FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 28, 2001March 29, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 62-1051971
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 East Cary Street, Richmond, Virginia 23219-4031
(Address of principal executive offices) (Zip Code)
(804) 782-1400
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No(No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 28, 2001: 213,162,313March 29, 2002: 212,362,201 shares.
-1-
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2001MARCH 29, 2002
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Nine Months Ended September 28, 2001 and
September 29, 2000 3
2. Consolidated Statement of Cash Flows-
Nine Months Ended September 28, 2001 and September 29, 2000 4
3. Consolidated Statement of Financial Position-
At September 28, 2001 and December 29, 2000 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 26
Item 3:
Quantitative and Qualitative Disclosures About Market Risk 36
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 37
Signature 37
Page Number
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statement of Earnings (Unaudited) -
Quarters Ended March 29, 2002 and March 30, 2001 3
Consolidated Statement of Cash Flows (Unaudited) -
Quarters Ended March 29, 2002 and March 30, 2001 4
Consolidated Statement of Financial Position-
At March 29, 2002 (Unaudited) and December 28, 2001 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2: Management's Discussion and Analysis of Results of Operations
and Financial Condition 22
Item 3: Quantitative and Qualitative Disclosures About Market Risk 31
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 32
Signature 32
-2-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
Quarters Ended
Nine Months Ended
------------------------------- -----------------------------
Sept. 28, Sept.----------------------
March 29, Sept. 28, Sept. 29,March 30,
2002 2001
2000 2001 2000
------------ ------------- ----------- -------------------- ---------
Operating Revenue $ 2,0191,964 $ 2,039 $ 6,101 $ 6,1442,025
Operating Expense 1,737 1,815 5,365 5,557
------------ ------------- ----------- -----------1,752 1,836
--------- ---------
Operating Income 282 224 736 587212 189
Other Income 1 3 4 22(Expense) 9 (29)
Interest Expense 126 140 389 413
------------ ------------- ----------- -----------114 133
--------- ---------
Earnings before Income Taxes 157 87 351 196and Cumulative Effect of Accounting Change 107 27
Income Tax Expense 57 28 123 64
------------ ------------- ----------- -----------39 7
--------- ---------
Earnings before Discontinued Operations 100 59 228 132
Earnings from Discontinued Operations,Cumulative Effect of Accounting Change 68 20
Cumulative Effect of Accounting Change - Net of Tax - 3 - 14
Gain on Sale of Discontinued Operations, Net of Tax - 365 - 365
------------ ------------- ----------- -----------tax (43) --
--------- ---------
Net Earnings $ 10025 $ 427 $ 228 $ 511
============ ============= =========== ===========20
========= =========
Earnings Per Share:
Before Discontinued OperationsCumulative Effect of Accounting Change $ 470.32 $ .280.10
Cumulative Effect of Accounting Change (0.20) --
--------- ---------
Including Cumulative Effect of Accounting Change $ 1.080.12 $ .62
Earnings from Discontinued Operations - .01 - .07
Gain on Sale of Discontinued Operations - 1.73 - 1.73
------------ ------------- ----------- -----------
Including Discontinued Operations $ .47 $ 2.02 $ 1.08 $ 2.42
============ ============= =========== ===========0.10
========= =========
Earnings Per Share, Assuming Dilution:
Before Discontinued OperationsCumulative Effect of Accounting Change $ .470.32 $ .280.10
Cumulative Effect of Accounting Change (0.20) --
--------- ---------
Including Cumulative Effect of Accounting Change $ 1.070.12 $ .62
Earnings from Discontinued Operations - .01 - .07
Gain on Sale of Discontinued Operations - 1.73 - 1.73
------------ ------------- ----------- -----------
Including Discontinued Operations $ .47 $ 2.02 $ 1.07 $ 2.42
============ ============= =========== ===========0.10
========= =========
Average Common Shares Outstanding (Thousands) 211,871 210,934 211,618 211,047
============ ============= =========== ===========212,053 211,299
========= =========
Average Common Shares Outstanding, Assuming Dilution (Thousands) 212,579 211,254 212,312 211,476
============ ============= =========== ===========213,190 211,897
========= =========
Cash Dividends Paid Per Common Share $ .100.10 $ .30 $ .70 $ .90
============ ============= =========== ===========0.30
========= =========
See accompanying Notes to Consolidated Financial Statements.
-3-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
Nine MonthsQuarters Ended
-------------------------------
Sept. 28, Sept.----------------------
March 29, March 30,
2002 2001
2000
----------- -------------------- ---------
OPERATING ACTIVITIES
Net Earnings $ 22825 $ 51120
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Cumulative Effect of Accounting Change 43 --
Depreciation 469 445155 157
Deferred Income Taxes 76 70
Gain on Sale of Contract Logistics Segment - (365)20 4
Equity in Conrail Earnings - Net (10) (4)(1) (5)
Other Operating Activities (61) 356 1
Changes in Operating Assets and LiabilitiesLiabilities:
Accounts Receivable 15 29934 10
Other Current Assets (11) (95)(43) (18)
Accounts Payable (74) (58)(26) (22)
Other Current Liabilities (193) (289)
------------ -----------(53) (147)
--------- ---------
Net Cash Provided by Operating Activities 439 549
------------ -----------160 --
--------- ---------
INVESTING ACTIVITIES
Property Additions (628) (643)
Net Investment Proceeds - 650
Short-Term(162) (183)
Short-term Investments - Net (35) (44)(158) (77)
Other Investing Activities 52 3
------------ -----------(11) (5)
--------- ---------
Net Cash Used by Investing Activities (611) (34)
------------ -----------(331) (265)
--------- ---------
FINANCING ACTIVITIES
Short-TermShort-term Debt - Net (127) (247)
Long-Term-- (271)
Long-term Debt Issued 450 500
588
Long-TermLong-term Debt Repaid (195) (737)(267) (48)
Cash Dividends Paid (149) (197)(21) (64)
Other Financing Activities 15 (56)
------------ -----------12 8
--------- ---------
Net Cash Provided (Used) by Financing Activities 44 (649)
------------ -----------174 125
--------- ---------
Net DecreaseIncrease (Decrease) in Cash and Cash Equivalents (128) (134)3 (140)
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 137 261
626
------------ -------------------- ---------
Cash and Cash Equivalents at End of Period 133 492
Short-Term140 121
Short-term Investments at End of Period 459 377
------------ -----------641 500
--------- ---------
Cash, Cash Equivalents and Short-TermShort-term
Investments at End of Period $ 592781 $ 869
============ ===========621
========= =========
See accompanying Notes to Consolidated Financial Statements.
-4-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
Sept.March 29, December 28,
Dec. 29,2002 2001
2000
------------ -----------------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 592781 $ 684618
Accounts Receivable, 876 850Net 809 878
Materials and Supplies 266 245223 206
Deferred Income Taxes 141 121131 162
Other Current Assets 144 146232 210
------------ -----------
Total Current Assets 2,019 2,0462,176 2,074
Properties 18,279 17,83918,261 18,151
Accumulated Depreciation (5,400) (5,197)(5,282) (5,179)
------------ -----------
Properties-Net 12,879 12,64212,979 12,972
Investment in Conrail 4,677 4,6684,656 4,655
Affiliates and Other Companies 360 362388 382
Other Long-TermLong-term Assets 671 773643 718
------------ -----------
Total Assets $ 20,60620,842 $ 20,49120,801
============ ===========
LIABILITIES
Current Liabilities
Accounts Payable $ 1,097912 $ 1,079966
Labor and Fringe Benefits Payable 408 405
Current Portion of396 418
Casualty, Environmental and Other Reserves 254 246247 250
Current Maturities of Long-TermLong-term Debt 976 172
Short-Term952 1,044
Short-term Debt 272 749- 225
Income Taxes and Other Payables 190 372Taxes Payable 116 101
Other Current Liabilities 250 257238 299
------------ -----------
Total Current Liabilities 3,447 3,2802,861 3,303
Casualty, Environmental and Other Reserves 713 755
Long-Term678 690
Long-term Debt 5,659 5,8106,361 5,839
Deferred Income Taxes 3,482 3,3843,575 3,621
Other Long-TermLong-term Liabilities 1,192 1,2451,223 1,228
------------ -----------
Total Liabilities 14,493 14,47414,698 14,681
------------ -----------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 213 213214 214
Other Capital 1,485 1,4671,511 1,492
Retained Earnings 4,415 4,3374,463 4,459
Accumulated Other Comprehensive Loss (44) (45)
------------ -----------
Total Shareholders' Equity 6,113 6,0176,144 6,120
------------ -----------
Total Liabilities and Shareholders' Equity $ 20,60620,842 $ 20,49120,801
============ ===========
See accompanying Notes to Consolidated Financial Statements.
-5-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Corporation and subsidiaries (CSX("CSX" or the "Company") at SeptemberMarch
29, 2002 and December 28, 2001, and December 29, 2000, the results of its operations for the quarters
and nine months ended September 28, 2001 and September 29, 2000, and its cash flows
for the ninethree months ended September 28,March 29, 2002 and March 30, 2001, and September 29, 2000, such adjustments
being of a normal recurring nature. Certain prior yearprior-year data have been
reclassified to conform to the 20012002 presentation.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the Company's latest Annual Report and Form 10-K.
CSX follows a 52/53 week fiscal reporting calendar. Fiscal years 20012002
and 20002001 consist of 52 weeks ending on December 28, 200127, 2002 and December 29, 2000,28, 2001,
respectively. The financial statements presented are for the 13-week quarters
ended September 28,March 29, 2002 and March 30, 2001, and September 29, 2000, the 39-week periods ended
September 28, 2001 and September 29, 2000, and as of December 29, 2000.28, 2001.
Comprehensive income approximates net earnings for all periods
presented in the accompanying consolidated statement of earnings.
NOTE 2. EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common
shares outstanding as defined by Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share," for the fiscal quarters ended March 29, 2002 and nine months ended
September 28, 2001 and September 29, 2000.March 30,
2001. Earnings per share, assuming dilution, are based on the weighted average
number of common shares outstanding adjusted for the effect of dilutive potential common
shares outstanding during the period, principally arising from employee stock
plans. For the fiscal quarters ended September 28,March 29, 2002 and March 30, 2001, and September 29, 2000, dilutive
potential common shares that were dilutive totaled 0.71.1 million and 0.30.6 million,
respectively. For the nine
months ended September 28, 2001 and September 29, 2000, potentially dilutive
shares totaled 0.7 million and 0.4 million.
Certain potential common shares outstanding at September 28,March 29, 2002 and March
30, 2001 and
September 29, 2000 were not included in the computation of earnings per share, assuming
dilution, since their exercise or conversion prices were greater than the
average market price of the common shares during the period and, accordingly,
their effect is antidilutive. These shares totaled 18.830.0 million at a
weighted-average exercise price of $43.38$47.32 per share at September 28, 2001March 29, 2002 and 26.117.0
million with a weighted-average exercise price of $40.07$43.76 per share at September 29, 2000.March 30,
2001.
NOTE 3. RECENTNEW ACCOUNTING PRONOUNCEMENTS
In 2001, Statement of Financial Accounting Standard No. 142 (SFAS 142),
Goodwill and Other Intangible Assets, was issued. Under the provisions of StatementSFAS
142, goodwill and other indefinite lived intangible assets are no longer
amortized but are reviewed for impairment on a periodic basis. The Company
will adoptadopted this standard in the first quarter of 2002 and has yetincurred a pre-tax charge
of $83 million, after-tax charge of $43 million, 20 cents per share as a
cumulative effect of an accounting change, which represents the difference
between book value and the fair value of indefinite lived intangible assets.
These indefinite lived intangible assets are permits and licenses that the
company holds relating to determine ifa proposed pipeline to transfer natural gas from
Alaska's north slope to the port in Valdez, Alaska. The fair value was
determined using a discount method of projected future cash flows relating to
these assets. The carrying value of these assets is now approximately $3
million. The adoption of SFAS 142 did not have a material effect on prior
reporting periods, and the Company does not believe it will have a material
affecteffect on its financial statements.future earnings. The Company does not have any other indefinite lived
intangible assets.
-6-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 4. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
CSX and Norfolk Southern Corporation (Norfolk Southern)("Norfolk Southern") completed the
acquisition of Conrail Inc. (Conrail)("Conrail") in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operationsoperate over allocated portions of the Conrail lines in June 1999.lines.
The rail subsidiaries of CSX and Norfolk Southern operate their
respective portions of the Conrail system pursuant to various operating
agreements that
took effect on June 1, 1999.agreements. Under these agreements, the railroads pay operating fees to Conrail
for the use of right-of-way and rent for the use of equipment. Conrail continues
to provide rail service in certain shared geographic areas ("Shared Asset
Areas") for the joint benefit of CSX and Norfolk Southern for which it is
compensated on the basis of usage by the respective railroads.
