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 June 28, 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 July 26, 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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PAGE 2
CSX TRANSPORTATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1996
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters and Six Months Ended June 28, 1996
and June 30, 1995 3
2. Consolidated Statement of Cash Flows -
Six Months Ended June 28, 1996 and June 30, 1995 4
3. Consolidated Statement of Financial Position -
At June 28, 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
Please note that through clerical error the Company's Second Quarter Form 10-Q
was received on July 30, 1996 by the SEC as a test filing instead of as an
official filing on that date. The Company's press release issued on July 18,
1996 contains the Company's condensed consolidated unaudited financial
statements, and the textual portion of the release highlights the significant
financial results. Immediately upon learning of the filing error, the Company
resubmitted the filing to the SEC.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars)
(Unaudited)
Quarters Ended Six Months Ended
------------------- ------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
OPERATING REVENUE
Merchandise $ 814 $ 797 $ 1,602 $ 1,596
Coal 403 379 774 745
Other 38 35 74 64
------ ------ ------- -------
Transportation 1,255 1,211 2,450 2,405
OPERATING EXPENSE
Labor and Fringe Benefits 474 463 950 934
Materials, Supplies and Other 244 272 508 534
Equipment Rent 91 98 189 202
Depreciation 102 97 204 193
Fuel 75 64 148 129
Restructuring Charge --- 196 --- 196
------ ------ ------- -------
Total 986 1,190 1,999 2,188
OPERATING INCOME 269 21 451 217
Other Income (Expense) 21 3 24 (1)
Interest Expense 28 12 39 22
------ ------ ------- -------
EARNINGS BEFORE INCOME TAXES 262 12 436 194
Income Tax Expense 98 3 165 71
------ ------ ------- -------
NET EARNINGS $ 164 $ 9 $ 271 $ 123
====== ====== ======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
Six Months Ended
--------------------
June 28, June 30,
1996 1995
------ ------
OPERATING ACTIVITIES
Net Earnings $ 271 $ 123
Adjustments to Reconcile Net Earnings to
Net Cash Provided
Depreciation 204 193
Deferred Income Taxes (Benefit) 71 (10)
Restructuring Charge Provision --- 196
Productivity/Restructuring Charge Payments (42) (31)
Other Operating Activities (11) (16)
Changes in Operating Assets and Liabilities
Accounts Receivable 10 35
Materials and Supplies (7) (24)
Other Current Assets (11) (18)
Accounts Payable and
Other Current Liabilities 16 5
------ ------
Net Cash Provided by Operating Activities 501 453
------ ------
INVESTING ACTIVITIES
Property Additions (380) (414)
Other Investing Activities 77 54
------ ------
Net Cash Used by Investing Activities (303) (360)
------ ------
FINANCING ACTIVITIES
Long-Term Debt Issued 117 115
Long-Term Debt Repaid (57) (56)
Cash Dividends Paid (437) (28)
Other Financing Activities 62 1
------ ------
Net Cash (Used) Provided by Financing
Activities (315) 32
------ ------
Net (Decrease) Increase in Cash and Cash Equivalents (117) 125
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period 633 452
------ ------
Cash and Cash Equivalents at End of Period $ 516 $ 577
====== ======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
June 28, December 29,
1996 1995
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 516 $ 633
Accounts and Notes Receivable 56 66
Materials and Supplies 124 116
Deferred Income Taxes 197 201
Other Current Assets 33 15
------- -------
Total Current Assets 926 1,031
Properties-Net 9,521 9,189
Affiliates and Other Companies 152 226
Other Long-Term Assets 287 183
------- -------
Total Assets $10,886 $10,629
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 586 $ 558
Labor and Fringe Benefits Payable 340 377
Casualty, Environmental and Other Reserves 188 194
Current Maturities of Long-Term Debt 72 74
Due to Parent Company 28 24
Due to Affiliate 90 ---
Other Current Liabilities 65 6
------- -------
Total Current Liabilities 1,369 1,233
Casualty, Environmental and Other Reserves 643 683
Long-Term Debt 820 613
Deferred Income Taxes 2,374 2,265
Due to Parent 19 ---
Other Long-Term Liabilities 709 787
------- -------
Total Liabilities 5,934 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 1,263 1,193
Retained Earnings 3,508 3,674
------- -------
Total Shareholder's Equity 4,952 5,048
------- -------
Total Liabilities and Shareholder's Equity $10,886 $10,629
======= =======
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 28, 1996, and December 29, 1995, and the results of
its operations for the quarters and six months ended June 28, 1996 and June
30, 1995 and its cash flows for the six months ended June 28, 1996 and June
30, 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.
The company changed its earnings presentation for the quarter and six
months ended June 28, 1996 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 26-week periods ended June 28, 1996 and June 30, 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 June 28, 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 $649 million at June 28, 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 June 28, 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, CONTINUED
(All Tables in Millions of Dollars)
NOTE 4. ACCOUNTS RECEIVABLES, Continued
The net costs associated with sales of receivables were $14 million and $27
million for the quarter and six months ended June 28, 1996, respectively, and
$13 million and $27 million for the quarter and six months ended June 30,
1995, respectively.
