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 29,June 28, 1996
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 29,June 28, 1996: 211,512,205211,811,519 shares.
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PAGE 2
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 29,JUNE 28, 1996
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Six Months Ended March 29,June 28, 1996
and March 31,June 30, 1995 3
2. Consolidated Statement of Cash Flows-
QuartersSix Months Ended March 29,June 28, 1996 and March 31,June 30, 1995 4
3. Consolidated Statement of Financial Position-
At March 29,June 28, 1996 and December 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 1011
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 6. Exhibits and Reports on Form 8-K 1517
Signature 1517
Please note that through clerical error the Company's Second Quarter Form 10-Q
was received on July 30, 1996 by the SEC as a test filing instead of as an
official filing on that date. The Company's press release issued on July 18,
1996 contains the Company's condensed consolidated unaudited financial
statements, and the textual portion of the release highlights the significant
financial results. Immediately upon learning of the filing error, the Company
resubmitted the filing to the SEC.
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PAGE 3
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
Quarters Ended Six Months Ended
----------------------- March 29, March 31,----------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
--------- ---------
Operating Revenue
Transportation $ 2,520 $ 2,446
Non-Transportation 16 22
-------- --------
Total 2,536 2,468 -------- --------
Operating Revenue $ 2,672 $ 2,549 $ 5,186 $ 4,993
Operating Expense Transportation 2,225 2,171
Non-Transportation 25 262,264 2,208 4,482 4,376
Restructuring Charge --- 257 --- 257
-------- ------- -------- -------
Total 2,250 2,1972,264 2,465 4,482 4,633
-------- ------- -------- -------
Operating Income 286 271408 84 704 360
Other Income (Expense) (2) (7)23 9 11 (3)
Interest Expense 60 6771 68 131 135
-------- ------- -------- -------
Earnings before
Income Taxes 224 197360 25 584 222
Income Tax Expense 78 76126 6 204 82
-------- ------- -------- -------
Net Earnings $ 146234 $ 12119 $ 380 $ 140
======== ======= ======== =======
Earnings Per Share $ .691.11 $ .58.09 $ 1.80 $ .67
======== ======= ======== =======
Average Common Shares
Outstanding (Thousands) 210,964 209,887211,678 210,328 211,321 210,107
======== ======= ======== =======
Common Shares
Outstanding (Thousands) 211,512 210,243211,812 210,429 211,812 210,429
======== ======= ======== =======
Cash Dividends Paid Per
Common Share $ .26 $ .22 $ .52 $ .44
======== ======= ======== =======
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)
(Unaudited)
QuartersSix Months Ended
---------------------
March 29, March 31,June 28, June 30,
1996 1995
-------- ---------
OPERATING ACTIVITIES
Net Earnings $ 146380 $ 121140
Adjustments to Reconcile Net Earnings
to Net Cash Provided
Depreciation 156 149312 297
Deferred Income Taxes 14 1537 (58)
Restructuring Charge Provision --- 257
Productivity/Restructuring Charge Payments (23) (17)(49) (55)
Other Operating Activities (52) 16--- 26
Changes in Operating Assets and Liabilities
Accounts Receivable (20) (52)(92) (10)
Other Current Assets (38) (35)(48) (56)
Accounts Payable (58) 72(9) 46
Other Current Liabilities (156) (74)(65) (5)
----- -----
Net Cash Provided (Used) by Operating Activities (31) 195466 582
----- -----
INVESTING ACTIVITIES
Property Additions (338) (235)
Proceeds from Property Dispositions 24 12(594) (585)
Short-Term Investments - Net (45) 38
Purchases of Long-Term Marketable Securities (10) (67)
Proceeds from Sales of Long-Term Marketable Securities 89 32
Short-Term Investments - Net (44) 10
Purchases of Long-Term Marketable Securities --- (30)106 53
Other Investing Activities 12 3025 50
----- -----
Net Cash Used by Investing Activities (257) (181)(518) (511)
----- -----
FINANCING ACTIVITIES
Short-Term Debt - Net 284 5934 39
Long-Term Debt Issued 57 58117 115
Long-Term Debt Repaid (120) (52)(159) (72)
Cash Dividends Paid (55) (46)(110) (93)
Other Financing Activities 3 220 4
----- -----
Net Cash ProvidedUsed by Financing Activities 169 21(98) (7)
----- -----
Net Increase (Decrease) in Cash and Cash Equivalents (119) 35(150) 64
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 320 265
----- -----
Cash and Cash Equivalents at End of Period 201 300170 329
Short-Term Investments at End of Period 380 260233
----- -----
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 581550 $ 560562
