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 30, 1994March 31, 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 30, 1994: 104,743,893March 31, 1995: 105,121,307 shares.
- 1 -
PAGE 2
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994MARCH 31, 1995
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters Ended March 31, 1995 and Nine Months Ended
September 30,April 1, 1994 and 1993 3
2. Consolidated Statement of Cash Flows-
Nine MonthsQuarters Ended September 30,March 31, 1995 and April 1, 1994 and 1993 4
3. Consolidated Statement of Financial Position-
At SeptemberMarch 31, 1995 and December 30, 1994 and December 31, 1993 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 1110
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 1615
Signature 1615
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PAGE 3
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
Quarter Ended
Nine Months Ended
--------------------- ---------------------
September 30, September 30,-----------------------
March 31, April 1,
1995 1994
1993 1994 1993
-------- -------- -------- -----------------
Operating Revenue
Transportation $ 2,3912,446 $ 2,176 $ 6,926 $ 6,5052,211
Non-Transportation 79 62 142 120
------- -------22 16
------- -------
Total 2,470 2,238 7,068 6,625
------- -------2,468 2,227
------- -------
Operating Expense
Transportation 2,076 1,945 6,123 5,8442,171 2,015
Non-Transportation 44 41 105 95
Restructuring Charge --- --- --- 93
------- -------26 26
------- -------
Total 2,120 1,986 6,228 6,032
------- -------2,197 2,041
------- -------
Operating Income 350 252 840 593271 186
Other Income (Expense) (6) 1 11 30(7) (1)
Interest Expense 69 74 207 223
------- -------67 67
------- -------
Earnings before Income Taxes 275 179 644 400197 118
Income Tax Expense 98 116 231 192
------- -------76 44
------- -------
Net Earnings $ 177121 $ 63 $ 413 $ 208
======= =======74
======= =======
Earnings Per Share $ 1.681.15 $ .61 $ 3.94 $ 2.00
======= =======.71
======= =======
Average Common Shares Outstanding (Thousands) 104,731 103,996 104,629 103,856
======= =======104,943 104,452
======= =======
Common Shares Outstanding (Thousands) 104,744 104,047 104,744 104,047
======= =======105,121 104,684
======= =======
Cash Dividends Paid Per Common Share $ .44 $ .38 $ 1.32 $ 1.14
======= =======.44
======= =======
See accompanying Notes to Consolidated Financial Statements.
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PAGE 4
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
Nine MonthsQuarter Ended
-------------------
September 30,-----------------------
March 31, April 1,
1995 1994
1993
------ -------------- ---------
OPERATING ACTIVITIES
Net Earnings $ 413121 $ 20874
Adjustments to Reconcile Net Earnings
to Cash Provided (Used)
Depreciation 431 429149 143
Deferred Income Taxes 115 143
Restructuring Charge -- Provision --- 9315 22
Productivity/Restructuring Charge -- Payments (103) (249)(17) (34)
Other Operating Activities 42 816 18
Changes in Operating Assets and Liabilities
Accounts Receivable (62) (72)(52) (33)
Materials and Supplies 10 (18)(23) (14)
Other Current Assets 15 7(12) (3)
Accounts Payable and Other Current Liabilities (37) (52)(2) (180)
----- -----
Cash Provided (Used) by Operating Activities 824 497195 (7)
----- -----
INVESTING ACTIVITIES
Property Additions (517) (486)(235) (143)
Short-Term Investments - Net 53 56
Purchases of10 80
Long-Term Marketable Securities (59) (111)- Net 2 (11)
Proceeds from Property Dispositions 12 7
Other Investing Activities 77 5930 (12)
----- -----
Cash Used by Investing Activities (446) (482)(181) (79)
----- -----
FINANCING ACTIVITIES
Short-Term Debt - Net 180 29559 242
Long-Term Debt Issued 58 53 81
Long-Term Debt Repaid (287) (221)(52) (85)
Dividends Paid (138) (118)(46) (47)
Other Financing Activities 10 (2)2 (9)
----- -----
Cash (Used) Provided by Financing Activities (182) 3521 154
----- -----
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Increase in Cash and Cash Equivalents 196 5035 68
Cash and Cash Equivalents at Beginning of Period 265 298 374
----- -----
Cash and Cash Equivalents at End of Period 494 424300 366
Short-Term Investments at End of Period 156 99260 130
----- -----
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 650560 $ 523496
===== =====
See accompanying Notes to Consolidated Financial Statements.
