The Canada Southern Railway Company 1973 ANNUAL REPORT

Transcription

1 The Canada Southern Railway Company 1973 ANNUAL REPORT

2 BOARD OF DIRECTORS TO OUR SHAREHOLDERS E. L. Claypole J. T. Cooper F. J. Gasparini Perm Central Transportation Company (Penn Central) operates the properties of the company, as sub-lessee of The Michigan Central Railroad Company (Michigan Central), under a lease dated August 15, 1903, which provides, among other things, for rentals eguivalent to dividends of $1.50 (U.S.) per share semi-annually. P. E. Hadcett C. S. Hill W. A. Lashley On June 21, 1970, Penn Central filed a petition for reorganization under Section 77 of the United States Bankruptcy Act. On July 14, 1973, Michigan Central filed a petition under Section 77 of the Bankruptcy Act for reorganization in connection with or as a part of the plan of reorganization of Penn Central. M. P. Richards B. L. Strohl J. R. Sullivan The extent, if any, to which the reorganizations of Penn Central and Michigan Central will affect the company cannot be determined at this time. However, all rentals owing the company have been paid when due. For more information concerning the foregoing, please see the Proxy Statement which accompanies this report. J. T. Cooper F. J. Gasparini M. P. Richards J. R. Sullivan R. W. Carroll R. C. Lepley N. J. Hull, Jr. OFFICERS President Vice President Vice President Vice President Secretary Treasurer Comptroller Pursuant to the action by the company's shareholders at the 1972 Annual Meeting, Supplementary Letters Patent, dated February 20, 1973, were issued by the Canadian government to the company, expanding its investment powers. In the past, the company was required by Canadian law to hold its invested funds in certificates of deposit or similar guaranteed types of securities. The company has adopted a new investment policy which contemplates investment of such funds (which approximated $10,000,000. at March 31, 1974) in a broad range of securities, including equity securities. The company is pleased to announce that it has selected the firm of Elliott & Page Limited, of Toronto, as its investment counsel to manage its portfolio in accordance with its investment policy. Our independent accountants, Price Waterhouse & Co., have examined the financial statements of the company for the year ended December 31, 1973, and their report is included herein. Dividends of $2.99 ($3.00 U.S.) per share were paid in For the Board of Directors Registrar of Bonds 466 Lexington Avenue New York, N. Y Stock Transfer Agent 466 Lexington Avenue New York, N. Y f, Thomas Cooper President

3 Consolidated Balance Sheet Consolidated Balance Sheet December 31, December Current assets Cash Temporary cash investments (guaranteed investment and time deposit receipts) Refundable income taxes Interest receivable - Note 1 Dividend receivable Due from Penn Central Transportation Company, Debtor Accrued rental - Note 2 Miscellaneous Capital and other reserve funds Total current assets ASSETS Investment in capital stock of affiliate - Toronto, Hamilton and Buffalo Railway Company, at cost - Note 1 Other assets, restricted as.to use - Note 3 Cash and temporary cash investments - Canadian banks United States Treasury Bond, face value - $450,000, 4%, due February 15, 1980, at cost (approximate U. S. market value at December 31, $387,000; at December 31, $394,000) Due from Penn Central Transportation Company, Debtor, for assessed tax on waived dividends - Note 2 Properties - Notes 1, 2, 3, 4 and 5 Transportation property Miscellaneous physical properties 26,200 9,824,000 10, , ,400 18,300 8, ,920, , ,000 2, ,431, ,000 9,073, , ,000 37, ,600 18, ,710, ,100 2,313, ,000 2,716,900 35,282, ,600 35,702, ,800 Total assets $49.295,500 $48,606,900 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable Unclaimed dividends Estimated income taxes - Note 3 Current Deferred Other current liabilities Due to Penn Central Transportation Company, Debtor - interest earned on investments of land sale proceeds - Note 3 Total current liabilities Deferred income taxes - Note 3 Long-term debt - Note 5 Consolidated guaranteed 50-year, 5% Gold Bonds, due October 1, 1962, held by Penn Central Transportation Company, Debtor Noninterest-bearing advances due The Michigan Central Railroad Company, Secondary Debtor, on account of repurchased Gold Bonds Less amounts due the company on account of equipment retirements and road retirements net of additions and betterments Shareholders» equity Capital stock, $100 par value, 150,000 shares authorized, issued and outstanding Donations and grants Retained income Total liabilities and shareholders' equity 17,200 2,500 55,000 10, , ,055,000 18,765,200 (3,685,000) 25, ,000,000 11,500 8, $ ,000 2,500 19,300 49,300 12, ,055,000 18,765,200 ( ) ,000,000 11, $ Shareholders' equity per share $ $

