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 SeptemberMarch 29, 19951996
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 SeptemberMarch 29, 1995: 105,242,3051996: 211,512,205 shares.
- 1 -
PAGE 2
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERMARCH 29, 19951996
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters Ended March 29, 1996 and Nine Months Ended
September 29,March 31, 1995 and September 30, 1994 3
2. Consolidated Statement of Cash Flows-
Nine MonthsQuarters Ended SeptemberMarch 29, 19951996 and September 30, 1994March 31, 1995 4
3. Consolidated Statement of Financial Position-
At SeptemberMarch 29, 19951996 and December 30, 199429, 1995 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 1110
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 1615
Signature 1615
- 2 -
PAGE 3
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
Quarter(Unaudited)
Quarters Ended
Nine Months Ended
---------------------- ----------------------
Sept.-----------------------
March 29, Sept. 30, Sept. 29, Sept. 30,March 31,
1996 1995
1994 1995 1994
-------- -------- -------- ----------------- ---------
Operating Revenue
Transportation $ 2,6052,520 $ 2,391 $ 7,602 $ 6,9262,446
Non-Transportation 60 79 131 142
------- ------- ------- -------16 22
-------- --------
Total 2,665 2,470 7,733 7,068
------- ------- ------- -------2,536 2,468
-------- --------
Operating Expense
Transportation 2,239 2,076 6,622 6,1232,225 2,171
Non-Transportation 44 44 106 105
Restructuring Charge --- --- 257 ---
------- ------- ------- -------25 26
-------- --------
Total 2,283 2,120 6,985 6,228
------- ------- ------- -------2,250 2,197
-------- --------
Operating Income 382 350 748 840286 271
Other Income (Expense) 7 (6) (2) 11(7)
Interest Expense 68 69 203 207
------- ------- ------- -------60 67
-------- --------
Earnings before Income Taxes 321 275 543 644224 197
Income Tax Expense 119 98 201 231
------- ------- ------- -------78 76
-------- --------
Net Earnings $ 202146 $ 177 $ 342 $ 413
======= ======= ======= =======121
======== ========
Earnings Per Share $ 1.92.69 $ 1.68 $ 3.25 $ 3.94
======= ======= ======= =======.58
======== ========
Average Common Shares Outstanding (Thousands) 105,202 104,731 105,103 104,629
======= ======= ======= =======210,964 209,887
======== ========
Common Shares Outstanding (Thousands) 105,242 104,744 105,242 104,744
======= ======= ======= =======211,512 210,243
======== ========
Cash Dividends Paid Per Common Share $ .44.26 $ .44 $ 1.32 $ 1.32
======= ======= ======= =======.22
======== ========
See accompanying Notes to Consolidated Financial Statements.
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PAGE 4
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
Nine Months(Unaudited)
Quarters Ended
-----------------------
Sept.---------------------
March 29, Sept. 30,March 31,
1996 1995
1994
----------------- ---------
OPERATING ACTIVITIES
Net Earnings $ 342146 $ 413121
Adjustments to Reconcile Net Earnings
to Net Cash Provided
Depreciation 446 431156 149
Deferred Income Taxes (57) 115
Restructuring Charge 257 ---14 15
Productivity/Restructuring Charge Payments (117) (103)(23) (17)
Other Operating Activities 75 42(52) 16
Changes in Operating Assets and Liabilities
Accounts Receivable (98) (62)
Materials and Supplies (14) 10(20) (52)
Other Current Assets (10) 15(38) (35)
Accounts Payable and(58) 72
Other Current Liabilities 140 (37)(156) (74)
----- ---------
Net Cash Provided (Used) by Operating Activities 964 824(31) 195
----- ---------
INVESTING ACTIVITIES
Property Additions (819) (517)(338) (235)
Proceeds from Property Dispositions 24 12
Proceeds from Sales of Long-Term Marketable Securities 89 32
Short-Term Investments - Net (44) 10
Purchases of Long-Term Marketable Securities --- (30)
Other Investing Activities 39 7112 30
----- ---------
Net Cash Used by Investing Activities (780) (446)(257) (181)
----- ---------
FINANCING ACTIVITIES
Short-Term Debt - Net (46) 180284 59
Long-Term Debt Issued 115 5357 58
Long-Term Debt Repaid (95) (287)(120) (52)
Dividends Paid (139) (138)(55) (46)
Other Financing Activities 5 103 2
----- -----
Net Cash UsedProvided by Financing Activities (160) (182)169 21
----- -----
Net Increase (Decrease) in Cash and Cash Equivalents (119) 35
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Increase in Cash and Cash Equivalents 24 196
Cash and Cash Equivalents at Beginning of Period 320 265 298
----- -----
Cash and Cash Equivalents at End of Period 289 494201 300
Short-Term Investments at End of Period 274 156380 260
----- -----
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 563581 $ 650560
===== =====
See accompanying Notes to Consolidated Financial Statements.
