FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended October 1, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 62-1051971
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 East Cary Street, Richmond, Virginia 23219-4031
(Address of principal executive offices) (Zip Code)
(804) 782-1400
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 21, 1999: 218,337,662 shares.
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<PAGE>
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1999
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1:
Financial Statements
1. Consolidated Statement of Earnings-
Quarters and Nine Months Ended October 1, 1999
and September 25, 1998 3
2. Consolidated Statement of Cash Flows-
Nine Months Ended October 1, 1999 and September 25, 1998 4
3. Consolidated Statement of Financial Position-
At October 1, 1999 and December 25, 1998 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Results of
Operations and Financial Condition 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 31
Signature 31
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
(Unaudited)
Quarters Ended Nine Months Ended
--------------------------- --------------------------
Oct. 1, Sept. 25, Oct. 1, Sept. 25,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenue $ 2,906 $ 2,429 $ 8,063 $ 7,381
Operating Expense 2,573 2,189 7,180 6,527
Asset Impairment Charge 315 - 315 -
Restructuring Credit - (30) (30)
----------- ------------ ----------- -----------
Total Operating Expense 2,888 2,159 7,495 6,497
----------- ------------ ----------- -----------
Operating Income 18 270 568 884
Other Income (Expense) 17 138 5 112
Interest Expense 133 120 393 367
----------- ------------ ----------- -----------
Earnings (Loss) before Income Taxes (98) 288 180 629
Income Tax Expense 15 101 104 200
----------- ------------ ----------- -----------
Earnings (Loss) before Cumulative Effect of
Accounting Change (113) 187 76 429
Cumulative Effect on Prior Years of
Accounting Change for Insurance-
Related Assessments, Net of Tax - - (49) -
----------- ------------ ----------- -----------
Net Earnings (Loss) $ (113) $ 187 $ 27 $ 429
=========== ============ =========== ===========
Earnings (Loss) Per Share:
Before Cumulative Effect of Accounting
Change $ (.54) $ .89 $ .36 $ 2.03
Cumulative Effect of Accounting
Change - - (.24) -
----------- ------------ ----------- -----------
Including Cumulative Effect of
Accounting Change $ (.54) $ .89 $ .12 $ 2.03
=========== ============ =========== ===========
Earnings (Loss) Per Share, Assuming
Dilution:
Before Cumulative Effect of Accounting
Change $ (.54) $ .88 $ .36 $ 2.00
Cumulative Effect of Accounting
Change - - (.23) -
----------- ------------ ----------- -----------
Including Cumulative Effect of
Accounting Change $ (.54) $ .88 $ .13 $ 2.00
=========== ============ =========== ===========
Average Common Shares Outstanding
(Thousands) 210,790 210,810 210,477 211,081
=========== ============ =========== ===========
Average Common Shares Outstanding,
Assuming Dilution (Thousands) 210,790 212,959 212,808 214,696
=========== ============ =========== ===========
Cash Dividends Paid Per Common Share $ .30 $ .30 $ .90 $ .90
=========== ============ =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
-----------------------------
Oct. 1, Sept. 25,
,
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 27 $ 429
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Cumulative Effect of Accounting Change 49 -
Depreciation 483 468
Deferred Income Taxes (63) 181
Net Investment Gains (27) (154)
Asset Impairment Charge 315 -
Equity in Conrail Earnings - Net (5) (98)
Other Operating Activities (8) (60)
Changes in Operating Assets and Liabilities
Accounts Receivable (461) 30
Other Current Assets 53 (55)
Accounts Payable 68 (71)
Other Current Liabilities 157 (68)
------------ ------------
Net Cash Provided by Operating Activities 588 602
------------ ------------
INVESTING ACTIVITIES
Property Additions (847) (984)
Net Investment Proceeds 49 628
Short-Term Investments - Net 121 99
Other Investing Activities (12) (51)
------------ ------------
Net Cash Used by Investing Activities (689) (308)
------------ ------------
FINANCING ACTIVITIES
Short-Term Debt - Net 384 (438)
Long-Term Debt Issued 194 409
Long-Term Debt Repaid (85) (115)
Cash Dividends Paid (196) (197)
Other Financing Activities (2) (72)
------------ ------------
Net Cash Provided (Used) by Financing Activities 295 (413)
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 194 (119)
CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS
Cash and Cash Equivalents at Beginning of Period 105 251
------------ ------------
Cash and Cash Equivalents at End of Period 299 132
Short-Term Investments at End of Period 320 340
------------ ------------
Cash, Cash Equivalents and Short-Term
Investments at End of Period $ 619 $ 472
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
Oct. 1, Dec. 25,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 619 $ 533
Accounts Receivable 1,387 898
Materials and Supplies 250 225
Deferred Income Taxes 142 128
Other Current Assets 129 200
----------- -----------
Total Current Assets 2,527 1,984
Properties 19,153 18,678
Accumulated Depreciation (6,457) (6,033)
----------- -----------
Properties-Net 12,696 12,645
Investment in Conrail 4,730 4,798
Affiliates and Other Companies 472 448
Other Long-Term Assets 611 552
----------- -----------
Total Assets $ 21,036 $ 20,427
=========== ===========
LIABILITIES
Current Liabilities
Accounts Payable $ 1,293 $ 1,216
Labor and Fringe Benefits Payable 527 462
Casualty, Environmental and Other Reserves 286 283
Current Maturities of Long-Term Debt 345 100
Short-Term Debt 771 187
Other Current Liabilities 549 352
----------- -----------
Total Current Liabilities 3,771 2,600
Casualty, Environmental and Other Reserves 725 645
Long-Term Debt 6,096 6,432
Deferred Income Taxes 3,186 3,173
Other Long-Term Liabilities 1,517 1,697
----------- -----------
Total Liabilities 15,295 14,547
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 218 217
Other Capital 1,519 1,489
Retained Earnings 4,125 4,294
Accumulated Other Comprehensive Loss (121) (120)
----------- -----------
Total Shareholders' Equity 5,741 5,880
----------- -----------
Total Liabilities and Shareholders' Equity $ 21,036 $ 20,427
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Corporation and subsidiaries (CSX or the "company") at October
1, 1999 and December 25, 1998, the results of its operations for the quarters
and nine months ended October 1, 1999 and September 25, 1998, and its cash flows
for the nine months ended October 1, 1999 and September 25, 1998, such
adjustments being of a normal recurring nature. Certain prior-year data have
been reclassified to conform to the 1999 presentation.
While the company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the company's latest Annual Report and Form 10-K.
The company's fiscal year is composed of 52 or 53 weeks ending on the
last Friday in December. Fiscal year 1999 consists of 53 weeks ending on
December 31, 1999. Fiscal year 1998 consisted of 52 weeks ended December 25,
1998. The financial statements presented are for the 13-week quarters ended
October 1, 1999 and September 25, 1998, the 40-week period ended October 1,
1999, the 39-week period ended September 25, 1998, and as of December 25, 1998.
Comprehensive income approximates net earnings for all periods presented
in the accompanying consolidated statement of earnings.
NOTE 2. CHANGE IN METHOD OF ACCOUNTING FOR INSURANCE-RELATED
ASSESSMENTS
CSX adopted the American Institute of Certified Public Accountants'
Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments," (SOP No. 97-3) effective as of the beginning
of fiscal year 1999. SOP No. 97-3 requires companies to accrue assessments
related to workers' compensation second injury funds and is applicable to CSX
with respect to certain assessments incurred by Sea-Land Service, Inc., the
company's container-shipping unit. The assessments relate to employees who have
experienced second injuries over periods dating back to the 1970's and are
receiving a disability type benefit. Previously, the assessments were charged to
expense in the fiscal year they were paid. As a result of adopting SOP No. 97-3,
the company recorded a non-cash charge of $78 million, $49 million after-tax, 24
cents per share, during the quarter ended April 2, 1999 to reflect the
cumulative effect on prior years of the accounting change. Had the accounting
change been applied retroactively, the effect on net earnings and related per
share amounts would not have been material to any period presented.
