SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
x | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended June 28,September 27, 2002
OR
¨ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number 1-3359
CSX TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
Virginia | | 54-6000720 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
500 Water Street, Jacksonville, Florida | | 32202 |
(Address of principal executive offices) | | (Zip Code) |
(904) 359-3100
(Registrant’s telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 28, 2002: 9,061,038 shares.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 28,September 27, 2002
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PART I. | | FINANCIAL INFORMATION | | |
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Item 1: | | Financial Statements | | |
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Item 3: |
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PART II. | | OTHER INFORMATION | | |
Item 6: |
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGSConsolidated Statement of Earnings(Millions of Dollars)
| | | Quarter Ended
| | | Nine Months Ended
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| | (Unaudited) | | September 27, 2002
| | | September 28, 2001
| | | September 27, 2002
| | September 28, 2001
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| | Quarter Ended
| | Six Months Ended
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| | June 28, 2002
| | | June 29, 2001
| | June 28, 2002
| | June 29, 2001
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OPERATING REVENUE | | | | | | | | | | | | | | | | |
Merchandise | | $ | 893 | | | $ | 881 | | $ | 1,761 | | $ | 1,771 | | $ | 871 | | | $ | 852 | | | $ | 2,632 | | $ | 2,623 | |
Automotive | | | 231 | | | | 213 | | | 431 | | | 407 | | | 195 | | | | 184 | | | | 626 | | | 591 | |
Coal, Coke & Iron Ore | | | 398 | | | | 436 | | | 795 | | | 866 | | | 401 | | | | 435 | | | | 1,196 | | | 1,301 | |
Other | | | 16 | | | | 26 | | | 37 | | | 44 | | | 6 | | | | 24 | | | | 43 | | | 68 | |
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Total | | | 1,538 | | | | 1,556 | | | 3,024 | | | 3,088 | | | 1,473 | | | | 1,495 | | | | 4,497 | | | 4,583 | |
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| OPERATING EXPENSE | | | | | | | | | | | | | | | | |
Labor and Fringe | | | 605 | | | | 618 | | | 1,219 | | | 1,248 | | | 611 | | | | 606 | | | | 1,830 | | | 1,854 | |
Materials, Supplies and Other | | | 285 | | | | 283 | | | 571 | | | 555 | | | 261 | | | | 282 | | | | 832 | | | 837 | |
Conrail Operating Fee, Rent and Services | | | 86 | | | | 89 | | | 174 | | | 177 | | | 86 | | | | 84 | | | | 260 | | | 261 | |
Related Party Service Fees | | | 68 | | | | 48 | | | 147 | | | 96 | | | (9 | ) | | | 44 | | | | 138 | | | 140 | |
Equipment Rent | | | 103 | | | | 104 | | | 199 | | | 215 | |
Building and Equipment Rent | | | | 112 | | | | 102 | | | | 311 | | | 317 | |
Depreciation | | | 131 | | | | 131 | | | 261 | | | 262 | | | 136 | | | | 130 | | | | 397 | | | 392 | |
Fuel | | | 112 | | | | 131 | | | 216 | | | 285 | | | 109 | | | | 123 | | | | 325 | | | 408 | |
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Total | | | 1,390 | | | | 1,404 | | | 2,787 | | | 2,838 | | | 1,306 | | | | 1,371 | | | | 4,093 | | | 4,209 | |
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| OPERATING INCOME | | | 148 | | | | 152 | | | 237 | | | 250 | | | 167 | | | | 124 | | | | 404 | | | 374 | |
| Other Income (Expense) | | | (17 | ) | | | 18 | | | 1 | | | 5 | | | 16 | | | | (6 | ) | | | 17 | | | (1 | ) |
| Interest Expense | | | 28 | | | | 32 | | | 58 | | | 67 | | | 28 | | | | 30 | | | | 86 | | | 97 | |
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| EARNINGS BEFORE INCOME TAXES | | | 103 | | | | 138 | | | 180 | | | 188 | | | 155 | | | | 88 | | | | 335 | | | 276 | |
| Income Tax Expense | | | 39 | | | | 54 | | | 69 | | | 73 | | | 58 | | | | 31 | | | | 127 | | | 104 | |
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NET EARNINGS | | $ | 64 | | | $ | 84 | | $ | 111 | | $ | 115 | | $ | 97 | | | $ | 57 | | | $ | 208 | | $ | 172 | |
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See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWSConsolidated Statement of Cash Flows(Millions of Dollars)
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| | (Unaudited) | | | Nine Months Ended
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| | Six Months Ended
| | | September 27, 2002
| | | September 28, 2001
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| | June 28, 2002
| | | June 29, 2001
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OPERATING ACTIVITIES | | | | | | | | |
Net Earnings | | $ | 111 | | | $ | 115 | | | $ | 208 | | | $ | 172 | |
Adjustments to Reconcile Net Earnings to Net Cash Provided: | | | | | | | | |
Depreciation | | | 261 | | | | 262 | | | | 397 | | | | 392 | |
Deferred Income Taxes | | | 68 | | | | 57 | | | | 144 | | | | 87 | |
Other Operating Activities | | | 8 | | | | 4 | | | | 5 | | | | (17 | ) |
Changes in Operating Assets and Liabilities: | | | | | | | | |
Accounts and Notes Receivable | | | 46 | | | | (54 | ) | | | (15 | ) | | | (26 | ) |
Sale of Accounts Receivable, Net | | | 19 | | | | 49 | | | | (29 | ) | | | 10 | |
Other Current Assets | | | (34 | ) | | | (15 | ) | | | (39 | ) | | | (14 | ) |
Accounts Payable | | | (66 | ) | | | 8 | | | | (81 | ) | | | (145 | ) |
Other Current Liabilities | | | (12 | ) | | | 19 | | | | (108 | ) | | | 66 | |
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Net Cash Provided by Operating Activities | | | 401 | | | | 445 | | | | 482 | | | | 525 | |
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| INVESTING ACTIVITIES | | | | | | | | |
Property Additions | | | (352 | ) | | | (377 | ) | | | (647 | ) | | | (566 | ) |
Short-term Investments | | | 137 | | | | — | | | | 220 | | | | — | |
Other Investing Activities | | | (2 | ) | | | 6 | | | | (5 | ) | | | 1 | |
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Net Cash Used by Investing Activities | | | (217 | ) | | | (371 | ) | | | (432 | ) | | | (565 | ) |
