UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
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 the registrant'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. ( )
Exhibit Index can be found on page 7.
<PAGE>
On February 25, 2000, the aggregate market value of the Registrant's voting
stock held by non-affiliates was approximately $4.6 billion (based on the
New York Stock Exchange closing price on such date).
On February 25, 2000, there were 218,584,741 shares of Common Stock outstanding.
Portion of Form 10-K into which
Documents Incorporated by Reference Documents are Incorporated
- ----------------------------------- -------------------------------
1. Portions of the Registrant's Annual Report to Part I, II & IV
Shareholders for the fiscal year ended December 31,
1999 ("Annual Report")
2. Portions of the Registrant's Definitive Proxy Part III
Statement to be filed with respect to its annual
meeting of shareholders scheduled to be held on
April 27, 2000 ("Proxy Statement")
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<PAGE>
PART I
Item 1. Business
In response to this Item, the information set forth on page 1 under the
caption "Financial Highlights", page 9 under the captions "Rail Operations" and
"Intermodal", page 11 under the caption "Container-shipping and Terminal
Management Operations", page 13 under the caption "Contract Logistics" and pages
19-29 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Annual Report is incorporated herein
by reference.
Item 2. Properties
In response to this Item, the information set forth on pages 19-29 under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations", page 34 under the caption "Properties" and page 40 under
the caption "Note 10. Properties." of the Annual Report is incorporated herein
by reference.
Item 3. Legal Proceedings
In response to this Item, the information set forth on pages 28-29 under
the captions "New Orleans Tank Car Fire Litigation" and "Environmental
Management", page 46 under the caption "New Orleans Tank Car Fire" and pages 46
and 47 under the captions "Environmental" and "Other Legal Proceedings" of the
Annual Report is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in the
fourth quarter of 1999.
Executive Officers of the Registrant
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.
Name and Age Business Experience During Past 5 Years
- --------------------------------------------------------------------------------
John W. Snow, 60 Chairman, President and Chief Executive Officer
of CSX since February 1991.
Alvin R.(Pete) Carpenter, 58 Vice Chairman of CSX since July 1999. Prior
to July 1999, Mr. Carpenter served as
President and Chief Executive Officer of CSXT.
Mark G. Aron, 57 Executive Vice President-Law and Public Affairs
of CSX since April 1995. Prior to April 1995,
Mr. Aron served as CSX Senior Vice President-
Law and Public Affairs.
Paul R. Goodwin, 57 Executive Vice President-Finance and Chief
Financial Officer of CSX since April 1995.Prior
to April 1995, Mr. Goodwin served as an officer
of CSXT as Executive Vice President- Finance &
Administration from February 1995 to April
1995,
- 2 -
<PAGE>
and prior thereto as Senior Vice
President-Finance.
William J. Flynn, 46 Senior Vice President-Strategic Planning of CSX
since December 1999. Prior to December 1999,
Mr. Flynn served as an officer of Sea-Land as
Vice President-Asia from April 1999 to November
1999; Vice President-Central Asia from October
1997 to March 1999; Vice President-North Asia
from September 1996 to September 1997; and
prior thereto as Vice President-Global
Services.
Andrew B. Fogarty, 55 Senior Vice President-Corporate Services of CSX
since September 1997. 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.
Jesse R. Mohorovic, 57 Group Vice President-Corporate Communications
and Investor Relations since April 1998. Prior
to April 1998, Mr. Mohorovic served as CSX
Vice President-Corporate Relations from
February 1995 to April 1998; and prior thereto
as CSXT Vice President-Corporate
Communications.
James L. Ross, 61 Vice President and Controller of CSX since
April 1996. 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.
Ronald J. Conway, 55 President of CSXT since July 1999. Prior to
July 1999, Mr. Conway served as CSXT Executive
Vice President-Operations from June 1998 to
July 1999; and prior thereto as Senior Vice
President-Operations of Conrail Inc.
Frederick J. Favorite, Jr., 46 Senior Vice President-Finance of CSXT since
February 2000. Prior to February 2000, Mr.
Favorite served as Vice President-Finance,
CSXT, from December 1998 to January 2000; as
Vice President-Planning, CSXT, from September
1996 to December 1998; and prior thereto as
Vice President-Finance, Sea-Land.
Dale R. Hawk, 55 Senior Vice President-Automotive Services Group
since July 1999. Prior to July 1999, Mr. Hawk
served as CSXT Vice President & General
Manager, Automotive Business Unit from April
1995 to July 1999; and prior thereto as CSXT
Assistant Vice President-Metals Sales &
Marketing.
John P. Sammon, 49 Senior Vice President-Merchandise Services
Group of CSXT since June 1999. Prior thereto,
Mr. Sammon served as Senior Vice President-Core
SVC Group of Conrail Inc.
Paul D. Sandler, 52 Senior Vice President-Corporate Services of
CSXT since July 1999. Prior to July 1999, Mr.
Sandler served as CSXT General
- 3 -
<PAGE>
Manager and Vice President, Florida Business
Unit from February 1995 to July 1999; and
prior thereto as CSXT Vice President-Planning.
Gary M. Spiegel, 49 Senior Vice President-Operations of CSXT since
July 1999. Prior to July 1999, Mr. Spiegel
served as CSXT Vice President-Network
Operations from June 1998 to July 1999; and
prior thereto as an officer of Conrail Inc. as
Vice President-Service Delivery from June 1997
to June 1998; Assistant Vice President-Service
Delivery from June 1996 to June 1997; and prior
thereto as Assistant Vice President-Train
Operations.
Michael J. Ward, 49 Executive Vice President-Coal Service Group
since August 1999. Prior to August 1999, Mr.
Ward served as an officer of CSXT as Executive
Vice President-Coal & Merger Planning from
October 1998 to August 1999; Executive Vice
President-Finance and Chief Financial Officer
from June 1996 to October 1998; as Senior Vice
President-Finance from April 1995 to May 1996;
and prior thereto as General Manager-C&O
Business Unit.
Robert J. Grassi, 53 President and Chief Executive Officer of CSX
World Terminals since June 1999. Prior to June
1999, Mr. Grassi served as an officer of
Sea-Land as Senior Vice President-Finance and
Planning from August 1997 to June 1999; Senior
Vice President-Atlantic, AME Services from
June 1996 to August 1997; and prior thereto as
Senior Vice President -Finance and Planning.
Charles G. Raymond, 56 President and Chief Executive Officer of CSX
Lines since June 1999. Prior to June 1999, Mr.
Raymond served as an officer of Sea-Land as
Senior Vice President and Chief Transportation
Officer from May 1995 to June 1999; and prior
thereto as Senior Vice President-Operations and
Inland Transportation.
Lester M. Passa, 45 President and CEO of CSX Intermodal since
November 1997. 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; and prior thereto
as Assistant Vice President-Corporate Strategy.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
In response to this Item, the information set forth on page 50,
"Shareholder Information", and page 51, "Corporate Information", of the Annual
Report is incorporated herein by reference.
- 4 -
<PAGE>
Item 6. Selected Financial Data
In response to this Item, the information set forth on page 1 of the
Annual Report under the caption "Financial Highlights" is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In response to this Item, the information set forth on pages 19-29 of
the Annual Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
In response to this Item, the information set forth on pages 25-26 of
the Annual Report under the caption "Market Risk" is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
In response to this Item, the information set forth on pages 30-49 and
page 51 under the caption "Quarterly Financial Data (Unaudited)" of the Annual
Report is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- 5 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
In accordance with Instruction G(3) of Form 10-K, the information
required by this Item is incorporated herein by reference to the Proxy
Statement, except for the information regarding the executive officers of the
Registrant which is included in Part I of this report under the caption
"Executive Officers of the Registrant."
Item 11. Executive Compensation
In accordance with Instruction G(3) of Form 10-K, the information
required by this Item is incorporated herein by reference to the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
In accordance with Instruction G(3) of Form 10-K, the information
required by this Item is incorporated herein by reference to the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
In accordance with Instruction G(3) of Form 10-K, the information
required by this Item is incorporated herein by reference to the Proxy
Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements and independent
auditor's report, which appear on pages 30-49 of the Annual
Report, are incorporated herein by reference:
Consolidated Statement of Earnings for the Fiscal Years Ended
Dec. 31, 1999, Dec. 25, 1998 and Dec. 26, 1997
Consolidated Statement of Cash Flows for the Fiscal Years
Ended Dec. 31, 1999, Dec. 25, 1998 and Dec. 26, 1997
Consolidated Statement of Financial Position at Dec. 31, 1999
and Dec. 25, 1998
Consolidated Statement of Changes in Shareholders' Equity for
the Fiscal Years Ended Dec. 31, 1999, Dec. 25, 1998 and Dec.
26, 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
- 6 -
<PAGE>
(2) Financial Statement Schedules
The information required by Rule 3-09 is included in the Annual
Report in Note 3 to the consolidated financial statements,
"Investment in and Integrated Rail Operations with Conrail" and
the Audited Consolidated Financial Statements of
Conrail Inc., filed herewith as exhibit 99.1. The information
required by Schedule II is included in the Annual Report in Note
11 to the consolidated financial statements, "Casualty,
Environmental and Other Reserves." All other financial statement
schedules are not applicable.
(3) Exhibits
3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated herein by reference as Exhibit 3
to the Registrant's Annual Report on Form 10-K dated
February 15, 1991)
3.2* Bylaws of the Registrant, as amended
4.1(a) Indenture, dated August 1, 1990, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated
herein by reference to the Registrant's Form SE dated
September 7, 1990)
4.1(b) First Supplemental Indenture, dated as of June 15, 1991,
between the Registrant and The Chase Manhattan Bank, as
Trustee (incorporated herein by reference to Exhibit 4(c)
to the Registrant's Form SE, dated May 28, 1992, filed
with the Commission)
4.1(c) Second Supplemental Indenture, dated as of May 6, 1997,
between the Registrant and The Chase Manhattan Bank, as
Trustee (incorporated herein by reference to Exhibit 4.3
to the Registrant's Registration Statement on Form S-4
(Registration No. 333-28523) filed with the Commission on
June 5, 1997)
4.1(d) Third Supplemental Indenture, dated as of April 22, 1998,
between the Registrant and The Chase Manhattan Bank, as
Trustee (incorporated herein by reference to Exhibit 4.2
to the Registrant's Current Report on Form 8-K filed with
the Commission on May 12, 1998)
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments that
define the rights of holders of the Registrant's long-term debt
securities, where the long-term debt securities authorized under
each such instrument do not exceed 10% of the Registrant's total
assets, have been omitted and will be furnished to the Commission
upon request.
10.1 CSX Stock Plan for Directors, as amended (incorporated
herein by reference to Appendix A to the Definitive Proxy
Statement dated March 18, 1997)**
10.2 Corporate Director Deferred Compensation Plan, as amended
(incorporated herein by reference to Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K dated February 18,
1998)**
10.3 CSX Directors' Charitable Gift Plan, as amended
(incorporated herein by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K dated March 4,
1994)**
10.4 CSX Directors' Matching Gift Plan, as amended
(incorporated herein by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K dated March 14,
1997)**
10.5 Form of Agreement with J. W. Snow, A. R. Carpenter, P. R.
Goodwin and M. G. Aron (incorporated herein by reference
to Exhibit 10.6 to the Registrant's Annual Report on Form
10-K dated March 3, 1995)**
- 7 -
<PAGE>
10.6 Form of Amendment to Agreement with A. R. Carpenter, P. R.
Goodwin and M. G. Aron (incorporated herein by reference
to Exhibit 10.7 to the Registrant's Annual Report on Form
10-K dated March 14, 1997)**
10.7 Form of Retention Agreement with A. R. Carpenter
(incorporated herein by reference to Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K dated February 28,
1992)**
10.8 Agreement with J. W. Snow (incorporated herein by
reference to Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K dated March 4, 1994)**
10.9 Amendment to Agreement with J. W. Snow (incorporated
herein by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K dated March 14, 1997)**
10.10 Amendment to Agreement with J. W. Snow (incorporated
herein by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K dated February 18, 1998)**
10.11* Agreement with R. J. Conway**
10.12* Employment Agreement with J. W. Snow**
10.13* Employment Agreement with A. R. Carpenter**
10.14* Employment Agreement with R. J. Conway**
10.15* Form of Stock Option Agreement**
10.16 CSX Market Value Cash Plan (incorporated herein by
reference to Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K dated March 3, 1999)**
10.17 Stock Purchase and Loan Plan, as amended (incorporated
herein by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K dated March 3, 1999)**
10.18* 1987 Long-Term Performance Stock Plan, as Amended and
Restated Effective April 25, 1996 (as Amended through
September 8, 1999)**
10.19 1985 Deferred Compensation Program for Executives of CSX
Corporation and Affiliated Companies, as amended
(incorporated herein by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K dated February 18,
1998)**
10.20* Supplementary Savings Plan and Incentive Award Deferral
Plan for Eligible Executives of CSX Corporation and
Affiliated Companies, as Amended and Restated January 1,
1995 (as Amended through September 8, 1999)**
10.21* Special Retirement Plan of CSX Corporation and Affiliated
Companies, as Amended and Restated January 1, 1995 (as
Amended through December 7, 1999)**
10.22* Supplemental Retirement Benefit Plan of CSX Corporation
and Affiliated Companies, as Amended and Restated January
1, 1995 (as Amended through December 7, 1999)**
10.23 1994 Senior Management Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K dated March 3,
1995)**
10.24* 1990 Stock Award Plan as Amended and Restated Effective
February 14, 1996 (as Amended through September 8, 1999)
10.25 Amended and Restated Credit Agreement (incorporated herein
by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K filed with the Commission on June 4,
1997)
10.26 Transaction Agreement (incorporated herein by reference to
Exhibit 10 to the Registrant's Current Report on Form 8-K
filed with the Commission on July 8, 1997)
- 8 -
<PAGE>
10.27 Amendment No. 1, dated as of August 22, 1998, to the
Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company,
Conrail Inc., Consolidated Rail Corporation, and CRR
Holdings LLC. (incorporated herein by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K filed
with the Commission on June 11, 1999)
10.28 Amendment No. 2, dated as of June 1, 1999, to the
Transaction Agreement, dated June 10, 1997, by and among
CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company,
Conrail Inc., Consolidated Rail Corporation, and CRR
Holdings, LLC. (incorporated herein by reference to
Exhibit 10.2 to the Registrant's Current Report on Form
8-K filed with the Commission on June 11, 1999)
10.29 Operating Agreement, dated as of June 1, 1999, by and
between New York Central Lines LLC and CSX Transportation,
Inc. (incorporated herein by reference to Exhibit 10.3 to
the Registrant's Current Report on Form 8-K filed with the
Commission on June 11, 1999)
10.30 Shared Assets Area Operating Agreement for North Jersey,
dated as of June 1, 1999, by and among Consolidated Rail
Corporation, CSX Transportation, Inc., and Norfolk
Southern Railway Company, with exhibit thereto
(incorporated herein by reference to Exhibit 10.4 to the
Registrant's Current Report on Form 8-K filed with the
Commission on June 11, 1999)
10.31 Shared Assets Area Operating Agreement for Southern
Jersey/Philadelphia, dated as of June 1, 1999, by and
among Consolidated Rail Corporation, CSX Transportation,
Inc., and Norfolk Southern Railway Company, with exhibit
thereto (incorporated herein by reference to Exhibit 10.5
to the Registrant's Current Report on Form 8-K filed with
the Commission on June 11, 1999)
10.32 Shared Assets Area Operating Agreement for Detroit, dated
as of June 1, 1999, by and among Consolidated Rail
Corporation, CSX Transportation, Inc., and Norfolk
Southern Railway Corporation, with exhibit thereto
(incorporated herein by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 8-K filed with the
Commission on June 11, 1999)
10.33 Monongahela Usage Agreement, dated as of June 1, 1999, by
and among CSX Transportation, Inc., Norfolk Southern
Railway Company, Pennsylvania Lines LLC, and New York
Central Lines LLC, with exhibit thereto (incorporated
herein by reference to Exhibit 10.7 to the Registrant's
Current Report on Form 8-K filed with the Commission on
June 11, 1999)
12* Computation of Ratio of Earnings to Fixed Charges
13* Annual Report to Shareholders***
21* Subsidiaries of the Registrant
23.1* Consent of Ernst & Young LLP
23.2* Consent of Ernst & Young LLP and KPMG LLP, Independent
Auditors
23.3* Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24* Powers of Attorney
27* Financial Data Schedule
99.1* Audited Consolidated Financial Statements of
Conrail Inc. for the Years Ended Dec. 31, 1999, 1998 and
1997
- 9 -
<PAGE>
* Filed herewith
** Management Contract or Compensatory Plan or Arrangement
***Except for those portions of the Annual Report which are
expressly incorporated by reference in this Form 10-K, the
Annual Report is furnished for the information of the
Securities and Exchange Commission only and is not to be
deemed "filed" as part of this Form 10-K.
(b) Reports on Form 8-K
None.
SIGNATURES
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.
CSX CORPORATION
(Registrant)
By: /s/JAMES L. ROSS
-----------------
James L. Ross
Vice President and Controller
(Principal Accounting Officer)
Dated: March 7, 2000
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 indicated on March 7, 2000.
Signature Title
- -------------------------------- ------------------------------------
/s/ JOHN W. SNOW* Chairman of the Board, President,
- ----------------- Chief Executive Officer and Director
John W. Snow (Principal Executive Officer)
/s/ PAUL R. GOODWIN* Executive Vice President-Finance and
- -------------------- Chief Financial Officer
Paul R. Goodwin (Principal Financial Officer)
/s/ ELIZABETH E. BAILEY* Director
- ------------------------
Elizabeth E. Bailey
/s/ H. FURLONG BALDWIN* Director
- -----------------------
H. Furlong Baldwin
/s/ CLAUDE S. BRINEGAR* Director
- -----------------------
Claude S. Brinegar
/s/ ROBERT L. BURRUS, JR.* Director
- --------------------------
Robert L. Burrus, Jr.
- 10 -
<PAGE>
/s/ BRUCE C. GOTTWALD* Director
- ----------------------
Bruce C. Gottwald
/s/ JOHN R. HALL* Director
- -----------------
John R. Hall
/s/ E. BRADLEY JONES* Director
- ---------------------
E. Bradley Jones
/s/ ROBERT D. KUNISCH* Director
- ----------------------
Robert D. Kunisch
/s/ JAMES W. MCGLOTHLIN* Director
- ------------------------
James W. McGlothlin
/s/ SOUTHWOOD J. MORCOTT* Director
- -------------------------
Southwood J. Morcott
/s/ CHARLES E. RICE* Director
- --------------------
Charles E. Rice
/s/ WILLIAM C. RICHARDSON* Director
- --------------------------
William C. Richardson
/s/ FRANK S. ROYAL, M.D.* Director
- -------------------------
Frank S. Royal, M.D.
*By: /s/ PETER J. SHUDTZ
-------------------
Peter J. Shudtz
Attorney-in-Fact
- 11 -
BYLAWS
OF
CSX CORPORATION
(Amended as of February 10, 1999)
--------------------
ARTICLE I
Shareholders' Meeting
SECTION 1.Annual Meeting. The annual meeting of the shareholders of
the Corporation shall be held on such date in March, April, May or June as the
Board of Directors (hereinafter sometimes the "Board") may designate, either
within or without the Commonwealth of Virginia.
SECTION 2.Special Meetings. Special meetings of the shareholders may
be called from time to time by the Board of Directors or the Chairman of the
Board. Special meetings shall be held solely for the purposes specified in the
notice of meeting.
SECTION 3.Time and Place. The time and place of each meeting of the
shareholders shall be stated in the notice of the meeting.
SECTION 4.Quorum. The holders of a majority of the votes entitled to
be cast on any matter shall constitute a quorum as to that matter at any meeting
of the shareholders. Less than a quorum may adjourn the meeting to a fixed time
and place, no further notice of any adjourned meeting being required. Unless
otherwise provided in the Articles of Incorporation of the Corporation, each
shareholder shall be entitled to one vote in person or by proxy for each share
entitled to vote then outstanding and registered in his name on the books of the
Corporation.
SECTION 5.Notice of Meeting and Record Date. Except as otherwise
required by the laws of the Commonwealth of Virginia, notice shall be delivered
by the Corporation not less than 10 days nor more than 60 days before the date
of the meeting, either personally or by mail, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the shareholder at the shareholder's address as it appears on the
stock transfer books of the Corporation. Such further notice shall be given as
may be required by law. Notice of meetings may be waived in accordance with law.
Any previously scheduled meeting of the shareholders may be postponed, by
resolution of the Board of Directors at any time prior to the time previously
scheduled for such meeting of shareholders. The Board of Directors may fix in
advance a date to determine shareholders entitled to notice or to vote at any
meeting of shareholders, to receive any dividend, or for any other purpose, such
date to be not more than 70 days before the meeting or action requiring a
determination of shareholders.
SECTION 6.Conduct of Meeting. The Chairman of the Board shall
preside over all meetings of the shareholders. If he is not present, or if there
is none in office, the President shall preside. If the Chairman of the Board and
the President are not present, a Vice President shall preside, or, if none be
present, a Chairman shall be elected by the meeting. The Corporate Secretary
shall act as secretary of the meeting, if he or she is present. If he or she is
not present, the Chairman shall appoint a secretary of the meeting. The chairman
of the meeting shall appoint one or more inspectors of election who shall
determine the qualification of voters, the validity of proxies, and the results
of ballots. The chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is a
quorum, and may determine the date, time and place that a meeting so adjourned
is to reconvene. The chairman of the meeting shall prescribe rules of procedure
for the meeting and shall determine the time reasonably allotted to each speaker
at the meeting.
SECTION 7.Notice of Shareholder Business. At an annual meeting of
the shareholders, only such business shall be conducted as shall have been
brought before the meeting (a) by or at the direction of the Board of Directors
or (b) by any shareholder of the Corporation who complies with the notice
procedures set forth in this Section 7. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Corporate Secretary. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 60 days before the
date on which the Corporation first mailed its proxy materials for the prior
year's annual meeting; provided, however, that in the event that less than 40
days' notice or prior public disclosure of the date of the meeting is given or
made to the shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the shareholder and (d) any material
interest of the shareholder in such business. Notwithstanding anything in the
Bylaws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 7. The
chairman of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 7, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
ARTICLE II
Board of Directors
SECTION 1.Number and Election. The Board of Directors shall be
elected at the annual meeting of the shareholders or at any special meeting held
in lieu thereof. The number of Directors shall be fourteen. This number may be
increased or decreased at any time by amendment of these Bylaws, but shall never
be a number less than four. Subject to the last two sentences of this Section 2
of this Article II, no person shall be eligible for election as a Director, nor
shall any Director be eligible for reelection, if he or she shall have reached
the age of 70 years at the time of such election or reelection, except that the
Board, in its sole discretion, may waive such ineligibility for a period not to
exceed one year. Directors who are or have been employees of CSX or its
affiliates, including current or former Chief Executive Officers, shall retire
from the Board immediately upon leaving active service, or reaching age 65,
whichever occurs first. In the case of a candidate for election as a Director
who was a director of Conrail Inc. on May 23, 1997, the restrictions on
eligibility for election and reelection as a Director as a result of age shall
not apply for two years following their initial election to the Board. The
Board, in its sole discretion, may extend such eligibility for a period not to
exceed one year.
SECTION 2.Notice of Shareholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in these Bylaws shall be
eligible for election as Directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of shareholders
(a) by or at the direction of the Board of Directors or (b) by any shareholder
of the Corporation entitled to vote for the election of Directors at the meeting
who complies with the notice procedures set forth in this Section 2. Nominations
by shareholders shall be made pursuant to timely notice in writing to the
Corporate Secretary. To be timely, a shareholder's notice shall be received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
reelection as a Director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); and (b) as to the shareholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such shareholder
and (ii) the class and number of shares of the Corporation which are
beneficially owned by such shareholder. At the request of the Board of Directors
any person nominated by the Board of Directors for election as a Director shall
furnish to the Corporate Secretary the information required to be set forth in
the shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in these Bylaws. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
SECTION 3.Quorum. A majority of the Directors shall constitute a
quorum. Less than a quorum may adjourn the meeting to a fixed time and place, no
further notice of any adjourned meeting being required.
SECTION 4.Removal and Vacancies. The shareholders at any meeting
called for such purpose, by a vote of the holders of a majority of all the
shares of capital stock at the time outstanding and having voting power, may
remove any Director and fill any vacancy. Vacancies arising among the Directors,
including a vacancy resulting from an increase by the Board of Directors in the
number of directors, so long as the increase so created is not more than 30
percent of the number of Directors then authorized to serve on the Board, may be
filled by the remaining Directors, though less than a quorum of the Board,
unless sooner filled by the shareholders.
SECTION 5.Meetings and Notices. Regular meetings of the Board of
Directors shall be held on such dates, at such places and at such times as the
Board of Directors may from time to time designate. Special meetings of the
Board of Directors may be held at any place and at any time upon the call of the
Chairman of the Board or of any three members of the Board of Directors. Notice
of any meetings shall be given by mailing or delivering such notice to each
Director at the Director's residence or business address or by telephone,
telegraph, or facsimile. Any such notice shall state the time and place of the
meeting. Meetings may be held without notice if all of the Directors are present
or those not present waive notice before or after the meeting. Any action
required to be taken at a meeting of the Board may be taken without a meeting if
a consent in writing setting forth the action to be taken, shall be signed by
all the Directors in counterpart or otherwise and filed with the Corporate
Secretary. Such consent shall have the same force and effect as a unanimous
vote. Any action required to be taken at a meeting of the Board may be taken by
means of a conference telephone or similar communications equipment whereby all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
ARTICLE III
Executive Committee
SECTION 1.Designation; Chairman. The Board of Directors may
designate an Executive Committee. The Chairman of the Board of Directors shall
be the Chairman of the Executive Committee.
SECTION 2.Authority and quorum. The Executive Committee shall have
and may exercise all the authority of the Board of Directors, except as may be
prohibited by Section 13.1-689 of the Code of Virginia, as it may from time to
time be amended. A majority of the Committee shall constitute a quorum for the
transaction of business, and the affirmative vote of the majority of those
present shall be necessary for any action by the Committee. The Committee shall
cause to be kept a full and accurate record of its proceedings at each meeting
and report the same at the next meeting of the Board. In the absence of the
Chairman of the Committee, an acting chairman shall be designated by the
Committee to preside at such meeting.
SECTION 3.Meetings and Notices. Meetings of the Committee may be
called at any time by the Chairman of the Board or by a majority of the members
of the Committee and shall be held at such time and place as shall be stated in
the notice of the meeting. Notice of any meeting of the Committee shall be given
by delivering or mailing such notice to each member at his or her residence or
business address or by telephone, telegraph, or facsimile to him or her not less
than 24 hours before the meeting. Any such notice shall state the time and place
of the meeting. Meetings may be held without notice if all of the members of the
Committee are present or those not present waive notice before or after the
meeting. Action may be taken by the Executive Committee without a meeting or at
a meeting established by means of conference telephone or similar communications
equipment in the manner provided by Section 5 of Article II.
SECTION 4.Removal. Members of the Committee may be removed as
members thereof and replaced at any regular or special meeting of the Board of
Directors.
ARTICLE IV
Committees of the Board
(other than the Executive Committee)
The Board of Directors may establish such other committees as it
deems appropriate, each committee consisting of at least two directors whose
designation and terms of office shall be by resolution of the Board. Meetings of
a committee may be called at any time by the Chairman of the Board or the
Chairman of such committee. Notice of any meeting shall be given by delivering
or mailing such notice to each committee member at the member's residence or
business address or by telephone, telegraph, or facsimile to the member not less
than 24 hours before the meeting. Any such notice shall state the time and place
of the meeting. Meetings may be held without notice if all of the members of the
committee are present or those not present waive notice before or after the
meeting. Action may be taken by a committee without a meeting or at a meeting
established by means of conference telephone or similar communications equipment
in the manner provided by Section 5 of Article II.
ARTICLE V
Officers
SECTION 1.Elected Officers. The elected officers of the Corporation
shall be a Chairman of the Board of Directors, a President, one or more Vice
Presidents, a Corporate Secretary, a Treasurer, and such other officers
(including, without limitation, a Chief Financial Officer and a Chief Legal
Officer) as the Board of Directors from time to time may deem proper. The
Chairman of the Board shall be chosen from among the directors. All officers
elected by the Board shall each have such powers and duties as generally pertain
to their respective offices, subject to the specific provisions of this Article
V. Such officers shall also have such powers and duties as from time to time may
be conferred by the Board or by any committee thereof or the Chairman of the
Board. The Board may from time to time elect, or the Chairman of the Board may
appoint, such other officers (including, without limitation, one or more
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and
Assistant Controllers) and such agents, as may be necessary or desirable for the
conduct of the business of the Corporation. Such other officers and agents shall
have such duties and shall hold their offices for such terms as shall be
provided in these Bylaws or as may be prescribed by the Board or such committee
or by the Chairman of the Board, as the case may be. Any person may be elected
to more than one office.
SECTION 2.Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
shareholders. Each officer shall hold office until his or her successor shall
have been duly elected and shall have qualified, but any officer may be removed
from office at any time by the Board of Directors or, except in the case of any
officer or agent elected by the Board, by the Chairman of the Board. Such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 3.Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and of the Board of Directors and
shall be the Chief Executive Officer of the Corporation. The Chairman of the
Board shall be responsible for the general management of the affairs of the
Corporation and shall perform all duties incidental to his office which may be
required by law and all such other duties as are properly required of him by the
Board of Directors. He shall make reports to the Board of Directors and the
shareholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect.
SECTION 4.President. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its policies
and affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of shareholders and of the Board.
SECTION 5.Vice Presidents. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by the
Chairman of the Board with the approval of the Board.
SECTION 6.Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. He
shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed upon him from time to time by the Board
of Directors, the Chairman of the Board, or the Chief Financial Officer.
SECTION 7.Corporate Secretary. The Corporate Secretary shall attend
all meetings of the shareholders, the Board of Directors, and the Executive
Committee and record their proceedings, unless a temporary secretary be
appointed. He shall give due notice as required of all meetings of the
shareholders, Directors, and Executive Committee. He shall keep or cause to be
kept at a place or places required by law a record of the shareholders of the
Corporation, giving the names and addresses of all shareholders and the number,
class, and series of the shares held by each. He shall be custodian of the seal
of the Corporation, and of all records, contracts, leases, and other papers and
documents of the Corporation, unless otherwise directed by the Board of
Directors, and shall perform such other duties as may be assigned to him by the
Board of Directors or the Chairman of the Board. In case of the Secretary's
absence or incapacity, the Chairman of the Board shall designate an Assistant
Secretary or other appropriate officer to perform the duties of the Secretary.
SECTION 8.Removal. Any officer elected, or agent appointed, by the
Board of Directors may be removed by the Board of Directors whenever, in their
judgment, the best interests of the Corporation would be served thereby. Any
officer or agent appointed by the Chairman of the Board may be removed by him
whenever, in his judgment, the best interests of the Corporation would be served
thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the
election of his successor, his death, his resignation or his removal, whichever
event shall first occur, except as otherwise provided in an employment contract
or under an employee deferred compensation plan.
SECTION 9.Vacancies. A newly created elected office and a vacancy in
any elected office because of death, resignation, or removal may be filled by
the Board of Directors or the Chairman of the Board for the unexpired portion of
the term. Any vacancy in an office appointed by the Chairman of the Board
because of death, resignation, or removal may be filled by the Chairman of the
Board.
ARTICLE VI
Depositaries
The money and negotiable instruments of the Corporation shall be
kept in such bank or banks as the Chief Financial Officer or Treasurer shall
from time to time direct or approve. All checks and other instruments for the
disbursement of funds shall be executed manually or by facsimile by such
officers or agents of the Corporation as may be authorized by the Board of
Directors.
ARTICLE VII
Seal
The seal of the Corporation, of which there may be any number of
counterparts, shall be circular in form and shall have inscribed thereon the
name of the Corporation, the year of its organization and the words, "Corporate
Seal Virginia." The Board may also authorize to be used, as the seal of the
Corporation, any facsimile thereof.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall begin immediately after
midnight of the last Friday of December, and shall end at midnight on the last
Friday of December of each calendar year.
ARTICLE IX
Amendments to Bylaws
These Bylaws may be amended or repealed at any regular or special
meeting of the Board of Directors by the vote of a majority of the Directors
present. They may also be repealed or changed, and new Bylaws made, by the
Shareholders, provided notice of the proposal to take such action shall have
been given in the notice of the meeting.
* * * * * * * * * *
Richmond, VA
April 28, 1998
June 19, 1998
PERSONAL AND CONFIDENTIAL
Mr. Donald D. Davis
Senior Vice President-Employee Relations
CSX Transportation
500 Water Street
Jacksonville, FL 32202
Dear Don:
Thank you for the many courtesies during my recent visit to CSX and your letter
of June 11, 1998.
I am most anxious to begin my employment with CSX and look forward to seeing you
on Monday, June 22, 1998, to begin what I am confident will be a very
challenging and rewarding experience with CSX.
