PAGE 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31,June 30, 1995
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 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 62-1051971
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 East Cary Street, Richmond, Virginia 23219-4031
(Address of principal executive offices) (Zip Code)
(804) 782-1400
(Registrant's telephone number, including area code)
No Change
(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 March 31,June 30, 1995: 105,121,307105,214,506 shares.
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CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 1995
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Six Months Ended
March 31,June 30, 1995 and AprilJuly 1, 1994 3
2. Consolidated Statement of Cash Flows-
QuartersSix Months Ended March 31,June 30, 1995 and AprilJuly 1, 1994 4
3. Consolidated Statement of Financial Position-
At March 31,June 30, 1995 and December 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 1516
Signature 1516
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
Quarter Ended -----------------------
March 31, AprilSix Months Ended
---------------------- ----------------------
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
-------- ----------------- -------- --------
Operating Revenue
Transportation $ 2,4462,551 $ 2,2112,324 $ 4,997 $ 4,535
Non-Transportation 22 1649 47 71 63
------- ------- ------- -------
Total 2,468 2,2272,600 2,371 5,068 4,598
------- ------- ------- -------
Operating Expense
Transportation 2,171 2,0152,212 2,032 4,383 4,047
Non-Transportation 26 2636 35 62 61
Restructuring Charge 257 --- 257 ---
------- ------- ------- -------
Total 2,197 2,0412,505 2,067 4,702 4,108
------- ------- ------- -------
Operating Income 271 18695 304 366 490
Other Income (Expense) (7) (1)(2) 18 (9) 17
Interest Expense 67 6768 71 135 138
------- ------- ------- -------
Earnings before
Income Taxes 197 11825 251 222 369
Income Tax Expense 76 446 89 82 133
------- ------- ------- -------
Net Earnings $ 12119 $ 74162 $ 140 $ 236
======= ======= ======= =======
Earnings Per Share $ 1.15.18 $ .711.55 $ 1.33 $ 2.26
======= ======= ======= =======
Average Common Shares
Outstanding (Thousands) 104,943 104,452105,164 104,704 105,054 104,578
======= ======= ======= =======
Common Shares
Outstanding (Thousands) 105,121 104,684105,215 104,732 105,215 104,732
======= ======= ======= =======
Cash Dividends Paid Per
Common Share $ .44 $ .44 $ .88 $ .88
======= ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
QuarterSix Months Ended
-----------------------
March 31, April---------------------
June 30, July 1,
1995 1994
-------- -----------------
OPERATING ACTIVITIES
Net Earnings $ 121140 $ 74236
Adjustments to Reconcile Net Earnings
to Cash Provided
(Used)
Depreciation 149 143297 288
Deferred Income Taxes 15 22(58) 69
Restructuring Charge 257 ---
Productivity/Restructuring Charge -- Payments (17) (34)(55) (72)
Other Operating Activities 16 1826 23
Changes in Operating Assets and Liabilities
Accounts Receivable (52) (33)(10) (2)
Materials and Supplies (23) (14)(36) (17)
Other Current Assets (12) (3)(20) 10
Accounts Payable and Other Current Liabilities (2) (180)41 (154)
----- ---------
Cash Provided (Used) by Operating Activities 195 (7)582 381
----- ---------
INVESTING ACTIVITIES
Property Additions (235) (143)(585) (320)
Short-Term Investments - Net 10 8038 60
Purchases of Long-Term Marketable Securities - Net 2 (11)(67) (22)
Proceeds from Property Dispositions 12 7Sales of Long-Term Marketable Securities 53 5
Other Investing Activities 30 (12)50 25
----- ---------
Cash Used by Investing Activities (181) (79)(511) (252)
----- ---------
FINANCING ACTIVITIES
Short-Term Debt - Net 59 24239 144
Long-Term Debt Issued 58115 53
Long-Term Debt Repaid (52) (85)(72) (216)
Dividends Paid (46) (47)(93) (92)
Other Financing Activities 2 (9)4 3
----- -----
Cash ProvidedUsed by Financing Activities 21 154(7) (108)
----- -----
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Increase in Cash and Cash Equivalents 35 6864 21
Cash and Cash Equivalents at Beginning of Period 265 298
----- -----
Cash and Cash Equivalents at End of Period 300 366329 319
Short-Term Investments at End of Period 260 130233 159
----- -----
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 560562 $ 496478
===== =====
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
March 31,June 30, December 30,
1995 1994
-------- -----------------------
ASSETS
Current Assets
Cash, Cash Equivalents and
