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 June 26, 1998
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 June 26, 1998: 218,640,983 shares.
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<PAGE>
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 26, 1998
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Six Months Ended June 26, 1998 and June 27, 1997 3
2. Consolidated Statement of Cash Flows-
Six Months Ended June 26, 1998 and June 27, 1997 4
3. Consolidated Statement of Financial Position-
At June 26, 1998 and December 26, 1997 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 22
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
(Unaudited)
Quarters Ended Six Months Ended
------------------------ ------------------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenue $ 2,642 $ 2,678 $ 5,222 $ 5,245
Operating Expense 2,291 2,245 4,584 4,488
---------- ---------- ---------- ----------
Operating Income 351 433 638 757
Other Income (Expense) (10) 18 (44) 11
Interest Expense 126 111 250 195
---------- ---------- ---------- ----------
Earnings before Income Taxes 215 340 344 573
Income Tax Expense 64 113 102 195
---------- ---------- ---------- ----------
Net Earnings $ 151 $ 227 $ 242 $ 378
========== ========== ========== ==========
Earnings Per Share $ .69 $ 1.04 $ 1.10 $ 1.74
========== ========== ========== ==========
Earnings Per Share, Assuming Dilution $ .68 $ 1.03 $ 1.09 $ 1.72
========== ========== ========== ==========
Average Common Shares Outstanding
(Thousands) 219,072 217,684 218,866 217,456
========== ========== ========== ==========
Average Common Shares Outstanding,
Assuming Dilution (Thousands) 221,580 220,315 221,594 219,905
========== ========== ========== ==========
Common Shares Outstanding (Thousands) 218,641 217,841 218,641 217,841
========== ========== ========== ==========
Cash Dividends Paid Per Common Share $ .30 $ .26 $ .60 $ .52
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
--------------------------
June 26, June 27,
1998 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 242 $ 378
Adjustments to Reconcile Net Earnings
To Net Cash Provided
Depreciation 331 320
Deferred Income Taxes 62 53
Equity in Conrail Earnings - Net (59) (35)
Productivity/Restructuring Charge Payments (19) (23)
Other Operating Activities (3) 7
Changes in Operating Assets and Liabilities
Accounts Receivable (7) (53)
Other Current Assets (101) (27)
Accounts Payable (110) (41)
Other Current Liabilities (37) 42
------------ ------------
Net Cash Provided by Operating Activities 299 621
------------ ------------
INVESTING ACTIVITIES
Property Additions (680) (411)
Proceeds from Property Dispositions 16 23
Investment in Conrail (11) (2,120)
Short-Term Investments - Net 190 (210)
Purchases of Long-Term Marketable Securities (65) (33)
Proceeds from Sales of Long-Term Marketable Securities 15 24
Other Investing Activities (55) (30)
------------ ------------
Net Cash Used by Investing Activities (590) (2,757)
------------ ------------
FINANCING ACTIVITIES
Short-Term Debt - Net 133 (322)
Long-Term Debt Issued 306 2,454
Long-Term Debt Repaid (133) (69)
Cash Dividends Paid (132) (113)
Other Financing Activities (40) --
------------ ------------
Net Cash Provided by Financing Activities 134 1,950
------------ ------------
Net Decrease in Cash and Cash Equivalents (157) (186)
CASH, CASH EQUIVALENTS AND SHORT-
TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 251 368
------------ ------------
Cash and Cash Equivalents at End of Period 94 182
Short-Term Investments at End of Period 293 524
------------ ------------
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 387 $ 706
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
June 26, December 26,
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term
Investments $ 387 $ 690
Accounts Receivable 1,002 987
Materials and Supplies 279 227
Deferred Income Taxes 132 134
Other Current Assets 193 137
------------ ------------
Total Current Assets 1,993 2,175
Properties 18,664 18,270
Accumulated Depreciation (6,042) (5,864)
--------- ---------
Properties-Net 12,622 12,406
Investment in Conrail 4,303 4,244
Affiliates and Other Companies 414 394
Other Long-Term Assets 798 738
------------ ------------
Total Assets $ 20,130 $ 19,957
============ ============
LIABILITIES
Current Liabilities
Accounts Payable $ 1,069 $ 1,179
Labor and Fringe Benefits Payable 461 477
Casualty, Environmental and Other Reserves 298 298
Current Maturities of Long-Term Debt 89 229
Short-Term Debt 759 126
Other Current Liabilities 356 398
------------ ------------
Total Current Liabilities 3,032 2,707
Casualty, Environmental and Other Reserves 675 711
Long-Term Debt 6,138 6,416
Deferred Income Taxes 3,000 2,939
Other Long-Term Liabilities 1,416 1,418
------------ ------------
Total Liabilities 14,261 14,191
------------ ------------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 219 218
Other Capital 1,544 1,552
Retained Earnings 4,129 4,019
Accumulated Other Comprehensive Earnings (Loss) (23) (23)
------------ ------------
Total Shareholders' Equity 5,869 5,766
------------ ------------
Total Liabilities and Shareholders' Equity $ 20,130 $ 19,957
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
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 at June 26, 1998 and December 26, 1997, the results of its
operations for the quarters and six months ended June 26, 1998 and June 27,
1997, and its cash flows for the six months ended June 26, 1998 and June 27,
1997, such adjustments being of a normal recurring nature. Certain prior-year
data have been reclassified to conform to the 1998 presentation.