This letter will confirm my understanding of your oral offer and your letter
dated June 11, 1998. I understand that effective June 22, 1998, I shall join CSX
as Executive Vice President of Operations. I understand that CSX is committing
to and will be compensating me on an annual basis for 1998, 1999, and 2000 with
a compensation package totaling $1,000,000 which includes base salary, annual
bonus, and annual performance share awards as detailed below.
ANNUAL BASE SALARY $300,000.00 paid yearly at the rate
of $25,000.00 per month
ANNUAL BONUS OPPORTUNITY 80% of annual earnings
($240,000.00); may be increased
by an additional 25% if CSX
exceeds its annual financial
objectives.
If deferred, at my option, in CSX
stock until retirement/termination,
a 25% premium will be paid in the
form of CSX stock on any portion
deferred.
<PAGE>
Donald D. Davis
June 19, 1998
Page 2
ANNUAL PERFORMANCE AND 8,000 to 10,000 Shares of CSX
SHARE AWARD stock to be awarded annually (actual
award will depend on stock price at
time of award to produce annual
compensation of $1,000,000.00)
ANNUAL STOCK OPTION GRANT 20,000 Shares of
CSX stock options to be awarded
annually.
I also understand that other perquisites will include:
Executive Automobile Program ($600.00 per month plus insurance) Mayo
Clinic Annual Executive Physical Program Country Club Membership
(initiation fees and annual dues at club of my choice) Executive Tax
Preparation Program through my current provider CSX Hotel Discount
Program (The Greenbrier and Grand Teton Lodge) Estate Planning Services
through my current provider.
In addition to the above, as an employee of CSX, I understand that I will
receive all other employment benefits and be eligible to participate in all
employment benefit plans ordinarily and customarily provided for senior
executives of CSX at a comparable level in the organization.
For purposes of my participation in the CSX Pension Plan, the three years of
pension credit that I am entitled to receive pursuant to my Conrail Change of
Control Agreement shall be credited to me.
If my employment is terminated by CSX at any time prior to January 1, 2001, CSX
shall provide me with severance pay and continuation of employment benefits
until January 1, 2001 at the same level of total annual compensation and
employment benefits as I was receiving immediately prior to the termination of
my employment.
<PAGE>
Donald D. Davis
June 19, 1998
Page 3
If I have accurately summarized the employment terms being offered to me by CSX,
please sign a copy of this letter and return it to me.
Very truly yours,
/s/RONALD J. CONWAY
- -------------------
Ronald J. Conway
Understood and Agreed
by CSX Transportation
/s/DONALD D. DAVIS
- ------------------
Donald D. Davis
Senior Vice President-
Employee Relations
CSX Transportation
EMPLOYMENT AGREEMENT
AGREEMENT by and between CSX Corporation, a Virginia corporation
(the "Company") and John W. Snow (the "Executive") dated as of the 15th day of
June, 1999.
WHEREAS, Section 11 of the CSX Corporation 1987 Long-Term
Performance Stock Plan ("1987 Plan") provides that the Compensation Committee of
the Board of Directors of CSX Corporation ("Committee") may, in its discretion,
set forth in a written agreement with Executive conditions, restrictions or
limitations upon the grant of a Restricted Stock Award ("RSA") which differ from
the terms set forth in the 1987 Plan;
WHEREAS, the RSA grants hereunder are made pursuant to the 1987
Plan and this Agreement;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean June 30, 1999.
--------------
2. Employment Period. The Company hereby agrees to employ the Executive, and the
-----------------
Executive hereby agrees to enter into the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary thereof, or if later, until
the appointment of the Executive's successor as Chief Executive Officer of the
Company (the "Employment Period").
3. Terms of Employment. (a) Position and Duties. (i) (A) During the Employment
------------------- -------------------
Period, the Executive shall serve as Chairman and Chief Executive Officer of the
Company with such authority, duties and responsibilities as are commensurate
with such position and as may be consistent with such position, including
oversight of the integration of Conrail and succession planning, and (B) the
Executive's services shall be performed in Richmond, Virginia. If elected, the
Executive shall serve on the Company's Board of Directors during the Employment
Period.
(ii)During the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the Executive
------------ -----------
shall receive an annual base salary ("Annual Base Salary") of no less than the
base salary paid to the Executive immediately prior to the Effective Date.
During the Employment Period, the Annual Base Salary shall be reviewed in
accordance with the Company's current practice. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) Annual Bonus. During the Employment Period, the
------------
Executive shall be eligible to receive an annual cash bonus ("Annual Bonus") on
the same basis as immediately prior to the Effective Date.
(iii) Incentive Awards. In addition to the Executive's participation in stock
and other long-term incentive programs of the Company, the Executive shall
receive: (A) with respect to the Plan Year ending June 30, 1999, a grant of
150,000 shares of restricted Company common stock subject to the conditions
described below, and (B) with respect to the Plan Year ending June 30, 2000,
100,000 shares of restricted Company stock subject to the conditions described
below (the "Restricted Shares"). The Restricted Shares shall be granted to the
Executive upon his certification that he has acquired since April 27, 1999,
250,000 shares of the Company's common stock. Except as otherwise provided
herein, the Restricted Shares shall vest at the end of the Employment Period, or
at such earlier time as provided by the Committee, provided that the Company's
average free cash-flow per share on an annualized basis, as adjusted for any
extraordinary events, during such period is higher than its free cash-flow per
share, as adjusted for any extraordinary events, for the four consecutive
quarters ending March 26, 1999. Notwithstanding the foregoing, the Restricted
Shares shall vest upon a Change of Control of the Company, as defined in the
Company's 1987 Plan.
(iv) Retirement. The Executive shall be provided with pension benefits as in
----------
effect immediately prior to the Effective Date, provided that in determining the
amount of the Executive's retirement benefits, with respect to the time the
Executive remains employed by the Company, the value of the Restricted Shares as
of the date of grant to the extent performance goals pursuant to Section 3(iii)
have been met as of that date shall be treated as if being paid to him as a cash
bonus, for the purpose of pension computation only, ratably over a 36 month
period based on the value of such shares on the date of grant.
(v) Other Employee Benefit Plans. During the Employment Period, except as
-------------------------------
otherwise expressly provided herein, the Executive shall be entitled to
participate in all employee benefit, welfare, vacation, fringe benefit and other
plans, practices, policies and programs as provided to him immediately prior to
the Effective Date.
4. Termination of Employment. (a) Death or Disability. The Executive's
--------------------------- ---------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of "Disability" set forth in the 1987 Plan), it may give to the
Executive written notice in accordance with Section 10(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
(b) Cause. The Company may terminate the Executive's employment during the
-----
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company, or
(iii) conviction of a felony or guilty or nolo contendere plea by the Executive
with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the Executive
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the
absence of a written consent of the Executive, a material breach by the Company
of a material term of this Agreement, after the Executive has given the Company
notice thereof and a reasonable opportunity to cure.
(d) Notice of Termination. Any termination by the Company for Cause, or by the
----------------------
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
--------------------
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for
- ---------------------------------------------- ---------------------------
Cause, Death or Disability. If, during the Employment Period, the Company shall
- --------------------------
terminate the Executive's employment other than for Cause or Disability or the
Executive's employment is terminated by reason of his death, or the Executive
shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (2) the
product of (x) the highest annual bonus paid to the Executive for any of the
three years prior to the Effective Date (the "Recent Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through the Date of Termination, and the
denominator of which is 365, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1) and (2), shall be hereinafter
referred to as the "Accrued Obligations"); and
(ii) until June 30, 2002, the Company shall continue to provide medical and
dental benefits to the Executive, his spouse and dependents on a basis as such
benefits are provided to the Executive's successor (collectively "Medical
Benefits");
(iii) the Restricted Shares shall vest immediately; and
(iv) to the extent not theretofore paid or provided by the Company or deferred
by Executive, the Company shall pay on a timely basis or provide to the
Executive any other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program, policy or practice
or contract or agreement of the Company and its affiliated companies through the
Date of Termination (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. In addition, the Restricted Shares shall vest
immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall
be paid or distributed to the Executive's estate or beneficiary, as applicable,
within 30 days of the Date of Termination. The Accrued Obligations shall be paid
in a lump sum. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 5(b) shall include death benefits as in
effect on the date of the Executive's death and the continued provision of
Medical Benefits to the Executive's current spouse and dependents (as defined in
the CSX Medical Plan).
(c) Disability. If the Executive's employment is terminated by reason of the
----------
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits. In
addition, the Restricted Shares shall vest immediately. Accrued Obligations,
Other Benefits and the Restricted Shares shall be paid or distributed to the
Executive within 30 days of the Date of Termination. The Accrued Obligations
shall be paid in a lump sum. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 5(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits as in effect at any time thereafter and the
continued provision of Medical Benefits to the Executive and his current spouse
and dependents (as defined in the CSX Medical Plan).
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
----------------------------------
terminated for Cause or the Executive terminates his employment without Good
Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Except as specifically provided, nothing in this
-------------------------
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 10(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
8. Confidential Information. (a) The Executive shall hold in a fiduciary
-------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this Section
8, the Executive agrees that the Company shall be entitled to injunctive relief
in a court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement shall
have no effect on the continuing operation of this Section 8.
9. Successors. (a) This Agreement is personal to the Executive and without
----------
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
10. Miscellaneous. (a) This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
John W. Snow
home address
If to the Company:
CSX Corporation
901 E. Cary Street
Richmond, VA 23219
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision of this Agreement or the failure to assert any right the
Executive or the Company may have hereunder shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) This Agreement does not supersede the Employment Agreement between the
parties dated February 1, 1995 (the "Existing Agreement"), except to the extent
that this Agreement and the Existing Agreement would provide duplicative
benefits.
(g) The provisions of the 1987 Plan shall apply to the extent they are not
inconsistent with the terms of this Agreement, in which case the terms of this
Agreement shall be controlling.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/JOHN W. SNOW
-----------------------------
JOHN W. SNOW
CSX CORPORATION
By:/s/MARK G. ARON
---------------
EMPLOYMENT AGREEMENT
AGREEMENT by and between CSX Corporation, a Virginia corporation
(the "Company") and Alvin R. Carpenter (the "Executive") dated as of the 15th
day of June, 1999.
WHEREAS, Section 11 of the CSX Corporation 1987 Long-Term
Performance Stock Plan ("1987 Plan") provides that the Compensation Committee of
the Board of Directors of CSX Corporation ("Committee") may, in its discretion,
set forth in a written agreement with Executive conditions, restrictions or
limitations upon the grant of a Restricted Stock Award ("RSA") which differ from
the terms set forth in the 1987 Plan;
WHEREAS, the RSA grant hereunder is made pursuant to the 1987
Plan and this Agreement;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean June 30, 1999.
--------------
2. Employment Period. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to enter into the employ of the Company subject to the
terms and conditions of this Agreement, for up to 3 years, as determined by the
Board of Directors, commencing on the Effective Date and ending not later than
the third anniversary thereof ("Employment Period").
3. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, the Executive shall serve as a senior executive officer of
the Company with such authority, duties and responsibilities as are
commensurate with such position and as may be consistent with such position,
including the smooth transition of leadership at CSX Transportation, Inc.
(ii)During the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and CSXT and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the Executive
------------ -----------
shall receive an annual base salary ("Annual Base Salary") of no less than the
base salary paid to the Executive immediately prior to the Effective Date.
During the Employment Period, the Annual Base Salary shall be reviewed in
accordance with the Company's current practice. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) Annual Bonus. During the Employment Period, the Executive shall be
------------
eligible to receive an annual cash bonus ("Annual Bonus") on the same basis as
immediately prior to the Effective Date.
(iii) Incentive Awards. In addition to the Executive's participation in stock
-----------------
and other long-term incentive programs of the Company, the Executive shall
receive a grant of 150,000 shares of restricted Company common stock subject to
the conditions described below (the "Restricted Shares"). The Restricted Shares
shall be granted to the Executive upon his certification that he has acquired
since April 27, 1999, 150,000 shares of the Company's common stock. Except as
otherwise provided herein, the Restricted Shares shall vest at the end of the
Employment Period, or at such earlier time as provided by the Committee,
provided that the Company's average free cash-flow per share on an annualized
basis, as adjusted for any extraordinary events, during such period is higher
than its free cash-flow per share, as adjusted for any extraordinary events, for
the four consecutive quarters ending March 26, 1999. Notwithstanding the
foregoing, the Restricted Shares shall vest upon a Change of Control of the
Company, as defined in the Company's 1987 Plan.
(iv) Retirement. The Executive shall be provided with pension benefits as in
----------
effect immediately prior to the Effective Date, but in addition he shall receive
for pension purposes only, credit for 1/36th of the value of the Restricted
Shares as of the date of grant for each month actually worked pursuant to this
Agreement after the Effective Date. Such amount shall be treated as if being
paid as a cash bonus, for the purpose of pension computation only, ratably over
a period equal to the period actually worked pursuant to this Agreement.
(v) Other Employee Benefit Plans. During the Employment Period, except as
-------------------------------
otherwise expressly provided herein, the Executive shall be entitled to
participate in all employee benefit, welfare, vacation, fringe benefit and other
plans, practices, policies and programs as provided to him immediately prior to
the Effective Date.
4. Termination of Employment. (a) Death or Disability. The Executive's
--------------------------- ---------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of "Disability" set forth in the 1987 Plan), it may give to the
Executive written notice in accordance with Section 10(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
(b) Cause. The Company may terminate the Executive's employment during the
------
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company, or
(iii) conviction of a felony or guilty or nolo contendere plea by the Executive
with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the Executive
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the
absence of a written consent of the Executive, a material breach by the Company
of a material term of this Agreement, after the Executive has given the Company
notice thereof and a reasonable opportunity to cure.
(d) Notice of Termination. Any termination by the Company for Cause, or by the
----------------------
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
--------------------
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other
- --------------------------------------------------- ------------------
Than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive's employment is terminated by reason of his death,
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (2) the
product of (x) the highest annual bonus paid to the Executive for any of the
three years prior to the Effective Date (the "Recent Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through the Date of Termination, and the
denominator of which is 365, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1) and (2), shall be hereinafter
referred to as the "Accrued Obligations"); and
(ii) until June 30, 2002, the Company shall continue to provide medical and
dental benefits to the Executive, his spouse and dependents on a basis as such
benefits are provided to the Executive's successor (collectively "Medical
Benefits");
(iii)the Restricted Shares shall vest immediately; and
(iv) to the extent not theretofore paid or provided by the Company or deferred
by Executive, the Company shall pay on a timely basis or provide to the
Executive any other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program, policy or practice
or contract or agreement of the Company and its affiliated companies through the
Date of Termination (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. In addition, the Restricted Shares shall vest
immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall
be paid or distributed to the Executive's estate or beneficiary, as applicable,
within 30 days of the Date of Termination. The Accrued Obligations shall be paid
in a lump sum. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 5(b) shall include death benefits as in
effect on the date of the Executive's death and the continued provision of
Medical Benefits to the Executive's current spouse and dependents (as defined in
the CSX Medical Plan).
(c) Disability. If the Executive's employment is terminated by reason of the
----------
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits. In
addition, the Restricted Shares shall vest immediately. Accrued Obligations,
Other Benefits and the Restricted Shares shall be paid or distributed to the
Executive within 30 days of the Date of Termination. The Accrued Obligations
shall be paid in a lump sum. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 5(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits as in effect at any time thereafter and the
continued provision of Medical Benefits to the Executive and his current spouse
and dependents (as defined in the CSX Medical Plan).
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
----------------------------------
terminated for Cause or the Executive terminates his employment without Good
Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Except as specifically provided, nothing in this
-------------------------
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 10(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
8. Confidential Information. (a) The Executive shall hold in a fiduciary
-------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this Section
8, the Executive agrees that the Company shall be entitled to injunctive relief
in a court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement shall
have no effect on the continuing operation of this Section 8.
9. Successors. (a) This Agreement is personal to the Executive and without
----------
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
10. Miscellaneous. (a) This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Virginia, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Alvin R. Carpenter
home address
If to the Company:
CSX Corporation
901 E. Cary Street
Richmond, VA 23219
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision of this Agreement or the failure to assert any right the
Executive or the Company may have hereunder shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) This Agreement does not supersede the Employment Agreement between the
parties dated February 1, 1995 (the "Existing Agreement"), except to the extent
that this Agreement and the Existing Agreement would provide duplicative
benefits.
(g) The provisions of the 1987 Plan shall apply to the extent they are not
inconsistent with the terms of this Agreement, in which case the terms of this
Agreement shall be controlling.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ALVIN R. CARPENTER
-----------------------------
ALVIN R. CARPENTER
CSX CORPORATION
By:/s/JOHN W. SNOW
---------------
EMPLOYMENT AGREEMENT
AGREEMENT by and between CSX Corporation, a Virginia corporation
(the "Company") and Ronald J. Conway (the "Executive") dated as of the 15th day
of June, 1999.
WHEREAS, Section 11 of the CSX Corporation 1987 Long-Term
Performance Stock Plan ("1987 Plan") provides that the Compensation Committee of
the Board of Directors of CSX Corporation ("Committee") may, in its discretion,
set forth in a written agreement with Executive conditions, restrictions or
limitations upon the grant of a Restricted Stock Award ("RSA") which differ from
the terms set forth in the 1987 Plan;
WHEREAS, the RSA grant hereunder is made pursuant to the 1987
Plan and this Agreement;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean June 30, 1999.
--------------
2. Employment Period. The Company hereby agrees to employ the Executive, and the
-----------------
Executive hereby agrees to enter into the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the fourth anniversary thereof (the "Employment
Period").
3. Terms of Employment. (a) Position and Duties. (i) During the Employment
------------------- -------------------
Period, the Executive shall serve as a senior executive officer of the Company
with such authority, duties and responsibilities as are commensurate with such
position, including managing the integration of Conrail, and as may be
consistent with such position. The Executive's services shall be performed in
Jacksonville, Florida.
(ii)During the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and CSXT and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the Executive
------------ -----------
shall receive an annual base salary ("Annual Base Salary") of no less than the
base salary paid to the Executive immediately prior to the Effective Date.
During the Employment Period, the Annual Base Salary shall be reviewed in
accordance with the Company's current practice. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) Annual Bonus. During the Employment Period, the Executive shall be
------------
eligible to receive an annual cash bonus ("Annual Bonus") on the same basis as
immediately prior to the Effective Date.
(iii) Incentive Awards. In addition to the Executive's participation in stock
-----------------
and other long-term incentive programs of the Company, the Executive shall
receive a grant of 100,000 shares of restricted Company common stock subject to
the conditions described below (the "Restricted Shares"). The Restricted Shares
shall be granted to the Executive upon his certification that he has acquired
since April 27, 1999, 100,000 shares of the Company's common stock. Except as
otherwise provided herein, the Restricted Shares shall vest at the end of the
Employment Period, or at such earlier time as provided by the Committee,
provided that the Company's average free cash-flow per share on an annualized
basis, as adjusted for any extraordinary events, during such period is higher
than its free cash-flow per share, as adjusted for any extraordinary events, for
the four consecutive quarters ending March 26, 1999. Notwithstanding the
foregoing, the Restricted Shares shall vest upon a Change of Control of the
Company, as defined in the Company's 1987 Plan.
(iv) Other Employee Benefit Plans. During the Employment Period, except as
------------------------------
otherwise expressly provided herein, the Executive shall be entitled to
participate in all employee benefit, welfare, vacation, fringe benefit and other
plans, practices, policies and programs as provided to him immediately prior to
the Effective Date.
4. Termination of Employment. (a) Death or Disability. The Executive's
---------------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of "Disability" set forth in the 1987 Plan), it may give to the
Executive written notice in accordance with Section 10(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
(b) Cause. The Company may terminate the Executive's
-----
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company, or
(iii) conviction of a felony or guilty or nolo contendere plea by the Executive
with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the Executive
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the
absence of a written consent of the Executive, a material breach by the Company
of a material term of this Agreement, after the Executive has given the Company
notice thereof and a reasonable opportunity to cure.
(d) Notice of Termination. Any termination by the Company for Cause, or by the
----------------------
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
--------------------
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for
- --------------------------------------------------- ----------------------
Cause, Death or Disability. If, during the Employment Period, the Company shall
- --------------------------
terminate the Executive's employment other than for Cause or Disability or the
Executive's employment is terminated by reason of his death, or the Executive
shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (2) the
product of (x) the highest annual bonus paid to the Executive for any of the
three years prior to the Effective Date (the "Recent Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through the Date of Termination, and the
denominator of which is 365, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1) and (2), shall be hereinafter
referred to as the "Accrued Obligations"); and
(ii) until June 30, 2003, the Company shall continue to provide medical and
dental benefits to the Executive, his spouse and dependents on a basis as such
benefits are provided to the Executive's successor (collectively "Medical
Benefits");
(iii) the Restricted Shares shall vest immediately; and
(iv) to the extent not theretofore paid or provided by the Company or deferred
by Executive, the Company shall pay on a timely basis or provide to the
Executive any other amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program, policy or practice
or contract or agreement of the Company and its affiliated companies through the
Date of Termination (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. In addition, the Restricted Shares shall vest
immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall
be paid or distributed to the Executive's estate or beneficiary, as applicable,
within 30 days of the Date of Termination. The Accrued Obligations shall be paid
in a lump sum. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 5(b) shall include death benefits as in
effect on the date of the Executive's death and the continued provision of
Medical Benefits to the Executive's current spouse and dependents (as defined in
the CSX Medical Plan.
(c) Disability. If the Executive's employment is terminated by reason of the
----------
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits. In
addition, the Restricted Shares shall vest immediately. Accrued Obligations,
Other Benefits and the Restricted Shares shall be paid or distributed to the
Executive within 30 days of the Date of Termination. The Accrued Obligations
shall be paid in a lump sum. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 5(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits as in effect at any time thereafter and the
continued provision of Medical Benefits to the Executive and his current spouse
and dependents (as defined in the CSX Medical Plan).
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
----------------------------------
terminated for Cause or the Executive terminates his employment without Good
Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, and (y)
Other Benefits, in each case to the extent theretofore unpaid.
6. Non-exclusivity of Rights. Except as specifically provided, nothing in this
-------------------------
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
8. Confidential Information. (a) The Executive shall hold in a fiduciary
-------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this Section
8, the Executive agrees that the Company shall be entitled to injunctive relief
in a court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement shall
have no effect on the continuing operation of this Section 8.
9. Successors. (a) This Agreement is personal to the Executive and without the
----------
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
10. Miscellaneous. (a) This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Ronald J. Conway
home address
If to the Company:
CSX Corporation
901 E. Cary Street
Richmond, VA 23219
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision of this Agreement or the failure to assert any right the
Executive or the Company may have hereunder shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) The provisions of the 1987 Plan shall apply to the extent they are not
inconsistent with the terms of this Agreement, in which case the terms of this
Agreement shall be controlling.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/RONALD J. CONWAY
-----------------------------
RONALD J. CONWAY
CSX CORPORATION
By:/s/JOHN W. SNOW
---------------
Plan
Notice of Non-Qualified Stock Option Grant
First_Name Last_Name Grant Date: April 27, 1999
Address_Line_1 Options Granted: Shares_Granted
Address_Line_2 Option Price: $44.8125
Address_Line_3 Expiration Date: April 26, 2009
City, State Zip_Code Grant Number: Number
SSN: SSN
CSX Corporation ("CSX") has granted to you non-qualified stock options
("Options") to purchase CSX common stock. Your grant has been made pursuant to
CSX's Plan (the "Plan"), which, together with the terms contained in this
Notice, sets forth terms and conditions of your grant and is incorporated herein
by reference. A copy of the Plan is available at your request from the CSX
Corporate Secretary Department and can be sent to you in hard copy or via
e-mail. You should review the terms of this Notice and the Plan carefully. The
capitalized terms used in this Notice are defined in the Plan. Unless you notify
the CSX Corporate Secretary in writing that you do not accept the Options, you
will be deemed to have agreed to the terms of this Notice and the terms of the
Plan.
Vesting and Exercisability:
Subject to the terms of the Plan, the Options will vest on April 27, 2000, and
will become exercisable according to the following schedule:
First Date of Shares Expiration
Exercisability Exercisable Date
-------------------------------------------------------------
04/27/2002 Shares_Period_1 04/26/2009
04/27/2003 Shares_Period_2 04/26/2009
04/27/2004 Shares_Period_3 04/26/2009
In the case of a Change in Control, the Options will become exercisable
immediately.
Employment Requirements:
The Plan sets out the terms and conditions that govern this grant in the event
of your Separation from Employment. In the event of your Separation from
Employment prior to April 27, 2000, a portion of the Options will vest based on
the number of Completed Months of employment following the date of the grant.
Each portion of the grant will be pro-rated in the same manner. As set out in
the Plan, if your Separation from Employment is for any reason other than
Retirement, Disability or death, you will have 30 days after Separation from
Employment to exercise any vested Options that are exercisable. In the event of
your Separation from Employment due to Disability or death, you or your
Beneficiary or estate will have up to five years (but not later than the
expiration date) to exercise any vested Options. Beneficiary designation forms
may be obtained upon request from the CSX Corporate Secretary Department. If
your Separation from Employment is because of Retirement, you will have until
the expiration date to exercise any vested Options. Please consult the Plan for
a more comprehensive explanation of termination and vesting provisions.
Exercise:
You may exercise these Options, in whole or in part, to purchase a whole number
of vested shares at any time by following the exercise procedures established by
CSX. All exercises must take place before the expiration date, or such earlier
dates as established by the Plan following your Separation from Employment. An
exercise of Options generates federal and applicable state income and employment
tax withholding obligations. As provided in the Plan, the full purchase price of
the shares being purchased through exercise of Options and the related
withholding taxes for federal, state or local jurisdictions must be paid to CSX
at the time of an exercise of Options. For further information regarding
procedures for exercising Options, you should contact the CSX Corporate
Secretary Department.
Restrictions on Exercise:
Your ability to exercise the Options is subject to any restrictions or
requirements imposed by law or by CSX.
CSX CORPORATION
1987 Long-Term Performance Stock Plan
As Amended and Restated Effective April 25, 1996
(As Amended through September 8, 1999)
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.
The Company believes there are circumstances, however, where the provision of
compensation that is not fully deductible may be more consistent with the
compensation philosophy of the Company and/or may be in the Company's and its
shareholders' best interests. The Company reserves the right to exercise
discretion and retain flexibility in this regard and in certain circumstances to
provide incentives that do not qualify as deductible under Section 162(m).
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 a termination of
employment after age 55 with eligibility to begin immediately
receiving 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 21,000,000
shares of the Company's common stock, par value $1.00 per share. The maximum
number of such shares that may be issued pursuant to any type of Incentive shall
be 17,500,000 shares. The remaining 3,500,000 shares may be issued only pursuant
to grants of Incentive Stock Options, Non-Qualified Stock Options, and Stock
Appreciation Rights. 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 3 and 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.
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 (15 years if the NQSO grant was a 15-year grant); 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 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 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; provided, however,
effective for grants of options after December 31, 1998, the term of the option
may be 15 years instead of 10 years. 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).
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;
provided, further, effective for grants of options after December 31, 1998, the
term of the option may be 15 years instead of 10 years.
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.
If a former Participant who has not received distribution of his entire
deferred payment under this Section is reemployed and again becomes a
Participant in the Plan, he may suspend payment of any remaining amounts
deferred, by notifying the Company in writing, and make a new deferral election,
without penalty, with respect to those amounts and new amounts deferred so long
as such change does not accelerate the timing of any payment to the Participant;
provided, however, distributions shall continue if the commencement of
distribution was because the Participant chose a specific age for the
commencement of benefits and that age has been attained.
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 (15 years if the NQSO grant was a 15-year 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 (15 years if the NQSO grant was a 15-year 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 (15 years if the NQSO grant was a 15-year grant). For any ISO, NQSO or
SAR granted after December 31, 1998, the Participant must exercise within 30
days instead of one year.
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 or if the Participant's employment is terminated with the consent of
the Company (as a result of a business transaction or a reduction in force or
any other circumstances approved by the Committee), 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
or after the date the Participant's employment is terminated with the consent of
the Company, but in no event later than 10 years from the date of grant (15
years if the NQSO grant was a 15-year 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. In the event of a Divisive
Transaction, employees of Sea-Land Service, Inc., hired by that corporation
prior to January 1, 1986, shall be deemed eligible to retire upon termination of
employment after age 50 with 20 years of service and eligibility to begin
immediately receiving retirement benefits under the Company's defined benefit
pension plan.
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.
Effective for Incentives granted after December 31, 1998,
notwithstanding anything to the contrary in this Plan, if a Participant or
former Participant (a) becomes associated with, recruits or solicits customers
or other employees of the Company or its Subsidiaries for, is employed by,
renders services to, or owns any interest in (other than any nonsubstantial
interest, as determined by the Committee) any business that is in competition
with the Company or one of its subsidiaries, (b) has his employment terminated
by the Company or one of its subsidiaries for Cause or on account of actions, by
the Participant which are detrimental to the interests of the Company or its
subsidiaries, or (c) engages in, or has engaged in, conduct at the time of or
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, except following a Change of Control, cancel all outstanding
Incentives of the Participant, including immediately terminating any Options
held by the Participant, regardless of whether then exercisable.
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 April 27, 2000, 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 April 27, 2000; (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.
Addendum.
Addendum I
Pursuant to Sections 4a and 8 of the Plan, with respect to any
Non-Qualified Stock Option ("NQSO") granted to any Participant who may be
subject to taxation in The Netherlands at any time during the term of such NQSO,
the Committee shall have the authority to impose additional conditions on the
exercise of the NQSO.
Effective for any NQSO granted after December 31, 1997, the Committee
may, in addition to any other conditions specified in the option agreement,
require that the NQSO is granted conditionally. Such conditions shall include
that the NQSO can be exercised only with the approval of the Participant's
Senior Vice President - Human Resources ("SVP-HR"). Such approval shall be
granted at the discretion of the SVP-HR, which shall not be unreasonably
refused. Approval may be refused for reasons which shall be set forth in the
option agreement such as, but not limited to, the following: (i) termination of
employment for willful or gross misconduct or receipt of notice of termination
for such conduct; (ii) disclosure of confidential information; or (iii)
rendering services to a competitor. Once approval has been obtained, the
Participant must immediately exercise the NQSO. If approval is refused or if the
NQSO is not exercised immediately upon receipt of approval, it shall be
forfeited.
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 September 8, 1999)
<PAGE>
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.................................... 2
1.7 Board of Directors.......................................... 2
1.8 Change of Control........................................... 2
1.9 Code........................................................ 3
1.10 Committee................................................... 3
1.11 Compensation................................................ 3
1.12 Corporation................................................. 3
1.13 Deferral Agreement.......................................... 3
1.14 Distribution Option(s)...................................... 4
1.15 Divisive Transaction........................................ 4
1.16 Effective Date.............................................. 4
1.17 Eligible Executive.......................................... 4
1.18 Independent Accountant...................................... 4
1.19 Matching Credits............................................ 4
1.20 Member...................................................... 4
1.21 MICP........................................................ 4
1.22 Participating Company....................................... 4
1.23 Plan........................................................ 5
1.24 Salary Deferrals............................................ 5
1.25 Salary Deferral Agreement................................... 5
1.26 Salary Deferral Percentage.................................. 5
1.27 SMICP....................................................... 5
1.28 Subsidiary.................................................. 5
1.29 Tax Savings Thrift Plan..................................... 5
1.30 Trust....................................................... 5
1.31 Valuation Date.............................................. 5
ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS............................. 5
2.1 In General.................................................. 5
2.2 Modification of Initial Deferral Agreement.................. 6
2.3 Termination of Membership; Re-employment.................... 6
2.4 Change in Status............................................ 7
2.5 Membership Following a Change in Control.................... 7
ARTICLE 3. AWARD DEFERRAL PROGRAM......................................... 7
3.1 Filing Requirements......................................... 7
3.2 Amount of Deferral.......................................... 8
3.3 Crediting to Account........................................ 8
<PAGE>
-ii-
ARTICLE 4. SALARY DEFERRAL PROGRAM........................................ 9
4.1 Filing Requirements......................................... 9
4.2 Salary Deferral Agreement................................... 9
4.3 Amount of Salary Deferrals.................................. 9
4.4 Changing Salary Deferrals................................... 10
4.5 Certain Additional Credits.................................. 10
ARTICLE 5. MAINTENANCE OF ACCOUNTS........................................ 11
5.1 Adjustment of Account....................................... 11
5.2 Investment Performance Elections............................ 12
5.3 Changing Investment Elections............................... 12
5.4 Vesting of Account.......................................... 12
5.5 Individual Accounts......................................... 13
5.6 Action Following a Change of Control.........................13
ARTICLE 6. PAYMENT OF BENEFITS............................................ 13
6.1 Commencement of Payment..................................... 13
6.2 Method of Payment........................................... 15
6.3 Applicability............................................... 16
6.4 Hardship Withdrawal......................................... 16
6.5 Designation of Beneficiary.................................. 16
6.6 Special Distribution Rules.................................. 17
6.7 Status of Account Pending Distribution...................... 17
6.8 Installments and Withdrawals Pro-Rata....................... 17
6.9 Change of Control........................................... 18
ARTICLE 7. AMENDMENT OR TERMINATION....................................... 19
7.1 Right to Terminate.......................................... 19
7.2 Right to Amend.............................................. 19
7.3 Uniform Action.............................................. 20
ARTICLE 8. GENERAL PROVISIONS............................................. 20
8.1 No Funding.................................................. 20
8.2 Obligation...................................................20
8.3 No Contract of Employment................................... 20
8.4 Withholding Taxes........................................... 20
8.5 Nonalienation............................................... 20
8.6 Administration.............................................. 20
8.7 Construction................................................ 21
ARTICLE 9. POST-SECONDARY EDUCATION SUB-ACCOUNTS.......................... 21
9.1 Post-Secondary Education Sub-accounts....................... 21
9.2 Distribution of Post-Secondary Education Sub-accounts....... 22
9.3 Construction................................................ 23
<PAGE>
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. In addition to any Retirement
Sub-accounts established by the Administrator, an additional Retirement
Sub-account known as the Cash Plan Retirement Sub-account shall be established
for deferrals of payments from the CSX Market Value Cash Plan. 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 (i) 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
in the succeeding year under the MICP and/or SMICP or other incentive award
otherwise payable in cash as determined by the Committee; and (ii) the amount
paid from the CSX Market Value Cash Plan with respect to such year and, in the
absence of an Award Deferral Agreement with respect to such amount and with
respect to such year, payable in cash under the CSX Market Value Cash Plan.
