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 March 28, 2003
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
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.) |
|
| |
(Address of principal executive offices) | (Zip Code) |
(804) 782-1400(904) 359-3200
(Registrant’s telephone number, including area code)
No Change901 East Cary Street, Richmond, Virginia, 23219-4031
(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. Yesx No¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 27, 2002: 213,030,402March 28, 2003: 213,718,513 shares.
FORM 10-Q
Page Number | ||||
PART I. | FINANCIAL INFORMATION | |||
Item 1: | Financial Statements | |||
3 | ||||
4 | ||||
Balance Sheets—At 27, 2002 | 5 | |||
6 | ||||
25 | ||||
36 | ||||
36 | ||||
PART II. | OTHER INFORMATION | |||
37 | ||||
37 | ||||
38 |
Consolidated Income Statements
(Dollars in Millions, of Dollars, Except Per Share Amounts)
Quarter Ended | Nine Months Ended | ||||||||||||
September 27, 2002 | September 28, 2001 | September 27, 2002 | September 28, 2001 | ||||||||||
(Unaudited) | |||||||||||||
Operating Revenue | $ | 2,055 | $ | 2,019 | $ | 6,092 | $ | 6,101 | |||||
Operating Expense | 1,779 | 1,737 | 5,283 | 5,365 | |||||||||
Operating Income | 276 | 282 | 809 | 736 | |||||||||
Other Income | 28 | 4 | 41 | 12 | |||||||||
Interest Expense | 108 | 129 | 338 | 397 | |||||||||
Earnings before Income Taxes and Cumulative Effect of Accounting Change | 196 | 157 | 512 | 351 | |||||||||
Income Tax Expense | 69 | 57 | 182 | 123 | |||||||||
Earnings before Cumulative Effect of Accounting Change | 127 | 100 | 330 | 228 | |||||||||
Cumulative Effect of Accounting Change—Net of Tax | — | — | (43 | ) | — | ||||||||
Net Earnings | $ | 127 | $ | 100 | $ | 287 | $ | 228 | |||||
Earnings Per Share: | |||||||||||||
Before Cumulative Effect of Accounting Change | $ | 0.60 | $ | 0.47 | $ | 1.55 | $ | 1.08 | |||||
Cumulative Effect of Accounting Change | — | — | (0.20 | ) | — | ||||||||
Net Earnings | $ | 0.60 | $ | 0.47 | $ | 1.35 | $ | 1.08 | |||||
Earnings Per Share, Assuming Dilution: | |||||||||||||
Before Cumulative Effect of Accounting Change | $ | 0.60 | $ | 0.47 | $ | 1.55 | $ | 1.07 | |||||
Cumulative Effect of Accounting Change | — | — | (0.20 | ) | — | ||||||||
Net Earnings | $ | 0.60 | $ | 0.47 | $ | 1.35 | $ | 1.07 | |||||
Average Common Shares Outstanding (Thousands) | 213,041 | 211,871 | 212,548 | 211,618 | |||||||||
Average Common Shares Outstanding Assuming Dilution (Thousands) | 213,633 | 212,579 | 213,453 | 212,312 | |||||||||
Cash Dividends Paid Per Common Share | $ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.70 | |||||
(Unaudited) Quarters Ended | ||||||||
March 28, 2003 | March 29, 2002 | |||||||
Operating Revenue | $ | 2,016 |
| $ | 1,964 |
| ||
Operating Expense |
| 1,839 |
|
| 1,752 |
| ||
Operating Income |
| 177 |
|
| 212 |
| ||
Other (Expense) Income |
| (10 | ) |
| 9 |
| ||
Interest Expense |
| 103 |
|
| 114 |
| ||
Earnings before Income Taxes and Cumulative Effect of Accounting Change |
| 64 |
|
| 107 |
| ||
Income Tax Expense |
| 22 |
|
| 39 |
| ||
Earnings before Cumulative Effect of Accounting Change |
| 42 |
|
| 68 |
| ||
Cumulative Effect of Accounting Change – Net of Tax |
| 57 |
|
| (43 | ) | ||
Net Earnings | $ | 99 |
| $ | 25 |
| ||
Earnings Per Share: | ||||||||
Before Cumulative Effect of Accounting Change | $ | 0.20 |
| $ | 0.32 |
| ||
Cumulative Effect of Accounting Change |
| 0.26 |
|
| (0.20 | ) | ||
Including Cumulative Effect of Accounting Change | $ | 0.46 |
| $ | 0.12 |
| ||
Earnings Per Share, Assuming Dilution: | ||||||||
Before Cumulative Effect of Accounting Change | $ | 0.20 |
| $ | 0.32 |
| ||
Cumulative Effect of Accounting Change |
| 0.26 |
|
| (0.20 | ) | ||
Including Cumulative Effect of Accounting Change | $ | 0.46 |
|
| 0.12 |
| ||
Average Common Shares Outstanding (Thousands) |
| 213,866 |
|
| 212,053 |
| ||
Average Common Shares Outstanding, Assuming Dilution (Thousands) |
| 214,164 |
|
| 213,190 |
| ||
Cash Dividends Paid Per Common Share | $ | 0.10 |
| $ | 0.10 |
| ||
See accompanying Notes to Consolidated Financial Statements.
Consolidated Cash Flow Statements
(Millions of Dollars)
Nine Months Ended | ||||||||
September 27, 2002 | September 28, 2001 | |||||||
(Unaudited) | ||||||||
OPERATING ACTIVITIES | ||||||||
Net Earnings | $ | 287 | $ | 228 | ||||
Adjustments to Reconcile Net Earnings to Net Cash Provided: | ||||||||
Cumulative Effect of Accounting Change | 43 | — | ||||||
Depreciation | 477 | 469 | ||||||
Deferred Income Taxes | 102 | 76 | ||||||
Equity in Conrail Earnings—Net | (12 | ) | (10 | ) | ||||
Other Operating Activities | (5 | ) | (61 | ) | ||||
Changes in Operating Assets and Liabilities: | ||||||||
Accounts Receivable | (133 | ) | 15 | |||||
Other Current Assets | (11 | ) | (11 | ) | ||||
Accounts Payable | (66 | ) | (74 | ) | ||||
Other Current Liabilities | 11 | (193 | ) | |||||
Net Cash Provided by Operating Activities | 693 | 439 | ||||||
INVESTING ACTIVITIES | ||||||||
Property Additions | (743 | ) | (628 | ) | ||||
Short-term Investments—Net | 177 | (35 | ) | |||||
Other Investing Activities | (58 | ) | 52 | |||||
Net Cash Used by Investing Activities | (624 | ) | (611 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Short-term Debt—Net | 571 | (127 | ) | |||||
Long-term Debt Issued | 519 | 500 | ||||||
Long-term Debt Repaid | (1,113 | ) | (195 | ) | ||||
Dividends Paid | (65 | ) | (149 | ) | ||||
Other Financing Activities | 2 | 15 | ||||||
Net Cash (Used) Provided by Financing Activities | (86 | ) | 44 | |||||
Net Decrease in Cash and Cash Equivalents | (17 | ) | (128 | ) | ||||
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS | ||||||||
Cash and Cash Equivalents at Beginning of Period | 137 | 261 | ||||||
Cash and Cash Equivalents at End of Period | 120 | 133 | ||||||
Short-term Investments at End of Period | 302 | 459 | ||||||
Cash, Cash Equivalents and Short-term Investments at End of Period | $ | 422 | $ | 592 | ||||
(Unaudited) Quarters Ended | ||||||||
March 28, 2003 | March 29, 2002 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Earnings | $ | 99 |
| $ | 25 |
| ||
Adjustments to Reconcile Net Earnings to Net Cash Provided: | ||||||||
Depreciation |
| 160 |
|
| 155 |
| ||
Deferred Income Taxes |
| 18 |
|
| 20 |
| ||
Cumulative Effect of Accounting Change—Net of Tax |
| (57 | ) |
| 43 |
| ||
Other Operating Activities |
| 22 |
|
| 5 |
| ||
Changes in Operating Assets and Liabilities: | ||||||||
Accounts Receivable |
| (73 | ) |
| 34 |
| ||
Other Current Assets |
| (31 | ) |
| (43 | ) | ||
Accounts Payable |
| 51 |
|
| (26 | ) | ||
Other Current Liabilities |
| (145 | ) |
| (53 | ) | ||
Net Cash Provided by Operating Activities |
| 44 |
|
| 160 |
| ||
INVESTING ACTIVITIES | ||||||||
Property Additions |
| (150 | ) |
| (162 | ) | ||
Short-term Investments – Net |
| (1 | ) |
| (158 | ) | ||
Net Proceeds from Divestitures |
| 214 |
|
| — |
| ||
Other Investing Activities |
| (32 | ) |
| (11 | ) | ||
Net Cash Provided (Used) by Investing Activities |
| 31 |
|
| (331 | ) | ||
FINANCING ACTIVITIES | ||||||||
Short-term Debt – Net |
| 12 |
|
| — |
| ||
Long-term Debt Issued |
| 67 |
|
| 450 |
| ||
Long-term Debt Repaid |
| (95 | ) |
| (267 | ) | ||
Dividends Paid |
| (21 | ) |
| (21 | ) | ||
Other Financing Activities |
| (6 | ) |
| 12 |
| ||
Net Cash (Used) Provided by Financing Activities |
| (43 | ) |
| 174 |
| ||
Net Increase in Cash and Cash Equivalents |
| 32 |
|
| 3 |
| ||
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS | ||||||||
Cash and Cash Equivalents at Beginning of Period |
| 127 |
|
| 137 |
| ||
Cash and Cash Equivalents at End of Period |
| 159 |
|
| 140 |
| ||
Short-term Investments at End of Period |
| 135 |
|
| 641 |
| ||
Cash, Cash Equivalents and Short-term | ||||||||
Investments at End of Period | $ | 294 |
| $ | 781 |
| ||
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheets
(Millions of Dollars)
September 27, 2002 | December 28, 2001 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 422 | $ | 618 | ||||
Accounts Receivable, Net | 955 | 878 | ||||||
Materials and Supplies | 212 | 206 | ||||||
Deferred Income Taxes | 122 | 162 | ||||||
Other Current Assets | 199 | 210 | ||||||
Total Current Assets | 1,910 | 2,074 | ||||||
Properties | 18,531 | 18,151 | ||||||
Accumulated Depreciation | (5,322 | ) | (5,179 | ) | ||||
Properties—Net | 13,209 | 12,972 | ||||||
Investment in Conrail | 4,667 | 4,655 | ||||||
Affiliates and Other Companies | 462 | 382 | ||||||
Other Long-term Assets | 777 | 718 | ||||||
Total Assets | $ | 21,025 | $ | 20,801 | ||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts Payable | $ | 893 | $ | 966 | ||||
Labor and Fringe Benefits Payable | 437 | 418 | ||||||
Casualty, Environmental and Other Reserves | 248 | 250 | ||||||
Current Maturities of Long-term Debt | 230 | 1,044 | ||||||
Short-term Debt | 574 | 225 | ||||||
Income and Other Taxes Payable | 192 | 101 | ||||||
Other Current Liabilities | 174 | 299 | ||||||
Total Current Liabilities | 2,748 | 3,303 | ||||||
Casualty, Environmental and Other Reserves | 641 | 690 | ||||||
Long-term Debt | 6,434 | 5,839 | ||||||
Deferred Income Taxes | 3,650 | 3,621 | ||||||
Other Long-term Liabilities | 1,176 | 1,228 | ||||||
Total Liabilities | 14,649 | 14,681 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Common Stock, $1 Par Value | 215 | 214 | ||||||
Other Capital | 1,525 | 1,492 | ||||||
Retained Earnings | 4,682 | 4,459 | ||||||
Accumulated Other Comprehensive Loss | (46 | ) | (45 | ) | ||||
Total Shareholders’ Equity | 6,376 | 6,120 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 21,025 | $ | 20,801 | ||||
(Unaudited) | ||||||||
March 28, 2003 | December 27, 2002 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 294 |
| $ | 264 |
| ||
Accounts Receivable—Net |
| 847 |
|
| 799 |
| ||
Materials and Supplies |
| 187 |
|
| 180 |
| ||
Deferred Income Taxes |
| 130 |
|
| 128 |
| ||
Other Current Assets |
| 164 |
|
| 155 |
| ||
Domestic Container Assets Held for Disposition |
| — |
|
| 263 |
| ||
Total Current Assets |
| 1,622 |
|
| 1,789 |
| ||
Properties |
| 18,636 |
|
| 18,560 |
| ||
Accumulated Depreciation |
| 5,285 |
|
| 5,274 |
| ||
Properties—Net |
| 13,351 |
|
| 13,286 |
| ||
Investment in Conrail |
| 4,655 |
|
| 4,653 |
| ||
Affiliates and Other Companies |
| 467 |
|
| 381 |
| ||
Other Long-term Assets |
| 864 |
|
| 842 |
| ||
Total Assets | $ | 20,959 |
| $ | 20,951 |
| ||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Accounts Payable |
| 839 |
| $ | 802 |
| ||
Labor and Fringe Benefits Payable |
| 392 |
|
| 457 |
| ||
Casualty, Environmental and Other Reserves |
| 254 |
|
| 246 |
| ||
Current Maturities of Long-term Debt |
| 362 |
|
| 391 |
| ||
Short-term Debt |
| 155 |
|
| 143 |
| ||
Income and Other Taxes Payable |
| 99 |
|
| 144 |
| ||
Other Current Liabilities |
| 141 |
|
| 167 |
| ||
Liabilities Held for Disposition |
| — |
|
| 104 |
| ||
Total Current Liabilities |
| 2,242 |
|
| 2,454 |
| ||
Casualty, Environmental and Other Reserves |
| 590 |
|
| 604 |
| ||
Long-term Debt |
| 6,527 |
|
| 6,519 |
| ||
Deferred Income Taxes |
| 3,630 |
|
| 3,567 |
| ||
Other Long-term Liabilities |
| 1,647 |
|
| 1,566 |
| ||
Total Liabilities |
| 14,636 |
|
| 14,710 |
| ||
SHAREHOLDERS’ EQUITY | ||||||||
Common Stock, $1 Par Value |
| 216 |
|
| 215 |
| ||
Other Capital |
| 1,549 |
|
| 1,547 |
| ||
Retained Earnings |
| 4,875 |
|
| 4,797 |
| ||
Accumulated Other Comprehensive Loss |
| (317 | ) |
| (318 | ) | ||
Total Shareholders’ Equity |
| 6,323 |
|
| 6,241 |
| ||
Total Liabilities and Shareholders’ Equity | $ | 20,959 |
| $ | 20,951 |
| ||
See accompanying Notes to Consolidated Financial Statements.