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.
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 June 26, 1998 and June 27, 1997, and the
fiscal year ended December 26, 1997.
NOTE 2. EARNINGS PER SHARE
Earnings per share are based on the weighted average of common shares
outstanding for the fiscal quarters and six months ended June 26, 1998 and June
27, 1997. Earnings per share, assuming dilution, are based on the weighted
average of common shares outstanding adjusted for the effect of potentially
dilutive securities. For the fiscal quarters ended June 26, 1998 and June 27,
1997, potentially dilutive common shares consist of stock options (2.2 million
shares and 2.3 million shares, respectively) and performance shares and other
stock awards (0.3 million in each quarter). For the six month periods ended June
26, 1998 and June 27, 1997, potentially dilutive common shares consist of stock
options (2.4 million shares and 2.2 million shares, respectively) and
performance shares and other stock awards (0.3 million shares and 0.2 million
shares, respectively).
Certain stock options outstanding at June 26, 1998 and June 27, 1997,
were not included in the computation of earnings per share, assuming dilution,
since their exercise prices were greater than the average market prices of the
common shares during those periods and, accordingly, their effect is
antidilutive:
June 26, June 27,
1998 1997
------------ -----------
Number of shares 3,504,079 1,953,007
Weighted-average exercise price $54.97 $51.43
NOTE 3. ACCOUNTING PRONOUNCEMENTS
CSX adopted Financial Accounting Standards Board (FASB) Statement No.
130, "Reporting Comprehensive Income", at the beginning of fiscal year 1998.
Statement No. 130 establishes standards for reporting and display of
comprehensive earnings and its components in financial statements; however, the
adoption of this Statement had no impact on the company's net earnings or
shareholders' equity. Statement No. 130 requires minimum pension liability
adjustments, unrealized gains or losses on the company's available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive earnings. Prior year financial statements have been reclassified
to conform to the requirements of Statement No.
130. There were no material differences between net earnings and
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
comprehensive earnings for the fiscal quarters ended June 26, 1998 and June 27,
1997. Accumulated other comprehensive earnings at June 26, 1998 and December 26,
1997 consist of minimum pension liability adjustments ($20 million) and foreign
currency translation adjustments ($3 million).
The Financial Accounting Standards Board (FASB) has issued two
accounting pronouncements which the company will adopt in the fourth quarter of
1998. FASB Statement No. 131 "Disclosures about Segments of an Enterprise and
Related Information" requires that a publicly-held company report financial and
descriptive information about its operating segments in financial statements
issued to shareholders for interim and annual periods. The Statement also
requires additional disclosures with respect to products and services,
geographic areas of operation, and major customers. The company operates
diversified freight transportation businesses and has historically provided
detailed operating segment and other information in its communications to
shareholders; however, such information has not typically been presented in the
consolidated financial statements and related notes.
FASB Statement No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106"
requires revised disclosures about pension and other postretirement benefit
plans. The company does not expect that adoption of the disclosure requirements
of this pronouncement will have a material impact on its financial statements.
The FASB has also issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives on the statement of financial position, measured at fair value. The
statement also sets forth new accounting rules for gains or losses resulting
from changes in the values of derivatives. The company does not currently use
derivative financial instruments, but would expect to adopt this statement in
the fourth quarter of 1999 to the extent it may apply at that time. The company
would not expect the adoption of Statement No. 133 to have a material impact on
its financial statements.
NOTE 4. JOINT ACQUISITION OF CONRAIL
In May 1997, CSX and Norfolk Southern Corporation (Norfolk Southern)
completed the acquisition of Conrail Inc. (Conrail) through a jointly owned
entity pursuant to an agreement dated April 8, 1997. Under the agreement, CSX
contributed approximately $4.1 billion, in the form of cash and Conrail shares
previously acquired, for a 42% economic interest in Conrail. Norfolk Southern
contributed approximately $5.7 billion, also in the form of cash and Conrail
shares previously acquired, for a 58% economic interest in Conrail. CSX and
Norfolk Southern each have a 50% voting interest in Conrail through the jointly
owned entity.
The Conrail shares acquired by the joint acquisition entity were placed
in a voting trust pending approval of the transaction by the Surface
Transportation Board (STB). On June 23, 1997, CSX and Norfolk Southern filed a
joint railroad control application with the STB outlining the terms of their
agreement, their respective operating plans, and the benefits expected from
combining the respective rail systems. On July 23, 1998, following an extensive
review, the STB issued a written decision approving the application with limited
conditions. On August 22, 1998, that decision is expected to become effective so
that CSX and Norfolk Southern will be permitted to exercise joint control over
Conrail. At that time, the voting trust is expected to be dissolved and a new
Conrail board of directors elected. Certain steps necessary to integrate the
operations of the Conrail rail system with those of CSX and Norfolk Southern,
such as the completion of labor implementing agreements, cannot commence prior
to August 22, 1998. Those steps and other planning activities are expected to be
completed in late 1998 or early 1999, at which time the integration of rail
operations will take place.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
CSX is using the equity method of accounting for its investment in
Conrail through the jointly owned entity. Under the equity method, the company
recognizes income from its proportionate share of Conrail's net income and
expense for amortization of its purchase price in excess of its share of
Conrail's net assets. Acquisition and transition expenses that are incurred
before the integration of rail operations are also included in the amount
reported for net income (loss) from the investment in Conrail. For the quarters
ended June 26, 1998 and June 27, 1997, equity in Conrail's net income totaled
$49 million and $52 million, respectively; amortization of the excess purchase
price totaled $13 million and $17 million, respectively; and acquisition and
transition expenses totaled $41 million and $5 million, respectively. For the
six months ended June 26, 1998 and June 27, 1997, equity in Conrail's net income
totaled $84 million and $52 million, respectively; amortization of the excess
purchase price totaled $25 million and $17 million, respectively; and
acquisition and transition expenses totaled $70 million and $8 million,
respectively.