4 Statement of Consolidated Income Year ended December 31, Income from lease of road - Notes 2 and 3 $ 453,600 $ 453,000 Dividend income - Toronto, Hamilton and Buffalo Railway Company - Note 1 60, ,500 Interest income - Note 1 590, ,500 Retained income beginning of year Net income for the year Dividends waived - Note 2 Dividends paid on shares held by public Statement of Consolidated Retained Income 1973 $ 7,920,400 Year ended December ,700 (320,500) 1972 $ 7,583, ,500 (320,100) Profit on sales of property 8,000 6,600 Legal and auditing expense (62,000) (93,400) Miscellaneous charges (600) (3,100) Income before taxes on income and provision for foreign exchange loss 1,049,200 1,012,100 Less provision for foreign exchange loss - Note 6 - (6, 700) Income before taxes on income 1,049,200 1,005,400 Federal and provincial taxes on income - Note 3 Current - 21,900 Deferred 238, , Net Income $ $ 784, $2.99 ($3.00 U. S.) per share - Note $2.98 ($3.00 U. S.) per share - Note 2 Retained income, end of year (127,800) ( ) $ $ Net income per share, based on 150,000 shares outstanding $5.40 $

5 Consolidated Statement of Changes in Financial Sources of cash Net income Add (deduct) income charges (credits) not affecting cash in the period Deferred taxes Profit on sale of property Restricted funds utilized for payment of assessed tax on waived dividend Receipt of refundable income taxes Proceeds from sale of property Property retirements Decrease in amounts due from lessee Decrease in interest and rent receivable Increase in accounts and interest payable Increase in current taxes payable Other sources Total Applications of cash Dividends - paid on shares held by public - paid by waiver of rentals Property additions Increase in restricted assets Deferred taxes reclassified to current taxes Increase in interest, dividend and rent receivable Decrease in accounts and interest payable Decrease in current taxes payable Increase in refundable income taxes Payment of assessed tax on waived dividends Other applications Total Increase in cash and temporary cash investments Cash and temporary cash investments Balance beginning of year Position Year ended December 31, 238,500 (8,000) 1,041, , ,000 11,200 70, ,500 35,500 1, , , ,000 11,200 45,400 19, , , ,200 9,079, ,000 (6.600) 976,900 10,000 44, ,400 26,100 12, , , ,500 18,300 8,300 89, , , ,400 Balance end of year $ 9, $ Notes to Consolidated Financial Note 1 - Principles of consolidation Statements The accompanying financial statements include the accounts of the company and its wholly owned subsidiary, the Niagara River Bridge Company, a nonoperating entity except that its sole asset (a bridge) is covered under the provisions of the lease described in Note 2. Under the limiting nature of the legislation governing the company, its investment powers had been restricted to investments such as cash equivalent and governmental securities, capital stock of any connecting railway or similar company and any company in the business of railway transportation with which it enters an agreement for use of such railway equipment. During 1973 the Minister of Consumer and Corporate Affairs granted the company an expansion of its investment powers with respect to its unrestricted funds. In February 1974 the company adopted new investment guidelines under which up to sixty-five percent of its unrestricted funds may be invested in equity securities. The remaining funds will be invested in fixed income securities and cash equivalents.. Based on unaudited financial statements, the company's equity in its 13.89% owned affiliate, Toronto, Hamilton and Buffalo Railway Company, exceeded its cost thereof by approximately $1,665,000 at December 31, The company's share of the affiliate's 1973 and 1972 income was approximately $45,000 and $86,000 respectively. Dividends declared by the affiliate in 1973 amounted to $8 per share as compared to $20 per share in The 1972 amount includes a $5 per share dividend which would have normally been declared in With respect to interest earned on investments, the company's books are maintained on the basis of recording such transactions when interest is actually received (cash basis) rather than in the period during which it is earned. The company's income tax returns and annual reports to the Canadian Transport Commission are also filed on this basis. The accompanying financial statements have been adjusted to present the financial position and results of operations on the accrual basis, in conformity with generally accepted accounting principles. Note 2 - Lease and sublease agreements The company leases substantially all its railway properties to The Michigan Central Railroad Company, Secondary Debtor, ("Michigan Central") a 99.88% owned subsidiary of Penn Central Transportation Company, Debtor, ("Penn Central") for a term of 999 years pursuant to a lease agreement dated 'August 15, 1903, effective January 1, The agreement provides for annual rentals equivalent to dividends at the rate of 3 percent per annum upon the outstanding capital stock of the company and a fee, not to exceed $5,000, for maintaining the corporate organization of the company. The lessee transferred all its rights, obligations, etc. under the above-mentioned lease to its parent, Penn Central for a term of 99 years under a lease agreement dated January 2, 1930, effective February 1, 1930 as supplemented. On June 21, 1970, Penn Central filed for reorganization under Section 77 of the United States Bankruptcy Act. On July 14, 1973, Michigan Central also filed under Section 77 of the United States Bankruptcy Act for reorganization in