Conrail Financial Information
- -----------------------------
Summary financial information for Conrail for its fiscal periods ended
September 30,March 31, 2002 and 2001, and 2000, and at December 31, 2000,2001, is as follows:
Quarters Ended
Nine Months Ended
September 30, September 30,
----------------------- -----------------------------------------------------------
March 31, March 31,
2002 2001
2000 2001 2000
-------- ------- ----------- ---------------------- -------------
Income Statement Information:
Revenues $223 $243 $685 $748$ 225 $ 233
Income Fromfrom Operations 58 65 198 17761 64
Net Income 35 35 127 13136 45
As Of
-----------------------------------
March 31, December 31,
2002 2001
-------------- -------------
Balance Sheet Information:
Current Assets $ 325 $ 846
Property and Equipment and Other Assets 7,788 7,236
Total Assets 8,113 8,082
Current Liabilities 449 408
Long-Term Debt 1,144 1,156
Total Liabilities 3,972 3,977
Stockholders' Equity 4,141 4,105
As Of
------------------------------
September 30, December 31,
2001 2000
--------------- -----------
Balance Sheet Information:
Current Assets $ 820 $ 520
Property and Equipment and Other Assets 7,323 7,540
Total Assets 8,143 8,060
Current Liabilities 403 435
Long-Term Debt 1,188 1,229
Total Liabilities 4,014 4,078
Stockholders' Equity 4,129 3,982
-7-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 4. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
CSX's Accounting for itsIts Investment in and Integrated Rail Operations with
- --------------------------------------------------------------------------
Conrail
- -------
CSX and Norfolk Southern assumedUpon integration, substantially all of Conrail's customer freight
contracts upon the June 1999 integration date.were assumed by CSX and Norfolk Southern. As a result, CSX's rail and
intermodal operating revenue since that date includes revenue from traffic previously recognized bymoving on
Conrail. Operating expenses reflect corresponding increases for costs incurred
to handle the new traffic and operate the former Conrail lines. Rail operating
expenses also includeincludes an expense category, "Conrail Operating Fee, Rent and
Services," which reflects paymentpayments to Conrail for the use of right-of-way and
equipment, as well as charges for transportation, switching, and terminal
services in the shared areasShared Asset Areas that Conrail operates for the joint benefit
of CSX and Norfolk Southern. This expense category also includes amortization of
the fair value write-up arising from the acquisition of Conrail, as well as
CSX's proportionate share of Conrail's net income or loss recognized under the
equity method of accounting.
Transactions Withwith Conrail
- -------------------------
The agreement under which CSX operates its allocated portion of the
Conrail route system has an initial term of 25 years and may be renewed at CSX's
option for two additional five-year terms. Operating fees paid to Conrail under the
agreement are subject to adjustment every six years based on the fair value of
the underlying system. Lease agreements for the Conrail equipment operated by
CSX cover varying terms. CSX is responsible for all costs of operating,
maintaining, and improving the routes and equipment under these agreements.
At DecemberMarch 29, 2000,2002, CSX had $2 million inno amounts receivable from Conrail, while at
December 28, 2001, amounts receivable from Conrail totaled $3 million,
principally for reimbursement of certain capital improvement costs. Conrail
advances its available cash balances to CSX and Norfolk Southern under a
variable-rate demand loan agreements.note, maturing on March 28, 2007. At SeptemberMarch 29, 2002 and December
28, 2001, and December 29,
2000, Conrail had advanced $192$275 million and $40$225 million, respectively, to
CSX under this arrangement at interest rates of 3.8%2.75% and 5.9%2.5%, respectively.
CSX also had amounts payable to Conrail of $78 million and $127$88 million at SeptemberMarch
29, 2002 and December 28, 2001, and December 29, 2000, respectively, representing billings from Conrailexpenses incurred
under the operating, equipment, and shared area agreements.
NOTE 5. DISCONTINUED OPERATIONS
On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., its
wholly-owned logistics subsidiary, for $650 million. The contract logistics
segment is reported as a discontinued operation. Revenues from the contract
logistics segment for the quarter and nine-months ended September 29, 2000 were
$78 million and $335 million, respectively.agreements with Conrail.
-8-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6. SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS
In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). In addition
to vessels and containers, Maersk acquired certain terminal facilities and
various other assets and related liabilities of the international liner
business. The agreement with Maersk provides for a post-closing working capital
adjustment to the sales price based on the change in working capital, as defined
in the agreement, between June 25, 1999, and December 10, 1999. The Company has
recorded a receivable of approximately $70 million in connection with the post-
closing working capital adjustment and this amount is currently in dispute. This
matter, together with other disputed issues, has been submitted to arbitration.
Management is not yet in a position to assess fully the likely outcome of this
process but believes it will prevail in the arbitrations. During 1999, the
Company recorded a net loss of $360 million, $271 million after-tax, related to
this transaction. Included in this amount were estimated costs to terminate
various contractual obligations of the Company. These matters could affect the
determination of the final loss on sale.
NOTE 7.5. ACCOUNTS RECEIVABLE
The Company sells revolving interests in its rail accounts receivable
to public investors through a securitization program and to financial
institutions through commercial paper conduit programs. The accounts receivable
are sold, without recourse, to a wholly-owned, special-purpose subsidiary, which
then transfers the receivables, with recourse, to a master trust. The
securitization and conduit programs are accounted for as sales in accordance
with FASB
Statement No.SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Receivables sold under these arrangements are
excluded from accounts receivable in the consolidated statement of financial
position. At September 28, 2001,March 29, 2002, the agreements provide for the sale of up to $350
million in receivables through the securitization program and $250$200 million
through the conduit programs.
At SeptemberMarch 29, 2002 and December 28, 2001, and December 29, 2000, the Company had sold $547$500
million of accounts receivable; $300 million through the securitization program
and $247$200 million through the conduit programs. The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit programs require yield payments based on
prevailing commercial paper rates (2.06% at March 29, 2002) plus incremental
fees. The Company's retained interest in the receivables in the master trust
were approximately $430 million and $466 million at March 29, 2002 and December
28, 2001, respectively, and are included in accounts receivable. Losses
recognized on the sale of accounts receivable totaled $9$8 million and $31$12 million
for the quarterquarters ended March 29, 2002 and nine months ended September 28,March 30, 2001, respectively, and $8 million
and $24 million for the quarter and nine months ended September 29, 2000, respectively.
The Company has retained the responsibility for servicing accounts
receivable transferred to the master trust. The average servicing period is
approximately one month. No servicing asset or liability has been recorded since
the fees the Company receives for servicing the receivables approximate the related
costs.
The Company maintains an allowance for doubtful accounts based upon the
expected collectibility of accounts receivable including receivables transferred
to the master trust. Allowances for doubtful accounts of $99 million and $100
million have been applied as a reduction of accounts receivable at March 29,
2002, and December 28, 2001, respectively.
-9-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 8.6. OPERATING EXPENSE
Quarters Ended
Nine Months Ended
------------------------------- -----------------------------
Sept. 28, Sept.------------------------
March 29, Sept. 28, Sept. 29,March 30,
2002 2001
2000 2001 2000
------------- ------------- ------------- ---------------------- ----------
Labor and Fringe Benefits $ 711733 $ 728 $ 2,210 $ 2,208756
Materials, Supplies and Other 413 425 1,259 1,346430 424
Conrail Operating Fee, Rent and& Services 87 83 89 251 285
Building and Equipment Rent 155 176 477 560148 163
Inland Transportation 83 93 252 26686 85
Depreciation 154 148 462 430152 155
Fuel 138 156 454 462
------------- ------------- ------------- ------------116 170
---------- ----------
Total $ 1,7371,752 $ 1,815 $ 5,365 $ 5,557
============= ============= ============= ============1,836
========== ==========
NOTE 9.7. OTHER INCOME (EXPENSE)
Quarters Ended
Nine Months Ended
-------------------------- ---------------------------
Sept. 28, Sept.-------------------------
March 29, Sept. 28, Sept. 29,March 30,
2002 2001
2000 2001 2000
------------- ----------- ------------- ---------------------- ----------
Interest Income $ 87 $ 12 $ 29 $ 4013
Income (Loss) from Real Estate and Resort
Operations/(1)/ 24 15 74 49
Net Investment Loss - (1) - (1)32 (3)
Net Losses from Accounts Receivable Sold (9) (8) (31) (24)(12)
Minority Interest (9) (11) (27) (31)(8) (8)
Equity Losses fromin Other Affiliates (1) - (20) (5)Affiliates/(2)/ (6) (16)
Miscellaneous (12) (4) (21) (6)
-----------(8) (3)
---------- ------------ ----------
Total $ 19 $ 3 $ 4 $ 22
============(29)
========== ============ ==========
/(1)/ Gross revenue from real estate and resort operations was $66$63 million and
$187$25 million for the quarters ended March 29, 2002 and March 30, 2001,
respectively. A $36 million pre-tax gain from a property sale had a
favorable impact on other income in 2002.
/(2)/ Included in equity losses in other affiliates was the $14 million
write-off of an investment in a non-rail affiliate, during the quarter
and nine months ended September 28, 2001,
respectively, and $52March 30, 2001.
NOTE 8. DEBT AND CREDIT AGREEMENTS
During the quarter ended March 29, 2002, the Company issued $400
million and $148aggregate principal amount of 6.30% notes due 2012. Proceeds of the
notes will be used to refinance other debt coming due in the second quarter of
2002.
During the quarter ended March 29, 2002, the Company exchanged
$225 million of notes payable to Conrail for a new long-term note. Additionally,
the note payable was increased by $50 million, for the quartera total of $275 million. The
note matures on March 28, 2007, and nine
months ended September 29, 2000, respectively.has been appropriately classified as
long-term debt. (See Note 4)
-10-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. DEBT AND CREDIT AGREEMENTS
During the nine months ended September 28, 2001, the Company issued $500
million of 6.75% notes due 2011 and reclassified $350 million of outstanding
commercial paper to long-term liabilities as it is now supported by a five-year
$1 billion line of credit agreement signed in June of 2001. This
reclassification was based on the Company's ability and intent to maintain this
debt outstanding for more than a year. The Company also entered into a $500
million one-year revolving credit agreement in June of 2001. Borrowings under
both of these credit agreements accrue interest at a variable rate based on
LIBOR. The Company pays annual fees to the participating banks that may range
from 0.01% to 0.23% of total commitment, depending on its credit rating.
NOTE 11.9. DERIVATIVE FINANCIAL INSTRUMENTS
On August 10, 2001,March 20, 2002, CSX entered into an interest rate swap agreement on
its $150 million, 8.30% notes due May 1, 2032, in addition to its already
outstanding interest rate swap agreements on its $300 million, 7.25% notes due
May 1, 2004, its $150 million, 5.85% notes due December 1, 2003, and its $50 million, 6.46%
notes due June 22, 2005, $300 million, 9% notes due August 15, 2006 and $450
million, 7.45% notes due May 1, 2007. These agreements were entered for interest
rate risk exposure management purposes. These instrumentspurposes and mature at the time the related notes
expire.are due. Under these agreements, the Company will pay variable interest based on
LIBOR in exchange for fixed rate payments (on September 28,
2001March 29, 2002 the variable and
fixed rate weighted averages were 5.8%5.07% and 6.8%7.62%, respectively), effectively
transforming the debenturesnotes to floating rate obligations. Accordingly, the
instruments qualify, and are designated, as fair value hedges. In addition, one of the Company's subsidiaries has an interest
rate swap with a national amount of $45 million.
The Company accounts for derivative instruments under Statement of
Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, and SFAS No. 138, an amendment to SFAS No.
133, which established new accounting and reporting guidelines for derivative
instruments and hedging activities. SFAS No. 133 and SFAS No. 138 are
collectively referred to herein as "SFAS 133." SFAS 133 requires that all
derivative instruments be recognized as assets and liabilities in the financial
statements at fair value.
For derivative instruments that are designated and qualify as a fair
value hedge, the gain or loss on the derivative instrument, as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk, are
recognized in current earnings during the period of change in fair values. The
accounting for hedge effectiveness is measured at least quarterly based on the
relative change in fair value between the derivative contract and the hedged
item over time. Any change in fair value resulting from ineffectiveness, as
defined by Statement of Financial Accounting Standards No. 133, "Accounting For
Derivative Instruments and Hedging Activities" ("SFAS 133,133"), is recognized
immediately in earnings. The Company's interest rate swaps qualify as perfectly
effective fair value hedges, as defined by SFAS No. 133. As such, there was no
ineffective portion to the hedge recognized in earnings during the period.
TheLong-term debt has been decreased $27 million and $26 million for the fair
market value of the interest rate swap agreements are immaterial to the statement of financial
position.at March 29, 2002 and December
28, 2001, respectively.
The differential to be paid or received under these agreements is
accrued consistently with the terms of the agreements and is recognized in
interest expense over the term of the related debt. The related amounts payable
to or receivable from counterparties are included in other liabilities or
assets. Cash flows related to interest rate swap agreements are classified as
"Operating activities" in the Consolidated Statements of Cash Flows. For the
three months ended September 28,March 29, 2001, the Company reduced interest expense by
approximately $0.6$7.3 million as a result of the interest rate swap agreements that
were in place during that period. There were no interest rate swaps in place
during the quarter ended March 31, 2001.
The Company is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate swap agreements. However, the Company
does not anticipate nonperformance by the counterparties.