Summary financial information for Conrail for its fiscal periods ended
June 30, 1998 and 1997, and at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1998 1997 1998 1997
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Income Statement Information:
Revenues $ 983 $ 937 $1,910 $1,843
Income (Loss) From Operations 206 (231) 366 (115)
Net Income (Loss) 115 (274) 200 (213)
</TABLE>
<TABLE>
<CAPTION>
As Of
------------------------------------------
June 30, 1998 December 31, 1997
------------------- -------------------
<S> <C> <C>
Balance Sheet Information:
Current Assets $ 911 $ 954
Property and Equipment and Other Assets 7,671 7,530
Total Assets 8,582 8,484
Current Liabilities 1,167 1,208
Long-Term Debt 1,655 1,732
Total Liabilities 5,102 5,319
Stockholders' Equity 3,480 3,165
</TABLE>
Conrail's operating results for the quarter and six months ended June
30, 1997 included certain charges that the jointly owned entity is required to
record as part of the purchase price under generally accepted accounting
principles. The charges, which totaled $363 million on an after-tax basis, were
excluded in determining the equity in Conrail's net income recorded by the
company. These amounts reflected the accrual of obligations for
separation-related compensation to certain Conrail executives and include
vesting of benefits under certain stock compensation plans and the termination
of Conrail's Employee Stock Ownership Plan. Excluding these charges, Conrail's
net earnings totaled $89 million and $150 million for the quarter and six months
ended June 30, 1997.
The company is amortizing the difference between its purchase price for
the investment in Conrail and its share of Conrail's net assets. A substantial
portion of the excess purchase price is expected to be allocated to reflect the
fair value of Conrail's property and equipment. The provision for amortization
of the excess purchase price has been based upon preliminary estimates of the
fair
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
values of such property and equipment and estimates of their remaining useful
lives, as well as estimates of the fair values of other assets and liabilities
of Conrail.
The combined effect of equity in Conrail's net income, excess purchase
price amortization, net interest on debt issued to acquire the Conrail
investment, and other expenses related to the transaction reduced CSX's net
earnings by $36 million, 17 cents per share, and $18 million, 8 cents per share,
for the quarters ended June 26, 1998 and June 27, 1997, respectively. For the
related six month periods, such items reduced net earnings by $79 million, 36
cents per share, in 1998 and $34 million, 16 cents per share, in 1997.
NOTE 5. ACCOUNTS RECEIVABLE
The Company sells revolving interests in its rail accounts receivable to
public investors through a securitization program and to a financial institution
through commercial paper conduit programs. The accounts receivable are sold,
without recourse, to a wholly-owned, special-purpose subsidiary, which then
transfers the receivables, with recourse, to a master trust. The securitization
and conduit programs are accounted for as sales in accordance with Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities". Receivables sold under
these arrangements are excluded from accounts receivable in the consolidated
statement of financial position. In June 1998, the Company replaced an expiring
securitization program with a new program and reduced the amount of receivables
that can be sold under the conduit programs. At June 26, 1998, the agreements
provide for the sale of up to $350 million in receivables through the
securitization program and $50 million through the conduit programs.
At June 26, 1998, the Company had sold $347 million of accounts
receivable; $300 million through the securitization program and $47 million
through the conduit programs. At December 26, 1997, $372 million of accounts
receivable were sold; $200 million through the securitization program and $172
million through the conduit programs. The certificates issued under the new
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit program require yield payments based on
prevailing commercial paper rates plus incremental fees.
The Company's retained interests in the receivables were $455 million at
June 26, 1998 and $429 million at December 26, 1997 and are included in accounts
receivable. Losses recognized on the sale of accounts receivable totaled $8
million for each of the quarters and $15 million for each of the six month
periods ended June 26, 1998 and June 27, 1997.
The Company has retained the responsibility for servicing accounts
receivable transferred to the master trust. The average servicing period is
approximately 35 days. No servicing asset or liability has been recorded since
the fees the Company receives for servicing the receivables approximate the
related costs.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6. OPERATING EXPENSE
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-------------------------- --------------------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Labor and Fringe Benefits $ 795 $ 798 $ 1,645 $ 1,597
Materials, Supplies and Other 695 622 1,332 1,236
Building and Equipment Rent 280 275 551 559
Inland Transportation 244 255 492 492
Depreciation 162 157 325 313
Fuel 112 134 235 291
Miscellaneous 3 4 4 -
----------- ----------- ----------- -----------
Total $ 2,291 $ 2,245 $ 4,584 $ 4,488
=========== =========== =========== ===========
</TABLE>
NOTE 7. OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
---------------------- ---------------------
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Interest Income $ 9 $ 18 $ 20 $ 30
Income from Real Estate and Resort
Operations(1) 16 10 11 3
Net Losses from Accounts Receivable Sold (8) (8) (15) (15)
Minority Interest (7) (10) (14) (20)
Income (Loss) from Investment in Conrail - Net (5) 13 (11) 18
Equity Earnings of Other Affiliates 1 2 2 3
Foreign Currency Gain (Loss) (1) (2) (5) 1
Miscellaneous (15) (5) (32) (9)
---------- --------- --------- ---------
Total $ (10) $ 18 $ (44) $ 11
========== ========= ========= =========
</TABLE>
(1)Gross revenue from real estate and resort operations was $55 million and
$76 million for the quarter and six months ended June 26, 1998,
respectively, and $45 million and $62 million for the quarter and six months
ended June 27, 1997, respectively.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Telecommunications Contract
- ---------------------------
In July 1998, the company's rail unit, CSX Transportation, Inc. (CSXT),
entered into an agreement with a major telecommunications vendor to provide and
manage its domestic and international data and voice communications networks.
