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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 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number 1-3359
CSX TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-6000720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Water Street, Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 359-3100
(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 30, 1995: 9,061,038 shares
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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CSX TRANSPORTATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters and Six Months Ended June 30, 1995 and
July 1, 1994 3
2. Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1995 and July 1, 1994 4
3. Consolidated Statement of Financial Position -
At June 30, 1995 and December 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2.
Management's Analysis and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars)
Quarter Ended Six Months Ended
------------------- ------------------
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
-------- -------- -------- --------
OPERATING REVENUE
Merchandise $ 797 $ 786 $ 1,596 $ 1,544
Coal 379 363 745 702
Other 35 26 64 49
------ ------ ------- -------
Transportation 1,211 1,175 2,405 2,295
Non-Transportation 13 15 21 22
------ ------ ------- -------
Total 1,224 1,190 2,426 2,317
------ ------ ------- -------
OPERATING EXPENSE
Labor and Fringe Benefits 463 453 934 918
Materials, Supplies and Other 272 248 534 515
Equipment Rent 98 100 202 198
Depreciation 97 93 193 186
Fuel 64 61 129 124
Restructuring Charge 196 --- 196 ---
------ ------ ------- -------
Transportation 1,190 955 2,188 1,941
Non-Transportation 6 5 12 11
------ ------ ------- -------
Total 1,196 960 2,200 1,952
------ ------ ------- -------
OPERATING INCOME 28 230 226 365
Other Expense 4 1 10 9
Interest Expense 12 13 22 25
------ ------ ------- -------
EARNINGS BEFORE INCOME TAXES 12 216 194 331
Income Tax Expense 3 79 71 122
------ ------ ------- -------
NET EARNINGS $ 9 $ 137 $ 123 $ 209
====== ====== ======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
Six Months Ended
-------------------
June 30, July 1,
1995 1994
-------- --------
OPERATING ACTIVITIES
Net Earnings $ 123 $ 209
Adjustments to Reconcile Earnings to
Cash Provided
Depreciation 193 186
Deferred Income Taxes (10) 73
Restructuring Charge 196 ---
Productivity/Restructuring Charge Payments (31) (56)
Other Operating Activities (16) 18
Changes in Operating Assets and Liabilities
Accounts Receivable 35 (11)
Materials and Supplies (24) (16)
Other Current Assets (18) 9
Accounts Payable and Other Current Liabilities 5 (92)
----- -----
Cash Provided by Operating Activities 453 320
----- -----
INVESTING ACTIVITIES
Property Additions (414) (231)
Other Investing Activities 54 32
----- -----
Cash Used by Investing Activities (360) (199)
----- -----
FINANCING ACTIVITIES
Long-Term Debt Issued 115 53
Long-Term Debt Repaid (56) (62)
Long-Term Debt Repaid to Parent --- (86)
Dividends Paid (28) (29)
Other Financing Activities 1 (41)
----- -----
Cash Provided (Used) by Financing Activities 32 (165)
----- -----
CASH AND CASH EQUIVALENTS
Increase (Decrease) in Cash and Cash Equivalents 125 (44)
Cash and Cash Equivalents at Beginning of Period 452 272
----- -----
Cash and Cash Equivalents at End of Period $ 577 $ 228
===== =====
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
June 30, December 30,
1995 1994
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 577 $ 452
Accounts Receivable 58 93
Materials and Supplies 141 117
Deferred Income Taxes 187 241
Other Current Assets 76 57
------- -------
Total Current Assets 1,039 960
------- -------
Properties and Other Assets
Properties - Net 8,936 8,897
Affiliates and Other Companies 189 189
Other Assets 178 195
------- -------
Total Properties and Other Assets 9,303 9,281
------- -------
Total Assets $10,342 $10,241
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts Payable and Other Current Liabilities $ 1,177 $ 1,159
Current Maturities of Long-Term Debt 85 89
Due to Parent Company 23 23
------- -------
Total Current Liabilities 1,285 1,271
------- -------
Long-Term Debt 654 591
------- -------
Deferred Income Taxes 2,182 2,246
------- -------
Long-Term Liabilities 1,460 1,481
------- -------
Shareholder's Equity
Common Stock 181 181
Other Capital 1,061 1,047
Retained Earnings 3,519 3,424
------- -------
Total Shareholder's Equity 4,761 4,652
------- -------
Total Liabilities and Shareholder's Equity $10,342 $10,241
======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
NOTE 1. BASIS OF PRESENTATION.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Transportation, Inc. ("CSXT") and its majority-owned
subsidiaries as of June 30, 1995 and December 30, 1994, the results of its
operations for the quarters and six months ended June 30, 1995, and July 1,
1994, and its cash flows for the six months ended June 30, 1995 and July 1,
1994, such adjustments being of a normal recurring nature. CSXT is a wholly-
owned subsidiary of CSX Corporation ("CSX").
While management 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 CSXT's latest Form 10-K.
Certain prior-year data has been reclassified to conform to the 1995
presentation.
NOTE 2. RESTRUCTURING CHARGE.