-11-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12.10. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
- --------------------
The Company has entered into fixed-price forward fuel purchase agreements for approximately
50% of its fuel requirements over the next fifteennine months. These agreements amount
to approximately 360220 million gallons in commitments at a weighted average of 7877
cents per gallon. These contracts require the Company to take monthly delivery
of specified quantities of fuel at a fixed price. These contracts cannot be net
settled.
The Company also has a commitment under a long-term maintenance program
for approximately 40% of CSXT's fleet of locomotives. The agreement expires in
2024 and totals $2.7 billion.
Contingencies
- -------------
Self-Insurance
--------------
Although the Company obtains substantial amounts of commercial insurance
for potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided by a company partially owned by
CSX.
Environmental
-------------
CSX Transportation, Inc. (CSXT), the wholly-owned rail subsidiary of CSX,CSXT is a party to various proceedings involving private parties and
regulatory agencies related to environmental issues. CSXT has been identified as
a potentially responsible party (PRP) at 10692 environmentally impaired sites that
are or may be subject to remedial action under the Federal Superfund statute
(Superfund)("Superfund") or similar state statutes. A number of these proceedings are based
on allegations that CSXT, or its railroad predecessors, sent hazardous
substances to the facilities in question for disposal. Such proceedings arising
under Superfund or similar state statutes can involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.
CSXT is involved in a number of administrative and judicial proceedings
and other clean-up efforts at 231220 sites, including the sites addressed under
the
Federal Superfund statute or similar state statutes, where it is participating in the study
and/or clean-up of alleged environmental contamination. The assessment of the
required response and remedial costs associated with most sites is extremely
complex. Cost estimates are based on information available for each site,
financial viability of other PRPs, where available, and existing technology,
laws and regulations. CSXT's best estimates of the allocation method and
percentage of liability when other PRPs are involved are based on assessments by
consultants, agreements among PRPs, or determinations by the U.S. Environmental
Protection Agency or other regulatory agencies.
-12-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12.10. COMMITMENTS AND CONTINGENCIES, Continued
Environmental, Continued
At least once each quarter, CSXT reviews its role, if any, with respect
to each such location, giving consideration to the nature of CSXT's alleged
connection to the location (e.g., generator, owner or operator), the extent of
CSXT's alleged connection (e.g., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is
involved, CSXT has recorded, and reviews at least quarterly for adequacy,
reserves to cover estimated contingent future environmental costs with respect
to such sites. The recorded liabilities for estimated future environmental costs
at SeptemberMarch 29, 2002 and December 28, 2001 and December 29, 2000, were $36$34 million and $41$32 million,
respectively. These recorded liabilities, which are undiscounted, include
amounts representing CSXT's estimate of unasserted claims, which CSXT believes
to be immaterial. The liability has been accrued for future costs for all sites
where the Company's obligation is probable and where such costs can be
reasonably estimated. The liability includes future costs for remediation and
restoration of sites as well as any significant ongoing monitoring costs, but
excludes any anticipated insurance recoveries. The majority of the September 28, 2001March 29,
2002 environmental liability is expected to be paid out over the next five to
seven years, funded by cash generated from operations.
The Company does not currently possess sufficient information to
reasonably estimate the amounts of additional liabilities, if any, on some sites
until completion of future environmental studies. In addition, latent conditions
at any given location could result in exposure, the amount and materiality of
which cannot presently be reliably estimated. Based upon information currently
available, however, the Company believes that its environmental reserves are adequate
to accomplish remedial actions to comply with present laws and regulations, and
that the ultimate liability for these matters will not materially affect its
overall results of operations orand financial condition.
New Orleans Tank Car Fire
-------------------------STB Proceeding
In September 1997,December 2001 Duke Energy Corporation ("Duke") filed a state court jurycomplaint
before the U.S. Surface Transportation Board alleging that certain CSXT common
carrier coal rates are unreasonably high. A similar complaint was filed by Duke
against Norfolk Southern. The outcome of the ongoing proceeding against CSXT is
uncertain and would only apply to billings subsequent to December 2001. CSXT is
pursuing an aggressive legal strategy in New Orleans, Louisiana returnedits defense against this complaint. An
unfavorable outcome to this complaint would not have a $2.5 billion punitive damages award against CSXT.material effect on the
Company.
Sale of International Container-Shipping Assets
In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). Maersk
acquired vessels, containers, certain terminal facilities and various other
assets and related liabilities of the international liner business. The
award was made inagreement with Maersk provides for a class-
action lawsuit against a group of nine companiespost-closing working capital adjustment to
the sales price based on personal injuries
alleged to have arisen from a 1987 fire. The fire was caused by a leaking
chemical tank car parked on CSXT tracks and resultedthe change in working capital, as defined in the
36-hour evacuation
ofagreement, between June 25, 1999, and December 10, 1999. The Company has
recorded a New Orleans neighborhood. In the same case, the court awarded a group of 20
plaintiffs compensatory damagesreceivable of approximately $2$70 million againstin connection with the
defendants, including CSXT,post-closing working capital adjustment and this amount is currently in dispute.
This matter, together with other issues relating to which the jury assigned 15 percentcontractual obligations
of the responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provisionCompany, has been made for the
award.submitted to arbitration.
-13-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12.10. COMMITMENTS AND CONTINGENCIES, Continued
In October 1997,addition to the Louisiana Supreme Court set asidedisputes relating to the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favorsale of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.
The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850
million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond, which has allowed it to appeal the 1997 compensatory and
punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.
In 1999, six of the nine defendants in the case reached a tentative
settlement with the plaintiffs group. The basis of the settlement is an
agreement that all claims for compensatory and punitive damages against the six
defendants would be compromised for the sum of $215 million. The settlement was
approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court
to assert an amended claim against CSXT, including a newly asserted claim for
punitive damages. The City's case was originally filed in 1988, and while based
on the 1987 tank car fire, is not considered to be part of the class action.
In April of 2001, a group of approximately 100 New Orleans firefighters and
their spouses brought an action against CSXT and other defendants in the
original tank car fire case, styled Hilda Austin, wife of and Edward F. Austin,
Sr. et al. versus Norfolk Southern Corporation et al., Civil District Court for
the Parish of Orleans (Louisiana), No. 2001-5104. This action purports to be a
claim by the firefighters for injuries allegedly incurred during the September,
1987 tank car fire. The Austin matter has been transferred to the presiding
trial judge in the tank car fire case and consolidated with the main case. A
motion on behalf of the Austin plaintiffs to intervene in the main case is now
pending before the trial judge. CSXT intends to oppose the motion to intervene,
and believes that this claim is not timely brought.
On June 27, 2001, the Louisiana Court of Appeal for the Fourth Circuit
affirmed the judgment of the trial court, which judgment reduced the punitive
damages verdict from $2.5 billion to $850 million. CSXT moved the Louisiana
Fourth Circuit Court for rehearing of certain issues raised in its appeal; that
motion was denied on August 2, 2001.
-14-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
On August 30, 2001, CSXT filed with the Louisiana Supreme Court an
application that the court take jurisdiction over and reverse the 1997 punitive
damages award. The Louisiana Supreme Court's jurisdiction in this case is
discretionary. Opposing papers were filed by counsel on October 15, 2001. If the
Louisiana Supreme Court takes jurisdiction of the case, an additional round of
briefing and oral argument may precede any decision by the court. If the
Louisiana Supreme Court does not take jurisdiction, or if its resolution of the
issues is unsatisfactory, CSXT intends to seek further review before the United
States Supreme Court.
CSXT continues to pursue an aggressive legal strategy. At the present
time, management is not in a position to determine whether the resolution of
this case will have a material adverse effect on the Company's financial
position or results of operations in any future reporting period.
ECT Dispute
-----------international
container shipping assets, CSX has received a claim amounting to approximately
$180 million plus interest from Europe Container Terminals bv (ECT), owner of
the Rotterdam Container Terminal previously operated by Sea-Land prior to its
sale to Maersk
in December 1999.Maersk. ECT has claimed that the sale of the international liner
business to Maersk resulted in a breach of the Sea-Land terminal agreements. ECT
has refused to accept containers at the former Sea-Land facility tendered by
Maersk Sea-Land and is seeking compensation from CSX related to the alleged
breach. CSX has also advised Maersk that CSX holdswill hold them responsible for any
damages that may result from this case. Thedispute. A final ruling on ECT's claim, by ECTwhich
has advanced to formal binding arbitration in Rotterdam. A final rulingRotterdam, is not expected before
late summer of 2002. Management's evaluation of the claim indicatesManagement believes that valid defenses exist,
but atto this pointclaim
exist.
Although management cannot estimate what,believes it will prevail in some or all of the Maersk
and ECT disputes and arbitrations, it can give no assurance in this regard. An
adverse outcome could have a material effect on the determination of the final
loss on sale of Sea-Land's International Liner business and the financial
results in future reporting periods.
New Orleans Tank Car Fire
In September 1997 a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSXT. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 tank car fire. In October 1997 the
Louisiana Supreme Court set aside the punitive damages judgment, ruling the
judgment should not have been entered until all liability issues were resolved.
Six of the nine defendants settled with the plaintiffs' representatives in 1999.
On November 5, 1999, the trial court granted CSXT's motion for judgment
notwithstanding the verdict, and effectively reduced the amount of the punitive
damages verdict from $2.5 billion to $850 million.
A judgment reflecting the $850 million punitive award has been entered
against CSXT. In June 2001 the Louisiana Court of Appeal for the Fourth Circuit
affirmed the judgment of the trial court, which reduced the punitive damages
verdict from $2.5 billion to $850 million. CSXT then filed with the Louisiana
Supreme Court an application that the court take jurisdiction over and reverse
the 1997 punitive damages award.
In November 2001 CSXT announced that it had reached a proposed settlement
of the litigation, subject to a fairness hearing and court approval. The amount
to be paid by CSXT under the settlement is $220 million, to resolve all claims
arising out of the 1987 fire and evacuation (whether or not included in the
present class-action lawsuit). CSXT incurred a charge of $60 million before tax,
$37 million after tax, 17 cents per share in the fourth quarter of 2001 to
account for the expense of the settlement, net of insurance recoveries.
In April 2002 the trial court held a fairness hearing respecting the
proposed CSXT settlement. The same day, the trial court issued an order that,
among other things, (1) gave final approval to the settlement; (2) provided that
any and all liability of CSXT pursuant to any of the judgments previously
entered in the litigation was satisfied; and (3) determined that upon the "final
settlement date" as defined in the preliminary settlement agreement between CSXT
and the plaintiffs' representatives, the case will be finally dismissed against
CSXT. The "final settlement date" is defined as the date by which the April 2002
order becomes final and non-appealable (calculated as June 10, 2002, if any, losses may resultno
appeals from this case.the order are taken) or all appeals from the order are finally
resolved, and the date by which certain other events must occur as provided in
the preliminary settlement agreement.
-14-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
Other Legal Proceedings
-----------------------
A number of other legal actions are pending against CSX and certain
subsidiaries in which claims are made in substantial amounts. While the ultimate
results of these legal actions against the Company cannot be predicted with certainty, management
does not currently expect that the resolution of these matters will have a
material adverse effect on the Company'sCSX's consolidated financial position, results of
operations or cash flows. The Company is also party to a number of actions, the
resolution of which could result in gain realization in amounts that could be
material to results of operations in the quarter received.
-15-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 13.11. BUSINESS SEGMENTS
The Company operates in four business segments: Rail, Intermodal,
Domestic Container Shipping, and International Terminals. The Rail segment
provides rail freight transportation over a network of more than 23,40023,000 route
miles in 23 states, the District of Columbia and two Canadian provinces. The
Intermodal segment provides transcontinental intermodal transportation services
and operates a network of dedicated intermodal facilities across North America.
The Domestic Container Shipping segment consists of a fleet of 16 ocean vessels
and 27,00022,000 containers serving the trade between ports on the United States
mainland and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals
segment operates container freight terminal facilities at 12 locations in Hong Kong, China,
Australia, Europe, Russia and the Dominican Republic.Latin America. The Company's segments are
strategic business units that offer different services and are managed
separately based on the differences in these services. Because of their close
interrelationship, the Rail and Intermodal segments are viewed on a combined
basis as Surface Transportation operations and the Domestic Container Shipping
and International Terminals segments are viewed on a combined basis as Marine
Services operations.
The Company evaluates performance and allocates resources based on
several factors, of which the primary financial measure is business segment
operating income, defined as income from operations, excluding the effects of
non-recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1), except that for segment reporting purposes, CSX includes minority interest
expense on the international terminalsInternational Terminals segment's joint venture businesses in
operating expense. These amounts are reclassified in CSX's consolidated
financial statements to other expense. Intersegment sales and transfers are
generally accounted for as if the sales or transfers were to third parties, that
is, at current market prices.