The contract extends five years at a total cost of approximately $350 million.
It replaces an agreement with another telecommunications vendor that expired on
June 30, 1998.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
Environmental Contingencies
- ---------------------------
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) at approximately 105 environmentally
impaired sites that are or may be subject to remedial action under the Federal
Superfund statute (Superfund) or similar 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 similar state statutes can 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.
CSXT is involved in a number of administrative and judicial proceedings
and other clean-up efforts at approximately 253 sites, including the sites
addressed under the Federal Superfund statute or similar state statutes, where
it is participating in the study and/or clean-up of alleged environmental
contamination. 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 can be
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 June 26, 1998, and December 26, 1997, were $87 million and $99 million,
respectively. These recorded liabilities, which are undiscounted, 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 June 26, 1998
environmental liability is expected to be paid out over the next five to seven
years, funded by cash generated from operations.
The company does not currently possess sufficient information to
reasonably estimate the amounts of additional liabilities, if any, on some sites
until completion of future environmental studies. In addition, latent conditions
at any given location could result in exposure, the amount and materiality of
which cannot presently be reliably estimated. Based upon information currently
available, however, the company believes that its environmental reserves are
adequate to accomplish remedial actions to comply with present laws and
regulations, and that the ultimate liability for these matters will not
materially affect its overall results of operations and financial condition.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
Litigation and Other Contingencies
- ----------------------------------
In September 1997, a state court jury in New Orleans returned a $2.5
billion punitive damages award against CSXT. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15 percent of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material.
In October 1997, the Louisiana Supreme Court set aside the punitive
damages judgment, ruling the judgment should not have been entered until all
liability issues were resolved. CSX believes this decision means that 8,000
other cases must be resolved before the punitive damage claims can be decided.
CSXT is pursuing an aggressive legal strategy, and management believes that any
adverse outcome will not be material to CSX's or CSXT's overall results of
operations or financial position, although it could be material to results of
operations in a particular quarterly accounting period.
Although the company obtains substantial amounts of commercial insurance
for potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided by a company partially owned by
CSX.
A number of other legal actions 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 or cash flows of the
company.
NOTE 9. SUBSEQUENT EVENT
On June 30, 1998, CSX completed the conveyance of its barge unit,
American Commercial Lines LLC (ACL), to a venture formed with Vectura Group,
Inc. (Vectura). CSX received proceeds of approximately $850 million from the
transaction, including approximately $695 million in cash and $155 million of
securities issued by the venture. As part of the transaction, NMI Holdings LLC,
a wholly-owned subsidiary of Vectura, was combined with ACL. CSX has a 32%
common interest in the new venture, which will be accounted for under the equity
method. CSX will report a net investment gain from the transaction in its third
quarter 1998 operating results.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Second Quarter 1998 Compared with 1997
- --------------------------------------
The company reported net earnings for the quarter ended June 26, 1998 of
$151 million, 68 cents per share on a diluted basis, versus net earnings of $227
million, $1.03 per share on a diluted basis for the same period in 1997. The
results for both years reflect net costs associated with the company's
investment in Conrail, partially offset by its equity in Conrail's net income.
Excluding the Conrail impact, earnings would have been $187 million, 85 cents
per share on a diluted basis, for the quarter ended June 26, 1998 and $245
million, $1.13 per share on a diluted basis, for the quarter ended June 27,
1997.
Operating income was $351 million, versus $433 million in the second
quarter of 1997. Operating revenue of $2.6 billion was $36 million lower than
the 1997 period. Operating expense increased by $46 million over the prior
year.
Rail Unit Results
- -----------------
The company's rail unit posted second quarter operating income of $289
million, versus $340 million in the prior-year period. Revenue remained level at
$1.25 billion, while operating expense rose 5 percent, to $960 million.
Coal volume declined 1 percent, to 40.3 million tons, significantly
impacted by a 22 percent decline in higher-rated export coal. Total coal revenue
declined 2 percent from the 1997 period. Total merchandise traffic rose 3
percent due to generally strong demand. The largest increases were in autos and
parts, minerals, and metals (each up 6 percent); and phosphates and fertilizer
(up 7 percent). On the downside, food and consumer products fell 10 percent. Due
to changes in the traffic mix, total merchandise revenue remained almost level
with the prior-year period.
Rail operating expense rose 5 percent, to $960 million. The principal
items contributing to the increase in operating expense were preparation for
Year 2000 together with higher costs related to litigation, casualty claims and
equipment repairs, partially offset by lower fuel costs.