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| FINANCING ACTIVITIES | | | | | | | | |
Long-term Debt Issued | | | 1 | | | | — | | |
Long-term Debt Repaid | | | (150 | ) | | | (118 | ) | | | (172 | ) | | | (134 | ) |
Advances from CSX | | | 79 | | | | 118 | | | | 244 | | | | 324 | |
Dividends Paid | | | (100 | ) | | | (106 | ) | | | (150 | ) | | | (159 | ) |
Other Financing Activities | | | 1 | | | | 4 | | | | 1 | | | | 4 | |
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Net Cash Used by Financing Activities | | | (169 | ) | | | (102 | ) | |
Net Cash (Used) Provided by Financing Activities | | | | (77 | ) | | | 35 | |
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Net Increase (Decrease) in Cash and Cash Equivalents | | | 15 | | | | (28 | ) | |
Net Decrease in Cash and Cash Equivalents | | | | (27 | ) | | | (5 | ) |
| CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS | | | | | | | | |
Cash and Cash Equivalents at Beginning of Period | | | 27 | | | | 28 | | | | 27 | | | | 28 | |
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Cash and Cash Equivalents at End of Period | | | 42 | | | | — | | | | — | | | | 23 | |
Short-term Investments at End of Period | | | 83 | | | | — | | | | — | | | | — | |
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Cash, Cash Equivalents and Short-term Investments at End of Period | | $ | 125 | | | $ | — | | | $ | — | | | $ | 23 | |
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See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONConsolidated Statement of Financial Position(Millions of Dollars)
| | (Unaudited) | | | | | | September 27, 2002
| | | December 28, 2001
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| | June 28, 2002
| | | December 28, 2001
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ASSETS | | | | | | | | |
| Current Assets | | | | | | | | |
Cash, Cash Equivalents and Short-term Investments | | $ | 125 | | | $ | 247 | | | $ | — | | | $ | 247 | |
Accounts Receivable, Net | | | 192 | | | | 289 | | | | 275 | | | | 289 | |
Notes Receivable | | | 47 | | | | 62 | | | | 52 | | | | 62 | |
Materials and Supplies | | | 190 | | | | 181 | | | | 183 | | | | 181 | |
Deferred Income Taxes | | | 101 | | | | 142 | | | | 101 | | | | 142 | |
Income Taxes Receivable | | | 78 | | | | 78 | | | | 78 | | | | 78 | |
Other Current Assets | | | 52 | | | | 32 | | | | 63 | | | | 32 | |
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Total Current Assets | | | 785 | | | | 1,031 | | | | 752 | | | | 1,031 | |
| Properties | | | 16,877 | | | | 16,644 | | | | 16,992 | | | | 16,644 | |
Accumulated Depreciation | | | (4,580 | ) | | | (4,427 | ) | | | (4,539 | ) | | | (4,427 | ) |
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Properties—Net | | | 12,297 | | | | 12,217 | | |
Properties-Net | | | | 12,453 | | | | 12,217 | |
| Affiliates and Other Companies | | | 206 | | | | 198 | | | | 212 | | | | 198 | |
Other Long-term Assets | | | 567 | | | | 567 | | | | 609 | | | | 567 | |
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Total Assets | | $ | 13,855 | | | $ | 14,013 | | | $ | 14,026 | | | $ | 14,013 | |
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LIABILITIES | | | | | | | | |
| Current Liabilities | | | | | | | | |
Accounts Payable | | $ | 661 | | | $ | 736 | | | $ | 624 | | | $ | 736 | |
Labor and Fringe Benefits Payable | | | 312 | | | | 320 | | | | 286 | | | | 320 | |
Casualty, Environmental and Other Reserves | | | 176 | | | | 178 | | | | 174 | | | | 178 | |
Current Maturities of Long-term Debt | | | 205 | | | | 170 | | | | 207 | | | | 170 | |
Income and Other Taxes Payable | | | 205 | | | | 192 | | | | 207 | | | | 192 | |
Due to Parent Company | | | 1,175 | | | | 1,107 | | | | 1,338 | | | | 1,107 | |
Due to Affiliate | | | 197 | | | | 209 | | | | 201 | | | | 209 | |
Other Current Liabilities | | | 144 | | | | 196 | | | | 76 | | | | 196 | |
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Total Current Liabilities | | | 3,075 | | | | 3,108 | | | | 3,113 | | | | 3,108 | |
Casualty, Environmental and Other Reserves | | | 515 | | | | 532 | | | | 507 | | | | 532 | |
Long-term Debt | | | 894 | | | | 1,033 | | | | 880 | | | | 1,033 | |
Deferred Income Taxes | | | 3,277 | | | | 3,250 | | | | 3,353 | | | | 3,250 | |
Other Long-term Liabilities | | | 570 | | | | 577 | | | | 602 | | | | 577 | |
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Total Liabilities | | | 8,331 | | | | 8,500 | | | | 8,455 | | | | 8,500 | |
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| SHAREHOLDER’S EQUITY | | | | | | | | |
Common Stock, $20 Par Value: | | | | | | | | |
Authorized 10,000,000 Shares; | | | | | | | | |
Issued and Outstanding 9,061,038 Shares | | | 181 | | | | 181 | | | | 181 | | | | 181 | |
Other Capital | | | 1,380 | | | | 1,380 | | | | 1,380 | | | | 1,380 | |
Retained Earnings | | | 3,963 | | | | 3,952 | | | | 4,010 | | | | 3,952 | |
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Total Shareholder’s Equity | | | 5,524 | | | | 5,513 | | | | 5,571 | | | | 5,513 | |
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Total Liabilities and Shareholder’s Equity | | $ | 13,855 | | | $ | 14,013 | | | $ | 14,026 | | | $ | 14,013 | |
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See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Notes to Consolidated Financial Statements (Unaudited)(All Tablestables in Millions of Dollars)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of CSX Transportation, Inc. and its subsidiaries (“CSXT” or the “Company”) at June 28,September 27, 2002 and December 28, 2001, the results of theirits operations for the quarters and sixnine months ended June 28,September 27, 2002 and June 29,September 28, 2001, and its cash flows for the sixnine months ended June 28,September 27, 2002 and June 29,September 28, 2001, such adjustments being of a normal recurring nature. Certain prior-year data have been reclassified to conform to the 2002 presentation. CSXT is a wholly-owned subsidiary of CSX Corporation (“CSX”).
