FORM 10-Q/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 62-1051971
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 East Cary Street, Richmond, Virginia 23219-4031
(Address of principal executive offices) (Zip Code)
(804) 782-1400
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 30, 2001: 213,395,907 shares.
This Form 10Q for the period ended March 30, 2001 is being amended to comply
with Rule 3-10 of Regulation S-X requiring condensed consolidating financial
statements for the parent company and CSX Lines, LLC. See Footnote 12 to the
Financial Statements.
-1-
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2001
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters Ended March 30, 2001 and March 31, 2000 3
2. Consolidated Statement of Cash Flows-
Quarters Ended March 30, 2001 and March 31, 2000 4
3. Consolidated Statement of Financial Position-
At March 30, 2001 and December 29, 2000 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 24
Signature 24
-2-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)
Quarters Ended
-----------------------------------
March 30, March 31,
2001 2000
-------------- -------------
Operating Revenue $ 2,025 $ 2,034
Operating Expense 1,836 1,860
-------------- -------------
Operating Income 189 174
Other Expense 31 5
Interest Expense 131 134
-------------- -------------
Earnings before Income Taxes 27 35
Income Tax Expense 7 10
-------------- -------------
Earnings before Discontinued Operations 20 25
Earnings from Discontinued Operations, Net of Tax - 4
-------------- -------------
Net Earnings $ 20 $ 29
============== =============
Earnings Per Share:
Before Discontinued Operations $ .10 $ .12
Earnings from Discontinued Operations - .02
-------------- -------------
Including Discontinued Operations $ .10 $ .14
============== =============
Earnings Per Share, Assuming Dilution
Before Discontinued Operations $ .10 $ .12
Earnings from Discontinued Operations - .02
-------------- -------------
Including Discontinued Operations $ .10 $ .14
============== =============
Average Common Shares Outstanding (Thousands) 211,299 211,192
============== =============
Average Common Shares Outstanding, Assuming Dilution
(Thousands) 211,897 212,015
============== =============
Cash Dividends Paid Per Common Share $ .30 $ .30
============== =============
See accompanying Notes to Consolidated Financial Statements.
-3-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
(Unaudited)
Quarters Ended
------------------------------------
March 30, March 31,
2001 2000
----------- -------------
OPERATING ACTIVITIES
Net Earnings $ 20 $ 29
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Depreciation 157 147
Deferred Income Taxes 4 2
Equity in Conrail Earnings - Net (5) (6)
Other Operating Activities 1 33
Changes in Operating Assets and Liabilities
Accounts Receivable 10 6
Other Current Assets (18) (39)
Accounts Payable (22) (21)
Other Current Liabilities (147) (152)
----------- -------------
Net Cash Used by Operating Activities - (1)
----------- -------------
INVESTING ACTIVITIES
Property Additions (183) (107)
Short-Term Investments - Net (83) (23)
Other Investing Activities 1 11
----------- -------------
Net Cash Used by Investing Activities (265) (119)
----------- -------------
FINANCING ACTIVITIES
Short-Term Debt - Net (271) (81)
Long-Term Debt Issued 500 -
Long-Term Debt Repaid (48) (34)
Cash Dividends Paid (64) (66)
Other Financing Activities 8 (32)
----------- -------------
Net Cash Provided (Used) by Financing Activities 125 (213)
----------- -------------
Net Decrease in Cash and Cash Equivalents (140) (333)
CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 261 626
----------- -------------
Cash and Cash Equivalents at End of Period 121 293
Short-Term Investments at End of Period 500 373
----------- -------------
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 621 $ 666
=========== =============
See accompanying Notes to Consolidated Financial Statements.
-4-
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
(Unaudited)
March 30, December 29,
2001 2000
------------- -------------
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 621 $ 684
Accounts Receivable 840 850
Materials and Supplies 269 245
Deferred Income Taxes 122 121
Other Current Assets 148 146
------------- -------------
Total Current Assets 2,000 2,046
Properties 17,981 17,839
Accumulated Depreciation (5,297) (5,197)
------------- -------------
Properties-Net 12,684 12,642
Investment in Conrail 4,673 4,668
Affiliates and Other Companies 344 362
Other Long-Term Assets 737 773
------------- -------------
Total Assets $ 20,438 $ 20,491
============= =============
LIABILITIES
Current Liabilities
Accounts Payable $ 1,057 $ 1,079
Labor and Fringe Benefits Payable 410 405
Casualty, Environmental and Other Reserves 251 246
Current Maturities of Long-Term Debt 188 172
Short-Term Debt 478 749
Income and Other Taxes Payable 250 372
Other Current Liabilities 256 257
------------- -------------
Total Current Liabilities 2,890 3,280
Casualty, Environmental and Other Reserves 745 755
Long-Term Debt 6,212 5,810
Deferred Income Taxes 3,391 3,384
Other Long-Term Liabilities 1,224 1,245
------------- -------------
Total Liabilities 14,462 14,474
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 213 213
Other Capital 1,470 1,467
Retained Earnings 4,293 4,337
------------- -------------
Total Shareholders' Equity 5,976 6,017
------------- -------------
Total Liabilities and Shareholders' Equity $ 20,438 $ 20,491
============= =============
See accompanying Notes to Consolidated Financial Statements.
-5-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Corporation and subsidiaries (CSX or the "company") at March 30,
2001 and December 29, 2000, the results of its operations and cash flows for the
quarters ended March 30, 2001 and March 31, 2000, such adjustments being of a
normal recurring nature. Certain prior-year data have been reclassified to
conform to the 2001 presentation.
While the company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the company's latest Annual Report and Form 10-K.
CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2001
consists of 52 weeks ending on December 28, 2001. Fiscal year 2000 consisted of
52 weeks ended December 29, 2000. The financial statements presented are for the
13-week quarter ended March 30, 2001, the 13-week quarter ended March 31, 2000,
and as of December 29, 2000.
Comprehensive income approximates net earnings for all periods presented in
the accompanying consolidated statement of earnings.
NOTE 2. EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common
shares outstanding, as defined by Financial Accounting Standards Board (FASB)
Statement No. 128, "Earnings per Share," for the fiscal quarters ended March 30,
2001 and March 31, 2000. Earnings per share, assuming dilution, are based on the
weighted average number of common shares outstanding adjusted for the effect of
potential common shares outstanding that were dilutive during the period,
principally arising from employee stock plans. For the fiscal quarters ended
March 30, 2001 and March 31, 2000, potential common shares that were dilutive
totaled 0.6 and 0.8 million, respectively.
Certain potential common shares outstanding at March 30, 2001 and March 31,
2000 were not included in the computation of earnings per share, assuming
dilution, since their exercise prices were greater than the average market price
of the common shares during the period and, accordingly, their effect is
antidilutive. These shares totaled 17.0 million at a weighted-average exercise
price of $43.76 per share at March 30, 2001 and 23.9 million with a weighted-
average exercise price of $41.89 per share at March 31, 2000.
-6-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several mid-western states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.
The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999. Under these agreements, the railroads pay operating
fees to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads.
Conrail Financial Information
- -----------------------------
Summary financial information for Conrail for its fiscal periods ended
March 31, 2001 and 2000, and at December 31, 2000, is as follows:
Quarters Ended
-----------------------------------------
March 31, March 31,
2001 2000
--------------- -------------------
Income Statement Information:
Revenues $ 233 $ 259
Income from Operations 64 60
Net Income 45 65
As Of
-----------------------------------------
March 31, December 31,
2001 2000
--------------- -------------------
Balance Sheet Information:
Current Assets $ 608 $ 520
Property and Equipment and Other Assets 7,463 7,540
Total Assets 8,071 8,060
Current Liabilities 476 435
Long-Term Debt 1,208 1,229
Total Liabilities 4,024 4,078
Stockholders' Equity 4,047 3,982
-7-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Conrail Financial Information, Continued
- ----------------------------------------
Conrail's results for the quarter ended March 31, 2000 benefited from a non-
recurring gain on the sale of property of $61 million, $37 million after-tax.
CSX's Accounting for its Investment in and Integrated Rail Operations with
- --------------------------------------------------------------------------
Conrail
- -------
CSX and Norfolk Southern assumed substantially all of Conrail's customer
freight contracts at the June 1999 integration date. CSX's rail and intermodal
operating revenues include revenue from traffic previously moving on Conrail.
Operating expenses reflect costs incurred to operate the former Conrail lines.
Rail operating expenses also include an expense category, "Conrail Operating
Fee, Rent and Services," which reflects payment to Conrail for the use of right-
of-way and equipment, as well as charges for transportation, switching, and
terminal services in the shared areas Conrail operates for the joint benefit of
CSX and Norfolk Southern. This expense category also includes amortization of
the fair value write-up arising from the acquisition of Conrail, as well as
CSX's proportionate share of Conrail's net income or loss recognized under the
equity method of accounting.
Transactions with Conrail
- -------------------------
The agreement under which CSX operates its allocated portion of the Conrail
route system has an initial term of 25 years and may be renewed at CSX's option
for two five-year terms. Operating fees paid to Conrail under the agreement are
subject to adjustment every six years based on the fair value of the underlying
system. Lease agreements for the Conrail equipment operated by CSX cover varying
terms. CSX is responsible for all costs of operating, maintaining, and improving
the routes and equipment under these agreements.
At March 30, 2001 and December 29, 2000, CSX had $4 million and $2 million,
respectively, in amounts receivable from Conrail, principally for reimbursement
of certain capital improvement costs. Conrail advances its available cash
balances to CSX and Norfolk Southern under variable-rate demand loan agreements.
At March 30, 2001 and December 29, 2000, Conrail had advanced $98 million and
$40 million, respectively, to CSX under this arrangement at interest rates of
4.75% and 5.90%, respectively. CSX also had amounts payable to Conrail of $104
million and $127 million at March 30, 2001 and December 29, 2000, respectively,
representing expenses incurred under the operating, equipment, and shared area
agreements.
NOTE 4. DISCONTINUED OPERATIONS
On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., its
wholly-owned logistics subsidiary, for $650 million. The contract logistics
segment is now reported as a discontinued operation and all prior periods in the
statement of earnings have been restated accordingly. Revenues from the contract
logistics segment for the quarter ended March 31, 2000 were $126 million.
-8-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 5. SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS
In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). In addition
to vessels and containers, Maersk acquired certain terminal facilities and
various other assets and related liabilities of the international liner
business. The agreement with Maersk provided for a post-closing adjustment to
the sales price based on the change in working capital, as defined in the
agreement, between June 25, 1999, and December 10, 1999. The company has
recorded a receivable of approximately $60 million in connection with the post-
closing adjustment and this amount is currently in dispute. This matter,
together with other disputed issues, has been submitted to arbitration.
Management is not yet in a position to assess fully the likely outcome of this
process but believes it will prevail in the arbitrations. During 1999, the
company recorded a net loss of $360 million, $271 million after-tax, related to
this transaction. Included in this amount were estimated costs to terminate
various contractual obligations of the company. These matters could affect the
determination of the final loss on sale.