Short-Term Investments $ 560562 $ 535
Accounts Receivable 777724 706
Materials and Supplies 234247 211
Deferred Income Taxes 130136 151
Other Current Assets 7483 62
------- -------
Total Current Assets 1,7751,752 1,665
------- -------
Properties and Other Assets
Properties 16,42416,517 16,315
Less Accumulated Depreciation 5,3255,398 5,271
------- -------
Properties - Net 11,09911,119 11,044
Affiliates and Other Companies 291299 302
Other Assets 706724 713
------- -------
Total Properties and Other Assets 12,09612,142 12,059
------- -------
Total Assets $13,871$13,894 $13,724
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other
Current Liabilities $ 1,9902,062 $ 1,992
Current Maturities of Long-Term Debt 390397 312
Short-Term Debt 261240 201
------- -------
Total Current Liabilities 2,6412,699 2,505
------- -------
Long-Term Debt 2,5462,577 2,618
------- -------
Deferred Income Taxes 2,5672,501 2,570
------- -------
Long-Term Liabilities and Deferred Gains 2,2802,296 2,300
------- -------
Shareholders' Equity
Common Stock 105 105
Other Capital 1,3971,406 1,368
Retained Earnings 2,4682,443 2,391
Minimum Pension Liability Adjustment (133) (133)
------- -------
Total Shareholders' Equity 3,8373,821 3,731
------- -------
Total Liabilities and Shareholders' Equity $13,871$13,894 $13,724
======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the company's
financial position as of March 31,June 30, 1995 and December 30, 1994, and itsthe results of
its operations for the quarters and six months ended June 30, 1995 and July 1,
1994, and its cash flows for the quarterssix months ended March 31,June 30, 1995 and AprilJuly 1,
1994, such adjustments being of a normal recurring nature.
Earnings per share are based on the weighted average of common shares
outstanding for the second quarters and six months ended March 31,June 30, 1995 and
AprilJuly 1, 1994. Dilution for these periods,the quarters and six months ended June 30, 1995
and July 1, 1994, which could result if all outstanding common stock
equivalents were exercised, is not significant.
While the company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that these
financial statements be read in conjunction with the financial statements and
the notes included in the company's latest Annual Report and Form 10-K.
Certain prior-year data have been reclassified to conform to the 1995
presentation.
NOTE 2. FISCAL REPORTING PERIODSRESTRUCTURING CHARGE
In the second quarter, the company recorded a $257 million pretax
restructuring charge, $160 million after-tax, $1.52 per share, to recognize
the cost of initiatives undertaken to revise, restructure, and consolidate
specific operations and administrative functions at its rail and container-
shipping units. The company's fiscal year is composedinitiatives will result in a $163 million write-down of
52 weeks endingtechnologically obsolete telecommunications assets, separation payments
totaling $80 million to approximately 800 employees and $14 million of lease
and facility-related exit costs.
The rail unit initiative accounted for $196 million of the total
restructuring charge, covering the write-down of assets and cost of employee
separations associated with a contractual agreement with a third party to
replace and technologically enhance the unit's existing private
telecommunications network.
The restructuring initiatives at the container-shipping unit include
its global integration program and the reflagging of five U.S.-flag vessels to
the registry of the Marshall Islands in accordance with approval received from
the Federal Maritime Administration. The global integration program accounted
for $31 million of the total restructuring charge and represents employee
separation and facility exit costs associated with the global consolidation of
senior management functions and relocation of its corporate headquarters to
Charlotte, North Carolina, as well as the integration of its information
technology requirements. The vessel reflagging initiative accounted for
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 2. RESTRUCTURING CHARGE, Continued
$30 million of the total restructuring charge, primarily related to the cost
of crew separations on the last
Friday in December. The financial statements presented arefive vessels. As of June 30, 1995, $6 million of
payments have been recorded as a reduction of the liability for the
13-week
quarters ended March 31, 1995 and April 1, 1994, andrestructuring charge at the fiscal year ended
December 30, 1994.container-shipping unit.