While theThe Company believes that the disclosures presented are adequate to make the informationaccurate and not misleading, it is suggestedbut suggests that these financial statements be read in conjunction with the financial statements and the notes included in CSXT’s latest Form 10-K.
CSXT follows a 52/53 week fiscal reporting calendar. Fiscal years 2002 and 2001 consist of 52 weeks ending on December 27, 2002 and December 28, 2001, respectively. The financial statements presented are for the 13-week quarters ended June 28,September 27, 2002 and June 29,September 28, 2001, the 26-week39-week periods ended June 28,September 27, 2002 and June 29,September 28, 2001, and as of December 28, 2001.
NOTE 2. INTEGRATED RAIL OPERATIONS WITH CONRAILCONRAIL.
BackgroundBackground
CSX and Norfolk Southern Corporation (“Norfolk Southern”) completed the acquisition of Conrail Inc. (“Conrail”) in May 1997. Conrail owns the primary freight railroad system serving the northeastern United States, and its rail network extends into several midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold economicownership interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern operate over allocated portions of the Conrail lines.
CSXT and Norfolk Southern Railway Company (“Norfolk Southern Railway”), the rail subsidiary of Norfolk Southern, operate their respective portions of the Conrail system pursuant to variouscertain 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 Asset Areas”) for the joint benefit of CSXT and Norfolk Southern Railway for which it is compensated on the basis of usage by the respective railroads.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)—(Continued), Continued
(All Tablestables in Millions of Dollars)
NOTE 2. INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued.Continued
CSXT’s Accounting for its Integrated Rail Operations With Conrailand Financial Reporting Effects
Upon integration, substantially all of Conrail’s customer freight contracts were assumed by CSXT and Norfolk Southern Railway. As a result, CSXT’s operating revenue and expense includes revenueactivity from traffic previously moving on Conrail. Operating expenses reflect corresponding increases for costs incurred to handle the new traffic and operateterritory acquired in the former Conrail lines.transaction. Operating expenses also include an expense category, “Conrail Operating Fee, Rent and Services,” which reflects payments to Conrail for the use of Conrail right-of-way and equipment, as well as charges for transportation, switching and terminal services in the Shared Asset Areas that Conrail operates for the joint benefit of CSXT and Norfolk Southern Railway.
Transactions Withwith Conrail
The agreement under which CSXT operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSXT’s option for two five-year terms. Operating fees paid to Conrail under the agreement are subject to adjustment every six years based on the fair value of the underlying Conrail railroad system. Lease agreements for the Conrail equipment operated by CSXT cover varying terms. CSXT is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements.
At June 28, 2002As listed below, CSXT had no amounts receivable from Conrail, while at December 28, 2001, amounts receivable from Conrail totaled $3 million, principally for reimbursement of certain capital improvement costs. CSXT hadhas amounts payable to Conrail, of approximately $64 million and $88 million at June 28, 2002 and December 28, 2001, respectively, representing expenses incurred under the operating, equipment and shared area agreements with Conrail. At December 28, 2001, CSXT also had receivables from Conrail, principally for reimbursement of certain capital improvement costs.
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CSXT Payable to Conrail | | $ | 70 | | $ | 88 |
CSXT Receivable from Conrail | | | — | | | 3 |
NOTE 3. ACCOUNTS RECEIVABLE
CSXT has an ongoing agreement to sell without recourse, on a revolving basis each month, an undivided percentage ownership interest in all rail freight accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a wholly-owned subsidiary of CSX. AccountsOutstanding accounts receivable sold under this agreement totaled $985$936 million at June 28,September 27, 2002 and $966 million at December 28, 2001. In addition, through November 2001, CSXT had a revolving agreement with a financial institution to sell with recourse on a monthly basis an undivided percentage ownership interest in all miscellaneous accounts receivable. Accounts receivable sold under this agreement waswere $47 million at June 29,September 28, 2001. The sales of receivables have been reflected as reductions of Accounts and Notes Receivable in the Consolidated Statement of Financial Position. The net losses associated with sales of receivables were $18 million for the quarter and $56 million for the nine months ended September 27, 2002, and $19 million for the quarter and $38$58 million for the sixnine months ended JuneSeptember 28, 2002, and $20 million for the quarter and $39 million for the six months ended June 29, 2001.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All tables in Millions of Dollars)
NOTE 3. ACCOUNTS RECEIVABLE, Continued
CSXT has retained the responsibility for servicing accounts receivable sold to CTRC. The average servicing period is approximately one month. No servicing asset or liability has been recorded since the fees CSXT receives for servicing the receivables approximates the related costs.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
(All Tables in Millions of Dollars)
NOTE 4. OTHER INCOME (EXPENSE)
| | Quarters Ended
| | | Six Months Ended
| | | Quarters Ended
| | | Nine Months Ended
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| | June 28, 2002
| | | June 29, 2001
| | | June 28, 2002
| | | June 29, 2001
| | | September 27, 2002
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| | | September 27, 2002
| | | September 28, 2001
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Income from Real Estate Operations(1) | | $ | — | | | | 41 | | | $ | 43 | | | $ | 50 | | | $ | 33 | | | $ | 15 | | | $ | 76 | | | $ | 65 | |
Net Losses from Accounts Receivable Sold | | | (19 | ) | | | (20 | ) | | | (38 | ) | | | (39 | ) | | | (18 | ) | | | (19 | ) | | | (56 | ) | | | (58 | ) |
Miscellaneous | | | 2 | | | | (3 | ) | | | (4 | ) | | | (6 | ) | | | 1 | | | | (2 | ) | | | (3 | ) | | | (8 | ) |
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Total | | $ | (17 | ) | | $ | 18 | | | $ | 1 | | | $ | 5 | | | $ | 16 | | | $ | (6 | ) | | $ | 17 | | | $ | (1 | ) |
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(1) | | Gross revenue from real estate operations was $8$42 million for the quarter and $60$102 million for the sixnine months ended June 28,September 27, 2002, and $49$21 million and $65$86 million for the quarter and sixnine months ended June 29,September 28, 2001. |
NOTE 5. RELATED PARTIES
At June 28,September 27, 2002 and December 28, 2001, CSXT had deficit balances of $1.3 billion and $1.1 billion, respectively, relating to its participation in the CSX cash management plan, which is shown as Due to Parent Company.Company in the Consolidated Statement of Financial Position. Under this plan, excess cash is advanced to CSX for investment and CSX makes cash funds available to its subsidiaries as needed for use in their operations. CSXT and CSX are committed to repay all amounts due each other on demand should circumstances require. The companies are charged for borrowings or compensated for investments based on returns earned by the plan portfolio, which was 2.88%2.79% and 4.83%4.19% at June 28,September 27, 2002 and June 29,September 28, 2001, respectively. Interest expense related to this plan was $7.7$8.0 million and $16.5$24.5 million for the quarter and sixnine months ended June 28,September 27, 2002, and $7.6$6.8 million and $16.9$23.7 million for the quarter and sixnine months ended June 29,September 28, 2001.
