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 September 29, 1995 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 1-8022 CSX CORPORATION (Exact name of registrant as specified in its charter) Virginia 62-1051971 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 901 East Cary Street, Richmond, Virginia 23219-4031 (Address of principal executive offices) (Zip Code) (804) 782-1400 (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 September 29, 1995: 105,242,305 shares. - 1 - PAGE 2 CSX CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995 INDEX PART I. FINANCIAL INFORMATION Page Number Item 1: Financial Statements 1. Consolidated Statement of Earnings- Quarters and Nine Months Ended September 29, 1995 and September 30, 1994 3 2. Consolidated Statement of Cash Flows- Nine Months Ended September 29, 1995 and September 30, 1994 4 3. Consolidated Statement of Financial Position- At September 29, 1995 and December 30, 1994 5 Notes to Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 Signature 16 - 2 - PAGE 3 CSX CORPORATION AND SUBSIDIARIES Consolidated Statement of Earnings (Millions of Dollars, Except Per Share Amounts) Quarter Ended Nine Months Ended ---------------------- ---------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 1995 1994 -------- -------- -------- -------- Operating Revenue Transportation $ 2,605 $ 2,391 $ 7,602 $ 6,926 Non-Transportation 60 79 131 142 ------- ------- ------- ------- Total 2,665 2,470 7,733 7,068 ------- ------- ------- ------- Operating Expense Transportation 2,239 2,076 6,622 6,123 Non-Transportation 44 44 106 105 Restructuring Charge --- --- 257 --- ------- ------- ------- ------- Total 2,283 2,120 6,985 6,228 ------- ------- ------- ------- Operating Income 382 350 748 840 Other Income (Expense) 7 (6) (2) 11 Interest Expense 68 69 203 207 ------- ------- ------- ------- Earnings before Income Taxes 321 275 543 644 Income Tax Expense 119 98 201 231 ------- ------- ------- ------- Net Earnings $ 202 $ 177 $ 342 $ 413 ======= ======= ======= ======= Earnings Per Share $ 1.92 $ 1.68 $ 3.25 $ 3.94 ======= ======= ======= ======= Average Common Shares Outstanding (Thousands) 105,202 104,731 105,103 104,629 ======= ======= ======= ======= Common Shares Outstanding (Thousands) 105,242 104,744 105,242 104,744 ======= ======= ======= ======= Cash Dividends Paid Per Common Share $ .44 $ .44 $ 1.32 $ 1.32 ======= ======= ======= ======= See accompanying Notes to Consolidated Financial Statements. - 3 - PAGE 4 CSX CORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows (Millions of Dollars) Nine Months Ended ----------------------- Sept. 29, Sept. 30, 1995 1994 --------- --------- OPERATING ACTIVITIES Net Earnings $ 342 $ 413 Adjustments to Reconcile Earnings to Cash Provided Depreciation 446 431 Deferred Income Taxes (57) 115 Restructuring Charge 257 --- Productivity/Restructuring Charge Payments (117) (103) Other Operating Activities 75 42 Changes in Operating Assets and Liabilities Accounts Receivable (98) (62) Materials and Supplies (14) 10 Other Current Assets (10) 15 Accounts Payable and Other Current Liabilities 140 (37) ----- ---- Cash Provided by Operating Activities 964 824 ----- ---- INVESTING ACTIVITIES Property Additions (819) (517) Other Investing Activities 39 71 ----- ---- Cash Used by Investing Activities (780) (446) ----- ---- FINANCING ACTIVITIES Short-Term Debt - Net (46) 180 Long-Term Debt Issued 115 53 Long-Term Debt Repaid (95) (287) Dividends Paid (139) (138) Other Financing Activities 5 10 ----- ----- Cash Used by Financing Activities (160) (182) ----- ----- CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Increase in Cash and Cash Equivalents 24 196 Cash and Cash Equivalents at Beginning of Period 265 298 ----- ----- Cash and Cash Equivalents at End of Period 289 494 Short-Term Investments at End of Period 274 156 ----- ----- Cash, Cash Equivalents and Short-Term Investments at End of Period $ 563 $ 650 ===== ===== See accompanying Notes to Consolidated Financial Statements. -4- PAGE 5 CSX CORPORATION AND SUBSIDIARIES Consolidated Statement of Financial Position (Millions of Dollars) September 29, December 30, 1995 1994 ------------- ------------ ASSETS Current Assets Cash, Cash Equivalents and Short-Term Investments $ 563 $ 535 Accounts Receivable 811 706 Materials and Supplies 225 211 Deferred Income Taxes 139 151 Other Current Assets 72 62 ------- ------- Total Current Assets 1,810 1,665 ------- ------- Properties and Other Assets Properties 16,654 16,315 Less Accumulated Depreciation 5,466 5,271 ------- ------- Properties - Net 11,188 11,044 Affiliates and Other Companies 319 302 Other Assets 711 713 ------- ------- Total Properties and Other Assets 12,218 12,059 ------- ------- Total Assets $14,028 $13,724 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts Payable and Other Current Liabilities $ 2,122 $ 1,992 Current Maturities of Long-Term Debt 387 312 Short-Term Debt 155 201 ------- ------- Total Current Liabilities 2,664 2,505 ------- ------- Long-Term Debt 2,564 2,618 ------- ------- Deferred Income Taxes 2,505 2,570 ------- ------- Long-Term Liabilities and Deferred Gains 2,306 2,300 ------- ------- Shareholders' Equity Common Stock 105 105 Other Capital 1,418 1,368 Retained