6 Notes to Consolidated F i n a n c i a l Statements (Continued) Notes to Consolidated F i n a n c i a l Statements (Continued) connection with or as part of the plan o f reorganization o f Penn Central. The extent, i f any, to which these reorganization proceedings may affect the accounts of t h i s company i s indeterminable at t h i s time. On January 2, 1974, the Regional R a i l Reorganization Act of 1973 was enacted into law providing, among other things, for the creation o f a r a i l system i n the Northeast and Midwest regions of the United States. The extent, i f any, to which t h i s l e g i s l a t i o n may affect the leases of the company's properties cannot be determined at t h i s time. Penn Central owns b e n e f i c i a l l y 107,263 shares, constituting i n the aggregate approximately 12% o f such outstanding stock. Of such shares, the b e n e f i c i a l i n t e r e s t i n 89,163 shares was acquired for a term of 99 years, commencing February 1, 1930, from Michigan Central under the sublease o f the company's r a i l properties described below. Michigan Central i s the record holder of such 89,163 shares. In accordance with the terms of a l e t t e r agreement, dated January 26, 1959, among the company, Michigan Central (lessee of the company's properties) and New York Central (sub-lease), provision was made for the payment, by means of a waiver of dividends on 89,163 shares of the company's stock b e n e f i c i a l l y held by the sub-lessee for the term of the sub-lease, o f that portion of the semi-annual r e n t a l payable t o the company commencing July 1, 1959 under the Lease which would be equal t o the amount of any semi-annual dividend (not to exceed $1.50 per share) declared on such stock. Penn Central i s the successor i n i n t e r e s t to New York Central under the l e t t e r agreement. The l e t t e r agreement i s terminable by any party thereto giving t h i r t y days written notice p r i o r t o the end o f any semi-annual period. The same arrangement has been applied with respect to the 18,100 shares o f the company's c a p i t a l stock owned by Penn Central. In 1970 the company changed the timing of declaring i t s year-end semi-annual dividend from December to January of the subsequent year. Accordingly, the accompanying f i n a n c i a l statements r e f l e c t, as accrued r e n t a l due, additional amounts ($159,500 i n 1973 and $159,000 i n 1972) equal to the semi-annual d i v i dends that would otherwise be payable by the company to the lessee on the 107,263 shares i t owns. In accordance with the above-described agreement and arrangement, these amounts were s a t i s f i e d by waivers o f the dividends i n January 1974 and January In January and A p r i l 1973, the company was assessed $404,000 (Canadian d o l l a r s ), including taxes, penalties and i n t e r e s t, by the taxing authorities o f the Dominion o f Canada for a 15% non-resident dividend withholding tax for the taxation years 1966 to 1973, i n c l u s i v e, for f a i l u r e to withhold the tax i n respect of dividends alleged to have been paid or credited from the company to Penn Central (or i t s predecessors i n i n t e r e s t ) i n an amount equivalent to dividend payments waived under the l e t t e r agreement and arrangement referred to above. The assessment o f these withholding taxes i s against the company, as taxpayer, although the intent i s to tax the r e c i p i e n t of the dividends. In May 1973, the company paid the assessments out o f funds derived from sales of surplus r e a l property, which are funds r e s t r i c t e d as to use for the term o f the Lease and the income from which belongs t o the lessee during such term. The company has f i l e d Notices o f Objection to the assessments. The payment of the assessments was made i n accordance with an agreement reached between the company and the Trustees o f - 8- Penn Central ("the Trustees") providing i n part: the Trustees have the r i g h t t o conduct a l l appeals from the assessments and s h a l l pay a l l l e g a l fees and expenses i n connection therewith; the Trustees w i l l acknowledge that, t o the extent the assessments are determined to be v a l i d, the Trustees w i l l be obligated therefor, to the extent the company i s not repaid the amounts of the assessments from the Dominion of Canada, repayment s h a l l be made by the Trustees by December 31, 1974, or e a r l i e r upon the occurrence of c e r t a i n s p e c i f i e d events; a l l repayments of the assessments, from the Dominion or the Trustees, s h a l l be returned to the r e s t r i c t e d account, and a l l i n t e r e s t on assessments returned by the Dominion s h a l l be credited to the Trustees; the Trustees s h a l l advance to the company amounts o f