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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8022
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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, VA. 23219-4031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 782-1400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------- -----------------------------
Common Stock, $1 Par Value New York Stock Exchange
9 1/2% Sinking Fund Debentures,
Due 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 ( )
On January 31, 1994, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was $9.3 billion.
On January 31, 1994, there were 104,194,525 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the annual meeting of security holders on May 3, 1994,
for Part III (Items 11, 12 and 13) is incorporated by reference.
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CSX CORPORATION
EDGAR Index - Form 10-K Annual Report
Item No. Page & Note Reference
- -------- ---------------------
PART I
1. Business 4-7, 16-35 and Note 17 to
Consolidated Financial
Statements
2. Properties 4, 16-35 and Notes 7
and 10 to Consolidated
Financial Statements
3. Legal Proceedings Note 14 to Consolidated
Financial Statements
4. Not Applicable
PART II
5. Market for the Registrant's
Common Equity and Related
Stockholder Matters 77-82
6. Selected Financial Data 5-7
7. Management's Discussion and 17-36, and Notes 2, 3,
Analysis of Financial Condition 4, 6, 10, 13, 14,
and Results of Operations and 17 to Consolidated
Financial Statements
8. Financial Statements and
Supplementary Data
The response to this item is
submitted in Item 14.
9. Not Applicable
PART III
10. Directors and Executive Officers 72-76
of the Registrant
11. Executive Compensation (a)
12. Security Ownership of Certain (a)
Beneficial Owners and Management
13. Certain Relationships and Related (a)
Transactions
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CSX CORPORATION
EDGAR Index - Form 10-K Report
Item No. Page & Note Reference
- -------- ---------------------
PART IV
14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
a. Consolidated Statement of
Earnings for the Years Ended
December 31, 1993, 1992 and 1991 38
Consolidated Statement of
Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 39-40
Consolidated Statement of
Financial Position at
December 31, 1993, 1992 and 1991 41
Notes to Consolidated Financial
Statements for the Years Ended
December 31, 1993, 1992 and 1991 42-71
Report of Independent Auditors 37
Index to Exhibits E-1
b. Reports on Form 8-K
None.
(a) Items Number 11, 12 and 13 are incorporated by reference from the
registrant's 1994 Proxy Statement pursuant to instructions G(1) and
G(3) of the General Instructions to Form 10-K.
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THIS IS CSX
CSX Corporation (CSX) is a family of international transportation
companies offering a wide variety of rail, container-shipping, intermodal,
barging, trucking, contract logistics and related services worldwide, through
the business units described below.
Address: 901 E. Cary St., Richmond, VA 23219, (804) 782-1400
CSX Transportation Inc. (CSXT) provides rail transportation and
distribution services over 18,779 route miles and 32,844 track miles in 20
states in the East, Midwest and South; the District of Columbia; and Ontario,
Canada.
Address: 500 Water St., Jacksonville, FL 32202, (904) 359-3100
Sea-Land Service Inc. (Sea-Land) is a leader in container-shipping
transportation and related trade services worldwide. Sea-Land operates a fleet
of 83 container ships and more than 160,000 containers in U.S. and foreign
trade and serves 100 ports in 70 countries and territories.
Address: 150 Allen Rd., Liberty Corner, NJ 07938, (908) 558-6000
CSX Intermodal Inc. (CSXI) provides transcontinental intermodal
transportation services and operates a network of dedicated intermodal
terminals across North America. CSXI also offers truck drayage and chassis
management and leasing services.
Address: 200 International Circle, Hunt Valley, MD 21030, (410) 584-0100
American Commercial Lines Inc. (ACL) is a leader in barge
transportation, operating more than 120 towboats and 3,300 barges in both U.S.
and foreign waterways. Additionally, ACL operates marine construction
facilities, river terminals and communication services.
Address: 1701 E. Market St., Jeffersonville, IN 47130, (812) 288-0100
Customized Transportation Inc. (CTI) is a provider of dedicated
contract logistics services. The company provides an array of premium
distribution, warehousing, processing and assembly, dedicated contract
carriage and just-in-time delivery services.
Address: 10407 Centurion Parkway, North, Suite 400, Jacksonville,
FL 32256-0516, (904) 928-1400
Non-Transportation: Resort holdings include The Greenbrier in White
Sulphur Springs, W.Va., and the Grand Teton Lodge Company in Moran, Wyo. CSX
Real Property Inc. is responsible for sales, leasing and development of CSX-
owned properties no longer needed for operations.
CSX holds a majority interest in Yukon Pacific Corporation, which is
promoting construction of the Trans-Alaska Gas System to transport natural gas
from Alaska's North Slope to Valdez where the gas will be liquefied and
shipped to markets in Japan, Korea and Taiwan.
Address: 1049 W. 5th Ave., Anchorage, AK 99501, (907) 265-3180
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CSX CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Millions of Dollars, Except Per Share Amounts)
1993(b) 1992 1991(c) 1990 1989(d)
------- ------- ------- ------- -------
SUMMARY OF OPERATIONS
Operating Revenue $ 8,940 $ 8,734 $ 8,636 $ 8,205 $ 7,745
------- ------- ------- ------- -------
Operating Expense 7,934 7,769 7,782 7,337 6,876
Productivity/Restructuring
Charge (a) 93 699 755 53 ---
------- ------- ------- ------- -------
Total Operating Expense 8,027 8,468 8,537 7,390 6,876
------- ------- ------- ------- -------
Operating Income $ 913 $ 266 $ 99 $ 815 $ 869
======= ======= ======= ======= =======
Earnings (Loss) From
Continuing Operations $ 359 $ 20 $ (76) $ 365 $ 427
======= ======= ======= ======= =======
PER COMMON SHARE
Earnings (Loss) From
Continuing Operations $ 3.46 $ .19 $ (.75) $ 3.63 $ 4.09
======= ======= ======= ======= =======
Cash Dividends $ 1.58 $ 1.52 $ 1.43 $ 1.40 $ 1.28
======= ======= ======= ======= =======
Market Price - High $ 88.13 $ 73.63 $ 58.00 $ 38.13 $ 38.63
- Low $ 66.38 $ 54.50 $ 29.75 $ 26.00 $ 29.75
======= ======= ======= ======= =======
PERCENTAGE CHANGE FROM
PRIOR YEAR
Operating Revenue 2.4% 1.1% 5.3% 5.9% 2.0%
======= ======= ======= ======= =======
Operating Expense (5.2)% (.8)% 15.5% 7.5% (7.3)%
======= ======= ======= ======= =======
Operating Expense,
excluding Productivity/
Restructuring Charge 2.1% (.2)% 6.1% 6.7% 2.9%
======= ======= ======= ======= =======
Cash Dividends Per Common
Share 3.9% 6.3% 2.1% 9.4% 3.2%
======= ======= ======= ======= =======
SUMMARY OF FINANCIAL POSITION
Cash, Cash Equivalents and
Short-Term Investments $ 499 $ 530 $ 465 $ 609 $ 591
======= ======= ======= ======= =======
Working Capital (Deficit) $ (704) $ (859) $ (942) $ (578) $ (620)
======= ======= ======= ======= =======
Total Assets $13,420 $13,049 $12,798 $12,804 $12,298
======= ======= ======= ======= =======
Long-Term Debt $ 3,133 $ 3,245 $ 2,804 $ 3,025 $ 2,727
======= ======= ======= ======= =======
Shareholders' Equity (e) $ 3,180 $ 2,975 $ 3,182 $ 3,541 $ 3,397
======= ======= ======= ======= =======
Book Value Per Common
Share $ 30.53 $ 28.75 $ 31.08 $ 35.93 $ 33.24
======= ======= ======= ======= =======
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CSX CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS, CONTINUED
1993(b) 1992 1991(c) 1990 1989(d)
------- ------- ------- ------- -------
EMPLOYEE COUNT (f) (Continuing Operations)
Rail 29,216 30,916 33,239 35,672 37,685
Other 17,847 16,681 16,644 15,259 14,897
------- ------- ------- ------- -------
Total 47,063 47,597 49,883 50,931 52,582
======= ======= ======= ======= =======
See Notes 1, 2, and 4 to Consolidated Financial Statements.
(a) In 1993, the company recorded a $93 million pretax charge to
recognize the estimated costs of restructuring certain operations and
functions at its container-shipping unit. The restructuring charge
reduced net earnings by $61 million, 59 cents per share. In 1992,
the company recorded a charge to recognize the estimated costs of
buying out certain trip-based compensation elements paid to train
crews. The pretax charge amounted to $699 million and reduced net
earnings for 1992 by $450 million, $4.38 per share. In 1991, the
company recorded a charge to provide for the estimated costs of
implementing work-force reductions, improvements in productivity and
other cost reductions at its major transportation units. The pretax
charge amounted to $755 million and reduced 1991 net earnings by $490
million, $4.88 per share. In 1990, the company recorded a $53
million restructuring charge related to its container-shipping unit.
On an after-tax basis, the restructuring charge was $36 million, 37
cents per share.
(b) The company revised its estimated annual effective tax rate in 1993
to reflect the change in the federal statutory income tax rate from
34 to 35 percent. The effect of this change was to increase income
tax expense for 1993 by $56 million, 54 cents per share. Of this
amount, $51 million, 48 cents per share, related to applying the
newly enacted statutory income tax rates to deferred tax balances as
of January 1, 1993.
(c) During 1991, the company consummated the sale of a one-third interest
in Sea-Land Orient Terminals Ltd., the sale of the stock of RF&P
Corporation and other investment transactions. After taxes and
minority interest, the transactions resulted in a net gain of $32
million, 32 cents per share.
(d) During 1989, the company consummated the sales of its partnership
interest in LIGHTNET, and Rockresorts, Inc. and certain related
properties. Those sales resulted in an after-tax gain of $73
million, 73 cents per share.
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CSX CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS, CONTINUED
(e) During 1989, the company purchased 9.9 million shares of its common
stock, which had the effect of reducing shareholders' equity by $324
million. This completed the 60 million share purchase program, which
began in the prior year. The average price of all shares acquired
was $32.03.