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PAGE 5
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
September(Unaudited)
March 29, December 30,29,
1996 1995
1994
------------- -------------------- -----------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term
Investments $ 563581 $ 535660
Accounts Receivable 811 706851 832
Materials and Supplies 225 211242 220
Deferred Income Taxes 139 151155 148
Other Current Assets 72 6291 75
------- -------
Total Current Assets 1,810 1,665
------- -------
Properties and Other Assets
Properties 16,654 16,315
Less Accumulated Depreciation 5,466 5,271
------- -------
Properties - Net 11,188 11,0441,920 1,935
Properties-Net 11,483 11,297
Affiliates and Other Companies 319 302317 312
Other Long-Term Assets 711 713
------- -------
Total Properties and Other Assets 12,218 12,059646 738
------- -------
Total Assets $14,028 $13,724$14,366 $14,282
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 1,048 $ 1,121
Labor and Fringe Benefits Payable 432 526
Casualty, Environmental and Other Current Liabilities $ 2,122 $ 1,992Reserves 303 298
Current Maturities of Long-Term Debt 387 312398 486
Short-Term Debt 155 201432 148
Other Current Liabilities 315 412
------- -------
Total Current Liabilities 2,664 2,505
------- -------2,928 2,991
Casualty, Environmental and Other Reserves 773 813
Long-Term Debt 2,564 2,618
------- -------2,247 2,222
Deferred Income Taxes 2,505 2,5702,580 2,560
Other Long-Term Liabilities 1,464 1,454
------- -------
Long-TermTotal Liabilities and Deferred Gains 2,306 2,3009,992 10,040
------- -------
Shareholders' EquitySHAREHOLDERS' EQUITY
Common Stock, 105 105$1 Par Value 212 210
Other Capital 1,418 1,3681,361 1,319
Retained Earnings 2,599 2,3912,910 2,822
Minimum Pension Liability Adjustment (133) (133)(109) (109)
------- -------
Total Shareholders' Equity 3,989 3,7314,374 4,242
------- -------
Total Liabilities and Shareholders' Equity $14,028 $13,724$14,366 $14,282
======= =======
See accompanying Notes to Consolidated Financial Statements.
- 5 -
PAGE 6
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1.BASIS1. 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 SeptemberMarch 29, 19951996 and December 30, 1994,29, 1995, the results of
its operations for the quarters and nine months ended September 29, 1995
and September 30, 1994, and its cash flows for the nine monthsquarters ended SeptemberMarch 29, 19951996 and
September 30, 1994,March 31, 1995, such adjustments being of a normal recurring nature.
Earnings per share are based on the weighted average of common shares
outstanding for the third quarters ended March 29, 1996 and nine months ended September 29, 1995
and September 30, 1994.March 31, 1995.
Dilution for the quarters and nine months ended
September 29, 1995 and September 30, 1994,these periods, which could result if all outstanding common stock
equivalents were exercised, is not significant. Weighted average shares and
earnings per share for all periods presented have been restated to reflect the
2-for-1 common stock split distributed to shareholders in December 1995.
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 19951996
presentation.