-5-
CSX CORPORATION AND SUBSIDIARIES
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to fairly present fairly the financial position of CSX Corporation and subsidiaries (“CSX” or the “Company”) at SeptemberMarch 28, 2003 and December 27, 2002, and December 28, 2001, the results of its operations for the quarters and nine months ended September 27, 2002 and September 28, 2001, and its cash flows for the ninethree months ended September 27,March 28, 2003 and March 29, 2002, and September 28, 2001, such adjustments being of a normal recurring nature. Certain prior-year data have been reclassified to conform to the 20022003 presentation.
The Company believes that the disclosures presented are accurate and not misleading, butand suggests that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s latestmost recent Annual Report and Form 10-K.
CSX follows a 52/53 week fiscal reporting calendar. Fiscal years 20022003 and 20012002 consist of 52 weeks ending on December 27, 200226, 2003 and December 28, 2001,27, 2002, respectively. The financial statements presented are for the 13-week quarters ended September 27,March 28, 2003 and March 29, 2002, and September 28, 2001, the 39-week periods ended September 27, 2002 and September 28, 2001, and as of December 28, 2001.
Comprehensive income approximates net earnings for all periods presented in the accompanying consolidated statement of earnings.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution:
Quarters Ended | ||||||
March 28, 2003 | March 29, 2002 | |||||
Numerator (millions): | ||||||
Net Earnings Before Cumulative Effect of Accounting Change | $ | 42 | $ | 68 | ||
Denominator (thousands): | ||||||
Average Common Shares Outstanding |
| 213,866 |
| 212,053 | ||
Effect of Potentially Dilutive Common Shares |
| 298 |
| 1,137 | ||
Average Common Shares Outstanding, Assuming Dilution |
| 214,164 |
| 213,190 | ||
Earnings Per Share: | ||||||
Before Cumulative Effect of Accounting Change | $ | 0.20 | $ | 0.32 | ||
Assuming Dilution, Before Cumulative Effect of Accounting Change | $ | 0.20 | $ | 0.32 |
Earnings per share are based on the weighted-average number of common shares outstanding for the fiscal quarters and nine months ended September 27, 2002 and September 28, 2001.outstanding. Earnings per share, assuming dilution, are based on the weighted-average number of common shares outstanding adjusted for the effect of potentialpotentially dilutive common shares outstanding, during the period, principallymainly arising from employee stock plans. Share informationoptions. Potentially dilutive common shares at CSX include stock options and awards, and common stock that would be issued relating to convertible long-term debt. During the quarters ended March 28, 2003 and March 29, 2002, no shares and 0.7 million shares, respectively, were issued for the fiscal quarters and nine months ended September 27, 2002 and September 28, 2001 is as follows:
Quarters Ended | Nine Months Ended | |||||||
2002 | 2001 | 2002 | 2001 | |||||
Potential Common Shares (Dilutive) included in | ||||||||
Calculation of Weighted Average Shares | 0.6 | 0.7 | 0.9 | 0.7 | ||||
Shares Issued for Options Exercised | — | 0.2 | 1.0 | 0.7 |
-6-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 2. EARNINGS PER SHARE, Continued
Certain potentialpotentially dilutive common shares outstanding at September 27,March 28, 2003 and March 29, 2002 and September 28, 2001 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,therefore, their effect is antidilutive. These potentially dilutive common shares totaled 33.8 million at a weighted-average exercise price of $46.32 per share at September 27, 2002 and 18.8 million with a weighted-average exercise price of $43.38 per share at September 28, 2001. were as follows:
Quarters Ended | ||||||
March 28, 2003 | March 29, 2002 | |||||
Number of Shares (millions) |
| 34 |
| 30 | ||
Average Exercise / Conversion Price | $ | 46.33 | $ | 47.32 |
A substantial increase in the fair market value of the Company’s stock price could negatively impact earnings per share dueif the 34 million shares were to the dilutive effect of stock options and convertible debt.
NOTE 3. DIVESTITURES
On February 27, 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC (“CSX Lines”), to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs, and $60 million of securities). CSX Lines was subsequently renamed Horizon Lines LLC (“Horizon”). Horizon has subleased equipment from CSX covering CSX’s primary financial obligations related to $319 million of vessel and equipment leases under which CSX will remain a lessee. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12 year sub-lease term. Less than $1 million of this gain was recognized in the first quarter. The $60 million of securities have a term of 7 years and a preferred return feature. CSX will account for the investment under the cost method.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
In 2001, Statement of Financial Accounting Standard (SFAS)(“SFAS”) 143, “Accounting for Asset Retirement Obligations” was issued. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. With the adoption of SFAS 143 in the first quarter of 2003, CSX recorded pretax income of $93 million, $57 million after tax, or 26 cents per share, as a cumulative effect of an accounting change, representing the reversal of the accrued liability for crosstie removal costs. The adoption of SFAS 143 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. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased.
-7-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES, Continued
In December 2002, SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” was issued. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation and require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation. Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, any future stock-based compensation will be accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, will be expensed.
In 2002, the FASB issued Financial Accounting Standard Interpretation (“FASI”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This statement requires that certain guarantees entered into be recorded at fair value on the balance sheet and additional disclosures be made about guarantees. CSX is required to adopt the accounting provisions of this statement in fiscal year 2003.
In 2001, SFAS 142, “Goodwill and Other Intangible Assets,” was issued. Under the provisions of SFAS 142, goodwill and other indefinite-livedindefinite lived intangible assets are no longer amortized, but are reviewed for impairment on a periodic basis. The Company adopted this standard in the first quarter of 2002, and incurred a pretax charge of $83 million, $43 million after tax and consideration of minority interest, 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-livedindefinite 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 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 it will not have a material effect on future earnings. The Company does not have any other indefinite lived intangible assets.
NOTE 4.5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
CSX and Norfolk Southern Corporation (“Norfolk Southern”) completed the acquisition ofacquired Conrail Inc. (“Conrail”) in May 1997. Conrail owns the primary freight railroad system serving the northeasternNortheastern United States, and its rail network extends intothroughout several midwesternMidwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold ownershipeconomic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern operate over allocated portions of the Conrail lines.
The rail subsidiaries of CSX and Norfolk Southern operate their respective portions of the Conrail system pursuant to certainvarious operating 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 serviceservices 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.
-8-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 4.5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Accounting and Financial Reporting Effects
CSX’s rail and intermodal operating revenue and expense includes activityrevenue from traffic moving on the territory acquired inConrail property. Operating expenses include costs incurred to handle that traffic and operate the Conrail transaction.lines. Rail operating expenses includeexpense includes an expense category, “Conrail, Operating Fee, Rent and Services,” which reflects payments to Conrail for the use of right-of-way and equipment, as well as charges for transportation, switching, and terminal services in the Shared 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.
1. | Right-of-way usage fees to Conrail |
2. | Equipment rental payments to Conrail |
3. | Transportation, switching, and terminal service charges provided by Conrail in the Shared Asset Areas that Conrail operates for the joint benefit of CSX and Norfolk Southern |
4. | Amortization of the fair value write-up arising from the acquisition of Conrail and certain other adjustments |
5. | CSX’s 42% share of Conrail’s net income before cumulative effect of accounting change recognized under the equity method of accounting |
Detail of Conrail Operating Fee, Rents and Services
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
Rents and Services | $ | 86 | $ | 84 | $ | 260 | $ | 261 | ||||||||
Purchase Price Amortization and Other | 14 | 14 | 39 | 43 | ||||||||||||
Equity in Income of Conrail | (18 | ) | (15 | ) | (51 | ) | (53 | ) | ||||||||
Total Conrail Operating Fees, Rent and Services | $ | 82 | $ | 83 | $ | 248 | $ | 251 | ||||||||
Quarters Ended | ||||||||
March 28, 2003 | March 29, 2002 | |||||||
(dollars in millions) | ||||||||
Rents and Services | $ | 87 |
| $ | 88 |
| ||
Purchase Price Amortization and Other |
| 15 |
|
| 14 |
| ||
Equity in Income of Conrail |
| (16 | ) |
| (15 | ) | ||
Total Conrail Operating Fees, Rents and Services | $ | 86 |
| $ | 87 |
| ||
Conrail Financial Information
Summary financial information for Conrail for its fiscal periods ended September 30, 2002 and 2001, and at December 31, 2001, is as follows:
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
Income Statement Information: | ||||||||||||
Revenues | $ | 221 | $ | 223 | $ | 668 | $ | 685 | ||||
Expenses | 151 | 165 | 473 | 487 | ||||||||
Operating Income | $ | 70 | $ | 58 | $ | 195 | $ | 198 | ||||
Net Income | $ | 44 | $ | 35 | $ | 122 | $ | 127 | ||||
Quarters Ended March 31, | ||||||
2003 | 2002 | |||||
(dollars in millions) | ||||||
Income Statement Information: | ||||||
Revenues | $ | 226 | $ | 225 | ||
Expenses |
| 163 |
| 164 | ||
Operating Income | $ | 63 | $ | 61 | ||
Net Income Before Cumulative Effect of Accounting Change | $ | 37 | $ | 36 | ||
Cumulative Effect of Accounting Change—Net of Tax |
| 40 |
| — | ||
Net Income | $ | 77 | $ | 36 | ||
-9-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 4.5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
March 31, 2003 | December 31, 2002 | |||||
(dollars in millions) | ||||||
Balance Sheet Information: | ||||||
Current Assets | $ | 280 | $ | 300 | ||
Property and Equipment and Other Assets |
| 7,957 |
| 7,857 | ||
Total Assets | $ | 8,237 | $ | 8,157 | ||
Current Liabilities | $ | 354 | $ | 329 | ||
Long-term Debt |
| 1,113 |
| 1,123 | ||
Other Long-term Liabilities |
| 2,467 |
| 2,479 | ||
Total Liabilities |
| 3,934 |
| 3,931 | ||
Stockholders’ Equity |
| 4,303 |
| 4,226 | ||
Total Liabilities and Stockholders’ Equity | $ | 8,237 | $ | 8,157 | ||
Conrail Financial Information, Continued
September 30, 2002 | December 31, 2001 | |||||
Balance Sheet Information: | ||||||
Current Assets | $ | 323 | $ | 846 | ||
Property and Equipment and Other Assets | 7,828 | 7,236 | ||||
Total Assets | $ | 8,151 | $ | 8,082 | ||
Current Liabilities | $ | 448 | $ | 408 | ||
Long-term Debt | 1,126 | 1,156 | ||||
Other Long-term Liabilities | 2,350 | 2,413 | ||||
Total Liabilities | 3,924 | 3,977 | ||||
Stockholders’ Equity | 4,227 | 4,105 | ||||
Total Liabilities and Stockholders’ Equity | $ | 8,151 | $ | 8,082 | ||
As listed below, CSX has amounts payable to Conrail, representing expenses incurred under the operating, equipment and shared area agreements. Also, Conrail advances its available cash balances to CSX and Norfolk Southern under variable-rate notes, with CSX’s note maturing on March 28, 2007.
March 28, 2003 | December 27, 2002 | |||||||
(dollars in millions) | ||||||||
CSX Payable to Conrail | $ | 60 |
| $ | 69 |
| ||
Conrail Advances to CSX | $ | 437 |
| $ | 371 |
| ||
Interest Rates on Conrail Advances to CSX |
| 1.56 | % |
| 1.82 | % | ||
Quarters Ended | ||||||||
March 28, 2003 | December 27, 2002 | |||||||
Interest Expense Related to Conrail Advances | $ | 2 |
| $ | 2 |
|
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 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 Conrail railroad 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.
September 27, 2002 | December 28, 2001 | |||||||
CSX Payable to Conrail | $ | 70 | $ | 88 | ||||
CSX Receivable from Conrail | — | 3 | ||||||
Conrail Advances to CSX | 344 | 225 | ||||||
Interest Rates on Conrail Advances to CSX | 2.11 | % | 2.50 | % |
-10-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 5.6. ACCOUNTS RECEIVABLE
Sale of Accounts Receivable
CSX Transportation Inc. (“CSXT”) sells, generally without recourse, a revolving interests in its railpool of accounts receivable to public investors throughCSX Trade Receivables Corporation (“CTRC”), a securitization program and to financial institutions through commercial paper conduit programs. The accounts receivable are sold, without recourse, to abankruptcy-remote (special purpose) entity wholly-owned special-purpose subsidiary, which thenby CSX Corporation. CTRC transfers the receivables, with recourse,accounts receivable to a master trust. The securitizationtrust and conduit programs are accounted for as sales in accordance with SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Receivables sold under these arrangements are excluded from accounts receivable incauses the consolidated statement of financial position. At September 27, 2002, the agreements provide for the sale of uptrust to $350 million in receivables through the securitization program and $200 million through the conduit program.
September 27, 2002 | December 28, 2001 | |||||
Securitization | $ | 300 | $ | 300 | ||
Conduit | 80 | 200 | ||||
Total Accounts Receivable Sold | $ | 380 | $ | 500 | ||
Two series of certificates issued by the trust were outstanding as of March 28, 2003 and December 27, 2002. One series issued in 1998 for $300 million to the public matures in June 2003 and bears interest payable to the investors at 6% annually. A second series in the master trust were approximately $557amount of $200 million was issued to a private special purpose entity in 2000, which funded the purchase through a bank-supported commercial paper program. This second series of certificates was issued for a one-year maturity, and $466 millionas currently amended matures in June 2003 as well. The private series of certificates bears interest at September 27, 2002 and December 28, 2001, and are included in accounts receivable. Losses recognizeda floating rate based upon the program’s commercial paper rates. The yield on the sale of accountsprivate certificates at March 28, 2003 was 1.33%.
