-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hmj+/l7uxzx2D4q6rDvi8NJne+CMCVcV6T8fmgx9eck6gA5/dJKK+mTlhlLlzShw 2eJIv/BFcG5ZyN5CCeu1cg== 0000950109-01-502503.txt : 20010802 0000950109-01-502503.hdr.sgml : 20010802 ACCESSION NUMBER: 0000950109-01-502503 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010629 FILED AS OF DATE: 20010801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSX CORP CENTRAL INDEX KEY: 0000277948 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 621051971 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08022 FILM NUMBER: 1695223 BUSINESS ADDRESS: STREET 1: ONE JAMES CNTR STREET 2: 901 E CARY ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047821400 MAIL ADDRESS: STREET 1: ONE JAMES CENTER STREET 2: ONE JAMES CENTER CITY: RICHMOND STATE: VA ZIP: 23219 10-Q 1 d10q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 29, 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 June 29, 2001: 213,072,061 shares. -1- CSX CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2001 INDEX
Page Number PART I. FINANCIAL INFORMATION Item 1: Financial Statements 1. Consolidated Statement of Earnings- Quarters and Six Months Ended June 29, 2001 and June 30, 2000 3 2. Consolidated Statement of Cash Flows- Six Months Ended June 29, 2001 and June 30, 2000 4 3. Consolidated Statement of Financial Position- At June 29, 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 23 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 32 Item 6. Exhibits and Reports on Form 8-K 33 Signature 33
-2- CSX CORPORATION AND SUBSIDIARIES Consolidated Statement of Earnings (Millions of Dollars, Except Per Share Amounts)
(Unaudited) Quarter Ended Six Months Ended ------------------------------ ------------------------------ June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------ ------------- ------------ ------------- Operating Revenue $ 2,057 $ 2,071 $ 4,082 $ 4,105 Operating Expense 1,792 1,882 3,628 3,742 ------------ ------------- ------------ ------------- Operating Income 265 189 454 363 Other Income (Expense) 34 24 3 19 Interest Expense 132 139 263 273 ------------ ------------- ------------ ------------- Earnings from Continuing Operations Before Income Taxes 167 74 194 109 Income Tax Expense 59 26 66 36 ------------ ------------- ------------ ------------- Earnings before Discontinued Operations 108 48 128 73 Earnings from Discontinued Operations, Net of Taxes - 7 - 11 ------------ ------------- ------------ ------------- Net Earnings $ 108 $ 55 $ 128 $ 84 ============ ============= ============ ============= Earnings Per Share: Before Discontinued Operations $ 0.51 $ 0.23 $ 0.60 $ 0.35 Earnings from Discontinued Operations - 0.03 - 0.05 ------------ ------------- ------------ ------------- Including Discontinued Operations $ 0.51 $ 0.26 $ 0.60 $ 0.40 ============ ============= ============ ============= Earnings Per Share, Assuming Dilution: Before Discontinued Operations $ 0.51 $ 0.23 $ 0.60 $ 0.35 Earnings from Discontinued Operations - 0.03 - 0.05 ------------ ------------- ------------ ------------- Including Discontinued Operations $ 0.51 $ 0.26 $ 0.60 $ 0.40 ============ ============= ============ ============= Average Common Shares Outstanding (Thousands) 211,687 211,016 211,491 211,104 ============ ============= ============ ============= Average Common Shares Outstanding Assuming Dilution (Thousands) 212,464 211,211 212,180 211,588 ============ ============= ============ ============= Cash Dividends Paid Per Common Share $ 0.30 $ 0.30 $ 0.60 $ 0.60 ============ ============= ============ =============
-3- CSX CORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows (Millions of Dollars)
(Unaudited) Six Months Ended --------------------------------- June 29, June 30, 2001 2000 -------------- ------------- OPERATING ACTIVITIES Net Earnings $ 128 $ 84 Adjustments to Reconcile Net Earnings to Net Cash Provided: Depreciation 312 293 Deferred Income Taxes 32 31 Equity in Conrail Earnings - Net (9) (4) Other Operating Activities (1) 52 Changes in Operating Assets and Liabilities Accounts Receivable (33) 68 Other Current Assets (15) (80) Accounts Payable (71) (161) Other Current Liabilities (78) (287) -------------- ------------- Net Cash Provided (Used) by Operating Activities 265 (4) -------------- ------------- INVESTING ACTIVITIES Property Additions (420) (422) Short-Term Investments - Net 11 70 Other Investing Activities (8) 16 -------------- ------------- Net Cash Used by Investing Activities (417) (336) -------------- ------------- FINANCING ACTIVITIES Short-Term Debt - Net (228) (105) Long-Term Debt Issued 500 187 Long-Term Debt Repaid (118) (72) Cash Dividends Paid (128) (131) Other Financing Activities 8 (37) -------------- ------------- Net Cash Provided (Used) by Financing Activities 34 (158) -------------- ------------- Net Decrease in Cash and Cash Equivalents (118) (498) 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 143 128 Short-Term Investments at End of Period 413 267 -------------- ------------- Cash, Cash Equivalents and Short-Term Investments at End of Period $ 556 $ 395 ============== =============
See accompanying Notes to Consolidated Financial Statements. -4- CSX CORPORATION AND SUBSIDIARIES Consolidated Statement of Financial Position (Millions of Dollars)
(Unaudited) June 29, December 29, 2001 2000 ----------- ------------ ASSETS Current Assets Cash, Cash Equivalents and Short-Term Investments $ 556 $ 684 Accounts Receivable 890 850 Materials and Supplies 268 245 Deferred Income Taxes 114 121 Other Current Assets 149 146 ----------- ------------ Total Current Assets 1,977 2,046 Properties 18,116 17,839 Accumulated Depreciation (5,375) (5,197) ----------- ------------ Properties-Net 12,741 12,642 Investment in Conrail 4,677 4,668 Affiliates and Other Companies 353 362 Other Long-Term Assets 761 773 ----------- ------------ Total Assets $ 20,509 $ 20,491 =========== ============ LIABILITIES Current Liabilities Accounts Payable $ 1,015 $ 1,079 Labor and Fringe Benefits Payable 418 405 Current Portion of Casualty, Environmental and Other Reserves 250 246 Current Maturities of Long-Term Debt 937 172 Short-Term Debt 171 749 Income and Other Taxes Payable 289 372 Other Current Liabilities 261 257 ----------- ------------ Total Current Liabilities 3,341 3,280 Casualty, Environmental and Other Reserves 740 755 Long-Term Debt 5,770 5,810 Deferred Income Taxes 3,411 3,384 Other Long-Term Liabilities 1,215 1,245 ----------- ------------ Total Liabilities 14,477 14,474 ----------- ------------ SHAREHOLDERS' EQUITY Common Stock, $1 Par Value 213 213 Other Capital 1,482 1,467 Retained Earnings 4,337 4,337 ----------- ------------ Total Shareholders' Equity 6,032 6,017 ----------- ------------ Total Liabilities and Shareholders' Equity $ 20,509 $ 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 June 29, 2001 and December 29, 2000, and the results of its operations for the quarters and six months ended June 29, 2001 and June 30, 2000, and its cash flows for the six months ended June 29, 2001 and June 30, 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 quarters ended June 29, 2001 and June 30, 2000, the 26-week periods ended June 29, 2001 and June 30, 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 of common shares outstanding, as defined by Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings per Share," for the fiscal quarters and six months ended June 29, 2001 and June 30, 2000. Earnings per share, assuming dilution, are based on the weighted average of common shares outstanding adjusted for the effect of dilutive potential common shares outstanding during the period, principally arising from employee stock plans. For the fiscal quarters ended June 29, 2001 and June 30, 2000, dilutive potential common shares totaled .8 million and .2 million, respectively. For the six months ended June 29, 2001 and June 30, 2000, potentially dilutive shares totaled .7 million and .5 million, respectively. Certain potential common shares outstanding at June 29, 2001 and June 30, 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 19.3 million at a weighted-average exercise price of $43.46 per share at June 29, 2001 and 26.2 million with a weighted-average exercise price of $40.07 per share at June 30, 2000. 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 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. -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, Continued 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 June 30, 2001 and 2000, and at December 31, 2000, is as follows:
Quarters Ended Six Months Ended June 30, June 30, -------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ---------- ----------- ------------ Income Statement Information: Revenues $229 $246 $462 $505 Income From Operations 76 52 140 112 Net Income 47 30 92 96
As Of ------------------------------------- June 30, December 31, 2001 2000 -------------- ----------------- Balance Sheet Information: Current Assets $ 718 $ 520 Property and Equipment and Other Assets 7,390 7,540 Total Assets 8,108 8,060 Current Liabilities 457 435 Long-Term Debt 1,199 1,229 Total Liabilities 4,015 4,078 Stockholders' Equity 4,093 3,982
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 upon the June 1999 integration date. CSX's rail and intermodal operating revenue since that date includes revenue from traffic previously recognized by 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. -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 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 December 29, 2000, CSX had $2 million 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 June 29, 2001 and December 29, 2000, Conrail had advanced $142 million and $40 million, respectively, to CSX under this arrangement at interest rates of 4.08% and 5.90%, respectively. CSX also had amounts payable to Conrail of $86 million and $127 million at June 29, 2001 and December 29, 2000, respectively, representing billings from Conrail under the operating, equipment, and shared area agreements. NOTE 4. DISCONTINUED OPERATIONS On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., it's wholly-owned logistics subsidiary, for $650 million. The contract logistics segment is 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 and six month period ended June 30, 2000 were $131 million and $257 million, respectively. 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 provides for a post-closing working capital adjustment to the sales price based on the change in working capital, as defined in the agreement, between June 25, 1999, and December 10, 1999. The company has recorded a receivable of approximately $60 million in connection with the post-closing working capital adjustment and this amount is currently in dispute. This matter, together with other disputed issues, has been submitted to arbitration. Management is not yet in a position to assess fully the likely outcome of this process but believes it will prevail in the arbitration. 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. -8- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 6. ACCOUNTS RECEIVABLE The company sells revolving interests in its rail accounts receivable to public investors through a securitization program and to a financial institution 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. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Receivables sold under these arrangements are excluded from accounts receivable in the consolidated statement of financial position. At June 29, 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 June 29, 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 program require yield payments based on prevailing commercial paper rates plus incremental fees. Losses recognized on the sale of accounts receivable totaled $10 million and $22 million for the quarter and six months ended June 29, 2001, respectively, and $8 million and $16 million for the quarter and six months ended June 30, 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. NOTE 7. OPERATING EXPENSE
Quarters Ended Six Months Ended ------------------------------- ------------------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------- ------------- ------------- -------------- Labor and Fringe Benefits $ 743 $ 732 $ 1,499 $ 1,480 Materials, Supplies and Other 422 480 846 921 Conrail Operating Fee, Rent and Services 85 101 168 196 Building and Equipment Rent 159 188 322 384 Inland Transportation 84 90 169 173 Depreciation 153 140 308 282 Fuel 146 151 316 306 ------------- ------------- ------------- -------------- Total $ 1,792 $ 1,882 $ 3,628 $ 3,742 ============= ============= ============= ==============
-9- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 8. OTHER INCOME (EXPENSE)
Quarters Ended Six Months Ended -------------------------- -------------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------- ----------- ------------- ------------ Interest Income $ 10 $ 12 $ 21 $ 28 Income from Real Estate and Resort Operations/(1)/ 53 33 50 34 Net Losses from Accounts Receivable Sold (10) (8) (22) (16) Minority Interest (10) (12) (18) (20) Equity Loss of Other Affiliates (3) - (19) (5) Miscellaneous (6) (1) (9) (2) ------------ ---------- ------------ ----------- Total $ 34 $ 24 $ 3 $ 19 ============ ========== ============ ===========
/(1)/ Gross revenue from real estate and resort operations was $96 million and $121 million for the quarter and six months ended June 29, 2001, respectively, and $68 million and $97 million for the quarter and six months ended June 30, 2000, respectively. NOTE 9. DEBT AND CREDIT AGREEMENTS During the six months ended June 29, 2001, the company issued $500 million of 6.75% notes due 2011 and reclassified $350 million of outstanding commercial paper to long-term liabilities as it is now supported by a 5 year $1 billion line of credit agreement signed in June of 2001. This reclassification was based on the company's ability and intent to maintain this debt outstanding for more than a year. The company also entered into a $500 million one year revolving credit agreement in June of 2001. Borrowings under these credit agreements accrue interest at a variable rate based on LIBOR. The company pays annual fees to the participating banks that may range from 0.01% to 0.23% of total commitment, depending on its credit rating. -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 from third-party liability and property damage, reasonable levels of risk are retained on a self-insurance basis. A portion of the insurance coverage, a $25 million limit above $100 million per occurrence from rail and certain other operations, is provided for by a company partially owned by CSX. Environmental - ------------- CSX Transportation, Inc. (CSXT), the wholly-owned rail subsidiary of CSX, is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (PRP) at 106 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 238 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 (e.g., generator, owner or operator), the extent of CSXT's alleged connection (e.g., volume of waste sent to the location and other relevant factors),the accuracy and strength of evidence connecting CSXT to the location, and the number, connection and financial position of other named and unnamed PRPs at the location. The ultimate liability for remediation can be difficult to determine with certainty because of the number and creditworthiness of PRPs involved. Through the assessment process, CSXT monitors the creditworthiness of such PRPs in determining ultimate liability. Based upon such reviews and updates of the sites with which it is involved, CSXT has recorded, and reviews at least quarterly for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at June 29, 2001, and December 29, 2000, were $38 million and $41 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The liability has been accrued for future costs for all sites where the company's obligation is probable and where such costs can be reasonably estimated. -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 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 29, 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 that its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations or 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 CSXT. The award was made in a class-action lawsuit against a group of nine companies based on personal injuries alleged to have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans neighborhood. In the same case, the court awarded a group of 20 plaintiffs compensatory damages of approximately $2 million against the defendants, including CSXT, to which the jury assigned 15 percent of the responsibility for the incident. CSXT's liability under that compensatory damages award is not material, and adequate provision has been made for the award. 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 the verdict. The compensatory damages awarded by the jury in the 1997 trial were also substantially reduced by the trial judge. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond, which has allowed it to appeal the 1997 compensatory and punitive awards, as reduced by the trial judge. -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 A trial for the claims of 20 additional plaintiffs for compensatory damages began on May 24, 1999. In early July, the jury in that trial rendered verdicts totaling approximately $330 thousand in favor of eighteen of those twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that they had not proved any damages. Management believes that this result, while still excessive, supports CSXT's contention that the punitive damages award was unwarranted. In 1999, six of the nine defendants in the case reached a tentative settlement with the plaintiffs group. The basis of the settlement is an agreement that all claims for compensatory and punitive damages against the six defendants would be compromised for the sum of $215 million. The settlement was approved by the trial court in early 2000. In 2000, the City of New Orleans was granted permission by the trial court to assert an amended claim against CSXT, including a newly asserted claim for punitive damages. The City's case was originally filed in 1988, and while based on the 1987 tank car fire, is not considered to be part of the class action. On June 27, 2001, the Louisiana Court of Appeal for the Fourth Circuit affirmed the judgment of the trial court, which judgment reduced the punitive damages verdict from $2.5 billion to $850 million. CSXT has moved the Louisiana Fourth Circuit Court for rehearing of certain issues raised in its appeal. CSXT intends to pursue an appeal with the Louisiana Supreme Court. While this appeal is not an appeal of right, CSXT believes that there are substantial grounds for review by the Louisiana Supreme Court. CSXT continues to pursue an aggressive legal strategy. At the present time, management is not in a position to determine whether the resolution of this case will have a material adverse effect on the Company's financial position or results of operations in any future reporting period. ECT Dispute - ----------- CSX received a claim in an earlier period 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. Other Legal Proceedings - ----------------------- A number of other legal actions are pending against CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of these actions 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. -13- 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 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 June 29, 2001 and June 30, 2000 is as follows: Quarter ended June 29, 2001: - ----------------------------
Marine Services Surface Transportation ---------------------------------- -------------------------------- Domestic Container International Rail Intermodal Total Shipping Terminals Total Totals --------- ------------ --------- ----------- -------------- ------- ------------ Revenues from external customers $ 1,556 $ 266 $ 1,822 $ 168 $ 67 $ 235 $ 2,057 Intersegment revenues - 5 5 - 1 1 6 Segment operating income 219 23 242 7 18 25 267 Assets 12,953 413 13,366 393 834 1,227 14,593 Quarter ended June 30, 2000: - --------------------------- Marine Services ---------------------------------- Surface Transportation Domestic -------------------------------- Container International Rail Intermodal Total Shipping Terminals Total Totals --------- ------------ --------- ----------- -------------- ------- ------------ Revenues from external customers $ 1,548 $ 286 $ 1,834 $ 162 $ 75 $ 237 $ 2,071 Intersegment revenues - 5 5 - 1 1 6 Segment operating income 138 20 158 4 18 22 180 Assets 13,140 393 13,533 367 745 1,112 14,645
-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
Six Months ended June 29, 2001: - ------------------------------- Marine Services ---------------------------------- Surface Transportation Domestic -------------------------------- Container International Rail Intermodal Total Shipping Terminals Total Totals --------- ------------ --------- ----------- -------------- ------- ------------ Revenues from external customers $ 3,088 $ 531 $ 3,619 $ 329 $ 134 $ 463 $ 4,082 Intersegment revenues - 10 10 - 2 2 12 Segment operating income 385 39 424 4 30 34 458 Assets 12,953 413 13,366 393 834 1,227 14,593 Six Months ended June 30, 2000: - ------------------------------- Marine Services ---------------------------------- Surface Transportation Domestic -------------------------------- Container International Rail Intermodal Total Shipping Terminals Total Totals --------- ------------ --------- ----------- -------------- ------- ------------ Revenues from external customers $ 3,063 $ 569 $ 3,632 $ 324 $ 149 $ 473 $ 4,105 Intersegment revenues - 10 10 - 1 1 11 Segment operating income 285 33 318 3 32 35 353 Assets 13,140 393 13,533 367 745 1,112 14,645
A reconciliation of the totals reported for the business segments to the applicable line items in the consolidated financial statements is as follows:
Quarters Ended Six Months Ended ---------------------------- ------------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------- ------------- ----------- ------------ Revenues: - -------- Total external revenues for business segments $ 2,057 $ 2,071 $ 4,082 $ 4,105 Intersegment revenues for business segments 6 6 12 11 Elimination of intersegment revenues (6) (6) (12) (11) ------------- ------------- ----------- ------------ Total consolidated revenues $ 2,057 $ 2,071 $ 4,082 $ 4,105 ============= ============= =========== ============ Operating Income: - ---------------- Total operating income for business segments $ 267 $ 180 $ 458 $ 353 Reclassification of minority interest expense for International terminals segment 9 12 17 20 Unallocated corporate expenses (11) (3) (21) (10) ------------- ------------- ----------- ------------ Total consolidated operating income $ 265 $ 189 $ 454 $ 363 ============= ============= =========== ===========
-15- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts) NOTE 11. BUSINESS SEGMENTS, Continued June 29, June 30, 2001 2000 ------------- ------------- Assets: - ------ Assets for business segments $ 14,593 $ 14,645 Investment in Conrail 4,677 4,668 Elimination of intercompany receivables (193) (162) Non-segment assets 1,432 1,340 ------------- ------------- Total consolidated assets $ 20,509 $ 20,491 ============= ============= Note 12. SUBSEQUENT EVENT Subsequent to quarter end, on July 18, 2001, a CSXT train was involved in a fire inside the Howard Street Tunnel near downtown Baltimore, Maryland. The fire was not contained completely until July 23, 2001. The fire's proximity to downtown Baltimore caused disruptions to a number of businesses. The incident also caused CSXT to reroute traffic and incur higher operating costs. CSXT and government officials have inspected the tunnel and determined that it is safe for normal rail operations. Substantially all service through the tunnel has resumed. At this time, management cannot estimate the ultimate loss relating to this incident. However, management believes that it will not be material to the Company's financial position, but could be material to the results of operations for the third quarter of 2001. Note 13. 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 June 29, 2001 and June 30, 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) -16- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts) Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA -- CSX LINES, Continued