NOTE 2.RESTRUCTURING2. FISCAL REPORTING PERIODS
The company's fiscal year is composed of 52 weeks ending on the last
Friday in December. The financial statements presented are for the 13-week
quarters ended March 29, 1996 and March 31, 1995, and the fiscal year ended
December 29, 1995.
NOTE 3. RESTRUCTURING CHARGE
In the second quarter of 1995, the company recorded a $257 million
pretax restructuring charge, $160 million after-tax, $1.5276 cents per share, to
recognize the cost of initiatives undertaken to revise, restructure, and
consolidate specific operations and administrative functions at its rail and
container-
shippingcontainer-shipping units. The initiatives resulted in a $163Of the $69 million write-down of
telecommunications assets rendered obsoletereserve remaining at December
29, 1995, $4 million was utilized during the quarter ended March 29, 1996 for
global integration and will further result in
separation payments totaling $80 million to approximately 800 affected
employeesvessel reflagging costs at the container-shipping unit
and $14 million of lease and facility-related exit costs.
The rail unit initiative represented $196 million of the total
restructuring charge, covering the write-down of assets and cost of employee separations associated with a contractual agreement with AT&T Solutions
("AT&T") to replace, manage, and technologically enhancecompleted during the unit's existing
private telecommunications network. Under the agreement, which was effective
May 1, 1995, AT&T will supply and manage new technology, thereby rendering the
unit's existing telecommunications assets commercially obsolete. The unit
will be obligated to pay minimum charges of approximately $330 million in
equal annual amounts over the next ten years.
The commercially obsolete assets represent the internal company-wide
telecommunications network including the unit's existing microwave and fiber
optic communications systems, portable radios, and road and yard communication
pole line distribution systems. AT&T will provide wireless communications
technology over its existing network to replace the rail unit's network.period.
- 6 -
PAGE 7
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
After the phase-in of this technology, AT&T will retain ownership of its
equipment and will grant CSX access to the equipment and the network. The
commercially obsolete assets have no alternative use and their net realizable
value as an obsolete company-wide telecommunications network is not
significant. As a result of the agreement with AT&T, the net book value of
the assets being replaced was reduced by $163 million.
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 represented 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 represented
$30 million of the total restructuring charge, primarily related to the cost
of crew separations on the five vessels.
The $80 million total provision for separation and labor protection
payments under the rail and container-shipping initiatives was based upon
existing collective bargaining agreements with members of clerical,
electrical, and signal crafts and seafarer trades. The company expects 90% of
the affected employees to be impacted within one year and the remaining 10% to
be impacted within four to five years. Through September 29, 1995, 514
employee separations have been finalized and payments totaling $15 million
have been made.
NOTE 3.ACCOUNTS4. ACCOUNTS RECEIVABLE
The company has issued $200 million ofsold, directly and through Trade ReceivableReceivables
Participation Certificates ("Certificates"), ownership interests in designated
pools of accounts receivable originated by CSX Transportation, Inc. ("CSXT"),
its rail unit.
During 1993, $200 million of Certificates were issued at 5.05%, due
September 1998. The Certificates arerepresent undivided interests in a master
trust holding an ownership interest in a revolving pool of rail freight
accounts receivable. At March 29, 1996 and December 29, 1995, the
Certificates were collateralized by $243$240 million of accounts receivable held
in athe master trust.
In addition, the company has ana revolving agreement with a financial
institution to sell with recourse on a monthly basis an undivided percentage
ownership interest in designated pools of rail freight and other accounts
receivable. The agreement provides for the sale of up to $200 million in
accounts receivable up to a maximum of $200 million to a financial
institution. Atand expires in September 29, 1995 and December 30, 1994, accounts receivable
sold under this agreement totalled $172 million.
CSX1998.
The company has retained the collectionresponsibility for servicing and
servicing responsibility with
respect tocollecting accounts receivable held in trust or sold. The receivables soldAt March 29, 1996 and
represented by Certificates issuedDecember 29, 1995, accounts receivable have been reflected as reductionsreduced by $372 million,
representing Certificates and accounts receivable sold. The net costs
associated with sales of "Accounts Receivable" inCertificates and receivables were $7 and $8 million,
respectively, for the Consolidated Statement of Financial Position.quarters ended March 29, 1996 and March 31, 1995.