NOTE 3. EARNINGS PER SHARE
Earnings per share are based on the weighted average of common shares
outstanding, as defined by Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share," for the fiscal quarters and nine months ended
October 1, 1999 and September 25, 1998. Earnings per share, assuming dilution,
are based on the weighted average of common shares outstanding adjusted for the
effect of potential common shares outstanding that were dilutive during the
period, principally arising from employee stock plans. For the fiscal quarters
ended October 1, 1999 and September 25, 1998, potential common shares that were
dilutive totaled zero and 2.1 million, respectively. For the nine month periods
ended October 1, 1999 and September 25, 1998, potential shares that were
dilutive totaled 2.3 million and 3.7 million, respectively.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 3. EARNINGS PER SHARE, Continued
Certain potential common shares outstanding at October 1, 1999 and
September 25, 1998 were not included in the computation of earnings per share,
assuming dilution, since their exercise prices were greater than the average
market price of the common shares during the period and, accordingly, their
effect is antidilutive. These shares totaled 4.9 million at a weighted-average
exercise price of $52.65 per share at October 1, 1999 and 10.0 million with a
weighted-average exercise price of $50.06 per share at September 25, 1998. No
potential common shares were included for the quarter ended October 1, 1999
since the effect would be antidilutive to the net loss for that period.
NOTE 4. ACCOUNTING PRONOUNCEMENTS
The FASB has issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of Effective Date of FASB Statement
No. 133" which postpones the effective date of FASB Statement No. 133 until
fiscal quarters of all fiscal years beginning after June 15, 2000. Statement No.
133 requires companies to record derivatives on the statement of financial
position, measured at fair value. The statement also sets forth new accounting
rules for gains or losses resulting from changes in the values of derivatives.
While CSX does not currently use derivative financial instruments, and its
historical use of such instruments has not been material, the company plans to
adopt this statement in the first quarter of 2001 to the extent it may apply at
that time. The company would not expect the adoption of Statement No. 133 to
have a material impact on its financial statements.
NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background
- ----------
On June 1, 1999, CSX and Norfolk Southern Corporation (Norfolk Southern)
formally began integrated operations over their respective portions of the
Conrail Inc. (Conrail) rail system. This step implemented the operating plan
envisioned by CSX and Norfolk Southern when they completed the joint acquisition
of Conrail in May 1997 and later received regulatory approval permitting them to
exercise joint control over Conrail in August 1998.
The rail subsidiaries of CSX and Norfolk Southern operate their
respective portions of the Conrail system pursuant to various operating and
equipment agreements which took effect on June 1. Under these agreements, which
have terms of 25 years plus extension options, the railroads pay operating fees
to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads. CSX and Norfolk Southern, through a
jointly-owned acquisition entity, hold economic interests in Conrail of 42% and
58%, respectively, and voting interests of 50% each.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Acquisition Accounting by the Jointly Owned Entity and CSX
- ----------------------------------------------------------
The jointly owned entity has accounted for the acquisition of Conrail as
a purchase business combination effective as of the August 1998 control date. At
that time, its investment in Conrail was approximately $10.2 billion, consisting
of the original $9.8 billion purchase price plus equity in Conrail's earnings,
net of purchase price amortization, since the May 1997 acquisition date. This
amount has been allocated to reflect the fair values of Conrail's assets and
liabilities as follows (in millions):
Current assets $ 879
Property and equipment, net 17,832
Other assets 1,122
Current liabilities (1,279)
Long-term debt (1,891)
Deferred income taxes (5,595)
Other liabilities (868)
----------
Total $10,200
==========
The jointly owned entity's purchase price allocation included a
provision of $280 million for the cost to Conrail of separating non-union
employees whose positions were eliminated as a result of the acquisition. CSX
separately recorded liabilities totaling approximately $400 million to provide
for other acquisition-related obligations it is required to fund, including
separation costs for Conrail union employees, relocation costs for Conrail union
and non-union employees, and costs associated with the closure of certain
Conrail facilities. CSX increased its investment in Conrail on the statement of
financial position as a result of recording these separate obligations.
Under STB restrictions, CSX and Norfolk Southern did not have complete
access to Conrail's properties and records and also were prevented from
negotiating labor implementing agreements prior to the August 1998 control date.
As a result, the amounts recorded by the jointly owned entity and by CSX for
separation costs and other acquisition-related obligations in 1998 were
preliminary and were adjusted effective August 1999 to reflect refinements
identified as CSX and Norfolk Southern completed their integration of the
Conrail network. These adjustments did not have a significant effect on the
purchase price allocation.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
Conrail Financial Information
- -----------------------------
Summary financial information for Conrail for its fiscal periods ended
September 30, 1999 and 1998, and at December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Income Statement Information:
Revenues $259 $976 $1,912 $2,886
Income (Loss) From Operations (64) (82) 21 284
Net Income (Loss) (49) (65) (36) 135
</TABLE>
<TABLE>
<CAPTION>
As Of
-------------------------------
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Balance Sheet Information:
Current Assets $ 773 $ 1,005
Property and Equipment and Other Assets 7,642 8,039
Total Assets 8,415 9,044
Current Liabilities 826 1,207
Long-Term Debt 1,326 1,609
Total Liabilities 4,654 5,244
Stockholders' Equity 3,761 3,800
</TABLE>
Conrail's operating results for the quarter ended September 30, 1999
were significantly impacted by the changes in its business resulting from the
integration with CSX and Norfolk Southern. Effective June 1, 1999, Conrail's
major sources of revenue are derived from CSX and Norfolk Southern and consist
principally of operating fees, equipment rent, and shared area usage fees. The
nature of Conrail's operating expenses has also changed to reflect the new
operations. In addition, Conrail's operating results in 1999 included after-tax
expenses of $51 million in the third quarter and $117 million in the second
quarter, principally to increase certain components of its casualty reserves
based on an actuarial valuation and adjustments to certain litigation and
environmental reserves related to settlements and completion of site reviews.
Conrail's results in 1998 included a $187 million after-tax charge in the third
quarter, primarily for estimated severance obligations to non-union employees.
These items were considered by the joint acquisition entity in its fair value
allocation of Conrail's assets and liabilities and, accordingly, were excluded
in determining the equity in Conrail's net income recorded by CSX.
CSX's Accounting for Conrail
- ----------------------------
Upon integration, substantially all of Conrail's customer freight
contracts were assumed by CSX and Norfolk Southern. As a result, beginning June
1, 1999, CSX's rail and intermodal segment operating revenue includes revenue
from traffic previously moving on Conrail. Operating expenses reflect
corresponding increases for costs incurred to handle the new traffic and operate
the former Conrail lines. Effective June 1,
- 9 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
CSX's Accounting for Conrail, Continued
- ---------------------------------------
1999, rail operating expenses also include a new expense category, "Conrail
Operating Fee, Rent and Services", which reflects payments to Conrail for the
use of right-of-way and equipment; as well as charges for transportation,
switching, and terminal services provided by Conrail in the shared areas
operated for the joint benefit of CSX and Norfolk Southern. The new expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting.
Prior to the June 1, 1999 integration, CSX recorded its share of
Conrail's net income, less amortization of the fair value write-up, and
acquisition and transition expenses, in other income (expense) in the
consolidated statement of earnings.