===== =====
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
March 29,June 28, December 29,
1996 1995
-------- -----------------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term
Investments $ 581550 $ 660
Accounts Receivable 851922 832
Materials and Supplies 242241 220
Deferred Income Taxes 155168 148
Other Current Assets 9198 75
------- -------
Total Current Assets 1,9201,979 1,935
Properties-Net 11,48311,568 11,297
Affiliates and Other Companies 317 312
Other Long-Term Assets 646667 738
------- -------
Total Assets $14,366$14,531 $14,282
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 1,0481,097 $ 1,121
Labor and Fringe Benefits Payable 432475 526
Casualty, Environmental and Other Reserves 303289 298
Current Maturities of Long-Term Debt 398395 486
Short-Term Debt 432182 148
Other Current Liabilities 315396 412
------- -------
Total Current Liabilities 2,9282,834 2,991
Casualty, Environmental and Other Reserves 773761 813
Long-Term Debt 2,2472,271 2,222
Deferred Income Taxes 2,5802,615 2,560
Other Long-Term Liabilities 1,4641,483 1,454
------- -------
Total Liabilities 9,9929,964 10,040
------- -------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 212 210
Other Capital 1,3611,375 1,319
Retained Earnings 2,9103,089 2,822
Minimum Pension Liability (109) (109)
------- -------
Total Shareholders' Equity 4,3744,567 4,242
------- -------
Total Liabilities and Shareholders' Equity $14,366$14,531 $14,282
======= =======
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 29,June 28, 1996 and December 29, 1995, the results of
its operations for the quarters and six months ended June 28, 1996 and June
30, 1995, and its cash flows for the quarterssix months ended March 29,June 28, 1996 and March 31,June
30, 1995, such adjustments being of a normal recurring nature.
Earnings per share are based on the weighted average of common shares
outstanding for the quarters and six months ended March 29,June 28, 1996 and March 31,June 30,
1995. Dilution for 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 presented1995 have been restated to reflect the 2-for-12-
for-1 common stock split distributed to shareholders in December 1995.December.
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-yearThe company changed its earnings presentation for the quarter and six
months ended June 28, 1996 to exclude non-transportation activities from
operating revenue and expense. These activities, principally real estate and
resort operations, are now included in "Other Income (Expense)." Prior-year
data have been reclassified to conform to the 1996 presentation.
NOTE 2. 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 and 26-week periods ended March 29,June 28, 1996 and March 31,June 30, 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, 76 cents per share, to
recognize the estimated cost of initiatives undertaken to revise, restructure,
and consolidate specific operations and administrative functions at its rail
and container-shipping units. Of the $69 million reserve remaining atAt December 29, 1995, $4a reserve of $69 million
remained, of which $2 million and $6 million was utilized duringfor the quarter and
six months ended March 29,June 28, 1996, respectively, for global integration and
vessel reflagging costs atwhich were included in the container-shipping unit
and the employee separations completed during the period.unit's
restructuring initiatives.
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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. ACCOUNTS RECEIVABLE
The company has sold, directly and through Trade Receivables
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 represent 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, theThe Certificates were collateralized by $241 million and
$240 million of accounts receivable held in the master trust.trust at June 28, 1996
and December 29, 1995, respectively.
In addition, the company has a 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 and expires in September 1998.
The company has retained the responsibility for servicing and
collecting accounts receivable held in trust or sold. At March 29,June 28, 1996 and
December 29, 1995, accounts receivable have been reduced by $372 million,
representing Certificates and accounts receivable sold. The net costs
associated with sales of Certificates and receivables were $7$8 million and $15
million for the quarter and six months ended June 28, 1996, respectively, and
$8 million respectively,and $16 million for the quartersquarter and six months ended March 29, 1996 and March 31, 1995.June 30, 1995,
respectively.