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 of a
----------------------------
shareholders of the Corporation 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) For purposes of the award deferral program described in Article 3:
(i) prior to January 1, 1995, 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
(ii) on and after January 1, 1995 and before January 1, 1999, such
employee: (A) is employed by a Participating Company and is receiving
Compensation of one hundred thousand dollars ($100,000) or more per
year; or (B) 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
(iii)on and after January 1, 1999, such employee: (A) is employed by a
Participating Company and is receiving compensation of one hundred
twenty five thousand dollars ($125,000) or more per year; or (B)
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
twenty five thousand dollars ($125,000) or more per year at the time
of such retirement or termination. An employee who, in 1998, was
eligible to participate because his Compensation satisfied the
requirements of subsection (ii), and is excluded from participation
only because of the increase in the Compensation requirement in this
subsection (iii), shall continue to be eligible to participate.
(b) For purposes of the salary deferral program described in Article 4,
such employee is eligible for membership in the Tax Savings Thrift Plan,
and;
(i) Prior to January 1, 1995, such employee is employed in salary grades
21 through 40 inclusive; or
<PAGE>
(ii) Compensation of one hundred thousand dollars ($100,000) or more per
year; or
(iii)on and after January 1, 1999, is receiving Compensation of one
hundred twenty five thousand dollars ($125,000) or more per year. An
employee who, in 1998, was eligible to participate because his
Compensation satisfied the requirements of subsection (ii), but is
excluded from participation only because of the increase in the
Compensation requirement in this subsection (iii), shall continue to
be eligible to participate.
(c) After January 1, 1999, the compensation amount set forth in subsections
(a)(iii) and (b)(iii) may, in the discretion of the Chief Executive
Officer, be adjusted no more frequently than annually, based on a review of
data regarding eligibility to participate in this type of program.
(d) 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.
(c) If a former Member is reemployed as an Eligible Executive and
becomes a Member again pursuant to (b)(ii): (i) upon notice to the
Administrator by the Participant, distributions from a Retirement
Sub-account shall cease if the commencement of distribution was because
of the Member's termination of employment (including retirement); (ii)
distributions from a Retirement Sub-account shall continue if the
commencement of distribution was because the Member chose a specific age
for the commencement of benefits and that age has been attained. Except
for distributions which must continue pursuant to (c)(ii), a reemployed
Member may change Distribution Option elections with respect to his
Retirement Sub-accounts without penalty so long as such change does not
accelerate the timing of any payment to the Member.
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) With respect to an Award identified in Section 1.4(i), 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) With respect to an Award identified in Section 1.4(i),
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) With respect to an Award identified in Section 1.4(i), 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) With respect to an Award identified in Section 1.4(ii), at
such time and in accordance with such rules 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 any
such Award. Awards identified in Section 1.4(ii) may not be deferred
into Education Sub-accounts.
(e) 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.
(f) 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) With respect to an Award identified in Section 1.4(i), 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) With respect to an Award identified in Section 1.4(i), 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.
(c) With respect to an Award identified in Section 1.4(ii), there
shall be no minimum nor maximum amount of deferral allowed.
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.
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.
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 years subsequent to his current age. If
a Member elects to defer an Award identified in Section 1.4(ii) (a
payment from the CSX Market Value Cash Plan), such deferral must extend
the commencement of distribution beyond December 31, 2004. 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; provided, however,
no change in Distribution Option election shall be allowed if it results
in changing the deferral of commencement of distribution of an Award
identified in Section 1.4(ii) to a time before January 1, 2005. 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.
6.10 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.
SPECIAL RETIREMENT PLAN
OF CSX CORPORATION AND AFFILIATED CORPORATIONS
As Amended and Restated January 1, 1995
(As Amended through December 7, 1999)
<PAGE>
TABLE OF CONTENTS
Section I - INTRODUCTION........................................... 1
Section II - PARTICIPATION.......................................... 2
Section III - CREDITABLE SERVICE..................................... 2
Section IV - COMPENSATION AND AVERAGE COMPENSATION.................. 3
Section V - SPECIAL RETIREMENT ALLOWANCES.......................... 3
Section VI - FUNDING METHOD......................................... 5
Section VII - ADMINISTRATION OF SPECIAL PLAN......................... 6
Section VIII - MODIFICATION, AMENDMENT AND TERMINATION................ 7
Section IX - NON-ALIENATION OF BENEFITS............................. 8
Section X - MISCELLANEOUS PROVISIONS............................... 8
Section XI - CHANGE OF CONTROL...................................... 8
Section XII - CONSTRUCTION........................................... 11
APPENDIX I PARTICIPANTS GRANTED ADDITIONAL
CREDITABLE SERVICE PURSUANT TO
SECTION V(4)(b)
Special Retirement Plan
of CSX Corporation and Affiliated Corporations
As Amended and Restated January 1, 1995
(As Amended through December 7, 1999)
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 because of a Divisive
Transaction or a workforce downsizing or 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. For purposes of this Section
III, Subsection 2(c), "Divisive Transaction" shall mean a
transaction in which the Participant's employer ceases to be a
subsidiary of CSX Corporation or there is a sale of substantially
all of the assets of the subsidiary.
(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. Notwithstanding any other provision of this
Special Plan to the contrary, certain senior executives of the Company or its
affiliates (as identified by the Chief Executive Officer of the Company from
time to time), will, prior to their commencement of retirement benefits under
the Company's qualified pension plan, be permitted to elect to receive (or elect
for a beneficiary to receive in the event of the executive's death) the
actuarial present value of their benefits under this Special Plan in a lump sum.
Such election shall be in accordance with rules established by the Special
Plan's Administrator. For purposes of this subsection 7, the `actuarial present
value' shall be determined as of the Valuation Date preceding the date of the
payment of the benefit and 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 that date.
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.
02/17/2000
APPENDIX I
PARTICIPANT'S GRANTED ADDITIONAL CREDITABLE SERVICE
PURSUANT TO SECTION V(4)(b)
Supplemental Retirement Benefit Plan
of CSX Corporation and Affiliated Corporations
As Amended and Restated January 1, 1995
(As Amended through December 7, 1999)
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, that will 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.
5. Notwithstanding any other provision of this Supplemental Plan to the
contrary, certain senior executives of the Company or its affiliates (as
identified by the Chief Executive Officer of the Company from time to time),
will, prior to their commencement of retirement benefits under the Company's
qualified pension plan, be permitted to elect to receive (or elect for a
beneficiary to receive in the event of the executive's death) the actuarial
present value of their benefits under this Supplemental Plan in a lump sum. Such
election shall be in accordance with rules established by the Supplemental
Plan's Administrator. For purposes of this subsection 5, the `actuarial present
value' shall be determined as of the Valuation Date preceding the date of the
payment of the benefit and 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 that date.
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 employer 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 Company 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 and 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 Company.
(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, pay 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
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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
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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.
CSX CORPORATION
1990 Stock Award Plan as Amended and
Restated Effective February 14, 1996
(As Amended through September 8, 1999)
1. Purpose.
The purpose of this 1990 Stock Award Plan (the "Plan") is to further the
long term stability and financial success of CSX Corporation (the "Company") by
rewarding selected meritorious employees by the award of Company Stock (as
hereinafter defined). The Board of Directors believes that such awards will
strengthen the desire of such employees to remain with the Company, will
encourage continued work of superior quality and will further the identification
of those employees' interests with those of the Company's shareholders.
2. Definitions.
As used in the Plan, the following terms shall have the meanings
indicated:
(a) "Beneficiary" means the person designated by the Participant, on
a form provided by the Company, to exercise the Participant's
rights in accordance with Section 10 of the Plan in the event of
his death.
(b) "Benefits Trust Committee" means the Committee created pursuant
to the CSX Corporation and Affiliated Companies Benefits
Assurance Trust.
(c) "Board" means the Board of Directors of the Company.
(d) "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 of Control" is defined in Section 9(e).
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Committee of the Board described in Section
10.
(h) "Company" means CSX Corporation, a Virginia corporation.
(i) "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. If the par value of the Company Stock is
changed, or in the event of a change in the capital structure of
the Company (as provided in Section 9), the shares resulting from
such a change shall be deemed to be the Company Stock within the
meaning of the Plan.
(j) "Company Stock Award" or "Stock Award" means a grant of Company
Stock made by the Committee, or by an individual or entity
operating under authority delegated by the Committee, pursuant to
the provisions of the Plan.
(k) "Completed Month" means a period beginning on the anniversary
date of a grant of an Option and ending on the day before the
next monthly anniversary.
(l) "Date of Grant" means the date on which a Stock Award is granted
by the Committee, or by an individual or entity operating under
authority delegated by the Committee.
(m) "Disability" means long-term disability as determined under
the Company's Salary Continuance and Long-Term Disability Plan.
(n) "Divisive Transaction" means a transaction in which the
Participant's employer ceases to be a Subsidiary or a sale of
substantially all of the assets of the Subsidiary.
(o) "Exercisability Requirements" means, with respect to any grant of
Options, such restrictions or conditions on the exercise of such
Options that the Committee may, in its discretion, add to the
one-year holding requirement.
(p) "Fair Market Value" means the mean between the highest and lowest
quoted selling prices of Company Stock per share as reported
under New York Stock Exchange - Composite Transactions on the day
of reference.
(q) "Option" means a nonqualified stock option granted pursuant to
this Plan.
(r) "Participant" means an employee of the Company who is designated
by the Committee, or by an individual or entity operating under
authority delegated by the Committee, as eligible to be a
Participant who receives a Stock Award under the Plan.
(s) "Retirement" means a termination of employment at or after age 55
with eligibility to immediately begin receiving retirement
benefits under the Company's defined benefit pension plan.
(t) "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.
(u) "Subsidiary" means, with respect to any corporation, a
corporation more than 50% of whose voting shares are owned
directly or indirectly by the Company.
(v) "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 CB. 422.
3. Stock.
Subject to Section 9 of the Plan, there shall be reserved for grant
under the Plan an aggregate of 1,000,000 shares of Company Stock, which shall be
authorized, but unissued shares.
4. Eligible Employees.
All present and future officers and employees of the Company (or any
Subsidiary, whether now existing or hereafter created or acquired) shall be
eligible to receive a Stock Award or an Option grant under the Plan; provided,
however, that no Stock Award or Option may be granted on or after December 31,
1998, to any director or to any officer as that term is defined in Rule 16a-1 of
the Securities and Exchange Commission. The Committee shall have the power and
complete discretion, as provided in Section 10, to select, or to delegate the
selection of, eligible officers and employees to receive a Stock Award or an
Option grant and the number of shares of Company Stock awarded or to be awarded
pursuant to the terms of the Stock Award and the number of Options to be
granted. Each Stock Award and grant of Options, by the Committee, or delegation
by the Committee of authority to make Stock Awards or grant Options, shall be
approved or ratified by the Board. Unless otherwise provided by its terms, the
grant of a Stock Award or an Option shall not obligate the Company or any
Subsidiary to pay the Participant any particular amount of remuneration or to
make further Stock Awards or Option grants to the Participant at any time
thereafter. The grant of a Stock Award or an Option shall not obligate the
Company or any Subsidiary to continue the employment of the Participant after
the Stock Award or Option grant. Following a Change of Control, no new officers
or employees may be designated to receive a Stock Award or Option grant without
the approval of the Benefits Trust Committee.
5. Common Stock Awards.
(a) Whenever the Committee, or other individual or entity operating
under authority delegated by the Committee, deems it appropriate
to award Common Stock, notice shall be given to the Participant
(or to the class of Participants) stating (i) the number of
shares of Common Stock awarded or a formula for determining the
number of shares of Common Stock awarded or to be awarded, and
(ii) the terms and conditions, if any, pertaining to the award
that must be satisfied by a Participant in order to receive the
Common Stock.
(b) The Committee may impose conditions and/or restrictions as part
of a Stock Award and specify the terms or circumstances upon
which restrictions and/or conditions, if any, shall lapse.
(c) The Committee may at any time, in its sole discretion, accelerate
the time at which any or all restrictions or conditions will
lapse or remove or change any and all such restrictions or
conditions previously imposed on an award of Common Stock.
(d) 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 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
(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:
(1) the death of the Participant;
(2) the Disability of the Participant;
(3) the Participant's termination of employment with the
Company or a Subsidiary, subject to the Participant's
deferral election and the three (3) year deferral
requirement;
(4) a Divisive Transaction, subject to the Participant's
deferral elections; or
(5) a Change of Control.
(e) The obligations of the Company 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 Trust or any similar trust,
trusts or other vehicle.
(f) Notwithstanding the preceding, following a Change of Control, the
authority to delay payment of a Participant's benefit rests
solely with the Benefits Trust Committee.
6. 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 Section 5. 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 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 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 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, plus the
number of Common Stock shares which could have been acquired if
dividends subsequently declared by the Company had been paid
with respect to such shares and reinvested in Common Stock,
less shares actually distributed to the Participant pursuant to
the Plan. Account may also mean individual sub-accounts which
have been or may be established under the 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 Account of each
Participant.
7. Options.
(a) Options 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.
(b) Options 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 15 years after the date of grant of the Options;
provided, however, that whether or not the one-year holding
requirement is satisfied, any Exercisability Requirement must be
satisfied.
(c) 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 Section 8, no Option holder may exercise
an Option unless at the time of exercise he has been in the
continuous employ of the Company or a Subsidiary 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 the
Option until such shares have been issued.
(d) For purposes of this section, written notice of exercise must be
received by the Corporate Secretary of the Company, not earlier
than one year nor later than 15 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).
8. Separation from Employment and Divisive Transactions.
(a) 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 Option shall terminate not
later than five years after the date of such Disability or death,
but in no event later than 15 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 at or after age 55, his
or his successor in interest's right to exercise Options shall be
determined as if his Separation from Employment was because of
Retirement.
(b) If the Participant's Separation from Employment is because of
Retirement, the right of the Participant to exercise an Option
shall terminate not later than 15 years from the date of grant.
(c) Unless the Committee deems it necessary in individual cases 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 Option shall terminate not later than 30 days from
the date of Separation from Employment but in no event later than
15 years after the date of grant.
(d) At the time of his Separation from Employment for any reason
other than Cause, a Participant shall vest in a portion of any
Option granted that he has held for less than one year from the
date of the grant. The portion of such Options in which the
Participants shall vest shall be determined by multiplying all
shares subject to such Options 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.
(e) A Participant who vests in any Options under subsection (d) may
not exercise such Options prior to the satisfaction of the
one-year holding requirement and the Exercisability Requirement
pertaining to such Options. Any Options vested under subsection
(d) must be exercised within one year from the date of the
Participant's Separation from Employment.
(f) If the Participant's employer is a Subsidiary involved in
a Divisive Transaction, or if the Participant's employment
is terminated with the consent of the Company (as a result
of a business transaction or a reduction in force or any
other circumstances approved by the Committee), the right of
the Participant or his successor in interest to exercise an
Option shall terminate not less than three years after the
date of the closing of such Divisive Transaction, or if a
Participant's employment is terminated with the consent of the
Company, but in no event later than 15 years from the date
of grant; provided, however, if such Participant is eligible
to retire with the ability to begin immediately receiving
retirement benefits under the Company's pension plan at or
after age 55, his or his successor in interest's right to
exercise any Option shall be determined as if he had
separated from employment, and such Separation from Employment
was because of Retirement. Notwithstanding anything to the
contrary in this subsection, a Participant may not exercise such
Options prior to satisfaction of the one year holding
requirement and the Exercisability Requirement pertaining to
such Options. In the event of a Divisive Transaction, employees
of Sea-Land Service, Inc., hired by that corporation prior to
January 1, 1986, shall be deemed eligible to retire upon
termination of employment after age 50 with 20 years of service
and eligibility to begin immediately receiving retirement
benefits under the Company's defined benefit pension plan.
(g) Notwithstanding anything to the contrary in the Plan, if a
Participant or former Participant (i) becomes associated with,
recruits or solicits customers or other employees of the Company
or its Subsidiaries for, is employed by, renders services to,
or owns any interest in (other than any nonsubstantial interest,
as determined by the Committee) any business that is in
competition with the Company or one of its subsidiaries, (ii)
has his employment terminated by the Company or one of its
Subsidiaries for Cause or on account of actions by the
Participant which are detrimental to the interests of the Company
or its subsidiaries, or (iii) engages in, or has engaged in,
conduct at the time of or 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, except following a Change of Control, terminate any
Options held by the Participant, regardless of whether then
exercisable.
9. Options Non-assignable and Non-transferable.
Any Option granted under this Plan shall be non-assignable and
non-transferable other than as provided in Section 10 and shall be exercisable
during the Participant's lifetime only by the Participant who is the holder of
the Option or by his guardian or legal representative.
10. Death of Option Holder.
In the event of the death of a Participant who is an Option holder under
the Plan while employed by the Company or a Subsidiary or prior to the exercise
of all rights under an Option, the Option theretofore may be exercised 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 Option 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.
11. Withholding Tax.
Whenever the Company proposes or is required to issue or transfer shares
of Company 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, in the sole discretion of the Company, to the
extent permitted by applicable laws including regulations promulgated under the
Exchange Act, 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.
12. Effective Date of the Plan.
This Plan is effective on September 12, 1990.
13. Termination, Modification.
(a) Prior to a Change of Control, the Board, on the recommendation of
the Committee, may terminate the Plan or may amend the Plan in
such respects as it shall deem advisable. Following a Change of
Control, this Plan may not be terminated or amended without the
approval of the Benefits Trust Committee. A termination or
amendment of the Plan shall not, without the consent of the
Participant, affect a Participant's rights under any Stock Award
previously granted to him.
(b) Prior to a Change of Control, the Board on the recommendation of
the Committee, may terminate an affiliated corporation's
participation as a participating employer in this Plan for any
reason at any time. Following a Change of Control, an affiliated
corporation may not be added to or 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, with the approval of the Committee, 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.
14. Change in Capital Structure or Change in Control.
(a) 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 shareholders generally of rights,
options or warrants for the purchase of common or preferred
stock of the Company), 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.
(b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that
results in the acquisition of substantially all of the Company's
outstanding stock by a single person or entity, or a sale or
transfer of substantially all of the Company's assets, the
Committee may, subject to the approval of the Benefits Trust
Committee, take such actions with respect to outstanding Stock
Awards as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the
Committee may, subject to the approval of the Benefits Trust
Committee, 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.
(d) Notwithstanding any provisions of this Plan to the contrary, upon
the occurrence of (i) a Change of Control as defined in
subsection (e), below, and subject to an election under
subsection (f), below, the three (3) year holding requirement of
the Stock Premium for deferred ICP shall be deemed satisfied;
(ii) a Divisive Transaction, the three (3) year holding
requirement of the Stock Premium for deferred ICP shall be deemed
satisfied.
(e) As used in this Plan, a "Change of Control" means:
(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 9(e); or
(ii) Board Composition. Individuals who, as of the date
------------------
hereof, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; 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; 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 "STB") (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 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 STB (a "Regulated Business Combination") unless such
Business Combination complies with clauses (A), (B) and
(C) of subsection (iii) of this Section 9(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) Each Participant who has elected to defer the payment of an ICP
award pursuant to Section 5(e), 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 currently deferred, and to be
deferred, under the Plan 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 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
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.
(g) Upon a Change of Control, the Company shall, as soon as possible,
but in no event more than seven (7) days following a 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 unfunded portion of the benefits to
which Participants of this Plan or their beneficiaries are
entitled, 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 contribution
shall be based on the accounting for the most recent calendar
year or more recent period for the Plan, as approved by the
independent actuary or accountant 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 accounting 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 notify the Company of
the amount of additional contributions required as soon as
possible.
15. Administration of the Plan.
Prior to a Change of Control, the Plan shall be administered by the
Committee appointed from time to time by the Board to administer the Plan.
Subject to paragraph (e) below the "Committee" shall be the Compensation
Committee unless the Board shall appoint another committee to administer the
Plan. The Committee shall have general authority to impose any limitation or
condition upon a Stock Award the Committee deems appropriate to achieve the
objectives of the 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 (i) to
delegate to any individual, or to any group of individuals
employed by the Company or any Subsidiary thereof, the authority
to grant Stock Awards under the Plan and (ii) to determine the
terms and limitations of any delegation of authority, including
but not limited to the maximum Fair Market Value of any Stock
Award granted pursuant to such delegation, provided that no
individual Stock Award granted by an individual or entity
operating under authority delegated by the Committee may exceed a
Fair Market Value of $50,000 ($100,000 after December 10, 1997)
on Date of Grant.
(b) The Committee, or other individual or entity operating under
authority delegated by the Committee and to the extent permitted
by the terms of such delegation, shall have the power and
complete discretion to determine (i) which eligible officers or
employees shall receive a Stock Award, (ii) the number of shares
of Company Stock to be awarded, (iii) the time or times when a
Stock Award shall be granted, (iv) whether a Stock Award shall be
subject to restrictions and when or upon such other terms the
restrictions shall lapse, and (v) whether arrangements to
discharge a Participant's tax obligations are satisfactory
and, if not, to have the Company retain from the shares of Common
Stock granted that number of shares necessary to satisfy the
Participant's tax liabilities arising from the Stock Award.
(c) The Committee may adopt rules and regulations for carrying out
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.
(d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the
Committee. No member of the Committee shall be eligible to
participate in the Plan or in any other plan of the Company or
any Parent or Subsidiary of the Company that entitles
participants to acquire stock, stock options or stock
appreciation rights of the Company or any Parent or Subsidiary of
the Company, if as a result of such eligibility he or she would
cease to be a "disinterested person" under Rule 16b-3 with
respect to the Plan.
(e) Following a Change of Control, the Benefits Trust Committee may
remove and/or replace the Plan's 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.
16. 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 (a)
if to the Company - at its principal business address to the attention of the
Secretary; (b) 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.
17. Construction.
The Plan shall be governed by the laws of the Commonwealth of Virginia.
Addendum.
Addendum I
"Pursuant to Sections 4a and 8 of the Plan, with respect to any
Non-Qualified Stock Option ("NQSO") granted to any Participant who may be
subject to taxation in The Netherlands at any time during the term of such NQSO,
the Committee shall have the authority to impose additional conditions on the
exercise of the NQSO.
"Effective for any NQSO granted after December 31, 1997, the Committee
may, in addition to any other conditions specified in the option agreement,
require that the NQSO is granted conditionally. Such conditions shall include
that the NQSO can be exercised only with the approval of the Participant's
Senior Vice President - Human Resources ("SVP-HR"). Such approval shall be
granted at the discretion of the SVP-HR, which shall not be unreasonably
refused. Approval may be refused for reasons which shall be set forth in the
option agreement such as, but not limited to, the following: (i) termination of
employment for willful or gross misconduct or receipt of notice of termination
for such conduct; (ii) disclosure of confidential information; or (iii)
rendering services to a competitor. Once approval has been obtained, the
Participant must immediately exercise the NQSO. If approval is refused or if the
NQSO is not exercised immediately upon receipt of approval, it shall be
forfeited.
Exhibit 12
CSX Corporation
Ratio of Earnings to Fixed Charges
(Millions of Dollars)
<TABLE>
<CAPTION>
For the Fiscal Years Ended
---------------------------------------------------------------------
Dec. 31, Dec. 25, Dec. 26, Dec. 27, Dec. 29,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings Before Income Taxes $139 $773 $1,183 $1,316 $974
Interest Expense 522 506 451 249 270
Amortization of Debt Discount - 1 4 2 2
Interest Portion of Fixed Rent 151 183 197 189 184
Undistributed (Earnings) Loss of Affiliates
Accounted for Using the Equity Method (58) (238) (150) (6) 3
Minority Interest - 35 41 42 32
----------- ----------- ----------- ----------- -----------
Earnings, as Adjusted $754 $1,260 $1,726 $1,792 $1,465
=========== =========== =========== =========== ===========
FIXED CHARGES:
Interest Expense 522 506 451 249 270
Capitalized Interest 8 9 3 5 6
Amortization of Debt Discount - 1 4 2 2
Interest Portion of Fixed Rent 151 183 197 189 184
----------- ----------- ----------- ----------- -----------
Fixed Charges $681 $699 $655 $445 $462
=========== =========== =========== =========== ==========
Ratio of Earnings to Fixed Charges 1.1 x 1.8 x 2.6 x 4.0 x 3.2 x
=========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(Millions of Dollars, Except Per Share Amounts) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Operating Revenue $10,811 $9,868 $10,621 $10,536 $10,304
Operating Expense 10,203 8,708 9,038 9,014 9,178
---------------------------------------------------------
Operating Income $ 608 $1,160 $ 1,583 $ 1,522 $ 1,126
---------------------------------------------------------
Net Earnings $ 2 $ 537 $ 799 $ 855 $ 618
---------------------------------------------------------
Earnings Per Share $ .01 $ 2.55 $ 3.80 $ 4.10 $ 2.99
Earnings Per Share, Assuming Dilution $ .01 $ 2.51 $ 3.72 $ 4.03 $ 2.95
- ---------------------------------------------------------------------------------------------------------------
Earnings, Excluding Non-recurring Items and
Cumulative Effect of Accounting Change(a)(b)
Operating Revenue $10,811 $ 9,868 $10,621 $ 10,536 $ 10,304
Operating Expense 9,788 8,738 9,038 9,014 8,921
---------------------------------------------------------
Operating Income $ 1,023 $ 1,130 $ 1,583 $ 1,522 $ 1,383
---------------------------------------------------------
Net Earnings $ 339 $ 428 $ 799 $ 855 $ 727
---------------------------------------------------------
Earnings Per Share $ 1.59 $ 2.04 $ 3.80 $ 4.10 $ 3.50
Earnings Per Share, Assuming Dilution $ 1.59 $ 2.00 $ 3.72 $ 4.03 $ 3.46
- ---------------------------------------------------------------------------------------------------------------
Financial Position
Cash, Cash Equivalents and
Short-term Investments $ 974 $ 533 $ 690 $ 682 $ 660
Working Capital Deficit $ (910) $ (616) $ (532) $ (685) $(1,056)
Total Assets $20,720 $20,427 $19,957 $16,965 $14,282
Long-term Debt $ 6,196 $ 6,432 $ 6,416 $ 4,331 $ 2,222
Shareholders' Equity $ 5,756 $ 5,880 $ 5,766 $ 4,995 $ 4,242
- ---------------------------------------------------------------------------------------------------------------
Other Data Per Common Share
Cash Dividends $ 1.20 $ 1.20 $ 1.08 $ 1.04 $ .92
Book Value $ 26.35 $ 27.08 $ 26.41 $ 23.04 $ 20.15
Market Price -- High $ 53.94 $ 60.75 $ 62.44 $ 53.13 $ 46.13
-- Low $ 28.81 $ 36.50 $ 41.25 $ 42.25 $ 34.63
- ---------------------------------------------------------------------------------------------------------------
Employees(c)
Rail 31,952 28,358 27,864 28,559 29,537
Other 16,998 17,789 19,047 18,755 18,428
---------------------------------------------------------
Total 48,950 46,147 46,911 47,314 47,965
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Consolidated Financial Statements
(a) Significant non-recurring items include the following:
1999 - A loss on the sale of international container-shipping assets and a
related benefit from discontinuing depreciation of those assets from the
date they were classified as "held for sale." The net effect of the loss
and the depreciation benefit reduced earnings by $360 million before
tax, $271 million after tax, $1.27 per share.
-A charge to recognize the cost of a workforce reduction program at
the company's rail and intermodal units that reduced earnings by $55
million before tax, $34 million after tax, 16 cents per share.
-A gain on the sale of the company's Grand Teton Lodge resort
subsidiary that increased earnings by $27 million before tax, $17
million after tax, 8 cents per share.
1998 - A net investment gain, primarily from the conveyance of American
Commercial Lines LLC, the company's wholly owned barge subsidiary, to a
joint venture. The gain increased earnings by $154 million before tax,
$90 million after tax, 42 cents per share.
-A restructuring credit to reverse certain separation and labor
protection reserves established by the company's rail unit as part of a
1995 restructuring charge. The restructuring credit increased earnings
by $30 million before tax, $19 million after tax, 9 cents per share.
1995 - A charge to recognize the estimated costs of initiatives to revise,
restructure and consolidate specific operations and administrative
functions at the company's rail and container-shipping units. The
restructuring charge reduced earnings by $257 million before tax, $160
million after tax, 76 cents per share.
-A net investment gain on the issuance of an equity interest in a
container-shipping terminal and related operations in Asia and the
writedown of various investments. The net gain increased earnings by $77
million before tax, $51 million after-tax, 25 cents per share.
(b) The company recorded a charge at the beginning of fiscal year 1999 to
reflect the cumulative effect on prior years of adopting a new accounting
rule related to workers' compensation second injury fund assessments
incurred by the company's container-shipping unit. The charge reduced net
earnings for 1999 by $49 million, 23 cents per share. Had the accounting
change been applied retroactively, the effect on net earnings and
related per share amounts would not have been material to any fiscal year
presented.
(c) Employee counts are based on annual averages.
Chairman's Message
[PHOTO]
1999 was a difficult year for CSX Corporation. Earnings were very disappointing,
and the decline in shareholder value is a matter of serious concern to us. Our
company, along with railroad equities in general and a large number of leading
industrial companies, under-performed the major stock market indices by a wide
margin. We believe strongly that this is a transitory situation, reflecting an
extraordinary time and extremely burdensome pressures in our core railroad
business.
We entered the year with high hopes that 1999 would see the successful
integration of Conrail into our rail network, positioning us for a bright
future. But despite an intense, two-year planning effort, we encountered
problems that set us back temporarily. Nevertheless, the company has taken a
major step forward by putting the CSX and Conrail operations together and, in
the process, we have learned some important lessons that are benefiting us now
and will continue to have a positive impact on our future.
The strength of our company is undiminished. Our railroad assets and the network
CSX now owns join together virtually every major population center in the
eastern half of the United States. It is a powerful and very competitive
network, vital to the nation's economic well-being and virtually irreplaceable.
The customers we serve and who depend on CSX represent America's industrial,
agricultural, mining, manufacturing and merchandise production base. Our people
are the best railroaders in America, each one of them dedicated to a demanding
but rewarding career and to achieving our ambitious goals.
There is no doubt in my mind that CSX is positioned to regain earnings momentum
and that the returns of the Conrail merger will start to be realized this year.
The Year in Review
Earnings for 1999, before accounting for one-time items, were $339 million, or
$1.59 per share, down from $428 million, or $2.00 per share, in 1998. This
decline is directly attributable to the difficulties encountered implementing
the Conrail merger. Total revenues were up 10 percent in 1999.
Spurred by a robust economy, demand for rail transportation was good in 1999. We
experienced high-traffic volumes in key merchandise sectors such as autos,
chemicals, agricultural, minerals, paper and forest products. Coal shipments to
domestic utility plants were up slightly from a year ago, but exports continued
to decline sharply. Since 1996, we have seen our annual coal export shipments
drop by 52 percent as foreign producers enjoying far lower mining costs have
captured a major share of this market. This dramatic shift has had a serious
impact on rail-unit profitability. On the other hand, our intermodal business
expanded significantly. Our new rail network provides fast-growing, high-volume
parcel and consumer product shippers with unparalleled service options. This was
clearly reflected in the sharp increase in intermodal revenues and profits in
1999. The new network provided near-flawless service for our most important
intermodal customer, United Parcel Service, during the highly demanding 1999
holiday peak season.
