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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 July 1, 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 July 1, 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 JULY 1, 1994
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
1. Consolidated Statement of Earnings -
Quarters and Six Months Ended July 1, 1994 and
June 30, 1993 3
2. Consolidated Statement of Cash Flows -
Six Months Ended July 1, 1994 and June 30, 1993 4
3. Consolidated Statement of Financial Position -
At July 1, 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 Six Months Ended
------------------- ------------------
July 1, June 30, July 1, June 30,
1994 1993 1994 1993
------- ------- -------- --------
OPERATING REVENUE
Merchandise $ 786 $ 739 $ 1,544 $ 1,459
Coal 363 354 702 694
Other 26 28 49 54
------ ------ ------- --------
Transportation 1,175 1,121 2,295 2,207
Non-Transportation 15 13 22 21
------ ------ ------- --------
Total 1,190 1,134 2,317 2,228
------ ------ ------- --------
OPERATING EXPENSE
Labor and Fringe Benefits 453 442 918 900
Materials, Supplies and Other 248 259 515 523
Equipment Rent 100 99 198 200
Depreciation 93 93 186 186
Fuel 61 63 124 130
------ ------ ------- --------
Transportation 955 956 1,941 1,939
Non-Transportation 5 6 11 12
------ ------ ------- --------
Total 960 962 1,952 1,951
------ ------ ------- --------
OPERATING INCOME 230 172 365 277
Other Income (Expense) (1) 41 (9) 39
Interest Expense 13 15 25 31
------ ------ ------- --------
EARNINGS BEFORE INCOME TAXES 216 198 331 285
Income Tax Expense 79 67 122 98
------ ------ ------- --------
NET EARNINGS $ 137 $ 131 $ 209 $ 187
====== ====== ======= ========
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
Six Months Ended
------------------
July 1, June 30,
1994 1993
----- ------
OPERATING ACTIVITIES
Net Earnings $ 209 $ 187
Adjustments to Reconcile Earnings to
Cash Provided
Depreciation 186 186
Deferred Income Taxes 73 76
Productivity/Restructuring Charge Payments (56) (46)
Other Operating Activities 18 (66)
Changes in Operating Assets and Liabilities
Accounts Receivable (11) 9
Materials and Supplies (16) (13)
Other Current Assets 9 (6)
Accounts Payable and Other Current Liabilities (92) 13
----- -----
Cash Provided by Operating Activities 320 340
----- -----
INVESTING ACTIVITIES
Property Additions (231) (262)
Other Investing Activities 32 74
----- -----
Cash Used by Investing Activities (199) (188)
----- -----
FINANCING ACTIVITIES
Long-Term Debt Issued 53 80
Long-Term Debt Repaid (62) (107)
Long-Term Debt Repaid to Parent (86) ---
Dividends Paid (29) (14)
Other Financing Activities (41) (9)
----- -----
Cash Used by Financing Activities (165) (50)
----- -----
CASH AND CASH EQUIVALENTS
(Decrease) Increase in Cash and Cash Equivalents (44) 102
Cash and Cash Equivalents at Beginning of Period 272 248
----- -----
Cash and Cash Equivalents at End of Period $ 228 $ 350
===== =====
See accompanying Notes to Consolidated Financial Statements.
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
July 1, December 31,
1994 1993
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 228 $ 272
Accounts Receivable 111 98
Materials and Supplies 132 116
Deferred Income Taxes 114 103
Other Current Assets 34 43
------- -------
Total Current Assets 619 632
------- -------
Properties and Other Assets
Properties 12,785 12,704
Less Accumulated Depreciation 4,121 4,073
------- -------
Properties - Net 8,664 8,631
Affiliates and Other Companies 194 155
Other Assets 253 235
------- -------
Total Properties and Other Assets 9,111 9,021
------- -------
Total Assets $ 9,730 $ 9,653
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts Payable and Other Current Liabilities $ 1,031 $ 1,111
Current Maturities of Long-Term Debt 80 87
Due to Parent Company 22 40
------- -------
Total Current Liabilities 1,133 1,238
------- -------
Deferred Income Taxes 2,021 1,937
------- -------
Long-Term Liabilities and Deferred Gains 1,619 1,631
------- -------
Long-Term Debt 591 593
------- -------
Due to Parent Company --- 69
------- -------
Shareholder's Equity
Common Stock 181 181
Other Capital 1,047 1,047
Retained Earnings 3,138 2,957
------- -------
Total Shareholder's Equity 4,366 4,185
------- -------
Total Liabilities and Shareholder's Equity $ 9,730 $ 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 July 1, 1994, and December 31, 1993, and the results of
operations for the quarters and six months ended July 1, 1994, and June 30,
1993, and its cash flows for the six months ended July 1, 1994 and June 30,
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 July 1, 1994, and December 31, 1993, accounts
receivable sold under this agreement totaled $566 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 July 1, 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 Six Months Ended
July 1, June 30, July 1, June 30,
1994 1993 1994 1993
------- -------- ------- -------
Interest Income $ 8 $ 8 $ 15 $ 15
Gain on South Florida Track Sale
Transaction 22 20 22 20
Gain (Loss) on Investment
Transaction (14) 26 (14) 26
Fees Related to
Accounts Receivable Sold (11) (8) (22) (16)
Miscellaneous (6) (5) (10) (6)
------ ------ ------ ------
Total $ (1) $ 41 (9) 39
====== ====== ====== ======
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES.
