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 27, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-3359
CSX TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-6000720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Water Street, Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 359-3100
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 27, 1997: 9,061,038 shares.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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CSX TRANSPORTATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1997
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters Ended June 27, 1997 and June 28, 1996 3
2. Consolidated Statement of Cash Flows-
Six Months Ended June 27, 1997 and June 28, 1996 4
3. Consolidated Statement of Financial Position-
At June 27, 1997 and December 27, 1996 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 Six Months Ended
-------------------- --------------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
--------- --------- --------- ---------
OPERATING REVENUE
Merchandise $ 841 $ 814 $ 1,667 $ 1,602
Coal 382 403 771 774
Other 30 38 62 74
-------- --------- -------- ---------
Transportation 1,253 1,255 2,500 2,450
OPERATING EXPENSE
Labor and Fringe Benefits 469 474 950 950
Materials, Supplies and Other 223 244 476 508
Equipment Rent 86 91 172 189
Depreciation 109 102 217 204
Fuel 73 75 157 148
-------- --------- -------- ---------
Total 960 986 1,972 1,999
OPERATING INCOME 293 269 528 451
Other Income (Expense) (1) 21 (6) 24
Interest Expense 17 28 35 39
-------- --------- -------- ---------
EARNINGS BEFORE INCOME TAXES 275 262 487 436
Income Tax Expense 104 98 185 165
-------- --------- -------- ---------
NET EARNINGS $ 171 $ 164 $ 302 $ 271
======== ========= ======== =========
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 27, June 28,
1997 1996
-------- ---------
OPERATING ACTIVITIES
Net Earnings $ 302 $ 271
Adjustments to Reconcile Net Earnings to Net
Cash Provided
Depreciation 217 204
Deferred Income Taxes 60 71
Productivity/Restructuring Charge Payments (22) (42)
Other Operating Activities (8) (11)
Changes in Operating Assets and Liabilities
Accounts Receivable (26) 10
Materials and Supplies (7) (7)
Other Current Assets (30) (11)
Accounts Payable 18 32
Other Current Liabilities 62 (16)
------ ------
Net Cash Provided by Operating Activities 566 501
------ ------
INVESTING ACTIVITIES
Property Additions (219) (380)
Other Investing Activities 15 77
------ ------
Net Cash Used by Investing Activities (204) (303)
------ ------
FINANCING ACTIVITIES
Long-Term Debt Issued 5 117
Long-Term Debt Repaid (50) (57)
Dividends Paid (69) (437)
Other Financing Activities (2) 62
------ ------
Net Cash Used by Financing Activities (116) ( 315)
------ ------
Net Increase (Decrease) in Cash and Cash
Equivalents 246 ( 117)
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period 207 633
------ ------
Cash and Cash Equivalents at End of Period $ 453 $ 516
====== ======
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 27, December 27,
1997 1996
--------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 453 $ 207
Accounts Receivable 88 62
Materials and Supplies 128 121
Deferred Income Taxes 134 183
Other Current Assets 71 41
------- -------
Total Current Assets 874 614
Properties-Net 9,750 9,750
Affiliates and Other Companies 166 148
Other Long-Term Assets 295 288
------- -------
Total Assets $11,085 $10,800
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 569 $ 547
Labor and Fringe Benefits Payable 345 353
Casualty, Environmental and Other Reserves 191 199
Current Maturities of Long-Term Debt 75 77
Due to Parent Company 21 25
Due to Affiliate 90 90
Other Current Liabilities 106 37
------- -------
Total Current Liabilities 1,397 1,328
Casualty, Environmental and Other Reserves 589 597
Long-Term Debt 875 886
Deferred Income Taxes 2,505 2,493
Other Long-Term Liabilities 674 684
------- -------
Total Liabilities 6,040 5,988
------- -------
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 1,263
Retained Earnings 3,601 3,368
------- -------
Total Shareholder's Equity 5,045 4,812
------- -------
Total Liabilities and Shareholder's
Equity $11,085 10,800
======= =======
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
at June 27, 1997 and December 27, 1996, the results of their operations for the
quarters and six months ended June 27, 1997 and June 28, 1996, and their cash
flows for the six months ended June 27, 1997 and June 28, 1996, 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.
