FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8022
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CSX Corporation
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(Exact name of registrant as specified in its charter)
Virginia 62-1051971
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
901 East Cary Street, Richmond, Virginia 23219-4031
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 782-1400
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
On January 23, 1998, the aggregate market value of the Registrant's voting stock
held by non-affiliates (using the New York Stock Exchange closing price) was $11
billion.
On January 23, 1998, there were 218,308,863 shares of Common Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement for the annual meeting of security holders on April 28,
1998, is incorporated by reference for Part III.
ITEM CAPTIONS AND INDEX -- FORM 10-K ANNUAL REPORT
Item No. Page
Part I
1. Business..............................................3-4, 12-27
2. Properties.......................................12-27, 33-34,39
3. Legal Proceedings....................................10,18-19,48
4. Submission of Matters to a Vote of Security Holders..........N/A
4a. Executive Officers of the Registrant..........................52
Part II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters...............................54-56
6. Selected Financial Data........................................4
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............12-27
8. Financial Statements and Supplementary Data..........See Item 14
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................N/A
Part III
10. Directors and Executive Officers of the Registrant...........(a)
11. Executive Compensation.......................................(a)
12. Security Ownership of Certain Beneficial Owners
and Management..............................................(a)
13. Certain Relationships and Related Transactions...............(a)
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
a. Consolidated Statement of Earnings for the
Fiscal Years Ended Dec. 26, 1997, Dec. 27, 1996,
and Dec. 29, 1995.........................................29
Consolidated Statement of Cash Flows for the
Fiscal Years Ended Dec. 26, 1997, Dec. 27, 1996,
and Dec. 29, 1995.........................................30
Consolidated Statement of Financial Position at
Dec. 26, 1997, and Dec. 27, 1996..........................31
Consolidated Statement of Changes in Shareholders'
Equity for the Fiscal Years Ended Dec. 26, 1997,
Dec. 27, 1996, and Dec. 29, 1995..........................32
Notes to Consolidated Financial Statements for the
Fiscal Years Ended Dec. 26, 1997, Dec. 27, 1996,
and Dec. 29, 1995......................................33-50
Report of Independent Auditors............................51
b. Reports on Form 8-K: None.
c. See Index to Exhibits.....................................61
d. Audited Consolidated Financial Statements and
Schedule of Conrail Inc. for the Years Ended
Dec. 31, 1997, 1996 and 1995.
(a) Part III will be incorporated by reference from the registrant's 1998 Proxy
Statement pursuant to instructions G(1) and G(3) of the General Instructions
to Form 10-K.
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CSX Corporation
CSX Corporation is a Fortune 500 transportation company providing rail,
intermodal, container-shipping, barging and contract logistics services
worldwide.
Our holdings include: CSX Transportation Inc., Sea-Land Service Inc., CSX
Intermodal Inc., American Commercial Lines Inc. and Customized Transportation
Inc.
The company's non-transportation interests include: The Greenbrier, the Grand
Teton Lodge Company, and CSX Real Property Inc. CSX also holds a majority
interest in Yukon Pacific Corporation.
In 1997, CSX generated more than $10.6 billion of operating revenue.
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Financial Highlights
<TABLE>
<CAPTION>
(Millions of Dollars, Except Per Share Amounts)
1997(a) 1996 1995(b) 1994(c) 1993(d)
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<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating Revenue $10,621 $10,536 $10,304 $ 9,409 $ 8,766
Operating Expense 9,038 9,014 8,921 8,227 7,792
Restructuring Charge(e) -- -- 257 -- 93
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Total Operating Expense 9,038 9,014 9,178 8,227 7,885
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Operating Income $ 1,583 $ 1,522 $ 1,126 $ 1,182 $ 881
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Net Earnings $ 799 $ 855 $ 618 $ 652 $ 359
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PER COMMON SHARE(f)
Net Earnings $ 3.67 $ 4.00 $ 2.94 $ 3.12 $ 1.73
Net Earnings, Assuming Dilution $ 3.62 $ 3.96 $ 2.91 $ 3.08 $ 1.71
Cash Dividends $ 1.08 $ 1.04 $ .92 $ .88 $ .79
Market Price - High $ 62.44 $ 53.13 $ 46.13 $ 46.19 $ 44.07
- Low $ 41.25 $ 42.25 $ 34.63 $ 31.57 $ 33.19
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PERCENTAGE CHANGE FROM PRIOR YEAR
Operating Revenue .8% 2.3% 9.5% 7.3% 2.5%
Operating Expense .3% (1.8)% 11.6% 4.3% (5.4)%
Operating Expense, Excluding
Restructuring Charge .3% 1.0% 8.4% 5.6% 2.0%
Cash Dividends Per Common Share 3.8% 13.0% 4.5% 11.4% 3.9%
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SUMMARY OF FINANCIAL POSITION
Cash, Cash Equivalents and
Short-Term Investments $ 690 $ 682 $ 660 $ 535 $ 499
Working Capital Deficit $ (532) $ (685) $(1,056) $ (840) $ (704)
Total Assets $19,957 $16,965 $14,282 $13,724 $13,420
Long-Term Debt $ 6,416 $ 4,331 $ 2,222 $ 2,618 $ 3,133
Shareholders' Equity $ 5,766 $ 4,995 $ 4,242 $ 3,731 $ 3,180
Book Value Per Common Share(f) $ 26.41 $ 23.04 $ 20.15 $ 17.81 $ 15.27
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EMPLOYEE COUNT(g)
Rail 27,864 28,559 29,537 29,729 30,461
Other 19,047 18,755 18,428 17,974 17,847
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Total 46,911 47,314 47,965 47,703 48,308
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</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(a) Net earnings for 1997 include the effects of the company's 42% investment in
Conrail Inc. (Conrail). Pending regulatory approval of the joint acquisition of
Conrail by CSX and Norfolk Southern Corporation, the ownership interest in
Conrail is being held in a voting trust and the company is not permitted to
consolidate its portion of the Conrail system with its rail operations. Under
the equity method of accounting, the company has recognized income from its
share of Conrail's net earnings, as well as expense for amortization of its
purchase price in excess of its share of Conrail's net book value. The combined
effect of these items, net interest on debt issued to acquire the investment,
and other expenses related to the joint acquisition reduced the company's net
earnings for 1997 by $97 million, 43 cents per share.
(b) In 1995, the company recognized a net investment gain of $77 million, $51
million after tax, 24 cents per share, on the issuance of an equity interest in
a Sea-Land terminal and related operations in Asia and the write-down of various
investments.
(c) In 1994, the state of Florida elected to satisfy its remaining unfunded
obligation issued in 1988 to consummate the purchase of 80 miles of track and
right of way. The transaction resulted in an accelerated pretax gain of $69
million and increased net earnings by $42 million, 20 cents per share.
(d) The company revised its estimated annual effective tax rate in 1993 to
reflect the change in the federal statutory income tax rate from 34% to 35%. The
effect of this change was to increase income tax expense for 1993 by $56
million, 26 cents per share. Of this amount, $51 million, 24 cents per share,
related to applying the newly enacted statutory income tax rate to deferred tax
balances as of Jan. 1, 1993.
(e) In 1995, the company recorded a $257 million pretax charge to recognize the
estimated costs of initiatives to revise, restructure and consolidate specific
operations and administrative functions at its rail and container-shipping
units. The 1995 restructuring charge reduced net earnings by $160 million, 76
cents per share. In 1993, the company recorded a $93 million pretax charge to
recognize the estimated costs of restructuring certain operations and functions
at its container-shipping unit. The 1993 restructuring charge reduced net
earnings by $61 million, 30 cents per share.
(f) Net earnings per common share, assuming dilution, includes the effect of
potentially dilutive securities such as stock options on average common shares
outstanding and has been calculated in accordance with the provisions of
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share,"
adopted by the company in 1997. Amounts per common share for 1993 through 1995
have been restated to reflect a 2-for-1 common stock split distributed to
shareholders in December 1995.
(g) Employee counts based on annual averages.
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Chairman's Message
[PHOTO]
1997 was a historic year for CSX Corporation, one
in which we embarked on a course that will transform
our company and create immense potential for growth
and prosperity.
The landmark agreement to divide Conrail with Norfolk Southern -- the most
important milestone for CSX since the 1980 merger that created the company --
significantly advances our strategic interests. It gives CSX a new, important
dimension: an opportunity to grow rail revenues substantially and enhance our
earnings power greatly.
Once the Surface Transportation Board (STB) approves the Conrail transaction and
we have combined Conrail's Northeast and Midwest operations with CSX
Transportation's larger, complementary network, we will markedly change the
competitive environment for transportation services in the region. For the first
time, Eastern railroads will be in a position to compete effectively with trucks
- -- especially on north-south shipments - for an important share of the $77
billion intercity transportation market in the East.
Such a robust competitive environment will set the stage for a growing and
dynamic CSX. We will create growth for ourselves and for the customers and
communities we serve, bringing more business and more jobs to the region. By
attracting freight to the rails and accommodating communities and rail passenger
services in the region, we will improve highway safety and the environment while
reducing highway maintenance and construction costs. These important public
benefits can be achieved only with approval of this transaction.
No railroad merger in recent history has experienced as lengthy and as thorough
a review as this transaction will have undergone by the time it is approved in
mid-1998. We are making the most of this time. Since the middle of last year,
hundreds of our employees and managers, along with their counterparts at
Conrail, have been involved in an intense planning process to ensure the
effective and efficient integration of our portion of Conrail's operations. We
are delighted with the quality of the Conrail employees and the railroad they
have created.
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[PHOTO]
Continued improvement in safety and in service
will be key to our ability to compete more
effectively.
We are taking a fresh look at how we run our railroad, while conducting a
parallel review of the way Conrail approaches the same operational tasks. This
review will allow us to improve overall service by adopting a best-practices
approach to the Conrail integration, one that takes full advantage of the best
each organization has to offer.
Our management team also has studied the recent rail mergers in the Western
United States and the safety issues and service disruptions there that
frustrated shippers and raised concerns among them about our own transaction.
The Western railroads, their customers and the regulatory agencies have been
open and candid with us, sharing many valuable lessons. While we are certain to
encounter bumps in the road when we move forward, we are confident in our
abilities and committed to accomplishing two imperatives: continued improvement
in safety and in customer service. Both are key to our ability to compete more
effectively with trucks and to achieve our growth strategy.
We realize that integrating two great rail systems is a huge, complex task, but
our employees and those who will be joining us from Conrail are up to the
challenge. We will move forward with our integration process only when the
necessary labor agreements, staffing, capital improvements, technology
enhancements and operating plans are tested and in place.
The Conrail transaction affords us an exciting opportunity to usher in a new era
of transportation in the East. We firmly believe the new CSX will be a
powerhouse company, fully capable of meeting our aggressive growth, profit and
free cash flow targets, thus creating exceptional value for our shareholders.
1997 FINANCIAL RESULTS
Strong performances by our rail, intermodal and contract logistics units during
1997 were tempered by disappointing results at our container-shipping and barge
companies. Still, CSX produced operating income of $1.58 billion, up 4% from
1996's record level.
On a consolidated basis, CSX earned $799 million in 1997, or $3.62 a share on a
diluted basis, vs. $855 million in 1996, or $3.96 a share. 1997 earnings
reflected the impact of the Conrail transaction, including the interest expense
on the money we borrowed to finance the transaction. Excluding the effects of
the Conrail transaction, CSX would have earned $896 million, up 5% from 1996's
record. These were solid results, considering the severe impact that rate
erosion exerted at our container-shipping and barge companies.
Our shareholders were rewarded with returns that outpaced rail industry peers.
The total return of CSX stock in 1997, including reinvested dividends, was
30.5%, exceeding that of the S&P Railroad Index and Dow Jones Industrial Average
and only slightly trailing that of the S&P 500 Index. Confidence in CSX's
financial strength and future earnings growth led the CSX Board of Directors to
raise the quarterly dividend 15%, from 26 cents a share to 30 cents a share.
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We will maintain our focus on improving performance
and profitability.
RAIL RESULTS
While devoting considerable attention to the Conrail acquisition and integration
planning, our rail unit, CSX Transportation Inc. (CSXT), maintained its focus on
cutting costs, improving service and increasing revenue in 1997. The result was
another operating income record of $1.23 billion, up 9% from 1996's level.
The railroad's strategy to grow its business was evident in the merchandise
sector, where revenue rose 4%. Total revenue growth was held to 2%, however, as
mild weather and weak foreign demand reduced coal revenue.
CSXT's determined campaign to control costs, combined with its strategy to
improve margins, continued to pay dividends. The operating ratio, a productivity
measure that divides operating expense by operating revenue, improved to a
record 75.4%, down a point and a half from 1996's level and an impressive 12
points since 1990.
PRO FORMA NET EARNINGS
(Millions of Dollars, Except Per Share Amounts*)
1997 1996 1995
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Description Per Per Per
(all after tax) Amt. Share Amt. Share Amt. Share
- -------------------------------------------------------------------------
Net Earnings
as Reported $799 $3.62 $855 $3.96 $618 $2.91
Effect of
Investment
in Conrail 97 .43 -- -- -- --
Net Gains from
Investment
Transactions -- -- -- -- (51) (.24)
Restructuring
Charge -- -- -- -- 160 .76
---- ----- ---- ----- ---- -----
Pro Forma
Net Earnings $896 $4.05 $855 $3.96 $727 $3.43
==== ===== ==== ===== ==== =====
* All per-share amounts assume dilution. Per-share amounts for 1995 have been
adjusted to reflect a 2-for-1 stock split.
INTERMODAL RESULTS
CSX Intermodal Inc. (CSXI) produced 1997 operating income of $46 million, up 31%
from the prior year's level. The improved results reflected both stronger demand
for intermodal service and the favorable results of CSXI's action in 1996 to
streamline its national intermodal network. That network redesign eliminated
less-profitable routes and enhanced traffic and service levels on
more-profitable routes.
Late in the year, Les Passa, a 20-year veteran of Conrail and a highly respected
member of its management team, took the reins as chief executive officer of
CSXI. His leadership strength and knowledge of Conrail operations and markets
will be of great value to CSX as our intermodal company adds critical Conrail
routes and makes significant investments to its expanded intermodal network.
Intermodal service -- when trailers and containers are placed directly on rail
cars for longer hauls -- is the rail industry's fastest growing sector. CSXI
will be an increasingly important contributor to CSX earnings as we absorb
Conrail routes and move significant volumes of freight off the nation's
congested highways.
CONTAINER-SHIPPING RESULTS
Our container-shipping business, Sea-Land Service Inc. (Sea-Land), performed
admirably in adverse market conditions. Excess capacity in the
container-shipping industry has resulted in significant rate deterioration over
the past two years in most major trade lanes. Sea-Land offset much of the impact
of lower rates through stringent cost control and higher volumes. In 1997, the
company handled 1.65 million loads, up 7% from 1996's level, but the average
rate it received for shipping a container fell 8%. Consequently, operating
income at Sea-Land fell 13% to $278 million.
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Though disappointed with prevailing industry conditions, we are encouraged that
Sea-Land has weathered this period of severe rate declines better than its
competitors and has increased its market share significantly in key trade lanes.
Furthermore, we see continued consolidation within the container-shipping
industry and increased government deregulation as promising signs that the
industry is responding favorably to rational market forces.
BARGING RESULTS
Severe flooding and a difficult rate environment dealt a double blow to American
Commercial Lines (ACL), our barging company. The worst flooding along the Ohio
River in 30 years shut down portions of the river system beginning in March and
resulted in restricted operations along the Ohio and Lower Mississippi rivers
through May. In addition, lower demand for U.S. grain exports reduced freight
rates for grain and other dry cargo. This combination of events led to a 38%
drop in ACL's operating income, to $69 million.
More favorable barge operating conditions are expected in 1998, though rate
pressures are likely to persist. Improved grain demand, coupled with stringent
cost control, should produce improved results.
[PHOTO]
CONTRACT LOGISTICS RESULTS
Customized Transportation Inc. (CTI), our contract logistics company, has
enjoyed terrific growth in recent years by helping businesses more effectively
and efficiently manage and coordinate their delivery and supply systems. In
1997, CTI continued its unbroken record of performance improvement since joining
the CSX family in 1993. Revenue rose 23% and operating income rose 40% to $24
million.
LOOKING AHEAD
1998 promises to be a year of unprecedented activity,
challenge and opportunity for CSX.
We eagerly await the completion of the regulatory review of the proposed Conrail
acquisition so we can begin achieving the sizable benefits that will flow from
the extension of single-line service to customers, consumers and communities
within the Conrail territory.
We also look forward to competing aggressively throughout the Conrail service
territory with Norfolk Southern, our partner and competitor, as we restore rail
competition to the East and take freight off the highways.
As we push ahead with our Conrail integration planning, we will maintain our
focus on improving the performance and profitability of each CSX transportation
unit. As always, our efforts will be driven by our commitment to maximize
shareholder value.
Clearly, 1998 will be a watershed year for CSX. Our employees and those who will
be joining us from Conrail are eager to begin leveraging the strengths of our
two great companies. I have complete confidence in their ability to execute a
smooth transition that will enable CSX to emerge from the Conrail acquisition as
the best rail-based transportation company in the nation.
/s/ John W. Snow
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John W. Snow
Chairman and Chief Executive Officer
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Public Policy Statement
In 1997, government at all levels again played an
important role in several issues touching the heart
of CSX's business. Decisions made in 1998 will
affect not only our company but the entire
transportation industry.
CONRAIL
The successful completion of the acquisition of Conrail by CSX and Norfolk
Southern Corporation is of critical importance to us. It is now the subject of a
painstaking, 345-day review by the Surface Transportation Board (STB), the
federal agency that must approve the acquisition.
Excellent progress has been made. We have been successful in building strong
support not only from government officials, but from our major shippers and
shipper organizations as well. It is noteworthy that the Department of Justice
and the Department of Transportation, U.S. government agencies that have been
skeptical of railroad mergers in the past, had comments about the transaction,
but did not oppose it. The public benefits of the acquisition -- increased rail
competition, improved service and the diversion of trucks from congested
highways--were clearly recognized by the more than 2,000 shippers and 14 states,
from Massachusetts to Florida, that have officially endorsed the CSX-Conrail
acquisition. As a result of this public support, Congress rejected legislative
efforts to block or delay the transaction.
As we write this, the STB continues its careful study of the impact of the
transaction on the environment, customers, employees, communities, passenger
service and safety. The problems that occurred in the West, following the Union
Pacific-Southern Pacific merger, have raised concerns among shippers over
whether mergers of this magnitude can be implemented smoothly.
We are determined that our transaction will not repeat what happened in the
West. The railroad that CSX will acquire is much smaller, well run and in
excellent condition financially and otherwise. Its employees are highly skilled
and motivated. From the outset of the transaction, CSX has been planning with
great intensity for the integration of the railroads in such key areas as
safety, capital improvements, information technology, manpower and labor
agreements. Combined operation of Conrail lines will not begin until these
components are effectively in place and service can be assured. We are already
working with our shippers, public constituents and labor to assure a smooth
transition.
COMMITMENT TO SAFETY
Above all, CSX is committed to operating in the safest manner possible. In
October, the United Transportation Union (UTU) and CSX Transportation (CSXT)
entered into a partnership to build a model rail industry safety process.
Working with the Federal Railroad Administration (FRA), the UTU and CSXT will
develop specific action plans to improve safety and to foster greater
cooperation between union employees and managers. In December, CSX submitted its
Safety Integration Plan for the new CSX rail system to the STB. This
first-of-its-kind document spells out the careful processes by which the safety
aspects of the Conrail integration and consolidated operation of the systems
will be addressed.
In terms of legislation, as Congress prepares to take up the Federal Railroad
Safety Act in 1998, CSXT is working to improve upon the gains made in rail
transportation safety over the past decade. The most important objective is to
set realistic standards by which to measure safety improvements.
"OPEN ACCESS" AND RE-REGULATION
The Staggers Rail Act of 1980, which freed the railroads from outdated economic
regulation, set the stage for the remarkable recovery of the railroads from the
financial disasters of the 1970s. Now there are calls from some shippers for a
return to the old era of stifling government intervention. Some of this new
regulation is bring given the misleading label of "competitive" or "open"
access.
In reality, what some shippers want is to force a freight railroad such as CSXT
to allow other railroads to operate over its property without fair compensation.
Far from creating competition in a free marketplace, this so-called "open"
access would have to be administered by a government agency and would result in
long regulatory proceedings that would take away the economic benefits of
freedom from regulation.
Another proposal would simply gut the Staggers Act by repealing its key
provisions. Almost all rail rates would again be subject to challenge before a
regulatory agency, and railroads would lose the ability to price their services
based on competitive market forces.
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From the vantage point of today's multibillion dollar freight business, it is
easy to forget that just 20 years ago, when shipping rates and virtually every
other aspect of the freight rail business were tightly controlled by government
regulators, America's railroads were on the brink of collapse. In fact, nearly a
fourth of the nation's rail assets were then in bankruptcy. The last thing
today's railroads or their customers need is a return to a failed system of
government regulation that did not work then and will not work now. The impact
of the current proposed changes would be to wreck the balance that exists today
between the interests of shippers and railroads. They would jeopardize the
ability of railroads to attract needed capital and to provide the safe and
reliable service our customers want and expect.
[PHOTO]
[PHOTO CAPTION] CSX will continue working to insure that changes to rail safety
laws are consistent with our widely acclaimed safety process
and our voluntary safety programs.
TORT REFORM
CSX has been a proponent of tort reform for some time, and the urgency for that
reform hit home this year with a jury verdict against CSXT of $2.5 billion in
punitive damages.
The case grew out of a tank car leak and fire in New Orleans for which CSXT was
in no way responsible -- an incident that fortunately caused local residents no
serious injuries or significant property damage. Moreover, after a very careful
and thorough investigation, the National Transportation Safety Board confirmed
CSXT was not at fault for the incident. But the event provided further evidence
of the need to restore rationality to our civil-justice system and to rein in
greedy trial lawyers and runaway juries.
We are pleased that the Louisiana Supreme Court vacated and set aside the
judgment until all liability issues have been determined. We are now working to
undo the remaining injustice of the case. Although our case was extreme, it was
far from the only instance of huge punitive awards bearing no relationship to
fault. There is something fundamentally wrong with a system that allows
penalties to be assessed based on the depth of a company's pockets rather than
its responsibility for an incident. Laws define unacceptable conduct and set the
penalties to be imposed for not abiding by its rules. The very existence of a
system permitting unlimited punitive damages for ill-defined actions encourages
lawyers to inflame juries and juries to ignore the facts and, instead, to act on
pure emotion.
Lawyers, government officials and the general public should be deeply concerned
about punitive damages that effectively distort the rule of law and punish
capriciously. The law should never tolerate distinctions based on status. This
is a fight that should not be left solely to business interests, but should be
of concern to every citizen.
MARITIME ISSUES
Because of the overriding importance of the Conrail transaction, our main public
policy focus has been on rail issues. There also is legislation of great
significance for the future of the maritime industry, which the Congress should
act on during 1998. One bill would reduce economic regulation of the
container-shipping industry. This legislation, which has the strong support of
CSX and its subsidiary Sea-Land, will give shipping lines the freedom they need
to negotiate service contracts tailored to the needs of their customers. Another
piece of legislation awaiting action is a bill to carry out the terms of the
international treaty to eliminate subsidies by foreign governments to their
shipyards and to allow U. S. shipyards to compete effectively.
THE YEAR AHEAD
1998 will be a critical year in which the future structure of the rail industry
will be decided by the STB and in which Congress may make important decisions
affecting the rail and maritime transportation industries. While the Conrail
acquisition will be of paramount importance, high on our agenda will be ensuring
that any changes to rail safety laws are consistent with our voluntary safety
programs, and turning back efforts to reimpose burdensome economic regulation on
the railroads. CSX will continue to play an active role in public policy debates
concerning transportation, to ensure that the outcomes enhance our ability to
provide safe, reliable and efficient transportation services to our customers
and superior returns to our shareholders.
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Financial Policy
CSX'S FINANCIAL PRINCIPLES
The management of CSX Corporation reports the company's financial condition and
results of operations in an accurate, timely and conservative manner in order to
give shareholders all the information they need to make investment decisions
about the company.
In this section, financial information is presented to assist you in
understanding the sources of earnings, the financial resources of the company
and the contributions of the major business units. In addition, certain
information needed to meet the Securities and Exchange Commission's Form 10-K
requirements has been included in the Notes to Consolidated Financial
Statements.
Our key objective is to increase shareholder value by improving the return on
invested capital and maximizing free cash flow. To achieve these goals, managers
utilize the following guidelines in conducting the financial activities of the
company:
Capital - CSX business units are expected to earn returns in excess of the
CSX cost of capital. Business units that do not earn a return above the CSX
cost of capital and do not generate an adequate level of free cash flow over
an appropriate period of time will be evaluated for sale or other
disposition.
Taxes - CSX will pursue all available opportunities to pay the lowest
federal, state and foreign taxes, consistent with applicable laws and
regulations and the company's obligation to carry a fair share of the cost
of government. CSX also works through the legislative process for lower tax
rates.
Debt Rating - The company will strive to maintain its investment grade debt
ratings, which allow cost-effective access to financial markets. The company
will manage its business operations in a manner consistent with meeting this
objective, insuring adequate cash to service its debt and fixed charges.
Derivative Financial Instruments - From time to time the company may employ
derivative financial instruments as part of its risk management program. The
objective is to manage specific risks and exposures, not to trade such
instruments for profit or loss.
Dividends - The cash dividend is reviewed regularly in the context of
inflation and competitive dividend yields. The dividend may be increased
periodically if cash flow projections and reinvestment opportunities show
the higher payout level will best benefit shareholders.
CSX cannot always guarantee that its goals will be met, despite its best
efforts. For example, revenue and operating expenses are affected by the state
of the economy and the industries the company serves. Changes in regulatory
policy can drastically change the cost and feasibility of certain operations.
The impact of factors such as these, along with the uncertainty involved in
predicting future events, should be borne in mind when reading company
projections or forward-looking statements in this report.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of CSX have been prepared by management,
which is responsible for their content and accuracy. The statements present the
results of operations, cash flows and financial position of the company in
conformity with generally accepted accounting principles and, accordingly,
include amounts based on management's judgments and estimates.
CSX and its subsidiaries maintain internal controls designed to provide
reasonable assurance that assets are safeguarded and that transactions are
properly authorized by management and are recorded in conformity with generally
accepted accounting principles. Controls include accounting tests, written
policies and procedures and a code of corporate conduct routinely communicated
to all employees. An internal audit staff monitors compliance with and the
effectiveness of established policies and procedures.
The Audit Committee of the board of directors, composed solely of outside
directors, meets periodically with management, internal auditors and the
independent auditors to review audit findings, adherence to corporate policies
and other financial matters. The firm of Ernst & Young LLP, independent
auditors, has been engaged to audit and report on the company's consolidated
financial statements. Its audit was conducted in accordance with generally
accepted auditing standards and included a review of internal accounting
controls to the extent deemed necessary for the purpose of its report, which
appears on page 51.
11
<PAGE>
Analysis of Operations
CSX Corporation, headquartered in Richmond, Va., is a leading provider of
multimodal freight transportation and contract logistics services around the
world. CSX's unique combination of rail, container-shipping, barging, intermodal
and logistics services offers shippers global reach unmatched by any other
freight transportation company. The company's goal, advanced at each of its
business units, is to provide efficient, competitive transportation and related
services for customers and to deliver superior value to CSX shareholders.
CSX TRANSPORTATION INC.
CSXT is a major eastern railroad, providing rail freight transportation over a
network of approximately 18,300 route miles in 20 states in the East, Midwest
and South; and in Ontario, Canada. Headquartered in Jacksonville, Fla., CSXT
accounted for 47% of CSX's operating revenue and 78% of operating income in
1997.
SEA-LAND SERVICE INC.
Sea-Land is the largest U.S.-based ocean carrier and a leader in the global
shipping industry. The carrier operates a fleet of 98 container ships and
approximately 220,000 containers in U.S. and foreign trade and serves 120 ports.
In addition, Sea-Land operates 28 marine terminal facilities across its global
network. Headquartered in Charlotte, N.C., Sea-Land accounted for 37% of CSX's
operating revenue and 18% of operating income in 1997.
AMERICAN COMMERCIAL LINES INC.
ACL, headquartered in Jeffersonville, Ind., is a family of marine companies
providing a wide range of services to the shipping public and other inland
waterway carriers. ACL is a leader in barge transportation, operating 135
towboats and more than 3,800 barges on U.S. and South American waterways.
Additionally, ACL operates marine construction facilities, river terminals and
communications services. ACL accounted for 6% of CSX's operating revenue and 4%
of operating income in 1997.
CSX INTERMODAL INC.
CSXI provides transcontinental intermodal transportation services and operates a
network of dedicated intermodal facilities across North America. Every week,
CSXI runs more than 300 dedicated trains between its 33 terminals. CSXI
contributed 6% of CSX's operating revenue and 3% of operating income in 1997.
CUSTOMIZED TRANSPORTATION INC.
CTI is one of the nation's leading third-party logistics providers, offering
inventory management, distribution, warehousing, assembly and just-in-time
delivery services. The fastest growing unit of CSX, CTI provided 4% of CSX's
operating revenue and 1% of operating income in 1997.
NON-TRANSPORTATION
Resort holdings include the Mobil Five-Star and AAA Five-Diamond hotel, The
Greenbrier in White Sulphur Springs, W.Va., and the Grand Teton Lodge Company in
Moran, Wyo.
CSX Real Property Inc. is responsible for sales, leasing and development of
CSX-owned properties.
CSX holds a majority interest in Yukon Pacific Corporation, which is promoting
construction of the Trans-Alaska Gas System to transport Alaska's North Slope
natural gas to Valdez for export to Asian markets.
12
<PAGE>
DISCUSSION OF EARNINGS
CSX produced solid results in 1997, positioning
itself to increase core earnings significantly in
the years ahead. Strong rail, intermodal and
logistics results produced record operating income.
Average Return on Assets
(Percent)
[GRAPH]
'93* '94 '95* '96 '97
2.7 4.8 4.4 5.9 4.3
* Excluding after-tax restructuring charges and the
impact of the 1993 tax-rate increase, return on
assets in 1993 and 1995 would have been 3.6% and
5.6%, respectively.
Net earnings for 1997 totaled $799 million, $3.67 per share, compared with $855
million, $4.00 per share, in 1996, and $618 million, $2.94 per share, in 1995.
Earnings per share on a diluted basis were $3.62, compared with $3.96 in 1996
and $2.91 in 1995.
The 1997 results include the impact on earnings of the company's 42% investment
in Conrail, which has been reported under the equity method of accounting. While
the transaction awaits regulatory approval, the company is incurring interest on
the debt issued to acquire the investment, as well as certain expenses
associated with the acquisition and activities undertaken to prepare for the
integration of the CSXT and Conrail systems. Interest on the Conrail-related
debt totaled $236 million for the year, while acquisition and
integration-related expenses totaled $61 million. Under the equity method of
accounting, the company is recognizing income from its proportionate share of
Conrail's net earnings and expense for the amortization of its purchase price in
excess of its share of Conrail's net book value. Equity in Conrail's net
earnings totaled $144 million, and amortization of the excess purchase price
totaled $42 million for the year. The combined effect of these items reduced
CSX's net earnings by $97 million, 43 cents per share on a diluted basis.
The 1995 net earnings included the effect of a restructuring charge and a
non-recurring gain from the issuance of an equity interest in a Sea-Land
terminal and related operations in Asia. The restructuring charge reflected the
write-down of obsolete telecommunications assets and related employee separation
costs at CSXT, as well as costs associated with reflagging five Sea-Land vessels
and consolidating Sea-Land's corporate and divisional headquarters in Charlotte,
N.C. The combined effect of these items reduced CSX's 1995 net earnings by $109
million, 52 cents per share on a diluted basis.
Average Return on Equity
(Percent)
[GRAPH]
'93* '94 '95* '96 '97
11.7 18.6 15.5 18.9 15.2
* Excluding after-tax restructuring charges and the
impact of the 1993 tax-rate increase, return on
equity in 1993 and 1995 would have been 14.0% and
19.1%, respectively.
Consolidated operating revenue for 1997 was $10.6 billion, 1% above 1996 and 3%
above 1995. CSXT contributed $80 million of additional revenue over 1996,
largely resulting from strength in its automotive business unit, chemicals and
most other merchandise groups. Additionally, the company's intermodal unit
increased revenue by 1% to $669 million, reflecting strong demand and a
relatively stable rate environment. The contract logistics unit, CTI, posted
revenue of $389 million, an increase of $73 million over 1996 and $149 million
over 1995. Despite generating significant volume increases, Sea-Land's revenue
decreased $60 million to $4.0 billion, due to continued rate weakness across all
major trade lanes. ACL generated $618 million of revenue, almost level with
1996's total. Revenue from barge operations at ACL declined 4% from 1996 as a
result of rate weakness and difficult weather, although a 10% increase in barge
construction and other revenue offset most of the shortfall.
In 1997, all CSX units continued their efforts to control costs through
performance improvement initiatives. Consolidated operating expense remained
level with 1996 at $9.0 billion. Operating expense in 1995 totaled $9.2 billion,
including the $257 million pretax restructuring charge recorded by CSXT and
Sea-Land.
Consolidated operating income for 1997 was $1.6 billion, compared with $1.5
billion in 1996 and $1.1 billion in 1995. Absent the restructuring charge, 1995
operating income would have been $1.4 billion.
13
<PAGE>
Other income for 1997 totaled $51 million, compared with $43 million in 1996 and
$118 million in 1995. The 1997 total includes $34 million in net income related
to the investment in Conrail, consisting of the equity in Conrail's net earnings
less amortization of the excess purchase price and acquisition and integration
expenses. Other income for 1995 included a $77 million pretax net investment
gain related to the issuance of the equity interest in a Sea-Land terminal
facility and related operations in Asia.
[PHOTO]
[PHOTO CAPTION] Performance Improvement Teams work beyond traditional
boundaries to identify and close competitive gaps. PIT
initiatives are responsible for millions in capital and
operating expense savings since their inception in 1992.
DISCUSSION OF CASH FLOW
Cash provided by operating activities totaled $1.6 billion in 1997, compared
with $1.4 billion in 1996 and $1.6 billion in 1995. Cash from operations was
adequate to fund net property investments and cash dividends in 1997, 1996 and
1995. In addition, CSX funded scheduled long-term debt payments of $98 million,
$486 million and $343 million in 1997, 1996 and 1995, respectively.
The company's net cash flow for 1997 and 1996 included significant items related
to the Conrail transaction. Cash used to acquire the investment in Conrail
totaled $2.2 billion for a 22.1% ownership interest in 1997 and $2.0 billion for
a 19.9% interest in 1996. Proceeds from the issuance of long-term debt were used
to finance the Conrail acquisition, including $2.5 billion from an offering of
fixed rate debentures in 1997 and $2.0 billion from commercial paper in 1996.
Approximately $300 million of the proceeds from the debentures was not required
to complete the acquisition of the Conrail investment in 1997 and was used to
reduce the commercial paper borrowings incurred in 1996. In addition to the
acquisition of the ownership interest in Conrail and the related financings,
property additions for 1997 included $119 million of expenditures associated
with upgrading routes on CSXT's rail system and intermodal facilities in CSXI's
network in preparation for the consolidation of CSXT and Conrail lines.
Productivity and restructuring charge payments totaled $51 million, $88 million,
and $155 million for 1997, 1996 and 1995, respectively. These payments related
principally to CSXT's 1991/92 productivity charge covering labor agreements
providing for two-member train crews. Through 1997, the company has made total
payments of $975 million related to this productivity charge.
Fixed Charge Coverage
[GRAPH}
'93* '94 '95* '96 '97
2.3 3.1 3.2 4.0 2.9
* Excluding after-tax restructuring charges, fixed
charge coverage in 1993 and 1995 would have been
2.5x and 3.7x, respectively.
Asset utilization and capital productivity continue to be areas of significant
emphasis at CSX. Capital investments for 1997, including the $119 million in
spending to prepare for the Conrail integration, totaled $1.1 billion, down from
$1.2 billion in 1996 and 1995. Excluding the Conrail spending, capital
investments for 1997 reflect a $217 million reduction from 1996. The reduction
is primarily attributable to fewer locomotive deliveries at CSXT in 1997.
Capital investments at Sea-Land were down $56 million, primarily due to one-time
spending in 1996 to acquire containers previously covered under operating
leases.
14
<PAGE>
Cash dividends per common share were $1.08 for 1997, compared with $1.04 in 1996
and 92 cents in 1995. The Board of Directors increased the quarterly dividend to
30 cents per share in the fourth quarter of 1997, reflecting confidence in the
company's financial strength and future earnings growth.
CSX expects its operations to continue generating significant cash flow to fund
working capital requirements, capital investments, debt obligations and
dividends. The company expects to continue to have access to financial markets,
if necessary, to fund operations, working capital, or other cash requirements.
Two-thirds of the capital spending required to integrate the CSX and Conrail
systems is expected to occur in 1998. With this spending, total capital
investments are expected to increase to a level near $1.4 billion for the coming
fiscal year. Sea-Land's program to add nine high-performance, fuel-efficient
container vessels to its fleet was substantially complete at the end of 1997
and, as a result, capital investments at the unit are expected to decline in
1998.
DISCUSSION OF FINANCIAL POSITION
Cash, cash equivalents and short-term investments totaled $690 million at Dec.
26, 1997, vs. $682 million at Dec. 27, 1996.
The company's working capital deficit decreased $153 million during 1997,
primarily due to reductions in short-term debt levels. The company had a
year-end working capital deficit of $532 million in 1997, compared with $685
million in 1996. A working capital deficit is not unusual for CSX and does not
indicate a lack of liquidity. CSX maintains adequate resources to satisfy
current liabilities when they are due and has sufficient financial capacity to
manage its day-to-day cash requirements.
15
<PAGE>
The company's investment in Conrail increased to $4.2 billion at Dec. 26, 1997,
from $2.0 billion at Dec. 27, 1996. The increase reflects the change in CSX's
ownership interest in Conrail from 19.9% to 42% in May 1997 under the joint
acquisition agreement with Norfolk Southern.
Long-term debt at Dec. 26, 1997, totaled $6.4 billion, $2.1 billion higher than
the end of fiscal year 1996. The increase is attributable to the issuance of
debt to finance the completion of the joint Conrail acquisition. The ratio of
debt to total capitalization increased to 52% at the end of 1997, from 46% in
1996.
Cash Provided by Operations
(Millions of Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$962 $1,326 $1,567 $1,440 $1,558
[PHOTO]
[PHOTO CAPTION] CSX Transflo, a network of specialized terminals that enables
customers not served by rail to transfer product between rail-
cars, trucks, and containers, plans to expand its bulk transfer
terminal network by more than 50% in 1998, to well over 100
locations.
<TABLE>
<CAPTION>
Operating Results
(Millions of Dollars)
1997
Container Contract Elim./
Rail Shipping Intermodal Barge Logistics Other Total
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
Operating Revenue $4,989 $3,991 $669 $618 $389 $(35) $10,621
--------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,963 903 56 151 153 -- 3,226
Materials, Supplies and Other 878 1,191 119 262 61 -- 2,511
Building and Equipment Rent 349 600 77 40 45 -- 1,111
Inland Transportation (158) 757 356 -- 83 (35) 1,003
Depreciation 429 128 14 39 10 -- 620
Fuel 299 197 1 57 13 -- 567
Miscellaneous(b) -- (63) -- -- -- 63 --
Restructuring Charge -- -- -- -- -- -- --
---------------------------------------------------------------------
Total Operating Expense 3,760 3,713 623 549 365 28 9,038
---------------------------------------------------------------------
Operating Income (Loss) $1,229 $ 278 $ 46 $ 69 $ 24 $(63) $ 1,583
---------------------------------------------------------------------
Pro Forma Operating Income (Loss)(c) $1,229 $ 278 $ 46 $ 69 $ 24 $(63) $ 1,583
---------------------------------------------------------------------
Operating Ratio(c) 75.4% 93.0% 93.1% 88.8% 93.8%
---------------------------------------------------------------------
Average Employment 27,864 9,105 800 3,559 2,334
---------------------------------------------------------------------
Property Additions $ 712 $ 251 $ 32 $ 52 $ 13
---------------------------------------------------------------------
1996(a)
Container Contract Elim./
Rail Shipping Intermodal Barge Logistics Other Total
---------------------------------------------------------------------
Operating Revenue $4,909 $4,051 $660 $622 $316 $(22) $10,536
---------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,933 900 63 138 124 -- 3,158
Materials, Supplies and Other 919 1,190 109 242 49 -- 2,509
Building and Equipment Rent 365 630 73 35 40 -- 1,143
Inland Transportation (160) 750 364 -- 64 (22) 996
Depreciation 416 135 15 36 9 -- 611
Fuel 309 192 1 59 13 -- 574
Miscellaneous(b) -- (64) -- -- -- 87 23
Restructuring Charge -- -- -- -- -- -- --
---------------------------------------------------------------------
Total Operating Expense 3,782 3,733 625 510 299 65 9,014
---------------------------------------------------------------------
Operating Income (Loss) $1,127 $ 318 $ 35 $112 $ 17 $(87) $ 1,522
---------------------------------------------------------------------
Pro Forma Operating Income (Loss)(c) $1,127 $ 318 $ 35 $112 $ 17 $(87) $ 1,522
---------------------------------------------------------------------
Operating Ratio(c) 77.0% 92.2% 94.7% 82.0% 94.5%
---------------------------------------------------------------------
Average Employment 28,559 8,982 1,090 3,418 2,120
---------------------------------------------------------------------
Property Additions $ 764 $ 307 $ 24 $ 91 $ 15
---------------------------------------------------------------------
1995(a)
Container Contract Elim./
Rail Shipping Intermodal Barge Logistics Other Total
---------------------------------------------------------------------
Operating Revenue $4,819 $4,008 $707 $554 $240 $(24) $10,304
---------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,900 934 85 122 92 -- 3,133
Materials, Supplies and Other 990 1,231 122 232 46 -- 2,621
Building and Equipment Rent 373 636 72 20 33 -- 1,134
Inland Transportation (160) 730 383 -- 41 (24) 970
Depreciation 397 139 14 32 6 -- 588
Fuel 255 165 1 42 10 -- 473
Miscellaneous(b) -- (65) -- -- -- 67 2
Restructuring Charge 196 61 -- -- -- -- 257
---------------------------------------------------------------------
Total Operating Expense 3,951 3,831 677 448 228 43 9,178
---------------------------------------------------------------------
Operating Income (Loss) $ 868 $ 177 $ 30 $106 $ 12 $(67) $ 1,126
---------------------------------------------------------------------
Pro Forma Operating Income (Loss)(c) $1,064 $ 238 $ 30 $106 $ 12 $(67) $ 1,383
---------------------------------------------------------------------
Operating Ratio(c) 77.9% 94.1% 95.8% 80.9% 94.7%
---------------------------------------------------------------------
Average Employment 29,537 9,168 1,434 2,914 1,853
---------------------------------------------------------------------
Property Additions $ 765 $ 269 $ 57 $ 33 $ 8
---------------------------------------------------------------------
</TABLE>
(a) Certain prior-year data have been reclassified to conform to the 1997
presentation.
(b) A portion of intercompany interest income received from the CSX parent
company has been classified as a reduction of Miscellaneous expense by the
container-shipping unit. This amount was $63 million, $64 million and $65
million in 1997, 1996 and 1995, respectively, and the corresponding charge
is included in Eliminations/Other.
(c) Excludes restructuring charge.
16
<PAGE>
CONRAIL ACQUISITION
In April 1997, CSX and Norfolk Southern entered into an agreement providing for
their joint acquisition of Conrail and the division of its routes and other
assets.
Under the terms of the agreement, CSX and Norfolk Southern acquired all
outstanding shares of Conrail not already owned by them for $115 per share in
cash during the second quarter of 1997. CSX and Norfolk Southern each possess
50% of the voting and management rights of a jointly owned acquisition company,
and non-voting equity is divided between the parties to achieve overall economic
allocations of 42% for CSX and 58% for Norfolk Southern. Following approval by
the STB as described below, Conrail's assets will be segregated within Conrail,
and CSX and Norfolk Southern will each benefit from the operation of a specified
portion of the Conrail routes and other assets through the use of various
operating arrangements. Certain Conrail assets will be operated for the joint
benefit of CSX and Norfolk Southern.
The total cost of acquiring the outstanding shares of Conrail under the joint
CSX/Norfolk Southern agreement was approximately $9.8 billion. Pursuant to the
agreement, CSX has paid 42%, or approximately $4.1 billion, and Norfolk Southern
has paid 58%, or approximately $5.7 billion, of such cost. Including its
capitalized transaction costs, CSX's total purchase price was approximately $4.2
billion.
JOINT STB APPLICATION
The Conrail shares have been placed in a voting trust pending STB approval of
the joint acquisition, control and division of Conrail. The exercise of control
over Conrail by CSX and Norfolk Southern remains subject to a number of
conditions and approvals, including approval by the STB, which has the authority
to modify contract terms and impose additional conditions.
CSX and Norfolk Southern filed an application for control of Conrail with the
STB in June 1997. The STB has adopted a schedule that contemplates a decision in
late July 1998. CSX believes that the STB will approve the joint application for
control without imposing onerous conditions. However, should the application not
be approved by the STB, or should the STB impose onerous approval conditions,
the closing may be delayed, or CSX may be required to, or may choose to, dispose
of some or all of its investment in Conrail in a manner that could cause CSX to
incur a loss on its investment in Conrail.
[PHOTO]
[PHOTO CAPTION] CSX maintains a top-to-bottom commitment to environmental
protection.
FINANCING ARRANGEMENTS
CSX originally arranged a $4.8 billion bank credit facility in November 1996 to
provide initial financing for the Conrail acquisition and to meet general
working capital needs. The facility was amended in May 1997, and the lenders'
commitments were reduced to $2.5 billion, reflecting the issuance of fixed rate
debentures. Currently, the facility is used as support for commercial paper
issuance.
17
<PAGE>
The fixed rate debentures, issued through a $2.5 billion multitranche private
offering in May 1997, have maturities ranging from 2002 to 2032 and interest
rates ranging from 6.95% to 8.30%.
ENHANCED EFFICIENCIES AND REVENUE GROWTH
Management expects the integration of Conrail operations resulting from the
transaction to add approximately $1.7 billion, or 16%, to CSX's annual revenue
beginning in the first 12 months following operational consolidation. Management
believes that the transaction also will result in growth of the company's rail
revenue base through expansion of single-line service and CSX's ability to
compete more effectively against trucks on major freight routes.
INTEGRATION PLANNING
The company is actively planning for the smooth integration of Conrail
operations into the CSXT rail system after the STB control date. Plans involve
all facets of combining the two systems, including: safety; customer service;
train scheduling, switching, and routing; equipment utilization and track
programs; commuter and passenger rail; marketing; technology; labor agreements;
and administration. Related capital improvements to certain routes and
facilities on the CSX rail system also have been initiated. Operational
integration is expected to take place once the necessary implementing agreements
have been reached, which currently is anticipated in late 1998.
FINANCIAL EFFECTS
Including transaction costs, the overall purchase price paid by CSX exceeded the
historical book value of its proportionate share of Conrail's net assets by
approximately $2.9 billion. A substantial portion of the excess purchase price
is expected to be allocated to reflect the fair value of Conrail's property and
equipment. The company has based its provision for amortization of the excess
purchase price on preliminary estimates of the fair values of such property and
equipment and estimates of their remaining useful lives, as well as estimates of
the fair values of other assets and liabilities of Conrail.
Because of the time required to obtain necessary regulatory and other approvals,
CSX does not expect integrated operations to have a significant effect on
operating and financial results prior to fiscal 1999. The primary impact of the
Conrail transaction on net earnings prior to the integration of operations will
be the after-tax effect of the company's share of Conrail's net earnings,
reported under the equity method of accounting, less amortization of the excess
purchase price and interest on debt incurred to acquire the Conrail investment.
Net cash flow prior to operational integration is expected to be reduced by
interest payments on the acquisition debt. At Dec. 26, 1997, the average
interest rate on debt incurred to acquire Conrail shares was approximately 6.9%.
The degree of negative impact on net earnings and net cash flow during 1998 will
depend primarily on the net earnings reported by Conrail and the average
interest rate and timing of interest payments on the related debt.
OTHER MATTERS
LITIGATION
In September 1997, a state court jury in New Orleans 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% of the responsibility for the
incident. CSXT's liability under that compensatory damages award is not
material.
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. CSX believes this decision means that 8,000 other cases
must be resolved before the punitive damage claims can be decided. CSXT is
pursuing an aggressive strategy on all legal fronts, and management believes
that any adverse outcome will not be material to CSX's or CSXT's overall results
of operations or financial position, although it could be material to results of
operations in a particular quarterly accounting period.
CSX has been advised that activities of a former subsidiary that administered
U.S. government guaranteed student loans are under investigation. The subsidiary
was sold in 1992. The U.S. Attorney's Office has said that it may institute
proceedings against CSX based on government insurance payments made on
uncollected loans as a result of alleged processing deficiencies or errors
before the sale. While the amount of potential damages is not yet reasonably
estimable, based upon information currently available to the company, management
believes any adverse outcome will not be material to CSX's results of operations
or financial position, although it could be material to results of operations in
a particular quarterly accounting period.
18
<PAGE>
ENVIRONMENTAL MANAGEMENT
CSX generates and transports hazardous and nonhazardous waste in its current and
former operations, and is subject to federal, state and local environmental laws
and regulations. The company has identified approximately 250 sites at which it
is or may be liable for remediation costs associated with alleged contamination
or for violations of environmental requirements. Approximately 120 of these
sites are or may be subject to remedial action under the federal Superfund
statute or similar state statutes. Certain federal legislation imposes joint and
several liability for the remediation of identified sites; consequently, CSX's
ultimate environmental liability may include costs relating to other parties, in
addition to costs relating to its own activities at each site.
A liability of $99 million has been accrued for future costs at all sites where
the company's obligation is probable and where such costs can be reasonably
estimated; however, the ultimate cost could be higher or lower than the amounts
currently provided. The liability includes future costs for remediation and
restoration of sites, as well as for ongoing monitoring costs, but excludes any
anticipated recoveries from third parties. Cost estimates were based on
information available for each site, financial viability of other potentially
responsible parties (PRPs), and existing technology, laws and regulations. CSX
believes that it has made adequate provision for its ultimate share of costs at
sites subject to joint and several liability. However, the ultimate liability
for remediation is difficult to determine with certainty because of the number
of PRPs involved, site-specific cost-sharing arrangements with other PRPs, the
degree of contamination by various wastes, the scarcity and quality of data
related to many of the sites, and/or the speculative nature of remediation
costs.
Total expenditures associated with protecting the environment and remedial
environmental cleanup and monitoring efforts amounted to $36 million in 1997.
This compares with $44 million in 1996 and $43 million in 1995. During 1998, the
company expects to incur remedial environmental expenditures in the range of $40
million to $50 million. The majority of the year-end 1997 environmental
liability is expected to be paid out over the next five to seven years, funded
by cash generated from operations. Future environmental obligations are not
expected to have a material impact on the results of operations or financial
position of the company.
SAFETY REVIEW
On Oct. 16, 1997, the Federal Railroad Administration (FRA) issued a report on a
joint review of safety on the CSXT rail system. The review was undertaken as a
cooperative effort with CSXT and rail labor, and was conducted between July and
September 1997. CSXT and its labor representatives, in cooperation with the FRA,
are actively addressing the issues cited in the report and have already
initiated numerous actions to ensure that all issues are fully resolved. CSXT
has improved its safety record dramatically over the past decade and, in recent
years, has been among the safest Class I freight railroads in the nation. The
cooperative effort with rail labor and the FRA reaffirms the commitment to
safety by all parties involved and helps ensure that safety will remain the top
priority as CSXT plans the integration of Conrail lines into its system.
LABOR
Discussions with labor representatives in connection with the Conrail
acquisition are underway. In January 1998, the United Transportation Union,
which represents approximately a third of CSXT's unionized workforce, announced
its support for the CSX/Norfolk Southern joint acquisition of Conrail.
Under CSXT's latest national agreement with the UTU and the Brotherhood of
Locomotive Engineers, study commissions were established to address key issues
such as basis of pay, quality of work life and productivity improvements through
work rule modifications. These commissions are meeting regularly and exploring
projects that could lead to reaching consensus or creating a set of
recommendations covering these important matters. At the request of the parties,
the National Mediation Board is facilitating the discussions.
19
<PAGE>
YEAR 2000 PLANNING AT CSX
CSX has determined it will need to modify or replace portions of its software so
its computer systems will function properly with respect to dates in the year
2000 and beyond. The company also has initiated discussions with its significant
suppliers, large customers and financial institutions to ensure that those
parties have appropriate plans to remediate Year 2000 issues where their systems
interface with CSX systems or otherwise impact the company's operations. The
company is assessing the extent to which its operations are vulnerable should
those organizations fail to remediate properly their computer systems.
The company's comprehensive Year 2000 initiative is centrally managed by CSX
staff, utilizing outside consultants as necessary. The team's activities are
designed to ensure that there is no adverse effect on CSX core business
operations and that transactions with customers, suppliers, and financial
institutions are fully supported. The company is well under way with these
efforts, which are scheduled to be completed in mid 1999. While the company
believes its planning efforts are adequate to address its Year 2000 concerns,
there can be no guarantee that the systems of other companies on which CSX
systems and operations rely will be converted on a timely basis and will not
have a material effect on the company. The cost of the Year 2000 initiatives is
not expected to be material to the company's results of operations or financial
position.
[PHOTO]
[PHOTO CAPTION] Already a leader in technology, CSX has established a large
Year 2000 team to prepare for the technology challenges of the
new millennium.
FORWARD-LOOKING STATEMENTS
Estimates and forecasts in the Analysis of Operations are based on many
estimates and 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 involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
company to differ materially from any future results, performance or
achievements expressed or implied by such statements. Certain of those risks,
uncertainties and other important factors that could cause actual results to
differ materially include: future economic conditions in the markets in which
CSX and Conrail operate; financial market conditions; inflation rates; changing
competition; changes in the economic regulatory climate in the U.S. railroad
industry; the ability to eliminate duplicative administrative functions; and
adverse changes in applicable laws, regulations or rules governing
environmental, tax or accounting matters. These forward-looking statements speak
only as of the date of this filing. CSX disclaims any obligation or undertaking
to disseminate any updates or revisions to any such statement to reflect changes
in CSX's expectations or any change in events, conditions or circumstances on
which any such statements are based.
20
<PAGE>
RAIL RESULTS
CSX Transportation Inc. (CSXT) turned in another
strong performance in 1997. Operating income was
a record $1.23 billion, a 9% increase over 1996
and 16% over 1995, excluding 1995's restructuring
charge. The 1997 results were primarily driven
by strength in merchandise traffic, as well as
continued emphasis on cost reduction.
Rail Operating Revenue
(Millions of Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$4,380 $4,625 $4,819 $4,909 $4,989
Gains in carloads for most merchandise commodities allowed CSXT to generate
operating revenue of $4.99 billion, an increase of 2% over 1996 and more than 3%
over 1995.
CSXT enjoyed growth in practically all merchandise commodity groups during 1997.
Total merchandise traffic increased 4% over 1996, to 2.97 million carloads and
3% over 1995 levels. This growth was largely attributed to targeted marketing
efforts and stronger general demand.
Demand for automobiles and light trucks remained strong in 1997, resulting in a
5% increase in carloads and a 4% increase in revenue over 1996. Compared with
1995 results, CSXT's automotive business experienced an increase of 8% in both
carloads and revenue in 1997.
Chemical traffic benefited from steady demand for plastics as well as the
success of the railroad's efforts to target truck traffic. The railroad hauled
435,000 carloads of chemicals, an increase of 6% over 1996 and 7% over 1995.
Corresponding revenues were $747 million in 1997, $721 million in 1996 and $700
million in 1995.
[PHOTO]
[PHOTO CAPTION] Service reliability improvements and customer-focused
initiatives combined to produce growth in practically all
commodity groups in 1997.
Shipments of coal were level with 1996 at 1.71 million carloads, compared with
1.68 million carloads in 1995. Coal revenue totaled $1.56 billion in 1997, vs.
$1.58 billion in 1996 and $1.52 billion in 1995. The 1997 results were adversely
affected by mild temperatures across the eastern United States during the year,
as well as weak demand for U.S. export coal due to the strong dollar.
Cost control remained a priority. Rail operating expense was $3.76 billion, vs.
$3.78 billion in 1996 and $3.76 billion in 1995, excluding the restructuring
charge. The company achieved record operating ratio of 75.4% in 1997, compared
with 77% in 1996 and 77.9% in 1995, excluding the restructuring charge.