(f) Employee count based on annual averages.
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To Our Shareholders:
Any sailor can navigate a calm sea. Just as turbulence helps define a
mariner's skills, adversity tests the competence and agility of a
corporation's management team. Though potentially destructive, adversity has
its benefits. It forces people -- and corporations -- to push themselves
harder, to try new approaches and to challenge the status quo.
Clearly, CSX faced serious difficulties in 1993, a year in which a
series of unforeseeable and unwelcome events sought to impede the company's
efforts to improve the performance of its core transportation businesses. But
it also was a splendid year for the company, because the men and women of CSX
met the myriad challenges that arose. Not only did we remain on course toward
meeting our long-term objectives, we emerged stronger, wiser and better able
to handle whatever problems or opportunities the future may bring.
While CSX's 1993 earnings were below our expectations, the company's
overall operating performance was remarkable, particularly in light of the
unusual circumstances we faced. This ability to produce solid results during
demanding times reflects the fundamental improvements each of our business
units has made in recent years, and it bodes well for CSX's future
performance.
Overcoming Adversity
The difficulties that CSX confronted in 1993 were widespread. A
protracted strike by the United Mine Workers of America (UMWA) and weak
foreign demand for export coal dealt punishing blows to our rail and barge
units. Weak economies abroad hurt U.S. exports and reduced our
container-shipping unit's volumes in key trade lanes. Even Mother Nature added
to our trials, as a severe winter storm in March virtually shut down our
railroad for several days, and catastrophic flooding throughout the spring and
summer in the Midwest caused severe disruptions for our barge unit and, to a
lesser extent, our intermodal unit.
Facing such calamitous external conditions, it would have been easy
to pursue short-term performance goals at the expense of our overriding
long-term objective of improving the strength and fundamental earning power of
the company. Instead, each CSX business unit moved quickly to limit the impact
of adverse conditions on its business while maintaining its focus on
developing stronger, more competitive operations for the long term.
Strong Results
CSX delivered solid financial results in 1993. Total revenue rose
$206 million from 1992's level to $8.94 billion. Excluding a restructuring
charge at our container-shipping unit, operating income exceeded $1 billion
for the first time.
Earnings per share were $4.53, down 4 cents from 1992's level, after
excluding charges from both years and the 1993 impact of applying an increase
in the corporate tax rate. Despite increasing the quarterly dividend by 16
percent and making $293 million in productivity improvement payments that will
enhance future earnings, the company generated $238 million of free cash flow.
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Pro Forma Net Earnings
---------------------------------------------
(Millions of Dollars, Except Per Share Amounts)
1993 1992
----------------- -----------------
Description (All After Tax) Amount Per Share Amount Per Share
--------------------------- ------ --------- ------ ---------
Net Earnings as Reported $359 $3.46 $ 20 $ .19
Statutory Tax Rate Adjustment 51 .48 --- ---
Restructuring/Productivity Charge 61 .59 450 4.38
---- ----- ---- -----
Pro Forma Total, Excluding Charges
and Tax Rate Adjustment $471 $4.53 $470 $4.57
==== ===== ==== =====
CSX closed the year on a positive note by posting record operating
income in the fourth quarter. The strong results were driven by exceptional
performances at each of the company's units, which together offset a 17
percent decline in coal originations by our rail unit during the quarter. UMWA
strikes against selected eastern coal producers ran for 238 days during 1993
and affected nearly 25 percent of the coal traffic handled by our rail unit in
the prior year. With the work stoppages having ended December 15, we expect
domestic coal traffic to return to more normal levels in 1994.
The stock market continued to recognize the progress CSX is making
toward building a better company. For the third consecutive year, the total
return of CSX stock outpaced the S&P 500 Stock Index and other key market
barometers. In 1993 alone, $1.5 billion in additional value was created for
our shareholders, in the form of dividends and share price appreciation.
The favorable performance of CSX stock relative to other
transportation stocks and the overall market reflects Wall Street's
recognition of the progress the company has made in recent years, as well as
expectations for further gains in 1994 and beyond. Our goal is to meet and
exceed those expectations by continuing to master the basics of our business.
We are committed to enhancing shareholder value over the long term by
improving the fundamental earning power of CSX and increasing free cash flow.
We are pleased to report that CSX crossed a critical threshold in
1993 on the path to increased shareholder value: The corporation earned its
cost of capital on a consolidated basis for the first time. Achieving this
long-time goal is a major milestone for CSX, one we intend to build upon in
1994 and beyond.
Creating Value
We strongly endorse the management concept known as "economic value
added," or EVA, which is rapidly gaining favor among leading corporations. In
basic terms, EVA holds that corporations create wealth only when they generate
returns above their cost of capital. EVA provides a formula for measuring an
operation's real profitability -- one that holds managers accountable for
specific financial results.
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Since our major restructuring in 1988, CSX has measured the financial
performance of each of its business enterprises by comparing that unit's
return on invested capital (ROIC) with CSX's cost of capital. ROIC is the
measure CSX uses to determine how effectively we are deploying our investors'
capital in an operating activity -- whether it employs locomotives, freight
cars, vessels, barges, containers, facilities, working capital, or any other
asset. In basic terms, we calculate ROIC by dividing operating profit, after
the payment of cash taxes, by total invested capital. When the ROIC of a CSX
business unit or specific activity exceeds the corporation's overall cost of
capital, EVA is enhanced.
Our focus on generating returns in excess of the cost of capital has
produced impressive results throughout the company. By calculating what
capital costs the company, our management team is better able to evaluate the
performance of specific operations and to determine the financial targets that
must be reached. This discipline forces us to manage assets as efficiently as
possible and deploy capital where it will generate the best returns. Over
time, the additional value created within CSX will be reflected in the
financial markets, thus creating wealth for our shareholders.
Managing More Effectively
This focus on EVA has spread throughout CSX. It is EVA that has
spearheaded many of our successful efforts to improve the long-term
profitability of the company -- by cutting costs, utilizing assets more
productively, conserving capital and growing our business prudently.
Possibly the clearest example of how EVA has worked for CSX is the
dramatic turnaround in the profitability of our intermodal business, which
combines rail and truck operations. Six years ago when we closely evaluated
this business, we discovered it was losing nearly $50 million a year -- thus
eroding shareholder value.
To remedy the situation, CSX formed a strategic business unit -- CSX
Intermodal Inc. (CSXI) -- to manage our intermodal operations. In its first
year, CSXI retrenched to its core business by closing 14 terminals, releasing
more than 75 locomotives for other rail service and shedding nearly $100
million in revenue from money-losing operations.
Over the next five years, CSXI grew rapidly by concentrating on its
profitable niches, deploying its assets more productively and developing new
business opportunities. In 1993, CSXI earned operating income of $53 million
and produced a return on its capital investment well above CSX's cost of
capital.
Attacking Unnecessary Costs
The same management strategies that transformed our inefficient
intermodal business into a flourishing enterprise are producing positive
results throughout CSX. The most impressive results so far have come from our
aggressive campaign to reduce the cost base of our businesses by driving out
unnecessary expenses.
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Our rail unit, CSX Transportation Inc. (CSXT), has led the assault on
costs through its Performance Improvement Team (PIT) initiative begun in 1992.
Benchmarking the railroad's performance against that of its peers' best
practices, CSXT identified performance gaps and established action teams to
close them. The PIT process has produced permanent cost savings of $263
million since 1992, and CSXT has targeted well over $100 million in savings
for 1994.
Last year, the PIT process spread to Sea-Land Service Inc.
(Sea-Land), our container-shipping unit. Sea-Land expects its performance
teams to help the company capture cost reductions and productivity savings in
excess of $100 million this year. That will be on top of the $262 million in
savings Sea-Land has achieved during the past two years.
Our barge unit, American Commercial Lines Inc. (ACL), also has teams
hard at work refining the company's work processes and operational
efficiencies following recent acquisitions. Last year, ACL initiated a major
effort to re-engineer work processes to maintain its position as the carrier
of choice on the U.S. inland waterway system. ACL has achieved productivity
improvements of $28 million since 1992, including greater asset utilization
and significant reductions in general and administrative costs.
Reducing costs, however, is just one component of CSX's campaign to
enhance the fundamental value of the company. Each of our business units is
committed to working smarter in every way -- both individually and in close
cooperation with other CSX units -- to improve safety, productivity,
competitiveness and profitability. That commitment has become ingrained in the
culture of CSX.
Growth Opportunities
While we expect additional cost reductions to have the greatest
impact on the company's operating income over the next few years, we also see
significant growth opportunities ahead. In fact, each of our transportation
companies currently expects to produce higher revenue during 1994.
The railroad's merchandise traffic should remain relatively strong,
and coal carloadings are expected to return to more normal levels this year.
CSXI should achieve record revenue and operating income. Sea-Land will expand
its market share in major trade lanes, in strategic commodity groups and among
key multinational customers. Customized Transportation Inc. (CTI) -- a leading
provider of dedicated contract logistics services and the newest member of the
CSX family of transportation companies -- will continue to grow rapidly by
expanding its service to the U.S. automotive industry and branching out into
new markets. And ACL will continue to augment its main revenue sources -- coal
and grain -- by increasing its handling of higher-margin commodities, such as
liquids and chemicals.
We are excited about the numerous opportunities we see flowing from
the expansion of international trade. Sea-Land, because of its strength as a
full-service provider of global transportation services, is especially
well-positioned to pursue attractive returns and strong growth in developing
markets -- particularly China, Southeast Asia, South America and Eastern
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Europe. CSXT, which serves more ocean ports than any other U.S. railroad, will
benefit from increased trade between America and the rest of the world, as
will our intermodal company. And ACL is testing foreign waters with a new
barging venture in Venezuela.
Global Transportation
When we compare CSX with other freight transportation systems, we
take great pride in the breadth of our expertise and in the fact that we
already have a strong international base. These attributes give us a unique
opportunity to take advantage of the growing globalization of trade and
transportation services.