NOTE 5. OPERATING EXPENSE
Quarters Ended -----------------------
March 29, March 31,Six Months Ended
------------------ ------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- ----------------- -------- --------
Labor and Fringe Benefits $ 821797 $ 813773 $1,591 $1,552
Materials, Supplies and Other 615 603632 656 1,250 1,276
Building and Equipment Rent 294 287 274 576 553
Inland Transportation 229 227252 239 481 465
Depreciation 156 149154 147 307 293
Fuel 135 118142 119 277 237
Restructuring Charge --- 257 --- 257
------ ------ ------ ------
Total $2,250 $2,197$2,264 $2,465 $4,482 $4,633
====== ====== ====== ======
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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 6. OTHER INCOME (EXPENSE)
Quarters Ended -----------------------
March 29, March 31,Six Months Ended
------------------ -----------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- ----------------- -------- --------
Interest Income $ 12 $ 1415 $ 24 $ 29
Income from Real Estate and Resort
Operations (1) 31 13 23 10
Foreign Currency Gain (Loss) --- (1) 1 (6)
Net Costs for Accounts Receivable Sold (7) (8) (8) (15) (16)
Minority Interest (8) (5)
Foreign Currency Gain (Loss) 1 (5)(10) (6) (18) (11)
Equity Earnings (Losses) of Other
Affiliates --- --- 2 (3)
Net Loss on Investment TransactionsMiscellaneous (2) --(4) (6) (6)
------ ------ ------ ------
Total $ (2)23 $ (7)9 $ 11 $ (3)
====== ====== ====== =======
(1) Gross revenue from real estate and resort operations was $66 million
and $79 million for the quarter and six months ended June 28, 1996,
respectively, and $47 million and $67 million for the quarter and six
months ended June 30, 1995, respectively.
NOTE 7. COMMITMENTS AND CONTINGENCIES
During 1995, CSXT entered into an agreement with AT&T to supply and
manage its telecommunications needs through May 2005. The agreement requires
minimum payments totaling approximately $330 million over the ten-year period.
In July 1996, CSXT reached agreements with two manufacturers for the
purchase of 80 alternating current traction locomotives to be delivered during
the remainder of 1996 and 1997. These agreements represent commitments for
additional locomotives above the company's 1993 order covering 300 units for
1994-1997 delivery. As of July 30, 1996, a total of 127 locomotives remain
for 1996 and 1997 delivery under the 1993 and 1996 purchase agreements.
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 from rail and certain other operations, is provided by companies
owned or partially owned by CSX.
CSXT is a party to 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. CSXT has identified approximately 108102 environmentally impaired sites
that are or may be subject to remedial action under the Federal Superfund
statute ("Superfund") or corresponding state statutes. Many of these
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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
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 PRPs, where available,
and existing technology, laws and regulations. CSXT's best estimates of the
allocation method and percentage of liability when other PRPs are involved are
based on assessments by consultants, agreements among PRPs, or determinations
by the U.S. Environmental Protection Agency or other regulatory agencies.
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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 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 PRPs at the location. The ultimate
liability for remediation is difficult to determine with certainty because of
the number 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 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 March 29,June 28, 1996, and December 29, 1995, were $134$124 million and $137
million, 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 any significant ongoing monitoring costs, but
excludes any anticipated insurance recoveries. The majority of the March 29,June 28,
1996 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
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PAGE 10
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
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.
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PAGE 1011
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
First-QuarterSecond-Quarter 1996 Compared With 1995
- ---------------------------------------------------------------------------
The company reported net earnings for the quarter ended March 29,June 28,
1996, of $146$234 million, 69$1.11 per share. These results compare with 1995
second-quarter net earnings of $19 million, 9 cents per share, versuswhich included
a restructuring charge. Without this charge, net earnings of $121income in the year-ago
quarter would have been $179 million, 5885 cents per share, for the same period in 1995. Net earnings for
1996 rose 21 percent above the 1995 first quarter results.share.