Business segment information for the quarters ended March 29, 2002 and
nine months ended
September 28,March 30, 2001 and September 29, 2000 is as follows: Quarter ended September 28, 2001:
---------------------------------March 29, 2002:
-----------------------------
Marine Services
---------------------------------------------------------------------
Surface Transportation Domestic
---------------------------------------------------------------- Container International
Rail Intermodal Total Shipping Terminals Total Total
------------------------------------------------------------------------------------
Revenues from external customers $ 1,486 $257 $ 1,743 $161 $ 60 $ 221 $ 1,964
Intersegment revenues - 5 5 - 1 1 6
Segment operating income 177 17 194 1 11 12 206
Assets 12,734 437 13,171 482 895 1,377 14,548
-15-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. BUSINESS SEGMENTS, Continued
Quarter ended March 30, 2001:
- ----------------------------
Marine Services
--------------------------------
Surface Transportation Domestic
---------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
---------------------------------------------------------------------------------
Revenues from external customers $ 1,4951,532 $265 $ 2811,797 $161 $ 1,77667 $ 181228 $ 62 $ 243 $ 2,019
Intersegment revenues - 5 5 - - - 5
Segment operating income 200 37 237 17 20 37 274
Assets 12,826 437 13,263 404 868 1,272 14,535
-16-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 13. BUSINESS SEGMENTS, Continued
Quarter ended September 29, 2000:
--------------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
----------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
-----------------------------------------------------------------------------------
Revenues from external customers $ 1,500 $ 283 $ 1,783 $ 176 $ 80 $ 256 $ 2,0392,025
Intersegment revenues - 5 5 - 1 1 6
Segment operating income 163 27 190 7 19 26 216166 16 182 (3) 12 9 191
Assets 13,153 416 13,569 355 773 1,128 14,697
Nine Months ended September 28, 2001:
-------------------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
----------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
-----------------------------------------------------------------------------------
Revenues from external customers $ 4,583 $ 812 $ 5,395 $ 510 $ 196 $ 706 $ 6,101
Intersegment revenues - 15 15 - 2 2 17
Segment operating income 585 76 661 21 50 71 732
Assets 12,826 437 13,263 404 868 1,272 14,535
Nine Months ended September 29, 2000:
-------------------------------------
Marine Services
----------------------------------
Surface Transportation Domestic
----------------------------------
Container International
Rail Intermodal Total Shipping Terminals Total Total
-----------------------------------------------------------------------------------
Revenues from external customers $ 4,563 $ 852 $ 5,415 $ 500 $ 229 $ 729 $ 6,144
Intersegment revenues - 15 15 - 2 2 17
Segment operating income 448 60 508 10 51 61 569
Assets 13,153 416 13,569 355 773 1,128 14,69712,911 418 13,329 299 795 1,094 14,423
-17-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 13. BUSINESS SEGMENTS, Continued
A reconciliation of the totals reported for the business segments to
the applicable line items in the consolidated financial statements is as
follows:
Quarters Ended Nine Months Ended
--------------------------- --------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------ ------------- ----------- -------------
Revenues:
--------
Total external revenues for business segments $ 2,019 $ 2,039 $ 6,101 $ 6,144
Intersegment revenues for business segments 5 6 17 17
Elimination of intersegment revenues (5) (6) (17) (17)
---------- --------- --------- ---------
Total consolidated revenues $ 2,019 $ 2,039 $ 6,101 $ 6,144
========== ========= ========= =========
Operating Income:
----------------
Total operating income for business segments $ 274 $ 216 $ 732 $ 569
Reclassification of minority interest expense for
International terminals segment 8 11 25 31
Unallocated corporate expenses - (3) (21) (13)
---------- --------- --------- ---------
Total consolidated operating income $ 282 $ 224 $ 736 $ 587
========== ========= ========= =========
------------ -------------
Sept. 28, Sept. 29,
2001 2000
------------ -------------
Assets:
------
Assets for business segments $ 14,535 $ 14,697
Investment in Conrail 4,677 4,667
Elimination of intercompany receivables (91) (198)
Non-segment assets 1,485 1,541
---------- -----------
Total consolidated assets $ 20,606 $ 20,707
==========March 29, March 30,
2002 2001
----------- -----------
Revenues:
- --------
Total external revenues for business segments $ 1,964 $ 2,025
Intersegment revenues for business segments 6 6
Elimination of intersegment revenues (6) (6)
----------- -----------
Total consolidated revenues $ 1,964 $ 2,025
===========
NOTE 14. SUBSEQUENT EVENT
On October 24, 2001, CSX executed an agreement whereby the Company
issued $563.5 million aggregate principal amount at maturity===========
Operating Income:
- ----------------
Total operating income for business segments $ 206 $ 191
Reclassification of minority interest expense for
International Terminals segment 8 8
Unallocated corporate expenses (2) (10)
----------- -----------
Total consolidated operating income $ 212 $ 189
=========== ===========
Assets:
- ------
Assets for Business Segments $ 14,548 $ 14,423
Investment in unsubordinated
zero coupon convertible debentures due October 30, 2021 for an initial offering
priceConrail 4,656 4,673
Elimination of approximately $462 million. These debentures will accrete in value at a
yield to maturity of 1% per year, which will be reset on October 30, 2007,
October 30, 2011, and October 30, 2016 to a rate per annum equal to the interest
rate payable 120 days before that reset date on 5-year United States Treasury
Notes minus 2.80%. In no event, however, will the yield to maturity be reset
below 1% or above 3% per annum. Accretion in value on the debentures will be
recorded for each period, but will not be paid prior to maturity.
-18-intercompany receivables (231) 180
Non-segment assets 1,869 1,162
----------- -----------
Total consolidated assets $ 20,842 $ 20,438
=========== ===========
-16-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Exceptexcept Per Share Amounts)
NOTE 14. SUBSEQUENT EVENT, Continued
CSX may redeem the debentures for cash at any time on or after October
30, 2008, at a redemption price equal to the accreted value of the debentures.
Similarly, holders may require the Company to purchase their debentures on
October 30, 2003, October 30, 2006, October 30, 2008, October 30, 2011 and
October 30, 2016, at a purchase price equal to the accreted value of the
debentures. On the first three purchase dates CSX may elect to pay the purchase
price in cash and/or shares of common stock, while CSX may pay the purchase
price only in cash on the last two purchase dates.
Holders may convert debentures into common stock if certain
requirements defined in the debentures and the related indenture are met.
Holders may convert if the closing sale price of CSX common stock for at least
20 of the 30 preceding trading days is more than the applicable percentage
(which will initially be 120% and will decline over the life of the debentures
to 110%) of the accreted conversion price per share of the Company's common
stock. [The "accreted conversion price" per share of common stock is the
quotient of the accreted value of a debenture divided by the number of shares of
common stock issuable upon conversion of that debenture.] Holders may also
convert if the Company's senior long-term unsecured credit ratings are
downgraded by Moody's Investors Service, Inc. to below Ba1 and by Standard &
Poor's Rating Services to below BB+, if the debentures have been called for
redemption, if the Company makes specified distributions to holders of CSX
common stock, or if the Company is a party to specified consolidations, mergers,
or transfers or leases of all or substantially all of the Company's assets. For
each debenture surrendered for conversion, a holder will initially receive
17.7461 shares of CSX common stock, which is equivalent to an initial conversion
price of $46.16 per share. The initial conversion rate will be adjusted for
reasons specified in the indenture, but will not be adjusted for accretion.
Instead, accretion on the debentures will be deemed paid by the common stock
received by the holder on conversion.
It is expected that substantially all of the net proceeds from the sale
of the debentures will be used to redeem $400 million aggregate principal amount
of the Company's floating rate medium-term notes, and/or to refinance a portion
of outstanding commercial paper. The balance, if any, will be used for general
corporate purposes.
NOTE 15.12. SUMMARIZED CONSOLIDATING FINANCIAL DATA -DATA- CSX LINES
During 1987, CSX Lines entered into agreements to sell and lease back by charter
three new U.S.-built, U.S.-flag,U.S. -built, U.S. -flag, D-7 class container ships. CSX has guaranteed
the obligations of CSX Lines pursuant to the related charters which, along with
the container ships, serve as collateral for debt securities registered with the
Securities and Exchange Commission (SEC)("SEC"). The SeptemberMarch 29, 2002, March 30, 2001,
and December 28, 2001, and September 29, 2000 consolidating schedules reflect CSX Lines as the obligor.
In accordance with SEC disclosure requirements, consolidating financial
information for the parent and guarantors are as follows:follows (amounts in millions):
Consolidating Statements of Financial Position
March 29, 2002
CSX Corporate CSX Lines Other Eliminations Consolidated
--------------- --------- --------- ------------ ------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments $ 578 $ 39 $ 164 $ -- $ 781
Accounts Receivable - Net 53 40 970 (254) 809
Materials and Supplies -- 15 208 -- 223
Deferred Income Taxes -- -- 131 -- 131
Other Current Assets 4 33 330 (135) 232
--------- ------- --------- -------- --------
Total Current Assets 635 127 1,803 (389) 2,176
Properties 29 405 17,827 -- 18,261
Accumulated Depreciation (27) (269) (4,986) -- (5,282)
--------- ------- --------- -------- --------
Properties, net 2 136 12,841 -- 12,979
Investment in Conrail 350 -- 4,306 -- 4,656
Affiliates and Other Companies 2 84 334 (32) 388
Investment in Consolidated Subsidiaries 12,625 -- 396 (13,021) --
Other Long-term assets 834 135 239 (565) 643
--------- ------- --------- -------- --------
Total Assets $ 14,448 $ 482 $ 19,919 $(14,007) $ 20,842
========= ======= ========= ======== ========
LIABILITIES
Current Liabilities
Accounts Payable $ 117 $ 64 $ 918 $ (187) $ 912
Labor and Fringe Benefits Payable 21 13 362 -- 396
Payable to Affiliates -- -- 135 (135) --
Casualty, Environmental and Other Reserves 1 3 243 -- 247
Current Maturities of Long-term Debt 750 21 181 -- 952
Short-term Debt -- -- -- -- --
Income and Other Taxes Payable 1,337 27 (1,248) -- 116
Other Current Liabilities 36 18 251 (67) 238
--------- ------- --------- -------- --------
Total Current Liabilities 2,262 146 842 (389) 2,861
Casualty, Environmental and Other reserves 3 4 671 -- 678
Long-term Debt 5,254 132 975 -- 6,361
Deferred Income Taxes -- 70 3,505 -- 3,575
Long-term Payable to Affiliates 396 -- 170 (566) --
Other Long-term Liabilities 358 48 847 (30) 1,223
--------- ------- --------- -------- --------
Total Liabilities 8,273 400 7,010 (985) 14,698
--------- ------- --------- -------- --------
SHAREHOLDER'S EQUITY
Preferred Stock -- -- 396 (396) --
Common Stock 214 -- 209 (209) 214
Other Capital 1,511 69 8,231 (8,300) 1,511
Retained Earnings 4,463 13 4,104 (4,117) 4,463
Accumulated Other Comprehensive Loss (13) -- (31) -- (44)
--------- ------- --------- -------- --------
Total Shareholders' Equity 6,175 82 12,909 (13,022) 6,144
--------- ------- --------- -------- --------
Total Liabilities and Shareholders' Equity $ 14,448 $ 482 $ 19,919 $(14,007) $ 20,842
========= ======= ========= ======== ========
-17-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts
NOTE 12. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Financial Position
December 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
--------------- ----------- ------- -------------- ---------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments $ 225 $ 55 $ 339 $ (1) $ 618
Accounts Receivable - Net 58 8 1,036 (224) 878
Materials and Supplies - 14 192 - 206
Deferred Income Taxes - - 162 - 162
Other Current Assets 4 36 295 (125) 210
-------- -------- -------- -------- --------
Total Current Assets 287 113 2,024 (350) 2,074
Properties 29 453 17,669 - 18,151
Accumulated Depreciation (27) (286) (4,866) - (5,179)
-------- -------- -------- -------- --------
Properties, net 2 167 12,803 - 12,972
Investment in Conrail 353 - 4,302 - 4,655
Affiliates and Other Companies 2 85 326 (31) 382
Investment in Consolidated Subsidiaries 12,641 - 396 (13,037) -
Other Long-term assets 825 137 344 (588) 718
-------- -------- -------- -------- --------
Total Assets $ 14,110 $ 502 $ 20,195 $(14,006) $ 20,801
======== ======== ======== ======== ========
LIABILITIES
Current Liabilities
Accounts Payable $ 86 $ 81 $ 965 $ (166) $ 966
Labor and Fringe Benefits Payable 17 13 388 - 418
Payable to Affilitates - 2 123 (125) -
Casuality, Environmental and Other Reserves 1 3 246 - 250
Current Maturities of Long-term Debt 850 21 173 - 1,044
Short-term Debt 225 - - - 225
Income and Other Taxes Payable 1,296 25 (1,220) - 101
Other Current Liabilities 38 20 300 (59) 299
-------- -------- -------- -------- --------
Total Current Liabilities 2,513 165 975 (350) 3,303
Casuality, Environmental and Other Reserves 4 4 682 - 690