Related Party Service Fees expense consists of amounts related to:
| • | | A management service feeCSX Intermodal, Inc. (“CSXI”) Reimbursements—Reimbursement from CSXI under an operating agreement for costs incurred by the Company related to intermodal operations. This reimbursement is based on an amount which approximates actual costs. The Company also collects certain revenue on behalf of $77 million and $59 millionCSXI under the operating agreement. |
| • | | Total Distribution Services, Inc. (“TDSI”) Charges—Charges from TDSI for the quarters ended June 28, 2002 and June 29, 2001, respectively, and $154 million and $119 million for the six-months ended June 28, 2002 and June 29, 2001, respectively, charged by CSX representing compensation for certain corporate services provided to the Company.CSXT at automobile ramps. These charges are calculated based on direct costs. |
| • | | TRANSFLO Terminal Services, Inc. (“TRANSFLO”) Charges—Charges from TRANSFLO for services include, butprovided to CSXT at bulk commodity facilities. These charges are not limited to the areas of human resources, finance, administration, benefits, legal, tax, internal controls and corporate communications, as well as strategic management services. The fee for 2002 is calculated as a percentage of CSXT’s revenue. Prior to 2002, the fee was calculated as a percentage of CSX’s investment in CSXT. As of June 28, 2002 and December 28, 2001, $32 million and $42 million, respectively was payable to CSX and was included in Due to Parentbased on the Statement of Financial Position.direct costs. |
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Unaudited)—(Continued), Continued
(All Tablestables in Millions of Dollars)
NOTE 5. RELATED PARTIES, Continued
| • | | CSX Management Service Fee—A management service fee charged by CSX as compensation for certain corporate services provided to the Company. These services include, but are not limited to, the areas of human resources, finance, administration, benefits, legal, tax, internal controls and corporate communications, as well as strategic management services. The fee for 2002 is calculated as a percentage of CSXT’s revenue. Prior to 2002, the fee was calculated as a percentage of CSX’s investment in CSXT. |
| • | | CSX Technology, Inc. (“CSX Technology”) Charges—Data processing related charges of $52 million and $54 million for the quarters ended June 28, 2002 and June 29, 2001, respectively, and $107 million and $110 million for the six-months ended June 28, 2002 and June 29, 2001, respectively, from CSX Technology Inc. (CSX Technology) representingas compensation to CSX Technology for the development, implementation and maintenance of computer systems, software and associated documentation for the day-to-day operations of the Company. These charges are based on a mark-up of direct costs. As of June 28, 2002 and December 28, 2001, $35 million and $44 million, respectively was payable to CSX and was included in Due to Affiliate on the Statement of Financial Position. |
| • | | CTRC Reimbursement of $92 million—During the quarter ended September 27, 2002, the Company charged CTRC for the quarters ended June 28, 2002 and June 29, 2001, and $178 million and $186 million for the six-months ended June 28, 2002 and June 29, 2001, respectively, under an operating agreement, from CSX Intermodal, Inc. (CSXI), for costs incurredaccounts receivable reserves recorded by the Company in current and prior periods related to intermodal operations. This reimbursement is based on an amount which approximates actual costs. As of June 28, 2002 and December 28, 2001, $28 million and $24 million, respectively was payablereceivables sold to CSX and was included in Due to Affiliate on the Statement of Financial Position. |
CTRC.
| • | | Charges of $12 million and $13 million for the quarters ended June 28, 2002 and June 29, 2001, respectively, and $24 million and $27 million for the six-months ended June 28, 2002 and June 29, 2001, respectively, from Total Distribution Services, Inc. (TDSI), for services provided at automobile ramps. These charges are calculated based on direct costs. As of June 28, 2002 and December 28, 2001, $3 million and $4 million, respectively was payable to CSX and was included in Due to Affiliate on the Statement of Financial Position. |
| • | | Charges of $19 million and $14 million for the quarters ended June 28, 2002 and June 29, 2001, respectively, and $40 million and $26 million for the six-months ended June 28, 2002 and June 29, 2001, respectively, from TRANSFLO Terminal Services, Inc. (TRANSFLO) for services provided at bulk commodity facilities. These charges are calculated based on direct costs. As of June 28, 2002 and December 28, 2001, $8 million and $5 million, respectively was payable to CSX and was included in Due to Affiliate on the Statement of Financial Position. |
CSX Technology, CSXI, TDSI, and TRANSFLO are wholly-owned subsidiaries of CSX.