Earnings 2,599 2,391 Minimum Pension Liability Adjustment (133) (133) ------- ------- Total Shareholders' Equity 3,989 3,731 ------- ------- Total Liabilities and Shareholders' Equity $14,028 $13,724 ======= ======= See accompanying Notes to Consolidated Financial Statements. - 5 - PAGE 6 CSX CORPORATION AND SUBSIDIARIES -------------------------------- Notes to Consolidated Financial Statements (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 1.BASIS OF PRESENTATION In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the company's financial position as of September 29, 1995 and December 30, 1994, the results of its operations for the quarters and nine months ended September 29, 1995 and September 30, 1994, and its cash flows for the nine months ended September 29, 1995 and September 30, 1994, such adjustments being of a normal recurring nature. Earnings per share are based on the weighted average of common shares outstanding for the third quarters and nine months ended September 29, 1995 and September 30, 1994. Dilution for the quarters and nine months ended September 29, 1995 and September 30, 1994, which could result if all outstanding common stock equivalents were exercised, is not significant. While the company 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 the company's latest Annual Report and Form 10-K. Certain prior-year data have been reclassified to conform to the 1995 presentation. NOTE 2.RESTRUCTURING CHARGE In the second quarter, the company recorded a $257 million pretax restructuring charge, $160 million after-tax, $1.52 per share, to recognize the cost of initiatives undertaken to revise, restructure, and consolidate specific operations and administrative functions at its rail and container- shipping units. The initiatives resulted in a $163 million write-down of telecommunications assets rendered obsolete and will further result in separation payments totaling $80 million to approximately 800 affected employees and $14 million of lease and facility-related exit costs. The rail unit initiative represented $196 million of the total restructuring charge, covering the write-down of assets and cost of employee separations associated with a contractual agreement with AT&T Solutions ("AT&T") to replace, manage, and technologically enhance the unit's existing private telecommunications network. Under the agreement, which was effective May 1, 1995, AT&T will supply and manage new technology, thereby rendering the unit's existing telecommunications assets commercially obsolete. The unit will be obligated to pay minimum charges of approximately $330 million in equal annual amounts over the next ten years. The commercially obsolete assets represent the internal company-wide telecommunications network including the unit's existing microwave and fiber optic communications systems, portable radios, and road and yard communication pole line distribution systems. AT&T will provide wireless communications technology over its existing network to replace the rail unit's network. - 6 - PAGE 7 CSX CORPORATION AND SUBSIDIARIES -------------------------------- Notes to Consolidated Financial Statements, Continued (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 2.RESTRUCTURING CHARGE, Continued After the phase-in of this technology, AT&T will retain ownership of its equipment and will grant CSX access to the equipment and the network. The commercially obsolete assets have no alternative use and their net realizable value as an obsolete company-wide telecommunications network is not significant. As a result of the agreement with AT&T, the net book value of the assets being replaced was reduced by $163 million. The restructuring initiatives at the container-shipping unit include its global integration program and the reflagging of five U.S.-flag vessels to the registry of the Marshall Islands in accordance with approval received from the Federal Maritime Administration. The global integration program accounted for $31 million of the total restructuring charge and represented employee separation and facility exit costs associated with the global consolidation of senior management functions and relocation of its corporate headquarters to Charlotte, North Carolina, as well as the integration of its information technology requirements. The vessel reflagging initiative represented $30 million of the total restructuring charge, primarily related to the cost of crew separations on the five vessels. The $80 million total provision for separation and labor protection payments under the rail and container-shipping initiatives was based upon existing collective bargaining agreements with members of clerical, electrical, and signal crafts and seafarer trades. The company expects 90% of the affected employees to be impacted within one year and the remaining 10% to be impacted within four to five years. Through September 29, 1995, 514 employee separations have been finalized and payments totaling $15 million have been made. NOTE 3.ACCOUNTS RECEIVABLE The company has issued $200 million of Trade Receivable Participation Certificates ("Certificates"), at 5.05%, due September 1998. The Certificates are collateralized by $243 million of accounts receivable held in a master trust. In