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 September 27, 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 September 27, 1996: 216,925,500 shares.
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CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1996
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Nine Months Ended September 27, 1996
and September 29, 1995 3
2. Consolidated Statement of Cash Flows-
Nine Months Ended September 27, 1996 and
September 29, 1995 4
3. Consolidated Statement of Financial Position-
At September 27, 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 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signature 17
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
Quarters Ended Nine Months Ended
----------------------- ----------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
--------- -------- -------- --------
Operating Revenue $ 2,647 $ 2,601 $ 7,833 $ 7,594
Operating Expense 2,255 2,232 6,737 6,608
Restructuring Charge --- --- --- 257
-------- ------- -------- -------
Total 2,255 2,232 6,737 6,865
-------- ------- -------- -------
Operating Income 392 369 1,096 729
Other Income (Expense) 8 20 19 17
Interest Expense 57 68 188 203
-------- ------- -------- -------
Earnings before
Income Taxes 343 321 927 543
Income Tax Expense 121 119 325 201
-------- ------- -------- -------
Net Earnings $ 222 $ 202 $ 602 $ 342
======== ======= ======== =======
Earnings Per Share $ 1.04 $ .96 $ 2.83 $ 1.62
======== ======= ======== =======
Average Common Shares
Outstanding (Thousands) 215,060 210,403 212,567 210,206
======== ======= ======== =======
Common Shares
Outstanding (Thousands) 216,926 210,485 216,926 210,485
======== ======= ======== =======
Cash Dividends Paid Per
Common Share $ .26 $ .22 $ .78 $ .66
======== ======= ======== =======
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
Nine Months Ended
---------------------
Sept. 27, Sept. 29,
1996 1995
-------- ---------
OPERATING ACTIVITIES
Net Earnings $ 602 $ 342
Adjustments to Reconcile Net Earnings
to Net Cash Provided
Depreciation 461 446
Deferred Income Taxes 92 (57)
Restructuring Charge Provision -- 257
Productivity/Restructuring Charge Payments (67) (117)
Other Operating Activities 17 75
Changes in Operating Assets and Liabilities
Accounts Receivable (112) (98)
Other Current Assets (23) (24)
Accounts Payable (32) 32
Other Current Liabilities (81) 108
----- -----
Net Cash Provided by Operating Activities 857 964
----- -----
INVESTING ACTIVITIES
Property Additions (876) (819)
Short-Term Investments - Net (9) (4)
Purchases of Long-Term Marketable Securities (26) (87)
Proceeds from Sales of Long-Term Marketable Securities 117 74
Other Investing Activities 69 56
----- -----
Net Cash Used by Investing Activities (725) (780)
----- -----
FINANCING ACTIVITIES
Short-Term Debt - Net 128 (46)
Long-Term Debt Issued 117 115
Long-Term Debt Repaid (372) (95)
Cash Dividends Paid (167) (139)
Other Financing Activities 12 5
----- -----
Net Cash Used by Financing Activities (282) (160)
----- -----
Net (Decrease) Increase in Cash and Cash Equivalents (150) 24
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 170 289
Short-Term Investments at End of Period 345 274
----- -----
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 515 $ 563
===== =====
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
September 27, December 29,
1996 1995
-------- ------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term
Investments $ 515 $ 660
Accounts Receivable 928 832
Materials and Supplies 217 220
Deferred Income Taxes 151 148
Other Current Assets 108 75
------- -------
Total Current Assets 1,919 1,935
Properties-Net 11,720 11,297
Affiliates and Other Companies 331 312
Other Long-Term Assets 671 738
------- -------
Total Assets $14,641 $14,282
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 1,073 $ 1,121
Labor and Fringe Benefits Payable 495 526
Casualty, Environmental and Other Reserves 283 298
Current Maturities of Long-Term Debt 201 486
Short-Term Debt 276 148
Other Current Liabilities 371 412
------- -------
Total Current Liabilities 2,699 2,991
Casualty, Environmental and Other Reserves 755 813
Long-Term Debt 2,288 2,222
Deferred Income Taxes 2,657 2,560
Other Long-Term Liabilities 1,427 1,454
------- -------
Total Liabilities 9,826 10,040
------- -------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 217 210
Other Capital 1,452 1,319
Retained Earnings 3,255 2,822
Minimum Pension Liability (109) (109)
------- -------
Total Shareholders' Equity 4,815 4,242
------- -------
Total Liabilities and Shareholders' Equity $14,641 $14,282
======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements (Unaudited)
(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 September 27, 1996 and December 29, 1995, the results
of its operations for the quarters and nine months ended September 27, 1996
and September 29, 1995, and its cash flows for the nine months ended September
27, 1996 and September 29, 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 nine months ended September 27, 1996 and
September 29, 1995. Dilution for these periods, which would result if all
outstanding common stock equivalents were exercised, is not significant.