NOTE 6. SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS
On July 21, 1999, CSX entered into an agreement to sell certain assets
comprising the international liner business of Sea-Land Service, Inc.
(Sea-Land), its wholly-owned container-shipping subsidiary, to A. P.
Moller-Maersk Line (Maersk) for approximately $800 million in cash. The
transaction, which is contingent upon regulatory approvals, is currently
expected to close in the fourth quarter of 1999. The sales price is subject to
adjustment based on the final amounts of certain assets and related obligations
conveyed at closing. The gross proceeds from the transaction will be received by
a number of different Sea-Land entities. The various resulting tax gains and tax
losses on the transaction will occur in jurisdictions with statutory rates which
are greater than or less than the U.S. statutory rate of 35%.
The international liner business operates approximately 70 container
vessels and 200,000 containers in worldwide trades and comprises a majority of
CSX's container-shipping revenue. In addition to vessels and containers, Maersk
will acquire certain terminal facilities and various other assets and related
liabilities of the international liner business, including the assumption of
certain lease obligations. CSX will retain the container-shipping business
serving the United States domestic trade and the company's international
terminal operations.
CSX has classified the international liner assets as "held for sale" in
accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Since the book
value of the net assets to be conveyed exceeded the sales price, the company
recorded a $315 million asset impairment charge in the third quarter to adjust
the book value of the related property, equipment and other long-lived assets to
their fair value less cost to sell. In addition, in accordance with the
provisions of Statement No. 121, no depreciation has been recorded on these
assets since their classification as "held for sale" in July. The impairment
charge, net of a $17 million benefit from the lower depreciation expense,
reduced third quarter earnings by $298 million before taxes, $236 million
after-tax, $1.11 per share. The tax benefit associated with the asset impairment
charge was reduced by $32 million to reflect a projected increase in the
deferred effective state income tax rate resulting from the pending sale of the
international liner business. The realizable value of the net assets held for
sale as of October 1, 1999 is approximately $800 million, consisting primarily
of net properties, accounts receivable and other assets, net of liabilities. The
operating revenue associated with the assets held for sale was approximately
$3.0 billion in 1998 and $2.3 billion for the nine-month period of 1999.
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<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 6. SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS, Continued
With the recognition of the impairment charge in the third quarter, no
significant gain or loss is expected upon the subsequent closing of the
transaction. However, some gain or loss is possible because certain information
used to determine the amount of the charge is preliminary and is likely to
differ from actual balances at closing date.
NOTE 7. VOLUNTARY EARLY RETIREMENT AND SEPARATION PROGRAM
In October 1999, CSX initiated a voluntary early retirement and
separation program intended to reduce the non-union workforce at its rail and
intermodal units and an affiliated technology subsidiary. The company expects an
overall workforce reduction of approximately 800 employees with annualized
expense savings of approximately $75 million. Employees have until early
December to apply for the program. The company has the right to accept or reject
employee applications, as well as delay their departures to ensure appropriate
staffing levels to meet business needs. The company expects that most of the
retirements and separations will occur by the end of the year, with the
remainder occurring by the end of first quarter 2000. Fourth quarter 1999
financial results will include a pre-tax charge estimated between $55 million
and $75 million to reflect the cost of the program. Early retirement benefits
under the program will be paid from CSX's pension plan, while separation
benefits will be paid from cash generated by operations.
NOTE 8. ACCOUNTS RECEIVABLE
The company sells revolving interests in its rail accounts receivable to
public investors through a securitization program and to a financial institution
through commercial paper conduit programs. The accounts receivable are sold,
without recourse, to a wholly-owned, special-purpose subsidiary, which then
transfers the receivables, with recourse, to a master trust. The securitization
and conduit programs are accounted for as sales in accordance with FASB
Statement No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." Receivables sold under these arrangements
are excluded from accounts receivable in the consolidated statement of financial
position. At October 1, 1999, the agreements provide for the sale of up to $350
million in receivables through the securitization program and $50 million
through the conduit programs.
At October 1, 1999 and December 25, 1998, the company had sold $347
million of accounts receivable; $300 million through the securitization program
and $47 million through the conduit programs. The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit program require yield payments based on
prevailing commercial paper rates plus incremental fees.
The company's retained interests in the receivables were $869 million at
October 1, 1999 and $482 million at December 25, 1998 and are included in
accounts receivable. Losses recognized on the sale of accounts receivable
totaled $8 million and $7 million for the quarters ended October 1, 1999 and
September 25, 1998, respectively, and $23 million and $22 million for the nine
month periods ended October 1, 1999 and September 25, 1998, respectively.
The company has retained the responsibility for servicing accounts
receivable transferred to the master trust. The average servicing period is
approximately one month. No servicing asset or liability has been recorded since
the fees the company receives for servicing the receivables approximate the
related costs.
- 11 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 9. OPERATING EXPENSE
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------- --------------------------
Oct. 1, Sept. 25, Oct. 1, Sept. 25,
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Labor and Fringe Benefits $ 910 $ 784 $ 2,590 $ 2,356
Materials, Supplies and Other 691 629 1,955 1,841
Conrail Operating Fee, Rent and Services 118 - 164 -
Building and Equipment Rent 312 277 898 818
Inland Transportation 272 248 788 740
Depreciation 141 152 467 457
Fuel 129 91 316 303
Miscellaneous - 8 2 12
Asset Impairment Charge 315 - 315 -
Restructuring Credit - (30) - (30)
----------- ----------- ---------- ------------
Total $ 2,888 $ 2,159 $ 7,495 $ 6,497
=========== =========== ========== ============
</TABLE>
NOTE 10. OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
---------------------- ----------------------
Oct. 1, Sept. 25, Oct. 1, Sept. 25,
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income $ 11 $ 11 $ 35 $ 38
Income from Real Estate and Resort
Operations(1) 30 18 40 29
Net Investment Gain - 154 27 154
Net Losses from Accounts Receivable Sold (8) (7) (23) (22)
Minority Interest (10) (11) (29) (25)
Income (Loss) from Investment in Conrail - Net - (11) (42) (22)
Equity Earnings of Other Affiliates 3 7 17 17
Foreign Currency Gain (Loss) - (5) 5 (10)
Miscellaneous (9) (18) (25) (47)
---------- --------- ---------- ---------
Total $ 17 $ 138 $ 5 $ 112
========== ========= ========== =========
</TABLE>
(1) Gross revenue from real estate and resort operations was $65 million and
$136 million for the quarter and nine months ended October 1, 1999,
respectively, and $64 million and $140 million for the quarter and nine
months ended September 25, 1998, respectively.
- 12 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. COMMITMENTS AND CONTINGENCIES
New Orleans Tank Car Fire
- -------------------------
In September 1997, a state court jury in New Orleans, Louisiana returned
a $2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT),
the wholly-owned rail subsidiary of CSX. The award was made in a class action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.
In October 1997, the Louisiana Supreme Court set aside the punitive
damages judgment, ruling the judgment should not have been entered until all
liability issues were resolved. In February 1999, the Louisiana Supreme Court
issued a further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions, for a new trial and for judgment notwithstanding the
verdict, as to the April 8 judgment.
The new trial motion was denied by the trial court in August of 1999. On
November 5, 1999, the trial court issued an opinion which granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages, for that matter) is
unwarranted and intends to pursue its full appellate remedies with respect to
the 1997 trial as well as the trial judge's decision on the motion for judgment
notwithstanding the verdict. The compensatory damages awarded by the jury in the
1997 trial were also substantially reduced by the trial judge. CSXT believes
that the trial judge will probably reduce the judgment in favor of 20 plaintiffs
entered on April 8, 1999 to reflect the lower compensatory and punitive amounts
reflected in its November 5, 1999 decision.
