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 28, 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 March 28, 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 MARCH 28, 1997
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters Ended March 28, 1997 and March 29, 1996 3
2. Consolidated Statement of Cash Flows-
Quarters Ended March 28, 1997 and March 29, 1996 4
3. Consolidated Statement of Financial Position-
At March 28, 1997 and December 27, 1996 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Analysis and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars)
(Unaudited)
Quarters Ended
-----------------------
March 28, March 29,
1997 1996
----------- ----------
OPERATING REVENUE
Merchandise $ 826 $ 789
Coal 389 370
Other 32 36
------- -------
Transportation 1,247 1,195
OPERATING EXPENSE
Labor and Fringe Benefits 481 476
Materials, Supplies and Other 253 264
Equipment Rent 86 98
Depreciation 108 102
Fuel 84 73
------- -------
Total 1,012 1,013
OPERATING INCOME 235 182
Other Income (Expense) (5) 3
Interest Expense 18 11
------- -------
EARNINGS BEFORE INCOME TAXES 212 174
Income Tax Expense 81 67
------- -------
NET EARNINGS $ 131 $ 107
======= =======
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 28, March 29,
1997 1996
-------- ---------
OPERATING ACTIVITIES
Net Earnings $ 131 $ 107
Adjustments to Reconcile Net Earnings to Net
Cash Provided
Depreciation 108 102
Deferred Income Taxes 25 16
Productivity/Restructuring Charge Payments (14) (19)
Other Operating Activities (3) (41)
Changes in Operating Assets and Liabilities
Accounts Receivable (56) (21)
Materials and Supplies (14) (16)
Other Current Assets 1 (10)
Accounts Payable 41 10
Other Current Liabilities 19 (26)
----- -----
Net Cash Provided by Operating Activities 238 102
----- -----
INVESTING ACTIVITIES
Property Additions (72) (141)
Other Investing Activities 11 63
----- -----
Net Cash Used by Investing Activities (61) (78)
----- -----
FINANCING ACTIVITIES
Long-Term Debt Issued 5 57
Long-Term Debt Repaid (33) (27)
Dividends Paid (35) (402)
Other Financing Activities (2) (4)
----- -----
Net Cash Used by Financing Activities (65) (376)
----- -----
Net Increase (Decrease) in Cash and Cash
Equivalents 112 (352)
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period 207 633
----- -----
Cash and Cash Equivalents at End of Period $ 319 $ 28
===== =====
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 28, December 27,
1997 1996
--------- --------
ASSETS
Current Assets
Cash and Cash Equivalents $ 319 $ 207
Accounts Receivable 118 62
Materials and Supplies 135 121
Deferred Income Taxes 139 183
Other Current Assets 39 41
------- -------
Total Current Assets 750 614
Properties-Net 9,705 9,750
Affiliates and Other Companies 149 148
Other Long-Term Assets 285 288
------- -------
Total Assets $10,889 $10,800
======= =======
LIABILITIES
Current Liabilities
Accounts Payable $ 574 $ 547
Labor and Fringe Benefits Payable 337 353
Casualty, Environmental and Other Reserves 195 199
Current Maturities of Long-Term Debt 75 77
Due to Parent Company 37 25
Due to Affiliate 90 90
Other Current Liabilities 68 37
------- -------
Total Current Liabilities 1,376 1,328
Casualty, Environmental and Other Reserves 593 597
Long-Term Debt 860 886
Deferred Income Taxes 2,474 2,493
Other Long-Term Liabilities 677 684
------- -------
Total Liabilities 5,980 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 3,465 3,368
------- -------
Total Shareholders' Equity 4,909 4,812
------- -------
Total Liabilities and Shareholders'
Equity $10,889 $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
as of March 28, 1997 and December 27, 1996, the results of their operations and
their cash flows for the quarters ended March 28, 1997 and March 29, 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.
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 new 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 28, 1997 and March 29, 1996, and the fiscal year ended December 27,
1996.