addition, the company has an agreement to sell with recourse on a monthly basis, an undivided percentage ownership interest in designated pools of accounts receivable up to a maximum of $200 million to a financial institution. At September 29, 1995 and December 30, 1994, accounts receivable sold under this agreement totalled $172 million. CSX has retained the collection and servicing responsibility with respect to accounts receivable held in trust or sold. The receivables sold and represented by Certificates issued have been reflected as reductions of "Accounts Receivable" in the Consolidated Statement of Financial Position. - 7 - PAGE 8 CSX CORPORATION AND SUBSIDIARIES -------------------------------- Notes to Consolidated Financial Statements, Continued (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 4.OPERATING EXPENSE Quarter Ended Nine Months Ended ------------------- ------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 1995 1994 --------- --------- --------- --------- Labor and Fringe Benefits $ 823 $ 786 $2,441 $2,338 Materials, Supplies and Other 665 571 1,920 1,680 Building and Equipment Rent 288 292 859 863 Inland Transportation 242 219 708 607 Depreciation 150 144 448 432 Fuel 115 108 352 308 Restructuring Charge --- --- 257 --- ------ ------ ------ ------ Total $2,283 $2,120 $6,985 $6,228 ====== ====== ====== ====== NOTE 5.OTHER INCOME (EXPENSE) Quarter Ended Nine Months Ended ------------------- -------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 1995 1994 --------- --------- --------- ---------- Interest Income $ 19 $ 12 $ 48 $ 40 Gain on South Florida Track Sale --- --- --- 22 Net Costs for Accounts Receivable Sold (8) (7) (24) (22) Minority Interest (8) (5) (19) (13) Equity Earnings of Other Affiliates (1) (2) (4) (8) Miscellaneous 5 (4) (3) (8) ------ ------ ------ ------ Total $ 7 $ (6) $ (2) $ 11 ====== ====== ====== ====== NOTE 6.ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES September 29, December 30, 1995 1994 --------- ------------ Trade Accounts Payable $ 960 $ 926 Labor and Fringe Benefits 542 543 Income Taxes and Other 425 337 Casualty Reserves 195 186 ------ ------ Total $2,122 $1,992 ====== ====== NOTE 7.COMMITMENTS AND CONTINGENCIES As part of the restructuring initiative, CSX Transportation, Inc. ("CSXT") entered a contractual agreement with AT&T to replace and technologically enhance its existing private telecommunications network. The - 8 - PAGE 9 CSX CORPORATION AND SUBSIDIARIES -------------------------------- Notes to Consolidated Financial Statements, Continued (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 7.COMMITMENTS AND CONTINGENCIES, Continued agreement was executed during the second quarter of 1995, and requires minimum payments totaling approximately $330 million over its ten-year term. Although the company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damage, reasonable levels of risk are retained on a self-insurance basis. A substantial portion of the insurance coverage, up to $100 million per occurrence for rail and certain other operations, is provided by companies owned or partially owned by CSX. CSXT is a party in 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 relating to 106 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 potentially responsible parties, where available, and existing technology, laws and regulations. CSXT's best estimate of the allocation method and percentage of liability when other potentially responsible parties are involved are based on assessments by consultants, agreements among potentially responsible parties, or determinations by the EPA or other regulatory agencies. CSXT frequently 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 potentially responsible parties at the location. The ultimate liability for remediation is difficult to determine with certainty because of the number of 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 periodically reviews for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at September 29, 1995, and December 30, 1994, were $136 million and $140 million, - 9 - PAGE 10 NOTE 7.COMMITMENTS AND CONTINGENCIES, Continued respectively. 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 for ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the September 29, 1995 environmental liability is expected to be paid out over the next five 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 CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of environmental investigations, lawsuits and claims involving the company 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. - 10 - PAGE 11 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- Third-Quarter 1995 Compared With 1994 - -------------------------------------- The company reported net earnings for the third quarter ended September 29, 1995, of $202 million, $1.92 per share, versus $177 million, $1.68 per share for the third quarter ended September 30, 1994. Operating revenue for the third quarter of 1995 was $2.7 billion, 8% above the prior year quarter of $2.5 billion, resulting primarily from higher rail, container-shipping and barge volumes and an improved rate environment. Operating expense was $2.3 billion for the third quarter, 10% higher than the $2.1 