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PAGE 5
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
SeptemberMarch 31, December 30,
December 31,1995 1994
1993
------------- -------------------- -----------
ASSETS
Current Assets
Cash, Cash Equivalents and
Short-Term Investments $ 650560 $ 499535
Accounts Receivable 812 668777 706
Materials and Supplies 190 199234 211
Deferred Income Taxes 122 108130 151
Other Current Assets 82 9774 62
------- -------
Total Current Assets 1,856 1,5711,775 1,665
------- -------
Properties and Other Assets
Properties 16,116 15,85316,424 16,315
Less Accumulated Depreciation 5,258 5,0655,325 5,271
------- -------
Properties - Net 10,858 10,78811,099 11,044
Affiliates and Other Companies 313 268291 302
Other Assets 672 793706 713
------- -------
Total Properties and Other Assets 11,843 11,84912,096 12,059
------- -------
Total Assets $13,699 $13,420$13,871 $13,724
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other
Current Liabilities $ 1,990 $ 1,9651,992
Current Maturities of Long-Term Debt 95 146390 312
Short-Term Debt 344 164261 201
------- -------
Total Current Liabilities 2,429 2,2752,641 2,505
------- -------
Long-Term Debt 2,953 3,1332,546 2,618
------- -------
Deferred Income Taxes 2,567 2,570
------- -------
Long-Term Liabilities and Deferred Gains 2,336 2,491
------- -------
Deferred Income Taxes 2,470 2,3412,280 2,300
------- -------
Shareholders' Equity
Common Stock 105 104105
Other Capital 1,363 1,3071,397 1,368
Retained Earnings 2,201 1,9272,468 2,391
Minimum Pension Liability Adjustment (158) (158)(133) (133)
------- -------
Total Shareholders' Equity 3,511 3,1803,837 3,731
------- -------
Total Liabilities and Shareholders' Equity $13,699 $13,420$13,871 $13,724
======= =======
See accompanying Notes to Consolidated Financial Statements.
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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 SeptemberMarch 31, 1995 and December 30, 1994, and December 31, 1993, and theits results
of operations for the quarters and nine months ended September 30,
1994 and 1993, and its cash flows for the nine monthsquarters ended September 30,March 31, 1995 and April
1, 1994,
and 1993, such adjustments being of a normal recurring nature.
Earnings per share are based on the weighted average of common shares
outstanding for the third quarterquarters ended March 31, 1995 and nine months ended September 30, 1994 and
1993.April 1, 1994. Dilution
for the quarters and nine months ended September 30, 1994 and
1993,these periods, 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 19941995
presentation.
NOTE 2. CHANGE IN FISCAL REPORTING PERIODS
Effective January 1, 1994,The company's fiscal year is composed of 52 weeks ending on the company changed its fiscal reporting
periods from four calendarlast
Friday in December. The financial statements presented are for the 13-week
quarters to four 13-week quarters. Fiscal 1994
began on Januaryended March 31, 1995 and April 1, 1994, and will include 52 weeks. The four 13-week
quarters will end on April 1, July 1, September 30 andthe fiscal year ended
December 30, 1994.
NOTE 3. ACCOUNTING AND REPORTING CHANGES
Effective January 1, 1994, the company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Post-
employment Benefits." SFAS No. 112 requires that certain benefits provided to
former or inactive employees, after employment but before retirement, such as
workers' compensation and disability benefits, be accrued if attributable to
employees' service already rendered. The financial statement impact of
adopting SFAS No. 112 was not significant.