All of our units -- but particularly Sea-Land and ACL -- should
benefit from the recent conclusion of negotiations under the General Agreement
on Tariffs and Trade, which is expected to increase trade between the United
States and Europe in both merchandise and agricultural products. Likewise, our
units should benefit from implementation of the North American Free Trade Act.
We are especially optimistic about plans to gain direct access to the
burgeoning Mexican market with a rail-marine link between the U.S. Gulf Coast
and some of Mexico's largest markets. Under this scenario, CSXT rail cars
would be rolled aboard custom-designed vessels for delivery to the Mexican
Gulf Coast, where the cars would be transferred to the Mexican national
railroad. Several CSX units have joined forces to produce an action plan that
we expect to begin implementing late this year.
Investing in the Future
CSXT will make a major investment in the reliability and efficiency
of its locomotive fleet beginning this year. Over the next four years, CSXT
will purchase 300 highly efficient locomotives, including 250
alternating-current (AC) locomotives, 53 of which will be powered by
6,000-horsepower engines. Each of the new locomotives is expected to replace
approximately two older models, resulting in lower maintenance costs,
increased fuel efficiency and greater service reliability.
Crew-reduction and work-rule agreements implemented over the past few
years also will contribute to the enhanced efficiency of our railroad in the
years ahead. As a result of agreements negotiated in 1993 and similar ones
implemented over the past several years, CSXT now can operate through-freight
trains with only a conductor and engineer on virtually its entire system.
Efforts to implement these agreements in local and yard service are well under
way. These new crew-consist agreements, together with more flexible work rules
and other productivity improvements, are strengthening the competitiveness of
our railroad -- and the rail industry as a whole.
Our ocean-shipping unit is moving to improve its competitiveness by
investing $250 million over the next three years to enhance its fleet.
Sea-Land will acquire four high-performance, fuel-efficient container ships.
When delivered in the second half of 1995 and early 1996, the new vessels will
replace higher-cost capacity in the competitive trans-Pacific trade. The
company also will modify three existing Atlantic Class vessels to increase
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their service speed, allowing the ships to be deployed in any of several key
trade lanes. This program will enable Sea-Land to replace higher-cost assets,
improve efficiency and enhance customer service.
Another way CSX is preparing for the future is by investing in the
people who serve this company. The CSX Way, the framework for shaping our
corporate culture that we unveiled in 1991, recognizes that the ultimate
success of the company will be determined by its employees. With that in mind,
we began a concerted effort last year to foster and develop the
professionalism of our work force. These employee training and development
programs promote the highest standards of professionalism and ethical conduct,
both at senior levels of management and throughout the organization.
Public policy issues
As always, CSX's fortunes will be affected by external factors in
1994, not the least of which will be issues of public policy and regulation.
Increasing rail passenger service offers significant opportunities
for our nation. However, renewed interest in the use of our railroad's
existing rights of way by commuter and high-speed intercity passenger services
raises serious issues. First, our railroad must be fairly compensated for the
use of its tracks. Liability protection also must be provided. And, finally,
there is the issue of passenger or commuter service limiting our ability to
adequately serve freight customers.
We must not sacrifice the quality of our freight system. We are
actively negotiating with local commuter authorities on the number of trains
allowed to use our rights of way and the adequate level of compensation, and
we hope for a fair outcome for all parties. The reality is that our tracks
have limited capacity. The preferred solution will be to build new tracks for
passengers within existing rail rights of way.
Like most U.S. companies, we are closely studying the Clinton
Administration's health-care proposals. CSX provides generous benefits to its
employees worldwide and last year spent more than $300 million on health care.
With more than 40,000 employees in the United States alone, CSX clearly has a
large stake in the outcome of this debate.
We also are alert to possible efforts to increase the tax burden on
corporations. The retroactive increase in the statutory corporate tax rate
from 34 to 35 percent last year hurt the competitiveness of American
businesses and reduced CSX earnings significantly. We believe that requiring
corporations to pay higher income taxes is a mistake. In reality, it is
shareholders, customers and employees who bear the brunt of higher corporate
taxes. Moreover, corporate taxes drain funds that would otherwise be available
for investment in productive assets.
While we were disappointed to see higher corporate taxes enacted last
year, we were relieved to see the demise of various proposals to assess severe
taxes on energy consumption. Taxing the carbon or BTU content of energy would
have placed an unreasonable burden on coal, a key commodity of our rail and
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PAGE 14
barge units and an important source of energy for many CSX customers. We will
continue to oppose government policies that favor certain fuel sources to the
disadvantage of others.
Another proposed tax that was firmly rejected by Congress was the
unwise proposal to place a $1-per-gallon user fee on fuel used by barge
operators on the inland waterways. This would have been a more than fivefold
increase in the already substantial fuel taxes paid by the barge industry.
Maritime Reform Progress
One positive development on the political front was the progress made
toward enactment of maritime policy reform, which culminated in the House of
Representatives overwhelmingly approving the Maritime Security and
Competitiveness Act. This is a major step toward revitalizing the U.S.
Merchant Marine. We are encouraged that the Clinton Administration supports
maritime reform and has earmarked funding for it in its fiscal 1995 budget
proposal.
We are diligently working with other carriers and our unions to
ensure that maritime policy reform becomes a reality in 1994. However, one way
or another, we intend to overcome the competitive disadvantages of being a
U.S.-flag operator. If significant reform is not enacted in 1994, we expect
the U.S. government to approve our request to transfer a number of container
ships to foreign registry, thus enabling Sea-Land to compete on more equal
terms with heavily subsidized, foreign-flag competitors.
We can't accurately predict the outcome of public policy issues or
the impact economic and political developments may have on our business. But
we will continue to move swiftly to limit the adverse consequences of
unwelcome events beyond our control and to seize opportunities as they arise.
Building on Our Strengths
In 1994, CSX will build on its strengths, while continuing to
identify and correct weaknesses. Our business units will benchmark specific
operations and functions against the best of their peers, both within and
outside the transportation industry. As we identify and develop best business
practices, we will spread them throughout our organization.
Already, CSX is reaping the rewards of increased cooperation among
its business units. Our companies are working closely together, sharing
intelligence and economies of scale, and cooperating across a wide spectrum of
activities -- including purchasing, safety, quality, technology, marketing and
operations. By leveraging the strengths of our vast network of transportation
companies, we are creating value for our shareholders.
Improving the performance of our individual units continues to be our
foremost objective. Beyond that, however, we intend to demonstrate that the
true value of CSX is greater than the sum of its parts.
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PAGE 15
Long-term Outlook
Our units, having made enormous strides in recent years improving
virtually every aspect of their performance, are now poised to use these
achievements as a springboard to further progress. We believe CSX has an
opportunity to create an organization that stands among the best, not only
within the transportation industry, but among all corporations worldwide. We
are excited about the future and eager to demonstrate the improving earning
power of CSX.
No matter what 1994 brings -- and it would be hard to imagine
circumstances as adverse as those we faced in 1993 -- we intend to deliver
solid results. We have high aspirations and are setting new standards for
performance excellence. And in so doing, we are laying the foundation for a
bright future for our employees, customers and shareholders.
Sincerely,
/s/ JOHN W. SNOW
- ----------------
John W. Snow
Chairman and Chief Executive Officer
- 15 -
PAGE 16
CSX CORPORATION AND SUBSIDIARIES
FINANCIAL SECTION
A Message to Shareholders on CSX's Financial Principles
The management of CSX Corporation is dedicated to reporting the
company's financial condition and results of operations in an accurate, timely
and conservative manner in order to give shareholders all the information they
need to make decisions about investment in the company. CSX management also
strives to present to shareholders a clear picture of the company's financial
objectives and the principles that guide its employees in achieving those
goals.
In this section, financial information is presented to assist you in
understanding the sources of earnings and financial resources of the company
and the contributions of the major business units. In addition, certain
information needed to meet the Securities and Exchange Commission's Form 10-K
requirements has been included in the Notes to Consolidated Financial
Statements.
The key objective of CSX is to increase shareholder value by
improving the return on capital invested in its businesses and maximizing free
cash flow. The company defines "free cash flow" as the amount of cash
available for debt service and other purposes generated by operating
activities after deducting capital expenditures, present value of new leases
and cash dividends.
To achieve these goals, managers utilize the following guidelines in
conducting the financial activities of the company:
Capital expenditures -- CSX business units are expected to earn returns on
capital expenditures in excess of the CSX cost of capital, unless such
expenditures are necessary to meet safety, environmental or other regulatory
requirements. Business units that do not earn above the CSX cost of capital
and do not generate an adequate level of free cash flow over an appropriate
period of time will be evaluated for sale or other disposition.
Taxes -- CSX will pursue all available opportunities to pay the lowest
possible federal, state and foreign taxes, consistent with applicable laws and
regulations and the company's obligation to carry a fair share of the cost of
government. CSX also works through the legislative process to keep effective
tax rates as low as possible.
Debt ratings -- The company will strive to maintain its investment grade debt
ratings, which allow cost-effective access to major financial markets
worldwide. The company will manage its financial condition in a manner
consistent with meeting this objective, including its debt levels and the
amount of fixed charges it incurs.
Dividends -- Every quarter, the cash dividend will be reviewed in light of the
current rate of inflation and competitive dividend yields. The dividend may be
increased periodically if cash flow projections show the higher payout level
could be adequately maintained.
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PAGE 17
Management's Responsibility for Financial Reporting
The consolidated financial statements of CSX Corporation have been
prepared by management, which is responsible for their content and accuracy.
The statements present the results of operations, cash flows and financial
position of the company in conformity with generally accepted accounting
principles and, accordingly, include amounts based on management's judgments
and estimates.
CSX and its subsidiaries have established and maintain an internal
control structure designed to provide reasonable assurance that assets are
safeguarded and that transactions are properly authorized by management and
recorded in conformance with generally accepted accounting principles. This
structure includes accounting controls, written policies and procedures and a
code of corporate conduct that stresses the highest ethical standards and is
routinely communicated to all employees. This structure also includes an
internal audit staff to monitor the compliance with and effectiveness of
established policies and procedures.