<TABLE>
<CAPTION>
RAIL OPERATING INCOME
(Millions of Dollars)
----------------------------------------------------------------------
Quarters Ended Six Months Ended
------------------------ -----------------------
June 26, June 27, Percent June 26, June 27, Percent
1998 1997 Change 1998 1997 Change
---------- ----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Merchandise $ 842 $ 841 -% $ 1,673 $ 1,667 -%
Coal 373 382 (2)% 739 771 (4)%
Other 34 30 13% 88 62 42%
---------- ----------- ---------- ----------
Total 1,249 1,253 -% 2,500 2,500 -%
Operating Expense 960 913 5% 1,947 1,878 4%
---------- ----------- ---------- ----------
Operating Income $ 289 $ 340 (15)% $ 553 $ 622 (11)%
========== =========== ========== ==========
Operating Ratio 76.9% 72.9% 77.9% 75.1%
========== =========== ========== ==========
</TABLE>
- 13 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Container-Shipping Unit Results
- -------------------------------
The severe downturn of containerized traffic to Asia from the U.S. and
Europe due to the Asian currency crisis lowered the container-shipping unit's
second-quarter operating income to $52 million, compared to $80 million in 1997.
Total volume declined 3 percent. Revenue fell 2 percent, to $993
million, while operating expense rose 1 percent, to $941 million.
Other Unit Results
- ------------------
Performance at the barge unit declined, with operating income falling to
$15 million, from $17 million in the 1997 quarter. While lower rates this year
had an effect on operating revenue, the barge unit's operating expense remained
level at $135 million.
The company's intermodal unit achieved operating income of $6 million,
vs. $10 million in the 1997 quarter. Total volume fell 1 percent during the
quarter, as the unit continued to feel the effects of rail service problems in
the western United States.
Growth continued at the contract logistics unit, which achieved $7
million in operating income, compared to $6 million in the prior-year period.
Other Income (Expense)
- ----------------------
The company's other income (expense) declined $28 million from net
income of $18 million for the 1997 quarter to net expense of $10 million for the
1998 quarter, influenced primarily by a decline in interest income, the net
results of the company's investment in Conrail and miscellaneous expenses,
offset in part by an increase in income from the company's real estate and
resort operations in the 1998 quarter.
First Six Months 1998 Compared with 1997
- ----------------------------------------
For the first six months of the year, earnings for the company totaled
$242 million, $1.09 per share on a diluted basis, compared to $378 million,
$1.72 per share on a diluted basis for the prior year period. These decreases
partially result from increased costs associated with the company's investment
in Conrail, partially offset by its equity in Conrail's net income. Exclusive of
the Conrail impact, the company would have reported earnings of $321 million,
$1.45 per share on a diluted basis, for the six months ended June 26, 1998, and
$412 million, $1.88 per share on a diluted basis, for the six months ended June
27, 1997.
Operating income for the first six months of 1998 was $638 million, down
$119 million over the same period in 1997. Weak coal exports, rail congestion
across the country, and container-shipping trade imbalances contributed to the
earnings decline.
Other income (expense) declined $55 million from net income of $11
million for the first six months of 1997 to net expense of $44 million for the
comparable period in 1998. The decline was primarily attributable to lower
interest income, the net results of the company's investment in Conrail and
miscellaneous expenses, offset in part by higher income from the company's real
estate and resort operations.
- 14 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $387 million
at June 26, 1998, a decrease of $303 million since December 26, 1997. The
primary sources of cash and cash equivalents were normal transportation
operations, the issuance of long-term debt and short-term debt borrowings, and
the primary uses of cash were property additions, repayment of long-term debt
and dividend payments.
During the quarter ended June 26, 1998, the company determined that the
amount of commercial paper likely to be outstanding for more than one year was
approximately $1.5 billion, a reduction from $2.0 billion from the prior quarter
end resulting principally from the expected application of cash proceeds
received from the conveyance of its barge subsidiary to a joint venture.
Accordingly, $500 million of long-term commercial paper was reclassified to
short-term debt.
The company's working capital deficit at June 26, 1998 was $1.0 billion,
a $507 million increase during the first six months of the fiscal year. A
working capital deficit is not unusual for the company and does not indicate a
lack of liquidity. The company 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)
-----------------------------
June 26, December 26,
1998 1997
------------- --------------
Cash, Cash Equivalents and
Short-Term Investments $ 387 $ 690
Commercial Paper Outstanding -
Short-Term $ 759 $ 126
Commercial Paper Outstanding -
Long-Term $ 1,500 $ 2,000
Working Capital (Deficit) $ (1,039) $ (532)
Current Ratio .7 .8
Debt Ratio 51% 52%
Ratio of Earnings to Fixed Charges 1.8x 2.6x
OUTLOOK
- -------
Entering the third quarter, weak export coal demand and the General
Motors strike are among the factors expected to impact rail traffic and
revenues. The rail unit will continue working on service improvements, which
should help it gain merchandise traffic. The unit also will continue to prepare
for the smooth integration of its portion of Conrail, which promises to open
markets. Rail operations will reflect increased costs over the balance of the
year for hiring and training of employees and other activities related to the
Conrail integration.
The imbalance caused by the Asian economic decline and a weak overall
rate environment continue to hinder container-shipping earnings. The company
will continue to identify and address cost control issues which should help
mitigate some of these effects.