Detail Of Due to Affiliate
| | Quarters Ended
|
| | September 27, 2002
| | December 28, 2001
|
CSXI | | $ | 34 | | $ | 24 |
TDSI | | | — | | | 4 |
TRANSFLO | | | 9 | | | 5 |
CSX Technology | | | 37 | | | 44 |
CSX Insurance | | | 115 | | | 125 |
CTRC | | | 6 | | | 6 |
Other | | | — | | | 1 |
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Total Due to Affiliate | | $ | 201 | | $ | 209 |
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Detail of Related Party Service Fees
| | Quarters Ended
| | | Nine Months Ended
| |
| | September 27, 2002
| | | September 28, 2001
| | | September 27, 2002
| | | September 28, 2001
| |
CSXI | | $ | (94 | ) | | $ | (94 | ) | | $ | (272 | ) | | $ | (280 | ) |
TDSI | | | 7 | | | | 11 | | | | 31 | | | | 38 | |
TRANSFLO | | | 20 | | | | 13 | | | | 60 | | | | 39 | |
CSX Management Service Fee | | | 59 | | | | 60 | | | | 213 | | | | 179 | |
CSX Technology | | | 52 | | | | 54 | | | | 159 | | | | 164 | |
CTRC | | | (53 | ) | | | — | | | | (53 | ) | | | — | |
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Total Related Party Service Fees | | $ | (9 | ) | | $ | 44 | | | $ | 138 | | | $ | 140 | |
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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All tables in Millions of Dollars)
NOTE 5. RELATED PARTIES, Continued
CSXT and CSX Insurance Company (“CSX Insurance”), a wholly-owned subsidiary of CSX, have entered into a loan agreement whereby CSXT may borrow up to $125 million from CSX Insurance. The loan is payable in full on demand. At June 28,September 27, 2002 and December 28, 2001, $115 million and $125 million, respectively, was outstanding. Interest on the loan is payable monthly at .45%0.45% over the LIBOR rate, and was 2.29%1.82% at June 28,September 27, 2002 and 2.56 %2.56% at December 28, 2001. Interest expense related to the loan was $0.6 million and $1.3$1.9 million for the quarter and sixnine months ended June 28,September 27, 2002, respectively, and $2$1.4 million and $4$4.9 million for the quarter and sixnine months ended June 29,September 28, 2001, respectively.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
(All Tables in Millions of Dollars)
NOTE 5. RELATED PARTIES, Continued
CSXT participates with CSX Lines, LLC (“CSX Lines”)SL Service, Inc., a wholly-owned subsidiary of CSX, in four sale-leaseback arrangements. Under these arrangements, CSX LinesSL Service, Inc. sold equipment to a third party and CSXT leased the equipment and assigned the lease to CSX Lines. CSX LinesSL Service, Inc. SL Service, Inc. is obligated for all lease payments and other associated equipment expenses. If CSX LinesSL Service, Inc. defaults on its obligations under the arrangements, CSXT would assume the asset lease rights and obligations of $38.1$27 million at June 28,September 27, 2002. These leases were assumed by Maersk as part of its purchase of the CSX international liner business. CSXT believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSXT will have no further liability for those obligations.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company has entered into fuel purchase agreements for approximately 50% of its fuel requirements over the next sixthree months. TheseThe Company has not entered into any fuel purchase agreements for 2003. At September 27, 2002, the agreements amount to approximately 14470 million gallons in commitments at a weighted average of 78 cents per gallon. These contracts require the Company to take monthly delivery of specified quantities of fuel at a fixed price. These contracts cannot be net settled.
CSXT also has a commitment under a long-term maintenance program for approximately 40% of the Company’s fleet of locomotives. The agreement expires in 20242025 and totals $2.7$2.6 billion.
Contingencies
EnvironmentalSelf-Insurance
CSXT is a party to various proceedings involving private partiesThe Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (“PRP”)property damages. It also self-insures at 82 environmentally impaired sites that are or may be subject to remedial action under the Federal Superfund statute (“Superfund”) or similar state statutes. A number of these proceedings arereasonable levels, based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.
CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at 206 sites, including the sites addressed under Superfund or similar state statutes, where it is participating in the study and/or clean-up of alleged environmental contamination. The assessment of the required responsemarket risks and remedial costs associated with most sites is extremely complex. Cost estimates are based on information available for each site, financial viability of other PRPs, where available, and existing technology, laws and regulations. CSXT’s best estimates of the allocation method and percentage of liability when other PRPs are involved are based on assessments by consultants, agreements among PRPs, or determinations by the U.S. Environmental Protection Agency or other regulatory agencies.practices.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tablestables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued
Contingencies, Continued
Environmental, ContinuedCasualty
CSXT incurs claims for occupational injuries, personal injuries and accidents. Casualty reserves are estimated based upon the first reporting of an accident or personal injury, and updated as information develops. Liabilities for accidents are based upon the type and severity of the injury or claim and the use of current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred, but not reported personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred, but not reported occupational injuries. Occupational injury, personal injury and accident liabilities amount to $425 million and $435 million at September 27, 2002 and December 28, 2001, respectively.
Environmental
CSXT is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (PRP) at 89 environmentally impaired sites that are, or may be, subject to remedial action under the Federal Superfund statute (“Superfund”) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.
CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at 206 sites. The 206 sites where it is participating in the study or clean-up of alleged environmental contamination include the 89 Superfund sites noted above.
At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, owner or operator)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 position and ability to pay of other named and unnamed PRPs at the location. The ultimate liability for remediation can be difficult to determine with certainty because of the number and creditworthiness of PRPs involved. Through the assessment process, CSXT monitors the creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is involved,assessment review process, CSXT has recorded, and reviews at least quarterly for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs were $32 million at June 28,September 27, 2002, and December 28, 2001.2001 were $34 and $32 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability has been accrued for future costs for all sites where CSXT’sthe Company’s obligation is probable and where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the June 28,September 27, 2002 environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All tables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued
Contingencies, Continued
Environmental, Continued
The Company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, however, CSXTthe Company believes its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition.