Consolidating Statement of Financial Position June 29, 2001 CSX Corporate CSX Lines Other Eliminations Consolidated ------------- --------- ----- ------------ ------------ ASSETS Current Assets Cash, Cash Equivalents and Short-term Investments $ 166 $ -- $ 390 $ -- $ 556 Accounts Receivable 33 36 1,015 (194) 890 Materials and Supplies -- 16 252 -- 268 Deferred Income Taxes -- -- 114 -- 114 Other Current Assets 5 12 278 (146) 149 ---------- ---------- ---------- ---------- ---------- Total Current Assets 204 64 2,049 (340) 1,977 Properties 29 453 17,634 -- 18,116 Accumulated Depreciation (26) (285) (5,064) -- (5,375) ---------- ---------- ---------- ---------- ---------- Properties, net 3 168 12,570 -- 12,741 Investment in Conrail 359 -- 4,318 -- 4,677 Affiliates and Other Companies -- 94 259 -- 353 Investment in Consolidated Subsidiaries 13,212 -- 425 (13,637) -- Other long-term assets 176 67 1,148 (630) 761 ---------- ---------- ---------- ---------- ---------- Total Assets $ 13,954 $ 393 $ 20,769 $(14,607) $ 20,509 ========== ========== ========== ========== ========== LIABILITIES Current Liabilities Accounts Payable $ 88 $ 76 $ 1,004 $ (153) $ 1,015 Labor and Fringe Benefits Payable 11 11 396 -- 418 Payable to Affiliates -- -- 145 (145) -- Casualty, Environmental and Other Reserves 1 2 247 -- 250 Current Maturities of Long-term Debt 810 -- 127 -- 937 Short-term Debt 171 -- -- -- 171 Income and Other Taxes Payable 1,283 13 (1,007) -- 289 Other Current Liabilities 41 32 230 (42) 261 ---------- ---------- ---------- ---------- ---------- Total Current Liabilities 2,405 134 1,142 (340) 3,341 Casualty, Environmental and Other reserves 1 4 735 -- 740 Long-term Debt 4,694 68 1,008 -- 5,770 Deferred Income Taxes 111 (16) 3,316 3,411 Long Term Payable to Affiliates 396 -- 234 (630) -- Other Long-term Liabilities 315 36 893 (29) 1,215 ---------- ---------- ---------- ---------- ---------- Total Liabilities 7,922 226 7,328 (999) 14,477 ---------- ---------- ---------- ---------- ---------- SHAREHOLDER'S EQUITY Preferred Stock -- -- -- -- -- Common Stock 213 -- 209 (209) 213 Other Capital 1,482 171 8,818 (8,989) 1,482 Retained Earnings 4,337 (4) 4,414 (4,410) 4,337 ---------- ---------- ---------- ---------- ---------- Total Shareholders' Equity 6,032 167 13,441 (13,608) 6,032 ---------- ---------- ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $ 13,954 $ 393 $ 20,769 $(14,607) $ 20,509 ========== ========== ========== ========== ==========
-17- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts) Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA -- CSX LINES, Continued
Consolidating Statement of Financial Position December 29, 2000 CSX Corporate CSX Lines Other Eliminations Consolidated -------------- ------------- ------------- ------------ ------------ ASSETS Current 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 Affilitates -- -- 127 (127) -- Casuality, Environmental and Other Reserves 1 3 242 -- 246 Current Maturities of Long-term Debt 60 -- 112 -- 172 Short-term Debt 749 -- -- -- 749 Income and Other Taxes Payable 1,346 12 (986) -- 372 Other Current Liabilities 39 25 219 (26) 257 ---------- ---------- ---------- ---------- ---------- Total Current Liabilities 2,302 149 1,129 (300) 3,280 Casuality, Environmental and Other Reserves -- 4 751 -- 755 Long-term Debt 4,594 54 1,162 -- 5,810 Deferred Income Taxes 118 (16) 3,282 -- 3,384 Long Term Payable to Affiliates 396 14 707 (1,117) -- Other Long-term Liabilities 250 43 982 (30) 1,245 ---------- ---------- ---------- ---------- ---------- Total Liabilities 7,660 248 8,013 (1,447) 14,474 ---------- ---------- ---------- ---------- ---------- SHAREHOLDER'S EQUITY Preferred Stock -- -- 396 (396) -- Common Stock 213 -- 209 (209) 213 Other Capital 1,467 98 8,958 (9,056) 1,467 Retained Earnings 4,337 (5) 3,915 (3,910) 4,337 ---------- ---------- ---------- ---------- ---------- Total Shareholder's Equity 6,017 93 13,478 (13,571) 6,017 ---------- ---------- ---------- ---------- ---------- Total Liabilities and Shareholder's Equity $ 13,677 $ 341 $ 21,491 $(15,018) $ 20,491 ========== ========== ========== ========== ==========
-18- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts) Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings Quarter ended June 29, 2001 CSX Corporate CSX Lines Other Eliminations Consolidated ------------- --------- ------ ------------ ------------ Operating Revenue $ -- $ 168 $1,997 $ (108) $ 2,057 Operating Expense (45) 161 1,782 (106) 1,792 ------------- --------- ------ ------------ ------------ Operating Income (Loss) 45 7 215 (2) 265 Other Income (Expense) 160 (1) 39 (164) 34 Interest Expense 110 (1) 27 (4) 132 ------------- --------- ------ ------------ ------------ Earnings before Income Taxes 95 7 227 (162) 167 Income Tax Expense (Benefit) (22) 3 78 -- 59 ------------- --------- ------ ------------ ------------ Net Earnings (Loss) $ 117 $ 4 $ 149 $ (162) $ 108 ============= ========= ====== ============ ============
Consolidating Statement of Earnings Quarter ended June 30, 2001 CSX Corporate CSX Lines Other Eliminations Consolidated ------------- --------- ------ ------------ ------------ Operating Revenue $ -- $ 162 $2,023 $ (114) $ 2,071 Operating Expense (58) 158 1,893 (111) 1,882 ------------- --------- ------ ------------ ------------ Operating Income (Loss) 58 4 130 (3) 189 Other Income (Expense) 102 (2) 64 (140) 24 Interest Expense 141 1 39 (42) 139 ------------- --------- ------ ------------ ------------ Earnings from Continuing Operations before Income Taxes 19 1 155 (101) 74 Income Tax Expense (Benefit) (52) 1 77 -- 26 ------------- --------- ------ ------------ ------------ Net Earnings (Loss) from Continuing Operations 71 -- 78 (101) 48 ------------- --------- ------ ------------ ------------ Discontinued Operations, Net of Taxes -- -- 7 -- 7 ------------- --------- ------ ------------ ------------ Net Earnings (Loss) $ 71 $ -- $ 85 $ (101) $ 55 ============= ========= ====== ============ ============
-19- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Earnings Quarter ended June 29, 2001 CSX Corporate CSX Lines Other Eliminations Consolidated ------------- --------- --------- -------------- -------------- Operating Revenue $ -- $ 329 $ 3,971 $ (218) $ 4,082 Operating Expense (91) 325 3,609 (215) 3,628 ------------- --------- --------- ------------ ------------ Operating Income (Loss) 45 4 362 (3) 454 Other Income (Expense) 238 (1) 51 (285) 3 Interest Expense 244 1 65 (47) 263 ------------- --------- --------- ------------ ------------ Earnings before Income Taxes 85 2 348 (241) 194 Income Tax Expense (Benefit) (50) 1 115 -- 66 ------------- --------- --------- ------------ ------------ Net Earnings (Loss) $ 135 $ 1 $ 233 $ (241) $ 128 ============= ========= ========= ============ ============
Consolidating Statement of Earnings Quarter ended June 30, 2001 CSX Corporate CSX Lines Other Eliminations Consolidated ------------- --------- --------- ------------ ------------ Operating Revenue $ -- $ 324 $ 4,015 $ (234) $ 4,105 Operating Expense (110) 321 3,760 (229) 3,742 ------------- --------- --------- ------------ ------------ Operating Income (Loss) 110 3 255 (5) 363 Other Income (Expense) 175 (1) 93 (248) 19 Interest Expense 277 3 73 (80) 273 ------------- --------- --------- ------------ ------------ Earnings from Continuing Operations before Income Taxes 8 (1) 275 (173) 109 Income Tax Expense (Benefit) (54) -- 90 -- 36 ------------- --------- --------- ------------ ------------ Net Earnings (Loss) from Continuing Operations 62 (1) 185 (173) 73 ------------- --------- --------- ------------ ------------ Discontinued Operations, Net of Taxes -- -- 11 -- 11 ------------- --------- --------- ------------ ------------ Net Earnings (Loss) $ 62 $ (1) $ 196 $ (173) $ 84 ============= ========= ========== ============ ============
-20- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows Six Months Ended June 29, 2001 CSX CSX Corporate Lines Other Eliminations Consolidated ------------ --------- -------- ------------- ------------- Operating Activities Net Cash Provided by Operating Activities $ (57) $ 18 $ 433 $ (129) $ 265 ------------ --------- -------- ------------- ------------- Investing Activities Property Additions -- (2) (418) -- (420) Short-term Investments-net 11 -- -- -- 11 Other Investing Activities (884) 1 1,327 (452) (8) ------------ --------- -------- ------------- ------------- Net Cash Used by Investing Activities (873) (1) 909 (452) (417) ------------ --------- -------- ------------- ------------- Financing Activities Short-term Debt-Net (228) -- -- -- (228) Long-term Debt Issued 500 -- -- -- 500 Long-term Debt Repaid -- -- (118) -- (118) Cash Dividends Paid (130) -- (111) 113 (128) Other Financing Activities 679 76 (1,214) 467 8 ------------ --------- -------- ------------- ------------- Net Cash Provided (Used) by Financing Activities 821 76 (1,443) 580 34 ------------ --------- -------- ------------- ------------- Net Increase (Decrease) in Cash and Cash Equivalents (109) 93 (101) (1) (118) ------------ --------- -------- ------------- ------------- Cash and Cash Equivalents at Beginning of Period (134) (94) 489 -- 261 ------------ --------- -------- ------------- ------------- Cash and Cash Equivalents at End of Period $ (243) $ (1) $ 388 $ (1) $ 143 ============ ========= ======== ============= =============
-21- CSX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), Continued (All Tables in Millions of Dollars, Except Per Share Amounts Note 13. SUMMARIZED CONSOLIDATING FINANCIAL DATA - CSX LINES, Continued