RAIL ASSETS
Owned or leased units as of Dec. 26, 1997
- --------------------------------------------
Freight Cars
Box Cars 15,131
Open-Top Hoppers 24,144
Covered Hoppers 18,356
Gondolas 25,279
Other Cars 14,568
- --------------------------------------------
Total 97,478
- --------------------------------------------
Locomotives 2,781
Track
Route Miles 18,285
Track Miles 30,941
- --------------------------------------------
21
<PAGE>
Rail Traffic by Commodity
Carloads Revenue
(Thousands) (Millions of Dollars)
--------------------- ---------------------------
1997 1996 1995 1997 1996 1995
--------------------- ---------------------------
Automobiles 387 367 357 $ 543 $ 520 $ 503
Chemicals 435 409 406 747 721 700
Minerals 445 430 414 394 381 375
Food & Consumer 149 134 145 163 148 168
Agricultural Products 269 261 286 347 343 344
Metals 316 277 301 314 290 291
Forest Products 471 466 479 499 499 488
Phosphates & Fertilizer 506 511 511 292 279 282
Coal 1,714 1,711 1,684 1,560 1,584 1,530
--------------------- ---------------------------
Total 4,692 4,566 4,583 4,859 4,765 4,681
---------------------
Other Revenue 130 144 138
---------------------------
Total Operating Revenue $4,989 $4,909 $4,819
---------------------------
Lower operating expense was, to a large degree, achieved through the efforts of
the railroad's Performance Improvement Teams (PITs), which removed approximately
$115 million in costs through reductions of overtime and absenteeism, foreign
car-hire days and maintenance costs. Cost reduction was furthered by the
introduction of a new rail car distribution optimization system, which in its
early stages yielded significant improvements in car utilization.
Customer service continued to improve in 1997 through an Operational Excellence
initiative, begun in the first quarter of 1996 and implemented throughout CSXT's
54 terminals during 1997. This process emphasizes continuous improvement in
service to customers and more precise operations within and among terminals. The
initiative is expected to achieve higher service levels at lower cost, providing
a foundation for successful competition as CSXT integrates its portion of
Conrail.
Improved asset utilization continues to enhance CSXT's ability to control
capital expenditures. Capital expenditures in 1997 were $712 million, compared
with $764 million and $765 million in 1996 and 1995, respectively.
Of the 1997 expenditures, $100 million was for projects related to the
integration of Conrail. The most significant spending on Conrail-related
projects was for upgrading the B&O lines between Chicago and Cleveland. When
completed later in 1998 and linked with Conrail's route from Cleveland to New
York, this line will allow for high-speed, high-density freight traffic between
Chicago and New York.
CSXT's 1997 capital spending for its current rail system was mainly for track,
freight cars, locomotives, signals and bridges.
The railroad expects continued earnings growth in 1998. The company anticipates
modest volume and revenue increases, as well as cost reductions similar to those
achieved in 1997.
1998 will be a year of intense planning for the integration of Conrail. People
at all levels of the company are involved in this effort in order to ensure a
smooth transition. That concentrated planning, along with CSXT's continued
emphasis on performance improvement and service reliability, should position the
railroad to increase revenue and profitability in truck-competitive markets.
Rail Operating Expense
(Millions of Dollars)
[GRAPH]
'93 '94 '95* '96 '97
$3,634 $3,696 $3,951 $3,782 $3,760
* Restructuring charge in 1995 was $196 million.
22
<PAGE>
CONTAINER-SHIPPING RESULTS
Continued intense rate competition, due to over-
capacity, dominated the container-shipping
industry in 1997. In the face of this challenging
environment, Sea-Land Service was able to
mitigate partially revenue losses through higher
volumes. Additionally, continued cost cutting
helped Sea-Land achieve a respectable level of
profitability while many other carriers were
faltering.
Container-shipping Operating Revenue
(Millions of Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$3,246 $3,492 $4,008 $4,051 $3,991
Sea-Land generated $278 million in operating income in 1997, vs. $318 million in
1996. In 1995, Sea-Land's operating income was $238 million, excluding a
restructuring charge.
Volume in 1997 increased more than 7% to 1.65 million loads from 1.54 million
loads in 1996. This increase was driven by continued global trade growth and
market-share gains in virtually all trade lanes. In 1995, volume totaled 1.44
million loads.
Due to lower rates, operating revenue decreased to $3.99 billion vs. $4.05
billion in 1996 and $4.01 billion in 1995. In 1997, the average revenue per
container fell 8% due to over-capacity in the major trade lanes.
Sea-Land's operating expense declined by $20 million from 1996, to $3.71
billion, despite higher volumes. In 1995, operating expense totaled $3.77
billion, excluding that year's restructuring charge. The company continues to
improve its per-unit cost structure through its ongoing emphasis on cutting
costs and improving productivity.
In 1997, Sea-Land accomplished major cost reductions in the areas of inland
transportation, procurement, network management and equipment management.
Borrowing from the railroad's Performance Improvement Team (PIT) process,
Sea-Land managed to remove $217 million from its operating expense structure.
The company has set aggressive targets for 1998 to achieve similar results.
[PHOTO]
[PHOTO CAPTION] Emphasis on cost control and productivity helped Sea-Land slash
millions from its operating cost structure while handling
greater volumes, thus maintaining profitability despite intense
rate competition. Similarly aggresive targets are on track for
1998.
Container-shipping Load Volume
(Thousands)
[GRAPH]
'93 '94 '95 '96 '97
1,180 1,288 1,442 1,541 1,653
Implementation of the global alliance with Maersk continued in 1997. This
alliance gives Sea-Land a substantial advantage over its competitors, providing
a global network with excellent frequency and scope of service. In addition to
the integrated vessel network, the alliance initiated a number of terminal,
equipment and information technology rationalization efforts, which will be key
to further cost reduction. These efforts included facility rationalization in
Baltimore, Houston and Kobe, Japan; joint central dispatch pilot programs;
chassis rationalization in North America; and coordination in the areas of
procurement and electronic data interchange (EDI). The financial benefits from
the alliance in 1997 were approximately $78 million. Sea-Land is on target to
exceed this level of benefits in 1998.
23
<PAGE>
[PHOTO]
In 1997, capital expenditures totaled $251 million, as the company completed its
fleet enhancement program and invested in information technology and rolling
stock. This amount compares with $307 million in 1996 and $269 million in 1995.
CONTAINER-SHIPPING ASSETS
Owned or leased units as of Dec. 26, 1997
- --------------------------------------------
Containers
40- and 20-foot Dry Vans 182,514
45-foot Dry Vans 14,147
Refrigerated Vans 20,457
Other Specialized Equipment 2,972
- --------------------------------------------
Total 220,090
- --------------------------------------------
Chassis 67,454
Container Ships 98
Terminals
Exclusive-Use 14
Preferential Berthing Rights 14
- --------------------------------------------
In 1998 trade growth is expected to continue, albeit at a slightly slower pace
than in recent years. The effect of the current Asian economic difficulties
potentially could slow the double-digit growth rates of the early 1990s to more
moderate levels.
Ongoing rate pressures are causing realignment and consolidation in the
container-shipping industry. With the exception of the Sea-Land/Maersk alliance,
every major carrier alliance experienced dramatic structural change during 1997.
This trend is expected to continue, causing further customer uncertainty
regarding competitive offerings. Sea-Land's stability is proving to be a
reassuring advantage to customers. As a stable, global carrier with costs under
control, Sea-Land is well-positioned to compete effectively in 1998.
24
<PAGE>
BARGE RESULTS
Severe weather and unfavorable operating conditions
in the first half, combined with rate pressures
later in the year, significantly affected American
Commercial Lines' (ACL's) 1997 results.
The barge company reported operating income of $69 million, vs. $112 million in
1996 and $106 million in 1995. The 1996 and 1997 results reflect the acquisition
of Conti-Carriers and Terminals Inc. in January 1996.
Total operating revenue for 1997 was $618 million, a decrease of 1% from 1996,
and a 12% increase from 1995's revenue of $554 million. Operating expense in
1997 totaled $549 million, vs. $510 million in 1996 and $448 million in 1995.
The increase in expense was primarily due to weather-induced adverse operating
conditions, expansion start-up expense in Argentina and increased production at
the company's barge-building subsidiary, Jeffboat. The year started with ice
problems on the Ohio and Mid-Mississippi rivers, followed by major flooding on
the Ohio and Mississippi Rivers. These adverse operating conditions forced the
company to operate smaller tows at lower speeds, resulting in lower productivity
and corresponding lost volume. Additionally, operating boats and barges in
unfavorable river conditions led to higher maintenance expense.
BARGE ASSETS
Owned or leased units as of Dec. 26, 1997
- --------------------------------------------
Towboats 135
Barges
Covered/Open-Top Hoppers 3,569
Tankers 249
- --------------------------------------------
Total 3,818
- --------------------------------------------
Marine Services
River Terminals 11
Fleet Operations 16
Shipyards 2
- --------------------------------------------
In 1997 rates were negatively affected by lower U.S. grain exports due to
increased grain production by foreign competitors. Reduced exports, combined
with a net increase in barge industry capacity, created a supply/demand
imbalance, leading to lower rates for grain and other dry commodities.
Barge Operating Revenue
(Millions of Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$417 $449 $554 $622 $618
Transportation demand for non-grain commodities, such as steel and raw materials
for steel minimills, was steady, while demand for liquid cargo movements
remained robust, leading to a $4 million increase in revenue for this sector.
Coal tonnage was up slightly from 1996, but revenue was flat due to rate
pressures.
International growth continued as the Argentina-based business (ACBL Hidrovias,
S.A.) expanded, though earnings lagged due to start-up costs. ACBL Hidrovias is
well-positioned to profit from strong growth in 1998.
ACL continued its focus on safety in 1997, with a 33% improvement in its
incident rate. ACBL, the company's domestic barge subsidiary, is the safest
barge line in the United States. ACL's South American operations adopted ACBL's
safety practices, and ACBL de Venezuela completed the year injury free.
Capital additions at ACL, which included additions to domestic marine equipment
and expansion in South America, totaled $52 million in 1997. This compares with
$91 million in 1996 and $33 million in 1995.
ACL anticipates more favorable operating results in 1998. Steady demand is
expected, but rate pressures will likely persist as barge supply continues to
exceed demand in the short term. Corn production is expected to be among the
highest in U.S. history; and record-level soybean exports are projected,
indicating strong demand. Demand for the transportation of liquid commodities
should remain strong, while demand for transportation of coal, steel and other
commodities is expected to remain steady.
25
<PAGE>
INTERMODAL RESULTS
CSX Intermodal's (CSXI's) earnings in 1997 rose to
attractive levels due to significant cost
reductions generated by the unit's network
redesign, as well as modest tightening of truck
capacity.
Intermodal Operating Revenue
(Millions of Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$599 $684 $707 $660 $669
Operating income totaled $46 million in 1997, up 31% from 1996. Revenue
increased $9 million, to $669 million, while volume increased 5%, to 1.03
million trailers and containers. In 1995, operating income was $30 million on
revenue of $707 million.
CSXI's network redesign, implemented in the fourth quarter of 1996, resulted in
significant productivity gains. The company expanded train capacity in markets
with the greatest growth and profit potential. Service reliability improved
significantly as a result of the network redesign and enhanced coordination
between CSXI and CSXT. During the year, CSXI's overall performance was adversely
affected by service problems on the western section of its transcontinental
network.
International volume rose 7% in 1997, with revenue up 10% over 1996. While
domestic volume increased 4%, revenue decreased 1% due to rate pressure and
traffic mix. Productivity initiatives related to equipment management and
terminal-trucking operations reduced operating costs by $8 million.
INTERMODAL ASSETS
Owned or leased units as of Dec. 26, 1997
- ---------------------------------------------
Equipment
Domestic Containers 5,322
Rail Trailers 5,119
Facilities
CSX Intermodal Terminals 33
Motor Carrier Operations Terminals 23
- ---------------------------------------------
Capital expenditures totaled $32 million in 1997, $19 million of which related
to preparation for the Conrail integration, vs. $24 million in 1996 and $57
million in 1995. During 1997, CSXI began expansion of its terminal facilities in
Atlanta, New York/New Jersey, and at its Chicago gateway. The company also
expanded its domestic container fleet by more than 30%.
In 1998, CSXI will focus on expanding its business in key lanes and developing
new markets to enhance the value of the CSXT core franchise. At the same time,
the company will be preparing for the integration of Conrail routes. CSXI
anticipates growth patterns in 1998 similar to those achieved in 1997. The
unit's capital plan for 1998 includes a significant investment for the
continuing expansion of terminal facilities in key markets in preparation for
the Conrail integration.
[PHOTO]
[PHOTO CAPTION] Trailers loaded for shipment in Jacksonville now arrive in the
Northeast faster and more reliably due to CSXI's service re-
design, undertaken in conjunction with CSXT.
26
<PAGE>
CONTRACT LOGISTICS RESULTS
Customized Transportation Inc. (CTI) continued its
rapid growth in revenue and operating income in
1997. Revenue rose to $389 million, 23% above
1996 and 62% above 1995. Operating income
increased to $24 million, 40% above 1996 and 91%
above 1995.
Contract Logistics Operating Revenue
(Millions of Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$145 $182 $240 $316 $389
Much of CTI's 1997 results were attributable to its success in providing
logistics management services to the automotive, tire, machinery, electronics,
consumer durable, and chemical industries. More than 65 million transactions
were completed in 1997 with an error-free rate of 99.9858%. This commitment to
quality earned nine additional ISO 9002 certifications during the year. In
addition, CTI continued to expand overseas, with the management of contract
operations in South America and Europe. CTI expects to continue its rapid growth
in 1998.
[PHOTO]
[PHOTO CAPTION] CTI is building upon its U.S. automotive base while expanding
into other industries and international markets.
CONSOLIDATED OUTLOOK
Though uncertainty about the direction of Asian
economies makes economic forecasting more difficult
than usual, CSX expects modest growth in the U.S.
economy and continued expansion of global trade
during 1998.
We expect each of our transportation units to improve upon its 1997 financial
performance in 1998. The railroad should continue to improve its operating ratio
through stringent cost control and modest revenue growth. For our waterborne
businesses, we expect improving supply-demand fundamentals to result in a more
stable rate environment and improved profitability. Our intermodal and logistics
units should continue their recent trend of strong earnings growth.
Costs associated with the Conrail transaction and integration will affect 1998
consolidated results, as CSX makes investments in capital improvements and
information technology to prepare for the Conrail integration. We expect
regulatory approval in mid-1998 and are determined to execute a smooth
integration of the Conrail assets. The steps we are taking will strengthen CSX's
position by expanding our market reach.
27
<PAGE>
FINANCIAL INFORMATION
CONTENTS
29 Consolidated Statement of Earnings
30 Consolidated Statement of Cash Flows
31 Consolidated Statement of Financial Position
32 Consolidated Statement of Changes in Shareholders' Equity
33 Notes to Consolidated Financial Statements
51 Report of Ernst & Young LLP, Independent Auditors
28
<PAGE>
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended
Dec. 26, Dec. 27, Dec. 29,
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Operating Revenue $10,621 $10,536 $10,304
Operating Expense 9,038 9,014 8,921
Restructuring Charge -- -- 257
----------------------------------
Total Operating Expense 9,038 9,014 9,178
----------------------------------
Operating Income 1,583 1,522 1,126
----------------------------------
OTHER INCOME AND EXPENSE
Other Income 51 43 118
Interest Expense 451 249 270
----------------------------------
EARNINGS
Earnings Before Income Taxes 1,183 1,316 974
Income Tax Expense 384 461 356
----------------------------------
Net Earnings $ 799 $ 855 $ 618
----------------------------------
PER COMMON SHARE
Earnings Per Share $ 3.67 $ 4.00 $ 2.94
Earnings Per Share, Assuming Dilution $ 3.62 $ 3.96 $ 2.91
Average Common Shares Outstanding (Thousands) 217,796 213,633 210,270
Average Common Shares Outstanding, Assuming
Dilution (Thousands) 220,792 216,205 212,329
Cash Dividends Paid Per Common Share $ 1.08 $ 1.04 $ .92
----------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE>
Consolidated Statement of Cash Flows
(Millions of Dollars)
<TABLE>
<CAPTION>
Fiscal Years Ended
Dec. 26, Dec. 27, Dec. 29,
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 799 $ 855 $ 618
Adjustments to Reconcile Net Earnings to Net
Cash Provided
Depreciation and Amortization 688 620 600
Deferred Income Taxes 190 166 (26)
Restructuring Charge Provision -- -- 257
Productivity/Restructuring Charge Payments (51) (88) (155)
Equity in Conrail Earnings and Other Operating
Activities (121) 12 10
Changes in Operating Assets and Liabilities
Accounts Receivable (99) (67) (82)
Other Current Assets (2) (65) (22)
Accounts Payable 39 84 170
Other Current Liabilities 115 (77) 197
----------------------------------
Net Cash Provided by Operating Activities 1,558 1,440 1,567
----------------------------------
INVESTING ACTIVITIES
Property Additions (1,125) (1,223) (1,156)
Proceeds from Property Dispositions 51 84 97
Investment in Conrail (2,163) (1,965) --
Short-Term Investments-- Net (119) 21 (65)
Purchases of Long-Term Marketable Securities (60) (45) (114)
Proceeds from Sales of Long-Term Marketable Securities 45 137 97
Other Investing Activities 23 4 87
----------------------------------
Net Cash Used by Investing Activities (3,348) (2,987) (1,054)
----------------------------------
FINANCING ACTIVITIES
Short-Term Debt-- Net (509) 187 (53)
Long-Term Debt Issued 2,530 2,118 121
Long-Term Debt Repaid (98) (486) (343)
Cash Dividends Paid (235) (223) (194)
Other Financing Activities (15) (1) 11
----------------------------------
Net Cash Provided (Used) by Financing Activities 1,673 1,595 (458)
----------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (117) 48 55
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Year 368 320 265
----------------------------------
Cash and Cash Equivalents at End of Year 251 368 320
Short-Term Investments at End of Year 439 314 340
----------------------------------
Cash, Cash Equivalents and Short-Term Investments
at End of Year $ 690 $ 682 $ 660
----------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid-- Net of Amounts Capitalized $ 423 $ 265 $ 275
Income Taxes Paid $ 141 $ 381 $ 253
----------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
Consolidated Statement of Financial Position
(Millions of Dollars)
<TABLE>
<CAPTION>
Dec. 26, Dec. 27,
1997 1996
---------------------
<S> <C> <C>
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 690 $ 682
Accounts Receivable 987 894
Materials and Supplies 227 229
Deferred Income Taxes 134 139
Other Current Assets 137 128
---------------------
Total Current Assets 2,175 2,072
Properties-- Net 12,406 11,906
Investment in Conrail 4,244 1,965
Affiliates and Other Companies 394 345
Other Long-Term Assets 738 677
---------------------
Total Assets $19,957 $16,965
---------------------
LIABILITIES
Current Liabilities
Accounts Payable $ 1,179 $ 1,189
Labor and Fringe Benefits Payable 477 499
Casualty, Environmental and Other Reserves 298 306
Current Maturities of Long-Term Debt 229 101
Short-Term Debt 126 335
Other Current Liabilities 398 327
---------------------
Total Current Liabilities 2,707 2,757
Casualty, Environmental and Other Reserves 711 715
Long-Term Debt 6,416 4,331
Deferred Income Taxes 2,939 2,720
Other Long-Term Liabilities 1,418 1,447
---------------------
Total Liabilities 14,191 11,970
---------------------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 218 217
Other Capital 1,552 1,433
Retained Earnings 4,016 3,452
Minimum Pension Liability (20) (107)
---------------------
Total Shareholders' Equity 5,766 4,995
---------------------
Total Liabilities and Shareholders' Equity $19,957 $16,965
---------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
(Millions of Dollars)
<TABLE>
Common Shares Minimum
Outstanding Common Other Retained Pension
(Thousands) Stock Capital Earnings Liability Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Dec. 30, 1994 104,722 $105 $1,368 $2,391 $(133) $3,731
Net Earnings -- -- -- 618 -- 618
Dividends - Common -- -- -- (194) -- (194)
Common Stock -
Stock Purchase and Loan Plan
Stock Canceled (155) (1) (11) -- -- (12)
Purchase Loans-- Net -- -- 12 -- -- 12
Other Stock Issued -- Net 716 1 55 -- -- 56
Minimum Pension Liability -- -- -- -- 24 24
2-for-1 Stock Split 105,212 105 (105) -- -- --
Other -- Net -- -- -- 7 -- 7
- ----------------------------------------------------------------------------------------------
Balance Dec. 29, 1995 210,495 210 1,319 2,822 (109) 4,242
Net Earnings -- -- -- 855 -- 855
Dividends-- Common -- -- -- (223) -- (223)
Common Stock --
Stock Purchase and Loan Plan
Stock Issued 7,652 8 356 -- -- 364
Stock Canceled and
Exchanged (2,786) (3) (67) -- -- (70)
Purchase Loans-- Net -- -- (240) -- -- (240)
Other Stock Issued-- Net 1,524 2 65 -- -- 67
Minimum Pension Liability -- -- -- -- 2 2
Other-- Net -- -- -- (2) -- (2)
- ----------------------------------------------------------------------------------------------
Balance Dec. 27, 1996 216,885 217 1,433 3,452 (107) 4,995
Net Earnings -- -- -- 799 -- 799
Dividends - Common -- -- -- (235) -- (235)
Common Stock -
Stock Purchase and Loan Plan
Stock Issued 138 -- 8 -- -- 8
Stock Canceled and
Exchanged (379) -- (11) -- -- (11)
Purchase Loans-- Net -- -- 26 -- -- 26
Other Stock Issued-- Net 1,666 1 96 -- -- 97
Minimum Pension Liability -- -- -- -- 87 87
----------------------------------------------------------------
Balance Dec. 26, 1997 218,310 $218 $1,552 $4,016 $ (20) $5,766
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES.
Nature of Operations
CSX Corporation (CSX) is a global freight transportation company with principal
business units providing rail, container-shipping, intermodal, barging and
contract logistics services. Rail transportation services are provided
principally throughout the eastern United States and account for nearly half of
the company's operating revenue, with coal, bulk products and manufactured
products each contributing a relatively equal share of rail revenue. Coal
shipments primarily supply domestic utility and export markets.
Container-shipping services are provided in the United States and more than 80
countries and territories throughout the world and account for more than
one-third of the company's operating revenue. Intermodal, barging and contract
logistics services are provided principally within the United States and
together account for the company's remaining operating revenue.
Principles of Consolidation
The Consolidated Financial Statements include CSX and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in companies that are not majority-owned are carried at
either cost or equity, depending on the extent of control.
Fiscal Year
The company's fiscal reporting period ends on the last Friday in December. The
financial statements presented are for the fiscal periods ended Dec. 26, 1997,
Dec. 27, 1996, and Dec. 29, 1995. Each fiscal year consists of four 13-week
quarters.
Common Stock Split
The company distributed a 2-for-1 common stock split to shareholders in December
1995. In the accompanying Consolidated Statement of Earnings and Notes to
Consolidated Financial Statements, all references to shares of common stock and
per share amounts for periods prior to the stock split have been restated.
Cash, Cash Equivalents and Short-Term Investments
Cash in excess of current operating requirements is invested in various
short-term instruments carried at cost that approximates market value. Those
short-term investments having a maturity of three months or less at the date of
acquisition are classified as cash equivalents. Cash and cash equivalents are
net of outstanding checks that are funded daily from cash receipts and maturing
short-term investments.
Accounts Receivable
The company has sold, directly and through Trade Receivables Participation
Certificates (Certificates), ownership interests in designated pools of accounts
receivable originated by CSX Transportation Inc. (CSXT), its rail unit.
At Dec. 26, 1997, the company had $200 million of Certificates outstanding, at
5.05%, due September 1998. The Certificates represent undivided interests in a
master trust holding an ownership interest in a revolving pool of rail freight
accounts receivable. The Certificates were collateralized by $249 million of
accounts receivable held in the master trust. The company has the ability to
issue $50 million in additional Certificates through September 1998 at
prevailing market terms.
The company also has a revolving agreement with a financial institution to sell
with recourse on a monthly basis an undivided percentage ownership interest in
designated pools of freight and other accounts receivable. The agreement
provides for the sale of up to $200 million in accounts receivable and expires
in October 1998.
The company has retained the responsibility for servicing and collecting
accounts receivable held in trust or sold. At Dec. 26, 1997, and Dec. 27, 1996,
accounts receivable have been reduced by $372 million, representing Certificates
and accounts receivable sold. The net costs associated with sales of
Certificates and receivables were $29 million, $30 million and $32 million in
1997, 1996 and 1995, respectively.
The company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable, including receivables collateralizing the
Certificates and receivables sold. Allowances for doubtful accounts of $86
million and $97 million have been applied as a reduction of accounts receivable
at Dec. 26, 1997, and Dec. 27, 1996, respectively.
Materials and Supplies
Materials and supplies consist primarily of fuel and items for maintenance of
property and equipment, and are carried at average cost.
Properties
Main line track on the rail system is depreciated on a group basis using a
unit-of-property method. All other property and equipment is depreciated on a
straight-line basis over estimated useful lives of three to 50 years.
33
<PAGE>
Regulations enforced by the Surface Transportation Board (STB) of the U.S.
Department of Transportation require periodic formal studies of ultimate service
lives for all railroad assets. Resulting service life estimates are subject to
review and approval by the STB. Significant premature retirements for all
properties, which would include major casualty losses, abandonments, sales and
obsolescence of assets, are recorded as gains or losses at the time of their
occurrence. Expenditures that significantly increase asset values or extend
useful lives are capitalized. Repair and maintenance expenditures are charged to
operating expense when the work is performed. All properties are stated at cost,
less an allowance for accumulated depreciation.
Properties and other long-lived assets are reviewed for impairment whenever
events or business conditions indicate the carrying amount of such assets may
not be fully recoverable. Initial assessments of recoverability are based on
estimates of undiscounted future net cash flows associated with an asset or a
group of assets. Where impairment is indicated, the assets are evaluated for
sale or other disposition, and their carrying amount is reduced to fair value
based on discounted net cash flows or other estimates of fair value.
Revenue Recognition
Transportation revenue is recognized proportionately as shipments move from
origin to destination.
Environmental Costs
Environmental costs relating to current operations are expensed or capitalized
as appropriate. Expenditures relating to remediating an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when CSX's
responsibility for environmental remedial efforts is deemed probable, and the
costs can be reasonably estimated. Generally, the timing of these accruals
coincides with the completion of a feasibility study or the company's commitment
to a formal plan of action.
Derivative Financial Instruments
Derivative financial instruments may be used from time to time by the company in
the management of its interest, foreign currency and commodity exposures, and
are accounted for on an accrual basis. Income and expense are recorded in the
same category as that of the underlying asset or liability. Gains and losses
related to hedges of existing assets or liabilities are deferred and recognized
over the expected remaining life of the related asset or liability. Gains and
losses related to hedges of anticipated transactions also are deferred and
recognized in income in the same period as the hedged transaction. There were no
significant derivative financial instruments outstanding at Dec. 26, 1997.
Stock-Based Compensation
The company records expense for stock-based compensation in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25 "Accounting for
Stock Issued to Employees" and related Interpretations. Disclosures required
with respect to the alternative fair value measurement and recognition methods
prescribed by Financial Accounting Standards Board (FASB) Statement No. 123
"Accounting for Stock-Based Compensation" are presented in Note 12 -- Stock
Plans.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates in reporting the
amounts of certain revenues and expenses for each fiscal year and certain assets
and liabilities at the end of each fiscal year. Actual results may differ from
those estimates.
Prior-Year Data
Certain prior-year data have been reclassified to conform to the 1997
presentation.
Accounting Pronouncements
The FASB has issued Statement No. 130 "Reporting Comprehensive Income" and
Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information," both of which the company will adopt in 1998. Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments by
or distributions to shareholders. With the exception of net earnings, such
changes are generally not significant to the company; and the adoption of
Statement No. 130, including the required comparative presentation for prior
periods, is not expected to have a material impact on its financial statements.
Statement No. 131 requires that a publicly held company report financial and
descriptive information about its operating segments in financial statements
issued to shareholders for interim and annual periods. The Statement also
requires additional disclosures with respect to products and services,
geographic areas of operation and major customers. The company operates
diversified freight transportation businesses and has historically provided
detailed operating segment and other information in its communications to
shareholders; however, such information has not typically been presented in the
consolidated financial statements and related notes.
34
<PAGE>
NOTE 2. JOINT ACQUISITION OF CONRAIL.
During the second quarter of 1997, CSX and Norfolk Southern Corporation (Norfolk
Southern) completed the acquisition of Conrail Inc. (Conrail) through a jointly
owned entity pursuant to an agreement dated April 8, 1997. The joint acquisition
was the outcome of negotiations that followed separate, competing initiatives by
CSX and Norfolk Southern to acquire Conrail. These initiatives began in October
1996 when CSX and Conrail entered into an agreement to combine in a strategic
merger transaction in which Conrail shareholders would receive cash and CSX
common stock for their shares. Norfolk Southern challenged the CSX/Conrail
merger agreement and made an all-cash competing offer for Conrail. As a result
of these initiatives, CSX and Norfolk Southern completed separate cash tender
offers for 19.9% and 9.9%, respectively, of Conrail's outstanding shares in late
1996 and early 1997. Subsequent developments surrounding the efforts of CSX and
Norfolk Southern to acquire Conrail led to discussions that produced the joint
acquisition agreement.
Completion of the Conrail acquisition was achieved through a joint tender offer
and subsequent merger in which all outstanding Conrail shares not already owned
by the company and Norfolk Southern were acquired for cash, or were converted
into the right to receive cash, of $115 per share. Under the agreement, CSX
contributed approximately $4.1 billion, in the form of cash and Conrail shares
previously acquired, for a 42% investment in Conrail. Norfolk Southern
contributed approximately $5.7 billion, also in the form of cash and Conrail
shares previously acquired, for a 58% investment in Conrail. The Conrail shares
acquired by CSX and Norfolk Southern have been placed in a voting trust pending
approval of the transaction by the STB. CSX financed the acquisition of its 42%
investment in Conrail by issuing a combination of fixed-rate debentures and
commercial paper.
In June 1997, CSX and Norfolk Southern completed supplemental agreements
governing the legal structure of the transaction and operations of the Conrail
rail system subsequent to STB approval. The terms of these agreements, the
operating plans of the respective companies, and the benefits expected to result
from combining the respective rail systems are incorporated in a joint railroad
control application that was filed with the STB on June 23, 1997. The STB is
expected to issue a final decision on the application in July 1998. It is
anticipated that operational integration of the CSX and Conrail systems will
take place upon completion of labor agreements with Conrail's contract
workforce, currently expected to be in late 1998.
The completion of the joint tender offer and subsequent merger, and the
resulting increase in CSX's ownership interest in Conrail from 19.9% to 42%,
required a change from the cost method to the equity method of accounting for
the investment during the second quarter of 1997. The change in accounting
method included adjustments retroactive to the date of CSX's initial investment
in Conrail in November 1996. The net amount of these retroactive adjustments
applicable to fiscal year 1996 was not material. The company will continue to
use the equity method of accounting while the Conrail shares are held in the
voting trust. Under this method, the company recognizes income from its
proportionate share of Conrail's net income and expense for amortization of its
purchase price in excess of its proportionate share of Conrail's net book value.
For the fiscal year ended Dec. 26, 1997, equity in Conrail's net income totaled
$144 million, and amortization of the excess purchase price totaled $42 million.
Summary financial information for Conrail for its fiscal years ended Dec. 31,
1997, 1996 and 1995 is as follows:
For the Year Ended Dec. 31,
--------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Income Statement Information:
Revenues $3,765 $3,714 $3,686
Income from Operations 322 601 456
Net Income 7 342 264
- ------------------------------------------------------------------------------
As of Dec. 31,
--------------------
1997 1996
- -----------------------------------------------------------------------------
Balance Sheet Information:
Current Assets $ 954 $1,117
Property and Equipment and Other Assets 7,530 7,285
Total Assets 8,484 8,402
Current Liabilities 1,208 1,092
Long-Term Debt 1,732 1,876
Total Liabilities 5,319 5,295
Stockholders' Equity 3,165 3,107
- -----------------------------------------------------------------------------
35
<PAGE>
Conrail's operating results for 1997 include certain charges that the acquiring
companies are required to record as liabilities established in connection with a
purchase business combination under generally accepted accounting principles.
These charges reflect obligations for separation-related compensation to certain
Conrail executives and include vesting of benefits under certain stock
compensation plans and the termination of Conrail's Employee Stock Ownership
Plan. The charges, which totaled $363 million on an after-tax basis, were
excluded from the net income of Conrail in determining the proportionate share
of such income recorded by CSX. Excluding these separation-related charges,
Conrail's net income would have been $370 million for the year ended Dec. 31,
1997.
Conrail's 1997 operating results also include one-time expenses for other
acquisition-related costs and a cumulative income tax adjustment. On an
after-tax basis, the acquisition-related expenses totaled $72 million for the
year. The adjustment to income tax expense, $22 million, was recorded to
increase deferred income taxes as a result of a change in a state tax rate.
These expenses were included in the net income of Conrail in determining the
proportionate share of such income recorded by CSX.
CSX is amortizing the difference between its purchase price for the investment
in Conrail and its proportionate share of Conrail's net assets. A substantial
portion of the excess purchase price is expected to be allocated to reflect the
fair value of Conrail's property and equipment. The provision for amortization
of the excess purchase price has been based upon preliminary estimates of the
fair values of such property and equipment and estimates of their remaining
useful lives, as well as estimates of the fair values of other assets and
liabilities of Conrail.
The combined effect of equity earnings, excess purchase price amortization, net
interest on debt issued to acquire the Conrail investment, and other expenses
related to the transaction reduced CSX's net earnings for the fiscal year ended
Dec. 26, 1997, by $97 million, 43 cents per share on a diluted basis. The net
effect of the investment in Conrail on CSX's net earnings for the fiscal year
ended Dec. 27, 1996, was not significant. The company's method of accounting for
the investment subsequent to the STB decision and dissolution of the voting
trust will depend upon the final terms of the joint ownership arrangement
approved by the STB.
NOTE 3. 1995 RESTRUCTURING CHARGE.
In 1995, the company recorded a $257 million pretax restructuring charge to
recognize the estimated costs of specific initiatives at CSXT and at Sea-Land
Service Inc. (Sea-Land), its container-shipping unit. The charge reduced 1995
net earnings by $160 million, 76 cents per share.
CSXT Initiative
CSXT recorded its $196 million portion of the pretax restructuring charge to
recognize the costs associated with a contractual agreement with a major
telecommunications vendor to replace, manage and technologically enhance its
existing private telecommunications network. The initiative resulted in a
write-down of assets rendered technologically obsolete and a provision for
separation and labor protection payments to affected employees.
The agreement, which originally was to expire in May 2005, provided for the
vendor to supply and manage new technology to replace CSXT's existing
telecommunications system, thereby rendering it commercially obsolete. These
assets, comprising CSXT's internal companywide telecommunications network
including existing microwave and fiber optic communications systems, have no
alternative use and their net realizable value is not significant. As a result
of the agreement, the net book value of the assets to be replaced was reduced by
$163 million.
During 1996, CSXT and the vendor amended the agreement to change the termination
date to June 30, 1998, to increase the payments required over the revised
service period, and to relieve the vendor's obligations to replace certain
technology. CSXT is in the final stages of negotiating a multiyear agreement
with a successor telecommunications vendor and expects to have service
arrangements with that vendor in place prior to June 30, 1998.
Sea-Land Initiatives
The restructuring initiatives at Sea-Land represented $61 million of the total
charge and included its global integration program and the reflagging of five
U.S.-flag vessels to the registry of the Marshall Islands in accordance with
approval from the Maritime Administration. Sea-Land's global integration program
resulted in the consolidation of worldwide senior management functions, the
relocation of the corporate headquarters to Charlotte, N.C., and the integration
of information technologies. The vessel reflagging initiative primarily involves
crew separations on the five vessels.
36
<PAGE>
NOTE 3. 1995 RESTRUCTURING CHARGE (CONTINUED).
Summary
The 1995 restructuring charge and related activity through Dec. 26, 1997, is as
follows:
<TABLE>
<CAPTION>
Separation Lease and
and Labor Facility
Obsolete Protection Exit
Assets Costs Costs Total
------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring Charge $163 $80 $14 $257
Amounts Utilized through Dec. 26, 1997 163 31 9 203
------------------------------------------------
Remaining Reserve as of Dec. 26, 1997 $ -- $49 $ 5 $ 54
------------------------------------------------
</TABLE>
The total provision for separation and labor protection payments relates to
approximately 800 affected employees and was based on existing collective
bargaining agreements with members of clerical, electrical, and signal crafts
and seafarer trades. Through Dec. 26, 1997, approximately 560 employee
separations have been finalized. The company expects the remaining affected
employees to be impacted within the next four years.
NOTE 4. OPERATING EXPENSE.
1997 1996 1995
--------------------------------
Labor and Fringe Benefits $3,226 $3,158 $3,133
Materials, Supplies and Other 2,511 2,509 2,621
Building and Equipment Rent 1,111 1,143 1,134
Inland Transportation 1,003 996 970
Depreciation 620 611 588
Fuel 567 574 473
Miscellaneous -- 23 2
Restructuring Charge -- -- 257
--------------------------------
Total $9,038 $9,014 $9,178
--------------------------------
Selling, General and Administrative
Expense Included in Above Items $1,106 $1,210 $1,249
--------------------------------
NOTE 5. OTHER INCOME.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Interest Income $53 $48 $ 62
Income from Real Estate and Resort Operations(a) 71 62 54
Net Gain (Loss) on Investment Transactions(b) -- (4) 77
Net Costs for Accounts Receivable Sold (29) (30) (32)
Minority Interest (41) (42) (32)
Income from Investment in Conrail-- Net 34 8 --
Equity Earnings (Losses) of Other Affiliates 6 6 (3)
Foreign Currency Gain (Loss) (1) 5 (1)
Miscellaneous (42) (10) (7)
-------------------------------
Total $51 $43 $118
-------------------------------
</TABLE>
(a) Gross revenue from real estate and resort operations was $206 million, $186
million and $178 million in 1997, 1996 and 1995, respectively.
(b) In December 1995, the company recognized a net investment gain of $77
million on the issuance of an equity interest in a Sea-Land terminal and
related operations in Asia and the write-down of various investments. The
The equity interest portion of the transaction resulted in proceeds of $105
million and a pretax gain of $93 million, $61 million after-tax, 29 cents
per share. Sea-Land's interest in the terminal operations was reduced from
approximately 67% to 57%.
37
<PAGE>
NOTE 6. INCOME TAXES.
Earnings from domestic and foreign operations and related income tax expense are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Earnings Before Income Taxes:
- Domestic $ 987 $1,158 $765
- Foreign 196 158 209
--------------------------------
Total Earnings Before Income Taxes $1,183 $1,316 $974
Income Tax Expense (Benefit):
Current - Federal $ 143 $ 250 $337
- Foreign 35 30 26
- State 16 15 19
--------------------------------
Total Current 194 295 382
--------------------------------
Deferred- Federal 168 166 (26)
- Foreign 1 -- --
- State 21 -- --
--------------------------------
Total Deferred 190 166 (26)
--------------------------------
Total Income Tax Expense $ 384 $ 461 $356
--------------------------------
</TABLE>
Income tax expense reconciled to the tax computed at statutory rates is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at Statutory Rates $414 35% $461 35% $341 35%
State Income Taxes 24 2 10 1 12 1
Equity in Conrail Net Income (30) (2) -- -- -- --
Prior Years' Income Taxes (12) (1) (27) (2) -- --
Other Items (12) (1) 17 1 3 1
------------------------------------------------
Income Tax Expense $384 33% $461 35% $356 37%
------------------------------------------------
</TABLE>
The significant components of deferred tax assets and liabilities include:
<TABLE>
<CAPTION>
Dec. 26, Dec. 27,
1997 1996
--------------------
<S> <C> <C>
Deferred Tax Assets:
Productivity/Restructuring Charges $162 $ 171
Employee Benefit Plans 334 434
Deferred Gains and Related Rents 119 195
Other 370 252
--------------------
Total 985 1,052
--------------------
Deferred Tax Liabilities:
Accelerated Depreciation 3,173 3,095
Other 618 538
--------------------
Total 3,791 3,633
--------------------
Net Deferred Tax Liabilities $2,806 $2,581
--------------------
</TABLE>
38
<PAGE>
NOTE 6. INCOME TAXES (CONTINUED).
In addition to the annual provision for deferred income tax expense, the change
in the year-end net deferred income tax liability balances included the income
tax effect of the changes in the minimum pension liability in 1997 and 1996.
The company has not recorded domestic deferred or additional foreign income
taxes applicable to undistributed earnings of foreign subsidiaries that are
considered to be indefinitely reinvested. Such earnings amounted to $290 million
and $279 million at Dec. 26, 1997, and Dec. 27, 1996, respectively. These
amounts may become taxable upon their remittance as dividends or upon the sale
or liquidation of these foreign subsidiaries. It is not practicable to determine
the amount of net additional income tax that may be payable if such earnings
were repatriated.
The company files a consolidated federal income tax return, which includes its
principal domestic subsidiaries. Examinations of the federal income tax returns
of CSX have been completed through 1990. Returns for 1991 through 1993 are
currently under examination. Management believes adequate provision has been
made for any adjustments that might be assessed.
NOTE 7. PROPERTIES.
<TABLE>
<CAPTION>
Dec. 26, 1997 Dec. 27, 1996
- --------------------------------------------------------------------------------------------
Accumulated Accumulated
Cost Depreciation Net Cost Depreciation Net
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rail:
Road $ 9,603 $2,658 $ 6,945 $ 9,308 $2,619 $ 6,689
Equipment 4,400 1,580 2,820 4,220 1,427 2,793
- --------------------------------------------------------------------------------------------
Total Rail 14,003 4,238 9,765 13,528 4,046 9,482
- --------------------------------------------------------------------------------------------
Container-shipping 2,673 1,111 1,562 2,437 1,017 1,420
Other 1,594 515 1,079 1,455 451 1,004
- --------------------------------------------------------------------------------------------
Total $18,270 $5,864 $12,406 $17,420 $5,514 $11,906
- --------------------------------------------------------------------------------------------
</TABLE>
NOTE 8. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES.
Activity related to casualty, environmental and other reserves is as follows:
<TABLE>
<CAPTION>
Casualty and Environmental Separation
Other Reserves(a)(b) Reserves(a) Liabilities(a)(c) Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Dec. 30, 1994 $579 $140 $394 $1,113
Charged to Expense and Other Additions 279 22 80 381
Payments and Other Reductions (288) (25) (70) (383)
----------------------------------------------------------------------
Balance Dec. 29, 1995 570 137 404 1,111
Charged to Expense and Other Additions 254 16 -- 270
Payments and Other Reductions (290) (36) (34) (360)
----------------------------------------------------------------------
Balance Dec. 27, 1996 534 117 370 1,021
Charged to Expense and Other Additions 277 12 -- 289
Payments and Other Reductions (249) (30) (22) (301)
----------------------------------------------------------------------
Balance Dec. 26, 1997 $562 $ 99 $348 $1,009
----------------------------------------------------------------------
</TABLE>
(a)Balances include current portions of casualty and other, environmental and
separation reserves, respectively, of $245 million, $20 million and $33
million at Dec. 26, 1997; $234 million, $20 million and $52 million at Dec.
27, 1996; and $241 million, $20 million and $37 million at Dec. 29, 1995.
(b)Casualty reserves are estimated based upon the first reporting of an
accident or personal injury to an employee. Liabilities for accidents are
based upon field reports and liabilities for personal injuries are based upon
the type and severity of the injury and the use of current trends and
historical data.
(c)Separation liabilities include $300 million at Dec. 26, 1997, $318 million
at Dec. 27, 1996, and $344 million at Dec. 29, 1995, related to productivity
charges recorded in 1991 and 1992 to provide for the estimated costs of
implementing work-force reductions, improvements in productivity and other
cost reductions at the company's major transportation units. The remaining
liabilities are expected to be paid out over the next 20 to 25 years.
39
<PAGE>
NOTE 9. DEBT AND CREDIT AGREEMENTS.
Average Interest
Rates at Dec. 26, Dec. 27,
Type and Maturity Dates Dec. 26, 1997 1997 1996
----------------------------------------
Commercial Paper 6% $2,000 $2,300
Notes Payable (1999-2021) 8% 479 498
Debentures (2000-2032) 8% 3,145 650
Equipment Obligations (1998-2011) 7% 784 739
Mortgage Bonds (1998-2003) 3% 75 76
Other Obligations, including
Capital Leases (1998-2021) 7% 162 169
----------------------------------------
Total 7% 6,645 4,432
----------------
Less Debt Due Within One Year 229 101
--------------------
Total Long-Term Debt $6,416 $4,331
--------------------
To provide financing for a portion of the Conrail acquisition, the company
issued $2.5 billion principal amount of fixed rate debentures through a private
offering in May 1997. The debentures were issued in multiple tranches with
maturities ranging from 2002 to 2032 and interest rates ranging from 6.95% to
8.30%. In October 1997, the company completed an offer to exchange the
privately placed debentures for new freely tradeable debentures with
substantially identical terms.
In November 1996, the company had entered into a $4.8 billion bank credit
agreement to provide financing for the Conrail acquisition and meet general
working capital needs. Upon issuance of the debentures described above, the
agreement was amended and the maximum borrowing amount was reduced to $2.5
billion. Under the agreement, the company may borrow directly from the
participating banks or utilize the credit facility to support the issuance of
commercial paper. Direct borrowings from the participating banks can be
obtained, at the company's option, under a competitive bid process among the
banks or under a revolving credit arrangement with interest either at LIBOR plus
a margin determined by the company's credit rating or at an alternate base rate,
as defined in the agreement. At Dec. 26, 1997, the company had commercial paper
borrowings related to the credit facility of $2.126 billion, of which $2 billion
was classified as long-term debt based on the company's ability and intention to
maintain this debt outstanding for more than one year. At Dec. 27, 1996, the
company had commercial paper borrowings related to the credit facility of $2.635
billion, of which $2.3 billion was classified as long-term debt. The company
pays annual fees to the participating banks that may range from .06% to .15% of
the total commitment, depending upon its credit rating. The credit agreement,
which expires in November 2001, also includes certain covenants and
restrictions, such as limitations on debt as a percentage of total
capitalization and restrictions on the sale or disposition of certain assets.
Commercial paper classified as short-term debt was $126 million at Dec. 26,
1997, and $335 million at Dec. 27, 1996. The weighted-average interest rate for
the short-term commercial paper outstanding at year-end was 6% for 1997 and
1996.
In September 1992, the company filed a shelf registration statement with the
Securities and Exchange Commission to provide for the issuance of up to $450
million in senior debt securities, warrants to purchase debt securities or
currency warrants. This shelf registration included a combined prospectus
covering amounts remaining to be issued as debt securities under a previous
shelf registration. As of Dec. 26, 1997, an aggregate of $250 million of debt is
available for issuance under the company's shelf registration statement and
combined prospectus.
Excluding long-term commercial paper, the company has long-term debt maturities
for 1998 through 2002 aggregating $229 million, $94 million, $325 million, $63
million and $561 million, respectively. A portion of the company's rail unit
properties are pledged as security for various rail-related, long-term debt
issues.
40
<PAGE>
NOTE 10. COMMON AND PREFERRED STOCK.
The company has a single class of common stock, $1 par value, of which 300
million shares are authorized. Each share is entitled to one vote in all matters
requiring a vote. In December 1995, shareholders received one additional share
of common stock for each share held, pursuant to a 2-for-1 stock split approved
by the board of directors. At Dec. 26, 1997, common shares issued and
outstanding totaled 218,309,911.
The company also has total authorized preferred stock of 25 million shares, of
which 250,000 shares of Series A have been reserved for issuance, and 3 million
shares of Series B have been reserved for issuance under the Shareholder Rights
Plan discussed below. All preferred shares rank senior to common shares both as
to dividends and liquidation preference. No preferred shares were outstanding at
Dec. 26, 1997.
Pursuant to a Shareholder Rights Plan adopted by the board of directors in 1988
and amended in 1990, each outstanding share of common stock also evidences one
preferred share purchase right ("right"). Each right entitles shareholders of
record to purchase from the company, until the earlier of June 8, 1998, or the
redemption of the rights, one one-hundredth of a share of Series B preferred
stock at an exercise price of $100, subject to certain adjustments or, under
certain circumstances, to obtain additional shares of common stock in exchange
for the rights. The rights are not exercisable or transferable apart from the
related common shares until the earlier of 10 days following the public
announcement that a person or affiliated group has acquired or obtained the
right to acquire 20% or more of the company's outstanding common stock; or 10
days following the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result in the ownership
by a person or group of 20% or more of the outstanding common stock. The board
of directors may redeem the rights at a price of one cent per right at any time
prior to the acquisition by a person or group of 20% or more of the outstanding
common stock.
NOTE 11. EARNINGS PER SHARE.
The company adopted FASB Statement No. 128 "Earnings per Share" in the fourth
quarter of 1997. In accordance with the provisions of this statement, the
following table sets forth the computation of earnings per share and earnings
per share, assuming dilution.
1997 1996 1995
- --------------------------------------------------------------------------------
Numerator:
Net Earnings $799 $855 $618
Denominator (thousands):
Denominator for earnings per share -
average common shares outstanding 217,796 213,633 210,270
Effect of Potentially Dilutive
Securities:
Stock Options 2,598 2,192 1,598
Performance Share Awards and
other stock awards 398 381 460
-----------------------------
Potentially dilutive common shares 2,996 2,573 2,058
-----------------------------
Denominator for earnings per share, assuming
dilution -- average diluted common shares
outstanding 220,792 216,206 212,328
- --------------------------------------------------------------------------------
Earnings per share $3.67 $4.00 $2.94
- --------------------------------------------------------------------------------
Earnings per share, assuming dilution $3.62 $3.96 $2.91
- --------------------------------------------------------------------------------
Note 12 provides additional disclosures regarding employee stock options,
Performance Share Awards, and other stock awards.
Options to purchase 1,955,000 shares of common stock at $57 per share and
1,977,520 shares at $51.44 per share were outstanding during late 1997 and the
second half of 1996, respectively, but were not included in the computation of
earnings per share, assuming dilution. The exercise price of these options was
greater than the average market price of the common shares and, accordingly,
their effect is antidilutive to earnings per share.
41
<PAGE>
NOTE 12. STOCK PLANS.
The company maintains several stock plans designed to encourage ownership of its
stock and provide incentives for employees to contribute to its success.
Compensation expense for stock-based awards under these plans is determined by
the awards' intrinsic value accounted for under the principles of APB Opinion
No. 25 and related Interpretations. Compensation expense recognized for
stock-based awards was $66 million, $36 million and $50 million in 1997, 1996
and 1995, respectively. Had compensation expense been determined based upon fair
values at the date of grant for awards under these plans, consistent with the
methods of FASB Statement No. 123, the company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995
----------------------------
Net Earnings - As Reported $ 799 $ 855 $ 618
- Pro Forma $ 791 $ 832 $ 610
----------------------------
Earnings Per Share - As Reported $3.67 $4.00 $2.94
- Pro Forma $3.63 $3.90 $2.90
----------------------------
Earnings Per Share, Assuming Dilution
- As Reported $3.62 $3.96 $2.91
- Pro Forma $3.58 $3.85 $2.87
----------------------------
The pro forma fair value method of accounting was applied only to stock-based
awards granted after Dec. 30, 1994. Because all stock-based compensation expense
for 1997, 1996 and 1995 was not restated and because stock-based awards granted
may vary from year to year, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Stock Purchase and Loan Plan
The Stock Purchase and Loan Plan provides for the purchase of common stock and
related rights by eligible officers and key employees of the company and
entitles them to obtain loans with respect to the shares purchased. The Plan,
which originated in 1991, is intended to further the long-term stability and
financial success of the company by providing a method for eligible employees to
increase significantly their ownership of common stock. Amendments to the Plan
were approved by the company's shareholders and implemented in 1996, providing
for continuation of the Plan through February 2006, and increasing the common
stock reserved for issuance from 4.4 million to 9 million shares.
At the inception of the revised Plan in August 1996, participants who entered
the original Plan in 1991 or 1992 either withdrew shares from the Plan, applied
all or part of their equity in shares purchased in the original Plan as a down
payment to acquire additional shares, or extended their participation at
existing levels for up to one year. In addition, shares were offered to certain
employees who were not previously eligible to participate in the Plan. In
connection with the Plan amendments, from Aug. 1, 1996, through Dec. 27, 1996,
72,497 shares were withdrawn from the Plan, 2,630,727 shares were exchanged and
canceled, and 7,651,970 new shares were sold to participants at an average
market price of $47.52 per share. In consideration for the shares purchased,
participants have provided down payments of not less than 5% nor more than 25%
of the purchase price in the form of cash, recourse notes or equity earned in
the original Plan. The remaining purchase price is in the form of non-recourse
loans secured by the shares issued.
All non-recourse loans under the Plan are subject to certain adjustments after a
vesting period based upon targeted increases in the market price of CSX common
stock. At Dec. 26, 1997, certain of the market price thresholds had been met,
resulting in forgiveness of interest (net of dividends applied to interest) plus
a portion of the principal balances of the notes.
42
<PAGE>
NOTE 12. STOCK PLANS (CONTINUED).
At Dec. 26, 1997, there were 170 participants in the Plan. Transactions
involving the Plan are as follows:
Shares Average
(000's) Price(a)
----------------------
Outstanding at Dec. 29, 1995 3,423 $18.64
Issued 7,652 $47.52
Exchanged, Canceled or Withdrawn (2,964) $18.73
----------------------
Outstanding at Dec. 27, 1996 8,111 $46.26
----------------------
Issued 138 $59.43
Exchanged, Canceled or Withdrawn (581) $22.48
----------------------
Outstanding at Dec. 26, 1997 7,668 $45.74
----------------------
(a) Represents average cost to participants, net of cumulative note forgiveness.
1997 1996 1995
- --------------------------------------------------------------------------------
Down Payment (Recourse) Loans Outstanding $ 7 $ 7 $ 4
Purchase (Non-Recourse) Loans Outstanding $270 $296 $ 60
Weighted-Average Interest Rate 6.59% 6.64% 7.75%
- --------------------------------------------------------------------------------
The weighted-average fair value benefit to participants for a share issued under
the Stock Purchase and Loan Plan was $19.82 in 1997 and $15.65 in 1996. These
values were estimated as of the dates of grant using the Black-Scholes option
pricing model with the following assumptions for 1997 and 1996, respectively:
risk-free interest rates of 6.1% and 6.5%; dividend yields of 2.2% and 2.4%;
volatility factors of 22.2% and 21.5%. Expected lives of six years were used in
both 1997 and 1996.
1987 Long-Term Performance Stock Plan
The CSX Corporation 1987 Long-Term Performance Stock Plan provides for awards in
the form of stock options, Stock Appreciation Rights (SARs), Performance Share
Awards (PSAs) and Incentive Compensation Program shares (ICPs) to eligible
officers and employees. Awards granted under the Plan are determined by the
board of directors based on the financial performance of the company.
At Dec. 26, 1997, there were 475 current or former employees with outstanding
grants under the Plan. A total of 18,132,238 shares were reserved for issuance,
of which 428,638 were available for new grants (5,396,274 at Dec. 27, 1996). The
remaining shares are assigned to outstanding stock options, SARs and PSAs.
The majority of stock options have been granted with 10-year terms and vest at
the end of one year of continued employment. The exercise price for options
granted equals the market price of the underlying stock on the date of grant. A
summary of the company's stock option activity, and related information for the
fiscal years ended Dec. 26, 1997, Dec. 27, 1996, and Dec. 29, 1995, follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
(000s) Exercise Price (000s) Exercise Price (000s) Exercise Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year 13,102 $35.82 11,881 $32.76 10,206 $30.97
Granted 4,182 $51.44 1,978 $51.43 2,165 $40.25
Canceled or Expired (31) $49.89 (42) $27.69 (57) $38.95
Exercised (1,082) $26.08 (715) $42.08 (433) $27.18
--------------------------------------------------------------------------------
Outstanding at End of Year 16,171 $40.49 13,102 $35.82 11,881 $32.76
--------------------------------------------------------------------------------
Exercisable at End of Year 9,911 $34.08 10,139 $31.90 8,017 $28.79
--------------------------------------------------------------------------------
Fair Value of Options Granted $12.25 $13.78 $11.33
--------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
The following table summarizes information about stock options outstanding at
Dec. 26, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Number Remaining Weighted-Average Number Weighted-Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$15 to $20 2,042 2.4 $17.74 2,042 $17.74
$30 to $39 4,987 5.5 $35.57 4,987 $35.57
$40 to $49 5,239 8.0 $43.80 2,234 $40.67
$50 to $57 3,903 9.0 $54.22 648 $51.43
------------------------------------------------- ------------------------------
Total 16,171 6.7 $40.49 9,911 $34.08
------------------------------------------------- ------------------------------
</TABLE>
The fair value of options granted in 1997, 1996 and 1995 was estimated as of the
dates of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.5%, 6.3% and 6.8%; volatility
factors of 21%, 22% and 23%; dividend yields of 2.2%, 2.4% and 2.4%; and
expected lives of 4.8 years, 6 years and 6 years.