monies needed to pay any future assessments for s i m i l a r taxes; and the obligations of the Trustees are viewed to be i n the nature of an administrative claim against the estate of Penn Central. Note 3 - Legal interpretations of lease agreement Since the inception of the lease i n 1903, several l e g a l i n t e r p r e t a t i o n s have been made concerning the status o f transactions or events under the lease. The p r i n c i p a l l e g a l interpretations having a s i g n i f i c a n t e f f e c t on the accompanying f i n a n c i a l statements are as follows: (a) Ownership and use of proceeds from sales o f lease land Commencing i n 1963, i t was determined that the t i t l e to proceeds o f sales of leased lands remain i n Canada Southern; that such t i t l e i s subject t o the leasehold i n t e r e s t of Michigan Central and Penn Central; and that the l a t t e r are, therefore, e n t i t l e d, during the continuance o f t h e i r respective leases to the income earned on such proceeds. In the accompanying f i n a n c i a l statements, the proceeds of which the use i s deemed vested i n the lessee are appropriately segregated as noncurrent assets ("Other assets, r e s t r i c t e d as to use") and the earnings therefrom are allocated d i r e c t l y to the lessee and, accordingly, are not included i n the company's income statement. (b) Ownership and use of proceeds of sale o f leased depreciable property When depreciable property i s r e t i r e d, the p r a c t i c e i s to r e t i r e the ledger value ( o r i g i n a l cost) of the asset on the company's books and set up a receivable of l i k e amount from the lessee, and any proceeds of sale or salvage are turned over to the lessee. The lessee has the o b l i g a t i o n ( i n addition t o that described i n (e) below) to replace the f a c i l i t y or else to account f o r the ledger value at the end o f the lease. Salvage or proceeds derived from major abandonments of depreciable property are treated i n l i k e manner as land sale proceeds. (c) Additions and betterments The a c q u i s i t i o n cost (incurred by the lessee) of a l l additions and betterments i s recorded as property on the company's books together with an equivalent amount payable to the lessee. Under the terms o f the 1903 lease, the l e s s o r may be required to issue bonds to pay for additions and betterments, with any i n t e r e s t thereon to be reimbursed by the lessee as provided f o r i n the lease

7 Notes to Consolidated Financial Statements (Continued) Notes to Consolidated Financial Statements (Continued) (d) Income taxes incurred by the company The 1903 lease contains a broad tax covenant and requires that the lessee shall pay all taxes chargeable on the demised premises "and upon the Canada Company." Since 1924, with respect to income taxes, the lessee has been held responsible for the income taxes only upon the rental income on the leased property derived by the lessor under the lease, with the lessor deemed responsible for income taxes on its free investment income. Accordingly, the company has borne that portion of the income tax liability deemed attributable to its net interest income and on taxable gains resulting from dispositions of investment assets taxable under Canadian tax statutes. Dividends from Toronto, Hamilton and Buffalo Railway Company are not includable in taxable income for Canadian tax purposes. (e) Status of capital cost allowance and depreciation deductions permitted for Canadian income tax purposes Since 1968 the company has claimed an annual deduction for capital cost allowance (depreciation) with respect to the leased property on its Federal and Provincial income tax returns. As a result of including such a deduction in the computation of taxable income, Federal and Provincial income taxes currently payable on rental income and on the taxable interest income have been substantially reduced or eliminated. In the future, the available deduction for capital cost allowance is expected progressively to diminish, and eventually not only the interest income but also the rental income will again be subject to tax. In addition, the company may be required to pay a tax on the recapture of some or all of its previous deductions for capital cost allowance to the extent there is a disposition of depreciable property of a prescribed class and the proceeds of disposition (not in excess of original cost) exceed the total remaining undepreciated capital cost of all property of that particular class at the end of a tax year. In the past, the financial statements have reflected the economic benefit of the capital cost allowance as accruing in its entirety to the lessee and that the lessee conferred a recoverable benefit on the company when the capital cost allowance was claimed in excess of the rental income and, accordingly, the company included in its financial statements a charge equivalent to the taxes otherwise payable by the company on its interest income in the absence of the capital cost allowance. After study by the company's counsel, it has