NOTE 6. ACCOUNTS RECEIVABLE
The company sells revolving interests in its rail accounts receivable to
public investors through a securitization program and to financial institutions
through commercial paper conduit programs. The accounts receivable are sold,
without recourse, to a wholly-owned, special-purpose subsidiary, which then
transfers the receivables, with recourse, to a master trust. The securitization
and conduit programs are accounted for as sales in accordance with FASB
Statement No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." Receivables sold under these arrangements
are excluded from accounts receivable in the consolidated statement of financial
position. At March 30, 2001, the agreements provide for the sale of up to $350
million in receivables through the securitization program and $250 million
through the conduit programs.
At March 30, 2001 and December 29, 2000, the company had sold $547 million
of accounts receivable; $300 million through the securitization program and $247
million through the conduit programs. The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit programs require yield payments based on
prevailing commercial paper rates plus incremental fees. Losses recognized on
the sale of accounts receivable totaled $12 million and $8 million for the
quarters ended March 30, 2001 and March 31, 2000, respectively.
The company has retained the responsibility for servicing accounts
receivable transferred to the master trust. The average servicing period is
approximately one month. No servicing asset or liability has been recorded since
the fees the company receives for servicing the receivables approximate the
related costs.
In September 2000, the FASB issued Statement No. 140, " Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
Statement No. 140 replaces the earlier Statement No. 125 in its entirety. While
the new statement revises certain accounting guidance for transfers of financial
assets, most of the provisions of Statement No. 125 have been carried over
without reconsideration. Statement No. 140 is effective for transfers and
servicing of financial assets occurring after March 31, 2001, but requires
certain disclosures relating to securitizations for fiscal years ending after
December 15, 2000. The accounting provisions of Statement No. 140 will not
impact the company's financial statements.
-9-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 7. OPERATING EXPENSE
Quarters Ended
-----------------------------------
March 30, March 31,
2001 2000
------------- -------------
Labor and Fringe Benefits $ 736 $ 727
Materials, Supplies and Other 459 473
Conrail Operating Fee, Rent & Services 83 95
Building and Equipment Rent 155 188
Inland Transportation 85 83
Depreciation 148 138
Fuel 170 156
------------- -------------
Total $ 1,836 $ 1,860
============= =============
NOTE 8. OTHER EXPENSE
Quarters Ended
--------------------------------
March 30, March 31,
2001 2000
------------ ------------
Interest Income $ 11 $ 16
Income (Loss) from Real Estate and Resort Operations/(1)/ (3) 1
Net Losses from Accounts Receivable Sold (12) (8)
Minority Interest (8) (8)
Equity Losses in Other Affiliates/(2)/ (16) (5)
Miscellaneous (3) (1)
------------ ------------
Total $ (31) $ (5)
============ ============
/(1)/ Gross revenue from real estate and resort operations was $25 million and
$29 million for the quarters ended March 30, 2001 and March 31, 2000,
respectively.
/(2)/ Included in equity losses in other affiliates was the $14 million write-
off of an investment in a non-rail affiliate, during the quarter ended
March 30, 2001.
NOTE 9. DEBT AND CREDIT AGREEMENTS
During the quarter ended March 30, 2001, the company issued $500 million
of 6.75% notes due in 2011.
-10-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES
Self-Insurance
- --------------
Although the company obtains substantial amounts of commercial insurance
for potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided by a company partially owned by
CSX.
Environmental
- --------------
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 104 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 243 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.
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 (i.e., generator, owner or operator), the extent of
CSXT's alleged connection (i.e., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is involved,
CSXT has recorded, and reviews at least quarterly for adequacy, reserves to
cover estimated contingent future environmental costs with respect to such
sites. The recorded liabilities for estimated future environmental costs at
March 30, 2001 and Dec. 29, 2000 were $41 million. These recorded liabilities,
which are undiscounted, include amounts representing CSXT's estimate of
unasserted claims, which CSXT believes to be immaterial. The liability has
-11-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
Environmental, Continued
- ------------------------
been accrued for future costs for all sites where the company's obligation is
probable and where such costs can be reasonably estimated. The liability
includes future costs for remediation and restoration of sites as well as any
significant ongoing monitoring costs, but excludes any anticipated insurance
recoveries. The majority of the March 30, 2001 environmental liability is
expected to be paid out over the next five to seven years, funded by cash
generated from operations.
The company does not currently possess sufficient information to reasonably
estimate the amounts of additional liabilities, if any, on some sites until
completion of future environmental studies. In addition, latent conditions at
any given location could result in exposure, the amount and materiality of which
cannot presently be reliably estimated. Based upon information currently
available, however, the company believes 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 September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly-owned rail subsidiary of CSX. The award was made in a class-action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.
In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.
The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding
-12-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
New Orleans Tank Car Fire, Continued
- ------------------------------------
the verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850
million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond in the amount of $895 million, which will allow it to
appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In July 1999, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.
In 1999, six of the nine defendants in the case reached a tentative
settlement with the plaintiffs group. The basis of that settlement is an
agreement that all claims for compensatory and punitive damages against the six
defendants would be compromised for the sum of $215 million. That settlement was
approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court
to assert an amended claim against CSXT, including a newly asserted claim for
punitive damages. The City's case was originally filed in 1988, and while based
on the 1987 tank car fire, is not considered to be part of the class action.
Oral argument in the Louisiana Court of Appeals for the Fourth Circuit with
regard to CSXT's appeal was held on January 12, 2001. A ruling is expected some
time this year. Any review beyond that court is by discretionary writ.
CSXT continues to pursue an aggressive legal strategy. At the present time,
management is not in a position to determine whether the resolution of this case
will have a material adverse effect on the Company's financial position or
results of operations in any future reporting period.