NOTE 3. ACCOUNTS RECEIVABLE
During 1993, the company issued $200 million of Trade Receivable
Participation Certificates ("Certificates"), at 5.05%, due September 1998.
The Certificates are collateralized by $243 million of accounts receivable
held in a master trust. The proceeds from the issuance of the Certificates
were used to reduce the amount of accounts receivable sold under a previous
agreement.
In addition, the company has a five-year revolving agreement with a
financial institution to sell with recourse on a monthly basis an undivided
percentage ownership interest in designated pools of accounts receivable up to
a maximum of $200 million. CSX has retained the collection and servicing
responsibility with respect to accounts receivable held in trust or sold.
At March 31,June 30, 1995 and December 30, 1994, accounts receivable have been
reduced by $372 million, representing Certificates and accounts receivable
sold.
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 4. OPERATING EXPENSE
Quarter Ended -----------------------
March 31, AprilSix Months Ended
------------------ ------------------
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
-------- ----------------- -------- --------
Labor and Fringe Benefits $ 813805 $ 783769 $1,618 $1,552
Materials, Supplies and Other 603 544652 565 1,255 1,109
Building and Equipment Rent 287 280284 291 571 571
Inland Transportation 227 190239 198 466 388
Depreciation 149 143145 298 288
Fuel 118 101119 99 237 200
Restructuring Charge 257 --- 257 ---
------ ------ ------ ------
Total $2,197 $2,041$2,505 $2,067 $4,702 $4,108
====== ======
NOTE 5. OTHER INCOME (EXPENSE)
Quarter Ended
-----------------------
March 31, April 1,
1995 1994
-------- ---------
Interest Income $ 14 $ 12
Net Costs for Accounts Receivable Sold (8) (7)
Minority Interest (5) (4)
Foreign Currency Gain (Loss) (5) 2
Equity Earnings (Losses) of Other Affiliates (3) (3)
Miscellaneous -- (1)
------ ------
Total Expense $ (7) $ (1)
====== ======
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
March 31, December 30,
1995 1994
--------- ------------
Trade Accounts Payable $ 998 $ 926
Labor and Fringe Benefits 487 543
Income Taxes and Other 322 337
Casualty Reserves 183 186
------ ------
Total $1,990 $1,992 ====== ======
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 5. OTHER INCOME (EXPENSE)
Quarter Ended Six Months Ended
------------------ -----------------
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
-------- -------- ------- --------
Interest Income $ 15 $ 16 $ 29 $ 28
Gain on South Florida Track Sale --- 22 --- 22
Net Costs for Accounts Receivable Sold (8) (8) (16) (15)
Minority Interest (6) (4) (11) (8)
Equity Earnings of Other Affiliates --- (3) (3) (6)
Miscellaneous (3) (5) (8) (4)
------ ------ ------ ------
Total $ (2) $ 18 $ (9) $ 17
====== ====== ====== ======
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
June 30, December 30,
1995 1994
--------- ------------
Trade Accounts Payable $ 976 $ 926
Labor and Fringe Benefits 519 543
Income Taxes and Other 380 337
Casualty Reserves 187 186
------ ------
Total $2,062 $1,992
====== ======
NOTE 7. COMMITMENTS AND CONTINGENCIES
As part of the restructuring initiative, CSX Transportation, Inc.
("CSXT") entered a contractual agreement with a third party to replace and
technologically enhance its existing private telecommunications network. The
agreement was executed during the second quarter of 1995, and requires minimum
payments totaling approximately $330 million over its ten-year term.