Effective January 1, 1994, the company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No.
115 requires that investments that have readily determinable fair values be
classified as "held-to-maturity," "trading," or "available-for-sale"
securities. Investments in debt securities have been classified as "held-to-
maturity," or "available-for-sale," and reported at amortized cost, which
approximates fair value, in the consolidated statement of financial position.
The financial statement impact of adopting SFAS No. 115 was not significant.
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PAGE 7
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 4. RESTRUCTURING CHARGE
The company recorded a $93 million pretax charge in the first quarter
of 1993 to recognize the estimated costs of restructuring certain operations
and functions at its container-shipping unit. The restructuring charge
reduced net earnings for the first nine months of 1993 by $61 million, 59
cents per share. As of September 30, 1994, payments totaling $52 million have
been recorded as a reduction of the liability for the restructuring charge.
NOTE 5. ACCOUNTS RECEIVABLE
During 1993, the company issued $200 million of Trade Receivable
Participation Certificates ("Certificates"), at 5.05%, due September 1998.
The Certificates are collateralized by $234$243 million of accounts receivable
held in a master trust. The proceeds from the issuance of the Certificates
were used to reduce the amount of accounts receivable sold under a previous
agreement.
In addition, the company has a five-year revolving agreement with a
financial institution 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. CSX has retained the collection and servicing
responsibility with respect to accounts receivable held in trust or sold.
At SeptemberMarch 31, 1995 and December 30, 1994, and December 31, 1993, accounts receivable have
been reduced by $372 million, and $380 million, respectively, representing Certificates and accounts
receivable sold.
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PAGE 7
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6.4. OPERATING EXPENSE
Quarter Ended
Nine Months Ended
------------------ ------------------
September 30, September 30,-----------------------
March 31, April 1,
1995 1994
1993 1994 1993
-------- -------- -------- -----------------
Labor and Fringe Benefits $ 786813 $ 761 $2,338 $2,275783
Materials, Supplies and Other 571 540 1,680 1,590603 544
Building and Equipment Rent 292 268 863 811287 280
Inland Transportation 219 185 607 529227 190
Depreciation 144 142 432 428149 143
Fuel 108 90 308 306
Restructuring Charge --- --- --- 93
------ ------118 101
------ ------
Total $2,120 $1,986 $6,228 $6,032$2,197 $2,041
====== ======
NOTE 5. OTHER INCOME (EXPENSE)
Quarter Ended
-----------------------
March 31, April 1,
1995 1994
-------- ---------
Interest Income $ 14 $ 12
Net Costs for Accounts Receivable Sold (8) (7)
Minority Interest (5) (4)
Foreign Currency Gain (Loss) (5) 2
Equity Earnings (Losses) of Other Affiliates (3) (3)
Miscellaneous -- (1)
------ ------
Total Expense $ (7) $ (1)
====== ======
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
March 31, December 30,
1995 1994
--------- ------------
Trade Accounts Payable $ 998 $ 926
Labor and Fringe Benefits 487 543
Income Taxes and Other 322 337
Casualty Reserves 183 186
------ ------
Total $1,990 $1,992
====== ======
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PAGE 8
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 7. OTHER INCOME (EXPENSE)
Quarter Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
1994 1993 1994 1993
-------- -------- ------- --------
Interest Income $ 12 $ 13 $ 40 $ 38
Gain on South Florida Track Sale --- --- 22 20
Net Gain on Investment Transactions 1 --- 3 15
Discount on and Servicing of
Accounts Receivable Sold (7) (2) (22) (10)
Minority Interest (5) (5) (13) (10)
Miscellaneous (7) (5) (19) (23)
------ ------ ------ ------
Total $ (6) $ 1 $ 11 $ 30
====== ====== ====== ======
NOTE 8. INCOME TAXES
The effective income tax rate for the third quarter and first nine
months of 1994 and 1993 reflects the federal statutory rate of 35 percent.