Long-term Debt 4,680 132 1,027 - 5,839
Deferred Income Taxes - 83 3,538 - 3,621
Long-term Payable to Affiliates 396 - 192 (588) -
Other Long-term Liabilities 365 48 845 (30) 1,228
-------- -------- -------- -------- --------
Total Liabilities 7,958 432 7,259 (968) 14,681
-------- -------- -------- -------- --------
SHAREHOLDER'S EQUITY
Preferred Stock - - 396 (396) -
Common Stock 214 - 209 (209) 214
Other Capital 1,492 57 8,243 (8,300) 1,492
Retained Earnings 4,459 13 4,120 (4,133) 4,459
Accumulated Other Comprehensive Loss (13) - (32) - (45)
-------- -------- -------- -------- --------
Total Shareholder's Equity 6,152 70 12,936 (13,038) 6,120
-------- -------- -------- -------- --------
Total Liabilities and Shareholder's Equity $ 14,110 $ 502 $ 20,195 $(14,006) $ 20,801
======== ======== ======== ======== ========
-18-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings
Quarter ended March 29, 2002
CSX
Corporate CSX Lines Other Eliminations Consolidated
--------- --------- ----- ------------ ------------
Operating Revenue $ - $ 161 $ 1,916 $ (113) $ 1,964
Operating Expense (67) 160 1,769 (110) 1,752
--------- --------- ------- ------------ ------------
Operating Income (Loss) 67 1 147 (3) 212
Other Income (Expense) 48 2 24 (65) 9
Interest Expense 100 2 27 (15) 114
--------- --------- ------- ------------ ------------
Earnings before Income Taxes and Cumulative Effect of Accounting Change 15 1 144 (53) 107
Income Tax Expense (Benefit) (1) 1 39 - 39
--------- --------- ------- ------------ ------------
Earnings Before Cumulative Effect of Accounting Change 16 - 105 (53) 68
Cumulative Effect of Accounting Change - - (43) - (43)
--------- --------- ------- ------------ ------------
--------- --------- ------- ------------ ------------
Net Earnings $ 16 $ - $ 62 $ (53) $ 25
========= ========= ======= ============ ============
Consolidating Statement of Earnings
Quarter ended March 31, 2001
CSX
Corporate CSX Lines Other Eliminations Consolidated
--------- --------- ----- ------------ ------------
Operating Revenue $ - $ 161 $ 1,974 $ (110) $ 2,025
Operating Expense (46) 164 1,827 (109) 1,836
--------- --------- ------- ------------ ------------
Operating Income (Loss) 46 (3) 147 (1) 189
Other Income (Expense) 78 2 12 (121) (29)
Interest Expense 134 4 38 (43) 133
--------- --------- ------- ------------ ------------
Earnings before Income Taxes (10) (5) 121 (79) 27
Income Tax Expense (Benefit) (1) (2) 10 - 7
--------- --------- ------- ------------ ------------
Net Earnings (Loss) $ (9) $ (3) $ 111 $ (79) $ 20
========= ========= ======= ============ ============
-19-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA-CSX LINES, Continued
Consolidating Statement of Financial Position
September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
------------- --------- ------- ------------- ------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments $ 144 $ 14 $ 434 $ - $ 592
Accounts Receivable 35 37 920 (116) 876
Materials and Supplies - 15 251 - 266
Deferred Income Taxes - - 141 - 141
Other Current Assets 4 12 273 (145) 144
----------- --------- -------- --------- ----------
Total Current Assets 183 78 2,019 (261) 2,019
Properties 29 458 17,792 - 18,279
Accumulated Depreciation (26) (292) (5,082) - (5,400)
----------- --------- -------- --------- ----------
Properties, net 3 166 12,710 - 12,879
Investment in Conrail 356 - 4,321 - 4,677
Affiliates and Other Companies 2 94 295 (31) 360
Investment in Consolidated Subsidiaries 13,298 - 396 (13,694) -
Other long-term assets 156 67 1,035 (587) 671
----------- --------- -------- --------- ----------
Total Assets $ 13,998 $ 405 $ 20,776 $ (14,573) $ 20,606
=========== ========= ======== ========= ==========
LIABILITIES
Current liabilities
Accounts Payable $ 139 $ 82 $ 940 $ (64) $ 1,097
Labor and Fringe Benefits Payable 12 10 386 - 408
Payable to Affiliates - - 145 (145) -
Casualty, Environmental and Other Reserves 1 2 251 - 254
Current Maturities of Long-term Debt 850 - 126 - 976
Short-term Debt 272 - - - 272
Income and Other Taxes Payable 1,199 25 (1,034) - 190
Other Current Liabilities 37 23 241 (51) 250
----------- --------- -------- --------- ----------
Total Current Liabilities 2,510 142 1,055 (260) 3,447
Casualty, Environmental and Other reserves 1 3 709 - 713
Long-term Debt 4,594 69 996 - 5,659
Deferred Income Taxes 90 (23) 3,415 - 3,482
Long Term Payable to Affiliates 396 - 192 (588) -
Other Long-term Liabilities 325 37 860 (30) 1,192
----------- --------- -------- --------- ----------
Total Liabilities 7,916 228 7,227 (878) 14,493
----------- --------- -------- --------- ----------
SHAREHOLDER'S EQUITY
Preferred Stock - - 396 (396) -
Common Stock 224 - 198 (209) 213
Other Capital 2,181 171 8,127 (8,994) 1,485
Retained Earnings 3,677 6 4,828 (4,096) 4,415
----------- --------- -------- --------- ----------
Total Shareholders' Equity 6,082 177 13,549 (13,695) 6,113
----------- --------- -------- --------- ----------
Total Liabilities and Shareholders' Equity $ 13,998 $ 405 $ 20,776 $ (14,573) $ 20,606
=========== ========= ======== ========= ==========
-20-
CSX CORPORATIONS AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts
NOTE 15.12. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Financial Position
DecemberCash Flows
Three Months Ended March 29, 20002002
CSX CSX
Corporate CSX Lines Other Eliminations Consolidated
------------- ---------- ------------------- ----- ----- ------------ -------------------------
ASSETS
Current AssetsOperating Activities
Net Cash Provided (Used) by Operating Activities $ 103 $ (9) $ 127 $ (61) $ 160
--------- ----- ------- ------------ ------------
Investing Activities
Property Additions - (6) (156) - (162)
Short-term Investments-net (288) (3) 133 - (158)
Other Investing Activities 3 (1) (1) (12) (11)
--------- ----- ------- ------------ ------------
Net Cash Used by Investing Activities (285) (10) (24) (12) (331)
--------- ----- ------- ------------ ------------
Financing Activities
Short-term Debt-Net - - - - -
Long-term Debt Issued 450 - - - 450
Long-term Debt Repaid (200) - (67) - (267)
Cash Dividends Paid (22) - (52) 53 (21)
Other Financing Activities 20 - (28) 20 12
--------- ----- ------- ------------ ------------
Net Cash Provided (Used) by Financing Activities 248 - (147) 73 174
Net Increase (Decrease) in Cash and Cash Equivalents 66 (19) (44) - 3
Cash and Short-term
InvestmentsCash Equivalents at Beginning of Period 156 52 (71) - 137
--------- ----- ------- ------------ ------------
Cash and Cash Equivalents at End of Period $ 285222 $ (94)33 $ 493(115) $ - $ 684
Accounts Receivable 33 65 926 (174) 850
Materials and Supplies - 15 230 - 245
Deferred Income Taxes - - 121 - 121
Other Current Assets 12 12 248 (126) 146
---------- ---------- --------- ---------- -----------
Total Current Assets 330 (2) 2,018 (300) 2,046
Properties 29 455 17,355 - 17,839
Accumulated Depreciation (25) (276) (4,896) - (5,197)
---------- ---------- --------- ---------- -----------
Properties, net 4 179 12,459 - 12,642
Investment in Conrail 364 - 4,304 - 4,668
Affiliates and Other Companies - 164 227 (29) 362
Investment in Consolidated Subsidiaries 13,184 - 386 (13,570) -
Other Long-term assets (205) - 2,097 (1,119) 773
---------- ---------- -------- ---------- -----------
Total Assets $ 13,677 $ 341 $ 21,491 $ (15,018) $ 20,491
========== ========== ======== ========== ===========
LIABILITIES
Current Liabilities
Accounts Payable $ 102 $ 88 $ 1,036 $ (147) $ 1,079
Labor and Fringe Benefits Payable 5 21 379 - 405
Payable to Affilitates - - 127 (127) -
Casuality, Environmental and Other Reserves 1 3 242 - 246
Current Maturities of Long-term Debt 60 - 112 - 172
Short-term Debt 749 - - - 749
Income and Other Taxes Payable 1,346 12 (986) - 372
Other Current Liabilities 39 25 219 (26) 257
---------- ---------- -------- ---------- -----------
Total Current Liabilities 2,302 149 1,129 (300) 3,280
Casuality, Environmental and Other Reserves - 4 751 - 755
Long-term Debt 4,594 54 1,162 - 5,810
Deferred Income Taxes 118 (16) 3,282 - 3,384
Long Term Payable to Affiliates 396 14 707 (1,117) -
Other Long-term Liabilities 250 43 982 (30) 1,245
---------- ---------- -------- ---------- -----------
Total Liabilities 7,660 248 8,013 (1,447) 14,474
---------- ---------- -------- ---------- -----------
SHAREHOLDER'S EQUITY
Preferred Stock - - 396 (396) -
Common Stock 213 - 209 (209) 213
Other Capital 1,467 98 8,958 (9,056) 1,467
Retained Earnings 4,337 (5) 3,915 (3,910) 4,337
---------- ---------- -------- ---------- -----------
Total Shareholder's Equity 6,017 93 13,478 (13,571) 6,017
---------- ---------- -------- ---------- -----------
Total Liabilities and Shareholder's Equity $ 13,677 $ 341 $ 21,491 $ (15,018) $ 20,491
---------- ---------- -------- ---------- -----------140
========= ===== ======= ============ ============
-21--20-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)Amounts
NOTE 15 SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings
Quarter ended September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
Operating Revenue $ - $ 182 $ 1,948 $ (111) $ 2,019
Operating Expense (59) 165 1,740 (109) 1,737
----------------- ----------------- ----------------- ----------------- -----------------
Operating Income (Loss) 59 17 208 (2) 282
Other Income (Expense) 152 - 22 (173) 1
Interest Expense 116 1 29 (20) 126
----------------- ----------------- ----------------- ----------------- -----------------
Earnings before Income Taxes 95 16 201 (155) 157
Income Tax Expense (Benefit) (20) 6 71 - 57
----------------- ----------------- ----------------- ----------------- -----------------
Net Earnings (Loss) $ 115 $ 10 $ 130 $ (155) $ 100
================= ================= ================= ================= =================
Consolidating Statement of Earnings
Quarter ended September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
Operating Revenue $ - $ 176 $ 1,972 $ (109) $ 2,039
Operating Expense (61) 169 1,814 (107) 1,815
----------------- ----------------- ----------------- ----------------- -----------------
Operating Income (Loss) 61 7 158 (2) 224
Other Income (Expense) 487 - 49 (533) 3
Interest Expense 145 2 41 (48) 140
----------------- ----------------- ----------------- ----------------- -----------------
Earnings from Continuing Operations
before Income Taxes 403 5 166 (487) 87
Income Tax Expense (Benefit) (27) 2 53 - 28
----------------- ----------------- ----------------- ----------------- -----------------
Net Earnings (Loss) from Continuing
Operations $ 430 $ 3 $ 113 $ (487) $ 59
================= ================= ================= ================= =================
Discontinued Operations, net of taxes - - 368 - 368
----------------- ----------------- ----------------- ----------------- -----------------
Net Earnings (Loss) $ 430 $ 3 $ 481 $ (487) $ 427
================= ================= ================= ================= =================
-22-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited ), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts
NOTES 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES,
Continued
Consolidating Statement of Earnings
Nine Months Ended September 28, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
--------------- ----------- ------- -------------- --------------
Operating Revenue $ - $ 510 $ 5,920 $ (329) $ 6,101
Operating Expense (150) 489 5,349 (323) 5,365
--------- --------- --------- -------- ---------
Operating Income (Loss) 150 21 571 (6) 736
Other Income (Expense) 389 (2) 75 (458) 4
Interest Expense 360 2 94 (67) 389
--------- --------- --------- -------- ---------
Earnings before Income Taxes 179 17 552 (397) 351
Income Tax Expense (Benefit) (70) 6 187 - 123
--------- --------- --------- -------- ---------
Net Earnings (Loss) $ 249 $ 11 $ 365 $ (397) $ 228
========= ========= ========= ======== =========
Consolidating Statement of Earnings
Nine months ended September 29, 2000
CSX Corporate CSX Lines Other Eliminations Consolidated
--------------- ----------- ------- -------------- --------------
Operating Revenue $ - $ 499 $ 5,987 $ (342) $ 6,144
Operating Expense (171) 490 5,573 (335) 5,557
--------- --------- --------- -------- ---------
Operating Income (Loss) 171 9 414 (7) 587
Other Income (Expense) 663 (1) 140 (780) 22
Interest Expense 422 5 114 (128) 413
--------- --------- --------- -------- ---------
Earnings from Continuing Operations
before Income Taxes 411 3 440 (659) 196
Income Tax Expense (Benefit) (78) 1 141 - 64
--------- --------- --------- -------- ---------
Net Earnings (Loss) from Continuing
Operations 489 2 299 (659) 132
--------- --------- --------- -------- ---------
Discontinued Operations, Net of Taxes - - 379 - 379
--------- --------- --------- -------- ---------
Net Earnings (Loss) $ 489 $ 2 $ 678 $ (659) $ 511
========= ========= ========= ======== =========
-23-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 15.12. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows
NineThree Months Ended September 28,March 31, 2001
CSX CSX
Corporate Lines Other Eliminations Consolidated
-------------- ------------- ----------- ---------------------- ------- -------------- --------------
Operating Activities
Net Cash Provided (Used) by Operating Activities $ (128)(78) $ 36- $ 557142 $ (26)(64) $ 439-
----------- ------- ------- -------------- ------------- ----------- --------------- --------------
Investing Activities
Property Additions - (5) (623)1 (184) - (628)(183)
Short-term Investments-net (35)(76) - (1) - - (35)(77)
Other Investing Activities (885) 1 937 (1) 528 - (71) 58 (5)
----------- ------- ------- -------------- ------------- ----------- --------------- --------------