Accounts receivable totaled $6 million and $20 millionrelated amounts for the quarter and nine months ended September 27, 2002, respectively, and $8 million and $27 million forcurrent period are as follows:
March 28, 2003 | December 27, 2002 | |||||
(dollars in millions) | ||||||
Amounts sold under: | ||||||
Public Series of Certificates | $ | 300 | $ | 300 | ||
Private Series of Certificates |
| 80 |
| 80 | ||
Total | $ | 380 | $ | 380 | ||
Retained Interest in Master Trust | $ | 476 | $ | 534 | ||
The fair value of retained interests approximates book value as the quarter and nine months ended September 28, 2001, respectively.
Quarters Ended | ||||||
March 28, 2003 | March 29, 2002 | |||||
(dollars in millions) | ||||||
Discounts on Sales of Accounts Receivable | $ | 6 | $ | 7 |
CSXT has retained the responsibility for servicing accounts receivable transferred toreceivables held by the master trust. The average servicing period is approximatelyless than one month. No servicing asset or liability has been recorded since the fees the CompanyCSXT receives for servicing the receivables approximate theapproximates its related costs.
-11-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6. ACCOUNTS RECEIVABLE, Continued
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based uponon the expected collectibility of all accounts receivable, including receivables transferred to the master trust. Allowancestrust that could be subsequently sold to outside parties with recourse. The allowance for doubtful accounts is included in the balance sheet as follows:
March 28, 2003 | December 27, 2002 | |||||
(dollars in millions) | ||||||
Allowance for Doubtful Accounts | $ | 95 | $ | 125 |
The decrease in the allowance for doubtful accounts was primarily due to the write-off of $139 million and $100 million have been applied as a reduction of accounts receivable at September 27, 2002 and December 28, 2001, respectively.
NOTE 6.7. OPERATING EXPENSE
Quarters Ended | Nine Months Ended | |||||||||||
September 27, 2002 | September 28, 2001 | September 27, 2002 | September 28, 2001 | |||||||||
Labor and Fringe | $ | 720 | $ | 707 | $ | 2,165 | $ | 2,202 | ||||
Materials, Supplies and Other | 421 | 417 | 1,298 | 1,267 | ||||||||
Conrail Operating Fee, Rent and Services | 82 | 83 | 248 | 251 | ||||||||
Building and Equipment Rent | 161 | 155 | 463 | 477 | ||||||||
Inland Transportation | 104 | 83 | 267 | 252 | ||||||||
Depreciation | 163 | 154 | 470 | 462 | ||||||||
Fuel | 128 | 138 | 372 | 454 | ||||||||
Total | $ | 1,779 | $ | 1,737 | $ | 5,283 | $ | 5,365 | ||||
Quarters Ended | Nine Months Ended | |||||||||||||||
September 27, 2002 | September 28, 2001 | September 27, 2002 | September 28, 2001 | |||||||||||||
Interest Income | $ | 7 | $ | 11 | $ | 22 | $ | 37 | ||||||||
Income from Real Estate and Resort Operations(2) | 45 | 24 | 88 | 74 | ||||||||||||
Net Losses from Accounts Receivable Sold | (6 | ) | (8 | ) | (20 | ) | (27 | ) | ||||||||
Minority Interest | (13 | ) | (9 | ) | (31 | ) | (27 | ) | ||||||||
Equity Income (Losses) of Other Affiliates(3) | — | (1 | ) | (5 | ) | (20 | ) | |||||||||
Miscellaneous Expense | (5 | ) | (13 | ) | (13 | ) | (25 | ) | ||||||||
Total | $ | 28 | $ | 4 | $ | 41 | $ | 12 | ||||||||
Operating expense consists of the following:
Quarters Ended | ||||||
March 28, 2003 | March 29, 2002 | |||||
(dollars in millions) | ||||||
Labor and Fringe | $ | 739 | $ | 730 | ||
Materials, Supplies and Other |
| 446 |
| 433 | ||
Conrail |
| 86 |
| 87 | ||
Building and Equipment Rent |
| 146 |
| 148 | ||
Inland Transportation |
| 92 |
| 86 | ||
Depreciation |
| 157 |
| 152 | ||
Fuel |
| 173 |
| 116 | ||
Total | $ | 1,839 | $ | 1,752 | ||
-12-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 8. DEBT AND CREDIT AGREEMENTSOTHER INCOME
Other income (expense) consists of the notes were applied in the refinancing of $450 million of debentures that matured in May 2002. During the nine months ended September 27, 2002, the Company issued commercial paper in the amount of $574 million at a weighted average rate of 1.92%. These borrowings were primarily used to make scheduled payments of long-term debt.
Quarters Ended | ||||||||
March 28, 2003 | March 29, 2002 | |||||||
(dollars in millions) | ||||||||
Interest Income | $ | 4 |
| $ | 7 |
| ||
Income from Real Estate and Resort Operations |
| 1 |
|
| 32 |
| ||
Discounts on Sales of Accounts Receivable |
| (6 | ) |
| (7 | ) | ||
Minority Interest |
| (11 | ) |
| (8 | ) | ||
Equity Loss of Other Affiliates |
| — |
|
| (6 | ) | ||
Miscellaneous |
| 2 |
|
| (9 | ) | ||
Total | $ | (10 | ) | $ | 9 |
| ||
Gross Revenue from Real Estate and Resort Operations Included in Other Income | $ | 35 |
| $ | 63 |
| ||
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS
CSX has entered into various interest rate swap agreements on the following fixed rate notes:
Principal / Notional Amount (millions) | Interest Rate | Maturity | ||
$450 | 7.45% | May 1, 2007 | ||
300 | 7.25% | May 1, 2004 | ||
300 | 9.00% | August 15, 2006 | ||
150 | 5.85% | December 1, 2003 | ||
150 | 8.30% | May 1, 2032 | ||
50 | 6.46% | June 22, 2005 |
Maturity Date | Notional Amount (millions) | Fixed Interest Rate | ||||
December 1, 2003 | $ | 150 | 5.85 | % | ||
May 1, 2004 |
| 300 | 7.25 | % | ||
June 22, 2005 |
| 50 | 6.46 | % | ||
August 15, 2006 |
| 300 | 9.00 | % | ||
May 1, 2007 |
| 450 | 7.45 | % | ||
May 1, 2032 |
| 150 | 8.30 | % | ||
Total/Average | $ | 1,400 | 7.62 | % | ||
These agreements were entered for interest rate risk exposure management purposes and mature at the time the related notes are due. Under these agreements, the Company will pay variable interest based on LIBOR in exchange for a fixed rate, payments (on September 27, 2002 the variable and fixed rate weighted averages were 5.02% and 7.62%, respectively), effectively transforming the notes to floating rate obligations. Accordingly, the instruments qualify, and are designated, as fair value hedges.
-13-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS, Continued
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 gain or loss on the hedged item, in this case long-term fixed rate notes, 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 SFAS 133, “Accounting For Derivative Instruments and Hedging Activities,” is recognized immediately in earnings. The Company’s interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS 133. As such, there was no ineffective portion to the hedge recognized in earnings during the current or prior year periods. Long-term debt has been increased by $85 million and $78 million for the fair market value of the interest rate swap agreements at March 28, 2003 and December 27, 2002, respectively.
The differential to be paid or received under these agreements is accrued based on 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 current liabilities or assets. Cash flows related to interest rate swap agreements are classified as “Operating Activities” in the Consolidated Statement of Cash Flows.Flow Statement. For the quarterthree month periods ended March 28, 2003 and nine months ended September 27,March 29, 2002, the Company reduced interest expense by approximately $8$11 million and $24$7 million, respectively, as a result of the interest rate swap agreements that were in place during that period. For the quarter and nine months ended September 28, 2001, interest expense was reduced by approximately $1 million.
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.
NOTE 10. STOCK BASED COMPENSATION
Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, any future stock-based compensation will be accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, will be expensed.
-14-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 10. STOCK BASED COMPENSATION, Continued
Had compensation expense been determined based upon fair values at the date of grant, consistent with the methods of SFAS 123 for all past compensation awards, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
Quarters Ended | ||||||||
March 28, 2003 | March 29, 2002 | |||||||
(dollars in millions, except per share amounts) | ||||||||
Net Earnings—As Reported | $ | 99 |
| $ | 25 |
| ||
Add (Deduct): Stock Based Employee Compensation Expense (Credit) Included in Reported | ||||||||
Net Income—Net of Related Tax Effects |
| (2 | ) |
| 1 |
| ||
Deduct: Total Stock Based Employee Compensation Expense Determined Under the Fair | ||||||||
Value Based Method For all Awards—Net of Related Tax Effects |
| (5 | ) |
| (7 | ) | ||
Pro Forma Net Earnings | $ | 92 |
| $ | 19 |
| ||
Earnings Per Share: | ||||||||
Basic—As Reported | $ | 0.46 |
| $ | 0.12 |
| ||
Basic—Pro Forma | $ | 0.43 |
| $ | 0.09 |
| ||
Diluted—As Reported | $ | 0.46 |
| $ | 0.12 |
| ||
Diluted—Pro Forma | $ | 0.43 |
| $ | 0.09 |
| ||
NOTE 11. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES
Casualty, environmental and other reserves are provided for in the balance sheet as follows:
March 28, 2003 | December 27, 2002 | |||||||||||||||||
Current | Long-term | Total | Current | Long-term | Total | |||||||||||||
Casualty and Other | $ | 224 | $ | 379 | $ | 603 | $ | 216 | $ | 389 | $ | 605 | ||||||
Environmental |
| 15 |
| 20 |
| 35 |
| 15 |
| 20 |
| 35 | ||||||
Separation |
| 15 |
| 191 |
| 206 |
| 15 |
| 195 |
| 210 | ||||||
Total | $ | 254 | $ | 590 | $ | 844 | $ | 246 | $ | 604 | $ | 850 | ||||||
-15-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 11. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES
Casualty Reserves
Casualty reserves represent accruals for the uninsured portion of personal injury, occupational injury (asbestos, carpal tunnel, etc.) and accident claims. These reserves are recorded upon the first reporting of an incident, and estimates are updated as information develops. The amount of liability accrued is based on the type and severity of claim, and an estimate of future claims development based on current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred but not reported personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred but not reported occupational injuries. Accruals for occupational injury, personal injury and accident liabilities amount to $603 million and $605 million at March 28, 2003 and December 27, 2002, respectively.
Environmental Reserves
CSX 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 approximately 90 environmentally impaired sites that are, or may be, subject to remedial action under the Federal Superfund statute (“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 administrative and judicial proceedings, and other clean-up efforts at approximately 210 sites, which include the 90 Superfund sites noted above where it is participating in the study or clean-up of alleged environmental contamination. At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to a number of factors, including the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, or owner or operator of the site), 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 viability of other named and unnamed PRPs at the location.
Based on the review process, CSXT has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at March 28, 2003, and December 27, 2002 were $35 million. These liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is (1) deemed probable and (2) 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 March 28, 2003 environmental liability is expected to be paid out over the next seven years, funded by cash generated from operations.
-16-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 11. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued
The Company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. 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 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 and financial condition.
NOTE 10.12. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company has entered into fuel purchase agreements for approximately 50% of its fuel requirements over the next three months. The Company has not entered into any fuel purchase agreements for 2003. At September 27, 2002, the agreements amount to approximately 70 million gallons in commitments at a weighted average of 78 cents per gallon. These contracts require the Company to take monthly delivery of specified quantities of fuel at a fixed price.
ContingenciesSelf-Insurance
The Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damages. It also self-insures at reasonableReasonable levels of risk (up to $35 million for property and $25 million for liability per occurrence) are retained on a self-insurance basis. Using a combination of third-party and self-insurance allows the Company to realize savings on insurance premium costs and preserves flexibility in achieving the best insurance solutions for various categories of risk.
Guarantees
The Company and its subsidiaries are contingently liable individually and jointly with others as guarantors of obligations principally relating to leased equipment, joint ventures and joint facilities used by CSX in its business operations. Utilizing a CSX guarantee for these obligations allows CSX to take advantage of lower interest rates and obtain other favorable terms when negotiating leases or financing debt. Guarantees are contingent commitments issued by the Company that could require CSX to make payment to the guaranteed party based on its assessment of market risks and practices.
1. | Guarantees of approximately $511 million of lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which the Company is contingently liable. CSX believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSX will have no further liabilities for those obligations. |
2. | Guarantees of approximately $150 million relating to a construction guarantee at one of the Company’s international terminals segment’s locations. The non-performance of one of its partners or cost overruns could cause the Company to have to perform under this guarantee. |
-17-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 10.12. COMMITMENTS AND CONTINGENCIES, Continued
3. | As discussed in Note 3, Divestitures, CSX conveyed most of its interest in CSX Lines in February 2003. CSX guarantees approximately $47 million relating to leases assumed as part of this conveyance. |
The maximum amount of future payments the Federal Superfund statute (“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, whichCompany could be substantial.
Matters Arising Out of Sale of International Container-Shipping Assets
CSX has received a claim amounting to approximately $180 million plus interest from Europe Container Terminals bv (“ECT”), the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy of evidence connecting CSXT to the location, and the number, connection, financial position and ability to pay of other named and unnamed PRPs at the location.
The purchase and sale agreement with Maersk providedprovides 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 certain other disputed issues relating to the contractual obligations of the Company, relating to the sale of international container shipping assets, has been submitted to arbitration.
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 and cash flows in future reporting periods.
CSX CORPORATION AND SUBSIDIARIES
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 cannot be predicted with certainty, management does not currently expect that the resolution of these matters will have a material effect on CSX’s consolidated financial position, results of operationsbalance sheet, income statement 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.