been concluded that the company is entitled to the economic benefit resulting from capital cost allowance being claimed in excess of the rental income and utilized to offset investment income. The company has accordingly reclassified amounts previously reflected as equivalent taxes payable to lessee as deferred taxes on income. Management believes that such reclassification is not detrimental to the company and that a deferred tax provision is required to the extent the company itself benefits from the capital cost allowance. Penn Central has notified the company that it does not accept the company's conclusion resulting from this study and that it continues to believe that the economic benefit of the capital cost allowance accrues, in its entirety, to the lessee The company continues to use its available capital cost allowance first to reduce taxes on rental income, and believes a deferred tax provision thereon is not required since it is the company's position that the lessee will be responsible (a) for taxes payable upon the disposition of leased property during the term of the lease to the extent that such taxes result from recapture of capital cost allowance deductions allowed against rental income, or (b) for taxes which may be payable at or following termination or expiration of the lease to the extent that such taxes result from diminution in undepreciated capital cost as a result of claiming capital cost allowance deductions against rental income. Counsel for Penn Central believes that under the tax covenant of the lease, the lessee will be responsible for taxes in connection with disposition of leased property during the term of the lease to the extent that such taxes result from recapture of capital cost allowance deductions allowed against rental income, but, that responsibility for taxes which may be payable at or following termination or expiration of the lease by reason of diminution in undepreciated capital cost as a result of claiming capital cost allowance deductions against rental income will depend on circumstances existing at that time and cannot now be determined. Prior to 1972, Penn Central, for purposes of determining its taxable income in Canada, claimed certain deductions for depreciation accruals relating to the properties leased from the company. For the purpose of computing its available capital cost allowance, the company used its original undepreciated capital cost less the aggregate net depreciation accruals deducted by Penn Central ($10,108,000 to December 31, 1972) and reduced its claim in each year for capital cost allowance by the amount of the corresponding annual depreciation accrual deducted by Penn Central. The company discontinued the practice of reducing its capital cost allowance claim by the Penn Central depreciation accruals effective with the filing of its 1972 tax returns. Company counsel has now concluded that, under Canadian tax law, depreciation accruals claimed by the lessee in prior years, as described above, should not have reduced the undepreciated capital cost of the company's properties. Accordingly, the company intends to reflect the full capital cost in its Canadian tax returns for 1973 and subsequent years without diminution for such prior depreciation accruals. Should it be determined that such depreciation accruals would diminish undepreciated capital cost, counsel for the company and for Penn Central each are of the view that the effect upon tax obligations of the lessor and lessee upon disposition of the leased property during the term of the lease or at or after termination of the lease, would be indicated by them respectively above in the case of capital cost allowance. The ultimate resolution of the aforementioned matters and their possible effect on the financial statements cannot be evaluated at this time. Note 4 - Valuation of properties Properties are stated at the valuation determined by an inventory taken by the lessee in 1928, following guidelines similar to those used by the United States Interstate Commerce Commission in its inventories of U. S. railroad properties prior to 1920, with appropriate adjustments for subsequent transactions. The 1928 valuation and subsequent additions and retirements are based substantially

8 Notes to Consolidated Financial Statements (Continued) REPORT OF INDEPENDENT ACCOUNTANTS on the original cost of the properties to the company. The company has not applied depreciation accounting to its property because upon termination of the lease, the lessee is required to return the property, including additions, betterments, new branches, etc., in as good condition as when received. Note 5 - Long-term debt The consolidated, guaranteed, 50-year, 5% gold bonds are payable in U. S. dollars and are secured by all the company's property under a mortgage indenture dated October 1, 1912 and by the capital stock of the company's wholly owned subsidiary (Niagara River Bridge Co.). The bonds (which are held by Penn Central) have been due and payable since October 1, Under the 1903 lease the company is obliged to issue new bonds