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 March 29, 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 April 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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CSX TRANSPORTATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters Ended March 29, 1996 and March 31, 1995 3
2. Consolidated Statement of Cash Flows -
Quarters Ended March 29, 1996 and March 31, 1995 4
3. Consolidated Statement of Financial Position -
At March 29, 1996 and December 29, 1995 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)
(Unaudited)
Quarters Ended
--------------------
March 29, March 31,
1996 1995
------ ------
OPERATING REVENUE
Merchandise $ 788 $ 799
Coal 371 366
Other 36 29
------ ------
Transportation 1,195 1,194
Non-Transportation 8 8
------ ------
Total 1,203 1,202
------ ------
OPERATING EXPENSE
Labor and Fringe Benefits 476 471
Materials, Supplies and Other 264 262
Equipment Rent 98 104
Depreciation 102 96
Fuel 73 65
------ ------
Transportation 1,013 998
Non-Transportation 6 6
------ ------
Total 1,019 1,004
------ ------
OPERATING INCOME 184 198
Other Income (Expense) 1 (6)
Interest Expense 11 10
------ ------
EARNINGS BEFORE INCOME TAXES 174 182
Income Tax Expense 67 68
------ ------
NET EARNINGS $ 107 $ 114
====== ======
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)
Quarters Ended
--------------------
March 29, March 31,
1996 1995
------ ------
OPERATING ACTIVITIES
Net Earnings $ 107 $ 114
Adjustments to Reconcile Net Earnings to
Net Cash Provided
Depreciation 102 96
Deferred Income Taxes 16 30
Productivity/Restructuring Charge Payments (19) (14)
Other Operating Activities (41) (20)
Changes in Operating Assets and Liabilities
Accounts Receivable (21) (16)
Materials and Supplies (16) (17)
Other Current Assets (10) (15)
Accounts Payable 10 31
Other Current Liabilities (26) (37)
------ ------
Net Cash Provided by Operating Activities 102 152
------ ------
INVESTING ACTIVITIES
Property Additions (141) (179)
Other Investing Activities 63 23
------ ------
Net Cash Used by Investing Activities (78) (156)
------ ------
FINANCING ACTIVITIES
Long-Term Debt Issued 57 58
Long-Term Debt Repaid (27) (38)
Dividends Paid (402) (8)
Other Financing Activities (4) 1
------ ------
Net Cash Provided (Used) by Financing
Activities (376) 13
------ ------
Net Increase (Decrease) in Cash and Cash Equivalents (352) 9
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period 633 452
------ ------
Cash and Cash Equivalents at End of Period $ 281 $ 461
====== ======
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)
March 29, December 29,
1996 1995
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 281 $ 633
Accounts and Notes Receivable 87 66
Materials and Supplies 132 116
Deferred Income Taxes 152 201
Other Current Assets 25 15
------- -------
Total Current Assets 677 1,031
Properties-Net 9,421 9,189
Affiliates and Other Companies 154 226
Other Long-Term Assets 277 183
------- -------
Total Assets $10,529 $10,629
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 555 $ 558
Labor and Fringe Benefits Payable 320 377
Casualty, Environmental and Other Reserves 198 194
Current Maturities of Long-Term Debt 80 74
Due to Parent Company 38 24
Other Current Liabilities 67 6
------- -------
Total Current Liabilities 1,258 1,233
Casualty, Environmental and Other Reserves 650 683
Long-Term Debt 782 613
Deferred Income Taxes 2,274 2,265
Due to Parent Company 19 ---
Other Long-Term Liabilities 723 787
------- -------
Total Liabilities 5,706 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 3,379 3,674
------- -------
Total Shareholder's Equity 4,823 5,048
------- -------
Total Liabilities and Shareholder's Equity $10,529 $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 March 29, 1996, and December 29, 1995, and the results of
their operations and their cash flows for the quarters ended March 29, 1996,
and March 31, 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.
Certain 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 ended March 29, 1996 and March 31, 1995 and the fiscal year ended
December 29, 1995.