The Audit Committee of the board of directors, which is composed
solely of outside directors, meets periodically with management, internal
auditors and the independent auditors to review audit findings, adherence to
corporate policies and other financial matters.
The firm of Ernst & Young, Independent Auditors, has been engaged to
audit and report on the company's consolidated financial statements. Its audit
was conducted in accordance with generally accepted auditing standards and
included a review of internal accounting controls to the extent deemed
necessary for the purpose of its report, which appears on page 37.
ANALYSIS OF OPERATIONS
CSX is a worldwide freight transportation company with autonomous
units providing rail, intermodal, ocean container-shipping, barging and
trucking services. In addition, these units offer a range of related services,
including warehousing, distribution, logistics management and inland marine
construction and repair.
Each unit of CSX is charged with earning a return on invested capital
greater than the corporate cost of capital and generating free cash flow and
operating income that meet annual targets set in conjunction with corporate
goals. Consistent with these unit objectives, CSX has as its foremost goal the
creation of shareholder value.
While each CSX unit faced challenges during 1993 and will meet new
hurdles in 1994 and beyond, the company is committed to achieving the goals
set forth above. During 1993, CSX made significant progress in reducing
costs, increasing productivity and improving customer service -- progress that
translated into increased market value for CSX shareholders.
CSX Transportation Inc. (CSXT), the rail unit, serves all major
industrial and consumer markets east of the Mississippi River, with the
exception of New England, and more ocean ports than any other U.S. railroad.
CSXT accounted for 49% of CSX's 1993 total operating revenue and 74% of total
- 17 -
PAGE 18
operating income. These percentages and those of the other units exclude the
effect of a restructuring charge recorded at the container-shipping unit.
Sea-Land Service Inc. (Sea-Land), is the largest U.S.-flag
container-shipping company and the only U.S. carrier serving all major ocean
trade lanes. Sea-Land contributed 36% of overall operating revenue and 19% of
operating income.
CSX Intermodal Inc. (CSXI), the nation's only full-service,
coast-to-coast intermodal transportation company, offers a wide variety of
services to domestic and international shippers through its North American
network of dedicated terminals. In 1993, CSXI provided 9% of total operating
revenue and 5% of total operating income.
American Commercial Lines Inc. (ACL), provides barge and other marine
services, primarily along the U.S. inland waterway system. It generated 5% of
CSX's operating revenue and 4% of overall operating income.
Customized Transportation Inc. (CTI), CSX's newest business unit,
supplies contract logistics services, including just-in-time deliveries. CTI
provided 2% of total operating revenue and 1% of operating income. The
financial results of CTI are included in other transportation operations and
interunit eliminations. (See Table 1.)
The consolidated statements of earnings, cash flows and financial
position presented on pages 38-41 reflect the combined performance of the
company's business units.
Discussion of Earnings
Consolidated operating revenue for 1993 was $8.9 billion, 2% higher
than in 1992 and 4% above 1991's level. The higher 1993 revenue resulted from
greater volumes handled by the container-shipping and intermodal units. These
gains, attributable to expanded service and improved market share, were
sufficient to overcome lower revenue at other units. Rail revenue suffered
from a decline in the export coal market, as well as from the effects of a
238-day strike against selected eastern coal operators. These events depressed
shipments of the largest commodity moved by CSXT. Barging revenue also
declined significantly on a year-to-year basis as disastrous flooding along
the upper Mississippi River and its tributaries halted most barge traffic
along the inland waterway system for 89 days during the summer. ACL also felt
the impact of weakened coal exports and the coal strike.
Compared with 1991, all units generated higher revenue in 1993,
primarily due to volume gains. Driving the increases were an improved level of
economic activity, expanded service and market share gains. In addition, the
barge unit's revenue benefited from the 1992 acquisition of the Valley Line
Companies' barges.
Consolidated operating expense was $8 billion in 1993, including
Sea-Land's $93 million pretax restructuring charge. Operating expense was $8.5
billion for both 1992 and 1991. The decrease in 1993's operating expense was
due to a lower charge and also reflected significant cost improvement
strategies employed at all units. Operating expense in 1992 included a $699
million pretax productivity charge, and 1991's operating expense included a
- 18 -
PAGE 19
pretax productivity charge of $755 million. Both of these charges related
primarily to train-crew reductions at the rail unit.
Excluding the restructuring and productivity charges from all three
years, 1993 operating expense would have been $7.9 billion, up slightly from
$7.8 billion in 1992 and 1991.
Consolidated operating income for 1993 was $913 million. This
represents a significant increase over both 1992 and 1991 levels, due to the
large productivity charges recorded in these years. Excluding the productivity
and restructuring charges from all years, operating income increased 4% from
1992 and 18% from 1991.
Other income totaled $18 million, compared with $3 million in 1992
and $94 million in 1991. Other income for 1993 included an increase in the
gain recognized on the installment sale of track in South Florida. Other
income for 1991 included one-time gains on the sales of RF&P Corporation stock
and an interest in Sea-Land Orient Terminals Ltd.
Interest expense increased $22 million from 1992's level, but
decreased $8 million compared with 1991. The increase from 1992 is due largely
to higher levels of short-term commercial paper issued by the company to
provide cash reserves in the event of a disruptive and prolonged coal strike.
This higher level of interest expense was partially offset by earnings on the
company's cash reserves.
Net earnings totaled $359 million, $3.46 per share, compared with $20
million, 19 cents per share in 1992, and a loss of $76 million, 75 cents per
share in 1991, before a change in accounting.
Net earnings for 1993 included the effect of the $93 million pretax
restructuring charge posted in the first quarter to recognize the expense
associated with reorganizing and downsizing the European and North American
operations of Sea-Land. After taxes, this charge was $61 million, 59 cents per
share. Additionally, CSX recognized $51 million, 48 cents per share of income
tax expense related to applying the newly enacted statutory income tax rate to
deferred tax balances as of January 1, 1993.
Earnings for 1991 included a charge to provide for the estimated
costs of implementing work-force reductions, improvements in productivity and
other cost reductions at the major transportation units. The charge amounted
to $755 million on a pretax basis and reduced 1991 net earnings by $490
million, $4.88 per share. Earnings for 1992 included a charge principally to
recognize the estimated additional costs of buying out certain trip-based
compensation elements paid to train crews. The additional pretax charge
amounted to $699 million and reduced net earnings for 1992 by $450 million,
$4.38 per share.
Excluding the Sea-Land restructuring charge and the effect of the
corporate tax rate change, earnings for 1993 would have been $471 million,
$4.53 per share. These adjusted results were 4 cents per share lower than
1992's level of $470 million, $4.57 per share, and 72 cents per share above
1991's $382 million, $3.81 per share, on a like basis.
- 19 -
PAGE 20
Discussion of Cash Flows
For 1993, cash provided by operating activities, together with
proceeds from disposition of properties, was adequate to fund property
additions and cash dividends.
Cash provided by operating activities totaled $962 million in 1993,
compared with $939 million in 1992 and $866 million in 1991. This amount
continued to be negatively impacted by payments related to the 1992 and 1991
productivity charges to implement two-member crew agreements on CSXT's rail
system.
During 1993, CSXT successfully concluded agreements providing for
two-member train crews on through-freight assignments across virtually its
entire rail system. These agreements, like those previously negotiated,
provided for the buyout of excess positions, productivity funds and short-crew
allowances.
To date, the company has paid $640 million related to its 1992 and
1991 productivity charges, largely due to the implementation of these
agreements. CSX estimates cumulative savings of approximately $60 million to
$70 million in 1992 and 1993 as a result of its reduced crew sizes. Payments
also were made in conjunction with implementation of Sea-Land's European and
North American restructuring activities as well as other CSXT severance
programs.
With completion of two-member crew negotiations and payments made to
date, CSX anticipates a significant decrease in future cash payments made from
productivity and restructuring reserves. These payments are expected to be
between $100 million and $125 million in 1994 and under $100 million annually
after 1994.
Property additions totaled $768 million for the year. This compares
with additions of $1 billion in 1992, which included $137 million for
acquisition of the assets of the Valley Line companies, and $864 million in
1991. This reduced level of capital spending reflects CSX's success in
rationing capital and utilizing assets wisely.
Additional capital was committed in the form of new and renewed
operating leases. The present value of future payments on these equipment and
facility leases totaled $108 million in 1993, for total new capital investment
of $876 million in 1993. This compares with totals of $1 billion and $881
million in 1992 and 1991, respectively.
CSX's cash dividends per common share rose 4% from 1992's level and
10% above 1991's level, to $l.58, compared with $1.52 and $1.43 for 1992 and
1991, respectively. This resulted from the 16% increase in the quarterly
dividend beginning with the fourth quarter of 1993. The number of CSX shares
outstanding rose slightly, to 104 million, as a result of stock issued under
the provisions of incentive and benefit plans and the dividend reinvestment
plan available to shareholders.
CSX anticipates achieving cash flows from operations sufficient to
meet future operating and capital needs, cash dividends and anticipated labor
buyout and restructuring payments.
- 20 -
PAGE 21
The company also expects that it will continue its successful record
of extracting significant cash value from disposition or lease of rights of
way, real estate and non-core asset holdings. CSX expects to have access to
financial markets, as necessary, to fund operating, working capital and other
requirements.
Discussion of Financial Position
Cash, cash equivalents and short-term investments totaled $499
million at December 31, 1993, compared with $530 million at year-end 1992, and
$465 million at year-end 1991.
CSX adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
January 1, 1994. Investments in short-term and long-term debt securities held
as of that date have been classified as "held to maturity."
The working capital deficit decreased by $155 million during 1993,
largely due to reclassification of current deferred income taxes. CSX had
year-end working capital deficits of $704 million in 1993, $859 million in
1992, and $942 million in 1991. A working capital deficit is not unusual for
CSX and does not indicate a lack of liquidity. CSX maintains adequate
resources to satisfy current liabilities when they are due and has sufficient
financial capacity to manage its day-to-day cash requirements.