July 1, December 31,
1994 1993
------- ------------
Trade Accounts Payable $ 459 $ 457
Labor and Fringe Benefits 330 337
Interest, Taxes and Other 105 180
Casualty Reserves 137 137
------ ------
Total $1,031 $1,111
====== ======
NOTE 7. INCOME TAXES.
The effective income tax rate for the second quarter and first six
months of 1994 reflects the federal statutory rate of 35 percent. The federal
statutory rate for the second quarter and first six months of 1993 was 34
percent.
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 July 1, 1994 and December 31, 1993,
includes $268 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 second
quarter 1994 was $1 million.
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
second quarter of 1994 and 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 $49 million for the second quarter of 1994 and $55 million for the
second 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 second 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
Second Quarter 1994 Compared With 1993
- --------------------------------------
Net earnings for the 1994 second quarter were $137 million versus
$131 million for last year's second quarter.
Transportation operating income rose $55 million or 33 percent, to
$220 million for the second quarter of 1994, from $165 million in the prior-
year quarter. The results were driven by a 5 percent increase in revenue, and
the continued success of cost-cutting programs.
TRANSPORTATION OPERATING INCOME
(Millions of Dollars)
-------------------------------
Quarter Ended Six Months Ended
------------------ ------------------
July 1, June 30, Percent July 1, June 30, Percent
1994 1993 Change 1994 1993 Change
-------- -------- ------- ------- -------- -------
Operating Revenue
Merchandise $ 786 $ 739 6% $ 1,544 $ 1,459 6%
Coal 363 354 3% 702 694 1%
Other 26 28 (7%) 49 54 (9%)
------ ------ ------- --------
Total 1,175 1,121 5% 2,295 2,207 4%
Operating Expense 955 956 1% 1,941 1,939 ---
------ ------ ------- --------
Operating Income $ 220 $ 165 33% $ 354 $ 268 32%
====== ====== ======= ========
For the second quarter of 1994, merchandise traffic grew 7 percent,
with by gains in metals, minerals, automotive shipments, and food and consumer
products. Metals, minerals, automotive shipments and food and consumer
products for the second quarter of 1994 jumped 10 percent, 14 percent, 13
percent, and 12 percent respectively, over 1993's second quarter levels.
Domestic coal demand offset continued weakness in export coal to
raise volume to 38.6 million tons, 2 percent above 1993's second quarter
level. Coal shipments to utility, industrial and cogeneration users increased
to 35.4 million tons in the second quarter of 1994, up from 33.3 million tons
in the second quarter of 1993. Export coal totaled 3.2 million tons for the
second quarter of 1994, compared with 4.4 million tons in the prior-year
quarter. The decline in export coal was due to decreased foreign demand, more
attractive domestic markets and increased foreign competition.
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ITEM 2. MANAGEMENT'S ANALYSIS AND RESULTS OF OPERATIONS, CONTINUED
Second Quarter 1994 Compared With 1993, Continued
- -------------------------------------------------
Transportation operating expense was $955 million in the quarter
compared to $956 million in the second quarter of 1993. Despite higher
traffic levels, transportation operating expense was held nearly flat over the
expense level in the prior-year quarter. Labor and fringe benefit expense
increased about 2 percent due to the greater number of train crews required to
handle the higher traffic as well as a modest wage increase mandated by the
Presidential Emergency Board No. 219.
First Six Months 1994 Compared to 1993
- --------------------------------------
For the first six months ended July 1, 1994, CSXT reported net
earnings of $209 million, up 11.8 percent in comparison to 1993. Continuing
cost control efforts held expenses to 1993 levels while the improved domestic
economy bolstered traffic and increased revenues 4 percent.
OUTLOOK
- -------
For the balance of 1994, CSXT anticipates favorable revenue levels
compared with 1993. The higher revenue levels are anticipated to result from
the strong domestic economy. The company also plans to continue the intense
focus on productivity improvements and expense control throughout the company
over the next six months.
Entering the second half of 1994, CSXT is experiencing solid demand
for coal shipments as U.S. utilities rebuild inventories depleted by 1993's
United Mine Workers strikes and unusually high demand during severe winter
weather. Export coal shipments, however, remain weak, as a result of
depressed demand from abroad, foreign competition and the strong domestic
market. CSXT merchandise traffic, reflecting the underlying strength of the
U.S. industrial sector, is expected to trend with the economy. CSXT
experienced only slight interruptions of service and no structural damage
during mid-July flooding in the southeastern U.S.
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.
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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: July 28, 1994 (Principal Accounting Officer)
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