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 27, 1997 and June 28, 1996, and the
fiscal year ended December 27, 1996.
NOTE 3. ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement No. 130
"Reporting Comprehensive Income," which the company will adopt during the first
quarter of 1998. The Statement establishes standards for reporting and display
of comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in shareholder's equity
except those resulting from investments by or distributions to shareholders.
With the exception of net earnings, such changes are generally not significant
to the company; and the adoption of Statement No. 130, including the required
comparative presentation for prior periods, is not expected to have a material
impact on its financial statements.
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 $644
million at June 27, 1997 and December 27, 1996. 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 27, 1997 and December 27, 1996. The sales of receivables have
been reflected as reductions of "Accounts and Notes Receivable" in the
Consolidated Statement of Financial Position. The net losses associated with
sales of receivables were $15 million and $29 million for the quarter and six
months ended June 27, 1997, respectively, and $14 million and $27 million for
the quarter and six months ended June 28, 1996, respectively.
The company adopted FASB Statement No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" during the
first quarter of 1997. Adoption of the pronouncement, which established new
guidelines for accounting and disclosure related to transfers of trade accounts
receivable and other financial assets, did not have a material impact on the
company's financial statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars)
NOTE 5. OTHER INCOME (EXPENSE)
Quarters Ended Six Months Ended
----------------- -----------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
------- ------- ------- -------
Interest Income $ 7 $ 11 $ 13 $ 23
Income from Real Estate Operations(1) 4 23 6 25
Net Losses from Accounts Receivable (15) (14) (29) (27)
Sold
Miscellaneous 3 1 4 3
------ ------ ------ ------
Total $ (1) $ 21 $ (6) $ 24
====== ====== ====== ======
(1)Gross revenue from real estate operations was $11 million and $20 million
for the quarter and six months ended June 27, 1997, respectively, and $31
million and $39 million for the quarter and six months ended June 28, 1996,
respectively.
NOTE 6. CONRAIL TRANSACTION
During the quarter ended June 27, 1997, CSX and Norfolk Southern
Corporation (Norfolk Southern) completed the joint acquisition of Conrail Inc.
(Conrail) pursuant to an agreement between the companies dated April 8, 1997.
Under the agreement, CSX and Norfolk Southern hold investments in Conrail of 42%
and 58%, respectively, through a jointly-owned acquisition entity. The Conrail
shares held by the joint acquisition entity have been placed in a voting trust
pending approval of the transaction by the Surface Transportation Board (STB).
In June 1997, supplemental agreements governing the legal structure of the
transaction and operations of the Conrail rail system subsequent to STB approval
were completed. CSXT is a party to certain of those agreements which will
generally become operative at the time CSX and Norfolk Southern are permitted by
the STB to exercise control over Conrail. The terms of these agreements, the
operating plans of the respective companies, and the benefits expected to result
from combining the respective rail systems are incorporated in a joint railroad
control application which was filed with the STB on June 23, 1997. The STB has
announced a 350-day review period for the application. A favorable decision by
the STB would permit CSX and Norfolk Southern to exercise control over Conrail
by mid-1998.
NOTE 7. COMMITMENTS AND CONTINGENCIES
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) at approximately 114 environmentally
impaired sites that are or may be subject to remedial action under the Federal
Superfund statute (Superfund) or similar state statutes. A number of these
proceedings are based on allegations that CSXT, or its predecessor railroads,
sent hazardous substances to the facilities in question for disposal. Such
proceedings arising under Superfund or similar state statutes can 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.
CSXT is involved in a number of administrative and judicial proceedings
and other cleanup efforts at approximately 276 sites, including sites addressed
under the Federal Superfund statute or similar state statutes, where it is
participating in the study and/or cleanup of alleged environmental
contamination. The assessment of the required response and remedial costs
associated with many 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.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars)
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
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 can be
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 27, 1997 and December 27, 1996, were $112 million and $117 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 27, 1997 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 these
matters will have a material adverse effect on the consolidated financial
position, results of operations and cash flows of the company.
NOTE 8. RELATED PARTIES.
Cash and cash equivalents at June 27, 1997 and December 27, 1996, includes
$490 million and $250 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.
