For the three months ended March 31, 1970, Manor reported revenues of $643,000 and a net loss of $355,000, compared to revenues of $845,000 and a net loss of $95,000 for the three months ended March 31, 1969. Clearfield Bituminous Coal Corporation. CBC owns bituminous coal producing acreage in Clearfield County, Indiana County and Cambria County, all in Pennsylvania, with additional acreage in Ohio and West Virginia. The major portion of this acreage is leased to operating coal companies. Recoverable tonnage is estimated at 513 million tons. The sulphur content of such reserves ranges from less than 1% to 4%. Royalty income has totaled approximately $600,000 in each of the years 1965 through 1969. In addition CBC owns a nursery which produces approximately 15 million seedlings per year and 35,000 acres of surface lands. At December 31, 1969, CBC had investments of $9.7 million of which $7.8 million represented investments in affiliates. A summary statement of earnings for CBC for the years 1965 through 1969 (not covered by report of independent certified public accountants) is as follows: CBC is an indirect wholly-owned subsidiary of Penn Central and its accounts are included in the For the three months ended March 31, 1970, CBC reported revenues of $477,000 and net earnings of $297,000, compared to revenues of $332,000 and net earnings of $142,000 for the three months ended March 31, 1969. Despatch Shops, Inc. DSI in recent years has been utilized in the acquisition of land and property which it leases to Railroad. DSI through its wholly-owned subsidiary, Realty Hotels, Inc. operates the Barclay, Biltmore, Commodore and Roosevelt Hotels, owned by Railroad in the Grand Central Terminal area of New York City. Profits from such operations are paid to Railroad as additional rent. Prior to the merger of Railroad with The New York Central Railroad Company ("New York Central") on February 1, 1968, DSI was chiefly engaged in the building and repairing of railroad cars in its plant in East Rochester, New York for New York Central and its affiliates. The availability of more modern facilities owned by Railroad at Hollidaysburg, Pennsylvania, has enabled it to phase out the facilities at East Rochester. A summary statement of earnings for DSI for the years 1965 through 1969 (not covered by report of independent certified public accountants) is as follows: * DSI is an indirect wholly-owned subsidiary of Penn Central and its accounts are included in the consolidated Federal income tax returns filed by Penn Central. In 1968 DSI entered into a tax allocation agreement with its parent, Penn Central Transportation Company, which provided for DSI to pay the parent the amount by which its tax liability was reduced or eliminated because of utilization in the consolidated return of operating losses or capital losses of other members of the group, but in no event more than 95% of the tax which would have been due if DSI had filed a separate return. The credit in 1967 arose from an adjustment to the prior year's charge. For the periods prior to the merger of The New York Central Railroad Company into The Pennsylvania Railroad Company on February 1, 1968 DSI was a member of the New York Central affiliated tax groups and a participant in a similar tax agreement. For the three months ended March 31, 1970, DSI reported revenues of $91,000 and a net loss of $9,000, compared to revenues of $134,000 and net earnings of $20,000 for the three months ended March 31, 1969. Management Eight of the ten directors of Pennco are directors of Penn Central. Stuart T. Saunders, Chairman of the Board of Penn Central and the Railroad, is President of Pennco. W. W. Riley is Secretary, Treasurer and Comptroller of Pennco. The directors and officers of Penn Central are as follows: Stuart T. Saunders*. Paul A. Gorman*. David C. Bevan*. John T. Dorrance, Jr.. E. Clayton Gengras*. Franklin J. Lunding*. Walter A. Marting. Alfred E. Perlman. R. Stewart Rauch, Jr. Robert W. Minor.. Charles S. Hill. Edward A. Kaier William A. Lashley. Jonathan O'Herron Bayard H. Roberts.. John H. Shaffer. Chairman of the Board and Director President and Director Chairman of the Finance Committee and Director Director (Chairman, Cabot Corporation) Director (Chairman of the Board, Campbell Soup Company) Director (Chairman of the Board, Security Insurance Group) Director (Chairman of the Finance Committee, Jewel Com- Director (President, Hanna Mining Company) Director (Counsel, Perkins, Daniels & McCormack) Director (President, The Philadelphia Saving Fund Society) Senior Vice President-Legal and Public Affairs Vice President and General Counsel Vice President Vice President Secretary Also a director of Pennco; in addition, Robert S. Odell and Daniel E. Taylor, who are directors of Railroad but not of Penn Central, are directors of Pennco. Railroad Operations On October 1, 1969 Penn