Under Statement of Financial Accounting Standards No. 109, CSX
reclassified $108 million of its long-term deferred income tax balances to a
current account during 1993 to match the life of this deferred benefit with
the underlying components that gave rise to the deferred income taxes.
Environmental concerns have drawn considerable attention. CSX, like
many American companies today, faces the challenge of dealing with this issue
and is addressing its environmental responsibilities and managing the related
expenditures. Environmental management is an important part of CSX's strategic
planning, which includes promotion of policies and procedures that emphasize
environmental awareness throughout the company.
CSX has established formal environmental departments at each
operating unit to monitor operations. As a result, there is an active focus on
finding the most efficient, cost-effective solutions for dealing responsibly
with waste materials generated from past and present business operations.
These solutions range from simple recycling and cleanup efforts to high-tech
remediation initiatives.
CSX has systematically examined the products it uses in daily
processes and has avoided the use of toxic chemicals or substituted more
benign products to the greatest extent possible. The company also has
large-scale office waste recycling programs in place at each of its units.
Total expenditures associated with protecting the environment and
remedial environmental cleanup efforts amounted to $42 million in 1993. This
compares with $27 million in 1992 and $30 million in 1991.
Future levels of environmental costs and capital spending are
difficult to estimate since they depend upon a number of variables.
- 21 -
PAGE 22
These include evolving legal requirements, technologies, insurance coverage,
responsibility and credit worthiness of other parties and assessment of the
remediation required at sites.
CSX continues to assess its responsibility at environmentally
sensitive locations. The company periodically reviews its environmental
reserves as new developments arise and determines whether adjustments are
needed. Based upon information currently available, the company believes that
such reserves are adequate to meet remedial actions to comply with present
laws and regulations. However, there can be no assurance that, as new facts
become available or as new environmentally sensitive locations are identified,
additional liabilities and related settlements would not be significant to
future consolidated results of operations and cash flows.
CSX's debt-to-total-capital ratio was 49.2% at year-end 1993,
compared with 51.7% for 1992 and 46.5% for 1991. The company anticipates using
excess cash to reduce debt over the next few years.
Consistent with this objective, long-term debt decreased to $3.1
billion in 1993 from $3.2 billion in 1992. This level compares with $2.8
billion in 1991. The company issued additional debt in 1992 to finance
productivity payments and property acquisitions.
RESOURCES AVAILABLE DECEMBER 31, 1993
-------------------------------------
(Millions of Dollars)
-------------------
Cash, Cash Equivalents and Short-Term Investments $ 499
Total Credit Lines Available 880
Outstanding Borrowings:
Bank Lines ---
Commercial Paper (464)
-----
Total Liquidity $ 915
=====
Working Capital (Deficit) $(704)
=====
- 22 -
PAGE 23
Rail Assets
(Owned and leased as of December 31, 1993)
Freight Cars
Boxcars 15,012
Open-top hoppers 35,928
Covered hoppers 18,808
Gondolas 20,604
Other cars 14,784
-------
Total 105,136
-------
Locomotives 2,810
Track
Route miles 18,779
Track miles 32,844
Rail Results
CSXT met the challenges of a prolonged U.S. coal strike and sharp
decline in its export coal markets in 1993 by continuing to lower the cost of
its operations while increasing its focus on merchandise markets. This dual
emphasis allowed the unit to earn operating income of $746 million, $6 million
above 1992's comparable $740 million, despite a significant decline in coal
volumes. Operating income rose 21% compared with 1991 earnings of $617 million
on a like basis. These comparisons exclude net productivity charges of $619
million and $647 million in 1992 and 1991, respectively, associated with labor
reductions. Including these charges, the rail unit recorded operating income
of $121 million in 1992 and an operating loss of $30 million in 1991.
Operating revenue was $4.38 billion, a 1% decline from $4.43 billion
a year earlier, but a slight increase from 1991's revenue of $4.37 billion.
The decrease in 1993 was caused by a 13% decline in coal revenue, the largest
source of CSXT revenue. Coal revenue also was 13% lower than 1991's level.
Total coal originated by CSXT was 144.1 million tons in 1993, 11% and 13%
below levels originated in 1992 and 1991, respectively.
Weakened demand for U.S. coal from the European Community nations and
Japan, due to lower levels of economic growth, continued government subsidies
and intensified foreign competition, caused CSXT's export coal shipments to
decline significantly from the prior two years. In addition, both domestic and
export shipments were negatively affected by selective coal strikes against
eastern coal operators, which diminished shipments during nine months of 1993.
While CSXT anticipates only a slight recovery in the export coal market, the
company does expect notably higher carloadings of coal to utilities since the
strikes ended in December 1993.
Rail merchandise volume and revenue jumped 4% and 5% from 1992's
levels and 6% and 9% from 1991's results, respectively, to 2.6 million
carloads and $2.9 billion in revenue. The gains reflected expansion in the
domestic economy and improved conditions in key industries served by CSXT.
- 23 -
PAGE 24
With U.S. auto producers enjoying large gains in market share and
increased demand from consumers, CSXT's automotive traffic led the growth in
merchandise carloadings and revenue. CSXT also recorded large gains in metals,
due to surging scrap demand from U.S. mini-mill steel producers. Minerals
traffic advanced due to renewed activity in construction and highway projects.
CSXT's agriculture volumes and revenues moved well beyond prior-year levels,
benefiting from export of 1992's bumper grain crop through late summer and
continued expansion in the southeastern poultry and feed grain businesses
throughout the year. The strengthening economy and higher level of auto
production contributed to a sizeable increase in chemical traffic.
With foreign demand for U.S.-mined phosphates remaining depressed,
phosphate and fertilizer carloadings declined further. The forest products
market also was off slightly from 1992 and 1991 levels as a result of excess
paper production during 1992.
CSXT anticipates modest improvement in merchandise traffic volume and
revenue for 1994, reflecting continued expansion of the U.S. economy. Also,
while no marked improvement is forecast in export phosphate demand, increased
shipments of fertilizer products to the U.S. Midwest are expected as farmers
replenish fields following last year's flooding.
Rail operating expense was $3.6 billion, a decline of 2% from
comparable 1992 expense and 3% from 1991 expense, excluding the previously
mentioned productivity charges. Commitment to expense reduction and
productivity improvement, coupled with volume declines, led to the lower
expense level in 1993.
Labor expense continued to decline, to $1.8 billion, from a level of
$1.81 billion and $1.86 billion in 1992 and 1991, respectively, despite the
negative impact of a greater number of crew starts associated with moving a
larger proportion of merchandise traffic. The 1993 expense includes a 3% wage
increase awarded to most contract employees mid-year and also reflected a
decrease in employment levels due to implementation of two-member crews and
continued personnel reductions. A 4% wage increase is scheduled for mid-1994.
CSXT expects to continue to decrease the size of its work force over the next
few years.
CSXT estimated the average size of its train crews for through, local
and yard trains to be 2.7 members at year-end. The unit plans to lower its
average crew size for all trains to 2.3 over the next few years through
implementation of smaller yard and local crews as contemplated by the 1992 and
1991 productivity charges.
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PAGE 25
CSX CORPORATION AND SUBSIDIARIES
--------------------------------
(All Tables in Millions of Dollars)
Table 1. TRANSPORTATION OPERATING RESULTS
1993
----
Container Elim/
Total Rail Shipping Intermodal Barge Other
------ ------ --------- ---------- ------ -----
Operating Revenue $8,767 $4,380 $3,246 $ 793 $ 417 $ (69)
------ ------ ------ ----- ----- -----
Operating Expense
Labor and Fringe Benefits 2,922 1,797 822 81 107 115
Materials, Supplies and
Other (a) 2,144 891 814 108 175 156
Building and Equipment
Rents 1,048 369 573 64 19 23
Inland Transportation 721 --- 608 475 --- (362)
Depreciation 558 352 127 11 29 39
Fuel 413 225 109 1 42 36
Productivity/
Restructuring Charge 93 --- 93 --- --- ---
------ ------ ------ ----- ----- -----
Total 7,899 3,634 3,146 740 372 7
------ ------ ------ ----- ----- -----
Operating Income (Loss) $ 868 $ 746 $ 100 $ 53 $ 45 $ (76)
====== ====== ====== ===== ===== =====
Operating Income (Loss)(b) $ 961 $ 746 $ 193 $ 53 $ 45 $ (76)
====== ====== ====== ===== ===== =====
Operating Ratio(b) 83.0% 94.1% 93.3% 89.2%
====== ====== ===== =====
Average Employment 29,216 9,440 1,510 2,747
====== ====== ===== =====
Property Additions and
Present Value of New
Operating Leases $ 818 $ 576 $ 172 $ 50 $ 13 7
====== ====== ====== ===== ===== =====
- 25-
PAGE 26
1992
----
Container Elim/
Total Rail Shipping Intermodal Barge Other
------ ------ --------- ---------- ------ -----
Operating Revenue $8,550 $4,434 $3,148 $ 739 $ 443 $(214)
------ ------ ------ ----- ----- -----
Operating Expense
Labor and Fringe Benefits 2,853 1,814 795 70 114 60
Materials, Supplies and
Other (a) 2,147 939 789 110 174 135
Building and Equipment
Rents 1,029 374 576 54 25 ---
Inland Transportation 678 --- 605 454 --- (381)
Depreciation 513 332 117 11 23 30
Fuel 424 235 115 1 47 26
Productivity/
Restructuring Charge 681 619 17 45 --- ---
------ ------ ------ ----- ----- -----
Total 8,325 4,313 3,014 745 383 (130)
------ ------ ------ ----- ----- -----
Operating Income (Loss) $ 225 $ 121 $ 134 $ (6) $ 60 $ (84)
====== ====== ====== ===== ===== =====
Operating Income (Loss)(b) $ 906 $ 740 $ 151 $ 39 $ 60 $ (84)
====== ====== ====== ===== ===== =====
Operating Ratio(b) 83.3% 95.2% 94.7% 86.5%
====== ====== ===== =====
Average Employment 30,916 9,495 1,382 2,905
====== ====== ===== =====
Property Additions and
Present Value of New
Operating Leases $ 986 $ 570 $ 236 $ 28 $ 152
====== ====== ====== ===== =====
- 26-
PAGE 27
1991
----
Container Elim/
Total Rail Shipping Intermodal Barge Other
------ ------ --------- ---------- ------ -----
Operating Revenue $8,419 $4,373 $3,238 $ 686 $ 352 $(230)
------ ------ ------ ----- ----- -----
Operating Expense
Labor and Fringe Benefits 2,860 1,857 788 59 101 55
Materials, Supplies and
Other (a) 2,132 952 832 98 131 119
Building and Equipment
Rents 1,028 377 578 48 25 ---
Inland Transportation 697 --- 642 448 --- (393)
Depreciation 482 323 105 8 16 30
Fuel 444 247 127 1 44 25
Productivity/
Restructuring Charge 714 647 67 --- --- ---
------ ------ ------ ----- ----- -----
Total 8,357 4,403 3,139 662 317 (164)
------ ------ ------ ----- ----- -----
Operating Income (Loss) $ 62 $ (30) $ 99 $ 24 $ 35 $ (66)
====== ====== ====== ===== ===== =====
Operating Income (Loss)(b) $ 776 $ 617 $ 166 $ 24 $ 35 $ (66)
====== ====== ====== ===== ===== =====
Operating Ratio(b) 85.9% 94.9% 96.5% 90.1%
====== ====== ===== =====
Average Employment 33,239 9,284 1,192 2,694
====== ====== ===== =====
Property Additions and
Present Value of New
Operating Leases $ 829 $ 634 $ 141 $ 22 $ 32
====== ====== ====== ===== =====
(a) A portion of intercompany interest income received from the CSX
parent company has been classified as a reduction of materials,
supplies and other, by the container shipping unit. These amounts
were $64 million in 1993 and 1992 and $65 million in 1991,
respectively, and the corresponding charge is included in
eliminations and other.