A trial for the claims of 20 additional plaintiffs for compensatory
damages began on May 24, 1999. In early July, the jury in that trial rendered
verdicts totaling approximately $330 thousand in favor of eighteen of those
twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that
they had not proved any damages. Management believes that this result, while
still excessive, supports CSXT's contention that the $2.5 billion punitive
damages award, now reduced to $850 million, was unwarranted.
CSXT continues to pursue an aggressive legal strategy. 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.
- 13 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. COMMITMENTS AND CONTINGENCIES, Continued
Self-Insurance
- --------------
Although the company obtains substantial amounts of commercial insurance
for potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided by a company partially owned by
CSX.
Environmental
- -------------
CSXT is a party to various proceedings involving private parties and
regulatory agencies related to environmental issues. CSXT has been identified as
a potentially responsible party (PRP) at 113 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 241 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.
At least once each quarter, CSXT reviews its role, if any, with respect
to each such location, giving consideration to the nature of CSXT's alleged
connection to the location (e.g., generator, owner or operator), the extent of
CSXT's alleged connection (e.g., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is
involved, CSXT has recorded, and reviews at least quarterly for adequacy,
reserves to cover estimated contingent future environmental costs with respect
to such sites. The recorded liabilities for estimated future environmental costs
at October 1, 1999, and December 25, 1998, were $66 million and $75 million,
respectively. These recorded liabilities, which are undiscounted, include
amounts representing CSXT's estimate of unasserted claims, which CSXT believes
to be immaterial. The liability has been accrued for future costs for all sites
where the company's obligation is probable and where such costs can be
reasonably estimated. The liability includes future costs for remediation and
restoration of sites as well as any significant ongoing monitoring costs, but
excludes any anticipated
- 14 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 11. COMMITMENTS AND CONTINGENCIES, Continued
Environmental (Continued)
- -------------------------
insurance recoveries. The majority of the October 1, 1999 environmental
liability is expected to be paid out over the next five to seven years, funded
by cash generated from operations.
The company does not currently possess sufficient information to reasonably
estimate the amounts of additional liabilities, if any, on some sites until
completion of future environmental studies. In addition, latent conditions at
any given location could result in exposure, the amount and materiality of which
cannot presently be reliably estimated. Based upon information currently
available, however, the company believes that its environmental reserves are
adequate to accomplish remedial actions to comply with present laws and
regulations, and that the ultimate liability for these matters will not
materially affect its overall results of operations and financial condition.
Other Legal Proceedings
- -----------------------
A number of legal actions are pending against CSX and certain
subsidiaries in which claims are made in substantial amounts. While the ultimate
results of 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 financial position,
results of operations or cash flows of the company.
NOTE 12. BUSINESS SEGMENTS
The company operates in four business segments: Rail, Intermodal,
Container Shipping and Contract Logistics. The Rail segment provides rail
freight transportation over a network of approximately 22,700 route miles in 23
states in the East, Midwest and South; the District of Columbia and two Canadian
provinces. The Intermodal segment provides transcontinental intermodal
transportation services and operates a network of dedicated intermodal
facilities across North America. The Container Shipping segment provides global
transportation services via a fleet of 91 container ships and more than 220,000
containers. The Contract Logistics segment provides customized logistics
solutions, including inventory management, distribution, warehousing, assembly
and just-in-time delivery. The company's segments are strategic business units
that offer different services and are managed separately based on the
differences in these services. Because of their close interrelationship, the
Rail and Intermodal segments are also viewed on a combined basis as Surface
Transportation operations.
The company evaluates performance and allocates resources based on
several factors, of which the primary financial measure is business segment
operating income, defined as income from operations, excluding the effects of
special charges and gains. Intersegment sales and transfers are generally
accounted for as if the sales or transfers were to third parties, that is, at
current market prices.
- 15 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. BUSINESS SEGMENTS, Continued
<TABLE>
<CAPTION>
Quarter ended October 1, 1999:
Surface Transportation
------------------------------- Container Contract
Rail Intermodal Total Shipping Logistics Totals
-------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $1,485 $287 $1,772 $1,035 $99 $2,906
customers
Intersegment revenues - 1 1 - 11 12
Segment operating income 185 28 213 103 8 324
</TABLE>
<TABLE>
<CAPTION>
Quarter ended September 25, 1998:
Surface Transportation
------------------------------- Container Contract
Rail Intermodal Total Shipping Logistics Totals
-------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $1,204 $153 $1,357 $988 $84 $2,429
customers
Intersegment revenues - 8 8 - 6 14
Segment operating income 201 7 208 50 6 264
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended October 1, 1999:
Surface Transportation
------------------------------- Container Contract
Rail Intermodal Total Shipping Logistics Totals
-------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $4,116 $649 $4,765 $2,985 $313 $8,063
customers
Intersegment revenues - 15 15 - 34 49
Segment operating income 659 51 710 171 26 907
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended September 25, 1998:
Surface Transportation
------------------------------- Container Contract
Rail Intermodal Total Shipping Logistics Totals
-------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $3,712 $453 $4,165 $2,936 $280 $7,381
customers
Intersegment revenues - 25 25 - 17 42
Segment operating income 754 22 776 117 20 913
</TABLE>
- 16 -
<PAGE>
CSX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
NOTE 12. BUSINESS SEGMENTS, Continued
A reconciliation of the totals reported for the business segments to the
applicable line items in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
------------------------ ---------------------
Oct. 1, Sept. 25, Oct. 1, Sept.
1999 1998 1999 25, 1998
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Total external revenues for business segments $ 2,906 $ 2,429 $ 8,063 $ 7,381
Intersegment revenues for business segments 12 14 49 42
Elimination of intersegment revenues (12) (14) (49) (42)
----------- ----------- --------- ---------
Total consolidated revenues $ 2,906 $ 2,429 $ 8,063 $ 7,381
=========== =========== ========= =========
Operating Income:
Total operating income for business segments $ 324 $ 264 $ 907 $ 913
Reclassification of intercompany interest (15) (16) (46) (47)
income
Unallocated corporate expenses 7 (8) 5 (12)
Container-shipping asset impairment charge,
net (298) - (298) -
of depreciation benefit
Rail restructuring credit - 30 - 30
----------- ----------- --------- ---------
Total consolidated operating income $ 18 $ 270 $ 568 $ 884
=========== =========== ========= =========
</TABLE>
- 17 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
CSX follows a 52/53-week fiscal calendar. Fiscal year 1999 consists of
53 weeks. The quarters ended October 1, 1999 and September 25, 1998 consisted of
13 weeks. The nine-month period ended October 1, 1999 consisted of 40 weeks,
while the nine-month period ended September 25, 1998 consisted of 39 weeks.
Third Quarter 1999 Compared with 1998
- -------------------------------------
The company reported a net loss for the quarter ended October 1, 1999 of
$113 million, 54 cents per share. In the prior-year period, the company earned
$187 million, 88 cents per share on a diluted basis.
Operating income for the third quarter of 1999 totaled $18 million,
compared with $270 million in the third quarter of 1998. Operating revenue of
$2.9 billion was 20 percent higher than the prior-year quarter, while operating
expense of $2.6 billion was 18 percent higher, excluding the impairment charge
of $315 million in the third quarter of 1999.
Results for the 1999 quarter include a $315 million asset impairment
charge on the company's international container-shipping assets held for sale,
net of a $17 million benefit from discontinuing depreciation of those assets. On
an after-tax basis, these items reduced operating income and pre-tax earnings
for the quarter by $298 million and net earnings by $236 million, $1.11 per
share.