The value of PSAs is contingent on the achievement of performance goals and
completion of certain continuing employment requirements over a three-year
period. Each PSA earned will equal the fair market value of one share of CSX
common stock on the date of payment. At Dec. 26, 1997, there were 1,269,200
shares reserved for outstanding PSAs. In 1997, 1996 and 1995, respectively,
126,600, 110,600, and 122,200 PSAs were granted to employees. The
weighted-average fair value of those shares was $44.88 for 1997, $44.44 for 1996
and $32.56 for 1995.
At Dec. 26, 1997, there were 263,696 SARs outstanding with a weighted-average
exercise price of $16.44. In 1997 and 1996, respectively, 171,377 and 69,494
SARs were exercised at weighted-average exercise prices of $14.94 and $15.68;
there were no exercises in 1995. There were no grants of SARs in 1997, 1996 or
1995.
Stock Award Plan
Under the 1990 Stock Award Plan, all officers and employees of the company are
eligible to receive shares of CSX common stock as an incentive award and certain
key employees are eligible to receive them as a deferral award. All awards of
common stock are issued based on terms and conditions approved by the company's
board of directors. At Dec. 26, 1997, there were 1,314,890 shares reserved for
issuance under this Plan, of which 815,390 were available for new grants. In
1997, 1996 and 1995, respectively, 433,500 shares, 633,587 shares and 348,278
shares were granted under the Plan. The weighted-average fair value of those
shares was $44.69 for 1997, $45.63 for 1996 and $35.78 for 1995.
Stock Purchase and Dividend Reinvestment Plans
The 1991 Employees Stock Purchase and Dividend Reinvestment Plan provides a
method and incentive for eligible employees to purchase shares of the company's
common stock at market value by payroll deductions. To encourage stock
ownership, employees receive a 17.65% matching payment on their contributions in
the form of additional stock purchased by the company. Each matching payment of
stock is subject to a two-year holding period. Sales of stock prior to the
completion of the holding period result in forfeiture of the matching stock
purchase. Officers and key employees who qualify for the Stock Purchase and Loan
Plan are not eligible to participate in this Plan. At Dec. 26, 1997, there were
659,946 shares of common stock available for purchase under this Plan. Employees
purchased 35,593 shares in 1997; 40,985 shares in 1996 and 46,224 shares in 1995
under the plan at weighted-average market prices of $51.94, $47.39 and $40.31
for 1997, 1996 and 1995, respectively.
The company also maintains the Employees Stock Purchase and Dividend
Reinvestment Plan and the Shareholders Dividend Reinvestment Plan, adopted in
1981, under which all employees and shareholders may purchase CSX common stock
at the average of daily high and low sale prices for the five trading days
ending on the day of purchase. To encourage stock ownership, employees receive a
5% discount on all purchases under this program. At Dec. 26, 1997, there were
4,809,010 shares reserved for issuance under these Plans.
44
<PAGE>
NOTE 12. STOCK PLANS (CONTINUED).
Stock Plan for Directors
The Stock Plan for Directors, approved by the shareholders in 1992, governs in
part the manner in which directors' fees and retainers are paid. A minimum of
40% of the retainers must be paid in common stock of the company. In addition,
each director may elect to receive up to 100% of the remaining retainer and fees
in the form of common stock of the company. In 1997, shareholders approved
amendments to the Plan that would permit additional award of stock or stock
options. No stock options have been awarded under the Plan. The Plan permits
each director to elect to transfer stock into a trust that will hold the shares
until the participant's death, disability, retirement as a director, other
cessation of services as a director, or change in control of the company. At
Dec. 26, 1997, there were 929,377 shares of common stock reserved for issuance
under this Plan.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS.
Fair values of the company's financial instruments are estimated by reference to
quoted prices from market sources and financial institutions, as well as other
valuation techniques. Long-term debt is the only financial instrument of the
company with a fair value significantly different from its carrying amount. At
Dec. 26, 1997, the fair value of long-term debt, including current maturities,
was $7.03 billion, compared with a carrying amount of $6.64 billion. At Dec. 27,
1996, the fair value of long-term debt, including current maturities, was $4.56
billion, compared with a carrying amount of $4.43 billion. The fair value of
long-term debt has been estimated using discounted cash flow analyses based upon
the company's current incremental borrowing rates for similar types of financing
arrangements.
The company had no significant hedging or derivative financial instruments at
Dec. 26, 1997, or Dec. 27, 1996.
NOTE 14. EMPLOYEE BENEFIT PLANS.
Pension Plans
The company sponsors defined benefit pension plans, principally for salaried
personnel. The plans provide eligible employees with retirement benefits based
principally on years of service and compensation rates near retirement. Annual
contributions to the plans are sufficient to meet the minimum funding standards
set forth in the Employee Retirement Income Security Act of 1974, as amended.
Plan assets consist primarily of common stocks, corporate bonds and cash and
cash equivalents. Pension expense is determined based upon annual actuarial
valuations and includes the following components:
1997 1996 1995
----------------------
Service Cost $ 40 $ 37 $ 28
Interest Cost on Projected Benefit Obligation 98 93 91
Actual Return on Plan Assets (271) (89) (190)
Net Amortization and Deferral 193 18 117
Foreign Plans 3 4 4
----------------------
Pension Expense $ 63 $ 63 $ 50
----------------------
45
<PAGE>
The funded status of the plans and the amounts reflected in the accompanying
statement of financial position at year-end are:
<TABLE>
<CAPTION>
Assets Exceed Obligations Obligations Exceed Assets
(At Valuation Date) (At Valuation Date)
------------------------- -------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
-------------------- -------------------------
<S> <C> <C> <C> <C>
Benefit Obligation:
Vested Benefits $1,164 $44 $107 $1,161
Non-Vested Benefits 49 1 4 59
-------------------- -------------------------
Accumulated Benefit Obligation 1,213 45 111 1,220
Effect of Anticipated Future Salary Increases 128 1 18 105
-------------------- -------------------------
Projected Benefit Obligation 1,341 46 129 1,325
Fair Value of Plan Assets 1,371 63 -- 1,047
-------------------- -------------------------
Funded Status 30 17 (129) (278)
Unrecognized Initial Net Obligation 18 -- 2 18
Unrecognized Prior Service Cost (9) 1 9 (3)
Unrecognized Net Loss 69 6 48 257
Recognition of Minimum Liability -- -- (43) (176)
Cash Contributions, Oct. 1 through Year-End -- -- 2 2
-------------------- -------------------------
Net Pension Asset (Obligation) at Year-End $108 $24 $(111) $ (180)
-------------------- -------------------------
</TABLE>
The company experienced a significant increase in the fair value of plan assets
between the actuarial measurement dates for 1996 and 1997. Due to this increase,
plans comprising a significant portion of the company's total projected benefit
obligation experienced a change in funded status. Assets exceeded projected
benefit obligations for these plans at Sept. 30, 1997, and the company's
aggregate minimum pension liability was reduced by $133 million in 1997.
The following actuarial assumptions were used in determining net pension expense
and projected benefit obligations:
1997 1996 1995
---------------------------------
Discount Rate at Valuation Date 7.50% 7.50% 7.50%
Estimated Long-Term Rate of Salary
Increases at Valuation Date 5.00% 5.00% 5.00%
Expected Long-Term Rate of Return
on Assets During the Period 9.50% 9.50% 9.75%
---------------------------------
Savings Plans
The company maintains savings plans for virtually all full-time salaried
employees and certain employees covered by collective bargaining agreements.
Eligible employees may contribute from 1% to 15% of their annual compensation in
1% multiples to these plans. The company matches eligible employees'
contributions in an amount equal to the lesser of 50% of each participating
employee's contributions or 3% of their annual compensation. In addition, the
company contributes fixed amounts for each participating employee covered by
certain collective bargaining agreements. Expense associated with these plans
was $23 million, $23 million and $29 million for 1997, 1996 and 1995,
respectively.
Other Post-Retirement Benefit Plans
In addition to the defined benefit pension plans, the company sponsors three
plans that provide medical and life insurance benefits to most full-time
salaried employees upon their retirement. The post-retirement medical plans are
contributory, with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductibles and coinsurance. The net benefit
obligation for medical plans anticipates future cost-sharing changes consistent
with the company's expressed intent to increase retiree contribution rates
annually in line with expected medical cost inflation rates. The life insurance
plan is non-contributory.
46
<PAGE>
NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED).
The company's current policy is to fund the cost of the post-retirement medical
and life insurance benefits on a pay-as-you-go basis, as in prior years. The
amounts recorded for the combined plans in the company's statement of financial
position at Dec. 26, 1997, and Dec. 27, 1996, are as follows:
<TABLE>
<CAPTION>
Medical Life Insurance
(At Valuation Date) (At Valuation Date)
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Accumulated Post-Retirement Benefit Obligation:
Retirees $206 $214 $59 $60
Fully Eligible Active Participants 37 34 3 3
Other Active Participants 38 38 2 2
-------------------- -------------------
Accumulated Post-Retirement Benefit Obligation 281 286 64 65
Unrecognized Prior Service Cost 4 10 4 4
Unrecognized Net (Loss) Gain (31) (48) -- 1
Claim Payments, Oct. 1 through Year-End (5) (6) (2) (1)
-------------------- -------------------
Net Post-Retirement Benefit Obligation at Year-End $249 $242 $66 $69
-------------------- -------------------
</TABLE>
Net expense for post-retirement benefits was $30 million, $30 million and $27
million for 1997, 1996 and 1995, respectively. The net post-retirement benefit
obligation was determined using the assumption that the health care cost trend
rate for medical plans was 9.5% for 1997-1998, decreasing gradually to 5.5% by
2005 and remaining at that level thereafter. A 1% increase in the assumed health
care cost trend rate would increase the accumulated post-retirement benefit
obligation for medical plans as of Dec. 26, 1997, by $21 million and net
post-retirement benefit expense for 1997 by $3 million. The discount rate used
in determining the accumulated post-retirement benefit obligation was 7.50% for
1997, 1996 and 1995.
Other Plans
Under collective bargaining agreements, the company participates in a number of
union-sponsored, multiemployer benefit plans. Payments to these plans are made
as part of aggregate assessments generally based on number of employees covered,
hours worked, tonnage moved or a combination thereof. The administrators of the
multiemployer plans generally allocate funds received from participating
companies to various health and welfare benefit plans and pension plans. Current
information regarding such allocations has not been provided by the
administrators. Total contributions of $238 million, $224 million and $239
million were made to these plans in 1997, 1996 and 1995, respectively.
NOTE 15. COMMITMENTS AND CONTINGENCIES.
Lease Commitments
The company leases equipment under agreements with terms up to 21 years.
Non-cancelable, long-term leases generally include options to purchase at fair
value and to extend the terms. At Dec. 26, 1997, minimum building and equipment
rentals under non-cancelable operating leases totaled approximately $414 million
for 1998, $356 million for 1999, $304 million for 2000, $290 million for 2001,
$262 million for 2002 and $1.9 billion thereafter.
Rent expense on operating leases, including net daily rental charges on railroad
operating equipment of $239 million, $245 million and $257 million in 1997, 1996
and 1995, respectively, amounted to $1.2 billion in 1997, 1996 and 1995.
Purchase Commitments
CSXT entered into agreements during 1993, 1996 and 1997 to purchase 450
locomotives. These large orders cover normal locomotive replacement needs for
1994 through 1998 and introduced alternating current traction technology to the
locomotive fleet. CSXT has taken delivery of 50 direct current and 301
alternating-current locomotives through Dec. 26, 1997. The remaining 99
alternating-current units will be delivered in 1998.
47
<PAGE>
Contingent Liabilities
The company and its subsidiaries are contingently liable individually and
jointly with others as guarantors of long-term debt and obligations principally
relating to leased equipment, joint ventures and joint facilities. These
contingent obligations were immaterial to the company's results of operations
and financial position at Dec. 26, 1997.
In September 1997, a state court jury in New Orleans 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% of the responsibility for the
incident. CSXT's liability under that compensatory damages award is not
material.
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. CSX believes this decision means that 8,000 other cases
must be resolved before the punitive damage claims can be decided. CSXT is
pursuing an aggressive strategy on all legal fronts, and management believes
that any adverse outcome will not be material to CSX's or CSXT's overall results
of operations or financial position, although it could be material to results of
operations in a particular quarterly accounting period.
The company has been advised that activities of a former subsidiary that
administered U.S. government guaranteed student loans are under investigation.
The subsidiary was sold in 1992. The U.S. Attorney's Office has said that it may
institute proceedings against CSX based on government insurance payments made on
uncollected loans as a result of alleged processing deficiencies or errors
before the sale. While the amount of potential damages is not yet reasonably
estimable, based upon information currently available to the company, management
believes any adverse outcome will not be material to the company's results of
operations or financial position, although it could be material to results of
operations in a particular quarterly accounting period.
Although the company obtains substantial amounts of commercial insurance for
potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided by a company partially owned by
CSX.
CSXT is a party to various proceedings involving private parties and regulatory
agencies related to environmental issues. CSXT has been identified as a
potentially responsible party (PRP) at approximately 120 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 approximately 250 sites, including the sites addressed
under the Federal Superfund statute or similar state statutes, where it is
participating in the study and/or clean-up of alleged environmental
contamination. The assessment of the required response and remedial costs
associated with most sites is extremely complex. Cost estimates are based on
information available for each site, financial viability of other PRPs, where
available, and existing technology, laws and regulations. CSXT's best estimates
of the allocation method and percentage of liability when other PRPs are
involved are based on assessments by consultants, agreements among PRPs, or
determinations by the U.S. Environmental Protection Agency or other regulatory
agencies.
At least once each quarter, CSXT reviews its role, if any, with respect to each
such location, giving consideration to the nature of CSXT's alleged connection
to the location (i.e., generator, owner or operator), the extent of CSXT's
alleged connection (i.e., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is involved, CSXT
has recorded, and reviews at least quarterly for adequacy, reserves to cover
estimated contingent future environmental costs with respect to such sites. The
recorded liabilities for estimated future environmental costs at Dec. 26, 1997,
and Dec. 27, 1996, were $99 million and $117 million, respectively. These
recorded liabilities 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. 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 Dec. 26, 1997, environmental liability is expected to be paid
out over the next five to seven years, funded by cash generated from operations.
48
<PAGE>
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 and financial position.
Legal Proceedings
A number of legal actions, other than environmental, are pending against CSX and
certain subsidiaries in which claims are made in substantial amounts. While the
ultimate results of environmental investigations, lawsuits and claims involving
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 consolidated results of operations, financial position or cash flows of the
company.
NOTE 16. SUMMARIZED FINANCIAL DATA - SEA-LAND SERVICE INC.
During 1987, Sea-Land 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 Sea-Land 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). In accordance with SEC disclosure
requirements, summarized financial information for Sea-Land and its consolidated
subsidiaries is as follows:
Summary of Operations: 1997 1996 1995(b)
- --------------------------------------------------------------------------------
Operating Revenue $3,991 $4,051 $4,008
Operating Expense
- Public 3,634 3,648 3,755
- Affiliated(a) 109 122 107
-------------------------------
Operating Income $ 248 $ 281 $ 146
------------------------------
Net Earnings $ 56 $ 84 $ 86
-------------------------------
Dec. 26, Dec. 27,
Summary of Financial Position: 1997 1996
- --------------------------------------------------------------------------------
Current Assets - Public $ 652 $ 747
- Affiliated(a) 4 1
Other Assets - Public 1,880 1,829
- Affiliated(a) 40 14
Current Liabilities - Public 626 725
- Affiliated(a) 37 115
Other Liabilities - Public 687 756
- Affiliated(a) 576 347
Shareholder's Equity 650 648
-----------------------
(a) Amounts represent activity with CSX affiliated companies.
(b) Beginning in 1996, Sea-Land assumed primary responsibility for direct
purchase of transportation from non-affiliated rail carriers. These
services were previsouly purchased through a CSX-affiliated company.
Operating expense for 1995 has been restated to report this activity as
public expense.
SL Alaska Trade Company (SLATCO) is a special purpose, unconsolidated subsidiary
of Sea-Land wi th trust-related assets of $117 million securing $106 million of
debt maturing on Oct. 1, 2005. The assets of SLATCO are not available to
creditors of Sea-Land or its subsidiaries, nor are the SLATCO notes guaranteed
by Sea-Land or any of its subsidiaries.
49
<PAGE>
NOTE 17. BUSINESS SEGMENTS.
<TABLE>
<CAPTION>
Operating Revenue Operating Income
Fiscal Years Ended Fiscal Years Ended Identifiable Assets
---------------------------- ---------------------------- -------------------
Dec. 26, Dec. 27, Dec. 29, Dec. 26, Dec. 27, Dec. 29, Dec. 26, Dec. 27,
1997 1996 1995 1997 1996 1995 1997 1996
---------------------------- ---------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation $10,621 $10,536 $10,304 $1,583 $1,522 $1,126 $18,682 $16,071
---------------------------- ---------------------------- -------------------
Non-Transportation Segment $ 238 $ 220 $ 200 61 43 46 $ 1,275 $ 894
---------------------------- -------------------
Other (Net) (10) -- 72
----------------------------
Total Other Income 51 43 118
Interest Expense 451 249 270
----------------------------
Earnings Before Income Taxes $1,183 $1,316 $ 974
----------------------------
</TABLE>
The principal components of the business segments are:
Transportation - Rail, container-shipping, barge, intermodal and contract
logistics operations. The container-shipping operation reported revenue of $4.0
billion for 1997, $4.1 billion for 1996 and $4.0 billion for 1995. Approximate
revenue allocation by port of origin for 1997, 1996 and 1995 was: North America
- -- 44%; Asia -- 31%; Europe -- 18%; and Other -- 7%. Foreign business activities
outside the container-shipping operation do not contribute materially to the
company's financial results.
Non-Transportation - Real estate sales and rentals, resort management and resort
operations.
NOTE 18. QUARTERLY DATA (UNAUDITED).
<TABLE>
<CAPTION>
1997
-------------------------------------------
1st 2nd 3rd 4th
-------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue $2,567 $2,678 $2,649 $2,727
Operating Income $ 324 $ 433 $ 384 $ 442
Net Earnings $ 151 $ 227 $ 206 $ 215
Earnings Per Share $ .70 $ 1.04 $ .95 $ .98
Earnings Per Share, Assuming Dilution $ .69 $ 1.03 $ .93 $ .97
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------
1st 2nd 3rd 4th
-------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue $2,514 $2,672 $2,647 $2,703
Operating Income $ 296 $ 408 $ 392 $ 426
Net Earnings $ 146 $ 234 $ 222 $ 253
Earnings Per Share $ .69 $ 1.11 $ 1.04 $ 1.17
Earnings Per Share, Assuming Dilution $ .68 $ 1.09 $ 1.02 $ 1.15
-------------------------------------------
</TABLE>
50
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF CSX CORPORATION
We have audited the accompanying consolidated statements of financial position
of CSX Corporation and subsidiaries as of December 26, 1997 and December 27,
1996, and the related consolidated statements of earnings, cash flows, and
changes in shareholders' equity for each of the three fiscal years in the period
ended December 26, 1997. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
(appearing on pages 29-50) present fairly, in all material respects, the
consolidated financial position of CSX Corporation and subsidiaries at December
26, 1997 and December 27, 1996, and the consolidated results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 26, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
-----------------
Ernst & Young LLP
Richmond, Virginia
January 30, 1998
51
<PAGE>
Board of Directors
Elizabeth E. Bailey(2,4)
John C. Hower Professor of Public Policy and Management
The Wharton School, University of Pennsylvania, Philadelphia, Pa.
Robert L. Burrus Jr.(4,5)
Partner and Chairman
McGuire, Woods, Battle & Boothe, LLP, Richmond, Va.
Bruce C. Gottwald(4,5)
Chairman and CEO
Ethyl Corporation, Richmond, Va.
John R. Hall(3,5)
Chairman of Arch Coal Inc. and
Retired Chairman and CEO
Ashland Inc., Ashland, Ky.
Robert D. Kunisch(1,3)
Vice Chairman
Cendant Corporation, Boca Grande, Fla.
Hugh L. McColl Jr.(2,4)
CEO
NationsBank Corp., Charlotte, N.C.
James W. McGlothlin(1,5)
Chairman and CEO
The United Company, Bristol, Va.
Southwood J. Morcott(1,2,4)
Chairman and CEO
Dana Corporation, Toledo, Ohio
Charles E. Rice(1,2,3)
Former Chairman and CEO
Barnett Banks Inc., Jacksonville, Fla.
William C. Richardson(3,5)
President and CEO
W.K. Kellogg Foundation, Battle Creek, Mich.
Frank S. Royal, M.D.(2,3)
Physician and Health Care Authority, Richmond, Va.
John W. Snow(1)
Chairman, President and CEO
CSX Corporation, Richmond, Va.
Key to committees of the board
1 - Executive, 2 - Audit, 3 - Compensation, 4 - Pension,
5 - Organization & Corporate Responsibility
Corporate Officers
John W. Snow, 58*, Chairman, President and CEO -- elected February 1991
Mark G. Aron, 55*, Executive Vice President-Law and Public Affairs -- elected
April 1995(1)
Andrew B. Fogarty, 53*, Senior Vice President-Corporate Services -- elected
September 1997(2)
Paul R. Goodwin, 55*, Executive Vice President-Finance and Chief Financial
Officer -- elected April 1995(3)
Ellen M. Fitzsimmons, 37, General Counsel-Corporate -- elected September 1997
Arnold I. Havens, 50, Vice President-Federal Affairs -- elected February 1997
Thomas E. Hoppin, 56, Vice President-Corporate Communications -- elected April
1986
William F. Miller, 55, Vice President-Audit and Advisory Services -- elected
September 1996
Jesse R. Mohorovic, 55*, Vice President-Corporate Relations -- elected February
1995(4)
James P. Peter, 47, Vice President-Taxes -- elected June 1993
James L. Ross, 59*, Vice President and Controller -- elected April 1996(5)
Alan A. Rudnick, 50, Vice President-General Counsel and Corporate Secretary --
elected June 1991
Michael J. Ruehling, 50, Vice President-State Relations -- elected February 1995
James A. Searle Jr., 51, Vice President-Administration -- elected April 1996
Peter J. Shudtz, 49, Vice President-Law and General Counsel -- elected September
1997
William H. Sparrow, 54*, Vice President-Financial Planning -- elected January
1996(6)
Gregory R. Weber, 52*, Vice President and Treasurer -- elected April 1996(7)
52
<PAGE>
Unit Officers
CSX TRANSPORTATION INC.
Alvin R. (Pete) Carpenter, 56*
President and CEO since January 1992
John Q. Anderson, 46*
Executive Vice President-Sales & Marketing since May 1996(8)
Donald D. Davis, 58*
Executive Vice President-Employee Relations since January 1998(9)
Gerald L. Nichols, 62*
Vice Chairman since January 1998(10)
Carl N. Taylor, 58*
Executive Vice President-Operations since January 1998(11)
Michael J. Ward, 47*
Executive Vice President-Finance and CFO since June 1996(12)
SEA-LAND SERVICE INC.
John P. Clancey, 53*
President and CEO since August 1991
Robert J. Grassi, 51*
Senior Vice President-Finance and Planning since August 1997(13)
Richard E. Murphy, 53*
Senior Vice President-Corporate Marketing since June 1996(14)
Charles G. Raymond, 54*
Senior Vice President and Chief Transportation Officer
since May 1995(15)
CSX INTERMODAL INC.
Lester M. Passa, 43*
President and CEO since November 1997(16)
AMERICAN COMMERCIAL LINES INC.
Michael C. Hagan, 51*
President and CEO since May 1992
CUSTOMIZED TRANSPORTATION INC.
David G. Kulik, 49
President and CEO since December 1994
THE GREENBRIER
Ted J. Kleisner, 53
President and Managing Director since January 1989
YUKON PACIFIC CORPORATION
Jeff B. Lowenfels, 49
President and CEO since February 1995
CSX TECHNOLOGY
John F. Andrews, 44*
President and CEO since April 1995
and CSX Chief Information Officer -- elected November 1997(17)
* Executive officers of the corporation. Executive officers of CSX Corporation
are elected by the CSX board of directors and hold office until the next
annual election of officers. Officers of CSX business units are elected
annually by the respective boards of directors of the business units. There
are no family relationships or any arrangement or understanding between any
officer and any other person pursuant to which such officer was selected. All
of the executive officers listed have held their current positions for at
least five years except as noted below:
1) Prior to April 1995, Mr. Aron served as Senior Vice President-Law and Public
Affairs.
2) Prior to September 1997, Mr. Fogarty served as Senior Vice President-Finance
and Planning, Sea-Land, from June 1996 TO August 1997; As CSX Vice
President-Audit and Advisory Services from March 1995 TO June 1996; and prior
thereto as CSX Vice President-Executive Department.
3) Prior to April 1995, Mr. Goodwin served as an officer of CSXT as Executive
Vice President-Finance & Administration from February 1995 to April 1995; as
Senior Vice President-Finance from April 1992 to February 1995; and prior
thereto as Senior Vice President-Finance.
4) Prior to February 1995, Mr. Mohorovic served as Vice President-Corporate
Communications, CSXT, from April 1994 to February 1995, and prior thereto as
Vice President-Corporate Communications, Sea-Land.
5) Prior to April 1996, Mr. Ross served as CSX Vice President-Special Projects
from October 1995 to April 1996, and prior thereto as Audit Partner with
Ernst & Young, LLP.
6) Prior to January 1996, Mr. Sparrow served as Vice President-Capital Planning
and Budgeting from May 1994 to January 1996 and prior thereto as Vice
President and Treasurer.
7) Prior to April 1996, Mr. Weber served as Vice President, Controller and
Treasurer, from May 1994 TO April 1996, and prior thereto as Vice President
and Controller.
8) Prior to May 1996, Mr. Anderson served as Senior Vice President-Coal, Metals
and Minerals Business for Burlington Northern Santa Fe Corporation.
9) Prior to January 1998, Mr. Davis served as CSXTSenior Vice President-Employee
Relations.
10)Prior to January 1998, Mr. Nichols served as CSXT Executive Vice President
and COO from February 1995 to January 1998 and prior thereto as Senior Vice
President-Administration of CSXT.
11)Prior to January 1998, Mr. Taylor served as CSXT Senior Vice President
Transportation & Mechanical and Chief Financial Officer from July 1996 to
January 1998; Senior Vice President Engineering & Mechanical from March 1995
to July 1996; and prior thereto as Vice President Mechanical.
12)Prior to May 1996, Mr. Ward served as an officer of CSXT as Senior Vice
President-Finance from April 1995 TO May 1996; General Manager-C&O Business
unit from 1994 TO April 1995; and prior thereto as Vice President-Coal.
13)Prior to August 1997, Mr. Grassi served as Sea-Land Senior Vice
President-Atlantic, AME Services from June 1996 to August 1997 and prior
thereto as Senior Vice President-Finance and Planning.
14)Prior to June 1996, Mr. Murphy served as Sea-Land Vice
President-Atlantic-AME from 1995 to June 1996; Senior Vice President-Pacific
Services from 1993 to 1995; and prior thereto as Vice President-Pacific
Services.
15)Prior to May 1995, Mr. Raymond served as Sea-Land Senior Vice
President-Operations and Inland Transportation.
16)Prior to November 1997, Mr. Passa served as CSXT Vice President-Commercial
Integration from July 1997 to November 1997, and prior thereto as an officer
of Conrail Inc. as Senior Vice President-Automotive Service Group from
February 1997 to July 1997; as Vice President-Logistics & Corporate Strategy
from March 1995 to February 1997; as Assistant Vice President-Corporate
Strategy.
17)Prior to April 1995, Mr. Andrews served as Vice President-Systems
Development, CSX Technology.
53
<PAGE>
Shareholder Information
SHAREHOLDER SERVICES
Shareholders with questions about their accounts should contact the transfer
agent at the address or telephone number shown below. General questions about
CSX or information contained in company publications should be directed to
corporate communications at the address or telephone number shown below.
Security analysts, portfolio managers or other investment community
representatives should contact investor relations at the address or telephone
number shown below.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING
Agent Harris Trust Company
P.O. Box A3504
Chicago, IL 60690
(800) 521-5571
e-mail: [email protected]
CSX Direct Invest
Harris Trust Dividend Reinvestment Department
P. O. Box A3309
Chicago, IL 60690-3309
(800) 521-5571
e-mail: www.harrisbank.com
Shareholder Relations
Anne B. Taylor
Administrator-Shareholder Services
CSX Corporation
P.O. Box 85629
Richmond, VA 23285-5629
(804) 782-1465
e-mail: [email protected]
Corporate Communications
Elisabeth Gabrynowicz
Director-Corporate Communications
CSX Corporation
P.O. Box 85629
Richmond, VA 23285-5629
(804) 782-1406
e-mail: [email protected]
Investor Relations
Joseph C. Wilkinson
Director-Investor Relations
CSX Corporation
P.O. Box 85629
Richmond, VA 23285-5629
(804) 782-1553
e-mail: [email protected]
DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT
CSX provides dividend reinvestment and stock purchase plans for employees,
shareholders and potential shareholders as a convenient method of acquiring CSX
shares through direct purchase, dividend reinvestment and optional cash
payments.
CSXDirect Invest
CSXDirectInvestSM, a direct stock purchase and dividend reinvestment plan,
permits the purchase and sale of shares directly though our transfer agent,
Harris Trust. Through this plan, no service charges or brokerage commissions
apply to share purchases, and sales can be made with minimal charges and
commissions. Initial investment for a non-shareholder is $500 plus a $10
one-time enrollment fee.
The plan also allows for automatic reinvestment of dividends in CSX common stock
without payment of any brokerage commissions or service charges, or you may
receive dividend payments on some or all of your shares. You also may make
optional cash investments with as little as $50 per month, or up to $10,000 per
month, without any charges or commissions. Optional cash investments may be made
by mailing a check or money order to Harris, or by authorizing automatic monthly
withdrawals from your bank account. You also may make gifts of CSX shares to
others through the plan, and present them with a gift memento if desired. You do
not need to own shares of CSX stock currently to enroll in this plan.
To obtain a prospectus or other information regarding CSXDirectInvestSM, please
call or write the Harris Trust Dividend Reinvestment Department at the phone
number or address above. Or, if you prefer, you may visit our web site at
www.csx.com.
54
<PAGE>
Stock Held in Brokerage Accounts
When a broker holds your stock, it is usually registered in the broker's name,
or "street name." We do not know the identity of individual shareholders who
hold stock in this manner. We know only that a broker holds a certain number of
shares that may be for any number of customers. If your stock is in a
street-name account, you are not eligible to participate in CSXDirectInvestSM,
the company's direct stock purchase and dividend reinvestment plan. Also, you
will receive your dividend payments, annual reports and proxy materials through
your broker. You should notify your broker, not Harris Trust, if you wish to
eliminate unwanted, duplicate mailings and improve the timeliness on the
delivery of these materials and your dividend payments.
LOST OR STOLEN STOCK CERTIFICATES
If your stock certificates are lost, stolen or in some way destroyed, you should
notify Harris Trust in writing immediately.
MULTIPLE DIVIDEND CHECKS AND DUPLICATE MAILINGS
Some shareholders hold their stock on CSX records in similar but different names
(e.g. John A. Smith and J.A. Smith). When this occurs, we are required to create
separate accounts for each name. Although the mailing addresses are the same, we
are required to mail separate dividend checks to each account. Duplicate
mailings of annual reports can be eliminated if you send the labels or copies of
the labels from a CSX mailing to Harris Trust. You should mark the labels to
indicate names to be kept on the mailing list and names to be deleted. However,
this action will affect mailings of financial materials only. Dividend checks
and proxy materials will continue to be sent to each account.
CONSOLIDATING ACCOUNTS
If you want to consolidate separate accounts into one account, you should
contact Harris Trust for the necessary forms and instructions. When accounts are
consolidated, it may be necessary to reissue the stock certificates.
DIVIDENDS
CSX pays quarterly dividends on its common stock on or about the 15th of March,
June, September and December, when declared by the board of directors, to
shareholders of record approximately three weeks earlier. CSX now offers direct
deposit of dividends to shareholders who request it. If you are interested,
please contact Harris Trust at the address or phone number shown on page 54.
REPLACING DIVIDEND CHECKS
If you do not receive your dividend check within 10 business days after the
payment date or if your check is lost or destroyed, you should notify Harris
Trust so payment on the check can be stopped and a replacement issued.
ENVIRONMENTAL/SAFETY REPORT
CSX is publishing an environmental/safety report, available to shareholders at
the Annual Meeting. Shareholders may order additional copies by calling
804-783-1349 or visiting our website.
55
<PAGE>
Corporate Information
HEADQUARTERS
One James Center
901 East Cary Street
Richmond, VA 23219-4031
(804) 782-1400
http://www.csx.com
MARKET INFORMATION
CSX's common stock is listed on the New York, London and Swiss stock exchanges
and trades with unlisted privileges on the Midwest, Boston, Cincinnati, Pacific
and Philadelphia stock exchanges. The official trading symbol is "CSX."
DESCRIPTION OF COMMON AND PREFERRED STOCKS
A total of 300 million shares of common stock is authorized, of which
218,309,911 shares were outstanding as of Dec. 26, 1997. Each share is entitled
to one vote in all matters requiring a vote of shareholders. There are no
pre-emptive rights.
A total of 25 million shares of preferred stock is authorized. Series A consists
of 250,000 shares of $7 Cumulative Convertible Preferred Stock. All outstanding
shares of Series A Preferred Stock were redeemed as of July 31, 1992.
Series B consists of 3 million shares of Junior Participating Preferred Stock,
none of which has been issued. These shares will become issuable only and when
the rights distributed to holders of common stock under the Preferred Share
Rights Plan adopted by CSX on June 8, 1988, become exercisable.
Closing Price of Common
Stock at Fiscal Year-End
(Dollars)
[GRAPH]
'93 '94 '95 '96 '97
$40.94 $34.82 $45.63 $42.88 $51.13
COMMON STOCK PRICE RANGE AND DIVIDENDS PER SHARE
Fiscal Year 1997
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $52.00 $56.13 $62.44 $60.75
Low $41.25 $44.13 $53.94 $50.25
Dividends Per Share $ .26 $ .26 $ .26 $ .30
- ---------------------------------------------------------------
Fiscal Year 1996
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $48.50 $53.13 $53.00 $52.38
Low $42.25 $44.13 $42.25 $42.50
Dividends Per Share $ .26 $ .26 $ .26 $ .26
- ---------------------------------------------------------------
Fiscal Year 1995
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $39.88 $41.00 $44.63 $46.13
Low $34.63 $36.00 $37.44 $39.06
Dividends Per Share $ .22 $ .22 $ .22 $ .26
- ---------------------------------------------------------------
Fiscal Year 1994
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $46.19 $41.63 $39.57 $37.25
Low $39.94 $35.50 $33.00 $31.57
Dividends Per Share $ .22 $ .22 $ .22 $ .22
- ---------------------------------------------------------------
Fiscal Year 1993
- --------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $39.98 $39.07 $40.13 $44.07
Low $33.57 $33.19 $33.94 $37.44
Dividends Per Share $ .19 $ .19 $ .19 $ .22
- ---------------------------------------------------------------
Data for periods prior to 4th quarter 1995 have been adjusted for a 2-for-1
common stock split.
NUMBER OF REGISTERED SHAREHOLDERS
1997 1996 1995 1994 1993
- ------ ------ ------ ------ ------
52,852 55,176 55,528 57,355 59,714
SHARES OUTSTANDING AS OF JAN. 23, 1998: 218,308,863
COMMON STOCK SHAREHOLDERS AS OF JAN. 23, 1998: 52,599
56
<PAGE>
Proposed Acquisition Map
The proposed division of Conrail's rail network is along the former New York
Central/Pennsylvania systems. CSX's 42% of Conrail is centered around the New
York-to-St. Louis Water Level Route of the former New York Central.
Historically, the New York Central competed with the Pennsylvania Railroad,
which makes up much of the Norfolk Southern acquisition. Thus, the proposed
division of Conrail effectively restores rail-rail competition in the Northeast
while creating single-line service making CSXT more competitive with trucks.
[MAP]
57
<PAGE>
ANNUAL SHAREHOLDER MEETING
10 a.m., Tuesday, April 28, 1998
The Greenbrier White Sulphur Springs, W.Va.
SHAREHOLDER HOUSE PARTIES AT THE GREENBRIER
Throughout the year, The Greenbrier offers Shareholder House Parties featuring
discounted rates and special activities. Shareholder House Parties in 1998 are
scheduled for:
EASTER - APRIL 8-12
ANNUAL MEETING - APRIL 26-29
LABOR DAY - SEPT. 4-8
For information on shareholder parties, contact Maryann Sanford, Reservations
Department, The Greenbrier, 300 W. Main Street, White Sulphur Springs, WV 24986,
or phone toll-free (800) 624-6070 or e-mail to [email protected]
Again in 1998, The Greenbrier is pleased to extend to all shareholders a 10
percent discount on their Modified American Plan rates, applicable to one visit
per year. Reservations will be accepted on a space-available basis. This offer
does not apply during CSX House Parties, when rates are already discounted, or
if a shareholder is attending a conference being held at The Greenbrier.
CSX CORPORATION
One James Center
901 East Cary Street
Richmond, VA 23219-4031
(804) 782-1400
Internet address: http://www.csx.com
CSX TRANSPORTATION INC.
500 Water Street
Jacksonville, FL 32202
(904) 359-3100
Internet address: http://www.csxt.com
SEA-LAND SERVICE INC.
6000 Carnegie Blvd.
Charlotte, NC 28209
(704) 571-2000
Internet address: http://www.sealand.com
CSX INTERMODAL INC.
301 West Bay Street
Jacksonville, FL 32202
(904) 633-1000
Internet address: http://www.csxi.com
AMERICAN COMMERCIAL LINES INC.
1701 E. Market Street
Jeffersonville, IN 47130
(812) 288-0100
Internet address: http://www.aclines.com
CUSTOMIZED TRANSPORTATION INC.
10407 Centurion Parkway, N., Ste. 400
Jacksonville, FL 32256
(904) 928-1400
Internet address: http://www.cti-logistics.com
THE GREENBRIER
300 W. Main Street
White Sulphur Springs, WV 24986
(304) 536-1110
Internet address: http://www.greenbrier.com
YUKON PACIFIC CORPORATION
1049 W. 5th Avenue
Anchorage, AK 99501
(907) 265-3100
Internet address: http://www.csx.com/docs/ypc/ypc.html
CSX Corporation
58
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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, on the 18th day of
February 1998.
CSX Corporation
By: /s/ James L. Ross
-----------------
James L. Ross, Vice President
and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title
- ------------ -------------------------------------
John W. Snow Chairman of the Board, President,
Chief Executive Officer and Director
(Principal Executive Officer)*
Paul R. Goodwin Executive Vice President-Finance
(Principal Financial Officer)*
Elizabeth E. Bailey Director*
Robert L. Burrus Jr. Director*
Bruce C. Gottwald Director*
John R. Hall Director*
Robert D. Kunisch Director*
Hugh L. McColl Jr. Director*
James W. McGlothlin Director*
Southwood J. Morcott Director*
Charles E. Rice Director*
William C. Richardson Director*
Frank S. Royal, M.D. Director*
/s/ Peter J. Shudtz
- -----------------------------------
* Peter J. Shudtz, Attorney-in-Fact
February 18, 1998
59
<PAGE>
CSX CORPORATION
Statement of Differences
1. The printed Annual Report and Form 10-K contains numerous graphs and
photographs not incorporated into the electronic Form 10-K.
2. The 10-K cover sheet and index, presented on pages 49 and 50 of the printed
document, have been repositioned to the front of the electronic document.
60
<PAGE>
INDEX TO EXHIBITS
Description
(3.1) Articles of Incorporation (incorporated by reference as Exhibit 3 to
Form 10-K dated Feb. 15, 1991)
(3.2) Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K dated
March 14, 1997)
(10.1) CSX Stock Plan for Directors* (incorporated by reference to Appendix A
to Proxy Statement dated March 18, 1997)
(10.2) Special Retirement Plan for CSX Directors*
(10.3) Corporate Director Deferred Compensation Plan*
(10.4) CSX Directors' Charitable Gift Plan (incorporated by reference to
Exhibit 10.4 to Form 10-K dated March 4, 1994)
(10.5) CSX Directors' Matching Gift Plan* (incorporated by reference to
Exhibit 10.5 to Form 10-K dated March 14, 1997)
(10.6) Form of Agreement with J. W. Snow, A. R. Carpenter, J. P. Clancey,
P. R. Goodwin and G. L. Nichols* (incorporated by reference to
Exhibit 10.6 to Form 10-K dated March 3, 1995)
(10.7) Form of Amendment to Agreement with A. R. Carpenter, P. R. Goodwin and
G. L. Nichols (incorporated by reference to Exhibit 10.7 to Form 10-K
dated March 14, 1997)
(10.8) Form of Amendment to Agreement with J. P. Clancey* (incorporated by
reference to Exhibit 10.8 to Form 10-K dated March 14, 1997)
(10.9) Form of Retention Agreement with A. R. Carpenter and J. P. Clancey*
(incorporated by reference to Exhibit 10.3 to Form 10-K dated Feb. 28,
1992)
(10.10) Agreement with J. W. Snow* (incorporated by reference to Exhibit 10.9
to Form 10-K dated March 4, 1994)
(10.11) Amendment to Agreement with J. W. Snow (incorporated by reference to
Exhibit 10.11 to Form 10-K dated March 14, 1997)
(10.12) Amendment to Agreement with J. W. Snow*
(10.13) Agreement with G. L. Nichols*
(10.14) Stock Purchase and Loan Plan*
(10.15) 1987 Long-Term Performance Stock Plan*
(10.16) 1985 Deferred Compensation Program for Executives of CSX Corporation
and Affiliated Companies*
(10.17) Supplementary Savings Plan and Incentive Award Deferral Plan for
Eligible Executives of CSX Corporation and Affiliated Companies*
(10.18) Special Retirement Plan of CSX Corporation and Affiliated Companies*
(10.19) Supplemental Retirement Plan of CSX Corporation and Affiliated
Companies*
(10.20) 1994 Senior Management Incentive Compensation Plan* (incorporated by
reference to Exhibit 10.16 to Form 10-K dated March 3, 1995)
(21) Subsidiaries of the Registrant
(23.1) Consent of Ernst & Young LLP
(23.2) Consent of Price Waterhouse LLP
(27) Financial Data Schedule
(99.1) Audited Consolidated Financial Statements and Schedule of Conrail Inc.
for the Years Ended Dec. 31, 1997, 1996 and 1995
* Management Contract or Compensatory Plan or Arrangement.
61
Exhibit 10.2
SPECIAL RETIREMENT PLAN
FOR
CSX DIRECTORS
As Amended and Restated January 1, 1995
(As Amended through December 31, 1997)
1. Purpose. In order to attract and retain the services of Directors
of the highest caliber, to reward them for their services to the Company when
they cease to be active Directors, and to retain for the Company the value of
their advice and consultation, the Board of Directors adopted a special
retirement plan for Directors on April 21, 1981. The Plan, as amended November
14, 1984, is further amended and restated to provide as follows:
2. Definitions. Whenever used in the Plan, the following terms shall
have the meanings set forth below unless the context clearly requires a
different meaning:
(a) Actuary. An actuary or actuaries engaged by the Corporation in
conjunction with the Plan; provided that following a Change of Control, the
selection or retention of the actuary shall be subject to the approval of the
Benefits Trust Committee.
(b) Benefits Trust Committee. The committee established pursuant to
the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement.
(c) Board. The Company's Board of Directors.
(d) Change of Control. A "Change of Control" means any of the
following:
(i) Stock Acquisition. The acquisition by any individual,
entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")] (A "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock"), or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company; (B) any acquisition by
the Company; (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company; or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii) of this Section
2(d); or
(ii) Board Composition. Individuals who, as of the date
hereof, constitute the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to the date hereof
whose election or nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors; or
(iii) Business Combination. Approval by the shareholders of
the Company of a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company or its
principal subsidiary that is not subject, as a matter of law or contract, to
approval by the Interstate Commerce Commission or any successor agency or
regulatory body having jurisdiction over such transactions (the "Agency") (a
"Business Combination"), in each case, unless, following such Business
Combination:
(A) all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation resulting from such
Business Combination (including, without limitation,
a corporation which as a result of such transaction
owns the Company or its principal subsidiary or all
or substantially all of the assets of the Company or
its principal subsidiary either directly or through
one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be;
(B) no Person (excluding any corporation resulting
from such Business Combination or any employee
benefit plan (or related trust) of the Company or
such corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination; and
(C) at least a majority of the members of the board
of directors resulting from such Business Combination
were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the
action of the Board of Directors, providing for such
Business Combination; or
(iv) Regulated Business Combination. Approval by the
shareholders of the Company of a Business Combination that is subject, as a
matter of law or contract, to approval by the Agency (a "Regulated Business
Combination") unless such Business Combination complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 2(d); or
(v) Liquidation or Dissolution. Approval by the shareholders
of the Company of a complete liquidation or dissolution of the Company or its
principal subsidiary.
(e) Committee. The Executive Committee of the Board.
(f) Company. CSX Corporation.
(g) Director. A person duly elected or appointed to, and serving
as an active member of, the Board.
(h) Director's Fees. The basic annual retainer fee paid to an
active Outside Director for his services, plus meeting fees, special fees for
serving as Chairman of a committee, but excluding travel expenses or any other
extraordinary form of compensation.
(i) Effective Date. April 21, 1981. The effective date of the
amendment and restatement is January 1, 1995. A Participant receiving Retirement
Payments on the date of the restatement will continue to receive payments in
accordance with the terms of the Plan as restated to the extent not inconsistent
with the terms of the Plan prior to the date of the restatement.
(j) Eligible Service. The period of service with the Company or
any of its predecessor companies as an active Outside Director, measured in
years and months beginning with the day of the month in which the person first
becomes or performs services as an Outside Director and ending with the month in
which he ceases to be, or no longer performs services as, an Outside Director.
Service need not be continuous.
(k) Employee Director. A person who serves or has served as an
active Director during a period when he or she is a salaried employee of the
Company or a subsidiary company.
(l) Outside Director. A Director who, with respect to any period
of service as an active Director taken into account under the Plan, is not an
Employee Director.
(m) Participant. An Outside Director or former Outside Director
who has met or can be expected to meet the requirements for and become eligible
for Retirement Payments under the Plan as determined under Section 3. The term
includes Outside Directors who on the Effective Date of the amendment and
restatement are receiving Retirement Payments under the Plan. An Employee
Director shall not be entitled to become a Participant in the Plan with respect
to any period of service as a Director while an employee of the Company or a
predecessor company.
(n) Plan. The Special Retirement Plan for CSX Directors.
(o) Payment Date. The last day of each calendar quarter beginning
with the last day of the calendar quarter in which the Participant becomes
entitled to receive Retirement Payments and ending with the payment for the last
calendar quarter for the calendar year in which the Participant ceases to be
eligible for Retirement Payments under Section 3.
(p) Retirement Payment. An annual amount equal to 50% of the
Director's Fees paid during the Outside Director's final twelve months of
service as a Director with the Company payable in quarterly installments on each
Payment Date.
(q) Rule of 75. Any combination of age and years of Eligible
Service that totals 75 or more.
(r) Trust. The CSX Corporation and Affiliated Companies Benefits
Assurance Trust or a similar grantor trust established by the Company which will
substantially conform to the terms of the Internal Revenue Service model trust
as described in Revenue Procedure 92-64, 1992-2 D.B. 422. Except as provided in
Section 5, the Company is not obligated to make any contribution to the Trust.
(s) Valuation Date. The last day of each calendar year and such
other dates as the Committee deems necessary or appropriate to value the
Participants' benefits under this Plan.
3. Eligibility for Retirement Payments.
(a) An Outside Director who no longer serves as a Director (for
any reason other than death), whose service as a Director ended prior to April
17, 1997, and who has (i) attained the age of 68, or (ii) has met the Rule of
75, shall be deemed a Participant in the Plan and shall be entitled to receive
Retirement Payments. A Participant who ceased to serve as a Director before
attaining the age of 68 will be entitled to receive Retirement Payments when the
Participant attains the age of 68 or meets the Rule of 75, whichever event shall
first occur. In consideration of the receipt of Retirement Payments under the
Plan, a Participant agrees to be available for advice and consultation as
requested by the Board.
(b) A Participant entitled to compensation under (a) shall
receive Retirement Payments on each Payment Date as hereinafter provided. A
Participant who has completed 10 or more years of Eligible Service or has met
the Rule of 75, will be entitled to Retirement Payments for life. A Participant
who has not completed 10 years of Eligible Service and has not met the Rule of
75, will be entitled to receive Retirement Payments for a period equal to the
lesser of (i) the Participant's life and (ii) the Participant's period of
Eligible Service. A Participant's right to compensation shall terminate as of
the last day of the calendar year in which his or her death occurs, or, if the
Participant has less than 10 years of Eligible Service and has not met the Rule
of 75, as of the end of the calendar year in which falls the date that is the
anniversary of the date the Participant's last period of Eligible Service began.
(c) Any retirement payment due after the death of a Participant
shall be paid to the Participant's surviving spouse, or, if no spouse survives,
to the Participant's personal representative.
(d) The obligations of the Company or any of its affiliated
corporations and the benefit due any Participant, surviving spouse or
beneficiary hereunder shall be reduced by any amount received in regard thereto
under the Trust.
4. Funding. To the extent reflected by resolutions of the applicable
boards of directors, obligations for benefits under this Plan shall be joint and
several.
5. Change of Control.
(a) If a Change of Control has occurred, the Committee shall
cause the Company to contribute to the Trust within 7 days of such Change of
Control, a lump sum contribution equal to the greater of:
(i) the aggregate unfunded value of the amount each
Participant would be eligible to receive, under (b), below; or
(ii) the present value of accumulated Plan benefits based on
the assumptions the Company's independent actuary deems reasonable for this
purpose, as of a Valuation Date coinciding with nor next preceding the date of
Change of Control, to the extent such amounts are not already in the Trust. The
aggregate value of the amount of the lump sum to be contributed to the Trust
pursuant to this Section 4 shall be determined by the Company's independent
actuaries. Thereafter, the Company's independent actuaries shall annually
determine as of a Valuation Date for such Participant not receiving a lump sum
payment pursuant to subsection (b), below, the greater of:
(A) the amount such Participant would have received
under subsection (b) had such Participant not made
the election under subsection (c) below, if
applicable; and
(B) the present value of accumulated benefits based
on assumptions the actuary deems reasonable for this
purpose. To the extent that the value of the assets
held in the Trust relating to this Plan does not
equal the amount described in the preceding sentence,
at the time of the valuation, the Company shall make
a lump sum contribution to the Trust equal to the
difference.
In no event, however, shall the Company's contribution to the
Trust be less than the amount that would have been contributed thereto with
respect to liabilities relating to the Plan (including related administrative
and investment expense), pursuant to and at the time and in the manner provided
under Section 1(h) of the Trust.
(b) In the event a Change of Control has occurred, the trustee of
the Trust shall, within 45 days of such Change of Control, pay to each
Participant not making an election under subsection (c), a lump sum payment
equal to the present value of the Retirement Payments the Participant is
entitled to receive from the Company pursuant to the terms of the Plan assuming
when applicable for each Participant as of the date of Change of Control that
(i) the Participant will complete his current term as Director, (ii) the
Participant will survive during the period of his normal life expectancy, and
(iii) the age requirement for retirement and receipt of Retirement Payments is
the age of the Participant on the Change of Control date. Present value shall be
determined by using a discount rate equal to the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as
amended. The amount of each Participant's lump sum payment shall be determined
by the Actuary.
(c) Each Participant may elect in a time and manner determined by
the Committee, but in no event later than December 31, 1996, or the occurrence
of a Change of Control, if earlier, to have amounts and benefits determined and
payable under the terms of this Plan as if a Change of Control had not occurred.
New Participants in the Plan may elect in a time and manner determined by the
Committee, but in no event later than 90 days after becoming a Participant, to
have amounts and benefits determined and payable under the terms of the Plan as
if a Change of Control had not occurred. A Participant who has made an election,
as set forth in the two preceding sentences, may, at any time and from time to
time, change that election ; provided, however, a change of election that is
made within one year of a Change of Control shall be invalid.
(d) Each Participant who has made an election under (c), above,
may elect within 90 days following a Change of Control, in a time and manner
determined by the Benefits Trust Committee, to receive a lump sum payment
calculated under the provisions of subsection (b), above, determined as of the
Valuation Date next preceding such payment, except that such amount shall be
reduced by 5% and such reduction shall be irrevocably forfeited to the Company
by the Participant. Furthermore, as a result of such election, the Participant
shall no longer be eligible to participate or otherwise benefit under the Plan.
Payments under this subsection (d) shall be made not later than seven (7) days
following receipt by the Company of the Participant's election. The Benefits
Trust Committee shall, no later than seven (7) days after a Change of Control
has occurred, cause written notification to be given to each Participant
eligible to make an election under this subsection (d), that a Change of Control
has occurred and informing such Participant of the availability of the election.
(e)Notwithstanding the preceding, following a Change of Control, any
election by a Participant to receive his or her payment in an alternate form or
to delay his or her payment is subject to the approval of the Benefits Trust
Committee in its sole judgment and discretion.
6. Committee Powers. Prior to a Change of Control, the Committee
shall have full power and authority to interpret, construe and administer this
Plan, and all actions of the Committee under the Plan shall be binding and
conclusive on all persons for all purposes. Following a Change of Control, the
Benefits Trust Committee may remove and/or replace the Committee as the Plan's
administrator. Accordingly, following a Change of Control, any and all final
benefit determinations for Participants, their beneficiaries, heirs and assigns
and decisions regarding benefit claims under this Plan shall rest with the
Benefits Trust Committee or its delegate in its sole judgment and absolute
discretion.
7. Successors. The Plan shall be binding upon and inure to the
benefit of Participants. If the Company becomes a party to any merger,
consolidation, reorganization or in the event of a sale of substantially all the
assets of the Company, the Plan shall remain in full force and effect as an
obligation of the Company or its successor in interest.
8. Amendment and Termination. Prior to a Change of Control and upon
the recommendation of the Committee, the Board reserves the right to amend or
terminate the Plan at any time without the consent of any Participant, but no
amendment or termination shall deprive any Participant of the right to continue
to receive payment under Section 3 once payments have begun. Notwithstanding the
foregoing, if a Change of Control occurs, each Participant, regardless of age or
Eligible Service shall be eligible for benefits under the Plan, and the Plan may
not be terminated and no amendment may be made that would adversely affect the
right of any such Participant to receive Retirement Payments or Accelerated
Retirement Payments under the Plan. Following a Change of Control, this Plan may
not be amended or terminated without the approval of the Benefits Trust
Committee.
9. Construction. The Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia. The masculine pronoun
shall mean the feminine wherever appropriate. The captions inserted herein are
inserted as a matter of convenience and shall not affect the construction of the
Plan.
Exhibit 10.3
CSX CORPORATION
CORPORATE DIRECTOR DEFERRED COMPENSATION PLAN
EFFECTIVE NOVEMBER 1, 1980
As Amended and Restated Effective January 1, 1995
(As Amended through December 31, 1997)
1. Purpose
The purpose of this Plan is to permit members of the Board of
Directors of CSX Corporation to elect deferred receipt of director's fees. This
Plan is intended to constitute a deferred compensation plan for corporate
director's fees in accordance with Revenue Ruling 71-419, Cumulative Bulletin
1971-2, page 220.
2. Definitions
The following words or terms used herein shall have the
following meanings:
(a) "Administrator: -- means CSX Corporation
(i) Prior to a Change of Control, the Administrator shall
be responsible for the general administration of the Plan,
claims review, and for carrying out its provisions.
Administration of the Plan shall be carried out consistent with
the terms of the Plan.
(ii) Following a Change of Control, the Benefits Trust
Committee may remove
and/or replace the Administrator.
(iii) The Administrator shall have sole and absolute
discretion to interpret the Plan and determine eligibility for
and benefits hereunder. Decisions of the Administrator
regarding participation in and the calculation of benefits
under the Plan shall at all times be binding and conclusive on
Participants, their beneficiaries, heirs and assigns.