-18-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 11.13. BUSINESS SEGMENTS
The Company operates in fourthree business segments: Rail, Intermodal, Domestic Container Shipping,rail, intermodal, and International Terminals.international terminals. The Railrail segment provides rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. The Intermodalintermodal 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 17 ocean vessels and 22,000 containers serving the trade between ports on the United States mainland and Alaska, Guam, Hawaii and Puerto Rico. The International Terminalsinternational terminals segment operates container freight terminal facilities in Hong Kong, China,Asia, Europe, Australia, Europe, RussiaLatin America and Latin America.the United States. 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 Railrail and Intermodalintermodal 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.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) in the CSX Annual Report on Form 10-K, 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 through eliminations in CSX’s consolidated financial statements to other expense.income. Intersegment sales and transfers are generally accounted for as if the sales or transfers were to third parties, at current market prices.
Business segment information for the quarters ended March 28, 2003 and March 29, 2002 is as follows:
Quarter ended March 28, 2003:
Surface Transportation | International Terminals | Other | Total | |||||||||||||||
Rail | Intermodal | Total | ||||||||||||||||
(dollars in millions) | ||||||||||||||||||
Revenues from external customers | $ | 1,531 | $ | 298 | $ | 1,829 | $ | 56 | $ | 131 | $ | 2,016 | ||||||
Intersegment revenues |
| — |
| 4 |
| 4 |
| — |
| — |
| 4 | ||||||
Segment operating income |
| 147 |
| 22 |
| 169 |
| 15 |
| 1 |
| 185 | ||||||
Assets |
| 12,663 |
| 544 |
| 13,207 |
| 961 |
| — |
| 14,168 |
Quarter ended March 29, 2002:
Surface Transportation | International Terminals | Other | Total | |||||||||||||||
Rail | Intermodal | Total | ||||||||||||||||
(dollars in millions) | ||||||||||||||||||
Revenues from external customers | $ | 1,486 | $ | 257 | $ | 1,743 | $ | 58 | $ | 163 | $ | 1,964 | ||||||
Intersegment revenues |
| — |
| 5 |
| 5 |
| — |
| 1 |
| 6 | ||||||
Segment operating income |
| 177 |
| 17 |
| 194 |
| 11 |
| 1 |
| 206 | ||||||
Assets |
| 12,734 |
| 437 |
| 13,171 |
| 895 |
| 482 |
| 14,548 |
-19-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 11.13. BUSINESS SEGMENTS, Continued
Prior to the disposition of CSX Lines, it was a segment informationof CSX and was presented with international terminals on a combined basis, as the Marine Services operations of the Company. Results for CSX Lines are now presented in the quarters and nine months ended September 27, 2002 and September 28, 2001 is as follows:
Surface Transportation | Marine Services | ||||||||||||||||||||
Rail | Intermodal | Total | Domestic Container Shipping | International Terminals | Total | Total | |||||||||||||||
Quarter ended September 27, 2002: | |||||||||||||||||||||
Revenues from external customers | $ | 1,473 | $ | 306 | $ | 1,779 | $ | 215 | $ | 64 | $ | 279 | $ | 2,058 | |||||||
Intersegment revenues | — | 7 | 7 | — | — | — | 7 | ||||||||||||||
Segment operating income | 188 | 39 | 227 | 22 | 18 | 40 | 267 | ||||||||||||||
Assets | 12,657 | 520 | 13,177 | 303 | 949 | 1,252 | 14,429 | ||||||||||||||
Quarter ended September 28, 2001: | |||||||||||||||||||||
Revenues from external customers | $ | 1,495 | $ | 281 | $ | 1,776 | $ | 181 | $ | 58 | $ | 239 | $ | 2,015 | |||||||
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 | ||||||||||||||
Nine Months ended September 27, 2002: | |||||||||||||||||||||
Revenues from external customers | $ | 4,497 | $ | 851 | $ | 5,348 | $ | 565 | $ | 179 | $ | 744 | $ | 6,092 | |||||||
Intersegment revenues | — | 20 | 20 | — | 1 | 1 | 21 | ||||||||||||||
Segment operating income | 609 | 105 | 714 | 32 | 45 | 77 | 791 | ||||||||||||||
Assets | 12,657 | 520 | 13,177 | 303 | 949 | 1,252 | 14,429 | ||||||||||||||
Nine Months ended September 28, 2001: | |||||||||||||||||||||
Revenues from external customers | $ | 4,583 | $ | 812 | $ | 5,395 | $ | 510 | $ | 176 | $ | 686 | $ | 6,081 | |||||||
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 |
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 | |||||||||||||||
September 27, 2002 | September 28, 2001 | September 27, 2002 | September 28, 2001 | |||||||||||||
Revenues: | ||||||||||||||||
Total external revenues for business segments | $ | 2,058 | $ | 2,015 | $ | 6,092 | $ | 6,081 | ||||||||
Intersegment revenues for business segments | 7 | 5 | 21 | 17 | ||||||||||||
Elimination of intersegment revenues | (7 | ) | (5 | ) | (21 | ) | (17 | ) | ||||||||
Other | (3 | ) | 4 | — | 20 | |||||||||||
Total consolidated revenues | $ | 2,055 | $ | 2,019 | $ | 6,092 | $ | 6,101 | ||||||||
Operating Income: | ||||||||||||||||
Total operating income for business segments | $ | 267 | $ | 274 | $ | 791 | $ | 732 | ||||||||
Reclassification of minority interest expense for International Terminals segment | 13 | 9 | 31 | 27 | ||||||||||||
Other unallocated expenses | (4 | ) | (1 | ) | (13 | ) | (23 | ) | ||||||||
Total consolidated operating income | $ | 276 | $ | 282 | $ | 809 | $ | 736 | ||||||||
September 27, 2002 | September 28, 2001 | |||||||||||||||
Assets: | ||||||||||||||||
Assets for business segments | $ | 14,429 | $ | 14,535 | ||||||||||||
Investment in Conrail | 4,667 | 4,677 | ||||||||||||||
Elimination of intercompany receivables | (222 | ) | (91 | ) | ||||||||||||
Non-segment assets | 2,151 | 1,485 | ||||||||||||||
Total consolidated assets | $ | 21,025 | $ | 20,606 | ||||||||||||
March 28, 2003 | March 29, 2002 | |||||||
(dollars in millions) | ||||||||
Revenues: | ||||||||
Total external revenues for business segments | $ | 2,016 |
| $ | 1,964 |
| ||
Intersegment revenues for business segments |
| 4 |
|
| 6 |
| ||
Elimination of intersegment revenues |
| (4 | ) |
| (6 | ) | ||
Total consolidated revenues | $ | 2,016 |
| $ | 1,964 |
| ||
Operating Income: | ||||||||
Total operating income for business segments | $ | 185 |
| $ | 206 |
| ||
Reclassification of minority interest expense for | ||||||||
International Terminals segment |
| 10 |
|
| 8 |
| ||
Unallocated corporate expenses |
| (18 | ) |
| (2 | ) | ||
Total consolidated operating income | $ | 177 |
| $ | 212 |
| ||
Assets: | ||||||||
Assets for Business Segments | $ | 14,168 |
| $ | 14,548 |
| ||
Investment in Conrail |
| 4,655 |
|
| 4,656 |
| ||
Elimination of intersegment receivables |
| (130 | ) |
| (231 | ) | ||
Non-segment assets |
| 2,266 |
|
| 1,869 |
| ||
Total consolidated assets | $ | 20,959 |
| $ | 20,842 |
| ||
-20-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 12.14. SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES
During 1987, the predecessor company to CSX Lines entered into agreements to sell and lease back by charter three new 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”). On February 27, 2003, CSX conveyed most of its interest in CSX Lines to a new venture. A newly formed CSX subsidiary, CSX Vessel Leasing, will retain certain vessel obligations, with CSX remaining as the guarantor. These obligations have been subleased to Horizon. CSX believes that Horizon will fulfill its contractual commitments with respect to such leases and that CSX will have no further liabilities for these obligations. The SeptemberMarch 28, 2003 consolidating schedules reflect CSX Vessel Leasing as the obligor, while the March 29, 2002, and December 27, 2002 September 28, 2001, and December 28, 2001 consolidating schedules reflect CSX Lines as the obligor. In accordance with SEC disclosure requirements, consolidating financial information for the parent and obligor are as follows (amounts in millions):
CSX Corporation | CSX Lines | Other | Eliminations | Consolidated | |||||||||||||
Quarter ended September 27, 2002 | |||||||||||||||||
Operating Revenue | $ | — | $ | 215 | $ | 1,903 | $ | (63 | ) | $ | 2,055 | ||||||
Operating Expense | (58 | ) | 193 | 1,704 | (60 | ) | 1,779 | ||||||||||
Operating Income (Loss) | 58 | 22 | 199 | (3 | ) | 276 | |||||||||||
Other Income (Expense) | 161 | 1 | 43 | (177 | ) | 28 | |||||||||||
Interest Expense | 97 | 1 | 23 | (13 | ) | 108 | |||||||||||
Earnings (Loss) before Income Taxes | 122 | 22 | 219 | (167 | ) | 196 | |||||||||||
Income Tax Expense (Benefit) | 13 | 8 | 48 | — | 69 | ||||||||||||
Net Earnings (Loss) | $ | 109 | $ | 14 | $ | 171 | $ | (167 | ) | $ | 127 | ||||||
Quarter ended September 28, 2001 | |||||||||||||||||
Operating Revenue | $ | — | $ | 181 | $ | 1,949 | $ | (111 | ) | $ | 2,019 | ||||||
Operating Expense | (59 | ) | 164 | 1,741 | (109 | ) | 1,737 | ||||||||||
Operating Income (Loss) | 59 | 17 | 208 | (2 | ) | 282 | |||||||||||
Other Income (Expense) | 152 | 3 | 22 | (173 | ) | 4 | |||||||||||
Interest Expense | 116 | 4 | 29 | (20 | ) | 129 | |||||||||||
Earnings (Loss) 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 Income Statement
CSX Corporation | CSX Vessel Leasing | Other | Eliminations | Consolidated | ||||||||||||||
(millions of dollars) | ||||||||||||||||||
Quarter ended March 28, 2003 | ||||||||||||||||||
Operating Revenue | $ | — |
| $ | — | $ | 2,049 | $ | (33 | ) | $ | 2,016 |
| |||||
Operating Expense |
| (36 | ) |
| — |
| 1,905 |
| (30 | ) |
| 1,839 |
| |||||
Operating Income (Loss) |
| 36 |
|
| — |
| 144 |
| (3 | ) |
| 177 |
| |||||
Other Income (Expense) |
| 145 |
|
| — |
| 3 |
| (158 | ) |
| (10 | ) | |||||
Interest Expense |
| 91 |
|
| — |
| 22 |
| (10 | ) |
| 103 |
| |||||
Earnings before Income Taxes and Cumulative Effect of | ||||||||||||||||||
Accounting Change |
| 90 |
|
| — |
| 125 |
| (151 | ) |
| 64 |
| |||||
Income Tax Expense (Benefit) |
| (19 | ) |
| — |
| 41 |
| — |
|
| 22 |
| |||||
Earnings Before Cumulative Effect of Accounting Change |
| 109 |
|
| — |
| 84 |
| (151 | ) |
| 42 |
| |||||
Cumulative Effect of Accounting Change—Net of Tax |
| — |
|
| — |
| 57 |
| — |
|
| 57 |
| |||||
Net Earnings | $ | 109 |
| $ | — | $ | 141 | $ | (151 | ) | $ | 99 |
| |||||
Quarter ended March 29, 2002 | CSX Corporation | 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) |
| (11 | ) |
| 1 |
| 49 |
|
| — |
|
| 39 |
| |||||
Earnings Before Cumulative Effect of Accounting Change |
| 26 |
|
| — |
| 95 |
|
| (53 | ) |
| 68 |
| |||||
Cumulative Effect of Accounting Change—Net of Tax |
| — |
|
| — |
| (43 | ) |
| — |
|
| (43 | ) | |||||
Net Earnings | $ | 26 |
| $ | — | $ | 52 |
| $ | (53 | ) | $ | 25 |
| |||||
-21-
CSX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited), Continued
NOTE 12.14. SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES,DATA, Continued
CSX Corporation | CSX Lines | Other | Eliminations | Consolidated | |||||||||||||||||
Nine Months Ended September 27, 2002 | |||||||||||||||||||||
Operating Revenue | $ | — | $ | 565 | $ | 5,691 | $ | (164 | ) | $ | 6,092 | ||||||||||
Operating Expense | (194 | ) | 533 | 5,100 | (156 | ) | 5,283 | ||||||||||||||
Operating Income (Loss) | 194 | 32 | 591 | (8 | ) | 809 | |||||||||||||||
Other Income (Expense) | 378 | 5 | 83 | (425 | ) | 41 | |||||||||||||||
Interest Expense | 299 | 6 | 73 | (40 | ) | 338 | |||||||||||||||