In the third quarter of 1993, the company revised its estimated
annual effective tax rate to reflect the change in the federal statutory rate
from 34 to 35 percent. The effect of this change was to increase income tax
expense for the third quarter of 1993 by $54 million, 52 cents per share. Of
this amount, $51 million, 48 cents per share, related to applying the newly
enacted statutory income tax rate to deferred tax balances as of December 31,
1992.
NOTE 9. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
September 30, December 31,
1994 1993
------------- ------------
Trade Accounts Payable $ 883 $ 917
Labor and Fringe Benefits 548 523
Income Taxes and Other 367 332
Casualty Reserves 192 193
------ ------
Total $1,990 $1,965
====== ======
NOTE 10. COMMITMENTS AND CONTINGENCIES
Sea-Land Service, Inc. ("Sea-Land"), the container-shipping unit of
CSX, has entered into agreements for the construction of four high-
performance, fuel-efficient container vessels and the modification of three
Atlantic Class vessels in its current fleet. Estimated capital expenditures
for the total program are approximately $250 million over the next three
years.
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PAGE 9 CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
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 from rail
operations and certain other operations, is provided by insurance companies
owned or partially owned by CSX.
CSX Transportation, Inc. ("CSXT") is a party to various proceedings
brought both by private parties and regulatory agencies related to
environmental issues. CSXT has been identified as a potentially responsible
party in a number of governmental investigations and actions relating to
environmentally impaired sites that are or may be subject to remedial action
under the Federal Superfund Statutestatute ("Superfund") or corresponding state
statutes. The majority 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
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 these sites is extremely complex. Among the variables that management
must assessCost estimates are imprecisebased on
information available for each site, financial viability of other potentially
responsible parties, and changing remedial cost estimatesexisting technology, laws and continually
evolving governmental standards.regulations.
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. Further, CSXT
periodically reviews its exposure in all non-Superfund environmental
proceedings with which it is involved.
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. Liabilities areThe recorded whenliabilities for estimated future environmental costs at
March 31, 1995, and December 30, 1994, were $141 million and $140 million,
respectively. The liability has been accrued for future costs for all sites
where the company's responsibility for
environmental remedial effortsobligation is deemed probable and thewhere such costs can be
reasonably estimated. Generally,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 timingMarch 31, 1995
environmental liability is expected to be paid out over the next five years,
funded by cash generated from operations.
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PAGE 9
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in Millions of these accruals coincides with
the completion of a feasibility study or the company's commitment to a formal
plan of action.Dollars, Except Per Share Amounts)
NOTE 7. COMMITMENTS AND CONTINGENCIES, Continued
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. Such additional
liabilities could be significant to future consolidated results of operations
and cash flows. 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. - 9 -
PAGE 10
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
Notes to Consolidated Financial Statements, Continued
(All Tables in MillionsThe company believes that the ultimate
liability for these matters will not materially affect its overall results of
Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continuedoperations 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.
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PAGE 1110
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Third-Quarter 1994First-Quarter 1995 Compared With 19931994
- ---------------------------------------------------------------------------
The company reported net earnings for the third quarter ended September 30, 1994,March 31,
1995, of $177$121 million, $1.68$1.15 per share, versus $63net earnings of $74 million, 6171
cents per share, for the third quarter ended September 30, 1993. In the third
quarter of 1993, the company revised its estimated annual effective tax rate
to reflect the changesame period in the federal statutory rate from 34 to 35 percent.
The effect of this change was to increase income tax expense for the third
quarter of 1993 by $54 million, 52 cents per share. Excluding the effect of
the corporate income tax rate change,1994. Net earnings for 1995 rose 64
percent above the third1994 first quarter of 1993
would have been $117 million, $1.13 per share.results, which were impacted by severe
winter weather conditions.
Operating revenue for the thirdfirst quarter of 19941995 was $2.5 billion, 1011
percent above the prior-year quarter of $2.2 billion.billion, resulting primarily from
the strength of rail and container shipping traffic. Operating expense was
$2.1$2.2 billion for the thirdfirst quarter of 1994, compared with1995, 8 percent higher than the $2
billion reported for the thirdfirst quarter of 1993.1994. Operating income was $271
million for the thirdfirst quarter of 1994 was
$3501995, up $85 million versus $252 million in the third quarter of 1993.from 1994's first
quarter.