Results for the prior year quarter include a net investment gain of $154
million, $90 million after-tax, 42 cents per share, primarily from the
conveyance of the company's barge subsidiary to a joint venture, and a
restructuring credit of $30 million, $19 million after-tax, 9 cents per share.
Excluding these non-recurring items, operating income totaled $316
million for the third quarter of 1999, compared with $240 million for the prior
year quarter. Net earnings exclusive of these items totaled $123 million, 58
cents per share, in 1999 versus $78 million, 37 cents per share in the 1998
quarter.
The significant increases in operating revenue and operating expense
compared with the prior year quarter are primarily the result of the company's
June 1999 integration of combined rail and intermodal operations over its
portion of the Conrail rail system following the joint CSX/Norfolk Southern
acquisition of Conrail in 1997.
Surface Transportation Results
Rail
The company's rail unit produced $185 million of operating income in the
third quarter of 1999 versus $201 million in 1998, excluding the $30 million
restructuring credit in the 1998 period. Operating revenue was 23 percent
higher, at $1.5 billion. Operating expense rose 34 percent to $1.3 billion. The
third quarter of 1999 includes integrated Conrail operations, distorting
comparisons to 1998.
Overall volumes increased due to integrated Conrail traffic and
relatively strong demand across all service groups. The largest revenue increase
was in automotive (up 83 percent) due to the new Conrail traffic, strong vehicle
production in 1999 and the strike at major General Motors plants that adversely
affected 1998 revenue. Merchandise revenue increased 24 percent largely due to
the new Conrail traffic. Increases in coal revenue due to Conrail were
partially offset by continued weakness in coal export markets resulting in a net
- 18 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
RESULTS OF OPERATIONS, Continued
Rail, Continued
- ---------------
revenue increase of 4 percent. Rail operating expense rose 34 percent,
primarily due to ongoing start-up costs and operating slowdowns related to
the integration of Conrail operations. In addition, Hurricane Floyd disrupted
operations for up to ten days on key portions of the CSX system in North
Carolina and New Jersey, resulting in repair costs and lost revenue during the
quarter.
<TABLE>
<CAPTION>
RAIL OPERATING INCOME
(Millions of Dollars)
-------------------------------------------------------------------
Quarters Ended Nine Months Ended
----------------------- ----------------------
Oct. 1, Sept. 25, Percent Oct. 1, Sept. 25, Percent
1999 1998 Change 1999 1998 Change
----------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue
Merchandise $ 844 $ 681 24% $ 2,376 $ 2,088 14%
Automotive 203 111 83 534 383 39
Coal, Coke & Iron Ore 421 403 4 1,163 1,185 (2)
Other 17 9 89 43 56 (23)
----------- ----------- ---------- -----------
Total 1,485 1,204 23 4,116 3,712 11
Operating Expense 1,300 973 34 3,457 2,928 18
----------- ----------- ---------- -----------
Operating Income $ 185 $ 231 (20) $ 659 $ 784 (16)
=========== =========== ========== ===========
Operating Ratio 87.5% 80.8 % 84.0% 78.9%
=========== =========== ========== ===========
Operating Income,
Excluding Restructuring
Credit in 1998 $ 185 $ 201 (8) $ 659 $ 754 (13)
=========== =========== ========== ===========
Operating Ratio,
Excluding Restructuring
Credit in 1998 87.5% 83.3 % 84.0% 79.6%
=========== =========== ========== ===========
</TABLE>
Intermodal
The company's intermodal unit reported third-quarter operating income of
$28 million versus $7 million a year ago. The increase was primarily due to the
integration of Conrail. Strengthening international business and improved rail
service in the Western half of the country also benefited the 1999 quarter.
Revenue for the quarter totaled $288 million versus $161 million in the
prior-year period. Operating expense totaled $260 million, compared to $154
million in the prior year quarter. The significant revenue and expense increases
are largely attributable to the Conrail integration with margin improvements due
to benefits of economies of scale.
- 19 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
Container Shipping Unit Results
- -------------------------------
Significant rate increases and improved volume in the Pacific,
particularly the Asia-to-U.S. trade, helped offset weaknesses in the Atlantic
and Americas trade lanes at the container-shipping unit. Excluding the $298
million net impact of an impairment charge and lower depreciation related to
assets held for sale (see "Sale of International Container-Shipping Assets"),
operating income for the third quarter of 1999 totaled $103 million versus $50
million in the 1998 quarter.
Third quarter revenue of $1,035 million was 5 percent higher than the
prior year quarter. Operating expenses totaled $932 million for the quarter,
excluding the net charge related to assets held for sale.
Contract Logistics
- ------------------
Operating income at the contract logistics unit was $8 million for the
quarter compared to $6 million for the same quarter last year. Revenue of $110
million was 22 percent higher than the prior year quarter, as the unit continued
to benefit from strong growth in managed transportation and warehousing revenue.
First Nine Months 1999 Compared with 1998
- -----------------------------------------
For the first nine months of the year, earnings for the company totaled
$76 million, 36 cents per share on a diluted basis before the cumulative effect
of an accounting change recorded in the first quarter. Earnings for the prior
year period were $429 million, $2.00 per share on a diluted basis. The nine
month results for 1999 include the previously-mentioned net impairment charge on
container-shipping assets held for sale, as well as a second-quarter gain of $27
million, $17 million after-tax, 8 cents per share from the sale of the company's
Grand Teton Lodge subsidiary. The nine month results for 1998 include the net
investment gain and restructuring credit mentioned previously. Excluding these
items, the company's earnings totaled $295 million, $1.39 per share, for the
first nine months of 1999 vs. $320 million, $1.49 per share, for the comparable
period in 1998.
The year-over-year increases in operating revenue and expense are due
largely to the integration of Conrail rail and intermodal operations for four
months in 1999, as well as the extra week in the 1999 period. Costs related to
preparation and start-up of the Conrail integration and the impact of Hurricane
Floyd adversely affected the 1999 earnings.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $619 million
at October 1, 1999, an increase of $86 million since December 25, 1998. The
primary sources of cash and cash equivalents were normal transportation
operations, short-term investments, the issuance of short-term debt and
long-term equipment financings. The primary uses of cash were property additions
and dividend payments.
The company's working capital deficit at October 1, 1999 was $1.2
billion, reflecting a $498 million net use of working capital during the third
quarter and a $628 million net use for the first nine months of the year. The
higher working capital deficit was principally due to the timing of expenditures
for property additions, and the reclassification of amounts from long-term debt
to short-term debt, reflecting expected repayments with cash proceeds from the
sale of the international container-shipping assets, as well as scheduled
maturities of other long-term debt during the first nine months of the next
fiscal year. A working capital
- 20 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
FINANCIAL CONDITION, Continued
- ------------------------------
deficit is not unusual for the company and does not indicate a lack of
liquidity. The company continues to maintain adequate current assets to satisfy
current liabilities when they are due and has sufficient liquidity and financial
resources to manage its day-to-day cash needs.
In June and July 1999, the company issued $400 million of medium-term
notes with one year maturities. The notes were issued under a shelf registration
established in 1998 and are classified as short-term debt in the consolidated
statement of financial position. The company currently has $400 million of
capacity remaining under the shelf registration.