As the year progressed, we saw railroad profits decline and the operating ratio
rise steadily, reflecting high integration "get-ready" costs in the first half
and heavy spending to address the merger implementation problems in the second
half. This transition spending was necessary and not unexpected, and we are
seeing the expenses associated with implementation abate as the railroad returns
to regular operations.
Originally slated for a March 1999 launch, CSX and Norfolk Southern agreed to
postpone operating our respective parts of Conrail to ensure that all operating
protocols were in place and that information technology and work-order data
systems were fully prepared. "Split Date" was June 1, 1999, and CSX moved
forward successfully and enjoyed a relatively orderly transition for a period of
several months. A big plus for us during the initial launch was the support of
rail labor, and the "New Compact" forged with our unions has greatly improved
working relationships. While start-up issues -- such as different traffic
routings, changed dispatching patterns, new crews working at new locations --
affected network fluidity, there were no major system failures as we absorbed
even higher-than-expected traffic volumes.
Things turned for the worse in September. Hurricane Floyd wreaked havoc on the
entire eastern half of the network. Extensive flooding, ranging from Miami to
Boston, caused major track washouts, with the most extensive damage occurring on
mainline routes in North Carolina and New Jersey. Operating plans for the
upcoming fall traffic peak had to be revised as locomotives were stranded, and
car types could not be moved efficiently to meet rising shipper requirements.
The network went out of balance; key freight yards became choke points, and
trains were backed up in high-volume corridors. Very costly actions had to be
taken to deal with the storm and its aftermath. Needed power was leased from
other railroads, manpower was shifted to troubled locations, and additional
train crews were brought on to deal with the situation. Keeping the network
running and successfully avoiding "meltdown" was our highest priority.
By mid-December, the peak subsided, and the situation began to come under
control. As we entered 2000, important operating metrics such as cars-on-line,
car dwell times in yards and system velocity started to show some improvement.
But we paid a heavy price for fourth-quarter congestion. Shippers were highly
vocal with their complaints and moved some of their business to trucks. The
impact on Wall Street was most discouraging. CSX stock plummeted in the fourth
quarter to a low point for the year.
While we focused primarily on the Conrail integration in 1999, we addressed
opportunities in other areas and took prompt and decisive steps to protect our
interests, enhance our competitiveness and strengthen the overall financial
position of the company. In this regard, we can point to major accomplishments
in 1999 -- completing the sale of Sea-Land's volatile international container
business and reorganizing the railroad's management and operating structure.
Selling Sea-Land's international business was a hard but necessary decision.
Since its founding in 1956, Sea-Land has been a great company, an unquestioned
industry leader and innovator. The company introduced the containerization
concept to global shipping, revolutionizing the way goods move around the world.
Since being acquired by CSX in 1986, Sea-Land revenues tripled, and the company
established strong market positions in virtually all of the world's major trade
routes. Over the years, its talented management team, led by John Clancey, has
contributed much to our company, and we are fortunate to have retained a number
of key executives.
But recent years have seen profit margins decline as a number of strong,
well-capitalized competitors entered this business. Projected worldwide vessel
over-capacity and substantial, ongoing capital requirements pointed to a
worrisome outlook, and we made the strategic decision to sell Sea-Land's
international business assets to Danish carrier, Maersk Line. This transaction
was completed in December 1999, generating net cash proceeds of approximately
$750 million and transferring substantial vessel lease obligations to the buyer.
We have retained those parts of the business that currently earn their costs of
capital and have more certain futures. The newly formed CSX Lines, engaged in
Jones Act-protected domestic shipping, and CSX World Terminals, which operates
container terminals in Hong Kong and nine other overseas locations, are now
independent business units. Headed by former Sea-Land senior executives Chuck
Raymond and Bob Grassi, respectively, and supported by strong management teams,
these companies will grow, and we are optimistic about their prospects.
Importantly, the Sea-Land sale strengthens our financial position and eliminates
a large degree of uncertainty that has adversely affected investor valuations of
CSX. The transaction is a "win/win" for CSX and Maersk. Sea-Land international
assets are in strong, familiar hands, and we are confident that the combined
company will emerge as the clear leader in the international container-shipping
industry. Looking forward, our strategic emphasis is overwhelmingly
rail-oriented, and we are focusing sharply on maximizing the benefits of the
Conrail transaction.
We have a new management team at the railroad charged to achieve this goal. In
July, Ron Conway was named president of CSX Transportation, succeeding A.R.
"Pete" Carpenter, who is now vice chairman of CSX Corporation. Pete and I have
worked closely together for many years, and we are fortunate to have the benefit
of his strategic thinking and sage counsel on an array of issues affecting the
future direction of the company.
To accommodate the requirements of a much larger, geographically more diverse
railroad, decision making has been decentralized, with operating
responsibilities moving from Jacksonville headquarters to the field. Five
operating regions were established in the summer, led by CSX and former Conrail
executives who have many years of hands-on experience managing their respective
territories. Complementing the new operating structure are four discrete service
groups serving our major coal, auto, merchandise and intermodal markets. Each
service group includes a senior operating executive whose primary role is to
link commercial objectives to operating priorities. With operating regions and
service groups working together and communicating directly on a daily basis, we
are confident that service performance initiatives will be implemented with
greater efficiency.
Realigning the management structure and moving hundreds of key personnel to new
positions was distracting to the organization, especially when accompanied by a
workforce reduction program that has reduced the non-contract headcount by
approximately 12 percent. But we made these hard decisions to put them behind us
and position the railroad for the future.
Moving Forward in 2000
We must regain shipper confidence by improving service and rooting out imbedded
costs in our rail network. As we do this, we will reach our fundamental
objective of building earnings momentum and accomplishing a significant
turnaround in 2000. I have every reason to think we will do this, and the entire
organization is galvanized to achieve this goal. As major shareholders, CSX
management has a very clear incentive.
Railroad performance will drive our results. I expect to see sustained
improvement beginning in the second quarter as we put merger issues behind us.
Transition expenses are no longer a major factor, and we will be vigorously
attacking those costs that have come into the railroad over the past several
years as we focused on organizing and preparing for the merger. Success in this
effort, buttressed by shipper demand for transportation reflecting a continuing
strong economy, should outweigh the impact of relatively high fuel costs and
labor wage increases. Capital outlays for 2000 will be markedly lower at the
railroad and will total approximately $1 billion for the company.
From all indications, shippers understand the benefits of single-line service on
our new rail network, and revenues should be up substantially this year. As we
demonstrate consistent service improvements, we believe there will be a clear
opportunity to increase prices in areas where our capacity is constrained and
rail affords shippers distinct advantages. We do not forecast earnings but would
be disappointed if the railroad's operating ratio does not improve sharply this
year. Looking out further, I am convinced that an operating ratio approaching 75
percent is achievable in the not-too-distant future as we restore efficiency and
capture sizeable merger synergies.
Our smaller business units will contribute to the anticipated turnaround.
Customized Transportation Inc., our stellar logistics unit, met all of its
targets last year and should continue to grow impressively in 2000. This is a
tribute to Dave Kulik and his management team, who have built this company and
earned the highest respect from a customer base representing many of the great
names in U.S. business. CSX Lines and CSX World Terminals also will do well as
sharply focused, strong players in their markets. The Greenbrier, our
world-renowned resort, had a banner year in 1999 and should continue to prosper.
I want to congratulate Ted Kleisner and his outstanding staff for being honored
as "The Resort of the Century" by one of the industry's most venerable and
respected publications. I urge our shareholders to take every opportunity to
enjoy The Greenbrier's stately grace and truly exceptional hospitality.
At this writing, rail equities are under a cloud of uncertainty. The merger
issues of the past several years have been exacerbated by the surprise,
late-December announcement of a proposed merger between the Burlington Northern
Santa Fe and Canadian National. Shipper groups have been vehement in their
opposition, and a number of influential legislators have expressed concerns. The
Surface Transportation Board has urged caution and set a broader standard for
weighing the merits of the merger. We agree with STB Chairman Linda Morgan's
position that the BNSF/CN merger must be considered in the light of its
potential downstream effects on the railroad industry. The primary concerns are
that mergers already underway have not yet had the time to demonstrate benefits
and that this combination may force the other Class I railroads into another
round of mergers during this period of great flux in the industry. CSX feels
strongly that this is the wrong time for this proposed merger and has joined the
Union Pacific, Norfolk Southern and Canadian Pacific in opposition to its
filing. The railroad industry needs a period of stabilization to regain the
confidence of shippers and investors.
I would like to express my sincere appreciation to our shareholders for your
support during this difficult time. The board of directors understands your
concerns and has been a great help to management throughout this period. Our
company is fortunate to have the benefit of their sound judgment and
considerable experience. Let me close by saying that, ultimately, CSX's future
rests on the talent and dedication of our 47,500 employees, to whom I am deeply
indebted for their tireless efforts. Their ongoing commitment gives me great
confidence that our ambitious goals will be achieved.
/s/John W. Snow
John W. Snow
Chairman and Chief Executive Officer
[PHOTO]
CSX is a strong company, focused on building core rail and intermodal businesses
and complemented by other solid transportation performers.
Our powerful rail network serves every major population and industrial center
east of the Mississippi -- and more ports than any other railroad. Powered by
one of the industry's best locomotive fleets, our 23,400-route-mile rail system
links 32 ocean and 18 lake ports and provides access to more than 20 river
terminals. This access gives customers more choices in supply sources and the
power to reach new markets, both across the nation and around the world.
Our dedicated people are experts, whether they work in the field, running the
railroad or intermodal operations, managing terminals, navigating
containerships, or in staff functions. Building on the best of our heritage, the
people throughout our company -- long-time CSXT employees, former Conrailers and
Sea-Landers, our logistics experts, labor and management -- are working together
to forge new traditions of teamwork and service to our customers.
Our valuable customers represent industries that are essential to our nation's
economy and everyday life: coal for electricity; grain feed for poultry farms;
autos for personal transportation; paper and forest products for newsprint and
construction materials; minerals for construction projects; phosphates and
fertilizer; food and consumer products that find their way to our kitchen
tables.
Our goal is to be "Second to None" as a freight transportation provider. In 1999
we set the stage by completing the Conrail integration, strengthening our
intermodal network, focusing our container-shipping business, and continuing to
grow our contract logistics services. Each of our businesses, as described on
the following pages, enters 2000 better positioned to meet the competitive
challenges of today and tomorrow, deliver improved service to our customers, and
enhance shareholder value.
[PHOTOS]
CSXT'S POWERFUL RAIL NETWORK - 23,400 ROUTE MILES STRETCHING FROM MIAMI TO
MONTREAL AND FROM EAST ST. LOUIS TO BALTIMORE - IS THE LARGEST IN THE EASTERN
UNITED STATES. THE CITIES WE LINK REPRESENT THE MOST IMPORTANT CONSUMER MARKETS,
INDUSTRIAL CENTERS AND RAW-MATERIAL-PRODUCING AREAS OF THE COUNTRY.
Review of Operations
Rail Operations
A new era in railroading began as CSX Transportation started operating its
Conrail lines in June 1999. The integration of operations, technology and human
resources would prove to be the most complex undertaking of its kind in railroad
history. While the service disruptions the railroad experienced through this
period were more widespread and more difficult to solve than anticipated -- even
after more than two years of intensive planning -- employees at every level
doubled their efforts to return service to the consistently high levels
customers expect. As a result of these efforts, CSXT enters this new era better
positioned to realize the benefits initially envisioned from the expanded market
reach of its rail network.
CSX TRANSPORTATION
With 35,000 employees, a 23,400-mile network in 23 states, more than 4,000
locomotives and more than 100,000 freight cars, the new CSXT serves every major
market east of the Mississippi and more ports than any railroad in the country.
Our overriding goal remains: create a competitive advantage for customers --
faster transit times, greater reliability and new single-line service options
between Southeastern producing markets and high-consumption markets of the
Northeast and Midwest.
CSXT took a major step in laying the foundation for achieving this goal as it
restructured and streamlined its organization to become more customer-focused.
The new regional structure, put in place during the second half of 1999, brings
increased emphasis to local decision making to promote more efficient service to
customers, and drives profit responsibility deeper into the organization. Key to
this initiative was the creation of three new Service Groups -- Merchandise,
Automotive and Coal -- which for the first time combine sales, marketing and
operations professionals within the business segment. By combining all of the
people responsible for developing business and planning service, the Service
Groups' goals are to speed response time, more effectively deliver rail service
and better satisfy customers' changing needs.
While realigning the railroad along product lines, CSXT established five field
operating regions to support the Service Groups. Each operating region has a
central staff to manage safety, asset management, operations improvement and
customer development. Connecting the new Service Groups' customer focus with the
new field structure places responsibility where it belongs -- close to our
customers.
Major CSXT initiatives for the year 2000 target significant safety improvement,
aggressive revenue growth and cost reduction, resulting in accelerating
increases in productivity and operating efficiency. Further improvements to the
post-integration operating plan are targeted to permit increased train speed and
length and reduced car handling, making way for improving terminal productivity,
crew and equipment utilization and service reliability. Capital spending will
include capacity expansion at select locations to improve efficiency and
service.
With the integration accomplished and the market opportunities now before us,
the railroad is focused on obtaining merger benefits: cost synergies and revenue
growth. The quality and performance of CSXT's employees will continue to drive
the company's success in the new millenium. In the quest to become "Second to
None," their ideas and involvement will enable the company to meet and exceed
the expectations of customers and shareholders.
Intermodal
Intermodal transportation -- the movement of trailers and containers on rail
cars instead of by highway -- is surface transportation's fastest growing
business. The Conrail transaction will hasten the trend toward rail intermodal
transportation and position CSX Intermodal (CSXI) to continue to provide the
nation's premier intermodal service.
[PHOTOS]
FROM THE PEOPLE WHO KEEP THE ENGINES RUNNING AND THE SHIPS SAILING TO THOSE WHO
DESIGN OUT SERVICES AND MANAGE BACK-OFFICE OPERATIONS, OUR EMPLOYEES BRING
YEARS OF EXPERIENCE AND STRONG DEDICATION TO THEIR CHOSEN PROFESSIONS. THEY ARE
POWERED BY A COMMITMENT TO SERVE OUR CUSTOMERS, OUR SHAREHOLDERS, AND THE
COMMUNITIES IN WHICH WE OPERATE.
CSX INTERMODAL
With the Conrail transaction, CSXI becomes the nation's only transcontinental
intermodal service provider serving every region of the country and providing
domestic and international shippers single-line, non-stop services between the
Midwest, Southeast, New York and New England. CSXI also provides the industry's
fastest and most reliable service between New York and Florida, two of the
largest consuming markets in the nation.
[PHOTO]
In 1999, CSXI largely completed an ambitious $130 million capital program to
nearly double terminal capacity across its network to enable accelerated annual
growth in both revenue and volume. New state-of-the-art terminals were completed
in hub cities of Chicago, Cleveland and Atlanta, and major terminal enhancements
were made to existing terminals in the Northeast and South. As a result, CSXI
captured significant new business that will increase train densities, equipment
utilization and customer responsiveness.
The importance of intermodal to the company and its future was reflected in
1999's financial performance. Revenue grew 48 percent to $959 million (including
the addition of Conrail business), while volumes grew 58 percent to 1.65 million
loads. In 1999, transcontinental volumes rebounded, as did international
business originating in Asia. Operating income reached $82 million, a 148
percent increase over 1998.
CSX expects intermodal to remain its fastest-growing business segment and will
continue to focus on operational improvements that increase transit reliability
and customer responsiveness.
Container-shipping and Terminal Management Operations
As 1999 drew to a close, another milestone was reached with the sale of
Sea-Land's international liner business, including vessels, containers and some
terminals, to A.P. Moller-Maersk Line. CSX retained Sea-Land's domestic
container-shipping and international terminal management companies, with total
annual revenues exceeding $1 billion.
The agreement with Maersk was a natural progression of the close partnership
Sea-Land and the Danish carrier had developed since forming a pioneering
vessel-sharing alliance in 1991. The transaction strengthens CSX's financial
position while retaining two strong, well-managed and competitive companies
operating in more stable market environments.
CSX LINES
The newly formed container-shipping company, CSX Lines LLC, takes Sea-Land's
leadership position in providing domestic ocean-liner service. The carrier
operates 16 U.S.-flag vessels and 27,000 containers along six service routes
between the continental United States and Alaska, Guam, Hawaii and Puerto Rico.
CSX Lines also operates port terminals in Anchorage, Kodiak and Dutch Harbor,
Alaska; Honolulu, Hawaii; San Juan, Puerto Rico; and Apra, Guam. Through sister
companies CSXT and CSXI, customers also are offered access to key markets
throughout the United States, Canada and Mexico and extensive intermodal
connections within the United States.
[PHOTO]
CSX Lines is headquartered in Charlotte, N.C., with 20 offices throughout the
continental United States, Alaska, Hawaii, Guam, and Puerto Rico. Its annual
revenue is expected to exceed $700 million.
The domestic ocean trades in which CSX Lines operates are stable environments.
The carrier will strive to increase revenues by gaining market share through
operational excellence and seamless service. A number of customer-focused
improvement initiatives are underway in the areas of documentation, customer
service, electronic commerce, equipment availability, vessel on-time arrival and
terminal throughput operations.
[PHOTOS]
OUR NATION HAS ALWAYS COUNTED ON THE RAILROAD TO MOVE THE GOODS AND PRODUCTS
THAT ARE ESSENTIAL TO OUR ECONOMY. TODAY, THE SUCCESS OF COMPANIES IN SOME OF
AMERICA'S MOST IMPORTANT INDUSTRIES DEPENDS, IN LARGE PART, ON THE SERVICE OF
RAILROADS, INCLUDING CSXT. WE TAKE THIS RESPONSIBILITY SERIOUSLY AND WORK HARD
TO SATISFY OUR CUSTOMERS' CHANGING NEEDS.
CSX WORLD TERMINALS
The other retained Sea-Land business, CSX World Terminals LLC, operates
terminals in Hong Kong, China, Australia, Europe, Russia and Latin America. The
company also provides services relating to terminal depot and warehouse
management, equipment maintenance and terminal systems internationally and in
the United States. Headquartered in Charlotte, CSX World Terminals' annual
revenue is expected to be approximately $300 million. Additionally, the company
has investment income from terminal operating companies not reflected in its
revenue base.
[PHOTO]
World container throughput is forecast to grow 10 percent per year through 2005.
The drivers of this demand are world economies that are becoming increasingly
trade dependent and developing countries that need modern ports to support
commercial growth. A trend toward transshipments and the use of larger vessels
also is influencing the flow of cargo through ports, providing additional
opportunities for CSX World Terminals' services.
To take advantage of this growth, CSX World Terminals will focus on developing a
brand image that builds on its rich Sea-Land heritage and global reputation for
expertise. The company will continue to seek process improvements to create
greater efficiency and productivity at facilities it operates. Additionally, the
company plans to expand development and use of proprietary, advanced technology
to enhance real-time information sharing and optimize terminal utilization.
Both CSX Lines and CSX World Terminals are strong businesses that are expected
to earn more than their cost of capital and to grow and bring stable,
incremental earnings to CSX's bottom line. With their new status as separate
companies, we anticipate greater contributions to CSX's financial performance.
Contract Logistics
With annual revenue now approaching $500 million, Customized Transportation Inc.
(CTI) is a leader in third-party logistics, offering an expanding portfolio of
supply chain management solutions. From its origins in contract transportation
and just-in-time support for the automotive industry, the company has
diversified and developed an array of services, including logistics operations,
transportation network design and management, modular assembly, in-line
sequencing, and inventory procurement and management. In addition to all
domestic automakers, CTI's client list includes many of the world's leading
manufacturers, foreign automakers, and consumer durable companies.
CTI
In 1999, CTI produced record earnings, building on its impressive track record
and position in a rapidly expanding industry. Third-party logistics
opportunities continue to grow as many industries focus on enhancing supply
chain practices and controlling operating expenses, working capital and other
logistics resources.
For the first time in CTI's history, more than one-half of its revenue base was
derived from specialized material support and inventory services vs. providing
traditional truck transportation. More than 3.5 million square feet of dedicated
logistics facilities were added to the company's commercial portfolio during
1999, representing its single largest growth element.
[PHOTO]
The company has produced revenues and operating income growth averaging 21.6
percent and 28.2 percent, respectively, over the past five years, and
anticipates favorable industry fundamentals in 2000. Additionally, CTI is
beginning to realize greater market penetration associated with the new digital
economy with operations supporting e-commerce initiatives of its clients. The
company looks forward to another successful year in 2000.
Safety and Environmental Policy
CSX is committed to conducting its business in a manner that protects the
environment and ensures the safety of our employees and the public.
Safety is the top priority at all CSX businesses, particularly CSX
Transportation, where employees at all levels are encouraged to follow the
motto, "No job is so important, no service so urgent, that we cannot take time
to perform work safely."
The railroad's multifaceted safety program, involving extensive training and
monitoring, has been successful in reducing accidents and injuries. In 1999,
CSXT's train accident rate was four accidents per million train miles.
The priority placed on safety by CSXT also has resulted in a dramatic 63.5
percent reduction in the rate of Federal Railroad Administration
(FRA)-reportable injuries since 1989. Now, as CSXT strives to reach its goal of
zero accidents and injuries, labor union leaders, rail management and rail
employees are working together in a new spirit of cooperation and trust. Driving
this cultural reinvention is a 40-member team, with representatives from labor
and management, field and headquarters, and the FRA. That team has been
identifying ways to enhance safety and create an improved work atmosphere.
Emphasis on Public Safety
Of equal importance is CSX's emphasis on public safety. In 1999, CSXT remained
an industry leader in the area of highway-rail grade crossing safety, where
collisions have decreased by more than 54 percent since 1989. This improvement
is largely attributable to two factors: public education and the elimination of
unneeded crossings. During 1999, CSXT employees presented public safety messages
to more than 1.1 million people -- including school children, school bus and
commercial truck drivers -- throughout the railroad's operating territory. In
addition, CSXT has eliminated more than 2,600 unneeded crossings since 1989.
In 1997, CSXT became the first railroad in the United States to adopt an
FRA-endorsed program to install stalled vehicle emergency information signs
system-wide. The signs prominently display CSXT's toll-free emergency number,
along with a unique crossing identification number and railroad milepost
location at about 24,000 crossings throughout our rail network. In June 1999,
CSXT began installing emergency information signs on its portion of Conrail
system at about 3,400 crossings. This action was just part of a comprehensive
Safety Integration Plan developed for the integration of CSX's share of Conrail
- -- a plan that was submitted to the Surface Transportation Board during the
federal review period.
CSXI achieved its best safety performance in its history in 1999, reducing
OSHA-reportable injuries at its nationwide network of 48 intermodal terminals by
more than 30 percent -- from 2.66 injuries per 200,000 man hours to 1.86. The
business unit hopes to improve even more in 2000, with a goal of reducing
injuries by 20 percent over 1999.
At CSX Lines and CSX World Terminals, rigorous safety programs are in place
aboard every vessel and at every terminal and port facility. Since 1993, the
shipboard incident rate has fallen by 60 percent, while the incident rate at
terminal properties has dropped 38 percent over the same period.
Hazardous Materials Safety and Environmental Stewardship
The nation's chemical companies rely on railroads to transport their products
safely and efficiently. Since 1989, CSXT's handling of hazardous materials
system-wide has increased by 62 percent -- to 430,000 carloads in 1999. Yet, the
number of cars that released any portion of their contents as a result of a
derailment has dropped by 60 percent -- from 30 cars in 1989 to 12 cars in 1999,
or one out of every 35,800 carloads.
The railroad's commitment to the safe transport of hazmats is but one part of
CSXT's efforts to safeguard the environment. In the last decade, CSXT has
reduced wastewater permit exceedances by over 98 percent to become one of the
leaders in the industry in this category. The railroad also has developed
innovative ways to recycle old, chemically treated crossties by turning them
into a source of fuel. In addition, CSXT recycles enormous quantities of steel
and other metals from old locomotives, freight cars and rail track.
While CSXI increased its hazmat moves by 25 percent, the accident/release ratio,
for both the terminals and the highway, remained less than 1 percent, in part
due to extensive training and an ongoing emphasis on awareness. The "HazMat and
HazCom" training program for CSXI personnel, along with the assistance of hazmat
response vendors, ensures that the prevention of and quick response to such
releases meet or exceed the standards set by the Federal Department of
Transportation Regulations. All CSXI terminal locations keep a "spill kit" on
site and are trained on proper use for first-response containment and clean-up
actions.
CSX Lines and CSX World Terminals adhere to the strictest standards in complying
with environmental regulations. Regular shipboard emergency drills are conducted
to train personnel in the latest techniques for preventing spills from entering
the sea. At CSX World Terminals, containments are built around fuel storage
tanks and waste oil is recycled.
In 2000 and beyond, we will continue to set stringent standards for ongoing
improvement in safety and environmental compliance. We owe it to our employees
to provide safe working conditions, and we owe it to our customers, shareholders
and the public to conduct all of our business operations safely and in a manner
that protects the environment.
Public Policy
CSX continues to play an active role in the public policy issues that could
potentially affect your company and industry. The following issues rose to the
forefront in 1999 and are expected to remain prominent in 2000.
BNSF/CN Merger Proposal: Late last year, Burlington Northern Santa Fe and
Canadian National railroads announced their intent to combine their respective
systems. As reported, the new Canadian-based holding company would result in a
50,000-mile rail network spanning all Canadian provinces and 31 states
throughout the United States. It is unquestionable that the potential impacts of
the transaction must be thoroughly reviewed.
We believe the BNSF/CN combination is premature. We are concerned that this
proposal, if allowed to go forward, will significantly divert attention from the
essential job of making existing mergers in the West and East successful, and
may lead to premature restructuring of the industry, very likely resulting in
two North American carriers. The net result of this proposal could very well
destabilize the existing balance and future viability of the U.S.-rail system.
Public Policy (cont'd)
Reregulation: The Staggers Rail Act, passed in 1980, marked the beginning of a
renaissance that has made the nation's rail industry the envy of the world.
Since 1980, U.S.-rail productivity has nearly tripled, inflation-adjusted
freight rates have been reduced by more than half, and employee injuries have
been reduced by two-thirds.
Despite this success, a push continues on Capitol Hill to reregulate the
industry. Seven proposals were introduced during the 1999 congressional session,
six of which would result in greater government control over day-to-day railroad
operations. Proponents of reregulation are seeking greater government
involvement in relationships between railroads and their customers as well as
forced access, allowing one rail carrier to operate over another's privately
owned track. We are very concerned that the proposed BNSF/CN merger will be used
as a vehicle to seek reregulation.
If successful, reregulation can only result in a weakened rail industry
resulting from less investment and deteriorating service.
Mountaintop Mining: In October 1999, a U.S. District Court declared certain
aspects of mountaintop coal mining in West Virginia to be in violation of the
federal Clean Water Act and the federal Surface Mining and Control Reclamation
Act. As a result of this precedent-setting decision, coal mining in West
Virginia and throughout CSX's service territory could be threatened. Up to
100,000 industry jobs could be directly affected if this decision is upheld.
CSX actively supported an effort by U.S. Senators Robert Byrd (D-W.Va.) and
Mitch McConnell (R-Ky.) to prevent implementation of this ruling for a two-year
period. While the effort was unsuccessful, the Senators have vowed to pursue
this issue in the 2000 congressional session.
Tort Reform: Adjustments to the nation's civil justice system are needed. While
laws define acceptable conduct and the penalties for failing to adhere to that
conduct, punitive damages alter the rule of law by allowing awards of excessive
and unwarranted damages. Such a system rewards lawyers who inflame jurors and
persuade them to act on emotion, rather than facts, and punishes businesses and
employees by diverting funds unfairly. CSX continues to actively support various
tort reform measures currently moving through Congress, including legislation to
curb abuses prevalent in class action lawsuits.
Community Relations: CSX supports a wide variety of community enrichment
programs, with special emphasis on children, education and cultural awareness.
Some recent examples include:
- - The CSX Scholars Program. Developed with the National Audubon Society and
the United Negro College Fund, the $1.5 million program supports
environmental education.
- - Success Express. CSX donated $100,000 and sponsored a special train to
promote higher education and spread the word about Edward Waters College, a
historically black college in Jacksonville, Fla.
- - Take Stock in Children. CSX sponsored a special train to generate interest
in a group that provides scholarships and mentors to children in need.
- - Recreation. CSX provided $50,000 in funding for the New Orleans Park and
Recreation's annual summer program, to ensure that families with three or
more children could afford the registration.
Employees throughout CSX serve as volunteers with community organizations and
can be counted on to respond to their neighbors in times of need.
Financial Information
Financial Policy 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
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 34
Report of Ernst & Young LLP, Independent Auditors 49
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 the information they need to make investment decisions about
the company. In this section of our annual report, financial information is
presented to assist you in understanding the sources of earnings, the financial
resources of the company and the contributions of the various business units.
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
use 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 Ratings -- 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.
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. In addition, changes in
regulatory policy can drastically change the cost and feasibility of certain
operations. Factors such as these, along with the uncertainty involved in
predicting future events, should be kept 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 accounting principles generally accepted in the United States
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 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 auditing
standards generally accepted in the United States and included a review of
internal accounting controls to the extent deemed necessary for the purpose of
its report, which appears on page 49.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (All references to earnings per share assume dilution)
Description of Business
CSX Corporation (CSX), headquartered in Richmond, Va., is a leading freight
transportation and logistics services provider. In June 1999, the company
expanded its core rail and intermodal operations with the integration of key
portions of the Conrail Inc. (Conrail) rail system. CSX now operates the largest
rail network in the eastern United States and provides intermodal transportation
services across the United States and into key markets in Canada and Mexico. The
sale of CSX's international container-shipping liner business in December 1999
further increases the company's focus on its core operations. CSX'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 the company's shareholders.
CSX Transportation Inc.
CSXT is the largest rail network in the eastern United States, providing rail
freight transportation over a network of more than 23,400 route miles in 23
states, the District of Columbia and two Canadian provinces. Headquartered in
Jacksonville, Fla., CSXT accounted for 52% of CSX's operating revenue and 80% of
operating income, excluding non-recurring items, in 1999.
CSX Intermodal Inc.
CSXI is the nation's only transcontinental intermodal transportation service
provider, operating a network of dedicated intermodal facilities across North
America. The CSXI network, expanded through the integration of Conrail in June
1999, runs approximately 500 dedicated trains between its 48 terminals every
week. CSXI accounted for 9% of CSX's operating revenue and 8% of operating
income, excluding non-recurring items, in 1999. Its headquarters are located in
Jacksonville, Fla.
CSX Lines LLC
CSX Lines was formed in 1999 to operate the domestic liner business of Sea-Land
Service Inc. (Sea-Land), consisting of a fleet of 16 vessels and 27,000
containers serving the trade between ports on the United States mainland and
Alaska, Guam, Hawaii and Puerto Rico. The domestic container-shipping business
was retained by CSX when Sea-Land's international container-shipping operations
were sold to A.P. Moller-Maersk Line (Maersk) in December 1999. CSX Lines is
headquartered in Charlotte, N.C.
CSX World Terminals LLC
CSX World Terminals, formed in 1999, operates container-freight terminal
facilities at 12 locations in Hong Kong, China, Australia, Europe and the
Dominican Republic. These operations, located in areas expected to benefit from
the continuing growth in world trade, also were retained by CSX when Sea-Land's
international liner business was sold to Maersk. CSX World Terminals is
headquartered in Charlotte, N.C.
Business segment financial results for CSX Lines and CSX World Terminals will be
reported beginning in fiscal year 2000. Sea-Land's consolidated operations,
which included those businesses for the full year and the international liner
operations for eleven and a half months, accounted for 35% of CSX's operating
revenue and 15% of operating income, excluding non-recurring items, in 1999.
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. Headquartered in Jacksonville, Fla., CTI is the
fastest-growing unit of CSX. CTI accounted for 4% of CSX's operating revenue and
3% of operating income, excluding non-recurring items, in 1999.
Non-transportation
Resort holdings include the AAA Five-Diamond hotel, The Greenbrier, in White
Sulphur Springs, W.Va. In December 1999, The Greenbrier was named "Resort of the
Century" by Andrew Harper's Hideaway Report. CSX Real Property Inc. is
responsible for sales, leasing and development of CSX-owned properties. CSX also
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.
Results of Operations
<TABLE>
<CAPTION>
Net Earnings
(Millions of Dollars, Except Per Share Amounts)
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Per Per Per
Description (all amounts after tax) Amount Share Amount Share Amount Share
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Earnings Before Non-recurring Items $339 $1.59 $428 $2.00 $799 $3.72
Loss on Sale, Net of Depreciation Benefit(271) (1.27) -- -- -- --
Workforce Reduction Program (34) (.16) -- -- -- --
Net Investment Gain 17 .08 90 .42 -- --
Restructuring Credit -- -- 19 .09 -- --
Cumulative Effect of Accounting Change (49) (.23) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net Earnings as Reported $2 $.01 $537 $2.51 $799 $3.72
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1999 vs. 1998 CSX follows a 52/53-week fiscal calendar. Fiscal year 1999
consisted of 53 weeks compared with 52 weeks in fiscal 1998. The company
reported net earnings for 1999 of $2 million, 1 cent per share. Earnings for the
prior year were $537 million, $2.51 per share. Operating income for 1999 totaled
$608 million, compared with $1.16 billion in 1998. Operating revenue of $10.8
billion was 10% higher than the prior year, while operating expense of $10.2
billion was 17% higher. The higher revenue and expense levels were primarily due
to the expansion of the company's rail and intermodal businesses in June 1999
with the integration of Conrail lines in the Northeast and Midwest.