for the purpose of providing for the payment of outstanding bonds. The lessee would have to guarantee such bonds and be responsible for additional rent to the company sufficient to provide for the related interest costs. The advances from Michigan Central are payable in U. S. dollars and are due on demand except that per letter agreement dated June 1, 1959, the company's obligation of repayment during the period under lease is out of proceeds of any bond issue during the term of the 1903 lease. The lessee has the right to require such refinancing under that lease. The interest on any refinanced debt would be borne by the lessee in the form of additional rent as provided for in the 1903 lease. No interest accrues on the bonds held by Penn Central and/or advances from Michigan Central. In light of the above conditions and pursuant to legal opinion of U. S and Canadian Counsel, the company has always classified the balance of gold bonds payable and the Michigan Central advances as long-term debt, and such amounts are so classified in the accompanying balance sheet. Note 6 - Foreign exchange translation Although the company's books reflect the commingling of U. S. and Canadian currencies and the resulting discounts and premiums on conversion of dollars (method used in annual reports to the Canadian Transport Commission), the accompanying financial statements have been adjusted by memorandum entries to reflect, in conformity with generally accepted accounting principles, U. S. dollar items at their Canadian dollar equivalent translated at appropriate rates of exchange, including the following: assets at year-end exchange rates; interest income at the average rate during each month; and rental income and dividends at the prevailing rate when dividends were paid. Long-term debt payable in U. S. dollars is stated at historical exchange rates. To the Board of Directors Shareholders and The Canada Southern Railway Company We have examined the consolidated balance sheet of The Canada Southern Railway Company, approximately 72% of the outstanding stock of which is beneficially owned by Penn Central Transportation Company, Debtor ("Penn Central") as of December 31, 1973 and 1972, and the related consolidated statements of income, retained income and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances, including confirmation of cash and temporary cash investments by correspondence with the depositaries and examination of securities owned. The accompanying consolidated financial statements are prepared on a going-concern basis with the company's investment in properties carried forward at cost on the assumption that, under the lease agreement described in Note 2 to the consolidated financial statements, such properties will continue to generate rental income over the life of the 999-year lease and that the porperties will be returned to the company upon termination of that lease. This assumption presupposes the ability of the lessee, Michigan Central Railroad Company, Secondary Debtor ("Michigan Central") a 99.88% owned subsidiary of Penn Central, and Penn Central, as operator of the company's properties under a sub-lease from Michigan Central, to perform under the lease agreement. On June 21, 1970, Penn Central filed for reorganization under Section 77 of the U. S. Bankruptcy Act. On July 14, 1973, Michigan Central filed under Section 77 of the U. S. Bankruptcy Act for reorganization in connection with or as part of the plan of reorganization of Penn Central. The ability of Penn Central and Michigan Central to continue to perform under the lease agreement is a matter which we are unable to evaluate currently. In addition, as more fully described in Note 3(e) to the consolidated financial statements, the legal status of the responsibilities of Michigan Central and Penn Central with respect to capital cost allowances and depreciation deductions are matters currently in dispute. The effect, if any, on the consolidated financial statements of the ultimate outcome of these matters cannot be evaluated at this time. (Continued)

9 REPORT OF INDEPENDENT ACCOUNTANTS - (CONTINUED) In our opinion, subject to (a) the ability of Michigan Central and Penn Central to continue to perform under the lease agreement as discussed in the second paragraph herein or, in the event of nonperformance by them, the ability of the company to otherwise recover the carrying value of its investment in properties, and (b) the effect, if any, of the resolution of the matters discussed in the preceding paragraph and Note 3(e) to the consolidated financial statements examined by us present fairly the financial position of The Canada Southern Railway Company and its subsidiary at December 31, 1973 and 1972, the results of their operations and the changes in financial position for the years then ended, in conformity with (a) generally accepted accounting principles and (b) the legal interpretations described in Note 3 to the consolidated financial statements, consistently applied. Independence Mall West Pennsylvania April 23, 1974 PRICE WATERHOUSE & CO. - 14