FINANCIAL DATA
- --------------
(Millions of Dollars)
-----------------------------
October 1, December 25,
1999 1998
-------------- ---------------
Cash, Cash Equivalents and
Short-Term Investments $ 619 $ 533
Commercial Paper and Equivalents -
Short-Term $ 771 $ 187
Commercial Paper -
Long-Term $ 800 $ 1,000
Working Capital (Deficit) $ (1,244) $ (616)
Current Ratio .7 .8
Debt Ratio 51 % 52 %
Ratio of Earnings to Fixed Charges 1.2 x 1.8 x
OUTLOOK
- -------
Entering the fourth quarter of 1999, CSX is continuing to address
congestion and other operational issues which are significantly impacting
service on key portions of the newly-integrated rail network and resulting in
higher operating expenses. While substantial progress was made in July and
August in stabilizing post-integration operations and improving service,
disruptions in the rail network caused by Hurricane Floyd, combined with
seasonal traffic build-up beginning in September, have adversely affected
operating performance. Efforts are being focused on improving operations through
network simplification. Some progress is expected by mid-December as peak
traffic levels begin to ease. Weather conditions during the winter months,
particularly on the northern portions of the new rail network, could adversely
affect operational and service improvement initiatives. While management
believes that steady improvement across the network will be achieved and will
lead to increased customer satisfaction and improved financial performance,
there can be no assurance that these objectives will be met, or met within a
specified time frame.
The rail unit will continue to experience diminished coal traffic in the
fourth quarter. Export coal volumes remain weak with foreign coal production
servicing the demand, and no near-term recovery is anticipated. Demand for
domestic utility coal should be strong throughout the balance of the year as
plants build inventory levels. Merchandise traffic should remain strong, with
automotive traffic continuing to benefit from consumer demand. Intermodal
volumes should continue to benefit from the recent
- 21 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OUTLOOK , Continued
- -------------------
strengthening in international traffic. Operating expense at the rail unit will
be negatively impacted by higher fuel costs and by costs associated with traffic
congestion and service issues. As a result of the Conrail integration, rail and
intermodal revenue and expense will be significantly higher for the fourth
quarter compared to the same period in 1998.
CSX anticipates closing the sale of the container-shipping unit's
international liner business to A.P. Moller-Maersk Line (Maersk) in late
November or early December. Container-shipping operating results will continue
to include the international business until the transaction is finalized. The
rate increases on Asia-to-U.S. traffic that drove improved third quarter
performance will continue to benefit container-shipping results in the fourth
quarter until the Maersk transaction is completed; however, higher fuel costs
will offset some of the improvement. CSX will retain the container-shipping
business serving the U.S. domestic trade and the company's international
terminal operations. These businesses are less affected by the earnings
volatility that has characterized the container-shipping industry in recent
years.
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL
- ---------------------------------------------------------
Background and Integration
On June 1, 1999, CSX and Norfolk Southern Corporation (Norfolk Southern)
formally began integrated operations over their respective portions of the
Conrail Inc. (Conrail) rail system. This step implemented the operating plan
envisioned by CSX and Norfolk Southern when they completed the joint acquisition
of Conrail in May 1997 and later received regulatory approval permitting them to
exercise joint control over Conrail in August 1998.
Under this operating plan, CSX Transportation, Inc. (CSXT), CSX's rail
subsidiary, added approximately 4,400 route miles of track in the Northeastern
and Midwestern United States and in Canada to its existing lines concentrated in
the Middle Atlantic and Southeastern United States. To service the new
operations, approximately 5,600 former Conrail employees joined CSXT. CSXT now
operates a network of more than 22,700 route miles in 23 states, the District of
Columbia, and two Canadian provinces. CSXT and its sister company, CSX
Intermodal, Inc., employ approximately 34,400 employees across the combined
system.
The rail subsidiaries of CSX and Norfolk Southern operate their
respective portions of the Conrail system pursuant to various operating
agreements which took effect on June 1. Under these agreements, the railroads
pay operating fees to Conrail for the use of right-of-way and rent for the use
of equipment. Conrail continues to provide rail service in certain shared
geographic areas for the joint benefit of CSX and Norfolk Southern for which it
is compensated on the basis of usage by the respective railroads. CSX and
Norfolk Southern, through a jointly-owned acquisition entity, hold economic
interests in Conrail of 42% and 58%, respectively, and voting interests of 50%
each.
Financial Effects
Upon integration, substantially all of Conrail's customer freight contracts were
assumed by CSX and Norfolk Southern. As a result, beginning June 1, 1999, CSX's
rail and intermodal operating revenue includes revenue from traffic previously
moving on Conrail. Operating expenses reflect corresponding increases for costs
- 22 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
- --------------------------------------------------------------------
Financial Effects, Continued
incurred to handle the new traffic and operate the former Conrail lines.
Effective June 1, 1999, rail operating expenses also include a new expense
category, "Conrail Operating Fee, Rent and Services", which reflects payments to
Conrail for the use of right-of-way and equipment; as well as charges for
transportation, switching, and terminal services provided by Conrail in the
shared areas operated for the joint benefit of CSX and Norfolk Southern. The new
expense category also includes amortization of the fair value write-up arising
from the acquisition of Conrail, as well as CSX's proportionate share of
Conrail's net income or loss recognized under the equity method of accounting.
Prior to the June 1, 1999 integration, CSX recorded its share of
Conrail's net income, less purchase price amortization, and acquisition and
transition expenses in other income (expense) in the consolidated statement of
earnings.
The integration of Conrail initially resulted in congestion and traffic
delays on parts of the new CSX network and on the shared geographic areas
operated by Conrail for the joint benefit of CSX and Norfolk Southern.
Substantial progress was made in July and August in stabilizing post-integration
operations and improving service; however, disruptions in the rail network
caused by Hurricane Floyd in September, combined with seasonal traffic build-up
in September and October, have adversely affected operating performance. Efforts
are being focused on improving operations through network simplification. Some
progress is expected by mid-December as peak traffic levels begin to ease.
Weather conditions during the winter months, particularly on the northern
portions of the new rail network, could adversely affect service improvement
initiatives.
While management believes that steady improvement across the rail
network will be achieved and will lead to increased customer satisfaction and
improved financial performance, there can be no assurance that these objectives
will be met, or met within a specified time frame. If these operating
improvements are successful, management anticipates that the company will begin
realizing many of the economic synergies envisioned from the integration of its
allocated portion of the Conrail network. These synergies include revenue
benefits from freight traffic that currently moves on other modes of
transportation (principally trucks), as well as cost savings from better
equipment utilization, more direct routing of freight traffic, fewer interchange
points, and the elimination of duplicate positions and facilities. CSX and
Norfolk Southern now compete for traffic located in markets formerly served
solely by Conrail. As a result of this process of entering new markets, there
have been changes in the historic rate and traffic patterns, including some rate
reductions and traffic volume shifts. The process is being driven by market
conditions and, over time, may be affected by customer satisfaction with service
levels provided by the competing carriers. The company cannot presently assess
the impact of these transition effects on either the timing or realization of
the projected benefits of the Conrail transaction.
Conrail's Results of Operations
Conrail's operating results for the quarter and nine months ended
September 30, 1999 were significantly impacted by the changes in its business
resulting from the integration with CSX and Norfolk Southern. Effective June 1,
1999, Conrail's major sources of revenue derive from CSX and Norfolk Southern
and consist principally of operating fees, equipment rent, and shared area usage
fees. The nature of Conrail's
- 23 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
- --------------------------------------------------------------------
Conrail's Results of Operations, Continued
operating expenses has also changed to reflect the new operations. Accordingly,
meaningful comparisons of 1999 and 1998 results are more difficult.
Conrail reported a net loss of $49 million for the third quarter of
1999, compared with a net loss of $65 million for the prior year quarter. For
the related nine-month periods, Conrail reported a net loss of $36 million in
1999 and net income of $135 million in 1998. Results in 1999 included after-tax
expenses of $51 million in the third quarter and $117 million in the second
quarter, principally to increase certain components of its casualty reserves
based on an actuarial valuation and adjustments to certain litigation and
environmental reserves related to settlements and completion of site reviews.