ECT Dispute
- -----------
Recently, CSX received a claim amounting to approximately $180 million plus
interest from Europe Container Terminals bv (ECT), owner of the Rotterdam
Container Terminal previously operated by Sea-Land prior to its sale to Maersk
in December 1999. ECT has claimed that the sale of the international liner
business to Maersk resulted in a breach of the Sea-Land terminal agreements. ECT
has refused to accept containers at the former Sea-Land facility tendered by
Maersk Sea-Land and is seeking compensation from CSX related to the alleged
breach. CSX has also advised Maersk that CSX holds them responsible for any
damages that may result from this case. Management's initial evaluation of the
claim indicates that valid defenses exist, but at this point management cannot
estimate what, if any losses may result from this case.
-13-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 10. COMMITMENTS AND CONTINGENCIES, Continued
Other Legal Proceedings
- -----------------------
A number of legal actions are pending against CSX and certain subsidiaries
in which claims are made in substantial amounts. While the ultimate results of
environmental investigations, lawsuits and claims against the company cannot be
predicted with certainty, management does not currently expect that resolution
of these matters will have a material adverse effect on the company'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.
NOTE 11. BUSINESS SEGMENTS
The company operates in four business segments: Rail, Intermodal, Domestic
Container Shipping, and International Terminals. The Rail segment provides rail
freight transportation over a network of more than 23,400 route miles in 23
states, the District of Columbia and two Canadian provinces. The Intermodal
segment provides transcontinental intermodal transportation services and
operates a network of dedicated intermodal facilities across North America. The
Domestic Container Shipping segment consists of a fleet of 16 ocean vessels and
27,000 containers serving the trade between ports on the United States mainland
and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals segment
operates container freight terminal facilities at 12 locations in Hong Kong,
China, Australia, Europe, Russia, and the Dominican Republic. The company's
segments are strategic business units that offer different services and are
managed separately based on the differences in these services. Because of their
close interrelationship, the Rail and Intermodal segments are viewed on a
combined basis as Surface Transportation operations and the Domestic Container
Shipping and International Terminals segments are viewed on a combined basis as
Marine Services operations.
The company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as income from operations, excluding the effects of non-
recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1), except that for segment reporting purposes, CSX includes minority interest
expense on the international terminals segment's joint venture businesses in
operating expense. These amounts are reclassified in CSX's consolidated
financial statements to other expense. Intersegment sales and transfers are
generally accounted for as if the sales or transfers were to third parties, that
is, at current market prices.
Business segment information for the quarters ended March 30, 2001 and
March 31, 2000 is as follows:
Quarter ended March 30, 2001:
- -----------------------------
Marine Services
---------------------------------------------
Surface Transportation Domestic
-------------------------------- Container International
Rail Intermodal Total Shipping Terminals Total Total
--------------------------------------------------------------------------------------
Revenues from external customers $ 1,532 $ 265 $ 1,797 $ 161 $ 67 $ 228 $ 2,025
Intersegment revenues - 5 5 - 1 1 6
Segment operating income 166 16 182 (3) 12 9 191
Assets 12,911 418 13,329 299 795 1,094 14,423
-14-
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. BUSINESS SEGMENTS, Continued
Quarter ended March 31, 2000:
- -----------------------------
Marine Services
---------------------------------------------
Surface Transportation Domestic
------------------------------- Container International
Rail Intermodal Total Shipping Terminals Total Total
--------------------------------------------------------------------------------------
Revenues from external customers $ 1,515 $ 283 $ 1,798 $ 162 $ 74 $ 236 $ 2,034
Intersegment revenues - 5 5 - - - 5
Segment operating income 147 13 160 (1) 14 13 173
Assets 12,976 389 13,365 338 720 1,058 14,423
A reconciliation of the totals reported for the business segments to the
applicable line items in the consolidated financial statements is as follows:
March 30, March 31,
2001 2000
------------------- -------------------
Revenues:
- --------
Total external revenues for business segments $ 2,025 $ 2,034
Intersegment revenues for business segments 6 5
Elimination of intersegment revenues (6) (5)
------------------- -------------------
Total consolidated revenues $ 2,025 $ 2,034
=================== ===================
Operating Income:
- ----------------
Total operating income for business segments $ 191 $ 173
Reclassification of minority interest expense for
International terminals segment 8 8
Unallocated corporate expenses (10) (7)
------------------- -------------------
Total consolidated operating income $ 189 $ 174
=================== ===================
Assets:
- ------
Assets for Business Segments $ 14,423 $ 14,423
Investment in Conrail 4,673 4,668
Elimination of Intercompany Receivables 180 (289)
Non-segment Assets 1,162 1,723
------------------- -------------------
$ 20,438 $ 20,525
=================== ===================
-15-
Note 12. Summarized Consolidating Financial Data - CSX Lines. During 1987, CSX
Lines entered into agreements to sell and lease back by charter three new U.S.