New Orleans Tank Car Fire
In 2001 CSXT reached aCSXT’s settlement of the New Orleans Tank Car Fire litigation, whichLitigation was subject to a fairness hearing and court approval. The amount to be paid by CSXT under the settlement is $220 million, $85of which approximately $135 million was funded by CSXT’s insurers, and was paid during the third quarter of 2002 to be paid net of insurance recoveries. The fairness hearing occurred in April 2002, and the Court approved the settlement. The time has run for appeals. The Company is fully accrued for this settlement, which is subject to plaintiffs’ attorney’s reaching agreement with the group of plaintiffs. The Company expects that agreement to be obtained and the settlement is expected to be paid in 2002.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
(All Tables in Millions of Dollars)
NOTE 6. COMMITMENTS AND CONTINGENCIES, Continuedrepresentatives.
Contract Settlement
In July the Company received $44 million as the first of two payments to settle a contract dispute. In the quarter ended September 27, 2002, the Company recognized approximately $7 million of this first payment in other income as this amount related to prior periods. The remaining $37 million will be recognized ratably over the contract period which ends in 2020.The second payment of $23 million is due in January 2003. The accounting for the settlement is under review,2003 and the Company believes some portion will likewise be recognized in the third quarter of 2002, but will be primarily recognized ratably over the remaining 18 year lifecontract period which ends in 2020. The results of the contract.this settlement will provide approximately $3 million in annual pretax earnings through 2020.
Other Legal Proceedings
A number of other legal actions are pending against CSXT in which claims are made in substantial amounts. While the ultimate results of these actions against CSXT cannot be predicted with certainty, management does not currently expect that resolution of these matters will have a material adverse effect on CSXT’s consolidated financial position, results of operations or cash flows. The Company is also party to a number of actions, the resolution of which could result in gain realization in amounts that could be material to results of operations in the quarter received.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Results of OperationsRESULTS OF OPERATIONS
CSX Transportation, Inc. (“CSXT” or “Company”) follows a 52/53-week fiscal calendar. Fiscal years 2002 and 2001 consist of 52 weeks.weeks ending on December 27, 2002 and December 28, 2001, respectively. The financial statements presented are for the 13-week quarters ended June 28,September 27, 2002 and June 29,September 28, 2001, each consisted of 13 weeks. The six-monththe 39-week periods ended June 28,September 27, 2002 and June 29,September 28, 2001, each consistedand as of 26 weeks.December 28, 2001.
CSXT earned $148$167 million in operating income for the quarter ended June 28,September 27, 2002, down $4 million, or 3%, from the $152compared to $124 million reported in the secondthird quarter of 2001. Operating revenueThe $43 million, or 35%, increase was primarily due to a related party charge.
Revenue decreased to $1.54$1.473 billion in the current period from $1.56$1.495 billion in the same periodquarter of the prior year. Although volumesThe $22 million decrease resulted from weaker coal demand, which offset increases in the second quarter declined because of continued weakness in the national economy by 2% year-over-year, revenue declined by only 1% compared to the corresponding quarter of the prior year because of the continued success of CSXT’s yield improvement program. Increased volumes for the phosphates and fertilizers, paper and forest, chemicals, emerging marketsmerchandise and automotive groups were offset by decreases in all other commodity groups. The metals, agricultural products, minerals, coal and coke markets realized price increases despite revenue declines.revenues.
Merchandise revenue was up $12$19 million or 1%2% over the prior year period. Merchandise volumes increased for the first time in two years, growing by 1% for the second quarter of 2002, comparedperiod due to the same period in 2001.volume and price increases. This increase was due to the continued strong performance of phosphates and fertilizers strong performance as well as year-over-year improved volumesimprovements in metals, paper and forest, chemicals, and emerging markets. Strong demand and low inventory levels caused some metals shipments that normally move by rail to be diverted to trucks, which had a negative impact on metals volume.chemical volumes. Agriculture and minerals volumes also were down in the quarter because of weaknessa decline in feed grainsthe demand for export grain. The phosphates and foreign competition, respectively. Foodfertilizers, paper and consumer products experienced revenue yield deterioration because of increased shipments in private rail equipment. All other merchandiseforest, agricultural, chemicals, minerals, and emerging markets commodity groups showed either flat or improved revenuerealized yield improvements as compared to the prior year quarter.period.
Automotive volumes were up 6% versus second quarter of 2001 as manufacturers continue aggressive dealer incentive programs. Automotive revenue was up $18$11 million or 8%6% due to both rateyield improvements driven primarily by favorable mix and mix improvement.extended linehauls. Automotive sales are favorably affected by continued dealer incentives. The continuing increase in light truck production capacity is driving volume growth.
Coal, coke and iron ore volumes were down 10% for the quarter versus last year. Coal, coke and iron ore revenue was down $38$34 million or 9% versus the prior year. Coal volumes were down 6% and revenue yieldswas down 8%. Unfavorable export, metallurgical, lake, and industrial coal are a result of plant closings and reduced competitive standing of U.S. coal in international markets. Pricing and increased tons per car continue to improve revenue per car yield, but were flatoffset by mix changes, including short-haul modal conversions to the river, and decline in higher revenue per car movements, such as rate increases were masked by volume pickup in shorthaul coal traffic that was converted to rail from truck.export and long-haul southern utility traffic.
The operating ratio increased to 90.4% for the quarter ended June 28, 2002 from 90.2% for the quarter ended June 29, 2001. Operating expenses decreased to $1.39were at $1.31 billion and $1.37 billion for the quarterquarters ended JuneSeptember 27, 2002 and September 28, 2002, from $1.40 billion in the same period in the prior year. This $14 million decrease resulted primarily from decreases in fuel and labor2001, respectively. Labor and fringe benefits, equipment rent and depreciation increased in the current year quarter, offset by an increase in related party service fees.fees, lower materials, supplies and other and favorable fuel expenses.
Labor and fringe benefits increased $5 million primarily due to inflation and increased healthcare costs, partially offset by decreases attributed to headcount reductions. Equipment rent increased $10 million or 10% primarily as a result of unanticipated car hire reclaims from another railroad, which should not recur.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS CONTINUEDOF RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS, Continued
Labor and fringe benefits decreasedFuel costs were down $14 million, $13 million primarily resulting from increased crew productivity and net headcount reductions of approximately 1,700 from prior year quarter as part of a continued effort by managementdue to eliminate inefficiencies, which was somewhat offset by inflation. The positive effect of lower fuel prices, which reduced costs by $20 million, was offset by $1 million in increased volumes.price. The net impact on operating income of reduced fuel price was $11$4 million, since $9 million of fuel surcharge revenue was eliminated.