- 15 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
The company's intermodal unit anticipates strong demand and continued
high service reliability on its core network. However, congestion and related
traffic problems on the Union Pacific rail system will continue to have an
impact on the unit's revenues.
Financial results for the third quarter will also include a net
investment gain from the conveyance of the company's barge unit to a joint
venture.
CONRAIL ACQUISITION
- -------------------
CSX/Norfolk Southern Agreement
In April 1997, CSX and Norfolk Southern entered into an agreement
providing for their joint acquisition of Conrail and the division of its routes
and other assets. Under the terms of the agreement, CSX and Norfolk Southern
acquired all outstanding shares of Conrail not already owned by them for $115
per share in cash during the second quarter of 1997. CSX and Norfolk Southern
each possess 50% of the voting and management rights of a jointly owned
acquisition company, and non-voting equity is divided between the parties to
achieve overall economic allocations of 42% for CSX and 58% for Norfolk
Southern. Following approval by the Surface Transportation Board (STB) as
described below, Conrail's assets will be segregated within Conrail, and CSX and
Norfolk Southern will each benefit from the operation of a specified portion of
the Conrail routes and other assets through the use of various operating
arrangements. Certain Conrail assets will be operated for the joint benefit of
CSX and Norfolk Southern.
The total cost of acquiring the outstanding shares of Conrail under the
joint CSX/Norfolk Southern agreement was approximately $9.8 billion. Pursuant to
the agreement, CSX has paid 42%, or approximately $4.1 billion, and Norfolk
Southern has paid 58%, or approximately $5.7 billion, of such cost. Including
its capitalized transaction costs, CSX's total purchase price was approximately
$4.2 billion.
Joint STB Application
The Conrail shares were placed in a voting trust pending STB approval of
the joint acquisition, control and division of Conrail. The exercise of control
over Conrail by CSX and Norfolk Southern was subject to a number of conditions
and approvals, including approval by the STB, which has the authority to modify
contract terms and impose additional conditions.
CSX and Norfolk Southern filed an application for control of Conrail
with the STB in June 1997. On July 23, 1998, following an extensive review, the
STB issued a written decision approving the application with limited conditions.
On August 22, 1998, that decision is expected to become effective so that CSX
and Norfolk Southern will be permitted to exercise joint control over Conrail.
At that time, the voting trust is expected to be dissolved and a new Conrail
board of directors elected.
Financing Arrangements
CSX originally arranged a $4.8 billion bank credit facility in November
1996 to provide initial financing for the Conrail acquisition and to meet
general working capital needs. The facility was amended in May 1997, and the
lenders' commitments were reduced to $2.5 billion, reflecting the issuance of
fixed rate debentures. Currently, the facility is used as support for commercial
paper issuance.
- 16 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
The fixed rate debentures, issued through a $2.5 billion multitranche
private offering in May 1997, have maturities ranging from 2002 to 2032 and
interest rates ranging from 6.95% to 8.30%.
Enhanced Efficiencies and Revenue Growth
Management expects the integration of Conrail operations resulting from
the transaction to add approximately $1.7 billion, or 16%, to CSX's annual
revenue beginning in the first 12 months following operational consolidation.
Management believes that the transaction also will result in growth of the
company's rail revenue base through expansion of single-line service and CSX's
ability to compete more effectively against trucks on major freight routes.
Integration Planning
The company is actively planning for the smooth integration of Conrail
operations into the CSXT rail system after the STB control date. Plans involve
all facets of combining the two systems, including: safety; customer service;
train scheduling, switching and routing; equipment utilization and track
programs; commuter and passenger rail operations; marketing; technology; labor
agreements; and administration. Related capital improvements to certain routes
and facilities on the CSX rail system also have been initiated. The integration
of rail operations is expected to take place once the necessary implementing
agreements have been reached, which currently is anticipated in late 1998 or
early 1999.
Financial Effects
Including transaction costs, the overall purchase price paid by CSX
exceeded the historical book value of its proportionate share of Conrail's net
assets by approximately $2.9 billion. A substantial portion of the excess
purchase price is expected to be allocated to reflect the fair value of
Conrail's property and equipment. The company has based its provision for
amortization of the excess purchase price on preliminary estimates of the fair
values of such property and equipment and estimates of their remaining useful
lives, as well as estimates of the fair values of other assets and liabilities
of Conrail.
Because of the time required to obtain the necessary labor implementing
agreements and complete the transition planning, CSX does not expect integrated
operations to have a significant effect on operating and financial results prior
to fiscal 1999. The primary impact of the Conrail transaction on net earnings
prior to the integration of operations will be the after-tax effect of the
company's share of Conrail's net income, reported under the equity method of
accounting, less amortization of the excess purchase price, interest on debt
incurred to acquire the Conrail investment, and acquisition and transition
expenses. Net cash flow prior to operational integration is expected to be
reduced by interest payments on the acquisition debt. At June 26, 1998, the
average interest rate on debt incurred to acquire Conrail shares was
approximately 6.8%. The degree of negative impact on net earnings and net cash
flow during the remainder of 1998 will depend primarily on the net income
reported by Conrail, the average interest rate and timing of interest payments
on the related debt, and expenses associated with the acquisition, STB approval,
and other transition planning.