- -built, U.S. -flag, D-7 class container ships. CSX has guaranteed the
obligations of CSX Lines pursuant to the related charters which, along with the
container ships, serve as collateral for debt securities registered with the
Securities and Exchange Commission (SEC). The March 30, 2001 and March 31,
2000 consolidating schedules reflect CSX Lines as the obligor. In accordance
with SEC disclosure requirements, consolidating financial information for the
parent and guarantors are as follows: (amounts in millions)
Consolidating Statement of Financial Position March 30, 2001
- --------------------------------------------- CSX Corporate CSX Lines Other Eliminations Consolidated
------------------------------------------------------------------------
Assets
Cash, Cash Equivalents and Short-term Investments 367 (25) 279 - 621
Accounts Receivable 41 31 961 (193) 840
Materials and Supplies - 16 253 - 269
Deferred Income Taxes - - 122 - 122
Other Current Assets 6 12 279 (149) 148
------------------------------------------------------------------------
Total Current Assets 414 34 1,894 (342) 2,000
Properties 29 451 17,501 - 17,981
Accumulated Depreciation (26) (281) (4,990) - (5,297)
------------------------------------------------------------------------
Properties, net 3 170 12,511 - 12,684
Investment in Conrail 361 - 4,312 - 4,673
Affiliates and Other Companies - 94 279 (29) 344
Investment in Consolidated Subsidiaries 13,188 - 396 (13,584) -
Other long-term assets (141) 69 2,018 (1,209) 737
------------------------------------------------------------------------
Total Assets 13,825 367 21,410 (15,164) 20,438
========================================================================
Liabilities
Current Liabilities
Accounts Payable 125 64 1,171 (303) 1,057
Labor and Fringe Benefits Payable 14 19 377 - 410
Payable to Affiliates - - 149 (149) -
Casualty, Environmental and Other Reserves 1 - 250 - 251
Current Maturities of Long-term debt 60 - 128 - 188
Short-term Debt 477 - 1 - 478
Income and Other Taxes Payable 1,255 8 (1,013) - 250
Other Current Liabilities 38 21 87 110 256
------------------------------------------------------------------------
Total Current Liabilities 1,970 112 1,150 (342) 2,890
Casualty, Environmental and Other reserves 1 - 744 - 745
Long-term Debt 5,025 68 1,119 - 6,212
Deferred Income Taxes 112 (13) 3,292 - 3,391
Long Term Payable to Affiliates 396 - (396) - -
Other Long-term Liabilities 345 47 2,068 (1,236) 1,224
------------------------------------------------------------------------
Total Liabilities 7,849 214 7,977 (1,578) 14,462
------------------------------------------------------------------------
Shareholders' Equity
Preferred Stock - - 396 (396) -
Common Stock 213 - 209 (209) 213
Other Capital 1,470 161 8,895 (9,056) 1,470
Retained Earnings 4,293 (8) 3,933 (3,925) 4,293
Accumulated Other Comprehensive Loss - - - - -
------------------------------------------------------------------------
Total Shareholders' Equity 5,976 153 13,433 (13,586) 5,976
------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity 13,825 367 21,410 (15,164) 20,438
========================================================================
Consolidating Statement of Financial Position December 29, 2000
- --------------------------------------------- CSX Corporate CSX Lines Other Eliminations Consolidated
------------------------------------------------------------------------
Assets
Cash, Cash Equivalents and Short-term Investments 285 (94) 493 - 684
Accounts Receivable 33 65 926 (174) 850
Materials and Supplies - 15 230 - 245
Deferred Income Taxes - - 121 - 121
Other Current Assets 12 12 248 (126) 146
------------------------------------------------------------------------
Total Current Assets 330 (2) 2,018 (300) 2,046
Properties 29 455 17,355 - 17,839
Accumulated Depreciation (25) (276) (4,896) - (5,197)
------------------------------------------------------------------------
Properties, net 4 179 12,459 - 12,642
Investment in Conrail 364 - 4,304 - 4,668
Affiliates and Other Companies - 164 227 (29) 362
Investment in Consolidated Subsidiaries 13,184 - 386 (13,570) -
Other long-term assets (205) - 2,097 (1,119) 773
------------------------------------------------------------------------
Total Assets 13,677 341 21,491 (15,018) 20,491
========================================================================
Liabilities
Current Liabilities
Accounts Payable 102 88 1,036 (147) 1,079
Labor and Fringe Benefits Payable 5 21 379 - 405
Payable to Affiliates - - 127 (127) -
Casualty, Environmental and Other Reserves 1 3 242 - 246
Current Maturities of Long-term debt 60 - 112 - 172
Short-term Debt 749 - - - 749
Income and Other Taxes Payable 1,346 12 (986) - 372
Other Current Liabilities 39 25 219 (26) 257
------------------------------------------------------------------------
Total Current Liabilities 2,302 149 1,129 (300) 3,280
Casualty, Environmental and Other reserves - 4 751 - 755
Long-term Debt 4,594 54 1,162 - 5,810
Deferred Income Taxes 118 (16) 3,282 - 3,384
Long Term Payable to Affiliates 396 14 707 (1,117) -
Other Long-term Liabilities 250 43 982 (30) 1,245
------------------------------------------------------------------------
Total Liabilities 7,660 248 8,013 (1,447) 14,474
------------------------------------------------------------------------
Shareholders' Equity
Preferred Stock - - 396 (396) -
Common Stock 213 - 209 (209) 213
Other Capital 1,467 98 8,958 (9,056) 1,467
Retained Earnings 4,337 (5) 3,915 (3,910) 4,337
Accumulated Other Comprehensive Loss - - - - -
------------------------------------------------------------------------
Total Shareholders' Equity 6,017 93 13,478 (13,571) 6,017
------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity 13,677 341 21,491 (15,018) 20,491
========================================================================
-16-
Consolidating Statement of Earnings Quarter Ended March 30, 2001
- ----------------------------------- CSX Corporate CSX Lines Other Eliminations Consolidated
----------------------------------------------------------------------------------
Operating Income
Operating Revenue - 161 1,974 (110) 2,025
