PAGE 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 27, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number 1-3359
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 27, 1996: 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 SEPTEMBER 27, 1996
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters and Nine Months Ended September 27, 1996
and September 29, 1995 3
2. Consolidated Statement of Cash Flows -
Nine Months Ended September 27, 1996 and
September 29, 1995 4
3. Consolidated Statement of Financial Position -
At September 27, 1996 and December 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2.
Management's 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)
(Unaudited)
Quarters Ended Nine Months Ended
------------------- ------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
-------- -------- -------- --------
OPERATING REVENUE
Merchandise $ 772 $ 767 $ 2,374 $ 2,363
Coal 404 388 1,178 1,133
Other 35 36 109 100
------ ------ ------- -------
Transportation 1,211 1,191 3,661 3,596
OPERATING EXPENSE
Labor and Fringe Benefits 474 461 1,424 1,395
Materials, Supplies and Other 251 263 759 797
Equipment Rent 89 93 278 295
Depreciation 104 97 308 290
Fuel 69 60 217 189
Restructuring Charge --- --- --- 196
------ ------ ------- -------
Total 987 974 2,986 3,162
OPERATING INCOME 224 217 675 434
Other Income (Expense) 5 13 29 12
Interest Expense 16 13 55 35
------ ------ ------- -------
EARNINGS BEFORE INCOME TAXES 213 217 649 411
Income Tax Expense 80 79 245 150
------ ------ ------- -------
NET EARNINGS $ 133 $ 138 $ 404 $ 261
====== ====== ======= =======
See accompanying Notes to Consolidated Financial Statements.
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PAGE 4
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
Nine Months Ended
--------------------
Sept. 27, Sept. 29,
1996 1995
------ ------
OPERATING ACTIVITIES
Net Earnings $ 404 $ 261
Adjustments to Reconcile Net Earnings to
Net Cash Provided
Depreciation 309 290
Deferred Income Taxes 151 32
Restructuring Charge Provision --- 196
Productivity/Restructuring Charge Payments (58) (78)
Other Operating Activities (19) 28
Changes in Operating Assets and Liabilities
Accounts Receivable (31) (80)
Materials and Supplies 3 (5)
Other Current Assets (11) (13)
Accounts Payable and
Other Current Liabilities (80) 55
------ ------
Net Cash Provided by Operating Activities 668 686
------ ------
INVESTING ACTIVITIES
Property Additions (571) (567)
Other Investing Activities 97 23
------ ------
Net Cash Used by Investing Activities (474) (544)
------ ------
FINANCING ACTIVITIES
Long-Term Debt Issued 117 115
Long-Term Debt Repaid (67) (70)
Cash Dividends Paid (471) (37)
Other Financing Activities 61 3
------ ------
Net Cash (Used) Provided by Financing
Activities (360) 11
------ ------
Net (Decrease) Increase in Cash and Cash Equivalents (166) 153
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period 633 452
------ ------
Cash and Cash Equivalents at End of Period $ 467 $ 605
====== ======
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)
(Unaudited)
Sept. 27, December 29,
1996 1995
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 467 $ 633
Accounts and Notes Receivable 97 66
Materials and Supplies 114 116
Deferred Income Taxes 197 201
Other Current Assets 33 15
------- -------
Total Current Assets 908 1,031
Properties-Net 9,637 9,189
Affiliates and Other Companies 147 226
Other Long-Term Assets 288 183
------- -------
Total Assets $10,980 $10,629
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 541 $ 558
Labor and Fringe Benefits Payable 344 377
Casualty, Environmental and Other Reserves 183 194
Current Maturities of Long-Term Debt 76 74
Due to Parent Company 26 24
Due to Affiliate 90 ---
Other Current Liabilities 18 6
------- -------
Total Current Liabilities 1,278 1,233
Casualty, Environmental and Other Reserves 634 683
Long-Term Debt 843 613
Deferred Income Taxes 2,454 2,265
Due to Parent Company 19 ---
Other Long-Term Liabilities 702 787
------- -------
Total Liabilities 5,930 5,581
------- -------
SHAREHOLDER'S EQUITY
Common Stock, $20 Par Value;
Authorized 10,000,000 Shares;
Issued and Outstanding 9,061,038 Shares 181 181
Other Capital 1,262 1,193
Retained Earnings 3,607 3,674
------- -------
Total Shareholder's Equity 5,050 5,048
------- -------
Total Liabilities and Shareholder's Equity $10,980 $10,629
======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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 27, 1996, and December 29, 1995, and the results
of their operations for the quarters and nine months ended September 27, 1996
and September 29, 1995 and their cash flows for the nine months ended
September 27, 1996 and September 29, 1995, 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.