NOTE 5. OPERATING EXPENSE
Quarters Ended
-----------------------
March 29, March 31,
1996 1995
-------- ---------
Labor and Fringe Benefits $ 821 $ 813
Materials, Supplies and Other 615 603
Building and Equipment Rent 294 287
Inland Transportation 229 227
Depreciation 156 149
Fuel 135 118
------ ------
Total $2,250 $2,197
====== ======
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PAGE 8
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 Nine Months Ended
------------------- -------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
--------- --------- --------- ---------
Labor and Fringe Benefits $ 823 $ 786 $2,441 $2,338
Materials, Supplies and Other 665 571 1,920 1,680
Building and Equipment Rent 288 292 859 863
Inland Transportation 242 219 708 607
Depreciation 150 144 448 432
Fuel 115 108 352 308
Restructuring Charge --- --- 257 ---
------ ------ ------ ------
Total $2,283 $2,120 $6,985 $6,228
====== ====== ====== ======
NOTE 5.OTHER6. OTHER INCOME (EXPENSE)
QuarterQuarters Ended
Nine Months Ended
------------------- --------------------
Sept.-----------------------
March 29, Sept. 30, Sept. 29, Sept. 30,March 31,
1996 1995
1994 1995 1994-------- --------- --------- --------- ----------
Interest Income $ 19 $ 12 $ 48 $ 40
Gain on South Florida Track Sale --- --- --- 2214
Net Costs for Accounts Receivable Sold (8) (7) (24) (22)(8)
Minority Interest (8) (5)
(19) (13)Foreign Currency Gain (Loss) 1 (5)
Equity Earnings (Losses) of Other Affiliates (1)2 (3)
Net Loss on Investment Transactions (2) (4) (8)
Miscellaneous 5 (4) (3) (8)
------ --------
------ ------
Total $ 7 $ (6) $ (2) $ 11
====== ======(7)
====== ======
NOTE 6.ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
September 29, December 30,
1995 1994
--------- ------------
Trade Accounts Payable $ 960 $ 926
Labor and Fringe Benefits 542 543
Income Taxes and Other 425 337
Casualty Reserves 195 186
------ ------
Total $2,122 $1,992
====== ======
NOTE 7.COMMITMENTS7. COMMITMENTS AND CONTINGENCIES
As part of the restructuring initiative, CSX Transportation, Inc.
("CSXT")During 1995, CSXT entered a contractualinto an agreement with AT&T to replacesupply and
technologically enhancemanage its existing private telecommunications network.needs through May 2005. The - 8 -
PAGE 9
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
agreement was executed during the second quarter of 1995, and requires
minimum payments totaling approximately $330 million over itsthe ten-year term.period.
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 forfrom rail and certain other operations, is provided by companies
owned or partially owned by CSX.
CSXT is a party into various proceedings involving private parties and
regulatory agencies related to environmental issues. CSXT has been identified
as a potentially responsible party ("PRP") in a number of investigations and
actions relating to 106actions. CSXT has identified approximately 108 environmentally impaired sites
that are or may be subject to remedial action under the Federal Superfund
Statutestatute ("Superfund") or corresponding state statutes. Many of these
proceedings are based on allegations that CSXT, or its railroad predecessors,
sent hazardous substances to the facilities in question for disposal. Such
proceedings arising under Superfund or corresponding state statutes 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 most sites is extremely complex. Cost estimates are based on information
available for each site, financial viability of other potentially responsible
parties,PRPs, where available,
and existing technology, laws and regulations. CSXT's best estimateestimates of the
allocation method and percentage of liability when other potentially responsible partiesPRPs are involved are
based on assessments by consultants, agreements among potentially responsible parties,PRPs, or determinations
by the EPAU.S. Environmental Protection Agency or other regulatory agencies.