Rail Unit Results
- -----------------
Operating income at the rail unit rose $64$66 million, or 4037 percent, to
$224$246 million for the thirdfirst quarter of 1994,1995, from $160$180 million in the prior-
yearweather-
impacted prior-year quarter. Driving the 1994 third-quarterThe results were double-digitdriven by significant traffic
gains in severalmost commodity groups and the continued success of the rail unit's cost-controlcost-
control and expense-reduction programs. Despite the traffic increase, rail
operating expense was held nearly flat at $948 million for the first quarter
of 1995, just $8 million, or less than 1 percent, over the 1994 level.
Rail operating revenue at $1.1increased 7 percent to $1.2 billion for the
thirdfirst quarter of 1994, rose $85
million, or1995. Merchandise traffic grew 8 percent fromversus 1994's first
quarter on the strength of export markets and solid traffic in the domestic
industrial sector. Phosphates and fertilizer carloads rose 20 percent due to
increased global demand, while significant gains also were recorded in the
food and consumer, agricultural products, chemicals and metals commodity
groups. Automotive and forest products traffic were nearly flat when compared
with the prior-year quarter.
Echoing the continued
strength of the U.S. industrial sector, merchandise carloadingsExport coal volume rose 635 percent for the third quarter of 1994 overall and revenue increased a like amount.
The strongest revenue gains were achieved by a 20 percent increase in metals,
12 percent increase in minerals and an 11 percent increase in auto's over the
1993 third quarter.
Coal shipments rose 10 percent from the 1993 third quarter level to 39.55.8 million tons as foreign
coal requirements surged during the first quarter of 1995, reflecting
increased economic activity abroad and favorable exchange rates. Strong
growth in industrial and metallurgical coal traffic offset lower utility
demand resulting from mild 1995 winter weather. As a result, domestic utilities continuedtonnage
rose 3 percent to build stockpiles that
were depleted32.6 million tons, from 1993's United Mine Workers strike and harsh weather
conditions of early 1994. Utility shipments increased to 26.131.7 million tons in the third quarter of 1994 from 24.1 million tons in 1993's third1994's first
quarter.
Export coal loadings strengthened, edging up 8 percent in 1994's third quarter
to 4 million tons, compared with 3.7 million tons in the prior-year quarter.
However, soft European demand for coal and competitive pressures continue to
limit demand for U.S. coal in the world market.
Rail operating expense was $923 million in the third quarter of 1994
compared with $902 million in the third quarter of 1993. Despite an 8 percent
increase in carloads handled, rail operating expense increased only 2 percent
over the expense level in the prior-year quarter. The control of operating
- 1110 -
PAGE 1211
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Rail Unit Results, Continued
- ----------------------------
expense resulted in an 80.5 percent operating ratio in the third quarter of
1994, a solid improvement over the prior-year third quarter operating ratio of
84.9 percent.
RAIL OPERATING INCOMERESULTS
(Millions of Dollars)
-----------------------------------------------------------
Quarter Ended
Year-To-Date Ended
------------------ ------------------
September 30,--------------------
March 31, April 1, Percent
September 30, Percent1995 1994 1993 Change 1994 1993 Change
-------- -------- ------- ------- ----------------- -------
Operating Revenue
Merchandise $ 733799 $ 693 6% $ 2,277 $ 2,152 6 %758 5%
Coal 384 340 13% 1,086 1,034 5 %366 339 8%
Other 30 29 3% 79 83 (5)%23 26%
------ ------
------- --------
Total 1,147 1,062 8% 3,442 3,269 5 %1,194 1,120 7%
Operating Expense 923 902 2% 2,777 2,742 1 %948 940 1%
------ ------ ------- --------
Operating Income $ 224246 $ 160 40% $ 665 $ 527 26 %180 37%
====== ======
======= ========
Operating Ratio 80.5% 84.9% 80.7%79.4% 83.9%
====== ====== ======= ========
Container Shipping Unit Results
- -------------------------------
Even with the devastating January 1995 earthquake that disrupted
operations at its Kobe, Japan port, CSX's container-shipping unit riding soliddelivered
one of its best first quarters. Operating income, on the strength of a 15
percent increase in traffic, gains in several
major trade lanes and benefiting from effective expense controls, generated
operating income of $78 million, 10 percent above 1993's third quarter of $71
million.
