-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aohat61rFK7KxiLSRyFW6dvXTd1MlzBAsm9XlX3PiJlSA8o3fcTLa5dvwBLZ+8O+ IBeHhwJV+y6hAAy7ZrHtcg== 0000088128-97-000005.txt : 19970728 0000088128-97-000005.hdr.sgml : 19970728 ACCESSION NUMBER: 0000088128-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970725 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSX TRANSPORTATION INC CENTRAL INDEX KEY: 0000088128 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 546000720 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03359 FILM NUMBER: 97645699 BUSINESS ADDRESS: STREET 1: 100 N CHARLES ST CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 3012372000 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD SYSTEM RAILROAD INC DATE OF NAME CHANGE: 19860713 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD COAST LINE RAILROAD CO DATE OF NAME CHANGE: 19830109 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD AIR LINE RAILROAD CO DATE OF NAME CHANGE: 19670816 10-Q 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 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. - 1 - 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 - 2 - 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. - 3 - 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. - 4 - 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. - 5 - 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. - 6 - 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. - 7 - 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 - 8 - 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. - 9 - 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 - 10 - 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. - 11 - 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 - 12 - EX-27 2
5 1,000,000 6-MOS DEC-27-1996 JUN-27-1997 453 0 88 0 128 874 9,750 0 11,085 1,397 875 0 0 181 4,864 11,085 0 2,500 0 1,972 0 0 35 487 185 302 0 0 0 302 0 0
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