- 8 -
PAGE 9
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
At least once each quarter, 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 partiesPRPs at the location. The ultimate
liability for remediation is difficult to determine with certainty because of
the number of and creditworthiness of PRPs involved. Through the assessment
process, CSXT monitors the creditworthiness of such PRPs in determining
ultimate liability.
Based upon such reviews and updates of the sites with which it is
involved, CSXT has recorded, and periodically reviews at least quarterly for adequacy,
reserves to cover estimated contingent future environmental costs with respect
to such sites. The recorded liabilities for estimated future environmental
costs at SeptemberMarch 29, 1996, and December 29, 1995, and December 30, 1994, were $136$134 million and $140$137
million, - 9 -
PAGE 10
NOTE 7.COMMITMENTS AND CONTINGENCIES, Continued
respectively. These recorded liabilities include amounts
representing CSXT's estimate of unasserted claims, which CSXT believes to be
immaterial. 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 forany significant ongoing monitoring costs, but
excludes any anticipated insurance recoveries. The majority of the SeptemberMarch 29,
19951996 environmental liability is expected to be paid out over the next five to
seven years, funded by cash generated from operations.
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. In addition, latent
conditions at any given location could result in exposure, the amount and
materiality of which cannot presently be reliably estimated. 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, and 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 resolution of these matters will
have a material adverse effect on the consolidated financial position, results
of operations and cash flows of the company.
- 109 -
PAGE 1110
ITEM 2.MANAGEMENT'S2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Third-Quarter 1995First-Quarter 1996 Compared With 19941995
- ---------------------------------------------------------------------------
The company reported net earnings for the third quarter ended SeptemberMarch 29,
1995,1996, of $202$146 million, $1.9269 cents per share, versus $177net earnings of $121
million, $1.6858 cents per share, for the thirdsame period in 1995. Net earnings for
1996 rose 21 percent above the 1995 first quarter ended September 30, 1994.results.
Operating revenue for the thirdfirst quarter of 1995 was $2.71996 rose to $2.5 billion,
8%$68 million above the prior year quarter of $2.5 billion, resulting primarily from higher
rail, container-shipping and barge volumes and an improved rate environment.prior-year quarter. Operating expense was $2.3 billion
for the thirdfirst quarter 10%of 1996, $53 million higher than the $2.1 billion reported for the third quarter of 1994.prior year quarter.
Operating income was $382$286 million for the thirdfirst quarter of 1995,1996, up $32$15
million from 1994's third1995's first quarter.
Rail Unit Results
- -----------------
CSX'sThe company's rail unit, achievedseverely hampered by winter weather, posted
operating income of $236 million, just 4 percent below its sixth consecutive1995 record quarter,
excludingfirst
quarter. Total rail operating revenue of $1.2 billion was level with 1995's
first-quarter results.
Shipments of CSXT's largest commodity, coal, decreased 1 percent to
38.2 million tons, due to weather disruptions. Coal revenue increased 1
percent over 1995.
Total merchandise traffic fell 4 percent, with decreases in autos (5
percent) and metals (12 percent) largely attributable to the effectUnited Auto
Workers strike. Food and consumer carloadings decreased 9 percent, largely
due to a weaker produce harvest in western states.
Equipment and service initiatives in the agricultural sector and at
paper mills contributed to revenue increases of 6 percent for both the
agricultural and forest products categories.
Despite difficult operating conditions caused by ice and snow storms
throughout much of the restructuring charge recorded in the second
quarter of 1995. Third quarter operating income was $269 million, up 20
percent from 1994's $224 million quarter.
The unit heldrailroad's territory, rail operating expense flat while handling a 2for the
first quarter rose just 1 percent increase in carloads. Operating revenue rose 4 percent,over 1995's level, to $1.2 billion,
resulting in a quarterly operating ratio of 77.4 percent--the unit's best to
date.
Traffic was strong across virtually all major commodity groups.
Merchandise traffic rose 4 percent, led by gains in chemicals, agricultural
products, and phosphates and fertilizer. Overall, coal volume rose 2 percent
in the quarter to 40.2 million tons, with strong export coal movements more
than offsetting a slight decline in domestic coal traffic.$959 million.