Operating revenue for the firstsecond quarter of 1996 rose to $2.5$2.7
billion, $68$123 million above the prior-year quarter. Operating expense was
$2.3 billion for the firstsecond quarter of 1996, $53$56 million higher than the
prior year quarter.prior-year quarter, excluding the charge. Operating income was $286$408 million
for the firstsecond quarter of 1996, up $15$67 million from 1995's first quarter.second quarter,
excluding the charge.
Rail Unit Results
- -----------------
The company's rail unit severely hampered by winter weather, postedproduced record quarterly operating income of
$236$312 million, just 4 percent below its 1995 record first
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
38.2breaking the $300 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 United 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 railroad's territory, rail operating expensethreshold for the first time. The
results, on a pro-forma basis, topped those of the prior-year quarter by $42
million and the previous quarterly record of $279 million in the fourth
quarter of 1995 by $33 million.
Revenue increased 4 percent to $1.26 billion, despite essentially
flat traffic levels. Operating expense was held level with the 1995 period,
excluding the charge, despite a 15 percent increase in fuel prices. The
unit's Performance Improvement Teams' efforts continued to produce positive
results. By increasing revenue and holding down expense, the rail unit
produced a record operating ratio of 75.1 percent -- nearly three points
better than the year-ago quarter.
Overall, coal revenue rose just7 percent and coal tonnage rose 6 percent,
led by a 9 percent increase in utility coal volume and a 2 percent rise in
export volume. Merchandise carloadings were down 1 percent, over 1995's level,but revenue rose
2 percent, due to $959 million.better mix, selective pricing initiatives and increased
tonnage per car.
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PAGE 1112
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Rail Unit Results, Continued
- ----------------------------
RAIL OPERATING RESULTSINCOME
(Millions of Dollars)
-----------------------------------------------------------
Quarters Ended --------------------
March 29, March 31,Six Months Ended
------------------ ------------------
June 28, June 30, Percent June 28, June 30, Percent
1996 1995 Change 1996 1995 Change
-------- ----------------- ------- ------- -------- -------
Operating Revenue
Merchandise $ 789813 $ 799 (1)797 2% $ 1,602 $ 1,596 -%
Coal 404 379 7% 774 745 4%
Other 38 35 9% 74 64 16%
------ ------ ------- -------
Total 1,255 1,211 4% 2,450 2,405 2%
Operating Expense 943 1,137 (17)% Coal 370 366 1 %
Other 36 29 24 1,902 2,085 (9)%
------ ------ Total 1,195 1,194 -- %
Operating Expense 959 948 1 %
------ ------------- -------
Operating Income $ 236312 $ 246 (4)%74 322% $ 548 $ 320 71%
====== ====== ======= =======
Operating Income (a) $ 312 $ 270 16% $ 548 $ 516 6%
====== ====== ======= =======
Operating Ratio 80.3% 79.4%75.1% 93.9% 77.6% 86.7%
====== ====== ======= =======
Operating Ratio (a) 75.1% 77.7% 77.6% 78.5%
====== ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge in 1995.
Container Shipping Unit Results
- -------------------------------
The container-shipping unit's first-quarter operatingunit posted its second straight record
quarter. Operating income rose 37 percent to $52$81 million compared with $25from the $59 million
the company earned in the second quarter of 1995, period, largely due to
successful terminal productivity-improvement initiatives and benefits from the
1995 reflagging of five vessels.
Continued growth in global trade resulted inexcluding last year's $61
million restructuring charge.
The earnings improvement was driven by an 8 percent volume increase
with only a 61 percent increase in volume -- 7costs, excluding the charge. Performance in
both of these areas combined to more than offset continued downward pressure
on rates in some trade lanes.
Growth in market share, improved cargo mix and a strengthening
international economy fueled a $29 million rise in revenue to $1.02 billion.
The increase in revenue along with cost containment resulted in an operating
ratio of 92.1 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 infor the quarter, as a result of1.9 point improvement from the higher volume.
Duringprior
year quarter, excluding 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 was completed, and implementation plans for the service were approved.restructuring charge.
