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 29, 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 September 29, 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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PAGE 2
CSX TRANSPORTATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters and Nine Months Ended September 29, 1995
and September 30, 1994 3
2. Consolidated Statement of Cash Flows -
Nine Months Ended September 29, 1995 and
September 30, 1994 4
3. Consolidated Statement of Financial Position -
At September 29, 1995 and December 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2.
Management's Analysis and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars)
Quarter Ended Nine Months Ended
-------------------- -------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
-------- --------- -------- ---------
OPERATING REVENUE
Merchandise $ 767 $ 733 $ 2,363 $ 2,277
Coal 388 384 1,133 1,086
Other 36 30 100 79
------ ------ ------- -------
Transportation 1,191 1,147 3,596 3,442
Non-Transportation 13 26 34 48
------ ------ ------- -------
Total 1,204 1,173 3,630 3,490
------ ------ ------- -------
OPERATING EXPENSE
Labor and Fringe Benefits 461 468 1,395 1,386
Materials, Supplies and Other 263 262 797 777
Equipment Rent 93 96 295 294
Depreciation 97 93 290 279
Fuel 60 62 189 186
Restructuring Charge --- --- 196 ---
------ ------ ------- -------
Transportation 974 981 3,162 2,922
Non-Transportation 6 8 18 19
------ ------ ------- -------
Total 980 989 3,180 2,941
------ ------ ------- -------
OPERATING INCOME 224 184 450 549
Other Income (Expense) 6 (7) (4) (16)
Interest Expense 13 10 35 35
------ ------ ------- -------
EARNINGS BEFORE INCOME TAXES 217 167 411 498
Income Tax Expense 79 62 150 184
------ ------ ------- -------
NET EARNINGS $ 138 $ 105 $ 261 $ 314
====== ====== ======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
Nine Months Ended
--------------------
Sept. 29, Sept. 30,
1995 1994
--------- ---------
OPERATING ACTIVITIES
Net Earnings $ 261 $ 314
Adjustments to Reconcile Earnings to
Cash Provided
Depreciation 290 279
Deferred Income Taxes 32 113
Restructuring Charge 196 ---
Productivity/Restructuring Charge Payments (78) (83)
Other Operating Activities 28 28
Changes in Operating Assets and Liabilities
Accounts Receivable (80) (58)
Materials and Supplies (5) 6
Other Current Assets (13) 7
Accounts Payable and Other Current Liabilities 55 (33)
----- -----
Cash Provided by Operating Activities 686 573
----- -----
INVESTING ACTIVITIES
Property Additions (567) (371)
Other Investing Activities 23 22
----- -----
Cash Used by Investing Activities (544) (349)
----- -----
FINANCING ACTIVITIES
Long-Term Debt Issued 115 53
Long-Term Debt Repaid (70) (79)
Long-Term Debt Repaid to Parent --- (86)
Dividends Paid (37) (28)
Other Financing Activities 3 (40)
----- -----
Cash Provided (Used) by Financing Activities 11 (180)
----- -----
CASH AND CASH EQUIVALENTS
Increase in Cash and Equivalents 153 44
Cash and Cash Equivalents at Beginning of Period 452 272
----- -----
Cash and Cash Equivalents at End of Period $ 605 $ 316
===== =====
See accompanying Notes to Consolidated Financial Statements.
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PAGE 5
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
September 29, December 30,
1995 1994
------------- ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 605 $ 452
Accounts Receivable 172 93
Materials and Supplies 123 117
Deferred Income Taxes 197 241
Other Current Assets 32 57
------- -------
Total Current Assets 1,129 960
------- -------
Properties and Other Assets
Properties - Net 9,006 8,897
Affiliates and Other Companies 207 189
Other Assets 168 195
------- -------
Total Properties and Other Assets 9,381 9,281
------- -------
Total Assets $10,510 $10,241
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts Payable and Other Current Liabilities $ 1,172 $ 1,159
Current Maturities of Long-Term Debt 80 89
Due to Parent Company 24 23
------- -------
Total Current Liabilities 1,314 1,271
------- -------
Long-Term Debt 645 591
------- -------
Deferred Income Taxes 2,234 2,246
------- -------
Casualty, Environmental and Other Reserves 696 724
------- -------
Other Liabilities 768 757
------- -------
Shareholder's Equity
Common Stock 181 181
Other Capital 1,061 1,047
Retained Earnings 3,649 3,424
------- -------
Total Shareholder's Equity 4,891 4,652
------- -------
Total Liabilities and Shareholder's Equity $10,510 $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 September 29, 1995 and December 30, 1994, the results of
its operations for the quarters and nine months ended September 29, 1995, and
September 30, 1994, and its cash flows for the nine months ended September
29, 1995 and September 30, 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 AT&T Solutions ("AT&T") to replace, manage, and technologically
enhance its existing private telecommunications network. The initiative
resulted in a $163 million write-down of assets rendered obsolete and will
further result in separation and labor protection payments totaling $33
million to approximately 275 affected employees.