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 $639
million at March 28, 1997 and $644 million at 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 March 28, 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 costs associated
with sales of receivables were $14 million and $13 million for the quarters
ended March 28, 1997 and March 29, 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 4. OTHER INCOME (EXPENSE)
Quarters Ended
---------------------
March 28, March 29,
1997 1996
--------- --------
Interest Income $ 6 $ 12
Income from Real Estate Operations(1) 2 2
Net Costs for Accounts Receivable Sold (14) (13)
Miscellaneous 1 2
---- ----
Total $(5) $ 3
==== ====
(1) Gross revenue from real estate operations was $9 million and $8 million for
the quarters ended March 28, 1997 and March 29, 1996, respectively.
NOTE 5. COMMITMENTS AND CONTINGENCIES
During 1995, CSXT entered into an agreement with a major telecommunications
vendor to supply and manage its telecommunications needs through May 2005. The
agreement was amended in 1996 to significantly reduce the service period,
increase contractual payment amounts over the revised service period, and
relieve the vendor of obligations to replace certain telecommunications
technology. The amended agreement provides for a revised termination date of
June 30, 1998, and requires minimum payments totaling $47 million over the
remaining service 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) at approximately 111 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 271 sites, including sites addressed
under the Federal Superfund statute or similar state statutes, at which 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.
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
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars)
NOTE 5. COMMITMENTS AND CONTINGENCIES, Continued
environmental costs with respect to such sites. The recorded liabilities
for estimated future environmental costs at March 28, 1997 and December 27,
1996, were $115 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 March 28, 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 6. RELATED PARTIES.
Cash and cash equivalents at March 28, 1997 and December 27, 1996, includes
$335 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), 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 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 $73 million and $68 million in for the quarters
ended March 28, 1997 and March 29, 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 March 28, 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 March 28, 1997. Interest expense incurred for the quarter ended March
28, 1997 was $1 million relating to this loan agreement.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Net earnings for the first quarter of 1997 were $131 million versus $107
million in the prior year period. The company achieved operating income of $235
million, 29% above last year's first quarter. Total operating revenue of $1.25
billion exceeded 1996's weather-affected first-quarter results by $52 million.
Operating expense for the quarter decreased slightly to $1,012 million.
OPERATING INCOME
(Millions of Dollars)
---------------------------------
Quarters Ended
-----------------------
March 28, March 29, Percent
1997 1996 Change
---------- ---------- ---------
Operating Revenue
Merchandise $ 826 $ 789 5 %
Coal 389 370 5 %
Other 32 36 (11)%
------ ------
Total 1,247 1,195 4 %
Operating Expense 1,012 1,013 - %
------ ------
Operating Income $ 235 $ 182 29 %
====== ======
Shipments of coal, CSXT's largest commodity, rose 9% to 41.5 million tons,
reflecting higher utility coal traffic. Coal revenue increased 5% over 1996.
Total merchandise traffic rose 4%, due to strong demand overall. Major
contributors to the increase included: autos and parts (up 14%); minerals (up
11%); metals (up 9%) and chemicals (up 6%).
Outlook
Following on its record first quarter results, CSXT expects to continue on
that same positive trend into the second quarter. Revenue is expected to improve
in 1997 propelled by strength in merchandise and coal traffic. The company,
through the National Carriers Conference Committee, now has agreements with all
labor organizations signed and in effect.
Other Matters
On April 8, 1997, CSX and Norfolk Southern Corporation (Norfolk Southern)
announced an agreement to form a jointly-owned acquisition entity to acquire all
outstanding shares of Conrail, Inc. (Conrail). CSX and Norfolk Southern will
each possess 50% of the voting and management rights of the acquisition entity,
and non-voting equity will be apportioned between the parties to achieve overall
economic allocations of 42% for CSX and 58% for Norfolk Southern. The
acquisition entity is expected to complete its tender offer for the Conrail
shares in May 1997 and to place all shares in a voting trust pending approval of
the proposed transaction by the Surface Transportation Board (STB). A joint
application to the STB for approval of the transaction and control over Conrail
by the acquiring companies is expected to be filed shortly after completion of
the tender offer. Subsequent to the STB decision, which the parties hope will be
made in early 1998, the appropriate portions of the Conrail rail system are
expected to be integrated with the CSXT system pursuant to operating agreements
and similar contractual arrangements which are currently being negotiated.
-------------------------------------
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
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
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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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: May 2, 1997
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