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 June 25,September 24, 2004
OR
( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from |
Commission File Number 1-8022
CSX CORPORATION
Virginia | 62-1051971 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
500 Water Street, | 32202 | |
(Address of principal executive offices) | (Zip Code) |
(904) 359-3200
No Change
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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock,
as of June 25,September 24, 2004: 214,814,160214,829,471 shares.
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Sixth Supplemental Indenture | ||||||||
Sec 302 Principal Executive Officer Certification | ||||||||
Sec 302 Principal Financial Officer Certification | ||||||||
Sec 906 Principal Executive Officer Certification | ||||||||
Sec 906 Principal Financial Officer Certification |
2
CSX CORPORATION AND SUBSIDIARIES
Consolidated Income Statements (Unaudited)
Quarter Ended | Six Months Ended | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 25, | June 27, | June 25, | June 27, | September 24, | September 26, | September 24, | September 26, | |||||||||||||||||||||||||
(Dollars in Millions, Except Per Share Amounts) | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||
Operating Revenue | $ | 2,033 | $ | 1,942 | $ | 3,996 | $ | 3,958 | $ | 1,980 | $ | 1,882 | $ | 5,976 | $ | 5,840 | ||||||||||||||||
Operating Expense | 1,742 | 1,657 | 3,544 | 3,496 | 1,716 | 1,980 | 5,260 | 5,476 | ||||||||||||||||||||||||
Operating Income | 291 | 285 | 452 | 462 | ||||||||||||||||||||||||||||
Other Income (Expense) | 2 | 19 | (8 | ) | 9 | |||||||||||||||||||||||||||
Operating Income (Loss) | 264 | (98 | ) | 716 | 364 | |||||||||||||||||||||||||||
Other Income | 25 | 21 | 17 | 30 | ||||||||||||||||||||||||||||
Interest Expense | 109 | 105 | 217 | 208 | 106 | 103 | 323 | 311 | ||||||||||||||||||||||||
Earnings before Income Taxes and Cumulative Effect of Accounting Change | 184 | 199 | 227 | 263 | ||||||||||||||||||||||||||||
Income Tax Expense | 65 | 72 | 78 | 94 | ||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes and Cumulative Effect of Accounting Change | 183 | (180 | ) | 410 | 83 | |||||||||||||||||||||||||||
Income Tax Expense (Benefit) | 60 | (77 | ) | 138 | 17 | |||||||||||||||||||||||||||
Earnings before Cumulative Effect of Accounting Change | 119 | 127 | 149 | 169 | ||||||||||||||||||||||||||||
Cumulative Effect of Accounting Change - Net of Tax | — | — | — | 57 | ||||||||||||||||||||||||||||
Earnings (Loss) before Cumulative Effect of Accounting Change | 123 | (103 | ) | 272 | 66 | |||||||||||||||||||||||||||
Cumulative Effect of Accounting Change — Net of Tax | — | — | — | 57 | ||||||||||||||||||||||||||||
Net Earnings | $ | 119 | $ | 127 | $ | 149 | $ | 226 | ||||||||||||||||||||||||
Net Earnings (Loss) | $ | 123 | $ | (103 | ) | $ | 272 | $ | 123 | |||||||||||||||||||||||
Earnings Per Share: | ||||||||||||||||||||||||||||||||
Before Cumulative Effect of Accounting Change | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 0.79 | $ | 0.57 | $ | (0.48 | ) | $ | 1.27 | $ | 0.31 | |||||||||||||||
Cumulative Effect of Accounting Change | — | — | — | 0.26 | — | — | — | 0.26 | ||||||||||||||||||||||||
Net Earnings | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 1.05 | ||||||||||||||||||||||||
Net Earnings (Loss) | $ | 0.57 | $ | (0.48 | ) | $ | 1.27 | $ | 0.57 | |||||||||||||||||||||||
Earnings Per Share, Assuming Dilution: | ||||||||||||||||||||||||||||||||
Before Cumulative Effect of Accounting Change | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 0.79 | $ | 0.57 | $ | (0.48 | ) | $ | 1.26 | $ | 0.31 | |||||||||||||||
Cumulative Effect of Accounting Change | — | — | — | 0.26 | — | — | — | 0.26 | ||||||||||||||||||||||||
Net Earnings | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 1.05 | ||||||||||||||||||||||||
Net Earnings (Loss) | $ | 0.57 | $ | (0.48 | ) | $ | 1.26 | $ | 0.57 | |||||||||||||||||||||||
Average Common Shares Outstanding (Thousands) | 214,734 | 213,849 | 214,702 | 213,857 | 214,821 | 213,955 | 214,740 | 213,890 | ||||||||||||||||||||||||
Average Common Shares Outstanding, Assuming Dilution (Thousands) | 215,149 | 214,297 | 215,151 | 214,230 | 215,252 | 213,955 | 215,183 | 214,281 | ||||||||||||||||||||||||
Cash Dividends Paid Per Common Share | $ | 0.10 | $ | 0.10 | $ | 0.20 | $ | 0.20 | $ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 | ||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
Statements (unaudited).
3
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
(Unaudited) | ||||||||||||||||
June 25, | December 26, | September 24, | December 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 728 | $ | 368 | $ | 629 | $ | 368 | ||||||||
Accounts Receivable - Net | 1,215 | 1,163 | ||||||||||||||
Accounts Receivable — Net | 1,171 | 1,163 | ||||||||||||||
Materials and Supplies | 174 | 170 | 167 | 170 | ||||||||||||
Deferred Income Taxes | 128 | 136 | 126 | 136 | ||||||||||||
Other Current Assets | 129 | 66 | 222 | 66 | ||||||||||||
Total Current Assets | 2,374 | 1,903 | 2,315 | 1,903 | ||||||||||||
Properties | 19,719 | 19,267 | 25,861 | 19,267 | ||||||||||||
Accumulated Depreciation | 5,825 | 5,537 | 5,882 | 5,537 | ||||||||||||
Properties - Net | 13,894 | 13,730 | ||||||||||||||
Properties — Net | 19,979 | 13,730 | ||||||||||||||
Investment in Conrail | 4,691 | 4,678 | 567 | 4,678 | ||||||||||||
Affiliates and Other Companies | 505 | 515 | 602 | 515 | ||||||||||||
Other Long-term Assets | 988 | 934 | 902 | 934 | ||||||||||||
Total Assets | $ | 22,452 | $ | 21,760 | $ | 24,365 | $ | 21,760 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts Payable | $ | 863 | $ | 827 | $ | 862 | $ | 827 | ||||||||
Labor and Fringe Benefits Payable | 395 | 397 | 435 | 397 | ||||||||||||
Casualty, Environmental and Other Reserves | 284 | 280 | 238 | 280 | ||||||||||||
Current Maturities of Long-term Debt | 110 | 426 | 181 | 426 | ||||||||||||
Short-term Debt | 704 | 2 | 103 | 2 | ||||||||||||
Income and Other Taxes Payable | 126 | 123 | 101 | 123 | ||||||||||||
Other Current Liabilities | 111 | 155 | 97 | 155 | ||||||||||||
Total Current Liabilities | 2,593 | 2,210 | 2,017 | 2,210 | ||||||||||||
Casualty, Environmental and Other Reserves | 816 | 836 | 812 | 836 | ||||||||||||
Long-term Debt | 6,901 | 6,886 | 7,096 | 6,886 | ||||||||||||
Deferred Income Taxes | 3,881 | 3,752 | 6,051 | 3,752 | ||||||||||||
Other Long-term Liabilities | 1,592 | 1,623 | 1,553 | 1,623 | ||||||||||||
Total Liabilities | 15,783 | 15,307 | 17,529 | 15,307 | ||||||||||||
Shareholders’ Equity: | ||||||||||||||||
Common Stock, $1 Par Value | 216 | 215 | 215 | 215 | ||||||||||||
Authorized 300,000,000 Shares | ||||||||||||||||
Issued and Outstanding 214,829,471 Shares | ||||||||||||||||
Other Capital | 1,591 | 1,579 | 1,597 | 1,579 | ||||||||||||
Retained Earnings | 5,065 | 4,957 | 5,167 | 4,957 | ||||||||||||
Accumulated Other Comprehensive Loss | (203 | ) | (298 | ) | (143 | ) | (298 | ) | ||||||||
Total Shareholders’ Equity | 6,669 | 6,453 | 6,836 | 6,453 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 22,452 | $ | 21,760 | $ | 24,365 | $ | 21,760 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
Statements (unaudited).
4
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Consolidated Cash Flow Statements (Unaudited)
Six Months Ended | Nine Months Ended | |||||||||||||||
June 25, | June 27, | September 24, | September 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net Earnings | $ | 149 | $ | 226 | $ | 272 | $ | 123 | ||||||||
Adjustments to Reconcile Net Earnings to Net Cash Provided: | ||||||||||||||||
Cumulative Effect of Accounting Change - Net of Tax | — | (57 | ) | |||||||||||||
Cumulative Effect of Accounting Change — Net of Tax | — | (57 | ) | |||||||||||||
Depreciation | 332 | 322 | 511 | 482 | ||||||||||||
Deferred Income Taxes | 67 | 98 | 115 | 22 | ||||||||||||
Additional Loss on Sale | — | 108 | ||||||||||||||
Provision for Casualty Reserves | — | 232 | ||||||||||||||
Restructuring Charge | 74 | — | 77 | — | ||||||||||||
Net Gain on Conrail spin-off — after tax | (16 | ) | — | |||||||||||||
Other Operating Activities | (44 | ) | 16 | (111 | ) | 17 | ||||||||||
Changes in Operating Assets and Liabilities: | ||||||||||||||||
Accounts Receivable | (47 | ) | (65 | ) | 2 | (48 | ) | |||||||||
Termination of Accounts Receivable | — | (380 | ) | — | (380 | ) | ||||||||||
Other Current Assets | (18 | ) | (42 | ) | 4 | 7 | ||||||||||
Accounts Payable | 31 | (15 | ) | (1 | ) | 18 | ||||||||||
Other Current Liabilities | (25 | ) | (138 | ) | 12 | (120 | ) | |||||||||
Net Cash Provided by (Used in) Operating Activities | 519 | (35 | ) | |||||||||||||
Net Cash Provided by Operating Activities | 865 | 404 | ||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Property Additions | (484 | ) | (479 | ) | (734 | ) | (757 | ) | ||||||||
Net Proceeds from Divestitures | — | 214 | ||||||||||||||
Short-term Investments - Net | (75 | ) | — | |||||||||||||
Net Proceeds from Divestiture | 55 | 226 | ||||||||||||||
Short-term Investments — Net | (349 | ) | (213 | ) | ||||||||||||
Other Investing Activities | (37 | ) | (20 | ) | (24 | ) | (38 | ) | ||||||||
Net Cash Provided by (Used in) Investing Activities | (596 | ) | (285 | ) | ||||||||||||
Net Cash Used in Investing Activities | (1,052 | ) | (782 | ) | ||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Short-term Debt - Net | 702 | 561 | ||||||||||||||
Short-term Debt — Net | 101 | 586 | ||||||||||||||
Long-term Debt Issued | 62 | 83 | 412 | 433 | ||||||||||||
Long-term Debt Repaid | (379 | ) | (218 | ) | (385 | ) | (292 | ) | ||||||||
Dividends Paid | (43 | ) | (43 | ) | (64 | ) | (64 | ) | ||||||||
Other Financing Activities | 3 | (16 | ) | 18 | (27 | ) | ||||||||||
Net Cash Provided by Financing Activities | 345 | 367 | 82 | 636 | ||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 268 | 47 | (105 | ) | 258 | |||||||||||
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS | ||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 296 | 127 | 296 | 127 | ||||||||||||
Cash and Cash Equivalents at End of Period | 564 | 174 | 191 | 385 | ||||||||||||
Short-term Investments at End of Period | 164 | 137 | 438 | 351 | ||||||||||||
Cash, Cash Equivalents and Short-term Investments at End of Period | $ | 728 | $ | 311 | $ | 629 | $ | 736 | ||||||||
See accompanying Notes to Consolidated Financial Statements.Statements (unaudited).
5
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to fairly present the financial position of CSX Corporation and subsidiaries (“CSX” or the “Company”) at June 25,September 24, 2004 and December 26, 2003, and the results of its operations for the quarter and nine months ended September 24, 2004, and September 26, 2003 and cash flows for the quarters and sixnine months ended June 25,September 24, 2004 and June 27,September 26, 2003, such adjustments being of a normal recurring nature. Certain prior-year data havehas been reclassified to conform to the 2004 presentation.
The Company suggests that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s most recent Annual Report andon Form 10-K, 2004 First and Second Quarterly ReportReports on Form 10-Q and any Current Reports on Form 8-K.
CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2004 consists of a 53-week year ending on December 31, 2004. Fiscal year 2003 consisted of 52 weeks ended on December 26, 2003. The financial statements presented are for the 13-week quarters ended June 25,September 24, 2004 and June 27,September 26, 2003, the 26-week39-week periods ended June 25,September 24, 2004 and June 27,September 26, 2003, and as of December 26, 2003. In 2004, the fourth quarter endedending December 31, 2004, consists of 14 weeks.
Other comprehensive income for the secondthird quarter of 2004 was $28$ 60 million after tax resulting from the increase in fair value of fuel derivative instruments. (See Note 10, Derivative Financial Instruments) Other comprehensive income for the sixnine months ended June 25,September 24, 2004 was $95$155 million after tax resulting from the increase in the fair value of fuel derivative instruments and a reduction in the Company’s additional minimum pension liability. (See Note 10, Derivative Financial Instruments.) OtherTotal comprehensive income approximatesapproximated net earnings for the quarter and sixnine months ended June 27,September 26, 2003.
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 | Six Months Ended | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 25, | June 27, | June 25, | June 27, | September 24, | September 26, | September 24, | September 26, | |||||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||
Numerator (Millions): | ||||||||||||||||||||||||||||||||
Net Earnings Before Cumulative | ||||||||||||||||||||||||||||||||
Effect of Accounting Change | $ | 119 | $ | 127 | $ | 149 | $ | 169 | ||||||||||||||||||||||||
Net Earnings (Loss) Before Cumulative Effect of Accounting Change | $ | 123 | $ | (103 | ) | $ | 272 | $ | 66 | |||||||||||||||||||||||
Denominator (Thousands): | ||||||||||||||||||||||||||||||||
Average Common Shares Outstanding | 214,734 | 213,849 | 214,702 | 213,857 | 214,821 | 213,955 | 214,740 | 213,890 | ||||||||||||||||||||||||
Effect of Potentially Dilutive Common Shares | 415 | 448 | 449 | 373 | 431 | — | 443 | 391 | ||||||||||||||||||||||||
Average Common Shares Outstanding, Assuming Dilution | 215,149 | 214,297 | 215,151 | 214,230 | 215,252 | 213,955 | 215,183 | 214,281 | ||||||||||||||||||||||||
Earnings Per Share: | ||||||||||||||||||||||||||||||||
Before Cumulative Effect of Accounting Change | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 0.79 | $ | 0.57 | $ | (0.48 | ) | $ | 1.27 | $ | 0.31 | |||||||||||||||
Assuming Dilution, Before Cumulative Effect of Accounting Change | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 0.79 | $ | 0.57 | $ | (0.48 | ) | $ | 1.26 | $ | 0.31 |
6
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 2. EARNINGS PER SHARE, Continued
Earnings per share areis based on the weighted-average number of common shares outstanding. Earnings per share, assuming dilution, areis based on the weighted-average number of common shares outstanding adjusted for the effect of potentially dilutive common shares, mainly arising from employee stock options. Potentially dilutive common shares of CSX include stock options and awards, and common stock that would be issued relating to convertible long-term debt. During the quarter and sixnine months ended June 25,September 24, 2004, 11467 thousand and 192259 thousand options, respectively, were exercised. During the quarter and sixnine months ended June 27,September 26, 2003, 17436 thousand and 176211 thousand options, respectively, were exercised.
Certain potentially dilutive common shares at June 25,September 24, 2004 and June 27,September 26, 2003 were not included inexcluded from 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, therefore, their effect is antidilutive. Theseor contingent conditions for conversion were not met. The following table indicates information about potentially dilutive common shares were as follows:excluded from the computation of earnings per share:
Quarters Ended | Quarters Ended | |||||||||||||||
June 25, | June 27, | September 24, | September 26, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Number of Shares (Millions) | 32 | 34 | 31 | 34 | ||||||||||||
Average Exercise / Conversion Price | $ | 45.38 | $ | 45.83 | ||||||||||||
Average Exercise /Conversion Price | $ | 45.91 | $ | 45.35 |
Potentially dilutive common shares include approximately 10 million shares associated with convertible long-termdebentures issued by the Company in 2001, which mature October 30, 2021.
At its September 29-30, 2004 meeting, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share. The EITF states that contingently convertible debt withinstruments are subject to the if-converted method under Financial Accounting Standards Board’s (“FASB”) Statement of Financial Standards (“SFAS”) 128, Earnings Per Share, regardless of fulfillment of any of the contingent features included in the instrument. The EITF concluded that this consensus would have the same transition date as the anticipated amendment to SFAS 128 expected to be issued by the FASB during the fourth quarter. The amendment is expected to be effective for periods ending after December 15, 2004 and the consensus must be applied by restating all periods during which the instrument was outstanding.
Beginning in the fourth quarter of 2004, CSX may be required to include approximately 10 million shares underlying its convertible debt instrument using the if-converted method in the computation of earnings per share, assuming dilution. The dilutive impact for all periods is expected to be in the range of 2%-5%.
As a currentresult of the anticipated amendment to SFAS 128, during the third quarter, CSX amended the terms of these debentures to surrender its right to pay the purchase price, in whole or in part, in shares of CSX’s common stock for debentures tendered to CSX at the option of holders on certain specified purchase dates. As a result, CSX will be required to pay the purchase price for such debentures on such specified purchase dates in cash.
Holders may in addition convert their debentures into shares of the Company’s common stock at a conversion rate of 17.75 common shares per debenture, subject to customary anti-dilution adjustments, if any of the following conditions are satisfied:
• | If the closing sale price of the Company’s common stock for at least 20 trading days in the 30 trading day period ending on the trading day before the conversion date is more than 120% (which percentage will decline over the life of the debentures to 110% in accordance with the terms of the debentures) of the accreted conversion price per share of the Company’s common stock at that preceding trading day; | |||
• | If the Company’s senior unsecured credit ratings are downgraded by Moody’s Investors Service, Inc. to below Ba1 and by Standard & Poor’s Rating Services to below BB+; | |||
• | If the Company has called the debentures for redemption (which may occur no sooner than October 30, 2008); or | |||
• | Upon the occurrence of specified corporate transactions. |
The accreted conversion price of $55.39.the debentures at September 24, 2004 was $47.53 and the threshold price to be met in order to convert the debentures into common stock was $56.56 per common share. At September 24, 2004 and December 26, 2003, outstanding debentures are included in long-term debt, at a carrying value of $462 million and $447 million, respectively.
7
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 2. EARNINGS PER SHARE, Continued
These potentially dilutive common shares have been excluded from the computation of earnings per share, assuming dilution, because none of the conditions for conversion of the debentures have been met. A substantial increase in the fair market value of the Company’s stock price could trigger contingent conditions for conversion and allow holders to convert their debentures into CSX common stock and thus negatively impact basic earnings per share if these shares were to become dilutive.share.
NOTE 3. DEBT AND CREDIT AGREEMENTS
The Company had $301 million of commercial paper borrowings outstanding at June 25, 2004 at a weighted average interest rate of 1.37 %. There was no commercial paper outstanding as of December 26, 2003.
OnIn February 20, 2004, the Company executed a $100 million credit agreement that matures February 25, 2005. Borrowings under the facility bear interest at a rate that varies with LIBOR plus an applicable spread. As of June 25,September 24, 2004, the Company had $100 million in aggregate principal amount outstanding under this agreement.
OnIn June 21, 2004, the Company executed a $300 million credit agreement that matureswith a maturity date of December 29, 2004. Borrowings under the facility bearbore interest at a rate that varies with LIBOR plus an applicable spread. As of June 25,September 24, 2004, the Company had $300 million inrepaid the entire aggregate principal amount outstanding under this agreement and terminated this agreement.
In August 2004, the Company issued a $300 million of floating rate notes with a maturity date of August 3, 2006. The notes bear interest at a rate that varies with LIBOR plus an applicable spread. These notes are not redeemable prior to maturity.
Outstanding debt obligations of $300 million matured in August, 2004. The Company settled these obligations with cash and short-term investments on hand.
The weighted average interest rate on outstanding short-term borrowings outstanding, including commercial paper,of $103 million was 1.55%1.76% as of June 25,September 24, 2004. The Company had no$2 million of short-term borrowings outstanding as of December 26, 2003.
8
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 3. DEBT AND CREDIT AGREEMENTS, Continued
The Company has a $1.2 billion five-year unsecured revolving credit facility expiring in May 2009 and a $400 million 364-day unsecured revolving credit facility expiring in May 2005. The facilities were entered into in May 2004 on terms substantially similar to the facilities they replacedreplaced: a $345 million unsecured revolving credit facility that expired in May 2004 and a $1.0 billion unsecured revolving credit facility that would have expired in May 2006. Generally, these facilities may be used for general corporate purposes, to support the Company’s commercial paper, and for working capital. NoneNeither of the credit facilities were drawn on as of June 25,September 24, 2004. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. Similar to the credit facilities they replaced, these credit facilities allow for borrowings at floating (LIBOR-based) rates, plus a spread, depending upon our senior unsecured debt ratings. At June 25,September 24, 2004, the Company was in compliance with all covenant requirements under the facilities.
7
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 4. DIVESTITURES
In February 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC (“CSX Lines”), to a new venture formed with theThe 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 subleased vessels and equipment from certain affiliates of CSX covering the primary financial obligations related to $300$265 million of leases under which CSX or one of its affiliates will remain a lessee / sublessor or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction will beis being recognized over the 12-year sub-lease term. The securities have a term of 7 years and a preferred return feature. During the third quarter of 2003, CSX received a $15 million payment from Horizon Lines, which included $3 million of interest, in return of a portion of its investment in Horizon. $226 million is shown as proceeds from divestiture in the investing section of the Consolidated Statement of Cash Flows and $3 million is included in net earnings.