(iv) Notwithstanding subsection (iii) above, following a
Change of Control, final benefit determinations for
Participants, their beneficiaries, heirs and assigns and
decisions regarding benefit claims under the Plan shall rest
with the Benefits Trust Committee or its delegate in its sole
judgment and absolute discretion.
(b) "Benefits Trust Committee" -- means the committee
------------------------- established pursuant to the
CSX Corporation and Affiliated Companies Benefits
Assurance Trust document.
(c) "Board" -- means the Board of Directors of CSX
(d) "Change of Control" -- means any of the following:
(i) Stock Acquisition. The acquisition, by any individual,
entity or group [within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")](a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding
shares of common stock of the Corporation (the "Outstanding
Corporation Common Stock"), or (B) the combined voting power of
the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided,
however, that for purposes of this subsection(i), the following
acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Corporation; (B) any acquisition
by the Corporation; (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation;
or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 2(d); or
(ii) Board Composition. Individuals who, as of the date
hereof, constitute the Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board of Directors; or
(iii) Business Combination. Approval by the shareholders of
the Corporation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation or its principal subsidiary that is
not subject, as a matter of law or contract, to approval by the
Interstate Commerce Commission or any successor agency or
regulatory body having jurisdiction over such transactions (the
"Agency") (a "Business Combination"), in each case, unless,
following such Business Combination:
(A)all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of
the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Corporation
or its principal subsidiary or all or substantially all of
the assets of the Corporation or its principal subsidiary
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be;
(B)no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation
resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent that
such ownership existed prior to the Business Combination;
and
(C)at least a majority of the members of the board of
directors resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or
(iv) Regulated Business Combination. Approval by the
shareholders of the Corporation of a Business Combination that
is subject, as a matter of law or contract, to approval by the
Agency (a "Regulated Business Combination") unless such
Business Combination complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 2(d); or
(v) Liquidation or Dissolution. Approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation or its principal subsidiary.
(e) "CSX" or "Corporation" -- means CSX Corporation
(f) "CSX's Accountants" -- means the independent accountants,
actuaries, benefits consulting firm or other entity
engaged by CSX to provide Participant's accounting
services for the Plan and, if selected or changed
following a Change of Control,
approved by the Benefits Trust Committee.
(g) "Director's Fees" -- means any compensation, whether for
Board meetings or for Committee meetings or otherwise,
earned by a Member for services rendered as a Member
during a particular calendar year in which he has elected
to be a Participant
(h) "Member" -- means any person duly elected to the Board
(i) "Participant" -- means any Member who elects to participate
in the Plan
(j) "Plan" -- means Corporate Director Deferred Compensation
Plan
(k) "Secretary" -- means the Corporate Secretary of CSX
(l) "Trust" -- means the trust created under the CSX and
Affiliated Companies Benefits Assurance Trust Agreement or
a grantor trust or trusts established by CSX which will
substantially conform to the terms of the Internal Revenue
Service model trust as described in Revenue Procedure
92-64, 1992-2 C.B. 422. Except as provided in Section 10,
CSX is not obligated to make any contribution to the
Trust.
(m) "Valuation Date" -- means the last day of each calendar
quarter and such other dates as the Administrator deems
necessary or appropriate to value the Participants'
benefits under this Plan. However, following a Change of
Control, the selection of a Valuation Date other than the
last day of each calendar quarter shall be subject to the
approval of the Benefits Trust Committee.
In any instance in which the male gender is used herein, it shall
also include persons of the female gender in appropriate circumstances.
3. Merger Provisions
Any person who was a Participant under the Chessie System, Inc.
Corporate Director Deferred Compensation Plan or who was a director and had made
an election under the Seaboard Coast Line Industries, Inc. Nonfunded Deferred
Compensation Plan for Directors shall automatically become a Participant under
this Plan effective upon the merger of Chessie System, Inc. and Seaboard Coast
Line Industries, Inc. into the Corporation, provided that such a person shall be
a Member as defined in this Plan.
Director's Fees deferred previously under the terms of the
aforesaid director deferred compensation plans of Chessie System, Inc. and
Seaboard Coast Line Industries, Inc. shall remain subject to the terms and
conditions respectively provided therein, and the terms of this Plan shall only
govern as to Director's Fees earned on and after the date of merger into the
Corporation.
4. Participation
A Member may become a Participant for any calendar year by
filing a written Election to Participate in the Plan with the Secretary not
later than December 31 immediately prior to the year in which Director's Fees
are to be earned. Following a Change of Control, all Elections to Participate
are subject to the approval of the Benefits Trust Committee.
An Election to Participate may be made with respect to all or
any part of Director's Fees to be earned for any year or years to which such
Election to Participate may relate.
An Election to Participate, once filed, shall apply to
Director's Fees earned in subsequent years in which a Participant shall serve as
a Member, unless amended or revoked by written request to the Secretary.
Any person who becomes a Member and who was not a Member on the
preceding December 31 may file an Election to Participate before his term as a
Member begins.
5. Deferral of Director's Fees
CSX shall, during any year in which a Participant has an
Election to Participate on file with the Secretary, withhold and defer payment
of all or any specified part of Participant's Director's Fees in accordance with
his Election to Participate. Prior to the beginning of any year, a Participant
can elect to have all or any portion of the amounts withheld, including all
earnings thereon, or to be withheld, credited to an interest-accruing account
("Interest Account") and/or to an enhanced interest-accruing account for
calendar years 1986, 1987, 1989 and 1990 ("Enhanced Interest Account"), and/or
to a CSX Phantom Stock Account ("Stock Account"). Such deferral election can be
made or changed before the beginning of any year.
Interest shall accrue on the Interest Account from the date the
deferred Director's Fee would otherwise have been paid to the Participant until
it is actually paid, such interest to be credited to the Participant's account
and compounded quarterly at the end of each calendar quarter. The rate of
interest will be reviewed periodically, provided, however, following a Change of
Control, any change in the rate of interest is subject to the approval of the
Benefits Trust Committee.
Interest shall accrue on the Enhanced Interest Account from the
first day of the month following the deferral and shall compound thereafter at
an annual rate of 16% until all amounts are finally paid to the Participant.
Credits to the Stock Account shall be in full and fractional
units based on the closing price for CSX common stock as reported on the New
York Stock Exchange Composite Listing ("NYSE") on the date the fees would
otherwise have been paid to the Participant. Dividends shall be credited in full
and fractional units to the account based on the number of units in the account
on the record date and calculated based on the closing price for CSX common
stock on the dividend payment date.
A Participant, while a Member, may elect prior to the beginning
of any year to transfer all or any portion of amounts deferred, including all
earnings thereon, to an Enhanced Interest Account, an Interest Account and/or a
Stock Account, provided, however, that no transfer may be made out of an
Enhanced Interest Account.
6. Distribution of Deferred Director's Fees
Amounts deferred under the Plan and credited to an Interest
Account or Stock Account shall be distributed to a Participant from the
account(s) maintained in respect of his account in a lump sum at the beginning
of the year following the year in which a Participant ceases to be a Member,
unless he shall elect installments as provided below. Amounts deferred and
credited to an Enhanced Interest Account shall be distributed over an
installment period elected by the Participant.
The value of a Participant's Interest Account shall be the sum
of amounts deferred and all interest accrued thereon. The value of an Enhanced
Interest Account shall be the sum of amounts deferred and all interest accrued
thereon. The value of a Stock Account shall be the value of the units in a
Participant's account based on the closing price for CSX common stock as
reported on the NYSE on the last business day of the year in which a Participant
ceases to be a Member, unless he shall elect annual or quarterly installments as
provided below. The value of a Stock Account will fluctuate in value in line
with the fluctuation in the price of CSX common stock. There can be no assurance
on the market value of the phantom units either at the time of acquisition or at
any time during the distribution period, nor can there be any assurance as to
the continuation of dividends.
Distribution of Deferred amounts shall begin with either the
first day of the calendar year immediately following the year in which a
Participant shall cease to be a Member for any reason other than death, or the
first day of the calendar year immediately following the year in which a
Participant shall cease to be a Member and shall have attained age 65, as the
Member may elect.
If installment payments are elected for Interest or Stock
Accounts, payments shall be made, as the Participant may elect, for either (a)
five years, (b) ten years, or (c) any other designated period which shall be not
less than the period he was a Participant nor exceed ten years. For Enhanced
Interest Accounts, the Participant may elect to receive payments over (a) five
years, (b) ten years, or (c) fifteen years.
For Interest Accounts and Stock Accounts, installments shall be
on an annual or quarterly basis as the Member may elect. The amount of each
installment shall be determined by multiplying the value of the Participant's
account at the end of the calendar quarter immediately preceding the installment
date by a fraction, the numerator of which shall be one (1) and the denominator
of which shall be the number of installment payments over which payment of such
amount is to be made, less the number of installment payments theretofore made.
For Enhanced Interest Accounts, payments shall be in level
installments on a monthly basis over the number of years (five, ten, or fifteen)
as elected by the Member.
The elections provided in this Section 6 shall be made in
writing in a Participant's Election to Participate and shall be subject to all
other provisions of the Plan relating thereto and to the deferral of receipt of
Director's Fees.
In the event a Participant shall die while he is a Member, the
amount appearing as the credit balance of his account, or the value of the units
in his Stock Account, shall be paid in either a lump sum or installments
(consistent with the election made by the Participant as described in this
Section 6) to his Designated Beneficiary. Each Participant may file with the
Secretary a Designation of Beneficiary for this purpose.
In the event a Participant shall die after he ceases to be a
Member and before he has received complete distribution from his account, any
credit balance of his account, including interest, or the value of the units in
his Stock Account, shall be paid to his Designated Beneficiary consistent with
the election made by the Participant as described in this Section 6.
In the event a Participant shall not file a Designation of
Beneficiary, or his Designated Beneficiary is not living at the Participant's
death, the balance credited to his account, including interest, shall be paid in
full to his estate not later than the tenth day of the calendar year following
his date of death.
7. Death Benefit
For Participants electing to have deferred Director's Fees
credited to an Enhanced Interest Account who die while a Member, a death benefit
equal to the greater of three times the amount of Director's Fees deferred or
the amount of Director's Fees deferred plus accumulated interest will be paid to
the Member's Designated Beneficiary. For Participants in an Enhanced Interest
Account who die after ceasing to be a Member, a lump sum death benefit of
$10,000 will be paid to the Designated Beneficiary. This death benefit shall
apply only to Director's Fees deferred after December 31, 1985 and which have
been credited to an Enhanced Interest Account. This death benefit shall not
apply to any amounts credited to an Enhanced Interest Account by reason of
transfer from an Interest Account and/or a Stock Account.
In the event a Participant shall not file a Designation of
Beneficiary, or the Designated Beneficiary is not living at the Participant's
death, the death benefit shall be paid to the Participant's estate.
8. Amendment or Termination of Election to Participate
A Participant may amend or terminate his Election to
Participate by written request to the Secretary, which shall become effective
for the calendar year following the year in which his request is made; provided,
however, that no amendment shall be made to contravene the deferral of
Director's Fees previously made under the provisions of this Plan.
In the event a Participant amends or terminates his Election to
Participate and remains a Member, he shall not be entitled to receive any
distribution from his account until he ceases to be a Member, and distributions
shall be made only as provided in Section 6 of this Plan.
9. Obligation of CSX
This Plan shall be unfunded and credits to the memorandum
account(s) of each Participant shall not be set apart for him nor otherwise made
available so that he may draw upon it at any time, except as provided in this
Plan. Neither any Participant nor his Designated Beneficiary shall have any
right, title, or interest in such credits or any claim against them. Payments
may only be made at such times and in the manner expressly provided in this
Plan. CSX's contractual obligation is to make the payments when due. No notes or
security for the payment of any Participant's account shall be issued by CSX.
10. Change of Control
10.1 If a Change of Control has occurred, the Administrator
shall cause CSX to contribute to the Trust, within 7 days of such
Change of Control, a lump sum payment equal to the unfunded
aggregate value of the amount each Participant would be eligible to
receive (determined under 10.2 below) as of the latest Valuation
Date coinciding with or preceding the date of Change of Control to
the extent such amounts are not already in the Trust. The aggregate
value of the amount of the lump sum to be contributed to the Trust
pursuant to this Section 10 shall be determined by CSX's Accountants
after consultation with the entity then maintaining the Plan's
records. Thereafter, CSX's Accountants shall annually determine as
of a Valuation Date for each Participant not receiving a lump sum
payment pursuant to Section 10.2, below, the amounts which would be
payable under such subsection were a Change of Control to occur at
the date of such determination. To the extent that the value of the
assets held in the Trust relating to this Plan do not equal the
aggregate amount described in the preceding sentence, at the time of
the valuation, as determined by CSX's Accountants, CSX shall make a
lump sum contribution to the Trust equal to the difference. In no
event, however, shall the Company's contribution to the Trust be
less than the amount that would have been contributed thereto with
respect to liabilities relating to the Plan (including related
administrative and investment expenses), pursuant to and at the time
and in the manner provided under Section 1(h) of the Trust.
10.2 In the event a Change of Control has occurred, the trustee of
the Trust shall, within 45days of such Change of Control, pay to
each Participant not making an election under 10.3 below, a lump sum
payment equal to the amount the Participant would have been entitled
to receive determined under Section 6 had he ceased to be a Member
and selected an immediate lump sum payment. The amount of each
Participant's lump sum payment shall be determined by CSX's
Accountants.
10.3 Each Participant may elect in a time and manner determined
by the Administrator but in no event later than December 31, 1996,
or the occurrence of a Change of Control, if earlier, to have
amounts and benefits determined and payable under the terms of the
Plan as if a Change of Control had not occurred. New Participants in
the Plan may elect in a time and manner determined by the
Administrator, but in no event later than 90 days after becoming a
Participant, to have amounts and benefits determined and payable
under the terms of the Plan as if a Change of Control had not
occurred. A Participant who has made an election, as set forth in
the two preceding sentences, may, at any time and from time to time,
change that election; provided, however, a change of election that
is made within one year of a Change of Control shall be invalid.
10.4 Notwithstanding anything in the Plan to the contrary, each
Participant who has made an election under Section 10.3, above, may
elect within 90 days following a Change of Control, in a time and
manner determined by the Administrator, to receive a lump sum
payment calculated under the provisions of 10.3, above, determined
as of the Valuation Date next preceding such payment, except that
such calculated amount shall be reduced by 5% and such reduction
shall be irrevocably forfeited to CSX by the Participant.
Furthermore, as a result of such election, the Participant shall no
longer be eligible to participate or otherwise benefit from the
Plan. Payments under this Section 10.4 shall be made not later than
7 days following receipt by CSX of the Participant's election. The
Administrator shall, no later than 7 days after a Change of Control
has occurred, give written notification to each Participant eligible
to make an election under this Section 10.4, that a Change of
Control has occurred and informing such Participant of the
availability of the election.
11. Claims Against Participant's Account
No credits to the account of any Participant under this Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to do so shall be
void. Nor shall any credit be subject to attachment or legal process for debts
or other obligations. Nothing contained in this Plan shall give any Participant
any interest, lien, or claim against any specific asset of CSX. No Participant
or his Designated Beneficiary shall have any rights other than as a general
creditor of CSX.
12. Competition by Participant
In the event a Participant ceases to be a Member and becomes a
proprietor, officer, partner, employee, director, or otherwise becomes
affiliated with any business that is in competition with the Corporation, the
entire balance credited to his account, including interest, or the value of the
units in his Stock Account, if prior to a Change of Control, may, if directed by
the Board in its sole discretion, be paid immediately to him in a lump sum.
Following a Change of Control, such a decision by the Board is subject to the
approval of the Benefits Trust Committee.
13. Payment of Credit Balance to Participant's Account
Notwithstanding anything herein to the contrary, prior to a
Change of Control, the Board may, in its sole discretion, direct payment in a
lump sum, of any or all of the credit balance appearing at the time in the
account of a Participant, and/or of the value of the units in his Stock Account.
Following a Change of Control, such action by the Board is subject to the
approval of the Benefits Trust Committee.
Further, the obligations of CSX and the benefit due any
Participant or Designated Beneficiary under the Plan shall be reduced by any
amount received in regard thereto under the Trust or any similar trust or other
vehicle.
14. Joint and Several Obligation
To the extent reflected by resolutions of the applicable boards
of directors, obligations for benefits under this Plan shall be joint and
several.
15. Amendment or Termination
Prior to a Change of Control, this Plan may be altered,
amended, suspended, or terminated at any time by the Board, on the
recommendation of the Compensation Committee of the Board, provided, however,
that no alteration, amendment, suspension, or termination shall be made to this
Plan which would result in the distribution of amounts credited to the accounts
of all Participants in any manner other than is provided in this Plan without
the consent of all Participants.
Exhibit 10.12
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
AMENDMENT, dated this 17th day of April, 1997, by and between CSX
CORPORATION, a Virginia corporation (the "Company") and John W. Snow (the
"Executive").
WHEREAS the Company and the Executive are parties to an
Employment Agreement dated as of the first day of February, 1995 (the
"Agreement");
WHEREAS the Company and the Executive desire to amend the
Agreement to deal appropriately with the transactions contemplated by the
Agreement and Plan of Merger by and among Conrail, Inc., a Pennsylvania
corporation, Green Acquisition Corp., a Pennsylvania corporation, and the
Company dated as of October 14, 1996, as subsequently amended.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Section 2 of the Agreement is amended by adding a new
clause f. at the end thereof to read in its entirety as follows:
"f. Final Regulatory Action (as defined in Section 3.b.)
approving the merger (the "Conrail Merger") contemplated by the
Agreement and Plan of Merger by and among Conrail, Inc., a Pennsylvania
corporation, Green Acquisition Corporation, a Pennsylvania corporation,
and the Company dated as of October 14, 1996, as subsequently amended."
2. Section 5.c. of the Agreement is amended so that clause (iii)
shall read in its entirety as follows:
"other than in the case of the Conrail Merger, the
Company's requiring the Executive to be based at any office or location
other than as provided in Section 4(a) (i) (B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;"
3. Section 5.c. of the Agreement is further amended by adding a
new clause (iii) at the end of the final paragraph thereof, and such final
paragraph of Section 5.c. shall read in its entirety as follows:
"Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any reason shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement if such termination occurs (i) in the case of a Change of
Control that is not a Regulated Business Combination, during the 30-day
period immediately following the first anniversary of the Effective
Date, (ii) in the case of a Change of Control that is a Regulated
Business Combination consummated pursuant to Final Regulatory Action,
during the 30-day period immediately following the first anniversary of
the Final Regulatory Action (it being understood that the Executive will
have no rights under this paragraph in the case of a Change of Control
that is a Regulated Business Combination (x) denied by the Agency or (y)
for any other reason not consummated within one year of Final Regulatory
Action, or (iii) in the case of the Conrail Merger, during the 30-day
period immediately following the second anniversary of the Final
Regulatory Action approving the Conrail Merger."
4. The Agreement shall remain in full force and effect in all
other respects. The Executive acknowledges that this Amendment does not alter
the Executive's rights under any other plan, policy or program of the Company,
and the Conrail Merger shall not constitute a Change of Control under any such
plan, program or policy.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company as caused these presents to be executed in its name and on its
behalf, all as of the day and year first above written.
-----------------------------
John W. Snow
CSX CORPORATION
-----------------------------
By: Mark G. Aron
Executive Vice President-Law
and Public Affairs
Exhibit 10.13
June 23, 1995
Mr. G. L. Nichols
EVP and Chief Operating Officer
CSX Transportation, Inc.
Mr. Nichols:
This will confirm our understanding of the terms of a special incentive
opportunity which has been established for you.
Accomplishment of part or all of the following by December 31, 1997 will qualify
you for an award of up to 5,000 shares of CSX stock, payable in February of
1988:
1. Achievement of a Safety Frequency Index of 1.0 or better for the Operating
Department for the 1997 calendar year,
2. Achievement of a 75 percent Operating Ratio for the 1997 calendar year,
3. Reduction in customer complaints by 20% over the January- June 1995 average,
4. PIT savings of $412 million during the 1995-1997 period,
5. Substantial improvements in customer service measures, e.g., dock-to-dock
performance, Intermodal service, and Q train performance, and,
6. Accomplishment of your key MICP goals during the 1995-1997 plan years.
Payment of this special incentive will be contingent upon your continuous
employment through December 1997 and approval by John W. Snow, Chairman and CEO,
and the CSX Board of Directors. Dividends will not be paid on the 5,000 shares
until they are awarded.
Please indicate your concurrence with these terms by signing below. I look
forward to working with you to accomplish these challenging objectives.
A. R. Carpenter
Accepted: G. L. Nichols, EVP and Chief Operating Officer
----------------------------------------------
Exhibit 10.14
CSX CORPORATION
Stock Purchase and Loan Plan
As Amended and Restated February 14, 1996,
as Amended through December 10, 1997
1. Purpose
The CSX Corporation 1991 Stock Purchase and Loan Plan (the "1991 Plan")
was established to encourage and increase the ownership of the common stock of
CSX Corporation (the "Company") by those employees of the Company or a
Subsidiary who, by virtue of their responsibilities or positions, were most
likely to have the opportunity to enhance long-term performance of the Company
and shareholder value. The Company continues to believe that ownership of the
Company's common stock stimulates the efforts of those employees upon whose
judgment and interest the Company is and will be largely dependent for the
successful conduct of its business and will further the identification of those
employees' interests with those of the Company's shareholders.
Unless the 1991 Plan is extended or replaced, these benefits will
generally end July 31, 1996. Management believes it is in the best interests of
the Company's shareholders to extend the 1991 Plan in order to continue the
original objective of assuring that significant amounts of the Company's common
stock are held by employees whose interests are identified with those of the
Company's non-employee shareholders. Accordingly, the 1991 Plan is amended and
restated as of February 14, 1996 (the "Plan"), to maintain and expand this
objective.
Notwithstanding anything contained in this amended and restated Plan,
the provisions of the 1991 Plan in effect prior to the amendment and restatement
reflected herein shall continue to apply with respect to Company Stock acquired
pursuant to a Purchase Award under the 1991 Plan as to which a Participant is
not granted or does not exercise an Exchange Award.
2. Definitions and Construction
Unless the content clearly indicates to the contrary, in reading this
Plan, the singular shall include plural and the masculine shall include the
feminine.
As used in the Plan, the following terms have the indicated meanings:
(a) "Applied Dividends" means, as provided in Section 6(e),
dividends paid on pledged Company Stock used to reduce
Interest.
(b) "Board" means the Company's Board of Directors.
(c) "Business Day" means, if relevant to a determination of
the value of Company Stock, a day on which shares of
Company Stock are or could be traded on the New York Stock
Exchange.
(d) "Cause" means a Participant's: (i) act or acts of personal
dishonesty intended to result in substantial personal
enrichment at the expense of the Company or a Subsidiary;
(ii) repeated violations of the Participant's
responsibilities which are demonstrably willful and
deliberate and which are not remedied in a reasonable
period of time after receipt of written notice from the
Company or a Subsidiary; or (iii) conviction of a felony
involving moral turpitude.
(e) "Change of Control" means any of the following:
(i) Stock Acquisition. The acquisition, by any
-----------------
individual, entity or group [within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act")] (a "Person")of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"),
or (B) the combined voting power of the then
outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company; (B) any
acquisition by the Company; (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company; or (D) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 2(e);
or
(ii) Board Composition. Individuals who, as of the date
-----------------
hereof, constitute the Board of Directors (the
"Incumbent Board") cease for any reason to
constitute at least a majority of the Board of
Directors; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of the directors then
comprising the Incumbent Board shall be considered
as though such individual were a member of the
Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of
office occurs as a result of an actual or
threatened election contest with respect to the
election or removal of directors or other actual
or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board
of Directors; or
(iii) Business Combination. Approval by the
---------------------
shareholders of the Company of a reorganization,
merger, consolidation or sale or other
disposition of all or substantially all of the
assets of the Company or its principal Subsidiary
that is not subject, as a matter of law or
contract, to approval by the Surface
Transportation Board or any successor agency or
regulatory body having jurisdiction over such
transactions (the "Agency") (a "Business
Combination"), in each case, unless, following
such Business Combination:
(A) all or substantially all of the individuals
and entities who were the beneficial owners,
respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such
Business Combination beneficially own,
directly or indirectly, more than 50% of,
respectively, the then outstanding shares
of common stock and the combined voting
power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be,
of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result
of such transaction owns the Company or its
principal Subsidiary or all or substantially
all of the assets of the Company or its
principal Subsidiary either directly or
through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such
Business Combination of the Outstanding
Company Common Stock and Outstanding Company
Voting Securities, as the case may be;
(B) no Person (excluding any corporation
resulting from such Business Combination or
any employee benefit plan (or related trust)
of the Company or such corporation resulting
from such Business Combination) beneficially
owns, directly or indirectly, 20% or more
of, respectively, the then outstanding
shares of common stock of the corporation
resulting from such Business Combination
or the combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination; and
(C) at least a majority of the members of the
Board of Directors resulting from such
Business Combination were members of the
Incumbent Board at the time of the execution
of the initial agreement, or of the action
of the Board of Directors, providing for
such Business Combination; or
(iv) Regulated Business Combination. Approval by the
--------------------------------
shareholders of the Company of a Business
Combination that is subject, as a matter of law or
contract, to approval by the Agency (a "Regulated
Business Combination") unless such Business
Combination complies with clauses (A), (B) and (C)
of subsection (iii) of this Section 2(e); or
(v) Liquidation or Dissolution. Approval by the
------------------------------
shareholders of the Company of a complete
liquidation or dissolution of the Company or its
principal Subsidiary.
(f) "Commitment Date" means a date fixed by the Committee
which shall be the first day of the Commitment Period.
(g) "Commitment Period" means a period of twenty (20) Business
Days beginning with the Commitment Date during which a
Participant who has been granted a Purchase Award must
purchase all or part of the underlying Company Stock.
(h) "Committee" means the Committee of the Board appointed to
administer the Plan as provided in Section 10.
(i) "Company" means CSX Corporation.
(j) "Company Stock" means the common stock of the Company and
rights, options or warrants for the purchase of securities
of the Company which may be issued with shares of common
stock pursuant, and subject to, plans or agreements
adopted or entered into from time to time by the Company.
(k) "Disability" means the inability to perform the services
for which a Participant was employed as a result of a
physical or mental impediment entitling the Participant to
begin receiving benefits under the CSX Salary Continuation
and Long-Term Disability Plan.
(l) "Equity" means, as of any date, the Exchange Award
Purchase Price of a share of Company Stock less the
applicable portion of the unpaid balance and accrued
interest of a Purchase Loan to which such share of Company
Stock is subject.
(m) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(n) "Exchange Award" means a Purchase Award granted pursuant
to Section 4 to a Participant who received a Purchase
Award under the 1991 Plan.
(o) "Exchange Award Down Payment" means a dollar amount
computed by taking a percentage, to be determined by the
Committee, of the Exchange Award Purchase Price of the
Company's common stock on the Commitment Date multiplied
by the number of shares in the Exchange Award; provided,
however, such percentage shall not be less than 10% nor
more than 25%.
(p) "Insider" means any person subject to Section 16(b) of the
Exchange Act.
(q) "Interest" means an amount calculated using the Applicable
Federal Rate, as determined for purposes of Section
1274(d) of the IRC.
(r) "Interest Spread" means, at the time of determination,
Interest accrued on a Purchase Loan reduced by Applied
Dividends.
(s) "IRC" means the Internal Revenue Code of 1986, as amended.
(t) "Market Price" means the average of the high and the low
price of a share of Company Stock on the New York Stock
Exchange (or the average of the bid and asked prices if
there were no sales), on any Business Day as reported in
The Wall Street Journal.
(u) "Participant" means an employee of the Company or a
Subsidiary who is designated by the Committee, in its sole
discretion, as eligible for and who receives a Purchase
Award.
(v) "Purchase Award" means a right to purchase a specified
number of shares of Company Stock with Purchase Loan
rights.
(w) "Purchase Loan" means an extension of credit to a
Participant by the Company evidenced by a non-recourse
promissory note for (i) in the case of a new Purchase
Loan, 90% or 95% of the Purchase Price of the Company
Stock awarded to the Participant under the Plan, or (ii)
in the case of a Purchase Loan made pursuant to an
exchange of Company Stock pursuant to Section 4, the
Purchase Price of the Company Stock awarded to the
Participant under an Exchange Award, less his Exchange
Award Down Payment, and in either case, bearing Interest,
and secured by a pledge of all of the shares of Company
Stock purchased by the Participant.
(x) "Purchase Note" means a promissory note evidencing the
Purchase Loan for the balance of the Purchase Price
without recourse rights against the maker and with other
terms and conditions established by the Committee
consistent with the Plan.
(y) "Purchase Note Repayment Amount" means the then unpaid
balance of the Purchase Note, accrued and unpaid interest,
applicable federal and state payroll and withholding taxes
on income recognized on the transaction, and any brokerage
fees, collection fees and costs associated with the
Purchase Loan.
(z) "Purchase Price" or "Exchange Award Purchase Price" means,
with respect to a share of Company Stock, the average of
the Market Price for the five (5) consecutive Business
Days immediately preceding the Commitment Date.
(aa) "Retirement" means the termination of employment (for
reasons other than Cause) (i) at or after age 65, or (ii)
after age 55 with at least 10 years of service with the
Company and/or a Subsidiary.
(ab) "Subsidiary" means a corporation more than 50% of the
voting shares of which are owned directly or indirectly by
the Company.
3. Company Stock
There shall be an aggregate of 9,000,000 shares of Company Stock
reserved for issuance under the Plan, subject to Section 9 of the Plan
(concerning changes in the capital structure of the Company). Shares that have
been awarded under the Plan but not issued, or shares that have been issued but
are returned to the Company in conformity with the Plan (including shares of
Company Stock retained, canceled or repurchased by the Company in conjunction
with the payment of a Purchase Loan or withholding taxes), may again be awarded
under the Plan.
4. Exchange of Shares
To encourage, extend and expand the continued ownership of Company
Stock, Participants in the 1991 Plan whose Purchase Loans mature July 31, 1996,
without regard to the one-year extension provided for under Section 6(b), may be
given a one-time irrevocable election to exchange all, or a portion to be
determined by the Committee, of any shares purchased under the 1991 Plan for an
enhanced Purchase Award under the Plan (an "Exchange Award"). To the extent such
shares are exchanged they shall constitute the "Exchanged Shares." Exchange
Awards shall be issued for not more than the number of shares of common stock
determined by dividing the excess of the Exchange Award Purchase Price, as of
the Commitment Date of the Exchange Award, of the number of shares relating to a
Purchase Loan issued pursuant to the 1991 Plan over the outstanding amount due
on the Purchase Loan on such date by 25% of the Exchange Award Purchase Price of
the Company's common stock on such date. In the case of a Participant who
exercises an Exchange Award, his 1991 Purchase Notes shall be canceled.
5. Stock Purchase Awards
On or as soon as practicable after a Commitment Date, the Committee
shall give notice to each Participant (or to the class of Participants) eligible
for an award stating (i) the number of shares of Company Stock covered by each
such Purchase Award or a formula for determining the number of shares of Company
Stock covered by each such Purchase Award, and (ii) the price, other terms and
conditions, if any, pertaining to each such Purchase Award and Purchase Loan
that must be satisfied by a Participant in order to exercise the Purchase Award.
A Participant shall exercise a Purchase Award and Purchase Loan rights
by delivering to the Company during the Commitment Period (i) a notice stating
the amount of his down payment (which shall be 5% or 10% of the Purchase Price
or his Exchange Award Down Payment in the case of an Exchange Award) and his
intention to deliver a Purchase Note for the balance of the Purchase Price, and
(ii) where applicable, the down payment (which shall be deemed paid in the case
of an Exchange Award) and a Purchase Note.
The grant of a Purchase Award and Purchase Loan to a Participant shall
not obligate the Company or a Subsidiary of the Company to pay the Participant
any particular amount of remuneration, to continue the employment of a
Participant after the grant or to make further grants to a Participant at any
time thereafter.
6. Purchase Loans
The Company shall, subject to paragraph (a) below, upon the Committee's
recommendation, extend a Purchase Loan to a Participant upon exercise of a
Purchase Award subject to the following terms and conditions:
(a) The original principal amount of a new Purchase Loan shall
be the difference between the Participant's down payment
(which shall be 5% or 10% of the Purchase Price) and the
Purchase Price. In the case of an Exchange Award, the
Purchase Loan shall be the difference between the
Participant's Exchange Award Down Payment and the Exchange
Award Purchase Price. The down payment for a new Purchase
Loan shall be in cash, or, if authorized by the Committee
(i) by delivery of shares of Company Stock having a Market
Price equal to the required down payment on date of transfer
to the Company, or (ii) by delivery to the Company of a
promissory note with terms and conditions fixed by the
Committee and with full recourse rights against the maker.
The Exchange Award Down Payment shall be deemed to have been
paid by the Equity in a Participant's Exchanged Shares
subject to a Purchase Loan under the 1991 Plan.
(b) The Purchase Loan shall be due and payable as provided in
the provisions of the Purchase Note executed by the
Participant. The term of the Purchase Note shall not exceed
a period of five (5) years; provided, however, the
Participant, in his discretion, may extend the Purchase Note
for one (1) year; provided, further, that the Committee,
may, in its discretion, extend a Purchase Note for up to two
(2) years. In no event may the Purchase Note term, including
extensions, exceed seven (7) years.
(c) Purchase Notes shall be in the form approved by the
Committee and shall contain such terms and conditions, not
inconsistent with the Plan, as the Committee shall determine
in its sole discretion; provided, that each Purchase Note
shall be subject to the terms of the Plan.
(d) A Participant shall effect a pledge of all shares of Company
Stock acquired by the Participant upon the exercise of the
Purchase Award by delivering to the Company (i) the
certificate or certificates for the acquired shares of
Company Stock, accompanied by a duly executed stock power in
blank, and (ii) a properly executed stock pledge agreement
in the form approved by the Committee.
(e) Dividends paid on shares of Company Stock pledged as
security for a Purchase Loan shall be first treated as
Applied Dividends and then applied to repay the Purchase
Note. At the discretion of the Committee, the Company shall
also pay (i) dividend equivalents on the number of shares
purchased pursuant to a Purchase Note equal to the number of
shares representing the Participant's Equity in the
Exchanged Shares, and (ii) only after all interest and
Purchase Price reductions are realized under Section 6(g),
dividend equivalents on the number of shares purchased
pursuant to a Purchase Note in excess of the number of
shares in (i), above, if any.
(f) Within ten (10) Business Days after the maturity date of a
Purchase Loan, or on the date or dates, if installments are
elected pursuant to Section 7(c), as of which a Participant
elects to prepay a Purchase Loan and Purchase Note in
accordance with Section 7, the Participant shall repay in
full the Purchase Note Repayment Amount or the portion
related to an installment under Section 7(c). If not fully
paid when due, the Participant agrees to sell his pledged
Company Stock to the Company at the Market Price on the
maturity date if a Business Day (or at the Market Price on
the Business Day immediately preceding the maturity date if
the maturity date is not a Business Day). The Company may
sell on the Participant's behalf on the open market (except
as hereinafter provided) the number of shares of Company
Stock pledged as collateral necessary to repay the Purchase
Note Repayment Amount. If, pursuant to procedures
established by the Company for compliance with applicable
securities laws, the Company believes that the purchase of
pledged shares by the Company in repayment of a Purchase
Note, or the sale by the Company of pledged shares of
Company Stock on the open market to repay a Purchase Note,
would violate any provision of applicable securities laws or
cause a Participant to incur a liability under Section 16(b)
of the Exchange Act, the maturity date may be extended by
the Committee until the first day the purchase by the
Company of the pledged shares or a sale of the pledged
shares on the open market can be made without violating such
securities laws or the Participant incurring liability under
Section 16(b). If, pursuant to procedures established by the
Company for compliance with applicable tax laws, the Company
believes that the repayment of a Purchase Note, the purchase
of the pledged shares in repayment of a Purchase Note, or
the sale by the Company of pledged shares of Company Stock
on the open market to repay a Purchase Note would cause any
portion of a Participant's compensation under the Plan to be
nondeductible under Section 162(m) of the IRC, the maturity
date may be extended by the Committee until the first day
the repayment of a Purchase Note, the purchase of the
pledged shares in repayment of a Purchase Note, or the sale
by the Company of pledged shares of Company Stock on the
open market to repay a Purchase Note can be made without
such compensation being non-deductible under Section 162(m)
of the IRC, but in no event shall such extension of the
maturity date be for a period greater than one (1) year.
(g) The Purchase Price of one half of the pledged shares of
Company Stock shall be adjusted as follows if at any time
after the first anniversary date of a Purchase Note the
Market Price of Company Stock equals or exceeds the Purchase
Price of the Participant's Company Stock by the amount
specified below for a period of ten (10) consecutive
Business Days:
Stock Price Purchase Price Reductions
----------- -------------------------
Purchase Price + 20% 10%
Purchase Price + 30% 20%
Purchase Price + 40% 30%
Purchase Price + 50% 40%
Purchase Price + 60% 50%
Purchase Price + 70% 60%
Purchase Price + 80% 70%
Purchase Price + 90% 80%
Purchase Price + 100% 100%
The principal amount of a Participant's Purchase Loan and
Purchase Note, plus accrued and unpaid Interest, as
well as any accrued and unpaid Interest on a down
payment loan referenced in Section 6(a) shall be
adjusted pursuant to Section 2.5 of the Stock Purchase
Pledge and Loan Agreement. The amount of such
adjustment to the principal amount of a Participant's
Purchase Loan and Purchase Note shall equal the amount
of the Purchase Price adjustment provided above. The
provisions of this Section and any applicable
adjustments to Interest and a Purchase Note shall be
applied at the time of repayment of a Purchase Note.
Decreases in the Market Price of Company Stock
subsequent to the completion of a measuring period
shall be disregarded for purposes of the adjustments
authorized by this Section.
(h) In the event of a change in capital structure involving any
of the pledged shares of Company Stock, as provided in
Section 9, such newly acquired shares shall be pledged to
the Company as substitute or additional security.
(i) Notwithstanding anything in this Section 6 to the contrary,
the Company shall not be required to make a Purchase Loan to
a Participant if making such Purchase Loan will (i) cause
the Company to violate any covenant or other similar
provision in any indenture, loan agreement, or other
agreement, or (ii) violate any applicable federal, state or
local law.
(j) Upon issuance by the Company of Company Stock purchased
pursuant to a Purchase Award, the affected Participant shall
be deemed a shareholder of the Company and (subject to the
terms of the Plan, the Purchase Loan, the Purchase Note and
related documents) shall be entitled to dividend and voting
rights with respect to the Company Stock purchased.
7. Termination of Employment; Change of Control; Prepayment of Purchase
Loan
If before a Purchase Note is repaid a Participant's employment
terminates for any reason, or he is no longer employed by a continuing
Subsidiary, or a Change of Control occurs, the following provisions shall apply
notwithstanding any terms in the Purchase Note to the contrary:
(a) Death or Disability. If a Participant's termination of employment
-------------------
results from death or Disability, the affected Participant (or
the Participant's estate or personal representative) may either
(i) continue to hold the Purchase Note and participate in the
Plan for three years (or, if earlier, until the maturity date of
the Purchase Loan, as extended by either the Participant or the
Committee, pursuant to Section 6(b)), or (ii) within ninety (90)
days of said termination of employment (A) elect to prepay the
Purchase Note, or (B) elect to rescind the Exchange Award or the
Purchase Award, as the case may be. If the Participant elects to
prepay the Purchase Note under (ii)(A), the Purchase Note shall
become due and payable on the prepayment date elected by the
Participant. If an election to prepay the Purchase Note is
effective prior to the first anniversary of the execution of the
Purchase Note, Section 6(g) shall not apply; if it is effective
on or after the first anniversary of its execution, Section 6(g)
shall apply. If the Participant elects to rescind the Exchange
Award or the Purchase Award under (ii)(B), the shares of Company
Stock acquired by the Participant upon the exercise of the
Exchange Award or Purchase Award shall be transferred to the
Company, the Purchase Note shall be canceled, the Participant
shall have no further rights under the Plan, and the Company
shall have no further obligations to the Participant, except that
the Company shall pay to or with respect to the Participant, in
consideration for the cancellation of the Participant's rights
under the Exchange Award or Purchase Award, an amount equal to
his Exchange Award Down Payment, as adjusted under Section 7(h),
or, if applicable, the Purchase Award down payment paid to the
Company pursuant to Section 6(a).
(b) Involuntary Termination With Consent of Company. If a
--------------------------------------------------------
Participant's employer terminates his employment for reasons
other than Cause, the affected Participant may, within
ninety (90) days of said termination of employment (i)
elect to prepay the Purchase Note, or (ii) elect to rescind
the Exchange Award or the Purchase Award, as the case may be. If
the Participant elects to prepay the Purchase Note under (i), the
Purchase Note shall become due and payable on the prepayment date
elected by the Participant. If the Participant elects to rescind
the Exchange Award or the Purchase Award under (ii), the shares
of Company Stock acquired by the Participant upon the exercise of
the Exchange Award or Purchase Award shall be transferred to the
Company, the Purchase Note shall be canceled, the Participant
shall have no further rights under the Plan, and the Company
shall have no further obligations to the Participant, except that
the Company shall pay to or with respect to the Participant, in
consideration for the cancellation of the Participant's rights
under the Exchange Award or Purchase Award, an amount equal to
his Exchange Award Down Payment, as adjusted under Section 7(h),
or, if applicable, the Purchase Award down payment paid to the
Company pursuant to Section 6(a). If the Participant's
termination of employment is prior to the first anniversary of
the execution of the Purchase Note, Section 6(g) shall not apply;
if it is on or after the first anniversary of the execution of
the Purchase Note, Section 6(g) shall apply.
(c) Retirement. If a Participant's termination of employment
----------
results from his Retirement, the affected Participant may
either (i) continue to hold the Purchase Note and participate
in the Plan for three (3) years (or, if earlier, until the
maturity date of the Purchase Loan, as extended by either the
Participant, or the Committee, pursuant to Section 6(b)), (ii)
prepay the Purchase Note within ninety (90) days of said
termination of employment, or (iii) repay the Purchase Note in no
more than three (3) installments, due over the remaining term of
the Purchase Note, including extensions. If a Participant elects
to prepay a Purchase Note, the Participant agrees to sell the
pledged Company Stock to the Company for the Market Price on the
date of prepayment. If an election to prepay the Purchase Note
under (ii) or (iii) above is effective prior to the first
anniversary of the execution of the Purchase Note, Section 6(g)
shall not apply; if it is effective on or after the first
anniversary of its execution, Section 6(g) shall apply.
(d) Voluntary Termination with Consent of Company or Involuntary
-----------------------------------------------------------------
Termination. If the Participant's termination of employment is
-----------
voluntary and with the consent of the Company, or, if his
employer terminates his employment for reasons other than
Cause and the Company does not consent to the Participant's
termination being treated under Section 7(b), the maturity
date of the Purchase Note shall be accelerated without further
action of the Committee or the Company and shall be required
to be prepaid within ninety (90) days of said termination of
employment, and the Participant agrees to sell the pledged
Company Stock to the Company for the Market Price on the date
of prepayment. If a Participant's termination of employment is
prior to the first anniversary of the execution of the Purchase
Note, Section 6(g) shall not apply; if it is on or after the
first anniversary of the execution of the Purchase Note,
Section 6(g) shall apply.
(e) Termination for Cause or Voluntary Termination Without Consent
-----------------------------------------------------------------
of Company. If the Participant's termination of employment is
----------
involuntary for Cause or a voluntary termination without
the consent of the Company, the maturity date of the
Purchase Note shall be accelerated without further action of the
Committee or the Company to the date of his termination of
employment. In such case, Section 6(g) shall not apply and the
Participant agrees to sell the pledged Company Stock to the
Company for the lesser of (i) the Market Price on the date of
termination of employment, or (ii) an amount equal to his
Exchange Award Down Payment, as adjusted by Section 7(h), or, if
applicable, the Purchase Award down payment paid to the Company
pursuant to Section 6(a) (in any event, less all related taxes
and expenses), and the Company shall have the right to retain any
excess over such amount and the shares' Market Price.
(f) Divisive Transaction. If the Participant's employer ceases to be
--------------------
a Subsidiary or if there is a sale of substantially all
of the assets of the Subsidiary, the affected Participant
may, within ninety (90) days of the closing of such
divisive transaction (i) elect to prepay the Purchase Note, or
(ii) elect to rescind the Exchange Award or the Purchase Award,
as the case may be. If the Participant elects to prepay the
Purchase Note under (i), the Purchase Note shall become due and
payable on the prepayment date elected by the Participant. If the
Participant elects to rescind the Exchange Award or the Purchase
Award under (ii), the shares of Company Stock acquired by the
Participant upon the exercise of the Exchange Award or Purchase
Award shall be transferred to the Company, the Purchase Note
shall be canceled, the Participant shall have no further rights
under the Plan, and the Company shall have no further obligations
to the Participant, except that the Company shall pay to or with
respect to the Participant, in consideration for the cancellation
of the Participant's rights under the Exchange Award or Purchase
Award, an amount equal to his Exchange Award Down Payment, as
adjusted under Section 7(h), or, if applicable, the Purchase
Award down payment paid to the Company pursuant to Section 6(a).
Section 6(g) shall apply to all Participants affected by a
divisive transaction. The foregoing shall apply whether or not
the Participant continues in the employ of the Subsidiary but
shall not apply should the Participant continue in the employ of
the Company or another Subsidiary not part of the divisive
transaction.
(g) Change of Control. If a Change of Control occurs, Sections 7(a)
----------------- through (f) shall no longer be applicable, the
Interest and Purchase Price Reductions under Section 6(g) shall
be applied as if the Stock Price had increased by 100% and the
Participant may either (i) continue to hold the Purchase Note and
participate in the Plan until the maturity date of the Purchase
Note, including any extensions, or (ii) within ninety (90) days
of said Change of Control and, if applicable, within ninety (90)
days of a final Agency action in a Regulated Business Combination
under Section 2(e)(iv), (A) elect to prepay the Purchase Note, or
(B) elect to rescind the Exchange Award or the Purchase Award, as
the case may be. If the Participant elects to prepay the Purchase
Note under (ii)(A), the Purchase Note shall become due and
payable on the prepayment date elected by the Participant, and
the provisions of Section 6(g) shall apply. If the Participant
elects to rescind the Exchange Award or the Purchase Award under
(ii)(B), the shares of Company Stock acquired by the Participant
upon the exercise of the Exchange Award or Purchase Award shall
be transferred to the Company, the Purchase Note shall be
canceled, the Participant shall have no further rights under the
Plan, and the Company shall have no further obligations to the
Participant, except that the Company shall pay to or with respect
to the Participant, in consideration for the cancellation of the
Participant's rights under the Exchange Award or Purchase Award,
an amount equal to his Exchange Award Down Payment, as adjusted
under Section 7(h), or, if applicable, the Purchase Award down
payment paid to the Company pursuant to Section 6(a).
(h) Adjustment of Exchange Award Down Payment. Solely for purposes of
------------------------------------------ determining the amount
available to a Participant under this Section 7, a Participant's
Exchange Award Down Payment shall be adjusted as follows: the
dollar amount of the Exchange Award Down Payment computed as of
the date of the Exchange of Shares pursuant to Section 4 shall be
divided by the Market Price on the date of such Exchange of
Shares, to arrive at a number of equivalent shares. On the
Purchase Loan maturity date or prepayment date applicable under
this Section 7, the number of equivalent shares determined in the
preceding sentence will be multiplied by the Market Price on such
date to arrive at the Participant's Exchange Award Down Payment
as adjusted.
(i) Certain Terms of Purchase Awards or Exchange Awards.
----------------------------------------------------------------
Notwithstanding any provision of this Plan to the contrary,
in the discretion of the Committee, a Purchase Award and/or
Exchange Award may provide, to the extent deemed appropriate
by the Committee to eliminate or reduce the applicability or
impact of Sections 280G and/or 4999 of the IRC, for: (i) the
cancellation of shares and/or a reduction or increase in the
amount of a Purchase Note, (ii) a limitation of the reduction
of the Purchase Price pursuant to Section 7(g) above, (iii) the
elimination of any acceleration of a Purchase Note or right to
prepay such Note, or (iv) a reduction or limitation of any other
benefit under this Plan or otherwise to a Participant.
8. Non-transferability of Purchase Awards
Except as provided in Section 7(a), neither right of Participation nor
Purchase Awards are assignable or transferable.
9. Change in Capital Structure
If the number of outstanding shares of Company Stock is increased or
decreased as a result of a subdivision or consolidation of shares, the payment
of a stock dividend, stock split, or any other change in capitalization effected
without receipt of consideration by the Company (including, but not limited to,
the creation or issuance to the shareholders generally of rights, options or
warrants for the purchase of common or preferred stock of the Company), or if a
spin-off transaction occurs, then the number and kind of shares of stock or
securities of the Company to be subject to the Plan, the maximum number of
shares or securities which may be delivered under the Plan, and other relevant
provisions shall be appropriately adjusted by the Committee, whose determination
shall be binding and conclusive on all persons.
If there is a Change of Control, the Committee may take such actions,
not inconsistent with the Plan, with respect to outstanding unexercised Purchase
Awards as the Committee deems appropriate.
Notwithstanding anything in the Plan to the contrary, the Committee may
take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
10. Administration of the Plan
The Plan shall be administered by the Committee, consisting of not less
than three Directors of the Company appointed by the Board. Subject to paragraph
(d) below, the Committee shall be the Compensation Committee of the Board or
such subcommittee appointed by the Compensation Committee consisting of not
fewer than two non-employee directors. The Committee shall at all times consist
of outside directors within the meaning of Section 162(m) of the IRC. The
Committee shall have general authority to impose any limitation or condition
upon a Purchase Award the Committee deems appropriate to achieve the objectives
of the Purchase Award and the Plan, and in addition, and without limitation and
in addition to powers set forth elsewhere in the Plan, shall have the following
specific authority:
(a) The Committee shall have the power and complete discretion to
determine (i) which employees of the Company or a Subsidiary
shall be Participants, (ii)which Participants shall receive a
Purchase Award with Purchase Loan rights, (iii) the number of
shares of Company Stock to be covered by each Purchase Award,
(iv) the Market Price of Company Stock,(v) the time or times when
a Purchase Award shall be granted, (vi) whether a Disability
exists, (vii) the manner in which payment will be made upon the
exercise of a Purchase Award, (viii) the number of shares of
Company Stock required to be pledged at any given time, and to
make appropriate adjustments and (ix) any additional requirements
relating to Purchase Awards that the Committee deems appropriate.
(b) The Committee may adopt rules and regulations for carrying out
the Plan and for the sale or other disposition of Company Stock
acquired pursuant to the Plan. The interpretation and
construction of any provision of the Plan by the Committee shall
be final and conclusive. The Committee may consult with counsel,
who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the
advice of counsel.
(c) A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a
majority of the members present. Any action may be taken by a
written instrument signed by all of the members, and any action
so taken shall be fully effective as if it had been taken at a
meeting.
(d) The Board may from time to time appoint or remove members and
fill vacancies, however caused, in the Committee. Insofar as it
is necessary to satisfy the requirements of Section 16(b) of the
Exchange Act and Rule 16b-3 thereunder, no member of the
Committee shall be eligible to participate in the Plan or in any
other plan of the Company or a Subsidiary that entitles
participants to acquire stock, stock options or stock
appreciation rights of the Company or a Subsidiary, and no person
shall become a member of the Committee if, within the preceding
one-year period, the person shall have been eligible to
participate in such a plan.
(e) Down payment loans under the 1991 Plan shall be extended on a
full recourse basis for up to seven (7) years in the case of any
Participant who receives and exercises an Exchange Award. To the
extent that a Purchase Note is extended, accelerated or prepaid
under the terms of the Plan, said extension, acceleration or
prepayment shall also apply to the down payment loan.
11. Effective Date of the Plan
The 1991 Plan became effective as of December 12, 1990. This amendment
and restatement of the 1991 Plan shall be effective as of February 14, 1996, and
shall be submitted to the shareholders of the Company for approval. Until (i)
the Plan has been approved by the Company's shareholders, (ii) the Company Stock
issuable under the Plan has been registered with the Securities and Exchange
Commission, (iii) the Company Stock is accepted for listing on the New York
Stock Exchange, and (iv) the requirements of any applicable state securities
laws have been met, no Purchase Award shall be granted or Purchase Loan
authorized by the Committee.
12. Termination, Modification
If not sooner amended or terminated by the Board, this Plan shall
terminate at the close of business on February 13, 2006. No Purchase Awards
shall be made under this Plan after termination. The Board may terminate the
Plan or may amend the Plan in such respects as it shall deem advisable;
provided, however, that, if necessary to satisfy the requirements of Section
16(b) of the Exchange Act, the New York Stock Exchange or applicable state law,
the shareholders of the Company must approve any amendment that would (i)
materially increase the benefits accruing to Participants under the Plan, (ii)
materially increase the number of shares of Company Stock that may be issued
under the Plan, or (iii) materially modify the Plan's eligibility requirements.
A termination or amendment of the Plan shall not, without the consent of the
affected Participant, adversely impact a Participant's rights under a Purchase
Award previously granted to him.
13. Notice
All notices and other communications required or permitted to be given
under this Plan shall be in writing and shall be deemed to have been duly given
if delivered personally or mailed first class, postage prepaid, as follows: (i)
if to the Company--at its principal business address to the attention of the
Secretary; (ii) if to any Participant--at the last address of the Participant
known to the sender at the time the notice or other communication is sent.
14. Governing Law
The terms of this Plan shall be governed by the laws of the Commonwealth
of Virginia.
Exhibit 10.15
CSX CORPORATION
1987 Long-Term Performance Stock Plan
As Amended and Restated Effective April 25, 1996
(As Amended through December 31, 1997)
1. Purpose
The purpose of the CSX Corporation Long-Term Performance Stock Plan (the
"Plan") is to attract and retain outstanding individuals as officers and key
employees of CSX Corporation and its subsidiaries, to furnish motivation for the
achievement of long-term performance objectives by providing such persons
opportunities to acquire ownership of common shares of the Company, monetary
payments based on the value of such shares or the financial performance of the
Company, or both, on terms as herein provided. It is intended that the
Incentives provided under this Plan will be treated as qualified
performance-based compensation within the meaning of Section 162(m) of the Code.
2. Definitions
Whenever the following words are capitalized and used in the Plan, they
shall have the respective meanings set forth below, unless a different meaning
is expressly provided. Unless the context clearly indicates to the contrary, in
reading this document the singular shall include the plural and the masculine
shall include the feminine.
a. "Beneficiary": The term Beneficiary shall mean the person designated by
the Participant, on a form provided by the Company, to exercise the
Participant's rights in accordance with Section 14 of the Plan in the event of
his death.
b. "Benefits Trust Committee": The term Benefits Trust Committee means the
committee established pursuant to the CSX Corporation and Affiliated Companies
Benefits Assurance Trust.
c. "Board of Directors": The term Board of Directors or Board means the
Board of Directors of CSX Corporation.
d. "Cause": The term Cause means (i) an act or acts of personal dishonesty
of a Participant intended to result in substantial personal enrichment of the
Participant at the expense of the Company or any of its subsidiaries, (ii)
violation of the management responsibilities by the Participant which is
demonstrably willful and deliberate on the Participant's part and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company or a subsidiary, or (iii) the conviction of the Participant of a felony
involving moral turpitude.
e. "Change in Control": The term Change in Control is defined in Section
22.
f. "Code": The term Code means the Internal Revenue Code of 1986, as
amended.
g. "Committee": The term Committee means the Compensation Committee of the
Board of Directors.
h. "Company": The term Company means CSX Corporation.
i. "Completed Month": The term Completed Month shall mean a period
beginning on the monthly anniversary date of a grant of an Incentive and ending
on the day before the next monthly anniversary.
j. "Covered Employee": The term Covered Employee shall mean the chief
executive officer of the Company or any other individual who is among the four
(4) highest compensated officers or who is otherwise a "covered employee" within
the meaning of Section 162(m) of the Code, as determined by the Committee.
k. "Disability": The term Disability means long-term disability as
determined under the Company's Salary Continuance and Long-Term Disability Plan.
l. "Divisive Transaction": The term Divisive Transaction means a
transaction in which the Participant's employer ceases to be a Subsidiary or
there is a sale of substantially all of the assets of the Subsidiary.
m. "Exchange Act": The term Exchange Act means the Securities Exchange Act
of 1934, as amended.
n. "Exercisability Requirements": The term Exercisability Requirements used
with respect to any grant of options means such restrictions or conditions on
the exercise of such options that the Committee may, in its discretion, add to
the one-year holding requirement contained in Sections 7 and 8.
o. "Fair Market Value": The term Fair Market Value shall be deemed to be
the mean between the highest and lowest quoted selling prices of the stock per
share as reported under New York Stock Exchange-Composite Transactions on the
day of reference to any event to which the term is pertinent, or, if there is no
sale that day, on the last previous day on which any such sale occurred.
p. "Functional Group": The term Functional Group means a group of
employees, identified by the Compensation Committee, in its sole discretion, to
be subject to a common set of Performance Objectives.
q. "Incentive": The term Incentive means any incentive under the Plan
described in Section 6.
r. "Objective Standard": The term Objective Standard means a formula or
standard by which a third party, having knowledge of the relevant performance
results, could calculate the amount to be paid to a Participant. Such formula or
standard shall specify the individual employees or class of employees to which
it applies, and shall preclude discretion to increase the amount payable that
would otherwise be due upon attainment of the objective.
s. "Participant": The term Participant means an individual designated by
the Committee as a Participant pursuant to Section 5.
t. "Performance Objective": The term Performance Objective shall mean a
performance objective established in writing by the Committee within ninety (90)
days of the commencement of the Performance Period to which the Performance
Objective relates and at a time when the outcome of such objective is
substantially uncertain. Each Performance Objective shall be established in such
a way that a third party having knowledge of the relevant facts could determine
whether the objective is met. A Performance Objective may be based on one or
more business criteria that apply to the individual Participant, a business unit
or the Company as a whole, and shall state, in terms of an Objective Standard,
the method of computing the amount payable to the Participant if the Performance
Objective is attained. With respect to Incentives granted to Covered Employees,
the material terms of the Performance Objective shall be disclosed to, and must
be subsequently approved by, a vote of the shareholders of the Company,
consistent with the requirements of Section 162(m) of the Code and the
regulations thereunder. The Performance Objectives for any Performance Period
shall be based on one or more of the following measures, as determined by the
Committee in writing within ninety (90) days of the commencement of the
Performance Period:
1. The achievement by the Company or business unit of specific levels
of Return on Invested Capital ("ROIC"). ROIC for the Company or
business unit means its results of operations divided by its
capital.