Financial results for 1999 and 1998 included several significant non-recurring
items. The 1999 results included a loss on the sale of assets comprising the
company's international container-shipping business, a charge to recognize the
cost of a workforce reduction program at the rail and intermodal units, a gain
on the sale of the company's Grand Teton Lodge resort subsidiary, and an
adjustment to record the cumulative effect of adopting a new accounting rule
related to workers' compensation second injury funds. The 1998 results included
a net investment gain, primarily from the conveyance of the company's barge
subsidiary to a joint venture, and a restructuring credit at the rail unit.
These non-recurring items are discussed in greater detail in other sections of
Management's Discussion and Analysis, and their effect on the company's net
earnings and earnings per share is outlined in the "Net Earnings" table on page
20. Net earnings exclusive of these items totaled $339 million, $1.59 per share,
in 1999 vs. $428 million, $2.00 per share in 1998. Operating income excluding
the non-recurring items totaled $1.02 billion for 1999, compared with $1.13
billion for the prior year.
<TABLE>
<CAPTION>
Operating Income
(Millions of Dollars)
1999
- ---------------------------------------------------------------------------------------------
Surface Transportation
----------------------
Inter- Container Contract Elim./
Rail modal Total Shipping Logistics Other Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue $5,623 $959 $6,582 $3,809 $484 $(64) $10,811
- ---------------------------------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 2,244 64 2,308 983 180 -- 3,471
Materials, Supplies and Other 1,279 150 1,429 1,200 74 (44) 2,659
Conrail Operating Fee,
Rent and Services 280 -- 280 -- -- -- 280
Building and Equipment Rent 496 123 619 546 46 -- 1,211
Inland Transportation (285) 513 228 707 126 (17) 1,044
Depreciation 469 24 493 90 12 -- 595
Fuel 317 1 318 154 12 -- 484
Miscellaneous(b) -- -- -- (61) -- 64 3
Loss on Sale -- -- -- 401 -- -- 401
Workforce Reduction Program 53 2 55 -- -- -- 55
Restructuring Credit -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------
Total Expense 4,853 877 5,730 4,020 450 3 10,203
Operating Income (Loss) $ 770 $ 82 $ 852 $(211) $ 34 $(67) $ 608
Operating Income (Loss)
as Adjusted(c) $ 823 $ 84 $ 907 $ 149 $ 34 $(67) $ 1,023
- ---------------------------------------------------------------------------------------------
Operating Ratio 86.3% 91.4% 87.1% 105.5% 92.9%
- ---------------------------------------------------------------------------------------------
Operating Ratio as Adjusted(c) 85.4% 91.2% 86.2% 96.1% 92.9%
Average Employment 31,952 1,090 33,042 8,923 4,164
- ---------------------------------------------------------------------------------------------
Property Additions $1,298 $ 63 $1,361 $ 86 $ 20
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating Income
(Millions of Dollars)
1998
- ------------------------------------------------------------------------------------------------
Surface Transportation
----------------------
Inter- Container Contract Elim./
Rail modal Total Shipping Logistics Other(a) Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue $4,956 $648 $5,604 $3,916 $408 $(60) $9,868
- -------------------------------------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,974 50 2,024 959 157 -- 3,140
Materials, Supplies and Other 1,057 117 1,174 1,285 54 (30) 2,483
Conrail Operating Fee,
Rent and Services -- -- -- -- -- -- --
Building and Equipment Rent 382 81 463 596 43 -- 1,102
Inland Transportation (159) 348 189 734 103 (30) 996
Depreciation 450 18 468 130 11 -- 609
Fuel 251 1 252 141 11 -- 404
Miscellaneous(b) -- -- -- (62) -- 66 4
Loss on Sale -- -- -- -- -- -- --
Workforce Reduction Program -- -- -- -- -- -- --
Restructuring Credit (30) -- (30) -- -- -- (30)
- --------------------------------------------------------------------------------------------------
Total Expense 3,925 615 4,540 3,783 379 6 8,708
Operating Income (Loss) $1,031 $ 33 $1,064 $ 133 $ 29 $(66) $1,160
Operating Income (Loss)
as Adjusted(c) $1,001 $ 33 $1,034 $133 $ 29 $(66) $1,130
- --------------------------------------------------------------------------------------------------
Operating Ratio 79.2% 94.9% 81.0% 96.6% 92.8%
- --------------------------------------------------------------------------------------------------
Operating Ratio as Adjusted(c) 79.8% 94.9% 81.5% 96.6% 92.8%
Average Employment 28,358 786 29,144 8,690 3,399
- --------------------------------------------------------------------------------------------------
Property Additions $1,212 $ 99 $1,311 $ 54 $ 17
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating Income
(Millions of Dollars)
1997
- --------------------------------------------------------------------------------------------------
Surface Transportation
----------------------
Inter- Container Contract Elim./
Rail modal Total Shipping Logistics Other(a) Total
- ----------------------------------------------------------------------------------------------------
Operating Revenue $4,989 $669 $5,658 $3,991 $389 $583 $10,621
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Expense
Labor and Fringe Benefits 1,963 56 2,019 903 153 151 3,226
Materials, Supplies and Other 878 119 997 1,191 61 262 2,511
Conrail Operating Fee,
Rent and Services -- -- -- -- -- -- --
Building and Equipment Rent 349 77 426 600 45 40 1,111
Inland Transportation (158) 356 198 757 83 (35) 1,003
Depreciation 429 14 443 128 10 39 620
Fuel 299 1 300 197 13 57 567
Miscellaneous(b) -- -- -- (63) -- 63 --
Loss on Sale -- -- -- -- -- -- --
Workforce Reduction Program -- -- -- -- -- -- --
Restructuring Credit -- -- -- -- -- -- -
- ----------------------------------------------------------------------------------------------------
Total Expense 3,760 623 4,383 3,713 365 577 9,038
Operating Income (Loss) $1,229 $ 46 $1,275 $ 278 $ 24 $ 6 $ 1,583
Operating Income (Loss)
as Adjusted(c) $1,229 $ 46 $1,275 $ 278 $ 24 $ 6 $ 1,583
- ----------------------------------------------------------------------------------------------------
Operating Ratio 75.4% 93.1% 77.5% 93.0% 93.8%
- ----------------------------------------------------------------------------------------------------
Operating Ratio as Adjusted(c) 75.4% 93.1% 77.5% 93.0% 93.8%
Average Employment 27,864 800 28,664 9,105 2,334
- ----------------------------------------------------------------------------------------------------
Property Additions $ 712 $ 32 $ 744 $ 251 $ 13
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a)On June 30, 1998, CSX conveyed its wholly owned barge subsidiary to a joint
venture in which it holds a 32% common ownership interest. Due to the
reduction in ownership percentage, CSX has accounted for its investment in
the barge company under the equity method retroactive to the beginning of
fiscal year 1998. For periods prior to fiscal year 1998, the barge company
was accounted for as a consolidated subsidiary, and its results appear in the
Eliminations/Other category for 1997.
(b)A portion of intercompany interest income received from the CSX parent
company has been reclassified as a reduction of Miscellaneous expense by the
container-shipping unit. This amount was $61 million, $62 million and $63
million in 1999, 1998 and 1997, respectively, and the corresponding charge is
included in Eliminations/Other.
(c)Excludes loss on international container-shipping asset sale (net of
depreciation benefit) and surface transportation workforce reduction program
in 1999. Excludes rail restructuring credit in 1998.
- --------------------------------------------------------------------------------
Average Return on Assets
(percent)
[GRAPH]
'95 '96 '97 '98 '99
4.4 5.9 4.3 2.7 0.0
- Excluding non-recurring items in 1995, 1998,
and 1999, average return on assets would have
been 5.6%, 2.6%, and 1.6%, respectively.
Average Return on Equity
(percent)
[GRAPH]
'95 '96 '97 '98 '99
15.5 18.9 15.2 9.2 0.0
- Excluding non-recurring items in 1995, 1998,
and 1999, average return on equity would have
been 19.1%, 8.9%, and 5.7%, respectively.
As previously mentioned, the year-over-year increases in operating revenue and
expense were due primarily to the June 1999 integration of the company's
allocated portion of the Conrail rail and intermodal operations (see "Investment
in and Integrated Rail Operations with Conrail"). Earnings for 1999 were
adversely effected by costs related to preparation and start-up of the Conrail
integration and significant costs and lost revenue due to network congestion
experienced after the integration. The impact of Hurricane Floyd, higher
personal injury accruals and higher fuel prices in the second half of the year
also decreased earnings. Spending on Year 2000 preparations was lower in 1999 as
the company completed key phases of its readiness plan near the end of the third
quarter.
Fixed Charge Coverage
[GRAPH]
'95 '96 '97 '98 '99
3.2x 4.0x 2.6x 1.8x 1.1x
- Excluding non-recurring items in 1995,
1998, and 1999, fixed charge coverage
would have been 3.7x, 1.8x, and 1.7x,
respectively. Non-recurring items
are detailed in notes (a) and (b) to
the Financial Highlights on page 1.
1998 vs. 1997 Net earnings for 1998 totaled $537 million, $2.51 per share,
compared with $799 million, $3.72 per share in 1997. The 1998 results included 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, American
Commercial Lines LLC (ACL), to a joint venture. Also included in the 1998
results was a one-time restructuring credit of $30 million, $19 million after
tax, or 9 cents per share, to reverse a previous charge for separation and labor
protection costs. Excluding the effects of non-recurring items, net earnings
would have been $428 million, $2.00 per share, in 1998 vs. $799 million, $3.72
per share, in 1997.
Consolidated operating revenue totaled $9.9 billion, a decrease of $753 million,
or 7%, from 1997. A significant portion of the revenue decline, $618 million,
was attributable to the conveyance of the company's barge unit to a joint
venture in the third quarter of 1998 and the resulting exclusion of barge
activity from 1998 operating income. Due to a reduction in the company's
ownership interest to 32% of the new venture, CSX accounted for its investment
in the venture under the equity method retroactive to the beginning of fiscal
year 1998. For periods prior to fiscal 1998, ACL was accounted for as a
consolidated subsidiary.
Operating revenue was down from the prior year at the rail, container-shipping,
and intermodal business units. The rail unit suffered primarily from weak demand
for export coal. Sea-Land's revenues were negatively impacted by the Asian
economic crisis, while the intermodal unit struggled with congestion on the
western rail network.
CSX's operating expenses totaled $8.7 billion for 1998, down $330 million from
the prior year; however, $549 million of the decline represents barge unit
expenses not included in operations in 1998. Other favorable items included the
$30 million restructuring credit recorded by the rail unit, lower fuel costs
that benefited the company $106 million on a consolidated basis, and lower stock
compensation expense resulting from the company's lower stock price. Higher
operating expenses associated with changes in traffic mix at the rail unit and
inbound/outbound cargo imbalances in major trade lanes at the container-shipping
unit offset these favorable variances.
Other income increased to $119 million from 1997's $51 million. Contributing to
the increase was the $154 million net investment gain, partially offset by
higher Conrail transition expenses.
Business Segment Results
Surface Transportation Results
<TABLE>
<CAPTION>
Rail Traffic by Commodity*
Carloads Revenue
(Thousands) (Millions of Dollars)
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merchandise
Phosphates & Fertilizer 527 539 506 $ 318 $ 304 $ 295
Metals 319 268 264 367 307 301
Food & Consumer Products 150 135 139 184 148 147
Paper & Forest Products 505 457 471 600 508 512
Agricultural Products 326 277 269 442 380 364
Chemicals 545 444 435 913 750 762
Minerals 422 396 371 386 353 337
Government 11 6 10 28 16 24
- ---------------------------------------------------------------------------------------------------------------
Total Merchandise 2,805 2,522 2,465 3,238 2,766 2,742
Automotive 553 412 387 760 540 543
Coal, Coke & Iron Ore
Coal 1,614 1,651 1,714 1,476 1,503 1,567
Coke 55 60 74 51 53 65
Iron Ore 61 50 52 38 27 30
- ---------------------------------------------------------------------------------------------------------------
Total Coal, Coke & Iron Ore 1,730 1,761 1,840 1,565 1,583 1,662
Other Revenue -- -- -- 60 67 42
- ---------------------------------------------------------------------------------------------------------------
Total Rail 5,088 4,695 4,692 $5,623 $4,956 $4,989
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Certain amounts for 1998 and 1997 have been restated to conform to the 1999
presentation.
1999 vs. 1998
Rail
Excluding its $53 million portion of the workforce reduction charge in 1999 and
the $30 million restructuring credit in 1998, CSXT earned $823 million of
operating income in 1999 vs. $1 billion in 1998. Operating revenue was 13%
higher, at $5.62 billion. Operating expense rose 22% to $4.8 billion, excluding
the workforce reduction charge. The 1999 results included seven months of
integrated Conrail operations, distorting comparisons to 1998.
Overall volumes increased due to the addition of former Conrail traffic and
relatively strong demand across most service groups. The largest revenue
increase was in automotive (up 41%) 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 17% largely due
to the new Conrail traffic. Added coal revenues from the former Conrail
territory were offset by continued weakness in export coal volume, resulting in
a net revenue decrease of 2%. The 24% increase in rail operating expense
reflects the expense associated with the new Conrail traffic, as well as
significant costs incurred in starting up combined operations and addressing
post-integration congestion and operating problems. In addition, Hurricane Floyd
disrupted operations for up to 10 days on key portions of the CSXT system in
North Carolina and New Jersey, resulting in repair costs and lost revenue. Fuel
expense was $66 million higher than 1998, reflecting a 2 cent increase in the
average price per gallon for the full year, and higher fuel consumption with the
added Conrail traffic.
Intermodal
Excluding its $2 million portion of the workforce reduction charge, CSXI
reported 1999 operating income of $84 million, compared with $33 million a year
ago. The increase was primarily due to the significant growth in intermodal
volume attributable to the new Conrail operations. Strengthening international
business and improved rail service in the Western half of the country also
benefited 1999. Revenue for 1999 totaled $959 million vs. $648 million in the
prior year. Operating expense totaled $875 million without the workforce
reduction charge, compared with $615 million in 1998. The expanded operations
over portions of the former Conrail system accounted for the significant revenue
and expense increases in 1999. While CSXI realized margin improvements through
economies of scale, rail congestion led to lost revenue as shippers diverted
some traffic to trucks.
1998 vs. 1997
Rail
Excluding a one-time restructuring credit, CSXT produced operating income of $1
billion in 1998, down 19% from 1997. Operating revenue decreased slightly from
the prior year, to $4.96 billion. While merchandise revenue saw modest gains on
increased traffic, coal revenue declined $64 million on 4% fewer carloads. The
decline in coal revenue was attributable to the strong U.S. dollar and
competition from foreign coal producers, which softened the demand for export
coal.
Rail Operating Revenue
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$4,819 $4,909 $4,989 $4,956 $5,623
Rail Operating Expense
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$3,951 $3,782 $3,760 $3,925 $4,853
- Restructuring charge in 1995 was $196
million. Restructuring credit in 1998
was $30 million. Workforce reduction
charge in 1999 was $53 million.
CSXT experienced growth in several merchandise commodity groups during 1998.
Agricultural product moves were up 3% due to strong demand for Midwest grain in
the Southeast. Continued strength in the Southeast's construction industry was
primarily responsible for the 7% increase in minerals carloads over 1997, while
strong demand from U.S. steel mills in the early part of the year drove an
increase of 2% in metals traffic over 1997. Phosphates and fertilizer shipments
were up 7% due to continued strong export demand and strong demand from U.S. and
Canadian agricultural firms. The railroad's automotive revenue was down 1% from
the prior year, due in part to the estimated loss of $13 million in revenue
caused by the work stoppages at two of General Motors' Flint, Mich. plants.
Excluding the restructuring credit, operating expenses were up 5% from 1997 to
$3.96 billion, reflecting the impact of a shift in mix to lower margin cargo,
increases in certain casualty and litigation reserves, and Year 2000
preparations. Labor and fringe benefits expense increased slightly due to wage
increases and additional employee training and certification, partially offset
by lower stock compensation expense. The higher casualty and litigation accruals
and Year 2000 costs drove materials, supplies and other expense up 20% over the
prior year. Fuel expense was $48 million lower than 1997, reflecting an 11 cent
decrease in the average price per gallon, while fuel consumption remained level
with the prior year. The 1998 restructuring credit totaled $30 million and
reflected the reversal of separation and labor protection reserves established
as part of a 1995 restructuring charge to cover a planned reduction in the
unit's telecommunications workforce. Under a new telecommunications contract
signed in July 1998, those workforce reductions did not occur.
Intermodal
CSX Intermodal earned $33 million of operating income in 1998, down 28% from
1997. The decline was largely attributable to loss of business caused by service
disruptions on the western rail network.
Intermodal Operating Revenue
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$694 $660 $669 $648 $959
Although container and trailer volumes were 1% above 1997, operating revenue
decreased 3%, to $648 million, as the average length-of-haul declined. Both
domestic and international freight revenue decreased from 1997 as a result of
the western rail service difficulties. Revenue from other sources declined 29%
as truck operations were ceased at 13 terminals in early 1998 in connection with
a restructuring of the trucking service network.
The intermodal unit reported operating expense of $615 million in 1998, down 1%
from 1997. Labor and fringe benefits declined 11% from 1997, reflecting lower
stock compensation expense and a decrease in average employee levels during the
year. Other expense categories were generally comparable to the prior year.
<TABLE>
<CAPTION>
Container-shipping Results
Container-shipping Traffic by Trade Lane*
Loads Revenue
(Thousands) Revenue Per Box (Millions of Dollars)
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pacific 583 603 705 $2,611 $2,319 $2,221 $1,500 $1,386 $1,549
Atlantic 290 359 349 2,092 2,267 2,426 600 807 842
Americas 250 268 242 2,159 2,282 2,304 524 587 538
Asia/Middle East/Europe 277 273 286 2,068 2,060 2,041 563 554 576
Terminal Services and Other -- -- -- -- -- -- 622 582 486
- ---------------------------------------------------------------------------------------------------------------
Total 1,400 1,503 1,582 $2,315 $2,252 $2,250 $3,809 $3,916 $3,991
</TABLE>
* Certain amounts for 1998 and 1997 have been restated to conform to the 1999
presentation.
1999 vs. 1998
Although the sale of Sea-Land's international liner business to Maersk did not
close until mid-December, the unit lost significant business in the fourth
quarter of 1999 as international shippers shifted cargo bookings in anticipation
of the transaction. As a result, those operations incurred an operating loss for
the quarter that exceeded earnings from the retained domestic shipping and
terminal management businesses. Operating results for the first nine months of
the year showed marked improvement over 1998 as Pacific container volumes
recovered and significant rate increases in the Asia-to-U.S. trade more than
offset weakness in the Atlantic and Americas trade lanes. Despite the fourth
quarter loss, 1999 operating income of $149 million, excluding a loss on the
international liner sale net of a related depreciation benefit, was 12% higher
than the $133 million earned in 1998.
Fiscal 1999 revenue of $3.81 billion was 3% lower than 1998, reflecting the
international liner disposition three weeks prior to year end and the
pre-closing runoff in shipments. Similarly, operating expense of $3.66 billion,
excluding the net loss on sale, was 3% lower than 1998; although higher fuel
prices resulted in a 9% increase in fuel expense on consumption levels that were
flat year-to-year.
Container-shipping Operating Revenue
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$4,008 $4,051 $3,991 $3,916 $3,809
1998 vs. 1997
Sea-Land produced operating income of $133 million in 1998, down 52% from 1997,
reflecting the negative impact of Asia's economic crisis on the
container-shipping business. Operating revenue totaled $3.92 billion, a 2%
decline from 1997.
Asia's economic conditions caused tremendous imbalances in cargo shipments, as
exports from Asian countries increased while import traffic declined. These
imbalances were evidenced by a 3% increase in eastbound Pacific loads (Asia to
North America), vs. a 17% decline in westbound Pacific loads. In addition, the
Asia/Middle East/Europe trade lane experienced a 1% increase in westbound loads
(Asia to Europe), vs. a 20% decline in eastbound loads. Compounding the impact,
Sea-Land's cargo mix shifted to a higher level of lower-rated freight as imports
of higher-rated discretionary goods to Asia declined. Terminal services and
other revenue increased 20% from 1997's level as a result of higher volumes in
Asia.
Operating expenses increased 2% in 1998, to $3.78 billion. Although Sea-Land
moved fewer revenue loads compared with 1997, the company actually handled more
containers as a result of the increased export volume from Asia. The higher
container volume drove increases of 6% in labor and fringe benefits and 8% in
materials, supplies and other expense over 1997 levels. Fuel expense decreased
$56 million from 1997, benefiting from a 12 cent per gallon average price
reduction on a 1% increase in fuel consumption during the year.
Contract Logistics Results
1999 vs. 1998
Operating income at Customized Transportation Inc. (CTI) was $34 million for
1999 compared with $29 million for 1998. Revenue of $484 million was 19% higher
than the prior year, as the unit continued to benefit from strong growth in
managed transportation and warehousing revenue. Prior-year revenues were
negatively impacted by the General Motors plant strike. Operating expense of
$450 million was 19% higher than the prior year, in line with revenue growth.
Contract Logistics Operating Revenue
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$240 $316 $389 $408 $484
1998 vs. 1997
CTI's operating income for 1998 totaled $29 million, a 21% increase over 1997.
Operating revenue was up 5% from 1997, to $408 million, driven by gains in the
warehousing and managed transportation businesses. The General Motors work
stoppages mentioned in the Rail Results section also hurt the contract logistics
unit in 1998. CTI lost an estimated $18 million in revenue for the year as a
result of the strike. Operating expenses increased 4%, in line with the revenue
growth experienced during the year.
Liquidity and Capital Resources
Operating Activities
Cash provided by operations for 1999 totaled $1.1 billion, up $71 million from
1998, due principally to net changes in accounts receivable and payable driven
by the absorption of Conrail business and accrual of liabilities associated with
the Sea-Land sale, respectively. Cash provided by operations totaled $1.0
billion and $1.6 billion in 1998 and 1997, respectively.
Cash Provided by Operations
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$1,567 $1,440 $1,558 $1,000 $1,071
Investing Activities
Net cash used by investing activities in 1999 totaled $582 million, vs. $870
million in 1998 and $3.3 billion in 1997. Included in the 1999 total is $751
million in net proceeds from the sale of international container-shipping assets
and $49 million from the sale of the Grand Teton Lodge resort. The 1998 total
included $628 million from the conveyance of the company's barge subsidiary to a
joint venture. In 1997, CSX spent approximately $2.2 billion to complete the
acquisition of its $4.1 billion investment in Conrail.
Property additions totaled approximately $1.5 billion in 1999 and 1998, and $1.1
billion in 1997. The higher levels in 1999 and 1998 are largely due to rail and
intermodal spending for locomotives and capital improvements to service the
additional traffic resulting from the Conrail integration. Significant projects
related to Conrail included investments in technology, a major upgrade to the
B&O line between Chicago and Cleveland, and a new intermodal terminal in
Chicago. Property additions for the coming fiscal year are expected to be under
$1 billion, reflecting a return to more normal spending levels on the combined
rail network and the disposition of Sea-Land's international liner operations.
Property Additions
(millions of dollars)
[GRAPH]
'95 '96 '97 '98 '99
$1,156 $1,223 $1,125 $1,479 $1,517
Property Additions by Segment
(millions of dollars)
[GRAPH]
Rail Intermodal Container Shipping Contract Logistics Other
$1,298 $63 $86 $20 $50
Financing Activities
Financing activities provided net cash of $32 million in 1999, compared to a use
of $276 million of cash in 1998. In 1997, financing activities provided $1.7
billion. While higher levels of short-term debt provided $187 million in cash
for 1999, the company expects to reduce short-term debt in the early part of
fiscal year 2000 with proceeds from the December 1999 sale of international
container-shipping assets. Through year-end 1999, a portion of those proceeds
had been used to repay short-term debt, with the remainder being invested in
cash equivalents and short-term investments. In 1998, the barge subsidiary
proceeds were initially used to reduce short-term debt, but borrowings were
increased over the second half of the year to fund a portion of the capital
spending to prepare for the Conrail integration. The issuance of debt to finance
completion of the Conrail acquisition was the primary factor affecting cash from
financing activities in 1997.
During 1999, CSX issued $400 million of floating rate notes having a one-year
maturity. These financings were intended to supplement the company's existing
commercial paper program and ensure adequate liquidity over year end if
financial markets experienced disruption from Year 2000 issues. In 1998, CSX
issued approximately $1 billion of fixed-rate debt, principally to refinance
commercial paper borrowings classified as long-term debt in the company's
statement of financial position. The placement of this fixed-rate debt allowed
the company to take advantage of a favorable interest rate environment to reduce
the overall floating-rate exposure in its debt portfolio. In 1997, CSX issued
over $2.5 billion in long-term debt primarily to finance completion of the
Conrail transaction.
CSX repaid $126 million of long-term debt in 1999, vs. $1.1 billion in 1998
(including the commercial paper refinancings) and $398 million in 1997.
Long-term debt at Dec. 31, 1999, totaled $6.2 billion, down $236 million from
year-end 1998, largely reflecting the reclassification of balances to short-term
debt in anticipation of the use of the proceeds from the international
container-shipping sale. The ratio of debt to total capitalization at the end of
1999 was 53%, compared with 52% at the end of 1998. CSX has $400 million of
remaining capacity under a shelf registration that may be used to issue debt or
other securities at the company's discretion.
Cash dividends paid per common share were $1.20 for 1999 and 1998, and $1.08 in
1997. Total cash dividends of $262 million, $262 million and $235 million were
paid in 1999, 1998 and 1997, respectively.
Market Risk
CSX does not currently use derivative financial instruments, although the
company may from time to time employ them as part of its risk management
program. If used, the objective is to manage specific risks and exposures, not
to trade such instruments for profit or loss.
CSX manages its overall exposure to fluctuations in interest rates by adjusting
the proportion of fixed and floating rate debt instruments within its debt
portfolio over time. At Dec. 31, 1999, CSX had approximately $1.2 billion of
floating-rate debt outstanding. A 1% increase in interest rates would increase
annual interest expense by approximately $12 million. While the company's
container-shipping terminal management subsidiary does business in several
foreign countries, a substantial portion of its revenue and expenses are
transacted in U.S. dollars. For this reason, CSX does not believe its foreign
currency market risk is significant.
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 received regulatory approval permitting them to
exercise joint control over Conrail in August 1998.
Under this operating plan, CSXT 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
the company. CSXT now operates a network of more than 23,400 route miles in 23
states, the District of Columbia, and two Canadian provinces. CSXT and its
sister company, CSX Intermodal, employ approximately 35,000 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 that
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
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 amortization of the fair value write-up, 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 areas operated by Conrail. As
a result, the company incurred increased costs and experienced lost revenues as
customers directed business to other modes of transportation. Substantial
progress was made during 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
from September through early December, adversely affected operating performance.
Efforts have been focused on improving operations through network simplification
and progress since mid-December has been encouraging.
While management believes it will continue to see steady improvement across the
rail network that will lead to increased customer satisfaction, the return of
business diverted to other modes of transportation and improved financial
performance, there can be no assurance that these objectives will be met, or met
within a specified time frame. If recent operating improvements are sustained,
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.
Conrail's Results of Operations
1999 vs. 1998. Conrail's results of operations for 1999 were significantly
impacted by the changes in its business resulting from the integration with CSX
and Norfolk Southern. Through May 31, 1999, Conrail's earnings include freight
line-haul revenues and related expenses. Effective June 1, 1999, its 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 also has changed to reflect the new
operations. As a result, meaningful comparisons of 1999 and 1998 results are
more difficult.
Conrail reported net income of $26 million for 1999, compared with $267 million
for 1998. Operating revenues were $2.2 billion for 1999 vs. $3.9 billion for
1998, primarily reflecting the change in operations and a 2% decline in freight
revenue for the five-month period prior to integration. Operating expenses
totaled $2.0 billion in 1999 and $3.3 billion in 1998. The decrease reflected
the change in operations in June, partially offset by higher casualty and other
claims expenses. The 1999 operating expenses include net charges of $180
million, $121 million after tax, principally to reflect the method of settlement
of certain casualty liabilities based on the agreement between CSX, Norfolk
Southern, and Conrail, to adjust certain litigation and environmental reserves
related to settlements and completion of site reviews, and to reflect the
assumption of a lease obligation by CSX. Operating expenses in 1998 included a
charge of $170 million, $105 million after tax, for severance benefits covering
non-union employees, and other charges and reserves totaling $132 million, $82
million after tax. Conrail's operating expenses also included transition-related
costs of $60 million in 1999, principally employee training and technology
integration expenses, and $149 million in 1998, principally employee retention
bonuses and technology integration costs.
1998 vs. 1997. Conrail reported net income of $267 million in 1998, compared
with $7 million in 1997. Operating revenue totaled $3.9 billion in 1998 vs. $3.8
billion in 1997, with the increase due principally to a 4% increase in traffic
volume. All market groups except automotive posted revenue increases for the
year. Operating expenses totaled $3.3 billion in 1998 and $3.4 billion in 1997.
Operating expenses for 1998 included non-recurring charges for non-union
severance and other expenses totaling $302 million, $187 million after tax. The
1997 operating expenses included a $221 million charge associated with the
termination of Conrail's Employee Stock Ownership Plan, which had no related
income tax effect, as well as a charge of $173 million, $142 million after tax,
for stock compensation and executive severance costs related to the change in
ownership. Additional transition expenses reflected in the 1998 total include
$149 million in 1998, primarily for employee stay bonuses and technology
integration costs, and $114 million in 1997, primarily for investment banking,
legal and consulting fees and employee stay bonuses. Excluding the effects of
the acquisition-related compensation and transition costs, operating expenses
increased 3% in 1998, primarily as a result of the higher traffic volume and
higher casualty and other claims expenses, partially offset by lower fuel costs.
Financial Condition and Liquidity. Conrail's cash provided by operations of $396
million decreased by $331 million, or 46%, in 1999, and by $157 million, or 18%,
in 1998. The 1999 decrease was principally due to the change in the company's
operations. The decline in 1998 reflected higher incentive compensation payments
and transition-related costs. Cash generated from operations is the principal
source of liquidity and is primarily used for debt repayments and capital
expenditures. Debt repayments totaled $112 million in 1999 and $119 million in
1998. Capital expenditures totaled $176 million in 1999 and $537 million in
1998. The significant decline in capital spending for 1999 reflected the change
in operations.
Conrail had a working capital deficit of $194 million at Dec. 31, 1999, compared
with a deficit of $202 million at Dec. 31, 1998. The deficit at year-end 1999
resulted from reclassifying $250 million of long-term debt to current
liabilities, reflecting the maturity of the debt in June 2000. Conrail is
expected to have sufficient cash flow to meet its ongoing obligations,
principally from operating fees, rents, and shared area usage fees paid by CSX
and Norfolk Southern.
Divestitures and Joint Venture Investment
Sale of International Container-Shipping Assets
In July 1999, CSX entered into an agreement to sell certain assets comprising
the international liner business of Sea-Land, its wholly owned
container-shipping subsidiary, to A. P. Moller-Maersk Line (Maersk) for
approximately $800 million, subject to certain purchase price adjustments that
depended on a detailed allocation and valuation of certain categories of assets.
The transaction, which also involved Maersk assuming in excess of $800 million
present value of Sea-Land operating lease obligations, closed on Dec. 10, 1999.
The international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue. In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business. The operating revenue
associated with the assets sold was approximately $2.8 billion in 1999, $3.0
billion in 1998, and $3.2 billion in 1997.
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," CSX classified
the international liner assets as "held for sale" in July when the agreement
with Maersk was signed. 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 was recorded on these assets after their classification as "held
for sale." Based on subsequent accounting for the completed transaction,
including adjustments to reflect asset allocations agreed to at closing, the
company determined that the loss on sale was approximately $86 million higher
than the third quarter charge. The final loss on sale of $401 million, net of a
$41 million benefit from the lower depreciation expense, reduced 1999 earnings
by $360 million, $271 million after tax, $1.27 per share. The agreement with
Maersk provides for a post-closing adjustment to the sales price based on the
final amount of working capital conveyed, and the loss includes estimates of
costs to terminate various contractual obligations of the company. These matters
are expected to be resolved in fiscal 2000 and will affect the final
determination of the loss on sale. Net of purchase price adjustments and cash
balances conveyed to Maersk at closing, the company received cash proceeds of
$751 million on the sale. Through Dec. 31, 1999, a portion of the proceeds was
used to reduce short-term debt, with the remainder invested in cash equivalents
and short-term investments.