NOTE 5. OTHER INCOME (EXPENSE).
Quarters Ended Six Months Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Interest Income $ 11 $ 11 $ 23 $ 21
Income from Real Estate
Operations (1) 23 7 25 9
Net Costs for Accounts
Receivable Sold (14) (13) (27) (27)
Miscellaneous 1 (2) 3 (4)
----- ----- ----- -----
Total $ 21 $ 3 $ 24 $ (1)
===== ===== ===== =====
(1) Gross revenue from real estate operations was $31 million and $39 million
for the quarter and six months ended June 28, 1996, respectively, and $14
million and $22 million for the quarter and six months ended June 30,
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.
In July 1996, CSXT reached agreements with two manufacturers for the
purchase of 80 alternating current traction locomotives to be delivered during
the remainder of 1996 and 1997. These agreements represent commitments for
additional locomotives above the company's 1993 order covering 300 units for
1994-1997 delivery. As of July 30, 1996, a total of 127 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 102 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
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued
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 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 28, 1996 and December 29, 1995 were $124 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 June 28,
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
matters will not materially affect its overall results of operations and
financial condition.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued
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 June 28, 1996 and December 29, 1995,
includes $553 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., 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 $69 million and
$72 million, for the quarters ended June 28, 1996 and June 30, 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
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
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PAGE 10
NOTE 6. RELATED PARTIES, Continued
$4 million of rent expense in the first quarter of 1996 associated with these
leases prior to their termination. Rent expense for the first quarter of 1995
totaled $5 million.
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 June 28, 1996, $90 million was outstanding under the agreement.
Interest on the loan is payable monthly. Interest expense incurred for the
quarter and six months ended June 28, 1996 was $1 million.
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PAGE 11
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Second Quarter 1996 Compared With 1995
- --------------------------------------
Net earnings for the 1996 second quarter were $164 million versus $9
million for last year's second quarter, which included a $196 million pretax
restructuring charge. Without this charge, net earnings in the year-ago
quarter would have been $130 million.
Operating income increased $52 million or 24 percent, to $269 million
for the second quarter of 1996, from $217 million, excluding the $196 million
restructuring charge in the prior-year quarter.
OPERATING INCOME
(Millions of Dollars)
---------------------
Quarters Ended Six Months Ended
------------------ -------------------
June 28, June 30, Percent June 28, June 30, Percent
1996 1995 Change 1996 1995 Change
-------- -------- ------- -------- -------- -------
Operating Revenue
Merchandise $ 814 $ 797 2 % $ 1,602 $ 1,596 --- %
Coal 403 379 6 % 774 745 4 %
Other 38 35 9 % 74 64 16 %
------- ------ ------- -------
Total 1,255 1,211 4 % 2,450 2,405 2 %
Operating Expense 986 1,190 (17)% 1,999 2,188 (9)%
------- ------ ------- -------
Operating Income $ 269 $ 21 1181% $ 451 $ 217 108 %
======= ====== ======= =======
Operating Income (a) $ 269 $ 217 24% $ 451 $ 413 9 %
======= ====== ======= =======
(a) Pro forma basis, excluding $196 million restructuring charge in 1995.
Revenue increased 4 percent to $1.26 billion, despite essentially
flat traffic levels. Operating expense was held level with the 1995 period,
excluding the restructuring charge, despite a 15 percent increase in fuel
prices.
Overall, coal revenue rose 6 percent and coal tonnage rose 6 percent,
led by a 9 percent increase in utility coal volume and a 2 percent rise in
export volume. Merchandise carloadings were down 1 percent, but revenue rose
2 percent, due to better mix, selective pricing initiatives and increased
tonnage per car.
First Six Months 1996 Compared With 1995
- ----------------------------------------
For the first six months of the year, earnings for the company rose
to $271 million. These results represent an 11% increase over the $244
million earned in the first six months of 1995, exclusive of the 1995 charge.
Continuing cost control efforts held operating expense at 1995 levels,
exclusive of the charge, while revenue was up 2% despite slightly lower
carload volume.
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PAGE 12
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
OUTLOOK
- -------
As the third quarter of 1996 begins, the rail unit continues to
benefit from strong demand from domestic and export coal markets. Merchandise
traffic is expected to experience gradual improvement throughout the balance
of the year. Automotive traffic levels could be impacted by the pending auto
industry negotiations with the United Auto Workers.
The rail unit, through the National Carriers Conference Committee,
continues to participate in the current round of negotiations with rail labor.
Tentative agreements have been reached with the Transportation Communication
International Union, the Brotherhood of Maintenance of Way Employees and three
shopcraft unions and are currently pending ratification by their memberships.
Agreements previously have been reached with other rail labor organizations,
including the United Transportation Union and the Brotherhood of Locomotive
Engineers. Negotiations continue with two small shopcraft unions and the
Dispatchers organization.
-------------------------
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
(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/ JAMES L. ROSS
------------------------
James L. Ross
Dated: July 30, 1996 (Principal Accounting Officer)
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