(b) Excludes productivity/restructuring charges.
Materials, supplies and other expense, which includes the cost of
maintenance, information services and personal injury, decreased significantly
from 1992 and 1991 levels. The results of CSXT's intensive Performance
Improvement Team (PIT) program and the company's ongoing commitment to safety
continue to be seen in this cost category.
CSXT's PIT process has been responsible for marked reductions in the
expense base of rail operations over the past two years and is expected to
contribute additional savings in 1994 and 1995.
- 27 -
PAGE 28
While shrinking expenses, this program also has led to significant
improvements in reliability, performance and efficiency. Major strides have
been made in locomotive and freight car maintenance and repair, information
technology, contract labor scheduling, and purchasing among other areas of
rail activity. Specifically, through PIT initiatives, CSXT reduced expenses by
$147 million and $116 million in 1993 and 1992, respectively. Further savings
of over $100 million each year are targeted for 1994 and 1995.
Fuel expense fell to $225 million from $235 million and $247 million
in 1992 and 1991, respectively. Fuel consumption decreased from levels in
earlier years, reflecting the level of operation and increased fuel
efficiency. In 1993, CSXT locomotives consumed 1.33 gallons of diesel fuel per
thousand gross ton miles, compared with 1.37 gallons in the prior year and 1.4
gallons in 1991. CSXT diesel fuel averaged 64 cents per gallon versus 65 cents
in 1992 and 68 cents in 1991, net of the CSX hedging program.
Building and equipment rent expense declined slightly from earlier
years, reflecting lower traffic levels. Depreciation expense increased
slightly from earlier years as new equipment was purchased and deployed in the
business.
With continued effort throughout CSXT to lower its expense base, the
company anticipates only a slight increase in total operating expense for
1994, assuming modest improvements in traffic levels and no unusual operating
conditions.
Capital additions for 1993 totaled $579 million, which included $10
million in present value of new operating leases, compared with $561 million
and $649 million for the years 1992 and 1991, respectively. Included in the
1993 total was $323 million for roadway improvements, including 400 miles of
rail that were installed or replaced. With $101 million used to acquire 75 new
locomotives, CSXT's fleet totaled 2,810 units at year-end, compared with 2,965
and 3,123 for year-end 1992 and 1991.
CSXT's car fleet benefited from $73 million in new capital.
Additional capital was spent on terminals, technology and other equipment.
For 1994, CSXT projects an increase of approximately 10% in its
capital additions program. As in past years, the largest share of the total
will be directed to track and roadway improvements.
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PAGE 29
Table 2. RAIL COMMODITIES BY CARLOADS AND REVENUE
Market
Share (a) Carloads Revenue
(Percent) (Thousands) (Millions of Dollars)
--------- -------------------- ----------------------
1993 1993 1992 1991 1993 1992 1991
---- ----- ----- ----- ----- ------ ------
Automotive 27 326 288 265 $ 461 $ 413 $ 367
Chemicals 40 371 356 347 652 619 587
Minerals 36 374 345 327 332 310 290
Food and Consumer 34 166 161 164 196 196 201
Agricultural Products 30 284 264 262 327 297 295
Metals 22 258 225 199 243 219 200
Forest Products 30 435 441 439 442 448 425
Phosphates and Fertilizer 70 423 457 475 256 268 269
Coal 40 1,566 1,760 1,816 1,363 1,565 1,573
----- ----- ----- ----- ------ ------
Total 4,203 4,297 4,294 4,272 4,335 4,207
===== ===== =====
Other Revenue 108 99 166
------ ------ ------
Total Operating Revenue $4,380 $4,434 $4,373
====== ====== ======
(a) Market share is defined as CSX carloads versus carloads handled by
all major Eastern railroads.
CSXT has embarked on a four-year program to acquire 300 locomotives,
with 80 of these to be delivered in 1994. Included will be 50 Dash-9-44CW
direct current (DC) powered and 250 alternating current (AC) locomotives, 197
of these at 4,400 horsepower and 53 at 6,000 horsepower. The first of the AC
units will be delivered in mid-1994. This new technological breakthrough for
the railroad industry will allow CSXT to replace an average of two units in
its existing fleet with each new unit.
Remaining capital in the 1994 budget has been earmarked for car
acquisitions, technology and a rail-barge venture to transfer freight between
CSXT's rail territory in the southeastern United States and ports along
Mexico's eastern coast.
Container-Shipping Results
Sea-Land achieved solid operating results in 1993, driven by expense
reductions throughout its business activities, efficiencies resulting from
restructuring its Atlantic operations, and modest improvement in most traffic
lanes. Excluding the $93 million pretax charge associated with this
restructuring, Sea-Land would have earned record operating income of $193
million in 1993. This compares with $151 million in 1992, excluding a $17
million productivity charge; and $166 million in 1991, excluding a $67 million
charge. Including the charges, reported operating income was $100 million,
$134 million and $99 million for the years 1993, 1992 and 1991, respectively.
- 29 -
PAGE 30
Through ongoing management commitment and re-engineering of a number
of operations, Sea-Land removed $124 million from its expense base and has
targeted further significant reductions for 1994. This emphasis on the
efficiency of its ocean and related inland transportation services enabled
Sea-Land to deliver improved service levels to customers as well. Major
improvements were recorded in vessel on-time port arrivals, which rose to 88%
from the prior year's 86%.
Sea-Land's results stand out in a year when Japanese and major
European economies recorded little or no growth, adversely affecting demand
for transportation services. On a comparable basis, Sea-Land's 28% increase in
operating income was earned on a marginal 3% rise in container loads versus
the prior year and a similar 3% growth in revenue. Operating revenue totaled
$3.25 billion in 1993, compared with $3.15 billion in 1992 and $3.24 billion
in 1991.
Sea-Land experienced solid growth in both eastbound and westbound
Pacific lanes. Eastbound gains resulted from new, major account customers and
improving U.S. consumer markets. While Sea-Land successfully increased its
volume of westbound container shipments, rates deteriorated from earlier
levels due to the lagging Japanese economy. Fast-paced growth in southeast
Asia, particularly China, added volume to the intra-Asian trade lane. Overall,
Pacific rates remained flat in 1993. Continued U.S. consumer confidence,
coupled with rapid expansion of Chinese trade, leads the company to expect
improvement in these trade lanes during 1994. Sea-Land does not anticipate
significant improvement in the Japanese economy within the next year.
Container volumes in Sea-Land's Atlantic services declined primarily
as a result of the company's restructuring. The core of the business was
strengthened as functions were streamlined, agencies were closed and service
to certain outlying, non-profitable ports was curtailed. These measures, along
with conference rate agreements reached during the year, caused a 2% increase
in the average rate for Atlantic cargoes, but revenue for this business
segment declined due to the lower volumes.
Modest improvement is forecast for the economies of Germany and the
United Kingdom -- the major economies of Europe. Accordingly, Sea-Land
anticipates only modest growth in Atlantic volume in the near future. However,
as Europe recovers and as trade expands under the General Agreement on Tariffs
and Trade, the unit expects increased demand and revenue from these routes.
Strong growth in shipments between Asia and Europe and to the Middle
East and Indian Subcontinent led to a 19% increase in Asia/Middle East/Europe
(AME) traffic. These lanes experienced intense rate competition for
incremental volume, causing average rates to fall 8% from the prior year.
However, carrier efforts to stabilize rates took hold late in 1993 and are
expected to lead to an improved rate structure in 1994. With expectations of
7% market growth, Sea-Land anticipates that its AME traffic will continue to
increase this year.
Sea-Land recorded solid volume and revenue gains in its domestic
routes, namely Hawaii, Alaska and Puerto Rico. Market share gains were
achieved and further benefit was derived from rising economic demand.
Continued revenue increases are forecast despite possible expansion by the
- 30 -
PAGE 31
leading Alaskan competitor and the pending sale of the state-run Puerto Rican
shipping company.
Service expansion to the Caribbean and Latin American markets spurred
growth in the Americas trade lanes. Refrigerated cargo movements continue to
make a major contribution to profit improvement. Total Americas revenue
climbed 9% from 1992 and 20% from 1991 levels.