CSX retained the container-shipping business serving the U.S. domestic trade and
part of the company's international terminal operations and will manage them
separately. Management reporting and performance measures for these businesses
have been developed for fiscal year 2000. 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; however, it will not be practicable to
provide comparative segment disclosures for prior years.
Sale of Grand Teton Lodge Subsidiary
In June 1999, CSX completed the sale of its Grand Teton Lodge resort subsidiary,
located in Jackson Hole, Wyo., to Vail Resorts. The transaction resulted in a
net investment gain of $27 million, $17 million after tax, 8 cents per share.
CSX received net cash proceeds of $49 million.
Conveyance of Barge Unit
In June 1998, CSX conveyed its barge unit, American Commercial Lines (ACL), to a
venture formed with Vectura Group Inc. (Vectura). CSX received cash proceeds of
$695 million from the transaction, $67 million of which were used to repay
certain outstanding debt and other obligations of ACL and to pay expenses of the
transaction. As part of the transaction, NMI Holdings LLC, a wholly owned barge
subsidiary of Vectura, was combined with ACL. CSX holds a 32% common interest in
the venture. Operating results for 1998 include a net investment gain of $154
million, $90 million after tax, 42 cents per share, primarily from the ACL
transaction.
Other Matters
Workforce Reduction Program
CSX recorded a charge of $55 million, $34 million after tax, 16 cents per share,
in the fourth quarter of 1999 to recognize the cost of a program to reduce the
non-union workforce at its rail and intermodal units by approximately 800
positions. A voluntary early retirement program completed in December accounted
for approximately 680 of the position reductions, with the remainder achieved
through a combination of involuntary terminations and normal attrition.
Approximately 75% of the retirements and separations occurred by the end of the
year, with the remainder scheduled to occur over the first half of fiscal year
2000 as their job responsibilities are reorganized or transitioned to other
personnel. Early retirement benefits offered under the voluntary program
accounted for $24 million of the charge and will be paid from CSX's pension and
postretirement benefit plans. Separation benefits are being paid from cash
generated by operations. Approximately half of the separation benefits were paid
in 1999. On an annualized basis, the workforce reduction program is expected to
provide operating expense savings of approximately $65 million.
Federal Court Decision Affecting Mountaintop Coal Mining
In October 1999, a federal district court judge ruled that certain mountaintop
coal mining practices in West Virginia were in violation of the federal Clean
Water Act and the federal Surface Mining and Control Reclamation Act. The
decision, which is currently under appeal, could adversely affect CSX's coal
traffic and revenues if upheld.
New Orleans Tank Car Fire Litigation
In September 1997, a state court jury in New Orleans, La. 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, 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 Nov. 5,
1999, the trial court issued an opinion that granted CSXT's motion for judgment
notwithstanding the verdict and effectively reduced the amount of the punitive
damages verdict from $2.5 billion to $850 million. CSXT believes that this
amount (or any amount of punitive damages) is unwarranted and intends to pursue
its full appellate remedies with respect to the 1997 trial as well as the trial
judge's decision on the motion for judgment notwithstanding the verdict. The
compensatory damages awarded by the jury in the 1997 trial were also
substantially reduced by the trial judge. A judgment reflecting the $850 million
punitive award has been entered against CSXT. CSXT has obtained and posted an
appeal bond in the amount of $895 million, which will allow it to appeal the
1997 compensatory and punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of 18 of those 20 plaintiffs. Two
plaintiffs received nothing; that is, the jury found that they had not proved
any damages. Management believes this result, while still excessive, supports
CSXT's contention that the punitive damages award was unwarranted.
CSXT continues to pursue an aggressive legal strategy. Management believes that
an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
financial position, although it could be material to results of operations in
a particular quarterly accounting period.
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 243 sites at which it is or may be
liable for remediation costs associated with alleged contamination or for
alleged violations of environmental requirements. Approximately 115 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 $53 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 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. The majority of the year-end 1999 environmental liability is expected to
be paid out over the next five to seven years, funded by cash generated from
operations. Total expenditures associated with protecting the environment and
remedial environmental cleanup and monitoring efforts amounted to $35 million in
1999, compared with $34 million in 1998 and $36 million in 1997. During 2000,
the company expects to incur preventive and remedial environmental expenditures
in the range of $35 million to $45 million. Future environmental obligations are
not expected to have a material impact on the results of operations or financial
position of the company.
Year 2000 Computer Transition
In 1996, CSX and each of its transportation subsidiaries began a comprehensive
plan to address the potential exposure associated with the Year 2000 computer
problem. By the fourth quarter of 1999, all key phases of the company's Year
2000 readiness plan were completed and project teams made final preparations for
the transition to Jan. 1, 2000. During the Year 2000 rollover weekend, no major
problems surfaced.
CSX believes that its readiness plan was successfully executed, key objectives
were met, and project teams adequately addressed all significant Year 2000
issues. The company continues to assess technology-related problems as they
occur to determine if they are Year 2000 related. Detailed contingency plans
remain in place and can be implemented if any Year 2000 problems occur. However,
based on the information gathered since January, CSX does not expect the Year
2000 event to cause any interruptions in business operations or to adversely
effect its customers.
The company has incurred total Year 2000 related costs of $70 million through
the end of fiscal year 1999 and expects to incur additional costs of
approximately $2 million. To provide a consistent, objective method for
identifying costs of the Year 2000 plan, the company has classified expenditures
as Year 2000 plan costs for reporting purposes only if they remedied only Year
2000 risks and were otherwise unnecessary in the normal course of business. The
cost of the Year 2000 plan was expensed as incurred and funded by cash generated
from operations.
Business Outlook for 2000
CSX enters fiscal year 2000 poised to build on its core rail and intermodal
businesses and complemented by other transportation interests that are solid
performers. With the Conrail integration completed, the rail unit's focus in
2000 will be on delivering stronger financial performance by driving out costs,
improving railroad operations and seizing growth opportunities on the expanded
network. The rail and intermodal units will work to capture merger synergies and
restore customer satisfaction by improving on-time performance and other key
operating measures. Modest growth in the domestic economy is expected to
continue in 2000, which would be favorable for CSXT; however, CSXT's export coal
business shows no sign of recovering in the foreseeable future. CSXT is
currently engaged in negotiations with the bargaining representatives for its
union employees, who represent the majority of its employment base; the impact
of these negotiations cannot be estimated at this time. CSXT will incur higher
labor costs in 2000 from cost-of-living increases provided under current union
contracts unless new agreements are reached. Recent fuel price increases have
adversely impacted company earnings. If these price trends continue and if the
company cannot pass these higher costs through to its customers, the negative
impact on fiscal year 2000 earnings is likely to be significant.
The sale of Sea-Land's international liner business leaves CSX less vulnerable
to the highly volatile global container-shipping markets. The retained Sea-Land
businesses have experienced management teams and are expected to generate
reliable earnings and positive cash flow. CSX Lines expects to deliver stable
quarterly earnings on annual revenues of approximately $700 million. CSX World
Terminals anticipates capitalizing on identified growth opportunities and should
generate fiscal year 2000 revenues of approximately $300 million. The contract
logistics business expects continued double-digit growth and is working closely
with the surface transportation group to develop new and creative transportation
and logistics solutions for customers.
Forward-looking Statements
Estimates and forecasts in Management's Discussion and Analysis and in other
sections of this Annual Report are based on many assumptions about complex
economic and operating factors with respect to industry performance, general
business and economic conditions and other matters that cannot be predicted
accurately and that are subject to contingencies over which the company has no
control. Such forward-looking statements are subject to uncertainties and other
factors that may cause actual results to differ materially from the views,
beliefs, and projections expressed in such statements. The words "believe,"
"expect," "anticipate," "project," and similar expressions signify
forward-looking statements. Readers are cautioned not to place undue reliance on
any forward-looking statements made by or on behalf of the company. Any such
statement speaks only as of the date the statement was made. The company
undertakes no obligation to update or revise any forward-looking statement.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the
integration of Conrail may not be fully realized or realized within the time
frame anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the company; (iv) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (v) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and business of the company; and (vi) changes may occur in the
securities and capital markets.
<TABLE>
<CAPTION>
Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)
Fiscal Years Ended
---------------------------------------------
Dec. 31, 1999 Dec. 25, 1998 Dec. 26, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Income
Operating Revenue $ 10,811 $ 9,868 $ 10,621
Operating Expense 10,203 8,708 9,038
------------------------------------------
Operating Income 608 1,160 1,583
Other Income and Expense
Other Income 52 119 51
Interest Expense 521 506 451
------------------------------------------
Earnings
Earnings Before Income Taxes 139 773 1,183
Income Tax Expense 88 236 384
------------------------------------------
Earnings before Cumulative Effect of Accounting Change 51 537 799
Cumulative Effect on Prior Years of Accounting
Change for Insurance-related Assessments, Net of Tax (49) -- --
------------------------------------------
Net Earnings $ 2 $ 537 $ 799
- ---------------------------------------------------------------------------------------------------------
Per Common Share
Earnings Per Share:
Before Cumulative Effect of Accounting Change $ .24 $ 2.55 $ 3.80
Cumulative Effect of Accounting Change (.23) -- --
------------------------------------------
Including Cumulative Effect of Accounting Change $ .01 $ 2.55 $ 3.80
------------------------------------------
Earnings Per Share, Assuming Dilution:
Before Cumulative Effect of Accounting Change $ .24 $ 2.51 $ 3.72
Cumulative Effect of Accounting Change (.23) -- --
------------------------------------------
Including Cumulative Effect of Accounting Change $ .01 $ 2.51 $ 3.72
------------------------------------------
Average Common Shares Outstanding (Thousands) 210,616 210,860 209,979
Average Common Shares Outstanding, Assuming Dilution(Thousands) 212,696 214,196 214,445
Cash Dividends Paid Per Common Share $ 1.20 $ 1.20 $ 1.08
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(Millions of Dollars)
Fiscal Years Ended
-------------------------------------------------
Dec. 31, 1999 Dec. 25, 1998 Dec. 26, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Earnings $ 2 $ 537 $ 799
Adjustments to Reconcile Net Earnings to Net Cash Provided
Cumulative Effect of Accounting Change 49 -- --
Depreciation 621 630 646
Deferred Income Taxes (19) 296 190
Loss on Sale of International Container-Shipping Assets 401 -- --
Workforce Reduction Program 55 -- --
Net Investment Gains (27) (154) --
Equity in Conrail Earnings - Net 2 (141) (102)
Other Operating Activities 8 (78) (28)
Changes in Operating Assets and Liabilities
Accounts Receivable (621) 19 (99)
Other Current Assets 41 (82) (2)
Accounts Payable 301 55 39
Other Current Liabilities 258 (82) 115
--------------------------------------
Net Cash Provided by Operating Activities 1,071 1,000 1,558
- -----------------------------------------------------------------------------------------------------------
Investing Activities
Property Additions (1,517) (1,479) (1,125)
Net Proceeds from Sale of International Container-Shipping Assets 751 -- --
Net Proceeds from Conveyance of Barge Subsidiary -- 628 --
Investment in Conrail (2) (13) (2,163)
Short-term Investments - Net 94 6 (119)
Other Investing Activities 92 (12) 59
--------------------------------------
Net Cash Used by Investing Activities (582) (870) (3,348)
- -----------------------------------------------------------------------------------------------------------
Financing Activities
Short-term Debt - Net 187 61 (209)
Long-term Debt Issued 284 1,153 2,530
Long-term Debt Repaid (126) (1,132) (398)
Cash Dividends Paid (262) (262) (235)
Common Stock Reacquired -- (103) (11)
Other Financing Activities (51) 7 (4)
--------------------------------------
Net Cash Provided (Used) by Financing Activities 32 (276) 1,673
- -----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 521 (146) (117)
Cash, Cash Equivalents and Short-term Investments
Cash and Cash Equivalents at Beginning of Year 105 251 368
--------------------------------------
Cash and Cash Equivalents at End of Year 626 105 251
Short-term Investments at End of Year 348 428 439
--------------------------------------
Cash, Cash Equivalents and Short-term Investments at End of Year $ 974 $ 533 $ 690
- -----------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
Interest Paid - Net of Amounts Capitalized $ 523 $ 498 $ 423
Income Taxes Paid $ 58 $ 154 $ 141
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Consolidated Statement of Financial Position
(Millions of Dollars)
Dec. 31, 1999 Dec. 25, 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash, Cash Equivalents and Short-term Investments $ 974 $ 533
Accounts Receivable 1,135 898
Materials and Supplies 220 225
Deferred Income Taxes 135 128
Other Current Assets 99 200
------------------------
Total Current Assets 2,563 1,984
------------------------
Properties 17,526 18,678
Accumulated Depreciation (5,269) (6,033)
------------------------
Properties - Net 12,257 12,645
------------------------
Investment in Conrail 4,663 4,798
Affiliates and Other Companies 410 448
Other Long-term Assets 827 552
------------------------
Total Assets $20,720 $20,427
- ---------------------------------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts Payable $ 1,197 $ 1,216
Labor and Fringe Benefits Payable 436 462
Casualty, Environmental and Other Reserves 271 283
Current Maturities of Long-term Debt 349 100
Short-term Debt 574 187
Other Current Liabilities 646 352
------------------------
Total Current Liabilities 3,473 2,600
Casualty, Environmental and Other Reserves 767 645
Long-term Debt 6,196 6,432
Deferred Income Taxes 3,227 3,173
Other Long-term Liabilities 1,301 1,697
------------------------
Total Liabilities 14,964 14,547
- ---------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock, $1 Par Value 218 217
Other Capital 1,525 1,489
Retained Earnings 4,034 4,294
Accumulated Other Comprehensive Loss (21) (120)
------------------------
Total Shareholders' Equity 5,756 5,880
------------------------
Total Liabilities and Shareholders' Equity $20,720 $20,427
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
(Millions of Dollars)
Common Shares Accumulated Other
Outstanding Common Other Retained Comprehensive
(Thousands) Stock Capital Earnings Loss Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Dec. 27, 1996 216,885 $ 217 $ 1,433 $ 3,455 $ (110) $ 4,995
Comprehensive Earnings:
Net Earnings -- -- -- 799 -- 799
Adjustment of Minimum Pension Liability,
Net of $45 Income Taxes -- -- -- -- 87 87
-------
Comprehensive Earnings 886
-------
Dividends -- -- -- (235) -- (235)
Common Stock Issued (Repurchased) - Net 1,425 1 119 -- -- 120
- -------------------------------------------------------------------------------------------------------------
Balance Dec. 26, 1997 218,310 218 1,552 4,019 (23) 5,766
Comprehensive Earnings:
Net Earnings -- -- -- 537 -- 537
Adjustment of Minimum Pension Liability,
Net of $54 Income Taxes -- -- -- -- (94) (94)
Other - Net -- -- -- -- (3) (3)
-------
Comprehensive Earnings 440
-------
Dividends -- -- -- (262) -- (262)
Common Stock Issued (Repurchased) - Net (1,191) (1) (63) -- -- (64)
- -------------------------------------------------------------------------------------------------------------
Balance Dec. 25, 1998 217,119 217 1,489 4,294 (120) 5,880
Comprehensive Earnings:
Net Earnings -- -- -- 2 -- 2
Adjustment of Minimum Pension Liability,
Net of $56 Income Taxes -- -- -- -- 99 99
------
Comprehensive Earnings 101
------
Dividends -- -- -- (262) -- (262)
Common Stock Issued (Repurchased) - Net 1,325 1 36 -- -- 37
- -------------------------------------------------------------------------------------------------------------
Balance Dec. 31, 1999 218,444 $218 $1,525 $4,034 $ (21) $5,756
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Note 1. Significant Accounting Policies.
Nature of Operations
CSX Corporation (CSX) is a freight transportation company with principal
business units providing rail, intermodal, container-shipping, and contract
logistics services. Rail transportation services are provided principally
throughout the eastern United States and accounted for slightly more than half
of the company's 1999 operating revenue. Intermodal services are provided
through a dedicated network of terminals and facilities across North America and
accounted for nearly 10% of operating revenue in 1999. Container-shipping
services were provided in the United States and more than 80 countries and
territories throughout the world and accounted for more than a third of 1999
operating revenue. In December 1999, CSX sold its international
container-shipping liner operations (see Note 4.), but continues to own and
operate its domestic container-shipping and terminal management businesses.
Contract logistics services are provided principally in the United States and
accounted for nearly 5% of the company's 1999 operating revenue.
Rail shipments include merchandise traffic, automobiles and related products,
and coal, coke and iron ore. Merchandise traffic comprised nearly 60% of rail
revenue in 1999, while automotive traffic accounted for nearly 15% and coal,
coke and iron ore accounted for slightly more than 25%. Merchandise traffic
includes chemicals, paper and forest products, agricultural products, minerals,
metals, phosphates and fertilizer, and food and consumer products. Coal
shipments originate principally from mining locations in the eastern United
States and primarily supply domestic utility and export markets.
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
CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 1999 consisted
of 53 weeks. Fiscal years 1998 and 1997 consisted of 52 weeks. A 52-week fiscal
year consists of four 13-week quarters; a 53-week year reports an extra week in
the first quarter.
Earnings Per Share
References to earnings per share in the Notes to Consolidated Financial
Statements assume dilution.
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.
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
All properties are stated at cost, less an allowance for accumulated
depreciation. Main-line track on the rail system is depreciated using a
composite straight-line method. All other property and equipment is depreciated
on a straight-line basis over estimated useful lives of three to 50 years.
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. For retirements or disposals of depreciable rail
assets that occur in the ordinary course of business, the asset cost (net of
salvage value or sales proceeds) is charged to accumulated depreciation and no
gain or loss is recognized. For retirements or disposals of depreciable assets
of non-rail businesses, and for all dispositions of land, gains or losses are
recognized at the time of disposal. 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.
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 and Expense Recognition
Surface transportation (rail and intermodal) revenue and expense are recognized
proportionately as freight moves from origin to destination. Marine
transportation (container-shipping) revenue and a corresponding accrual for the
estimated cost to complete delivery are recorded when cargo first sails from its
port of origin.
Environmental Costs
Environmental costs are charged to expense when they relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation. 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.
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 15 - Stock
Plans.
Prior-year Data
Certain prior-year data have been reclassified to conform to the 1999
presentation.
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.
Comprehensive Earnings
CSX reports comprehensive earnings (loss) in accordance with FASB Statement No.
130, "Reporting Comprehensive Income," in the Consolidated Statement of Changes
in Shareholders' Equity. Accumulated other comprehensive loss at Dec. 31, 1999
and Dec. 25, 1998, consists of minimum pension liability adjustments ($15
million and $114 million, respectively) and foreign currency translation
adjustments and other ($6 million and $6 million, respectively).
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 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. (Sea-Land),
the company's container-shipping unit. The assessments relate to employees who
have experienced second injuries over periods dating back to the 1970s and are
receiving a disability 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, 23
cents per share, 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. Investment in and Integrated Rail Operations with Conrail.
Background
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated rail operations over allocated portions of the
Conrail lines in June 1999.
The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999. Under these agreements, the railroads pay operating
fees to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads. The majority of Conrail's operations
workforce transferred to CSX or Norfolk Southern, although certain operations
personnel, as well as certain management and administrative employees, remain at
Conrail to oversee its ongoing business activities. As a result of the
acquisition, a number of positions were eliminated and certain duplicate
facilities were closed.
Note 3. Investment in and Integrated Rail Operations with Conrail (cont'd).
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 and
relocation costs for Conrail union employees, relocation costs for Conrail
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 initially recorded by the jointly owned entity and by CSX for separation
costs and other acquisition-related obligations were preliminary and were
adjusted 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.
<TABLE>
<CAPTION>
Conrail Financial Information
Summary financial information for Conrail for its fiscal years ended Dec. 31,
1999, 1998 and 1997 is as follows:
Years Ended Dec. 31, Dec. 31,
- --------------------------------------------------- -------------------
1999 1998 1997 1999 1998
- --------------------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <S> <C> <C>
Income Statement Information: Balance Sheet Information:
Revenues $2,174 $3,863 $3,765 Current Assets $ 669 $1,005
Income from Operations 128 515 322 Property and Equipment and Other Assets 7,714 8,039
Net Income 26 267 7 Total Assets 8,383 9,044
- --------------------------------------------------- Current Liabilities 863 1,207
Long-term Debt 1,302 1,609
Total Liabilities 4,564 5,244
Stockholders' Equity 3,819 3,800
--------------------------------------------------------------
</TABLE>
Conrail's operating results for 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
CSXand Norfolk Southern and consist principally of operating fees, equipment
rent, and shared area usage fees. The nature of Conrail's operating expenses
also has changed to reflect the new operations. In addition, Conrail's 1999
operating results included after-tax expenses of $121 million principally to
reflect the method of settlement of certain casualty liabilities based on the
agreement between CSX, Norfolk Southern and Conrail, to adjust certain
litigation and environmental reserves related to settlements and completion of
site reviews, and to reflect the assumption of a lease obligation by CSX.
Certain of 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.
Conrail's operating results for the years ended Dec. 31, 1998, and 1997 included
certain charges related to the acquisition. The 1998 charges totaled $187
million on an after-tax basis and reflected the accrual of separation costs for
non-union employees below the executive level. The 1997 charges totaled $363
million on an after-tax basis and reflected the accrual of separation costs for
Conrail executives, as well as the vesting of benefits under certain stock
compensation plans and the termination of Conrail's Employee Stock Ownership
Plan. The jointly owned entity accounted for these costs as part of the fair
value allocation and CSX accordingly excluded them in determining its equity in
Conrail's net income. Excluding the charges, Conrail's net income totaled $454
million for the year ended Dec. 31, 1998, and $370 million for the year ended
Dec. 31, 1997.
CSX's Accounting for its Investment in and Integrated Rail Operations with
Conrail
Upon integration, substantially all of Conrail's customer freight
contracts were assumed by CSXand 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 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 CSXand 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.
As previously outlined, CSX and Norfolk Southern completed the joint acquisition
of Conrail in May 1997. At that time, CSX's economic interest in Conrail
increased to 42% from approximately 20%. Had CSX held its 42% interest in
Conrail from the beginning of the fiscal year, its net earnings for the year
ended Dec. 26, 1997, would have been reduced by $28 million to $771 million,
$3.60 per share, reflecting additional amounts for equity in Conrail's net
income, amortization of the fair value write-up, and interest on the acquisition
debt.
Transactions With Conrail
The agreement under which CSX operates its allocated portion of the Conrail
route system has an initial term of 25 years and may be renewed at CSX's option
for two five-year terms. Operating fees paid to Conrail under the agreement are
subject to adjustment every six years based on the fair value of the underlying
system. Lease agreements for the Conrail equipment operated by CSX cover varying
terms. CSX is responsible for all costs of operating, maintaining, and improving
the routes and equipment under these agreements. Future minimum payments to
Conrail under the operating, equipment and shared area agreements total $247
million for 2000, $240 million for 2001, $248 million for 2002, $256 million for
2003, $261 million for 2004, and $4.4 billion for years after 2004.
At Dec. 31, 1999, CSX had $53 million in amounts receivable from Conrail,
principally for reimbursement of certain capital improvement costs and accrued
vacation for former Conrail employees who joined CSX in June 1999. CSX has
recorded a corresponding vacation liability and will pay the employees as they
take vacation. Conrail advances its available cash balances to CSX and Norfolk
Southern under variable-rate demand loan agreements. At Dec. 31, 1999, Conrail
had advanced $93 million to CSX under this arrangement at an interest rate of
5.6%. CSX also had amounts payable to Conrail of approximately $105 million
representing expenses incurred under the operating, equipment, and shared area
agreements.
Note 4. Divestitures and Joint Venture Investment.
Sale of International Container-Shipping Assets
In July 1999, CSX entered into an agreement to sell certain assets comprising
the international liner business of Sea-Land to A. P. Moller-Maersk Line
(Maersk) for approximately $800 million, subject to certain purchase price
adjustments that depended on a detailed allocation and valuation of certain
categories of assets. The transaction, which also involved Maersk assuming in
excess of $800 million present value of Sea-Land operating lease obligations,
closed on Dec. 10, 1999.
The international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue. In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business. The operating revenue
associated with the assets sold was approximately $2.8 billion for 1999, $3.0
billion in 1998, and $3.2 billion in 1997.
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," CSX classified
the international liner assets as "held for sale" in July when the agreement
with Maersk was signed. 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 was recorded on these assets after their classification as "held
for sale." Based on subsequent accounting for the completed transaction,
including adjustments to reflect asset allocations agreed to at closing, the
company determined that the loss on sale was approximately $86 million higher
than the third quarter charge. The final loss on sale of $401 million, net of a
$41 million benefit from the lower depreciation expense, reduced 1999 earnings
by $360 million, $271 million after tax, $1.27 per share. The agreement with
Maersk provides for a post-closing adjustment to the sales price based on the
final amount of working capital conveyed, and the loss includes estimates of
costs to terminate various contractual obligations of the company. These matters
are expected to be resolved in fiscal 2000 and will affect the final
determination of the loss on sale. Net of purchase price adjustments and cash
balances conveyed to Maersk at closing, the company received cash proceeds of
$751 million on the sale. Through Dec. 31, 1999, a portion of the proceeds was
used to reduce short-term debt, with the remainder invested in cash equivalents
and short-term investments.
CSX retained the container-shipping business serving the U.S. domestic trade and
part of the company's international terminal operations and will manage them
separately. Management reporting and performance measures for these businesses
have been developed for fiscal year 2000. 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; however, it will not be practicable to
provide comparative segment disclosures for prior years.
Sale of Grand Teton Lodge Subsidiary
In June 1999, CSX completed the sale of its Grand Teton Lodge resort subsidiary,
located in Jackson Hole, Wyo., to Vail Resorts. The transaction resulted in a
net investment gain of $27 million, $17 million after tax, 8 cents per share.
CSX received net cash proceeds of $49 million.
Conveyance of Barge Subsidiary to Joint Venture
On June 30, 1998, CSX conveyed its wholly owned barge subsidiary, American
Commercial Lines LLC (ACL), to a venture formed with Vectura Group Inc.
(Vectura). As part of the transaction, NMI Holdings LLC, a wholly owned barge
subsidiary of Vectura, was combined with ACL. CSX received cash proceeds of $695
million from the transaction, $67 million of which were used to repay certain
outstanding debt and other obligations of ACL and to pay expenses of the
transaction. Operating results for the year ended Dec. 25, 1998, include a net
investment gain of $154 million, $90 million after tax, 42 cents per share,
primarily from the ACL transaction.
Note 4. Divestitures and Joint Venture Investment (cont'd).
Conveyance of Barge Subsidiary to Joint Venture (cont'd)
CSX has a 32% common ownership in the new venture. Due to the reduction in its
ownership interest, CSX has accounted for its investment in the venture under
the equity method for the fiscal years ended Dec. 25, 1998 and Dec 31, 1999. For
periods prior to fiscal year 1998, ACL was accounted for as a consolidated
subsidiary.
Note 5. Workforce Reduction Program.
CSX recorded a charge of $55 million, $34 million after tax, 16 cents per share,
in the fourth quarter of 1999 to recognize the cost of a program to reduce the
non-union workforce at its rail and intermodal units by approximately 800
positions. A voluntary early retirement program completed in December accounted
for approximately 680 of the position reductions, with the remainder achieved
through a combination of involuntary terminations and normal attrition.
Approximately 75% of the retirements and separations occurred by the end of the
year, with the remainder scheduled to occur over the first half of fiscal year
2000 as their job responsibilities are reorganized or transitioned to other
personnel. Early retirement benefits offered under the voluntary program
accounted for $24 million of the charge and will be paid from CSX's pension and
postretirement benefit plans. Separation benefits are being paid from cash
generated by operations. Approximately half of the separation benefits were paid
in 1999. Substantially all of the remaining amounts will be paid in fiscal year
2000 and are included in "Labor and Fringe Benefits Payable" in the consolidated
statement of financial position.
<TABLE>
<CAPTION>
Note 6. Operating Expense.
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Labor and Fringe Benefits $3,471 $3,140 $3,226
Materials, Supplies and Other 2,662 2,487 2,511
Conrail Operating Fee, Rent and Services 280 -- --
Building and Equipment Rent 1,211 1,102 1,111
Inland Transportation 1,044 996 1,003
Depreciation 595 609 620
Fuel 484 404 567
Loss on Sale of International Container-Shipping Assets 401 -- --
Workforce Reduction Program 55 -- --
Restructuring Credit -- (30) --
-----------------------------
Total $10,203 $8,708 $9,038
-----------------------------
Selling, General and Administrative Expense Included in Above Items $1,098 $1,165 $1,106
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Note 7. Other Income.
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income $ 47 $ 52 $ 53
Income from Real Estate and Resort Operations(a) 74 47 71
Net Investment Gain(b) 27 154 --
Net Losses from Accounts Receivable Sold (31) (30) (29)
Minority Interest (40) (35) (41)
Net Income (Loss) from Investment in Conrail (42) (39) 34
Equity Earnings of Other Affiliates 17 27 6
Foreign Currency Loss (4) (16) (1)
Miscellaneous 4 (41) (42)
--------------------------
Total $ 52 $119 $51
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Gross revenue from real estate and resort operations was $204 million, $194
million and $206 million in 1999, 1998 and 1997, respectively.
(b)The $27 million net investment gain recognized in 1999 was attributable to
the sale of the Grand Teton Lodge Company. The $154 million net gain in 1998
was primarily attributable to the conveyance of the company's barge
subsidiary to a joint venture. See Note 4.
Note 8. Income Taxes.
Earnings from domestic and foreign operations and related income tax expense are
as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
Earnings Before Income Taxes:
-- Domestic $ 82 $564 $ 987
-- Foreign 57 209 196
---------------------------
Total Earnings Before Income Taxes $ 139 $773 $1,183
- ------------------------------------------------------------------------------
Income Tax Expense (Benefit):
Current -- Federal $ 76 $ (93) $ 143
-- Foreign 31 38 35
-- State 3 (5) 16
----------------------------
Total Current 110 (60) 194
----------------------------
Deferred -- Federal (77) 260 168
-- Foreign 4 2 1
-- State 51 34 21
----------------------------
Total Deferred (22) 296 190
----------------------------
Total Income Tax Expense $ 88 $236 $ 384
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income tax expense reconciled to the tax computed at statutory rates is as
follows:
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at Statutory Rates $49 35% $271 35% $414 35%
State Income Taxes 7 5 19 2 24 2
Equity in Conrail Net Income (4) (3) (49) (6) (30) (2)
Loss on Sale of International Container-Shipping Assets 43 31 -- -- -- --
Other Items (7) (5) (5) -- (24) (2)
-----------------------------------------------------
Income Tax Expense $88 63% $236 31% $384 33%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred tax assets and liabilities include:
Dec. 31, 1999 Dec. 25, 1998
- -----------------------------------------------------------------------------
Deferred Tax Assets:
Productivity/Restructuring Charges $ 133 $ 139
Employee Benefit Plans 309 406
Other 502 527
---------------------------
Total 944 1,072
---------------------------
Deferred Tax Liabilities:
Accelerated Depreciation 3,256 3,334
Other 780 783
---------------------------
Total 4,036 4,117
- -----------------------------------------------------------------------------
Net Deferred Tax Liabilities $3,092 $3,045
- -----------------------------------------------------------------------------
The sale of certain assets comprising the international liner business of
Sea-Land (Note 4.) increased the effective deferred state income tax rate which
is applied to the company's cumulative temporary differences.
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 1999 and 1998, the
income tax effect of the transfer of certain assets and obligations from
Conrail's primary defined benefit pension plan to the CSX pension plan in 1999,
and the income tax effect of accruing assessments related to workers
compensation second injury funds in accordance with SOPNo. 97-3 in 1999.
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 $172 million
and $205 million at Dec. 31, 1999 and Dec. 25, 1998, 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 1996 are
currently under examination. Management believes adequate provision has been
made for any adjustments that might be assessed.
Note 9. 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. In June 1998, the company replaced an expiring securitization program
with a new program and reduced the amount of receivables sold under the conduit
programs. At Dec. 31, 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 Dec. 31, 1999 and Dec. 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. Losses recognized on
the sale of accounts receivable totaled $31 million, $30 million, and $29
million in 1999, 1998 and 1997, 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.
The company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable, including receivables transferred to the
master trust. Allowances for doubtful accounts of $81 million and $92 million
have been applied as a reduction of accounts receivable at Dec. 31, 1999 and
Dec. 25, 1998, respectively.
Note 10. Properties.