Weighted average shares and earnings per share for 1995 have been restated to
reflect the 2-for-1 common stock split distributed to shareholders in
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.
Beginning with the quarter ended June 28, 1996, the company changed
its earnings presentation 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 39-week periods ended September 27, 1996 and September 29, 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. At December 29, 1995, a reserve of $69 million
remained, of which $3 million and $9 million was utilized for the quarter and
nine months ended September 27, 1996, respectively, for global integration and
vessel reflagging costs which were included in the container-shipping unit's
restructuring initiatives.
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements (Unaudited), 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. The Certificates were collateralized by $241 million and
$240 million of accounts receivable held in the master trust at September 27,
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 currently 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 September 27, 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 million and $22
million for the quarter and nine months ended September 27, 1996,
respectively, and $8 million and $24 million for the quarter and nine months
ended September 29, 1995, respectively.
NOTE 5. OPERATING EXPENSE
Quarters Ended Nine Months Ended
------------------ ------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
-------- -------- -------- --------
Labor and Fringe Benefits $ 788 $ 786 $2,379 $2,338
Materials, Supplies and Other 646 664 1,896 1,940
Building and Equipment Rent 282 279 858 832
Inland Transportation 262 242 743 707
Depreciation 149 146 456 439
Fuel 128 115 405 352
Restructuring Charge --- --- --- 257
------ ------ ------ ------
Total $2,255 $2,232 $6,737 $6,865
====== ====== ====== ======
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6. OTHER INCOME (EXPENSE)
Quarters Ended Nine Months Ended
------------------ -----------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
-------- -------- -------- --------
Interest Income $ 9 $ 19 $ 33 $ 48
Income from Real Estate and Resort
Operations (1) 19 18 42 28
Foreign Currency Gain -- 8 1 2
Net Costs for Accounts Receivable Sold (7) (8) (22) (24)
Minority Interest (11) (8) (29) (19)
Equity Earnings (Losses) of Other
Affiliates 2 (1) 4 (4)
Miscellaneous (4) (8) (10) (14)
------ ------ ------ ------
Total $ 8 $ 20 $ 19 $ 17
====== ====== ====== =======
(1) Gross revenue from real estate and resort operations was $58 million
and $137 million for the quarter and nine months ended September 27,
1996, respectively, and $57 million and $124 million for the quarter
and nine months ended September 29, 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.
Certain terms and conditions of the agreement with AT&T are currently the
subject of renegotiation, which is expected to be completed without any
disruption of service.
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 September 27, 1996, a total of 108 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, may be 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 104 environmentally impaired sites
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CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
that are or may be subject to remedial action under the Federal Superfund
statute ("Superfund") or corresponding state statutes. A number 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 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.
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 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 September 27, 1996, and December 29, 1995, were $121 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
September 27, 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
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PAGE 10
CSX CORPORATION AND SUBSIDIARIES
- --------------------------------
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Million of Dollars, Except Per Share Amounts)
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
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.
NOTE 8. STOCK PURCHASE AND LOAN PLAN
In April 1996, the company's shareholders approved the amendment and
restatement of the 1991 Stock Purchase and Loan Plan (the "Plan"), which
otherwise would generally have come to an end when purchase loans issued in
1991 and 1992 matured on July 31, 1996. The Plan amendment continues the
original objective of providing a method for eligible employees to
significantly increase their ownership of common stock, thereby assuring their
interests are aligned with the company's non-employee shareholders.
On August 1, 1996, 58,960 shares were withdrawn from the Plan,
2,570,194 shares were exchanged and cancelled, and 7,590,218 new shares and
related rights were awarded and sold at an average market price of $47.50 per
share to existing and new participants, so that at September 27, 1996, there
were 8,123,090 shares outstanding and 188 officers and key employees
participating in the Plan. Non-recourse loans of approximately $283 million
and deferred compensation of approximately $88 million earned by Plan
participants have been classified as components of shareholders' equity at
that date.
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PAGE 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Third-Quarter 1996 Compared With 1995
- --------------------------------------
The company reported net earnings for the quarter ended September 27,
1996 of $222 million, $1.04 per share. These results compare with 1995 third-
quarter net earnings of $202 million, $.96 per share.