Operating Expense (46) 164 1,827 (109) 1,836
----------------------------------------------------------------------------------
Operating Income(Loss) 46 (3) 147 (1) 189
Other Income and Expense
Other Income (Expense) 78 - 12 (121) (31)
Interest Expense 134 2 38 (43) 131
----------------------------------------------------------------------------------
Earnings
Earnings before Income Taxes (10) (5) 121 (79) 27
Income Tax Expense (1) (2) 10 - 7
----------------------------------------------------------------------------------
Net Earnings (Loss) (9) (3) 111 (79) 20
==================================================================================
Consolidating Statement of Earnings Quarter Ended March 31, 2000
- ----------------------------------- CSX Corporate CSX Lines Other Eliminations Consolidated
----------------------------------------------------------------------------------
Operating Income
Operating Revenue - 162 1,992 (120) 2,034
Operating Expense (52) 163 1,867 (118) 1,860
----------------------------------------------------------------------------------
Operating Income(Loss) 52 (1) 125 (2) 174
Other Income and Expense
Other Income (Expense) 73 1 29 (108) (5)
Interest Expense 136 2 34 (38) 134
----------------------------------------------------------------------------------
Earnings
Earnings before Income Taxes (11) (2) 120 (72) 35
Income Tax Expense (2) (1) 13 - 10
----------------------------------------------------------------------------------
Earnings before Discontinued Operations (9) (1) 107 (72) 25
Earnings from Discontinued Operations, Net of Tax - - 4 - 4
----------------------------------------------------------------------------------
Net Earnings (Loss) (9) (1) 111 (72) 29
-17-
Consolidating Statement of Cash Flows Quarter Ended March 30, 2001
CSX Corporate CSX Lines Other Eliminations Consolidated
---------------------------------------------------------------------------------------
Operating Activities
Net Cash Provided by Operating
Activities (78) - 142 (64) -
---------------------------------------------------------------------------------------
Investing Activities
Property Additions - 1 (184) - (183)
Short-term Investments-net (76) - (7) - (83)
Other Investing Activities 8 - (65) 58 1
---------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (68) 1 (256) 58 (265)
---------------------------------------------------------------------------------------
Financing Activities
Short-term Debt-Net (271) - - - (271)
Long-term Debt Issued 500 - - - 500
Long-term Debt Repaid - - (48) - (48)
Cash Dividends Paid (66) - (54) 56 (64)
Other Financing Activities (12) 70 (50) 8
---------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing
Activities 151 - (32) 6 125
---------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 5 1 (146) - (140)
---------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 47 (94) 308 - 261
---------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period 52 (93) 162 - 121
---------------------------------------------------------------------------------------
Consolidating Statement of Cash Flows Quarter Ended March 31, 2000
CSX Corporate CSX Lines Other Eliminations Consolidated
---------------------------------------------------------------------------------------
Operating Activities
Net Cash Provided by Operating Activities 21 18 14 (54) (1)
---------------------------------------------------------------------------------------
Investing Activities
Property Additions - - (107) - (107)
Short-term Investments-net (23) - - - (23)
Other Investing Activities (67) - (577) 655 11
---------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (90) - (684) 655 (119)
---------------------------------------------------------------------------------------
Financing Activities
Short-term Debt-Net (81) - - - (81)
Long-term Debt Repaid - - (34) - (34)
Cash Dividends Paid (67) - (54) 55 (66)
Common Stock Issued 98 - (78) (20) -
Common Stock Retired (12) - 12 - -
Other Financing Activities 266 (69) 407 (636) (32)
---------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 204 (69) 253 (601) (213)
---------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 135 (51) (417) - (333)
---------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period (475) 554 547 - 626
---------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period (340) 503 130 - 293
---------------------------------------------------------------------------------------
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
CSX follows a 52/53-week fiscal calendar. Fiscal years 2001 and 2000
consist of 52 weeks. The quarters ended March 30, 2001 and March 31, 2000
consisted of 13 weeks.
First Quarter 2001 Compared with 2000
- -------------------------------------
CSX reported net earnings from continuing operations of $20 million, 10
cents per diluted share, for the quarter ended March 30, 2001 as compared to $25
million, 12 cents per diluted share for the quarter ended March 31, 2000.
Operating income for the first quarter of 2001 totaled $189 million,
compared with $174 million in the first quarter of 2000 on revenues of $2.03
billion in both years. Operating expenses for the first quarter of 2001 totaled
$1.84 billion compared to $1.86 billion in the prior year, a 1% decrease.
Other expense totaled $31 million in the first quarter of 2001 compared to
$5 million in the first quarter of 2000, more than offsetting the year over year
increase in operating income. This was due primarily to the $14 million write-
off of an investment in a non-rail affiliate along with a decrease in interest
income and an increase in net losses from sales of accounts receivable and
expenses from real estate and resort operations.
Surface Transportation Results
- ------------------------------
Rail
Rail operating income for the first quarter of 2001 totaled $166 million,
compared to $147 million in the prior year quarter, an increase of 13%.
Operating revenue totaled $1.53 billion, an increase of $17 million, or 1%, due
primarily to the exceptionally strong demand for coal. Operating expense was
consistent at $1.37 billion in both years.