2. The generation by the Company or business unit of free cash flow.
3. The creation by the Company or business unit of specific levels of
Economic Value Added ("EVA"). EVA for the Company or business unit
means its ROIC less its cost of capital multiplied by its capital.
4. The creation by the Company of specific levels of Total
Shareholder Return ("TSR"). TSR for the Company means total return
to shareholders as measured by stock price appreciation plus
dividends.
u. "Performance Period": The term Performance Period means a fixed period
of time, established by the Committee, during which a Participant performs
service for the Company and during which Performance Objectives may be achieved.
v. "Plan": The term Plan means this CSX Corporation 1987 Long-Term
Performance Stock Plan as amended or restated from time to time.
w. "Retirement": The term Retirement means termination of employment with
immediate commencement of retirement benefits under the Company's defined
benefit pension plan.
x. "Separation From Employment": The term Separation From Employment means
an employee's separation from employment with the Company or a Subsidiary as a
result of Retirement, death, Disability, or termination of employment
(voluntarily or involuntarily). A Participant in receipt of periodic severance
payments shall be considered separated from employment on the day preceding the
day such severance payments commenced.
y. "Subsidiary": The term Subsidiary means, with respect to any
corporation, or corporation more than 50% of whose voting shares are owned
directly or indirectly by the Company.
z. "Trust": The term Trust means the CSX Corporation and Affiliated
Companies Executives' Stock Trust or such other trust or trusts which
substantially conforms to the terms of the Internal Revenue Service model trust
as described in Revenue Procedure 92-64, 1992-2 C.B. 422.
3. Number of Shares
Subject to the provisions of Section 19 of this Plan, the maximum number
of shares which may be issued pursuant to the Incentives shall be 16,000,000
shares of the Company's common stock, par value $1.00 per share. Such shares
shall be authorized and unissued shares of the Company's common stock. Subject
to the provisions of Section 19, if any Incentive granted under the Plan shall
terminate or expire for any reason without having been exercised in full, the
unissued shares subject thereto shall again be available for the purposes of the
Plan. Similarly, shares which have been issued, but which the Company retains or
which the Participant tenders to the Company in satisfaction of income and
payroll tax withholding obligations or in satisfaction of the exercise price of
any option shall remain authorized and shall again be available for the purposes
of the Plan, provided, however, that any such previously issued shares shall not
be the subject of any grant under the Plan to any officer of the Company who, at
the time of such grant, is subject to the short-swing trading provisions of
Section 16 of the Exchange Act.
4. Administration
a. Prior to a Change of Control, the Plan shall be administered by the
Committee. The Committee shall consist of three or more members of the Board of
Directors. No member of the Committee shall be eligible to receive any
Incentives under the Plan while a member of the Committee. A majority of the
Committee shall constitute a quorum. The Committee shall recommend to the Board
individuals to receive Incentives, including the type and amount thereof, unless
the Board shall have delegated to the Committee the authority and power to
select persons to whom Incentives may be granted, to establish the type and
amount thereof, and to make such grants.
Subject to the express provisions of the Plan, the Committee shall have
authority to construe any agreements entered into with any person in respect of
any Incentive or Incentives, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of any
such agreements and to make all other determinations necessary or advisable for
administering the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any agreement under
the Plan in the manner and to the extent it shall deem expedient to carry it
into effect, and it shall be the sole and final judge of such expedience. Any
determination of the Committee under the Plan may be made without notice of
meeting of the Committee by a writing signed by a majority of the Committee
members. The determinations of the Committee on the matters referred to in this
Section 4 shall be conclusive.
b. Following a Change of Control, the Benefits Trust Committee may remove
and/or replace the Committee as the Plan Administrator. Additionally, following
a Change of Control, any and all final benefit determinations for Participants,
their beneficiaries, heirs and assigns and decisions regarding benefit claims
under this Plan shall rest with the Benefits Trust Committee or its delegate in
its sole judgment and absolute discretion.
5. Eligibility and Participation
Incentives may be granted only to officers and key employees of the
Company and of its Subsidiaries at the time of such grant as the Committee in
its sole discretion may designate from time to time to receive an Incentive or
Incentives. An officer or key employee who is so designated shall become a
Participant. A director of the Company or of a Subsidiary who is not also an
officer or employee of the Company or of such Subsidiary will not be eligible to
receive an Incentive.
The Committee's designation of an individual to receive an Incentive at
any time shall not require the Committee to designate such person to receive an
Incentive at any other time. The Committee shall consider such factors as it
deems pertinent in selecting Participants and in determining the type and amount
of their respective Incentives, including without limitation (a) the financial
condition of the Company, (b) anticipated financial results for the current or
future years, including return on invested capital, (c) the contribution by the
Participant to the profitability and development of the Company through
achievement of established strategic objectives, and (d) other compensation
provided to Participants.
6. Incentives
Incentives may be granted in any one or a combination of (a) Incentive
Stock Options; (b) Non-Qualified Stock Options; (c) Stock Appreciation Rights;
(d) Performance Shares; (e) Performance Units; (f) Restricted Stock; and (g)
Incentive Compensation Program Shares, all as described below and pursuant to
the terms set forth in Sections 7-12 hereof. With respect to Items (a)-(c), the
maximum number of shares of common stock of the Company with respect to which
these Incentives may be granted in any Plan Year to any Participant will be
750,000. With respect to Items (d)-(f), the maximum number of shares of common
stock of the Company with respect to which these Incentives may be granted
during any Plan Year to any Participant will be 150,000.
7. Incentive Stock Options
Incentive Stock Options (ISOs) will consist of options to purchase shares
of the Company's common stock at purchase prices not less than 100 percent of
the Fair Market Value of such common stock on the date of grant. ISOs will be
exercisable upon the date or dates specified in an option agreement entered into
with a Participant but not earlier than one year after the date of grant of the
options and not later than 10 years after the date of grant of the options;
provided, however, that whether or not the one-year holding requirement is
satisfied, any Exercisability Requirements must be satisfied. For options
granted after December 31, 1986, the aggregate Fair Market Value, determined at
the date of grant, of shares for which ISOs are exercisable for the first time
by a Participant during any calendar year shall not exceed $100,000.
Notwithstanding the provisions of Section 5 of this Plan, no individual
will be eligible for or granted an ISO if that individual owns stock of the
Company possessing more than 10 percent of the total combined voting power of
all classes of the stock of the Company or its Subsidiaries.
Any Participant who is an option holder may exercise his option to
purchase stock in whole or in part upon the date or dates specified in the
option agreement offered to him. In no case may an option be exercised for a
fraction of a share. Except as set forth in this Section 7, Section 12 and in
Sections 14 through 16, no option holder may exercise an option unless at the
time of exercise he has been in the continuous employ of the Company or one of
its Subsidiaries since the grant of such option. An option holder under this
Plan shall have no rights as a shareholder with respect to any shares subject to
such option until such shares have been issued.
For purposes of this Section 7, written notice of exercise must be
received by the Corporate Secretary of the Company not less than one year nor
more than 10 years after the option is granted. Such notice must state the
number of shares being exercised and must be accompanied by payment of the full
purchase price of such shares. Payment for the shares for which an option is
exercised may be made by (1) a personal check or money order payable to CSX
Corporation; (2) a tender by the employee (in accordance with procedures
established by the Company) of shares of the Company's common stock having a
Fair Market Value on the date of tender equaling the purchase price of the
shares for which the option is being exercised; or (3) any combination of (1)
and (2).
8. Non-Qualified Stock Options
Non-Qualified Stock Options (NQSOs) will consist of options to purchase
shares of the Company's common stock at purchase prices not less than 100
percent of the Fair Market Value of such common stock on the date of grant.
NQSOs will be exercisable upon the date or dates specified in an option
agreement entered into with a Participant but not earlier than one year after
the date of grant of the options and not later than 10 years after the date of
grant of the options; provided, however, that whether or not the one-year
holding requirement is satisfied, any Exercisability Requirements must be
satisfied.
Any Participant may exercise an option to purchase stock upon the date or
dates specified in the option agreement offered to him. In no case may an option
be exercised for a fraction of a share. Except as set forth in this Section 8
and in Sections 12 through 15, no option holder may exercise an option unless at
the time of exercise he has been in the continuous employ of the Company or one
of its Subsidiaries since the grant of his option. An option holder under this
Plan shall have no rights as a shareholder with respect to any shares subject to
such option until such shares have been issued.
For purposes of this Section 8, written notice of exercise must be
received by the Corporate Secretary of the Company, not earlier than one year
nor later than 10 years after the option is granted. Such notice must state the
number of shares being exercised and must be accompanied by payment of the full
purchase price of such shares. Payment for the shares for which an option is
exercised may be made by (1) a personal check or money order payable to CSX
Corporation; (2) a tender by the employee (in accordance with procedures
established by the Company) of shares of the Company's common stock having a
Fair Market Value on the date of tender equaling the purchase price of the
shares for which the option is being exercised; (3) the delivery of a properly
executed exercise notice, together with irrevocable instructions to a broker to
promptly deliver to the Company either sale proceeds of shares sold to pay the
purchase price or the amount loaned by the broker to pay the purchase price; or
(4) any combination of (1), (2) and (3).
9. Stock Appreciation Rights
Any option granted under the Plan may include a stock appreciation right
(SAR) by which the participant may surrender to the Company all or a portion of
the option to the extent exercisable at the time of surrender and receive in
exchange a payment equal to the excess of the Fair Market Value of the shares
covered by the option portion surrendered over the aggregate option price of
such shares. Such payment shall be made in shares of Company common stock, in
cash, or partly in shares and partly in cash, as the Committee in its sole
discretion shall determine, but in no event shall the number of shares of common
stock delivered upon a surrender exceed the number the option holder could then
purchase upon exercise of the option. Such rights may be granted by the
Committee concurrently with the option or thereafter by amendment upon such
terms and conditions as the Committee may determine.
The Committee may also grant, in addition to, or in lieu of options to
purchase stock, SARs which will entitle the Participant to receive a payment
upon surrender of that right, or portion of that right in accordance with the
provisions of the Plan, equaling the difference between the Fair Market Value of
a stated number of shares of Company common stock on the date of the grant and
the Fair Market Value of a comparable number of shares of Company common stock
on the day of surrender, adjusted for stock dividends declared between the time
of the grant of the SAR and its surrender. The Committee shall have the right to
limit the amount of appreciation with respect to any or all of the SARs granted.
Payment made upon the exercise of the SARs may be in cash or shares of Company
common stock, or partly in shares and partly in cash, as the Committee in its
sole discretion shall determine.
For purposes of this Section 9, written notice must be received by the
Corporate Secretary of the Company not earlier than one year nor later than 10
years after the SAR is granted. Such notice must state the number of SARs being
surrendered and the method of settlement desired within the guidelines
established from time to time by the Committee. The SAR holder will receive
settlement based on the Fair Market Value on the day the written request is
received by the Corporate Secretary of the Company.
In certain situations as determined by the Committee, for purposes of this
Section 9, written notice must be received by the Corporate Secretary of the
Company between the third and twelfth business days after the public release of
the Company's quarterly earnings report, or between such other, different period
as may hereinafter be established by the Securities and Exchange Commission. For
such settlements, a Participant subject to a restricted exercise period shall
receive settlement based on the highest Fair Market Value during the period
described in the foregoing sentence.
The Committee may not grant an SAR or other rights under this Section 9 in
connection with an incentive stock option if such grant would cause the option
or the Plan not to qualify under Section 422 of the Code or if it is prohibited
by such section or Treasury regulations issued thereunder. Any grant of an SAR
or other rights which would disqualify either the option as an ISO or the Plan,
or which is prohibited by Section 422 of the Code or Treasury regulations issued
thereunder, is and will be considered as void and vesting no rights in the
grantee. It is a condition for eligibility for the benefits of the option and of
the Plan that the Participant agree that in the event an SAR or other right
granted should be determined to be void as provided by the foregoing, the
Participant has no right or cause of action against the Company.
10. Performance Unit Awards and Performance Share Awards.
The Committee may grant Performance Unit Awards (PUAs) and Performance
Share Awards (PSAs) under which payment shall be made in shares of the Company's
common stock, in cash, or partly in shares and partly in cash, as the Committee
in its sole discretion shall determine. PUAs and PSAs may be awarded to
individual Participants or to a Functional Group. Awards to a Functional Group
shall be subject to distribution by the Chief Executive Officer of the Company,
or by his designees, to individuals within such group. At the time of the grant,
the Committee shall establish in writing and communicate to Participants, and to
members of a Functional Group who can be identified, Performance Objectives to
be achieved during the Performance Period. Awards of PUAs and PSAs may be
determined by the average level of attainment of Performance Objectives over
multiple Performance Periods.
Prior to the payment of PUAs and PSAs, the Committee shall determine the
extent to which Performance Objectives have been attained during the Performance
Period or Performance Periods in order to determine the level of payment to be
made, if any, and shall record such results in the minutes of the meeting of the
Committee. In no instance will payment be made if the Performance Objectives are
not attained.
Payment, if any, shall be made in a lump sum or in installments, in cash
or shares of Company common stock, as determined by the Committee, commencing as
promptly as feasible following the end of the Performance Period, except that
(a) payments to be made in cash may be deferred subject to such terms and
conditions as may be prescribed by the Company, and (b) payments to be made in
Company common stock may be deferred pursuant to an election filed on forms
prescribed and provided by and filed with the Company. A Participant may elect
annually to defer to a date certain, or the occurrence of an event, as provided
in the form, the receipt of all or any part of shares of Company common stock he
may subsequently become entitled to receive. On forms provided by and filed with
the Company, the Participant shall also specify whether, when the deferral
period expires or when the restrictions below lapse, payment will be in a lump
sum or installments over a period not exceeding twenty (20) years. The Committee
shall prescribe the time periods during which the election must be filed in
order to be effective. Elections to defer, once effective, are irrevocable.
Changes regarding the date of payment, the period over which payments are to be
made and the method of payment are subject to substantial penalties. However, a
One-Time Change of Distribution Election may be made to change the timing or the
form of payment without penalty. Any such election which changes a distribution
election on "termination of employment" or "the earlier of termination or a
specified age" shall be void in the event the Participant's employment
terminates within twelve (12) months following the date of the election.
If a Participant has made an effective election to defer the payment of
shares of common stock, the Company shall, within a reasonable period of time
after the deferral election is made, transfer shares of common stock or other
assets equal in value to the number of shares as to which payment is deferred to
the Trust to secure the Company's obligation to pay shares of common stock to
the Participant in the future. However, in any event, the Company shall make any
previously deferred payment of shares to the Participant upon:
a. the death of the Participant;
b. the Disability of the Participant;
c. the Participant's termination of employment with the Company or a
subsidiary of the Company, subject to the Participant's deferral
election;
d. A Divisive Transaction, subject to the Participant's deferral election;
or
e. a Change in Control.
Notwithstanding a Participant's election to defer the payment of shares of
common stock pursuant to this Section 10, the Company shall make cash payments
to Participants following each common stock dividend payment date equal to the
dividends payable on the number of shares of Company common stock credited to
the Participant's account as of the dividend record date (including shares for
which an election to defer has been made and any reinvested dividends thereon).
A Participant may elect to defer receipt of the cash payments pursuant to
election forms prescribed and provided by and filed with the Company. Such
deferred cash payments shall be credited to the Participant's account and
reinvested in shares of Company common stock as of the dividend payment date. An
election to defer, once effective, shall be irrevocable for the calendar year,
and shall continue in effect with respect to subsequent calendar years until
changed by a timely filed new election.
Any dividends paid on shares of Company common stock held in the Trust
shall be paid to the Trust and shall be reinvested in shares of Company common
stock, or other assets equal in value, to secure the Company's obligation to pay
shares of common stock to Participants in the future.
11. Restricted Stock
A Restricted Stock Award (RSA) shall entitle the Participant, subject to
his continued employment during the restriction period determined by the
Committee and his complete satisfaction of any other conditions, restrictions
and limitations imposed in accordance with the Plan, to the unconditional
ownership of the shares of the Company's common stock covered by the grant
without payment therefore.
The Committee may grant RSAs at any time or from time to time to a
Participant selected by the Committee in its sole discretion. The Committee
shall establish at the time of grant of each RSA a Performance Period and
Performance Objectives to be achieved during the Performance Period.
At the time of grant, the Performance Period and Performance Objectives
shall be set forth either in agreements or in guidelines communicated to the
Participant in such form consistent with this Plan as the Committee shall
approve from time to time.
Following the conclusion of each Performance Period and prior to payment,
the Committee shall determine the extent to which Performance Objectives have
been attained or a degree of achievement between maximum and minimum Performance
Objectives during the Performance Period in order to determine the level of
payment to be made, if any, and shall record such results in the minutes of the
meeting of the Committee. In no instance will payment be made if the Performance
Objectives are not attained.
At the time that an RSA is granted, the Committee shall establish in the
written agreement a restriction period applicable to all shares covered by such
grant. Subject to the provisions of the next following paragraph, the
Participant shall have all of the rights of a stockholder of record with respect
to the shares covered by the grant to receive dividends or other distributions
in respect of such shares (provided, however, that any shares of stock of the
Company distributed with respect to such shares shall be subject to all of the
restrictions applicable to such shares) and to vote such shares on all matters
submitted to the stockholders of the Company, but such shares shall not be sold,
exchanged, pledged, hypothecated or otherwise disposed of at any time prior to
the expiration of the restriction period, including by operation of law, and any
purported disposition, including by operation of law, shall result in automatic
forfeiture of any such shares.
Except as hereinafter provided, if, during the restriction period
applicable to such grant, a Separation From Employment of a Participant occurs
for any reason other than death, Disability or Retirement, all shares covered by
such grant shall be forfeited to the Company automatically. If the Participant's
Separation From Employment is because of Retirement or death, or in the event of
Disability, the Participant or his successor in interest shall be entitled to
unconditional ownership of a fraction of the total number of shares covered by
such grant of which the numerator is the number of whole calendar months in the
period commencing with the first whole calendar month following the date of
grant and ending with the whole calendar month including the date of death,
Disability or Retirement, and of which the denominator is the number of whole
calendar months in the applicable restriction period. Any fractional shares
shall be disregarded.
The Committee may, at the time of granting any RSA, impose such other
conditions, restrictions or limitations upon the rights of the Participants
during the restriction period or upon the Participant's right to acquire
unconditional ownership of shares as the Committee may, in its discretion,
determine and set forth in the written agreement.
At the time of grant of an RSA, the Company shall cause to be issued and
registered in the name of the Participant a stock certificate representing the
full number of shares covered thereby, which certificate shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such grant, and the grantee shall execute and deliver to the
Company a stock power endorsed in blank covering such shares. Such stock
certificate and stock power shall be held by the Company or its designee until
the expiration of the restriction period, at which time the same shall be
delivered to the Participant or his designee if all of the conditions and
restrictions of the grant have been satisfied, or until the forfeiture of such
shares, at which time the same shall be cancelled and the shares shall be
returned to the status of unissued shares.
12. Incentive Compensation Program Shares
A Participant who receives base compensation in excess of a dollar level
to be determined by the Committee and who is eligible to receive an award under
the Company's Incentive Compensation Program ("ICP") may elect, by filing the
prescribed election form with the Company in accordance with rules established
by the Committee, to receive all or part of his annual ICP award in shares of
the Company's common stock, rather than cash; provided, however, the Participant
must agree that his receipt of the stock will be deferred until his retirement
or termination of employment, with a minimum deferral period of three (3) years.
Elections to defer are irrevocable. A Participant who makes such election shall,
at the time that the stock is deferred, receive an additional award of stock
equal to a percentage, established by the Committee from time to time, of the
amount that he elected to have deferred, but not to exceed 25% (the "Stock
Premium"). The Participant's election to defer shall also apply to the Stock
Premium.
If a Participant made an effective election to defer the payment of shares
of common stock and receive the Stock Premium, the Company shall, within a
reasonable period of time after the deferral election is made, transfer shares
of common stock or other assets equal in value to the number of shares as to
which payment is deferred to the Trust to secure the Company's obligation to pay
shares of common stock to the Participant in the future. However, in any event,
the Company shall make any previously deferred payment of shares to the
Participant upon:
a. the death of the Participant;
b. the Disability of the Participant;
c. the Participant's termination of employment with the Company or a
subsidiary of the Company, subject to the Participant's deferral
election and the three (3) year deferral requirement;
d. a Divisive Transaction, subject to the Participant's deferral
election; or
e. a Change in Control.
Notwithstanding any provisions of this Plan to the contrary, upon the
occurrence of a Divisive Transaction, the three (3) year holding requirement of
the stock premium for deferred ICP shares shall be deemed satisfied.
Notwithstanding a Participant's election to defer the payment of shares of
common stock pursuant to this Section 12, the Company shall make cash payments
to Participants following each common stock dividend payment date equal to the
dividends payable on the number of shares of Company common stock credited to
the Participant's account as of the dividend record date (including shares for
which an election to defer has been made and any reinvested dividends thereon).
A Participant may elect to defer receipt of the cash payments pursuant to
election forms prescribed and provided by and filed with the Company. Such
deferred cash payments shall be credited to the Participant's account and
reinvested in shares of Company common stock as of the dividend payment date. An
election to defer, once effective, shall be irrevocable for the calendar year,
and shall continue in effect with respect to subsequent calendar years until
changed by a timely filed new election.
13. Contributions to the Trust
a. The Company shall make contributions to the Trust to secure a source of
future payments with respect to Participant's deferral elections pursuant to
Sections 10 and 12. The Trustee shall be responsible only for contributions
actually received by it hereunder and the Trustee shall have no duty or
responsibility with respect to the timing, amounts and sufficiency of the
contributions made or to be made by the Company hereunder.
b. The Company may make contributions to the Trust in Common Stock.
c. A separate bookkeeping account (an "Account") shall be established by
the Trustee for each Participant covered by the Trust pursuant to the Plan, as
directed in writing by the Company. A Participant may have more than one
Account. Each account is intended to represent the amount of a Participant's
deferred and unpaid benefit under the related provisions of the Plan. The value
of a Participant's Account at any time will equal the fair market value of the
number of shares of Common Stock owed to a Participant under the affected
provisions of this Plan at such time. The number of shares owed at any time will
equal the number of shares of Common Stock which were originally deferred by the
Participant (including any applicable Stock Premium), plus, the number of Common
Stock Shares which would have been acquired if dividends subsequently declared
by the Company had been paid with respect to such shares and reinvested in
Common Stock. "Account" may also mean individual sub-accounts which have been or
may be established under this Plan from time to time.
d. Within sixty days following the close of each calendar year, or more
frequently or at such other time as may be required by the Trust Agreement, the
Trustee shall provide the Company and each Participant with a written statement
of the Account of each Participant.
14. Separation From Employment and Divisive Transactions
If the Participant's Separation From Employment is because of Disability
or death, the right of the Participant or his successor in interest to exercise
an ISO, NQSO or SAR shall terminate not later than five years after the date of
such Disability or death, but in no event later than 10 years from the date of
grant; provided, however, that if such Participant is eligible to retire with
the ability to begin immediately receiving retirement benefits under the
Company's pension plan, his or his successor in interest's right to exercise any
ISOs, NQSOs or SARs shall be determined as if his Separation From Employment was
because of Retirement.
If the Participant's Separation From Employment is because of his
Retirement, the right of the Participant or his successor in interest to
exercise an ISO, NQSO or SAR shall terminate not later than 10 years from the
date of grant.
Unless the Committee deems it necessary in individual cases (except with
respect to Covered Employees) to extend a Participant's exercise period, if a
Participant's Separation From Employment is for any reason other than
Retirement, Disability or death, the right of the Participant to exercise an
ISO, NQSO or SAR shall terminate not later than one year from the date of
Separation From Employment, but in no event later than 10 years after the date
of grant.
At the time of his Separation From Employment for any reason other than
Cause, a Participant shall vest in a portion of any Incentives granted under
Sections 7 (ISOs), 8 (NQSOs) or 9 (SARs) that he has held for less than one year
from the date of the grant. The portion of such Incentives in which the
Participants shall vest shall be determined by multiplying all shares subject to
such Incentives by a fraction, the numerator of which shall be the number of
Completed Months of employment following the date of grant and the denominator
of which shall be twelve.
A Participant who vests in any Incentives under the preceding paragraph
may not exercise such Incentives prior to the satisfaction of the one-year
holding requirement and the Exercisability Requirements pertaining to such
Incentives. Any Incentives vested under the preceding paragraph must be
exercised within one year from the date of the Participant's Separation From
Employment.
If the Participant's employer is a Subsidiary involved in a Divisive
Transaction, the right of the Participant or his successor in interest to
exercise an ISO, NQSO or SAR shall terminate not less than three years after the
date of the closing of such Divisive Transaction, but in no event later than 10
years from the date of grant; provided, however, that if such Participant is
eligible to retire with the ability to begin immediately receiving retirement
benefits under the Company's pension plan, his or his successor in interest's
right to exercise any ISO, NQSO' or SAR' shall be determined as if he had
retired. Notwithstanding anything to the contrary in this paragraph, a
Participant may not exercise such Incentives prior to satisfaction of the one
year holding requirement and the Exercisability Requirements pertaining to such
Incentives.
As to PUAs or PSAs, in the event of a Participant's Separation from
Employment because of his Retirement, Disability or death prior to the end of
the applicable Performance Period, or if the Participant's employer is a
Subsidiary involved in a Divisive Transaction prior to the end of the applicable
Performance Period, payment, if any, to the extent earned under the applicable
Performance Objectives and awarded by the Committee, shall be payable at the end
of the Performance Period in proportion to the active service of the Participant
during the Performance Period, as determined by the Committee. If the Separation
From Employment prior to the end of the Performance Period is for any other
reason, the Participant's participation in Section 10 of the Plan shall
immediately terminate, his agreement shall become void and the PUA or PSA shall
be canceled.
Notwithstanding anything to the contrary in this Plan, if a Participant or
former Participant (a) becomes the owner, director or employee of a competitor
of the Company or its subsidiaries, (b) has his employment terminated by the
Company or one of its subsidiaries on account of actions by the Participant
which are detrimental to the interests of the Company or its subsidiaries, or
(c) engages in conduct subsequent to the termination of his employment with the
Company or its subsidiaries which the Committee determines to be detrimental to
the interests of the Company or its subsidiaries then the Committee may, in its
sole discretion, pay the Participant or former Participant a single sum payment
equal to the amount of his unpaid benefits which were awarded and deferred under
Sections 10 or 12 of the Plan; provided, however, if the deferral has been for
less than three (3) years under Section 12, the Participant shall not be
eligible to receive the Stock Premium. The single sum payment shall be made as
soon as practicable following the date the Participant or former Participant
becomes an owner, director or employee of a competitor, his termination of
employment or the Committee's determination of detrimental conduct, as the case
may be, and shall be in lieu of all other benefits which may be payable to the
Participant or former Participant under this Plan.
15. Incentives Non-assignable and Non-transferable
Any Incentive granted under this Plan shall be non-assignable and
non-transferable other than as provided in Section 16 and shall be exercisable
(including any action of surrender and exercise of rights under Section 9)
during the Participant's lifetime only by the Participant who is the holder of
the Incentive or by his guardian or legal representative.
16. Death of Option Holder
In the event of the death of a Participant who is an Incentive holder
under the Plan while employed by the Company or one of its subsidiaries or prior
to exercise of all rights under an Incentive, the Incentive theretofore granted
may be exercised (including any action of surrender and exercise of rights under
Section 9) by the Participant's Beneficiary or, if no Beneficiary is designated,
by the executor or executrix of the Participant's estate or by the person or
persons to whom rights under the Incentive shall pass by will or the laws of
descent and distribution in accordance with the provisions of the Plan and of
the option and to the same extent as though the Participant were then living.
17. No Right to Continued Employment
Notwithstanding any other provisions of this Plan to the contrary, it is a
condition for eligibility for any benefit or right under this Plan that each
individual agrees that his or her designation as a Participant and any grant
made under the Plan may be rescinded and determined to be void and forfeited
entirely in the absolute and sole discretion of the Committee in the event that
such individual is discharged for Cause.
Incentives granted under the Plan shall not be affected by any change of
employment so long as the Incentive holder has not suffered a Separation From
Employment. A leave of absence granted by the Company or one of its subsidiaries
shall not constitute Separation From Employment unless so determined by the
Committee. Nothing in the Plan or in any Incentive granted pursuant to the Plan
shall confer on any individual any right to continue in the employ of the
Company or one of its subsidiaries or interfere in any way with the right of the
Company or such subsidiary to terminate employment at any time.
18. Funding Method
To the extent reflected by resolutions of the applicable boards of
directors, obligations for benefits under this Plan shall be joint and several.
19. Adjustment of Shares
a. In the event of any change (through recapitalization, merger,
consolidation, stock dividend, split-up, combination or exchanges of shares or
otherwise) in the character or amount of the Company's common stock prior to
exercise of any Incentive granted under this Plan, the Incentives, to the extent
not exercised, shall entitle the Participant who is the holder to such number
and kind of securities as he would have been entitled to had he actually owned
the stock subject to the Incentives at the time of the occurrence of such
change. If any such event should occur, prior to exercise of an Incentive
granted hereunder, which shall increase or decrease the amount of common stock
outstanding and which the Committee, in its sole discretion, shall determine
equitably requires an adjustment in the number of shares which the Incentive
holder should be permitted to acquire, such adjustment as the Committee shall
determine may be made, and when so made shall be effective and binding for all
purposes of the Plan.
b. Incentives may also be granted having terms and provisions which vary
from those specified in the Plan provided that any Incentives granted pursuant
to this paragraph are granted in substitution for, or in connection with the
assumption of, then existing Incentives granted by another corporation and
assumed or otherwise agreed to be provided for by the Company pursuant to or by
reason of a transaction involving a corporate merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation to which the
Company or a subsidiary corporation is a party.
c. The obligations of the Company or any of its affiliated corporations
and the benefit due any Participant, surviving spouse or beneficiary hereunder
shall be reduced by any amount received in regard thereto under the CSX
Corporation and Affiliated Companies Executives' Stock Trust or any similar
trust or trusts or other vehicle.
d. Notwithstanding the preceding, following a Change of Control, the
authority to delay payment of a Participant's benefits rests solely with the
Benefits Trust Committee
20. Loans to Option Holders
The Committee may adopt programs and procedures pursuant to which the
Company may lend money to any Participant who is an Incentive holder for the
purpose of assisting the Participant to acquire or carry shares of common stock
issued upon the exercise of Incentives granted under the Plan.
21. Termination and Amendment of Plan
a. Unless the Plan shall have been previously terminated as hereinafter
provided, the Plan shall terminate on May 2, 1999, and no Incentives under it
shall be granted thereafter. The Board of Directors, without further approval of
the company's shareholders, may at any time prior to that date terminate the
Plan, and thereafter no further Incentives may be granted under the Plan.
However, Incentives previously granted thereunder may continue to be exercised
in accordance with the terms thereof. Following a Change of Control, all
amendments to this Plan are subject to the approval of the Benefits Trust
Committee.
b. Prior to a Change of Control, the Board of Directors, without further
approval of the shareholders, may, on the recommendation of the Compensation
Committee of the Board, amend the Plan from time to time in such respects as the
Board may deem advisable; provided, however, that no amendment shall become
effective without prior approval of the shareholders which would: (i) increase
(except in accordance with Section 19) the maximum number of shares for which
Incentives may be granted under the Plan; (ii) reduce (except in accordance with
Section 19) the Incentive price below the Fair Market Value of the Company's
common stock on the date of grant of the Incentive; (iii) extend the term of the
Plan beyond May 2, 1999; (iv) change the standards of eligibility prescribed by
Section 5; or (v) increase the maximum awards identified in Sections 7, 8, 9, 10
and 11. Following a Change of Control, all amendments to this Plan are subject
to the approval of the Benefits Trust Committee.
c. No termination or amendment of the Plan may, without the consent of a
Participant who is a holder of an Incentive then existing, terminate his or her
Incentive or materially and adversely affect his or her rights under the
Incentive.
22. Change in Control
a. Notwithstanding any provision of this Plan to the contrary, upon the
occurrence of a Change in Control as set forth in subsection b., below: (i) all
stock options then outstanding under this Plan shall become fully exercisable as
of the date of the Change in Control, whether or not then otherwise exercisable;
(ii) all SARs which have been outstanding for at least six months shall become
fully exercisable as of the date of the Change in Control, whether or not then
otherwise exercisable; (iii) all terms and conditions of RSAs then outstanding
shall be deemed satisfied as of the date of the Change in Control; (iv) all PUAs
and PSAs then outstanding shall be deemed to have been fully earned and to be
immediately payable in cash as of the date of the Change of Control, however,
Participants may defer those case payments, as stock, into the Trust, consistent
with the deferral provisions of Section 10; and (v) the three (3) year holding
requirement of the Stock Premium for deferred ICP shall be deemed satisfied.
b. A "Change in Control" shall mean any of the following:
(i) Stock Acquisition. The acquisition, by any individual, entity or
-----------------
group [within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")]
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"), or (B) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i), the
--------- -------
following acquisitions shall not constitute a Change of Control:
(A) any acquisition directly from the Company; (B) any
acquisition by the Company; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (D) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 22(b); or
(ii) Board Composition. Individuals who, as of the date hereof,
------------------
constitute the Board of Directors (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors; or
(iii) Business Combination. Approval by the shareholders of the
---------------------
Company of a reorganization, merger, consolidation or sale or
other disposition of all or substantially all of the assets of
the Company or its principal subsidiary that is not subject, as a
matter of law or contract, to approval by the Interstate Commerce
Commission or any successor agency or regulatory body having
jurisdiction over such transactions (the "Agency") (a "Business
Combination"), in each case, unless, following such Business
Combination:
(A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Company or its principal subsidiary
or all or substantially all of the assets of the Company or its
principal subsidiary either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be;
(B) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination; and
(C) at least a majority of the members of the board of directors
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing
for such Business Combination; or
(iv) Regulated Business Combination. Approval by the shareholders of the
------------------------------
Company of a Business Combination that is subject, as a matter of
law or contract, to approval by the Agency (a "Regulated Business
Combination") unless such Business Combination complies with clauses
(A), (B) and (C) of subsection (iii) of this Section 22(b); or
(v) Liquidation or Dissolution. Approval by the shareholders of the
----------------------------
Company of a complete liquidation or dissolution of the Company or
its principal subsidiary.
c. Each Participant who has elected to defer the payment of PSAs pursuant
to Section 10 or an ICP award pursuant to Section 12, may elect in a time and
manner determined by the Committee, but in no event later than December 31, 1996
or the occurrence of a Change in Control, if earlier, to have amounts and
benefits currently deferred, and to be deferred, under the Plan determined and
payable under the terms of the Plan as if a Change in Control had not occurred.
New Participants in the Plan may elect in a time and manner determined by the
Committee, but in no event later than ninety (90) days after becoming a
Participant, to have amounts and benefits currently deferred, and to be
deferred, under the Plan determined and payable under the terms of the Plan as
if a Change in Control had not occurred. A Participant who has made an election,
as set forth in the two preceding sentences, may at any time and from time to
time, change that election; provided, however, a change of election that is made
within one year of a Change in Control shall be invalid.
d. Upon a Change of Control, the Company or Subsidiary shall, as soon as
possible, but in no event more than seven (7) days following the Change of
Control make an irrevocable contribution to the Trust in an amount that is
sufficient to pay each Participant or beneficiary of this Plan the benefits to
which Participants of this Plan or their beneficiaries would be entitled based
on elections under Sections 10 and 12 (including any applicable Stock Premium),
and for which the Company is liable pursuant to the terms of this Plan as of the
date on which the Change of Control occurred. The amount of the Company's
irrevocable contributions shall be based on the actuarial valuation and
accounting for the most recent calendar year or more recent period for the Plan,
as approved by the independent actuary engaged by the Company prior to the
Change of Control and approved by the Benefits Trust Committee if selected or
changed following a Change of Control (the "Actuary"), and shall include an
amount deemed necessary to pay estimated administrative expenses for the
following five (5) years. The Benefits Trust Committee shall cause such
actuarial valuations or accountings to be updated, using Participant data
supplied to the Actuary by the Company, through a date no earlier than the date
of the initial contribution and shall notify the Company of the amount of
additional contributions required as soon as practicable.
23. Compliance with Regulatory Authorities
Any shares purchased or distributed pursuant to any Incentives granted
under this Plan must be held for investment and not with a view to the
distribution or resale thereof. Each person who shall exercise an Incentive
granted under this Plan may be required to give satisfactory assurances to such
effect to the Company as a condition to the issuance to him or to her of shares
pursuant to such exercise; provided, however, that the Company may waive such
condition if it shall determine that such resale or distribution may be
otherwise lawfully made without registration under the Securities Act of 1933,
or if satisfactory arrangements for such registration are made. Each Incentive
granted under this Plan is further subject to the condition that if at any time
the Board shall in its sole discretion determine that the listing, registration
or qualification of the shares covered by such Incentive upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of or in
connection with the granting of such Incentives or the purchase or transfer of
shares thereunder, the delivery of any or all shares of stock pursuant to
exercise of the Incentive may be withheld unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board.
24. Withholding Tax
Whenever the Company proposes or is required to issue or transfer shares
of common stock under the Plan, a Participant shall remit to the Company an
amount sufficient to satisfy any federal, state or local income and payroll tax
withholding liability prior to the delivery of any certificate or certificates
for such shares. Alternatively, to the extent permitted by applicable laws, such
federal, state or local income and payroll tax withholding liability may be
satisfied prior to the delivery of any certificate or certificates for the
shares by an adjustment, equal in value to such liability, in the number of
shares to be transferred to the Participant. Whenever under the Plan payments
are to be made in cash, such payments shall be net of an amount sufficient to
satisfy any federal, state or local income and payroll tax withholding
liability.
25. Non-Uniform Determinations
Determinations by the Committee under the Plan, including, without
limitation, determinations of the persons to receive Incentives and the form,
amount and timing of such Incentives, and the terms and provisions of such
Incentives and the agreements evidencing the same need not be uniform, and may
be made by the Committee selectively among persons who receive, or are eligible
to receive, Incentives under the Plan, whether or not such persons are similarly
situated.
Without amending the Plan, Incentives may be granted to eligible employees
who are foreign nationals or who are employed outside the United States or both,
on such terms and conditions different from those specified in the Plan as may,
in the judgment of the Committee, be necessary or desirable to further the
purposes of the Plan. Such different terms and conditions may be reflected in
Addenda to the Plan.
26. Construction
The Plan shall be governed by the laws of the Commonwealth of Virginia.
Exhibit 10.16
DEFERRED COMPENSATION PROGRAM
FOR EXECUTIVES OF CSX CORPORATION
AND AFFILIATED COMPANIES
As Amended and Restated January 1, 1998
1. Purpose
The purpose of this Program is to provide eligible executives with an
opportunity to supplement their retirement income. This Program is intended to
benefit a select group of management or highly compensated employees.
2. Definitions
2.1 "Administrator" means the Corporation. The duties of the
administrator shall be performed by a person or persons designated by the Chief
Executive Officer of the Corporation to perform such duties.
2.2 "Affiliated Company" means the Corporation and any company or
corporation directly or indirectly controlled by the Corporation which the
Compensation Committee designates for participation in this Program in
accordance with Section 15.2.
2.3 "Award" means, for any year, the amount awarded to an employee of an
Affiliated Company for that year and, in the absence of a Deferral Agreement
with respect to such amount, payable to him in the succeeding year under the
MICP, including any special incentive award.
2.4 "Benefits Trust Committee" means the committee created pursuant to
the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement.
2.5 "Board" means the Board of Directors of the Corporation.
2.6 "Change of Control" shall mean any of the following:
(a) Stock Acquisition. The acquisition, by any individual,
entity or group [within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")] (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock
of the Corporation (the "Outstanding Corporation Common Stock"),
or (ii) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation Voting
Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the
Corporation; (ii) any acquisition by the Corporation; (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation
controlled by the Corporation; or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses
(i), (ii) and (iii) of subsection (c) of this Section 2.6; or
(b) Board Composition. Individuals who, as of the date
hereof, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election
or nomination for election by the Corporation's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors; or
(c) Business Combination. Approval by the shareholders of
the Corporation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation or its principal subsidiary that is not
subject, as a matter of law or contract, to approval by the
Interstate Commerce Commission or any successor agency or
regulatory body having jurisdiction over such transactions (the
"Agency") (a "Business Combination"), in each case, unless,
following such Business Combination:
(i) all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination
beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares
of common stock and the combined voting power of
the then outstanding voting securities entitled to
vote generally in the election of directors, as the
case may be, of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Corporation or its principal
subsidiary or all or substantially all of the
assets of the Corporation or its principal
subsidiary either directly or through one or more
subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such
Business Combination of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting
Securities, as the case may be;
(ii) no Person (excluding any corporation resulting
from such Business Combination or any employee
benefit plan (or related trust) of the Corporation
or such corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the
corporation resulting from such Business
Combination or the combined voting power of the
then outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination; and
(iii) at least a majority of the members of the
board of directors resulting from such Business
Combination were members of the Incumbent Board at
the time of the execution of the initial agreement,
or of the action of the Board of Directors,
providing for such Business Combination; or
(d) Regulated Business Combination. Approval by the
shareholders of the Corporation of a Business Combination that is
subject, as a matter of law or contract, to approval by the
Agency (a "Regulated Business Combination") unless such Business
Combination complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section XI(5); or
(e) Liquidation or Dissolution. Approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation or its principal subsidiary.
2.7 "Compensation Committee" means the Compensation Committee of the
Board.
2.8 "Corporation" means CSX Corporation, a Virginia corporation, and any
successor thereto by merger, purchase or otherwise.
2.9 "Corporation's Accountant's" means the independent accountant or
accountants engaged by the Corporation and, if selected or changed following a
Change of Control, approved by the Benefits Trust Committee.
2.10 "Deferral Agreement" means a completed agreement, including any
attachments and appendices thereto, in the form determined by the Administrator,
between an Eligible Executive and the Affiliated Company of which he is an
employee, under which the Eligible Executive agrees to defer all or a portion of
his Award in accordance with the provisions of Section 3.
2.11 "Deferral Date" means with respect to any Deferral Agreement
entered into by an Eligible Executive, the first day of the month in which the
Award subject to the Deferral Agreement would be payable to the Eligible
Executive in the absence of such Deferral Agreement.
2.12 "Divisive Transaction" means a transaction in which the
Participant's employer ceases to be a Subsidiary or there is a sale of
substantially all of the assets of the Subsidiary.
2.13 "Eligible Executive" means, for any year, an employee of an
Affiliated Company who is in salary grades 22 through 40 as of (a) December 30th
of such year or (b) for calendar years beginning on or after January 1, 1986,
the date in such year he retired from the Affiliated Companies or terminated on
account of disability, as determined by the Administrator, provided, however,
that the Administrator, in its sole discretion, may designate any other employee
of an Affiliated Company as an Eligible Executive for such year. Notwithstanding
the preceding, following a Change of Control, such action by the Administrator
is subject to the approval of the Benefits Trust Committee.
2.14 "Equivalent" means of equal present or accumulated value based on
the interest rates set forth in the applicable Deferral Agreements. In
determining Equivalent values, only the value of benefits for which the
eligibility requirements have been met shall be included.
2.15 "MICP" means the Affiliated Companies' Management Incentive
Compensation Plans, as from time to time in effect.
2.16 "Normal Retirement Date" means the later of:
(a) the last day of the month in which a Participant's
62nd birthday occurs, or
(b) the earlier of (i) the last day of the month preceding
the 2nd anniversary of the Participant's earliest Deferral Date
or (ii) the last day of the month in which a Participant's 65th
birthday occurs.
2.17 "Participant" means an Eligible Executive who elects to defer a
portion of his Award in accordance with the provisions of Section 3.
2.18 "Program" means this Deferred Compensation Program for Executives
of CSX Corporation and Affiliated Companies.
2.19 "Service" means an employee's months of continuous employment with
the Affiliated Companies. In the event the employee has a break in his
continuous employment, his period of employment prior to the break shall be
credited to the employee in accordance with the rules governing breaks in
service under the CSX Pension Plan.
2.20 "Subsidiary" means a corporation more than 50% of the voting shares
of which are owned directly or indirectly by the Corporation.
2.21 "Trust" means the CSX Corporation and Affiliated Companies Benefits
Assurance Trust. Except as provided in Section 18, the Corporation is not
obligated to make any contribution to the Trust.
2.22 "Valuation Date" means the last day of each calendar quarter and
such other dates as the Administrator deems necessary or appropriate to value
the Participants' benefits under this Program. Following a Change of Control,
the Benefits Trust Committee shall have final approval over any date selected
other than the last day of each calendar year.
3. Deferral of Awards
3.1 At any time prior to the close of business on December 30 in any
calendar year, an Eligible Executive may elect to defer all or a portion of his
Award, if any, for that year. Such election shall be made by filing a Deferral
Agreement with the Administrator on or before the close of business on December
30 of the calendar year for which the Award is made. In the event that December
30 does not fall on a weekday, such filing must be made by the close of business
on the last prior business day.
3.2 Subject to the provisions of Sections 3.3 and 3.4:
(a) an Eligible Executive in 1985 may elect to defer
up to 100% of his 1985 Award;
(b) an Eligible Executive in 1986 may elect to defer
up to 100% of his 1986 Award;
(c) an Eligible Executive in 1988 may elect to defer
up to 100% of his 1988 Award; and
(d) an Eligible Executive in 1989 may elect to defer
up to 100% of his 1989 Award.
3.3 The minimum amount which an Eligible Executive may defer in any year
shall be the lesser of $5,000 or the maximum amount determined under Section
3.2. If an Eligible Executive elects to defer less than this amount, his
election shall not be effective.
3.4 In its sole discretion, the Compensation Committee may, at any time,
impose additional limits on the maximum amount which an Eligible Executive may
elect to defer under this Program in any year or may impose additional
requirements on the Eligible Executive's right to defer the maximum amount under
this Program in any year.
3.5 An Eligible Executive's election to defer all or a portion of his
Award shall be effective on the last day such deferral may be elected, under
Section 3.1, for the year for which the Award is made. An Eligible Executive may
revoke or change his election to defer all or a portion of his Award at any time
prior to the date the election becomes effective. Any such revocation or change
shall be made in a form and manner determined by the Administrator.
3.6 Notwithstanding the preceding, following a Change of Control, any
discretionary decisions made by the Compensation Committee or the Administrator
with respect to this Section 3 shall be subject to the approval of the Benefits
Trust Committee.
4. Normal Retirement Benefit
A Participant who retires from employment with the Affiliated Companies
on his Normal Retirement Date shall receive a benefit Equivalent to the sum of
the amounts set forth in the Participant's Deferral Agreement(s) plus accrued
interest. The benefit shall be paid in 180 equal monthly installments commencing
on the first day of the month next following the Participant's retirement date,
but in no event prior to the first day of the month next following the
Participant's last Deferral Date, unless the Participant elects to receive his
benefit in accordance with Section 9 of this Program.
5. Delayed Retirement Benefit
A Participant who retires or otherwise terminates his employment with
the Affiliated Companies after his Normal Retirement Date shall receive a
benefit equal to the benefit he would have received under Section 4 had his
benefit commenced on his Normal Retirement Date, increased by 5/6 of 1% for each
complete calendar month between his Normal Retirement Date and the date his
benefit commences. The benefit shall be paid in 180 equal monthly installments
commencing on the first day of the month next following the Participant's
termination of employment, but in no event prior to the first day of the month
next following the Participant's last Deferral Date, unless the Participant
elects to receive his benefit in accordance with Section 9 of this Program.
6. Early Retirement Benefit
A Participant who has attained age 55, has completed 120 months of
Service and terminates his employment with the Affiliated Companies prior to his
Normal Retirement Date shall receive a benefit commencing on the first day of
the month following his Normal Retirement Date but in no event prior to the
first day of the month following the Participant's last Deferral Date. The
Participant's benefit shall be equal to the benefit the Participant would have
received under Section 4 had he terminated his employment on his Normal
Retirement Date. However, the Participant may elect a lump sum under Section 9
or may elect, in a time and manner determined by the Administrator, to have
payment of his benefit commence on the first day of any month preceding his
Normal Retirement Date, and following the latest of (i) his termination of
employment, (ii) 24 months after his earliest Deferral Date and (iii) the first
of the month following his last Deferral Date, in which event the amount of his
benefit shall be reduced by 5/6 of 1% for each complete calendar month between
the date his benefit commences and the first day of the month next following his
Normal Retirement Date. However, in no event shall the monthly benefit be less
than an amount Equivalent to the Participant's deferrals with accrued interest.
Benefits under this Section 6 shall be paid in 180 equal monthly installments,
unless the Participant elects to receive his benefit in accordance with Section
9 of this Program.
7. Separation Benefit
7.1 A Participant who terminates his employment with the Affiliated
Companies prior to being eligible for a benefit under Sections 4 or 6, but after
having completed 120 months of Service, shall receive a monthly benefit
commencing on the first day of the month next following his Normal Retirement
Date; provided, however, that a Participant shall not be eligible for a benefit
under this Section 7.1 if the Participant terminates employment without the
consent of the Affiliated Companies. The benefit shall be equal to the monthly
benefit the Participant would have received under Section 4 had he terminated
employment on his Normal Retirement Date. However, the Participant may elect a
lump sum pursuant to Section 9, or may elect, in a time and manner determined by
the Administrator, to have monthly benefits commence on the first day of any
month, prior to his Normal Retirement Date, and following the latest of (i) his
termination of employment with the Affiliated Companies, (ii) his 55th birthday
or (iii) the last day of the month prior to the 2nd anniversary of his earliest
Deferral Date, in which event the amount of his benefit shall be reduced by 5/6
of 1% for each complete calendar month between the date his benefit commences
and the first day of the month next following his Normal Retirement Date.
However, in no event shall the monthly benefit be less than an amount Equivalent
to the Participant's deferred amounts with accrued interest. Monthly benefits
under this Section 7.1 shall be paid in 180 equal monthly installments. For
purposes of this program and particularly this Section 7, if a Participant's
employer is involved in a Divisive Transaction, the Participant will be deemed
to have terminated his employment with an Affiliated Company with the consent of
the Affiliated Company.
7.2 A Participant who terminates his employment with the Affiliated
Companies, other than on account of death, and is not eligible for a benefit
under Section 7.1 shall receive a single sum payment equal to the sum of the
amounts the Participant deferred under his Deferral Agreements plus accrued
interest. However, if the Participant terminates his employment with the
Affiliated Companies on account of a disability within the meaning of Section
8.1, he shall receive a benefit under this Section 7.2 only if the Participant
elects, in a time and manner determined by the Administrator, to receive such
benefit and to cease accruing Service under Section 8.1. The single sum payment
shall be made on the first day of the month next following the Participant's
termination of employment, or as soon as practicable thereafter. The Participant
shall not receive any other benefits under this Program.
8. Disability
8.1 A Participant who, in the sole judgment of the Administrator,
becomes totally and permanently disabled prior to his termination of employment
with the Affiliated Companies, and does not make an election under Section 7.2
to receive a benefit under such Section, shall continue to accrue Service during
his period of disability as if he remained an active employee. Such a
Participant shall be eligible to receive a benefit under Sections 4, 6 or 7.1
when he meets the age and Service requirements for such a benefit, provided that
following a Change of Control, any decisions of the Administrator pursuant to
this Section 8.1 is subject to the approval of the Benefits Trust Committee.
8.2 The Administrator may, in its sole discretion, require a Participant
to submit to a medical examination by a physician approved by the Administrator,
or present other evidence satisfactory to the Administrator, to establish the
existence or continuance of his disability. The Administrator may require such
medical examination or other evidence not more than once per year. A Participant
who refuses to submit to any required medical examination or to present any
other required evidence under this Section 8.2 shall not be disabled for
purposes of this Program and shall only be eligible to receive the benefit he
would have received under the Program had he terminated his employment with the
Affiliated Companies immediately prior to the date of such request.
Notwithstanding the preceding, following a Change of Control, any decision by
the Administrator made pursuant to this Section 8.2 is subject to approval by
the Benefits Trust Committee.
9. Single Sum Payments
A Participant who is eligible to receive a benefit under Sections 4, 5,
6, 7.1 or 8.1 of the Program but whose benefits hereunder have not yet commenced
may, with the consent of the Administrator, elect, in a time and manner
determined by the Administrator, to receive his benefit in the form of a single
sum. The single sum shall be in the amount of the Participant's deferred amounts
plus accrued interest, provided that, in the case of a Participant then eligible
for immediate commencement of monthly benefits, such single sum shall not be
less than an amount Equivalent to the value of such monthly benefits. Such
single sum shall be paid on the first day of the fourth month following the
later of (i) the Participant's termination of employment with the Affiliated
Companies, or (ii) the date such election is received by the Administrator.
Notwithstanding any other provision hereof, such amount shall be determined as
of a date three months prior to the date of payment and shall not accrue
interest beyond such earlier date. Furthermore, following a Change of Control ,
any decision of the Administrator made pursuant to this Section 8.2 is subject
to approval by the Benefits Trust Committee.
10. Hardship Withdrawal
10.1 While employed by the Affiliated Companies, a Participant may, in
the event of a severe financial hardship, request a withdrawal of an amount
which does not exceed the single sum amount determined in Section 9. The
withdrawal shall be made in a time and manner determined by the Administrator,
and shall not be for a greater amount than the amount required to meet the
financial hardship, and shall be subject to approval by the Administrator.
10.2 For purposes of this Section 10, financial hardship shall include:
(a) Education of a dependent child where the Participant
can show that without the withdrawal under this Section 10 the
education would be unavailable to the child;
(b) Illness of the Participant or his dependents,
resulting in severe financial hardship to the Participant;
(c) The loss of the Participant's home or it contents, to
the extent not reimbursable by insurance or otherwise, if such
loss results in a severe financial hardship to the Participant;
and
(d) Any other extraordinary circumstances of the
Participant approved by the Administrator if such circumstances
would result in a present or impending critical financial need
which the Participant is unable to satisfy with funds reasonably
available from other sources.
10.3 If a Participant makes a withdrawal under this Section 10, any
other benefit which he may be entitled to under this Program on his termination
of employment shall be appropriately adjusted to take into account the amount
the Participant received under this Section 10.
10.4 Following a Change of Control , any decision by the Administrator
made pursuant to this Section 10 is subject to the approval of the Benefits
Trust Committee.
11. Death Benefits
11.1 Except as provided in Section 11.10(b), if a Participant dies while
employed by an Affiliated Company, his beneficiary shall be eligible to receive
a single sum benefit equal to the greatest of:
(a) three times the sum of the amount(s) the Participant
deferred under his Deferral Agreement(s);
(b) the amounts the Participant deferred under his
Deferral Agreement(s) plus accrued interest; or
(c) an amount Equivalent to the monthly benefit the
Participant could have received under the Program, if any, had he
terminated his employment with the Affiliated Companies on the
day immediately preceding his death and elected to begin
receiving the benefit on the first day of the following month.