In the second quarter, the company recorded a $196 million pretax
restructuring charge to recognize the costs associated with a contractual
agreement with a third party to replace and technologically enhance its
existing private telecommunications network. This initiative will result in a
$163 million write-down of technologically obsolete telecommunications assets
and separation and labor protection payments totaling $33 million to
approximately 275 employees.
NOTE 3. ACCOUNTS RECEIVABLE.
CSXT has an ongoing agreement to sell without recourse on a monthly
basis, an undivided percentage ownership interest in all freight accounts
receivable to CSX Trade Receivables Corporation ("CTRC"), a wholly-owned
subsidiary of CSX. At June 30, 1995 and December 30, 1994, accounts
receivable sold under this agreement totaled $590 million and $579 million,
respectively. In addition, CSXT has an agreement to sell with recourse on a
monthly basis, an undivided ownership interest in all miscellaneous accounts
receivable to a financial institution. Accounts receivable sold under this
agreement totaled $46 million at June 30, 1995 and December 30, 1994. CSXT
has retained the collection and servicing responsibility with respect to all
accounts receivable sold.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 4. OTHER INCOME (EXPENSE).
Quarter Ended Six Months Ended
June 30, July, 1, June 30, July 1,
1995 1994 1995 1994
-------- -------- -------- -------
Interest Income $ 11 $ 8 $ 21 $ 15
Gain on South Florida Track Sale
Transaction --- 22 --- 22
Loss on Investment Transaction --- (14) --- (14)
Fees Related to
Accounts Receivable Sold (13) (11) (27) (22)
Miscellaneous (2) (6) (4) (10)
----- ----- ----- -----
Total $ (4) $ (1) $ (10) $ (9)
===== ===== ===== =====
NOTE 5. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES.
June 30, December 30,
1995 1994
--------- ------------
Trade Accounts Payable $ 529 $ 511
Labor and Fringe Benefits 382 374
Interest, Taxes and Other 135 141
Casualty Reserves 131 133
------ ------
Total $1,177 $1,159
====== ======
NOTE 6. CONTINGENCIES.
As part of its restructuring initiative, CSXT entered a contractual
agreement with a third party to replace and technologically enhance its
existing private telecommunications network. The agreement was executed
during the second quarter of 1995, and requires minimum payments totaling
approximately $330 million over its ten-year term.
CSXT is a party to various proceedings brought both by private
parties and regulatory agencies related to environmental issues. CSXT has
been identified as a potentially responsible party in a number of governmental
investigations and actions relating to environmentally impaired sites that are
or may be subject to remedial action under the Federal Superfund Statute
("Superfund") or corresponding state statutes. The majority of these
proceedings are based on allegations that CSXT, or its railroad predecessors,
sent hazardous substances to the facilities in question for disposal. Such
proceedings arising under Superfund typically involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.
The assessment of the required response and remedial costs associated
with these sites is extremely complex. Cost estimates are based on
information available for each site, financial viability of other potentially
responsible parties, and existing technology, laws and regulations.
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PAGE 8
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. CONTINGENCIES, Continued
CSXT frequently reviews its role, if any, with respect to each such
location, giving consideration to the nature of CSXT's alleged connection to
the location (e.g., generator, owner or operator), the extent of CSXT's
alleged connection (e.g., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to
the location, and the number, connection and financial position of other named
and unnamed potentially responsible parties at the location. Further, CSXT
periodically reviews its exposure in all non-Superfund environmental
proceedings with which it is involved.
Based upon such reviews and updates of the sites with which it is
involved, CSXT has recorded, and periodically reviews for adequacy, reserves
to cover estimated contingent future environmental costs with respect to such
sites. The recorded liabilities for estimated future environmental costs at
June 30, 1995 and December 30, 1994 were $139 million and $140 million,
respectively. The liability has been accrued for future costs for all sites
where the company's obligation is probable and where such costs can be
reasonably estimated. The liability includes future costs for remediation and
restoration of sites as well as for ongoing monitoring costs, but excludes any
anticipated insurance recoveries. The majority of the June 30, 1995
environmental liability is expected to be paid out over the next five 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. Based upon
information currently available, however, the company believes that its
environmental reserves are adequate to accomplish remedial actions to comply
with present laws and regulations. The company believes that the ultimate
liability for these matters will not materially affect its overall results of
operations and financial condition.
A number of legal actions, other than environmental, are pending
against CSXT in which claims are made in substantial amounts. While the
ultimate results of environmental investigations, lawsuits and claims
involving CSXT cannot be predicted with certainty, management does not
currently expect that these matters will have a material adverse effect on the
consolidated financial position, results of operations and cash flows of the
company.
NOTE 7. RELATED PARTIES.
Cash and cash equivalents at June 30, 1995 and December 30, 1994,
includes $624 million and $510 million, respectively, representing amounts due
from CSX for CSXT's participation in the CSX cash management plan. Under this
plan, excess cash is advanced to CSX for investment and CSX makes cash funds
available to its subsidiaries as needed for use in their operations. CSX is
committed to repay all amounts due on demand should circumstances require.