- 1112 -
PAGE 1213
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Barge Unit Results
- ------------------
Performance atOperating income for the company's barge unit remained strong, with
operating income rising 20 percentrose to a first-quarter record of $18$28 million
despite severe weather conditions. The previous record was posted in
the firstsecond quarter, of 1995.a 47 percent increase over the $19 million it earned in
the prior-year quarter. The barge unit benefittedunit's strong performance largely resulted
from continued strong demand forstrength in the grain and other bulk commodities, such as fertilizercommodity markets, which
increased 50 percent vs. the 1995 quarter, and salt. The unit's quarterly
operating revenuethe success of ongoing cost-
control and expense-reduction programs. Operating expense rose $28 million,
due largely to higher fuel prices and increased 2 percent to $131 million, while operating expense
was held flat at $113 million.volume.
Intermodal Unit Results
- -----------------------
The company's intermodal unit continuingincreased operating income to feel$6
million from $3 million during the effectprior-year quarter. Expense reductions of
stiff
trucking competition$9 million more than offset a $6 million decline in revenue.
Contract Logistics Unit Results
- -------------------------------
The company's contract logistics unit continued to grow rapidly, with
revenue rising 39 percent to $79 million and operating income reaching $4
million.
First Six Months 1996 Compared with 1995
- ----------------------------------------
For the impactfirst six months of the soft demandyear, earnings for the company rose
to $380 million, $1.80 per share. These results represent a 27 percent
increase over the $300 million, $1.43 per share, earned in the domestic retail
sector, posted operating incomefirst six
months of $3 million vs. $10 million in1995, exclusive of the 1995 quarter.charge.
The intermodal unit saw a decrease in trafficresults for the first six months of 6 percent compared1996 reflect the continued
success of the company's efforts to 1995's first quarter. Domestic volumes remained level, while international
traffic decreased 13 percent.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 1996.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $581$550
million at March 29,June 28, 1996, a decrease of $79$110 million since December 29, 1995.
Primary sources of cash and cash equivalents during the quarterperiod were the
issuance of short-term and long-term debt.debt and proceeds from the sale of long-
term marketable securities. Primary uses of cash and cash equivalents were
property additions, repayment of long-term debt, payment of income taxes, and
payment 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 borrowings, offset partially by increases in scheduled
debt repayments.
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PAGE 1314
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
- ------------------------------
During the first six months of 1996, net investing activities
consumed $518 million of cash and cash equivalents compared with $511 million
consumed in the six months of 1995.
Financing activities used $98 million of cash and cash equivalents
for the six months ended June 28, 1996, a $91 million increase over the first
six months of 1995. The change was primarily due to an increase in scheduled
debt repayments.
The working capital deficit decreased $48$201 million during the quartersix
months ended March 29,June 28, 1996. The decrease was primarily due to reductions in
accounts payable,
labor and fringe benefits payable and current maturities of long-term debt, partially offset by increased short-term debt levels.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.
FINANCIAL DATA
- -------------- (Millions of Dollars)
-----------------------------
March 29,June 28, December 29,
1996 1995
--------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 581550 $ 660
Commercial Paper Outstanding -
Short-Term $ 432182 $ 148
Commercial Paper Outstanding -
Long-Term $ 300 $ 300
Working Capital (Deficit) $(1,008)$ (855) $(1,056)
Current Ratio .7 .6
Debt Ratio 34%33% 34%
Ratio of Earnings to Fixed Charges 3.1x3.6 x 3.2 xx(a)
(a) Excluding the pre-tax restructuring charge of $257 million, the
ratio of earnings to fixed charges would have been 3.7x for the
year ended December 29, 1995.
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PAGE 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OUTLOOK
- -------
Each of CSX's transportation units continuecontinues to anticipate favorable
revenue levels over the remainder of 1996, compared with 1995. The higher
revenue is expected from improvedimproving marketing strategies and modest growth in
the domestic economy. The company also plans to continue the intense focus on
service, productivity and expense control throughout its transportation units.
As the secondthird quarter of 1996 begins, the rail unit is benefittingcontinues to
benefit from pent-upstrong demand for coal from domestic utilities and industrial producers.