OnIn July 7, 2004, Horizon completed a merger with awas acquired by an unrelated third party, and CSX received $59 million, which included $52$48 million for the purchase of its ownership interest in Horizon, $4 million of interest, and a performance payment of $7 million.million, which will also be recognized over the 12-year sub-lease term. $55 million is shown as proceeds from divestiture in the investing section of the Consolidated Statement of Cash Flows and $4 million is included in net earnings. However, CSX orand one of its affiliates will continue to remain a lessee / sublessor or guarantor on certain vessels and equipment as long as the subleases remain in effect. (See Note 13, Commitments and Contingencies.)
NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS9
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 5. | NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING | CHANGES |
Statement of Financial Accounting Standard (“SFAS”)SFAS 143, “Accounting for Asset Retirement Obligations” was issued in 2001. 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 fiscal year 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 in the first quarter, 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 not have a material effect on future earnings.
SFAS 148, “Accounting for Stock-Based Compensation —– Transition and Disclosure” was issued in December 2002. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to StatementSFAS 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 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, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, are expensed. (See Note 11, Stock Based Compensation.)Compensation)
8 In 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires a variable interest entity (“VIE”) to be consolidated by a company that is subject to a majority of the risk of loss from the VIE’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Under that guidance, CSX consolidated Four Rivers Transportation, Inc. (“FRT”), a shortline railroad, into its financial statements at the beginning of fiscal 2004. Previously, FRT was accounted for under the equity method of accounting. Other income includes net equity earnings for FRT for the quarter and nine months ended September 26, 2003. The following table indicates the impact of consolidating FRT in 2004 compared to equity method accounting in 2003.
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 26, | September 24, | September 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Revenues | $ | 16 | $ | — | $ | 46 | $ | — | ||||||||
Operating Expense | 9 | — | 27 | — | ||||||||||||
Net Equity Earnings | — | — | — | 2 | ||||||||||||
Net Income | 1 | — | 4 | — |
10
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES, Continued
In 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires a variable interest entity (“VIE”) to be consolidated by a company that is subject to a majority of the risk of loss from the VIE’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Under that guidance, CSX consolidated Four Rivers Transportation, Inc. (“FRT”), a shortline railroad, into its financial statements at the beginning of fiscal 2004. Previously, FRT was accounted for under the equity method of accounting. Other income includes net equity earnings for the quarter and six months ended June 27, 2003. The following table indicates the impact of consolidating FRT in 2004 compared to equity method accounting in 2003.
NOTE 5. | NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES, Continued |
Quarters Ended | Six Months Ended | |||||||||||||||
June 25, | June 27, | June 25, | June 27, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Revenues | $ | 16 | $ | — | $ | 30 | $ | — | ||||||||
Operating Expense | 8 | — | 18 | — | ||||||||||||
Net Equity Earnings | — | 1 | — | 2 | ||||||||||||
Net Income | 2 | — | 3 | — |
June 25, | December 26 | September 24, | December 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Current Assets | $ | 25 | $ | — | $ | 30 | $ | — | ||||||||
Long-term Assets | 145 | 44 | 145 | 44 | ||||||||||||
Current Liabilities | 26 | — | 28 | — | ||||||||||||
Long-term Liabilities | 98 | — | 95 | — |
9
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
As previously reported, in June 2003 CSX, and Norfolk Southern Corporation (“NS”) acquired, and Conrail Inc. (“Conrail”) in May 1997. Conrail owns a principal freight railroad system serving the Northeastern United States, and its rail network extends throughout several midwestern states and into Canada. CSX and NS, through CRR Holdings LLC (“CRR Holdings”), a jointly owned acquisition entity, hold economic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and NS operate over allocated portions of the Conrail lines.
From time to time, CSX and NS, as the indirect owners of Conrail, may have to make capital contributions, loans or advances to Conrail under the terms of the Transaction Agreement among CSX, NS and Conrail in order to satisfy the retained liabilities and other obligations as provided under such transaction agreement.
CSX Transportation, Inc. (“CSXT”), the rail subsidiary of CSX, and Norfolk Southern Railway Company (“NSR”), the rail subsidiary of NS, each operate separate portions of the Conrail system pursuant to various 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 services in certain shared geographic areas (“Shared Assets Areas”) for the joint benefit of CSXT and NSR, for which it is compensated on the basis of usage by the respective railroads.
In June 2003, CSX, NS and Conrail jointly filed a petition with the Surface Transportation Board (“STB”) to establish direct ownership and control by CSX’s and NS’ respective subsidiaries, CSXTCSX Transportation, Inc. (“CSXT”) and NSR,Norfolk Southern Railway Company (“NSR”), of CSX’s and NS’ portions of the Conrail system already operated by them separately and independently under various agreements. These portions of the Conrail system are currentlywere owned by Conrail’s subsidiaries, New York Central Lines, LLC (“NYC”) and Pennsylvania Lines, LLC (“PRR”). TheIn August 2004, the following events occurred: (i) the ownership of NYC and PRR would ultimately bewas transferred (“spun off”) to CSXT and NSR, respectively. Conrail would continue to own, managerespectively, and operate the Shared Assets Areas as previously approved by the STB. STB approval to proceed with the spin-off transaction and a favorable ruling from the Internal Revenue Service (“IRS”) qualifying the transaction as a non-taxable distribution were received in November 2003. On July 26, 2004,(ii) CSXT launchedconsummated an exchange offer pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) that describes the offer to exchangeof new unsecured securities of subsidiaries of CSXT and NSR and cash for unsecured securities of Conrail. The exchange offer which is subject to a number of conditions, will bewas the final stage in the restructuring of Conrail’s unsecured indebtedness as described in the parties’parties joint petition filed with the STB.
If all necessary conditions are satisfied,CSXT and NSR offered unsecured debt securities of newly formed subsidiaries of CSXT and NSR would be offered in an approximate 42%/58% ratio along with cash payments in exchange for Conrail’s unsecured debentures. The debt securities issued by itseach respective subsidiary would bewere fully and unconditionally guaranteed by CSXT orand NSR. Upon completion of the proposed transaction, the subsidiaries would be merged into CSXT and NSR, respectively, and the new debt securities thus would becomebecame direct unsecured obligations of CSXT and NSR. Conrail’s secured debt and lease obligations remained obligations of CSXT or NSR. Conrail’s secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which upon completion of the proposed transaction, would bebecame the direct lease and sublease obligations, also in an approximate 42%/58% ratio, of CSXT and NSR. CSXT will record this
Prior to the transaction, CSX’s and NS’ indirect ownership interest in NYC and PRR mirror their ownership interest in Conrail (42% for CSX and 58% for NS). Subsequent to the transaction, CSX obtained direct ownership of all NYC and NS obtained direct ownership PRR. Thus, CSX in effect received NS’s 58% indirect ownership in NYC and NS in effect received CSX’s 42% indirect ownership of PRR. The receipt of the interests not already indirectly owned by CSX was accounted for at fair value based on the results of an independent valuation.value. The preliminary results of an appraisalreceipt of the NYC properties indicate that their aggregateinterest already indirectly owned by CSX was accounted for using CSX’s basis in amounts already included within CSX’s investment in Conrail.
As a result of the transaction, the Company recognized a net gain of $16 million, after tax, which is included in other income. The accounting for the transaction could be adjusted upon receipt of the final third party valuation and allocation of fair value will likely exceed CSX’s carrying amount.to individual assets.
1011
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
CSX, NS and Conrail are working to complete all necessary steps to consummateThe Company recorded this transaction at fair value based on the spin-off transaction in 2004. Upon consummationpreliminary results of an independent valuation. The following tables summarize the estimated fair value of the proposed transaction, CSX’s investment in Conrail will no longer include the amounts related to NYC and PRR. Instead theacquired assets and liabilities assumed at the date of NYC will be reflected in their respective line items in CSX’s consolidated balance sheet. Conrail will continue to own, managethe spin-off and operateat the Shared Assets Areas.
Accountingend of the prior year and Financial Reporting Effects
CSX’s railits effects on the Company’s Consolidated Balance Sheets as of September 24, 2004 and intermodal operating revenue includes revenue from traffic movingDecember 26, 2003. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on Conrail property. Operating expenses include costs incurred to handle such traffic and operate the Conrail lines. Rail operating expense includes an expense category, “Conrail Rents, Fees and Services,” which reflects:Consolidated Cash Flow Statements:
Before Spin-off Effects | Effects of | (unaudited) Reported | ||||||||||
(Dollars in Millions) | September 24, 2004 | Spin-off | September 24, 2004 | |||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 629 | $ | — | $ | 629 | ||||||
Accounts Receivable — Net | 1,171 | — | 1,171 | |||||||||
Materials and Supplies | 167 | — | 167 | |||||||||
Deferred Income Taxes | 126 | — | 126 | |||||||||
Other Current Assets | 215 | 7 | 222 | |||||||||
Total Current Assets | 2,308 | 7 | 2,315 | |||||||||
Properties — Net | 13,961 | 6,018 | 19,979 | |||||||||
Investment in Conrail | 4,697 | (4,130 | ) | 567 | ||||||||
Affiliates and Other Companies | 602 | — | 602 | |||||||||
Other Long-term Assets | 766 | 136 | 902 | |||||||||
Total Assets | $ | 22,334 | $ | 2,031 | $ | 24,365 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Accounts Payable | $ | 862 | $ | — | $ | 862 | ||||||
Labor and Fringe Benefits Payable | 435 | — | 435 | |||||||||
Casualty, Environmental and Other Reserves | 238 | — | 238 | |||||||||
Current Maturities of Long-term Debt | 181 | — | 181 | |||||||||
Short-term Debt | 103 | — | 103 | |||||||||
Income and Other Taxes Payable | 101 | — | 101 | |||||||||
Other Current Liabilities | 90 | 7 | 97 | |||||||||
Total Current Liabilities | 2,010 | 7 | 2,017 | |||||||||
Casualty, Environmental and Other Reserves | 806 | 6 | 812 | |||||||||
Long-term Debt | 7,189 | (93 | ) | 7,096 | ||||||||
Deferred Income Taxes | 3,965 | 2,086 | 6,051 | |||||||||
Other Long-term Liabilities | 1,544 | 9 | 1,553 | |||||||||
Total Liabilities | 15,514 | 2,015 | 17,529 | |||||||||
Shareholders’ Equity: | ||||||||||||
Common Stock, $1 Par Value | 215 | — | 215 | |||||||||
Authorized 300,000,000 Shares | ||||||||||||
Issued and Outstanding 214,829,471 Shares | ||||||||||||
Other Capital | 1,597 | — | 1,597 | |||||||||
Retained Earnings | 5,151 | 16 | 5,167 | |||||||||
Accumulated Other Comprehensive Loss | (143 | ) | — | (143 | ) | |||||||
Total Shareholders’ Equity | 6,820 | 16 | 6,836 | |||||||||
Total Liabilities and Shareholders’ Equity | $ | 22,334 | $ | 2,031 | $ | 24,365 | ||||||
The effective tax rate for CSX is lower in the first six months of 2004 due, in part, to equity in earnings from Conrail representing a larger percentage of earnings compared to the first six months of 2003.
Detail of Conrail Rents, Fees and Services
Quarters Ended | Six Months Ended | |||||||||||||||
June 25, | June 27, | June 25, | June 27, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Rents, Fees and Services | $ | 90 | $ | 89 | $ | 182 | $ | 176 | ||||||||
Purchase Price Amortization and Other | 11 | 14 | 25 | 29 | ||||||||||||
Equity in Income of Conrail | (19 | ) | (16 | ) | (38 | ) | (32 | ) | ||||||||
Total Conrail | $ | 82 | $ | 87 | $ | 169 | $ | 173 | ||||||||
1112
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Conrail Financial Information
Summary financial information for Conrail for its fiscal periods ended June 30, 2004 and 2003, and at December 31, 2003, is as follows:
Quarters Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Income Statement Information: | ||||||||||||||||
Revenues | $ | 236 | $ | 231 | $ | 466 | $ | 457 | ||||||||
Expenses | 162 | 165 | 323 | 328 | ||||||||||||
Operating Income | $ | 74 | $ | 66 | $ | 143 | $ | 129 | ||||||||
Income before Cumulative Effect of Accounting Change | $ | 49 | $ | 39 | $ | 94 | $ | 76 | ||||||||
Cumulative Effect of Accounting Change - Net of Tax | — | — | (1 | ) | 40 | |||||||||||
Net Income | $ | 49 | $ | 39 | $ | 93 | $ | 116 | ||||||||
(Unaudited) Pro Forma Spin- | ||||||||||||
Reported December 26, | Effects of | off Effects December 26, | ||||||||||
Dollars in Millions) | 2003 | Spin-off | 2003 | |||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 368 | $ | — | $ | 368 | ||||||
Accounts Receivable — Net | 1,163 | — | 1,163 | |||||||||
Materials and Supplies | 170 | — | 170 | |||||||||
Deferred Income Taxes | 136 | — | 136 | |||||||||
Other Current Assets | 66 | 7 | 73 | |||||||||
Total Current Assets | 1,903 | 7 | 1,910 | |||||||||
Properties — Net | 13,730 | 6,151 | 19,881 | |||||||||
Investment in Conrail | 4,678 | (4,185 | ) | 493 | ||||||||
Affiliates and Other Companies | 515 | — | 515 | |||||||||
Other Long-term Assets | 934 | 136 | 1,070 | |||||||||
Total Assets | $ | 21,760 | $ | 2,109 | $ | 23,869 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Accounts Payable | $ | 827 | — | 827 | ||||||||
Labor and Fringe Benefits Payable | 397 | — | 397 | |||||||||
Casualty, Environmental and Other Reserves | 280 | — | 280 | |||||||||
Current Maturities of Long-term Debt | 426 | — | 426 | |||||||||
Short-term Debt | 2 | — | 2 | |||||||||
Income and Other Taxes Payable | 123 | — | 123 | |||||||||
Other Current Liabilities | 155 | 7 | 162 | |||||||||
Total Current Liabilities | 2,210 | 7 | 2,217 | |||||||||
Casualty, Environmental and Other Reserves | 836 | 6 | 842 | |||||||||
Long-term Debt | 6,886 | (55 | ) | 6,831 | ||||||||
Deferred Income Taxes | 3,752 | 2,142 | 5,894 | |||||||||
Other Long-term Liabilities | 1,623 | 9 | 1,632 | |||||||||
Total Liabilities | 15,307 | 2,109 | 17,416 | |||||||||
Shareholders’ Equity: | ||||||||||||
Common Stock, $1 Par Value | 215 | — | 215 | |||||||||
Authorized 300,000,000 Shares | ||||||||||||
Issued and Outstanding 214,829,471 Shares | ||||||||||||
Other Capital | 1,579 | — | 1,579 | |||||||||
Retained Earnings | 4,957 | — | 4,957 | |||||||||
Accumulated Other Comprehensive Loss | (298 | ) | — | (298 | ) | |||||||
Total Shareholders’ Equity | 6,453 | — | 6,453 | |||||||||
Total Liabilities and Shareholders’ Equity | $ | 21,760 | $ | 2,109 | $ | 23,869 | ||||||
June 30, | December 31, | |||||||
(Dollars in Millions) | 2004 | 2003 | ||||||
Balance Sheet Information: | ||||||||
Current Assets | $ | 278 | $ | 257 | ||||
Property and Equipment and Other Assets | 7,989 | 7,959 | ||||||
Total Assets | $ | 8,267 | $ | 8,216 | ||||
Current Liabilities | $ | 251 | $ | 279 | ||||
Long-term Debt | 1,078 | 1,067 | ||||||
Other Long-term Liabilities | 2,391 | 2,416 | ||||||
Total Liabilities | 3,720 | 3,762 | ||||||
Stockholders’ Equity | 4,547 | 4,454 | ||||||
Total Liabilities and Stockholder’s Equity | $ | 8,267 | $ | 8,216 | ||||
12
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Transactions with Conrail
As listed below, CSX has amounts payable to Conrail, representing expenses incurred under the operating, equipment and shared area agreements with Conrail. Also, Conrail advances its available cash balances to CSX and NS under variable-rate notes, with CSX’s note maturing on March 28, 2007.
June 25, | December 26, | |||||||
(Dollars in Millions) | 2004 | 2003 | ||||||
CSX Payable to Conrail | $ | 70 | $ | 71 | ||||
Conrail Advances to CSX | $ | 577 | $ | 515 | ||||
Interest Rates on Conrail Advances to CSX | 1.96 | % | 1.66 | % |
Quarters Ended | Six Months Ended | |||||||||||||||
June 25, | June 27, | June 25, | June 27, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Interest Expense Related to Conrail Advances | $ | 2 | $ | 2 | $ | 4 | $ | 4 |
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 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. Upon consummation of the spin-off transaction, the agreement covering the NYC portion of the Conrail system will terminate, as CSX will then directly own its allocated portion of the Conrail system.
13
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
The following table illustrates the pro forma effect on the Consolidated Income Statements as if the spin-off transaction had been completed as of the beginning of the periods.
Quarters Ended | Quarters Ended | |||||||||||||||||||||||
September 24, 2004 | September 26, 2003 | |||||||||||||||||||||||
Effect of | Effect of | |||||||||||||||||||||||
(Dollars in Millions, Except Per Share Amounts) | As reported | Spin-off | Pro Forma | As reported | Spin-off | Pro Forma | ||||||||||||||||||
Operating Revenue | $ | 1,980 | $ | — | $ | 1,980 | $ | 1,882 | $ | — | $ | 1,882 | ||||||||||||
Net Earnings (Loss) | 123 | 4 | 127 | (103 | ) | 5 | (98 | ) | ||||||||||||||||
Earnings Per Share, Assuming Dilution: | ||||||||||||||||||||||||
Net Earnings (Loss) | $ | 0.57 | $ | 0.02 | $ | 0.59 | $ | (0.48 | ) | $ | 0.03 | $ | (0.45 | ) | ||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 24, 2004 | September 26, 2003 | |||||||||||||||||||||||
Effect of | Effect of | |||||||||||||||||||||||
(Dollars in Millions, Except Per Share Amounts) | As reported | Spin-off | Pro Forma | As reported | Spin-off | Pro Forma | ||||||||||||||||||
Operating Revenue | $ | 5,976 | $ | — | $ | 5,976 | $ | 5,840 | $ | — | $ | 5,840 | ||||||||||||
Earnings before Cumulative Effect of Accounting Change | 272 | 15 | 287 | 66 | 16 | 82 | ||||||||||||||||||
Cumulative Effect of Accounting Change — Net of Tax | — | — | 57 | — | 57 | |||||||||||||||||||
Net Earnings | 272 | 15 | 287 | 123 | 16 | 139 | ||||||||||||||||||
Earnings Per Share, Assuming Dilution: | ||||||||||||||||||||||||
Before Cumulative Effect of Accounting Change | 1.26 | 0.07 | 1.33 | 0.31 | 0.08 | 0.39 | ||||||||||||||||||
Cumulative Effect of Accounting Change | — | — | — | 0.26 | — | 0.26 | ||||||||||||||||||
Net Earnings | $ | 1.26 | $ | 0.07 | $ | 1.33 | $ | 0.57 | $ | 0.08 | $ | 0.65 | ||||||||||||
Beginning September the impact of the transaction included in the Company’s Consolidated Income Statement.
14
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
As a result of the spin-off transaction, CSX’s investment in Conrail no longer includes the amounts related to NYC and PRR. Instead the assets and liabilities of NYC are reflected in their respective line items in CSX’s Consolidated Balance Sheet. As noted, Conrail will continue to own, manage, and operate the Shared Assets Areas. However, this transaction effectively decreased rents paid to Conrail after the transaction date, as assets previously leased from Conrail are now owned by CSX. Due to the spin-off transaction the future minimum payments to Conrail under the operating, equipment and shared area agreements will be significantly reduced.
Accounting and Financial Reporting Effects
CSX’s rail and intermodal operating revenue includes revenue from traffic moving on Conrail property. Operating expenses include costs incurred to handle such traffic and operate the Conrail lines. Rail operating expense includes an expense category, “Conrail Rents, Fees and Services,” which reflects:
1. | Right-of-way usage fees to Conrail through August 2004. | |||
2. | Equipment rental payments to Conrail through August 2004. | |||
3. | Transportation, switching, and terminal service charges provided by Conrail in the Shared Assets Areas that Conrail operates for the joint benefit of CSX and NS. | |||
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 income before cumulative effect of accounting change recognized under the equity method of accounting. |
Detail of Conrail Rents, Fees and Services
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 26, | September 24, | September 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Rents, Fees and Services | $ | 69 | $ | 90 | $ | 251 | $ | 268 | ||||||||
Purchase Price Amortization and Other | 9 | 14 | 34 | 41 | ||||||||||||
Equity in Income of Conrail | (15 | ) | (18 | ) | (53 | ) | (50 | ) | ||||||||
Total Conrail | $ | 63 | $ | 86 | $ | 232 | $ | 259 | ||||||||
15
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Conrail Financial Information
Summary financial information for Conrail for its fiscal periods ended September 30, 2004 and 2003 and at December 31, 2003 is as follows:
Quarters Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Income Statement Information: | ||||||||||||||||
Revenues | $ | 87 | $ | 77 | $ | 247 | $ | 235 | ||||||||
Expenses | 91 | 84 | 268 | 258 | ||||||||||||
Operating Loss | $ | (4 | ) | $ | (7 | ) | $ | (21 | ) | $ | (23 | ) | ||||
Income from Continuing operations | $ | 4 | $ | 2 | $ | 10 | $ | 5 | ||||||||
Income from Discontinued Operations, net of tax | 29 | 40 | 117 | 151 | ||||||||||||
Cumulative Effect of Accounting Change, net of tax | — | — | (1 | ) | 2 | |||||||||||
Net Income | $ | 33 | $ | 42 | $ | 126 | $ | 158 | ||||||||
September 30, | December 31, | |||||||
(Dollars in Millions) | 2004 | 2003 | ||||||
Balance Sheet Information: | ||||||||
Current Assets | $ | 331 | $ | 186 | ||||
Assets of Discontinued Operations | — | 7,176 | ||||||
Property and Equipment and Other Assets | 1,095 | 952 | ||||||
Total Assets | $ | 1,426 | $ | 8,314 | ||||
Current Liabilities | $ | 240 | $ | 260 | ||||
Long-term Debt | 288 | 288 | ||||||
Liabilitites of Discontinued Operations | — | 2,751 | ||||||
Other Long-term Liabilities | 554 | 561 | ||||||
Total Liabilities | 1,082 | 3,860 | ||||||
Stockholders’ Equity | 344 | 4,454 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 1,426 | $ | 8,314 | ||||
The decrease in Conrail’s total assets and Stockholder’s equity were the result of the Spin-off transaction.