Although the company obtains substantial amounts of commercial
insurance for potential losses for third-party liability and property damage,
reasonable levels of risk are retained on a self-insurance basis. A
substantial portion of the insurance coverage, up to $100 million per
occurrence fromfor rail and certain other operations, is provided by companies
owned or partially owned by CSX.
CSX Transportation, Inc. ("CSXT")CSXT is a party to various proceedings brought both by private
parties and regulatory agencies related to environmental issues. CSXT has
been identified as a potentially responsible party in a number of governmental
investigations and actions relating to environmentally impaired sites that are
or may be subject to remedial action under the Federal Superfund statute
("Superfund") or corresponding state statutes. The majority of these
proceedings are based on allegations that CSXT, or its railroad predecessors,
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
sent hazardous substances to the facilities in question for disposal. Such
proceedings arising under Superfund typically involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.
The assessment of the required response and remedial costs associated
with these sites is extremely complex. Cost estimates are based on
information available for each site, financial viability of other potentially
responsible parties, and existing technology, laws and regulations.
CSXT frequently reviews its role, if any, with respect to each such
location, giving consideration to the nature of CSXT's alleged connection to
the location (e.g., generator, owner or operator), the extent of CSXT's
alleged connection (e.g., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to
the location, and the number, connection and financial position of other named
and unnamed potentially responsible parties at the location. Further, CSXT
periodically reviews its exposure in all non-Superfund environmental
proceedings with which it is involved.
Based upon such reviews and updates of the sites with which it is
involved, CSXT has recorded, and periodically reviews for adequacy, reserves
to cover estimated contingent future environmental costs with respect to such
sites. The recorded liabilities for estimated future environmental costs at
March 31,June 30, 1995, and December 30, 1994, were $141$139 million and $140 million,
respectively. The liability has been accrued for future costs for all sites
where the company's obligation is probable and where such costs can be
reasonably estimated. The liability includes future costs for remediation and
restoration of sites as well as for ongoing monitoring costs, but excludes any
anticipated insurance recoveries. The majority of the March 31,June 30, 1995
environmental liability is expected to be paid out over the next five years,
funded by cash generated from operations.
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
The company does not currently possess sufficient information to
reasonably estimate the amounts of additional liabilities, if any, on some
sites until completion of future environmental studies. Based upon
information currently available, however, the company believes that its
environmental reserves are adequate to accomplish remedial actions to comply
with present laws and regulations. The company believes that the ultimate
liability for these matters will not materially affect its overall results of
operations and financial condition.
A number of legal actions, other than environmental, are pending
against CSX and certain subsidiaries in which claims are made in substantial
amounts. While the ultimate results of environmental investigations, lawsuits
and claims involving the company cannot be predicted with certainty,
management does not currently expect that these matters will have a material
adverse effect on the consolidated financial position, results of operations
and cash flows of the company.
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PAGE 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
First-QuarterSecond-Quarter 1995 Compared With 1994
- ---------------------------------------------------------------------------
The company reported net earnings for the second quarter ended March 31,June
30, 1995, of $121$19 million, $1.1518 cents per share, versus net earnings of $74$162 million, 71
cents$1.55 per
share for the same periodsecond quarter ended July 1, 1994. Earnings for the quarter
included the effect of a $257 million pre-tax restructuring charge and $8
million pre-tax of associated relocation and training expenses. The
restructuring charge and associated expenses relate to initiatives undertaken
by the company that will revise, restructure, and consolidate specific
operations and administrative functions and result in 1994. Netthe technological
obsolescence of certain telecommunications assets, the termination of
employees, and exit costs associated with certain locations.
The restructuring charge reduced net earnings for the second quarter
ended June 30, 1995 rose 64
percent aboveby $160 million, $1.52 per share. The associated
relocation and training expenses reduced net earnings for the 1994 firstsecond quarter
results, which were impacted by severe
winter weather conditions.$5 million, 5 cents per share. Earnings for the quarter would have been
$184 million, $1.75 per share, exclusive of the restructuring charge and
associated expenses.