Consolidating Statement of Cash Flows Six Months Ended June 30, 2000 CSX CSX Corporate Lines Other Eliminations Consolidated ------------ -------- ------- -------------- -------------- Operating Activities Net Cash Provided by Operating Activities $ 10 $ 23 $ 93 $ (130) $ (4) ------------ -------- ------- -------------- -------------- Investing Activities Property Additions -- (5) (417) -- (422) Short-term Investments-net 70 70 Other Investing Activities (121) (844) 981 16 ------------ -------- ------- -------------- -------------- Net Cash Used by Investing Activities (51) (5) (1,261) 981 (336) ------------ -------- ------- -------------- -------------- Financing Activities Short-term Debt-Net (105) -- -- (105) Long-term Debt Repaid -- (72) (72) Cash Dividends Paid (134) (121) 124 (131) Common Stock Issued 103 (65) (38) -- Common Stock Retired (51) 51 -- Other Financing Activities 399 (69) 753 (933) 150 ------------ -------- ------- -------------- -------------- Net Cash Provided (Used) by Financing Activities 212 (69) 546 (847) (158) Net Increase (Decrease) in Cash and Cash Equivalents 171 (51) (622) 4 (498) Cash and Cash Equivalents at Beginning of Period (475) 16 1,085 -- 626 ------------ -------- ------- -------------- -------------- Cash and Cash Equivalents at End of Period $ (304) $ (35) $ 463 $ 4 $ 128 ============ ======== ======= ============== ==============
-22- 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 June 29, 2001 and June 30, 2000 consisted of 13 weeks. The six-month periods ended June 29, 2001 and June 30, 2000 consisted of 26 weeks. Second Quarter 2001 Compared with 2000 - -------------------------------------- CSX reported net earnings from continuing operations of $108 million, 51 cents per share for the quarter ended June 29, 2001, as compared to $48 million, 23 cents per share in the quarter ended June 30, 2000. Net earnings of $55 million, 26 cents per share in the prior year quarter include the operations of the Company's former logistics subsidiary, CTI Logistx, Inc., which was sold in September of 2000. All periods have been restated to show the logistics segment as a discontinued operation. Operating income was $265 million in the quarter ended June 29, 2001, an increase of 40% over the $189 million reported in the same quarter in 2000. Operating revenues were consistent between the years at $2.1 billion, but operating expenses were down 5% at $1.8 billion. Other income was $34 million in the quarter ended June 29, 2001, an increase of 42% over the $24 million reported in the same quarter of 2000. This was primarily due to gains relating to real estate sales. Surface Transportation Results - ------------------------------ Rail Rail operating income was $219 million in the quarter ended June 29, 2001, an increase of 59% over the $138 million reported in the same quarter in 2000. Operating revenues were consistent between the years, with a slight increase to $1.6 billion. Volumes were down slightly, but the effectiveness of the pricing programs more than offset the loss in volume. Operating expenses were down 5% at $1.3 billion, as management successfully removed costs from the network and operated a more efficient railroad. -23- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED RESULTS OF OPERATIONS, Continued Surface Transportation Results, Continued - ----------------------------------------- Rail, Continued The following table provides rail carload and revenue data by service group and commodity for the quarters and six months ended June 29, 2001 and June 30, 2000:
Carloads Revenue Quarter Ended Quarter Ended (Thousands) (Millions of Dollars) --------------------------- -------------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------- ----------- ------------- ------------ Merchandise Phosphates and Fertilizer 105 123 $ 75 $ 75 Metals 85 90 105 107 Food and Consumer Products 43 39 63 55 Paper and Forest Products 121 135 161 169 Agricultural Products 92 87 125 117 Chemicals 147 154 244 255 Minerals 112 117 100 104 Government 2 3 8 10 ------------- ------------ ------------- ----------- Total Merchandise 707 748 881 892 Automotive 139 158 213 238 Coal, Coke and Iron Ore Coal 430 409 415 383 Coke 11 12 13 13 Iron Ore 13 13 8 7 ------------- ------------ ------------- ----------- Total Coal, Coke and Iron Ore 454 434 436 403 Other - - 26 15 ------------- ------------ ------------- ----------- Total Rail 1,300 1,340 $ 1,556 $ 1,548 ============= ============ ============= ===========
-24- 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
Carloads Revenue Six Months Ended Six Months Ended (Thousands) (Millions of Dollars) --------------------------- -------------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------------- ----------- ------------- ------------ Merchandise Phosphates and Fertilizer 224 254 $ 164 $ 167 Metals 167 181 207 214 Food and Consumer Products 83 80 121 108 Paper and Forest Products 243 272 321 337 Agricultural Products 192 179 259 239 Chemicals 297 303 494 502 Minerals 207 218 190 199 Government 5 6 15 15 ------------- ------------ ------------- ----------- Total Merchandise 1,418 1,493 1,771 1,781 Automotive 266 316 407 465 Coal, Coke and Iron Ore Coal 869 805 831 754 Coke 21 24 24 25 Iron Ore 18 21 11 14 ------------- ------------ ------------- ----------- Total Coal, Coke and Iron Ore 908 850 866 793 Other - - 44 24 ------------- ------------ ------------- ----------- Total Rail 2,592 2,659 $ 3,088 $ 3,063 ============= ============ ============= ===========
As mentioned above, overall volumes were down, but pricing programs successfully offset the loss in carloads at the railroad. Weakness in the merchandise and automotive categories was somewhat offset by the strength of the coal business. Particularly weak in the second quarter were the phosphates and fertilizer and paper and forest product categories, but again selective pricing initiatives allowed for the carload shortfall to be somewhat overcome. Within the merchandise categories, only food and consumer and agriculture products were up year over year during the quarter and six months ended June 29, 2001. Operating expenses decreased by $73 million in the quarter versus the prior year. Reductions in materials, supplies and other, building and equipment rents, and Conrail related expenses were the primary components, decreasing $102 million compared to the prior year. A portion of the improvement is related to reduction in volumes, but is primarily due to the network operating more efficiently and the gains being realized from the initiatives started in the latter half of fiscal 2000. These gains were partially offset by increases in labor and fringe benefits and depreciation. Fuel costs were consistent between periods with prices up slightly, but volumes down. -25- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED RESULTS OF OPERATIONS, Continued Surface Transportation Results, Continued - ----------------------------------------- Intermodal Intermodal operating income was $23 million in the quarter ended June 29, 2001, an increase of 15% over the $20 million reported in the same quarter in 2000. Operating revenues were down $20 million or 7% as compared to 2000, but this was more than offset by a $23 million or 8% decrease in operating expenses. These numbers reflect a loss of some of the low margin international transcontinental freight revenues that intermodal had in 2000 on which the company incurs a significant amount of other railroad transportation costs. Inland transportation costs were down $20 million or 6% in the second quarter of 2001 as compared to the prior year. Marine Services Results - ----------------------- Domestic Container Shipping Domestic container shipping operating income was $7 million in the quarter ended June 29, 2001, up from $4 million in the prior year quarter. Revenues were up $6 million, primarily the result of increased market share in each trade lane, mix improvements, and general rate increases in the Hawaii and Alaska trades. Puerto Rico has continued to experience intense market pressures from excess capacity. Operating expenses were down quarter over quarter benefiting from a $4 million cost reimbursement from Corporate in 2001. International Terminals International terminals operating income was $18 million in the quarter ended June 29, 2001, consistent with the prior year. Revenues continued to be soft as all units were impacted to some degree by the global economic slowdown. Cost