- 1110 -
PAGE 1211
ITEM 2.MANAGEMENT'S2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Rail Unit Results, Continued
- ----------------------------
RAIL OPERATING INCOMERESULTS
(Millions of Dollars)
-----------------------------
Quarter------------------------------
Quarters Ended
Nine Months Ended
------------------- ------------------
Sept.--------------------
March 29, Sept. 30,March 31, Percent
Sept. 29, Sept. 30, Percent1996 1995 1994 Change 1995 1994 Change
-------- --------- ------- ------- -------- -------
Operating Revenue
Merchandise $ 767789 $ 733 5% $ 2,363 $ 2,277 4%799 (1)%
Coal 388 384 1% 1,133 1,086 4%370 366 1 %
Other 36 30 20% 100 79 27%29 24 %
------ ------
------- -------
Total 1,191 1,147 4% 3,596 3,442 4%1,195 1,194 -- %
Operating Expense 922 923 --- 3,007 2,777 8%959 948 1 %
------ ------ ------- -------
Operating Income $ 269236 $ 224 20% $ 589 $ 665 (11)246 (4)%
====== ======
======= =======
Operating Income (a) $ 269 $ 224 20% $ 785 $ 665 18%Ratio 80.3% 79.4%
====== ======
======= =======
Operating Ratio 77.4% 80.5% 83.6% 80.7%
====== ====== ======= =======
Operating Ratio (a) 77.4% 80.5% 78.2% 80.7%
====== ====== ======= =======
(a)Pro forma basis, excluding $196 million restructuring charge.
Container-ShippingContainer Shipping Unit Results
- -------------------------------
The container-shipping unit generatedunit's first-quarter operating income of $70rose to
$52 million, down from $78compared with $25 million for 1994's third quarter. The decrease wasin the 1995 period, largely due to
$13 millionsuccessful terminal productivity-improvement initiatives and benefits from the
1995 reflagging of relocation expenses associated with the unit'sfive vessels.
Continued growth in global integration initiative and $8 milliontrade resulted in casualty losses and other
expenses related to a ship collision.
The unit achieved record third quarter operating revenue of $1.03
billion, 12 percent higher than the 1994 period. Contributing to the record
revenue were a 6 percent increase in
volume -- 7 percent in the Pacific trade and 9 percent in the Asia/Middle
East/Europe (A.M.E.) trade lane. Operating revenue rose 7 percent over the
1995 first quarter to $961 million, with increases of 9 percent and 10
percent, respectively, in the Atlantic and A.M.E. trades.
Operating expense increased 4 percent to $909 million in the quarter
as a result of the higher average rates per
container in all majorvolume.
During the quarter, progress continued on implementation of the
previously announced global operating alliance with Maersk. Key first-quarter
actions included the completion of phase-in planning for the TransPacific,
Asia-MidEast and Asia-Europe vessel sharing agreements. Also, the agreement
to revise and renew vessel sharing agreements for the U.S.-South Americas
trade lanes.was completed, and implementation plans for the service were approved.
- 1211 -
PAGE 1312
ITEM 2.MANAGEMENT'S2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Barge Unit Results
- ------------------
Performance at the company's barge unit remained strong, with
operating income rising 20 percent to a first-quarter record of $18 million,
despite severe weather conditions. The previous record was posted in the
first quarter of 1995.
The barge unit benefitted from continued strong demand for grain and
other bulk commodities, such as fertilizer and salt. The unit's quarterly
operating revenue increased 2 percent to $131 million, while operating expense
was held flat at $113 million.
Intermodal Unit Results
- -----------------------
The company's intermodal unit'sunit, continuing to feel the effect of stiff
trucking competition and the impact of the soft demand in the domestic retail
sector, posted operating revenue was up 1 percent to
$233income of $3 million vs. $10 million in the quarter on1995
quarter.
The intermodal unit saw a 2decrease in traffic of 6 percent decline in volume.compared
to 1995's first quarter. Domestic volume
declined 4 percentvolumes remained level, while international
traffic rose 1decreased 13 percent. Operating
expense for the quarter was $228 million, versus $213 million in the prior-
year period, primarily due to higher volume on the western portion of the
intermodal unit's network and the continuing expense to maintain service
levels in the East.