Operating revenue for the third quarter of 1996 rose to $2.6 billion,
$46 million above the prior-year quarter. Operating expense was $2.3 billion
for the third quarter of 1996, $23 million higher than the prior-year quarter.
Operating income was $392 million for the third quarter of 1996, up $23
million from 1995's third quarter.
Rail Unit Results
- -----------------
The company's rail unit achieved record quarterly operating income of
$277 million vs. 1995's $269 million third quarter. The results reflect the
combination of level traffic, the unit's ongoing emphasis on managing expense,
and selective rate increases.
Revenue increased almost 2 percent to $1.21 billion, while traffic
remained level with 1995's third quarter. Despite expenses associated with
Hurricane Fran and higher fuel prices, operating expense increased just $12
million to $934 million. The unit's third-quarter operating ratio of 77.1
percent topped its 1995 third-quarter record of 77.4 percent.
Coal revenue rose 4 percent and coal tonnage rose 3 percent, largely
due to higher utility coal volume. Total merchandise traffic decreased 1
percent, while merchandise revenue rose 1 percent.
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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 INCOME
(Millions of Dollars)
-----------------------------
Quarters Ended Nine Months Ended
------------------ ------------------
Sept. 27, Sept. 29, Percent Sept. 27, Sept. 29, Percent
1996 1995 Change 1996 1995 Change
-------- -------- ------- ------- -------- -------
Operating Revenue
Merchandise $ 772 $ 767 1 % $ 2,374 $ 2,363 - %
Coal 404 388 4 % 1,178 1,133 4 %
Other 35 36 (3)% 109 100 9 %
------ ------ ------- -------
Total 1,211 1,191 2 % 3,661 3,596 2 %
Operating Expense 934 922 1 % 2,836 3,007 (6)%
------ ------ ------- -------
Operating Income $ 277 $ 269 3 % $ 825 $ 589 40 %
====== ====== ======= =======
Operating Income (a) $ 277 $ 269 3 % $ 825 $ 785 5 %
====== ====== ======= =======
Operating Ratio 77.1% 77.4% 77.5% 83.6%
====== ====== ======= =======
Operating Ratio (a) 77.1% 77.4% 77.5% 78.2%
====== ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge in 1995.
Container Shipping Unit Results
- -------------------------------
Despite rate pressures across all major trade lanes, the container-
shipping unit generated a quarterly operating income record of $95 million, an
increase of 36 percent over 1995's third-quarter results. The 1996 third-
quarter results were 13 percent higher than the previous quarterly record of
$84 million, earned in the fourth quarter of 1995.
Third-quarter revenue rose $6 million above its previous third-
quarter record in 1995. Volume increased across all major trade lanes,
averaging 9 percent. Operating expense decreased $19 million to $938 million.
The unit's cost-control efforts have met with success in steadily lowering its
operating ratio. The unit achieved a record third-quarter operating ratio of
90.8 percent.
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PAGE 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Barge Unit Results
- ------------------
Third-quarter operating income at the company's barge unit fell 17
percent, to $30 million. Despite a soft grain market, revenue rose 8 percent
due to higher volume and increased marine construction activity. However,
such construction activity, along with higher fuel prices, resulted in a 16
percent increase in operating expense.
Intermodal Unit Results
- -----------------------
The company's intermodal unit increased operating income 80 percent
over the prior-year quarter, to $9 million. Expense reductions of $13 million
more than offset a $9 million decline in revenue.
Contract Logistics Unit Results
- -------------------------------
Rapid growth continued at the company's contract logistics unit with
revenue increasing 34 percent, to $83 million, and operating income rising to
$5 million.
First Nine Months 1996 Compared with 1995
- ----------------------------------------
For the first nine months of the year, earnings for the company rose
to $602 million, $2.83 per share. These results represent a 20 percent
increase over the $502 million, $2.39 per share, earned in the first nine
months of 1995, exclusive of the 1995 charge.
The results for the first nine months of 1996 reflect the continued
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 1996.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $515
million at September 27, 1996, a decrease of $145 million since December 29,
1995. In addition to net cash provided by operations, primary sources of cash
and cash equivalents during the period were the issuance of short-term and
long-term 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.
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PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
- ------------------------------
During the first nine months of 1996, net investing activities
consumed $725 million of cash and cash equivalents compared with $780 million
consumed in the same period of 1995.
Financing activities used $282 million of cash and cash equivalents
for the nine months ended September 27, 1996, a $122 million increase over the
first nine months of 1995. The change was primarily due to an increase in
scheduled debt repayments.