reduction initiatives and marketing efforts to expand ancillary business revenues offset the decrease in revenues for the quarter. First Six Months 2001 Compared with 2000 - ---------------------------------------- For the first six months of the year, CSX reported net earnings from continuing operations of $128 million, 60 cents per share, as compared to $73 million, 35 cents per share in the period ended June 30, 2000. Net earnings of $84 million, 40 cents per share in the prior year period include the operations of the Company's former logistics subsidiary, CTI Logistx, Inc. Operating income was $454 million in the six months ended June 29, 2001, an increase of 25% over the $363 million reported in the same period in 2000. Operating revenues were consistent between the years at $4.1 billion, but operating expenses were down 3% at $3.6 billion. -26- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED FINANCIAL CONDITION Cash, cash equivalents and short-term investments totaled $556 million at June 29, 2001, a decrease of $128 million since December 29, 2000. Primary sources of cash and cash equivalents during the six months ended June 29, 2001 were normal transportation operations and the issuance of $500 million of long-term debt. On a net basis, operations provided $265 million of cash for the six-month period, reflecting an increase in operating income. Primary uses of cash and cash equivalents were property additions, repayments of short-term and long-term debt, and the payment of dividends. Subsequent to June 29, 2001, CSX announced that it was cutting its quarterly dividend by 67% to 10 cents per share. This measure was approved by the Board of Directors on July 11, 2001. CSX's working capital deficit at June 29, 2001 was $1.4 billion, up from $1.2 billion at December 29, 2000. The working capital deficit increased due to $765 million of long-term debt being reclassified to current during the quarter as it is due within 12 months. This increase was partially offset by the reclassification of $350 million in outstanding commercial paper from short-term debt to long term due to the fact that it is now supported by a new 5 year line of credit agreement signed in June 2001. The commercial paper balances had been classified as current due to the fact that the Company's old line of credit agreement was to expire in November of 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 $1.3 billion of remaining capacity under two shelf registrations that may be used to issue debt or other securities at the Company's discretion. FINANCIAL DATA - --------------
(Millions of Dollars) ----------------------------------- June 29, December 29, 2001 2000 ----------------- ----------------- Cash, Cash Equivalents and Short-Term Investments $ 556 $ 684 Commercial Paper Outstanding Short-Term $ 171 $ 749 Working Capital (Deficit) $ (1,364) $ (1,234) Current Ratio .6 .6 Debt Ratio 52 % 52 % Ratio of Earnings to Fixed Charges 1.6 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 is expected to be accomplished through continued service improvements, aggressive cost cutting initiatives and continued success in attracting traffic to move from trucks to CSX. Despite a weak economy, CSX continues to expect to produce full year earnings that will show an increase from previous years. CSX expects that the second half of 2001 will produce some year over year increases in most, if not all, categories of rail volume. -27- 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 recognized by 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 $47 million on revenues of $229 million for the second quarter of 2001, compared to net income of $30 million on revenues of $246 million for the prior year quarter. For the related six month periods Conrail reported net income of $92 million on revenues of $462 million in 2001 and $96 million on revenues of $505 million in 2000. Conrail's operating activities provided cash of $237 million for the first half of 2001, compared with a net use of cash of $1 million for the first half of 2000. The increase in cash provided by operations is primarily due to significant one-time payments made to CSX and Norfolk Southern in 2000. Conrail's working capital was $261 million at June 29, 2001, compared with $85 million at December 31, 2000. -28- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED OTHER MATTERS Baltimore Tunnel Fire - --------------------- Subsequent to quarter end, on July 18, 2001, a CSXT train was involved in a fire inside the Howard Street Tunnel near downtown Baltimore, Maryland. The fire was not contained completely until July 23, 2001. The fire's proximity to downtown Baltimore caused disruptions to a number of businesses. The incident also caused CSXT to reroute traffic and incur higher operating costs. CSXT and government officials have inspected the tunnel and determined that it is safe for normal rail operations. Substantially all service through the tunnel has resumed. At this time, management cannot estimate the ultimate loss relating to this incident. However, management believes that it will not be material to the Company's financial position, but could be material to the results of operations for the third quarter of 2001. Surface Transportation Board Moratorium on Rail Merger Applications and 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 June 2001, the STB issued new rules for rail mergers that requires companies to demonstrate how future mergers would enhance competition and make companies more accountable for claimed merger benefits and service. 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. -29- 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, which has allowed it to appeal the 1997 compensatory and punitive awards, as reduced by the trial judge. A trial for the claims of 20 additional plaintiffs for compensatory damages began on May 24, 1999. In 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. On June 27, 2001, the Louisiana Court of Appeal for the Fourth Circuit affirmed the judgment of the trial court, which judgment reduced the punitive damages verdict from $2.5 billion to $850 million. CSXT has moved the Louisiana Fourth Circuit Court for rehearing of certain issues raised in its appeal. CSXT intends to pursue an appeal with the Louisiana Supreme Court. While this appeal is not an appeal of right, CSXT believes that there are substantial grounds for review by the Louisiana Supreme Court. CSXT continues to pursue an aggressive legal strategy. At the present time, management is not in a position to determine whether the resolution of this case will have a material adverse effect on the Company's financial position or results of operations in any future reporting period. ECT Dispute - ----------- CSX received a claim in an earlier period 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. -30- 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. -31- PART II. OTHER INFORMATION Item 4. Submission of Matters Submitted to a Vote of Security Holders (a) Annual meeting held May 1, 2001. (b) Not applicable. (c) There were 213,322,075 shares of CSX common stock outstanding as of March 2, 2001, the record date for the 2001 annual meeting of shareholders. A total of 191,378,321 shares were voted. All of the nominees for directors of the corporation were elected with the following vote:
Votes Broker Nominee Votes For Withheld Non-Votes ------- ---------- -------- --------- Elizabeth E. Bailey 188,484,204 2,894,117 -- H. Furlong Baldwin 188,515,687 2,862,634 -- Claude S. Brinegar 188,399,839 2,978,482 -- Robert L. Burrus, Jr. 184,951,691 6,426,630 -- Bruce C. Gottwald 188,492,739 2,885,582 -- John R. Hall 188,497,273 2,881,048 -- E. Bradley Jones 188,384,176 2,994,145 -- Robert D. Kunisch 188,620,117 2,758,204 -- James W. McGlothlin 146,203,327 45,174,994 -- Southwood J. Morcott 188,596,191 2,782,130 -- Charles E. Rice 188,390,361 2,987,960 -- William C. Richardson 188,584,802 2,793,519 -- Frank S. Royal 188,434,834 2,943,487 -- John W. Snow 187,960,869 3,417,452 --
