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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, 1994
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 September 30, 1994: 9,061,038 shares
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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CSX TRANSPORTATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters and Nine Months Ended September 30, 1994
and 1993 3
2. Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 4
3. Consolidated Statement of Financial Position -
At September 30, 1994 and December 31, 1993 5
Notes to Consolidated Financial Statements 6
Item 2.
Management's Analysis and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars)
Quarter Ended Nine Months Ended
------------------- ------------------
September 30, September 30,
1994 1993 1994 1993
------- ------- -------- --------
OPERATING REVENUE
Merchandise $ 733 $ 693 $ 2,277 $ 2,152
Coal 384 340 1,086 1,034
Other 30 29 79 83
------ ------ ------- --------
Transportation 1,147 1,062 3,442 3,269
Non-Transportation 26 19 48 40
------ ------ ------- --------
Total 1,173 1,081 3,490 3,309
------ ------ ------- --------
OPERATING EXPENSE
Labor and Fringe Benefits 468 446 1,386 1,346
Materials, Supplies and Other 262 267 777 790
Equipment Rent 96 93 294 293
Depreciation 93 92 279 278
Fuel 62 55 186 185
------ ------ ------- --------
Transportation 981 953 2,922 2,892
Non-Transportation 8 5 19 17
------ ------ ------- --------
Total 989 958 2,941 2,909
------ ------ ------- --------
OPERATING INCOME 184 123 549 400
Other Income (Expense) (7) (4) (16) 35
Interest Expense 10 15 35 46
------ ------ ------- --------
EARNINGS BEFORE INCOME TAXES 167 104 498 389
Income Tax Expense 62 85 184 183
------ ------ ------- --------
NET EARNINGS $ 105 $ 19 $ 314 $ 206
====== ====== ======= ========
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
Nine Months Ended
------------------
September 30,
1994 1993
------ ------
OPERATING ACTIVITIES
Net Earnings $ 314 $ 206
Adjustments to Reconcile Earnings to
Cash Provided
Depreciation 279 279
Deferred Income Taxes 113 149
Productivity/Restructuring Charge Payments (83) (215)
Other Operating Activities 28 (51)
Changes in Operating Assets and Liabilities
Accounts Receivable (58) (3)
Materials and Supplies 6 (14)
Other Current Assets 7 14
Accounts Payable and Other Current Liabilities (33) 10
----- -----
Cash Provided by Operating Activities 573 375
----- -----
INVESTING ACTIVITIES
Property Additions (371) (389)
Other Investing Activities 22 86
----- -----
Cash Used by Investing Activities (349) (303)
----- -----
FINANCING ACTIVITIES
Long-Term Debt Issued 53 80
Long-Term Debt Repaid (79) (133)
Long-Term Debt Repaid to Parent (86) ---
Dividends Paid (28) (21)
Other Financing Activities (40) (10)
----- -----
Cash Used by Financing Activities (180) (84)
----- -----
CASH AND CASH EQUIVALENTS
(Decrease) Increase in Cash and Cash Equivalents 44 (12)
Cash and Cash Equivalents at Beginning of Period 272 248
----- -----
Cash and Cash Equivalents at End of Period $ 316 $ 236
===== =====
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
September 30, December 31,
1994 1993
------------- ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 316 $ 272
Accounts Receivable 229 98
Materials and Supplies 110 116
Deferred Income Taxes 209 103
Other Current Assets 36 43
------- -------
Total Current Assets 900 632
------- -------
Properties and Other Assets
Properties 12,838 12,704
Less Accumulated Depreciation 4,131 4,073
------- -------
Properties - Net 8,707 8,631
Affiliates and Other Companies 204 155
Other Assets 168 235
------- -------
Total Properties and Other Assets 9,079 9,021
------- -------
Total Assets $ 9,979 $ 9,653
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts Payable and Other Current Liabilities $ 1,161 $ 1,111
Current Maturities of Long-Term Debt 77 87
Due to Parent Company 29 40
------- -------
Total Current Liabilities 1,267 1,238
------- -------
Deferred Income Taxes 2,156 1,937
------- -------
Long-Term Liabilities and Deferred Gains 1,507 1,631
------- -------
Long-Term Debt 578 593
------- -------
Due to Parent Company --- 69
------- -------
Shareholder's Equity
Common Stock 181 181
Other Capital 1,047 1,047
Retained Earnings 3,243 2,957
------- -------
Total Shareholder's Equity 4,471 4,185
------- -------
Total Liabilities and Shareholder's Equity $ 9,979 $ 9,653
======= =======
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)
NOTE 1. BASIS OF PRESENTATION.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Transportation, Inc. ("CSXT") and its majority-owned
subsidiaries as of September 30, 1994 and 1993, and the results of operations
for the quarters and nine months ended September 30, 1994 and 1993, and its
cash flows for the nine months ended September 30, 1994 and 1993, 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.