Beginning with the quarter ended June 28, 1996, the company changed
its earnings presentation to exclude real estate activities from operating
revenue and expense. These activities are now included in "Other Income
(Expense)." Prior-year data have been reclassified to conform to the 1996
presentation.
NOTE 2. FISCAL REPORTING PERIODS.
The company's fiscal year is composed of 52 weeks ending on the last
Friday in December. The financial statements presented are for the 13-week
quarters and 39-week periods ended September 27, 1996 and September 29, 1995
and the fiscal year ended December 29, 1995.
NOTE 3. RESTRUCTURING CHARGE.
In the second quarter of 1995, the company recorded a $196 million
pretax restructuring charge to recognize the estimated costs associated with a
contractual agreement with AT&T to replace and technologically enhance its
existing private telecommunications network. At September 27, 1996 and
December 29, 1995, a reserve of $32 million remained for the payment of
employee separation and labor protection costs related to this initiative.
NOTE 4. ACCOUNTS RECEIVABLE.
CSXT has an ongoing agreement to sell without recourse, on a
revolving basis each month, an undivided percentage ownership interest in all
its rail freight accounts receivable to CSX Trade Receivables Corporation, a
wholly-owned subsidiary of CSX. Accounts receivable sold under this agreement
totaled $586 million at September 27, 1996 and $603 million at December 29,
1995. In addition, CSXT has a revolving agreement with a financial
institution to sell with recourse on a monthly basis an undivided percentage
ownership interest in all miscellaneous accounts receivable. Accounts
receivable sold under this agreement totaled $46 million at September 27, 1996
and December 29, 1995. The sales of receivables have been reflected as
reductions of "Accounts and Notes Receivable" in the Consolidated Statement of
Financial Position.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(All Tables in Millions of Dollars)
NOTE 4. ACCOUNTS RECEIVABLES, Continued
The net costs associated with sales of receivables were $14 million and $41
million for the quarter and nine months ended September 27, 1996,
respectively, and $13 million and $40 million for the quarter and nine months
ended September 29, 1995, respectively.
NOTE 5. OTHER INCOME (EXPENSE).
Quarters Ended Nine Months Ended
Sept. 27, Sept. 29, Sept. 27, Sept 29,
1996 1995 1996 1995
-------- -------- -------- --------
Interest Income $ 8 $ 17 $ 31 $ 38
Income from Real Estate
Operations (1) 8 7 33 16
Net Costs for Accounts
Receivable Sold (14) (13) (41) (40)
Miscellaneous 3 2 6 (2)
----- ----- ----- -----
Total $ 5 $ 13 $ 29 $ 12
===== ===== ===== =====
(1) Gross revenue from real estate operations was $13 million and $52 million
for the quarter and nine months ended September 27, 1996, respectively,
and $12 million and $34 million for the quarter and nine months ended
September 29, 1995, respectively.
NOTE 6. COMMITMENTS AND CONTINGENCIES.
During 1995, CSXT entered into an agreement with AT&T to supply and
manage its telecommunications needs through May 2005. The agreement requires
minimum payments totaling approximately $330 million over the ten-year period.
Certain terms and conditions of the agreement with AT&T are currently in
dispute and are expected to be resolved without any disruption to existing
service.
During July 1996, CSXT reached agreements with two manufacturers for
the purchase of 80 alternating current traction locomotives to be delivered
during the remainder of 1996 and 1997. These agreements represent commitments
for additional locomotives above the company's 1993 order covering 300 units
for 1994-1997 delivery. As of September 27, 1996, a total of 108 locomotives
remain for 1996 and 1997 delivery under the 1993 and 1996 purchase agreements.
