger with Norfolk Southern, which has offered $1.2 billion. But Mrs. Dole told Simon that ″a Norfolk Southern-Conrail combination is far stronger financially than Conrail standing alone.″
The issue is expected to be taken up by the Senate next week.
Meanwhile, an analysis by the Federal Railroad Administration, which is part of the Transportation Department, suggested that Conrail’s earning statement was issued in such a hurry that the numbers may not be reliable.
That financial statement, released Tuesday, reported net income of $440 million and cash balance of $910 million, an increase of $64 million.
″Last year, Conrail released its annual results on Feb. 11,″ the FRA said. ″The announcement was moved up by a month this year, and one can legitimately question whether it is possible to compile sufficient hard data in 14 days to produce reliable numbers, or give Conrail’s accountants a reasonable opportunity to review them.″
Conrail’s Saul Resnick said, ″This is nothing different than in any other year. One could argue that this was done for political reasons. One could also argue that the U.S. Senate should have as much information about the sale as possible.″
During the first 11 months of the year, Conrail’s cash flows were $14.5 million in the red, according to the FRA. The agency said it was uncertain where the railroad got the reported $78.5 million in cash during December to bring the yearly total to $64 million.
″FRA staff has been unable to locate anyone who has backup data breaking down the $78.5 million number in any detail,″ the analysis said.
But Robert Platt, Conrail executive vice president for finance and administration, said, ″The obvious difficulty here is they don’t understand our business.
″As business declines seasonally (as in December), you collect receivables from higher billing periods,″ Platt said. ″So your collections are substantially higher than your new billings.″
Platt said Conrail had a good year, and that ″DOT ought to be proud of our achievements.″
Encouraged by Conrail’s earnings, an investor group organized by Morgan Stanley & Co. of New York said Thursday it would raise its rival bid for Conrail from $1.2 billion to $1.4 billion. If approved by Congress, the group, which has the backing of Conrail management, has pledged to sell the railroad in a public stock offering.