16
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Transactions with Conrail
As listed below, CSX has amounts payable to Conrail representing expenses incurred under the operating, equipment and shared area agreements with Conrail.
September 24, | December 26, | |||||||
(Dollars in Millions) | 2004 | 2003 | ||||||
CSX Payable to Conrail | $ | 41 | $ | 71 | ||||
Conrail Advances to CSX | $ | — | $ | 515 | ||||
Interest Rates on Conrail Advances to CSX | N/A | 1.66 | % |
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 26, | September 24, | September 26, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Interest Expense Related to Conrail Advances | $ | 3 | $ | 1 | $ | 7 | $ | 5 |
The agreement under which CSX operated its allocated portion of the Conrail route system was terminated upon consummation of the spin-off transaction, as CSX then became the direct owner of its allocated portion of the Conrail system. Agreements for subleasing Conrail equipment operated by CSX cover varying terms. CSX is responsible for all costs of operating, maintaining, and improving the equipment under these agreements.
NOTE 7. ACCOUNTS RECEIVABLE
Sale of Accounts Receivable
As of June 27, 2003, CSXT discontinued its accounts receivable securitization program. Prior to June 27, 2003,that, CSXT sold, without recourse, a revolving pool of accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a bankruptcy-remote entity wholly owned by CSX. CTRC transferred the accounts receivable to a master trust and caused the trust to issue multiple series of certificates representing undivided interests in the receivables. The certificates issued by the master trust were sold to investors, and the proceeds from those sales were paid to CSXT. There were no net losses associated with the sale of receivables for the quarter or six months ended June 25, 2004. Net losses associated with the sale of receivables were $4 million and $10 million for the quarter and sixnine months ended June 27,September 26, 2003.
17
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 7. ACCOUNTS RECEIVABLE, Continued
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based on the expected collectibility of all accounts receivable. The allowance for doubtful accounts is included in the balance sheet as follows:
June 25, | December 26, | September 24, | December 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Allowance for Doubtful Accounts | $ | 69 | $ | 71 | $ | 105 | $ | 106 |
NOTE 8. OPERATING EXPENSE
Operating expense consists of the following:
Quarters Ended | Six Months Ended | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 25, | June 27, | June 25, | June 27, | September 24, | September 26, | September 24, | September 26, | |||||||||||||||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||
Labor and Fringe | $ | 686 | $ | 677 | $ | 1,385 | $ | 1,416 | $ | 688 | $ | 656 | $ | 2,073 | $ | 2,072 | ||||||||||||||||
Materials, Supplies and Other | 439 | 396 | 874 | 850 | 412 | 376 | 1,275 | 1,210 | ||||||||||||||||||||||||
Conrail Rents, Fees and Services | 82 | 87 | 169 | 173 | 63 | 86 | 232 | 259 | ||||||||||||||||||||||||
Building and Equipment Rent | 142 | 130 | 277 | 276 | 139 | 146 | 416 | 422 | ||||||||||||||||||||||||
Inland Transportation | 70 | 79 | 144 | 171 | 72 | 76 | 216 | 247 | ||||||||||||||||||||||||
Depreciation | 162 | 160 | 327 | 317 | 177 | 158 | 504 | 475 | ||||||||||||||||||||||||
Fuel | 151 | 136 | 305 | 309 | 162 | 132 | 467 | 441 | ||||||||||||||||||||||||
Miscellaneous | (5 | ) | (8 | ) | (11 | ) | (16 | ) | ||||||||||||||||||||||||
Provision for Casualty Claims | — | 232 | — | 232 | ||||||||||||||||||||||||||||
Additional Loss on Sale | — | 108 | — | 108 | ||||||||||||||||||||||||||||
Restructuring Charges | 15 | — | 74 | — | 3 | 10 | 77 | 10 | ||||||||||||||||||||||||
Total | $ | 1,742 | $ | 1,657 | $ | 3,544 | $ | 3,496 | $ | 1,716 | $ | 1,980 | $ | 5,260 | $ | 5,476 | ||||||||||||||||
14
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 8. OPERATING EXPENSE, Continued
Operating expenses include amounts from the Company’s domestic container-shipping subsidiary, CSX Lines, through February of 2003, when most of CSX’s interest in the entity was conveyed to a new venture. (See Note 4, Divestitures.)Divestitures)
18
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 9. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
Quarters Ended | Six Months Ended | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 25, | June 27, | June 25, | June 27, | September 24, | September 26, | September 24, | September 26, | |||||||||||||||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||
Interest Income | $ | 5 | $ | 4 | $ | 8 | $ | 8 | $ | 5 | $ | 8 | $ | 13 | $ | 16 | ||||||||||||||||
Income (Loss) from Real Estate and Resort Operations | 5 | 32 | (2 | ) | 33 | |||||||||||||||||||||||||||
Income from Real Estate and Resort Operations | 19 | 25 | 17 | 58 | ||||||||||||||||||||||||||||
Discounts on Sales of Accounts Receivable | — | (4 | ) | — | (10 | ) | — | — | — | (10 | ) | |||||||||||||||||||||
Minority Interest | (8 | ) | (9 | ) | (17 | ) | (20 | ) | ||||||||||||||||||||||||
Equity Loss of Other Affiliates | — | — | (1 | ) | — | |||||||||||||||||||||||||||
Net Gain on Conrail Spin-off, after tax | 16 | — | 16 | — | ||||||||||||||||||||||||||||
Minority Interest Expense | (11 | ) | (12 | ) | (28 | ) | (32 | ) | ||||||||||||||||||||||||
Miscellaneous | — | (4 | ) | 4 | (2 | ) | (4 | ) | — | (1 | ) | (2 | ) | |||||||||||||||||||
Total | $ | 2 | $ | 19 | $ | (8 | ) | $ | 9 | $ | 25 | $ | 21 | $ | 17 | $ | 30 | |||||||||||||||
Gross Revenue from Real Estate and Resort | ||||||||||||||||||||||||||||||||
Operations Included in Other Income | $ | 50 | $ | 75 | $ | 77 | $ | 110 | $ | 69 | $ | 74 | $ | 146 | $ | 184 | ||||||||||||||||
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS
CSX uses derivative financial instruments to manage its overall exposure to fluctuations in interest rates and fuel costs.
Interest Rate Swaps
CSX has entered into various interest rate swap agreements on the following fixed rate notes:
Notional Amount | Fixed Interest | |||||||
Maturity Date | (Millions) | Rate | ||||||
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 | $ | 950 | 8.02 | % |
1519
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS, Continued
Under these agreements, the Company will pay variable interest based on LIBOR in exchange for a fixed rate, effectively transforming the notes to floating rate obligations. The interest rate swap agreements are designated and qualify as fair value hedges and the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate note attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. Hedge effectiveness is measured at least quarterly based on the relative change in fair value of the derivative contract in comparison with changes over time in the fair value of the fixed rate notes. 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 $27$39 million and $55 million for the fair market value of the interest rate swap agreements at June 25,September 24, 2004 and December 26, 2003, 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 Cash Flow Statement.Statements. For the three monthquarter and sixnine month periods ended June 25,September 24, 2004, the Company reduced interest expense by approximately $8$5 million and $21$26 million, respectively, as a result of the interest rate swap agreements that were in place during each period. For the quarter and sixnine month periods ended June 27,September 26, 2003, the Company reduced interest expense by approximately $11 million and $22$33 million, respectively. Fair value adjustments are noncashnon-cash transactions and, accordingly, are excluded fromhave no cash impact on the Consolidated Cash Flow Statement.Statements.
The counterparties to the interest rate swap agreements expose the Company to credit loss in the event of nonperformance.non-performance. The Company does not anticipate nonperformancenon-performance by the counterparties.
Fuel Hedging
In the third quarter of 2003, CSX began a program to hedge a portion of its future locomotive fuel purchases. This program was established to manage exposure to fuel price fluctuations. In order to minimize this risk, CSX has entered into a series of swaps in order to fix the price of a portion of its estimated future fuel purchases.
20
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS, Continued
Following is a summary of outstanding fuel swaps:
June 25, | September 24, | |||||||
2004 | 2004 | |||||||
Approximate Gallons Hedged (Millions) | 461 | 446 | ||||||
Average Price Per Gallon | $ | 0.79 | $ | 0.80 | ||||
Swap Maturities | June 2004 - June 2006 |
2004 | 2005 | 2006 | ||||||||||
Estimated % of Future Fuel Purchases Hedged at June 25, 2004 | 33 | % | 48 | % | 20 | % |
September 2004 - July 2006 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Estimated % of Future Fuel Purchases | ||||||||||||
Hedged at September 24, 2004 | 40 | % | 46 | % | 12 | % |
16
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS, Continued
The program limits fuel hedges to a 24-month duration and a maximum of 80% of CSX’s average monthly fuel purchased for any month within the 24-month period, and places the hedges among selected counterparties. Fuel hedging activity favorably impacted fuel expense for the quarter and sixnine months ended June 25,September 24, 2004 by $4 million.$13 million and $17 million, respectively. Ineffectiveness, or the extent to which changes in the fair values of the fuel swaps did not offset changes in the fair values of the expected fuel purchases, was immaterial.
These instruments qualify, and are designated by management, as cash-flow hedges of variability in expected future cash flows attributable to fluctuations in fuel prices. The fair values of fuel derivative instruments are determined based upon current fair market values as quoted by third party dealers and are recorded on the balance sheet with offsetting adjustments to Accumulated Other Comprehensive Loss, a component of Shareholders’ Equity. Accumulated Other Comprehensive Loss included a gain, net of tax of approximately $47$107 million and $6 million as of June 25,September 24, 2004 and December 26, 2003, respectively, related to fuel derivative instruments. Fair value adjustments are noncashnon-cash transactions and, accordingly, are excluded fromhave no cash impact on the Consolidated Cash Flow Statement.Statements.
The Company has temporarily suspended entering into new swaps in its fuel hedge program since the middle of the third quarter 2004. The Company will continue to monitor and assess the current issues facing the global fuel market place to decide when to resume trading under the program.
The counterparties to the fuel hedge agreements expose the Company to credit loss in the event of nonperformance.non-performance. The Company does not anticipate nonperformancenon-performance by the counterparties.
21
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 11. 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, the Company has adopted the fair value recognition provisions on a prospective basis and accordingly, expense of $2$1 million and $10$11 million was recognized in the quarter and sixnine months ended June 25,September 24, 2004, respectively, for stock options granted in May 2003. Stock compensation expense includes $6 million recorded in conjunction with the Company’s management restructuring for the sixnine month period ended June 25,September 24, 2004 (See(see Note 17, Management Restructuring), related to recognition of unamortized expense for 2003 stock option awards retained by terminated employees.
17
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 11. STOCK-BASED COMPENSATION, Continued In the quarter and nine months ended September 26, 2003 stock compensation expense of $2 million and $3 million, respectively, was recognized for stock options granted in May 2003.
The following table illustrates the pro forma effect on net earnings and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period:
Quarters Ended | Six Months Ended | |||||||||||||||
June 25, | June 27, | June 25, | June 27, | |||||||||||||
(Dollars in Millions, Except Per Share Amounts) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Net Earnings - As Reported | $ | 119 | $ | 127 | $ | 149 | $ | 226 | ||||||||
Add (Deduct): Stock-Based Employee Compensation Expense (Credit) Included in Reported Net Income - Net of Related Tax Effects | 2 | 1 | 7 | (1 | ) | |||||||||||
Deduct: Total Stock Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards - Net of Related Tax Effects | (7 | ) | (9 | ) | (20 | ) | (14 | ) | ||||||||
Pro Forma Net Earnings | $ | 114 | $ | 119 | $ | 136 | $ | 211 | ||||||||
Earnings Per Share: | ||||||||||||||||
Basic - As Reported | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 1.05 | ||||||||
Basic - Pro Forma | $ | 0.53 | $ | 0.56 | $ | 0.63 | $ | 0.99 | ||||||||
Diluted - As Reported | $ | 0.55 | $ | 0.59 | $ | 0.69 | $ | 1.05 | ||||||||
Diluted - Pro Forma | $ | 0.53 | $ | 0.56 | $ | 0.63 | $ | 0.98 |
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 26, | September 24, | September 26, | |||||||||||||
(Dollars in Millions, Except Per Share Amounts) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Net Earnings — As Reported | $ | 123 | $ | (103 | ) | $ | 272 | $ | 123 | |||||||
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Related Tax Effects | 1 | 2 | 8 | 1 | ||||||||||||
Deduct: Total Stock Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards - Net of Related Tax Effects | (5 | ) | (12 | ) | (26 | ) | (26 | ) | ||||||||
Pro Forma Net Earnings | $ | 119 | $ | (113 | ) | $ | 254 | $ | 98 | |||||||
Earnings Per Share: | ||||||||||||||||
Basic — As Reported | $ | 0.57 | $ | (0.48 | ) | $ | 1.27 | $ | 0.57 | |||||||
Basic — Pro Forma | $ | 0.55 | $ | (0.53 | ) | $ | 1.18 | $ | 0.46 | |||||||
Diluted — As Reported | $ | 0.57 | $ | (0.48 | ) | $ | 1.26 | $ | 0.57 | |||||||
Diluted — Pro Forma | $ | 0.55 | $ | (0.53 | ) | $ | 1.18 | $ | 0.46 |
22
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 12. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES
Casualty, environmental and other reserves are provided for in the balance sheet as follows:
June 25, 2004 | December 26, 2003 | September 24, 2004 | December 26, 2003 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in Millions) | Current | Long-term | Total | Current | Long-term | Total | Current | Long-term | Total | Current | Long-term | Total | ||||||||||||||||||||||||||||||||||||
Casualty and Other | $ | 189 | $ | 645 | $ | 834 | $ | 198 | $ | 665 | $ | 863 | $ | 186 | $ | 640 | $ | 826 | $ | 198 | $ | 665 | $ | 863 | ||||||||||||||||||||||||
Separation | 65 | 148 | 213 | 52 | 156 | 208 | 22 | 143 | 165 | 52 | 156 | 208 | ||||||||||||||||||||||||||||||||||||
Environmental | 30 | 23 | 53 | 30 | 15 | 45 | 30 | 29 | 59 | 30 | 15 | 45 | ||||||||||||||||||||||||||||||||||||
Total | $ | 284 | $ | 816 | $ | 1,100 | $ | 280 | $ | 836 | $ | 1,116 | $ | 238 | $ | 812 | $ | 1,050 | $ | 280 | $ | 836 | $ | 1,116 | ||||||||||||||||||||||||
18Casualty Reserves
Casualty reserves represent accruals for the uninsured portion of occupational injury and personal injury claims. The Company’s estimate of casualty reserves includes an estimate of incurred but not reported claims for asbestos and other occupational injuries to be received over the next seven years. Other occupational claims include allegations of exposure to certain materials in the workplace, such as solvents and diesel fuel, or alleged physical injuries, such as carpal tunnel syndrome or hearing loss.
In the third quarter of 2003, the Company changed its estimate of casualty reserves to include an estimate of incurred but not reported claims for asbestos and other occupational injuries. In conjunction with the change in estimate, the Company recorded a charge of $232 million in the third quarter of 2003 to increase its provision for these claims.
Asbestos and Other Occupational Injuries
The Company is assisted by third party professionals to project the number of asbestos and other occupational injury claims to be received over the next seven years and the related costs. Based on this analysis the Company established reserves for the probable and reasonably estimable asbestos and other occupational injury liabilities.
The methodology used by the third party to project future occupational injury claims was based largely on CSX’s recent experience, including claim-filing and settlement rates, injury and disease mix, open claims and claim settlement costs. However, projecting future occupational injury claims and settlements costs is subject to numerous variables that are difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables, including the type and severity of the injury or disease alleged by each claimant, the long latency period associated with exposure, dismissal rates, costs of medical treatment, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case and the impact of changes in legislative or judicial standards, may cause actual results to differ significantly from current estimates. Furthermore, predictions with respect to these variables are subject to greater uncertainty as the projection period lengthens. In light of these uncertainties, CSX believes that seven years is the most reasonable period for estimating future claims, and that claims received after that period are not reasonably estimable. CSX’s reserve for asbestos and other occupational claims on an undiscounted basis amounted to $332 million at September 24, 2004, compared to $357 million at December 26, 2003.
23
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 12. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued
Casualty Reserves
Casualty reserves represent accruals CSX increased its reserve for asbestos and other occupational claims by a net $206 million during the uninsured portionthird quarter of occupational injury and personal injury claims. The Company’s estimate of casualty reserves includes an2003 to cover the estimate of incurred but not reported claims for asbestos and other occupational injuries to be received overclaims. Reflecting the next seven years. Other occupational claims include allegations of exposure to certain materials in the work place, such as solvents and diesel fuel, or alleged physical injuries, such as carpal tunnel syndrome or hearing loss.
Asbestos and Other Occupational Injuries
The Company is assisted by third party professionals to project the number of asbestos and other occupational injury claims to be received over the next seven years and the related costs. Based on this analysis the Company established reserves for the probable and reasonably estimable asbestos and other occupational injury liabilities.
The methodology used by the third party to project future occupational injury claims was based largely on CSX’s recent experience, including claim-filing and settlement rates, injury and disease mix, open claims and claim settlement costs. However, projecting future occupational injury claims and settlements costs is subject to numerous variables that are difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables, including the type and severity of the injury or disease alleged by each claimant, the long latency period associated with exposure, dismissal rates, costs of medical treatment, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case and the impact of changes in legislative or judicial standards, may cause actual results to differ significantly from estimates. Furthermore, predictions with respect to these variables are subject to greater uncertainty as the projection period lengthens. In light of these uncertainties, CSX believes that seven years is the most reasonable period for estimating future claims, and that claims received after that period are not reasonably estimable.additional provisions, CSX’s reserve for asbestos and other occupational claims on an undiscounted basis amounted to $338$350 million at June 25, 2004, compared to $357 million at DecemberSeptember 26, 2003.
19
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 12. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued
Casualty Reserves, Continued
A summary of existing claims activity is as follows:
Six Months Ended | Fiscal Year Ended | Nine Months Ended | Fiscal Year Ended | |||||||||||||
June 25, 2004 | December 26, 2003 | September 24, 2004 | December 26, 2003 | |||||||||||||
Asserted Claims: | ||||||||||||||||
Open Claims - Beginning of Period | 12,904 | 14,278 | ||||||||||||||
Open Claims — Beginning of Period | 12,904 | 14,278 | ||||||||||||||
New Claims Filed | 550 | 2,368 | 837 | 2,368 | ||||||||||||
Claims Settled | (1,713 | ) | (3,382 | ) | (2,649 | ) | (3,382 | ) | ||||||||
Claims Dismissed | (144 | ) | (360 | ) | (181 | ) | (360 | ) | ||||||||
Open Claims - End of Period | 11,597 | 12,904 | ||||||||||||||
Open Claims — End of Period | 10,911 | 12,904 | ||||||||||||||
Approximately 5,600 of the open claims at June 25,September 24, 2004 are asbestos claims against the Company’s previously owned international container-shipping business, Sea-Land. Because the Sea-Land claims are claims against multiple vessel owners, the Company’s reserves reflect its portion of those claims. The remaining open claims have been asserted against CSXT. The Company had approximately $13 million reserved for the Sea-Land claims at June 25,September 24, 2004 and December 26, 2003.
Personal Injury
During the third quarter of 2003, CSX retainsretained an independent actuarial firm to assess the value of CSX’s personal injury portfolio. Reserves for personal injury claims are $359 million and $355 million at September 24, 2004 and December 26, 2003, respectively.
CSX continues to retain an independent actuarial firm to assess the value of CSX’s personal injury portfolio. The methodology used by the actuary includes a development factor to reflect growth in the value of the Company’s personal injury claims. This methodology is based largely on CSX’s historical claims and settlement activity. Actual results may vary from estimates due to the type and severity of the injury, costs of medical treatments, and uncertainties surrounding the litigation process.
24
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 12. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued
Separation Liability
Separation liabilities at June 25,September 24, 2004, and December 26, 2003, include productivity charges recorded in 1991 and 1992 to provide for the estimated costs of implementing workforce reductions, improvements in productivity and other cost reductions at the Company’s major transportation units. The remaining separation liabilities are expected to be paid out over the next 15 to 20 years. Separation liabilities also include amounts payable under the Company’s management restructuring programs. (See Note 17, Management Restructuring.)Restructuring)
Environmental Reserves
CSXT is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (“PRP”) at approximately 230253 environmentally impaired sites, many of which 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. Some of the proceedings involve property formerly or currently owned by CSXT or its railroad predecessors. Proceedings arising under Superfund or similar state statutes can involve numerous other companies who generated the waste or owned or operated the property and involve the allocation of liability for costs associated with site investigation and cleanup, which could be substantial.
20
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 12. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued
At least once each quarter, CSXT reviews its role with respect to each such location, giving consideration to a number of factors, including the type of cleanup required, 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 PRP’s 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 June 25,September 24, 2004, and December 26, 2003 were $53$59 million and $45 million, respectively. Approximately $6 million of the increase is attributable to liabilities assumed due to the Conrail spin-off transaction. 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.estimable. 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 June 25,September 24, 2004 environmental liability is expected to be paid over the next seven years.
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 reliablyreasonably estimated. Based upon information currently available, however, the Company believes its environmental reserves are adequate to take remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters, if any, will not materially affect its overall results of operations and financial condition.
25
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 13. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company has a commitment under a long-term maintenance program for approximately 40% of CSXT’s fleet of locomotives. The agreement expires in 2026 and approximates $2.6 billion. The long-term maintenance program is intended to provide CSX access to efficient, high-quality locomotive maintenance services at fixed price levels through the term of the program. Under the program, CSX paid $38$39 million and $75$114 million during the quarter and sixnine month periods ended June 25,September 24, 2004, respectively. During the quarter and sixnine months periods ended June 27,September 26, 2003, the Company paid $33$32 million and $66$98 million, respectively.
21Self-Insurance
The Company uses a combination of third-party and self-insurance, obtaining substantial amounts of commercial insurance for potential losses for third-party liability and property damages. Specified levels of risk (up to $35 million for property and $25 million for liability per occurrence) are retained on a self-insurance basis.