Earnings (Loss) before Income Taxes and Cumulative Effect of Accounting Change | 273 | 31 | 601 | (393 | ) | 512 | |||||||||||||||
Income Tax Expense (Benefit) | 34 | 12 | 136 | — | 182 | ||||||||||||||||
Earnings (Loss) before Cumulative Effect of Accounting Change | 239 | 19 | 465 | (393 | ) | 330 | |||||||||||||||
Cumulative Effect of Accounting Change | — | — | (43 | ) | — | (43 | ) | ||||||||||||||
Net Earnings (Loss) | $ | 239 | $ | 19 | $ | 422 | $ | (393 | ) | $ | 287 | ||||||||||
Nine Months Ended September 28, 2001 | |||||||||||||||||||||
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 | 6 | 75 | (458 | ) | 12 | |||||||||||||||
Interest Expense | 360 | 10 | 94 | (67 | ) | 397 | |||||||||||||||
Earnings (Loss) 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 Cash Flow Statement
CSX Corporation | CSX Vessel Leasing | Other | Eliminations | Consolidated | |||||||||||||||
(millions of dollars) | |||||||||||||||||||
Three Months Ended March 28, 2003 | |||||||||||||||||||
Operating Activities | |||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | (28 | ) | $ |
| $ | 132 |
| $ | (60 | ) | $ | 44 |
| |||||
Investing Activities | |||||||||||||||||||
Property Additions |
| — |
|
| (15 | )0 |
| — |
|
| (150 | ) | |||||||
Short-term Investments—Net |
| (1 | ) |
| — |
|
| — |
|
| (1 | ) | |||||||
Net Proceeds from Divestitures |
| — |
|
| 214 |
|
| — |
|
| 214 |
| |||||||
Other Investing Activities |
| 11 |
|
| (11 | ) |
| (32 | ) |
| (32 | ) | |||||||
Net Cash Provided (Used) by Investing Activities |
| 10 |
|
| 53 |
|
| (32 | ) |
| 31 |
| |||||||
Financing Activities | |||||||||||||||||||
Short-term Debt-Net |
| 10 |
|
| 2 |
|
| — |
|
| 12 |
| |||||||
Long-term Debt Issued |
| 66 |
|
| 1 |
|
| — |
|
| 67 |
| |||||||
Long-term Debt Repaid |
| — |
|
| (95 | ) |
| — |
|
| (95 | ) | |||||||
Cash Dividends Paid |
| (22 | ) |
| (59 | ) |
| 60 |
|
| (21 | ) | |||||||
Other Financing Activities |
| 10 |
|
| 45 |
| (93 | ) |
| 32 |
|
| (6 | ) | |||||
Net Cash Provided (Used) by Financing Activities |
| 64 |
|
| 45 |
| (244 | ) |
| 92 |
|
| (43 | ) | |||||
Net Increase (Decrease) in Cash and Cash Equivalents |
| 46 |
|
| 45 |
| (59 | ) |
| — |
|
| 32 |
| |||||
Cash and Cash Equivalents at Beginning of Period |
| 264 |
|
| — |
| (137 | ) |
| — |
|
| 127 |
| |||||
Cash and Cash Equivalents at End of Period | $ | 310 |
| $ | 45 | $ | (196 | ) | $ | — |
| $ | 159 |
| |||||
Three Months Ended March 29, 2002 | CSX Corporation | CSX Lines | Other | Eliminations | Consolidated | |||||||||||||||
Operating 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 | ||||||||||||||||||||
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 Cash Equivalents at Beginning of Period |
| 156 |
|
| 52 |
|
| (71 | ) |
| — |
|
| 137 |
| |||||
Cash and Cash Equivalents at End of Period | $ | 222 |
| $ | 33 |
| $ | (115 | ) | $ | — |
| $ | 140 |
| |||||
-22-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 12.14. SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES,DATA, Continued
CSX Corporation | CSX Lines | Other | Eliminations | Consolidated | ||||||||||||||||||
Nine Months Ended September 27, 2002 | ||||||||||||||||||||||
Operating Activities: | ||||||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | 257 | $ | (3 | ) | $ | 620 | $ | (181 | ) | $ | 693 | ||||||||||
Investing Activities: | ||||||||||||||||||||||
Property Additions | (4 | ) | (16 | ) | (723 | ) | — | (743 | ) | |||||||||||||
Short-term Investments-net | (17 | ) | (26 | ) | 220 | — | 177 | |||||||||||||||
Other Investing Activities | (25 | ) | 18 | (64 | ) | 13 | (58 | ) | ||||||||||||||
Net Cash Used by Investing Activities | (46 | ) | (24 | ) | (567 | ) | 13 | (624 | ) | |||||||||||||
Financing Activities: | ||||||||||||||||||||||
Short-term Debt-Net | 570 | — | 1 | — | 571 | |||||||||||||||||
Long-term Debt Issued | 518 | — | 1 | — | 519 | |||||||||||||||||
Long-term Debt Repaid | (950 | ) | — | (163 | ) | — | (1,113 | ) | ||||||||||||||
Dividends Paid | (65 | ) | — | (157 | ) | 157 | (65 | ) | ||||||||||||||
Other Financing Activities | 25 | — | (34 | ) | 11 | 2 | ||||||||||||||||
Net Cash Provided (Used) by Financing Activities | 98 | — | (352 | ) | 168 | (86 | ) | |||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 309 | (27 | ) | (299 | ) | — | (17 | ) | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 156 | 52 | (71 | ) | — | 137 | ||||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 465 | $ | 25 | $ | (370 | ) | $ | — | $ | 120 | |||||||||||
Nine Months Ended September 28, 2001 | ||||||||||||||||||||||
Operating Activities: | ||||||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | (128 | ) | $ | 36 | $ | 557 | $ | (26 | ) | $ | 439 | ||||||||||
Investing Activities: | ||||||||||||||||||||||
Property Additions | — | (5 | ) | (623 | ) | — | (628 | ) | ||||||||||||||
Short-term Investments-net | (35 | ) | — | — | — | (35 | ) | |||||||||||||||
Other Investing Activities | (885 | ) | 1 | 937 | (1 | ) | 52 | |||||||||||||||
Net Cash Used by Investing Activities | (920 | ) | (4 | ) | 314 | (1 | ) | (611 | ) | |||||||||||||
Financing Activities: | ||||||||||||||||||||||
Short-term Debt-Net | (127 | ) | — | — | — | (127 | ) | |||||||||||||||
Long-term Debt Issued | 500 | — | — | — | 500 | |||||||||||||||||
Long-term Debt Repaid | (60 | ) | — | (135 | ) | — | (195 | ) | ||||||||||||||
Dividends Paid | (152 | ) | — | (24 | ) | 27 | (149 | ) | ||||||||||||||
Other Financing Activities | 711 | 76 | (773 | ) | 1 | 15 | ||||||||||||||||
Net Cash Provided (Used) by Financing Activities | 872 | 76 | (932 | ) | 28 | 44 | ||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (176 | ) | 108 | (61 | ) | 1 | (128 | ) | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | (134 | ) | (94 | ) | 489 | — | 261 | |||||||||||||||
Cash and Cash Equivalents at End of Period | $ | (310 | ) | $ | 14 | $ | 428 | $ | 1 | $ | 133 | |||||||||||
Consolidating Balance Sheet
CSX Corporation | CSX Vessel Leasing | Other | Eliminations | Consolidated | |||||||||||||||
(millions of dollars) | |||||||||||||||||||
March 28, 2003 | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Current Assets | |||||||||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 427 |
| $ | 45 | $ | (178 | ) | $ | — |
| $ | 294 |
| |||||
Accounts Receivable—Net |
| 72 |
|
| 2 |
| 867 |
|
| (94 | ) |
| 847 |
| |||||
Materials and Supplies |
| — |
|
| — |
| 187 |
|
| — |
|
| 187 |
| |||||
Deferred Income Taxes |
| — |
|
| — |
| 130 |
|
| — |
|
| 130 |
| |||||
Other Current Assets |
| 3 |
|
| — |
| 298 |
|
| (137 | ) |
| 164 |
| |||||
Total Current Assets |
| 502 |
|
| 47 |
| 1,304 |
|
| (231 | ) |
| 1,622 |
| |||||
Properties |
| 28 |
|
| — |
| 18,608 |
|
| — |
|
| 18,636 |
| |||||
Accumulated Depreciation |
| (24 | ) |
| — |
| (5,261 | ) |
| — |
|
| (5,285 | ) | |||||
Properties, net |
| 4 |
|
| — |
| 13,347 |
|
| — |
|
| 13,351 |
| |||||
Investment in Conrail |
| 339 |
|
| — |
| 4,316 |
|
| — |
|
| 4,655 |
| |||||
Affiliates and Other Companies |
| — |
|
| — |
| 501 |
|
| (34 | ) |
| 467 |
| |||||
Investment in Consolidated Subsidiaries |
| 12,824 |
|
| — |
| 396 |
|
| (13,220 | ) |
| — |
| |||||
Other Long-term assets |
| 1,209 |
|
| — |
| 284 |
|
| (629 | ) |
| 864 |
| |||||
Total Assets | $ | 14,878 |
| $ | 47 | $ | 20,148 |
| $ | (14,114 | ) | $ | 20,959 |
| |||||
LIABILITIES | |||||||||||||||||||
Current Liabilities | |||||||||||||||||||
Accounts Payable | $ | 101 |
| $ | — | $ | 831 |
| $ | (93 | ) | $ | 839 |
| |||||
Labor and Fringe Benefits Payable |
| 11 |
|
| — |
| 381 |
|
| — |
|
| 392 |
| |||||
Payable to Affiliates |
| — |
|
| 9 |
| 128 |
|
| (137 | ) |
| — |
| |||||
Casualty, Environmental and Other Reserves |
| 1 |
|
| — |
| 253 |
|
| — |
|
| 254 |
| |||||
Current Maturities of Long-term Debt |
| 150 |
|
| — |
| 212 |
|
| — |
|
| 362 |
| |||||
Short-term Debt |
| 150 |
|
| — |
| 5 |
|
| — |
|
| 155 |
| |||||
Income and Other Taxes Payable |
| 1,461 |
|
| — |
| (1,362 | ) |
| — |
|
| 99 |
| |||||
Other Current Liabilities |
| 28 |
|
| 13 |
| 101 |
|
| (1 | ) |
| 141 |
| |||||
Total Current Liabilities |
| 1,902 |
|
| 22 |
| 549 |
|
| (231 | ) |
| 2,242 |
| |||||
Casualty, Environmental and Other reserves |
| — |
|
| — |
| 590 |
|
| — |
|
| 590 |
| |||||
Long-term Debt |
| 5,584 |
|
| — |
| 943 |
|
| — |
|
| 6,527 |
| |||||
Deferred Income Taxes |
| — |
|
| — |
| 3,630 |
|
| — |
|
| 3,630 |
| |||||
Long-term Payable to Affiliates |
| 396 |
|
| — |
| 147 |
|
| (543 | ) |
| — |
| |||||
Other Long-term Liabilities |
| 687 |
|
| 23 |
| 1,056 |
|
| (119 | ) |
| 1,647 |
| |||||
Total Liabilities |
| 8,569 |
|
| 45 |
| 6,915 |
|
| (893 | ) |
| 14,636 |
| |||||
SHAREHOLDER’S EQUITY | |||||||||||||||||||
Preferred Stock |
| — |
|
| — |
| 396 |
|
| (396 | ) |
| — |
| |||||
Common Stock |
| 216 |
|
| — |
| 209 |
|
| (209 | ) |
| 216 |
| |||||
Other Capital |
| 1,549 |
|
| 2 |
| 8,280 |
|
| (8,282 | ) |
| 1,549 |
| |||||
Retained Earnings |
| 4,875 |
|
| — |
| 4,334 |
|
| (4,334 | ) |
| 4,875 |
| |||||
Accumulated Other Comprehensive Loss |
| (331 | ) |
| — |
| 14 |
|
| (317 | ) | ||||||||
Total Shareholders’ Equity |
| 6,309 |
|
| 2 |
| 13,233 |
|
| (13,221 | ) |
| 6,323 |
| |||||
Total Liabilities and Shareholders’ Equity | $ | 14,878 |
| $ | 47 | $ | 20,148 |
| $ | (14,114 | ) | $ | 20,959 |
| |||||
-23-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
NOTE 12.14. SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES,DATA, Continued
Consolidating Statement of Financial Position September 27, 2002 | ||||||||||||||||||||
CSX Corporation | CSX Lines | Other | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 559 | $ | 25 | $ | (162 | ) | $ | — | $ | 422 | |||||||||
Accounts Receivable, Net | 51 | 30 | 1,107 | (233 | ) | 955 | ||||||||||||||
Materials and Supplies | — | 18 | 194 | — | 212 | |||||||||||||||
Deferred Income Taxes | — | — | 122 | — | 122 | |||||||||||||||
Other Current Assets | 5 | 4 | 325 | (135 | ) | 199 | ||||||||||||||
Total Current Assets | 615 | 77 | 1,586 | (368 | ) | 1,910 | ||||||||||||||
Properties | 33 | 386 | 18,112 | — | 18,531 | |||||||||||||||
Accumulated Depreciation | (29 | ) | (261 | ) | (5,032 | ) | — | (5,322 | ) | |||||||||||
Properties, Net | 4 | 125 | 13,080 | — | 13,209 | |||||||||||||||
Investment in Conrail | 345 | — | 4,322 | — | 4,667 | |||||||||||||||
Affiliates and Other Companies | 2 | 84 | 409 | (33 | ) | 462 | ||||||||||||||
Investment in Consolidated Subsidiaries | 12,851 | — | 396 | (13,247 | ) | — | ||||||||||||||
Other Long-term Assets | 995 | 17 | 331 | (566 | ) | 777 | ||||||||||||||
Total Assets | $ | 14,812 | $ | 303 | $ | 20,124 | $ | (14,214 | ) | $ | 21,025 | |||||||||
LIABILITIES | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Accounts Payable | $ | 109 | $ | 89 | $ | 855 | $ | (160 | ) | $ | 893 | |||||||||
Labor and Fringe Benefits Payable | 24 | 19 | 394 | — | 437 | |||||||||||||||
Payable to Affiliates | — | — | 135 | (135 | ) | — | ||||||||||||||
Casuality, Environmental and Other Reserves | 1 | 3 | 244 | — | 248 | |||||||||||||||
Current Maturities of Long-term Debt | — | — | 230 | — | 230 | |||||||||||||||
Short-term Debt | 570 | — | 4 | — | 574 | |||||||||||||||
Income and Other Taxes Payable | 1,465 | 10 | (1,275 | ) | (8 | ) | 192 | |||||||||||||
Other Current Liabilities | 36 | 20 | 183 | (65 | ) | 174 | ||||||||||||||