Operating revenue for the firstsecond quarter of 1995 was $2.5$2.6 billion,
11
percent10% above the prior-yearprior year quarter of $2.2$2.4 billion, resulting primarily from
the strength ofhigher rail, container-shipping and container shipping traffic.barge volumes and an improved rate
environment. Operating expense, exclusive of the restructuring charge and
associated expenses, was $2.2 billion for the firstsecond quarter, of 1995, 8 percent8% higher than
the $2$2.1 billion reported for the firstsecond quarter of 1994. Operating income,
exclusive of the restructuring charge and associated expenses, was $271$360
million for the firstsecond quarter of 1995, up $85$56 million from 1994's firstsecond
quarter.
Rail Unit Results
- -----------------
Operating income at theCSX's rail unit rose $66would have reported all-time quarterly record
operating income of $270 million, or 37 percent, to
$246excluding its $196 million forportion of the
first quarter of 1995, from $180restructuring charge. This compares with $261 million in 1994's second
quarter and surpasses the weather-
impacted prior-yearprevious quarterly record of $264 million set in
1994's fourth quarter.
The results wereRail revenue, driven by significant traffic gains in most commodity groupsboth merchandise and continued success of the rail unit's cost-
control and expense-reduction programs. Despite the traffic increase, rail
operating expense was held nearly flat at $948 million for the first quarter
of 1995, just $8 million, or less than 1export
coal, increased 3 percent over the 1994 level.
Rail operating revenue increased 7 percentprior-year quarter to $1.2 billion for the
first quarter of 1995.billion.
Merchandise traffic grew 8rose 3 percent, versus 1994's first
quarter on the strengthbenefiting from gains in a number of
export markets, and solid traffic in the domestic
industrial sector. Phosphatesnotably agricultural products, phosphates and fertilizer, carloads rose 20 percent due to
increased global demand, while significant gains also were recorded in the
foodmetals and
consumer, agricultural products, chemicals and metals commodity
groups. Automotive and forest products traffic were nearly flat when compared
with the prior-year quarter.
Exportchemicals.
Overall, coal volume rose 353 percent in the quarter to 39.7 million
tons as exports surged 81 percent to 5.8 million tons, as foreign
coal requirements surged during the first quarter of 1995, reflecting
increased economic activity abroad and favorable exchange rates. Strong
growth in industrial and metallurgical coal traffic offset lower utility
demand resulting from mild 1995 winter weather. Asmore than offsetting a result, domestic tonnage
rose 3 percent to 32.6 million tons, from 31.7 million tons in 1994's first
quarter.
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PAGE 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Rail Unit Results, Continued
- ----------------------------
4 percent drop in domestic tonnage. Domestic volume was 33.9 million tons for
the quarter, reflecting lower utility burn rates due to mild winter weather
across the eastern United States.
Excluding the charge, rail operating expense rose 3 percent to $941
million, compared with $914 million in the 1994 quarter. On that basis, the
rail unit would have registered a record operating ratio of 77.7 percent.
Including the charge, the unit reported operating expense of $1.1 billion this
quarter.
RAIL OPERATING RESULTSINCOME
(Millions of Dollars)
-----------------------------------------------------------
Quarter Ended --------------------
March 31, AprilSix Months Ended
------------------ ------------------
June 30, July 1, Percent June 30, July 1, Percent
1995 1994 Change 1995 1994 Change
-------- ----------------- ------- ------- -------- -------
Operating Revenue
Merchandise $ 799797 $ 758 5%786 1% $ 1,596 $ 1,544 3%
Coal 366 339 8%379 363 4% 745 702 6%
Other 29 23 26%35 26 35% 64 49 31%
------ ------ ------- -------
Total 1,194 1,120 7%1,211 1,175 3% 2,405 2,295 5%
Operating Expense 948 940 1%1,137 914 24% 2,085 1,854 12%
------ ------ ------- -------
Operating Income $ 24674 $ 180 37%261 (72)% $ 320 $ 441 (27)%
====== ====== ======= =======
Operating Income (a) $ 270 $ 261 3% $ 516 $ 441 17%
====== ====== ======= =======
Operating Ratio 79.4% 83.9%93.6% 77.8% 86.7% 80.9%
====== ====== ======= =======
Operating Ratio (a) 77.7% 77.8% 78.5% 80.9%
====== ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge.