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. (CSX Technology); the reimbursement, under an operating
agreement, from CSX Intermodal, Inc. (CSXI), for costs incurred by CSXT related
to intermodal operations; charges from Total Distribution Services, Inc. (TDSI),
for services provided at automobile ramps; and charges from Bulk Intermodal
Distribution Services, Inc. (BIDS) for services provided at bulk commodity
facilities. The management service fee charges 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
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars)
NOTE 8. RELATED PARTIES, Continued
and tax administration. The data processing related charges are compensation to
CSX Technology for the development, implementation and maintenance of computer
systems, software and associated documentation for the day-to-day operations of
CSXT. CSX Technology, CSXI, TDSI, and BIDS are wholly-owned subsidiaries of CSX.
Materials, Supplies and Other expense includes net expense of $62 million and
$135 million for the quarter and six months ended June 27, 1997 and $70 million
and $138 million for the quarter and six months ended June 28, 1996,
respectively, relating to the above arrangements.
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 loan is payable in full on
demand. At June 27, 1997, $90 million was outstanding under the agreement.
Interest on the loan is payable monthly at .25% over the LIBOR rate, and was
5.94% at June 27, 1997. Interest expense incurred for the quarter and six months
ended June 27, 1997 was $2 million and $3 million, respectively, and $1 million
for the quarter and six months ended June 28, 1996, relating to this loan
agreement.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Net earnings for the second quarter of 1997 were $171 million versus $164
million in the prior year period. The company achieved operating income of $293
million, 9% above last year's second quarter. Total operating revenue of $1.25
billion was level with 1996's second quarter.
Operating expense for the quarter decreased 3% to $960 million.
OPERATING INCOME
(Millions of Dollars)
-----------------------------------------------------------
Quarters Ended Six Months Ended
-------------------- --------------------
June 27, June 28, Percent June 27, June 28, Percent
1997 1996 Change 1997 1996 Change
--------- -------- ------- --------- -------- -------
Operating Revenue
Merchandise $ 841 $ 814 3 % $ 1,667 $ 1,602 4 %
Coal 382 403 (5)% 771 774 -- %
Other 30 38 (21)% 62 74 (16)%
-------- ------- -------- -------
Total 1,253 1,255 -- % 2,500 2,450 2 %
Operating Expense 960 986 (3)% 1,972 1,999 (1)%
-------- ------- -------- -------
Operating Income $ 293 $ 269 9 % $ 528 $ 451 17 %
======== ======= ======== =======
Shipments of coal, CSXT's largest commodity decreased slightly to 40.6
million tons. Total merchandise traffic rose 3%, due to strong demand overall.
Major contributors to the increase included: food and consumer (up 11%), metals
(up 15%), and chemicals (up 8%).
Outlook
Following on its strong first half results, CSXT expects to continue on
that same positive trend throughout the rest of the year. Revenue is expected to
improve in 1997 propelled by strength in merchandise traffic.
Other Matters
During the quarter ended June 27, 1997, CSXT entered into certain
agreements pertaining to the joint acquisition of Conrail by CSX and Norfolk
Southern. Under these agreements and other agreements to be completed or
executed prior to the date that CSX and Norfolk Southern are permitted by the
STB to exercise control over Conrail, appropriate portions of the Conrail rail
system are expected to be integrated with the CSXT system. The terms of these
agreements, the operating plans of the respective companies, and the benefits
expected to result from combining the respective rail systems are incorporated
in a joint railroad control application which was filed with the STB on June 23,
1997. A decision on the application is expected from the STB on or before June
8, 1998 and, if favorable, would permit CSX and Norfolk Southern to exercise
control over Conrail by mid-1998. CSXT has undertaken significant planning
activities to prepare for the integration of the Conrail and CSXT systems,
including initiating related capital improvements to certain routes and
facilities on its system. Additional information with respect to such
integration plans is contained in the joint STB application. The application is
a public document, available for review in its entirety at the office of the
STB, located at 1925 K Street, NW, Washington, D.C.
20423-0001.
-------------------------------------
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
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
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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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. (27) Financial Data Schedule
(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.
(Registrant)
By: /s/JAMES L. ROSS
----------------
James L. Ross
(Principal Accounting Officer)
Dated: July 25, 1997
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