Total Current Liabilities | 2,205 | 141 | 770 | (368 | ) | 2,748 | ||||||||||||||
Casuality, Environmental and Other Reserves | 3 | 3 | 635 | — | 641 | |||||||||||||||
Long-term Debt | 5,431 | — | 1,003 | — | 6,434 | |||||||||||||||
Deferred Income Taxes | — | 7 | 3,643 | — | 3,650 | |||||||||||||||
Long-term Payable to Affiliates | 396 | — | 170 | (566 | ) | — | ||||||||||||||
Other Long-term Liabilities | 369 | 46 | 793 | (32 | ) | 1,176 | ||||||||||||||
Total Liabilities | 8,404 | 197 | 7,014 | (966 | ) | 14,649 | ||||||||||||||
SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Preferred Stock | — | — | 396 | (396 | ) | — | ||||||||||||||
Common Stock | 215 | — | 209 | (209 | ) | 215 | ||||||||||||||
Other Capital | 1,525 | 73 | 8,252 | (8,325 | ) | 1,525 | ||||||||||||||
Retained Earnings | 4,682 | 33 | 4,285 | (4,318 | ) | 4,682 | ||||||||||||||
Accumulated Other Comprehensive Loss | (14 | ) | — | (32 | ) | — | (46 | ) | ||||||||||||
Total Shareholder’s Equity | 6,408 | 106 | 13,110 | (13,248 | ) | 6,376 | ||||||||||||||
Total Liabilities and Shareholder’s Equity | $ | 14,812 | $ | 303 | $ | 20,124 | $ | (14,214 | ) | $ | 21,025 | |||||||||
Consolidating Balance Sheet
CSX Corporation | CSX Lines | Other | Eliminations | Consolidated | ||||||||||||||||
(millions of dollars) | ||||||||||||||||||||
December 27, 2002 | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 379 |
| $ | 37 |
| $ | (152 | ) | $ | — |
| $ | 264 |
| |||||
Accounts Receivable—Net |
| 43 |
|
| — |
|
| 902 |
|
| (146 | ) |
| 799 |
| |||||
Materials and Supplies |
| — |
|
| — |
|
| 180 |
|
| — |
|
| 180 |
| |||||
Deferred Income Taxes |
| — |
|
| — |
|
| 128 |
|
| — |
|
| 128 |
| |||||
Assets Held For Disposition |
| — |
|
| 263 |
|
| — |
|
| — |
|
| 263 |
| |||||
Other Current Assets |
| 5 |
|
| — |
|
| 287 |
|
| (137 | ) |
| 155 |
| |||||
Total Current Assets |
| 427 |
|
| 300 |
|
| 1,345 |
|
| (283 | ) |
| 1,789 |
| |||||
Properties |
| 33 |
|
| 11 |
|
| 18,516 |
|
| — |
|
| 18,560 |
| |||||
Accumulated Depreciation |
| (29 | ) |
| (2 | ) |
| (5,243 | ) |
| — |
|
| (5,274 | ) | |||||
Properties, net |
| 4 |
|
| 9 |
|
| 13,273 |
|
| — |
|
| 13,286 |
| |||||
Investment in Conrail |
| 342 |
|
| — |
|
| 4,311 |
|
| — |
|
| 4,653 |
| |||||
Affiliates and Other Companies |
| — |
|
| — |
|
| 414 |
|
| (33 | ) |
| 381 |
| |||||
Investment in Consolidated Subsidiaries |
| 12,761 |
|
| — |
|
| 396 |
|
| (13,157 | ) |
| — |
| |||||
Other Long-term assets |
| 1,192 |
|
| — |
|
| 273 |
|
| (623 | ) |
| 842 |
| |||||
Total Assets | $ | 14,726 |
| $ | 309 |
| $ | 20,012 |
| $ | (14,096 | ) | $ | 20,951 |
| |||||
LIABILITIES | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Accounts Payable | $ | 77 |
| $ | 20 |
| $ | 848 |
| $ | (143 | ) | $ | 802 |
| |||||
Labor and Fringe Benefits Payable |
| 49 |
|
| 11 |
|
| 397 |
|
| — |
|
| 457 |
| |||||
Payable to Affiliates |
| — |
|
| — |
|
| 137 |
|
| (137 | ) |
| — |
| |||||
Casualty, Environmental and Other Reserves |
| 1 |
|
| — |
|
| 245 |
|
| — |
|
| 246 |
| |||||
Current Maturities of Long-term Debt |
| 150 |
|
| — |
|
| 241 |
|
| — |
|
| 391 |
| |||||
Short-term Debt |
| 140 |
|
| — |
|
| 3 |
|
| — |
|
| 143 |
| |||||
Liabilities Held For Disposition |
| — |
|
| 104 |
|
| — |
|
| — |
|
| 104 |
| |||||
Income and Other Taxes Payable |
| 1,458 |
|
| 9 |
|
| (1,284 | ) |
| (39 | ) |
| 144 |
| |||||
Other Current Liabilities |
| 28 |
|
| 4 |
|
| 99 |
|
| 36 |
|
| 167 |
| |||||
Total Current Liabilities |
| 1,903 |
|
| 148 |
|
| 686 |
|
| (283 | ) |
| 2,454 |
| |||||
Casualty, Environmental and Other reserves |
| 4 |
|
| 1 |
|
| 599 |
|
| — |
|
| 604 |
| |||||
Long-term Debt |
| 5,510 |
|
| — |
|
| 1,009 |
|
| — |
|
| 6,519 |
| |||||
Deferred Income Taxes |
| — |
|
| 3 |
|
| 3,564 |
|
| — |
|
| 3,567 |
| |||||
Long-term Payable to Affiliates |
| 396 |
|
| — |
|
| 148 |
|
| (544 | ) |
| — |
| |||||
Other Long-term Liabilities |
| 685 |
|
| 49 |
|
| 925 |
|
| (93 | ) |
| 1,566 |
| |||||
Total Liabilities |
| 8,498 |
|
| 201 |
|
| 6,931 |
|
| (920 | ) |
| 14,710 |
| |||||
SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Preferred Stock |
| — |
|
| — |
|
| 396 |
|
| (396 | ) |
| — |
| |||||
Common Stock |
| 215 |
|
| — |
|
| 209 |
|
| (209 | ) |
| 215 |
| |||||
Other Capital |
| 1,547 |
|
| 73 |
|
| 8,238 |
|
| (8,311 | ) |
| 1,547 |
| |||||
Retained Earnings |
| 4,797 |
|
| 35 |
|
| 4,225 |
|
| (4,260 | ) |
| 4,797 |
| |||||
Accumulated Other Comprehensive Loss |
| (331 | ) |
| — |
|
| 13 |
|
| (318 | ) | ||||||||
Total Shareholders’ Equity |
| 6,228 |
|
| 108 |
|
| 13,081 |
|
| (13,176 | ) |
| 6,241 |
| |||||
Total Liabilities and Shareholders’ Equity | $ | 14,726 |
| $ | 309 |
| $ | 20,012 |
| $ | (14,096 | ) | $ | 20,951 |
| |||||
-24-
CSX CORPORATION AND SUBSIDIARIES
OF OPERATIONS AND FINANCIAL STATEMENTS (Unaudited), Continued
Consolidating Statement of Financial Position December 28, 2001 | ||||||||||||||||||||
CSX Corporation | 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 | 985 | 137 | 184 | (588 | ) | 718 | ||||||||||||||
Total Assets | $ | 14,270 | $ | 502 | $ | 20,035 | $ | (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 Affiliates | — | 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 | 525 | 48 | 685 | (30 | ) | 1,228 | ||||||||||||||
Total Liabilities | 8,118 | 432 | 7,099 | (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 | $ | 14,270 | $ | 502 | $ | 20,035 | $ | (14,006 | ) | $ | 20,801 | |||||||||
RESULTS OF OPERATIONS
CSX follows a 52/53-week fiscal reporting calendar. Fiscal years 20022003 and 20012002 consist of 52 weeks ending on December 27, 200226, 2003 and December 28, 2001,27, 2002, respectively. The financial statements presented are for the 13-week quarters ended September 27,March 28, 2003 and March 29, 2002, and September 28, 2001, the 39-week periods ended September 27, 2002 and September 28, 2001, and as of December 28, 2001.
Consolidated Results
Third Quarter 2002 Compared with 2001Operating Revenue
Operating revenue increased $52 million in the quarter ended March 28, 2003 from the quarter ended March 29, 2002. Surface Transportation revenue increased $85 million but was offset by a reduction of revenue from the domestic container-shipping segment as a majority of CSX’s interest in CSX Lines was conveyed during the quarter (see Note 3, Divestitures).
Operating Income
Operating income was $177 million for the quarter ended March 28, 2003, as compared to $212 million for the prior year quarter. The $35 million decrease is a result of increased operating expenses, primarily at the rail segment, from increased fuel prices and abnormally harsh winter weather that burdened operations during the first quarter of 2003. The quarter ended March 28, 2003 was also impacted by $16 million in expenses relating to the retirement of John Snow, the Company’s former Chairman and Chief Executive Officer, to become Secretary of the Treasury for the United States.
Other Income (Expense)
Other income decreased $19 million to a net expense of $10 million in the quarter ended March 28, 2003. Income from real estate and resort operations was down $31 million, primarily due to a large real estate transaction that was completed during the first quarter of 2002. This decrease was offset by lower losses primarily relating to equity investments.
Interest Expense
Interest expense was down $11 million in the first quarter of 2003 as compared to the prior-year quarter, primarily from the impact of lower interest rates on floating-rate debt and the favorable impact of interest rate swaps (see note 9, Derivative Financial Instruments).
Net Earnings
CSX reported net earnings of $127 million, or 60 cents per share for the quarter ended September 27, 2002, asMarch 28, 2003 of $99 million, 46 cents per share, compared to $100with $25 million, or 4712 cents per share, in the quarter a year ago. The increase in earnings over the prior year period resulted primarily from real estate gains included in other income and decreased interest expense, offset slightly by lower operating income.
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, CONTINUEDContinued
Consolidated Results, Continued
In 2001, SFAS 143, “Accounting for Asset Retirement Obligations” was issued. This statement addresses financial accounting and September 28, 2001
Rail | Intermodal | Surface Transportation | ||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||
Operating Revenue | $ | 1,473 | $ | 1,495 | $ | 313 | $ | 286 | $ | 1,786 | $ | 1,781 | ||||||||||||
Operating Expense | ||||||||||||||||||||||||
Labor and Fringe | 629 | 624 | 16 | 15 | 645 | 639 | ||||||||||||||||||
Materials, Supplies and Other | 295 | 312 | 46 | 41 | 341 | 353 | ||||||||||||||||||
Conrail Operating Fees, Rents and Services | 82 | 83 | — | — | 82 | 83 | ||||||||||||||||||
Building and Equipment Rent | 117 | 108 | 34 | 32 | 151 | 140 | ||||||||||||||||||
Inland Transportation | (93 | ) | (94 | ) | 171 | 154 | 78 | 60 | ||||||||||||||||
Depreciation | 146 | 139 | 7 | 7 | 153 | 146 | ||||||||||||||||||
Fuel | 109 | 123 | — | — | 109 | 123 | ||||||||||||||||||
Total Operating Expense | 1,285 | 1,295 | 274 | 249 | 1,559 | 1,544 | ||||||||||||||||||
Operating Income | $ | 188 | $ | 200 | $ | 39 | $ | 37 | $ | 227 | $ | 237 | ||||||||||||
Operating Ratio | 87.2 | % | 86.6 | % | 87.5 | % | 87.1 | % | 87.3 | % | 86.7 | % |
Rail | Intermodal | Surface Transportation | ||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||
Operating Revenue | $ | 4,497 | $ | 4,583 | $ | 871 | $ | 827 | $ | 5,368 | $ | 5,410 | ||||||||||||
Operating Expense | ||||||||||||||||||||||||
Labor and Fringe | 1,900 | 1,941 | 49 | 48 | 1,949 | 1,989 | ||||||||||||||||||
Materials, Supplies and Other | 938 | 921 | 131 | 128 | 1,069 | 1,049 | ||||||||||||||||||
Conrail Operating Fees, Rents and Services | 248 | 251 | — | — | 248 | 251 | ||||||||||||||||||
Building & Equipment Rent | 326 | 341 | 98 | 90 | 424 | 431 | ||||||||||||||||||
Inland Transportation | (271 | ) | (280 | ) | 466 | 462 | 195 | 182 | ||||||||||||||||
Depreciation | 422 | 416 | 22 | 23 | 444 | 439 | ||||||||||||||||||
Fuel | 325 | 408 | — | — | 325 | 408 | ||||||||||||||||||
Total Operating Expense | 3,888 | 3,998 | 766 | 751 | 4,654 | 4,749 | ||||||||||||||||||
Operating Income | $ | 609 | $ | 585 | $ | 105 | $ | 76 | $ | 714 | $ | 661 | ||||||||||||
Operating Ratio | 86.5 | % | 87.2 | % | 87.9 | % | 90.8 | % | 86.7 | % | 87.8 | % |
Third Quarter Carloads (Thousands) | Third Quarter Revenue (Millions of Dollars) | |||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | |||||||||||
Rail: | ||||||||||||||||
Merchandise | ||||||||||||||||
Phosphates and Fertilizer | 113 | 101 | 12 | $ | 73 | $ | 63 | 16 | ||||||||
Metals | 83 | 81 | 2 | 104 | 102 | 2 | ||||||||||
Food and Consumer Products | 41 | 41 | — | 53 | 54 | (2 | ) | |||||||||
Paper and Forest Products | 122 | 120 | 2 | 161 | 161 | — | ||||||||||
Agricultural Products | 86 | 88 | (2 | ) | 116 | 118 | (2 | ) | ||||||||
Chemicals | 124 | 123 | 1 | 224 | 216 | 4 | ||||||||||
Minerals | 21 | 23 | (9 | ) | 33 | 36 | (8 | ) | ||||||||
Emerging Markets | 115 | 117 | (2 | ) | 107 | 102 | 5 | |||||||||
Total Merchandise | 705 | 694 | 2 | 871 | 852 | 2 | ||||||||||
Automotive | 124 | 119 | 4 | 195 | 184 | 6 | ||||||||||
Coal, Coke and Iron Ore | ||||||||||||||||