Barge Unit Results
- ------------------
The company's barge unit more than doubled its operating income to
$36 million from $16 million in the prior-year quarter. Operating revenue
rose 33 percent over the 1994 period to $152 million, reflecting strong rates
as well as surging demand for transportation of grain and other bulk
commodities in the inland waterway system. Operating expense increased 18
percent over the prior-year quarter to $116 million, as the company took steps
to expand capacity in response to favorable market conditions.
First Nine Months 1995 Compared to 1994
- ---------------------------------------
For the first nine months of 1995, CSX earned $342 million, $3.25 per
share. Excluding the effect of the second-quarter, $257 million pretax
restructuring charge previously discussed, earnings for the first nine months
of 1995 would have been $502 million, $4.77 per share, up 22 percent from the
1994 period. In the first nine months of 1994, CSX earned $413 million, $3.94
per share.
The results for the first nine months of 1995 reflect the success of
the company's efforts to reduce costs, improve service and profitably respond
to growth opportunities and increased demand. In addition, the strength of
the domestic and global economies have positively impacted the year-to-date
results for 1995.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $563$581
million at SeptemberMarch 29, 1995, an increase1996, a decrease of $28$79 million since December 30,
1994.29, 1995.
Primary sources of cash and cash equivalents during the quarter were the
issuance of short-term and long-term debt. Primary uses of cash and cash
equivalents and short-term investments were property additions, repayment of long-term debt, payment of
dividends,income taxes, and payments relating to productivity/restructuring charge liabilities. Primary
sourcespayment of dividends.
During the first quarter of 1996, net investing activities consumed
$257 million of cash and cash equivalents compared with $181 million consumed
in the first quarter of 1995. The change in cash used by investing activities
was primarily due to increased property additions compared to the quarter
ended March 31, 1995.
Financing activities provided $169 million of cash and cash
equivalents for the quarter ended March 29, 1996, a $148 million increase from
1995's first quarter. The change was primarily due to an increase in proceeds
from net short-term investments were operations
and the issuance of long-term debt.borrowings, offset partially by increases in scheduled
debt repayments.
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PAGE 1413
ITEM 2.MANAGEMENT'S2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
- ------------------------------
DuringThe working capital deficit decreased $48 million during the first nine months of 1995, net investing activities
consumed $780 million of cash and cash equivalents compared with $446 million
consumed in the first nine months of 1994.quarter
ended March 29, 1996. The increase in investing
activitiesdecrease was primarily due to the timing of property additions compared to
the nine months ended September 30, 1994.
Financing activities used $160 million of cash and cash equivalents
for the nine months ended September 29, 1995. This was a $22 million decrease
from the $182 million of cash used by financing activitiesreductions in the first nine
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 $14 million during the nine
months ended September 29, 1995. The increase in the working capital deficit
was primarily due to an increase in trade
accounts payable, labor and income and
other taxesfringe benefits payable, and an increased level of current maturities of
long-term debt.debt, partially offset by increased short-term debt levels. 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)
-------------------------------
September-----------------------------
March 29, December 30,29,
1996 1995
1994
---------------------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 563581 $ 535660
Commercial Paper Outstanding -
Short-Term $ 155432 $ 201148
Commercial Paper Outstanding -
Long-Term $ 300 $ 300
Working Capital (Deficit) $(854) $(840)$(1,008) $(1,056)
Current Ratio .68 .66.7 .6
Debt Ratio 39% 41%34% 34%
Ratio of Earnings to Fixed Charges 2.6x (a) 3.1x (a) Excluding3.2 x
OUTLOOK
- -------
Each of CSX's transportation units continue to anticipate favorable
revenue levels over the pre-tax restructuring chargeremainder of $257 million,1996, compared with 1995. The higher
revenue is expected from improved marketing strategies and modest growth in
the ratiodomestic economy. The company also plans to continue the intense focus on
service, productivity and expense control throughout its transportation units.