Operating revenue for the third quarter of 1994 grew 9climbed 32 percent to $920$25 million compared with $846from $19
million in the 1993 third quarter, as the
carrier realized strong volume gains in all areas except Alaska. Quarter-
over-quarter volume growth topped 201994's first quarter.
Strong international demand, combined with increased U.S. trade with
Latin America and Southeast Asia, drove traffic increases of 24 percent in the
Americas, lanes and and 1517 percent in Asia/Middle East/Europe, 16 percent in the Asia/Middle East/EuropeAtlantic
and Pacific trades. The average12 percent in the Pacific. Operating revenue per container during the third quarter of 1994 was $2,355, modestly
lower than the $2,436 rate of the 1993 quarter.
The unit's operating expense tracked revenue growth, increasing 9for 1995 rose 12 percent to
$842$899 million, compared with $800 million in the quarter. Labor and fringe benefitfirst quarter of 1994.
Operating expense grew only slightly forincreased to $874 million in the first quarter of
1995 versus $781 million in the first quarter of 1994 third quarter as a result of Sea-Land's
reorganizationthe
higher volume, bunker fuel prices and restructuring effortsthe impact of recent years.foreign exchange.
- 1211 -
PAGE 1312
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
- --------------------------------
Intermodal Unit Results
- -----------------------
CSX's intermodal unit reported that operating income for the first
quarter of $171995 grew 11 percent to $10 million, from $9 million in 1994's
first quarter. Strong international traffic pushed total volume up 5 percent
for the thirdfirst quarter of 1994 compared1995, more than offsetting the effect of lower
consumer spending and terminal congestion, which reduced domestic volume. A
favorable rate and mix environment also contributed to 1993's third-quarter level of $16 million.
The unit posted an 11 percent increase in traffic during the 1994 third
quarter, and revenue grew 12 percent over the same period. However, the
start-up expense associated with the launch of its new, direct Chicago-New
York service and additional service in a key corridor limited the unit's operating
income growth to 6 percentgain for the third quarter of 1994 over its
results for the third quarter of 1993.1995 first quarter.
Barge Unit Results
- ------------------
The company's barge unit rebounded dramatically from the flood-impacted 1993
third quarter to producereported operating income of $16$15 million,
versus $3compared with $2 million in the thirdwinter weather-impacted 1994 quarter.
Performance at the barge unit was exceptionally strong, reflecting robust
demand and favorable operating conditions on the inland waterways. Tonnage
hauled surged 15 percent in the 1995 first quarter, led by gains in coal,
grain and northbound steel movements. Operating revenue for the unit was $128
million, 39 percent better than the prior year's quarter.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $560
million at March 31, 1995, an increase of $25 million since December 30, 1994.
Primary sources of cash and cash equivalents during the quarter were
operations and the issuance of short-term and long-term debt. Primary uses of
cash and cash equivalents were property additions, repayment of long-term
debt, and payment of dividends.
During the first quarter of 1993. Tonnage handled during1995, net investing activities consumed
$181 million of cash and cash equivalents compared with $79 million consumed
in the thirdfirst quarter of 1994
rose 41 percent1994. The changes in investing activities were
primarily due to increased property additions and a decrease in proceeds from
the prior year third quarter to a more normal level of
15.7 million tons. Scrap metal, steel products and bulk commodities other
than grain continued their solid performances. Grain shipments remained light
in the third quarter of 1994, but have since strengthened significantly as
unprecedented corn and soybean harvests have driven fourth-quarter and early
1995 barging rates higher.