CSXT is a party to various proceedings involving private parties and
regulatory agencies related to environmental issues. CSXT has been identified
as a potentially responsible party ("PRP") in a number of investigations and
actions. CSXT has identified approximately 104 environmentally impaired sites
that are or may be subject to remedial action under the Federal Superfund
statute ("Superfund") or corresponding state statutes. A number of these
proceedings are based on allegations that CSXT, or its railroad predecessors,
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PAGE 8
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued
sent hazardous substances to the facilities in question for disposal. Such
proceedings arising under Superfund or corresponding state statutes typically
involve numerous other waste generators and disposal companies and seek to
allocate or recover costs associated with site investigation and cleanup,
which could be substantial.
The assessment of the required response and remedial costs associated
with most sites is extremely complex. Cost estimates are based on information
available for each site, financial viability of other PRPs, where available,
and existing technology, laws, and regulations. CSXT's best estimates of the
allocation method and percentage of liability when other PRPs are involved are
based on assessments by consultants, agreements among PRPs, or determinations
by the U.S. Environmental Protection Agency or other regulatory agencies.
At least once each quarter, CSXT reviews its role, if any, with
respect to each such location, giving consideration to the nature of CSXT's
alleged connection to the location (e.g., generator, owner or operator), the
extent of CSXT's alleged connection (e.g., volume of waste sent to the
location and other relevant factors), the accuracy and strength of evidence
connecting CSXT to the location, and the number, connection and financial
position of other named and unnamed PRPs at the location. The ultimate
liability for remediation is difficult to determine with certainty because of
the number and creditworthiness of PRPs involved. Through the assessment
process, CSXT monitors the creditworthiness of such PRPs in determining
ultimate liability.
Based upon reviews and updates of the sites with which it is
involved, CSXT has recorded, and reviews at least quarterly for adequacy,
reserves to cover estimated contingent future environmental costs with respect
to such sites. The recorded liabilities for estimated future environmental
costs at September 27, 1996 and December 29, 1995 were $121 million and $137
million, respectively. These recorded liabilities include amounts
representing CSXT's estimate of unasserted claims, which CSXT believes to be
immaterial. The liability has been accrued for future costs for all sites
where the company's obligation is probable and where such costs can be
reasonably estimated. The liability includes future costs for remediation and
restoration of sites as well as any significant ongoing monitoring costs, but
excludes any anticipated insurance recoveries. The majority of the
September 27, 1996 environmental liability is expected to be paid out over the
next five to seven years, funded by cash generated from operations.
The company does not currently possess sufficient information to
reasonably estimate the amounts of additional liabilities, if any, on some
sites until completion of future environmental studies. In addition, latent
conditions at any given location could result in exposure, the amount and
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
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PAGE 9
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued
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 resolution of these matters will have a material adverse
effect on the consolidated financial position, results of operations and cash
flows of the company.
NOTE 7. RELATED PARTIES.
Cash and cash equivalents at September 27, 1996 and December 29,
1995, includes $492 million and $677 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 at prevailing interest rates from CSXT. On March 1,
1996, the loan was sold at book value to another CSX affiliate.
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, but are not limited to, 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. Technology and CSXI are wholly-owned subsidiaries of CSX.
Materials, Supplies and Other expense includes net expense of $74 million and
$212 million for the quarter and nine months ended September 27, 1996,
respectively, and $69 million and $209 million for the quarter and nine months
ended September 29, 1995, respectively, relating to the above arrangements.
CSXT entered into operating lease arrangements with CSXI in October
1991 and December 1992 under which it agreed to lease 3,400 rebuilt coal
gondola cars through March 2006 and 65 locomotives through May 2008,
respectively. Effective March 1, 1996, the operating leases were terminated
and CSXT purchased the cars and locomotives from CSXI for $164 million, an
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PAGE 10
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. RELATED PARTIES, Continued
amount approximating CSXI's net book value. In conjunction with this
transaction, CSXT assumed $145 million in long-term debt secured by the
equipment and $19 million of advances payable from CSXI to CSX. CSXT incurred
$4 million of rent expense in the first quarter of 1996 associated with these
leases prior to their termination. Rent expense for the third quarter and
first nine months of 1995 totaled $6 million and $16 million, respectively.
In March 1996, CSXT entered into a loan agreement with CSX Insurance
Company ("CSX Insurance"), a wholly-owned subsidiary of CSX, whereby CSXT may
borrow up to $100 million from CSX Insurance. The note is payable in full on
demand. At September 27, 1996, $90 million was outstanding under the
agreement. Interest on the loan is payable monthly at .25% over the LIBOR
rate, and was 5.69% at September 27, 1996. Interest expense incurred for the
quarter and nine months ended September 27, 1996 was $1 million and
$3 million, respectively, relating to this loan agreement.