Net Cash UsedProvided (Used) by Investing Activities (920) (4) 314 (1) (611)(68) 1 (256) 58 (265)
----------- ------- ------- -------------- ------------- ----------- --------------- --------------
Financing Activities
Short-term Debt-Net (127)(271) - - - (127)(271)
Long-term Debt Issued 500 - - - 500
Long-term Debt Repaid (60) - (135) - (195)(48) - (48)
Cash Dividends Paid (152)(66) - (24) 27 (149)(54) 56 (64)
Other Financing Activities 711 76 (773) 1 15(12) - 70 (50) 8
----------- ------- ------- -------------- ------------- ----------- --------------- --------------
Net Cash Provided (Used) by Financing Activities 872 76 (932) 28 44151 - (32) 6 125
Net Increase (Decrease) in Cash and Cash Equivalents (176) 108 (61)5 1 (128)(146) - (140)
Cash and Cash Equivalents at Beginning of Period (134)47 (94) 489308 - 261
-------------- ------------- ----------- ---------------------- ------- -------------- --------------
Cash and Cash Equivalents at End of Period $ (310)52 $ 14(93) $ 428162 $ 1- $ 133121
=========== ======= ======= ============== ============= =========== =============== ==============
-24-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, except Per Share Amounts
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows
Nine Months Ended September 29, 2000
CSX CSX
Corporate Lines Other Eliminations Consolidated
--------- ----- ---- ------------ ------------
Operating Activities
Net Cash Provided by Operating Activities $ 151 $ (8) $ 600 $ (194) $ 549
------- ------ --------- ------ ------
Investing Activities
Property Additions - (7) (636) - (643)
Short-term Investments-net (44) - - - (44)
Other Investing Activities 555 - (851) 949 653
------- ------ --------- ------ ------
Net Cash Used by Investing Activities 511 (7) (1,487) 949 (34)
------- ------ --------- ------ ------
Financing Activities
Short-term Debt-Net (247) - - - (247)
Long-term Debt Issued - - 588 - 588
Long-term Debt Repaid (250) - (487) (737)
Cash Dividends Paid (200) - (179) 182 (197)
Other Financing Activities 377 (68) 566 (931) (56)
------- ------ --------- ------ ------
Net Cash Provided (Used) by Financing Activities (320) (68) 488 (749) (649)
Net Increase (Decrease) in Cash and Cash Equivalents 342 (83) (399) 6 (134)
Cash and Cash Equivalents at Beginning of Period (475) 16 1,090 (5) 626
------- ------ --------- ------ ------
Cash and Cash Equivalents at End of Period $ (133) $ (67) $ 691 $ 1 $ 492
======= ====== ========= ====== ======
-25--21-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
CSX follows a 52/53-week fiscal calendar. Fiscal years 20012002 and 20002001
consist of 52 weeks. The quarters ended September 28,March 29, 2002 and March 30, 2001 and September 29,
2000
consisted of 13 weeks.
The nine-month periods ended September 28, 2001 and
September 29, 2000 consisted of 39 weeks.
Consolidated Results
- --------------------
ThirdFirst Quarter 20012002 Compared with 20002001
- -------------------------------------
CSX reported net earnings of $100 million, 47 cents per share for the quarter ended September 28, 2001, asMarch 29, 2002 of $25
million, 12 cents per share, compared to $427with $20 million, $2.0210 cents per share in
the quarter ended September 29, 2000.
On September 22, 2000, CSX completedMarch 30, 2001. Current period results include a cumulative
effect of accounting change relating to the saleadoption of its wholly-owned
logistics subsidiary, CTI Logistx, Inc. to TNT Post GroupStatement of Financial
Accounting Standard No. 142 (SFAS 142), "Goodwill and Other Intangible Assets."
Under the provisions of SFAS 142, goodwill and other indefinite lived intangible
assets are no longer amortized but are reviewed for $650 million,
realizingimpairment on a periodic
basis. The Company adopted this standard in the first quarter of 2002 and
incurred a pre-tax gaincharge of $570 million, $365$83 million, after-tax or $1.73charge of $43 million, 20
cents per share as a cumulative effect of an accounting change relating to
indefinite lived intangible assets. These indefinite lived intangible assets are
permits and licenses that the Company holds relating to a proposed pipeline to
transfer natural gas from Alaska's north slope to the port in Valdez, Alaska.
The adoption of SFAS 142 did not have a material effect on prior reporting
periods, and the Company does not believe it will have a material effect on
future earnings. The Company does not have any other indefinite lived intangible
assets.
Before the cumulative effect of accounting change in the current
period, earnings were $68 million, 32 cents per share. The contract logistics segmentincrease in earnings
over the prior year period is reporteda result of increases in operating income and
other income, and a decrease in interest expense. Operating income increased 12%
from $189 million in the first quarter of 2001 to $212 in the first quarter of
2002 as a discontinued operation.result of a decline in the Surface Transportation operating ratio.
Operating revenue decreased 3% to $1.96 billion in the first quarter of 2002
from $2.03 billion in the prior year period. However, operating expenses
decreased 5% to $1.75 billion in the current period, from $1.84 billion in the
prior year. Interest expense benefited from favorable interest rates and a $36
million pre-tax gain from a property sale had a favorable impact on other
income.
Surface Transportation Results
- ------------------------------
Rail
CSX had net earnings from continuing operations of $100Transportation ("CSXT") earned $177 million 47 cents per
share on a diluted basis,in operating income for
the quarter ended September 28, 2001, versus net
earningsMarch 29, 2002, up $11 million, or 7 percent, from continuing operations of $59 million, 28 cents per share on a
diluted basis for the period ended September 29, 2000, an increase of 69%.
Operating income was $282 million in the quarter ended September 28,
2001, an increase of 26% over the $224$166
million reported in the samefirst quarter in
2000. Revenues were consistent between the years at $2.0of 2001. Operating revenue decreased to
$1.49 billion but operating
expenses were down 4% at $1.7 billion.
Surface Transportation Results
------------------------------
Rail
Rail operating income was $200 million in the quarter ended September
28, 2001, an increase of 23% over the $163 million reported in the same quarter
in 2000. Volumes were down due to general economic weakness, while revenues were
flat due to offsetting pricing initiatives.
Operating expenses were down 3% compared to the same quartercurrent period from $1.53 in the prior year at $1.3 billion, as management successfully removed costsyear. Volumes in the
first quarter were down 6 percent year-over-year while revenue was down only 3
percent due to the continued success of CSXT's yield improvement program. Only
volumes for the automotive sector increased year-over-year. Volume decreases
were offset by revenue increases in the food and consumer products and coke
markets, reflecting various pricing initiatives. Further offsetting volume
decreases were increased automotive revenue, resulting from the network and operated a more efficient railroad.
-26-increase in
volume as well as price increases.
-22-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Rail, Continued
The following tables provide rail carload and revenue data by service
group and commodityoperating ratio decreased to 88.1% for the quartersquarter ended March 29,
2002 from 89.2% for the quarter ended March 30, 2001. Operating expenses
decreased from $1.37 billion for the quarter ended March 30, 2001 to $1.31
billion for the quarter ended March 29, 2002. The $57 million decrease resulted
primarily from decreases in labor and nine months ended September 28,fringe benefits and fuel, offset by
increases in materials, supplies and other, and Conrail operations. Labor and
fringe expense decreased $20 million primarily resulting from headcount
reductions of approximately 2,600 from prior year quarter as part of a continued
effort by management to eliminate inefficiencies. This was somewhat offset by
inflation and health and welfare charges. Operating expenses were further
reduced as compared to the prior year due to a $50 million decrease in fuel
expenses, of which approximately $40 million is the result of a favorable
year-to-year price variance. The remaining decrease is primarily attributed to
the corresponding decrease in carload volumes.
These operating expense decreases were partially offset by increases in
materials, supplies, and other, and Conrail operations. The increase in
materials, supplies and other is due partially to higher expenses related to
casualty losses and property taxes. The unfavorable variance in Conrail's 2002
first quarter operating results was a consequence of a favorable state tax
settlement which enhanced Conrail's 2001 first quarter results.
General merchandise volumes were down 4 percent for the quarter. While
phosphate and September 29, 2000:
Carloads Revenue
Quarter Ended Quarter Ended
(Thousands) (Millions of Dollars)
--------------------------- ----------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
------------- ------------ ------------- -------------
Merchandise
Phosphates and Fertilizer 101 115 $ 63 $ 75
Metals 83 85 105 102
Food and Consumer Products 41 40 59 57
Paper and Forest Products 120 128 161 160
Agricultural Products 88 86 118 116
Chemicals 143 150 236 249
Minerals 115 116 101 104
Government 3 2 9 7
------------- ------------ ------------- -------------
Total Merchandise 694 722 852 870
Automotive 119 132 184 196
Coal, Coke and Iron Ore
Coal 422 433 417 397
Coke 10 12 12 11
Iron Ore 12 14 6 8
------------- ------------ ------------- -------------
Total Coal, Coke and Iron Ore 444 459 435 416
Other - - 24 18
------------- ------------ ------------- -------------
Total Rail 1,257 1,313 $ 1,495 $ 1,500
============= ============ ============= =============
-27-fertilizer and food and consumer products volumes were flat for
the quarter, all other markets were down year-over-year. Agricultural products
were down 8 percent due to a decline in export grain shipments. All other
merchandise markets were down 4 to 5 percent. With the exception of minerals and
phosphates and fertilizers, all other merchandise commodity groups showed
improved revenue yield as CSXT's pricing program continued to show significant
vibrancy.
Automotive volumes were up 2 percent versus last year, reflecting a 3
percent increase in North American auto production and continuing aggressive
dealer incentive programs. Actual vehicle sales were in line with production, so
dealer inventory levels continue to be at or close to normal.
Coal, Coke & Iron Ore volumes in the first quarter were 11 percent
below last year, due to generally mild weather conditions and the lack of the
inventory build-up that was occurring during the first quarter of 2001. Yield
improvements helped offset some of the volume shortfall.
-23-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Rail, Continued
The following table provides rail carload and revenue data by service
group and commodity for the quarters ended March 29, 2002 and March 30, 2001:
Carloads Revenue
Nine Months Ended Nine Months Ended
(Thousands) (Millions of Dollars)
--------------------------- --------------------------
Sept. 28, Sept.----------------------------- -----------------------------
March 29, Sept. 28, Sept.March 30, March 29, March 30,
2002 2001 20002002 2001
2000
------------- ------------ ------------ -------------------------- ------------- --------------
Merchandise
Phosphates and Fertilizer 325 369119 119 $ 22789 $ 24289
Metals 250 266 312 31677 81 97 99
Food and Consumer Products 124 120 180 16539 39 53 52
Paper and Forest Products 363 400 482 497116 122 156 160
Agricultural Products 280 265 377 35592 100 127 134
Chemicals 440 453 730 751125 130 224 232
Minerals 322 334 291 303
Government 8 8 24 22 23 34 36
Emerging Markets 93 97 88 88
------------- ------------ ------------ -------------------------- ------------- --------------
Total Merchandise 2,112 2,215 2,623 2,651683 711 868 890
Automotive 385 448 591 661129 127 200 194
Coal, Coke and& Iron Ore
Coal 1,291 1,238 1,248 1,151393 439 381 416
Coke 31 36 36 368 10 13 11
Iron Ore 30 35 17 224 5 3 3
------------- ------------ ------------ -------------------------- ------------- --------------
Total Coal, Coke and& Iron Ore 1,352 1,309 1,301 1,209405 454 397 430
Other - - 68 4221 18
------------- -------------- ------------- --------------
Total Rail 1,217 1,292 1,486 1,532
------------- -------------- ------------- --------------
Intermodal
Domestic 220 202 152 143
International 261 279 110 123
Other - - - 4
------------- ------------ ------------- --------------
Total Intermodal 481 481 262 270
------------- ------------ ------------------------- --------------
Total Rail 3,849 3,972Surface Transportation 1,698 1,773 $ 4,5831,748 $ 4,5631,802
============= ============ ============ ========================= ==============
General merchandise volumes were down 4% for the quarter and 5% for the
first nine months compared to 2000. In the third quarter, selective pricing
initiatives, continued success with truck conversions and mix improvements in
the various merchandise commodity groups continued to successfully offset some
of the volume shortfalls, particularly in metals, and paper and forest. For the
first nine months, only volumes for food and consumer, and agricultural products
were up on a year over year basis. Coal volumes in the third quarter were 3%
lower year over year due to unusually low stockpiles at the mines during miners'
vacation in July. Coal revenues increased 5%, reflecting various pricing
initiatives and mix improvements.