Coal | 395 | 422 | (6 | ) | 382 | 417 | (8 | ) | ||||||||
Coke | 9 | 10 | (10 | ) | 12 | 12 | — | |||||||||
Iron Ore | 13 | 12 | 8 | 7 | 6 | 17 | ||||||||||
Total Coal, Coke and Iron Ore | 417 | 444 | (6 | ) | 401 | 435 | (8 | ) | ||||||||
Other | — | — | — | 6 | 24 | (75 | ) | |||||||||
Total Rail | 1,246 | 1,257 | (1 | ) | 1,473 | 1,495 | (1 | ) | ||||||||
Intermodal: | ||||||||||||||||
Domestic | 252 | 231 | 9 | 178 | 159 | 12 | ||||||||||
International | 314 | 286 | 10 | 133 | 121 | 10 | ||||||||||
Other | — | — | — | 2 | 6 | (67 | ) | |||||||||
Total Intermodal | 566 | 517 | 9 | 313 | 286 | 9 | ||||||||||
Total Surface Transportation | 1,812 | 1,774 | 2 | $ | 1,786 | $ | 1,781 | — | ||||||||
Nine Months Loads (Thousands) | Nine Months Revenue (Millions of Dollars) | |||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | |||||||||||
Rail: | ||||||||||||||||
Merchandise | ||||||||||||||||
Phosphates and Fertilizer | 351 | 325 | 8 | $ | 245 | $ | 227 | 8 | ||||||||
Metals | 240 | 245 | (2 | ) | 302 | 304 | (1 | ) | ||||||||
Food and Consumer Products | 122 | 122 | — | 161 | 163 | (1 | ) | |||||||||
Paper and Forest Products | 360 | 363 | (1 | ) | 479 | 482 | (1 | ) | ||||||||
Agricultural Products | 265 | 280 | (5 | ) | 362 | 377 | (4 | ) | ||||||||
Chemicals | 378 | 380 | (1 | ) | 681 | 673 | 1 | |||||||||
Minerals | 66 | 70 | (6 | ) | 101 | 107 | (6 | ) | ||||||||
Emerging Markets | 323 | 327 | (1 | ) | 301 | 290 | 4 | |||||||||
Total Merchandise | 2,105 | 2,112 | — | 2,632 | 2,623 | — | ||||||||||
Automotive | 401 | 385 | 4 | 626 | 591 | 6 | ||||||||||
Coal, Coke and Iron Ore | ||||||||||||||||
Coal | 1,178 | 1,291 | (9 | ) | 1,142 | 1,248 | (8 | ) | ||||||||
Coke | 26 | 31 | (16 | ) | 39 | 36 | 8 | |||||||||
Iron Ore | 26 | 30 | (13 | ) | 15 | 17 | (12 | ) | ||||||||
Total Coal, Coke and Iron Ore | 1,230 | 1,352 | (9 | ) | 1,196 | 1,301 | (8 | ) | ||||||||
Other | — | — | — | 43 | 68 | (37 | ) | |||||||||
Total Rail | 3,736 | 3,849 | (3 | ) | 4,497 | 4,583 | (2 | ) | ||||||||
Intermodal: | ||||||||||||||||
Domestic | 714 | 660 | 8 | 498 | 457 | 9 | ||||||||||
International | 870 | 835 | 4 | 367 | 358 | 3 | ||||||||||
Other | — | — | — | 6 | 12 | (50 | ) | |||||||||
Total Intermodal | 1,584 | 1,495 | (6 | ) | 871 | 827 | 5 | |||||||||
Total Surface Transportation | 5,320 | 5,344 | — | $ | 5,368 | $ | 5,410 | (1 | ) | |||||||
Domestic Container Shipping | International Terminals | Eliminations | Marine Services | |||||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Operating Revenue | $ | 215 | $ | 181 | $ | 64 | $ | 58 | $ | — | $ | — | $ | 279 | $ | 239 | ||||||||||||||
Operating Expense | ||||||||||||||||||||||||||||||
Labor and Fringe | 61 | 53 | 14 | 16 | — | — | 75 | 69 | ||||||||||||||||||||||
Materials, Supplies and Other | 65 | 52 | 19 | 15 | — | — | 84 | 67 | ||||||||||||||||||||||
Building and Equipment Rent | 10 | 13 | 3 | 2 | — | — | 13 | 15 | ||||||||||||||||||||||
Inland Transportation | 33 | 25 | 3 | 1 | — | — | 36 | 26 | ||||||||||||||||||||||
Depreciation | 5 | 6 | 3 | 2 | — | — | 8 | 8 | ||||||||||||||||||||||
Fuel | 19 | 15 | — | — | — | — | 19 | 15 | ||||||||||||||||||||||
Miscellaneous | — | — | 4 | 2 | — | — | 4 | 2 | ||||||||||||||||||||||
Total Operating Expense | 193 | 164 | 46 | 38 | — | — | 239 | 202 | ||||||||||||||||||||||
Operating Income | $ | 22 | $ | 17 | $ | 18 | $ | 20 | $ | — | $ | — | $ | 40 | $ | 37 | ||||||||||||||
Operating Ratio | 89.8 | % | 90.6 | % | 71.9 | % | 65.5 | % | 85.7 | % | 84.5 | % |
Domestic Container Shipping | International Terminals | Eliminations | Marine Services | |||||||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||||
Operating Revenue | $ | 565 | $ | 510 | $ | 180 | $ | 178 | $ | (1 | ) | $ | (2 | ) | $ | 744 | $ | 686 | ||||||||||||||
Operating Expense | ||||||||||||||||||||||||||||||||
Labor and Fringe | 169 | 159 | 45 | 47 | — | — | 214 | 206 | ||||||||||||||||||||||||
Materials, Supplies and Other | 179 | 153 | 59 | 57 | (1 | ) | (2 | ) | 237 | 208 | ||||||||||||||||||||||
Building and Equipment Rent | 38 | 39 | 7 | 7 | — | — | 45 | 46 | ||||||||||||||||||||||||
Inland Transportation | 86 | 74 | 6 | 5 | — | — | 92 | 79 | ||||||||||||||||||||||||
Depreciation | 14 | 18 | 7 | 5 | — | — | 21 | 23 | ||||||||||||||||||||||||
Fuel | 47 | 46 | — | — | — | — | 47 | 46 | ||||||||||||||||||||||||
Miscellaneous | — | — | 11 | 7 | — | — | 11 | 7 | ||||||||||||||||||||||||
Total Operating Expense | 533 | 489 | 135 | 128 | (1 | ) | (2 | ) | 667 | 615 | ||||||||||||||||||||||
Operating Income | $ | 32 | $ | 21 | $ | 45 | $ | 50 | $ | — | $ | — | $ | 77 | $ | 71 | ||||||||||||||||
Operating Ratio | 94.3 | % | 95.9 | % | 75.0 | % | 71.9 | % | 89.7 | % | 89.7 | % |
In 2001, SFAS 142, “Goodwill and Other Intangible Assets.Assets,” was issued. Under the provisions of SFAS 142, goodwill and other indefinite-livedindefinite lived intangible assets are no longer amortized, but are reviewed for impairment on a periodic basis. The Company adopted this standard in the first quarter of 2002.2002, and incurred a pretax charge of $83 million, $43 million after tax and consideration of minority interest, 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-livedindefinite 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 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 it will not have a material effect on future earnings. The Company does not have any other indefinite-lived intangible assets.
Earnings before the cumulative effect of accounting change, earningschanges were $42 million and $68 million for the nine monthsquarters ended SeptemberMarch 28, 2003 and March 29, 2002, respectively. This $26 million decrease results primarily from the decrease in operating income and other income, partially offset by a decrease in income tax expense.
Divestitures
On February 27, 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines, to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs, and $60 million of securities). CSX Lines was subsequently renamed Horizon Lines LLC (“Horizon”). Horizon has subleased equipment from CSX covering CSX’s primary financial obligations related to $319 million of vessel and equipment leases under which CSX will remain a lessee. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12 year sub-lease term. Less than $1 million of this gain was recognized in the first quarter. The $60 million of securities have a term of 7 years and a preferred return feature. CSX will account for the investment under the cost method.
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Segment Results
The following table provides a detail of operating revenue and expense by segment:
Quarters Ended March 28, 2003 and March 29, 2002(1)
(Dollars in Millions) (Unaudited)
Rail | Intermodal | Surface Transportation | International Terminals | Eliminations/ Other (2) | Total | |||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | 1,531 |
| $ | 1,486 |
| $ | 302 |
| $ | 262 |
| $ | 1,833 |
| $ | 1,748 |
| $ | 56 |
| $ | 58 |
| $ | 127 |
| $ | 158 |
| $ | 2,016 |
| $ | 1,964 |
| ||||||||||||
Operating Expense | ||||||||||||||||||||||||||||||||||||||||||||||||
Labor and Fringe |
| 648 |
|
| 640 |
|
| 19 |
|
| 17 |
|
| 667 |
|
| 657 |
|
| 13 |
|
| 16 |
|
| 59 |
|
| 57 |
|
| 739 |
|
| 730 |
| ||||||||||||
Materials, Supplies and Other |
| 339 |
|
| 324 |
|
| 49 |
|
| 41 |
|
| 388 |
|
| 365 |
|
| 19 |
|
| 22 |
|
| 47 |
|
| 51 |
|
| 454 |
|
| 438 |
| ||||||||||||
Conrail |
| 86 |
|
| 87 |
|
| — |
|
| — |
|
| 86 |
|
| 87 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 86 |
|
| 87 |
| ||||||||||||
Building and Equipment Rent |
| 107 |
|
| 102 |
|
| 31 |
|
| 31 |
|
| 138 |
|
| 133 |
|
| 2 |
|
| 2 |
|
| 6 |
|
| 13 |
|
| 146 |
|
| 148 |
| ||||||||||||
Inland Transportation |
| (99 | ) |
| (86 | ) |
| 173 |
|
| 149 |
|
| 74 |
|
| 63 |
|
| 2 |
|
| 2 |
|
| 16 |
|
| 21 |
|
| 92 |
|
| 86 |
| ||||||||||||
Depreciation |
| 145 |
|
| 138 |
|
| 8 |
|
| 7 |
|
| 153 |
|
| 145 |
|
| 2 |
|
| 2 |
|
| 2 |
|
| 5 |
|
| 157 |
|
| 152 |
| ||||||||||||
Fuel |
| 158 |
|
| 104 |
|
| — |
|
| — |
|
| 158 |
|
| 104 |
|
| — |
|
| — |
|
| 15 |
|
| 12 |
|
| 173 |
|
| 116 |
| ||||||||||||
Miscellaneous |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| 3 |
|
| (11 | ) |
| (8 | ) |
| (8 | ) |
| (5 | ) | ||||||||||||
Total Operating Expense |
| 1,384 |
|
| 1,309 |
|
| 280 |
|
| 245 |
|
| 1,664 |
|
| 1,554 |
|
| 41 |
|
| 47 |
|
| 134 |
|
| 151 |
|
| 1,839 |
|
| 1,752 |
| ||||||||||||
Operating Income | $ | 147 |
| $ | 177 |
| $ | 22 |
| $ | 17 |
| $ | 169 |
| $ | 194 |
| $ | 15 |
| $ | 11 |
| $ | (7 | ) | $ | 7 |
| $ | 177 |
| $ | 212 |
| ||||||||||||
Operating Ratio |
| 90.4 | % |
| 88.1 | % |
| 92.7 | % |
| 93.5 | % |
| 90.8 | % |
| 88.9 | % |
| 73.2 | % |
| 81.0 | % |
(1) | Prior periods have been reclassified to conform to the current presentation. |
(2) | Eliminations/Other consists of the following: |
Operating Income | ||||||
2003 | 2002 | |||||
(a) expenses related to the retirement of John Snow, the Company’s former Chairman and Chief Executive Officer | (16 | ) | — |
| ||
(b) the reclassification of international terminals minority interest expense | 10 |
| 8 |
| ||
(c) the operations of CSX Lines through Feb. 27, 2003, when it was conveyed to a new entity, and gain amortization on the conveyance | 2 |
| 1 |
| ||
(d) other items | (3 | ) | (2 | ) | ||
Total | (7 | ) | 7 |
| ||
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Surface Transportation Results
The following table provides Surface Transportation carload and revenue data by service group and commodity for the quarters ended March 28, 2003 and March 29, 2002:
Carloads (Thousands) | Revenue (Dollars in Millions) | |||||||||||||||
2003 | 2002 | %Change | 2003 | 2002 | %Change | |||||||||||
Merchandise | ||||||||||||||||
Phosphates and Fertilizer | 117 | 119 | (2 | )% | $ | 87 | $ | 89 | (2 | )% | ||||||
Metals | 88 | 77 | 14 | % |
| 110 |
| 98 | 12 | % | ||||||
Forest and Industrial Products | 148 | 144 | 3 | % |
| 195 |
| 189 | 3 | % | ||||||
Agricultural and Food | 114 | 115 | (1 | )% |
| 167 |
| 166 | 1 | % | ||||||
Chemicals | 138 | 135 | 2 | % |
| 251 |
| 238 | 5 | % | ||||||
Emerging Markets | 101 | 93 | 9 | % |
| 112 |
| 88 | 27 | % | ||||||
Total Merchandise | 706 | 683 | 3 | % |
| 922 |
| 868 | 6 | % | ||||||
Automotive | 131 | 129 | 2 | % |
| 208 |
| 200 | 4 | % | ||||||
Coal, Coke & Iron Ore | ||||||||||||||||
Coal | 373 | 393 | (5 | )% |
| 370 |
| 381 | (3 | )% | ||||||
Coke and Iron Ore | 12 | 12 | — | % |
| 13 |
| 16 | (19 | )% | ||||||
Total Coal, Coke & Iron Ore | 385 | 405 | (5 | )% |
| 383 |
| 397 | (4 | )% | ||||||
Other | — | — | — | % |
| 18 |
| 21 | (14 | )% | ||||||
Total Rail | 1,222 | 1,217 | — | % |
| 1,531 |
| 1,486 | 3 | % | ||||||
Intermodal | ||||||||||||||||
Domestic | 247 | 220 | 12 | % |
| 183 |
| 152 | 20 | % | ||||||
International | 279 | 261 | 7 | % |
| 113 |
| 110 | 3 | % | ||||||
Other | — | — | — | % |
| 6 |
| — | NM |
| ||||||
Total Intermodal | 526 | 481 | 9 | % |
| 302 |
| 262 | 15 | % | ||||||
Total Surface Transportation | 1,748 | 1,698 | 3 | % | $ | 1,833 | $ | 1,748 | 5 | % | ||||||
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Rail
Operating Revenue
Rail revenue increased $45 million in the quarter ended March 28, 2003, as compared to the quarter ended March 29, 2002.