Under the agreement between AT&T and CSXT, which was effective May 1,
1995, AT&T will supply and manage new technology, thereby rendering CSXT's
existing telecommunications assets commercially obsolete. CSXT will be
obligated to pay minimum charges of approximately $330 million in equal annual
amounts over the next ten years.
The commercially obsolete assets represent the internal company-wide
telecommunications network including the existing microwave and fiber optic
communications systems, portable radios, and road and yard communication pole
line distribution systems. AT&T will provide wireless communications
technology over its existing network to replace the CSXT system. After the
phase-in of this technology, AT&T will retain ownership of the equipment and
will grant CSXT access to the equipment and the network.
The commercially obsolete assets have no alternative use and their
net realizable value as an obsolete company-wide telecommunications network is
not significant. As a result of the agreement with AT&T, the net book value
of the assets being replaced was reduced by $163 million.
The $33 million provision for separation and labor protection
payments was based upon existing collective bargaining agreements with members
of clerical, electrical and signal crafts. CSXT expects 67% of the affected
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 2. RESTRUCTURING CHARGE, Continued
employees to be impacted within one year and the remaining 33% to be impacted
within four to five years. Through September 29, 1995, 29 employee
separations have been finalized and payments totaling $1 million have been
made to effect these separations.
NOTE 3. ACCOUNTS RECEIVABLE.
CSXT has an ongoing agreement to sell without recourse, on a
revolving basis each month, an undivided percentage ownership interest in all
freight accounts receivable to CSX Trade Receivables Corporation (CTRC), a
wholly-owned subsidiary of CSX. At September 29, 1995 and December 31, 1994,
accounts receivable sold under this agreement totaled $539 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. At September
29, 1995 and December 31, 1994, accounts receivable sold under this agreement
totaled $46 million. The sales of receivables have been reflected as
reductions of "Accounts Receivable" in the Consolidated Statement of Financial
Position.
NOTE 4. OTHER INCOME (EXPENSE).
Quarter Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
--------- --------- -------- -------
Interest Income $ 9 $ 5 $ 14 $ 16
Interest Income-CSX Cash
Management Plan 8 3 24 7
Gain on South Florida Track Sale
Transaction --- --- --- 22
Loss on Investment Transaction --- (2) --- (16)
Fees Related to
Accounts Receivable Sold (13) (12) (40) (34)
Miscellaneous 2 (1) (2) (11)
----- ----- ----- -----
Total $ 6 $ (7) $ (4) $ (16)
===== ===== ===== =====
NOTE 5. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES.
September 29, December 30,
1995 1994
------------- ------------
Trade Accounts Payable $ 543 $ 511
Labor and Fringe Benefits 390 374
Interest, Taxes and Other 103 141
Casualty Reserves 136 133
------ ------
Total $1,172 $1,159
====== ======
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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. RELATED PARTIES.
Cash and cash equivalents at September 29, 1995 and December 30,
1994, includes $625 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.
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 September 29, 1995 and September
30, 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. The management service fee charged by
CSX represents compensation for certain corporate services provided to CSXT.
These services include development of corporate policy and long-range
strategic plans, allocation of capital, placement of debt, maintenance of
employee benefit plans, internal audit and tax administration. The data
processing related charges are compensation to CSX Technology, Inc. for the
development, implementation and maintenance of computer systems, software and
associated documentation for the day to day operations of CSXT. CSX
Technology and CSXI are wholly-owned subsidiaries of CSX. Materials, Supplies
and Other expense includes net expense of $69 million and $208 million,
respectively, for the third quarter and nine months ended September 29, 1995
relating to the above arrangements, and net expense of $64 million and $177
million, respectively, for the third quarter and nine months ended September
30, 1994.