Central acquired all the capital stock of Railroad pursuant to a plan of merger and reorganization. Railroad is the parent company of the railroad system. It owns and controls, through stock ownership, leases or operating contracts, numerous railroad properties, including properties acquired by merger with New York Central on February 1, 1968 and by purchase from the Trustees of The New York, New Haven and Hartford Railroad Company ("New Haven") on December 31, 1968. Railroad has a number of subsidiaries engaged in businesses other than railroad operations, the most important of which is Pennco. As of December 31, 1969, Railroad operated 20.570 miles of road, of which 8,415 miles were owned, 10,608 miles were operated under lease or operating agreement and 1,547 miles were operated under trackage rights. The mileage operated included 6,324 miles of main line and 14,246 miles of branch line. As of December 31, 1969, Railroad had in service through ownership or lease 3,982 diesel-electric locomotives, 225 electric locomotives and 174,956 freight cars, including 62,837 box cars, 61,751 hopper cars and 38,983 gondola cars. Its passenger train cars on the same date totalled 3,800, including 917 self-propelled cars used primarily in suburban passenger operations. PENN CENTRAL TRANSPORTATION COMPANY (COMPANY ONLY) STATEMENT OF EARNINGS The following statement of earnings of Penn Central Transportation Company (a wholly-owned subsidiary of Penn Central Company), so far as it relates to the two years ended December 31, 1969, has been examined by Peat, Marwick, Mitchell & Co., independent certified public accountants, whose report thereon appears elsewhere in this Circular. This statement should be read in conjunction with the balance sheet of Penn Central Transportation Company and the related notes included elsewhere in this Circular. With respect to the figures for the three years ended December 31, 1967, which are unaudited, management of the Company believes that all adjustments (none of which were other than normal recurring accruals) necessary to a fair presentation for such years have been included. NET EARNINGS (Loss) (notes 4, 6, 12, and 13)......$ 55,688 $ 85,156 $ (266,337) $ (5,155) $(182,328) Note references are to notes to financial statements of Penn Central Transportation Company. For the three months ended March 31, 1970, Railroad reported operating revenues of $403 million and a net loss of $62.7 million compared to operating revenues of $406 million and a net loss of $12.8 million in the three months ended March 31, 1969. The net loss of $62.7 million reported by Railroad for the three months ended March 31, 1970, was after a gain of $16.9 million on the sale of CBC to Pennco. Such gain is eliminated in Penn Central's consolidated earnings. See "Use of Proceeds". The decline in the results of Railroad's operations was attributed in part to the national economic slowdown, bad weather, strikes in industries served, increased labor costs and a threatened railroad strike. The increased loss from ordinary operations for the year ended December 31, 1969, as compared with the year ended December 31, 1968, was attributable to service defects and expenses which have resulted from merger of the former Pennsylvania and New York Central railroads and the inclusion as of December 31, 1968 of New Haven railroad into the system. In addition Railroad experienced a decline in revenues from passenger service, rising inflation concurrent with falling industrial production, high interest rates on an increased amount of fixed obligations and strikes and threatened strikes in basic industries. The extraordinary charge against 1969 earnings reflects the write-off of Railroad's investment in equipment and terminals used for certain long-haul passenger service as there is no longer any possibility that this investment can be recovered. The following table sets forth for the years 1967, 1968 and 1969 and for the three months ended March 31, 1969 and March 31, 1970 the relative contributions of railway operations and of other sources to earnings (loss) from ordinary operations (not covered by report of independent certified public accountants): In 1969 approximately 81.4% of Railroad's revenues came from freight, 8.9% from passenger service and 9.7% from mail and other services. Of the freight revenues 50.8% consisted of general merchandise and other freight, 14.9% coal, 12.5% iron and steel, 10.8% motor vehicles and motor vehicle parts and 11.0% miscellaneous. Measured in terms of interstate train service, Railroad furnishes 35% of the passenger service in the United States and 64% of passenger service in the eastern United States. Passenger service operations continue to show a substantial deficit and Railroad has been experiencing severe difficulties with commuter service in the New York and Philadelphia metropolitan areas. |