The benefit is payable on the first day of the month next
following the date of the Participant's death, and shall be in lieu of all other
benefits payable under this Program, other than any benefit payable under
Section 11.6.
11.2 If a Participant who has terminated his employment with the
Affiliated Companies after becoming eligible for a benefit under Sections 4, 5
or 6, dies prior to the commencement of any benefit under this Program, his
beneficiary shall receive a benefit under Section 11.1
11.3 If a Participant who is totally and permanently disabled under
Section 8.1 dies prior to receiving a benefit under this Program, his
beneficiary shall receive a benefit under Section 11.1
11.4 If a Participant who is eligible for a benefit under Section 7.1
dies prior to receiving a benefit, his beneficiary will receive a benefit based
on the greater of the amounts determined under Sections 11.1(b) and 11.1(c).
11.5 If a Participant dies after commencing to receive a benefit, other
than a benefit under Section 7.2, but prior to receiving all remaining benefits
due, the remaining benefits shall be paid to the Participant's beneficiary or
contingent beneficiary, whichever is applicable.
11.6 In addition to any other benefit payable under this Section 11, in
the case of a Participant (i) who dies while employed by an Affiliated Company
after becoming eligible for benefits under Sections 4, 5, or 6 hereof, or (ii)
who terminates employment while eligible for a benefit under Section 4, 5 or 6
of the Program and then dies, his beneficiary shall be eligible to receive a
benefit of $10,000, payable in a single sum. This benefit shall be payable as
soon as practicable following the presentation to the Administrator, and the
Administrator's examination and approval of, any information or material,
including proof of death of the Participant, the Administrator may request.
Notwithstanding anything to the contrary, a benefit shall not be payable on
account of the death of a Participant who received a single sum benefit under
Sections 12 or 16 of the Program.
11.7 A Participant may, in a time and manner determined by the
Administrator, designate a beneficiary and one or more contingent beneficiaries
(which may include the Participant's estate) to receive any benefits which may
be payable under this Section 11. If the Participant fails to designate a
beneficiary or contingent beneficiary, or if the beneficiary and the contingent
beneficiaries do not survive the Participant, such benefits shall be paid to the
Participant's estate. The Participant may also designate a remainder beneficiary
to receive any benefits which may be payable under Section 11.9.
11.8 A Participant may revoke or change any designation made under
Section 11.7 in a time and manner determined by the Administrator.
11.9 If, pursuant to Section 11.7, payments commence to a beneficiary or
contingent beneficiary and if such beneficiary or contingent beneficiary dies
prior to receiving all payments due under this Program, any remaining payments
shall be made to the Participant's remainder beneficiary. If, at the date of
such death, there is no surviving remainder beneficiary, the remaining benefits
hereunder shall be paid to the estate of the beneficiary or contingent
beneficiary previously in receipt of benefits hereunder.
11.10 (a) If any benefits are payable under this Section 11 to an
individual other than the Participant's spouse or child under age
21 (or child under age 25 who is a full-time student at an
accredited institution of higher education), the benefit shall be
paid in the form of a single sum.
(b) If benefits become payable to the Participant's spouse
or his child under age 21 (or his child under age 25 who is a
full-time student at an accredited institute of higher
education), such benefits (other than benefits under Section
11.6) shall be payable in 180 monthly installments Equivalent to
the single sum amount determined under Section 11.1 through 11.5
hereof, as applicable. Monthly benefits shall commence on the
first day of the month following the Participant's death. The
Participant may elect, in a time and manner determined by the
Administrator to have any amounts which may be payable under the
Program paid in accordance with Section 11.10(a).
(c) Notwithstanding anything to the contrary in this
Program, if a Participant's child under age 21 (or child under
age 25 who is a full-time student at an accredited institute of
higher education) is receiving a benefit under this Program in
the form of installment payments, upon his attaining age 21 (or
age 25 or ceasing to be a full-time student at an accredited
institute of higher education) he shall receive a single sum
Equivalent to his remaining installments in lieu of receiving
such remaining installments.
12. Special Distribution Rules
12.1 Notwithstanding anything to the contrary in this Program, if (a) a
Participant becomes the owner, director or employee of a competitor of the
Affiliated Companies, (b) his employment is terminated by an Affiliated Company
on account of actions by the Participant which are detrimental to the interests
of any Affiliated Company, or (c) he engages in conduct subsequent to the
termination of his employment with the Affiliated Companies which the
Administrator determines to be detrimental to the interests of an Affiliated
Company, then the Administrator may, in its sole discretion, pay a Participant a
single sum payment equal to the sum of the amounts the Participant deferred
under his Deferral Agreements plus accrued interest, reduced by an amount
Equivalent to any payments the Participant may already have received under this
Program. However, if the Participant is receiving a benefit under the Program,
or could be receiving an immediate benefit under the Program, the single sum
shall not be less than an amount Equivalent to the remaining monthly benefit the
Participant is, or could be, receiving. The single sum payment shall be made as
soon as practicable following the Participant's becoming an owner, director or
employee of a competitor, his termination of employment or the Administrator's
determination of detrimental conduct, as the case may be, and shall be in lieu
of all other benefits which may be payable to the Participant under this
Program.
12.2 Notwithstanding anything to the contrary contained herein, the
Corporation may delay payment of a benefit under this Program to any Participant
who is determined to be among the top five most highly paid executives for the
year the benefit under this Program would otherwise be paid; provided, however,
if a Participant's payment is delayed, the benefit to which he is entitled will
not decrease after the date it would otherwise be distributed.
12.3 Notwithstanding the preceding, following a Change of Control, the
Administrator's authority to make decisions under this Section 12 is subject to
the approval of the Benefits Trust Committee.
13. Benefit Determinations Following a Change of Control
13.1 Following a Change of Control, final benefit determinations for
Participants, their beneficiaries, heirs and assigns and decisions regarding
benefits under this Program shall rest with the Benefits Trust Committee or its
delegate in its sole and absolute discretion.
14. Funding
14.1 To the extent reflected by resolutions of the applicable boards of
directors, obligations for benefits under this Program shall be joint and
several.
14.2 The obligations of the Corporation and any of its affiliated
corporations and the benefit due any Participant, surviving spouse or
beneficiary hereunder shall be reduced by any amount received in regard thereto
under the Benefits Assurance Trust or any similar trust or other vehicle.
15.. Administration
15.1 This Program shall be administered by the Corporation. Certain
administrative functions, as set forth in this Program, shall be the
responsibility of the Administrator. The Administrator shall interpret the
Program, establish regulations to further the purposes of the Program and take
any other action necessary to the proper operation of the Program. Following a
Change of Control, the Benefits Trust Committee may remove and/or replace the
Administrator.
15.2 Prior to a Change of Control, the Compensation Committee, in its
sole discretion and upon such terms as it may prescribe, may permit any company
or corporation directly or indirectly controlled by the Corporation to
participate in the Program for such periods as it may determine. Following a
Change of Control, no entity shall become or cease to be a participating company
without the consent of the Benefits Trust Committee.
15.3 The Administrator shall provide adequate notice in writing to any
Participant, beneficiary, contingent beneficiary or remainder beneficiary whose
claim for benefits under this Program has been denied, setting forth the
specific reasons for such denial. A reasonable opportunity shall be afforded to
any such Participant, beneficiary, contingent beneficiary or remainder
beneficiary for a full and fair review by the Administrator of its decision
denying the claim. Prior to a Change of Control, the Administrator's decision on
any such review shall be final and binding on the Participant, beneficiary,
contingent beneficiary, remainder beneficiary and all other interested persons.
All acts and decisions of the Administrator shall be final and binding upon all
Participants and employees of the Affiliated Companies.
15.4 Following a Change of Control, all benefit determinations for
Participants, their beneficiaries, heirs and assigns and decisions regarding
benefit claims under this Program shall rest with the Benefits Trust Committee
or its delegate in its sole and absolute discretion.
16. Termination and Amendment of the Program
16.1 Prior to a Change of Control, the Board may, in its sole discretion,
terminate this Program and the related Deferral Agreement(s) at any time.
Following a Change of Control, this Program may not be terminated without the
approval of the Benefits Trust Committee. In the event the Program and related
Deferral Agreement(s) are terminated, Participants shall receive a single sum
payment equal to the sum of the amounts they deferred under their Deferral
Agreements plus accrued interest, reduced by an amount Equivalent to any
payments the Participant may already have received under this Program. However,
if the Participant is receiving a benefit under the Program, or could be
receiving an immediate benefit under the Program, the single sum shall not be
less than an amount Equivalent to the monthly benefit the Participant is, or
could be, receiving. The single sum payment shall be made as soon as practicable
following the date the Program is terminated and shall be in lieu of any other
benefit which may be payable to the Participant under this Program.
16.2 Prior to a Change of Control, the Board, in its sole discretion,
may amend this Program and the related Deferral Agreements in any way on thirty
(30) days prior notice to the Participants. Following a Change of Control, all
amendments are subject to the approval of the Benefits Trust Committee. If any
amendment to this Program or to the Deferral Agreements shall adversely affect
the rights of a Participant, the Participant must consent in writing to such
amendment prior to its effective date. If the Participant does not consent to
the amendment, the Program, shall be deemed to be terminated with respect to the
Participant and he shall receive a single sum payment in accordance with Section
16.1.
16.3 Notwithstanding anything to the contrary in this Section 16, prior
to a Change of Control, the Board must act to terminate or amend the Program or
the Deferral Agreements in a uniform and nondiscriminatory manner. Following a
Change of Control, such actions are subject to the approval of the Benefits
Trust Committee
17. Miscellaneous
17.1 The existence of this Program or a Deferral Agreement does not
constitute a contract for continued employment between an Eligible Executive or
a Participant and an Affiliated Company. The Affiliated Companies reserve the
right to modify an Eligible Executive's or Participant's compensation and to
terminate the employment of an Eligible Executive or a Participant for any
reason and at any time, notwithstanding the existence of this Program or of a
Deferral Agreement. The Affiliated Companies reserve the right not to grant
Awards to Eligible Executives and Participants for any reason.
17.2 A Participant's rights to benefit payments under the Program are
not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors of the
Participant, his beneficiary, contingent beneficiaries, remainder beneficiary,
heirs or personal representative.
17.3 Except for Section 18 herein, nothing contained in this Program or
in a Deferral Agreement shall require the Affiliated Companies to segregate any
monies from their general funds, or to create any trusts, or to make any special
deposits for any amounts to be paid to any Participant, beneficiary, contingent
beneficiary or remainder beneficiary. Neither the Participant, his beneficiary,
contingent beneficiaries, remainder beneficiary, heirs or personal
representatives shall have any right, title or interest in or to any funds of
the Affiliated Companies on account of this Program or on account of having
completed a Deferral Agreement.
17.4 All payments under this Program shall be net of an amount
sufficient to satisfy any federal, state or local withholding and payroll tax
requirements.
17.5 Prior to paying any benefit under this Program, the Administrator
may require the Participant, beneficiary, contingent beneficiary or remainder
beneficiary to provide such information or material as the Administrator, in its
sole discretion, shall deem necessary for it to make any determination it may be
required to make under this Program. The Administrator may withhold payment of
any benefit under this Program until it receives all such information and
material and is reasonably satisfied of its correctness and genuineness.
17.6 Each Participant shall have the status of a general unsecured
creditor of the Affiliated Companies, and this Program constitutes a mere
promise by the Affiliated Companies to make benefit payments in the future.
17.7 The Program is intended to be unfunded for tax purposes and for
purposes of Title I of ERISA.
17.8 The masculine pronoun shall mean the feminine pronoun and all
singular shall include the plural wherever appropriate.
17.9 The terms of this Program and any Deferral Agreement shall be
governed by the laws of the Commonwealth of Virginia.
17.10 The invalidity or unenforceability of any provision of this
Program or of a Deferral Agreement shall in no way affect the validity or
enforceability of any other provision.
18. Change of Control
18.1 If a Change of Control has occurred, the Corporation shall
contribute to the Trust, within 7 days of such Change of Control, a lump sum
payment equal to the greater of (i) the aggregate value of the amount each
Participant would be eligible to receive (determined under Section 18.2 below)
as of a Valuation Date coinciding with or next preceding the date of Change of
Control or (ii) the amount determined under Section 1(h) of the Trust
attributable to liabilities relating to the Program, to the extent such amounts
are not already in the Trust. The aggregate value of the amount of the lump sum
to be contributed to the Trust pursuant to this Section 18 shall be determined
by the Corporation's Accountants after consultation with the entity then
maintaining the Program's records. Thereafter, the Corporation's Accountants
shall annually determine for each Participant not receiving a lump sum payment
pursuant to subsection 18.2 below the amount which would be payable under such
subsection were a Change of Control to occur at the date of such determination.
To the extent that the value of the assets held in the Trust relating to this
Program do not equal the amount described in the preceding sentence, at the time
of the valuation, as determined by the Corporation's Accountants, the
Corporation shall make a lump sum contribution to the Trust equal to the
difference.
18.2 In the event a Change of Control has occurred, the trustee of the
Trust shall, within 45 days of such Change of Control, pay to each Participant
not making an election under 18.3 below, a lump sum payment equal to the amount
the Participant would have been entitled to receive determined under Section 6
had he retired early and selected a lump sum payment. The amount of each
Participant's lump sum payment shall be determined by the Corporation's
Accountants after consultation with the entity then maintaining the Program's
records.
18.3 Each Participant may elect in a time and manner determined by the
Administrator, but in no event later than December 31, 1996, or the occurrence
of a Change of Control, if earlier, to have amounts and benefits determined and
payable under the terms of the Program as if a Change of Control had not
occurred. New Participants in the Program may elect in a time and manner
determined by the Administrator, but in no event later than 90 days after
becoming a Participant, to have amounts and benefits determined and payable
under the terms of the Program as if a Change of Control had not occurred. A
Participant who has made an election, as set forth in the two preceding
sentences, may, at any time and from time to time, change that election;
provided, however, a change of election that is made within one year of a Change
of Control shall be invalid.
18.4 Notwithstanding anything in this Program to the contrary, each
Participant who has made an election under 18.3 above may elect within 90 days
following a Change of Control, in a time and manner determined by the Benefits
Trust Committee, to receive a lump sum payment calculated under the provisions
of 18.2 above, except that such calculated amount shall be reduced by 5% and
such reduction shall be irrevocably forfeited to the Corporation by the
Participant. Furthermore, as a result of such election, the Participant shall no
longer be eligible to participate or otherwise benefit from the Program.
Payments under this subsection 18.4 shall be made not later than 7 days
following receipt by the Corporation of the Participant's election. The Benefits
Trust Committee shall, no later than 7 days after a Change of Control has
occurred, give written notification to each Participant eligible to make an
election under this subsection 18.4, that a Change of Control has occurred and
informing such Participant of the availability of the election.
Exhibit 10.17
SUPPLEMENTARY SAVINGS AND INCENTIVE AWARD DEFERRAL PLAN
FOR ELIGIBLE EXECUTIVES OF
CSX CORPORATION AND AFFILIATED COMPANIES
As Amended and Restated January 1, 1995
(As Amended through December 31, 1997)
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS.................................................... 1
1.1 Account..................................................... 1
1.2 Administrator............................................... 1
1.3 Affiliated Company.......................................... 1
1.4 Award....................................................... 1
1.5 Award Deferral Agreement.................................... 1
1.6 Benefits Trust Committee......................................1
1.7 Board of Directors.......................................... 1
1.8 Change of Control........................................... 1
1.9 Code........................................................ 2
1.10 Committee................................................... 2
1.11 Compensation................................................ 3
1.12 Corporation................................................. 3
1.13 Deferral Agreement.......................................... 3
1.14 Distribution Option(s)........................................3
1.15 Divisive Transaction........................................ 3
1.16 Effective Date.............................................. 3
1.17 Eligible Executive.......................................... 3
1.18 Independent Accountant........................................3
1.19 Matching Credits............................................ 3
1.20 Member...................................................... 4
1.21 MICP........................................................ 4
1.22 Participating Company....................................... 4
1.23 Plan........................................................ 4
1.24 Salary Deferrals............................................ 4
1.25 Salary Deferral Agreement................................... 4
1.26 Salary Deferral Percentage.................................. 4
1.27 SMICP....................................................... 4
1.28 Subsidiary....................................................4
1.29 Tax Savings Thrift Plan..................................... 4
1.30 Trust.........................................................4
1.31 Valuation Date.............................................. 7
ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS............................. 4
2.1 In General.................................................. 5
2.2 Modification of Initial Deferral Agreement.................. 5
2.3 Termination of Membership; Re-employment.................... 5
2.4 Change in Status............................................. 6
2.5 Membership Following a Change in Control......................6
ARTICLE 3. AWARD DEFERRAL PROGRAM.......................................... 6
3.1 Filing Requirements.......................................... 7
3.2 Amount of Deferral........................................... 7
3.3 Crediting to Account......................................... 7
ARTICLE 4. SALARY DEFERRAL PROGRAM......................................... 7
4.1 Filing Requirements.......................................... 8
4.2 Salary Deferral Agreement.................................... 8
4.3 Amount of Salary Deferrals................................... 8
4.4 Changing Salary Deferrals.................................... 8
4.5 Certain Additional Credits................................... 9
ARTICLE 5. MAINTENANCE OF ACCOUNTS........................................ 10
5.1 Adjustment of Account....................................... 10
5.2 Investment Performance Elections............................ 11
5.3 Changing Investment Elections............................... 11
5.4 Vesting of Account.......................................... 11
5.5 Individual Accounts......................................... 11
5.6 Action Following a Change of Control.........................11
ARTICLE 6. PAYMENT OF BENEFITS............................................ 11
6.1 Commencement of Payment..................................... 13
6.2 Method of Payment........................................... 14
6.3 Applicability............................................... 14
6.4 Hardship Withdrawal......................................... 14
6.5 Designation of Beneficiary.................................. 15
6.6 Special Distribution Rules.................................. 15
6.7 Status of Account Pending Distribution...................... 15
6.8 Installments and Withdrawals Pro-Rata....................... 15
6.9 Change of Control........................................... 16
ARTICLE 7. AMENDMENT OR TERMINATION....................................... 17
7.1 Right to Terminate.......................................... 17
7.2 Right to Amend.............................................. 17
7.3 Uniform Action.............................................. 17
ARTICLE 8. GENERAL PROVISIONS............................................. 17
8.1 No Funding.................................................. 17
8.2 Obligation...................................................18
8.3 No Contract of Employment................................... 18
8.4 Withholding Taxes........................................... 18
8.5 Nonalienation............................................... 18
8.6 Administration.............................................. 18
8.7 Construction................................................ 19
ARTICLE 9. POST-SECONDARY EDUCATION SUB-ACCOUNTS.......................... 19
9.1 Post-Secondary Education Sub-accounts....................... 19
9.2 Distribution of Post-Secondary Education Sub-accounts....... 20
9.3 Construction................................................ 21
INTRODUCTION
This Supplementary Savings and Incentive Award Deferral Plan for
Eligible Executives of CSX Corporation and Affiliated Companies (the "Plan") was
adopted October 1, 1987 and has been subsequently amended from time to time.
This restatement of the Plan is effective January 1, 1995. This Plan is
generally intended to provide certain executives eligible to participate in the
Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated
Companies (the "Savings Plan") with an opportunity to defer a portion of their
salary, and/or award(s) under the Management Incentive Compensation Program
("MICP") and/or the Senior Management Incentive Compensation Program ("SMICP")
until their retirement or other termination of employment and to restore
employer matching contributions lost under the Savings Plan because of the
application of Sections 401(a)(17), 401(k), 401(m) and 415 of the Internal
Revenue Code of 1986, as amended. Commencing with respect to MICP awards paid
and salary earned after 1990, eligible executives may, if they so elect,
designate all or a portion of such deferrals to be used for payment of education
expenses for one or more members of their families. The Plan is unfunded and is
maintained by CSX Corporation and Affiliated Companies primarily for the purpose
of providing deferred compensation for a select group of management or
highly-compensated employees. The Plan as restated effective January 1, 1995
(and amended through December 31, 1997) reads as hereinafter set forth.
ARTICLE I. DEFINITIONS
1.1 Account means the bookkeeping account maintained for each Member to
record his Salary Deferrals, Matching Credits and the amount of Awards he has
elected to defer, as adjusted pursuant to Article 5. The Account shall consist
of the "Education Sub-accounts", if any, established pursuant to Article 9 and
all amounts not in those accounts shall be allocated to one or more "Retirement
Sub-accounts". The Administrator may establish a maximum number of "Retirement
Sub-accounts" which a Member may have at any time. The Administrator also may
establish such other sub-accounts within a Member's Account as it deems
necessary to implement the provisions of the Plan.
1.2 Administrator means the Corporation. The duties of the Administrator
shall be performed by a person or persons designated by the Chief Executive
Officer of the Corporation to perform such duties.
1.3 Affiliated Company means the Corporation and any company or
corporation directly or indirectly controlled by the Corporation.
1.4 Award means, for any year, the amount awarded to an employee of an
Affiliated Company for that year (including any special incentive award) and, in
the absence of an Award Deferral Agreement with respect to such amount, payable
to him in the succeeding year under the MICP and/or SMICP or other incentive
award otherwise payable in cash as determined by the Committee.
1.5 Award Deferral Agreement means a Deferral Agreement filed in
accordance with the award deferral program described in Article 3.
1.6 Benefits Trust Committee means the committee created pursuant to the
CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement.
1.7 Board of Directors or "Board" means the Board of Directors of the
Corporation.
1.8 Change of Control means any of the following:
(a) Stock Acquisition. The acquisition, by any individual, entity
or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock"), or (ii) the combined voting
power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly from
the Corporation; (ii) any acquisition by the Corporation; (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by the
Corporation; or (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section 1.8; or
(b) Board Composition. Individuals who, as of the date hereof,
constitute the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors;
provided, however, that any individual becoming a director subsequent to
the date hereof whose election or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors;
or
(c) Business Combination. Approval by the shareholders of the
Corporation of a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Corporation
or its principal subsidiary that is not subject, as a matter of law or
contract, to approval by the Interstate Commerce Commission or any
successor agency or regulatory body having jurisdiction over such
transactions (the "Agency") (a "Business Combination"), in each case,
unless, following such Business Combination:
(i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively,
of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common stock and the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result of
such transaction owns the Corporation or its principal
subsidiary or all or substantially all of the assets of
the Corporation or its principal subsidiary either
directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan
(or related trust) of the Corporation or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation
except to the extent that such ownership existed prior
to the Business Combination; and
(iii)at least a majority of the members of the board of
directors resulting from such Business Combination were
members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of
the Board of Directors, providing for such Business
Combination; or
(d) Regulated Business Combination. Approval by the shareholders
of the Corporation of a Business Combination that is subject, as a
matter of law or contract, to approval by the Agency (a "Regulated
Business Combination") unless such Business Combination complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or
(e) Liquidation or Dissolution. Approval by the shareholders of
the Corporation of a complete liquidation or dissolution of the
Corporation or its principal subsidiary.
1.9 Code means the Internal Revenue Code of 1986, as amended from time
to time.
1.10 Committee means the Compensation Committee of the Board of
Directors of CSX Corporation.
1.11 Compensation means the "Base Compensation" of an Eligible Executive
as defined in the Tax Savings Thrift Plan, determined prior to: (a) any Salary
Deferrals under Article 4; and (b) any limit on compensation imposed by Section
401(a)(17) of the Code.
1.12 Corporation means CSX Corporation, a Virginia corporation, and any
successor thereto by merger, purchase or otherwise.
1.13 Deferral Agreement means either an Award Deferral Agreement or a
Salary Deferral Agreement, or both if the context so requires. A Deferral
Agreement shall be a completed agreement between an Eligible Executive and a
Participating Company of which he is an employee under which the Eligible
Executive agrees to defer an Award or make Salary Deferrals under the Plan, as
the case may be. The Deferral Agreement shall be on a form prescribed by the
Administrator and shall include any amendments, attachments or appendices.
1.14 Distribution Option(s) means, with respect to each sub-account
under the Plan, the election by the Member of (i) the event triggering the
commencement of distribution, and (ii) the form of payment. Distribution Option
elections are made on the initial Deferral Agreement with respect to any
sub-account.
1.15 Divisive Transaction means a transaction in which the Eligible
Executive's employer ceases to be a Subsidiary or there is a sale of
substantially all of the assets of the Subsidiary.
1.16 Effective Date means October 1, 1987 or with respect to the
Eligible Executives of a company which adopts the Plan, it means the date such
company becomes a Participating Company.
1.17 Eligible Executive means an employee of a Participating Company,
provided that:
(a) prior to January 1, 1995, for purposes of the award deferral
described in Article 3, such employee is employed by a Participating
Company in salary grades 21 through 40 inclusive, as of December 30 of
the calendar year in question; or
(b) on and after January 1, 1995, for purposes of the award
deferral program described in Article 3, such employee: (i) is employed
by a Participating Company and is receiving Compensation of one hundred
thousand dollars ($100,000) or more per year; or (ii) retired from the
Participating Companies or terminated employment with the Participating
Companies on account of disability, as determined by the Administrator,
and was receiving Compensation of one hundred thousand dollars
($100,000) or more per year at the time of such retirement or
termination; or
(c) prior to January 1, 1995, for purposes of the salary deferral
program described in Article 4, such employee is eligible for membership
in the Tax Savings Thrift Plan and is employed in salary grades 21
through 40 inclusive; or
(d) on and after January 1, 1995 for purposes of the salary
deferral program described in Article 4, such employee is eligible for
membership in the Tax Savings Thrift Plan and is receiving Compensation
of one hundred thousand dollars ($100,000) or more per year; or
(e) the Chief Executive Officer of the Corporation or his
designee may designate any other employee or former employee of an
Affiliated Company as an Eligible Executive; provided, however, only
those employees or former employees considered to be a select group of
management or highly compensated may be designated as Eligible
Executives under this Plan. Notwithstanding the preceding, following a
Change of Control, such designations are subject to the approval of the
Benefits Trust Committee.
1.18 Independent Accountant means the independent accountants engaged by
the Corporation and, if selected or changed following a Change of Control,
approved by the Benefits Trust Committee.
1.19 Matching Credits means amounts credited to the Account of a Member
pursuant to Section 4.5.
1.20 Member means, except as otherwise provided in Article 2, each
Eligible Executive who has executed an initial Deferral Agreement as described
in Section 2.1.
1.21 MICP means the Participating Companies' Management Incentive
Compensation Program.
1.22 Participating Company means the Corporation and any company or
corporation directly or indirectly controlled by the Corporation, which the
Committee designates as eligible to participate in the Plan in accordance with
Section 8.6(e).
1.23 Plan means this Supplementary Savings and Incentive Award Deferral
Plan for Eligible Executives of CSX Corporation and Affiliated Companies, as
amended from time to time.
1.24 Salary Deferrals means the amounts credited to a Member's Account
under Section 4.3.
1.25 Salary Deferral Agreement means a Deferral Agreement filed in
accordance with the salary deferral program described in Article 4.
1.26 Salary Deferral Percentage means a percentage of an Eligible
Executive's Base Compensation elected in a Salary Deferral Agreement, pursuant
to Section 4.1 hereof, and shall be an integral percentage not in excess of
fifty (50%) percent.
1.27 SMICP means the Participating Companies' Senior Management
Incentive Compensation Program.
1.28 Subsidiary means a corporation more than 50% of the voting shares
of which are owned directly or indirectly by the Corporation.
1.29 Tax Savings Thrift Plan means the Tax Savings Thrift Plan for
Employees of CSX Corporation and Affiliated Companies, as amended from time to
time.
1.30 Trust means the CSX Corporation and Affiliated Companies Benefits
Assurance Trust.
1.31 Valuation Date means the last business day of each calendar month
following the Effective Date.
ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS
2.1 In General:
(a) An Eligible Executive shall become a Member as of the date he
files his initial Deferral Agreement with the Administrator. However,
such Deferral Agreement shall be effective for purposes of deferring an
Award or making Salary Deferrals only as provided in Articles 3 and 4.
(b) A Deferral Agreement shall be in writing and properly
completed upon a form approved by the Administrator, which shall be the
sole judge of the proper completion thereof. Except as provided in
Section 4.1(d), such Agreement shall provide for the deferral of an
Award or for Salary Deferrals, shall specify the Distribution Options,
and may include such other provisions as the Administrator deems
appropriate. A Deferral Agreement shall not be revoked or modified with
respect to the allocation of prior deferrals except pursuant to the
establishment of an Education Sub-account as provided in Article 9.
Distribution Options elected may not be modified or revoked except as
provided in Section 6.1 or 6.2.
(c) As a condition of membership, the Administrator may require
such other information as it deems appropriate.
2.2 Modification of Initial Deferral Agreement
(a) A Member may elect to change, modify or revoke a Deferral
Agreement as follows:
(i) A Member may change the amount of Award he elects
to defer on an Award Deferral Agreement prior to
the Agreement's effective date as provided in
Article 3.
(ii) A Member may change the rate of his Salary
Deferrals, or suspend his Salary Deferrals on
account of severe financial hardship, as provided
in Article 4.
(iii) A Member may change the event entitling him to
distribution, as designated on his election of
Distribution Options, as provided in Section
6.1(c)(i).
(iv) A Member may change the event entitling him to
distribution as designated on his election of
Distribution Options, subject to the five percent
(5%) penalty described in Section 6.1(c)(ii).
(v) A Member may change the form of payment, as
designated on his election of Distribution Options,
as provided in Section 6.2(c)(i).
(vi) A Member may change the form of payment as
designated on his election of Distribution Options,
subject to the five percent (5%) penalty described
in Section 6.2(c)(ii).
(b) Notwithstanding any provision in Section 2.2(a) to the
contrary, the establishment of an Education Sub-account with respect to
future Salary Deferrals and Awards as provided in Article 9 shall not be
deemed a change for the purposes of Section 2.2(a).
2.3 Termination of Membership; Re-employment:
(a) Membership shall cease, subject to Section 2.4, upon a
Member's termination of employment; provided that if a former Eligible
Executive is receiving severance payments under a Participating
Company's severance pay program or is eligible to defer an Award under
Article 3, he shall not be deemed to have terminated employment until
the later of the date the severance payments cease or the date the Award
would have been paid. Membership shall be continued during a leave of
absence approved by the Participating Companies.
(b) Upon re-employment as an Eligible Executive, a former Member
may become a Member again as follows:
(i) in the case of a former Member who prior to
re-employment received the balance in his Account,
by executing a Deferral Agreement under Section 2.1
as though for all purposes of the Plan the
Affiliated Companies had never employed the former
Member;
(ii) in the case of a former Member who prior to
re-employment did not receive the balance in his
Account, by executing a Deferral Agreement under
Section 2.1; provided his Distribution Options and
beneficiary designation shall remain in effect.
: 2.4 Change in Status
(a) In the event that a Member ceases to be an Eligible Executive
with respect to Salary Deferrals but continues to be employed by an
Affiliated Company, his Salary Deferrals and Matching Credits shall
thereupon be suspended until such time as he shall once again become an
Eligible Executive. All other provisions of his Salary Deferral
Agreement shall remain in force and he shall continue to be a Member of
the Plan.
(b) In the event that a Member ceases to be an Eligible Executive
with respect to the deferral of Awards hereunder but continues to be
employed by an Affiliated Company, he shall continue to be a Member of
the Plan but shall not be eligible to defer any portion of any future
Awards until such time as he shall once again become an Eligible
Executive.
2.5 Membership Following a Change of Control: Following a Change of
Control, any membership determinations or discretionary actions pursuant to this
Article 2 shall be subject to the approval of the Benefits Trust Committee.
ARTICLE 3. AWARD DEFERRAL PROGRAM
3.1 Filing Requirements:
(a) At such time as the Administrator may prescribe prior to the
close of business on December 30 in any calendar year, an Eligible
Executive may elect to defer all or a portion of his Award, if any, for
that year. Such Award is determined and paid in the following calendar
year. Such election shall be made by filing an Award Deferral Agreement
with the Administrator on or before the close of business on December 30
of the calendar year for which the Award is made. In the event that
December 30 does not fall on a weekday, such filing must be made by the
close of business on the last prior business day.
(b) Notwithstanding Section 3.1(a), an individual who becomes an
Eligible Executive after the calendar year for which an Award is made,
but prior to the first day of the month in which such Award is
determined including required action by the Board, may elect to defer
all or a portion of that Award in accordance with this Section 3.1(b).
Such election shall be made by filing an Award Deferral Agreement during
the 30 day or shorter period beginning on the date the individual
becomes an Eligible Executive and ending no later than the last day of
the month preceding the month in which the Award is determined.
(c) An Eligible Executive's election to defer all or a portion of
his Award shall be effective on the last day that such deferral may be
elected under Section 3.1(a) or 3.1(b) and shall be effective only for
the Award in question. An Eligible Executive may revoke or change his
election to defer all or a portion of his Award at any time prior to the
date the election becomes effective, as described in the preceding
sentence. Any such revocation or change shall be made in a form and
manner determined by the Administrator.
(d) An Eligible Executive shall not be entitled to defer an Award
on or after attaining the age, if any, which he has designated under
Section 6.1(c) or 6.1(d) for the purpose of commencing distribution of
his Account (or, if applicable, his Retirement Sub-account). In the
event a Member establishes an Education Sub-account pursuant to Article
9, he shall not be entitled to defer all or any portion of an Award into
such a Sub-account after attaining the age which he has designated for
the purpose of commencing distribution from that Sub-account.
(e) An Eligible Executive shall not be entitled to defer an Award
if he is eligible to defer his award under another nonqualified program
of deferred compensation maintained by an Affiliated Company.
3.2 Amount of Deferral:
(a) Prior to a Change of Control, in its sole discretion, the
Committee may establish such maximum limit on the amount of Award an
Eligible Executive may defer for a calendar year as the Committee deems
appropriate. Such maximum limit shall appear on the Eligible Executive's
Award Deferral Agreement for the year. Following a Change of Control,
the Committee's decision is subject to the final approval of the
Benefits Trust Committee.
(b) The minimum amount which an Eligible Executive may defer in
any year shall be the lesser of $5,000 or the maximum amount determined
under Section 3.2(a) above. If an Eligible Executive elects to defer
less than this amount, his election shall not be effective.
3.3 Crediting to Account:
(a) The amount of Award which an Eligible Executive has elected
to defer for a calendar year shall be credited to his Account as of the
Valuation Date coincident with or next following the date the Award
would have been paid to the Eligible Executive.
(b) An additional credit shall be made to the Account as of the
Valuation Date described in Section 3.3(a) above, determined as if the
amount of Award deferred had earned the same rate of return as the CSX
Cash Pool Earnings Rate from the date the Award would have been paid
until the Valuation Date it is credited to the Eligible Executive's
Account. In lieu of the CSX Corporation Cash Pool Earnings Rate, the
Committee may designate, prior to a Change of Control, from time to
time, such other indices of investment performance or investment funds
as the measure of investment performance under this Section 3.3(b).
Following a Change of Control, the Committee's decision is subject to
final approval of the Benefits Trust Committee.
ARTICLE 4. SALARY DEFERRAL PROGRAM
4.1 Filing Requirements:
(a) An individual who is an Eligible Executive immediately prior
to the Effective Date may file a Salary Deferral Agreement with the
Administrator, within such period prior to the Effective Date and in
such manner as the Administrator may prescribe.
(b) An individual who becomes an Eligible Executive on or after
the Effective Date may file a Salary Deferral Agreement with the
Administrator during the calendar month he becomes an Eligible
Executive, in such manner as the Administrator may prescribe.
(c) An Eligible Executive who fails to file a Salary Deferral
Agreement with the Administrator as provided in Sections 4.1(a) and
4.1(b) may file a Salary Deferral Agreement in any subsequent month of
December.
(d) An Eligible Executive who has not otherwise filed a Deferral
Agreement shall file a Salary Deferral Agreement under Sections 4.1(a)
or 4.1(b), whichever applies, in order to receive the Matching Credits
described in Section 4.5, provided that such agreement need not provide
for Salary Deferrals.
4.2 Salary Deferral Agreement: An Eligible Executive's Salary Deferral
Agreement shall authorize a reduction in his base pay with respect to his Salary
Deferrals under the Plan. The Agreement shall be effective for payroll periods
beginning on or after the later of: (a) the Effective Date; or (b) the first day
of the month following the date the Salary Deferral Agreement is filed with the
Administrator in accordance with Section 4.1. Paychecks applicable to said
payroll periods shall be reduced accordingly.
4.3 Amount of Salary Deferrals:
(a) On each Valuation Date following the effective date of an
Eligible Executive's Salary Deferral Agreement, his Sub-accounts shall
be credited with an amount of Salary Deferral, if any, for the payroll
period ending thereon, as he elects in his Salary Deferral Agreement.
Such Salary Deferral for any payroll period shall be determined as the
sum of his Basic Salary Deferral for such payroll period determined
under subparagraph (i) and his Additional Salary Deferral for such
month, determined under subparagraph (ii) as follows:
(i) An Eligible Executive's Basic Salary Deferral shall
be determined by multiplying his Compensation for a
payroll period by the excess of his Salary Deferral
Percentage over the percentage determined in
subparagraph (ii) below
(ii) An Eligible Executive's Additional Salary Deferral
shall be determined by multiplying his Compensation
for a payroll period by a percentage determined as
(A) the excess of his Salary Deferral Percentage
over 15%, divided by (B) .85.
provided, however, that no Basic Salary Deferral shall be made under
this Plan for any payroll period unless the Eligible Executive is
prevented from making elective deferrals under the Tax Savings Thrift
Plan for such payroll period as a result of Section 402(g) and/or
401(k)(3) of the Code, and provided further that, for the payroll period
in which such Basic Salary Deferral is first made, it shall be limited
to the excess of the amount otherwise determined for such payroll period
under Section 4.3(a)(i) over the Eligible Executive's elective deferrals
under the Tax Savings Thrift Plan for such payroll period. If
applicable, Additional Salary Deferrals shall be made for each payroll
period of the year to which the Salary Deferral Agreement applies,
without regard to whether the Eligible Executive makes elective
deferrals under the Tax Savings Thrift Plan and without regard to any
Basic Salary Deferrals under this Plan.
(b) An Eligible Executive shall not be entitled to make Salary
Deferrals on or after attaining the age, if any, which he has designated
under Section 6.1(c) or 6.1(d) for the purpose of commencing
distribution of his Account (or, if applicable, his Retirement
Sub-account). In the event a Member establishes an Education Sub-account
pursuant to Article 9, he shall not be entitled to make Salary Deferrals
into such Sub-account after attaining the age which he has designated
for the purpose of commencing distribution from that Sub-account.
4.4 Changing Salary Deferrals:
(a) An Eligible Executive's election on his Salary Deferral
Agreement of the rate at which he authorizes Salary Deferrals under the
Plan shall remain in effect in subsequent calendar years unless he files
with the Administrator an amendment to his Salary Deferral Agreement
modifying or revoking such election. The amendment shall be filed by
December 30 and shall be effective for payroll periods beginning on or
after the following January 1.
(b) Notwithstanding Section 4.4(a), an Eligible Executive may, in
the event of a severe financial hardship, request a suspension of his
Salary Deferrals under the Plan. The request shall be made at a time and
in a manner determined by the Administrator, and shall be effective as
of such date as the Administrator prescribes. The Administrator shall
apply standards, to the extent applicable, identical to those described
in Section 6.3 in making its determination. The Eligible Executive may
apply to the Administrator to resume his Salary Deferrals with respect
to payroll periods beginning on or after the January 1 following the
date of suspension, at a time and in a manner determined by the
Administrator; provided, that the Administrator shall approve such
resumption only if the Administrator determines that the Eligible
Executive is no longer incurring such hardship. Notwithstanding the
preceding, following a Change of Control, such action by the
Administrator is subject to approval by the Benefits Trust Committee.
4.5 Certain Additional Credits: On each Valuation Date, there shall be
credited Matching Credits to the Retirement Sub-account(s) of an Eligible
Executive determined as follows:
(a) For payroll periods prior to the inception of Basic Salary
Deferrals hereunder, the greater of (b)(i) or (ii)
(b) For payroll periods during which Basic Salary Deferrals are
effective, the greater of (i) or (iii), minus (iv), where
(i) is the employer matching contributions the Eligible
Executive would have received under the Tax Savings
Thrift Plan if the provisions of Sections 401(k)(3),
401(m)(9) and 415 of the Code had not applied to the
Tax Savings Thrift Plan; and
(ii) is an amount determined as 3% of the Eligible
Executive's additional Salary Deferrals; and
(iii)is the employer matching contributions the Eligible
Executive would have received under the Tax Savings
Thrift Plan if his deferrals under this Plan had been
contributed to the Tax Savings Thrift Plan (in addition
to those amounts actually contributed to that Plan),
based on "Compensation" as defined in this Plan and as
if the provisions of Sections 401(a)(17), 401(k)(3),
401(m)(2), 401(m)(9) and 415 of the Code had not
applied to the Tax Savings Thrift Plan; and
(iv) is the employer matching contributions made on his
behalf for the applicable period to the Tax Savings
Thrift Plan.
No Matching Credits shall be credited to a Member's Education Sub-account.
<PAGE>
ARTICLE 5. MAINTENANCE OF ACCOUNTS
5.1 Adjustment of Account:
(a) As of each Valuation Date each Account (and, if applicable,
each Sub-account) shall be credited or debited with the amount of
earnings or losses with which such Sub-account would have been credited
or debited, assuming it had been invested in one or more investment
funds, or earned the rate of return of one or more indices of investment
performance, designated by the Administrator and, if applicable, elected
by the Member or former Member, for purposes of measuring the investment
performance of his Sub-accounts.
(b) The Administrator shall designate at least one investment
fund or index of investment performance and may designate other
investment funds or investment indices to be used to measure the
investment performance of Accounts. The designation of any such
investment funds or indices shall not require the Affiliated Companies
to invest or earmark their general assets in any specific manner. The
Administrator may change the designation of investment funds or indices
from time to time, in its sole discretion, and any such change shall not
be deemed to be an amendment affecting Members' or former Members'
rights under Section 7.2.
(c) For purposes of Section 5.1(a), the portion of a Member's
Retirement Sub-accounts attributable to Matching Credits shall be
credited or debited with earnings or losses based upon the performance
of "Fund E" (CSX Stock Fund) under the Tax Savings Thrift Plan.
(d) As of February 1, 1989, there shall be credited to the
Account of each Eligible Executive who participated in the Supplemental
Benefit Plan of Sea-Land Corporation and Affiliated Companies the amount
of deferred compensation under that plan as of January 31, 1989
attributable to amounts credited under that plan for the purpose of
restoring contributions to a defined contribution plan which were
limited by Section 415 of the Code. Such amounts shall be treated as
Salary Deferrals under the Plan, and unless transferred pursuant to
Section 5.3(a), shall earn the same rate of return as the CSX Cash Pool
Earnings Rate.
5.2 Investment Performance Elections:
(a) In the event the Administrator designates more than one
investment fund or index of investment performance under Section 5.1,
each Member and, if applicable, former Member, shall file an initial
investment election with the Administrator with respect to the
investment of his Salary Deferrals within such time period and on such
form as the Administrator may prescribe. The election shall designate
the investment fund or funds or index or indices of investment
performance which shall be used to measure the investment performance of
the Member's Salary Deferrals. The election shall be effective as of the
beginning of the payroll period next following the date the election is
filed. The election shall be in increments of 1%.
(b) In the event the Administrator designates more than one
investment fund or index under Section 5.1, each Member shall file an
initial investment election each calendar year in which he defers an
Award with respect to the amount deferred. The election shall be made
within such time period and on such form as the Administrator prescribes
and shall be in increments of 1% of the amount deferred. The election
shall be effective on the Valuation Date on which the amount determined
is credited to the Member's Account.
(c) A Member may not elect separate investment funds or indices
of investment performance with respect to each Sub-account.
<PAGE>
5.3 Changing Investment Elections:
(a) A Member may change his election in Section 5.2(a) with
respect to his future Salary Deferrals, no more than once each calendar
quarter, by filing an appropriate written notice with the Administrator.
The notice shall be effective as of the beginning of the first payroll
period following the date the notice is filed with the Administrator.
(b) A Member or, if applicable, former Member may reallocate the
current balance of his Retirement and/or Education Sub-accounts, thereby
changing the investment fund or funds or index or indices of investment
performance used to measure the future investment performance of his
existing Account balance, by filing an appropriate written notice with
the Administrator. Each Retirement or Education Sub-account may be
reallocated separately. The election shall be effective as of the last
business day of the calendar quarter following the month in which the
notice is filed. No election under this Section 5.3(b) shall apply to
the portion of a Member's Account attributable to Matching Credits.
5.4 Vesting of Account: Each Member shall be fully vested in his
Account.
5.5 Individual Accounts: The Administrator shall maintain, or cause to
be maintained, records showing the individual balances of each Account and each
Sub-account. At least once a year, each Member and, if applicable, former Member
shall be furnished with a statement setting forth the value of his Account and
his Sub-accounts.
5.6 Action Following a Change of Control: Following a Change of Control,
any action taken by the Administrator pursuant to this Article 5 is subject to
the approval of the Benefits Trust Committee.
ARTICLE 6. PAYMENT OF BENEFITS
6.1 Commencement of Payment:
(a) The distribution of the Member's or former Member's Account
shall commence, pursuant to Section 6.2, on or after the occurrence of
(i), (ii), (iii) or (iv) below, as designated by the Member as a
Distribution Option election:
(i) the Member's termination of employment with the
Affiliated Companies,
(ii) attainment of a designated age not earlier than age
59-1/2 (on or after January 1, 1995 age 50) nor later
than age 70-1/2,
(iii) the earlier of (i) or (ii) above, or
(iv) the later of (i) or (ii) above.
In the event a Member elects either (ii) or (iii) above, he may not
elect an age less than three (3) years subsequent to his current age. A
Member or former Member shall not change his Distribution Option
election of the designation of the event which entitles him to
distribution of his Account, except as provided in Section 6.1(c) below.
For purposes of this Plan and particularly this Section 6.1(a), if the
Member's employer is involved in a Divisive Transaction, the Member will
not be considered to have terminated his employment with an Affiliated
Company until his employment with his employer terminates.
(b) Effective January 1, 1995, a Member or former Member shall,
pursuant to Section 6.9, be eligible to make a Distribution Option
election of the designation of the event which entitles him to
distribution of his Account in the event of a Change of Control.
(c) A Member or former Member may change his Distribution Option
election of the designation of the events which entitle him to
distribution of his Account under Section 6.1(a) and Section 6.1(b), as
follows:
(i) A Member or former Member may make a request in writing
to the Administrator to defer the Member's designated
distribution event under Section 6.1(a). The requests
must be filed with the Administrator at least one year
prior to when distribution would commence based on the
current designation. The deferral requests must specify
a distribution event described in Section 6.1(a), shall
be subject to approval of the Administrator and, if
approved, shall be effective as of the date that is one
year after the request is filed with the Administrator.
If the Member's current distribution event will occur
upon his termination of employment and the Member's
employment terminates within one year after the
deferral request is made, the deferral request shall
not be effective. A deferral request under this Section
6.1(c)(i) shall not result in a forfeiture of the
Member's or former Member's Account.
(ii) Notwithstanding Section 6.1(c)(i), a Member or former
Member may change his designated distribution event
under Section 6.1(a) or 6.1(b), no more frequently than
once in any calendar year, by filing with the
Administrator an amendment to his Distribution Option
election on or before December 30 (or the last
preceding business day if December 30 is not a
weekday). The change shall be limited to those events
entitling a Member to a distribution that are described
in Section 6.1(a), shall be subject to approval of the
Administrator and, if approved, shall be effective as
of the last Valuation Date of the calendar year in
which the change is filed. Unless the election complies
with the requirements of Section 6.1(c)(i), or unless
the provisions of Section 6.1(e) apply, an election
under this Section 6.1(c)(ii) shall result in the
forfeiture of five percent (5%) of the Member's or
former Member's Account, determined as of the Valuation
Date upon which the election is effective. If the
Member or former Member changes the form in which his
Account is to be distributed under Section 6.2(c)(ii)
at the same time as he changes his designated
distribution event under this Section 6.1(c)(ii), the
combined forfeitures will be five percent (5%) of the
Member's or former Member's Account, determined as of
the Valuation Date upon which the election is
effective.
(d) Notwithstanding anything in this Section 6.1 or Article 9 to
the contrary, a Member's Account shall be distributed upon his death.
(e) A Member may not change the designation of the event which
entitles him to distribution of one or more Education Sub-accounts,
except that a Member may transfer the entire amount in any Education
Sub-account to one or more other Education Sub-accounts and one or more
of his Retirement Sub-accounts, or any combination thereof, subject to a
possible forfeiture of five percent (5%) of the Sub-account so
transferred, as provided in Article 9.
(f) Notwithstanding the foregoing, prior to a Change of Control,
the Corporation may delay payment of a benefit under this Plan to any
Member who is determined to be among the top five most highly paid
executives for the year the benefit under this Plan would otherwise be
paid; provided, however, if a Member's payment is delayed, the benefit
to which he is entitled will not decrease after the date it would
otherwise be distributed.
(g) Notwithstanding the preceding, following a Change of Control,
the authority to delay payment of a Member's or former Member's Account rests
solely with the Benefits Trust Committee.
6.2 Method of Payment:
(a) A Member's or former Member's Retirement Sub-account(s) shall
be distributed to him, or in the event of his death to his Beneficiary,
in a cash single sum payment as soon as administratively practicable
following the January 1 coincident with or next following the date the
Member incurs the Distribution Option elected under Section 6.1 or his
date of death, as the case may be. Matching Credits earned in respect to
periods following the date of such distributable event shall be paid
directly to the Member in cash as soon as practical. Notwithstanding the
foregoing, a Member or former Member may make a Distribution Option
election to receive distribution of his Account in semi-annual
installments over a period not to exceed twenty (20) years. Installments
shall be determined as of each June 30 and December 31 and shall be paid
as soon as administratively practicable thereafter. Installments shall
commence as of the July 1 or January 1 coincident with or next following
the date the Member incurs the distributable event elected as a
Distribution Option under Section 6.1, or as soon as administratively
practicable thereafter. The amount of each installment shall equal the
balance in the Account as of the Valuation Date of determination,
divided by the number of remaining installments (including the
installment being determined). The Distribution Option election shall be
irrevocable except as provided in Section 6.2(c) below. If a Member or
former Member dies before payment of the entire balance of his Account,
the remaining balance shall be paid in a single sum to his Beneficiary
as soon as administratively practicable following the January 1
coincident with or next following his date of death.
(b) Effective January 1, 1995, a Member or former Member shall,
pursuant to Section 6.9, be eligible to make a separate Distribution
Option election of the form of payment of his Account in the event of a
Change of Control.
(c) Notwithstanding Section 6.2(a) and Section 6.2(b), a Member
or former Member may change the Distribution Option election of the form
in which his Account is distributed, as follows:
(i) A Member or former Member may make a one-time request
to the Administrator to change the form in which his
Account is to be distributed under Section 6.2(a). A
Member or former Member may also make a one-time
request to change the form in which his Account is to
be distributed under Section 6.2(b). The request must
be filed in writing with the Administrator at least one
year prior to when distribution would commence based on
the current designation. The requests must specify a
form of distribution described in Section 6.2(a), shall
be subject to approval of the Administrator and, if
approved, shall be effective as of the date that is one
year after the request is filed with the Administrator.
If the Member's distribution event will occur upon his
termination of employment and the Member's employment
terminates within one year after the request is filed,
the request shall not be effective. A request under
this Section 6.2(c)(i) shall not result in a forfeiture
of the Member's or former Member's Account.
(ii) Notwithstanding Section 6.2(c)(i), a Member or former
Member may change the form in which his Account is to
be distributed under Section 6.2(a) or 6.2(b), no more
frequently than once in any calendar year, by filing
with the Administrator an amendment to his Distribution
Option election on or before December 30 (or the last
preceding business day if December 30 is not a
weekday). The change shall be limited to those forms of
distribution described in Section 6.2(a), shall be
subject to approval of the Administrator and, if
approved, shall be effective as of the last Valuation
Date of the calendar year in which it is filed. Unless
the election complies with the requirements for a
one-time request under Section 6.2(c)(i), or unless the
provisions of Section 6.2(d) apply, an election under
this Section 6.2(c)(ii) shall result in the forfeiture
of five percent (5%) of the Member's or former Member's
Account, determined as of the Valuation Date upon which
the election is effective. If the Member or former
Member changes his designated distribution event under
this Section 6.2(c)(ii) at the same time as he changes
the form in which his Account is to be distributed
under Section 6.1(c)(ii), the combined forfeiture will
be five percent (5%) of the Member's or former Member's
Account, determined as of the Valuation Date upon which
the election is effective.
(d) In the event the Member's Account consists of one or more
Retirement Sub-accounts and one or more Education Sub-accounts, the
provisions of this Section 6.2 shall apply exclusively to the Member's
Retirement Sub-accounts. A Member may not change the form in which his
Education Sub-accounts are distributed, except that a Member may
transfer the entire amount in any Education Sub-account to one or more
other Education Sub-accounts and one or more Retirement Sub-accounts, or
any combination thereof, subject to a possible forfeiture of five
percent (5%) of the Sub-account so transferred, as provided in Article
9.
6.3 Applicability: In the event the Member's Account consists of one or
more Retirement Sub-accounts and one or more Education Sub-accounts, the
provisions of Sections 6.1(a) and 6.1(c) and 6.2 shall apply exclusively to the
Member's Retirement Sub-accounts.
6.4 Account Adjustment: The obligations of the Corporation or any of its
affiliated corporations and the benefits due any Member, former Member,
surviving spouse or beneficiary hereunder shall be reduced by any amount
received in regard thereto under the Benefits Assurance Trust or any similar
trust or other vehicle.
6.5 Hardship Withdrawal
(a) While employed by the Participating Companies, a Member or
former Member may, in the event of a severe financial hardship, request
a withdrawal from his Account. The request shall be made in a time and
manner determined by the Administrator, shall not be for a greater
amount than the amount required to meet the financial hardship, and
shall be subject to approval by the Administrator.
(b) For purposes of this Section 6.5 financial hardship shall
include:
(i) education of a dependent child where the Member or
former Member shows that without the withdrawal
under this Section the education would be
unavailable to the child;
(ii) illness of the Member or former Member or his
dependents, resulting in severe financial hardship
to the Member or former Member;
(iii) the loss of the Member's or former Member's home or
its contents, to the extent not reimbursable by
insurance or otherwise, if such loss results in a
severe financial hardship to the Member or former
Member;
(iv) any other extraordinary circumstances of the Member
or former Member approved by the Administrator if
such circumstances would result in a present or
impending critical financial need which the Member
or former Member is unable to satisfy with funds
reasonably available from other sources.
(c) Notwithstanding the preceding, following a Change of Control,
any decisions or determinations by the Administrator under this Section 6.5
shall be subject to the approval of the Benefits Trust Committee.
6.6 Designation of Beneficiary: A Member or former Member may, at a time
and in a manner determined by the Administrator, designate a beneficiary and one
or more contingent beneficiaries (which may include the Member's or former
Member's estate) to receive any benefits which may be payable under this Plan
upon his death. If the Member or former Member do not designate a beneficiary or
contingent beneficiary, or if the beneficiary and the contingent beneficiaries
do not survive the Member or former Member, such benefits shall be paid to the
Member's or former Member's estate. A Member or former Member may revoke or
change any designation made under this Section 6.6 in a time and manner
determined by the Administrator.
6.7 Special Distribution Rules: Notwithstanding anything to the contrary
in this Plan, if (a) a Member or former Member becomes the owner, director or
employee of a competitor of the Affiliated Companies, (b) his employment is
terminated by an Affiliated Company on account of actions by the Member which
are detrimental to the interests of the Affiliated Company, or (c) he engages in
conduct subsequent to the termination of his employment with the Affiliated
Companies which the Administrator determines to be detrimental to the interests
of an Affiliated Company, then the Administrator may, in its sole discretion,
pay the Member or former Member a single sum payment equal to the balance in his
Account. The single sum payment shall be made as soon as practicable following
the date the Member or former Member becomes an owner, director or employee of a
competitor, his termination of employment or the Administrator's determination
of detrimental conduct, as the case may be, and shall be in lieu of all other
benefits which may be payable to the Member or former Member under this Plan.
6.8 Status of Account Pending Distribution: Pending distribution, a
former Member's Account (and, if applicable, a former Member's Sub-accounts)
shall continue to be credited with earnings and losses as provided in Section
5.1. The former Member shall be entitled to change his investment elections
under Section 5.3 or apply for Hardship withdrawals under Section 6.5 to the
same extent as if he were a Member of the Plan. In the event of the death of a
Member or former Member, his Sub-accounts shall be credited with earnings and
losses as if the Sub-accounts had earned the same rate of return as the CSX
Corporation Cash Pool Earnings Rate or, in the sole discretion of the
Administrator, the rate of return of such other index of investment performance
or investment fund which may be designated by the Administrator as a measure for
investment performance of Members' or former Members' Accounts (and, if
applicable, their Sub-accounts), commencing with the Valuation Date coincident
with or next following the Member's or former Member's date of death.