billion reported for the third quarter of 1994. Operating income was $382 million for the third quarter of 1995, up $32 million from 1994's third quarter. Rail Unit Results - ----------------- CSX's rail unit achieved its sixth consecutive record quarter, excluding the effect of the restructuring charge recorded in the second quarter of 1995. Third quarter operating income was $269 million, up 20 percent from 1994's $224 million quarter. The unit held operating expense flat while handling a 2 percent increase in carloads. Operating revenue rose 4 percent, to $1.2 billion, resulting in a quarterly operating ratio of 77.4 percent--the unit's best to date. Traffic was strong across virtually all major commodity groups. Merchandise traffic rose 4 percent, led by gains in chemicals, agricultural products, and phosphates and fertilizer. Overall, coal volume rose 2 percent in the quarter to 40.2 million tons, with strong export coal movements more than offsetting a slight decline in domestic coal traffic. - 11 - PAGE 12 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED RESULTS OF OPERATIONS, Continued - -------------------------------- Rail Unit Results, Continued - ---------------------------- RAIL OPERATING INCOME (Millions of Dollars) ----------------------------- Quarter Ended Nine Months Ended ------------------- ------------------ Sept. 29, Sept. 30, Percent Sept. 29, Sept. 30, Percent 1995 1994 Change 1995 1994 Change -------- --------- ------- ------- -------- ------- Operating Revenue Merchandise $ 767 $ 733 5% $ 2,363 $ 2,277 4% Coal 388 384 1% 1,133 1,086 4% Other 36 30 20% 100 79 27% ------ ------ ------- ------- Total 1,191 1,147 4% 3,596 3,442 4% Operating Expense 922 923 --- 3,007 2,777 8% ------ ------ ------- ------- Operating Income $ 269 $ 224 20% $ 589 $ 665 (11)% ====== ====== ======= ======= Operating Income (a) $ 269 $ 224 20% $ 785 $ 665 18% ====== ====== ======= ======= Operating Ratio 77.4% 80.5% 83.6% 80.7% ====== ====== ======= ======= Operating Ratio (a) 77.4% 80.5% 78.2% 80.7% ====== ====== ======= ======= (a)Pro forma basis, excluding $196 million restructuring charge. Container-Shipping Unit Results - ------------------------------- The container-shipping unit generated operating income of $70 million, down from $78 million for 1994's third quarter. The decrease was largely due to $13 million of relocation expenses associated with the unit's global integration initiative and $8 million in casualty losses and other expenses related to a ship collision. The unit achieved record third quarter operating revenue of $1.03 billion, 12 percent higher than the 1994 period. Contributing to the record revenue were a 6 percent increase in volume and higher average rates per container in all major trade lanes. - 12 - PAGE 13 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED RESULTS OF OPERATIONS, Continued - -------------------------------- Intermodal Unit Results - ----------------------- The company's intermodal unit's operating revenue was up 1 percent to $233 million in the quarter on a 2 percent decline in volume. Domestic volume declined 4 percent while international traffic rose 1 percent. Operating expense for the quarter was $228 million, versus $213 million in the prior- year period, primarily due to higher volume on the western portion of the intermodal unit's network and the continuing expense to maintain service levels in the East. Barge Unit Results - ------------------ The company's barge unit more than doubled its operating income to $36 million from $16 million in the prior-year quarter. Operating revenue rose 33 percent over the 1994 period to $152 million, reflecting strong rates as well as surging demand for transportation of grain and other bulk commodities in the inland waterway system. Operating expense increased 18 percent over the prior-year quarter to $116 million, as the company took steps to expand capacity in response to favorable market conditions. First Nine Months 1995 Compared to 1994 - --------------------------------------- For the first nine months of 1995, CSX earned $342 million, $3.25 per share. Excluding the effect of the second-quarter, $257 million pretax restructuring charge previously discussed, earnings for the first nine months of 1995 would have been $502 million, $4.77 per share, up 22 percent from the 1994 period. In the first nine months of 1994, CSX earned $413 million, $3.94 per share. The results for the first nine months of 1995 reflect the success of the company's efforts to reduce costs, improve service and profitably respond to growth opportunities and increased demand. In addition, the strength of the domestic and global economies have positively impacted the year-to-date results for 1995. FINANCIAL CONDITION - ------------------- Cash, cash equivalents and short-term investments totaled $563 million at September 29, 1995, an increase of $28 million since December 30, 1994. Primary uses of cash, cash equivalents and short-term investments were property additions, repayment of long-term debt, payment of dividends, and payments relating to productivity/restructuring charge liabilities. Primary sources of cash, cash equivalents and short-term investments were operations and the issuance of long-term