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 the Company in its business operations. Utilizing the Company’s guarantee for these obligations allows the obligor to take advantage of lower interest rates and obtain other favorable terms. Guarantees are contingent commitments issued by the Company that could require CSX or one of its affiliates to make payment or to perform certain actions to the guaranteed party based on another entity’s failure to perform. As of September 24, 2004, the Company’s guarantees can be segregated into three main categories:
1. | Guarantees of approximately $371 million of lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which the Company is contingently liable. CSX believes Maersk will fulfill its contractual commitments with respect to such leases, and CSX will have no further liabilities for those obligations. | |||
2. | Guarantees of approximately $73 million, of which $13 million may be recovered from other shareholders, relating to construction and cash deficiency support guarantees at several of the Company’s international terminal locations under development. The non-performance of one of its partners, cost overruns or non-compliance with financing loan covenants could cause the Company to have to perform under these guarantees. The Company has made equity contributions of $3 million under these guarantees and estimates it will be required to make additional equity contributions totaling $4 million in 2004 and 2005. | |||
3. | Guarantees of approximately $265 million relating to leases assumed as part of CSX’s conveyance of its interest in CSX Lines in February 2003, as discussed in Note 4, Divestitures. |
The maximum amount of future payments the Company could be required to make under these guarantees is the amount of the guarantees themselves.
26
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 13. COMMITMENTS AND CONTINGENCIES, Continued
Self-Insurance
The Company uses a combination of third-party and self-insurance, obtaining substantial amounts of commercial insurance for potential losses for third-party liability and property damages. Specified levels of risk (up to $35 million for property and $25 million for liability per occurrence) are retained on a self-insurance basis.
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 or one of its affiliates to make payment or to perform certain actions to the guaranteed party based on another entity’s failure to perform. CSX’s guarantees can be segregated into three main categories:
The maximum amount of future payments the Company could be required to make under these guarantees is the amount of the guarantees themselves.
22
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 13. COMMITMENTS AND CONTINGENCIES, Continued
STB Proceeding
In 2001, Duke Energy Corporation (“Duke”) filed a complaint before the U.S. Surface Transportation Board (“STB”)STB alleging that certain CSXT common carrier coal rates are unreasonably high. In February 2004, the STB issued a decision finding that the CSXT common carrier rates wereare reasonable. While approving the rate levels, the STB also invited Duke to request a phase-in of rate increases over some time period. The nature and amount of any such phase-in is uncertain, and would only apply to billings subsequent to December 2001. In October 2004, the STB issued a decision denying Duke’s petition for reconsideration of its February 2004 ruling. CSXT will continue to consider and pursue all available legal defenses in this matter. Administrative and legal appeals are possible, and could take several years to resolve. An unfavorable outcome with respect to the phase-in would not have a material effect on the Company’s financial position.
Contract Settlement
In 2002, the Company received $44 million as the first of two payments to settle a contract dispute. During 2002, the Company recognized approximately $7 million of the first payment in other income as this amount related to prior periods. The remaining $37 million will be recognized over the contract period, which ends in 2020. The second payment of $23 million was received in 2003 and will be recognized over the contract period which ends in 2020. The results of this settlement will provide an average of approximately $3 million in annual pretax earnings through 2020.
Matters Arising Out of Sale of International Container-Shipping Assets
In 2003, CSX finalized a settlement agreement with Maersk resolving all remaining material disputes pending directly between the two companies, consisting predominantly of two major disputes. The first dispute involved a post-closing working capital adjustment to the sale price for which the Company had recorded a receivable of approximately $70 million. The second dispute involved a claim of 425 million Dutch Guilders (approximately $180 million at then prevailing currency exchange rates) plus interest by European Container Terminals (“ECT”) alleging breaches of contract by the Company at the Rotterdam container terminal facility owned by ECT.
Also in 2003, CSX entered into a final settlement agreement with Maersk allocating responsibility between the two companies for third party claims and litigation relating to the assets acquired by Maersk.
The two settlements reduced the Company’s 2003 earnings by $108 million pretax, $67 million after tax. This charge is reflected in the financial statements as an additional loss on the sale of the international container-shipping assets. Neither settlement has a material impact on cash flows.
Other Legal Proceedings
CSX is involved in routine litigation incidental to its business and is a party to a number of legal actions and claims, various governmental proceedings and private civil lawsuits, including those related to environmental matters, Federal Employers’ Liability Act claims by employees, other personal injury claims, and disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for
27
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 13. COMMITMENTS AND CONTINGENCIES, Continued
punitive as well as compensatory damages, and others purport to be class actions. While the final outcome of these matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is the opinion of CSX management that none of these items will have a material adverse effect on the results of operations, financial position or liquidity of CSX. However, an unexpected adverse resolution of one or more of these items could have a material adverse effect on the results of operations in a particular quarter or fiscal year. 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 quarters received.
23
CSX CORPORATION AND SUBSIDIARIESITEM I: FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)
NOTE 14. BUSINESS SEGMENTS
The Company operates in three business segments: rail, intermodal, and international terminals. The rail 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 intermodal segment provides integrated rail and truck transportation services and operates a network of dedicated intermodal facilities across North America. The international terminals segment operates container freight terminal facilities and related businesses in Asia, Europe, Australia, Latin America and the United States. The Company’s segments are strategic business units that offer different services and are managed separately. The rail and intermodal segments are viewed on a combined basis as Surface Transportation operations.
The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is business segment operating income, defined as income from operations, excluding the effects of non-recurring charges and gains.income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1)1, Basis of Presentation) in the CSX 2003 Annual Report on Form 10-K, except that for segment reporting purposes, CSX includes minority interest expense on the international terminals segment’s joint venture businesses in operating expense. These amounts are reclassified through eliminations in CSX’s consolidated financial statements to other 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 June 25, 2004 and June 27, 2003 is as follows:
Surface Transportation | ||||||||||||||||||||||||
International | ||||||||||||||||||||||||
(Dollars in Millions) | Rail | Intermodal | Total | Terminals | Other(1) | Total | ||||||||||||||||||
Quarter Ended June 25, 2004 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 1,672 | $ | 323 | $ | 1,995 | $ | 38 | $ | — | $ | 2,033 | ||||||||||||
Intersegment Revenues | — | — | — | — | — | — | ||||||||||||||||||
Segment Operating Income | 249 | 31 | 280 | 6 | 5 | 291 | ||||||||||||||||||
Assets | 13,119 | 623 | 13,742 | 1,045 | — | 14,787 | ||||||||||||||||||
Quarter Ended June 27, 2003 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 1,573 | $ | 314 | $ | 1,887 | $ | 54 | $ | 1 | $ | 1,942 | ||||||||||||
Intersegment Revenues | — | — | — | — | — | — | ||||||||||||||||||
Segment Operating Income | 232 | 27 | 259 | 17 | — | 276 | ||||||||||||||||||
Assets | 13,530 | 566 | 14,096 | 984 | — | 15,080 | ||||||||||||||||||
Six Months Ended June 25, 2004 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 3,277 | $ | 633 | $ | 3,910 | $ | 86 | $ | — | $ | 3,996 | ||||||||||||
Intersegment Revenues | — | — | — | — | — | — | ||||||||||||||||||
Segment Operating Income | 381 | 50 | 431 | 8 | 13 | 452 | ||||||||||||||||||
Assets | 13,119 | 623 | 13,742 | 1,045 | — | 14,787 | ||||||||||||||||||
Six Months Ended June 27, 2003 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 3,104 | $ | 616 | $ | 3,720 | $ | 110 | $ | 128 | $ | 3,958 | ||||||||||||
Intersegment Revenues | — | 4 | 4 | — | — | 4 | ||||||||||||||||||
Segment Operating Income | 379 | 49 | 428 | 32 | 1 | 461 | ||||||||||||||||||
Assets | 13,530 | 566 | 14,096 | 984 | — | 15,080 |
2428
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 14. BUSINESS SEGMENTS, Continued
Business segment information for the quarters and nine months ended September 24, 2004 and September 26, 2003 is as follows:
Surface Transportation | ||||||||||||||||||||||||
International | ||||||||||||||||||||||||
(Dollars in Millions) | Rail | Intermodal | Total | Terminals | Other(1) | Total | ||||||||||||||||||
Quarter Ended September 24, 2004 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 1,616 | $ | 322 | 1,938 | 42 | $ | — | $ | 1,980 | ||||||||||||||
Intersegment Revenues | — | — | — | — | — | — | ||||||||||||||||||
Segment Operating Income | 216 | 31 | 247 | 8 | 9 | 264 | ||||||||||||||||||
Assets | 19,929 | 651 | 20,580 | 1,065 | — | 21,645 | ||||||||||||||||||
Quarter Ended September 26, 2003 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 1,510 | $ | 313 | $ | 1,823 | $ | 59 | $ | — | $ | 1,882 | ||||||||||||
Intersegment Revenues | — | — | — | — | — | — | ||||||||||||||||||
Segment Operating Income | (45 | ) | 29 | (16 | ) | 20 | — | 4 | ||||||||||||||||
Assets | 12,549 | 594 | 13,143 | 1,006 | — | 14,149 | ||||||||||||||||||
Nine Months Ended September 24, 2004 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 4,893 | $ | 955 | $ | 5,848 | $ | 128 | $ | — | $ | 5,976 | ||||||||||||
Intersegment Revenues | — | — | — | — | — | — | ||||||||||||||||||
Segment Operating Income | 597 | 81 | 678 | 16 | 22 | 716 | ||||||||||||||||||
Assets | 19,929 | 651 | 20,580 | 1,065 | — | 21,645 | ||||||||||||||||||
Nine Months Ended September 26, 2003 | ||||||||||||||||||||||||
Revenues from External Customers | $ | 4,614 | $ | 929 | $ | 5,543 | $ | 169 | $ | 128 | $ | 5,840 | ||||||||||||
Intersegment Revenues | — | 4 | 4 | — | — | 4 | ||||||||||||||||||
Segment Operating Income | 334 | 78 | 412 | 52 | 1 | 465 | ||||||||||||||||||
Assets | 12,549 | 594 | 13,143 | 1,006 | — | 14,149 |
(1) | Prior to the conveyance of CSX Lines, it was a segment of 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 Other column. |
29
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 14. BUSINESS SEGMENTS, Continued
A reconciliation of the totals reported for the business segments to the applicable line items in the consolidated financial statements is as follows:
Quarter Ended | Six Months Ended | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 25, | June 27, | June 25, | June 27, | September 24, | September 26, | September 24, | September 26, | |||||||||||||||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Total External Revenues for Business Segments | $ | 2,033 | $ | 1,942 | $ | 3,996 | $ | 3,958 | $ | 1,980 | $ | 1,882 | $ | 5,976 | $ | 5,840 | ||||||||||||||||
Intersegment Revenues for Business Segments | — | — | — | 4 | — | — | — | 4 | ||||||||||||||||||||||||
Elimination of Intersegment Revenues | — | — | — | (4 | ) | — | — | — | (4 | ) | ||||||||||||||||||||||
Total Consolidated Revenues | $ | 2,033 | $ | 1,942 | $ | 3,996 | $ | 3,958 | $ | 1,980 | $ | 1,882 | $ | 5,976 | $ | 5,840 | ||||||||||||||||
Operating Income: | ||||||||||||||||||||||||||||||||
Total Operating Income for Business Segments | $ | 286 | $ | 276 | $ | 439 | $ | 461 | $ | 255 | $ | 4 | $ | 694 | $ | 465 | ||||||||||||||||
Reclassification of Minority Interest Expense for International Terminals Segment | 4 | 10 | 10 | 19 | 7 | 9 | 17 | 28 | ||||||||||||||||||||||||
Unallocated Corporate Expenses | 1 | (1 | ) | 3 | (18 | ) | 2 | (3 | ) | 5 | (21 | ) | ||||||||||||||||||||
Additional Loss on Sale | — | (108 | ) | — | (108 | ) | ||||||||||||||||||||||||||
Total Consolidated Operating Income | $ | 291 | $ | 285 | $ | 452 | $ | 462 | $ | 264 | $ | (98 | ) | $ | 716 | $ | 364 | |||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Assets for Business Segments | $ | 14,787 | $ | 15,080 | $ | 21,645 | $ | 14,149 | ||||||||||||||||||||||||
Investment in Conrail | 4,691 | 4,658 | 567 | 4,661 | ||||||||||||||||||||||||||||
Elimination of Intersegment Payables (Receivables) | 131 | (141 | ) | (499 | ) | (132 | ) | |||||||||||||||||||||||||
Non-segment Assets | 2,843 | 1,942 | 2,652 | 3,249 | ||||||||||||||||||||||||||||
Total Consolidated Assets | $ | 22,452 | $ | 21,539 | $ | 24,365 | $ | 21,927 | ||||||||||||||||||||||||
2530
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA
During 1987, Sea-Land, a former consolidated subsidiary of the Company, entered into agreements to sell and lease back, by charter, three new U.S.–built, U.S.–flag,U.S.built, U.S.-flag, D-7 class container ships. The ships were not included in the sale of international liner assets to Maersk in December 1999 and the related debt remains an obligation of CSX Lines. 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 SEC. As noted in Note 3, Divestitures, of the CSX 2003 Annual Report Divestitures,on Form 10-K, CSX agreed to convey certain assets of CSX Lines to Horizon Lines LLC.Horizon. These obligations are not part of this transaction and another CSX entity, CSX Vessel Leasing, became the obligor in 2003. In accordance with SEC disclosure requirements, consolidating summarized financial information for the parent and obligor are as follows (Certain(certain prior year amounts have been reclassified to conform to the 2004 presentation):
Consolidating Income Statement
CSX | CSX Vessel | CSX | CSX Vessel | |||||||||||||||||||||||||||||||||||||
(Dollars in Millions) | Corporation | Leasing | Other | Eliminations | Consolidated | Corporation | Leasing | Other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Quarter Ended June 25, 2004 | ||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 24, 2004 | ||||||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | — | $ | — | $ | 2,047 | $ | (14 | ) | $ | 2,033 | $ | — | $ | — | $ | 1,994 | $ | (14 | ) | $ | 1,980 | ||||||||||||||||||
Operating Expense | (38 | ) | — | 1,791 | (11 | ) | 1,742 | (39 | ) | — | 1,767 | (12 | ) | 1,716 | ||||||||||||||||||||||||||
Operating Income (Loss) | 38 | — | 256 | (3 | ) | 291 | 39 | — | 227 | (2 | ) | 264 | ||||||||||||||||||||||||||||
Equity in Earnings of Subsidiaries | 169 | — | — | (169 | ) | $ | — | 166 | — | — | (166 | ) | $ | — | ||||||||||||||||||||||||||
Other Income (Expense) | (8 | ) | 2 | 13 | (5 | ) | $ | 2 | (13 | ) | 1 | 34 | 3 | $ | 25 | |||||||||||||||||||||||||
Interest Expense | 101 | — | 16 | (8 | ) | 109 | 88 | — | 17 | 1 | 106 | |||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes and Cumulative Effect of Accounting Change | 98 | 2 | 253 | (169 | ) | $ | 184 | |||||||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes | 104 | 1 | 244 | (166 | ) | $ | 183 | |||||||||||||||||||||||||||||||||
Income Tax Expense (Benefit) | (21 | ) | — | 86 | — | 65 | (19 | ) | — | 79 | — | 60 | ||||||||||||||||||||||||||||
Net Earnings (Loss) | $ | 119 | $ | 2 | $ | 167 | $ | (169 | ) | $ | 119 | $ | 123 | $ | 1 | $ | 165 | $ | (166 | ) | $ | 123 | ||||||||||||||||||
CSX | CSX Vessel | CSX | CSX Vessel | |||||||||||||||||||||||||||||||||||||
Corporation | Leasing | Other | Eliminations | Consolidated | Corporation | Leasing | Other | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
Quarter Ended June 27, 2003 | ||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 26, 2003 | ||||||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | — | $ | — | $ | 1,955 | $ | (13 | ) | $ | 1,942 | $ | — | $ | — | $ | 1,896 | $ | (14 | ) | $ | 1,882 | ||||||||||||||||||
Operating Expense | (40 | ) | — | 1,708 | (11 | ) | 1,657 | (42 | ) | — | 2,033 | (11 | ) | 1,980 | ||||||||||||||||||||||||||
Operating Income (Loss) | 40 | — | 247 | (2 | ) | 285 | 42 | — | (137 | ) | (3 | ) | (98 | ) | ||||||||||||||||||||||||||
Equity in Earnings of Subsidiaries | 176 | — | — | (176 | ) | — | (92 | ) | — | — | 92 | — | ||||||||||||||||||||||||||||
Other Income (Expense) | (16 | ) | 1 | 39 | (5 | ) | 19 | 21 | 1 | 3 | (4 | ) | 21 | |||||||||||||||||||||||||||
Interest Expense | 91 | — | 21 | (7 | ) | 105 | 91 | — | 19 | (7 | ) | 103 | ||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes and Cumulative Effect of Accounting Change | 109 | 1 | 265 | (176 | ) | 199 | ||||||||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes | (120 | ) | 1 | (153 | ) | 92 | (180 | ) | ||||||||||||||||||||||||||||||||
Income Tax Expense (Benefit) | (18 | ) | — | 90 | — | 72 | (17 | ) | — | (60 | ) | — | (77 | ) | ||||||||||||||||||||||||||
Net Earnings (Loss) | $ | 127 | $ | 1 | $ | 175 | $ | (176 | ) | $ | 127 | $ | (103 | ) | $ | 1 | $ | (93 | ) | $ | 92 | $ | (103 | ) | ||||||||||||||||
2631
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued
Consolidating Income Statement
CSX | CSX Vessel | |||||||||||||||||||||||||||||||||||||||
(Dollars in Millions) | CSX Corporation | CSX Vessel Leasing | Other | Eliminations | Consolidated | Corporation | Leasing | Other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Six Months Ended June 25, 2004 | ||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 24, 2004 | ||||||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | — | $ | — | $ | 4,034 | $ | (38 | ) | $ | 3,996 | $ | — | $ | — | $ | 6,027 | $ | (51 | ) | $ | 5,976 | ||||||||||||||||||
Operating Expense | (63 | ) | — | 3,640 | (33 | ) | 3,544 | (103 | ) | — | 5,407 | (44 | ) | 5,260 | ||||||||||||||||||||||||||
Operating Income (Loss) | 63 | — | 394 | (5 | ) | 452 | 103 | — | 620 | (7 | ) | 716 | ||||||||||||||||||||||||||||
Equity in Earnings of Subsidiaries | 254 | — | — | (254 | ) | $ | — | 420 | — | — | (420 | ) | $ | — | ||||||||||||||||||||||||||
Other Income (Expense) | (17 | ) | 2 | 17 | (10 | ) | $ | (8 | ) | (32 | ) | 3 | 53 | (7 | ) | $ | 17 | |||||||||||||||||||||||
Interest Expense | 198 | — | 34 | (15 | ) | 217 | 285 | — | 52 | (14 | ) | 323 | ||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes | 102 | 2 | 377 | (254 | ) | $ | 227 | 206 | 3 | 621 | (420 | ) | $ | 410 | ||||||||||||||||||||||||||
Income Tax Expense (Benefit) | (47 | ) | — | 125 | — | 78 | (66 | ) | — | 204 | — | 138 | ||||||||||||||||||||||||||||
Earnings Before Cumulative Effect of Accounting Change | 149 | 2 | 252 | (254 | ) | 149 | ||||||||||||||||||||||||||||||||||
Cumulative Effect of Accounting Change - Net of Tax | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net Earnings (Loss) | $ | 149 | $ | 2 | $ | 252 | $ | (254 | ) | $ | 149 | $ | 272 | $ | 3 | $ | 417 | $ | (420 | ) | $ | 272 | ||||||||||||||||||
CSX Corporation | CSX Vessel Leasing | Other | Eliminations | Consolidated | CSX | CSX Vessel | ||||||||||||||||||||||||||||||||||
Six Months Ended June 27, 2003 | ||||||||||||||||||||||||||||||||||||||||
Corporation | Leasing | Other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Nine Months Ended September 26, 2003 | ||||||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | — | $ | — | $ | 4,003 | $ | (45 | ) | $ | 3,958 | $ | — | $ | — | $ | 5,899 | $ | (59 | ) | $ | 5,840 | ||||||||||||||||||
Operating Expense | (77 | ) | — | 3,614 | (41 | ) | 3,496 | (119 | ) | — | 5,647 | (52 | ) | 5,476 | ||||||||||||||||||||||||||