The companies are charged for borrowings or compensated for investments based
on returns earned by the plan portfolio.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 7. RELATED PARTIES, Continued
In 1994, CSXT entered into a loan agreement with Customized
Transportation, Inc. ("CTI"), a wholly-owned subsidiary of CSX, whereby CTI
borrowed $40 million from CSXT. Interest on the loan is payable semi-
annually, with the entire principal amount due on January 1, 2001. Interest
income was $1 million for the quarters ending June 30, 1995 and July 1, 1994.
Included in Materials, Supplies and Other expense are amounts related
to a management service fee charged by CSX, data processing related charges
from CSX Technology, Inc. ("Technology"), and the reimbursement, under an
operating agreement, from CSX Intermodal, Inc. ("CSXI") for costs incurred by
CSXT related to intermodal operations. Technology and CSXI are wholly-owned
subsidiaries of CSX. Materials, Supplies and Other expense includes net
expense of $72 million for the second quarter of 1995 and $49 million for the
second quarter of 1994 relating to the above arrangements.
CSXT has an operating lease agreement with CSXI for 3,400 rebuilt
coal gondola cars. The cars were previously owned and rebuilt by CSXT, and
were subsequently sold to CSXI at book value. These cars are presently being
leased by CSXT through March 2006. In addition, CSXT is leasing 65
locomotives from CSXI pursuant to a pre-existing operating lease agreement
acquired by CSXI from a third party. These locomotives are being leased by
CSXT through May 2008. In the second quarter of 1995 and 1994, rent expense
includes $5 million associated with the CSXI lease agreements noted above.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Second Quarter 1995 Compared With 1994
- --------------------------------------
Net operating income for the 1995 second quarter was $28 million
versus $230 million for the prior-year quarter. Results for the quarter
included the effect of a $196 million pretax restructuring charge related to a
contractual agreement with a third party to replace and technologically
enhance the company's existing private telecommunications network.
Exclusive of the restructuring charge, transportation operating
income declined $3 million or 1 percent, to $217 million for the second
quarter of 1995, from $220 million in the prior-year quarter. A 3 percent
increase in revenue for the quarter was offset by a 4 percent increase in
total operating expense.
TRANSPORTATION OPERATING INCOME
(Millions of Dollars)
-------------------------------
Quarter Ended Six Months Ended
------------------ -------------------
June 30, July 1, Percent June 30, July 1, Percent
1995 1994 Change 1995 1994 Change
-------- -------- ------- -------- -------- -------
Operating Revenue
Merchandise $ 797 $ 786 1% $ 1,596 $ 1,544 3%
Coal 379 363 4% 745 702 6%
Other 35 26 35% 64 49 31%
------ ------ ------- -------
Total 1,211 1,175 3% 2,405 2,295 5%
Operating Expense 1,190 955 25% 2,188 1,941 13%
------ ------ ------- -------
Operating Income $ 21 $ 220 (90)% $ 217 $ 354 (39)%
====== ====== ======= =======
Operating Income (a) $ 217 $ 220 (1)% $ 413 $ 354 17%
====== ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge.
Transportation revenue, driven by traffic gains in both merchandise
and export coal, increased 3 percent over the prior-year quarter to $1.2
billion. Merchandise traffic rose 3 percent, benefiting from gains in a
number of markets, notably agricultural products, phosphates and fertilizer,
metals and chemicals.
Overall, coal volume rose 3 percent in the quarter to 39.7 million
tons as exports surged 81 percent to 5.8 million tons, more than offsetting a
4 percent drop in domestic tonnage. Domestic volume was 33.9 million tons for
the quarter, reflecting lower utility burn rates due to mild winter weather
across the eastern United States.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
Second Quarter 1995 Compared With 1994, Continued
- -------------------------------------------------
Excluding the restructuring charge, transportation operating expense
was $994 million in the quarter compared to $955 million in the second quarter
of 1994. Materials, supplies and other expense increased 10 percent,
reflecting heavier traffic volumes. Labor and fringe benefit expense
increased approximately 2 percent due to the greater number of train crews
required to handle the higher traffic as well as a modest wage increase
mandated by the Presidential Emergency Board No. 219.
First Six Months 1995 Compared to 1994
- --------------------------------------
For the first six months ended June 30, 1995, CSXT reported operating
income, excluding the restructuring charge, of $422 million versus $365
million for the same period in 1994. Continuing cost control efforts held
expenses near 1994 levels while continued strength in the domestic economy and
improved export coal volume combined to increase revenues 5 percent.
OUTLOOK
- -------
Entering the third quarter of 1995, CSXT is experiencing solid demand
for export coal shipments as U.S. producers take advantage of increased
economic activity abroad and favorable exchange rates. Merchandise traffic is
expected to maintain its strength over the second half of the year.
CSXT continues to monitor and be actively involved in ongoing
industrywide labor contract negotiations. These negotiations have
traditionally taken place over a number of months and have not resulted in any
extended work stoppages.
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PAGE 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
1. None.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CSX TRANSPORTATION, INC.
/s/ GREGORY R. WEBER
------------------------
Gregory R. Weber
Dated: July 28, 1995 (Principal Accounting Officer)
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