-19-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Rail, Continued
The following table provides rail carload and revenue data by service group
and commodity for the quarters ended March 30, 2001 and March 31, 2000:
Carloads Revenue
(Thousands) (Millions of Dollars)
---------------------------------- ---------------------------------
March 30, March 31, March 30, March 31,
2001 2000 2001 2000
--------------- ---------------- -------------- ----------------
Merchandise
Phosphates and Fertilizer 119 131 $ 89 $ 92
Metals 82 91 102 107
Food and Consumer Products 40 41 58 53
Paper and Forest Products 122 137 160 168
Agricultural Products 100 92 134 122
Chemicals 150 149 250 247
Minerals 95 101 90 95
Government 3 3 7 5
--------------- ---------------- -------------- ----------------
Total Merchandise 711 745 890 889
Automotive 127 158 194 227
Coal, Coke & Iron Ore
Coal 439 396 416 371
Coke 10 12 11 12
Iron Ore 5 8 3 7
--------------- ---------------- -------------- ----------------
Total Coal, Coke & Iron Ore 454 416 430 390
Other - - 18 9
--------------- ---------------- -------------- ----------------
Total Rail 1,292 1,319 $ 1,532 $ 1,515
=============== ================ ============== ================
Overall freight revenue was significantly higher than the first quarter of
2000 due primarily to an increase in coal revenue and strategic price
initiatives. Merchandise demand decreased from prior year, particularly in the
phosphates and fertilizer group and the paper and forest products commodity
group. Automotive revenue decreased significantly, due primarily to automotive
plant shut downs relating to a weak economy.
As compared to the first quarter of 2000, operations of the railroad are
running smoother in 2001. During the first quarter of 2000, CSX's rail unit was
still experiencing operating difficulties and diminished service performance
relating to the initial integration of operations over the Conrail territories.
In 2001, primarily the result of strategic initiatives begun in mid-2000, CSX's
rail unit has seen improvement in operations and service performance and the
railroad has seen significant improvements in most operating
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Surface Transportation Results, Continued
- -----------------------------------------
Rail, Continued
measures. The improved performance allowed the Company to selectively raise
rates helping offset decreased demand while also enabling the Company to realize
savings in certain operating expense categories. Increases in fuel expense due
to price increases year over year and labor costs somewhat offset the savings in
other operating expense categories.
Intermodal
- ----------
Intermodal operating income totaled $16 million for the first quarter of
2001, compared to $13 million in the prior year quarter. Revenue for the
quarter decreased $18 million, or 6%, to $270 million. Operating expense
decreased $21 million, or 8%, to $254 million. The decrease in revenues
represent a slight loss in market share year over year along with the weakening
economy, but this was offset by increased savings in certain operating expense
categories.
Marine Services Results
- -----------------------
Domestic Container Shipping
The domestic container shipping unit reported an operating loss of $3
million for the first quarter of fiscal 2001 as compared to an operating loss of
$1 million in the prior year. Operating revenues were relatively constant at
$161 million for the first quarter of 2001 and $162 million in the prior year.
The Puerto Rico tradelane is continuing to experience excess capacity which is
putting pressure on rates. The results for both the Alaska and Hawaii
tradelanes have improved compared to first quarter 2000.
International Terminals
The international terminals unit reported operating income of $12 million
for the first quarter as compared to $14 million in the prior year. Operating
revenues were $68 million for the first quarter of 2001 as compared to $74
million in the prior year. The decrease in operating revenues and income was
primarily due to the economic slowdown which hit particularly strong at the
Company's main terminal in Hong Kong early in the quarter.
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments totaled $621 million at
March 30, 2001, a decrease of $63 million since December 29, 2000.
The primary source of cash and cash equivalents during the first quarter of
2001 was the issuance of $500 million of notes. Cash flow from operations was
neutral reflecting customary seasonal weakness. Primary uses of cash and cash
equivalents during the quarter were property additions, repayments of short-term
debt, and the payment of dividends on the company's outstanding common stock.
-21-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
CSX's working capital deficit at March 30, 2001 was $890 million, down from
$1.2 billion at December 29, 2000. The working capital deficit at both dates
includes approximately $300 million of commercial paper that is classified as
short-term debt due to the fact that it is supported by the Company's line of
credit agreement which expires in November 2001. A working capital deficit is
not unusual for the company and does not indicate a lack of liquidity. The
company continues to maintain adequate current assets to satisfy current
liabilities when they are due and has sufficient liquidity and financial
resources to manage its day-to-day cash needs.
CSX also has $300 million of remaining capacity under a shelf registration
that may be used to issue debt or other securities at the company's discretion.
FINANCIAL DATA
- --------------
(Millions of Dollars)
---------------------------------------
March 30, December 29,
2001 2000
------------------- ----------------
Cash, Cash Equivalents and
Short-Term Investments $ 621 $ 684
Commercial Paper Outstanding -
Short-Term $ 478 $ 749
Working Capital (Deficit) $ (890) $ (1,234)
Current Ratio .7 .6
Debt Ratio 53% 52%
Ratio of Earnings to Fixed Charges 1.2 x 1.4 X
OUTLOOK
- -------
In the remainder of 2001, the challenge will be to continue to improve the
financial performance of the railroad. This will be accomplished through
continued service improvements, aggressive cost cutting initiatives and taking
full advantage of revenue synergy opportunities from the Conrail transaction.
Despite an economy that is showing clear signs of at least a short-term slow
down, if not a contraction, CSX expects to produce full year earnings that will
show an increase from previous years. The coal unit is expected to continue to
offset the decreased demand in other sectors through the remainder of the year.
CSX is hopeful that the second half of 2001 will produce some year over year
increases in rail volumes. On the cost side, the impact of higher fuel costs is
expected to have a negative impact on cost comparisons during the first part of
the year but could be favorable if prices decline throughout the year.
Although CSX World Terminals encountered a difficult first quarter,
especially its main terminal in Hong Kong, it is still expected to produce both
earnings and cash flow levels above 2000's results. Results in Hong Kong
improved late in the first quarter and are expected to continue improving
throughout the remainder of 2001.
CSX Lines continues to struggle with price competition in Puerto Rico, but
other trade-lanes continue to be strong.
-22-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.