These operatingMaterials, supplies and other expense decreasesimproved by $21 million as compared to the prior year quarter primarily due to reductions in personal injuries, derailment and other costs. Expenses associated with the Baltimore tunnel fire last year were partially offset by increasesinsurance recoveries in relatedthe same period.
Related party service fees of $20decreased $53 million due primarily to the changeCompany charging CTRC for accounts receivable reserves recorded by the Company in current and prior periods related to receivables sold to CTRC.
In addition, several cost categories reflected expenses associated with train speed restrictions due to the management service fee charged by CSX to better reflectheat orders that were put in place during the transition from a more diversified transportation company to one that is primarily rail-based.height of the Company’s maintenance program in August and part of September.
The following tables providesprovide rail carload and revenue data by service group and commodity for the quarters and sixnine months ended June 28,September 27, 2002 and June 29,September 28, 2001:
| | Carloads (Thousands) Quarter Ended
| | Revenue (Millions of Dollars) Quarter Ended
| | Third Quarter Loads (Thousands)
| | | Third Quarter Revenue (Millions of Dollars)
| |
| | June 28, 2002
| | June 29, 2001
| | June 28, 2002
| | June 29, 2001
| | 2002
| | 2001
| | % Change
| | | 2002
| | 2001
| | % Change
| |
Merchandise | | | | | | | | | | | | | | | | | | | | |
Phosphates and Fertilizer | | 119 | | 105 | | $ | 83 | | $ | 75 | | 113 | | 101 | | 12 | | | $ | 73 | | $ | 63 | | 16 | |
Metals | | 80 | | 83 | | | 101 | | | 103 | | 83 | | 81 | | 2 | | | | 104 | | | 102 | | 2 | |
Food and Consumer Products | | 42 | | 42 | | | 55 | | | 57 | |
Paper and Forest Products | | 122 | | 121 | | | 162 | | | 161 | |
Agricultural Products | | 87 | | 92 | | | 119 | | | 125 | |
Food and Consumer | | | 41 | | 41 | | — | | | | 53 | | | 54 | | (2 | ) |
Paper and Forest | | | 122 | | 120 | | 2 | | | | 161 | | | 161 | | — | |
Agricultural | | | 86 | | 88 | | (2 | ) | | | 116 | | | 118 | | (2 | ) |
Chemicals | | 129 | | 127 | | | 233 | | | 225 | | 124 | | 123 | | 1 | | | | 224 | | | 216 | | 4 | |
Minerals | | 23 | | 24 | | | 34 | | | 35 | | 21 | | 23 | | (9 | ) | | | 33 | | | 36 | | (8 | ) |
Emerging Markets | | 115 | | 113 | | | 106 | | | 100 | | 115 | | 117 | | (2 | ) | | | 107 | | | 102 | | 5 | |
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Total Merchandise | | 717 | | 707 | | | 893 | | | 881 | | 705 | | 694 | | 2 | | | | 871 | | | 852 | | 2 | |
Automotive | | 148 | | 139 | | | 231 | | | 213 | | 124 | | 119 | | 4 | | | | 195 | | | 184 | | 6 | |
Coal, Coke and Iron Ore | | | | | | | | | | | | | | | | | | | | |
Coal | | 390 | | 430 | | | 379 | | | 415 | | 395 | | 422 | | (6 | ) | | | 382 | | | 417 | | (8 | ) |
Coke | | 9 | | 11 | | | 14 | | | 13 | | 9 | | 10 | | (10 | ) | | | 12 | | | 12 | | — | |
Iron Ore | | 9 | | 13 | | | 5 | | | 8 | | 13 | | 12 | | 8 | | | | 7 | | | 6 | | 17 | |
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Total Coal, Coke and Iron Ore | | 408 | | 454 | | | 398 | | | 436 | | 417 | | 444 | | (6 | ) | | | 401 | | | 435 | | (8 | ) |
Other | | — | | — | | | 16 | | | 26 | | — | | — | | — | | | | 6 | | | 24 | | (75 | ) |
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Total Rail | | 1,273 | | 1,300 | | $ | 1,538 | | $ | 1,556 | | 1,246 | | 1,257 | | (1 | ) | | $ | 1,473 | | $ | 1,495 | | (1 | ) |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS CONTINUEDOF RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS, Continued
| | Carloads (Thousands) Six Months Ended
| | Revenue (Millions of Dollars) Six Months Ended
| |
| | June 28, 2002
| | June 29, 2001
| | June 28, 2002
| | June 29, 2001
| | Nine Months Loads (Thousands)
| | | Nine Months Revenue (Millions of Dollars)
| |
| | | | | | 2002
| | 2001
| | % Change
| | | 2002
| | 2001
| | % Change
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Merchandise | | | | | | | | | | | | | | | | | | | | |
Phosphates and Fertilizer | | 238 | | 224 | | $ | 172 | | $ | 164 | | 351 | | 325 | | 8 | | | $ | 245 | | $ | 227 | | 8 | |
Metals | | 157 | | 164 | | | 198 | | | 202 | | 240 | | 245 | | (2 | ) | | | 302 | | | 304 | | (1 | ) |
Food and Consumer Products | | 81 | | 81 | | | 108 | | | 109 | |
Paper and Forest Products | | 238 | | 243 | | | 318 | | | 321 | |
Agricultural Products | | 179 | | 192 | | | 246 | | | 259 | |
Food and Consumer | | | 122 | | 122 | | — | | | | 161 | | | 163 | | (1 | ) |
Paper and Forest | | | 360 | | 363 | | (1 | ) | | | 479 | | | 482 | | (1 | ) |
Agricultural | | | 265 | | 280 | | (5 | ) | | | 362 | | | 377 | | (4 | ) |
Chemicals | | 254 | | 257 | | | 457 | | | 457 | | 378 | | 380 | | (1 | ) | | | 681 | | | 673 | | 1 | |
Minerals | | 45 | | 47 | | | 68 | | | 71 | | 66 | | 70 | | (6 | ) | | | 101 | | | 107 | | (6 | ) |
Emerging Markets | | 208 | | 210 | | | 194 | | | 188 | | 323 | | 327 | | (1 | ) | | | 301 | | | 290 | | 4 | |
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Total Merchandise | | 1,400 | | 1,418 | | | 1,761 | | | 1,771 | | 2,105 | | 2,112 | | — | | | | 2,632 | | | 2,623 | | — | |
Automotive | | 277 | | 266 | | | 431 | | | 407 | | 401 | | 385 | | 4 | | | | 626 | | | 591 | | 6 | |
Coal, Coke and Iron Ore | | | | | | | | | | | | | | | | | | | | |
Coal | | 783 | | 869 | | | 760 | | | 831 | | 1,178 | | 1,291 | | (9 | ) | | | 1,142 | | | 1,248 | | (8 | ) |
Coke | | 17 | | 21 | | | 27 | | | 24 | | 26 | | 31 | | (16 | ) | | | 39 | | | 36 | | 8 | |
Iron Ore | | 13 | | 18 | | | 8 | | | 11 | | 26 | | 30 | | (13 | ) | | | 15 | | | 17 | | (12 | ) |
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Total Coal, Coke and Iron Ore | | 813 | | 908 | | | 795 | | | 866 | | 1,230 | | 1,352 | | (9 | ) | | | 1,196 | | | 1,301 | | (8 | ) |
