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, 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, 1995: 105,121,307 shares.
- 1 -
PAGE 2
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters Ended March 31, 1995 and April 1, 1994 3
2. Consolidated Statement of Cash Flows-
Quarters Ended March 31, 1995 and April 1, 1994 4
3. Consolidated Statement of Financial Position-
At March 31, 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 6. Exhibits and Reports on Form 8-K 15
Signature 15
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
Quarter Ended
-----------------------
March 31, April 1,
1995 1994
-------- ---------
Operating Revenue
Transportation $ 2,446 $ 2,211
Non-Transportation 22 16
------- -------
Total 2,468 2,227
------- -------
Operating Expense
Transportation 2,171 2,015
Non-Transportation 26 26
------- -------
Total 2,197 2,041
------- -------
Operating Income 271 186
Other Income (Expense) (7) (1)
Interest Expense 67 67
------- -------
Earnings before Income Taxes 197 118
Income Tax Expense 76 44
------- -------
Net Earnings $ 121 $ 74
======= =======
Earnings Per Share $ 1.15 $ .71
======= =======
Average Common Shares Outstanding (Thousands) 104,943 104,452
======= =======
Common Shares Outstanding (Thousands) 105,121 104,684
======= =======
Cash Dividends Paid Per Common Share $ .44 $ .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)
Quarter Ended
-----------------------
March 31, April 1,
1995 1994
-------- ---------
OPERATING ACTIVITIES
Net Earnings $ 121 $ 74
Adjustments to Reconcile Net Earnings
to Cash Provided (Used)
Depreciation 149 143
Deferred Income Taxes 15 22
Productivity/Restructuring Charge -- Payments (17) (34)
Other Operating Activities 16 18
Changes in Operating Assets and Liabilities
Accounts Receivable (52) (33)
Materials and Supplies (23) (14)
Other Current Assets (12) (3)
Accounts Payable and Other Current Liabilities (2) (180)
----- -----
Cash Provided (Used) by Operating Activities 195 (7)
----- -----
INVESTING ACTIVITIES
Property Additions (235) (143)
Short-Term Investments - Net 10 80
Long-Term Marketable Securities - Net 2 (11)
Proceeds from Property Dispositions 12 7
Other Investing Activities 30 (12)
----- -----
Cash Used by Investing Activities (181) (79)
----- -----
FINANCING ACTIVITIES
Short-Term Debt - Net 59 242
Long-Term Debt Issued 58 53
Long-Term Debt Repaid (52) (85)
Dividends Paid (46) (47)
Other Financing Activities 2 (9)
----- -----
Cash Provided by Financing Activities 21 154
----- -----
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Increase in Cash and Cash Equivalents 35 68
Cash and Cash Equivalents at Beginning of Period 265 298
----- -----
Cash and Cash Equivalents at End of Period 300 366
Short-Term Investments at End of Period 260 130
----- -----
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 560 $ 496
===== =====
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, December 30,
1995 1994
-------- -----------
ASSETS
Current Assets
Cash, Cash Equivalents and
Short-Term Investments $ 560 $ 535
Accounts Receivable 777 706
Materials and Supplies 234 211
Deferred Income Taxes 130 151
Other Current Assets 74 62
------- -------
Total Current Assets 1,775 1,665
------- -------
Properties and Other Assets
Properties 16,424 16,315
Less Accumulated Depreciation 5,325 5,271
------- -------
Properties - Net 11,099 11,044
Affiliates and Other Companies 291 302
Other Assets 706 713
------- -------
Total Properties and Other Assets 12,096 12,059
------- -------
Total Assets $13,871 $13,724
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other
Current Liabilities $ 1,990 $ 1,992
Current Maturities of Long-Term Debt 390 312
Short-Term Debt 261 201
------- -------
Total Current Liabilities 2,641 2,505
------- -------
Long-Term Debt 2,546 2,618
------- -------
Deferred Income Taxes 2,567 2,570
------- -------
Long-Term Liabilities and Deferred Gains 2,280 2,300
------- -------
Shareholders' Equity
Common Stock 105 105
Other Capital 1,397 1,368
Retained Earnings 2,468 2,391
Minimum Pension Liability Adjustment (133) (133)
------- -------
Total Shareholders' Equity 3,837 3,731
------- -------
Total Liabilities and Shareholders' Equity $13,871 $13,724
======= =======
See accompanying Notes to Consolidated Financial Statements.
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PAGE 6
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, 1995 and December 30, 1994, and its results
of operations and cash flows for the quarters ended March 31, 1995 and April
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 quarters ended March 31, 1995 and April 1, 1994. Dilution
for these periods, 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 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 31, 1995 and April 1, 1994, and the fiscal year ended
December 30, 1994.
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, 1995 and December 30, 1994, accounts receivable have
been reduced by $372 million, representing Certificates and accounts
receivable sold.
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PAGE 7
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, April 1,
1995 1994
-------- ---------
Labor and Fringe Benefits $ 813 $ 783
Materials, Supplies and Other 603 544
Building and Equipment Rent 287 280
Inland Transportation 227 190
Depreciation 149 143
Fuel 118 101
------ ------
Total $2,197 $2,041
====== ======
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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PAGE 8
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
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.