The appointment of Ernst & Young LLP as independent auditors to audit and report on CSX's financial statements for the year 2001 was ratified by the shareholders with the following vote: Votes Broker Votes For Against Abstentions Non-Votes --------- -------- ----------- --------- 188,978,960 1,338,534 1,060,827 0 The CSX Corporation 2001 Employee Stock Purchase Plan was approved by the shareholders with the following vote: Votes Broker Votes For Against Abstentions Non-Votes --------- -------- ----------- --------- 185,645,802 4,009,693 1,722,826 0 The shareholder proposal regarding change in control employment agreements failed to pass with the following vote: Votes Broker Votes For Against Abstentions Non-Votes --------- -------- ----------- ---------- 45,317,395 115,764,908 5,202,326 25,093,692 -32- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.2 Amended Bylaws of CSX Corporation (b) Reports on Form 8-K Form 8-K filed on 5/4/01 to disclose related party transactions in accordance with Regulation FD. 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: August 1, 2001 -33- EX-3.2 3 dex32.txt AMENDED BYLAWS OF CSX CORPORATION Exhibit 3.2 BYLAWS OF CSX CORPORATION (Amended as of July 11, 2001) -------------------- ARTICLE I Shareholders' Meeting SECTION 1. Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held on such date in March, April, May or June as the Board of Directors (hereinafter sometimes the "Board") may designate, either within or without the Commonwealth of Virginia. SECTION 2. Special Meetings. Special meetings of the shareholders may be called from time to time by the Board of Directors or the Chairman of the Board. Special meetings shall be held solely for the purposes specified in the notice of meeting. SECTION 3. Time and Place. The time and place of each meeting of the shareholders shall be stated in the notice of the meeting. SECTION 4. Quorum. The holders of a majority of the votes entitled to be cast on any matter shall constitute a quorum as to that matter at any meeting of the shareholders. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. Unless otherwise provided in the Articles of Incorporation of the Corporation, each shareholder shall be entitled to one vote in person or by proxy for each share entitled to vote then outstanding and registered in his name on the books of the Corporation. SECTION 5. Notice of Meeting and Record Date. Except as otherwise required by the laws of the Commonwealth of Virginia, notice shall be delivered by the Corporation not less than 10 days nor more than 60 days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the shareholder at the shareholder's address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. Notice of meetings may be waived in accordance with law. Any previously scheduled meeting of the shareholders may be postponed, by resolution of the Board of Directors at any time prior to the time previously scheduled for such meeting of shareholders. The Board of Directors may fix in advance a date to determine shareholders entitled to notice or to vote at any meeting of shareholders, to receive any dividend, or for any other purpose, such date to be not more than 70 days before the meeting or action requiring a determination of shareholders. SECTION 6. Conduct of Meeting. The Chairman of the Board shall preside over all meetings of the shareholders. If he is not present, or if there is none in office, the President shall preside. If the Chairman of the Board and the President are not present, a Vice President shall preside, or, if none be present, a Chairman shall be elected by the meeting. The Corporate Secretary shall act as secretary of the meeting, if he or she is present. If he or she is not present, the Chairman shall appoint a secretary of the -1- meeting. The chairman of the meeting shall appoint one or more inspectors of election who shall determine the qualification of voters, the validity of proxies, and the results of ballots. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is a quorum, and may determine the date, time and place that a meeting so adjourned is to reconvene. The chairman of the meeting shall prescribe rules of procedure for the meeting and shall determine the time reasonably allotted to each speaker at the meeting. SECTION 7. Notice of Shareholder Business. At an annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who complies with the notice procedures set forth in this Section 7. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Corporate Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days before the date on which the Corporation first mailed its proxy materials for the prior year's annual meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder and (d) any material interest of the shareholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 7. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE II Board of Directors SECTION 1. Number and Election. The Board of Directors shall be elected at the annual meeting of the shareholders or at any special meeting held in lieu thereof. The number of Directors shall be fourteen. This number may be increased or decreased at any time by amendment of these Bylaws, but shall never be a number less than four. Subject to the last two sentences of this Section 2 of this Article II, no person shall be eligible for election as a Director, nor shall any Director be eligible for reelection, if he or she shall have reached the age of 70 years at the time of such election or reelection, except that the Board, in its sole discretion, may waive such ineligibility for a period not to exceed one year. Directors who are or have been employees of CSX or its affiliates, including current or former Chief Executive Officers, shall retire from the Board immediately upon leaving active service, or reaching age 65, whichever occurs first, except that the Board, in its sole discretion, may extend the eligibility of the Chairman of the Board to continue as a Director and Chairman of the Board for up to two years after leaving active service. In the case of a candidate for election as a Director who was a director of Conrail Inc. on May 23, 1997, the restrictions on eligibility for election and reelection as a Director as a result of age shall not apply for two years following their initial election to the Board. The Board, in its sole discretion, may extend such eligibility for a period not to exceed one year. -2- SECTION 2. Notice of Shareholder Nominees. Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 2. Nominations by shareholders shall be made pursuant to timely notice in writing to the Corporate Secretary. To be timely, a shareholder's notice shall be received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Corporate Secretary the information required to be set forth in the shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in these Bylaws. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3. Quorum. A majority of the Directors shall constitute a quorum. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. SECTION 4. Removal and Vacancies. The shareholders at any meeting called for such purpose, by a vote of the holders of a majority of all the shares of capital stock at the time outstanding and having voting power, may remove any Director and fill any vacancy. Vacancies arising among the Directors, including a vacancy resulting from an increase by the Board of Directors in the number of directors, so long as the increase so created is not more than 30 percent of the number of Directors then authorized to serve on the Board, may be filled by the remaining Directors, though less than a quorum of the Board, unless sooner filled by the shareholders. SECTION 5. Meetings and Notices. Regular meetings of the Board of Directors shall be held on such dates, at such places and at such times as the Board of Directors may from time to time designate. Special meetings of the Board of Directors may be held at any place and at any time upon the call of the Chairman of the Board or of any three members of the Board of Directors. Notice of any meetings shall be given by mailing or delivering such notice to each Director at the Director's residence or business address or by telephone, telegraph, or facsimile. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the Directors are present or those not present waive notice before or after the meeting. Any action required to be taken at a meeting of the Board may be taken without a meeting if a consent in writing setting forth the action to be taken, shall be signed by all the Directors in counterpart or otherwise and filed with the Corporate Secretary. Such consent shall have the same force and effect as a unanimous vote. Any action required to be taken at a meeting of the Board may -3- be taken by means of a conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. ARTICLE III Executive Committee SECTION 1. Designation; Chairman. The Board of Directors may designate an Executive Committee. The Chairman of the Board of Directors shall be the Chairman of the Executive Committee. SECTION 2. Authority and quorum. The Executive Committee shall have and may exercise all the authority of the Board of Directors, except as may be prohibited by Section 13.1-689 of the Code of Virginia, as it may from time to time be amended. A majority of the Committee shall constitute a quorum for the transaction of business, and the affirmative vote of the majority of those present shall be necessary for any action by the Committee. The Committee shall cause to be kept a full and accurate record of its proceedings at each meeting and report the same at the next meeting of the Board. In the absence of the Chairman of the Committee, an acting chairman shall be designated by the Committee to preside at such meeting. SECTION 3. Meetings and Notices. Meetings of the Committee may be called at any time by the Chairman of the Board or by a majority of the members of the Committee and shall be held at such time and place as shall be stated in the notice of the meeting. Notice of any meeting of the Committee shall be given by delivering or mailing such notice to each member at his or her residence or business address or by telephone, telegraph, or facsimile to him or her not less than 24 hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the members of the Committee are present or those not present waive notice before or after the meeting. Action may be taken by the Executive Committee without a meeting or at a meeting established by means of conference telephone or similar communications equipment in the manner provided by Section 5 of Article II. SECTION 4. Removal. Members of the Committee may be removed as members thereof and replaced at any regular or special meeting of the Board of Directors. ARTICLE IV Committees of the Board (other than the Executive Committee) The Board of Directors may establish such other committees as it deems appropriate, each committee consisting of at least two directors whose designation and terms of office shall be by resolution of the Board. Meetings of a committee may be called at any time by the Chairman of the Board or the Chairman of such committee. Notice of any meeting shall be given by delivering or mailing such notice to each committee member at the member's residence or business address or by telephone, telegraph, or facsimile to the member not less than 24 hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the members of the committee are present or those not present waive notice before or after the meeting. Action may be taken by a committee -4- without a meeting or at a meeting established by means of conference telephone or similar communications equipment in the manner provided by Section 5 of Article II. ARTICLE V Officers SECTION 1. Elected Officers. The elected officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Corporate Secretary, a Treasurer, and such other officers (including, without limitation, a Chief Financial Officer and a Chief Legal Officer) as the Board of Directors from time to time may deem proper. The Chairman of the Board shall be chosen from among the directors. All officers elected by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V. Such officers shall also have such powers and duties as from time to time may be conferred by the Board or by any committee thereof or the Chairman of the Board. The Board may from time to time elect, or the Chairman of the Board may appoint, such other officers (including, without limitation, one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board or such committee or by the Chairman of the Board, as the case may be. Any person may be elected to more than one office. SECTION 2. Election and Term of Office. The elected officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after the annual meeting of the shareholders. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, but any officer may be removed from office at any time by the Board of Directors or, except in the case of any officer or agent elected by the Board, by the Chairman of the Board. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 3. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors and shall be the Chief Executive Officer of the Corporation. The Chairman of the Board shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to his office which may be required by law and all such other duties as are properly required of him by the Board of Directors. He shall make reports to the Board of Directors and the shareholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. SECTION 4. President. The President shall act in a general executive capacity and shall assist the Chairman of the Board in the administration and operation of the Corporation's business and general supervision of its policies and affairs. The President shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of shareholders and of the Board. SECTION 5. Vice Presidents. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him or her by the Chairman of the Board with the approval of the Board. SECTION 6. Treasurer. The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. He shall have such further powers and duties and shall be -5- subject to such directions as may be granted or imposed upon him from time to time by the Board of Directors, the Chairman of the Board, or the Chief Financial Officer. SECTION 7. Corporate Secretary. The Corporate Secretary shall attend all meetings of the shareholders, the Board of Directors, and the Executive Committee and record their proceedings, unless a temporary secretary be appointed. He shall give due notice as required of all meetings of the shareholders, Directors, and Executive Committee. He shall keep or cause to be kept at a place or places required by law a record of the shareholders of the Corporation, giving the names and addresses of all shareholders and the number, class, and series of the shares held by each. He shall be custodian of the seal of the Corporation, and of all records, contracts, leases, and other papers and documents of the Corporation, unless otherwise directed by the Board of Directors, and shall perform such other duties as may be assigned to him by the Board of Directors or the Chairman of the Board. In case of the Secretary's absence or incapacity, the Chairman of the Board shall designate an Assistant Secretary or other appropriate officer to perform the duties of the Secretary. SECTION 8. Removal. Any officer elected, or agent appointed, by the Board of Directors may be removed by the Board of Directors whenever, in their judgment, the best interests of the Corporation would be served thereby. Any officer or agent appointed by the Chairman of the Board may be removed by him whenever, in his judgment, the best interests of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. SECTION 9. Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors or the Chairman of the Board for the unexpired portion of the term. Any vacancy in an office appointed by the Chairman of the Board because of death, resignation, or removal may be filled by the Chairman of the Board. ARTICLE VI Depositaries The money and negotiable instruments of the Corporation shall be kept in such bank or banks as the Chief Financial Officer or Treasurer shall from time to time direct or approve. All checks and other instruments for the disbursement of funds shall be executed manually or by facsimile by such officers or agents of the Corporation as may be authorized by the Board of Directors. ARTICLE VII Seal The seal of the Corporation, of which there may be any number of counterparts, shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization and the words, "Corporate Seal Virginia." The Board may also authorize to be used, as the seal of the Corporation, any facsimile thereof. -6- ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall begin immediately after midnight of the last Friday of December, and shall end at midnight on the last Friday of December of each calendar year. ARTICLE IX Amendments to Bylaws These Bylaws may be amended or repealed at any regular or special meeting of the Board of Directors by the vote of a majority of the Directors present. They may also be repealed or changed, and new Bylaws made, by the Shareholders, provided notice of the proposal to take such action shall have been given in the notice of the meeting. * * * * * * * * * * Richmond, VA July 11, 2001 -7- -----END PRIVACY-ENHANCED MESSAGE-----