The rail subsidiaries of CSX and Norfolk Southern operate their respective
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 service in certain shared geographic areas for the joint benefit of CSX and
Norfolk Southern for which it is compensated on the basis of usage by the
respective railroads.
Accounting and Financial Reporting Effects
- ------------------------------------------
CSX and Norfolk Southern have assumed substantially all of Conrail's former
customer freight contracts. CSX's rail and intermodal operating revenue include
revenue from traffic previously moving on Conrail. Operating expenses reflect
corresponding increases for costs incurred to operate the former Conrail lines.
Rail operating expenses after the integration also include an expense category,
"Conrail Operating Fee, Rent and Services," which reflects payment to Conrail
for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern. This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting.
Conrail's Results of Operations
- -------------------------------
Conrail reported net income of $45 million on revenues of $233 million for
the first quarter of 2001, compared to net income of $65 million on revenues of
$259 million for the prior year quarter. Results for the first quarter of 2000
benefited from a non-recurring gain on the sale of property of $61 million, $37
million after-tax.
Conrail's operating activities provided net cash of $121 million in the
first quarter of 2001, compared with a net use of cash of $112 million in the
first quarter of 2000.
Conrail's working capital was $132 million at March 31, 2001, compared with
$85 million at December 31, 2000.
-23-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS
Surface Transportation Board Moratorium on Rail Merger Applications and Proposed
- --------------------------------------------------------------------------------
New Rules for Rail Mergers
- ---------------------------
In March 2000, the Surface Transportation Board (STB) issued a decision
establishing a moratorium on rail merger applications for a 15-month time
period. The STB's deliberations on this matter were prompted by significant
public concerns expressed following the December 1999 announcement by the
Burlington Northern Santa Fe and Canadian National railroads of plans to merge
and combine their respective rail systems. The moratorium was instituted to
allow the STB time to address the potential downstream effects that a rail
merger might have on the railroad industry at the present time, and to consider
changes in the rules by which future rail mergers will be evaluated. In October
2000, the STB issued proposed new rules for rail mergers that would require
companies to demonstrate how future mergers would enhance competition and make
companies more accountable for claimed merger benefits and service. After
considering public comments on the proposed new rules, the STB anticipates
issuing final rules in June 2001.
Federal Court Decision Affecting Coal Mining Operations
- --------------------------------------------------------
In October 1999, a federal district court judge ruled that certain
mountaintop coal mining practices in West Virginia were in violation of the
federal Clean Water Act and the federal Surface Mining and Control Reclamation
Act. The decision, if enforced, could have adversely affected CSX's coal traffic
and revenues if upheld. A federal appeals court overturned the decision on April
24, 2001, ruling that the case should properly have been brought in the West
Virginia state courts.
New Orleans Tank Car Fire Litigation
- -------------------------------------
In September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly-owned rail subsidiary of CSX. The award was made in a class-action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.
In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.
-24-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
New Orleans Tank Car Fire Litigation, Continued
- -----------------------------------------------
The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850
million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond in the amount of $895 million, which will allow it to
appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In July 1999, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.
In 1999, six of the nine defendants in the case reached a tentative
settlement with the plaintiffs group. The basis of that settlement is an
agreement that all claims for compensatory and punitive damages against the six
defendants would be compromised for the sum of $215 million. That settlement was
approved by the trial court in early 2000.
In 2000, the City of New Orleans was granted permission by the trial court
to assert an amended claim against CSXT, including a newly asserted claim for
punitive damages. The City's case was originally filed in 1988, and while based
on the 1987 tank car fire, is not considered to be part of the class action.
Oral argument in the Louisiana Court of Appeals for the Fourth Circuit with
regard to CSXT's appeal was held on January 12, 2001. A ruling is expected some
time this year. Any review beyond that court is by discretionary writ.
CSXT continues to pursue an aggressive legal strategy. At the present time,
management is not in a position to determine whether the resolution of this case
will have a material adverse effect on the Company's financial position or
results of operations in any future reporting period.
ECT Dispute
- ------------
Recently, CSX received a claim amounting to approximately $180 million plus
interest from Europe Container Terminals bv (ECT), owner of the Rotterdam
Container Terminal previously operated by Sea-Land prior to its sale to Maersk
in December 1999. ECT has claimed that the sale of the international liner
business to Maersk resulted in a breach of the Sea-Land terminal agreements. ECT
has refused to accept containers at the former Sea-Land facility tendered by
Maersk and is seeking compensation from CSX relating to the alleged breach. CSX
has advised Maersk that CSX holds them responsible for any damages that may
arise from this case. Management's initial evaluation of the claim indicates
that valid defenses exist, but at this point management cannot estimate what, if
any, losses may result from this case.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
__________________________________________________
Estimates and forecasts in Management's Discussion and Analysis and in
other sections of this Quarterly Report are based on many assumptions about
complex economic and operating factors with respect to industry performance,
general business and economic conditions and other matters that cannot be
predicted accurately and that are subject to contingencies over which the
company has no control. Such forward-looking statements are subject to
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs, and projections expressed in such
statements. The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the company. Any such statement speaks only as of the date the statement was
made. The company undertakes no obligation to update or revise any forward-
looking statement.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the
integration of Conrail may not be fully realized or realized within the
timeframe anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the company; (iv) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (v) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and businesses of the company; and (vi) changes may occur in the
securities and capital markets.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K filed on 1/31/01 to restate CSX Corporation's financial
statements to reflect the sale of CTI Logistx as a discontinued
operation.
Form 8-K filed on 3/12/01 to announce the public offering of
$500,000,000 aggregate principal amount of the Company's 6.75% Notes
due 2011.
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By: /s/ JAMES L. ROSS
--------------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: May 14, 2001
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