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PAGE 11
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Third Quarter 1996 Compared With 1995
- --------------------------------------
Net earnings for the 1996 third quarter were $133 million versus $138
million for last year's third quarter.
Operating income increased $7 million or 3 percent, to $224 million
for the third quarter of 1996, from $217 million in the prior-year quarter.
OPERATING INCOME
(Millions of Dollars)
---------------------
Quarters Ended Nine Months Ended
------------------ -------------------
Sept. 27, Sept. 29, Percent Sept. 27, Sept. 29, Percent
1996 1995 Change 1996 1995 Change
-------- -------- ------- -------- -------- -------
Operating Revenue
Merchandise $ 772 $ 767 1 % $ 2,374 $ 2,363 - %
Coal 404 388 4 % 1,178 1,133 4 %
Other 35 36 (3)% 109 100 9 %
------- ------ ------- -------
Total 1,211 1,191 2 % 3,661 3,596 2 %
Operating Expense 987 974 1 % 2,986 3,162 (6)%
------- ------ ------- -------
Operating Income $ 224 $ 217 3 % $ 675 $ 434 56 %
======= ====== ======= =======
Operating Income (a) $ 224 $ 217 3 % $ 675 $ 630 7 %
======= ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge in 1995.
Revenue increased 2 percent to $1.21 billion, while traffic remained
level with 1995's third quarter. Despite expenses associated with Hurricane
Fran and higher fuel prices, operating expense increased just $13 million to
$987 million.
Coal revenue rose 4 percent and coal tonnage rose 3 percent, largely
due to higher utility coal volume. Total merchandise traffic decreased 1
percent, while merchandise revenue rose 1 percent.
First Nine Months 1996 Compared With 1995
- -----------------------------------------
For the first nine months of the year, net earnings for the company
rose to $404 million. These results represent a 6 percent increase over the
$382 million earned in the first nine months of 1995, exclusive of the 1995
charge. Continuing cost control efforts held operating expense near 1995
levels, exclusive of the charge, while revenue was up 2 percent despite flat
carload volume.
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PAGE 12
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
OUTLOOK
- -------
As the fourth quarter of 1996 begins, CSXT continues to benefit from
strong demand from domestic coal markets. Merchandise traffic is expected to
be flat throughout the balance of the year. Automotive traffic levels could
be negatively impacted by the pending labor dispute between General Motors
Corporation and the United Auto Workers.
CSXT, through the National Carriers Conference Committee, now has
agreements with all labor organizations except the Dispatchers organization.
All such agreements are in effect, and the parties are in the process of
implementing their terms and conditions. Negotiations continue with the
Dispatchers.
OTHER MATTERS
- -------------
On October 14, 1996, CSX Corporation and Conrail, Inc. (Conrail)
entered into a merger agreement whereby CSX will acquire all of Conrail's
outstanding shares for a combination of cash and CSX shares initially valued
at approximately $8.4 billion. Consummation of the merger is subject to
approval of the shareholders of CSX and Conrail and approval of the Surface
Transportation Board (STB). The application for STB approval is expected to
be filed in early 1997, and the parties will propose a schedule that
contemplates completion of the transaction by the end of that year.
On October 23, 1996, Norfolk Southern Corporation announced an
all-cash competing bid for all outstanding shares of Conrail. CSX remains
optimistic about its prospects for completing the merger with Conrail.
-------------------------
To the extent that these written statements include predictions
concerning future operations and results of operations, such statements are
forward-looking statements that involve risks and uncertainties, and actual
results may differ materially. Factors that could cause actual results to
differ materially are described in the Company's Form 10-K for its most recent
fiscal year and include general economic downturns, which may limit demand and
pricing; labor matters, which may impact the costs and feasibility of certain
operations; and commodity concentrations, which may affect traffic levels.
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PAGE 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. None.
(b) Reports on Form 8-K
1. None.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CSX TRANSPORTATION, INC.
By: /s/ JAMES L. ROSS
------------------------
James L. Ross
Dated: October 31, 1996 (Principal Accounting Officer)
- 13 -
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