Certain prior-year data has been reclassified to conform to the 1994
presentation.
NOTE 2. CHANGE IN FISCAL REPORTING PERIODS.
Effective January 1, 1994, CSXT changed its fiscal reporting periods
from four calendar quarters to four 13-week quarters. Fiscal year 1994 began
on January 1, 1994, and will include 52 weeks. The four 13-week quarters will
end on April 1, July 1, September 30 and December 30, 1994.
NOTE 3. ACCOUNTING CHANGE.
Effective January 1, 1994, the company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment 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.
NOTE 4. ACCOUNTS RECEIVABLE.
CSXT has an ongoing agreement to sell without recourse on a monthly
basis, an undivided percentage ownership interest in all freight accounts
receivable to CSX Trade Receivables Corporation ("CTRC"), a wholly-owned
subsidiary of CSX. At September 30, 1994, and December 31, 1993, accounts
receivable sold under this agreement totaled $539 million and $556 million,
respectively. In addition, CSXT has a five-year revolving agreement with a
financial institution to sell with recourse on a monthly basis, an undivided
ownership interest in all miscellaneous accounts receivable. At September 30,
1994 and December 31, 1993, accounts receivable sold under this agreement
totaled $46 million and $50 million, respectively. CSXT has retained the
collection and servicing responsibility with respect to all accounts
receivable sold.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 5. OTHER INCOME (EXPENSE).
Quarter Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
------- -------- ------- -------
Interest Income $ 8 $ 6 $ 23 $ 21
Gain on South Florida Track Sale
Transaction --- --- 22 20
Gain (Loss) on Investment
Transaction (2) --- (16) 26
Fees Related to
Accounts Receivable Sold (12) (8) (34) (24)
Miscellaneous (1) (2) (11) (8)
----- ----- ----- -----
Total $ (7) $ (4) $ (16) $ 35
===== ===== ===== =====
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES.
September 30, December 31,
1994 1993
------------- ------------
Trade Accounts Payable $ 479 $ 457
Labor and Fringe Benefits 371 337
Interest, Taxes and Other 177 180
Casualty Reserves 134 137
------ ------
Total $1,161 $1,111
====== ======
NOTE 7. INCOME TAXES.
The effective income tax rate for the third quarter and first nine
months of 1994 reflects the federal statutory rate of 35 percent.
In the third quarter of 1993, CSXT 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 $50 million. Of this amount, $46 million
related to applying the newly enacted statutory income tax rate to deferred
tax balances as of December 31, 1992.
NOTE 8. CONTINGENCIES.
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 Statute
("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.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 8. CONTINGENCIES, Continued
The assessment of the required response and remedial costs associated
with these sites is extremely complex. Among the variables that management
must assess are imprecise and changing remedial cost estimates and continually
evolving governmental standards.
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 are recorded when CSXT's responsibility for environmental
remedial efforts is deemed probable, and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study or CSXT's commitment to a formal plan of
action. CSXT 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, CSXT believes that its
environmental reserves are adequate to accomplish remedial actions to comply
with present laws and regulations.
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 9. RELATED PARTIES.
Cash and cash equivalents at September 30, 1994 and December 31,
1993, includes $334 million and $336 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.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)
NOTE 9. RELATED PARTIES, Continued
Effective January 1, 1994, CSXT entered into a loan agreement with
Customized Transportation, Inc. ("CTI"), a wholly-owned subsidiary of CSX,
whereby CTI borrowed $40 million from CSXT. Interest is due from CTI semi-
annually commencing June 30, 1994, with the entire principal amount due on
January 1, 2001. Interest income related to the CTI loan for the third
quarter 1994 was $600 thousand.
In the second quarter of 1994, CSXT repaid early the remaining formal
long-term borrowings from CSX. The balance at December 31, 1993 was $86
million. Interest expense on borrowings from CSX was $2 million for the third
quarter of 1993.
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. ("Technology"), and the reimbursement, under an
operating agreement, from CSX Intermodal, Inc. ("CSXI"), for costs incurred by
CSXT related to intermodal operations. Technology and CSXI are wholly-owned
subsidiaries of CSX. Materials, Supplies and Other expense includes net
expense of $57 million for the third quarter of 1994 and $53 million for the
third quarter of 1993 relating to the above arrangements.