Results in 1998 included a $187 million after-tax charge, primarily for
estimated non-union severance obligations. Excluding the effects of these
expenses, Conrail's net income would have been down $120 million in the quarter
and $190 million for the first nine months, principally due to costs related to
the wind-down of certain functions and lower income from railway operations
during the first five months of 1999.
Operating revenues were $259 million in the third quarter and $1,912
million for the first nine months, versus $976 million and $2,886 million,
respectively, for the same periods last year, reflecting the change in
operations. Operating expenses (excluding the expenses discussed above) declined
$513 million in the third quarter and $659 million in the first nine months,
reflecting the operation of most of its properties by CSX and Norfolk Southern,
mitigated by the effects of transition-related expenses.
Conrail's working capital deficit was $53 million at September 30, 1999,
compared with $202 million at December 31, 1998. In addition to cash flow from
operations, the improvement in working capital resulted in part from the
reclassification of certain employee obligations. The improvements in working
capital were partially offset by the reclassification of approximately $250
million of long-term debt to current liabilities, reflecting the maturity of the
debt in June 2000. Certain components of working capital, such as accounts
receivable, accounts payable, and accrued wages and employee benefits were
significantly affected by the integration as outstanding balances were collected
or paid. Conrail is expected to have sufficient cash flow to meet its ongoing
post-integration obligations.
SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS
- -----------------------------------------------
On July 21, 1999, CSX entered into an agreement to sell certain assets
comprising the international liner business of Sea-Land Service, Inc.
(Sea-Land), its wholly-owned container-shipping subsidiary, to A. P.
Moller-Maersk Line (Maersk) for approximately $800 million in cash. The
transaction, which is contingent upon regulatory approvals, is currently
expected to close in the fourth quarter of 1999. The sales price is subject to
adjustment based on the final amounts of certain assets and related obligations
conveyed at closing.
The international liner business operates approximately 70 container
vessels and 200,000 containers in worldwide trades and comprises a majority of
CSX's container-shipping revenue. In addition to vessels and containers, Maersk
will acquire certain terminal facilities and various other assets and related
liabilities of the international liner business, including the assumption of
certain lease obligations.
- 24 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS, Continued
- ----------------------------------------------------------
CSX has classified the international liner assets as "held for sale" in
accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Since the book
value of the net assets to be conveyed exceeded the sales price, the company
recorded a $315 million asset impairment charge in the third quarter to adjust
the book value of the related property, equipment and other long-lived assets to
their fair value less cost to sell. In addition, in accordance with the
provisions of Statement No. 121, no depreciation has been recorded on these
assets since their classification as "held for sale" in July. The impairment
charge, net of a $17 million benefit from the lower depreciation expense,
reduced third quarter earnings by $298 million before taxes, $236 million
after-tax, $1.11 per share. The realizable value of the net assets held for sale
as of October 1, 1999 is approximately $800 million, consisting primarily of net
properties, accounts receivable and other assets, net of liabilities. The
operating revenue associated with the assets held for sale was approxaimtely
$3.0 billion in 1998 and $2.3 billion for the nine-month period of 1999.
With the recognition of the impairment charge in the third quarter, no
significant gain or loss is expected upon the subsequent closing of the
transaction. However, some gain or loss is possible because certain information
used to determine the amount of the charge is preliminary and is likely to
differ from actual balances at closing date.
CSX will retain the container-shipping business serving the United
States domestic trade and the company's international terminal operations and
will manage them separately. Management reporting and performance measures for
these businesses are currently being developed and refined. The company expects
to revise its disclosures under FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in the first quarter of 2000
to report these as separate business segments.
OTHER MATTERS
- -------------
Voluntary Early Retirement and Separation Program
In October 1999, CSX initiated a voluntary early retirement and
separation program intended to reduce the non-union workforce at its rail and
intermodal units and an affiliated technology subsidiary. The company expects an
overall workforce reduction of approximately 800 employees with annualized
expense savings of approximately $75 million. Employees have until early
December to apply for the program. The company has the right to accept or reject
employee applications, as well as delay their departures to ensure appropriate
staffing levels to meet business needs. The company expects that most of the
retirements and separations will occur by the end of the year, with the
remainder occurring by the end of first quarter 2000. Fourth quarter 1999
financial results will include a pre-tax charge estimated between $55 million
and $75 million to reflect the cost of the program. Early retirement benefits
under the program will be paid from CSX's pension plan, while separation
benefits will be paid from cash generated by operations.
Federal Court Decision Affecting Coal Mining Operations
In October 1999, a federal district court judge in West Virginia ruled
that the Federal Clean Water Act was not being properly enforced with respect
to strip mining operations. The decision, which is currently under appeal,
could adversely affect CSX's coal traffic and revenues if upheld.
- 25 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
- ------------------------
Year 2000 Planning
State of Year 2000 Readiness
- ----------------------------
Technology systems and embedded computer chips that are not Year 2000
ready are unable to distinguish between the calendar year 1900 and the calendar
year 2000. CSX recognizes that it must work to minimize the risks that its
business operations will be adversely affected by transition to the upcoming
calendar year 2000. Accordingly, in 1996, CSX and each of its transportation
subsidiaries began a comprehensive plan to address the potential exposure. The
company's Year 2000 plan includes the following phases:
o Awareness - General education about the Year 2000 problem.
o Inventory - Cataloging of all systems and business relationships that
may be impacted by a Year 2000 date rollover.
o Assessment - Estimating the degree of severity of the Year 2000 problem for
cataloged items.
o Remediation - Repair, replacement, or retirement of non-Year 2000 compliant
systems.
o Validation - Testing to confirm the compliance of Year 2000 remediated
systems.
CSX's readiness efforts are focused, first and foremost, on the
continued safe operation of its rail and other transportation systems. That
includes employee safety, the safety of the general public, and the safety of
the environments in which the company operates. Maintaining service continuity
both to customers and with vendors before, during, and after the millennium
change also is a priority.
CSX has material relationships with third parties whose failure to be
Year 2000 ready could have adverse impacts on the company's business, operations
or financial condition. Third parties CSX considers to be in this category
include significant suppliers, large customers and financial institutions.
Accordingly, the company has met with or surveyed those parties to assess their
Year 2000 readiness and, where applicable, is conducting interface tests with
them upon completion of internal testing of remediated applications. Based on
the results of those tests, and the information received, follow-up action or
contingency plans will be made by the company as it deems appropriate.
CSX also is participating in interface tests with other Class I
railroads to ensure that electronic data interchanges can be processed in a Year
2000 format. The industry effort has been coordinated by the Association of
American Railroads since 1997 and is largely complete. In addition, date forward
testing with customers is currently being conducted.
CSX, along with the other three major Class I railroads, recently
underwent a Year 2000 audit commissioned by the Federal Railroad Administration
(FRA). According to the audit summary, "these four large railroads are ready for
Year 2000," and, based on the assessment, "the American public and all
organizations who ship their goods over the rails should expect no degradation
of service caused by Year 2000 problems." In addition, the summary stated that
the "railroads are continuing their Year 2000 program across the millennium" and
for the final quarter of 1999 "are concentrating their efforts on end-to-end
testing for additional self-assurance and contingency planning to further
minimize risk."