As the second quarter of earnings1996 begins, the rail unit is benefitting
from pent-up demand for coal from domestic utilities and industrial producers.
Demand for export coal is also expected to fixed charges wouldcontinue strong. Additionally,
merchandise traffic is projected to experience gradual improvement throughout
the balance of the year.
The rail unit, through the National Carriers Conference Committee,
has been involved in the current round of negotiations with rail labor. These
negotiations have been 3.4x forhistorically taken place over a number of months and usually
have not resulted in significant work stoppages. It is anticipated that
Presidential Emergency Boards ("PEBs") will ultimately be appointed to make
recommendations to resolve the nine months
ended September 29, 1995.industry-wide labor contract issues.
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PAGE 1514
ITEM 2.MANAGEMENT'S2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OUTLOOK, Continued
- -------
During------------------
In April 1996, the fourth quarterUnited Transportation Union ("UTU") failed to
ratify the proposed five-year contract that had been negotiated by its leaders
and the railroad industry's National Carriers Conference Committee. The UTU
has agreed to binding arbitration with the National Carriers Conference
Committee. This arbitration will produce a new labor agreement.
The Transportation Communication International Union ("TCU") recently
has been released from industry-wide negotiations by the National Mediation
Board ("NMB"). At this stage, the TCU has set a May 9, 1996 strike date. We
expect that the NMB will recommend a PEB to be appointed in advance of 1995, eachthat
date. If a PEB is appointed it will delay the possibility of CSX's transportation units
anticipates favorable revenue levels compared with 1994. The higher revenue
levels are expected to resulta strike by the
TCU. We also anticipate that additional PEBs will be appointed for the other
unions which have been released by the NMB from strong demand for transportation services
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 fourth quarter of 1995, the rail unit is experiencing
solid demand for export coal shipments as U.S. producers take advantage of
increased economic activity abroad. Merchandise traffic is expected to
maintain its strength over the remainder of the year. Additionally, the rail
unit anticipates continuing benefits from its cost reduction efforts.
The rail unit continues to monitor and be actively involved in on-
going industrywide labor contractindustry-wide negotiations. These negotiations have
traditionally taken place over a number of months and have not resulted in any
extended work stoppages.
The container-shipping unit anticipates solid traffic flows in the fourthsecond
quarter of 19951996 to surpass prior-year second quarter levels in all of itsmajor trade
lanes. StrongThe unit expects that strong demand for ocean transportation shouldand the
unit's technological advantages will allow the unitthem generally to select higher-ratedhigher
margin traffic. The unit
expects to incur an additional $4 million to $6 million in relocation and
training expenses during the remainder of 1995 associated with its global
integration initiative.
The intermodal unit expects lower domestic trailer volumes to continue into improve the fourthlevel of
shipments and revenue during the second quarter due to motor carrier competition. The unit
will continue to benefit from stronger international traffic revenue. The
unit has initiated cost reduction efforts in response to the motor carrier
competition.as result of closer alignment
of its operations with CSXT and Sea-Land. The barge unit anticipates
continued strong demand for its services resulting particularly in export grain shipments. Withand, with this demand, strongsolid barge
rates are expected to continue in 1995.
OTHER MATTERSrevenue.
- -------------
At its October 11, 1995 meeting, the Board of Directors approved a
two-for-one split of the company's common stock. Shareholders of record as of
December 4, 1995 will receive one new share of common stock for every share
they own on that date. Distribution of new shares will start December 21,
1995.
The company is assessing any potential impact of the provisions of
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which it expects to adopt for its fiscal year ending December 27, 1996. The
company has not completed a determination as to whether or not indicators of
impairment of long-lived assets are present in its operating units.
- 1514 -
PAGE 1615
PART II. OTHER INFORMATION
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)
/s/ GREGORY R. WEBERBy: JAMES L. ROSS
------------------------------
Gregory R. WeberJames L. Ross
Vice President Controller and Treasurer
Dated: November 7, 1995Controller
(Principal Accounting Officer)
Dated: May 1, 1996
- 1615 -