The working capital deficit decreased $276 million during the nine
months ended September 27, 1996. The decrease was primarily due to reductions
in current maturities of long-term debt. A working capital deficit is not
unusual for CSX and does not indicate a lack of liquidity. CSX continues to
maintain adequate current assets to satisfy current liabilities when they are
due and has sufficient liquidity and financial resources to manage its day-to-
day cash needs.
FINANCIAL DATA
- -------------- (Millions of Dollars)
-----------------------------
September 27, December 29,
1996 1995
--------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 515 $ 660
Commercial Paper Outstanding -
Short-Term $ 276 $ 148
Commercial Paper Outstanding -
Long-Term $ 300 $ 300
Working Capital (Deficit) $ (780) $(1,056)
Current Ratio .7 .6
Debt Ratio 32% 34%
Ratio of Earnings to Fixed Charges 3.9 x 3.2 x(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 continues to anticipate favorable
revenue levels over the remainder of 1996, compared with 1995. The higher
revenue is expected from improving 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 fourth quarter of 1996 begins, the rail unit continues to
benefit from strong demand from domestic coal markets. Merchandise traffic is
expected to be flat throughout the balance of the year. Automotive traffic
levels could be negatively impacted by the pending labor dispute between
General Motors Corporation and the United Auto Workers.
The rail unit, through the National Carriers Conference Committee,
now has agreements with all labor organizations except the Dispatchers
organization. All such agreements are in effect, and the parties are in the
process of implementing their terms and conditions. Negotiations continue
with the Dispatchers.
The container-shipping unit anticipates traffic flows in the fourth
quarter of 1996 to be at or slightly ahead of prior-year fourth quarter
levels. The unit expects that strong demand for ocean transportation and the
unit's technological advantages should allow it generally to select higher
margin traffic. The container-shipping industry anticipates that strong
volume will help mitigate the recent rate declines.
The intermodal unit expects to continue to improve the level of
shipments and revenue during the fourth 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
services. The contract logistics units expects its growth to continue
throughout the year, due to expanding demand for its services.
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PAGE 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OTHER MATTERS
- -------------
On October 14, 1996, the company and Conrail, Inc. (Conrail) entered
a merger agreement whereby the company will acquire all of Conrail's
outstanding shares for a combination of cash and CSX shares initially valued
at $8.4 billion. A cash tender offer for approximately 19.9 percent of
Conrail's outstanding voting shares was commenced October 16, 1996 and, unless
extended, will expire November 15, 1996. The cash tender offer may be
increased to 40 percent of Conrail's outstanding voting shares, pending a vote
by Conrail's shareholders to remove restrictions which currently prevent the
acquisition of more than 20 percent of its outstanding shares. The remaining
60 percent of Conrail voting shares will be acquired in a tax-free exchange of
CSX stock. Consummation of the merger is subject to approval of the
shareholders of both companies and approval of the Surface Transportation
Board (STB). The application for STB approval is expected to be filed in
early 1997, and the parties will propose a schedule that contemplates
completion of the transaction by the end of that year. Pending STB review,
the shares purchased in connection with the tender offer will be placed in a
voting trust. On October 22, 1996, the company announced commitments for a
five-year, $4.8 billion bank credit facility to provide financing for the cash
portion of the merger transaction.
On October 23, 1996, Norfolk Southern Corporation announced an all-
cash competing bid for all outstanding shares of Conrail. The company remains
optimistic about its prospects for completing the merger with Conrail.
-------------------------
To the extent that these written statements include predictions
concerning future operations and results 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 and
pricing; labor matters, which may impact the costs and feasibility of certain
operations; and commodity concentrations, which may affect traffic levels.
- 16 -
PAGE 17
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.
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: /s/ JAMES L. ROSS
------------------------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: October 31, 1996
- 17 -<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS are based on the weighted average of common shares
outstanding for the nine months ended September 27, 1996.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> SEP-27-1996
<CASH> 170
<SECURITIES> 345
<RECEIVABLES> 928
<ALLOWANCES> 0
<INVENTORY> 217
<CURRENT-ASSETS> 1,919
<PP&E> 17,182
<DEPRECIATION> 5,462
<TOTAL-ASSETS> 14,641
<CURRENT-LIABILITIES> 2,699
<BONDS> 2,288
0
0
<COMMON> 217
<OTHER-SE> 4,598
<TOTAL-LIABILITY-AND-EQUITY> 14,641
<SALES> 0
<TOTAL-REVENUES> 7,833
<CGS> 0
<TOTAL-COSTS> 6,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 927
<INCOME-TAX> 325
<INCOME-CONTINUING> 602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 602
<EPS-PRIMARY> 2.83
<EPS-DILUTED> 0
</TABLE>