CSX Transportation, Inc. ("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, 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, 1995, and December 30, 1994, were $141 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, 1995
environmental liability is expected to be paid out over the next five years,
funded by cash generated from operations.
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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
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-Quarter 1995 Compared With 1994
- -------------------------------------
The company reported net earnings for the quarter ended March 31,
1995, of $121 million, $1.15 per share, versus net earnings of $74 million, 71
cents per share, for the same period in 1994. Net earnings for 1995 rose 64
percent above the 1994 first quarter results, which were impacted by severe
winter weather conditions.
Operating revenue for the first quarter of 1995 was $2.5 billion, 11
percent above the prior-year quarter of $2.2 billion, resulting primarily from
the strength of rail and container shipping traffic. Operating expense was
$2.2 billion for the first quarter of 1995, 8 percent higher than the $2
billion reported for the first quarter of 1994. Operating income was $271
million for the first quarter of 1995, up $85 million from 1994's first
quarter.
Rail Unit Results
- -----------------
Operating income at the rail unit rose $66 million, or 37 percent, to
$246 million for the first quarter of 1995, from $180 million in the weather-
impacted prior-year quarter. The results were driven by significant traffic
gains in most commodity groups 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 1 percent, over the 1994 level.
Rail operating revenue increased 7 percent to $1.2 billion for the
first quarter of 1995. Merchandise traffic grew 8 percent versus 1994's first
quarter on the strength of export markets and solid traffic in the domestic
industrial sector. Phosphates and fertilizer carloads rose 20 percent due to
increased global demand, while significant gains also were recorded in the
food and consumer, agricultural products, chemicals and metals commodity
groups. Automotive and forest products traffic were nearly flat when compared
with the prior-year quarter.
Export coal volume rose 35 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. As 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
- ----------------------------
RAIL OPERATING RESULTS
(Millions of Dollars)
------------------------------
Quarter Ended
--------------------
March 31, April 1, Percent
1995 1994 Change
-------- --------- -------
Operating Revenue
Merchandise $ 799 $ 758 5%
Coal 366 339 8%
Other 29 23 26%
------ ------
Total 1,194 1,120 7%
Operating Expense 948 940 1%
------ ------
Operating Income $ 246 $ 180 37%
====== ======
Operating Ratio 79.4% 83.9%
====== ======
Container Shipping Unit Results
- -------------------------------
Even with the devastating January 1995 earthquake that disrupted
operations at its Kobe, Japan port, CSX's container-shipping unit delivered
one of its best first quarters. Operating income, on the strength of a 15
percent increase in traffic, climbed 32 percent to $25 million from $19
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 in 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
$899 million, compared with $800 million 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.
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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
- --------------------------------
Intermodal Unit Results
- -----------------------
CSX's intermodal unit reported that operating income for the first
quarter of 1995 grew 11 percent to $10 million, from $9 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 first quarter.
Barge Unit Results
- ------------------
The company's barge unit reported operating income of $15 million,
compared with $2 million in the winter weather-impacted 1994 quarter.
Performance at the barge unit was exceptionally strong, reflecting robust
demand and favorable operating conditions on the inland waterways. Tonnage
hauled surged 15 percent in the 1995 first quarter, led by gains in coal,
grain and northbound steel movements. Operating revenue for the unit was $128
million, 39 percent better than the prior year's quarter.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $560
million at March 31, 1995, an increase of $25 million since December 30, 1994.
Primary sources of cash and cash equivalents during the quarter were
operations 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
- ------------------------------
increased customer accounts receivable resulting from increased revenue during
the first quarter of 1995. 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 31, December 30,
1995 1994
--------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 560 $ 535
Commercial Paper Outstanding -
Short-Term $ 261 $ 201
Commercial Paper Outstanding -
Long-Term $ 300 $ 300
Working Capital (Deficit) $(866) $(840)
Current Ratio .67 .66
Debt Ratio 39% 41%
Ratio of Earnings to Fixed Charges 2.8x 3.1x
OUTLOOK
- -------
In the second 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 second quarter of 1995, CSXT is experiencing solid
demand for export coal shipments as U.S. producers take advantage of increased
economic activity abroad and favorable exchange rates. CSXT merchandise
traffic is expected to increase in the second quarter of 1995 over near-record
1994 levels.
CSXT continues to monitor and be actively involved in on-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-Land anticipates traffic flows in the second 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. Strong demand for ocean
transportation should allow Sea-Land to select higher-rated traffic.
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PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OUTLOOK, Continued
- ------------------
CSX Intermodal expects sustained levels of shipments and revenue
during the second quarter. The unit continues to benefit from market share
gains.
American Commercial Lines anticipates continued strong demand for its
services and, with this demand, solid 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 is expected to greatly enhance CSXT's
operations and customer service. Implementation of the new technology will
result 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.
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PAGE 15
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: GREGORY R. WEBER
------------------------------
Gregory R. Weber
Vice President, Controller and Treasurer
(Principal Accounting Officer)
Dated: May 2, 1995
- 15 -
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