Operating Income (Loss) | 77 | — | 389 | (4 | ) | 462 | 119 | — | 252 | (7 | ) | 364 | ||||||||||||||||||||||||||||
Equity in Earnings of Subsidiaries | 326 | — | — | (326 | ) | — | 234 | — | — | (234 | ) | — | ||||||||||||||||||||||||||||
Other Income (Expense) | (31 | ) | 1 | 52 | (13 | ) | 9 | (9 | ) | 2 | 54 | (17 | ) | 30 | ||||||||||||||||||||||||||
Interest Expense | 183 | — | 42 | (17 | ) | 208 | 274 | — | 61 | (24 | ) | 311 | ||||||||||||||||||||||||||||
Earnings (Loss) before Income Taxes and Cumulative Effect of Accounting Change | 189 | 1 | 399 | (326 | ) | 263 | 70 | 2 | 245 | (234 | ) | 83 | ||||||||||||||||||||||||||||
Income Tax Expense (Benefit) | (37 | ) | — | 131 | — | 94 | (53 | ) | — | 70 | — | 17 | ||||||||||||||||||||||||||||
Earnings Before Cumulative Effect of Accounting Change | 226 | 1 | 268 | (326 | ) | 169 | 123 | 2 | 175 | (234 | ) | 66 | ||||||||||||||||||||||||||||
Cumulative Effect of Accounting Change - Net of Tax | — | — | 57 | — | 57 | |||||||||||||||||||||||||||||||||||
Cumulative Effect of Accounting Change — Net of Tax | — | — | 57 | — | 57 | |||||||||||||||||||||||||||||||||||
Net Earnings (Loss) | $ | 226 | $ | 1 | $ | 325 | $ | (326 | ) | $ | 226 | $ | 123 | $ | 2 | $ | 232 | $ | (234 | ) | $ | 123 | ||||||||||||||||||
2732
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued
Consolidating Balance Sheet
CSX | CSX Vessel | |||||||||||||||||||||||||||||||||||||||
(Dollars in Millions) | CSX Corporation | CSX Vessel Leasing | Other | Eliminations | Consolidated | Corporation | Leasing | Other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
June 25, 2004 | ||||||||||||||||||||||||||||||||||||||||
September 24, 2004 | ||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 1,643 | $ | 46 | $ | (961 | ) | $ | — | $ | 728 | $ | 1,412 | $ | 46 | $ | (829 | ) | $ | — | $ | 629 | ||||||||||||||||||
Accounts Receivable - Net | 91 | 13 | 1,019 | 92 | 1,215 | |||||||||||||||||||||||||||||||||||
Accounts Receivable — Net | (530 | ) | 13 | 1,671 | 17 | 1,171 | ||||||||||||||||||||||||||||||||||
Materials and Supplies | — | — | 174 | — | 174 | — | — | 167 | — | 167 | ||||||||||||||||||||||||||||||
Deferred Income Taxes | 13 | — | 115 | — | 128 | 11 | — | 115 | — | 126 | ||||||||||||||||||||||||||||||
Other Current Assets | 1 | — | 256 | (128 | ) | 129 | 2 | — | 346 | (126 | ) | 222 | ||||||||||||||||||||||||||||
Total Current Assets | 1,748 | 59 | 603 | (36 | ) | 2,374 | 895 | 59 | 1,470 | (109 | ) | 2,315 | ||||||||||||||||||||||||||||
Properties | 25 | — | 19,694 | — | 19,719 | 25 | — | 25,836 | — | 25,861 | ||||||||||||||||||||||||||||||
Accumulated Depreciation | 24 | — | 5,801 | — | 5,825 | 24 | — | 5,858 | — | 5,882 | ||||||||||||||||||||||||||||||
Properties - Net | 1 | — | 13,893 | — | 13,894 | |||||||||||||||||||||||||||||||||||
Properties — Net | 1 | — | 19,978 | — | 19,979 | |||||||||||||||||||||||||||||||||||
Investment in Conrail | 326 | — | 4,365 | — | 4,691 | — | — | 567 | — | 567 | ||||||||||||||||||||||||||||||
Affiliates and Other Companies | — | — | 543 | (38 | ) | 505 | — | — | 640 | (38 | ) | 602 | ||||||||||||||||||||||||||||
Investment in Consolidated Subsidiaries | 12,761 | — | 392 | (13,153 | ) | — | 13,020 | — | 393 | (13,413 | ) | — | ||||||||||||||||||||||||||||
Other Long-term Assets | 1,139 | — | 497 | (648 | ) | 988 | 1,418 | — | 141 | (657 | ) | 902 | ||||||||||||||||||||||||||||
Total Assets | $ | 15,975 | $ | 59 | $ | 20,293 | $ | (13,875 | ) | $ | 22,452 | $ | 15,334 | $ | 59 | $ | 23,189 | $ | (14,217 | ) | $ | 24,365 | ||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts Payable | $ | 104 | $ | — | $ | 666 | $ | 93 | $ | 863 | $ | 128 | $ | 20 | $ | 698 | $ | 16 | $ | 862 | ||||||||||||||||||||
Labor and Fringe Benefits Payable | 5 | — | 390 | — | 395 | 12 | — | 423 | — | 435 | ||||||||||||||||||||||||||||||
Payable to Affiliates | — | — | 127 | (127 | ) | — | — | — | 126 | (126 | ) | — | ||||||||||||||||||||||||||||
Casualty, Environmental and Other Reserves | 7 | — | 277 | — | 284 | — | — | 238 | — | 238 | ||||||||||||||||||||||||||||||
Current Maturities of Long-term Debt | — | — | 110 | — | 110 | 50 | — | 131 | — | 181 | ||||||||||||||||||||||||||||||
Short-term Debt | 701 | — | 3 | — | 704 | 100 | — | 3 | — | 103 | ||||||||||||||||||||||||||||||
Income and Other Taxes Payable | 1,502 | — | (1,376 | ) | — | 126 | 1,413 | — | (1,312 | ) | — | 101 | ||||||||||||||||||||||||||||
Other Current Liabilities | 20 | 8 | 84 | (1 | ) | 111 | 20 | — | 77 | — | 97 | |||||||||||||||||||||||||||||
Total Current Liabilities | 2,339 | 8 | 281 | (35 | ) | 2,593 | 1,723 | 20 | 384 | (110 | ) | 2,017 | ||||||||||||||||||||||||||||
Casualty, Environmental and Other reserves | — | — | 816 | — | 816 | |||||||||||||||||||||||||||||||||||
Casualty, Environmental and Other Reserves | — | — | 812 | — | 812 | |||||||||||||||||||||||||||||||||||
Long-term Debt | 6,134 | — | 767 | — | 6,901 | 5,830 | — | 1,266 | — | 7,096 | ||||||||||||||||||||||||||||||
Deferred Income Taxes | (39 | ) | — | 3,920 | — | 3,881 | (9 | ) | — | 6,060 | — | 6,051 | ||||||||||||||||||||||||||||
Long-term Payable to Affiliates | 396 | — | 127 | (523 | ) | — | 396 | — | 127 | (523 | ) | — | ||||||||||||||||||||||||||||
Other Long-term Liabilities | 476 | 44 | 1,207 | (135 | ) | 1,592 | 558 | 31 | 1,108 | (144 | ) | 1,553 | ||||||||||||||||||||||||||||
Total Liabilities | $ | 9,306 | $ | 52 | $ | 7,118 | $ | (693 | ) | $ | 15,783 | $ | 8,498 | $ | 51 | $ | 9,757 | $ | (777 | ) | $ | 17,529 | ||||||||||||||||||
Shareholders’ Equity: | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | — | — | 396 | (396 | ) | — | — | — | 395 | (395 | ) | — | ||||||||||||||||||||||||||||
Common Stock | 216 | — | 209 | (209 | ) | 216 | 215 | — | 209 | (209 | ) | 215 | ||||||||||||||||||||||||||||
Other Capital | 1,591 | 1 | 8,053 | (8,054 | ) | 1,591 | 1,597 | 1 | 8,244 | (8,245 | ) | 1,597 | ||||||||||||||||||||||||||||
Retained Earnings | 5,065 | 6 | 4,517 | (4,523 | ) | 5,065 | 5,167 | 7 | 4,584 | (4,591 | ) | 5,167 | ||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | (203 | ) | — | — | — | (203 | ) | (143 | ) | — | — | — | (143 | ) | ||||||||||||||||||||||||||
Total Shareholders’ Equity | 6,669 | 7 | 13,175 | (13,182 | ) | 6,669 | 6,836 | 8 | 13,432 | (13,440 | ) | 6,836 | ||||||||||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 15,975 | $ | 59 | $ | 20,293 | $ | (13,875 | ) | $ | 22,452 | $ | 15,334 | $ | 59 | $ | 23,189 | $ | (14,217 | ) | $ | 24,365 | ||||||||||||||||||
2833
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued
Consolidating Balance Sheet
CSX | CSX Vessel | CSX | CSX Vessel | |||||||||||||||||||||||||||||||||||||
(Dollars in Millions) | Corporation | Leasing | Other | Eliminations | Consolidated | Corporation | Leasing | Other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
December 26, 2003 | ||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Short-term Investments | $ | 1,210 | $ | 45 | $ | (887 | ) | $ | — | 368 | $ | 1,210 | $ | 45 | $ | (887 | ) | $ | — | 368 | ||||||||||||||||||||
Accounts Receivable - Net | 45 | 15 | 1,126 | (23 | ) | 1,163 | ||||||||||||||||||||||||||||||||||
Accounts Receivable — Net | 45 | 15 | 1,126 | (23 | ) | 1,163 | ||||||||||||||||||||||||||||||||||
Materials and Supplies | — | — | 170 | — | 170 | — | — | 170 | — | 170 | ||||||||||||||||||||||||||||||
Deferred Income Taxes | 12 | — | 124 | — | 136 | 12 | — | 124 | — | 136 | ||||||||||||||||||||||||||||||
Other Current Assets | 6 | — | 197 | (137 | ) | 66 | 6 | — | 197 | (137 | ) | 66 | ||||||||||||||||||||||||||||
Total Current Assets | 1,273 | 60 | 730 | (160 | ) | 1,903 | 1,273 | 60 | 730 | (160 | ) | 1,903 | ||||||||||||||||||||||||||||
Properties | 25 | — | 19,242 | — | 19,267 | 25 | — | 19,242 | — | 19,267 | ||||||||||||||||||||||||||||||
Accumulated Depreciation | 24 | — | 5,513 | — | 5,537 | 24 | — | 5,513 | — | 5,537 | ||||||||||||||||||||||||||||||
Properties - Net | 1 | — | 13,729 | — | 13,730 | |||||||||||||||||||||||||||||||||||
Properties — Net | 1 | — | 13,729 | — | 13,730 | |||||||||||||||||||||||||||||||||||
Investment in Conrail | 331 | — | 4,347 | — | 4,678 | 331 | — | 4,347 | — | 4,678 | ||||||||||||||||||||||||||||||
Affiliates and Other Companies | — | — | 553 | (38 | ) | 515 | — | — | 553 | (38 | ) | 515 | ||||||||||||||||||||||||||||
Investment in Consolidated Subsidiaries | 12,638 | — | 391 | (13,029 | ) | — | 12,638 | — | 391 | (13,029 | ) | — | ||||||||||||||||||||||||||||
Other Long-term Assets | 1,112 | — | 456 | (634 | ) | 934 | 1,112 | — | 456 | (634 | ) | 934 | ||||||||||||||||||||||||||||
Total Assets | $ | 15,355 | $ | 60 | $ | 20,206 | $ | (13,861 | ) | $ | 21,760 | $ | 15,355 | $ | 60 | $ | 20,206 | $ | (13,861 | ) | $ | 21,760 | ||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts Payable | $ | 88 | $ | — | $ | 761 | $ | (22 | ) | $ | 827 | $ | 88 | $ | — | $ | 761 | $ | (22 | ) | $ | 827 | ||||||||||||||||||
Labor and Fringe Benefits Payable | 6 | — | 391 | — | 397 | 6 | — | 391 | — | 397 | ||||||||||||||||||||||||||||||
Payable to Affiliates | — | — | 137 | (137 | ) | — | — | — | 137 | (137 | ) | — | ||||||||||||||||||||||||||||
Casualty, Environmental and Other Reserves | 5 | — | 275 | — | 280 | 5 | — | 275 | — | 280 | ||||||||||||||||||||||||||||||
Current Maturities of Long-term Debt | 300 | — | 126 | — | 426 | 300 | — | 126 | — | 426 | ||||||||||||||||||||||||||||||
Short-term Debt | — | — | 2 | — | 2 | — | — | 2 | — | 2 | ||||||||||||||||||||||||||||||
Income and Other Taxes Payable | 1,464 | — | (1,340 | ) | (1 | ) | 123 | 1,464 | — | (1,340 | ) | (1 | ) | 123 | ||||||||||||||||||||||||||
Other Current Liabilities | 21 | 20 | 114 | — | 155 | 21 | 20 | 114 | — | 155 | ||||||||||||||||||||||||||||||
Total Current Liabilities | 1,884 | 20 | 466 | (160 | ) | 2,210 | 1,884 | 20 | 466 | (160 | ) | 2,210 | ||||||||||||||||||||||||||||
Casualty, Environmental and Other Reserves | — | — | 836 | — | $ | 836 | — | — | 836 | — | $ | 836 | ||||||||||||||||||||||||||||
Long-term Debt | 6,085 | — | 801 | — | 6,886 | 6,085 | — | 801 | — | 6,886 | ||||||||||||||||||||||||||||||
Deferred Income Taxes | (39 | ) | — | 3,791 | — | 3,752 | (39 | ) | — | 3,791 | — | 3,752 | ||||||||||||||||||||||||||||
Long-term Payable to Affiliates | 396 | — | 128 | (524 | ) | — | 396 | — | 128 | (524 | ) | — | ||||||||||||||||||||||||||||
Other Long-term Liabilities | 576 | 36 | 1,129 | (118 | ) | 1,623 | 576 | 36 | 1,129 | (118 | ) | 1,623 | ||||||||||||||||||||||||||||
Total Liabilities | 8,902 | 56 | 7,151 | (802 | ) | 15,307 | 8,902 | 56 | 7,151 | (802 | ) | 15,307 | ||||||||||||||||||||||||||||
Preferred Stock | — | — | 396 | (396 | ) | $ | — | — | — | 396 | (396 | ) | $ | — | ||||||||||||||||||||||||||
Common Stock | 215 | — | 209 | (209 | ) | 215 | 215 | — | 209 | (209 | ) | 215 | ||||||||||||||||||||||||||||
Other Capital | 1,579 | 1 | 8,052 | (8,053 | ) | 1,579 | 1,579 | 1 | 8,052 | (8,053 | ) | 1,579 | ||||||||||||||||||||||||||||
Retained Earnings | 4,957 | 3 | 4,398 | (4,401 | ) | 4,957 | 4,957 | 3 | 4,398 | (4,401 | ) | 4,957 | ||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | (298 | ) | — | — | — | (298 | ) | (298 | ) | — | — | — | (298 | ) | ||||||||||||||||||||||||||
Total Shareholders’ Equity | 6,453 | 4 | 13,055 | (13,059 | ) | 6,453 | 6,453 | 4 | 13,055 | (13,059 | ) | 6,453 | ||||||||||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 15,355 | $ | 60 | $ | 20,206 | $ | (13,861 | ) | $ | 21,760 | $ | 15,355 | $ | 60 | $ | 20,206 | $ | (13,861 | ) | $ | 21,760 | ||||||||||||||||||
2934
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued
Consolidating Cash Flow Statements
CSX | CSX | |||||||||||||||||||
(Dollars in Millions) | Corporation | Vessel Leasing | Other | Eliminations | Consolidated | |||||||||||||||
Six Months Ended June 25, 2004 | ||||||||||||||||||||
Operating Activities | ||||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | 10 | $ | — | $ | 610 | $ | (101 | ) | $ | 519 | |||||||||
Investing Activities | ||||||||||||||||||||
Property Additions | — | — | (484 | ) | — | (484 | ) | |||||||||||||
Short-term Investments - Net | (82 | ) | — | 7 | — | (75 | ) | |||||||||||||
Other Investing Activities | (4 | ) | — | (23 | ) | (10 | ) | (37 | ) | |||||||||||
Net Cash Provided (Used) by Investing Activities | (86 | ) | — | (500 | ) | (10 | ) | (596 | ) | |||||||||||
Financing Activities | ||||||||||||||||||||
Short-term Debt - Net | 701 | — | 1 | — | 702 | |||||||||||||||
Long-term Debt Issued | 62 | — | — | — | 62 | |||||||||||||||
Long-term Debt Repaid | (300 | ) | — | (79 | ) | — | (379 | ) | ||||||||||||
Dividends Paid | (43 | ) | — | (99 | ) | 99 | (43 | ) | ||||||||||||
Other Financing Activities | 6 | 1 | (16 | ) | 12 | 3 | ||||||||||||||
Net Cash Provided (Used) by Financing Activities | 426 | 1 | (193 | ) | 111 | 345 | ||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 350 | 1 | (83 | ) | — | 268 | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 1,163 | 45 | (912 | ) | — | 296 | ||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 1,513 | $ | 46 | $ | (995 | ) | $ | — | $ | 564 | |||||||||
CSX | CSX | CSX | CSX | |||||||||||||||||||||||||||||||||||||
Corporation | Lines | Other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
Six Months Ended June 27, 2003 | ||||||||||||||||||||||||||||||||||||||||
(Dollars in Millions) | Corporation | Vessel Leasing | Other | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||
Nine Months Ended September 24, 2004 | ||||||||||||||||||||||||||||||||||||||||
Operating Activities | ||||||||||||||||||||||||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | 26 | $ | — | $ | 60 | $ | (121 | ) | $ | (35 | ) | $ | 31 | $ | — | $ | 983 | $ | (149 | ) | $ | 865 | |||||||||||||||||
Investing Activities | ||||||||||||||||||||||||||||||||||||||||
Property Additions | — | — | (479 | ) | — | (479 | ) | — | — | (734 | ) | — | (734 | ) | ||||||||||||||||||||||||||
Net Proceeds from Divestitures | 214 | — | — | — | 214 | — | — | 55 | — | 55 | ||||||||||||||||||||||||||||||
Short-term Investments - Net | (3 | ) | — | 3 | — | — | ||||||||||||||||||||||||||||||||||
Short-term Investments — Net | (326 | ) | — | (23 | ) | — | (349 | ) | ||||||||||||||||||||||||||||||||
Other Investing Activities | 27 | — | 214 | (261 | ) | (20 | ) | (3 | ) | — | (11 | ) | (10 | ) | (24 | ) | ||||||||||||||||||||||||
Net Cash Provided (Used) by Investing Activities | 238 | — | (262 | ) | (261 | ) | (285 | ) | (329 | ) | — | (713 | ) | (10 | ) | (1,052 | ) | |||||||||||||||||||||||
Financing Activities | ||||||||||||||||||||||||||||||||||||||||
Short-term Debt - Net | 560 | — | 1 | — | 561 | |||||||||||||||||||||||||||||||||||
Short-term Debt — Net | 100 | — | 1 | — | 101 | |||||||||||||||||||||||||||||||||||
Long-term Debt Issued | 82 | — | 1 | — | 83 | 412 | — | — | — | 412 | ||||||||||||||||||||||||||||||
Long-term Debt Repaid | — | — | (218 | ) | — | (218 | ) | (300 | ) | — | (85 | ) | — | (385 | ) | |||||||||||||||||||||||||
Dividends Paid | (43 | ) | — | (120 | ) | 120 | (43 | ) | (66 | ) | — | (147 | ) | 149 | (64 | ) | ||||||||||||||||||||||||
Other Financing Activities | 13 | 45 | (336 | ) | 262 | (16 | ) | 27 | 1 | (20 | ) | 10 | 18 | |||||||||||||||||||||||||||
Net Cash Provided (Used) by Financing Activities | 612 | 45 | (672 | ) | 382 | 367 | 173 | 1 | (251 | ) | 159 | 82 | ||||||||||||||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 876 | 45 | (874 | ) | — | 47 | (125 | ) | 1 | 19 | — | (105 | ) | |||||||||||||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 264 | — | (137 | ) | — | 127 | 1,163 | 45 | (912 | ) | — | 296 | ||||||||||||||||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 1,140 | $ | 45 | $ | (1,011 | ) | $ | — | $ | 174 | $ | 1,038 | $ | 46 | $ | (893 | ) | $ | — | $ | 191 | ||||||||||||||||||
3035
CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 15. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued
Consolidating Cash Flow Statements
CSX | CSX | |||||||||||||||||||
(Dollars in Millions) | Corporation | Vessel Leasing | Other | Eliminations | Consolidated | |||||||||||||||
Nine Months Ended September 26, 2003 | ||||||||||||||||||||
Operating Activities | ||||||||||||||||||||
Net Cash Provided (Used) by Operating Activities | $ | 69 | $ | — | $ | 516 | $ | (181 | ) | $ | 404 | |||||||||
Investing Activities | ||||||||||||||||||||
Property Additions | — | — | (757 | ) | — | (757 | ) | |||||||||||||
Net Proceeds from Divestitures | 214 | — | — | — | 214 | |||||||||||||||
Short-term Investments — Net | (190 | ) | — | (23 | ) | — | (213 | ) | ||||||||||||
Other Investing Activities | 27 | — | 208 | (261 | ) | (26 | ) | |||||||||||||
Net Cash Provided (Used) by Investing Activities | 51 | — | (572 | ) | (261 | ) | (782 | ) | ||||||||||||
Financing Activities | ||||||||||||||||||||
Short-term Debt — Net | 585 | — | 1 | — | 586 | |||||||||||||||
Long-term Debt Issued | 433 | — | — | — | 433 | |||||||||||||||
Long-term Debt Repaid | — | — | (292 | ) | — | (292 | ) | |||||||||||||
Dividends Paid | (66 | ) | — | (179 | ) | 180 | (65 | ) | ||||||||||||
Other Financing Activities | 17 | 45 | (350 | ) | 262 | (26 | ) | |||||||||||||
Net Cash Provided (Used) by Financing Activities | 969 | 45 | (820 | ) | 442 | 636 | ||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 1,089 | 45 | (876 | ) | — | 258 | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 264 | — | (137 | ) | — | 127 | ||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 1,353 | $ | 45 | $ | (1,013 | ) | $ | — | $ | 385 | |||||||||
36
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 16. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans, principally for salaried personnel. The plans provide eligible employees with retirement benefits based primarily on years of service and compensation rates near retirement. A substantial portion of benefits provided under the management restructuring initiatives (See(see Note 17, Management Restructuring) will be paid from the Company’s defined benefit pension plans and postretirement medical plan.
In addition to the defined benefit pension plans, the Company sponsors three plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The postretirement medical plans are contributory (partially funded by retiree)participating retirees), with retiree contributions adjusted annually. The life insurance plan is non-contributory.
The following table presents components of net periodic benefit cost for the quarters and nine months ended June 25,September 24, 2004 and June 27,September 26, 2003:
Quarters Ended | ||||||||||||||||||||||||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||
(Dollars in Millions) | June 25, 2004 | June 27, 2003 | June 25, 2004 | June 27, 2003 | September 24, 2004 | September 26, 2003 | September 24, 2004 | September 26, 2003 | ||||||||||||||||||||||||
Service Cost | $ | 9 | $ | 9 | $ | 2 | $ | 3 | $ | 9 | $ | 9 | $ | 2 | $ | 3 | ||||||||||||||||
Interest Cost | 28 | 28 | 6 | 6 | 28 | 28 | 6 | 6 | ||||||||||||||||||||||||
Expected Return on Plan Assets | (33 | ) | (34 | ) | — | — | (33 | ) | (34 | ) | — | — | ||||||||||||||||||||
Amortization of Prior Service Cost | 1 | 1 | (1 | ) | (1 | ) | 1 | 1 | (1 | ) | (1 | ) | ||||||||||||||||||||
Amortization of Net Loss | 4 | — | 4 | 3 | 4 | — | 4 | 3 | ||||||||||||||||||||||||
Net Periodic Benefit Cost | $ | 9 | $ | 4 | $ | 11 | $ | 11 | $ | 9 | $ | 4 | $ | 11 | $ | 11 | ||||||||||||||||
SFAS 88 Curtailment Charges | — | — | 3 | — | ||||||||||||||||||||||||||||
Net Periodic Benefit Cost, Including Termination Benefits | $ | 9 | $ | 4 | $ | 14 | $ | 11 | ||||||||||||||||||||||||
Nine Months Ended | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
September 24, 2004 | September 26, 2003 | September 24, 2004 | September 26, 2003 | |||||||||||||
Service Cost | $ | 29 | $ | 26 | $ | 6 | $ | 9 | ||||||||
Interest Cost | 84 | 84 | 18 | 18 | ||||||||||||
Expected Return on Plan Assets | (100 | ) | (102 | ) | — | — | ||||||||||
Amortization of Prior Service Cost | 3 | 3 | (3 | ) | (3 | ) | ||||||||||
Amortization of Net Loss | 11 | — | 12 | 10 | ||||||||||||
Net Periodic Benefit Cost | $ | 27 | $ | 11 | $ | 33 | $ | 34 | ||||||||
SFAS 88 Curtailment Charges | 6 | 13 | 18 | — | ||||||||||||
Net Periodic Benefit Cost, including Termination Benefits | $ | 33 | $ | 24 | $ | 51 | $ | 34 | ||||||||
37
CSX CORPORATION AND SUBSIDIARIES
ITEM 1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 16. EMPLOYEE BENEFIT PLANS, Continued
The Company previously disclosed in its 2003 Annual Report for the year ended December 26, 2003,on Form 10-K, that it expected to contribute $14 million to its pension plan in 2004. As of June 25,September 24, 2004, the Company has contributed $11 million to its pension plan. The Company does not presently anticipate additional contributions to its pension plan during 2004.