Container Shipping Unit Results
- -------------------------------
Even with the devastating January 1995 earthquake that disrupted
operations at its Kobe, Japan port, CSX'sThe container-shipping unit, delivered
one ofexperiencing strong demand for its
best first quarters. Operating income,services worldwide, saw its operating revenue increase 20 percent in the
quarter to $991 million on the strength of a 1516 percent increase in traffic, climbed 32 percent to $25traffic. Excluding the
effect of its $61 million from $19portion of the charge and $8 million in 1994's first quarter.
Strong international demand, combined with increased U.S. trade with
Latin America and Southeast Asia, drove traffic increases of 24 percent inassociated
expenses, the Americas, 17 percent in Asia/Middle East/Europe, 16 percent in the Atlantic
and 12 percent in the Pacific. Operating revenue for 1995 rose 12 percent to
$899unit would have recorded operating income of $67 million,
compared with $800the $15 million it reported in the first quarter of 1994.
Operating expense increased to $874 million in the first quarter of
1995 versus $781 million in the first quarter of 1994 as a result of the
higher volume, bunker fuel prices and the impact of foreign exchange.1994's strike-impacted second
quarter.
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PAGE 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Container Shipping Unit Results, Continued
- ------------------------------------------
Continued worldwide economic expansion translated into higher volumes
in all major trade lanes, especially from Asia to the United States and intra-
Europe. That growth, in combination with recently announced alliances and
vessel-sharing agreements, presents increasingly favorable market conditions
for Sea-Land.
Operating expense at the container-shipping unit rose to $924
million, excluding the charge and associated expenses, mainly as a result of
the higher volumes. Including the charge and associated expenses, operating
expense was $993 million, compared with $811 million in 1994's second quarter.
Intermodal Unit Results
- -----------------------
CSX'sThe company's intermodal unit, reportedreflecting slower growth rates from
1994's double-digit levels, saw revenue increase 3 percent to $230 million in
the quarter. However, intensified motor carrier competition caused the unit's
traffic to decline 2 percent, on a 9 percent drop in domestic volumes that was
partially offset by higher international traffic. This mix change and expense
increases resulted in an operating income for the first
quarter of 1995 grew 11 percentdecline to $10$3 million from $9$16
million in 1994's
first quarter. Strong international traffic pushed total volume up 5 percent
for the first quarter of 1995, more than offsetting the effect of lower
consumer spending and terminal congestion, which reduced domestic volume. A
favorable rate and mix environment also contributed to the unit's operating
income gain for the 1995 firstprior-year quarter.
Barge Unit Results
- ------------------
The company's barge unit reported operating income of $15$19 million, compareda
73 percent increase over the prior-year quarter. A more favorable rate
environment, along with $2 million in the winter weather-impacted 1994 quarter.
Performance at the barge unit was exceptionally strong, reflecting robuststronger demand and favorable operating conditions on the inland waterways. Tonnage
hauled surged 15 percent in the 1995 first quarter, led by gains in coal,for grain and growth in northbound
steel movements. Operatingindustrial traffic, drove operating revenue for the unit was $128to $121 million, 39an 11 percent
better than the prior year's quarter.increase, while operating expense rose only $4 million to $102 million.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $560$562
million at March 31,June 30, 1995, an increase of $25$27 million since December 30, 1994.
Primary uses of cash, cash equivalents and short-term investments were
property additions, purchases of long-term marketable securities, repayment of
long-term debt, payment of dividends, payments relating to
productivity/restructuring charge liabilities and a net increase in short-term
investments. Primary sources of cash, and cash equivalents during the quarterand short-term
investments were operations, proceeds from sales of marketable securities, and
the issuance of short-term and long-term debt. Primary uses of
cash and cash equivalents were property additions, repayment of long-term
debt, and payment of dividends.