Operating expenses decreased by $42 million in the quarter versus the
prior year. Reductions in labor and fringe benefits, building and equipment
rent, and fuel were the primary components. A portion of the reduction is
related to volumes, but it is primarily due to the network operating more
efficiently. The decrease in fuel costs can also be attributed to a 7.8 cent
decline in the average fuel price for the third quarter versus the prior year
quarter. These benefits were partially offset by increases in materials,
supplies and other and depreciation.
-28--24-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Intermodal
CSX Intermodal reported first quarter 2002 operating income of $17
million, compared with $16 million in 2001. Revenue was $262 million for the
quarter ended March 29, 2002, compared to $270 million for the quarter ended
March 30, 2001. The revenue decline is attributable to decreased volume in
international markets, partially offset by increases in the domestic market.
Domestic shipments recorded a 9 percent increase, driven by strong domestic
container traffic and diversion of Mexican auto parts traffic from the highway.
The international container business reflected worldwide economic conditions,
with volumes declining 6 percent. The loss of three customers had a negative
impact on revenue. Operating expense decreased to $245 million for the quarter
ended March 29, 2002 from $254 for the quarter ended March 30, 2001.
Improvements in the operating ratio of 93.5% in 2002, compared to 94.1% in 2001
are attributable to continued cost reduction initiatives.
Marine Services Results
- -----------------------
Domestic Container Shipping
CSX Lines reported operating income of $1 million for the quarter ended
March 29, 2002, compared to a loss of $3 million for the quarter ended March 30,
2001. Revenue remained flat between years at $161 million. Market share gains in
Hawaii/Guam and Puerto Rico were offset by overall market declines from the
impact of the September 11th tragedy on the tourism-reliant Hawaii/Guam trade.
Operating expenses decreased from $164 million in the first quarter of 2001 to
$160 million for the first quarter of 2002, primarily related to reduced fuel
costs as well as various cost reduction initiatives implemented in the second
half of 2001.
International Terminals
CSX World Terminals' operating income was $37$11 million for the thirdquarter
ended March 29, 2002, compared with $12 million for the quarter ended March 30,
2001. Revenue declined to $61 million in the first quarter of 2001, compared to $27 million2002 from $68 in
the prior year quarter. Intermodal volumesdue to weakness in the thirdLatin America sector and the slow recovery
in the Hong Kong economy. The revenue decrease was partially offset by a
decrease in the operating expenses to $50 million in 2002 from $56 million in
2001. This improvement is attributed to cost cutting and productivity gains. The
operating ratio decrease from 82.4% in the first quarter increased 2% versus 2000 reflecting growthof 2001 to 82.0% in transcontinental
containerized shipments, while revenues fell due to general economic weakness
and mix deterioration. Operating income was up $10 million or 37% asthe
first quarter of 2002 is also a result of decreased operating expenses. These numbers reflect a loss of some of the low
margin international transcontinental freight revenues that intermodal had in
2000 on which the Company incurs a significant amount of other railroad
transportation costs. Inland transportation costs were down $6 million or 4% in
the third quarter of 2001 as compared to the prior year.
Marine Services Results
-----------------------
Domestic Container Shipping
Domestic container shipping operating income was $17 million in the
quarter ended September 28, 2001, up from $7 million in the prior year quarter.
Operating revenue is up by $5 million despite a soft economy, as a result of
increased market share in each trade, cargo mix improvements, and general rate
increases in the Hawaii and Alaska trades. Operating expense is down by $5
million due to continued focus on expense reductionscost cutting and
productivity improvements.
International Terminals
International terminals operating income was $20 million in the quarter
ended September 28, 2001, an increase of $1 million year over year. Although the
slower than expected market demand continued to impact the operations
negatively, as revenues were down $19 million, aggressive cost reduction
initiatives mitigated some of the revenue short falls while improving the third
quarter net operating income by $1 million over that of the third quarter 2000.
First Nine Months 2001 Compared with 2000
-----------------------------------------
For the first nine months of the year, CSX reported net earnings from
continuing operations of $228 million, $1.07 per share, as compared to $132
million, 62 cents per share in the period ended September 29, 2000.
Operating income was $736 million in the nine months ended September
28, 2001, an increase of 25% over the $587 million reported in the same period
in 2000. Operating revenues were consistent between the years at $6.1 billion,
but operating expenses were down 3% at $5.4 billion.
Other income was $4 million in the nine month period ended September
28, 2001, a decrease of 82% from the $22 million reported in the same period of
2000. This decrease is comprised of a decline in interest income and increases
in net losses from accounts receivable sold and equity losses of other
affiliates, offset by an increase in income from real estate and resort
operations.
-29-gains.
-25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITIONLIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments totaled $592$781 million
at September 28, 2001, a decreaseMarch 29, 2002, an increase of $92$163 million since December 29, 2000.28, 2001.
Primary sources of cash and cash equivalents during the ninethree months
ended September 28, 2001March 29, 2002 were the normal transportation operations and the issuance
of $500$450 million of long-term debt. On a net basis, operations provided $439
million of cash for the nine-month period, reflecting an increase in operating
income. Primary uses of cash and cash equivalents
were property additions, repayments of short-term and long-term debt, and the payment of
dividends. On
July 11, 2001 the Board of Directors announced that the regularThe quarterly dividend payable September 14, 2001, would be reduced tofor the current period was 10 cents per share. CSX
had paid a regularly quarterly dividend ofshare,
compared to 30 cents per share sincein the fourth
quarter of 1997.prior year.
CSX's working capital deficit at September 28, 2001March 29, 2002 was $1.4 billion,
up$685 million, down
from $1.2 billion at December 29, 2000. The working capital deficit increased28, 2001. This decrease is partially attributable
to $225 million in notes due to $765 million of long-term debtConrail being reclassified to current during the
second quarter as it is due within 12 months. This increase was partially offset
by the reclassification of $350 million in outstanding commercial paper from short-term debt to
long termlong-term due to the factrenegotiation of the notes to a long-term basis. At March
29, 2002, CSX had $450 million of debentures that it is now supported by a new
five-year line of credit agreement signedwill be maturing in June 2001. The commercial paper
balances had been classified as current dueMay 2002.
CSX has the intent and ability to retire the factentire amount at that the Company's old
line of credit agreement was to expire in November of 2001.time.
A working capital deficit is not unusual for the Company and does not
indicate a lack of liquidity. The Company continues to maintain adequate current
assets to satisfy current liabilities and maturing obligations when they arecome
due and has sufficient liquidity and financial resourcescapacity to manage its day-to-day cash
needs.requirements and any obligations arising from legal, tax and other regulatory
rulings. CSX also has $838 million$1.1 billion of remaining capacity under twoa shelf
registrationsregistration that may be used to issue debt or other securities at the Company's
discretion.
On October 24, 2001, CSX executed an agreement wherebyDuring the quarter ended March 29, 2002, the Company issued $563.5 million aggregate principal amount at maturity in unsubordinated
zero coupon convertible debentures due October 30, 2021 for an initial offering
price of approximately $462 million. It is expected that substantially all of
the net proceeds from the sale of the debentures will be used to redeem $400
million aggregate principal amount of 6.30% notes due 2012. Proceeds of the
Company's floating rate medium-term
notes and/or to refinance a portion of outstanding commercial paper. The
balance, if any, will be used for general corporate purposes.
FINANCIAL DATA
--------------
(Millions of Dollars)
-----------------------------------
September 28, December 29,
2001 2000
----------------- -----------------
Cash, Cash Equivalents and
Short-Term Investments $ 592 $ 684
Commercial Paper Outstanding
Short-Term $ 272 $ 749
Working Capital (Deficit) $ (1,428) $ (1,234)
Current Ratio .6 .6
Debt Ratio 52 % 52 %
Ratio of Earnings to Fixed Charges 1.7 x 1.4 x
-30-to refinance other debt that comes due in the second quarter
of 2002.
-26-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
On August 10,FINANCIAL DATA
(Millions of Dollars)
-------------------------
March 29, December 28,
2002 2001
the Company entered into $500 million--------- ------------
Cash, Cash Equivalents and
Short-Term Investments $ 781 $ 618
Working Capital (Deficit) $ (685) $ (1,229)
Current Ratio 0.8 0.6
Debt Ratio 52 % 51 %
Ratio of interest
rate swap agreementsEarnings to manage its exposure to interest rate risk. The interest
rate swap agreements hedge the Company's exposure on the fair value of long-term
obligations in the aggregate principal amount of $500 million. The differential
paid or received by the Company on the interest rate swap agreement is
recognized as an adjustment to interest expense in the period incurred. For the
three months ended September 28, 2001, the Company reduced interest expense by
approximately $.6 million as a result of the interest rate swap agreements that
were in place during that period. The Company is exposed to credit loss in the
event of non-performance by any counter-party to the interest rate swap
agreement. The Company does not anticipate non-performance by such
counter-parties, and no material loss would be expected from non-performance.Fixed Charges 1.8 x 1.7 x
OUTLOOK
-------
InDuring the remainder of 2001,2002, CSX expects that financial performance
should improve significantly when the challengeindustrial sector recovers from the
current economic slowdown. CSX believes that its Surface Transportation units
are ready to capitalize and benefit significantly from an economic recovery
through the inherent operating leverage that these units possess. Even if an
economic recovery does not materialize until 2003, CSX still anticipates that
the Surface Transportation units will be topost quarterly year-over-year improvements
in earnings throughout the remainder of the year.
The Marine Services units continue to improvecontribute operating income to
CSX and the financial performanceexpectation is that these units will experience earnings greater
than in 2001 should the economic recovery occur as expected in the second half
of the railroad. This is expected to be accomplished
through continued service improvements, which will serve as the catalyst for
sustained yield improvements, aggressive cost cutting initiatives2002. CSX Lines has successfully cut costs and continued
success in attracting traffic to move from trucks to CSX. Despite a weak
economy, CSX continues to expecthave quarter over
quarter improvements in earnings. CSX World Terminals continues to produce full year earnings that will show an
increase from previous years.
The Company has entered into fixed-price forward fuel purchase
agreements for approximately 50% of its fuel requirements over the next fifteen
months. These agreements amountsuccessfully
manage costs through a slowdown in international containerized volume and
expects to approximately 360 million gallons in
commitmentskeep operating income at a weighted average of 78 cents per gallon.level consistent with prior year.
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operationsoperate over allocated portions of the Conrail lines in June 1999.lines.
The rail subsidiaries of CSX and Norfolk Southern operate their
respective portions of the Conrail system pursuant to various operating
agreements that took effect on June 1, 1999.agreements. Under these agreements, the railroads pay operating fees to Conrail
for the use of right-of-way and rent for the use of equipment. Conrail continues
to provide rail service in certain shared geographic areas ("Shared Asset
Areas") for the joint benefit of CSX and Norfolk Southern for which it is
compensated on the basis of usage by the respective railroads.
-31--27-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, CONTINUED
Accounting and Financial Reporting Effects
- ------------------------------------------
CSX and Norfolk Southern have assumedUpon integration, substantially all of Conrail's former customer freight
contracts.contracts were assumed by CSX and Norfolk Southern. As a result, CSX's rail and
intermodal operating revenue includeincludes revenue from traffic previously recognized bymoving on
Conrail. Operating expenses reflect corresponding increases for costs incurred
to handle the new traffic and operate the former Conrail lines. Rail operating
expenses after the integration also includeincludes an expense category, "Conrail Operating Fee, Rent and
Services," which reflects paymentpayments to Conrail for the use of right-of-way and
equipment, as well as charges for transportation, switching, and terminal
services in the shared areasShared Asset Areas Conrail operates for the joint benefit of CSX
and Norfolk Southern. This expense category also includes amortization of the
fair value write-up arising from the acquisition of Conrail, as well as CSX's
proportionate share of Conrail's net income or loss recognized under the equity
method of accounting.
Conrail's Results of Operations
- -------------------------------
Conrail reported net income of $35 million on revenues of $223$36 million for the thirdfirst quarter of
2001,2002, compared to net income of $35 million on revenues
of $243$45 million for the prior year quarter. Forsame period last year. The
decline reflects a decrease in revenue and a favorable state tax settlement
during the related nine-month periods,first quarter of 2001.
Conrail's first-quarter operating revenues were $225 million, compared
to $233 in the same prior-year period. The decrease is attributed to lower
operating fees, largely a result of reduced operating costs in the Shared Assets
Areas and lower revenues at Conrail's Indiana Harbor Belt subsidiary.