Due to the termination of employees under the management restructuring plan (See Note 17, Management Restructuring), a curtailment occurred in the Company’s defined benefit pension plansplan and postretirement medical plan. The estimated cost of the curtailments of $24 million was included in the management restructuring charge for the first sixnine months ofended 2004. Due to the curtailments, the Company was required to update its measurement of the assets and obligations of these plans, which affected the net periodic benefit costs beginning in the second quarter of 2004.
In connection with recognition of the curtailments, the Company is required to estimate and record the effects of the Medicare Prescription Drug, Improvement and Modernization ActionAct of 2003 (“the Act”). The Company believes that a portion of its medical plan’s prescription drug benefit will qualify as actuarially equivalent to Medicare Part D based upon a review by the plan’s health and welfare actuary of the plan’s prescription drug benefit compared with the prescription drug benefit that would be paid under Medicare Part D beginning in 2006. The reduction in the postretirement benefit obligation as a result of the Act was approximately $25 million. Although thereThere was no immediate impact on net earnings as an unrecognized gain will be recorded, therecorded. The effects of the Act wasare reflected in net postretirement benefit costs as the unrecognized gain is amortized, which began in the second quarter of 2004. The Company expects 2004 postretirement benefit costs will be reduced by approximately $3 million due to the Act.
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CSX CORPORATION AND SUBSIDIARIES
ITEM I:1: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)
NOTE 17. MANAGEMENT RESTRUCTURING
The Company recorded separation expenses for the following:
1. | The Surface Transportation business segment incurred restructuring charges related to the November 2003 management restructuring | |||
2. | International Terminals restructuring initiatives of $6 million for the |
In November 2003,total the Company announced arecorded management restructuring plan to streamline the structure at a number of its companies, eliminate organizational layers and realign certain functions. As of June 25, 2004, the initiative has reduced the non-union workforce by approximately 900 positions. The Company recorded an initial pretax charge related to this reduction of $34 million in 2003. The Company recorded additional expenses of $15$3 million and $68$77 million for the quarter and sixnine months ended June 25,September 24, 2004, related to the management restructuring for separation expense, pension and post-retirement benefit curtailment charges, stock compensation expense and other related expenses.
The total cost of the program through the secondthird quarter of 2004 excluding the restructuring program for International Terminals, is $102$111 million. The Company expects a nominal charge relating to the final analysis will be recorded in the third quarter of 2004. The majority of separation benefits will be paid from CSX’s qualified pension plans,plan, with the remainder being paid from general corporate funds. See the table below for a rollforward of significant components of the restructuring charge including International Terminals.charge.
First Six | Nine | |||||||||||||||||||||||||||||||||||
Balance | Months | Balance | Balance | Months | Balance | |||||||||||||||||||||||||||||||
December 26, | 2004 | June 25, | December 26, | 2004 | September 24, | |||||||||||||||||||||||||||||||
(Dollars in Millions) | 2003 | Expense | Payments (a) | 2004 | 2003 | Expense | Payments (a) | 2004 | ||||||||||||||||||||||||||||
Pension and Postretirement Separation Expense | $ | 30 | $ | 36 | $ | (57 | ) | $ | 9 | $ | 30 | $ | 39 | $ | (67 | ) | $ | 2 | ||||||||||||||||||
Other Related Costs | 4 | 8 | (5 | ) | 7 | 4 | 8 | (12 | ) | — | ||||||||||||||||||||||||||
Restructuring Total | $ | 34 | $ | 44 | $ | (62 | ) | $ | 16 | $ | 34 | $ | 47 | $ | (79 | ) | $ | 2 | ||||||||||||||||||
Pension and Postretirement Curtailment Charges | 24 | 24 | ||||||||||||||||||||||||||||||||||
Stock Compensation Expense | 6 | 6 | ||||||||||||||||||||||||||||||||||
First Six Months 2004 Expense | $ | 74 | ||||||||||||||||||||||||||||||||||
Nine Months 2004 Expense | $ | 77 | ||||||||||||||||||||||||||||||||||
(a) Includes payments from the qualified pension plan and general corporate funds.
32(b) Related to recognition of unamortized expense for 2003 stock option awards retained by terminated employees.
39
CSX CORPORATION AND SUBSIDIARIES
OVERVIEW
General
CSX operates one of the largest rail networks in the United States and also arranges for and provides integrated rail and truck (“intermodal”) transportation services across the United States and key markets in Canada and Mexico. Its marine operations include an international terminal services company, which operates and develops container terminals, distribution facilities and related terminal activities. CSX also owns and operates the Greenbrier, a AAA Five-Diamond resort located in White Sulphur Springs, West Virginia.
In February 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines, LLC (“CSX Lines”), to a new venture formed with theThe 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. Horizon subleased vessels and equipment from certain affiliates of CSX covering the primary financial obligations related to $300 million of leases under which CSX or one of its affiliates will remain a lessee / sublessor or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction is being recognized over the 12-year sub-lease term. The securities have a term of 7 years and a preferred return feature. During the third quarter of 2003, CSX received a $15 million payment from Horizon Lines, which included $3 million of interest, in return of a portion of its investment in Horizon. On$226 million is shown as proceeds from divestiture in the investing section of the Consolidated Statement of Cash Flows and $3 million is included in net earnings. (See Note 4, Divestitures)
In July 7, 2004, Horizon completed a merger with awas acquired by an unrelated third party, and CSX received $59 million, which included $52$48 million for the purchase of its ownership interest in Horizon, $4 million of interest, and a performance payment of $7 million.million, which will also be recognized over the 12-year sub-lease term. $55 million is shown as proceeds from divestiture in the investing section of the Consolidated Statement of Cash Flows and $4 million is included in net earnings. However, CSX orand one of its affiliates will continue to remain a lessee / sublessor or guarantor on certain vessels and equipment as long as the subleases remain in effect. (See Note 4, Divestitures.)13, Commitments and Contingencies)
CSX Transportation Inc.
CSXT is the largest rail network in the eastern United States, providing rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. Headquartered in Jacksonville, Florida, CSXT accounted for 82% of CSX’s operating revenue and 86%82% of operating income in the quarter ended June 25,September 24, 2004.
CSX Intermodal Inc.
CSX Intermodal Inc. (“CSXI”) is one of the nation’s onlylargest transcontinental intermodal transportation service provider,providers, operating a network of dedicated intermodal facilities across North America. The CSXI network runs approximately 450500 dedicated trains between its 4544 terminals weekly. CSXI accounted for 16% of CSX’s operating revenue and 11%12% of operating income for the quarter ended June 25,September 24, 2004. Its headquarters are located in Jacksonville, Florida. The rail and intermodal segments are viewed on a combined basis as Surface Transportation operations.
Surface Transportation
Surface Transportation, which includes CSX’s rail and intermodal units, generated revenue of $2.0 billion and $3.9 billion for the quarter and six months ended June 25, 2004, respectively, compared to $1.9 billion and $3.7 billion for the quarter and six months ended June 27, 2003, respectively. Operating income for Surface Transportation was $280 million and $431 million for the first quarter and six months ended June 25, 2004, respectively, compared to $259 million and $428 million for the first quarter and six months ended June 27, 2003.
3340
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW, Continued
Surface Transportation
Surface Transportation, Continuedwhich includes CSX’s rail and intermodal units, generated revenue of $1.9 billion and $5.8 billion for the quarter and nine months ended September 24, 2004, respectively, compared to $1.8 billion and $5.5 billion for the quarter and nine months ended September 26, 2003, respectively. Operating income for Surface Transportation was $247 million and $678 million for the quarter and nine months ended September 24, 2004, respectively, compared to an operating loss of $16 million and operating income of $412 million for the quarter and nine months ended September 26, 2003.
During the secondthird quarter of 2004, Surface Transportation revenue and volume increased over the prior year comparable quarter due to favorable economic conditions combined with price increases.yield management initiatives. Surface Transportation operating income was higher than the prior year comparable quarter by $21$263 million, despite $15as there was a third quarter 2003 charge of $229 million that was recorded in charges associatedconjunction with the management restructuring plan.Company’s change in estimate for its casualty reserves.
In addition to reviewing various financial measures, CSX management uses non-financial indicators to monitor performance and operating efficiency of its network. Those include:
2004(a) | 2003 | % Change | ||||||||||||
Service Measurements | Personal Injury Frequency Index (Per 100 Employees) | 2.04 | 1.98 | (3 | )% | |||||||||
FRA Train Accidents Frequency (Per Million Train Miles) | 4.64 | 4.99 | 7 | |||||||||||
Average, All Trains (Miles Per Hour) | 19.5 | 20.8 | (6 | ) | ||||||||||
Average System Dwell Time (Hours) | 29.3 | 24.1 | (22 | ) | ||||||||||
Average Total Cars-On-Line | 235,688 | 227,565 | (4 | ) | ||||||||||
On -Time Originations | 39.3 | % | 63.2 | % | (38 | ) | ||||||||
On -Time Arrivals | 34.1 | % | 56.5 | % | (40 | ) | ||||||||
Average Recrews (Per Day) | 73.1 | 46.5 | (57 | )% |
Third Quarter Ended | ||||||||||||||
% Improvement | ||||||||||||||
2004(a) | 2003 | (Decline) | ||||||||||||
Service Measurements | Personal Injury Frequency Index (Per 100 Employees) | 2.25 | 2.38 | 5 | % | |||||||||
FRA Train Accidents Frequency (Per Million Train Miles) | 4.03 | 4.53 | 11 | % | ||||||||||
Average Velocity, All Trains (Miles Per Hour) | 20.1 | 21.0 | (4 | )% | ||||||||||
Average System Dwell Time (Hours) | 28.8 | 25.4 | (13 | )% | ||||||||||
Average Total Cars-On-Line | 233,469 | 229,754 | (2 | )% | ||||||||||
On -Time Originations | 50.9 | % | 64.4 | % | (21 | )% | ||||||||
On -Time Arrivals | 40.6 | % | 57.4 | % | (29 | )% | ||||||||
Average Recrews (Per Day) | 62.2 | 54.3 | (15 | )% | ||||||||||
(a)Amounts for 2004 are estimated
The number of FRA-reportable train accidents per million train miles showed improvement, whileand the number of injuries per 100 employees increased 3%both showed improvement in the secondthird quarter of 2004 compared to the same period in 2003. Average train velocity decreased 6%4%. The average system dwell time, which measures the amount of time between car arrival and departure from yards, increased 22%13% from the secondthird quarter of 2003 to 2004. The percent of scheduled trains departing the origin station at or prior to the scheduled departure time and the percent of scheduled trains arriving at the destination station within two hours of the scheduled arrival time both showed the largest declines for the secondthird quarter of 2004 versus the comparable prior period. The number of relief crews called per day on average showed the largestalso demonstrated an unfavorable variance, deteriorating over the prior year quarter, 46.5from 54.3 to 73.1.62.2.
Average train velocity, system dwell time, and recrews are all indicators of network fluidity and efficiency. A decline in non-financial performance measures results, among other things, increased costs from less efficient equipment usage, locomotive utilization and lower labor productivity. CSX management continues its efforts to restore operating efficiency by focusing on reinforcing existing safety processes, including individual accountability for safety, and improving on-time originations. Management believes that increasing on-time originations should help improve other measures such as dwell-time, on-time arrivals and average recrews. CSX continues to invest in key resources required to support strong demand for its services, including hiring additional train and engine employees and increasing the number of locomotives through acquisition and short-term leasing.
3441
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW, Continued
Surface Transportation, Continued
TheCSX’s non-financial service measures, including train velocity, equipment dwell and recrews, are indicators of network fluidity. Degradation of these measures, among other things, results in higher labor, equipment and locomotive costs. CSX management continues its efforts to improve operating performance and efficiency through a number of initiatives, including continued focus on safety processes and disciplined execution of the operating plan. CSX continues to invest in the key resources required to support strong demand for its services, including hiring additional train and engine employees and adding locomotives through purchase and short-term leasing.
During the third quarter, the CSX network experienced a series of severe storms and hurricanes, which negatively impacted revenue, cost, and network fluidity.
In 2004, the Company has an initiative,launched the ONE PLAN,Plan initiative to improve operating efficiency and service levels. The initiative will redesign theCSX’s operating plan for merchandise and automotive freight,shipments, and will be implemented in two phases. The new operating plan will improve efficiency by reducing the number of terminal handlings and shortening routing miles. Inroute miles required for each shipment. The first phase addresses the short-term,movement of shipments between processing yards. Implementation began in late June 2004 and rolled-out across the ONE PLAN will concentrate on improving routings for trains that transport shipments from one processing yard to another. Over a longer period,Company’s network through the ONE PLAN is intended to facilitate a redesign3rd quarter of the2004. All operating plan including yard handlingchanges were in place by the end of August. Initial results were promising, but implementation was disrupted by a series of severe storms, which had an adverse impact on the entire CSX network. The Company continues to focus on executing the new operating plan and local delivery.
Implementationanticipates the realization of benefits in 2005. The second phase of the ONE PLAN commenced in Indianapolis, INPlan will address the local pick-up and has continued into the Walbridge, Cincinnati, Louisville, and Nashville networks. The ONE PLAN should continue through the Chicago Gateway and onto the Northeast in August 2004, followed by the Southeast and I-95 corridor in September 2004. In addition, the CSXI network has been simplified. This process focused on reducing complexity at key hubs creating more specialized terminals and increasing emphasis on double-stack service.
While the impactdelivery of the ONE PLAN is intendedshipments to improve network fluidity and efficiency, the Company anticipates fully realizing these benefits throughout the system in 2005. Adverse effects on efficiency could temporarily occur during implementation of the ONE PLAN.customer locations.
International Terminals
CSX World Terminals LLC (“CSX World Terminals”CSXWT”) operates container-freight terminal facilities in Asia, Europe, Australia, Latin America and the United States. CSX World TerminalsCSXWT accounted for 2% of CSX’s operating revenues and 3% of operating income for the quarter ended June 25,September 24, 2004. CSX World TerminalsCSXWT is headquartered in Charlotte, North Carolina.
CSX World Terminals’ (“CSXWT”)CSXWT’s Hong Kong terminal accounted for approximately 54%59% of CSXWT’s revenues for the first sixnine months of 2004. The Hong Kong terminal showed a volume decrease of 43%,20% for the third quarter, which corresponds with a 43%38% decrease in revenue versus the secondthird quarter of 2003. Competitive pressures are rising as customers are shifting their traffic from facilities in Hong Kong to newly opened terminals in South China’s Guangdong region. This shift will translate intoregion, resulting in reduced volumes and revenue. A significant customer of CSXWT terminated its marine terminal services contract during the first quarter of 2004, which negatively impacted CSXWT’s 2004 secondthird quarter revenues by approximately $16$17 million. CSXWT anticipates 2004 annual revenues to decline by approximately $51$55 million as a result of this customer loss. In December 2004, another contract with a significant customer is scheduled to expire. Negotiations are in process to maintain this contract, but if negotiations are unsuccessful, 2005 operating income may be negatively impacted by as much as $20 million. CSXWT expects that it will be able to replace all or substantially all of the lost volume with new customers representing long and short-term commercial commitments. It is too early to establish a timeline under which these expectations will be met. In addition, due to the increased competitive pressures, it is possible that the profit margins achieved in the past will not be realized in the near term.
3542
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW, Continued
International Terminals, Continued
In addition to volume, CSXWT monitors terminal productivity or port moves per hour. For the quarters ended June 25, 2004 and June 27, 2003, port productivity for some of the main terminals wasCSX management is currently reviewing long-term performance improvement strategies as follows:
Lifts Per Hour | ||||||||||||
% Improvement | ||||||||||||
Terminal | 2004 | 2003 | (Decline) | |||||||||
Hong Kong, China | 37.9 | 40.6 | -7 | % | ||||||||
Tianjin, China | 33.0 | 34.8 | -5 | % | ||||||||
Adelaide, Australia | 22.8 | 22.1 | 3 | % | ||||||||
Germershiem, Germany | 30.7 | 25.4 | 21 | % | ||||||||
Dominican Republic | 25.0 | 27.0 | -7 | % | ||||||||
Cabello, Venezuela | 15.9 | 15.2 | 5 | % |
CSXWT is implementing initiatives to improve its performance. These initiativeswell as other strategic initiatives. Improvement strategies include efforts to expandexpanding capacity and market reach, maintaindiscontinuing unprofitable operations, improving productivity and improve productivity standards, and replacereplacing volumes and revenues at its Hong Kong facility. During 2003, CSXWT’s minority owned terminal operation locatedNew operations have commenced in Caucedo, Dominican Republic and the Shandong Province of the People’s Republic of China commenced operations. CSXWT has also completedChina. Terminal operations have been terminated in Rio Haina, Dominican Republic and trucking operations have been terminated in Hong Kong. Facility expansion and exit costs negatively impacted earnings through the first phasenine months of its2004.
CSXWT terminal constructionproductivity for the main terminals, defined as lifts per hour, for the quarters ended September 24, 2004 and September 26, 2003, was as follows. It should be noted that there was a decline in Caucedo, which is locatedproductivity in the Dominican Republic. The CaucedoRepublic as operations shifted from an old terminal company is an unconsolidated entity of CSXWT that began operations in December 2003.to the new terminal.
Lifts Per Hour | ||||||||||||
% Improvement | ||||||||||||
Terminal | 2004 | 2003 | (Decline) | |||||||||
Hong Kong, China | 37.4 | 40.1 | (7 | )% | ||||||||
Tianjin, China | 31.0 | 34.4 | (10 | )% | ||||||||
Adelaide, Australia | 23.2 | 23.0 | 1 | % | ||||||||
Germershiem, Germany | 26.4 | 22.1 | 19 | % | ||||||||
Dominican Republic | 17.0 | 25.0 | (32 | )% | ||||||||
Cabello, Venezuela | 14.0 | 16.6 | (16 | )% |
3643
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2004 consists of a 53-week year ending on December 31, 2004. Fiscal year 2003 consisted of 52 weeks ended on December 26, 2003. The financial statements presented are for the 13-week quarters ended June 25,September 24, 2004 and June 27,September 26, 2003, the 26-week39-week periods ended June 25,September 24, 2004 and June 27,September 26, 2003, and as of December 26, 2003. In 2004, the fourth quarter endedending December 31, 2004, consists of 14 weeks.
Quarter ended June 25,September 24, 2004 compared to quarter ended June 27,September 26, 2003
Consolidated Results
Operating Revenue
Despite reduceda $17 million reduction of operating revenue of $16 million in the International Terminals segment, consolidated operating revenue increased $91$98 million to $2.0$1.9 billion in the quarter ended June 25,September 24, 2004 primarily due to volume and price increases within Surface Transportation.
Operating Income
Operating income was $291$264 million for the quarter ended June 25,September 24, 2004, as compared to $285a loss of $98 million for the prior year comparable quarter. Operating expenses increased $85decreased $264 million to $1.7 billion for the quarter ended June 25, 2004, including management restructuring charges of $15 million. Additionally, the Company continues to have challenges in its train operations.September 24, 2004. A discussion of operating expenses by business segment follows.
The Company recorded a charge of $232 million in the third quarter of 2003 to increase its provision for casualty reserves. The decline was primarily the result of the Company’s recording a charge in conjunction with changing its estimate of casualty reserves to include an estimate of incurred but not reported claims for asbestos and other occupational injuries to be received over the next seven years.
Additionally, in the third quarter of 2003, CSX entered into final settlement agreements resolving all material outstanding disputes with Maersk. This decreased operating income by $108 million, and is reflected in operating expense as the additional loss on sale of international container-shipping assets.
The remaining decline in operating income for the third quarter of 2003 was due to a $22 million decrease in operating income from the sale of a majority of CSX’s interest in CSX Lines during the first quarter of 2003 as previously discussed, and increased operating expenses at the Surface Transportation Segment, primarily due to increased materials, supplies and other costs and labor and fringe benefit expense.
Other Income (Expense)
Other income decreased $17increased $4 million for the quarter ended June 25,September 24, 2004, as compared to the prior year comparable quarter, primarily due to the net gain on the Conrail spin-off transaction (See Note 6, Investment In and Integrated Rail Operation With Conrail), but partially offset by a decline in income from real estate and resort operations.
Interest Expense
Interest expense increased $4 million in the quarter ended June 25, 2004, as compared to the prior year quarter due to higher outstanding average debt.
Net Earnings
CSX’s net earnings were $119 million, or 55 cents per share, in the quarter ended June 25, 2004, compared to earnings of $127 million or 59 cents per share for the same period of the prior year. Increases in operating revenue were offset by increases in operating expenses, including management restructuring charges of $15 million, slightly higher interest expense and lower income from real estate and resort operations.
3744
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Consolidated Results, Continued
Interest Expense
Interest expense increased $3 million in the quarter ended September 24, 2004, as compared to the prior year comparable period due to decreased benefits from our interest rate swaps and the exchange of Conrail debt as a result of the Conrail spin-off transaction.