First Nine Months 1994 Compared to 1993
- ---------------------------------------
For the first nine months ended September 30, 1994, the company
reported net earnings of $413 million, $3.94 per share versus $208 million,
$2.00 per share for the nine months ended September 30, 1993. The 1993
results included a pretax charge of $93 million, $61 million after tax, 59
cents per share, which solely related to the restructuring of certain
operations and functions at Sea-Land Service Inc., CSX's wholly-owned
container-shipping subsidiary and the $54 million, 52 cents per share impact
of the corporate income tax rate change. Exclusive of these items, earnings
for the first nine months of 1993 would have been $323 million, $3.11 per
share.
The results for the first nine months of 1994 reflect the continued
strength of the U.S. economy and the improving economic conditions abroad.
The improving economic conditions increased the demand for CSX transportation
services. In addition, the long-term efforts to reduce expense and improve
productivity resulted in a $154 million increase in operating incomeshort-term investment activity compared to the prior period, excludingquarter ended April 1,
1994.
Financing activities provided $21 million of cash and cash
equivalents for the 1993 pretax chargequarter ended March 31, 1995, a $133 million decrease from
1994's first quarter. The change was primarily due to a reduction in proceeds
from net short-term borrowings, offset by reductions in scheduled debt
repayments.
The working capital deficit increased $26 million during the quarter
ended March 31, 1995. The increase was primarily due to higher short-term
debt levels and current maturities of $93 million.long-term debt, partially offset by
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PAGE 1413
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
- -------------------
Cash, cash equivalents and short-term investments totaled $650
million at September 30, 1994, an increase of $151 million since December 31,
1993. Primary sources of cash, cash equivalents and short-term investments
were operations and the issuance of short-term debt. 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.
During------------------------------
increased customer accounts receivable resulting from increased revenue during
the first nine monthsquarter of 1994, net investing activities
consumed $446 million of cash and cash equivalents compared with $482 million
consumed in the first nine months of 1993. The changes in investing
activities were primarily due to a lower level of purchases of long-term
marketable securities compared to the nine months ended September 30, 1993.
Financing activities used $182 million of cash and cash equivalents
for the nine months ended September 30, 1994. This was a $217 million change
from the first nine months of 1993. The change was primarily due to a
reduction in proceeds from net short-term borrowings, an increase in the
company's cash dividends paid per common share, a reduction in scheduled debt
repayments, and a partial redemption of the company's 9 1/2% Sinking Fund
Debentures due July 1, 2016. The company redeemed $100 million of the $250
million principal amount outstanding on July 1, 1994.
The working capital deficit, current ratio, debt ratio, and ratio of
earnings to fixed charges all improved during the nine months ended September
30, 1994.1995. 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,
property additions, or debt levels from the prior year.
FINANCIAL DATA
- -------------- (Millions of Dollars)
-----------------------------
SeptemberMarch 31, December 30,
December 31,1995 1994
1993
---------------------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 650560 $ 499535
Commercial Paper Outstanding -
Short-Term $ 344261 $ 164201
Commercial Paper Outstanding -
Long-Term $ 300 $ 300
Working Capital (Deficit) $(573) $(704)$(866) $(840)
Current Ratio .76 .69.67 .66
Debt Ratio 45% 49%39% 41%
Ratio of Earnings to Fixed Charges 2.8x 2.3x
- 14 -
PAGE 153.1x
OUTLOOK
- -------
In the fourthsecond quarter and remainder of 1994,1995, each of CSX's
major transportation units continuecontinues to anticipate favorable revenue levels compared
with 1993.1994. The higher revenue levels are expected to result from the strong
export demand 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 fourthsecond quarter of 1994,1995, CSXT is experiencing solid
demand for domesticexport coal shipments as U.S. utilities continue to rebuild
inventories depleted by 1993's United Mine Workers strikesproducers take advantage of increased
economic activity abroad and the harsh
winter conditions of early 1994. Export coal shipments, however, will
continue to be affected by soft European demand and foreign competition.favorable exchange rates. CSXT merchandise
traffic reflecting the underlying strength of the U.S.
industrial sector, is expected to remain strong forincrease in the remaindersecond quarter of the
year.1995 over near-record
1994 levels.