During the first quarter of 1995, net investing activities consumed
$181 million of cash and cash equivalents compared with $79 million consumed
in the first quarter of 1994. The changes in investing activities were
primarily due to increased property additions and a decrease in proceeds from
net short-term investment activity compared to the quarter ended April 1,
1994.
Financing activities provided $21 million of cash and cash
equivalents for the quarter ended March 31, 1995, a $133 million decrease from
1994's first quarter. The change was primarily due to a reduction in proceeds
from net short-term borrowings, offset by reductions in scheduled debt
repayments.
The working capital deficit increased $26 million during the quarter
ended March 31, 1995. The increase was primarily due to higher short-term
debt levels and current maturities of long-term debt, partially offset by
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PAGE 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
- ------------------------------
During the first six months of 1995, net investing activities
consumed $511 million of cash and cash equivalents compared with $252 million
consumed in the first six months of 1994. The increase in investing
activities was primarily due to the timing of property additions compared to
the six months ended July 1, 1994.
Financing activities used $7 million of cash and cash equivalents for
the six months ended June 30, 1995. This was a $101 million decrease from the
$108 million of cash used by financing activities in the first six months of
1994. The change was primarily due to a reduction in proceeds from net short-
term borrowings, an increase in proceeds from the issuance of long-term debt,
and a decrease in the repayment of long-term debt.
The working capital deficit increased customer accounts receivable resulting from increased revenue$107 million during the first quartersix
months ended June 30, 1995. The increase in the working capital deficit was
primarily due to an increase in trade accounts payable and income and other
taxes payable and an increased level of 1995.current maturities of long-term debt.
A working capital deficit is not unusual for CSX and does not indicate a lack
of liquidity. CSX continues to maintain adequate current assets to satisfy
current liabilities when they are due and has sufficient liquidity and
financial resources to manage its day-to-day cash needs. For the full year,
CSX does not expect significant changes in working capital or debt levels from
the prior year. Property additions for the full year are expected to be
approximately $100 million higher than 1994.
FINANCIAL DATA
- --------------
(Millions of Dollars)
-----------------------------
March 31,June 30, December 30,
1995 1994
----------------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 560562 $ 535
Commercial Paper Outstanding -
Short-Term $ 261240 $ 201
Commercial Paper Outstanding -
Long-Term $ 300 $ 300
Working Capital (Deficit) $(866)$(947) $(840)
Current Ratio .67.65 .66
Debt Ratio 39%40% 41%
Ratio of Earnings to Fixed Charges 2.8x2.0x (a) 3.1x
(a) Excluding the pre-tax restructuring charge of $257 million and
associated relocation and training expenses of $13 million, the ratio
of earnings to fixed charges would have been 3.2x for the six months
ended June 30, 1995.
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PAGE 14
OUTLOOK
- -------
InDuring the secondthird quarter and remainder of 1995, each of CSX's
transportation units continues to anticipate favorable revenue levels compared
with 1994. The higher revenue levels are expected to result from strong
export demand and a stable domestic economy. The company also plans to
continue the intense focus on productivity improvements and expense control
throughout its transportation units.
Entering the secondthird quarter of 1995, CSXTthe rail unit is experiencing
solid demand for export coal shipments as U.S. producers take advantage of
increased economic activity abroad and favorable exchange rates. CSXT merchandiseMerchandise
traffic is expected to increase inmaintain its strength over the second quarterhalf of 1995 over near-record
1994 levels.
CSXTthe year.
The rail unit continues to monitor and be actively involved in on-goingon-
going industrywide labor contract negotiations. These negotiations have
traditionally taken place over a number of months and have not resulted in any
extended work stoppages.
Sea-LandThe container-shipping unit anticipates solid traffic flows in the
secondthird quarter of 1995 in all of its trade lanes to surpass prior-year second quarter levels, which were
impacted by the nationwide Teamster's strike.lanes. Strong demand for ocean
transportation should allow Sea-Landthe unit to select higher-rated traffic. - 13 -
PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OUTLOOK, Continued
- ------------------
CSX IntermodalThe unit
expects sustained levels of shipmentsto incur an additional $20 million in relocation and revenuetraining expenses
during the second quarter.remainder of 1995 associated with its global integration program.