Conrail reported net incomeoperating expenses of $127 million on revenues of $685 million in 2001
and net income of $131 million on revenues of $748 million in 2000.
Conrail's operating activities provided cash of $372$164 million for the first
nine monthsquarter of 2001, compared2002, down from $169 million in the prior year period. The decrease
is a result of the reduction in expenses associated with $85 million for the first nine months
of 2000. The increase in cash provided by operations is primarily due to
significant one-time payments made to CSX and Norfolk Southern in 2000.revenue decline.
Conrail's working capital deficit was $417$124 million at September 30, 2001,March 31, 2002,
compared with $85working capital of $438 million at December 31, 2000.2001. The change
is largely the result of the exchange of the demand notes receivable from NS and
CSX for new longer-term notes. Conrail is expected to have sufficient cash flow
to meet its ongoing obligations.
OTHER MATTERS
-------------
EventsSale of September 11, 2001
----------------------------
On September 11, 2001, in cooperationInternational Container-Shipping Assets
In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). Maersk
acquired vessels, containers, certain terminal facilities and various other
assets and related liabilities of the international liner business. The
agreement with government authorities and
President Bush's declaration ofMaersk provides for a national emergency relatedpost-closing working capital adjustment to
the terrorist
attackssales price based on the change in working capital, as defined in the
agreement, between June 25, 1999, and tragic events on that date, all CSXT trafficDecember 10, 1999. The Company has
recorded a receivable of approximately $70 million in and out of greater
New York, Boston and Washington, D.C. was suspended and certain terminals were
closed. CSXT resumed normal operations, and all CSXT facilities were open and
fully operational, on September 12 with the exception of the New York/New Jersey
Port Authority terminal.
In connection with the
terrorist attacks of September 11, 2001, CSXpost-closing working capital adjustment and this amount is participating activelycurrently in industry task forcesdispute.
This matter, together with other issues relating to identify and implement
additional security measures. At the same time, the industry is working with
governmental agencies, including the Federal Railroad Administration, and the
Congress to coordinate our security efforts and to identify specific areas that
may justify government participation.
It is not possible to predict the effectscontractual obligations
of the terrorist attacks and
subsequent developments relatedCompany, has been submitted to those attacks, particularly their impact on
the United States and international economies, or the impact, if any, on our
future results of operations.
-32-arbitration.
-28-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, CONTINUED
Sale of International Container-Shipping Assets, Continued
Baltimore Tunnel Fire
---------------------
On July 18, 2001In addition to the disputes relating to the sale of the international
container shipping assets, CSX has received a CSXT train was involvedclaim amounting to approximately
$180 million plus interest from Europe Container Terminals bv (ECT), owner of
the Rotterdam Container Terminal previously operated by Sea-Land prior to its
sale to Maersk. ECT has claimed that the sale of the international liner
business to Maersk resulted in a fire insidebreach of the Howard
Street Tunnel near downtown Baltimore, Maryland. The fire wasSea-Land terminal agreements. ECT
has refused to accept containers at the former Sea-Land facility tendered by
Maersk Sea-Land and is seeking compensation from CSX related to the alleged
breach. CSX has also advised Maersk that CSX will hold them responsible for any
damages that may result from this dispute. A final ruling on ECT's claim, which
has advanced to formal binding arbitration in Rotterdam, is not contained
completely until July 23, 2001. The fire's proximity to downtown Baltimore
caused disruptions to a numberexpected before
late summer of businesses. The incident also caused CSXT to
reroute traffic and incur higher operating costs. By the end of July, CSXT and
government officials had inspected the tunnel and determined2002. Management believes that it was safe
for normal rail operations. All service through the tunnel was resumed. The
Company incurred approximately $13 million in charges to third quarter operating
income relatingvalid defenses to this incident.claim
exist.
Although management believes it will prevail in some or all of the Maersk
and ECT disputes and arbitrations, it can give no assurance in this regard. An
adverse outcome could have a material effect on the determination of the final
loss on sale of Sea-Land's International Liner business and the financial
results in future reporting periods.
New Orleans Tank Car Fire Litigation
--------------------------------- ------------------------------------
In September 1997 a state court jury in New Orleans, Louisiana
returned a $2.5 billion punitive damages award against CSXT. The award was made
in a class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15 percent of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provision has been made for the
award.fire. In October 1997 the
Louisiana Supreme Court set aside the punitive damages judgment, ruling the
judgment should not have been entered until all liability issues were resolved.
In February 1999, the Louisiana Supreme Court
issued a further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favorSix of the 20 plaintiffs who had
received awards of compensatory damages,nine defendants settled with the plaintiffs' representatives in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.
The new trial motion was denied by the trial court in August 1999.
On November 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment
notwithstanding the verdict, and effectively reduced the amount of the punitive
damages verdict from $2.5 billion to $850 million.
CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850 million punitive award has been
entered against CSXT. CSXT has obtained and
posted an appeal bond, which has allowed it to appeal the 1997 compensatory and
punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory
damages began on May 24, 1999. In early July, the jury in that trial rendered
verdicts totaling approximately $330 thousand in favor of eighteen of those
twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that
they had not proved any damages. Management believes that this result, while
still excessive, supports CSXT's contention that the punitive damages award was
unwarranted.
-33-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
New Orleans Tank Car Fire Litigation, Continued
-----------------------------------------------
In 1999, six of the nine defendants in the case reached a tentative
settlement with the plaintiffs group. The basis of the settlement is an
agreement that all claims for compensatory and punitive damages against the six
defendants would be compromised for the sum of $215 million. The settlement was
approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial
court to assert an amended claim against CSXT, including a newly asserted claim
for punitive damages. The City's case was originally filed in 1988, and while
based on the 1987 tank car fire, is not considered to be part of the class
action.
In April of 2001, a group of approximately 100 New Orleans firefighters
and their spouses brought an action against CSXT and other defendants in the
original tank car fire case, styled Hilda Austin, wife of and Edward F. Austin,
Sr. et al. versus Norfolk Southern Corporation et al., Civil District Court for
the Parish of Orleans (Louisiana), No. 2001-5104. This action purports to be a
claim by the firefighters for injuries allegedly incurred during the September,
1987 tank car fire. The Austin matter has been transferred to the presiding
trial judge in the tank car fire case and consolidated with the main case. A
motion on behalf of the Austin plaintiffs to intervene in the main case is now
pending before the trial judge. CSXT intends to oppose the motion to intervene,
and believes that this claim is not timely brought.
On June 27, 2001 the Louisiana Court of Appeal for the Fourth
Circuit affirmed the judgment of the trial court, which judgment reduced the punitive
damages verdict from $2.5 billion to $850 million. CSXT moved the Louisiana
Fourth Circuit Court for rehearing of certain issues raised in its appeal; that
motion was denied on August 2, 2001.
On August 30, 2001, CSXTthen filed with the
Louisiana Supreme Court an application that the court take jurisdiction over and
reverse the 1997 punitive damages award.
The Louisiana Supreme Court's jurisdiction in this case is
discretionary. Opposing papers were filed by counsel on October 15, 2001. If the
Louisiana Supreme Court takes jurisdictionIn November 2001 CSXT announced that it had reached a proposed
settlement of the case, an additional round of
briefinglitigation, subject to a fairness hearing and oral argument may precede any decisioncourt approval.
The amount to be paid by CSXT under the court. If the
Louisiana Supreme Court does not take jurisdiction, or if its resolutionsettlement is $220 million, to resolve
all claims arising out of the issues is unsatisfactory, CSXT intends to seek further review before the United
States Supreme Court.
CSXT continues to pursue an aggressive legal strategy. At1987 fire and evacuation (whether or not included
in the present time, management is notclass-action lawsuit). CSXT incurred a charge of $60 million
before tax, $37 million after tax, 17 cents per share in the fourth quarter of
2001 to account for the expense of the settlement, net of insurance recoveries.
In April 2002 the trial court held a positionfairness hearing respecting the
proposed CSXT settlement. The same day, the trial court issued an order that,
among other things, (1) gave final approval to determine whether the resolutionsettlement; (2) provided that
any and all liability of thisCSXT pursuant to any of the judgments previously
entered in the litigation was satisfied; and (3) determined that upon the "final
settlement date" as defined in the preliminary settlement agreement between CSXT
and the plaintiffs' representatives, the case will have a material adverse effect onbe finally dismissed against
CSXT. The "final settlement date" is defined as the Company's financial
positiondate by which the April 2002
order becomes final and non-appealable (calculated as June 10, 2002, if no
appeals from the order are taken) or results of operationsall appeals from the order are finally
resolved, and the date by which certain other events must occur as provided in
any future reporting period.
ECT Dispute
-----------
CSX has received a claim amounting to approximately $180 million plus
interest from Europe Container Terminals bv (ECT), owner of the Rotterdam
Container Terminal previously operated by Sea-Land prior to its sale to Maersk
in December 1999. ECT has claimed that the sale of the international liner
business to Maersk resulted in a
-34-preliminary settlement agreement.
-29-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
ECT Dispute, Continued
----------------------
breach of the Sea-Land terminal agreements. ECT has refused to accept containers
at the former Sea-Land facility tendered by Maersk Sea-Land and is seeking
compensation from CSX related to the alleged breach. CSX has also advised Maersk
that CSX holds them responsible for any damages that may result from this case.
The claim by ECT has advanced to formal arbitration in Rotterdam. A final ruling
is not expected before late summer of 2002. Management's evaluation of the claim
indicates that valid defense exist, but at this point management cannot estimate
what, if any, losses may result from this case.
Forward Looking Statements
--------------------------FORWARD LOOKING STATEMENTS
Estimates and forecasts in Management's Discussion and Analysis and in
other sections of this Quarterly Report are based on many assumptions about
complex economic and operating factors with respect to industry performance,
general business and economic conditions and other matters that cannot be
predicted accurately and that are subject to contingencies over which the
Company has no control. Such forward-looking statements are subject to
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs, and projections expressed in such
statements. The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the Company. Any such statement speaks only as of the date the statement was
made. The Company undertakes no obligation to update or revise any
forward-looking statement.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the
integration of Conrail may not be fully realized or realized within the
timeframe anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the Company; (iv)(ii)) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the Company; (v)(iii) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and businesses of the Company; and (vi)(iv) changes may occur in the
securities and capital markets.
-35--30-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We address our exposure to market risks, principally the market risk of
changes in interest rates, through a controlled program of risk management that
includes the use of interest rate swap agreements. We do not hold or issue
derivative financial instruments for trading purposes.
In the event of a 1% increase or decrease in the LIBOR interest rate,
the interest expense related to these agreements would increase or decrease $5$14
million on an annual basis.
The Company is exposed to credit loss in the event of non-performance
by any counter-party to the interest rate swap agreements. The Company does not
anticipate non-performance by such counter-parties, and no material loss would
be expected from non-performance.
-36-At March 29, 2002 and December 28, 2001, CSX had approximately $475
million and $625 million, respectively, of floating rate debt outstanding. A 1%
variance in interest rates would have a $4.8 million affect on annual interest
expense.
The Company is subject to risk relating to changes in the price of
diesel fuel. Forward purchase agreements have been entered into with various
suppliers for approximately 220 million gallons of fuel, which is approximately
50% of the remaining 2002 requirement, at a weighted average price of 77 cents
per gallon. The Company is subject to fluctuations in prices for the remainder
of its 2002 needs. A one cent change in the price per gallon of fuel would
impact fuel expense by approximately $2 million.
While the Company's container-shipping terminal management subsidiary
does business in several foreign countries, a substantial portion of its revenue
and expenses are transacted in U.S. dollars. For this reason, CSX does not
believe its foreign currency market risk is significant.
A substantial increase in the fair market value of the Company's stock
price could negatively impact earnings per share due to the dilutive effect of
stock options and convertible debt.
-31-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Amended3.2* Bylaws of CSX Corporation*
4.1 Fourth Supplemental Indenture, datedthe Registrant, amended as of October 30,
2001, between the Company and The Chase Manhattan Bank,
as trustee*
10.1 364-Day Revolving Credit Agreement dated as of June 8,
2001 (incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on October 29,
2001 (File No. 002-63273))
10.2 Five-Year Revolving Credit Agreement dated as of June 8,
2001 (incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on October 29,
2001 (File No. 002-63273))
10.3 Employment and Consulting Agreement with J. W. Snow*
10.4 Restricted Stock Award Agreement with J. W. Snow*
10.5 Stock Option Agreement with J. W. Snow, effective July
16, 2001*
10.6 Special Employment Agreement with M. J. Ward*
10.7 Restricted Stock Award Agreement with M. J. Ward*
10.8 Special Employment Agreement with M. G. Aron*
*Filed herewith.February 13, 2002
(b) Reports on Form 8-K
NoneForm 8-K filed on 3/5/02 to announce the public offering of
$400,000,000 aggregate principal amount of the Company's 6.30% Notes
due 2012.
* Filed herewith
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By: /s/ JAMES L. ROSS
----------------
James L. RossCAROLYN T. SIZEMORE
-----------------------
Carolyn T. Sizemore
Vice President and Controller
(Principal Accounting Officer)
Dated: November 7, 2001
-37-May 3, 2002
-32-