- 17 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OTHER MATTERS
- -------------
Conveyance of Barge Unit
At the beginning of the third quarter, CSX completed the conveyance of
its barge unit, American Commercial Lines LLC (ACL), to a venture formed with
Vectura Group, Inc. (Vectura). CSX received proceeds of approximately $850
million from the transaction, including approximately $695 million in cash and
$155 million of securities issued by the venture. As part of the transaction,
NMI Holdings LLC, a wholly-owned barge subsidiary of Vectura, was combined with
ACL. CSX has a 32% common interest in the new venture. CSX will report a net
investment gain from the transaction in its third quarter 1998 operating
results.
Year 2000 Planning
In 1996, CSX began a comprehensive initiative to address and resolve
potential exposure associated with the functioning of its information technology
systems and non-information technology systems that include embedded technology
with respect to dates in the Year 2000 and beyond. Overall, the CSX Year 2000
initiative is currently proceeding on schedule with completion of all key areas
expected by mid-1999.
With respect to core mainframe information technology, CSX estimates
that it has addressed and resolved the Year 2000 issue with respect to 86% of
its COBOL applications and 22% of its non-COBOL applications. The remediation of
data center hardware and software is progressing, and a major portion of
software and hardware products have been upgraded. In cases where a vendor has
not yet released a Year 2000 ready version of their product, installation will
be scheduled when the compliant version becomes available. CSX anticipates that
it will have resolved the Year 2000 issue for all mission critical applications
by the end of 1998 and for all non-mission critical applications by June 1999.
With respect to distributed information technology, CSX has assigned
project managers to assess and remediate its distributed applications with a
view to completion by early 1999.
With respect to electronic commerce transmissions, CSX is upgrading its
applications to Year 2000 standards as part of its regular application
maintenance effort. Because the potential exists that not all of CSX's trading
partners will achieve Year 2000 compliance, CSX is preparing to accommodate
non-Year 2000 electronic commerce transmissions as well as Year 2000 ready
transmissions.
With respect to non-information technology systems, CSX is currently
conducting assessments of its rail classification yards, shipping ports,
container vessels, intermodal ramps, and office facilities. In July 1997, CSX
and its vendor tested CSX's rail transportation dispatch systems for Year 2000
complications and, based on the results of such tests, the vendor has been
making upgrades to such systems which are expected to be completed by the end of
1998.
As part of its Year 2000 initiative, CSX is in communication with its
significant suppliers, large customers and financial institutions to assess
their Year 2000 readiness and expects to conduct interface tests with its
external trading partners in 1999 upon completion of internal testing of
remediated applications.
In connection with its integration of Conrail, CSX and Norfolk Southern
are jointly addressing the Year 2000 compliance of Conrail's core information
technology applications and non-
- 18 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
information technology embedded systems. Certain of Conrail's operations systems
are being made Year 2000 compliant as a contingency in the event that there are
delays in the integration or Conrail continues to operate such systems after the
integration is completed. CSX understands that the total cost of Conrail's Year
2000 initiative is estimated at less than $28 million.
The company has incurred total expense of $23 million to date related
to the Year 2000 issue, which represents approximately 6% of its information
technology budget for the related periods. The remaining cost of the Year 2000
initiative is presently estimated at $62 million which will be expensed as
incurred. The cost of the initiative is being funded by cash generated from
operations. The remaining cost and the date on which the company believes it
will complete the Year 2000 initiative are based on management's current
estimates, which are derived utilizing numerous assumptions of future events
including the continued availability of certain resources, and are inherently
uncertain. The company's Year 2000 initiative has not had a significant impact
on its other information technology development projects.
The company believes its planning efforts are adequate to address its
Year 2000 concerns. There can be no assurance, however, that the company's
efforts will be successful in a task of this size and complexity. The company is
currently assessing the consequences of its Year 2000 initiative not being
completed on schedule or its remediation efforts not being successful. Upon
completion of such assessment, the company will begin contingency planning,
including efforts to address potential disruptions in third-party services, such
as telecommunications and electricity, on which the company's systems and
operations rely. There can be no assurance that the company's contingency plans
or its efforts with respect to third parties will prevent a material adverse
effect on the company's operations or financial condition.
Litigation
In September 1997, a state court jury in New Orleans, Louisiana returned
a $2.5 billion punitive damages award against CSXT. The award was made in a
class action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15 percent of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material and adequate provision was made for the award in a
prior year.
In October 1997, the Louisiana Supreme Court set aside the punitive
damages judgment, ruling the judgment should not have been entered until all
liability issues were resolved. CSX believes this decision means that 8,000
other cases must be resolved before the punitive damage claims can be decided.
CSXT is pursuing an aggressive legal strategy, and management believes that any
adverse outcome will not be material to CSX's or CSXT's overall results of
operations or financial position, although it could be material to results of
operations in a particular quarterly accounting period.