The intermodal unit expects lower domestic trailer volumes in the
third quarter due to motor carrier competition. The unit continueswill continue to
benefit from market share
gains.
American Commercial Linesstronger international traffic.
The barge unit anticipates continued strongrobust demand for its services,
and, withparticularly in grain shipments. With this demand, solidstrong barge rates.
OTHER MATTERS
- -------------
The company expects its operating results for the second quarter of
1995 to include a pretax restructuring charge estimated to be between $200
million and $250 million. The charge will result from a decision by CSXT to
obtain state-of-the-art technology, equipment and telecommunications services
from AT&T Solutions, the global integration program underway at Sea-Land and
the reflagging of five Sea-Land vessels from U.S. to foreign registration.
The charge will principally relate to the AT&T agreement, with the balance
attributable to the Sea-Land initiatives.
A ten year agreement was executed on May 2, 1995, by CSXT and AT&T.
The agreement calls for AT&T to design and manage a new, network-centered
telecommunications system that isrates are
expected to greatly enhance CSXT's
operations and customer service. Implementation of the new technology will
resultcontinue in employee separation costs and the write down of certain
telecommunication assets.
Sea-Land's global integration program was announced in the fourth
quarter of 1994 and includes the relocation of its corporate headquarters from
Liberty Corner, N.J. to Charlotte, N.C, as well as integration of certain of
its information technology requirements in Charlotte and Dallas, The portion
of the restructuring charge relating to this activity will include labor
separation and facility exit costs. In addition, Sea-Land will incur normal
operating expense related to employee relocation, recruiting and training
costs.
The remaining portion of the restructuring charge will relate to
labor separation costs associated with Sea-Land's reflagging of five U.S.-flag
vessels to the registry of the Marshall Islands in accordance with approval
received from the Federal Maritime Administration.
These initiatives will enable the company to leverage technological
enhancements, streamline administration, increase customer responsiveness and
to reduce operating expense.1995.
- 14 -
PAGE 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual meeting held April 25, 1995.
(b) Not applicable.
(c) There were 105,098,736 shares of CSX common stock
outstanding as of February 24, 1995, the record date for the
1995 annual meeting of shareholders. A total of 90,692,720
shares were voted. All of management's nominees for
directors of the corporation were elected with the following
vote:
Votes Broker
Nominee Votes For Withheld Non-Votes
Edward L. Addison 90,254,629 438,091 0
Elizabeth E. Bailey 90,266,011 426,708 0
Robert L. Burrus, Jr. 90,252,630 440,090 0
Bruce C. Gottwald 90,263,938 428,781 0
John R. Hall 90,275,307 417,412 0
Robert D. Kunisch 90,280,754 411,965 0
Hugh L. McColl, Jr. 90,265,832 426,887 0
James W. McGlothlin 90,288,051 404,669 0
Southwood J. Morcott 90,286,284 406,436 0
Charles E. Rice 90,279,116 413,603 0
William C. Richardson 90,228,407 464,312 0
Frank S. Royal, M.D. 90,205,021 487,698 0
John W. Snow 90,226,769 465,950 0
The appointment of Ernst & Young as independent auditors to audit
and report on CSX's financial statements for the year 1995 was
ratified by the shareholders with the following vote:
Broker
Votes For Votes Against Abstentions Non-Votes
90,006,933 309,828 375,958 0
The shareholder proposal concerning equal opportunity reporting
was withdrawn by its proponent prior to the Annual Meeting.
(d) Not applicable.
- 15 -
PAGE 16
PART II. OTHER INFORMATION, Continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. None.
(b) Reports on Form 8-K
1. None.
SignatureSIGNATURE
---------
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.
CSX CORPORATION
(Registrant)
By: /s/ GREGORY R. WEBER
------------------------------
Gregory R. Weber
Vice President, Controller and
Treasurer
Dated: July 28, 1995 (Principal Accounting Officer)
Dated: May 2, 1995
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