Demand for export coal is also expected to continue strong. Additionally,
merchandisemarkets. Merchandise
traffic is projectedexpected to experience gradual improvement throughout the balance
of the year. Automotive traffic levels could be impacted by the pending auto
industry negotiations with the United Auto Workers.
The rail unit, through the National Carriers Conference Committee,
has been involvedcontinues to participate in the current round of negotiations with rail labor.
These
negotiationsTentative agreements have historically taken place over a numberbeen reached with the Transportation Communication
International Union, the Brotherhood of monthsMaintenance of Way Employees and usuallythree
shopcraft unions and are currently pending ratification by their memberships.
Agreements previously 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 industry-widebeen reached with other rail labor contract issues.
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PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OUTLOOK, Continued
- ------------------
In April 1996,organizations,
including the United 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 arbitrationBrotherhood of Locomotive
Engineers. Negotiations continue with two small shopcraft unions and 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 that
date. If a PEB is appointed it will delay the possibility of a 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 industry-wide negotiations.Dispatchers organizations.
The container-shipping unit anticipates traffic flows in the secondthird
quarter of 1996 to surpass prior-year secondthird quarter levels in major trade
lanes. The unit expects that strong demand for ocean transportation and the
unit's technological advantages willshould allow themit generally to select higher
margin traffic. The container-shipping industry anticipates that strong
Trans-Pacific eastbound volume will help to mitigate the rate decline
experienced in recent quarters.
The intermodal unit expects to continue to improve the level of
shipments and revenue during the secondthird quarter as a result of closer alignment
of its operations with CSXT and Sea-Land. The barge unit anticipates solid
revenue resulting from continued strong demand for its servicesservices. The contract
logistics unit expects its growth to continue throughout the year, due to
expanding demand for its services.
-------------------------
To the extent that these written statements include predictions
concerning future operations and with thisresults of operations, such statements are
forward-looking statements that involve risks and uncertainties, and actual
results may differ materially. Factors that could cause actual results to
differ materially are described in the Company's Form 10-K for its most recent
fiscal year and include general economic downturns, which may limit demand solid barge
revenue.and
pricing; labor matters, which may impact the costs and feasibility of certain
operations; and commodity concentrations, which may affect traffic levels.
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PAGE 1516
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual meeting held April 25, 1996.
(b) Not applicable.
(c) There were 211,376,803 shares of CSX common stock
outstanding as of February 23, 1996, the record date for the
1996 annual meeting of shareholders. A total of 174,765,729
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
Elizabeth E. Bailey 173,672,852 1,092,876 1
Robert L. Burrus, Jr. 173,673,264 1,092,464 1
Bruce C. Gottwald 173,726,819 1,038,909 1
John R. Hall 173,734,971 1,030,757 1
Robert D. Kunisch 173,756,651 1,009,077 1
Hugh L. McColl, Jr. 173,681,451 1,084,277 1
James W. McGlothlin 173,752,364 1,013,364 1
Southwood J. Morcott 173,744,432 1,021,296 1
Charles E. Rice 173,731,574 1,034,154 1
William C. Richardson 173,714,237 1,051,491 1
Frank S. Royal, M.D. 173,640,076 1,125,652 1
John W. Snow 173,583,541 1,182,187 1
The appointment of Ernst & Young LLP as independent auditors to
audit and report on CSX's financial statements for the year 1996
was ratified by the shareholders with the following vote:
Broker
Votes For Votes Against Abstentions Non-Votes
173,476,393 646,095 643,239 2
Amendment of the 1987 Long-Term Performance Stock Plan was
approved by the shareholders with the following vote:
Broker
Votes For Votes Against Abstentions Non-Votes
163,032,265 9,774,430 1,959,033 1
The amended and restated 1991 Stock Purchase and Loan Plan was
approved by the shareholders with the following vote:
Broker
Votes For Votes Against Abstentions Non-Votes
160,248,576 12,627,938 1,889,214 1
(d) Not applicable.
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PAGE 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
1. None.
Signature
---------
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: JAMES L. ROSS
------------------------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: May 1,July 30, 1996
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