debt. - 13 - PAGE 14 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED FINANCIAL CONDITION, Continued - ------------------------------ During the first nine months of 1995, net investing activities consumed $780 million of cash and cash equivalents compared with $446 million consumed in the first nine months of 1994. The increase in investing activities was primarily due to the timing of property additions compared to the nine months ended September 30, 1994. Financing activities used $160 million of cash and cash equivalents for the nine months ended September 29, 1995. This was a $22 million decrease from the $182 million of cash used by financing activities in the first nine months of 1994. The change was primarily due to a reduction in proceeds from net short-term borrowings, an increase in proceeds from the issuance of long- term debt, and a decrease in the repayment of long-term debt. The working capital deficit increased $14 million during the nine months ended September 29, 1995. The increase in the working capital deficit was primarily due to an increase in trade accounts payable and income and other taxes payable and an increased level of current maturities of long-term debt. A working capital deficit is not unusual for CSX and does not indicate a lack of liquidity. CSX continues to maintain adequate current assets to satisfy current liabilities when they are due and has sufficient liquidity and financial resources to manage its day-to-day cash needs. For the full year, CSX does not expect significant changes in working capital or debt levels from the prior year. Property additions for the full year are expected to be approximately $100 million higher than 1994. FINANCIAL DATA - -------------- (Millions of Dollars) ------------------------------- September 29, December 30, 1995 1994 ------------- ------------ Cash, Cash Equivalents and Short-Term Investments $ 563 $ 535 Commercial Paper Outstanding - Short-Term $ 155 $ 201 Commercial Paper Outstanding - Long-Term $ 300 $ 300 Working Capital (Deficit) $(854) $(840) Current Ratio .68 .66 Debt Ratio 39% 41% Ratio of Earnings to Fixed Charges 2.6x (a) 3.1x (a) Excluding the pre-tax restructuring charge of $257 million, the ratio of earnings to fixed charges would have been 3.4x for the nine months ended September 29, 1995. - 14 - PAGE 15 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED OUTLOOK - ------- During the fourth quarter of 1995, each of CSX's transportation units anticipates favorable revenue levels compared with 1994. The higher revenue levels are expected to result from strong demand for transportation services and a stable domestic economy. The company also plans to continue the intense focus on productivity improvements and expense control throughout its transportation units. Entering the fourth quarter of 1995, the rail unit is experiencing solid demand for export coal shipments as U.S. producers take advantage of increased economic activity abroad. Merchandise traffic is expected to maintain its strength over the remainder of the year. Additionally, the rail unit anticipates continuing benefits from its cost reduction efforts. The rail unit continues to monitor and be actively involved in on- going industrywide labor contract negotiations. These negotiations have traditionally taken place over a number of months and have not resulted in any extended work stoppages. The container-shipping unit anticipates solid traffic flows in the fourth quarter of 1995 in all of its trade lanes. Strong demand for ocean transportation should allow the unit to select higher-rated traffic. The unit expects to incur an additional $4 million to $6 million in relocation and training expenses during the remainder of 1995 associated with its global integration initiative. The intermodal unit expects lower domestic trailer volumes to continue in the fourth quarter due to motor carrier competition. The unit will continue to benefit from stronger international traffic revenue. The unit has initiated cost reduction efforts in response to the motor carrier competition. The barge unit anticipates continued demand for its services, resulting particularly in export grain shipments. With this demand, strong barge rates are expected to continue in 1995. OTHER MATTERS - ------------- At its October 11, 1995 meeting, the Board of Directors approved a two-for-one split of the company's common stock. Shareholders of record as of December 4, 1995 will receive one new share of common stock for every share they own on that date. Distribution of new shares will start December 21, 1995. The company is assessing any potential impact of the provisions of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which it expects to adopt for its fiscal year ending December 27, 1996. The company has not completed a determination as to whether or not indicators of impairment of long-lived assets are present in its operating units. - 15 - PAGE 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 1. None. (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 CORPORATION (Registrant) /s/ GREGORY R. WEBER ------------------------------ Gregory R. Weber Vice President, Controller and Treasurer Dated: November 7, 1995 (Principal Accounting Officer) - 16 -