CSXT willcontinues to monitor and be actively involved in on-going
industrywide labor contract negotiations which are expected to begin in late 1994.negotiations. These negotiations have
traditionally taken place over a number of months and have not resulted in any
extended work stoppages.
Sea-Land anticipates traffic flows in the fourthsecond quarter of 19941995 in
nearly
all of its trade lanes willto surpass prior-year fourthsecond quarter levels.levels, which were
impacted by the nationwide Teamster's strike. Strong demand for ocean
transportation should allow Sea-Land to select higher-
ratedhigher-rated traffic.
A more stable rate environment is expected throughout the
industry.- 13 -
PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION, CONTINUED
OUTLOOK, Continued
- ------------------
CSX Intermodal expects sustained strong levels of shipments and revenue
during the remaining months of 1994.second quarter. The unit continues to benefit from growth in the general economy as well as market share
gains.
With the expectation of a healthy grain harvest in the fourth
quarter,
American Commercial Lines anticipates strongercontinued strong demand for its
services and, with this demand, recovery ofsolid barge rates.
The state of Florida has notified CSXT of its intention to redeem the
remaining amounts due on its installment purchase of 80 miles of track and
right-of-way as of December 1, 1994. If consummated, the December 1, 1994
redemption would result in proceeds of approximately $100 million and the
recognition of a pretax deferred gain of approximately $60 million.
OTHER MATTERS
- -------------
The company expects its operating results for the second quarter of
1995 to include a pretax restructuring charge estimated to be between $200
million and $250 million. The charge will result from a decision by CSXT to
obtain state-of-the-art technology, equipment and telecommunications services
from AT&T Solutions, the global integration program underway at Sea-Land and
the reflagging of five Sea-Land vessels from U.S. to foreign registration.
The charge will principally relate to the AT&T agreement, with the balance
attributable to the Sea-Land initiatives.
A ten year agreement was executed on May 2, 1995, by CSXT and AT&T.
The agreement calls for AT&T to design and manage a new, network-centered
telecommunications system that is planningexpected to integrategreatly enhance CSXT's
operations and customer service. Implementation of the corporate functionsnew technology will
result in employee separation costs and the write down of certain
telecommunication assets.
Sea-Land's global integration program was announced in the fourth
quarter of 1994 and includes the relocation of its global organization and has announced it will consolidate these activitiescorporate headquarters from
Liberty Corner, N.J. to Charlotte, N.C, as well as integration of certain of
its information technology requirements in Charlotte North Carolina. Activities currently based in Elizabeth and Liberty Corner, New Jersey, Rotterdam,Dallas, The Netherlands, and Seattle,
Washington would be affected. The financial impactportion
of the consolidation has
not been determined.restructuring charge relating to this activity will include labor
separation and facility exit costs. In addition, Sea-Land will incur normal
operating expense related to employee relocation, recruiting and training
costs.
The consolidation may resultremaining portion of the restructuring charge will relate to
labor separation costs associated with Sea-Land's reflagging of five U.S.-flag
vessels to the registry of the Marshall Islands in a fourth quarter pretax
charge that may significantlyaccordance with approval
received from the Federal Maritime Administration.
These initiatives will enable the company to leverage technological
enhancements, streamline administration, increase customer responsiveness and
to reduce Sea-Land's operating results.expense.
- 1514 -
PAGE 1615
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.
SIGNATURESignature
---------
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)
By: GREGORY R. WEBER
------------------------------
Gregory R. Weber
Vice President, Controller and Treasurer
Dated: October 28, 1994 (Principal Accounting Officer)
Dated: May 2, 1995
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