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
its rail freight accounts receivable to CSX Trade Receivables Corporation, a
wholly-owned subsidiary of CSX. Accounts receivable sold under this agreement
totaled $603 million at March 29, 1996 and 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 March 29, 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. The net
costs associated with sales of receivables were $13 million and $14 million
for the quarters ended March 29, 1996 and March 31, 1995, respectively.
NOTE 4. OTHER INCOME (EXPENSE). Quarters Ended
March 29, March 31,
1996 1995
--------- --------
Interest Income $ 12 $ 10
Net Costs for Accounts Receivable Sold (13) (14)
Miscellaneous 2 (2)
------ ------
Total Income (Expense) $ 1 $ (6)
====== ======
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PAGE 7
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 5. 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.
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 108 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 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 consultant's, 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 March 29, 1996 and December 29, 1995 were $134 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 March 29,
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 5. COMMITMENTS AND CONTINGENCIES, Continued
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.
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 6. RELATED PARTIES.
Cash and cash equivalents at March 29, 1996 and December 29, 1995,
includes $306 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
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 6. RELATED PARTIES, Continued
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 $68
million and $67 million, for the quarters ended March 29, 1996 and March 31,
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
$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.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
First Quarter 1996 Compared With 1995
- -------------------------------------
Net earnings for the 1996 first quarter were $107 million versus $114
million for last year's first quarter.
Transportation operating income declined $14 million or 7 percent, to
$182 million for the first quarter of 1996, from $196 million in the prior-
year quarter. The results were severely hampered by winter weather.
TRANSPORTATION OPERATING INCOME
(Millions of Dollars)
------------------------------
Quarters Ended
--------------------
March 29, March 31, Percent
1996 1995 Change
-------- -------- -------
Operating Revenue
Merchandise $ 788 $ 799 (1)%
Coal 371 366 1 %
Other 36 29 24 %
------ ------
Total 1,195 1,194 -- %
Operating Expense 1,013 998 2 %
------ ------
Operating Income $ 182 $ 196 (7)%
====== ======
Shipments of CSXT's largest commodity, coal, decreased 1 percent to
38.2 million tons, due to weather disruptions. Coal revenue increased 1
percent over 1995.
Total merchandise traffic fell 4 percent, with decreases in autos (5
percent) and metals (12 percent) largely attributable to the United Auto
Workers strike. Food and consumer carloadings decreased 9 percent, largely
due to a weaker produce harvest in western states.
Equipment and service initiatives in the agricultural sector and at
paper mills contributed to revenue increases of 6 percent for both the
agricultural and forest products categories.
Despite difficult operating conditions caused by ice and snow storms
throughout much of the railroad's territory, rail operating expense for the
first quarter rose just 2 percent over 1995's level, to $1,013 million.
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PAGE 11
ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
OUTLOOK
- -------
As the second quarter of 1996 begins, CSXT is benefitting from the
pent-up demand for coal from domestic utilities and industrial producers.
Demand for export coal is also expected to continue strong. Additionally,
merchandise traffic is projected to experience gradual improvement throughout
the balance of the year.
CSXT, through the National Carriers Conference Committee, has been
involved in the current round of negotiations with rail labor. These
negotiations have historically taken place over a number of months and usually
have not resulted in significant work stoppages. It is anticipated that
Presidential Emergency Boards ("PEBs") will ultimately be appointed to make
recommendations to resolve the industry-wide labor contract issues.
In April 1996, the United Transportation Union ("UTU") failed to
ratify the proposed five-year contract that had been negotiated by its leaders
and the railroad industry's National Carriers Conference Committee. The UTU
has agreed to binding arbitration with the National Carriers Conference
Committee. This arbitration will produce a new labor agreement.
The Transportation Communication International Union ("TCU") recently
has been released from industry-wide negotiations by the National Mediation
Board ("NMB"). At this stage, the TCU has set a May 9, 1996 strike date. We
expect that the NMB will recommend a PEB to be appointed in advance of that
date. If a PEB is appointed it will delay the possibility of a strike by the
TCU. We also anticipate that additional PEBs will be appointed for the other
unions which have been released by the NMB from industry-wide negotiations.
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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/ JAMES L. ROSS
------------------------
James L. Ross
Dated: May 1, 1996 (Principal Accounting Officer)
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