<TABLE>
<CAPTION>
Dec. 31, 1999 Dec. 25, 1998
---------------------------------------------------------------
Accumulated Accumulated
Cost Depreciation Net Cost Depreciation Net
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rail:
Road $10,534 $2,641 $ 7,893 $10,202 $2,745 $ 7,457
Equipment 5,243 1,983 3,260 4,762 1,806 2,956
---------------------------------------------------------------
Total Rail 15,777 4,624 11,153 14,964 4,551 10,413
Container-shipping 600 339 261 2,662 1,204 1,458
Other 1,149 306 843 1,052 278 774
---------------------------------------------------------------
Total $17,526 $5,269 $12,257 $18,678 $6,033 $12,645
- -------------------------------------------------------------------------------------------------------
</TABLE>
Note 11. Casualty, Environmental and Other Reserves.
<TABLE>
<CAPTION>
Activity related to casualty, environmental and other reserves is as follows:
Casualty and Environmental Separation
Other Reserves(a)(b) Reserves(a) Liabilities(a)(c) Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Dec. 27, 1996 $ 534 $117 $ 370 $1,021
Charged to Expense 277 12 -- 289
Payments (249) (30) (22) (301)
- ------------------------------------------------------------------------------------------------------
Balance Dec. 26, 1997 562 99 348 1,009
Charged to Expense 309 3 -- 312
Restructuring Credit -- -- (30) (30)
Payments and Other Reductions (318) (27) (18) (363)
- ------------------------------------------------------------------------------------------------------
Balance Dec. 25, 1998 553 75 300 928
Charged to Expense 417 3 -- 420
Cumulative Effect of Accounting Change 78 -- -- 78
Payments and Other Reductions (333) (25) (30) (388)
- ------------------------------------------------------------------------------------------------------
Balance Dec. 31, 1999 $ 715 $ 53 $ 270 $1,038
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a)Balances include current portions of casualty and other, environmental
and separation reserves, respectively, of $236 million, $20 million and $15
million at Dec. 31, 1999; $244 million, $20 million and $19 million at Dec.
25, 1998; $245 million, $20 million and $33 million at Dec. 26, 1997.
(b)Casualty reserves are estimated based upon the first reporting of an
accident or personal injury. Liabilities for accidents are based upon field
reports and liabilities for personal injuries and occupational claims are
based upon the type and severity of the injury or claim and the use of
current trends and historical data. The company has recorded liabilities in
sufficient amounts to cover identified claims and an estimate of incurred,
but not reported, claims. Future liabilities for certain occupational hazards
are not subject to reasonable estimation.
(c)Separation liabilities at Dec. 31, 1999, relate to productivity charges
recorded in 1991 and 1992 to provide for the estimated costs of implementing
workforce 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 15 to 20 years. The remaining liability
for separation costs incurred in connection with the 1999 workforce reduction
program is included in "Labor and Fringe Benefits Payable" (see Note 5).
The company increased casualty and other reserves by $78 million at the
beginning of fiscal year 1999 to record the cumulative effect on prior years of
adopting a new accounting rule (SOP No. 97-3) related to assessments by workers'
compensation second injury funds. The assessments relate to disability benefits
received by former employees of Sea-Land and previously were charged to expense
in the fiscal year they were paid.
During 1998, CSXT recorded a restructuring credit of $30 million, reflecting the
reversal of certain separation and labor protection reserves established as part
of a 1995 restructuring charge. These reserves were associated with planned
workforce reductions that did not occur as a result of a new telecommunications
contract CSXTentered into in July 1998.
<TABLE>
Note 12. Debt and Credit Agreements.
<CAPTION>
Average Interest Rates
Types and Maturity Dates at Dec. 31, 1999 Dec. 31, 1999 Dec. 25, 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper 5.39% $ 800 $1,000
Notes (2002-2032) 7.53% 4,558 4,560
Equipment Obligations (2000-2014) 6.88% 940 770
Mortgage Bonds (2002-2003) 3.16% 56 72
Other Obligations, including Capital Leases (2000-2010) 7.34% 191 130
--------------------------------------------
Total 7.13% 6,545 6,532
Less Debt Due Within One Year 349 100
--------------------------
Total Long-term Debt $6,196 $6,432
- -------------------------------------------------------------------------------------------------------
</TABLE>
CSX maintains a $2.5 billion bank credit agreement to provide financing for a
portion of the Conrail acquisition and for general working capital needs. 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. 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 disposition of certain assets.
At Dec. 31, 1999, CSX had commercial paper borrowings supported by the credit
facility of $1.374 billion, of which $800 million was classified as long-term
debt based on the company's ability and intent to maintain this debt outstanding
for more than one year. At Dec. 26, 1998, the company had commercial paper
borrowings of $1.187 billion, of which $1 billion was classified as long-term
debt. Short-term debt totaled $574 million at a weighted-average interest rate
of 5.39% at Dec. 31, 1999, and $187 million at a weighted-average interest rate
of 5.82% at Dec. 25, 1998.
CSX issued other debt during 1999 and 1998. In 1999, $400 million of floating
rate notes with a one-year maturity were issued to ensure adequate liquidity
over year end in the event that financial markets experienced disruption from
Year 2000 issues. In 1998, the company issued approximately $1 billion of fixed
rate notes, principally to refinance commercial paper borrowings incurred to
complete the Conrail acquisition. The notes have maturities ranging from 2001 to
2028 and interest rates ranging from 5.85% to 6.80%. In addition to these
financings, the company had customary borrowing and repayment activity in
connection with the acquisition of equipment.
In January 1999, CSX completed a shelf registration statement with the
Securities and Exchange Commission that provides for the issuance of up to $800
million in debt securities and warrants, common stock, preferred stock,
depository shares, or warrants for common or preferred stock. At Dec. 31, 1999,
the company had $400 million of capacity remaining under the shelf registration.
Excluding long-term commercial paper, the company has long-term debt maturities
for 2000 through 2004 aggregating $349 million, $157 million, $584 million, $314
million and $391 million, respectively. Certain of CSX's rail unit properties
are pledged as security for various rail-related long-term debt issues.
Note 13. 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. At Dec. 31, 1999, common shares issued and outstanding totaled
218,444,959.
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. 31, 1999.
On May 29, 1998, the board of directors adopted a Shareholder Rights Plan.
Pursuant to the Plan, 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, 2008, or the
redemption of the rights, one one-hundredth of a share of Series B preferred
stock at an exercise price of $180, 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 business days following the public
announcement that a person or affiliated group has acquired 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 15%
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 14. Earnings Per Share.
<TABLE>
<CAPTION>
The following table sets forth the computation of earnings per share and
earnings per share, assuming dilution.
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net Earnings $ 2 $ 537 $ 799
Denominator (thousands):
Average Common Shares Outstanding 210,616 210,860 209,979
Effect of Potentially Dilutive Common Shares, Principally Employee Stock Plans 2,080 3,336 4,466
------------------------------------
Average Common Shares Outstanding, Assuming Dilution 212,696 214,196 214,445
------------------------------------
Earnings Per Share $ .01 $ 2.55 $ 3.80
------------------------------------
Earnings Per Share, Assuming Dilution $ .01 $ 2.51 $ 3.72
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain potentially dilutive securities outstanding at Dec. 31, 1999, Dec. 25,
1998, and Dec. 26, 1997, 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 their effect is
antidilutive. These shares totaled 15.60 million at a weighted-average exercise
price of $45.80 per share for 1999, 9.60 million at $48.84 per share for 1998,
and 1.96 million at $57.00 for 1997.
Note 15. 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. Expense
for stock-based compensation under these plans is based on the intrinsic value
accounted for under the principles of APB Opinion No. 25 and related
Interpretations. The company recognized compensation expense of $6 million in
1999, a net credit of $4 million in 1998, and expense of $66 million in 1997.
Had compensation expense been determined
Note 15. Stock Plans (cont'd).
based upon fair values at the date of grant, 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.
1999 1998 1997
- --------------------------------------------------------------------------------
Net Earnings -- As Reported $ 2 $ 537 $ 799
-- Pro Forma $ (22) $ 481 $ 791
Earnings Per Share -- As Reported $ .01 $2.55 $3.80
-- Pro Forma $(.11) $2.28 $3.77
Earnings Per Share, Assuming Dilution -- As Reported $ .01 $2.51 $3.72
-- Pro Forma $(.11) $2.24 $3.69
- --------------------------------------------------------------------------------
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 1999, 1998 and 1997 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 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. A total of 9 million shares are reserved for issuance
under the Plan.
In consideration for 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 Plan. The remaining purchase price is in
the form of non-recourse loans secured by the shares issued. At Dec. 31, 1999
and Dec. 25, 1998, loans outstanding totaled $261 million and $275 million,
respectively, at weighted-average interest rates of 6.6% for both years. All
non-recourse loans under the Plan were originally subject to certain adjustments
after a vesting period based upon targeted increases in the market price of CSX
common stock. Certain of the market price thresholds were met prior to 1998,
resulting in forgiveness of interest (net of dividends applied to interest) plus
a portion of the principal balances of the notes.
At Dec. 31, 1999, there were 143 participants in the Plan. Transactions
involving the Plan are as follows:
Shares
(000's) Average Price(a)
- --------------------------------------------------------------------------
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
Exchanged, Canceled or Withdrawn (503) $45.13
--------------------------
Outstanding at Dec. 25, 1998 7,165 $45.75
Exchanged, Canceled or Withdrawn (349) $47.50
--------------------------
Outstanding at Dec. 31, 1999 6,816 $46.93
- --------------------------------------------------------------------------
(a) Represents average cost to participants, net of cumulative note forgiveness.
There were no shares issued under the Stock Purchase and Loan Plan in 1999 or
1998. The weighted-average fair value benefit to participants for a share issued
under the Plan in 1997 was $19.82. This value was estimated as of the grant date
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 6.1%; dividend yield of 2.2%; volatility factor of
22.2%; and expected life of six years.
1987 Long-term Performance Stock Plan and 1990 Stock Award Plan
The CSX Corporation 1987 Long-term Performance Stock Plan and 1990 Stock Award
Plan provide for awards in the form of stock options, Stock Appreciation Rights
(SARs), Performance Share Awards (PSAs), Restricted Stock Awards (RSAs) and
Incentive Compensation Program shares (ICPs) to eligible officers and employees.
Awards granted under the Plans are determined by the board of directors based on
the financial performance of the company.
At Dec. 31, 1999, there were 3,243 current or former employees with outstanding
grants under the 1987 Plan. A total of 20,413,561 shares were reserved for
issuance, of which 1,465,331 were available for new grants. At Dec. 31, 1999,
there were 1,276,289 shares reserved for issuance under the 1990 Plan, of which
432,729 were available for new grants. The remaining shares are assigned to
outstanding stock options, SARs, RSAs 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. 31, 1999, Dec. 25, 1998, and Dec. 26, 1997, follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------
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 16,288 $41.73 16,171 $40.49 13,102 $35.82
Granted 3,226 $43.96 2,674 $48.43 4,182 $51.44
Exchanged, Canceled or Expired (521) $48.89 (1,505) $52.82 (31) $49.89
Exercised (683) $24.19 (1,052) $23.80 (1,082) $26.08
- ----------------------------------------------------------- ------------------------ ------------------------
Outstanding at End of Year 18,310 $42.57 16,288 $41.73 16,171 $40.49
- ----------------------------------------------------------- ------------------------ ------------------------
Exercisable at End of Year 10,038 $37.94 10,447 $36.96 9,911 $34.08
- ----------------------------------------------------------- ------------------------ ------------------------
Fair Value of Options Granted $10.92 $11.22 $12.25
- ----------------------------------------------------------- ------------------------ ------------------------
</TABLE>
On Dec. 14, 1998, 1,297,595 stock options granted in April 1998 at an exercise
price of $52.66 per share were exchanged for 1,038,076 new options at an
exercise price of $41.78 per share.
The following table summarizes information about stock options outstanding at
Dec. 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------
Number Weighted-average Number
Outstanding Remaining Weighted-average Exercisable Weighted-average
(000s) Contractual Life Exercise Price (000s) Exercise Price
------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$15 to $20 903 1.1 $19.18 903 $19.18
$30 to $39 4,590 3.4 $35.55 4,590 $35.55
$40 to $49 9,015 7.4 $43.64 3,941 $42.94
$50 to $57 3,802 7.1 $54.10 604 $51.43
- ------------------------------------------------------------ -----------------------------
Total 18,310 6.1 $42.57 10,038 $37.94
- -------------------------------------------------------------------------------------------
</TABLE>
The fair value of options granted in 1999, 1998 and 1997 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 1999, 1998 and 1997,
respectively: risk-free interest rates of 5.2%, 5.2% and 6.5%; volatility
factors of 24%, 23% and 21%; dividend yields of 2.6%, 2.4% and 2.2%; and
expected lives of 6 years, 5 years and 4.8 years.
Under the Plans, 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. 31, 1999, there
were 1,323,200 shares reserved for outstanding PSAs. In 1999, 1998 and 1997,
respectively, 256,000, 518,500, and 126,600 PSAs were granted to employees. The
weighted-average fair value of those shares was $41.52 for 1999, $52.00 for
1998, and $44.88 for 1997. In February 2000, the company's Board of Directors
approved a plan to discontinue grants of PSA's after 1999. In connection with
that plan, the final number of shares to be distributed under outstanding grants
was determined. These shares will be issued to participants in 2000.
During 1999, 500,000 shares were issued as RSAs to certain executives. The RSAs
vest over a three or four year employment period and are contingent on the
achievement of certain financial performance goals. The fair value of RSAs was
$45.48 as of the date of grant.
At Dec. 31, 1999, there were 56,024 SARs outstanding with a weighted-average
exercise price of $16.84. In 1999, 1998 and 1997, respectively, 130,116, 77,556
and 171,377 SARs were exercised at weighted-average exercise prices of $16.77,
$15.58 and $14.94. There were no grants of SARs in 1999, 1998 or 1997.
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. 31, 1999, there were
565,453 shares of common stock available for purchase under this Plan. Employees
purchased 38,989 shares in 1999, 37,403 shares in 1998 and 35,593 shares in 1997
under the plan at weighted-average market prices of $41.53, $46.63, and $51.94
for 1999, 1998 and 1997, 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. 31, 1999, there were
5,488,329 shares reserved for issuance under these Plans.
Note 15. Stock Plans (cont'd).
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 awards of stock or stock
options. In 1999, 13,000 stock options were granted with an exercise price of
$35.31. In 1998, 13,000 stock options were granted with an exercise price of
$41.25. 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. 31, 1999, there were 898,330 shares of common stock
reserved for issuance under this Plan.
Note 16. 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. 31, 1999, the fair value of long-term debt, including current maturities,
was $6.44 billion, compared with a carrying amount of $6.55 billion. At Dec. 25,
1998, the fair value of long-term debt, including current maturities, was $6.96
billion, compared with a carrying amount of $6.53 billion. The fair value of
long-term debt has been estimated using discounted cash flow analysis based upon
the company's current incremental borrowing rates for similar types of financing
arrangements.
Note 17. Employee Benefit 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. Plan
assets consist primarily of common stocks, corporate bonds and cash and cash
equivalents.
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 postretirement medical plans are
contributory, with retiree contributions adjusted annually. The life insurance
plan is non-contributory. The company's current policy is to fund the cost of
the postretirement medical and life insurance benefits on a pay-as-you-go basis,
as in prior years.
The company uses a plan year of Oct. 1 through Sept. 30 to value its pension and
postretirement plans on an actuarial basis.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Plan Year $1,615 $1,470 $315 $345
Service Cost 51 39 9 8
Interest Cost 102 98 20 21
Transfer of Benefit Obligations from Conrail Plan 42 -- -- --
Conveyance of Barge Subsidiary -- (85) -- (18)
Plan Participants' Contributions -- -- 4 4
Actuarial (Gain) Loss (170) 187 (3) (12)
Benefits Paid (100) (94) (37) (33)
--------------------------------------------
Benefit Obligation at End of Plan Year 1,540 1,615 308 315
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Plan Year 1,273 1,371 -- --
Actual Return on Plan Assets 155 54 -- --
Transfer of Assets from Conrail Plan 260 -- -- --
Conveyance of Barge Subsidiary -- (96) -- --
Employer Contributions 16 38 33 29
Plan Participants' Contributions -- -- 4 4
Benefits Paid (100) (94) (37) (33)
-------------------------------------------
Fair Value of Plan Assets at End of Plan Year 1,604 1,273 -- --
Funded Status 64 (342) (308) (315)
Unrecognized Actuarial Loss 29 352 23 26
Unrecognized Prior Service Cost 10 11 (2) (3)
Unrecognized Transition Obligation -- 1 -- --
Fourth Quarter Activity:
Special Termination Benefits - Workforce Reduction Program (23) -- (1) --
Employer Contributions to Pension Plans 5 2 -- --
Net Postretirement Benefits Paid -- -- 8 8
-------------------------------------------
Net Amount Recognized in Statement of Financial Position $ 85 $ 24 $(280) $(284)
- -----------------------------------------------------------------------------------------------------------
Amount Recognized in Statement of Financial Position Consists of:
Prepaid Benefit Cost $215 $ 7 $ -- $ --
Accrued Benefit Liability (161) (173) (280) (284)
Intangible Asset 7 11 -- --
Accumulated Other Comprehensive Loss 24 179 -- --
-------------------------------------------
Net Amount Recognized in Statement of Financial Position $85 $ 24 $(280) $(284)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average Assumptions:
Discount Rates:
Benefit Cost for Plan Year 6.50% 7.50% 6.50% 7.50%
Benefit Obligation at End of Plan Year 7.75% 6.50% 7.75% 6.50%
Rate of Compensation Increase 5.00% 5.00% 5.00% 5.00%
Expected Return on Plan Assets 9.50% 9.50% n/a n/a
- --------------------------------------------------------------------------------------------------------
</TABLE>
For plans with a projected benefit obligation in excess of plan assets at Dec.
31, 1999, the aggregate projected benefit obligation was $431 million and the
aggregate fair value of plan assets was $256 million. For plans with an
accumulated benefit obligation in excess of plan assets at Dec. 31, 1999, the
aggregate accumulated benefit obligation was $160 million and the aggregate fair
value of plan assets was $37 million.
The net postretirement benefit obligation was determined using the assumption
that the health care cost trend rate for medical plans was 8.5% for 1999-2000,
decreasing gradually to 5.5% by 2005 and remaining at that level thereafter. A
1% change in the assumed health care cost trend rate would have the following
effects:
1% 1%
Increase Decrease
--------------------
Effect on postretirement benefits service and interest cost $ 3 $ (2)
Effect on postretirement benefit obligation 19 (17)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-----------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost
Service Cost $ 51 $ 39 $ 40 $ 9 $ 8 $10
Interest Cost 102 98 98 20 21 25
Expected Return on Plan Assets (118) (101) (96) -- -- --
Amortization of Transition Obligation -- 6 5 -- -- --
Amortization of Prior Service Cost 1 1 -- (1) (4) (7)
Recognized Net Actuarial (Gain) Loss 22 12 13 -- (1) 2
-----------------------------------------------------
Net Periodic Benefit Cost 58 55 60 28 24 30
Special Termination Benefits - Workforce Reduction Program 23 -- -- 1 -- --
-----------------------------------------------------
Net Periodic Benefit Cost Including Special Termination Benefits $ 81 $ 55 $ 60 $29 $24 $30
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1999, certain assets and obligations of Conrail's primary defined benefit
pension plan were transferred to the pension plans of CSX and Norfolk Southern.
The CSX plan received $260 million of plan assets at fair value and assumed $42
million of benefit obligations.
In December 1999, pursuant to a workforce reduction initiative that offered a
retirement benefit enhancement to employees electing early retirement, the
company recorded a non-recurring charge that included $23 million of special
termination pension benefits and $1 million of special termination
postretirement benefits.
As a result of the workforce reduction initiative and the sale of assets
comprising the international liner business of Sea-Land, a significant number of
employees participating in pension and postretirement benefit plans sponsored by
CSX have terminated active employment and the plans have experienced a
curtailment. Because both curtailment events occurred after the Sept. 30, 1999
measurement date, the effect of the curtailment will not be recognized in the
company's financial statements until fiscal year 2000. CSX anticipates recording
a net pre-tax curtailment loss of approximately $2 million in the first quarter
of 2000.
The conveyance of CSX's barge subsidiary to a joint venture during 1998 included
various pension and postretirement benefit plans and reduced the related
obligations and assets in CSX's Consolidated Statement of Financial Position.
During 1999 and 1998, CSX recorded changes in its minimum pension liability.
These changes did not affect net earnings, but are a component of accumulated
other comprehensive loss on an after-tax basis. In 1999, the minimum pension
liability decreased by $158 million, principally due to the transfer of assets
from Conrail's pension plan and to higher interest rates, which increased the
discount applied to pension obligations. In 1998, the minimum pension liability
increased by $148 million due to lower interest rates, which reduced the
discount applied to pension obligations, and to a broad decline in U.S. stock
prices during the third quarter.
Other Plans
The company maintains savings plans for virtually all full-time salaried
employees and certain employees covered by collective bargaining agreements.
Expense associated with these plans was $28 million, $20 million, and $23
million for 1999, 1998 and 1997, respectively.
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. Total contributions of
$247 million, $235 million, and $238 million were made to these plans in 1999,
1998 and 1997, respectively.
Note 18. Commitments and Contingencies.
Lease Commitments
In addition to the agreements covering routes and equipment leased from Conrail
(See Note 3), the company leases equipment from other parties 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. 31, 1999,
minimum building and equipment rentals under these operating leases totaled
approximately $247 million for 2000, $238 million for 2001, $194 million for
2002, $197 million for 2003, $176 million for 2004, and $1 billion thereafter.
Rent expense on operating leases, exclusive of the Conrail agreements, totaled
$1.2 billion in 1999, $1.1 billion in 1998, and $1.2 billion in 1997. These
amounts include net daily rental charges on railroad operating equipment of $381
million, $258 million, and $239 million in 1999, 1998, and 1997, respectively.
Purchase Commitments
CSXT entered into agreements in 1998 and 1999 to purchase 140 locomotives. These
orders covered normal locomotive replacement needs as well as one-time
locomotive power requirements related to the integration of Conrail operations.
CSXT has taken delivery of 101 of the locomotives through Dec. 31, 1999. The
remaining 39 units are scheduled to be delivered in 2000.
Contingencies
Guarantees
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 not material to the company's results of operations
and financial position at Dec. 31, 1999. CSX also remains contingently liable
for certain lease obligations assumed by Maersk as part of its purchase of
Sea-Land's international liner business. CSX believes that Maersk will fulfill
its contractual commitments with respect to such leases and that CSX will have
no further liability for these obligations.
New Orleans Tank Car Fire
In September 1997, a state court jury in New Orleans, Louisiana returned a $2.5
billion punitive damages award against CSXT. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15% 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 Nov. 5,
1999, the trial court issued an opinion that granted CSXT's motion for judgment
notwithstanding the verdict and effectively reduced the amount of the punitive
damages verdict from $2.5 billion to $850 million. CSXT believes that this
amount (or any amount of punitive damages) is unwarranted and intends to pursue
its full appellate remedies with respect to the 1997 trial as well as the trial
judge's decision on the motion for judgment notwithstanding the verdict. The
compensatory damages awarded by the jury in the 1997 trial were also
substantially reduced by the trial judge. A judgment reflecting the $850 million
punitive award has been entered against CSXT. CSXT has obtained and posted an
appeal bond in the amount of $895 million, which will allow it to appeal the
1997 compensatory and punitive awards, as reduced by the trial judge.
A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of 18 of those 20 plaintiffs. Two
plaintiffs received nothing; that is, the jury found that they had not proved
any damages. Management believes that this result, while still excessive,
supports CSXT's contention that the punitive damages award was unwarranted.
CSXT continues to pursue an aggressive legal strategy. Management believes that
an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
financial position, although it could be material to results of operations in
a particular quarterly accounting period.
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 115 environmentally impaired sites that
are or may be subject to remedial action under the Federal Superfund statute
(Superfund) or similar state statutes. A number of these proceedings are based
on allegations that CSXT, or its railroad predecessors, sent hazardous
substances to the facilities in question for disposal. Such proceedings arising
under Superfund or similar state statutes can involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.
CSXT is involved in a number of administrative and judicial proceedings and
other clean-up efforts at 243 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.
At least once each quarter, CSXT reviews its role, if any, with respect to each
such location, giving consideration to the nature of CSXT's alleged connection
to the location (i.e., generator, owner or operator), the extent of CSXT's
alleged connection (i.e., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.
Based upon such reviews and updates of the sites with which it is involved, CSXT
has recorded, and reviews at least quarterly for adequacy, reserves to cover
estimated contingent future environmental costs with respect to such sites. The
recorded liabilities for estimated future environmental costs at Dec. 31, 1999
and Dec. 25, 1998, were $53 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
insurance recoveries. The majority of the Dec. 31, 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 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
environmental investigations, lawsuits and claims against the company cannot be
predicted with certainty, management does not currently expect that resolution
of these matters will have a material adverse effect on CSX's consolidated
financial position, results of operations or cash flows. The company is also
party to a number of actions, the resolution of which could result in gain
realization in amounts that could be material to results of operations in the
quarter received.
Note 19. 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 more than 23,400 route miles in 23 states, the
District of Columbia and two Canadian provinces. The intermodal segment provides
transcontinental intermodal transportation services and operates a network of
dedicated intermodal facilities across North America. Prior to the sale of its
international liner operations in December 1999 (see Note 4), the
container-shipping segment provided global transportation services via a fleet
of 91 container ships and 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.
The company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as income from operations, excluding the effects of
non-recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1). Intersegment sales and transfers are generally accounted for as if the sales
or transfers were to third parties, that is, at current market prices.
Business segment information for fiscal years 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Surface Transportation
- ------------------------------------------------------------ Container Contract
Fiscal year ended Dec. 31, 1999 Rail Intermodal Total Shipping Logistics Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from External Customers $ 5,623 $943 $ 6,566 $3,809 $436 -- $10,811
Intersegment Revenue -- 16 16 -- 48 -- 64
Operating Income 823 84 907 149 34 -- 1,090
Assets 12,985 401 13,386 1,290 188 -- 14,864
Depreciation Expense 469 24 493 90 12 -- 595
Property Additions 1,298 63 1,361 86 20 -- 1,467
- --------------------------------------------------------------------------------------------------------
</TABLE>
Note 19. Business Segments (cont'd).
<TABLE>
<CAPTION>
Surface Transportation
- ----------------------------------------------------------- Container Contract
Fiscal year ended Dec. 25, 1998 Rail Intermodal Total Shipping Logistics Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from External Customers $ 4,956 $618 $ 5,574 $3,916 $378 -- $ 9,868
Intersegment Revenue -- 30 30 -- 30 -- 60
Operating Income 1,001 33 1,034 133 29 -- 1,196
Assets 11,897 217 12,114 2,453 144 -- 14,711
Depreciation Expense 450 18 468 130 11 -- 609
Property Additions 1,212 99 1,311 54 17 -- 1,382
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Surface Transportation
- ----------------------------------------------------------- Container Contract
Fiscal year ended Dec. 26, 1997 Rail Intermodal Total Shipping Logistics Other(a) Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from External Customers $ 4,989 $634 $ 5,623 $3,991 $389 $618 $10,621
Intersegment Revenue -- 35 35 -- -- -- 35
Operating Income 1,229 46 1,275 278 24 69 1,646
Assets 11,403 218 11,621 2,576 129 626 14,952
Depreciation Expense 429 14 443 128 10 39 620
Property Additions 712 32 744 251 13 52 1,060
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Other includes the company's barge operations, which were conveyed to a
joint venture in 1998 and are no longer a consolidated activity (see Note 4).
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>
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
Revenue:
Revenue from External Customers for Business Segments $10,811 $ 9,868 $10,621
Intersegment Revenue for Business Segments 64 60 35
Elimination of Intersegment Revenue (64) (60) (35)
---------------------------------
Total Consolidated Revenue $10,811 $ 9,868 $10,621
- -------------------------------------------------------------------------------------------
Operating Income:
Operating Income for Business Segments $ 1,090 $ 1,196 $ 1,646
Reclassification of Intercompany Interest Income (61) (62) (63)
Loss on Sale, Net of Depreciation Benefit (360) -- --
Workforce Reduction Program (55) -- --
Restructuring Credit -- 30 --
Unallocated Corporate Expenses (6) (4) --
---------------------------------
Total Consolidated Operating Income $ 608 $ 1,160 $ 1,583
- -------------------------------------------------------------------------------------------
Assets:
Assets for Business Segments $14,864 $14,711 $14,952
Investment in Conrail 4,663 4,798 4,244
Elimination of Intercompany Receivables (32) (36) (33)
Non-segment Assets(b) 1,225 954 794
---------------------------------
Total Consolidated Assets $20,720 $20,427 $19,957
- -------------------------------------------------------------------------------------------
Depreciation Expense:
Depreciation Expense for Business Segments $ 595 $ 609 $ 620
Non-segment Depreciation(b) 26 21 26
---------------------------------
Total Consolidated Depreciation Expense $ 621 $ 630 $ 646
- -------------------------------------------------------------------------------------------
Property Additions:
Property Additions for Business Segments $ 1,467 $ 1,382 $ 1,060
Non-segment Property Additions(b) 50 97 65
---------------------------------
Total Consolidated Property Additions $ 1,517 $ 1,479 $ 1,125
- -------------------------------------------------------------------------------------------
</TABLE>
(b)Non-segment assets include corporate cash and cash equivalents and assets of
non-transportation businesses. Non-segment depreciation and property
additions are primarily attributable to non-transportation businesses.
Principal non-transportation businesses include real estate and resort
operations and information technology subsidiaries serving multiple segments.
Included in the consolidated financial statements are the following amounts
related to geographic locations:
1999 1998 1997
- -----------------------------------------------------------------------
Revenues:(c)
United States $ 8,498 $7,564 $ 8,272
Asia 1,378 1,239 1,188
Europe 516 668 721
Other 419 397 440
------------------------------
Total Consolidated Revenues $10,811 $9,868 $10,621
- -----------------------------------------------------------------------
(c)Revenues are attributed to geographic locations based on port of origin for
container-shipping operations and the location of the service provided for
all other operations.
More than 95% of the company's long-lived assets are located in the United
States. The company does not have a single external customer that represents 10%
or more of its consolidated revenue.
Note 20. 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. CSXhas 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). The ships were not included in the
sale of international liner assets to Maersk in December 1999 and the related
debt remains an obligation of Sea-Land. In accordance with SEC disclosure
requirements, summarized financial information for Sea-Land and its consolidated
subsidiaries is as follows:
Summary of Operations 1999(b) 1998 1997
- ---------------------------------------------------------------------------
Operating Revenue $3,809 $3,916 $3,991
Operating Expense
-- Public 3,970 3,708 3,634
-- Affiliated(a) 84 113 109
-----------------------------
Operating Income (Loss) (245) $ 95 $ 248
-----------------------------
Net Earnings (Loss) $ (326) $ (70) $ 56
- ---------------------------------------------------------------------------
Dec. 31, Dec. 25,
Summary of Financial Position 1999 1998
- -----------------------------------------------------------------
Current Assets -- Public $ 614 $ 597
-- Affiliated(a) 3 3
Other Assets -- Public 551 1,785
-- Affiliated(a) 122 67
Current Liabilities -- Public 310 607
-- Affiliated(a) 79 92
Other Liabilities -- Public 340 616
-- Affiliated(a) 381 627
Shareholder's Equity 180 510
- -----------------------------------------------------------------
(a)Amounts represent activity with CSX affiliated companies. Operating expense
includes certain intercompany amounts which are eliminated for business
segment reporting.
(b)In December 1999, Sea-Land sold the assets comprising its international
liner business. The company recorded a loss on the sale (net of a related
depreciation benefit) that reduced operating income by $360 million and net
earnings by $271 million. The operating revenue associated with the assets
sold was approximately $2.8 billion, $3.0 billion, and $3.2 billion in 1999,
1998, and 1997, respectively.
- --------------------------------------------------------------------------------
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 31, 1999 and December 25,
1998, 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 31, 1999. 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 auditing standards generally accepted
in the United States. 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 present
fairly, in all material respects, the consolidated financial position of CSX
Corporation and subsidiaries at December 31, 1999 and December 25, 1998, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 2 to the Consolidated Financial Statements, in 1999 the
company changed its method of accounting for insurance-related assessments.
/s/ERNST & YOUNG LLP
Richmond, Virginia
February 9, 2000
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]
CSXDirectInvest SM
Harris Trust Dividend Reinvestment Department
P. O. Box A3309
Chicago, IL 60690-3309
(800) 521-5571
www.csx.com/aboutus/shareholder/directinvest
Shareholder Relations
Karen L. Kennedy
Administrator-Shareholder Services
CSX Corporation
P. O. Box 85629
Richmond, VA 23285-5629
(804) 782-1465
e-mail: [email protected]
Corporate Communications
Elisabeth J. Gabrynowicz
Director-Corporate Communications
CSX Corporation
P. O. Box 85629
Richmond, VA 23285-5629
(804) 782-6775
e-mail: [email protected]
Investor Relations
Joseph C. Wilkinson
Assistant Vice President-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.