Net Earnings
CSX’s net earnings were $123 million, in the quarter ended September 24, 2004, compared to a net loss of $103 million for the same period of the prior year. The increase is due to strong surface transportation revenue and no significant charges were incurred in the quarter. The decreased operating expenses are partially attributable to the third quarter 2003 charge of $232 million that was recorded in conjunction with the Company’s change in estimate for its casualty reserves.
45
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Consolidated Results, Continued
Segment Results: The following tables provide detail of operating revenue and expense by segment:
(Dollars in Millions) (Unaudited)(a)
Quarters Ended June 25,September 24, 2004 and June 27,September 26, 2003
Surface | International | Eliminations/ | Surface | International | Eliminations/ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rail | Intermodal | Transportation | Terminals | Other(b) | Total | Rail | Intermodal | Transportation | Terminals | Other(b) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | 1,672 | $ | 1,573 | $ | 323 | $ | 314 | $ | 1,995 | $ | 1,887 | $ | 38 | $ | 54 | $ | — | $ | 1 | $ | 2,033 | $ | 1,942 | $ | 1,616 | $ | 1,510 | $ | 322 | $ | 313 | $ | 1,938 | $ | 1,823 | $ | 42 | $ | 59 | $ | — | $ | — | $ | 1,980 | $ | 1,882 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Labor and Fringe | 655 | 645 | 18 | 18 | 673 | 663 | 12 | 13 | 1 | 1 | 686 | 677 | 659 | 626 | 19 | 17 | 678 | 643 | 10 | 12 | — | 1 | 688 | 656 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Materials, Supplies and Other | 373 | 331 | 50 | 47 | 423 | 378 | 15 | 16 | 1 | 2 | 439 | 396 | 352 | 318 | 51 | 48 | 403 | 366 | 15 | 20 | 1 | 1 | 419 | 387 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conrail Rents, Fees & Services | 82 | 87 | — | — | 82 | 87 | — | — | — | — | 82 | 87 | 63 | 86 | — | — | 63 | 86 | — | — | — | — | 63 | 86 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Building and Equipment Rent | 103 | 92 | 41 | 39 | 144 | 131 | 2 | 2 | (4 | ) | (3 | ) | 142 | 130 | 104 | 109 | 36 | 38 | 140 | 147 | 2 | 2 | (3 | ) | (3 | ) | 139 | 146 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inland Transportation | (103 | ) | (98 | ) | 173 | 175 | 70 | 77 | — | 2 | — | — | 70 | 79 | (104 | ) | (100 | ) | 176 | 174 | 72 | 74 | — | 2 | — | — | 72 | 76 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 148 | 148 | 9 | 8 | 157 | 156 | 3 | 2 | 2 | 2 | 162 | 160 | 161 | 145 | 9 | 7 | 170 | 152 | 5 | 3 | 2 | 3 | 177 | 158 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fuel | 151 | 136 | — | — | 151 | 136 | — | — | — | — | 151 | 136 | 162 | 132 | — | — | 162 | 132 | — | — | — | — | 162 | 132 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Miscellaneous | — | — | — | — | — | — | — | 2 | (5 | ) | (10 | ) | (5 | ) | (8 | ) | — | — | — | — | — | — | 2 | — | (9 | ) | (11 | ) | (7 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for Casualty Claims(d) | — | 229 | — | — | — | 229 | — | — | — | 3 | — | 232 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional Loss on Sale(e) | — | — | — | — | — | — | — | — | — | 108 | — | 108 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charge(c) | 14 | — | 1 | — | 15 | — | — | — | — | — | 15 | — | 3 | 10 | — | — | 3 | 10 | — | — | — | — | 3 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Expense | 1,423 | 1,341 | 292 | 287 | 1,715 | 1,628 | 32 | 37 | (5 | ) | (8 | ) | 1,742 | 1,657 | 1,400 | 1,555 | 291 | 284 | 1,691 | 1,839 | 34 | 39 | (9 | ) | 102 | 1,716 | 1,980 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income | $ | 249 | $ | 232 | $ | 31 | $ | 27 | $ | 280 | $ | 259 | $ | 6 | $ | 17 | $ | 5 | $ | 9 | $ | 291 | $ | 285 | $ | 216 | $ | (45 | ) | $ | 31 | $ | 29 | $ | 247 | $ | (16 | ) | $ | 8 | $ | 20 | $ | 9 | $ | (102 | ) | $ | 264 | $ | (98 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Operating Ratio | 85.1 | % | 85.3 | % | 90.4 | % | 91.4 | % | 86.0 | % | 86.3 | % | 84.2 | % | 68.5 | % | 86.6 | % | 103.0 | % | 90.4 | % | 90.7 | % | 87.3 | % | 100.9 | % | 81.0 | % | 66.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SixNine Months Ended June 25,September 24, 2004 and June 27,September 26, 2003 —
Surface | International | Eliminations/ | Surface | International | Eliminations/ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rail | Intermodal | Transportation | Terminals | Other(b) | Total | Rail | Intermodal | Transportation | Terminals | Other(b) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenue | $ | 3,277 | $ | 3,104 | $ | 633 | $ | 616 | $ | 3,910 | $ | 3,720 | $ | 86 | $ | 110 | $ | — | $ | 128 | $ | 3,996 | $ | 3,958 | $ | 4,893 | $ | 4,614 | $ | 955 | $ | 929 | $ | 5,848 | $ | 5,543 | $ | 128 | $ | 169 | $ | — | $ | 128 | $ | 5,976 | $ | 5,840 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Labor and Fringe | 1,321 | 1,293 | 37 | 37 | 1,358 | 1,330 | 25 | 26 | 2 | 60 | 1,385 | 1,416 | 1,980 | 1,919 | 56 | 54 | 2,036 | 1,973 | 35 | 38 | 2 | 61 | 2,073 | 2,072 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Materials, Supplies and Other | 738 | 670 | 100 | 96 | 838 | 766 | 35 | 35 | 1 | 49 | 874 | 850 | 1,090 | 988 | 151 | 144 | 1,241 | 1,132 | 50 | 55 | 2 | 50 | 1,293 | 1,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conrail Rents, Fees & Services | 169 | 173 | — | — | 169 | 173 | — | — | — | — | 169 | 173 | 232 | 259 | — | — | 232 | 259 | — | — | — | — | 232 | 259 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Building and Equipment Rent | 205 | 199 | 75 | 70 | 280 | 269 | 4 | 4 | (7 | ) | 3 | 277 | 276 | 309 | 308 | 111 | 108 | 420 | 416 | 6 | 6 | (10 | ) | — | 416 | 422 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inland Transportation | (204 | ) | (197 | ) | 348 | 348 | 144 | 151 | — | 4 | — | 16 | 144 | 171 | (308 | ) | (297 | ) | 524 | 522 | 216 | 225 | — | 6 | — | 16 | 216 | 247 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 298 | 293 | 19 | 16 | 317 | 309 | 6 | 4 | 4 | 4 | 327 | 317 | 459 | 438 | 28 | 23 | 487 | 461 | 11 | 7 | 6 | 7 | 504 | 475 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fuel | 305 | 294 | — | — | 305 | 294 | — | — | — | 15 | 305 | 309 | 467 | 426 | — | — | 467 | 426 | — | — | — | 15 | 467 | 441 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Miscellaneous | — | — | — | — | — | — | 2 | 5 | (13 | ) | (21 | ) | (11 | ) | (16 | ) | — | — | — | — | — | — | 4 | 5 | (22 | ) | (32 | ) | (18 | ) | (27 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for Casualty Claims(d) | — | 229 | — | — | — | 229 | — | — | — | 3 | — | 232 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional Loss on Sale(e) | — | — | — | — | — | — | — | — | — | 108 | — | 108 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charge(c) | 64 | — | 4 | — | 68 | — | 6 | — | — | — | 74 | — | 67 | 10 | 4 | — | 71 | 10 | 6 | — | — | — | 77 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Expense | 2,896 | 2,725 | 583 | 567 | 3,479 | 3,292 | 78 | 78 | (13 | ) | 126 | 3,544 | 3,496 | 4,296 | 4,280 | 874 | 851 | 5,170 | 5,131 | 112 | 117 | (22 | ) | 228 | 5,260 | 5,476 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Income | $ | 381 | $ | 379 | $ | 50 | $ | 49 | $ | 431 | $ | 428 | $ | 8 | $ | 32 | $ | 13 | $ | 2 | $ | 452 | $ | 462 | $ | 597 | $ | 334 | $ | 81 | $ | 78 | $ | 678 | $ | 412 | $ | 16 | $ | 52 | $ | 22 | $ | (100 | ) | $ | 716 | $ | 364 | |||||||||||||||||||||||||||||||||||||||||||||||
Operating Ratio | 88.4 | % | 87.8 | % | 92.1 | % | 92.0 | % | 89.0 | % | 88.5 | % | 90.7 | % | 70.9 | % | 87.8 | % | 92.8 | % | 91.5 | % | 91.6 | % | 88.4 | % | 92.6 | % | 87.5 | % | 69.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
a) | Prior periods have been reclassified to conform to the current presentation. | |||
b) | Eliminations/Other consists of the following: |
1. | Reclassification of International Terminals minority interest expense | |||
2. | Operations of CSX Lines for 2003 and gain amortization in both years | |||
3. | ||||
4. | Other items |
c) | Restructuring charge is for (1) separation expenses related to the management restructuring announced in November 2003 at Surface Transportation for the quarter and | |||
d) | Represents charges recorded in connection with the Company’s change in estimating casualty reserves, which impacted Surface Transportation operating income by $229 million and operating ratio by 12.6 percent | |||
e) | Represents the charge incurred upon entering into settlement agreements with Maersk. |
3846
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 tables provide Surface Transportation carload and revenue data by service group and commodity:
SURFACE TRANSPORTATION TRAFFIC AND REVENUE(a)
Loads (Thousands); Revenue (Dollars in Millions)
Quarters Ended June 25,September 24, 2004 and June 27,September 26, 2003
Carloads | Revenue | Carloads | Revenue | |||||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | % Change | 2004 | 2003 | % Change | 2004 | 2003 | % Change | 2004 | 2003 | % Change | |||||||||||||||||||||||||||||||||||||
Merchandise | ||||||||||||||||||||||||||||||||||||||||||||||||
Phosphates and Fertilizers | 121 | 113 | 7 | % | $ | 88 | $ | 85 | 4 | % | 107 | 114 | (6) | % | $ | 75 | $ | 74 | 1 | % | ||||||||||||||||||||||||||||
Metals | 95 | 87 | 9 | 125 | 108 | 16 | 95 | 85 | 12 | 129 | 107 | 21 | ||||||||||||||||||||||||||||||||||||
Forest Products | 115 | 116 | (1 | ) | 166 | 159 | 4 | 115 | 115 | — | 171 | 158 | 8 | |||||||||||||||||||||||||||||||||||
Food and Consumer | 61 | 62 | (2 | ) | 92 | 90 | 2 | 59 | 61 | (3 | ) | 93 | 89 | 4 | ||||||||||||||||||||||||||||||||||
Agricultural Products | 89 | 89 | — | 127 | 124 | 2 | 82 | 88 | (7 | ) | 117 | 116 | 1 | |||||||||||||||||||||||||||||||||||
Chemicals | 140 | 133 | 5 | 264 | 243 | 9 | 139 | 136 | 2 | 266 | 248 | 7 | ||||||||||||||||||||||||||||||||||||
Emerging Markets | 134 | 125 | 7 | 129 | 118 | 9 | 126 | 130 | (3 | ) | 120 | 125 | (4 | ) | ||||||||||||||||||||||||||||||||||
Total Merchandise | 755 | 725 | 4 | 991 | 927 | 7 | 723 | 729 | (1 | ) | 971 | 917 | 6 | |||||||||||||||||||||||||||||||||||
Automotive | 135 | 139 | (3 | ) | 220 | 224 | (2 | ) | 112 | 120 | (7 | ) | 185 | 193 | (4 | ) | ||||||||||||||||||||||||||||||||
Coal, Coke and Iron Ore | ||||||||||||||||||||||||||||||||||||||||||||||||
Coal | 410 | 400 | 3 | 426 | 401 | 6 | 406 | 391 | 4 | 423 | 384 | 10 | ||||||||||||||||||||||||||||||||||||
Coke and Iron Ore | 17 | 18 | (6 | ) | 16 | 15 | 7 | 17 | 17 | — | 15 | 14 | 7 | |||||||||||||||||||||||||||||||||||
Total Coal, Coke and Iron Ore | 427 | 418 | 2 | 442 | 416 | 6 | 423 | 408 | 4 | 438 | 398 | 10 | ||||||||||||||||||||||||||||||||||||
Other | — | — | — | 19 | 6 | 217 | — | — | — | 22 | 2 | 1,000 | ||||||||||||||||||||||||||||||||||||
Total Rail | 1,317 | 1,282 | 3 | 1,672 | 1,573 | 6 | 1,258 | 1,257 | — | 1,616 | 1,510 | 7 | ||||||||||||||||||||||||||||||||||||
Intermodal | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 267 | 265 | 1 | 199 | 192 | 4 | 239 | 263 | (9 | ) | 184 | 195 | (6 | ) | ||||||||||||||||||||||||||||||||||
International | 322 | 300 | 7 | 125 | 121 | 3 | 320 | 301 | 6 | 128 | 120 | 7 | ||||||||||||||||||||||||||||||||||||
Other | — | — | — | (1 | ) | 1 | (200 | ) | — | — | — | 10 | (2 | ) | 600 | |||||||||||||||||||||||||||||||||
Total Intermodal | 589 | 565 | 4 | 323 | 314 | 3 | 559 | 564 | (1 | ) | 322 | 313 | 3 | |||||||||||||||||||||||||||||||||||
Total Surface Transportation | 1,906 | 1,847 | 3 | % | $ | 1,995 | $ | 1,887 | 6 | % | 1,817 | 1,821 | — | % | $ | 1,938 | $ | 1,823 | 6 | % | ||||||||||||||||||||||||||||
(a)
(a) | Prior periods have been reclassified to conform to the current presentation. |
3947
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, Continued
SURFACE TRANSPORTATION TRAFFIC AND REVENUE(a)
Loads (Thousands); Revenue (Dollars in Millions)
SixNine Months Ended June 25,September 24, 2004 and June 27,September 26, 2003
Carloads | Revenue | Carloads | Revenue | |||||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | % Change | 2004 | 2003 | % Change | 2004 | 2003 | % Change | 2004 | 2003 | % Change | |||||||||||||||||||||||||||||||||||||
Merchandise | ||||||||||||||||||||||||||||||||||||||||||||||||
Phosphates and Fertilizers | 241 | 230 | 5 | % | $ | 177 | $ | 172 | 3 | % | 348 | 344 | 1 | % | $ | 252 | $ | 246 | 2 | % | ||||||||||||||||||||||||||||
Metals | 189 | 175 | 8 | 244 | 218 | 12 | 284 | 260 | 9 | 373 | 325 | 15 | ||||||||||||||||||||||||||||||||||||
Forest Products | 229 | 230 | — | 325 | 311 | 5 | 344 | 345 | — | 496 | 469 | 6 | ||||||||||||||||||||||||||||||||||||
Food and Consumer | 120 | 120 | — | 179 | 173 | 3 | 179 | 181 | (1 | ) | 272 | 262 | 4 | |||||||||||||||||||||||||||||||||||
Agricultural Products | 181 | 180 | 1 | 258 | 252 | 2 | 263 | 268 | (2 | ) | 375 | 368 | 2 | |||||||||||||||||||||||||||||||||||
Chemicals | 279 | 270 | 3 | 520 | 493 | 5 | 418 | 406 | 3 | 786 | 741 | 6 | ||||||||||||||||||||||||||||||||||||
Emerging Markets | 246 | 226 | 9 | 246 | 230 | 7 | 372 | 356 | 4 | 366 | 355 | 3 | ||||||||||||||||||||||||||||||||||||
Total Merchandise | 1,485 | 1,431 | 4 | 1,949 | 1,849 | 5 | 2,208 | 2,160 | 2 | 2,920 | 2,766 | 6 | ||||||||||||||||||||||||||||||||||||
Automotive | 260 | 270 | (4 | ) | 422 | 432 | (2 | ) | 372 | 390 | (5 | ) | 607 | 625 | (3 | ) | ||||||||||||||||||||||||||||||||
Coal, Coke and Iron Ore | ||||||||||||||||||||||||||||||||||||||||||||||||
Coal | 813 | 773 | 5 | 831 | 771 | 8 | 1,219 | 1,164 | 5 | 1,254 | 1,155 | 9 | ||||||||||||||||||||||||||||||||||||
Coke and Iron Ore | 34 | 30 | 13 | 33 | 28 | 18 | 51 | 47 | 9 | 48 | 42 | 14 | ||||||||||||||||||||||||||||||||||||
Total Coal, Coke and Iron Ore | 847 | 803 | 5 | 864 | 799 | 8 | 1,270 | 1,211 | 5 | 1,302 | 1,197 | 9 | ||||||||||||||||||||||||||||||||||||
Other | — | — | — | 42 | 24 | 75 | — | — | — | 64 | 26 | 146 | ||||||||||||||||||||||||||||||||||||
Total Rail | 2,592 | 2,504 | 4 | 3,277 | 3,104 | 6 | 3,850 | 3,761 | 2 | 4,893 | 4,614 | 6 | ||||||||||||||||||||||||||||||||||||
Intermodal | ||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 521 | 512 | 2 | 391 | 375 | 4 | 760 | 775 | (2 | ) | 575 | 570 | 1 | |||||||||||||||||||||||||||||||||||
International | 617 | 579 | 7 | 242 | 234 | 3 | 937 | 880 | 6 | 370 | 354 | 5 | ||||||||||||||||||||||||||||||||||||
Other | — | — | — | — | 7 | (100 | ) | — | — | — | 10 | 5 | 100 | |||||||||||||||||||||||||||||||||||
Total Intermodal | 1,138 | 1,091 | 4 | 633 | 616 | 3 | 1,697 | 1,655 | 3 | 955 | 929 | 3 | ||||||||||||||||||||||||||||||||||||
Total Surface Transportation | 3,730 | 3,595 | 4 | % | $ | 3,910 | $ | 3,720 | 5 | % | 5,547 | 5,416 | 2 | % | $ | 5,848 | $ | 5,543 | 6 | % | ||||||||||||||||||||||||||||
(a)
(a) | Prior periods have been reclassified to conform to the current presentation. |
4048
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 $99$106 million, or 6%7% in the quarter ended June 25,September 24, 2004, as compared to the quarter ended June 27,September 26, 2003.
Merchandise | ||||
41Merchandise showed improved yield in the third quarter. Overall revenue was up 6% while volume declined 1%. Most markets showed year-over-year improvement in revenue and revenue-per-car due to continued yield management efforts and the Company’s fuel surcharge program.
49
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Rail, Continued
Rail, ContinuedAutomotive
42Coal, Coke and Iron Ore
Coal, coke, and iron ore experienced 10% revenue growth on 4% volume growth. This was driven by significant volume and revenue gains in export, metallurgical, northern utilities and industrial markets. All lines of business reflect favorable year-over-year revenue-per-car gains. However, certain mines experienced flooding in the aftermath of Hurricane Ivan, which hampered production. Hurricanes further hampered service and volume growth.
Other
Other revenue for the third quarter 2004 includes $16 million for FRT, a short-line railroad consolidated in 2004 pursuant to FASB Interpretation No. 46,“Consolidation of Variable Interest Entities”. Prior to 2004, FRT was accounted for under the equity method.
50
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Rail, Continued
Operating Expense
51
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Rail, Continued
Operating Expense
• | ||||
• | Restructuring Charge |
Operating Income
Operating income increased $17$261 million to $249$216 million for the quarter ended June 25,September 24, 2004, compared to $232a net loss of $45 million for the quarter ended June 27, 2003, despite restructuring charges of $14 million.
43
CSX CORPORATION AND SUBSIDIARIESITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTSOF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, ContinuedSeptember 26, 2003.
Intermodal
Operating Revenue
• | Domestic –Gains in truck brokerage were offset by weakness in transcontinental domestic business. The yield in the truck brokerage business is benefiting from system and process improvements. Service levels continue to be a challenge. Some weakening in volume was due to the company’s Network Simplification Initiative. | |||
• | International –Volume growth continued due to |
Operating Expense
Intermodal operating expense increased $5$7 million, or 2%3%, compared to the prior year quarter. Thisquarter, resulting primarily from an increase is primarilyin terminal and trucking costs related to volume levels, whichmix changes. Additionally, depreciation expense increased 4% over the quarter ended June 27, 2003. A restructuring charge of $1 million represents the current charge for separation expenses related to the management restructuring announced in November 2003.$2 million.
Operating Income
Intermodal operating income increased $4$2 million, or 15%7%, compared to the prior year quarter. This is relatedquarter due to the volumea reduction in incentive refunds and associated revenue increases regarding International traffic as well as continuedincreased supplemental charges. Continued yield improvements in the truck brokerage segment.domestic business segment are also driving the increase.
International Terminals Results
Operating Revenue
Revenue decreased $16 million to $38 million for the second quarter of 2004, compared to $54 million in the second quarter of 2003, primarily due to the loss of a significant customer at its Hong Kong operations.
Operating Expense
Expense decreased $5 million to $32 million for the second quarter of 2004, compared to $37 million in the second quarter of 2003, primarily attributable to the lower customer volume in Hong Kong.
Operating Income
Operating income decreased $11 million for the second quarter of 2004, as compared to the second quarter of 2003.
4452
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Six months ended June 25,International Terminals Results
Operating Revenue
Revenue decreased $17 million to $42 million for the third quarter of 2004, compared to six$59 million in the third quarter of 2003, primarily due to the loss of a significant customer at its Hong Kong operations.
Operating Expense
Operating expense decreased $5 million to $34 million for the third quarter of 2004, compared to $39 million in the third quarter of 2003. This is attributable to lower expenses due to decreased customer volume in Hong Kong, offset by a write-down of capitalized software.
Operating Income
Operating income decreased $12 million for the third quarter of 2004, as compared to the third quarter of 2003.
Nine months ended June 27,September 24, 2004 compared to nine months ended September 26, 2003
Consolidated Results
Operating Revenue
Consolidated operating revenue increased $38$136 million to $4.0$5.9 billion for the sixnine months ended June 25,September 24, 2004, despite decreased revenue in the International Terminals segment of $24$41 million. Operating revenues for the six months ended June 27, 2003, included $128 million in revenue generated by CSX Lines.