Merchandise
Overall merchandise revenues were $330 million, or $1.55 cents per share. The increase in earningsup 6 percent on 3 percent volume growth. Emerging markets, chemicals, metals and forest and industrial products’ revenue levels increased over the prior year period isquarter, while phosphates and fertilizers had a slight decrease. The positive performance in emerging markets was driven by continued strength in military shipments during the first quarter of 2003.
Automotive
Automotive revenues grew $8 million or 4% over the prior year quarter. Growth was driven by increased vehicle production while extended linehauls resulted in yield improvements. Light truck and remarketed vehicles revenues are up year over year due to shifts to sports utility and crossover vehicles and aggressive manufacturer incentives.
Coal
Coal revenues were down $11 million or 3 percent from prior year. Abnormally harsh winter weather adversely affected lake loadings, as lakes were frozen and, therefore, inaccessible. Additionally, weakness in exports continued due to the reduced competitive standing of United States coal in the international market. These two factors more than offset the strength in utility coal shipments that occurred in the latter part of the quarter.
Operating Expense
Operating expenses increased to $1.4 billion from $1.3 billion for the quarters ended March 28, 2003 and March 29, 2002, respectively. The $75 million increase was primarily due to higher fuel prices, operational inefficiencies due to severe winter weather during 2003, and increased personal injury claims.
· | Labor and Fringe expenses were up $8 million in the first quarter of 2003 versus prior year. The Company experienced higher crew costs during the first quarter of 2003 due to inflation, higher volumes and costs related to the slowdown of the network caused by weather issues during the quarter. Expenses were also affected upon the adoption of SFAS 143 by the inclusion of approximately $2 million of costs relating to the removal of retired crossties, which were previously provided for through depreciation expense. |
· | Materials, Supplies and Other expenses increased $15 million period over period, primarily due to increased personal injuries and derailments and other costs relating to the weather in the first quarter of 2003. Expenses were also affected, upon the adoption of SFAS 143 by the inclusion of approximately $2 million of costs relating to the removal of retired crossties from the system that were previously provided for through depreciation expense. |
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Rail, Continued
· | Conrail expenses were relatively flat, decreasing $1 million quarter-over-quarter to $86 million in 2003. |
· | Building and Equipment Rent increased $5 million, primarily due to increased car hire expenses caused partially by the network slowdown relating to abnormally harsh winter weather. |
· | Depreciation expense increased $7 million dollars net, primarily due to asset additions. Reductions in depreciation expense relating to the discontinuation of accruals for the removal of crossties upon the adoption of SFAS 143 were offset by the impact of reductions of certain asset lives as part of a group depreciation life study. |
· | Fuel expenses were up significantly in the first quarter of 2003 as compared to 2002. Fuel prices increased expense by $50 million, but the net impact on operating income was $44, since $6 million in fuel surcharges were billed to customers. The remaining $4 million increase was the result of volume and efficiency issues related to the severe winter weather during the first quarter of 2003. |
Operating Income
Operating income was $147 million for the quarter ended March 28, 2003, as compared to $177 million for the quarter ended March 29, 2002. This $30 million decrease resulted from the large increase in fuel and other operating expenses more than offsetting the benefit of higher revenues.
Intermodal
Operating Revenue
Intermodal operating revenues increased $40 million in the quarter ended March 28, 2003, as compared to the quarter ended March 29, 2002. Revenue per unit improved due to increased length of haul, a favorable price environment and growth in higher priced door-to-door traffic. The increase in revenue included $7 million of fuel surcharges in 2003.
Operating Expense
Intermodal operating expenses increased $35 million over the prior year quarter, primarily due to increased lift costs and inland transportation charges associated with higher volumes.
Operating Income
Intermodal operating income was $22 million for the quarter ended March 28, 2003, as compared to $17 million for the quarter ended March 29, 2002.
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
International Terminals Results
Operating Revenue
International Terminals operating revenue decreased to $56 million for the 2003 quarter, from $58 million in the prior year quarter. This decrease was primarily a result of operating income growth relatingthe discontinuance from the Transpacific trade by one of the major Hong Kong customers.
Operating Expense
Operating expenses decreased to decreased fuel and labor and fringe expense, increased other income and lower interest expense.
Operating Income
Operating income increased to $15 million for the 2001 write-off of $14quarter, from $11 million of an investment in a non-rail affiliate, offset by decreased interest income attributed to lower interest rates.
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments totaled $422$294 million at September 27, 2002, a decreaseMarch 28, 2003, an increase of $196$30 million since December 28, 2001.
Primary sources of cash and cash equivalents during the ninethree months ended September 27, 2002March 28, 2003 were normal transportation operations and the issuance of $519$214 million of long-term debt.net proceeds from the divestiture of CSX Lines LLC (see Note 3, Divestitures), $67 million of debt issued and cash from general operations. Primary uses of cash and cash equivalents were $150 million of property additions, scheduled$95 million of debt repayments, of long-term debt, and the payment of dividends. In addition, cash from operations was negatively affected by the reduction in the sale of accounts receivable and the $85approximately $56 million payment related to payments made and related taxes due to the New Orleans Settlement. Long-term debt totaling $1.1 billion was repaid inretirement of John Snow, the first nine months of 2002 using cash from operations, the issuance of a $400 million noteCompany’s former Chairman and Chief Executive Officer, in the first quarter of 2002 and other short-term commercial paper borrowings. For the nine months ended September 27, 2002, $23 million of overall debt was repaid, which is an improvement of $201 million over the previous year’s nine month period. Total dividends paid2003. The quarterly dividend for the nine-monthcurrent and prior year period was $65 million as compared to $149 million in the same period of the prior year due to CSX adjusting its quarterly dividends from 30 cents per share to 10 cents per share, and amounted to $21 million in the thirdfirst quarter of 2001.
CSX’s working capital deficit at September 27, 2002March 28, 2003 was $838$620 million, down from $1.2 billion$665 million at December 28, 2001. This decrease is primarily attributable to $450 million of currently maturing notes being refinanced with the proceeds of $400 million of newly issued long-term notes and available cash.
FINANCIAL DATA
March 28, | December 27, | |||||||
2003 | 2002 | |||||||
(Dollars in Millions) | ||||||||
Cash, Cash Equivalents and Short-Term Investments | $ | 294 |
| $ | 264 |
| ||
Working Capital (Deficit) | $ | (620 | ) | $ | (665 | ) | ||
Current Ratio |
| 0.7 |
|
| 0.7 |
| ||
Debt Ratio |
| 51 | % |
| 52 | % | ||
Ratio of Earnings to Fixed Charges |
| 1.5 | x |
| 2.3 | x |
CSX also has $1.1 billion of remaining capacity under a shelf registration that may be used, subject to market conditions, to issue debt or other securities at the Company’s discretion, and $1.3 billion in available line of credit facilities which can be used at the Company’s discretion. Commercial paper balances outstanding at September 27, 2002 that are supported by the existing line of credit facilities totaled $574 million,CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FACTORS EXPECTED TO INFLUENCE 2003
Fuel expenses fluctuate and are included in reported balancesa significant cost, but the Company expects that the impact of short-term debt.
(Dollars in Millions) | ||||||||
September 27, 2002 | December 28, 2001 | |||||||
Cash, Cash Equivalents and Short-Term Investments | $ | 422 | $ | 618 | ||||
Working Capital (Deficit) | $ | (838 | ) | $ | (1,229 | ) | ||
Current Ratio | 0.7 | 0.6 | ||||||
Debt Ratio | 52 | % | 51 | % | ||||
Ratio of Earnings to Fixed Charges | 2.2 | x | 1.7 | x |
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
See background, accounting 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,financial reporting effects and its rail network extends into several midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold ownership interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern operate over allocated portions of the Conrail lines.
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
Income Statement Information: | ||||||||||||
Revenues | $ | 221 | $ | 223 | $ | 668 | $ | 685 | ||||
Expenses | 151 | 165 | 473 | 487 | ||||||||
Operating Income | $ | 70 | $ | 58 | $ | 195 | $ | 198 | ||||
Net Income | $ | 44 | $ | 35 | $ | 122 | $ | 127 | ||||
September 30, 2002 | December 31, 2001 | |||||
Balance Sheet Information: | ||||||
Current Assets | $ | 323 | $ | 846 | ||
Property and Equipment and Other Assets | 7,828 | 7,236 | ||||
Total Assets | $ | 8,151 | $ | 8,082 | ||
Current Liabilities | $ | 448 | $ | 408 | ||
Long-Term Debt | 1,126 | 1,156 | ||||
Other Long-Term Liabilities | 2,350 | 2,413 | ||||
Total Liabilities | 3,924 | 3,977 | ||||
Stockholders’ Equity | 4,227 | 4,105 | ||||
Total Liabilities and Stockholders’ Equity | $ | 8,151 | $ | 8,082 | ||
Conrail’s Results of Operations
Conrail reported net income before cumulative effect of $44accounting change of $37 million in the first quarter, compared to $36 million in the prior year quarter. Operating revenues increased $1 million to $226 million for the third2003 quarter, of 2002, comparedwhile operating expenses decreased $1 million to $35$163 million for the 2001 quarter. same period.
OTHER MATTERS
Critical Accounting Estimates
The net income increasepreparation of financial statements in conformity with accounting principles generally accepted in the quarter reflectsUnited States requires that management make estimates in reporting the lower expenses noted above as well asamounts of certain assets and liabilities, the recognitiondisclosure of interest on federal tax refunds.
OTHER MATTERS
CSX has received a claim amounting to approximately $180 million plus interest from Europe Container Terminals bv (“ECT”), owner of the Rotterdam Container Terminal formerly operated by Sea-Land Service Inc. (“Sea-Land”). ECT has claimed that the December 1999 CSX sold certain assets comprising Sea-Land’ssale of the international liner business to A. P. Moller-Maersk Line (Maersk). Maersk acquired vessels, containers, certain terminal facilities and various other assets and related liabilitiesresulted in a breach of the international liner business.Sea-Land terminal agreement with ECT. An initial arbitration panel of the Netherlands Arbitration Institute ruled on February 10, 2003, that CSX was in breach of the terminal agreement. The ruling by the panel dealt only with the existence of liability for a breach, and did not address the level of ECT damages, if any, which will be the subject of a second hearing before the same panel sometime in 2003. CSX disputes this claim and believes it does not reflect the mitigating benefits ECT gained from its ability to service other customers at the former Sea-Land facility. Management believes that valid defenses to this claim exist but cannot estimate what, if any, loss may result from this matter. CSX believes that Maersk is responsible for any damages that may result from this dispute and has taken preliminary steps to initiate an arbitration against Maersk under the purchase and sale agreement with Maersk.
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OTHER MATTERS, Continued
Matters Arising From Sale of International Container-Shipping Assets, Continued
The purchase and sale agreement with Maersk providedprovides 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 certain other disputed issues relating to the contractual obligations of the Company, relating to the sale of international container shipping assets, has been submitted to arbitration.
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 and cash flows in future reporting periods.
CSX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operations, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “project”, and similar expressions. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the Company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; and (iv) the outcome of claims and litigation involving or affecting the Company. Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this Quarterly Reportreport, and in the Company’s other SEC reports, accessible on the SEC’sSec’s website at www.sec.gov and at the Company’s website at www.csx.com.
CSX addressesCORPORATION AND SUBSIDIARIES
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 on $1.4 billion of debt (see Note 9). CSX doesagreements. We do not hold or issue derivative financial instruments for trading purposes. In the event of a 1% varianceincrease or decrease in the LIBOR interest rate, the interest expense related to these agreements would be changed by $14increase or decrease approximately $1.4 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.
At SeptemberMarch 28, 2003 and December 27, 2002, and December 28, 2001, CSX had approximately $1.1 billion$790 million and $625$709 million, respectively, of floating rate debt outstanding. A 1% variance in interest rates would have a $11 million effect 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 70 million gallons of fuel, which is approximately 50% of CSXT’s requirement over the next three months, at a weighted average price of 78 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 affect CSXT’simpact annual fuel expense by approximately $0.7$6 million. The Company has not entered into any fuel purchase contracts for 2003.
While the Company’s International Terminalsinternational terminals segment does business in several foreign countries, a substantial portion of its revenue and expenses are transacted in U.S. dollars, or in currencies with little fluctuation against the U.S. dollar. 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 affectimpact earnings per share due to the dilutive effect of stock options and convertible debt.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
As of October 23, 2002,April 28, 2003, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of October 23, 2002.April 28, 2003. There were no significant changes in the Company’s internal controls or in the other factors that could significantly affect those controls subsequent to the date of the evaluation.
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CSX CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATIONITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) | Exhibits |
10.1* | Retirement and Consulting Agreement dated as of April 1, 2003, between CSX Corporation and Paul R. Goodwin |
99.1* | Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
99.2* | Principal Financial Officer Certification Pursuant to | ||
(b) | Reports on Form 8-K |
n | Form 8-K filed on |
n | Form 8-K filed on January 31, 2003 to report as an Item 5: Other Event the press release and its quarterly Flash document on financial and operating results for the |
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 | ||
(Registrant) | ||
By: | /s/ | |
Carolyn T. Sizemore | ||
Vice President and Controller | ||
(Principal Accounting Officer) |
Dated: October 28,April 30, 2002
I, John W. Snow,Michael J. Ward, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of CSX Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: April 30, 2003
/s/ MICHAEL J. WARD
Michael J. Ward
Chairman, President and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
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CERTIFICATE OF CHIEF FINANCIAL OFFICER
I, Paul R. Goodwin, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of CSX Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: April 30, 2003
/s/ PAUL R. GOODWIN
Paul R. Goodwin
Vice Chairman and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
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