6.9 Installments and Withdrawals Pro-Rata: In the event of an
installment payment or hardship withdrawal, such payment or withdrawal shall be
made on a pro-rata basis from the portions of the Member's or former Member's
existing Account balance which are subject to different measures of investment
performance. In the event of a hardship withdrawal, the withdrawal shall be made
on a pro-rata basis from all of the Member's or former Member's Sub-accounts.
7.0 Change of Control:
(a) If a Change of Control has occurred, the Corporation and
Participating Companies shall contribute to the Trust within 7 days of
such Change of Control, a lump sum payment equal to the greater of (i)
the aggregate value of the amount each Member or former Member would be
eligible to receive (determined under (b) below) as of the latest
Valuation Date coinciding with or preceding the date of Change of
Control or (ii) the amount determined under Section 1(h) of the Trust
attributable to liabilities relating to the Plan to the extent such
amounts are not already in the Trust. The aggregate value of the amount
of the lump sum to be contributed to the Trust pursuant to this Section
6.10 shall be determined by the Independent Accountants after
consultation with the entity then maintaining the Plan's records, and
shall be projected, if necessary, to such Valuation Date from the last
valuation of Members' or former Members' Accounts for which information
is readily available. Thereafter, the Independent Accountants shall
annually determine as of a Valuation Date for each Member or former
Member not receiving a lump sum payment pursuant to subsection (b) below
the value of each Member or former Member's Accounts. To the extent that
the value of the assets held in the Trust relating to this Plan do not
equal the aggregate amount described in the preceding sentence, at the
time of the valuation, as determined by the Independent Accountants, the
Corporation and Participating Companies shall make a lump sum
contribution to the Trust equal to the difference.
(b) In the event a Change of Control has occurred, the trustee of
the Trust shall, within 45 days of such Change of Control, pay to each
Member or former Member not making an election under (c) below, a lump
sum payment equal to the value of the Member's or former Member's
Accounts (determined under Article 5) as of the Valuation Date
coinciding with or next preceding the date of such Change of Control.
The amount of each Member's or former Member's lump sum payment shall be
determined by the Independent Accountants after consultation with the
entity then maintaining the Plan's records, and shall be projected, if
necessary, to such Valuation Date from the last valuation of Member's or
former Member's Accounts for which information is readily available.
(c) Each Member or former Member may elect in a time and manner
determined by the Administrator, but in no event later than December 31,
1996, or the occurrence of a Change of Control, if earlier, to have
amounts and benefits determined and payable under the terms of the Plan
as if a Change of Control had not occurred. New Members of the Plan may
elect in a time and manner determined by the Administrator, but in no
event later than 90 days after becoming a Member, to have amounts and
benefits determined and payable under the terms of the Plan as if a
Change of Control had not occurred. A Member or former Member who has
made an election, as set forth in the two preceding sentences, may, at
any time and from time to time, change that election; provided, however,
a change of election that is made within one year of a Change of Control
shall be invalid.
(d) Notwithstanding anything in the Plan to the contrary, each
Member or former Member who has made an election under (c) above may
elect within 90 days following a Change of Control, in a time and manner
determined by the Benefits Trust Committee, to receive a lump sum
payment calculated under the provisions of (b) above determined as of
the Valuation Date next preceding such payment, except that such
calculated amount shall be reduced by 5% and such reduction shall be
irrevocably forfeited by the Member or former Member. Furthermore, as a
result of such election, the Member or former Member shall no longer be
eligible to participate or otherwise benefit from the Plan. Payments
under this subsection (d) shall be made not later than 7 days following
receipt by the Corporation of a Member's or former Member's election.
The Benefits Trust Committee shall, no later than 7 days after a Change
of Control has occurred, give written notification to each Member or
former Member eligible to make an election under this subsection (d),
that a Change of Control has occurred and informing such Member or
former Member of the availability of the election.
ARTICLE 7. AMENDMENT OR TERMINATION
7.1 Right to Terminate:
(a) Prior to a Change of Control, the Board may, in its sole discretion,
terminate this Plan and the related Deferral Agreements at any time. Following a
Change of Control, this Plan may not be terminated without the approval of the
Benefits Trust Committee.
(b) Prior to a Change of Control, the Committee may terminate an
Affiliated Company's participation as a Participating Company in this Plan for
any reason at any time. Following a Change of Control, an Affiliated Company may
not be terminated from participation as a Participating Company without the
consent of the Benefits Trust Committee.
(c) Prior to a Change of Control, an Affiliated Company's board of
directors may terminate that Affiliated Company's participation as a
Participating Company for any reason at any time. Following a Change of Control,
an Affiliated Company's participation as a Participating Company may not be
terminated without the consent of the Benefits Trust Committee.
(d) In the event the Plan and related Deferral Agreements are
terminated, each Member, former Member and Beneficiary shall receive a single
sum payment equal to the balance in his Account. The single sum payment shall be
made as soon as practicable following the date the Plan is terminated and shall
be in lieu of any other benefit which may be payable to the Member, former
Member or Beneficiary under this Plan.
7.2 Right to Amend: Prior to a Change of Control, the Board may, in its
sole discretion, amend this Plan and the related Deferral Agreements on 30 days
prior notice to the Members and, where applicable, former Members. Following a
Change of Control, all amendments to this Plan are subject to the approval of
the Benefits Trust Committee. If any amendment to this Plan or to the Deferral
Agreements shall adversely affect the rights of a Member or former Member, such
individual must consent in writing to such amendment prior to its effective
date. If such individual does not consent to the amendment, the Plan and related
Deferral Agreements shall be deemed to be terminated with respect to such
individual and he shall receive a single sum payment of his Account as soon
thereafter as is practicable. Notwithstanding the foregoing, the Administrator's
change in any investment funds or investment index under Section 5.1(b) or the
restriction of future deferrals under the salary deferral program or award
deferral program shall not be deemed to adversely affect any Member's or former
Member's rights.
7.3 Uniform Action: Notwithstanding anything in the Plan to the
contrary, any action to amend or terminate the Plan or the Deferral Agreements
must be taken in a uniform and nondiscriminatory manner. Notwithstanding the
preceding, any such action taken by the Administrator following a Change of
Control is subject to the approval of the Benefits Trust Committee.
ARTICLE 8. GENERAL PROVISIONS
8.1 No Funding: Nothing contained in this Plan or in a Deferral
Agreement shall cause this Plan to be a funded retirement plan. Neither the
Member, former Member, his beneficiary, contingent beneficiaries, heirs or
personal representatives shall have any right, title or interest in or to any
funds of the Trust or the Affiliated Companies on account of this Plan or on
account of having completed a Deferral Agreement. The assets held in the Trust
shall be subject to the claims of creditors of the Corporation, and the Trust's
assets shall be used to discharge said claims in the event of the Corporation's
insolvency. Each Member or former Member shall have the status of a general
unsecured creditor of the Affiliated Companies and this Plan constitutes a mere
promise by the Affiliated Companies to make benefit payments in the future.
8.2 Obligation: To the extent reflected by resolutions of the applicable
boards of directors, obligations for benefits under this Plan shall be joint and
several.
8.3 No Contract of Employment: The existence of this Plan or of a
Deferral Agreement does not constitute a contract for continued employment
between an Eligible Executive or a Member and an Affiliated Company. The
Affiliated Companies reserve the right to modify an Eligible Executive's or
Member's remuneration and to terminate an Eligible Executive or a Member for any
reason and at any time, notwithstanding the existence of this Plan or of a
Deferral Agreement.
8.4 Withholding Taxes: All payments under this Plan shall be net of an
amount sufficient to satisfy any federal, state or local withholding and payroll
tax requirements.
8.5 Nonalienation: The right to receive any benefit under this Plan may
not be transferred, assigned, pledged or encumbered by a Member, former Member,
beneficiary or contingent beneficiary in any manner and any attempt to do so
shall be void. No such benefit shall be subject to garnishment, attachment or
other legal or equitable process without the prior written consent of the
Affiliated Companies. Notwithstanding the preceding, following a Change of
Control, the Administrator shall not implement such action without the consent
of the Benefits Trust Committee.
8.6 Administration:
(a) Prior to a Change of Control, the Administrator of the Plan
shall be responsible for the general administration of the Plan, claims
review, and for carrying out its provisions. Administration of the Plan
shall be carried out consistent with the terms and conditions of the
Plan.
(b) Following a Change of Control, the Benefits Trust Committee
may remove and/or replace the Administrator.
(c) The Administrator shall have sole and absolute discretion to
interpret the Plan, determine eligibility for and benefits due
hereunder. Decisions of the Administrator regarding benefits under the
Plan shall at all times be binding and conclusive on Members, their
beneficiaries, heirs and assigns. Notwithstanding the preceding,
following a Change of Control, final benefit determinations for Members,
their beneficiaries, heirs and assigns and decisions regarding benefit
claims under the Plan shall rest with the Benefits Trust Committee or
its delegate in its sole and absolute discretion.
(d) Prior to paying any benefit under this Plan, the
Administrator may require the Member or former Member, beneficiary or
contingent beneficiary to provide such information or material as the
Administrator, in its sole discretion, shall deem necessary for it to
make any determination it may be required to make under this Plan. The
Administrator may withhold payment of any benefit under this Plan until
it receives all such information and material and is reasonably
satisfied of its correctness and genuineness. The Administrator shall
provide adequate notice in writing to any Member, former Member,
beneficiary or contingent beneficiary whose claim for benefits under
this Plan has been denied, setting forth the specific reasons for such
denial. A reasonable opportunity shall be afforded to any such Member,
former Member, beneficiary or contingent beneficiary for a full and fair
review by the Administrator of its decision denying the claim. The
Administrator's decision on any such review shall be final and binding
on the Member, former Member, beneficiary or contingent beneficiary and
all other interested persons. All acts and decisions of the
Administrator shall be final and binding upon all Members, former
Members, beneficiaries, contingent beneficiaries and employees of the
Affiliated Companies. Notwithstanding the preceding, following a Change
of Control, any and all decisions by the Administrator are subject to
the approval of the Benefits Trust Committee.
(e) Prior to a Change of Control, the Committee in its sole
discretion and upon such terms as it may prescribe, may permit any
company or corporation directly or indirectly controlled by the
Corporation to participate in the Plan. After a Change of Control, such
permission must be approved by the Benefits Trust Committee.
8.7 Construction
(a) The Plan is intended to constitute an unfunded deferred
compensation arrangement for a select group of management or highly
compensated employees and all rights hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia to
the extent not preempted by federal law.
(b) The masculine pronoun means the feminine wherever
appropriate.
(c) The captions inserted herein are inserted as a matter of
convenience and shall not affect the construction of the Plan.
ARTICLE 9. EDUCATION SUB-ACCOUNTS
9.1 Education Sub-accounts:
(a) Notwithstanding any provision of this Plan to the contrary,
with respect to amounts deferred under Salary Deferral Agreements and
Award Deferral Agreements effective on or after December 31, 1990, a
Member may direct the Administrator to establish a separate sub-account
in the name of one or more of:
(i) each of the Member's children,
(ii) each of the Member's brothers, sisters, their
spouses, the Member's spouse, or
(iii) each of the foregoing's lineal descendants, for the
payment of their expenses directly or indirectly
arising from enrollment in a college, university,
another post-secondary institution of higher
learning or a secondary educational institution.
Each sub-account established pursuant to this
Section 9.1(a) shall be referred to as an
"Education Sub-account."
(b) The Member may instruct the Administrator to allocate all or
a portion of any amount deferred under an Award Deferral Agreement in
respect to an Award granted after December 31, 1990 to one or more of
the Education Sub-accounts established pursuant to Section 9.1(a).
(c) A Member may instruct the Administrator to allocate all or
any portion of the amount he defers for periods commencing after
December 31, 1990 pursuant to his Salary Deferral Agreement to one or
more of the Education Sub-accounts established pursuant to Section
9.1(a).
(d) Any elections pursuant to Sections 9.1(a) and 9.1(b) shall
be made in whole percentages.
(e) No Matching Credits shall be allocated to any Education
Sub-account.
9.2 Distribution of Education Sub-accounts:
(a) Amounts allocated to one or more of a Member's Education
Sub-accounts shall be distributed to the Member upon the attainment of
the certain age of the Member, specifically designated by the Member for
this purpose with regard to that Sub-account.
(b) A Member or former Member may transfer the entire amount but
not less than that amount in any Education Sub-account to one or more
other Education Sub-accounts, a Retirement Sub-account, or any
combination thereof, by filing the appropriate form or forms with the
Administrator not later than the last business day of the calendar year
preceding the calendar year in which distribution of that Education
Sub-account was to begin; provided, however, if such transfer
accelerates the timing of the payment to the Member, there shall be a
forfeiture of five percent (5%) of the Member's or former Member's
Sub-account so transferred, determined as of the Valuation Date upon
which the transfer is effective. In no event may a Member transfer all
or any portion of the amount in a Retirement Sub-account to his
Education Sub-accounts. Except as provided in this Section 9.2(b) or
9.2(c) below, a Member or former Member may not change the time or form
of distribution of his Education Sub-accounts.
(c) In the event that the individual for whom an Education
Sub-account is established dies while funds remain in that Sub-account,
a Member or former Member may transfer without penalty the entire amount
but not less than that amount in that Sub-account in accordance with the
provisions of (i) or (ii) below:
(i) to one or more existing Education Sub-accounts
and/or a new Education Sub-account established in
accordance with the provisions of Section 9.1
hereof; or
(ii) to a Retirement Sub-account.
If a Member or former Member elects to transfer funds in accordance with
(ii) and he has not previously established a Retirement Sub-account,
such a Sub-account shall be established automatically and the Member or
former Member promptly thereafter will be required to execute an
amendment to his Deferral Agreement which shall specify the option under
Section 6.1(a) which will entitle him to distribution of the Retirement
Sub-account and the form of distribution under Section 6.2(a).
(d) A Member's or former Member's Education Sub-accounts shall be
distributed to him, or in the event of his death to his Beneficiary, in
a cash single sum payment as soon as administratively practicable
following the January 1 coincident with or next following the date the
Member incurs the distributable event or events elected under Section
9.2(a) or his date of death, as the case may be. Notwithstanding the
foregoing, a Member or former Member may elect to receive distribution
of one or more of his Education Sub-accounts in semi-annual installments
over a period not to exceed six (6) years. Installments shall be
determined as of each June 30 and December 31 and shall be paid as soon
as administratively practicable thereafter. Installments shall commence
as of the June 30 or December 31 coincident with or next following the
date the Member incurs the distributable event elected under Section
9.2(a) with regard to a Sub-account, or as soon as administratively
practicable thereafter. The amount of each installment shall equal the
balance in the applicable Education Sub-account as of the Valuation Date
of determination, divided by the number of remaining installments
(including the installment being determined). If a Member or former
Member dies before payment of the entire balance of all of his Education
Sub-accounts, the remaining balance or balances, as the case may be,
shall be paid in a single sum to his Beneficiary as soon as
administratively practicable following the January 1 coincident with or
next following his date of death.
9.3 Construction: To the extent any provision in this Article 9 is
inconsistent with any other provision of this Plan, the provisions in Article 9
shall govern.
Exhibit 10.18
SPECIAL RETIREMENT PLAN
OF CSX CORPORATION AND AFFILIATED CORPORATIONS
As Amended and Restated January 1, 1995
(As Amended through December 31, 1997)
TABLE OF CONTENTS
Section I - INTRODUCTION........................................... 1
Section II - PARTICIPATION.......................................... 1
Section III - CREDITABLE SERVICE..................................... 3
Section IV - COMPENSATION AND AVERAGE COMPENSATION.................. 4
Section V - SPECIAL RETIREMENT ALLOWANCES.......................... 4
Section VI - FUNDING METHOD.......................................... 6
Section VII - ADMINISTRATION OF SPECIAL PLAN.......................... 6
Section VIII - MODIFICATION, AMENDMENT AND TERMINATION................. 7
Section IX - NON-ALIENATION OF BENEFITS.............................. 7
Section X - MISCELLANEOUS PROVISIONS................................ 8
Section XI - CHANGE OF CONTROL....................................... 8
Section XII - CONSTRUCTION........................................... 10
APPENDIX I PARTICIPANTS GRANTED ADDITIONAL
CREDITABLE SERVICE PURSUANT TO
SECTION V(4)(b)
<PAGE>
Special Retirement Plan
of CSX Corporation and Affiliated Corporations
As Amended and Restated January 1, 1995
(As Amended through December 31, 1997)
Section I - INTRODUCTION
1. The purpose of this retirement plan, hereinafter called the "Special
Plan," is to provide an incentive for corporate officers comprising a select
group of management or highly compensated employees to exert maximum efforts for
the Company's success and to remain in the service of the Company until
retirement.
2. The Special Plan as provided herein was originally effective as of
March 1, 1983, and supersedes the Employees' Special Pension Plan of The
Chesapeake and Ohio Railway Company and the Plan for Additional Annuities for
Qualifying Members under the Supplemental Pension Plan of The Baltimore and Ohio
Railroad Company, hereinafter called the "Former Plans."
3. The "Company" as used herein means CSX Corporation and such other of
its affiliated corporations as shall adopt this Special Plan with the approval
of the Compensation Committee and by action of their boards of directors for the
benefit of corporate officers who are covered or may become covered by the
Special Plan.
4. The term "Compensation Committee" means the Compensation Committee of
the Board of Directors of CSX Corporation (the "Board of Directors").
5. "Benefits Trust Committee" means the committee created pursuant to
the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement
("The Benefits Assurance Trust").
6. The Company's "Independent Accountant" means an independent
accountant or actuary engaged by the Company and, if selected or changed
following a Change of Control, approved by the Benefits Trust Committee.
7. The incentives under the Special Plan shall consist of special
retirement allowances provided by the Company at retirement to certain
employees, hereinafter referred to as "Participants," who shall participate as
provided herein (eligibility for participation is set forth in Section II).
8. The Special Plan shall, where appropriate, refer to and have meanings
consistent with all of the relevant terms of any other regularly maintained
pension plan which currently provides or did provide immediately prior to March
1, 1983, retirement benefits for non-contract employees of the Company and is or
was maintained by CSX Corporation or any of its affiliated corporations whose
officers participate in the Special Plan. Such existing regularly maintained
pension plans which provided benefits immediately prior to March 1, 1983 for
employees of the Company, and covered periods of service granted in subsections
4(a) and 4(b) of Section V, or those which may be established hereafter, as
amended from time to time, shall be referred to herein as the "Pension Plans."
Accordingly, regardless of formal differences which may exist between the
Special Plan and the Pension Plans in the use of terminology, the definitions
and principles which are set forth in the Pension Plans with respect to
compensation, average compensation, credited service, and similar terms shall be
applied and construed hereunder in a manner consistent with the purposes of the
Special Plan and the Pension Plans. In any instance in which the male gender is
used herein, it shall also include persons of the female gender in appropriate
circumstances.
Section II - PARTICIPATION
1. Every person who was a Participant in the Former Plans as in effect
immediately prior to March 1, 1983, shall continue as a Participant in the
Special Plan on and after such date for the purpose of any applicable provisions
hereof.
2. On and after March 1, 1983, Participants shall include any employees
who participate in the Pension Plans and who are entitled to benefits provided
under Section V, Subsection 8 hereof; provided, however, that the only benefit
that such employees shall be eligible to receive under this Special Plan shall
be the benefit provided in accordance with such Subsection unless they are
otherwise entitled to benefits under other provisions of this Special Plan.
3. On and after March 1, 1983, additional persons eligible to be
Participants shall be those specified in Section V, Subsection 4(c).
Section III - CREDITABLE SERVICE
1. Creditable service under the Special Plan shall have the same meaning
and apply in the same manner as creditable service under the Pension Plans,
except that it shall also include any additional creditable service which may
have been or which may be granted to a Participant in accordance with the
provisions of Section V, Subsections 3 and 4. Provided, however, notwithstanding
any provisions of the Pension Plans to the contrary, a Participant in the
Special Plan who is in the employ of the Company and who does not receive
compensation in any calendar month due to amounts deferred under the Company's
Deferred Compensation Program, Supplementary Savings and Incentive Award
Deferral Plan, and any other amounts of compensation deferred under any other
arrangement approved by the Compensation Committee nevertheless shall receive
creditable service under the Special Plan.
2. Notwithstanding any other provisions of this Special Plan or the
Pensions Plans to the contrary, effective January 1, 1989:
(a) Prior to January 1, 1992, a Participant must have been
continuously employed by the Company for a period of not less
than 10 years to become entitled upon retirement to receive
payment of a special retirement allowance from this Special Plan
in respect of any additional creditable service, pension
supplement, pension or benefit granted under Section V,
Subsections 3(a) or 3(b) of this Special Plan. After December 31,
1991, this Subsection (a) shall only apply to Section V,
Subsection 3(b); and,
(b) Prior to January 1, 1992, a Participant must have been
continuously employed by the Company for a period of not less
than 5 years to become entitled to receive payment of a special
retirement allowance from this Special Plan in respect of any
additional creditable service granted under Section V, Subsection
4(d), of this Special Plan; provided, however, a person who has
already attained age 60 when he first becomes employed by the
Company, and who also becomes and continuously remains a
Participant from his first date of employment until attainment of
age 65, shall become entitled upon retirement to receive payment
of a special retirement allowance from this Special Plan in
respect of any additional creditable service granted under
Section V, Subsection 4(d) of this Special Plan; and
(c) After December 31, 1991, a Participant must have been
continuously employed by the Company for a period of not less
than 10 years and must have attained age 55 to become entitled to
receive a special retirement allowance from this Special Plan in
respect to any additional creditable service accrued after
December 31, 1991, granted under Section V, Subsection 4(d), of
this Special Plan or a pension or benefit granted after December
31, 1991 under Section V, Subsection 3(a) of this Special Plan;
provided, however, a Participant who has at least 5 years of
continuous service and who dies while actively employed shall be
entitled to the additional creditable service accrued after
December 31, 1991; and provided, further, a Participant who
terminates employment with the consent of the Chief Executive
Officer of CSX Corporation ("Chief Executive Officer") prior to
age 55 with 10 years of continuous service shall be entitled to
the additional creditable service accrued after December 31,
1991.
(d) Prior to a Change of Control, in no event shall a Participant be
eligible to receive a payment in respect of any benefits granted
under Section V, Subsections 3(a), 3(b) or 4(d) of this Special
Plan before such date as the Participant attains the earliest
retirement age specified in the particular Pension Plan in which
the Participant also participates, unless an earlier payment from
the Special Plan is specifically authorized by the Compensation
Committee. The Compensation Committee shall have full authority
and sole discretion to interpret and administer the foregoing
rules, and any decision made by the Compensation Committee shall
be final and binding. Following a Change of Control, the same
rules apply except that the Benefits Trust Committee shall have
full authority and sole discretion to interpret and administer
the foregoing rules. Any such decision made by the Benefits Trust
Committee shall be final and binding.
(e) In the event of a Change of Control, as defined in Section XI,
the age 55 and length of service requirements contained in
Section III, Subsection (2)(c), shall be waived for those
Participants who are employed by the Company at the time of the
Change of Control.
Section IV - COMPENSATION AND AVERAGE COMPENSATION
Compensation and average compensation under the Special Plan shall have
the same meanings and apply in the same manner as those terms do under the
Pension Plans, except as provided in Section V, Subsection 3(b); provided,
however, that amounts deferred under the Company's Deferred Compensation
Program, Supplementary Savings and Incentive Award Deferral Plan, and any other
amounts of compensation deferred under any other arrangement approved by the
Compensation Committee shall be included in the determination of compensation
and average compensation; and further provided, that compensation and average
compensation hereunder shall not be limited to the amount of $150,000, or such
other amount as adjusted by regulation, as imposed by Sections 401(a)(17) and
415(d) of the Internal Revenue Code.
Section V - SPECIAL RETIREMENT ALLOWANCES
1. All of the provisions, conditions, and requirements set forth in the
Pension Plans with respect to the granting and payment of retirement benefits
thereunder shall be equally applicable to the granting of the special retirement
allowances hereunder to Participants in the Special Plan and to the payment
thereof from the Company's general assets or from the Benefits Assurance Trust.
Except as otherwise may be provided in this Special Plan, whenever a
Participant's rights under the Special Plan are to be determined, appropriate
reference shall be made to the particular Pension Plan in which such person is
also a participant. Notwithstanding the preceding sentence, if a special
retirement allowance under the Special Plan shall be paid to a surviving spouse
in conformance with the provisions of the Pension Plans, the final installment
payment hereunder shall be made only to the estate of such surviving spouse and
shall not be otherwise paid, regardless of any different provision for such
payment which may be prescribed in the Pension Plans.
2. All special retirement allowances being paid on March 1, 1983, under
the Former Plans as they existed immediately prior to such date shall be
continued and be paid hereunder, and, persons participating under the Former
Plans shall continue to participate hereunder in accordance with the terms and
conditions of the Former Plans and any applicable provisions of this Special
Plan.
3. The Compensation Committee, upon the recommendation of the Chief
Executive Officer, may grant to an officer of the Company the following benefits
under the Special Plan:
(a) Additional creditable service, pensions or benefits hereunder
other than as provided in the Pension Plan, in recognition of
previous service deemed to be of special value to the Company.
(b) A pension supplement hereunder in a particular instance as
determined by the Compensation Committee, to be calculated on the
basis of specific instructions which may depart only for such
purpose from any of the terms, conditions or requirements of the
Pension Plans, notwithstanding the provisions of Section I,
Subsection 5, and Section V, Subsection 1, hereof.
4. The following additional creditable service under the Special Plan
shall be granted by the Company at retirement under the Pension Plans:
(a) To those Participants of the "Former Plans," creditable service
equal to that accrued under Section V, Subsection 4 of The
Employees' Special Plan of The Chesapeake and Ohio Railway
Company or under paragraphs 1, 2 and 3 of the Plan for Additional
Annuities for Qualifying Members Under the Supplemental Pension
Plan of the Baltimore and Ohio Railroad Company, provided that,
effective upon a Participant's retirement on or after March 1,
1983, creditable service under the Special Plan and Pension Plans
shall not exceed 44 years.
(b) To those Participants in the Special Plan who are listed in
Appendix I, and who are also participants in the Pension Plans,
additional creditable service under the Special Plan will be
granted as indicated for each individual as shown in Appendix I,
provided that additional creditable service under the Special
Plan and credited service under the Pension Plans at retirement
shall not exceed 44 years.
(c) On and after March 1, 1983, new admissions into the class of
persons who may become Participants in the Special Plan to
receive additional creditable service hereunder shall only
include participants in the Pension Plans who are appointed by
the Chief Executive Officer or his designee.
(d) In addition to the additional creditable service granted to
Participants under (a) or (b) above, beginning March 1, 1983, one
year of additional creditable service shall be granted for each
year of actual service (with allowances for months less than
twelve) between ages 45 and 65 during which a person is a
Participant. Those who become qualified as provided in (c) above
shall have one year of additional credited service granted,
beginning no earlier than the date they are both a Participant
and at least age 45, for each year of actual service (with
allowances made for months less than twelve) during which they
remain a Participant, but only up to age 65. Additional
creditable service granted under the Special Plan shall be
combined with credited service under the Pension Plan (but only
if credited service under the Pension Plans does not exceed 44
years), to result in total credited service and additional
creditable service under the Pension Plans and the Special Plan
which shall not exceed a maximum of 44 years. The position,
compensation, and other conditions upon which a non-contract
employee's participation herein is based shall be determined from
time to time in the absolute discretion of the Compensation
Committee. Effective December 31, 1993, there shall be no new
admissions into the class of persons who may receive additional
benefits pursuant to this subsection 4(d); provided, however, the
Chief Executive Officer may, by express agreement, offer the
additional benefits pursuant to this subsection 4(d) to selected
individuals.
(e) Anything to the contrary notwithstanding, any Participant in the
Special Plan receiving additional creditable service under this
Subsection 4, and whose responsibilities and compensation are
reduced, may, in the discretion of the Compensation Committee or
the Chief Executive Officer, cease to receive any further
additional creditable service hereunder.
(f) A Participant's accrual of additional creditable service as
provided herein shall not be subject to termination except as
provided in subparagraph (e) above, or upon retirement or
termination of employment.
(g) Prior to January 1, 1992, a Participant who receives benefits
under a Salary Continuance and Long-Term Disability Plan of the
Company shall continue to accrue additional creditable service
hereunder subject to the same rules that are applicable in such
instances under the Pension Plans.
(h) It is the intent of this Section V that, for the purpose of the
Special Plan, the additional creditable service provided
hereunder when added to credited service under the Pension Plans
or otherwise, shall not in any case exceed 44 years in the
aggregate.
(i) To those Participants who become qualified as provided in (a),
(b) or (c) above, a special retirement allowance shall be payable
under the Special Plan to such Participants or their surviving
spouses equal to any amount due under the Pension Plans which is
not paid in full under the Pension Plans.
(j) Notwithstanding the preceding, following a Change of Control, any
additional service or benefits granted under Article V,
Subsection 4 shall be subject to the approval of the Benefits
Trust Committee.
5. The Company shall accrue and pay under this Special Plan as an
additional supplemental benefit any annual pension benefits that would have been
payable under the Pension Plans as in effect on September 1, 1974, or
thereafter, if Sections 415(b) and 401(a)(17) of the Internal Revenue Code, and
any other relevant provisions of law that impose limitations or have the effect
of limiting the accrual of benefits under the Pension Plans, had not been
enacted into law, unless such additional supplemental benefit is provided by the
Company through another plan created for that purpose.
6. The Company shall accrue reserves to the credit of the Special Plan
in advance to cover the costs of any additional creditable service, pensions or
benefits granted under Subsections 3 and 4 hereof, and such pensions or benefits
or special retirement allowances reflecting such credit shall be paid under the
Special Plan. Where additional creditable service is granted, upon retirement in
accordance with the provisions of the Pension Plans, the Participant shall
receive a special retirement allowance equal to the difference between the
retirement allowance computed under the Pension Plans and the amount which would
be payable if the additional credit granted hereunder had been included with the
actual credited service in the computation of the retirement allowance payable
under the Pension Plans. Where a pension or other benefit is granted to a
Participant, such pension or benefit shall be payable as a special retirement
allowance from the Special Plan.
7. In the event any Participant in the Special Plan receives as a
participant in the Pension Plans, a pension or retirement benefit payable in a
form other than a straight life annuity in accordance with the provisions of the
Pension Plans, his special retirement allowance under this Section V shall also
be payable in a similar form.
8. The Company shall accrue and pay under this Special Plan any annual
pension benefit which otherwise would have been payable under the Pension Plans
but for the Participant's deferral of compensation under the Company's Deferred
Compensation Program, Supplementary Savings and Incentive Award Deferral Plan,
or under any other deferred compensation arrangement approved by the
Compensation Committee.
9. The obligations of the Company or any of its affiliated corporations
and the benefit due any Participant, surviving spouse or beneficiary under this
Plan shall be reduced by any amount received in regard thereto under the
Benefits Assurance Trust or any similar trust or other vehicle.
Section VI - FUNDING METHOD
1. The benefits provided under the Special Plan shall be financed by the
Company and no contribution shall be required of Participants. The Company shall
accrue reserves on its books as follows:
(a) As of March 1, 1983, an amount shall be calculated with respect
to the Former Plans which shall be the actuarially determined
present value as of that date of all special retirement
allowances payable under the Former Plans and, under a schedule
approved by the Company's Independent Accountant, the reserve
previously accrued will be adjusted.
(b) As of March 1, 1983, the actuarially determined present value as
of that date of all special retirement allowances payable under
Section V, Subsection 4(b) shall be calculated and, under a
schedule approved by the Company's Independent Accountant, a
reserve equal to that amount established.
(c) During the year 1983, there shall be accrued the amount required
to allow regular interest on the adjusted reserve provided in (a)
and (b) above. Each year thereafter there shall be accrued the
amount required to allow regular interest on the average reserves
standing to the credit of the Special Plan during the preceding
year.
(d) Each year the reserves shall be adjusted to reflect the payment
of special retirement allowances during the year.
(e) Such additional reserves shall be accrued from time to time as
may be required in accordance with Section V, Subsections 3 and
4, on account of grants thereunder made after March 1, 1983.
(f) There shall be accrued from time to time, as required, additional
reserves on account of benefits pursuant to Section V, Subsection
6.
(g) At such times as the Plan Administrator shall recommend, the
reserves accrued to the credit of the Special Plan shall be
adjusted on the basis of actuarial valuations to reflect the
experience under the Special Plan, or amendments thereto, or
changes in the rate of regular interest, or any other actuarial
assumptions.
2. The Company shall provide all funds required for the administration
expenses of the Special Plan.
3. The Company has established the CSX Corporation and Affiliated
Companies Benefits Assurance Trust ("Trust"). Except as provided in Section XI,
the Company is not obligated to make any contribution to the Trust.
4. The Special Plan is intended to be unfunded for tax purposes and for
purposes of Title I of ERISA. Participants in the Special Plan have the status
of general unsecured creditors of the Company, and the Special Plan constitutes
a mere promise by the participating employer to make benefit payments in the
future.
5. To the extent reflected by resolutions of the applicable boards of
directors, obligations for benefits under this Special Plan shall be joint and
several.
Section VII - ADMINISTRATION OF SPECIAL PLAN
1. Prior to a Change of Control, the Plan Administrator for the CSX
Pension Plan shall be responsible for the general administration of the Special
Plan and for carrying out its provisions.
2. Following a Change of Control, the Benefits Trust Committee may
remove and/or replace the Plan Administrator as to the Special Plan.
Additionally, following a Change of Control, any and all benefits determinations
for Participants, their beneficiaries, heirs and assigns and decisions regarding
benefit claims under this Special Plan shall rest with the Benefits Trust
Committee or its delegate in its sole and absolute discretion.
Section VIII - MODIFICATION, AMENDMENT AND TERMINATION
1. The Special Plan represents a contractual obligation heretofore
entered into by the Company in consideration of services rendered and to be
rendered by Participants covered under the Special Plan. Prior to a Change of
Control, the Company reserves the right at any time and from time to time to
modify or amend in whole or in part any or all of the provisions of this Special
Plan, or to terminate this Special Plan; provided, however, prior to December 1,
1991, no modification or amendment shall be made to this Special Plan unless
there have been modifications or amendments to correlative provisions of the
Pension Plans, and any modifications or amendments to this Special Plan shall
coincide with the modifications or amendments of the Pension Plans (except
nonconforming revisions to administrative provisions shall be permitted); and
provided, further, that this Special Plan shall only be terminated if the
Pension Plans are terminated, subject to the following limitations:
(a) In the event any modification or amendment adversely affects the
benefits to be received by a retired Participant and the
designated surviving spouse of a retired Participant, they shall
be entitled to receive for life the special retirement allowance
they would have received had the Special Plan not been modified
or amended, and each designated surviving spouse of a retired
Participant shall become entitled to receive for life the special
retirement allowance that such designated surviving spouse would
have received had the Special Plan not been modified or amended.
(b) In the event of the termination of this Special Plan, each
retired Participant and designated surviving spouse of a retired
Participant shall be entitled to receive for life the special
retirement allowance they would have received had the Special
Plan not been terminated, and each designated surviving spouse of
a retired Participant shall become entitled to receive for life
the special retirement allowance that such designated surviving
spouse would have received had the Special Plan not been
terminated.
(c) In the event any modification or amendment adversely affects the
benefit which an active Participant would have been entitled to
receive if such amendment or modification had not been made, such
active Participant shall, so long as he remains in the active
service of the Company, only continue to accrue creditable
service and benefits prospectively in accordance with the
provisions of the Special Plan as so modified or amended, unless
the Participant shall earlier cease to receive any additional
creditable service as provided in Section V, Subsection 4(e).
(d) In the event this Special Plan is terminated, each active
Participant, in consideration of his continued service to the
Company until the date of his termination from active employment
by retirement or otherwise, shall be entitled to retain his
accrued additional service, or pension or benefits as granted
hereunder to such Participant, in accordance with the provisions
of this Special Plan in effect on the day prior to the date of
termination, unless the Participant shall earlier cease to
receive any additional creditable service as provided in Section
V, Subsection 4(e).
(e) In lieu of paying special retirement allowances in accordance
with the foregoing provisions, the Plan Administrator, at its
election, may direct the discharge of all obligations to retired
Participants, designated spouses of retired Participants, and
active Participants by cash payments of equivalent actuarial
value or through the provision of immediate or deferred annuities
or other periodic payments of equivalent actuarial value, as it
shall in its sole discretion determine, provided that following a
Change of Control, the authority to make such decisions shall
rest solely with the Benefits Trust Committee.
2. Following a Change of Control, this Special Plan may not be amended
or terminated without the approval of the Benefits Trust Committee.
Section IX - NON-ALIENATION OF BENEFITS
1. No benefit under the Special Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void, except as specifically provided
in the Special Plan, nor shall any benefit be in any manner liable for or
subject to the debt, contracts, liabilities, engagements, or torts of the person
entitled to such benefit; and in the event that the Plan Administrator shall
find that any active or retired Participant or designated spouse or spouse under
the Special Plan has become bankrupt or that any attempt has been made to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any of
his benefits under the Special Plan, except as specifically provided in the
Special Plan, then such benefits shall cease to accrue and shall be determined,
and in that event, the Plan Administrator shall hold or apply the same to or for
the benefit of such active or retired Participant or spouse, in such manner as
the Plan Administrator may deem proper.
2. Notwithstanding the preceding, following a Change of Control, the
Plan Administrator shall not implement such action without the consent of the
Benefits Trust Committee.
Section X - MISCELLANEOUS PROVISIONS
1. Anything in the Special Plan to the contrary notwithstanding, prior
to a Change of Control, if the Plan Administrator finds that any retired
Participant or spouse is engaged in acts detrimental to the Company or is
engaged or employed in any occupation which is in competition with the Company,
and if after due notice such retired Participant or spouse continues to be so
engaged or employed, the Plan Administrator shall suspend the special retirement
allowance of such person, which suspension shall continue until removed by
notice from the Plan Administrator; provided, however, that if such suspension
has continued for one year, the Plan Administrator shall forthwith cancel such
Participant's or spouse's special retirement allowance. Furthermore, if the Plan
Administrator finds that any Participant has been discharged for having
performed acts detrimental to the Company, then regardless of any other
provision in the Special Plan, no benefit shall be payable to or on account of
any such Participant's coverage under this Special Plan. Notwithstanding the
preceding, following a Change of Control, the Plan Administrator shall not
implement such action or make such determination without the consent of the
Benefits Trust Committee.
2. The establishment of the Special Plan shall not be construed as
conferring any legal rights upon any employee for a continuation of employment,
nor shall it interfere with the rights of the Company to discharge any employee
and to treat him without regard to the effect which such treatment might have
upon him as a Participant in the Special Plan.
Section XI - CHANGE OF CONTROL
1. If a Change of Control has occurred, the Company shall contribute to
the Trust within 7 days of such Change of Control, a lump sum contribution equal
to the greatest of:
(a) the aggregate value of the amount each Participant would be
eligible to receive under subsection (2), below;
(b) the present value of accumulated Plan benefits based on the
assumptions the Company's independent actuary deems reasonable
for this purpose, as of a Valuation Date, as defined in
subsection (6), below, coinciding with or next preceding the date
of Change of Control, to the extent such amounts are not already
in the Trust. The aggregate value of the amount of the lump sum
to be contributed to the Trust pursuant to this Section XI shall
be determined by the Company's independent actuaries. Thereafter,
the Company's independent actuaries shall annually determine as
of a Valuation Date for each Participant not receiving a lump sum
payment pursuant to subsection (2), below, the greater of:
(i) the amount such Participant would have received under
subsection (2) had such Participant not made the election
under subsection (3), below, if applicable; and
(ii) the present value of accumulated benefits based on
assumptions the actuary deems reasonable for this purpose.
To the extent that the value of the assets held in the
Trust relating to this Special Plan does not equal the
amount described in the preceding sentence, at the time of
the valuation, the Company shall make a lump sum
contribution to the Trust equal to the difference; or
(c) the amount determined under Section 1(h) of the Benefits
Assurance Trust attributable to liabilities relating to this
Plan.
2. In the event a Change of Control has occurred, the trustee of the
Benefits Assurance Trust shall, within 45 days of such Change of Control, pay to
each Participant not making an election under subsection (3), a lump sum payment
equal to the actuarial present value of the aggregate special retirement
allowance each Participant (or any beneficiary of a Participant) has accrued as
of the Valuation Date preceding the date of such Change of Control pursuant to
the terms of Section V of this Special Plan. If a Participant's benefit has not
commenced as of such date, such lump sum shall be determined assuming that:
(a) The Participant's benefit would commence at the earliest date he
would qualify for early or normal retirement under the Plan, were
his employment with the Company to continue, but in no event
earlier than the later of age 55 or the date of such Change on
Control.
(b) The Participant would qualify for an early (or normal) retirement
benefit as of the date determined in (a).
(c) If married, the Participant would receive his benefit under the
50% Joint and Survivor form of payment with the spouse as
beneficiary; if not married, the benefit would be payable in the
form of a single life annuity.
The actuarial present value shall be determined on the basis of the UP
1984 Mortality Table, set back one year, and a discount rate equal to the
interest rate promulgated by the Pension Benefit Guaranty Corporation for use in
determining the sufficiency of single employer defined benefit pension plans
terminating on the date of such Change in Control.
3. Each Participant may elect in a time and manner determined by the
Compensation Committee, but in no event later than December 31, 1996, or the
occurrence of a Change of Control, if earlier, to have amounts and benefits
determined and payable under the terms of this Special Plan as if a Change of
Control had not occurred. New Participants in the Plan may elect in a time and
manner determined by the Compensation Committee, but in no event later than 90
days after becoming a Participant, to have amounts and benefits determined and
payable under the terms of this Special Plan as if a Change of Control had not
occurred. A Participant who has made an election, as set forth in the two
preceding sentences, may, at any time and from time to time, change that
election; provided, however, a change of election that is made within one year
of a Change of Control shall be invalid.
4. Notwithstanding anything in this Special Plan to the contrary, each
Participant who has made an election under subsection (3), above, may elect
within 90 days following a Change of Control, in a time and manner determined by
the Compensation Committee, to receive a lump sum payment calculated under the
provisions of subsection (2), above, determined as of the Valuation Date next
preceding such payment, except that such amount shall be reduced by 5% and such
reduction shall be irrevocably forfeited to the Company by the Participant.
Furthermore, as a result of such election, the Participant shall no longer be
eligible to participate or otherwise benefit under the Special Plan. Payments
under this subsection (4) shall be made not later than 7 days following receipt
by the Company of the Participant's election. The Compensation Committee shall,
no later than 7 days after a Change of Control has occurred, cause written
notification to be given to each Participant eligible to make an election under
this subsection (4), that a Change of Control has occurred and informing such
Participant of the availability of the election.
5. As used in this Plan the term "Change of Control" shall mean:
(a) Stock Acquisition. The acquisition, by any individual,
--------------------
entity or group [within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")] (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock"), or (ii) the combined
voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection
-------- ------- (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly
from the Company; (ii) any acquisition by the Company; (iii)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or (iv) any
acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section XI(5); or
(b) Board Composition. Individuals who, as of the date hereof,
------------------
constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors;
or
(c) Business Combination. Approval by the shareholders of the
---------------------
Company of a reorganization, merger, consolidation or sale
or other disposition of all or substantially all of the
assets of the Company or its principal subsidiary that is
not subject, as a matter of law or contract, to approval by
the Interstate Commerce Commission or any successor agency
or regulatory body having jurisdiction over such
transactions (the "Agency") (a "Business Combination"), in
each case, unless, following such Business Combination:
(i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of
directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result of
such transaction owns the Company or its principal
subsidiary or all or substantially all of the assets of
the Company or its principal subsidiary either directly
or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan
(or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation
except to the extent that such ownership existed prior
to the Business Combination; and
(iii)at least a majority of the members of the board of
directors resulting from such Business Combination were
members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of
the Board of Directors, providing for such Business
Combination; or
(d) Regulated Business Combination. Approval by the shareholders
of the Company of a Business Combination that is subject, as
a matter of law or contract, to approval by the Agency (a
"Regulated Business Combination") unless such Business
Combination complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section XI(5); or
(e) Liquidation or Dissolution. Approval by the shareholders of
the Company of a complete liquidation or dissolution of the
Company or its principal subsidiary.
6. For purposes of this Section XI, the term "Valuation Date" means the
last day of each calendar year and such other dates as the Plan Administrator
deems necessary or appropriate to value the Participant's benefits under this
Special Plan, except that following a Change of Control, the Benefits Trust
Committee shall have final approval of any date selected other than the last day
of each calendar year.
Section XII - Construction
The special Plan and the rights and obligations of the parties hereunder
shall be construed in accordance with the laws of the Commonwealth of Virginia.
APPENDIX I
PARTICIPANT'S GRANTED ADDITIONAL CREDITABLE SERVICE
PURSUANT TO SECTION V(4)(b)
Exhibit 10.19
Supplemental Retirement Benefit Plan
of CSX Corporation and Affiliated Corporations
As Amended and Restated January 1, 1995
(As Amended through December 31, 1997)
Section I - INTRODUCTION
1. The purpose of this plan, hereinafter called the "Supplemental Plan",
is to provide benefit payments to individuals who are participants (or members,
as the case may be) in funded, tax-qualified defined benefit pension plans
maintained by CSX Corporation (the "Company") and certain of its affiliated
corporations (whose participation in the Supplemental Plan is approved by the
Compensation Committee of the Board of Directors of the Company ("Compensation
Committee") and which adopts this Supplemental Plan by action of its board of
directors and whose benefits would otherwise be reduced by Section 415 of the
Internal Revenue Code ("Code") of 1986, as amended ("Code") which imposes
limitations on benefits which may be accrued under such plans ("Code
Limitations"). Notwithstanding the preceding, following a Change of Control, an
affiliated corporation may not become a participating employer in this
Supplemental Plan without the approval of the Benefits Trust Committee.
2. This Supplemental Plan preserves and continues in effect all
provisions for accruals based upon limitations of benefits imposed by Code
Limitations, heretofore credited to Participants under Section V, paragraph
(subsection) 5, of the Special Retirement Plan of CSX Corporation and Affiliated
Corporations ("Special Plan"), the Supplemental Benefits Plan of Sea-Land
Corporation and Participating Companies, and the American Commercial Lines
Benefit Restoration Plan ("Predecessor Plans").
Section II - DEFINITIONS
1. Supplemental Benefit means the benefit described in Section IV of
this Supplemental Plan.
2. The Supplemental Plan shall, where appropriate, refer to and have
meanings consistent with all of the relevant terms of the CSX Pension Plan and
any other regularly maintained funded, tax-qualified defined benefit pension
plan of any other corporation affiliated with the Company whose participation in
the Supplemental Plan as a participating employer is approved by the board of
directors of any such affiliated corporation and by the Compensation Committee.
Such existing regularly maintained defined benefit pension plans which provided
benefits for employees of the Company or its affiliates prior to the Effective
Date of this Supplemental Plan document, or those which may be established
hereafter, as amended from time to time, shall be referred to herein as the
"Pension Plan."
3. Regardless of formal differences which may exist between the
Supplemental Plan and the Pension Plan or the Predecessor Plans in the use of
terminology, the definitions and principles which are set forth in the Pension
Plan or the Predecessor Plans with respect to compensation, average
compensation, credited service and similar terms shall be construed and applied
hereunder in a manner consistent with the purposes of this Supplemental Plan and
the Pension Plan or the Predecessor Plans. In any instance in which the male
gender is used herein, it shall also include persons of the female gender in
appropriate circumstances.
4. "Benefits Trust Committee" means the committee created pursuant to
the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement
(the "Benefits Assurance Trust").
5. Any reference to the "Company's independent actuary", "independent
actuaries", "actuary" or "Actuary" means the independent actuary engaged by 'CSX
Corporation and, if selected or changed following a Change of Control, approved
by the Benefits Trust Committee.
Section III - MEMBERSHIP
1. Every person who previously participated in a Predecessor Plan shall
automatically be a Participant in this Supplemental Plan on and after the
Effective Date.
2. Each employee who is a Participant in a Pension Plan on or after the
Effective Date shall participate in this Supplemental Plan to the extent of the
benefits provided herein.
3. A Participant's participation in this Supplemental Plan shall
terminate coincident with the termination of such individual's participation in
the Pension Plans; provided, however, in the event that the Participant shall be
reassigned or transferred into the employ of the Company or any of its
affiliates which also is a participating employer in this Supplemental Plan, the
Participant's participation shall be continued.
Section IV - SUPPLEMENTAL BENEFITS
1. All of the provisions, conditions and requirements set forth in the
applicable Pension Plan with respect to the granting and payment of retirement
benefits thereunder shall be equally applicable to the payment of supplemental
benefits hereunder to affected Participants in the Supplemental Plan and to the
payment thereof from the employer's general assets. Whenever an individual
Participant's rights under the Supplemental Plan are to be determined,
appropriate reference shall be made to the particular Pension Plan in which such
person is also a participant. Notwithstanding the preceding sentence, if a
supplemental benefit under this Supplemental Plan shall be paid to a surviving
spouse or other surviving designated beneficiary in conformance with the
provisions of the Pension Plans, the final installment payment hereunder shall
be made to the estate of the surviving spouse or other surviving designated
beneficiary.
2. Each Participant shall receive a Supplemental Benefit under this
Supplemental Plan in an amount equal to the difference, if any, between (i) the
Participant's monthly retirement income benefit under the provisions of the
particular Pension Plan in which such person is also a participant calculated
before the application of any Code Limitations and (ii) the Participant's
monthly retirement income benefit determined after application of the Code
Limitations.
3. Notwithstanding any other provision of this Supplemental Plan to the
contrary, a Supplemental Benefit shall not be determined or paid which would
duplicate a payment of benefit provided to a Participant under the Pension Plan,
the Predecessor Plans or any other unfunded or funded retirement plan of the
Company or any of its affiliated corporations. Further, the obligations of the
Company or any of its affiliated companies and the benefit plan due any
Participant, surviving spouse or beneficiary hereunder shall be reduced by any
amount received in regard thereto from the Benefits Assurance Trust or any
similar trust or other vehicle.
4. A Supplemental Benefit payable under the provisions of this
Supplemental Plan shall be paid in such forms and at such times as shall be
consistent with the payment of the Participant's retirement income benefit under
the particular Pension Plan in which such person is also a participant.
Notwithstanding the foregoing, prior to a Change of Control, the Company may
delay payment of a Supplemental Benefit under the Supplemental Plan to any
Participant who is determined to be among the top five most highly paid
executives for the year that the Supplemental Benefit payment would otherwise be
paid; provided, however, if a Participant's payment is delayed, it shall not
decrease the total Supplemental Benefit to which he is entitled. Notwithstanding
the preceding, following a Change of Control, the authority to delay payment of
a Supplemental Benefit rests solely with the Benefits Trust Committee.
Section V - FUNDING METHOD
1. The Supplemental Benefit shall be paid exclusively from the general
assets of the applicable employers participating in the Supplemental Plan or
from the Benefits Assurance Trust which has been established to secure the
payment of the obligations created herein. No Participant or other person shall
have any rights or claims against the assets of the employers or against the
Benefits Assurance Trust which are superior to or different from the right or
claim of a general, unsecured creditor of any participating employer.
2. The Supplemental Plan is intended to be unfunded for tax purposes and
for purposes of Title I of ERISA, and constitutes a mere promise by the
participating employers to make benefit payments in the future.
3. The employers participating in the Supplemental Plan shall provide
all funds required to pay benefits accrued and to administer this Supplemental
Plan.
4. To the extent reflected by resolutions of the applicable boards of
directors, obligations for benefits under this Supplemental Plan shall be joint
and several.
Section VI - ADMINISTRATION OF PLAN
1. Prior to a Change of Control, the Plan Administrator of the CSX
Pension Plan shall be the "Plan Administrator" of this Supplemental Plan and
shall be responsible for the general administration of the Supplemental Plan,
claims review and for carrying out its provisions. Administration of this
Supplemental Plan shall be carried out consistent with the terms and conditions
of the Pension Plan and the Supplemental Plan.
2. Following a Change of Control, the Benefits Trust Committee may
remove and/or replace the Plan Administrator.
3. The Plan Administrator shall have sole and absolute discretion to
interpret the Plan, determine eligibility for an benefits due hereunder.
Decisions of the Plan Administrator regarding participation in and the
calculation of benefits under this Supplemental Plan, shall at all times be
binding and conclusive on Participants, their beneficiaries, heirs and assigns.
4. Notwithstanding Subsection 3 above, following a Change of Control,
final benefit determinations for Participants, their beneficiaries, heirs and
assigns and decisions regarding benefit claims under this Supplemental Plan
shall rest with the Benefits Trust Committee or its delegate in its sole and
absolute discretion.
Section VII - CERTAIN RIGHTS AND OBLIGATIONS
1. (a) Prior to a Change of Control the Compensation Committee may terminate the
Supplemental Plan upon the termination of one or more of the Pension Plans.
Prior to a Change of Control the Board of Directors of CSX Corporation may
terminate the Plan at any time for any reason in any manner not prohibited by
law. Following a Change of Control, this Supplemental Plan may not be terminated
without the approval of the Benefits Trust Committee.
(b) Prior to a Change of Control, the Board of Directors of the Company
may terminate an affiliated corporation's participation as a participating
employer in this Supplemental Plan for any reason at any time. Following a
Change of Control, an affiliated corporation may not be terminated from
participation as a participating employer without the consent of the Benefits
Trust Committee.
(c) Prior to a Change of Control, an affiliated corporation's board of
directors may terminate that affiliated corporation's participation as a
participating employer for any reason at any time. Following a Change of
Control, an affiliated corporation's participation as a participating employer
may not be terminated without the consent of the Benefits Trust Committee.
2. The participating employers agree in the event that the Supplemental
Plan is terminated:
(a) Each retired Participant, surviving spouse of a retired
Participant or surviving designated beneficiary of a retired
Participant shall be entitled to receive the Supplemental Benefit
they would have received had the Supplemental Plan not been
terminated, and each surviving spouse or surviving designated
beneficiary of a deceased Participant shall become entitled to
receive for life the Supplemental Benefit that such surviving
spouse or surviving designated beneficiary would have received
had the Supplemental Plan not been terminated; and
(b) Each active Participant shall be entitled to receive for life the
Supplemental Benefit he or she would have received had the
Supplemental Plan not been terminated, calculated on the basis of
the Supplemental Benefit which had accrued at the time of
termination; provided, however, that the Participant shall become
entitled to such Supplemental Benefit only at the time and in
accordance with the provisions of the Supplemental Plan had it
continued in effect.
(c) In lieu of paying a Supplemental Benefit in accordance with the
foregoing provisions, the Plan Administrator, at its election,
may direct the discharge of all obligations to retired
Participants, surviving spouses or surviving designated
beneficiaries of deceased Participants, and active Participants
by cash payment of equivalent actuarial value or through the
provision of immediate or deferred annuities or such other
periodic payments of equivalent actuarial value, as it shall in
its sole discretion determine. Notwithstanding the preceding, any
such action taken by the Plan Administrator following a Change of
Control is subject to the approval of the Benefits Trust
Committee.
3. Anything in the Supplemental Plan to the contrary notwithstanding, if
the Plan Administrator finds that any Participant, retired Participant or spouse
is engaged in acts detrimental to the Company or any of its affiliated
corporations, and if after due notice such Participant, the retired Participant
or spouse continues to be so engaged or employed, the Plan Administrator shall
suspend the Supplemental Benefit of such person, which suspension shall continue
until removed by notice from the Plan Administrator; provided, however, that if
such suspension has continued for one year, the Plan Administrator shall
forthwith cancel such Participant's or spouse's Supplemental Benefit.
Furthermore, if the Plan Administrator finds that any Participant had been
discharged for having performed acts detrimental to the Company or any of its
affiliated corporations, then regardless of any other provision in the Pension
Plan or the Supplemental Plan, no benefit shall be payable to or on account of
any such Participant's coverage under this Supplemental Plan. Notwithstanding
the preceding, following a Change of Control, the Plan Administrator shall not
implement such action without the consent of the Benefits Trust Committee.
4. The establishment of the Supplemental Plan shall not be construed as
conferring any legal rights upon any employee for a continuation of employment,
nor shall it interfere with the rights of an employing corporation to discharge
any employee and to treat him without regard to the effect which such treatment
might have upon him as a Participant in the Supplemental Plan.