Sea-Land's 1993 operating expense rose $56 million from 1992's level
and decreased $19 million from 1991's expense, excluding productivity and
restructuring charges from all years. These results reflect Sea-Land's efforts
to use expense reductions and productivity improvements to offset global
inflation and the cost of carrying higher volumes. Including restructuring and
productivity charges, 1993's total operating expense was $3.15 billion,
compared with $3.01 billion in 1992 and $3.14 billion in 1991.
Container-Shipping Assets
(Owned and leased as of December 31, 1993)
Containers
40- and 20-foot dry vans 131,354
45-foot dry vans 8,833
Refrigeration vans 15,989
Other specialized equipment 5,252
-------
Total 161,428
=======
Container ships 83
Terminals
Exclusive-use 8
Preferred berthing rights 15
Labor and fringe benefits expense rose slightly despite a reduction
in Sea-Land's worldwide labor force. This increase reflected higher average
wages, stronger business activity and inflation. Sea-Land anticipates no
increase in the overall size of its work force in 1994, but a modest increase
in the average wage.
Materials, supplies and other expense rose 3% from the prior year but
decreased 2% from 1991's level as a result of efforts to improve terminal
productivity and contain vessel and equipment maintenance costs.
Rent expense remained flat over the three-year period from 1991-93 as
Sea-Land undertook efforts to replace short-term leased containers with owned
assets and carefully controlled vessel-charter and facility-lease expense.
Inland transportation expense remained at 1992's level but was 5%
lower than in 1991, a year influenced by military operations in the Middle
East. The unit has achieved significant gains in reducing this major expense
category through centralization of vendor selection and other controls.
Reflecting new capital additions, depreciation expense rose over the
three-year period 1991-93.
- 31 -
PAGE 32
Fuel expense, net of CSX's hedging program, declined from prior years
due to declining prices for bunker fuel, the lower-grade fuel used to power
container ships. Sea-Land paid an average of 32 cents, 34 cents and 37 cents
per gallon of fuel in 1993, 1992 and 1991, respectively. Annual fuel
consumption remained steady over the three-year period at approximately 340
million gallons.
Sea-Land's management is committed to obtaining more than $100
million in additional expense reductions during 1994 while improving the
quality of customer service. By the late 1990's, the company hopes to reach a
90% ratio of operating expense to operating revenue through cost-control and
productivity-improvement efforts. This objective requires the unit to
continually offset inflation through expense reductions.
Additional reductions in operating expense could be realized through
Congressional reform of U.S. maritime policy. CSX is optimistic that
legislation authorizing subsidies and/or foreign registry of vessels currently
under U.S.-flag registration will be approved by Congress and funded by the
Administration during 1994. Sea-Land does not foresee any material cost
associated with implementing changes currently proposed in U.S. maritime
policy or reflagging.
Sea-Land's capital additions totaled $172 million for 1993, including
$125 million in expenditures and $47 million in present value of new long-term
operating lease commitments. The total compares with $236 million in the prior
year and $141 million for 1991.
Early last year, Sea-Land launched an upgraded express service
between Southeast Asia and the U.S. Westcoast at an investment of $53 million.
This total included new vessel charters and containers.
In addition, Sea-Land spent $40 million to purchase or refurbish
containers. Over the past two years, Sea-Land spent significant capital to
expand its fleet of owned containers. This represents replacement of leased
containers, rather than enlargement of the container fleet.
The unit also invested $20 million in its vessel fleet during 1993
with the remaining portion of its capital dedicated to terminal facilities,
technology and other areas.
Sea-Land's level of 1994 maintenance capital is expected to remain at
or below 1993's level. Capital will be focused on upgrading and increasing the
number of refrigerated containers and continuing to reduce short-term
equipment leases through acquisition. Additional capital will be required to
maintain vessels and to upgrade and expand terminal capacity.
During the first quarter of 1994, Sea-Land will enter into contracts
covering the construction of four high-performance, fuel-efficient container
vessels and the modification of three Atlantic Class Vessels (ACVs) in its
current fleet, at a total expenditure of approximately $250 million over a
three-year period. The four new vessels will replace higher-cost capacity in
the very competitive trans-Pacific trade. The three ACVs will have their speed
increased from roughly 19 knots to 21 knots, while their effective capacity
will remain unchanged. This combined program will enable Sea-Land to replace
higher-cost assets, improve efficiency and enhance service to its customers.
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PAGE 33
Intermodal Results
CSXI grew operating income 36% in 1993, to a level of $53 million,
excluding a 1992 productivity charge. Prior-year results for this unit would
have been $39 million in 1992, exclusive of the $45 million productivity
charge, and $24 million in 1991. Beginning in 1993, separate results were
publicly reported for CSXI. Previously, earnings were reported with those of
the rail unit.
Operating revenue was $793 million, 7% higher than the prior year and
16% greater than 1991's level. Rail containers and trailers handled by CSXI
totaled 1.14 million in 1993, with significant increases over prior years in
shipments from domestic customers, international steamship lines other than
Sea-Land, and truckline partners. CSXI anticipates continued volume growth in
1994 in these same categories of traffic. The unit has undertaken a program to
enhance the size and prominence of its national sales force during 1993 and
1994 and expects greater rates of revenue growth as it continues to win
customers with its superior product and service.
Intermodal Assets
(Owned and leased as of December 31, 1993)
Equipment
Domestic Containers 2,520
Rail Trailers 8,672
Facilities
CSX Intermodal Terminals 33
Motor Carrier Operations Terminals 24
CSX Services Facilities 17
Operating expense was $740 million in 1993. This compares with $745
million in the prior year and $662 million in 1991. The unit's 1992 expense
included a $45 million transfer of the productivity charge recorded by CSXT
related to locomotive-crew buyouts. Excluding the charge, 1993 expense
increased 6% and 12% from 1992 and 1991, respectively, as result of the higher
volumes handled by the unit.
Capital additions for the year of $50 million were focused on
terminal improvements and equipment acquisition. This total compares with $28
million in 1992 and $22 million in 1991. CSXI plans to further expand its
domestic trailer and container fleet in 1994 as well as to complete a number
of expansion and upgrade projects at major facilities across the United
States, including Chicago, Atlanta and Little Ferry, N.J. Reflecting its
growth plans, CSXI's capital program is expected to total approximately $60
million in 1994.
Barge Results
ACL suffered a one-year setback in operating income due to extensive
flooding along the Mississippi River system. Operating income declined from
1992's $60 million to $45 million as ACL faced closings and restrictions on
the waterway system during the second and third quarters of 1993. Operating
- 33 -
PAGE 34
income was higher than the $35 million reported in 1991, as ACL increased its
fleet size by one-third through acquisitions of barge assets during late 1991
and 1992.
Total operating revenue was $417 million, compared with 1992's
revenue of $443 million and $352 million in 1991. Barge ton miles totaled 45
billion for 1993, a decrease of 3 billion ton miles from the prior year, but 5
billion ton miles above 1991's levels. Mirroring this lower volume, revenue
from barging activity declined 5% from the prior year, but was 12% higher than
in 1991 due to the recent acquisitions. Midwest flooding, depressed export
coal shipments and lower grain movements caused the year-over-year decline.
The barge unit, however, did record sizeable gains in the movement of
non-bulk commodities and bulk products other than coal and grain. Non-bulk
commodities, such as scrap metal, pig iron and aluminum slabs, surged with
demand from industrial consumers. Tonnages of salt and fertilizer grew,
reflecting increased demand and the need of Midwest farmers to replenish
fields following last summer's floods.
Soft demand for export coal is expected through 1994 while weak grain
exports are anticipated through the second quarter of 1994. These two factors
will limit both the growth in barge movements and rate improvement, though
continued strength in the non-bulk sector is expected. The company
anticipates a return to typical business levels with a normal grain harvest in
the fall of 1994.
ACL's other marine revenue, which includes revenue from terminal
operations and Jeffboat, the unit's marine construction company, declined from
the prior year due to the Midwest floods but increased from 1991's level as a
result of the acquisitions. Jeffboat currently has a backlog of new orders
through mid-summer 1994 and anticipates successfully entering the market to
build vessels for the expanding riverboat gaming industry.
Barge operating expense was $372 million, a 3% decrease from 1992's
$383 million, resulting from re-engineering of many operations and business
practices and the lower level of barging activity. Expenses were 17% greater
than 1991's $317 million, due to the unit's larger barge fleet.
Labor and fringe benefits expense declined from the prior years as a
result of downsizing the administrative functions and layoffs of boat
personnel during the summer floods.
As a result of the ongoing high level of activity at Jeffboat,
materials, supplies and other expense was flat compared with 1992's level.
This expense increased 34% from 1991's level, due primarily to the fleet
expansion.
The lower level of barging activity caused fuel consumption to
decline 7% and expense to fall 11% from the prior year. Compared with 1991,
consumption rose 8% while expense declined 5%, with the larger barge fleet
accounting for the increase in fuel consumption, offset by lower oil prices.
ACL consumed 70 million gallons of fuel during 1993 at an average price of 58
cents per gallon.
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PAGE 35
ACL trimmed its level of capital additions to $13 million in 1993.
This compares with $152 million a year earlier, which included $137 million
for the assets of the Valley Line companies, and $32 million in 1991. The
majority of 1993 capital was used to upgrade and expand the chemical barge
fleet. ACL anticipates that 1994's level of capital expenditures will be
similar to last year's level.
Barging Assets
(Owned and leased as of December 31, 1993)
Towboats 123
Barges
Covered/open-top hoppers 3,117
Tankers 236
Marine Services
River terminals 11
Fleeting operations 15
Shipyards 2
- 35 -
PAGE 36
Consolidated Outlook
With growing strength in the domestic economy, especially in the
industrial base served by CSXT, and limited recovery of the major economies of
Europe and Japan, CSX expects to improve earnings in 1994. As always, this
outlook is subject to external factors similar to those that affected the
company's performance during 1993 -- severe weather conditions, work stoppages
at major customers and stalled growth in foreign economies.