Operating Income
Operating income was $452$716 million for the sixnine months ended June 25,September 24, 2004, as compared to $462$364 million for the prior year comparable period. Operating expenses increased $48decreased $216 million to $3.5$5.3 billion for the sixnine months ended June 25,September 24, 2004, including management restructuring charges of $74 million.primarily due to the provision for casualty claims charge taken in 2003.
Other Income (Expense)
Other income decreased $13 million to $17 million for the sixnine months ended June 25,September 24, 2004, as compared to $30 million for the prior quarter,year comparable period, primarily due to a decline in income from real estate and resort operations. This decrease was partially off-set by the net gain of $16 million, after tax, related to the Conrail spin-off transaction. (See Note 6, Investment In and Integrated Rail Operation with Conrail)
53
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Consolidated Results, Continued
Interest Expense
Interest expense increased $9$12 million for the sixnine months ended June 25,September 24, 2004, as compared to the prior year comparable period due to due to higher outstanding average debt.decreased benefits from our interest rate swaps and the exchange of Conrail debt, as a result of the Conrail spin-off transaction.
Net Earnings
Net earnings for the sixnine months ended June 27,September 26, 2003 included a cumulative effect of an accounting change of $93 million, $57 million after tax, or 26 cents per share representing the reversal of the accrued liability for crosstie removal costs related to the adoption of SFAS 143, “Accounting for Asset Retirement Obligations”.
Earnings before the cumulative effect of accounting changes were $227$272 million, or 69 cents per share, and $263$66 million or 79 cents per share, for the sixnine months ended June 25,September 24, 2004 and June 27,September 26, 2003, respectively. IncreasesDuring the first three quarters of 2004, increases in operating revenues were offset by increasesand decreases in operating expenses, includingwere partially offset by management restructuring charges of $74$77 million, higher interest expense, and lower income from real estate and resort operations.
45
CSX CORPORATION AND SUBSIDIARIESITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTSOF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Consolidated Results, Continued The effective tax rate for the nine month period ending September 26, 2003 was lower than the Company’s historical effective tax rate due to a change in the mix of earnings to lower tax rate jurisdictions and a favorable adjustment to deferred state tax liabilities.
Divestitures
In February 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 subleased vessels and equipment from certain affiliates of CSX covering the primary financial obligations related to $300$265 million of leases under which CSX orand one of its affiliates will remain a lessee / lessee/sublessor or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction will beis being recognized over the 12-year sub-lease term. The securities have a term of 7 years and a preferred return feature. During the third quarter of 2003, CSX received a $15 million payment from Horizon, Lines, which included $3 million of interest, in return of a portion of its investment in Horizon. $226 million is shown as proceeds from divestiture in the investing section of the Consolidated Statement of Cash Flows and $3 million is included in net earnings. (See Note 4, Divestitures)
54
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
OnIn July 7, 2004, Horizon completed a merger with awas acquired by an unrelated third party, and CSX received $59 million, which included $52$48 million for the purchase of its ownership interest in Horizon, $4 million of interest, and a performance payment of $7 million.million, which will also be recognized over the 12-year sub-lease term. $55 million is shown as proceeds from divestiture in the investing section of the Consolidated Statement of Cash Flows and $4 million is included in net earnings. However, CSX orand one of its affiliates will continue to remain a lesseelessee/sublessor or guarantor on certain vessels and equipment as long as the subleases remain in effect. (See Note 13, Commitments and Contingencies.)
New Accounting Pronouncements and Cumulative Effect of Accounting Change
Statement of Financial Accounting Standard (“SFAS”)SFAS 143, “Accounting for Asset Retirement Obligations” was issued in 2001. 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 fiscal year 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 in the first quarter, 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 doeswill not believe it will have a material effect on future earnings.
SFAS 148, “Accounting for Stock-Based Compensation – Transition–Transition and Disclosure”Disclosure an amendment of SFAS 123” was issued in December 2002. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to StatementSFAS 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 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.”148. In accordance with the prospective method of adoption permitted under SFAS 148, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, are expensed. (See Note 11, Stock Based Compensation.)
46
CSX CORPORATION AND SUBSIDIARIESITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTSOF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS, Continued
Consolidated Results, Continued
New Accounting Pronouncements and Cumulative Effect of Accounting Change, ContinuedCompensation)
In 2003, the Financial Accounting Standards Board (“FASB”)FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires a variable interest entity (“VIE”) to be consolidated by a company that is subject to a majority of the risk of loss from the VIE’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Under the new guidance, CSX consolidated Four Rivers Transportation, Inc. (“FRT”), a shortline railroad, into its financial statements at the beginning of fiscal 2004. Previously, FRT was accounted for under the equity method of accounting. The consolidation of FRT did not have a material impact on the Company’s financial statements.
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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 increased $360$261 million to $728$629 million at June 25,September 24, 2004, from $368 million at December 26, 2003. Primary sources of cash and cash equivalents during the sixnine months ended June 25,September 24, 2004 include normal transportation operations supplemented by $701$400 million in bankfloating rate notes and commercial paperbank borrowings.
See Note 3, Debt and Credit Agreements, for discussion of the Company’s revolving credit agreements.
As of June 25,September 24, 2004, CSX Corporation’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and by Moody’s Investor Service, respectively. If CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, the Company’s undrawn borrowing costs under the $1.2 billion and $400 million revolving credit facilities would not materially increase. However, at June 25, 2004, the Company had no borrowings outstanding under these credit facilities. The Company’s short-term commercial paper program is rated A-3 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively. On March 30, 2004, Standard and Poor’s lowered the Company’s short-term rating from A-2 to A-3 and revised the outlook from stable to negative. This increases the Company’s borrowing costs in the commercial paper market and reduces the Company’s access to these funds because of the limited demand for A-3 commercial paper. On July 6, 2004, Moody’s Investor Service reaffirmed the Company’s short and long-term unsecured debt ratings, but adjusted the outlook from stable to negative. If CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, the Company’s undrawn borrowing costs under the $1.2 billion and $400 million revolving credit facilities would not materially increase. At September 24, 2004, the Company had no borrowings outstanding under these credit facilities. The Company’s short-term commercial paper program is rated A-3 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively.
The Company had $301 million of commercial paper borrowings outstanding at June 25, 2004 at a weighted average interest rate of 1.37%. There were no commercial paper borrowings outstanding at September 24, 2004 or December 26, 2003.
Outstanding debt obligations of $300 million matured on August 23, 2004. The Company settled these obligations with cash and short-term investments on hand.
CSX’s working capital at September 24, 2004 was $298 million, compared to a deficit of $307 million at December 26, 2003. This change is primarily driven by an increase of cash, cash equivalents, short-term investments, and a decrease in debt that will become due within 12 months. The Company believes that in future periods working capital will return to a deficit. A working capital deficit is not unusual for the Company and other companies in the industry and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due and has sufficient financial capacity to manage its day-to-day cash requirements and any obligations arising from legal, tax and other regulatory rulings.
Shelf Registration Statements
CSX currently has $1.2 billion$900 million of capacity under an effective shelf registration that may be used, subject to market conditions and board authorization, to issue debt or equity securities at the Company’s discretion. The Company presently intends to use the proceeds from the sale of any securities issued under its shelf registration statement to finance cash requirements, including refinancing existing debt as it matures. While the Company seeks to give itself flexibility with respect to meeting such needs, there can be no assurance that market conditions would permit the Company to sell such securities on acceptable terms at any given time, or at all.
Outstanding debt obligations of $300 million matured on May 3, 2004. The Company settled these obligations with cash and short-term investments on hand.
CSX’s working capital deficit at June 25, 2004 was $219 million, compared to $307 million at December 26, 2003. A working capital deficit is not unusual for the Company and other companies in the industry and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due and has sufficient financial capacity to manage its day-to-day cash requirements and any obligations arising from legal, tax and other regulatory rulings.
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CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES, Continued
FINANCIAL DATA
June 25, | December 26, | September 24, | December 26, | |||||||||||||
(Dollars in Millions) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Cash, Cash Equivalents and Short-Term Investments | $ | 728 | $ | 368 | $ | 629 | $ | 368 | ||||||||
Working Capital (Deficit) | $ | (219 | ) | $ | (307 | ) | $ | 298 | $ | (307 | ) | |||||
Current Ratio | 0.9 | 0.9 | 1.1 | 0.9 | ||||||||||||
Debt Ratio | 50 | % | 51 | % | 49 | % | 51 | % | ||||||||
Ratio of Earnings to Fixed Charges | 1.8 | X | 1.5 | X | 1.8 | X | 1.5 | X |
FACTORS EXPECTED TO INFLUENCE 2004
As more fully discussed in the Company’s most recent Annual Report and Form 10-K, management believes that in addition to general economic factors, including variability in fuel costs, there are certain key factors that may influence 2004 operating results. These include the Company’s ability to improve Surface Transportation operating efficiency through implementation of the ONE PLAN and other initiatives during a period of high demand for rail services; the inherent business risks associated with safety and security; and the Company’s ability to improve performance in its terminal business.
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CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
See Background, Accounting and Financial Reporting Effects and Summary Financial Information in Note 6, Investment In and Integrated Rail Operations with Conrail.
Conrail’s Results of Operations
Conrail reported net income of $49$33 million in the secondthird quarter of 2004, compared to $39$42 million in the prior year secondthird quarter. Operating revenues increased $5decreased $41 million to $236$187 million for the quarter ended June 25,September 24, 2004, while operating expenses decreased $3$20 million for the same period.
InAs previously reported, in June 2003 CSX, NSNorfolk Southern Corporation (“NS”), and Conrail Inc. (“Conrail”) jointly filed a petition with the STBSurface Transportation Board (“STB”) to establish direct ownership and control by CSX’s and NS’ respective subsidiaries, CSXTCSX Transportation, Inc. (“CSXT”) and NSR,Norfolk Southern Railway Company (“NSR”), of CSX’s and NS’ portions of the Conrail system already operated by them separately and independently under various agreements. These portions of the Conrail system are currentlywere owned by Conrail’s subsidiaries, NYCNew York Central Lines, LLC (“NYC”) and PRR. ThePennsylvania Lines, LLC (“PRR”). In August 2004, the following events occurred: (i) the ownership ofo NYC and PRR would ultimately bewas transferred (“spun off”) to CSXT and NSR, respectively. Conrail would continue to own, managerespectively, and operate the Shared Assets Areas as previously approved by the STB. STB approval to proceed with the spin-off transaction and a favorable ruling from the IRS qualifying the transaction as a non-taxable distribution were received in November 2003. On July 26, 2004,(ii) CSXT launchedconsummated an exchange offer pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) that describes the offer to exchangeof new unsecured securities of subsidiaries of CSXT and NSR and cash for unsecured securities of Conrail. The exchange offer which is subject to a number of conditions, will bewas the final stage in the restructuring of Conrail’s unsecured indebtedness as described in the parties’parties joint petition filed with the STB.
If all necessary conditions are satisfied,CSXT and NSR offered unsecured debt securities of newly formed subsidiaries of CSXT and NSR would be offered in an approximate 42%/58% ratio along with cash payments in exchange for Conrail’s unsecured debentures. The debt securities issued by itseach respective subsidiary would bewere fully and unconditionally guaranteed by CSXT orand NSR. Upon completion of the proposed transaction, the subsidiaries would be merged into CSXT and NSR, respectively, and the new debt securities thus would becomebecame direct unsecured obligations of CSXT and NSR. Conrail’s secured debt and lease obligations remained obligations of CSXT or NSR. Conrail’s secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which upon completion of the proposed transaction, would bebecame the direct lease and sublease obligations, also in an approximate 42%/58% ratio, of CSXT and NSR. CSXT will record this
Prior to the transaction, CSX’s and NS’ indirect ownership interest in NYC and PRR mirror their ownership interest in Conrail (42% for CSX and 58% for NS). Subsequent to the transaction, CSX obtained direct ownership of all NYC and NS obtained direct ownership PRR. Thus, CSX in effect received NS’ 58% indirect ownership in NYC and NS in effect received CSX’s 42% indirect ownership of PRR. The receipt of the interests not already indirectly owned by CSX was accounted for at fair value based on the results of an independent valuation.
CSX, NS and Conrail are working to complete all necessary steps to consummate the spin-off transaction in 2004. Upon consummationvalue. The receipt of the proposed transaction,NYC interest already indirectly owned by CSX was accounted for using CSX’s basis in amounts already included within CSX’s investment in Conrail will no longer include the amounts related to NYC and PRR. Instead the assets and liabilities of NYC will be reflected in their respective line items in CSX’s consolidated balance sheet. Conrail will continue to own, manage and operate the Shared Assets Areas.Conrail.
The preliminary results of an appraisalAs a result of the NYC properties indicate that their aggregatetransaction, the Company recognized a net gain of $16 million, after tax, which is included in other income. The accounting for the transaction could be adjusted upon receipt of the final third party valuation and allocation of fair value will likely exceed CSX’s carrying amount.to individual assets.
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CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OTHER MATTERS
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of certain revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates using management judgment are made for the following areas:
1. | Casualty, legal and environmental reserves | |||
2. | Pension and postretirement medical plan accounting | |||
3. | Depreciation policies for its assets under the group-life method |
These estimates and assumptions are discussed with the Audit Committee of the Board of Directors on a regular basis. For information regarding CSX’s significant estimates using management judgment, see Management’s Discussion and Analysis of the Results of Operations in the Company’s Form 10-K for the year ended December 26, 2003.
51Matters Arising from Sale of International Container-Shipping Assets
In 2003, CSX finalized a settlement agreement with Maersk resolving all remaining material disputes pending directly between the two companies, consisting predominantly of two major disputes. The first dispute involved a post-closing working capital adjustment to the sale price for which the Company had recorded a receivable of approximately $70 million. The second dispute involved a claim of 425 million Dutch Guilders (approximately $180 million at then prevailing currency exchange rates) plus interest by European Container Terminals (“ECT”) alleging breaches of contract by the Company at the Rotterdam container terminal facility owned by ECT.
Also in 2003, CSX entered into a final settlement agreement with Maersk allocating responsibility between the two companies for third party claims and litigation relating to the assets acquired by Maersk.
The two settlements reduced the Company’s 2003 earnings by $108 million pretax, $67 million after tax. This charge is reflected in the financial statements as an additional loss on the sale of the international container-shipping assets. Neither settlement has a material impact on cash flows.
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CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OTHER MATTERS, Continued
Principal Accountant Services
Our independent auditor, Ernst & Young LLP (“E&Y”) recently notified the SEC, the Public Company Oversight Board, and the Audit Committee of our Board of Directors that certain non-audit services E&Y performed in China for a large number of public Companies, including CSX, have raised questions regarding E&Y’s independence in its performance of audit services.
With respect to CSX, from January 1996 through June 2003, E&Y performed tax calculation and preparation services for CSX employees located in China (4 employees during the applicable period), and E&Y’s affiliated firm in China made payments of the relevant taxes on behalf of two unconsolidated CSX affiliates. In addition, E&Y prepared business tax and corporate income tax returns and arranged for a one-time payment on behalf of an unconsolidated CSX affiliate in October of 2002. The payments of those taxes involved handling of Company related funds, which is not permitted under SEC auditor independence rules. These actions by affiliates of E&Y have been discontinued, and both the amount of the taxes and fees paid to E&Y in connection with these services are de minimis.
The Audit Committee and E&Y discussed E&Y’s independence with respect to the Company in light of the foregoing facts. E&Y informed the Audit Committee that it does not believe that the holding and paying of those funds impaired E&Y’s independence with respect to the Company. The Company, based on its own review, also is not aware of any additional non-audit services that may compromise E&Y’s independence in performing audit services for the Company. The Audit Committee and the Company have considered the impacts of the actions by the affiliates of E&Y, and have independently concluded that these actions do not have an impact of E&Y’s independence.
60
CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
This Quarterly Reportquarterly 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. The Company cautions against placing undue reliance on forward-looking statements, which reflect its current beliefs and are based on information currently available to it as of the date the forward-looking statement is made. 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:
• | Operating factors — the Company’s success in implementing its financial and operational initiatives, the extent to which the Company is successful in gaining long-term relationships with new customers or retaining existing relationships with current customers, changes in operating conditions and costs, competition, commodity concentrations, computer viruses, changes in labor costs and labor difficulties including stoppages affecting either the Company’s operations or our customers’ ability to deliver goods to the Company for shipment, the Company’s ability to improve Surface Transportation operating efficiency through the execution of the ONE PLAN during a period of high demand for rail services, the Company’s ability to improve performance in its terminal business, loss of essential services such as electricity, the inherent business risks associated with safety and security, and natural occurrences such as extreme weather conditions, floods and earthquakes, or other disruptions of the Company’s operations, systems, property or equipment; | |||
• | General economic and industry factors — material changes in domestic or international economic or business conditions, including those affecting the rail industry such as customer demand, effects of adverse economic conditions affecting shippers, adverse economic conditions in the industries and geographic areas that consume and produce freight, competition from other modes of freight transportation such as trucking, competition and consolidation within the transportation industry generally, changes in fuel prices and changes in securities and capital markets; | |||
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CSX CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT��SMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS, Continued
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 Report and in the Company’s other SEC reports, accessible on the SEC’s website at www.sec.gov and the Company’s website at www.csx.com.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CSX addresses market risk exposure to fluctuations in interest rates and the risk of volatility in its fuel costs through the use of derivative financial instruments. The Company does not hold or issue derivative financial instruments for trading purposes.
The Company addresses its exposure to interest rate market risk through a controlled program of risk management that includes the use of interest rate swap agreements. As of June 25,September 24, 2004, the Company had various interest rate swap agreements on $950 million of its outstanding notes payable. In the event of a 1% increase or decrease in the LIBOR interest rate, the interest expense related to these agreements would increase or decrease approximately $10 million on an annual basis.
During 2003, the Company began a program to hedge its exposure to fuel price volatility through swap transactions. As of June 25,September 24, 2004, CSX had hedged approximately 33%40%, 48%46%, and 20%12% of expected requirementsfuel purchases for 2004, 2005, and 2006, respectively. The Company expects that by the end of 2004 the programs will result in an increase in the amount of fuel hedged to approximately 72% of 2005 annual purchases. At June 25,September 24, 2004, a 1% change in fuel prices would result in an increase or decrease in the asset related to the swaps of approximately $5 million. The Company is subject to risk relating to changes in the price of diesel fuel. As of June 25, 2004, the Company had not entered into any long-term commitments for forward fuel purchases. The Company’s rail unit average annual fuel consumption is approximately 622615 million gallons. A one-cent change in the price per gallon of fuel would affect fuel expense by approximately $5 million.million annually.
The Company is exposed to loss in the event of non-performance by any counter-party to the interest rate swap or fuel hedging agreements. The Company does not anticipate non-performance by such counter-parties, and no material loss would be expected from non-performance.
Exclusive of derivative contracts that swap fixed interest rate notes to floating interest rates, at June 25, 2004 and December 26, 2003, CSX had approximately $910$603 million and $714 million, respectively, of floating rate debt outstanding.outstanding at September 24, 2004. A 1% variance in interest rates would on average affect annual interest expense by approximately $9$6 million.
While the Company’s international terminals segment does business in several foreign countries, a substantial portion of its revenue and expenses are transacted in U.S. dollars, or 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 impact earnings per share due to the dilutive effect of stock options and convertible debt.
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CSX CORPORATION AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Beginning in the fourth quarter of 2004, CSX may be required to include approximately 10 million shares underlying its convertible debt instrument using the if-converted method in the computation of earnings per share, assuming dilution. The dilutive impact for all periods is expected to be in the range of 2%-5%.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
As of June 25,September 24, 2004, 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 June 25,September 24, 2004. There were no changes in the Company’s internal controls over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
For information relating to CSX’s settlements and other legal proceedings, see Note 13.
ITEM 2: CHANGES INUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSAND ISSUER PURCHASES OF EQUITY SECURITIES
NONE.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
NONE.
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CSX CORPORATION AND SUBSIDIARIES
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Votes | Votes | Broker | ||||||||||
Nominee | For | Withheld | Non-Votes | |||||||||
Elizabeth E. Bailey | 158,943,669 | 30,486,688 | — | |||||||||
Robert L. Burrus, Jr. | 136,269,650 | 53,160,707 | — | |||||||||
Edward J. Kelly III | 158,152,316 | 31,278,041 | — | |||||||||
Robert D. Kunisch | 159,868,772 | 29,561,585 | — | |||||||||
Southwood J. Morcott | 160,080,918 | 29,349,439 | — | |||||||||
David M. Ratcliffe | 147,848,586 | 41,581,771 | — | |||||||||
Charles E. Rice | 159,652,560 | 29,777,797 | — | |||||||||
William C. Richardson | 158,765,190 | 30,665,167 | — | |||||||||
Frank S. Royal | 158,738,475 | 30,691,882 | — | |||||||||
Donald J. Shepard | 160,028,051 | 29,402,306 | — | |||||||||
Michael J. Ward | 160,123,102 | 29,307,255 | — |
Votes | Broker | |||||||||||
Votes For | Against | Abstentions | Non-Votes | |||||||||
182,010,197 | 5,684,418 | 1,735,742 | — |
Votes | Broker | |||||||||||
Votes For | Against | Abstentions | Non-Votes | |||||||||
13,172,384 | 148,562,969 | 2,476,642 | 25,218,362 |
Votes | Broker | |||||||||||
Votes For | Against | Abstentions | Non-Votes | |||||||||
117,161,943 | 44,479,234 | 2,568,610 | 25,220,570 |
55
CSX CORPORATION AND SUBSIDIARIES
Votes | Broker | |||||||||||
Votes For | Against | Abstentions | Non-Votes | |||||||||
116,479,359 | 43,191,089 | 4,537,339 | 25,222,570 |
ITEM 5: OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1* | Principal Executive Officer Certification Pursuant to Rule 13a-14(a) | |
31.2* | Principal Financial Officer Certification Pursuant to Rule 13a-14(a) | |
32.1* | Principal Executive Officer Certification Pursuant to Rule 13a-14(b) | |
32.2* | Principal Financial Officer Certification Pursuant to Rule 13a-14(b). |
(b) Reports on Form 8-K
NONE.
* • Filed herewith
56
CSX CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CSX CORPORATION (Registrant) | |||||||
By: | /s/ CAROLYN T. SIZEMORE | ||||||
Carolyn T. Sizemore | |||||||
Vice President and Controller (Principal Accounting Officer) | |||||||
Dated: July 28,November 3, 2004
5764