- 19 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
--------------------------------------------------
This Quarterly Report contains certain forward-looking statements about
the financial position, results of operations and business of the company's
units and about the company after the integration of Conrail. Such
forward-looking statements are subject to certain uncertainties and other
factors that may cause actual results to differ materially from the views,
beliefs, and projections expressed in such statements. The words "believe",
"expect", "anticipate", "project", and similar expressions signify
forward-looking statements. Readers are cautioned not to place undue reliance on
any forward-looking statements made by or on behalf of the company. Any such
statement speaks only as of the date the statement was made. The company
undertakes no obligation to update or revise any forward-looking statement.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs savings expected from the integration of
Conrail may not be fully realized or realized within the time frame anticipated,
(ii) revenues following the integration of Conrail may be lower than expected,
(iii) cost or difficulties related to the integration of Conrail may be greater
than expected, (iv) general economic or business conditions, either nationally
or internationally, including the continuing Asian financial decline, an
increase in fuel prices, a tightening of the labor market or changes in demands
of organized labor resulting in higher wages, increased benefits or other costs
or disruption of operations, and the impact of the General Motors strike, may
adversely affect the businesses of the company, (v) legislative or regulatory
changes may adversely affect the businesses of the company, (vi) changes may
occur in the securities markets, and (vii) disruptions of the operations of the
company or any other governmental or private entity may occur as a result of
issues related to the Year 2000. For additional factors, please refer to the
company's annual report on Form 10-K for the fiscal year ended December 26,
1997.
- 20 -
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual meeting held April 28, 1998.
(b) Not applicable.
(c) There were 218,964,242 shares of CSX common stock outstanding as
of February 27, 1998, the record date for the 1998 annual meeting
of shareholders. A total of 181,094,675 shares were voted. All of
the nominees for directors of the corporation were elected
with the following vote:
<TABLE>
<CAPTION>
Votes Broker
Nominee Votes For Withheld Non-Votes
------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Elizabeth E. Bailey 178,099,710 2,994,965 --
Robert L. Burrus, Jr. 176,579,247 4,515,429 --
Bruce C. Gottwald 178,133,734 2,960,941 --
John R. Hall 178,123,794 2,970,881 --
Robert D. Kunisch 178,174,310 2,920,365 --
James W. McGlothlin 178,183,840 2,910,835 --
Southwood J. Morcott 178,172,795 2,921,880 --
Charles E. Rice 178,106,306 2,988,369 --
William C. Richardson 178,164,227 2,930,448 --
Frank S. Royal 178,088,109 3,006,566 --
John W. Snow 177,875,699 3,218,976 --
</TABLE>
The appointment of Ernst & Young LLP as independent auditors to
audit and report on CSX's financial statements for the year 1998
was ratified by the shareholders with the following vote:
Votes Broker
Votes For Against Abstentions Non-Votes
--------- ------- ----------- ---------
179,998,829 533,842 561,950 54
The amendment of the CSX 1987 Long-Term Performance Stock Plan
was approved by the shareholders with the following vote:
Votes Broker
Votes For Against Abstentions Non-Votes
--------- ------- ----------- ---------
154,286,533 9,320,437 1,733,502 15,754,203
The shareholder proposal regarding Shareholder Rights Plan was
approved by the shareholders with the following vote:
Votes Broker
Votes For Against Abstentions Non-Votes
--------- ------- ----------- ---------
102,287,145 58,952,382 4,089,557 15,765,591
(d) Not applicable.
- 21 -
<PAGE>
PART II. OTHER INFORMATION, CONTINUED
Item 5. Other Information.
Discretionary Voting Authority - 45-Day Advance Notice
Requirement
If CSX Corporation does not receive notice at its principal
executive offices on or before January 31, 1999, of a shareholder
proposal for consideration at the 1999 annual meeting of
shareholders, the proxies named by the CSX Board of Directors
with respect to that meeting shall have discretionary voting
authority with respect to such proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. (27) Financial Data Schedule
(b) Reports on Form 8-K
1. A report was filed on April 22, 1998, reporting Item 5, Other
Events announcement of an agreement to convey its wholly-owned
barge subsidiary, American Commercial Lines LLC, to a venture
formed with Vectura Group, Inc.; plus Item 7, Financial
Statements and Exhibits - (1) Recapitalization Agreement, dated
April 17, 1998, by and among the company, Vectura Group, Inc.,
American Commercial Lines Holdings LLC, American Commercial Lines
LLC, and National Marine, Inc.; and (2) a press release by the
Company.
2. A report was filed on May 12, 1998, reporting Item 5, Other
Events authorization of issuance and sale of up to U.S.
$248,000,000 of Medium-Term Notes, Series B; plus Item 7,
Financial Statements and Exhibits - Documents related to the
Notes filed as exhibits.
3. A report was filed on May 29, 1998, reporting Item 5, Other
Events declaration by the Board of Directors of CSX Corporation
of a dividend of one preferred share purchase right for each
outstanding share of common stock of the Company; plus Item 7,
Financial Statements and Exhibits - (1) Rights Agreement, dated
May 29, 1998, between CSX Corporation and Harris Trust Company of
New York, as Rights Agent; and (2) a press release by the
Company.
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: August 7, 1998
- 22 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> JUN-26-1998
<CASH> 94
<SECURITIES> 293
<RECEIVABLES> 1,002
<ALLOWANCES> 0
<INVENTORY> 279
<CURRENT-ASSETS> 1,993
<PP&E> 18,664
<DEPRECIATION> 6,042
<TOTAL-ASSETS> 20,130
<CURRENT-LIABILITIES> 3,032
<BONDS> 6,138
0
0
<COMMON> 219
<OTHER-SE> 5,650
<TOTAL-LIABILITY-AND-EQUITY> 20,130
<SALES> 0
<TOTAL-REVENUES> 5,222
<CGS> 0
<TOTAL-COSTS> 4,584
<OTHER-EXPENSES> 44
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 344
<INCOME-TAX> 102
<INCOME-CONTINUING> 242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.09
</TABLE>