The management and employees of CSX remain committed to improving the
efficiency and productivity of their businesses while reducing the cost of
supplying customers with continually improving levels of transportation
services. CSX is also dedicated to recognizing growth opportunities in the
markets it serves and pursuing new markets that offer adequate returns on
investment. These efforts should be reflected in improved operating
performance and operating ratios at each of the CSX transportation units.
- 36 -
PAGE 37
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of CSX Corporation
We have audited the accompanying consolidated statement of financial
position of CSX Corporation and subsidiaries as of December 31, 1993, 1992 and
1991, and the related consolidated statements of earnings and cash flows for
the years then ended. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above (appearing on Pages 38-71) present fairly, in all material respects, the
consolidated financial position of CSX Corporation and subsidiaries at
December 31, 1993, 1992 and 1991, and the consolidated results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Notes 1 and 13 to the consolidated financial
statements, the company changed its method of accounting for post-retirement
benefits other than pensions in 1991.
/s/ ERNST & YOUNG
-----------------
Ernst & Young
Richmond, Virginia
January 28, 1994
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PAGE 38
CSX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of Dollars, Except Per Share Amounts)
Years Ended December 31,
1993 1992 1991
------ ------ ------
OPERATING REVENUE
Transportation $8,767 $8,550 $8,419
Non-Transportation 173 184 217
------ ------ ------
Total 8,940 8,734 8,636
------ ------ ------
OPERATING EXPENSE
Transportation 7,806 7,644 7,643
Non-Transportation 128 125 139
Productivity/Restructuring Charge 93 699 755
------ ------ ------
Total 8,027 8,468 8,537
------ ------ ------
OPERATING INCOME 913 266 99
Other Income 18 3 94
Interest Expense 298 276 306
------ ------ ------
EARNINGS (LOSS) BEFORE INCOME TAXES 633 (7) (113)
Income Tax Expense (Benefit) 274 (27) (37)
------ ------ ------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING 359 20 (76)
Cumulative Effect on Years Prior to 1991
of Change in Accounting for Post-
retirement Benefits Other than Pensions --- --- (196)
------ ------ ------
NET EARNINGS (LOSS) $ 359 $ 20 $ (272)
====== ====== ======
EARNINGS (LOSS) PER SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING $ 3.46 $ .19 $ (.75)
Cumulative Effect on Years Prior to 1991
of Change in Accounting for Post-
retirement Benefits Other than Pensions --- --- (1.95)
------- ------- -------
EARNINGS (LOSS) PER SHARE $ 3.46 $ .19 $ (2.70)
======= ======= =======
AVERAGE COMMON SHARES
OUTSTANDING (THOUSANDS) 103,915 102,907 100,489
======= ======= =======
COMMON SHARES OUTSTANDING
AT END OF YEAR (THOUSANDS) 104,143 103,476 102,362
======= ======= =======
CASH DIVIDENDS PAID PER COMMON SHARE $ 1.58 $ 1.52 $ 1.43
======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
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PAGE 39
CSX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of Dollars)
Years Ended December 31,
1993 1992 1991
------- ------- -------
OPERATING ACTIVITIES
Earnings (Loss) Before Cumulative Effect of
Change in Accounting $ 359 $ 20 $ (76)
Adjustments to Reconcile Earnings to
Cash Provided
Depreciation 572 527 501
Deferred Income Taxes 181 (72) (165)
Productivity/Restructuring Charge - Provision 93 699 755
- Payments (293) (445) (93)
Net Gains from Investment Transactions --- --- (75)
Other Operating Activities 35 67 (39)
Changes in Operating Assets and
Liabilities
Accounts Receivable (15) 145 (3)
Materials and Supplies (10) 18 49
Other Current Assets 3 35 (13)
Accounts Payable and Other Current
Liabilities 37 (55) 25
----- ----- ------
Cash Provided by Operating Activities 962 939 866
----- ----- ------
INVESTING ACTIVITIES
Property Additions (768) (1,041) (864)
Purchase of Long-Term Marketable Securities (115) --- ---
Proceeds from Property Dispositions 59 65 78
Proceeds from Sales of Affiliates --- 7 203
Other Investing Activities (46) (16) (6)
----- ----- ------
Cash Used by Investing Activities (870) (985) (589)
----- ----- ------
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PAGE 40
CSX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
(Millions of Dollars)
Years Ended December 31,
1993 1992 1991
------- ------- -------
FINANCING ACTIVITIES
Short-Term Debt-Net 150 (154) (128)
Long-Term Debt Issued 81 664 379
Long-Term Debt Repaid (249) (260) (431)
Cash Dividends Paid (164) (157) (144)
Other Financing Activities 14 37 41
----- ----- -------
Cash (Used) Provided by Financing Activities (168) 130 (283)
----- ----- -------
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
(Decrease) Increase in Cash and Cash Equivalents (76) 84 (6)
Cash and Cash Equivalents at Beginning of Year 374 290 296
----- ----- -------
Cash and Cash Equivalents at End of Year 298 374 290
Short-Term Investments 201 156 175
----- ----- -------
Cash, Cash Equivalents and Short-Term
Investments at End of Year $ 499 $ 530 $ 465
===== ===== =======
See accompanying Notes to Consolidated Financial Statements.
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PAGE 41
CSX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Millions of Dollars)
December 31,
1993 1992 1991
------- ------- -------
ASSETS
Current Assets
Cash, Cash Equivalents and
Short-Term Investments $ 499 $ 530 $ 465
Accounts Receivable 668 605 728
Materials and Supplies 199 189 206
Deferred Income Taxes 108 --- ---
Other Current Assets 97 97 136
------- ------- -------
Total Current Assets 1,571 1,421 1,535
------- ------- -------
Properties and Other Assets
Properties-Net 10,788 10,636 10,177
Affiliates and Other Companies 268 264 238
Other Assets 793 728 848
------- ------- -------
Total Properties and Other Assets 11,849 11,628 11,263
------- ------- -------
Total Assets $13,420 $13,049 $12,798
======= ======= =======
LIABILITIES
Current Liabilities
Accounts Payable and Other Current
Liabilities $ 1,965 $ 2,066 $ 2,079
Current Maturities of Long-Term Debt 146 200 230
Short-Term Debt 164 14 168
------- ------- -------
Total Current Liabilities 2,275 2,280 2,477
------- ------- -------
Long-Term Debt 3,133 3,245 2,804
------- ------- -------
Long-Term Liabilities and Deferred Gains 2,491 2,467 2,114
------- ------- -------
Deferred Income Taxes 2,341 2,082 2,221
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 104 103 102
Other Capital 1,307 1,250 1,217
Retained Earnings 1,927 1,729 1,866
Minimum Pension Liability Adjustment (158) (107) (3)
------- ------- -------
Total Shareholders' Equity 3,180 2,975 3,182
------- ------- -------
Total Liabilities and
Shareholders' Equity $13,420 $13,049 $12,798
======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
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PAGE 42
CSX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES.
Principles of Consolidation
The Consolidated Financial Statements reflect the results of
operations, cash flows and financial position of CSX and its majority-owned
subsidiaries as a single entity. All significant intercompany accounts and
transactions have been eliminated.
Investments in companies that are not majority-owned are carried at
either cost or equity, depending on the extent of control.
Cash, Cash Equivalents and Short-Term Investments
Cash in excess of current operating requirements is invested in
various short-term instruments carried at cost that approximates market value.
Those short-term investments having a maturity of three months or less at the
date of acquisition are classified as cash equivalents. Cash and cash
equivalents are net of outstanding checks that are funded daily as presented
for payment from cash receipts and maturing short-term investments.
Accounts Receivable
In October 1993, a special purpose subsidiary of the company filed a
registration statement with the Securities and Exchange Commission covering
$250 million of Trade Receivable Participation Certificates ("Certificates")
evidencing undivided interests in a trade accounts receivable master trust.
The master trust assets include an ownership interest in a revolving portfolio
of rail freight accounts receivable.
Subsequently, the company issued $200 million of Certificates, at
5.05%, due September 1998. The Certificates are collateralized by $234
million of accounts receivable held in the 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 responsibility
with respect to accounts receivable held in trust or sold. Previous revolving
agreements allowed for the sale of up to $500 million of accounts receivable.
At December 31, 1993, 1992 and 1991, accounts receivable have been reduced by
$380 million, $400 million and $425 million, respectively, representing
Certificates and receivables sold.
The company maintains an allowance for doubtful accounts based upon
the expected collectibility of accounts receivable, including receivables
collateralizing Certificates and receivables sold. Allowances for doubtful
accounts of $87 million, $96 million and $89 million have been applied as a
reduction of accounts receivable at December 31, 1993, 1992 and 1991,
respectively.
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PAGE 43
CSX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued
Materials and Supplies
Materials and supplies are carried at average cost.
Properties
Properties are carried principally at cost. Provisions for
depreciation of rail property and equipment are based on estimated useful
service lives of seven to 42 years, computed primarily on the straight-line
composite method. Under this method, ordinary gains and losses on dispositions
are recorded to accumulated depreciation. Provisions for depreciation of
non-rail property and equipment are based on estimated useful service lives of
three to 45 years, computed on the straight-line unit basis method, and gains
and losses on dispositions are recorded in earnings as incurred.
Post-Retirement Benefits Other Than Pensions
The company has adopted SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other than Pensions." Under the accrual method
specified by SFAS No. 106, the total future cost of providing other
post-retirement employment benefits is estimated and recognized as expense
over the employees' requisite service period.
Fair Values of Financial Instruments
The following methods and assumptions were used by the company in
estimating fair values for financial instruments as required by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," which the company
adopted effective January 1, 1992:
Current Assets and Current Liabilities
The carrying amounts reported in the statement of financial position
for current assets and current liabilities qualifying as financial instruments
approximate their fair values.
Long-Term and Short-Term Debt
The carrying amounts of the company's borrowings under its short-term
debt arrangements approximate their fair values. The fair values of the
company's long-term debt have been based upon market quotations for similar
debt instruments or estimated using discounted cash flow analyses based upon
the company's current incremental borrowing rates for similar types of
borrowing arrangements.
The company's remaining financial instruments at December 31, 1993
and 1992 are not significant.
- 43 -