Section VIII - NON-ALIENATION OF BENEFITS
To the extent permitted by applicable law, no benefit under the
Supplemental Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt so
to do shall be void, except as specifically provided in the Supplemental Plan,
nor shall any benefit be in any manner liable for or subject to the debts,
contracts, liabilities, engagements, or torts of the person entitled to such
benefits; and in the event that the Plan Administrator shall find that any
active or retired Participant, surviving spouse or surviving designated
beneficiary under the Supplemental Plan has become bankrupt or that any attempt
has been made to anticipate, alienate, sell, transfer, assign, pledge, encumber,
or charge any of his benefits under the Supplemental Plan, expect as
specifically provided in the Supplemental Plan, then such benefits shall cease,
and in that event, the Plan Administrator shall hold or apply the same to or for
the benefit of such active or retired Participant, surviving spouse or surviving
designated beneficiary, in such manner as the Plan Administrator may deem
proper. Notwithstanding the preceding, following a Change of Control, the Plan
Administrator shall not implement such action without the consent of the
Benefits Trust Committee.
Section IX - AMENDMENTS
The Supplemental Plan represents a contractual obligation entered into
by a participating employer in consideration of services rendered and to be
rendered by Participants covered under the Supplemental Plan, and
1. Any Participant in this Supplemental Plan who remains in the active
service of a participating employer shall not be deprived of his or her
participation or benefit which shall accrue under the Supplemental Plan except
as provided hereunder.
2. No modification or amendment may be made which shall deprive any
Participant, the surviving spouse of a Participant or the surviving designated
beneficiary of a Participant, without the consent of such Participant, surviving
spouse of a Participant or the surviving designated beneficiary of a
Participant, of any Supplemental Benefit under the Supplemental Plan to which he
or she would otherwise be entitled by reason of the Supplemental Benefit
standing to his or her credit to the date of such modification or amendment, and
in the event of any modification or amendment which adversely affects such
Supplemental Benefit, the amount of all reserves required to be accrued on the
books of a participating employer shall thereupon be determined and accrued, if
the same has not already been done, and such Supplemental Benefit shall become
and remain a fixed liability of the participating employers for the payment of
such benefits accrued to the date of such modification or amendments.
3. Subject to the foregoing, prior to a Change of Control, the Board of
Directors of the Company on the recommendation of the Compensation Committee,
reserves the right at any time and from time to time to modify or amend in whole
or in part any or all of the Supplemental Plan. Following a Change of Control,
all amendments to this Supplemental Plan are subject to the approval of the
Benefits Trust Committee.
Section X - CHANGE OF CONTROL
1. If a Change of Control has occurred, the Company and its
participating affiliates shall contribute to the Benefits Assurance Trust within
7 days of such Change of Control, a lump sum contribution equal to the greatest
of:
(a) the aggregate value of the amount each Participant would be
eligible to receive, under Subsection (2), below;
(b) the present value of accumulated Plan benefits based on the
assumptions the Company's independent actuary deems reasonable
for this purpose, as of the Valuation Date, as defined in
subsection (6), below, coinciding with or next preceding the date
of Change of Control, to the extent such amounts are not already
in the Benefits Assurance Trust. The aggregate value of the
amount of the lump sum to be contributed to the Benefits
Assurance Trust pursuant to this Section X shall be determined by
the Company's independent actuaries. Thereafter, the Company's
independent actuaries shall annually determine as of a Valuation
Date for each Participant not receiving a lump sum payment
pursuant to subsection (2), below, the greater of:
(i) the amount such Participant would have received under
subsection (2) had such Participant not made the election
under subsection (3), below, if applicable; and
(ii) the present value of accumulated benefits based on
assumptions the actuary deems reasonable for this purpose.
To the extent that the value of the assets held in the
Benefits Assurance Trust relating to this Supplemental Plan
does not equal the amount described in the preceding
sentence, (and the value of other liabilities held in the
applicable segregated account of the Benefits Assurance
Trust), at the time of the valuation, the Company shall make
a lump sum contribution to the Benefits Assurance Trust
equal to the difference.
(c) the amount determined under Section 1(h) of the Benefits
Assurance Trust attributable to liabilities relating to this
Supplemental Plan.
2. In the event a Change of Control has occurred, the trustee of the
Benefits Assurance Trust shall, within 45 days of such Change of Control, page
to each Participant not making an election under subsection (3), a lump sum
payment equal to the actuarial present value of the aggregate supplemental
benefit each Participant (or any beneficiary of a Participant) has accrued as of
the Valuation Date preceding the date of such Change of Control. If a
Participant's benefit has not commenced as of such date, such lump sum shall be
determined assuming that:
(a) The Participant's benefit would commence at the earliest date he
would qualify for early or normal retirement under the Plan, were
his employment with the Company to continue, but in no event
earlier than the later of age 55 or the date of such Change of
Control.
(b) The Participant would qualify for an early (or normal) retirement
benefit as of the date determined in (a).
(c) If married, the Participant would receive his benefit under the
50% Joint and Survivor form of payment with the spouse as
beneficiary; if not married, the benefit would be payable in the
form of a single life annuity.
The actuarial present value shall be determined on the basis of the UP
1984 Mortality Table, set back one year, and a discount rate equal to the
interest rate promulgated by the Pension Benefit Guaranty Corporation for use in
determining the sufficiency of single employer defined benefit pension plans
terminating on the date of such Change in Control.
3. Each Participant may elect in a time and manner determined by the
Compensation Committee but, in no event later than December 31, 1996, or the
occurrence of a Change of Control, if earlier, to have amounts and benefits
determined and payable under the terms of this Supplemental Plan as if a Change
of Control had not occurred. New Participants in the Plan may elect in a time
and manner determined by the Compensation Committee, (or, after a Change of
Control, the Benefits Trust Committee) but in no event later than 90 days after
becoming a Participant, to have amounts and benefits determined and payable
under the terms of this Supplemental Plan as if a Change of Control had not
occurred. A Participant who has made an election, as set forth in the two
preceding sentences, may, at any time and from time to time, change that
election; provided, however, a change of election that is made within one year
of a Change of Control shall be invalid.
4. Notwithstanding anything in this Supplemental Plan to the contrary,
each Participant who has made an election under subsection (3), above, may elect
within 90 days following a Change of Control, in a time and manner determined by
the Benefits Trust Committee, to receive a lump sum payment calculated under the
provisions of subsection (2), above, determined as of the Valuation Date next
preceding such payment, except that such amount shall be reduced by 5% and such
reduction shall be irrevocably forfeited to the Company or the applicable
participating employer by the Participant. Furthermore, as a result of such
election, the Participant shall no longer be eligible to participate or
otherwise benefit under the Supplemental Plan. Payments under this subsection
(4) shall be made not later than 7 days following receipt by the Benefits Trust
Committee of the Participant's election. The Benefits Trust Committee shall, no
later than 7 days after a Change of Control has occurred, cause written
notification to be given to each Participant eligible to make an election under
this subsection (4), that a Change of Control has occurred and informing such
Participant of the availability of the election.
5. As used in this Section X, a "Change of Control" shall mean:
(a) Stock Acquisition. The acquisition by any individual, entity or
-----------------
group [within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")]
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"), or (ii) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company; (ii) any
acquisition by the Company; (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (iv) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section X(5); or
(b) Board Composition. Individuals who, as of the date hereof,
------------------
constitute the Board of Directors (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individuals whose initial assumption
of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors; or
(c) Business Combination. Approval by the shareholders of the Company
of a reorganization, merger or consolidation, or sale or other
disposition of all or substantially all of the assets of the
Company or its principal subsidiary that is not subject, as a
matter of law or contract, to approval by the Interstate Commerce
Commission or any successor agency or regulatory body having
jurisdiction over such transactions (the "Agency") (a "Business
Combination"), in each case, unless, following such Business
Combination:
(i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or its principal subsidiary or
all or substantially all of the assets of the Company or its
principal subsidiary either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly
or indirectly 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination; and
(iii)at least a majority of the members of the board of
directors resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board of
Directors providing for such Business Combination; or
(d) Regulated Business Combination. Approval by the shareholders of
-------------------------------
the Company of a Business Combination that is subject, as a
matter of law or contract, to approval by the Agency (a
"Regulated Business Combination") unless such Business
Combination complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section X(5); or
(e) Liquidation or Dissolution. Approval by the shareholders of the
--------------------------
Company of a complete liquidation or dissolution of the Company
or its principal subsidiary.
6. For purposes of this Section X, the term "Valuation Date" means the
last day of each calendar year and such other dates as the Plan Administrator
deems necessary or appropriate to value the Participants' benefits under this
Supplemental Plan. Following a Change of Control, the selection of a date other
than the last day of the calendar year is subject to the approval of the
Benefits Trust Committee.
Section XI - CONSTRUCTION
The Supplemental Plan and the rights and obligations of the parties
hereunder shall be construed in accordance with the laws of the Commonwealth of
Virginia.
Section XII - EFFECTIVE DATE
The Effective Date of this Supplemental Benefit Plan shall be January 1,
1989.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
As of Dec. 26, 1997, Registrant was the beneficial owner of 100% of the common
stock the following significant subsidiaries:
CSX Transportation Inc. (a Virginia corporation),
Sea-Land Service Inc. (a Delaware corporation),
CSX Intermodal Inc. (a Delaware corporation) and
American Commercial Lines Inc. (a Delaware corporation).
As of Dec. 26, 1997, the other subsidiaries included in registrant's
consolidated financial statements, and all other subsidiaries considered in the
aggregate as a single subsidiary, did not constitute a significant subsidiary.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the following Registration
Statements of our report dated January 30, 1998, with respect to the
consolidated financial statements of CSX Corporation and subsidiaries included
in its Annual Report (Form 10-K) for the fiscal year ended December 26, 1997:
Registration
Statement
Number Description
- ------------ ------------------------------------------
33-2083 Post-Effective Amendment No. 1 to Form S-3
33-2084 Post-Effective Amendment No. 3 to Form S-3
33-16230 Form S-8
33-25537 Form S-8
33-29136 Form S-8
33-37449 Form S-8
33-41236 Form S-3
33-41498 Form S-8
33-41499 Form S-8
33-41735 Form S-8
33-41736 Form S-8
33-48841 Form S-3
33-49767 Form S-8
33-57029 Form S-8
333-09213 Form S-8
333-19523 Form S-4
333-28523 Form S-4
/s/ Ernst & Young LLP
-----------------
Ernst & Young LLP
Richmond, Virginia
February 17, 1998
Exhibit 23.2
CONSENT OF PRICE WATERHOUSE LLP, INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-2083,
33-2084, 33-41236, and 33-48841), in the Prospectuses constituting part of the
Registration Statements on Form S-4 (Nos. 333-19523 and 333-28523), and in the
Registration Statements on Form S-8 (Nos. 33-16230, 33-25537, 33-29136,
33-37449, 33-41498, 33-41499, 33-41735, 33-41736, 33-49767, 33-57029, and
333-09213) of CSX Corporation of our report dated January 19, 1998 on the
consolidated financial statements of Conrail Inc. and subsidiaries for the year
ended December 31, 1997, which appears in the Annual Report on Form 10-K of CSX
Corporation filed as of February 18, 1998.
/s/ Price Waterhouse LLP
--------------------
Price Waterhouse LLP
Philadelphia, PA
February 18, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> DEC-26-1997
<CASH> 690
<SECURITIES> 0
<RECEIVABLES> 987
<ALLOWANCES> 86
<INVENTORY> 227
<CURRENT-ASSETS> 2,175
<PP&E> 18,270
<DEPRECIATION> 5,864
<TOTAL-ASSETS> 19,957
<CURRENT-LIABILITIES> 2,707
<BONDS> 6,416
0
0
<COMMON> 218
<OTHER-SE> 5,548
<TOTAL-LIABILITY-AND-EQUITY> 19,957
<SALES> 0
<TOTAL-REVENUES> 10,621
<CGS> 0
<TOTAL-COSTS> 9,038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 451
<INCOME-PRETAX> 1,183
<INCOME-TAX> 384
<INCOME-CONTINUING> 799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 799
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 3.62
</TABLE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE OF CONRAIL INC.
FOR THE YEARS ENDED DEC. 31, 1997, 1996 AND 1995
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
Conrail Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of Conrail Inc. and subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.
Our audits of the consolidated financial statements of Conrail Inc.
and subsidiaries also included an audit of the Financial Statement
Schedule, Schedule II - Valuation and Qualifying Accounts. In our
opinion, the Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
--------------------
Price Waterhouse LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 19, 1998
- 1 -
<PAGE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
---------------------------
($ In Millions Except Per Share Data) 1997 1996 1995
------ ------ ------
Revenues $3,765 $3,714 $3,686
------ ------ ------
Operating expenses
Way and structures 458 462 485
Equipment 776 803 766
Transportation 1,388 1,385 1,324
General and administrative 313 312 370
ESOP termination charge (Note 3) 221
Merger-related compensation costs
(Note 3) 222
Merger costs (Note 3) 65 16
Voluntary separation programs (Note 10) 135
Asset disposition charge (Note 11) 285
------ ------ ------
Total operating expenses 3,443 3,113 3,230
------ ------ ------
Income from operations 322 601 456
Interest expense (170) (182) (194)
Other income, net (Note 12) 83 112 130
------ ------ ------
Income before income taxes 235 531 392
Income taxes (Note 7) 228 189 128
------ ------ ------
Net income $ 7 $ 342 $ 264
====== ====== ======
Net income per common share (Note 1)
Basic $ - $ 4.29 $ 3.21
Diluted - 3.91 2.94
Ratio of earnings to fixed charges
(Note 1) 1.98x 3.19x 2.51x
See accompanying notes.
- 2 -
<PAGE>
CONRAIL INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------
($ In Millions) 1997 1996
------ ------
ASSETS
Current assets
Cash and cash equivalents $ 97 $ 30
Accounts receivable 623 630
Deferred tax assets (Note 7) 115 293
Material and supplies 104 139
Other current assets 15 25
------ ------
Total current assets 954 1,117
Property and equipment, net (Note 4) 6,830 6,590
Other assets 700 695
------ ------
Total assets $8,484 $8,402
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings - 99
Current maturities of long-term debt (Note 6) 112 130
Accounts payable 113 135
Wages and employee benefits 366 143
Casualty reserves 141 141
Accrued and other current liabilities (Note 5) 476 444
------ ------
Total current liabilities 1,208 1,092
Long-term debt (Note 6) 1,732 1,876
Casualty reserves 198 190
Deferred income taxes (Note 7) 1,453 1,478
Special income tax obligation (Note 7) 283 346
Other liabilities 445 313
------ ------
Total liabilities 5,319 5,295
------ ------
Commitments and contingencies (Note 13)
Stockholders' equity (Notes 2, 3 and 9)
Preferred stock (no par value; 15,000,000
shares authorized; no shares issued)
Series A ESOP convertible junior preferred
stock (no par value; 10,000,000 shares
authorized; 0 and 7,303,920 shares
issued and outstanding, respectively) - 211
Unearned ESOP compensation (155) (222)
Common stock ($1 par value; 250,000,000
shares authorized; 6,320,349 and 87,768,428
shares issued, respectively; 100 and
82,244,973 shares outstanding, respectively) 6 88
Additional paid-in capital 3,006 2,404
Employee benefits trust (0 and
3,394,988 shares, respectively) (274) (384)
Retained earnings 1,324 1,357
------ ------
3,907 3,454
Treasury stock, at cost (742) (347)
------ ------
Total stockholders' equity 3,165 3,107
------ ------
Total liabilities and stockholders' equity $8,484 $8,402
====== ======
See accompanying notes.
- 3 -
<PAGE>
<TABLE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Series A Unearned Additional Employee
Preferred ESOP Common Paid-in Benefits Retained Treasury
($ In Millions Except Per Share Data) Stock Compensation Stock Capital Trust Earnings Stock
--------- ------------ ------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 283 $(243) $80 $1,848 $1,056 $ (99)
Amortization 10
Net income 264
Common dividends, $1.60 per share (129)
Preferred dividends, $2.165 per share (21)
Common shares acquired (92)
Exercise of stock options 6
Establishment of employee benefits trust 5 245 $(250)
Employee benefits trust transactions, net 84 (79)
Other (1) 4 6
----- ----- --- ------ ----- ------ -----
Balance, December 31, 1995 282 (233) 85 2,187 (329) 1,176 (191)
Amortization 11
Net income 342
Common dividends, $1.80 per share (146)
Preferred dividends, $2.165 per share (20)
Common shares acquired (156)
Exercise of stock options 29 53
Employee benefits trust transactions, net 128 (116)
Effects of voluntary separation programs (8) 8
Effects of CSX tender offer (63) 3 60
Other 5
----- ---- --- ------ ----- ------ -----
Balance, December 31, 1996 211 (222) 88 2,404 (384) 1,357 (347)
Amortization 2
Net income 7
Common dividends, $.475 per share (40)
Preferred dividends, $.541 per share (3)
Exercise of stock options 2 11
Employee benefits trust transactions, net (5) 9
Effects of Conrail acquisition, net
(Notes 2 and 3) (209) (82) 594 90 (393)
Allocation of unearned ESOP compensation 65
Other (2) 11 3 (2)
----- ----- --- ------ ----- ------ -----
Balance, December 31, 1997 $ - $(155) $ 6 $3,006 $(274) $1,324 $(742)
===== ===== === ====== ===== ====== =====
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
------------------------
($ In Millions) 1997 1996 1995
----- ----- -----
Cash flows from operating activities
Net income $ 7 $ 342 $ 264
Adjustments to reconcile net income to
net cash provided by operating activities:
ESOP termination charge 221
Merger-related compensation costs 159
Voluntary separation programs 135
Asset disposition charge 285
Depreciation and amortization 293 283 293
Deferred income taxes 152 183 108
Special income tax obligation (63) (94) (73)
Gains from sales of property (23) (24) (27)
Pension credit (61) (46) (43)
Changes in:
Accounts receivable 7 (16) 32
Accounts and wages payable 42 (18) 8
Deferred tax assets 178 40 (84)
Settlement of tax audit 6 (39)
Other (34) (77) 10
----- ----- -----
Net cash provided by operating
activities 884 669 773
----- ----- -----
Cash flows from investing activities
Property and equipment acquisitions (439) (387) (415)
Proceeds from disposals of properties 25 34 38
Other (31) (46) (59)
----- ----- -----
Net cash used in investing activities (445) (399) (436)
----- ----- -----
Cash flows from financing activities
Repurchase of common stock (156) (92)
Net proceeds from (repayments of)
short-term borrowings (99) 10 (23)
Proceeds from long-term debt 26 85
Payment of long-term debt (238) (184) (134)
Loans from and redemptions of
insurance policies 95
Dividends on common stock (40) (146) (129)
Dividends on Series A preferred stock (3) (25) (21)
Proceeds from stock options and other 8 67 7
----- ----- -----
Net cash used in financing
activities (372) (313) (307)
----- ----- -----
Increase(decrease) in cash and cash equivalents 67 (43) 30
Cash and cash equivalents
Beginning of year 30 73 43
----- ----- -----
End of year $ 97 $ 30 $ 73
===== ===== =====
See accompanying notes.
- 5 -
<PAGE>
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Industry
--------
Conrail Inc. ("Conrail") is a holding company of which the
principal subsidiary is Consolidated Rail Corporation ("CRC"), a
freight railroad which operates within the northeast and midwest
United States and the Province of Quebec. Conrail has been
acquired by CSX Corporation ("CSX") and Norfolk Southern
Corporation ("NSC"), however, the transaction is pending the
approval of the Surface Transportation Board ("STB") (Notes 2 and
3).
Principles of Consolidation
---------------------------
The consolidated financial statements include Conrail and
majority-owned subsidiaries. Investments in 20% to 50% owned
companies are accounted for by the equity method.
Cash Equivalents
----------------
Cash equivalents consist of commercial paper, certificates of
deposit and other liquid securities purchased with a maturity of
three months or less, and are stated at cost which approximates
market value.
Material and Supplies
---------------------
Material and supplies consist mainly of fuel oil and items for
maintenance of property and equipment, and are valued at the
lower of cost, principally weighted average, or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is
provided using the composite straight-line method. The cost (net
of salvage) of depreciable property retired or replaced in the
ordinary course of business is charged to accumulated
depreciation and no gain or loss is recognized.
Asset Impairment
----------------
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Expected future cash flows from
the use and disposition of long-lived assets are compared to the
current carrying amounts to determine the potential impairment
loss.
Revenue Recognition
-------------------
Revenue is recognized proportionally as a shipment moves on the
Conrail system from origin to destination.
- 6 -
<PAGE>
Earnings Per Share
------------------
Earnings per share are not presented for 1997 as a result of the
acquisition of the Company's common stock which was completed on
May 23, 1997 (Notes 2 and 3). Following that acquisition, the
Company's common stock was delisted from the New York Stock
Exchange and deregistered with the Securities and Exchange
Commission.
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" (SFAS 128) to be effective for periods
ending after December 15, 1997. SFAS 128 requires all prior-
period earnings per share data presented to be restated to
conform with the provisions of this pronouncement. SFAS 128
replaces primary earnings per share with the presentation of
basic earnings per share and fully diluted earnings per share
with diluted earnings per share. The earnings per share amounts
resulting from the application of SFAS 128 are not materially
different than those previously presented by the Company for
1996 and 1995.
For 1996 and 1995, basic earnings per share are based on net
income adjusted for the effects of preferred dividends net of
income tax benefits, divided by the weighted average number of
shares outstanding during the period. Diluted earnings per
share assume conversion of Series A ESOP Convertible Junior
Preferred Stock ("ESOP Stock") to Conrail common stock and the
dilutive effects of stock options. Net income amounts
applicable to diluted earnings per share have been adjusted by
the increase, net of income tax benefits, in ESOP-related
expenses assuming conversion of all ESOP Stock to common stock.
Shares in the Conrail Employee Benefits Trust are not considered
outstanding for computing earnings per share. The weighted
average number of shares of common stock outstanding during each
of the two years ended December 31, 1996 are as follows:
1996 1995
---------- ----------
Basic weighted
average shares 76,903,665 78,144,694
Diluted weighted
average shares 87,022,413 88,533,558
Ratio of Earnings to Fixed Charges
----------------------------------
Earnings used in computing the ratio of earnings to fixed charges
represent income before income taxes plus fixed charges, less
equity in undistributed earnings of 20% to 50% owned companies.
Fixed charges represent interest expense together with interest
capitalized and a portion of rent under long-term operating
leases representative of an interest factor.
- 7 -
<PAGE>
New Accounting Standards
------------------------
During 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company
has determined that adoption of these statements will not impact
its consolidated financial position, results of operations or
cash flows. Both pronouncements are effective for fiscal years
beginning after December 15, 1997.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassification of Prior-Year Data
-----------------------------------
Certain amounts have been reclassified in the consolidated
financial statements to conform to the current year presentation.
2. Acquisition of Conrail Inc.
--------------------------
On April 8, 1997, Conrail and CSX entered into the Fourth
Amendment (the "Fourth Amendment") to the Agreement and Plan of
Merger (as amended through the Fourth Amendment, the "Merger
Agreement") which facilitated CSX and NSC entering into an
agreement with respect to their joint acquisition of Conrail as
contemplated by the Third Amendment to the Merger Agreement,
dated as of March 7, 1997. The terms of the CSX-NSC Agreement
are embodied in a letter agreement dated as of April 8, 1997
(the "CSX/NSC Letter Agreement") and the Transaction Agreement
dated as of June 10, 1997 among Conrail, CSX and NSC.
The CSX/NSC Letter Agreement provided, among other things, (i)
for the termination of the NSC's outstanding offer to purchase
Conrail shares and the dismissal of litigation between CSX and
NSC, (ii) that Conrail would, after the effective time of its
merger into a wholly-owned subsidiary of CSX, become a direct
or indirect jointly-owned subsidiary of CSX and NSC, (iii) that
CSX and NSC would jointly acquire, for $115 in cash, all
Conrail shares not already owned by CSX and NSC through a
tender offer that closed on May 23, 1997 and subsequent merger,
and (iv) that Conrail would continue to be managed by its
existing Board of Directors until the requisite approval of the
STB is obtained, at which time CSX and NSC will be separately
allocated certain of Conrail's railroad assets and will jointly
operate certain other railroad activities of Conrail.
The Fourth Amendment also provided that, following April 8,
1997, Conrail's Board of Directors would not declare, and
- 8 -
<PAGE>
Conrail would not pay, any dividend on Conrail's capital stock
with a record date on or prior to May 30, 1997.
On May 23, 1997, the CSX-NSC joint tender offer for the remaining
outstanding shares of Conrail's common and ESOP Stock was
concluded, with 53.4 million shares having been tendered. On June
2, 1997, Conrail became the surviving corporation in a merger with
Green Acquisition Corp., a jointly-owned, indirect subsidiary of
CSX and NSC, as a result of which the remaining outstanding
capital stock of Conrail was acquired by NSC and CSX.
Simultaneous with the merger, Conrail's common stock was delisted
from the New York Stock Exchange and, through the filing of a Form
15, deregistered with the Securities and Exchange Commission. The
Conrail stock acquired by NSC and CSX is being held in a voting
trust pending approval of the joint acquisition by the STB, which
is expected to occur in the third quarter of 1998.
In the course of normal business, the Company interchanges freight
with both NSC and CSX for transport to destinations both within
and outside of Conrail's service region. The Company shares
ownership interests with either one or both railroads in various
transportation-related entities, all of which are immaterial to
the Company's operating results and financial position.
3. Merger-Related Costs
--------------------
In connection with its joint acquisition by NSC and CSX, the
Company has incurred pre-tax merger-related costs totaling $65
million ($41 million after income taxes) during 1997. Merger
costs of $16 million ($10 million after income taxes) were
incurred during 1996 related to the previously proposed merger of
Conrail with CSX. Merger costs incurred during both years are
composed primarily of fees for investment banking, legal and
consulting services.
In the second quarter of 1997, the Company recorded a charge of
$221 million (no related income tax effect) for the termination
of its Non-union Employee Stock Ownership Plan ("ESOP") as a
result of the repayment of the ESOP note payable of $291 million
and related accrued interest to the Company. The Company had
recorded a long-term liability of $221 million related to the
ESOP termination charge, which is not expected to require future
use of the Company's cash for settlement. Such liability is
being reduced as the cash proceeds, which the ESOP currently
holds as a result of selling its ESOP Stock in the joint tender
offer, are allocated to eligible ESOP participants.
During the second quarter of 1997, the Company recorded a charge
of $110 million ($103 million after income taxes) in connection
with employment agreements with certain executives, which became
operative upon a change in control as defined in such
agreements. The agreement with CSX permits Conrail to enter
into new agreements with executives to pay some or all of these
benefits upon the earlier of the STB's approval or disapproval
- 9 -
<PAGE>
of the transaction or May 31, 1998, if the executives are
employed on that date. Severance benefits to be paid to other
Company employees will be determined and accrued when the
employees adversely affected by the transaction are identified,
which is expected to occur near the time of the STB decision.
During 1997, the Company recorded cumulative charges totaling
$49 million ($31 million after income taxes) representing a
portion of an amount to be paid to certain non-union employees
as an incentive to continue their employment with the Company
through the effective date of the requisite STB approval of the
transaction and subsequent transition period. The total amount
of these incentive payments is expected to be approximately $125
million and will continue to be accrued ratably through the
fourth quarter of 1998. The Company has recorded a short-term
liability of $159 million included in "wages and employee
benefits" on the 1997 balance sheet related to the above-
mentioned merger-related compensation costs through December 31,
1997, however, such liability is not expected to require future
use of the Company's cash for settlement as funding is expected
from other sources, including the Employee Benefits Trust.
Also, as a result of the acquisition of Conrail, all outstanding
performance shares and all outstanding unvested stock options,
restricted shares and phantom shares vested during the second
quarter of 1997. The Company paid all of the amounts due
employees under these arrangements and recorded a $63 million
charge ($39 million after income taxes).
4. Property and Equipment
----------------------
December 31,
-----------------
1997 1996
------- -------
(In Millions)
Roadway $ 7,167 $ 7,021
Equipment 1,398 1,231
Less: Accumulated depreciation (1,736) (1,654)
Allowance for disposition (392) (408)
------- -------
6,437 6,190
------- -------
Capital leases (primarily equipment) 869 908
Accumulated amortization (476) (508)
------- -------
393 400
------- -------
$ 6,830 $ 6,590
======= =======
Conrail acquired equipment and incurred related long-term debt
under various capital leases of $79 million in 1997, $82 million
in 1996 and $71 million in 1995. In 1995 (Note 11) and 1991, the
Company recorded allowances for disposition for the sale or
abandonment of certain under-utilized rail lines and other
facilities.
- 10 -
<PAGE>
5. Accrued and Other Current Liabilities
-------------------------------------
December 31,
-----------------
1997 1996
---- ----
(In Millions)
Freight settlements due others $ 43 $ 48
Equipment rents (primarily car hire) 74 74
Unearned freight revenue 77 79
Property and corporate taxes 55 49
Other 227 194
---- ----
$476 $444
==== ====
6. Long-Term Debt
--------------
Long-term debt outstanding, including the weighted average
interest rates at December 31, 1997, is composed of the
following:
December 31,
------------------
1997 1996
------ ------
(In Millions)
Capital leases $ 465 $ 491
Medium-term notes payable,
7.50%, due 1998 to 1999 60 109
Notes payable, 9.75%, due 2000 250 250
Debentures payable, 7.88%, due 2043 250 250
Debentures payable, 9.75%, due 2020 544 544
Equipment and other obligations, 6.66% 275 262
Commercial paper - 100
------ ------
1,844 2,006
Less current portion (112) (130)
------ ------
$1,732 $1,876
====== ======
Using current market prices when available, or a valuation based
on the yield to maturity of comparable debt instruments having
similar characteristics, credit rating and maturity, the total
fair value of the Company's long-term debt, including the current
portion, but excluding capital leases, is $1,607 million and
$1,685 million at December 31, 1997 and 1996, respectively,
compared with carrying values of $1,379 million and $1,515
million at December 31, 1997 and 1996, respectively.
The Company's noncancelable long-term leases generally include
options to purchase at fair value and to extend the terms.
Capital leases have been discounted at rates ranging from 3.09%
to 14.26% and are collateralized by assets with a net book value
of $393 million at December 31, 1997.
- 11 -
<PAGE>
Minimum commitments, exclusive of executory costs borne by the
Company, are:
Capital Operating
Leases Leases
------- ---------
(In Millions)
1998 $ 107 $119
1999 99 94
2000 76 83
2001 60 74
2002 57 68
2003 - 2017 239 476
----- ----
Total 638 $914
====
Less interest portion (173)
-----
Present value $ 465
=====
Operating lease rent expense was $122 million in 1997, $127
million in 1996 and $130 million in 1995.
In June 1993, the Company and CRC filed a shelf registration
statement on Form S-3 to enable CRC to issue up to $500 million in
debt securities or the Company to issue up to $500 million in
convertible debt and equity securities. The remaining balance
under this shelf registration was $312 million at December 31,
1997, although restrictions arising from the Company's acquisition
may prevent its use.
In January 1997, CRC assumed $31 million of Equipment Trust
Certificates, at an interest rate of 8.31%, due 2012, to finance
the lease buyout of 20 locomotives from Locomotive Management
Services, a general partnership of which the Company holds a fifty
percent interest.
Equipment and other obligations mature in 1998 through 2043 and
are collateralized by assets with a net book value of $266 million
at December 31, 1997. Maturities of long-term debt other than
capital leases are $48 million in 1998, $48 million in 1999, $268
million in 2000, $19 million in 2001, $18 million in 2002 and $978
million in total from 2003 through 2043.
During 1997, CRC repaid all of its commercial paper, and no
commercial paper remains outstanding at December 31, 1997.
CRC maintains a $440 million uncollateralized bank credit agree-
ment with a group of banks which is used for general corporate
purposes and to support CRC's commercial paper program. The
agreement matures in 2000 and requires interest to be paid on
amounts borrowed at rates based on various defined short-term
rates and an annual maximum fee of .110% of the facility amounts.
- 12 -
<PAGE>
The agreement contains, among other conditions, restrictive
covenants relating to a debt ratio and consolidated tangible net
worth. During 1997, CRC had no borrowings under this agreement.
Interest payments were $163 million in 1997, $170 million in 1996
and $177 million in 1995.
7. Income Taxes
------------
The provisions for income taxes are composed of the following:
1997 1996 1995
---- ---- -----
(In Millions)
Current
Federal $122 $ 90 $ 78
State 17 10 15
---- ---- ----
139 100 93
---- ---- ----
Deferred
Federal 115 151 110
State 37 32 (2)
---- ---- ----
152 183 108
---- ---- ----
Special income tax obligation
Federal (54) (80) (61)
State (9) (14) (12)
---- ---- ----
(63) (94) (73)
---- ---- ----
$228 $189 $128
==== ==== ====
In conjunction with the public sale in 1987 of the 85% of the
Company's common stock then owned by the U.S. Government, federal
legislation was enacted which resulted in a reduction of the tax
basis of certain of the Company's assets, particularly property
and equipment, thereby substantially decreasing tax depreciation
deductions and increasing future federal income tax payments.
Also, net operating loss and investment tax credit carryforwards
were canceled. As a result of the sale-related transactions, a
special income tax obligation was recorded in 1987 based on an
estimated effective federal and state income tax rate of 37.0%.
The nondeductibility of the ESOP termination charge and certain
merger-related compensation costs for federal and state income
tax purposes, has resulted in a significant difference between
the Company's statutory and effective tax rates for 1997 (Note
3).
- 13 -
<PAGE>
A tax law was enacted during the third quarter of 1997 by a state
in which CRC operates which changed the Company's method of
computing taxes and resulted in a tax rate increase. Income tax
expense for 1997 was increased by $22 million representing the
effects of adjusting deferred income taxes and the special income
tax obligation for the rate increase as required by SFAS 109,
"Accounting for Income Taxes" ("SFAS 109").
As a result of a decrease in a state income tax rate enacted
during 1995, income tax expense for that year was reduced by $21
million representing the effects of adjusting deferred income
taxes and the special income tax obligation for the rate decrease
as required by SFAS 109.
Reconciliations of the U.S. statutory tax rates with the
effective tax rates are as follows:
1997 1996 1995
---- ---- ----
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 3.2 3.4 3.5
ESOP termination charge 36.3
Nondeductible merger-related
compensation costs 14.9
Effect of state tax increase
(decrease) on deferred taxes 9.3 (5.3)
Other (1.7) (2.8) (.5)
---- ---- ----
Effective tax rate 97.0% 35.6% 32.7%
==== ==== ====
In 1996, the Company reached a settlement with the Internal
Revenue Service ("IRS") related to the audit of the Company's
consolidated federal income tax returns for the fiscal years 1990
through 1992. The Company made a payment of $39 million pending
resolution of the final interest determination related to the
settlement, of which $6 million was refunded to the Company in
1997. The Company's consolidated federal income tax returns for
fiscal years 1993 through 1995 are currently being examined by
the IRS. Federal and state income tax payments were $120 million
in 1997, $145 million in 1996 (excluding tax settlement) and $109
million in 1995.
- 14 -
<PAGE>
Significant components of the Company's special income tax
obligation and deferred income tax liabilities (assets) are as
follows:
December 31,
-----------------
1997 1996
------ ------
(In Millions)
Current assets $ (10) $ (9)
Current liabilities (97) (245)
Miscellaneous (8) (39)
------ ------
Current deferred tax asset, net $ (115) $ (293)
====== ======
Noncurrent liabilities:
Property and equipment 1,877 1,939
Other long-term assets (primarily prepaid
pension asset) 90 92
Miscellaneous 130 98
------ ------
2,097 2,129
------ ------
Noncurrent assets:
Nondeductible reserves and other
liabilities (200) (174)
Tax benefit transfer receivable (36) (36)
Miscellaneous (125) (95)
------ ------
(361) (305)
------ ------
Special income tax obligation and
deferred income tax liabilities, net $1,736 $1,824
====== ======
8. Employee Benefits
-----------------
Pension Plans
-------------
The Company and certain subsidiaries maintain defined benefit
pension plans which are noncontributory for all non-union
employees and generally contributory for participating union
employees. Benefits are based primarily on credited years of
service and the level of compensation near retirement. Funding
is based on the minimum amount required by the Employee
Retirement Income Security Act of 1974.
- 15 -
<PAGE>
Pension credits include the following components:
1997 1996 1995
----- ---- ----
(In Millions)
Service cost - benefits earned during the period $ 8 $ 9 $ 8
Interest cost on projected benefit obligation 50 51 51
Return on plan assets - actual (197) (138) (254)
- deferred 99 47 167
Net amortization and deferral (21) (15) (15)
----- ---- ----
$ (61) $(46) $(43)
===== ==== ====
The funded status of the pension plans and the amounts
reflected in the balance sheets are as follows:
1997 1996
------ -----
(In Millions)
Accumulated benefit obligation ($605 million
and $655 million vested, respectively) $ 610 $ 661
====== ======
Market value of plan assets 1,308 1,187
Projected benefit obligation (699) (734)
------ ------
Plan assets in excess of projected
benefit obligation 609 453
Unrecognized prior service cost 33 36
Unrecognized transition net asset (72) (90)
Unrecognized net gain (343) (231)
------ ------
Net prepaid pension cost $ 227 $ 168
====== ======
The assumed weighted average discount rates used in 1997 and 1996
are 7.0% and 7.5%, respectively, and the rate of increase in
future compensation levels used in determining the actuarial
present value of the projected benefit obligation as of
December 31, 1997 and 1996 is 6.0%. The expected long-term rate
of return on plan assets (primarily equity securities) in 1997
and 1996 is 9.0%.
Savings Plans
-------------
The Company and certain subsidiaries provide 401(k) savings plans
for union and non-union employees. However, in connection with
the close of the CSX-NSC joint tender offer for Conrail, the
Company's Non-union ESOP was terminated with the repayment of the
ESOP note payable of $291 million and related accrued interest in
the second quarter of 1997, resulting in a charge of $221 million
(no related income tax effect) (Notes 2 and 3). Under the Non-
union ESOP, 100% of employee contributions were matched in the
form of ESOP Stock for the first 6% of a participating employee's
base pay. There is no Company match provision under the union
employee plan except for three unions which negotiated a Company
- 16 -
<PAGE>
match as part of their new contract provisions. Savings plan
expense was $1 million in 1997 and $4 million in 1996 and 1995.
In connection with the formation of the Non-union ESOP in
1990, the Company issued 9,979,562 of the authorized 10 million
shares of its ESOP Stock to the Non-union ESOP in exchange for a
20 year promissory note from the Non-union ESOP in the principal
amount of approximately $290 million. In addition, unearned ESOP
compensation in the same amount was recognized as a charge to
stockholders' equity coincident with the Non-union ESOP's
issuance of its promissory note to the Company. The debt of the
Non-union ESOP was recorded by the Company and offset against the
promissory note from the Non-union ESOP. The Company received
debt service payments from the Non-union ESOP of $11 million in
1997, $40 million in 1996 and $31 million in 1995.
Prior to the close of the joint tender offer (Notes 2 and 3),
unearned ESOP compensation was charged to expense as shares of
ESOP Stock were allocated to participants. An amount equivalent
to the preferred dividends declared on the ESOP Stock had
partially offset compensation and interest expense related to the
Non-union ESOP through the close of the joint tender offer.
Interest expense incurred by the Non-union ESOP on its debt to
the Company was $9 million in 1997 and $24 million in 1996 and
1995. Compensation expense related to the Non-union ESOP was $2
million in 1997, $11 million in 1996 and $10 million in 1995.
Prior to its acquisition, the Company made dividend payments at a
rate of 7.51% on the ESOP Stock and additional contributions in
an aggregate amount sufficient to enable the Non-union ESOP to
make the required interest and principal payments on its note to
the Company. Preferred dividends declared were $3 million in
1997, $20 million in 1996 and $21 million in 1995. Preferred
dividend payments of $3 million, $25 million and $21 million were
made in 1997, 1996 and 1995, respectively.
Postretirement Benefits Other Than Pensions
-------------------------------------------
The Company provides health and life insurance benefits to
certain retired non-union employees. Certain non-union employees
are eligible for retiree medical benefits, while substantially
all non-union employees are eligible for retiree life insurance
benefits. Generally, company-provided health care benefits
terminate when individuals reach age 65.
Retiree life insurance plan assets consist of a retiree life in-
surance reserve held in the Company's group life insurance
policy. There are no plan assets for the retiree health benefits
plan.
- 17 -
<PAGE>
The following sets forth the plans' funded status reconciled with
amounts reported in the Company's balance sheets:
1997 1996
----------------- -----------------
Life Life
Medical Insurance Medical Insurance
Plan Plan Plan Plan
(In Millions)
Accumulated postretirement
benefit obligation:
Retirees $28 $20 $44 $20
Fully eligible active plan
participants 1 1
Other active plan participants 5 3
--- --- --- ---
Accumulated benefit obligation 29 25 45 23
Market value of plan assets (10) (10)
--- --- --- ---
Accumulated benefit obligation
in excess of plan assets 29 15 45 13
Unrecognized gains and (losses) 9 1 (1) 2
Accrued benefit cost recognized
in the Consolidated Balance --- --- --- ---
Sheet $38 $16 $44 $15
=== === === ===
Net periodic postretirement
benefit cost, primarily
interest cost $ 1 $ 1 $ 3 $ 1
=== === === ===
An 8% percent rate of increase in per capita costs of covered
health care benefits was assumed for 1998, gradually decreasing
to 6% percent by the year 2007. Increasing the assumed health
care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of
December 31, 1997 by $2 million and would have an immaterial
effect on the net periodic postretirement benefit cost for 1997.
Discount rates of 7.0% and 7.5% were used to determine the
accumulated postretirement benefit obligations for both the
medical and life insurance plans in 1997 and 1996, respectively.
The assumed rate of compensation increase was 6% in both 1997
1996.
Retiree medical benefits are funded by a combination of Company and
retiree contributions. Retiree life insurance benefits are
provided by insurance companies whose premiums are based on claims
paid during the year.
9. Capital Stock
-------------
Preferred Stock
---------------
The Company is authorized to issue 25 million shares of
preferred stock with no par value. The Board of Directors has
- 18 -
<PAGE>
the authority to divide the preferred stock into series and to
determine the rights and preferences of each. All of the
Company's shares of ESOP Stock were converted to common shares
when tendered as part of the joint acquisition of the Company's
common stock (Notes 2 and 3).
Employee Benefits Trust
-----------------------
In 1995, the Company issued approximately 4.7 million shares of
its common stock to the Conrail Employee Benefits Trust (the
"Trust") in exchange for a promissory note of $250 million at an
interest rate of 6.9%. As a result of the joint tender offer
(Notes 2 and 3) for the Company's common stock, the Trust repaid
$90 million of the promissory loan with proceeds it received
from the sale of a portion of the common stock it held. The
Trust is expected to fund the payment of employee benefits with
the remaining proceeds it currently holds.
The Trust was intended to fund certain employee benefits and
other forms of compensation over its fifteen-year term. The
amount representing unearned employee benefits is recorded as a
deduction from stockholders' equity and is reduced as benefits
and compensation, including future severance benefits, are paid
from the Trust. Before the close of the joint tender offer for
the Company's common stock, the shares owned by the Trust were
valued at the closing market price as of the end of each
reporting period, with corresponding changes in the balance of
the Trust reflected in additional paid-in capital. Shares held
by the Trust were not considered outstanding for earnings per
share computations until released by the Trust, but did have
voting and dividend rights.
Treasury Stock
--------------
As a result of the acquisition of Conrail, the Company's common
stock repurchase program was terminated in the fourth quarter of
1996. The activity for 1997 is related to the repurchase of
common stock in connection with the repayment of $90 million of
the Trust promissory loan described above. The activity and
status of treasury stock follow:
1997 1996 1995
---------- --------- ---------
Shares, beginning of year 5,523,455 3,297,717 1,789,164
Acquired 2,225,738 1,508,553
Effects of Conrail
acquisition 796,794
---------- --------- ----------
Shares, end of year 6,320,249 5,523,455 3,297,717
========== ========= ==========
Stock Plans
-----------
The Company has applied APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in
accounting for the Conrail plans. Accordingly, no compensation
cost was recognized for the Conrail fixed stock option plans
prior to Conrail's acquisition. However, in connection with the
acquisition of Conrail, all outstanding performance shares and
- 19 -
<PAGE>
all outstanding unvested stock options, restricted shares and
phantom shares vested during the second quarter of 1997. The
Company paid all of the amounts due under these arrangements and
recorded a $63 million charge ($39 million after income taxes)
for the related compensation expense.
The Company's 1987 and 1991 Long-Term Incentive Plans authorized
the granting to officers and other key employees of up to
4 million and 6.6 million shares of common stock, respectively,
through stock options, stock appreciation rights, phantom stock
and awards of restricted or performance shares. A stock option
was exercisable for a specified term commencing after grant at a
price not less than the fair market value of the stock on the
date of grant. The vesting of awards made pursuant to these
plans was contingent upon one or more of the following:
continued employment, passage of time or financial and other
performance goals.
The activity and status of stock options under the incentive
plans follow:
Non-qualified Stock Options
-----------------------------------
Option Price Shares
Per Share Under Option
----------------- ------------
Balance, January 1, 1995 $14.000 - $ 66.938 1,363,955
Granted $50.688 - $ 68.563 516,757
Exercised $14.000 - $ 53.875 (200,940)
Canceled $42.625 - $ 53.875 (123,560)
------------
Balance, December 31, 1995 $14.000 - $ 68.563 1,556,212
Granted $68.563 - $ 96.063 551,038
Exercised $14.000 - $ 73.250 (1,268,085)
Canceled $42.625 - $ 70.031 (3,984)
------------
Balance, December 31, 1996 $14.000 - $ 96.063 835,181
Granted $42.625 - $104.438 416,190
Exercised $14.000 - $104.438 (267,294)
Canceled $42.625 - $ 50.688 (6,625)
Purchased due to Conrail
acquisition $14.000 - $104.438 (977,452)
------------
Balance, December 31, 1997 -
============
Available for future grants
December 31, 1996 3,969,317
============
December 31, 1997 -
============
The weighted average exercise prices of options granted during 1996
and 1995 were $70.130 per share and $51.204 per share,
respectively. The weighted average exercise prices of options
exercised during 1996 and 1995 were $48.32 per share and $31.16 per
share, respectively.
- 20 -
<PAGE>
Pro forma disclosures of net income and earnings per share as if
the Company had adopted the cost recognition requirements under
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
in 1996 and 1995 are presented below ($ in millions except per
share data):
1996 1995
----- -----
Net income as reported $ 342 $ 264
Net income pro forma 335 262
Basic earnings per share $4.29 $3.21
Basic earnings per share pro forma 4.20 3.19
Diluted earnings per share $3.91 $2.94
Diluted earnings per share pro forma 3.82 2.92
The fair value of each option granted during 1996 was estimated on
the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions: (1) dividend yield of
2.43%, (2) expected volatility of 25.25%, (3) risk-free interest
rate of 5.51%, and (4) expected life of 4 years. The weighted
average fair value of options granted during 1996 and 1995 was
$16.00 per share and $13.12 per share, respectively.
Prior to its acquisition, the Company had granted phantom shares
and restricted stock under its non-union employee bonus plans to
eligible employees who elected to defer all or a portion of
their annual bonus in a given year. The number of shares
granted depended on the length of the deferral period. Grants
were made at the market price of the Company's common stock at
the date of grant. The Company had granted 148,749 shares and
337,329 shares of phantom and restricted stock, respectively,
under its non-union employee bonus plans through its acquisition
date of May 23, 1997. The Company had also granted 201,945
performance shares under its 1991 Long-Term Incentive Plan
through its acquisition date. Compensation expense related to
these plans was $2 million in 1996 and $3 million in 1995. The
weighted-average fair value for the phantom shares and
restricted stock granted during 1996 and 1995 was $68.02 per
share and $52.88 per share, respectively. As a result of its
acquisition, the Company paid all of the amounts due to
employees under stock-related compensation arrangements during
the second quarter of 1997 (Note 3).
10. Voluntary Separation Programs
-----------------------------
During 1996, the Company recorded a charge of $135 million
(before tax benefits of $52 million) consisting of $102 million
in termination benefits to be paid to non-union employees
participating in the voluntary retirement and separation
programs ("voluntary separation programs") and losses of $33
- 21 -
<PAGE>
million on non-cancelable leases for office space no longer
required as a result of the reduction in the Company's
workforce. Over 840 applications were accepted from eligible
employees under the voluntary separation programs. Approximately
$90 million in benefits are being paid from the Company's
overfunded pension plan.
11. Asset Disposition Charge
------------------------
Included in 1995 operating expenses is an asset disposition
charge of $285 million, which reduced net income by $176 million.
The asset disposition charge resulted from a review of the
Company's route system and other operating assets to determine
those that no longer effectively and economically supported
current and expected operations. The Company identified and
planned to sell 1,800 miles of rail lines that were expected to
provide proceeds substantially less than net book value. In
addition, other assets, principally yards and side tracks,
identified for disposition were written down to estimated net
realizable value (See Note 1 "Asset Impairment"). Currently, the
asset disposition program is under review as a result of the
Conrail acquisition (Note 2).
12. Other Income, Net
-----------------
1997 1996 1995
---- ---- ----
(In Millions)
Interest income $13 $ 29 $ 33
Rental income 41 50 57
Property sales 23 23 27
Other, net 6 10 13
--- ---- ----
$83 $112 $130
=== ==== ====
13. Commitments and Contingencies
-----------------------------
Environmental
-------------
The Company is subject to various federal, state and local laws
and regulations regarding environmental matters. CRC is a party
to various proceedings brought by both regulatory agencies and
private parties under federal, state and local laws, including
Superfund laws, and has also received inquiries from govern-
mental agencies with respect to other potential environmental
issues. At December 31, 1997, CRC has received, together with
other companies, notices of its involvement as a potentially
responsible party or requests for information under the
Superfund laws with respect to cleanup and/or removal costs due
to its status as an alleged transporter, generator or property
owner at 135 locations. However, based on currently available
information, the Company believes CRC may have some potential
responsibility at only 60 of these sites. Due to the number of
parties involved at many of these sites, the wide range of costs
of possible remediation alternatives, the changing technology and
the length of time over which these matters develop, it is often
- 22 -
<PAGE>
not possible to estimate CRC's liability for the costs associated
with the assessment and remediation of contaminated sites.
Although the Company's operating results and liquidity could be
significantly affected in any quarterly or annual reporting
period if CRC were held principally liable in certain of these
actions, at December 31, 1997, the Company had accrued $48
million, an amount it believes is sufficient to cover the
probable liability and remediation costs that will be incurred at
Superfund sites and other sites based on known information and
using various estimating techniques. The Company believes the
ultimate liability for these matters will not materially affect
its consolidated financial condition.
The Company spent $9 million in 1997, $11 million in 1996 and
$14 million in 1995 for environmental remediation and related
costs and anticipates spending an amount comparable to that
spent in 1997 during 1998. In addition, the Company's capital
expenditures for environmental control and abatement projects
were approximately $7 million in 1997 and $6 million in 1996
and 1995, and are anticipated to be approximately $11 million
in 1998.
The Environmental Quality Department is charged with promoting
the Company's compliance with laws and regulations affecting
the environment and instituting environmentally sound operating
practices. The department monitors the status of the sites
where the Company is alleged to have liability and continually
reviews the information available and assesses the adequacy of
the recorded liability.
Other
-----
The Company is involved in various legal actions, principally
relating to occupational health claims, personal injuries,
casualties, property damage and damage to lading. The Company
has recorded liabilities for amounts sufficient to cover the
expected payments for such actions.
The Company may be contingently liable for approximately $50
million at December 31, 1997 under indemnification provisions
related to sales of tax benefits.
CRC had an average of 19,802 employees in 1997, approximately
86% of whom are represented by 14 different labor organizations
and are covered by 21 separate collective bargaining agreements.
The Company was not engaged in any collective bargaining at
December 31, 1997.
CRC currently guarantees the principal and interest payments in
the amount of $48 million on Equipment Trust Certificates for
Locomotive Management Services, a general partnership of which
CRC holds a fifty percent interest.
- 23 -
<PAGE>
CRC has received an adverse jury verdict related to a railroad
crossing accident in Ohio that includes a significant punitive
damage award that approximates $15 million. CRC believes the
punitive damage award in this case is improper and that it has
meritorious defenses, which it is pursuing on appeal.
The Company, currently, has not taken actions to resolve
anticipated year 2000 issues related to its computer systems since
it believes that such issues will be resolved in connection with
the proposed integration of its systems with those of CSX and NSC
following the requisite STB approval of the Conrail acquisition.
In the event that the STB does not approve the sale of Conrail,
the Company is developing a contingency plan to enable it to
continue to operate into the year 2000 and beyond. While it is
not possible, at this time, to quantify the overall cost of
implementing this contingency plan, the Company believes that it
would be material to its results of operations during the
implementation period. In addition, were the STB to disapprove
the sale of Conrail, the Company believes that failure to develop
and implement such a plan could result in a material financial
risk and serious disruption in its operations.
14. Condensed Quarterly Data (Unaudited)
-----------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
-------------- -------------- --------------- ---------------
1997 1996 1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------ ------ ------ ------
($ In Millions Except Per Share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $906 $889 $ 937 $949 $944 $933 $978 $943
Income (loss) from operations 116 69 (231) 54 218 235 219 243
Net income (loss) 61 31 (273) 26 101 138 118 147
Net income (loss) per common share:
Basic .74 .36 - .30 - 1.76 - 1.87
Diluted .70 .35 - .29 - 1.58 - 1.70
Ratio of earnings to fixed charges 2.52x 1.75x - 1.57x 4.82x 4.77x 4.76x 4.91x
Dividends per common share .475 .425 - .425 - .475 - .475
Market prices per common share
(New York Stock Exchange)
High 113 1/4 77 1/4 - 73 1/4 - 74 5/8 - 100 7/8
Low 98 1/2 67 5/8 - 66 1/4 - 63 3/4 - 68 1/2
</TABLE>
Due to the acquisition of Conrail (Notes 2 and 3), per share data
are not presented for periods subsequent to the first quarter of
1997.
The Company recorded pre-tax merger-related costs of $22 million
($14 million after income taxes), $440 million ($390 million
after income taxes), $23 million ($16 million after income taxes)
and $23 million ($15 million after income taxes) during the
- 24 -
<PAGE>
first, second, third and fourth quarters of 1997, respectively.
A $221 million ESOP termination charge (no income tax effect) is
included in the second quarter of 1997 merger-related costs (Note
3). After the merger-related costs were recognized during the
second quarter of 1997, earnings available for fixed charges were
inadequate by $259 million.
A tax law was enacted during the third quarter of 1997 by a state
in which the Company operates which changed the Company's method
of computing taxes and resulted in a tax rate increase. Income
tax expense for the third quarter was increased by $22 million
representing the effects of adjusting deferred income taxes and
the special income tax obligation for the rate increase as
required by SFAS 109 (Note 7).
During the second quarter of 1996, the Company recorded a one-
time charge of $135 million for the non-union employee voluntary
early retirement and separation programs and related costs, which
reduced net income by $83 million (Note 10). During the fourth
quarter of 1996, the Company recorded merger-related costs of $16
million ($10 million after income taxes) (Note 3).
- 25 -
<PAGE>
<TABLE>
Schedule II
CONRAIL INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31,
(In Millions)
<CAPTION>
Additions
----------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other At End
Description of Period Expenses Accounts Deductions of Period
- ----------- ------------ ---------- --------- ------------ -----------
(1)
<S> <C> <C> <C> <C> <C>
1995
Casualty reserves
Current............... $103 $ 3 $ (4) (2) $110
Noncurrent............ 212 $171 14 180 (3) 217
Allowance for disposition
of property and
equipment (4)(5)........ 241 261 63 439
1996
Casualty reserves
Current............... 110 (31) (2) 141
Noncurrent............ 217 165 11 203 (3) 190
Allowance for disposition
of property and
equipment (4) .......... 439 31 408
1997
Casualty reserves
Current............... 141 1 1 (2) 141
Noncurrent............ 190 127 14 133 (3) 198
Allowance for disposition
of property and
equipment (4)............ 408 16 392
</TABLE>
(1) Includes charges to property accounts in connection with
construction projects and the recording of receivables from third
parties.
(2) Includes net transfers from noncurrent.
(3) Includes net transfers to current.
(4) Deductions of $63 million, $31 million and $16 million in 1995,
1996 and 1997, respectively, represent net losses on asset
dispositions.
(5) In 1995, the Company recorded an asset disposition charge, which
resulted from a review of the Company's route system and other
operating assets to determine those that no longer effectively and
economically support current and expected operations. The Company
identified and planned to sell 1,800 miles of rail lines that were
expected to provide proceeds substantially less than net book value.
In addition, other assets, principally yards and side tracks,
identified for disposition have been written down to estimated net
realizable value.(See Note 11 to the Consolidated Financial
Statements.)