- 26 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
- ------------------------
Year 2000 Planning, Continued
State of Year 2000 Readiness, Continued
- ---------------------------------------
CSX's Year 2000 readiness efforts are organized in five areas. Overall,
these key areas were substantially completed at the end of the third quarter
1999:
<TABLE>
<CAPTION>
Estimated
Substantial
Effort Completion Current Phase
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Core Information Systems Third Quarter 1999 Substantially Complete
Distributed Information Technology Third Quarter 1999 Substantially Complete
Electronic Commerce Third Quarter 1999 Substantially Complete
Non-information Technology
(embedded systems) Third Quarter 1999 Substantially Complete
Trading Partners Fourth Quarter 1999 Validation
</TABLE>
While the readiness plan for distributed information technology was
substantially complete at the end of the third quarter, some distributed systems
at Sea-Land will not be fully Year 2000 ready until the fourth quarter, due in
part to the global geographic dispersion of the systems. The anticipated
completion schedule for these systems is not expected to adversely affect their
ultimate readiness or Sea-Land's current contingency planning efforts. In
addition, a number of these distributed systems will be transferred to Maersk
when the sale of Sea-Land's international liner business is completed in the
fourth quarter.
Entering the fourth quarter of 1999, CSX is progressing the final stages
of its readiness plan, which include:
o End-to-end system tests - final tests to provide additional
assurances that Year 2000 programming functions as intended in an
integrated, multiple systems environment;
o Contingency Planning - review and refinement of contingency plans to
provide additional assurances as to completeness and effectiveness
leading up to the millennium change;
o Rollover/Event Planning - positioning resources and finalizing
communication strategy for the critical time period immediately
before, during, and after the millennium change date.
Year 2000 Costs
- ---------------
The company has incurred total costs of $66 million through third
quarter 1999 related to Year 2000 readiness, which represents approximately 83%
of the estimated expenditures for the entire plan. To provide a consistent,
objective method for identifying costs of the Year 2000 plan, the company
classifies expenditures as Year 2000 plan costs for reporting purposes only if
they remedy only Year 2000 risks and would otherwise be unnecessary in the
normal course of business. The cost of the Year 2000 plan is being expensed as
incurred and funded by cash generated from operations. No major projects have
been delayed as a result of Year 2000 readiness efforts.
- 27 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
- ------------------------
Year 2000 Planning, Continued
Contingency Plans
- -----------------
Contingency planning is an established and ongoing effort within CSX to
address many types of potential operating disruptions which may include Year
2000 issues. For example, detailed emergency operating plans already exist for
unanticipated outages of electricity, telecommunications, and other essential
services. The company is not in a position to identify or to avoid all possible
Year 2000 scenarios or to estimate their overall business impacts. However, the
company has assessed possible problems and made plans to mitigate the impacts,
with primary emphasis on scenarios having a high or moderate risk to the company
with high or moderate probability of occurrence.
These plans include identifying alternate suppliers, vendors, procedures
and operational sites; generating equipment lists; conducting staff training;
and developing communication plans. CSX defines three primary types of most
reasonably likely worst-case scenarios, for which detailed contingency measures
include the following:
o Systemwide failures -- In the event of complete or nearly complete loss of
key assets or services throughout the entire CSX system, CSX will conduct
and maintain a safe and orderly shutdown of all operations that depend on
those systems.
o Geographically isolated failures -- In the event of complete or nearly
complete loss of key assets or services throughout a region, CSX may employ
manual fallback plans for non-transportation functions and may maintain a
safe and orderly shutdown of affected transportation operations. For
Sea-Land, overseas port operations represent a higher Year 2000 risk, since
preparedness of providers in some foreign countries is believed to lag
that in the United States. This risk will be reduced by the anticipated
sale of Sea-Land's international liner business to Maersk before the end
of the year. Should closing of that transaction be delayed beyond year-end
for any reason, Sea-Land would be able to minimize the exposure to high-risk
ports, for instance, by temporarily modifying its vessel schedules.
o Movable asset failures -- In the event of a Year 2000 failure of a
transportation asset, such as a ship or locomotive that does not have
redundant systems for operation, CSX may temporarily remove the asset from
service and scale its operations accordingly.
Risks
- -----
CSX believes that its Year 2000 planning efforts are adequate to address
all major risks. There can be no assurance, however, that the company's systems
or equipment, or those of third parties on which CSX relies, will be Year 2000
ready in a timely manner or that the company's or third parties' contingency
plans will mitigate the effects of the transition to the calendar Year 2000. The
failure of the systems or equipment of CSX or third parties (which the company
believes is the most reasonably likely worst case scenario) could result in the
reduction or suspension of the company's operations and could have a material
adverse effect on the company's results of operations, liquidity and financial
condition.
- 28 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
OTHER MATTERS, Continued
- ------------------------
Litigation
In September 1997, a state court jury in New Orleans, Louisiana returned
a $2.5 billion punitive damages award against CSXT. The award was made in a
class action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15 percent of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provision has been made for the
award.
In October 1997, the Louisiana Supreme Court set aside the punitive
damages judgment, ruling the judgment should not have been entered until all
liability issues were resolved. In February 1999, the Louisiana Supreme Court
issued a further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions, for a new trial and for judgment notwithstanding the
verdict, as to the April 8 judgment.
The new trial motion was denied by the trial court in August of 1999. On
November 5, 1999, the trial court issued an opinion which granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages, for that matter) is
unwarranted and intends to pursue its full appellate remedies with respect to
the 1997 trial as well as the trial judge's decision on the motion for judgment
notwithstanding the verdict. The compensatory damages awarded by the jury in the
1997 trial were also substantially reduced by the trial judge. CSXT believes
that the trial judge will probably reduce the judgment in favor of 20 plaintiffs
entered on April 8, 1999 to reflect the lower compensatory and punitive amounts
reflected in its November 5, 1999 decision.
A trial for the claims of 20 additional plaintiffs for compensatory
damages began on May 24, 1999. In early July, the jury in that trial rendered
verdicts totaling approximately $330 thousand in favor of eighteen of those
twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that
they had not proved any damages. Management believes that this result, while
still excessive, supports CSXT's contention that the $2.5 billion punitive
damages award, now reduced to $850 million, was unwarranted.
CSXT continues to pursue an aggressive legal strategy. 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.
- 29 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, CONTINUED
--------------------------------------------------
Estimates and forecasts in Management's Discussion and Analysis and in
other sections of this Quarterly Report are based on many assumptions about
complex economic and operating factors with respect to industry performance,
general business and economic conditions and other matters that cannot be
predicted accurately and that are subject to contingencies over which the
company has no control. Such forward-looking statements are subject to
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs, and projections expressed in such
statements. The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the company. Any such statement speaks only as of the date the statement was
made. The company undertakes no obligation to update or revise any
forward-looking statement.
Factors that may cause actual results to differ materially from those
contemplated by these forward- looking statements include, among others, the
following possibilities: (i) cost savings expected from the integration of
Conrail may not be fully realized or realized within the time frame anticipated,
(ii) costs or difficulties related to the integration of Conrail may be greater
than expected, (iii) general economic or business conditions, either nationally
or internationally, an increase in fuel prices, a tightening of the labor market
or changes in demands of organized labor resulting in higher wages, or increased
benefits or other costs or disruption of operations may adversely affect the
businesses of the company, (iv) legislative or regulatory changes, including
possible enactment of initiatives to re-regulate the rail industry, may
adversely affect the businesses of the company, (v) changes may occur in the
securities markets, and (vi) disruptions of the operations of the company or any
other governmental or private entity may occur as a result of issues related to
the Year 2000.
- 30 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. (27) Financial Data Schedule
(b) Reports on Form 8-K
1. A report was filed on August 16, 1999, reporting Item 5, Other
Events - authorization of issuance and sale of an additional
U.S. $250,000,000 of Medium-Term Notes, Series C; plus Item 7,
Financial Statements and Exhibits - documents related to the
notes filed as exhibits.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By: /s/ JAMES L. ROSS
-----------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: November 15, 1999
- 31 -
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<PERIOD-END> OCT-1-1999
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<SECURITIES> 320
<RECEIVABLES> 1,387
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0
0
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