CSXT has an operating lease agreement with CSXI for 3,400 rebuilt
coal gondola cars. The cars were previously owned and rebuilt by CSXT, and
were subsequently sold to CSXI at book value. These cars are presently being
leased by CSXT through March 2006. In addition, CSXT is leasing 65
locomotives from CSXI pursuant to a pre-existing operating lease agreement
acquired by CSXI from a third party. These locomotives are being leased by
CSXT through May 2008. In the third quarter of 1994 and 1993, rent expense
includes $5 million associated with the CSXI lease agreements noted above.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS
Third Quarter 1994 Compared With 1993
- -------------------------------------
Net earnings for the 1994 third quarter were $105 million versus $19
million for last year's third quarter.
Transportation operating income rose $57 million or 5 percent, to
$166 million for the third quarter of 1994, from $109 million in the prior-
year quarter. Driving the 1994 third-quarter results were double-digit
traffic gains in several commodity groups and the continued success of the
unit's cost-control and expense-reduction programs.
TRANSPORTATION OPERATING INCOME
(Millions of Dollars)
-------------------------------
Quarter Ended Nine Months Ended
------------------ ------------------
September 30, Percent September 30, Percent
1994 1993 Change 1994 1993 Change
-------- -------- ------- ------- -------- -------
Operating Revenue
Merchandise $ 733 $ 693 6 % $2,277 $2,152 6 %
Coal 384 340 13 % 1,086 1,034 5 %
Other 30 29 3 % 79 83 (5)%
------ ------ ------ ------
Total 1,147 1,062 8 % 3,442 3,269 5 %
Operating Expense 981 953 (3)% 2,922 2,892 (1)%
------ ------ ------ ------
Operating Income $ 166 $ 109 5 % $ 520 $ 377 38 %
====== ====== ====== ======
Rail revenue, at $1.1 billion for the third quarter of 1994, rose $85
million, or 8 percent, from the prior-year quarter. Echoing the continued
strength of the U.S. industrial sector, merchandise carloadings rose 6 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
39.5 million tons, as domestic utilities continued to build stockpiles that
were depleted from 1993's United Mine Workers strike and harsh weather
conditions of early 1994. Utility shipments increased to 26.1 million tons in
the third quarter of 1994 from 24.1 million tons in 1993's third 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.
Transportation operating expense was $981 million in the quarter
compared to $953 million in the third quarter of 1993. Despite an 8 percent
increase in carloads handled, rail operating expense increased only 3 percent
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
Third Quarter 1994 Compared With 1993, Continued
- ------------------------------------------------
over the expense level in the prior-year quarter. The control of operating
expense resulted in an 85.5 percent operating ratio in the third quarter of
1994, a solid improvement over the prior-year third quarter operating ratio of
89.7 percent.
First Nine Months 1994 Compared to 1993
- ---------------------------------------
For the first nine months ended September 30, 1994, CSXT reported net
earnings of $314 million versus $206 million for the nine months ended
September 30, 1993. The 1993 results include the $50 million impact of the
corporate income tax rate change. Excluding the effect of this corporate
income tax change, CSXT would have earned $256 million for the first nine
months of 1993.
The results for the first nine months of 1994 reflect the continued
strength of the U.S. economy. The improving economic conditions increased the
demand for CSXT transportation services. In addition, the long-term efforts
to reduce expense and improve productivity led to the high level of operating
income.
OUTLOOK
- -------
In the fourth quarter of 1994, CSXT anticipates favorable revenue
levels compared with 1993. The higher revenue levels are expected to result
from the strong domestic economy. The company also plans to continue the
intense focus on productivity improvements and expense controls throughout the
company.
Entering the fourth quarter of 1994, CSXT is experiencing solid
demand for domestic coal shipments as U.S. utilities continue to rebuild
inventories depleted by 1993's United Mine Workers strikes and the harsh
winter conditions of early 1994. Export coal shipments, however, will
continue to be affected by soft European demand and foreign competition.
CSXT merchandise traffic, reflecting the underlying strength of the U.S.
industrial sector, is expected to remain strong for the remainder of the
year.
CSXT will monitor and be actively involved in industrywide labor
contract negotiations which are expected to begin in late 1994. These
negotiations have traditionally taken place over a number of months and have
not resulted in any extended work stoppages.
The state of Florida has notified the company 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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(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.
/s/ GREGORY R. WEBER
------------------------
Gregory R. Weber
Dated: October 28, 1994 (Principal Accounting Officer)
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