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 third quarter of 1995 and 1994, rent expense
includes $6 million associated with the CSXI lease agreements noted above.
NOTE 7. COMMITMENTS AND CONTINGENCIES.
As part of its restructuring initiative, CSXT entered a contractual
agreement with AT&T 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.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
COMMITMENTS AND CONTINGENCIES, Continued
CSXT is a party in 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 relating to 106 environmentally impaired sites that are or may be
subject to remedial action under the Federal Superfund Statute ("Superfund")
or corresponding state statutes. Many of these 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 potentially responsible
parties, where available, and existing technology, laws and regulations.
CSXT's best estimate of the allocation method and percentage of liability when
other potentially responsible parties are involved are based on assessments by
consultants, agreements among potentially responsible parties, or
determinations by the EPA or other regulatory agencies.
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. The ultimate
liability for remediation is difficult to determine with certainty because of
the number of 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 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
September 29, 1995 and December 30, 1994 were $136 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 September 29, 1995
environmental liability is expected to be paid out over the next five years,
funded by cash generated from operations.
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Page 10
COMMITMENTS AND CONTINGENCIES, Continued
The company does not currently possess sufficient information to
reasonably estimate the amounts of additional liabilities, if any, on some
sites until completion of future environmental studies. 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.
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.
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PAGE 11
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Third Quarter 1995 Compared With 1994
- -------------------------------------
Net operating income for the 1995 third quarter was $224 million
versus $184 million for the prior-year quarter.
Transportation operating income increased $51 million or 31 percent,
to $217 million for the third quarter of 1995, from $166 million in the prior-
year quarter. The results reflect a 4 percent increase in revenue for the
quarter, as well as a 1 percent decrease in transportation operating expense.
TRANSPORTATION OPERATING INCOME
(Millions of Dollars)
-------------------------------
Quarter Ended Nine Months Ended
------------------ -------------------
Sept. 29, Sept. 30, Percent Sept. 29, Sept. 30, Percent
1995 1994 Change 1995 1994 Change
--------- --------- ------- --------- --------- -------
Operating Revenue
Merchandise $ 767 $ 733 5% $ 2,363 $ 2,277 4%
Coal 388 384 1% 1,133 1,086 4%
Other 36 30 20% 100 79 27%
------ ------ ------- -------
Total 1,191 1,147 4% 3,596 3,442 4%
Operating Expense 974 981 (1%) 3,162 2,922 8%
------ ------ ------- -------
Operating Income $ 217 $ 166 31% $ 434 $ 520 (16%)
====== ====== ======= =======
Operating Income (a) $ 217 $ 166 31% $ 630 $ 520 21%
====== ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge.
Third Quarter 1995 Compared With 1994, Continued
- ------------------------------------------------
Transportation revenue, driven by traffic gains in both merchandise
and export coal, increased 4 percent over the prior-year quarter to $1.2
billion. Merchandise traffic rose 4 percent, benefiting from gains in a
number of markets, notably agricultural products, phosphates and fertilizer,
chemicals, forest products, and automobiles.
Overall, coal volume rose 2 percent in the quarter to 40.2 million
tons as exports surged 27 percent to 5.2 million tons, more than offsetting a
1 percent drop in domestic tonnage. Domestic volume was 35 million tons for
the quarter, versus 35.4 million tons in the prior year quarter.
Transportation operating expense was $974 million in the quarter
compared to $981 million in the third quarter of 1994. Despite the heavier
traffic volumes, operating expense decreased 1% for the quarter due to the
effectiveness of cost control measures, a 2% decrease in fuel prices, and a 3%
decrease in equipment rent.
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PAGE 12
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
First Nine Months 1995 Compared to 1994
- ---------------------------------------
For the first nine months ended September 29, 1995, CSXT reported
operating income, excluding the restructuring charge, of $646 million versus
$549 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 4
percent.
OUTLOOK
- -------
Entering the fourth 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 remainder 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.
During the fourth quarter, CSXT anticipates continuing benefits from
its cost reduction efforts.
OTHER MATTERS
- -------------
The company is assessing any potential impact of the provisions of
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which it expects to adopt for its fiscal year ending December 27, 1996. The
company has not completed a determination as to whether or not indicators of
impairment of long-lived assets are present.
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PAGE 13
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: November 7, 1995 (Principal Accounting Officer)
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