Other | | — | | — | | | 37 | | | 44 | | — | | — | | — | | | | 43 | | | 68 | | (37 | ) |
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Total Rail | | 2,490 | | 2,592 | | $ | 3,024 | | $ | 3,088 | | 3,736 | | 3,849 | | (3 | ) | | $ | 4,497 | | $ | 4,583 | | (2 | ) |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS CONTINUEDOF RESULTS OF OPERATIONS, Continued
OUTLOOK
During the remainder of 2002, CSXT expects that its financial results will improve as the industrial sector slowly recovers from the industrial recession that impacted the company’s volumes negatively over the last seven quarters. CSXT believes it is ready to capitalize and benefit significantly from an economic recovery through the inherent operating leverage that it possesses. Even if an economic recovery does not materialize until 2003, CSXT still anticipates posting quarterly year-over-year improvements in earnings throughout the remainder of the year.
OTHER MATTERS
Legal Proceedings
New Orleans Tank Car Fire Litigation
In 2001 CSXT reached aCSXT’s settlement of the New Orleans Tank Car Fire litigation, whichLitigation was subject to a fairness hearing and court approval. The amount to be paid by CSXT under the settlement is $220 million, $85of which approximately $135 million was funded by CSXT’s insurers, and was paid during the third quarter of 2002 to be paid net of insurance recoveries. The fairness hearing occurred in April 2002, and the Court approved the settlement. The time has run for appeals. The Company is fully accrued for this settlement, which is subject to plaintiffs’ attorney’s reaching agreement with the group of plaintiffs. The Company expects that agreement to be obtained and the settlement is expected to be paid in 2002.representatives.
ITEM 2:2. MANAGEMENT’S DISCUSSION AND ANALYSIS CONTINUEDOF RESULTS OF OPERATIONS, Continued
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operation,operations, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “project”, and similar expressions. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the Company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; and (iv) the outcome of claims and litigation involving or affecting the Company. Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this Quarterly 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
The Company is subject to risk relating to changes in the price of diesel fuel. Forward purchase agreements have been entered into with various suppliers for approximately 14470 million gallons of fuel, which is approximately 50% of the remaining 2002 requirement over the next three months, at a weighted average price of 78 cents per gallon. The Company is subject to fluctuations in prices for the remainder of its 2002 needs. A one cent change in the price per gallon of fuel would affect fuel expense for the remainder of 2002 by approximately $1.4$0.7 million. The Company has not entered into any fuel purchase contracts for 2003.
CSXT participates in the CSX cash management plan, under which excess cash is advanced to CSX for investment. CSX than makes cash funds available to CSXT as needed for use in theirits operations CSXT and CSX are committed to repay all amounts due on demand should circumstances require. CSXT is charged for borrowings or compensated for investments based on returns earned by the plan portfolio. At June 28,September 27, 2002 and December 29,28, 2001, CSXT had adeficit balances of $1.3 billion and $1.1 billion, deficit balancerespectively, relating to CSXT’sits participation in the CSX cash management plan, which is included in Due to Parent Company in the Statement of Financial Position. CSXT also had $108 million of floating rate debt outstanding at June 28,September 27, 2002 and December 28, 2001. A 1% increase or decrease in the interest rates would have an approximately $12$1.1 million effect on annual interest expense.
ITEM 4: DISCLOSURE CONTROL AND PROCEDURES As of October 23, 2002, under the supervision and with the participation of the Company’s Principal Executive Officer and the Principal Financial Officer, management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of October 23, 2002. There were no significant changes in the Company’s internal controls or in the other factors that could significantly affect those controls subsequent to the date of evaluation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.99.1 | | Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
99.2 | | Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8-K
None.None
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CSX TRANSPORTATION, INC.CSX TRANSPORTATION, INC.
(Registrant) |
|
By: | | /s/ CAROLYN T. SIZEMORE
|
| | Carolyn T. Sizemore (Principal Accounting Officer) |
Dated: July 29,October 28, 2002
CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER I, Michael J. Ward, certify that:
| 1. | | I have reviewed this quarterly report on Form 10-Q of CSX Transportation, Inc.; |
| 2. | | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| a) | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: October 28, 2002
|
/s/ MICHAEL J. WARD
|
Michael J. Ward Principal Executive Officer |
CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER
I, Frederick J. Favorite Jr., certify that:
| 1. | | I have reviewed this quarterly report on Form 10-Q of CSX Transportation, Inc.; |
| 2. | | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a) | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
| a) | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: October 28, 2002
|
/s/ FREDERICK J. FAVORITE JR.
|
Frederick J. Favorite Jr. Principal Financial Officer |
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