CSXDirectInvest SM permits the purchase and sale of shares directly though
Harris Trust, our transfer agent. 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. You do not need to own shares of CSX
stock to enroll in this plan. However, if you are a current shareholder, the
initial investment and enrollment fee are waived. Other benefits of
CSXDirectInvest SM include the ability to:
- - Reinvest dividends automatically 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.
- - Make optional cash investments with as little as $50 per month, or up to
$10,000 per month, without any charges or commissions.
- - Make gifts of CSX shares to others through the plan, and present them with
a gift memento if desired.
To obtain a prospectus or other information regarding CSXDirectInvest SM, please
call or write the Harris Trust Dividend Reinvestment Department at the phone
number or address above. Or, if you prefer, please visit our web site at
http://www.csx.com/aboutus/shareholder/directinvest.
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 shareholders holding 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 (see above). You will
receive dividend payments, annual reports and proxy materials through your
broker. Please notify your broker, not Harris Trust, if you wish to eliminate
unwanted, duplicate mailings.
Lost or Stolen Stock Certificates
If your stock certificates are lost, stolen or in some way destroyed, 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.
Consolidating Accounts
If you want to consolidate separate accounts into one account, 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 offers direct
deposit of dividends to shareholders that request it. If you are interested,
please contact Harris Trust at the address or phone number shown above.
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, notify Harris Trust so
payment can be stopped and a replacement check issued.
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 are authorized, of which
218,444,959 shares were outstanding as of Dec. 31, 1999. Each share is entitled
to one vote in all matters requiring a vote of shareholders. There are no
pre-emptive rights. At Dec. 31, 1999, there were 42,269 registered common stock
shareholders.
A total of 25 million shares of preferred stock are 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 when the
rights distributed to holders of common stock under the Shareholder Rights Plan
adopted by CSX on May 29, 1998, become exercisable.
Annual Shareholder Meeting
10 a.m., Thursday, April 27, 2000
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 2000 are
scheduled for:
Easter - April 20-23
Annual Meeting - April 26-28
Memorial Day - May 26-30
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 2000, 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.
Form 10-K
A copy of the company's annual report to the Securities and Exchange
Commission (Form 10-K) will be furnished without charge to any shareholder upon
written request to Shareholder Relations, CSX Corporation, P. O. Box 85269,
Richmond, Va. 23285-5629. The Form 10-K also is available on the company's web
site at www.csx.com.
Quarterly Financial Data (Unaudited)
Year 1999
----------------------------------
Quarter 1st 2nd 3rd 4th
- ------------------------------------------------------------------
Operating Revenue $2,541 $2,616 $2,906 $2,748
Operating Income $ 276 $ 274 $ 18 $ 40
Net Earnings before
Cumulative Effect of
Accounting Change $ 75 $ 114 $(113) $ (25)
Net Earnings $ 26 $ 114 $(113) $ (25)
Earnings Per Share:
Before Cumulative Effect
of Accounting Change $ .36 $ .54 $(.54) $ (.12)
Including Cumulative Effect
of Accounting Change $ .12 $ .54 $(.54) $ (.12)
Earnings Per Share,
Assuming Dilution:
Before Cumulative Effect
of Accounting Change $ .36 $ .53 $(.54) $ (.12)
Including Cumulative Effect
of Accounting Change $ .12 $ .53 $(.54) $ (.12)
Dividends Per Share $ .30 $ .30 $ .30 $ .30
Market Price
High $45.50 $53.94 $51.63 $43.56
Low $36.00 $36.81 $41.44 $28.81
- -------------------------------------------------------------------
Year 1998
------------------------------------
Quarter 1st 2nd 3rd 4th
- -------------------------------------------------------------------
Operating Revenue $2,462 $2,490 $2,429 $2,487
Operating Income $ 278 $ 336 $ 270 $ 276
Net Earnings $ 91 $ 151 $ 187 $ 108
Earnings Per Share $ .43 $ .71 $ .89 $ .52
Earnings Per Share,
Assuming Dilution $ .42 $ .70 $ .88 $ .51
Dividends Per Share $ .30 $ .30 $ .30 $ .30
Market Price
High $60.31 $60.75 $46.94 $46.81
Low $49.25 $44.88 $36.50 $37.63
- -------------------------------------------------------------------
(a)First quarter 1999 consists of 14 weeks; all other quarters presented consist
of 13 weeks.
(b)Third and fourth quarters of 1999 reflect pretax charges of $298 million and
$62 million, respectively, to recognize a loss on the sale of international
container-shipping assets, net of a benefit from discontinuing depreciation
on those assets from the date of the agreement to sell. The charges reduced
net earnings by $236 million, $1.11 per share, and $35 million, 16 cents per
share, in the respective quarters.
(c)Fourth quarter 1999 includes a $55 million pretax charge for a work-force
reduction program. The charge reduced net earnings by $34 million, 16 cents
per share.
(d)Second quarter 1999 includes a pretax gain of $27 million on the sale of the
company's Grand Teton Lodge resort subsidiary. The gain increased net
earnings by $17 million, 8 cents per share.
(e)First quarter 1999 includes a $49 million after-tax charge to recognize the
cumulative effect on prior years of adopting a new accounting rule related to
workers' compensation second injury fund assessments. The charge reduced
earnings per share for the quarter by 24 cents.
(f)Third quarter 1998 includes a pretax net investment gain of $154 million,
principally from the conveyance of the company's barge subsidiary to a joint
venture, and a restructuring credit of $30 million. On a combined basis,
these items increased net earnings by $109 million, 51 cents per share.
Shares Outstanding as of Jan. 28, 2000: 218,410,759
Common Stock Shareholders as of Jan. 28, 2000: 49,111
Board of Directors and Officers
Board of Directors
Elizabeth E. Bailey(1,2,5)
John C. Hower Professor of Public Policy
and Management, The Wharton School,
University of Pennsylvania, Philadelphia, Pa.
H. Furlong Baldwin(2)
Chairman, President & CEO
Mercantile Bankshares Corporation, Baltimore, Md.
Claude S. Brinegar(5)
Retired Chief Financial Officer and
Vice Chairman
Unocal Corp., Menlo Park, Calif.
Robert L. Burrus Jr.(4,5)
Partner and Chairman
McGuire, Woods, Battle & Boothe LLP, Richmond, Va.
Bruce C. Gottwald(1,3,4)
Chairman and CEO
Ethyl Corporation, Richmond, Va.
John R. Hall(3,5)
Chairman of the Board of Directors
Bank One Corporation
Lexington, Ky.
E. Bradley Jones(4)
Consultant
Former Chairman and CEO
LTV Steel Company, Pepper Pike, Ohio
Robert D. Kunisch(3,5)
Senior Adviser and Former Vice Chairman
Cendant Corporation, Boca Grande, Fla.
James W. McGlothlin(2,4)
Chairman and CEO
The United Company, Bristol, Va.
Southwood J. Morcott(2,4)
Chairman of the Board
Dana Corporation, Toledo, Ohio
Charles E. Rice(1,3)
Vice Chairman Corporate Development
Bank of America, Jacksonville, Fla.
William C. Richardson(1,5)
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 - Nominating and
Organization
Corporate Officers
John W. Snow*
Chairman, President and CEO
Alvin R. (Pete) Carpenter*
Vice Chairman
Mark G. Aron*
Executive Vice President-Law and Public Affairs
Paul R. Goodwin*
Executive Vice President-Finance and
Chief Financial Officer
William J. Flynn*
Senior Vice President-Strategic Planning
Andrew B. Fogarty*
Senior Vice President-Corporate Services
William J. Ryan
Senior Vice President-Human Resources
Jesse R. Mohorovic*
Group Vice President-Corporate Communications and Investor Relations
Ellen M. Fitzsimmons
General Counsel-Corporate
Arnold I. Havens
Vice President-Federal Affairs
Craig R. MacQueen
Vice President-Corporate Communications
William F. Miller
Vice President-Audit and Advisory Services
James P. Peter
Vice President-Taxes
James L. Ross*
Vice President and Controller
Alan A. Rudnick
Vice President-General Counsel and
Corporate Secretary
Michael J. Ruehling
Vice President-State Relations
James A. Searle Jr.
Vice President-Administration
Peter J. Shudtz
Vice President-Law and General Counsel
Gregory R. Weber
Vice President and Treasurer
* Executive officers of the corporation.
Unit Officers
CSX Transportation Inc.
Ronald J. Conway*
President
Michael J. Ward*
Executive Vice President-Coal Service Group
Frederick J. Favorite Jr.*
Senior Vice President-Finance
P. Michael Giftos
Senior Vice President and General Counsel
Dale R. Hawk*
Senior Vice President-Automotive Services Group
Frank H. Nichols
Senior Vice President-Employee Relations
John P. Sammon*
Senior Vice President-Merchandise Service Group
Paul D. Sandler*
Senior Vice President-Corporate Services
Gary M. Spiegel*
Senior Vice President-Operations
CSX Intermodal Inc.
Lester M. Passa*
President and CEO
CSX Lines LLC
Charles G. Raymond*
President and CEO
CSX World Terminals LLC
Robert J. Grassi*
President and CEO
CSX Technology Inc.
Charles J. O. Wodehouse
President
Customized Transportation Inc.
David G. Kulik
President and CEO
The Greenbrier
Ted J. Kleisner
President and Managing Director
Yukon Pacific Corporation
Jeff B. Lowenfels
President and CEO
Subsidiaries of the Registrant Exhibit 21
As of December 31, 1999, the Registrant was the beneficial owner of 100% of the
common stock of the following significant subsidiaries:
CSX Transportation Inc. (a Virginia corporation),
Sea-Land Service Inc. (a Delaware corporation),
CSX Rail Holding Corporation (a Delaware corporation) and
CSX Northeast Holding Corporation (a Delaware corporation)
As of December 31, 1999, the other subsidiaries included in the Registrant's
consolidated financial statements, both individually and in the aggregate, did
not constitute a significant subsidiary.
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of CSX Corporation and subsidiaries (CSX) of our report dated February 9, 2000,
included in the 1999 Annual Report to Shareholders of CSX.
We also consent to the incorporation by reference in each Form S-3 Registration
Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-53191, and
333-68885) and in each Form S-8 Registration Statement (Registration Nos.
33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736,
33-49767, 33-57029, 333-09213, 333-73427 and 333-73429) of our report dated
February 9, 2000, with respect to the consolidated financial statements of CSX
incorporated by reference in this Annual Report (Form 10-K) for the fiscal
year ended December 31, 1999.
/s/ Ernst & Young LLP
Richmond, Virginia
March 1, 2000
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of CSX Corporation and subsidiaries (CSX) of our report dated February 11, 2000,
with respect to the consolidated financial statements of Conrail Inc. and
subsidiaries as of December 31, 1999 which report appears in the December 31,
1999 Annual Report to Shareholders of CSX.
We also consent to the incorporation by reference in each Form S-3 Registration
Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-53191, and
333-68885) and in each Form S-8 Registration Statement (Registration Nos.
33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736,
33-49767, 33-57029, 333-09213, 333-73427 and 333-73429) of our report dated
February 11, 2000, with respect to the consolidated financial statements of
Conrail Inc. and subsidiaries as of December 31, 1999 incorporated by reference
in this Annual Report (Form 10-K) for the fiscal year ended December 31, 1999.
/s/ Ernst & Young LLP /s/ KPMG LLP
Ernst & Young LLP KPMG LLP
Richmond, Virginia Norfolk, Virginia
March 1, 2000 March 1, 2000
EXHIBIT 23.3
CONSENT OF PRICEWATERHOUSECOOPERS LLP,
INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 33-2084, 333-53191, and 333-68885), 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, 333-09213,
333-73427, 333-73429) of CSX Corporation of our report dated January 19, 1999 on
the consolidated financial statements of Conrail Inc. and subsidiaries for the
year ended December 31, 1998, which appears in the Annual Report on Form 10-K of
CSX Corporation for the year ended December 31, 1999.
/s/PRICEWATERHOUSECOOPERS LLP
Philadelphia, PA
March 7, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers
and directors of CSX CORPORATION, a Virginia Corporation, which is to file with
the Securities and Exchange Commission, Washington, D. C., a Form 10-K (Annual
Report), hereby constitutes and appoints Paul R. Goodwin and Peter J. Shudtz his
true and lawful attorneys-in-fact and agents, for him and in his name, place and
stead to sign said Form 10-K, and any and all amendments thereto, with power
where appropriate to affix the corporate seal of CSX Corporation thereto and to
attest said seal, and to file said Form 10-K, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands
this 9th day of February, 2000.
/s/ ELIZABETH E. BAILEY /s/ JAMES W. MCGLOTHLIN
- ----------------------- -----------------------
Elizabeth E. Bailey James W. McGlothlin
/s/ H. FURLONG BALDWIN /s/ SOUTHWOOD J. MORCOTT
- ---------------------- ------------------------
H. Furlong Baldwin Southwood J. Morcott
/s/ CLAUDE S. BRINEGAR /s/ CHARLES E. RICE
- ---------------------- -------------------
Claude S. Brinegar Charles E. Rice
/s/ ROBERT L. BURRUS, JR. /s/ WILLIAM C. RICHARDSON
- ------------------------- -------------------------
Robert L. Burrus, Jr. William C. Richardson
/s/ BRUCE C. GOTTWALD /s/ FRANK S. ROYAL
- --------------------- ------------------
Bruce C. Gottwald Frank S. Royal
/s/ JOHN R. HALL /s/ JOHN W. SNOW
- ---------------- ----------------
John R. Hall John W. Snow
/s/ BRADLEY JONES /s/ PAUL R. GOODWIN
- ----------------- -------------------
E. Bradley Jones Paul R. Goodwin
/s/ ROBERT D. KUNISCH /s/ JAMES L. ROSS
- --------------------- -----------------
Robert D. Kunisch James L. Ross
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> DEC-31-1999
<CASH> 626
<SECURITIES> 348
<RECEIVABLES> 1,135
<ALLOWANCES> 0
<INVENTORY> 220
<CURRENT-ASSETS> 2,563
<PP&E> 17,526
<DEPRECIATION> 5,269
<TOTAL-ASSETS> 20,720
<CURRENT-LIABILITIES> 3,473
<BONDS> 6,196
0
0
<COMMON> 218
<OTHER-SE> 5,538
<TOTAL-LIABILITY-AND-EQUITY> 20,720
<SALES> 0
<TOTAL-REVENUES> 10,811
<CGS> 0
<TOTAL-COSTS> 10,203
<OTHER-EXPENSES> (52)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 521
<INCOME-PRETAX> 139
<INCOME-TAX> 88
<INCOME-CONTINUING> 51
<DISCONTINUED> 0
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<CHANGES> 49
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<EPS-BASIC> .01
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</TABLE>
Independent Auditors' Report
The Stockholders and Board of Directors
Conrail Inc.:
We have audited the accompanying consolidated balance sheet of Conrail Inc. and
subsidiaries as of December 31, 1999, and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The accompanying consolidated financial
statements of Conrail Inc. and subsidiaries as of December 31, 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for the two years then ended were audited by other auditors whose report thereon
dated January 19, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
These 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Conrail Inc.
and subsidiaries as of December 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/KPMG LLP /s/ERNST & YOUNG LLP
KPMG LLP Ernst & Young LLP
Norfolk, Virginia Richmond, Virginia
February 11, 2000
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, 1998 and 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States, 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 19, 1999
CONRAIL INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
-----------------------
($ In Millions) 1999 1998 1997
------ ------ ------
Revenues - NSC/CSX (Note 2) $ 549 $ - $ -
Revenues - Third parties 1,625 3,863 3,765
----- ----- -----
Total operating revenues 2,174 3,863 3,765
----- ----- -----
Operating expenses (Note 3)
Compensation and benefits 645 1,489 1,448
Fuel 63 163 198
Material, services and rents 590 909 952
Depreciation and amortization 328 310 293
Casualties and insurance 228 230 143
Other 192 247 188
ESOP termination charge - - 221
----- ------ ------
Total operating expenses 2,046 3,348 3,443
------ ------ ------
Income from operations 128 515 322
Interest expense (150) (153) (170)
Other income, net (Note 10) 67 72 83
------ ------ ------
Income before income taxes 45 434 235
Income taxes (Note 7) 19 167 228
------ ---- ----
Net income $ 26 $ 267 $ 7
====== ====== ======
See accompanying notes to the consolidated financial statements.
CONRAIL INC.
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------
($ In Millions) 1999 1998
------ ------
ASSETS
Current assets
Cash and cash equivalents $ 22 $ 138
Accounts receivable 51 580
Due from NSC/CSX (Note 2) 196 -
Notes receivable from NSC/CSX (Note 2) 216 -
Material and supplies 29 92
Deferred tax assets (Note 7) 149 182
Other current assets 6 13
------ -----
Total current assets 669 1,005
Property and equipment, net (Note 4) 7,143 7,151
Other assets 571 888
------ -----
Total assets $8,383 $9,044
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt (Note 6) 319 113
Accounts payable 59 130
Due to NSC/CSX (Note 2) 159 -
Wages and employee benefits 43 403
Casualty reserves 136 139
Accrued and other current liabilities (Note 5) 147 422
------ ------
Total current liabilities 863 1,207
Long-term debt (Note 6) 1,302 1,609
Casualty reserves 311 215
Deferred income taxes (Note 7) 1,817 1,787
Other liabilities 271 426
------ ------
Total liabilities 4,564 5,244
------ ------
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 2, 8, and 9)
Common stock ($1 par value; 100 shares
authorized, issued and outstanding) - -
Additional paid-in capital 2,229 2,291
Unearned ESOP compensation (20) (75)
Retained earnings 1,610 1,584
------ ------
Total stockholders' equity 3,819 3,800
------ ------
Total liabilities and stockholders' equity $8,383 $9,044
====== ======
See accompanying notes to the consolidated financial statements.
CONRAIL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Unearned Additional Employee
Preferred ESOP Common Paid-in Benefits Retained Treasury
($ In Millions Except Per Share Data) Stock Compensation Stock Capital Trust Earnings Stock
----------- -------------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 211 $(222) $ 88 $2,404 $ (384) $1,357 $(347)
Amortization 2
Net income 7
Common dividends, $.475 per share (Note 9) (40)
Preferred dividends, $.541 per share (Note 9) (3)
Employee benefits trust transactions, net (3) 20
Effects of Conrail acquisition, net
(Notes 2) (209) (82) 594 90 (393)
Employee benefits trust reclassification 274
(Note 9)
Allocation of unearned ESOP 65
Other (2) 11 3 (2)
------ ------ ---- ----- ----- ------ -----
Balance, December 31, 1997 - (155) 6 3,006 - 1,324 (742)
Net income 267
Common dividends (7)
Common shares reclassified as unissued
(Note 9) (6) (736) 742
Allocation of unearned ESOP compensation 80
Other 21
------ ----- ----- ------- ----- ----- -----
Balance, December 31, 1998 - (75) - 2,291 - 1,584 -
Net income 26
Transfer of portion of prepaid pension
assets to NSC and CSX (Note 8) (54)
Allocation of unearned ESOP compensation 55
Other (8)
------ ----- ----- ------ ------ ------
Balance, December 31, 1999 $ - $ (20) $ - $2,229 $ - $1,610 $ -
====== ====== ==== ====== ====== ====== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CONRAIL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
($ In Millions) 1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 26 $ 267 $ 7
Adjustments to reconcile net income to
net cash provided by operating activities:
Transition and acquisition-related
charges (Note 3) 368 159
ESOP termination charge 221
Depreciation and amortization 328 310 293
Deferred income taxes 48 (30) 89
Gains from sales of property (6) (21) (23)
Pension credit (45) (63) (61)
Changes in (net of effect of transition
and acquisition-related items):
Accounts receivable 529 33 7
Accounts and wages payable (431) (33) 42
Deferred tax assets 33 (67) 178
Due from NSC/CSX (196)
Due to NSC/CSX 159
Other (49) (37) (28)
------ ----- ------
Net cash provided by operating
activities 396 727 884
------ ----- ------
Cash flows from investing activities
Property and equipment acquisitions (176) (537) (439)
Notes receivable from NSC/CSX (216)
Proceeds from disposals of properties 6 19 25
Other (14) (32) (31)
------ ----- ----
Net cash used in investing activities (400) (550) (445)
------ ----- -----
Cash flows from financing activities
Payment of long-term debt (112) (119) (238)
Payment of debt consent fees (10)
Net proceeds from (repayments of)
short-term borrowings (99)
Dividends on common stock and preferred stock (7) (43)
Proceeds from stock options and other 8
----- ----- -----
Net cash used in financing
activities (112) (136) (372)
------ ----- -----
Increase(decrease) in cash and cash equivalents (116) 41 67
Cash and cash equivalents
Beginning of year 138 97 30
------ ----- -----
End of year $ 22 $ 138 $ 97
===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
Conrail Inc. ("Conrail") is a holding company whose principal subsidiary is
Consolidated Rail Corporation ("CRC"), the major freight railroad in the
Northeast. Norfolk Southern Corporation ("NSC") and CSX Corporation
("CSX"), the major railroads in the Southeast, jointly control Conrail
through their ownership interests in CRR Holdings LLC ("CRR"), whose
primary subsidiary is Green Acquisition Corporation, which owns Conrail.
NSC and CSX have equity interests in CRR of 58% and 42%, respectively, and
voting interests of 50% each. From May 23, 1997, the date NSC and CSX
completed their acquisition of Conrail stock, until June 1, 1999, Conrail's
operations continued substantially unchanged while NSC and CSX awaited
regulatory approvals and prepared for the integration of their respective
Conrail routes and assets to be leased to their railroad subsidiaries,
Norfolk Southern Railway Company ("NSR") and CSX Transportation, Inc.
("CSXT"). The operations of CRC substantially changed beginning June 1,
1999, when NSC and CSX began operating a portion of the Conrail properties
under operating agreements (the "Closing Date") (Note 2).
Beginning June 1, 1999, Conrail's major sources of operating revenues are
operating fees and lease rentals from NSC and CSX. The composition of CRC's
operating expenses also reflects this change in operations. As a result,
Conrail's 1999 results reflect the freight railroad operations of CRC
through May 31, 1999, and reflect Conrail's new structure and operations
that commenced on the Closing Date (Note 2).
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 prior to June 1, 1999, (Note 2) consist mainly of
fuel oil and items for maintenance of property and equipment, and were
valued at the lower of cost, principally weighted average, or market.
Material and supplies beginning June 1, 1999, consist of maintenance
material valued at the lower of cost or market.
Property and Equipment
Property and equipment are recorded at cost. Additions to properties,
including those under lease, are capitalized. Maintenance expense is
recognized when repairs are performed. Depreciation is provided using the
composite straight-line method over estimated service lives. In 1999, the
overall depreciation rate averaged 3.0% for roadway and 5.8% for equipment.
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 prior to June 1, 1999 was recognized proportionally as a shipment
moved on the Conrail system from origin to destination. Beginning June 1,
1999, the Company's major sources of revenues are from NSC and CSX,
primarily in the form of rental revenues and operating fees which are
recognized when earned.
New Accounting Standards
There were no new accounting standards issued during 1999 which the Company
believes will have a material impact on its consolidated financial
position, results of operations or cash flows.
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.
Reclassifications
Certain prior year data have been reclassified to conform to the 1999
presentation.
2. Related Parties Transactions
Background
On May 23, 1997, NSC and CSX completed their joint acquisition of Conrail
stock. On June 17, 1997, NSC and CSX executed an agreement which generally
outlines the methods of governing and operating Conrail and its
subsidiaries ("Transaction Agreement"). On July 23, 1998, the Surface
Transportation Board ("STB") issued a written opinion that permitted NSC
and CSX to exercise operating control of Conrail beginning August 22, 1998.
On June 1, 1999, NSC and CSX began to operate over certain Conrail lines.
Commencement of Operations by NSR and CSXT
On June 1,1999, the majority of CRC's routes and assets were segregated
into separate subsidiaries of CRC, Pennsylvania Lines LLC ("PRR") and New
York Central Lines LLC ("NYC"). PRR and NYC entered into separate but
identical operating and lease agreements with NSR and CSXT, respectively,
(the "Operating Agreements" ) which govern substantially all nonequipment
assets to be used by NSR and CSXT and have initial 25-year terms, renewable
at the options of NSR and CSXT for two 5-year terms. Payments made under
the Operating Agreements are based on appraised values that are subject to
adjustment every six years to reflect changes in such values. NSR and CSXT
have also leased or subleased certain equipment assets at rentals based on
appraised values for varying term lengths from PRR and NYC, respectively,
as well as from CRC.
NSC and CSX have also entered into agreements with CRC governing other
Conrail properties that continue to be owned and operated by Conrail ("the
Shared Assets Areas"). NSR and CSXT pay CRC a fee for joint and exclusive
access to the Shared Assets Areas. In addition, NSR and CSXT pay, based on
usage, the costs incurred by CRC to operate the Shared Assets Areas plus a
profit factor.
Payments made by NSR and CSXT to Conrail under the Shared Assets agreements
were $45 million and $43 million, respectively, of which $7 million and $5
million, were minimum rents.
Payments from NSR and CSXT under the Operating Agreements and lease
agreements to PRR and NYC amounted to $167 million and $124 million,
respectively. In addition, costs necessary to operate and maintain the
related assets under these agreements, including leasehold improvements,
will be borne by NSR and CSXT.
Future minimum lease payments to be received from NSR/CSXT are as follows:
<TABLE>
<CAPTION>
$ in Millions
-------------
NSR NSR CSX CSX
--- --- --- ---
To PRR To CRC To NYC To CRC Total
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
2000 $ 320 $ 22 $ 231 $ 16 $ 589
2001 307 24 223 17 571
2002 318 27 229 19 593
2003 327 30 235 21 613
2004 330 32 238 23 623
2005 and Beyond 5,389 687 3,902 497 10,475
-------------------------------------------------------------
Total $6,991 $822 $5,058 $593 $13,464
-------------------------------------------------------------
</TABLE>
Related Party Balances and Transactions
"Due from NSC/CSX" at December 31, 1999, is primarily comprised of
amounts due for the above-described operating and rental activities. Also
included in "Due from NSC/CSX" are amounts paid by Conrail for
separation payments to CRC's agreement employees that will be reimbursed by
NSC and CSX as required by the Transaction Agreement. As of December 31,
1999, the accrued balances due from NSC and CSX were $91 million and $105
million, respectively.
PRR and NYC have interest-bearing notes receivable, payable on demand from
NSC and CSX of $123 million and $93 million, respectively, at December 31,
1999 included in the "Notes receivable from NSC/CSX" line item on the
balance sheet. The interest rates on the notes receivable from NSC and CSX
are variable and both 5.6% at December 31, 1999.
CRC has entered into service provider agreements with both NSC and CSX, for
such services as accounting and administrative processing, personal injury
and environmental case handling and other miscellaneous services ("Service
Provider Agreements"). Payments made to NSC under these Service Provider
Agreements were $5 million and are included within the various line items
of operating expenses for 1999. In addition, CRC paid a subsidiary of CSX
$5 million during 1999, for rental of various facilities which it occupied
subsequent to May 31, 1999.
"Due to NSC/CSX" includes $64 million and $29 million, to NSC and CSX,
respectively, for the services described above for 1999.
"Due to NSC/CSX" also includes $42 million and $24 million payable to NSC
and CSX, respectively, for CRC's vacation liability related to the portion
of its work force that became NSC and CSX employees subsequent to May 31,
1999.
From time to time, NSC and CSX, as the indirect owners of Conrail, may need
to provide some of Conrail's cash requirements through capital
contributions, loans, or advances, none of which took place as of December
31, 1999.
Prior to the Closing Date, the Company interchanged 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. Transition, Acquisition-Related and Other Items
During 1999, the Company recorded net expenses of $138 million ($85 million
after taxes) for adjustments to certain litigation and environmental
reserves related to settlements and completion of site reviews, and in
accordance with the Transaction Agreement, for the method of settlement of
certain casualty liabilities based on an actuarial study and for the
assumption of a lease obligation by a subsidiary of CSX. The effects of
these adjustments are reflected in the "Casualties and insurance" and
"Other" operating expense line items of the income statement for 1999.
During the third quarter of 1998, the Company recorded charges totaling
$302 million ($187 million after income taxes), primarily for severance
benefits of $170 million covering certain non-union employees, and $132
million of other costs, such as the effect of changing to an actuarial
method of valuing certain components of the Company's casualty reserves,
primarily included in the "Compensation and benefits" and "Casualties and
insurance" operating expense line items of the 1998 income statement,
respectively.
The charge for non-union separation benefits represents termination
payments made to approximately 1,300 non-union employees whose
non-executive positions were eliminated as a result of the joint
acquisition of Conrail. Most of these termination payments have been made
in the form of supplemental retirement benefits from the Company's
overfunded pension plan. During 1999 and 1998, termination payments of $77
million and $9 million were made, respectively.
During 1998 and 1997, the Company recorded charges totaling $66 million
($41 million after income taxes) and $49 million ($31 million after income
taxes), respectively, representing amounts paid to certain non-union
employees as incentive to continue their employment with the Company
through August 22, 1998, the effective date of the STB approval of the
joint acquisition of Conrail, and the subsequent transition period.
During 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 recorded a long-term liability of $221 million related to the ESOP
termination charge, which has not required use of the Company's cash for
settlement. Such liability, the balance of which is $20 million at December
31, 1999, is being reduced as the cash proceeds, held by the ESOP as a
result of selling its ESOP preferred stock in the joint tender offer, are
allocated to eligible ESOP participants.
During 1997, the Company recorded a charge of $110 million ($103 million
after income taxes) in connection with employment "change in control"
agreements with certain executives, which became operative as a result of
the joint acquisition of Conrail. A portion of the benefits under these
agreements, $68 million, has been paid in 1998 from the Employee Benefits
Trust ("EBT"). These costs are included in the "Compensation and benefits"
line item of the income statement for 1997.
Also, as a result of the joint acquisition of Conrail, all outstanding
performance shares and all outstanding unvested stock options, restricted
shares and phantom shares vested during 1997. The Company paid all of the
amounts due employees under these arrangements and recorded a $63 million
charge ($39 million after income taxes). These costs are included in the
"Compensation and benefits" line item of the income statement for 1997.
4. Property and Equipment
December 31,
--------------------
1999 1998
----- -----
(In Millions)
Roadway $ 7,410 $ 7,255
Equipment 1,573 1,593
Less: Accumulated depreciation (2,154) (2,029)
------- -------
6,829 6,819
------- -------
Capital leases (primarily equipment) 696 793
Accumulated amortization (382) (461)
------- -------
314 332
------- -------
$ 7,143 $ 7,151
======= =======
Substantially all assets are leased to NSR or CSXT (Note 2).
Conrail acquired equipment and incurred related long-term debt under
various capital leases of $79 million in 1997.
5. Accrued and Other Current Liabilities
December 31,
--------------------
1999 1998
---- ----
(In Millions)
Freight settlements due others $ 3 $ 42
Equipment rents (primarily car hire) 6 78
Unearned freight revenue - 59
Property and corporate taxes 97 33
Other 41 210
---- ----
$147 $422
==== ====
6. Long-Term Debt and Leases
Long-term debt outstanding, including the weighted average interest rates
at December 31, 1999, is composed of the following:
December 31,
----------------------
1999 1998
------ ------
(In Millions)
Capital leases $ 331 $ 391
Medium-term notes payable,
6.27%, due 1999 - 30
Notes payable, 9.75%, due 2000 250 250
Debentures payable, 7.88%, due 2043 250 250
Debentures payable, 9.75%, due 2020 550 544
Equipment and other obligations, 6.87% 240 257
------ ------
1,621 1,722
Less current portion (319) (113)
------ ------
$1,302 $1,609
====== ======
Interest payments were $149 million in 1999, $153 million in 1998 and $163
million in 1997.
Leases
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 $285 million at December 31, 1999. Minimum
commitments, exclusive of executory costs borne by the Company, are:
Capital Operating
Leases Leases
-------- ----------
(In Millions)
2000 $ 74 $ 72
2001 68 61
2002 56 55
2003 51 51
2004 56 53
2005 - 2018 139 474
----- ---
Total 444 $766
====
Less interest portion (113)
-----
Present value $ 331
=====
Equipment and other obligations mature in 2000 through 2043 and are
collateralized by assets with a net book value of $229 million at December
31, 1999. Maturities of long-term debt other than capital leases are $268
million in 2000, $19 million in 2001, $18 million in 2002, $19 million in
2003, $19 million in 2004 and $947 million in total from 2005 through 2043.
Operating lease rent expense was $120 million in 1999, $121 million in 1998
and $122 million in 1997.
7. Income Taxes
The provisions for income taxes are composed of the following:
1999 1998 1997
---- ---- -----
(In Millions)
Current
Federal $(30) $173 $122
State 1 24 17
---- --- ---
(29) 197 139
---- ---- ----
Deferred
Federal 52 (27) 61
State (4) (3) 28
---- ---- ----
48 (30) 89
---- ---- ----
$ 19 $167 $228
==== ==== ====
The nondeductibility of the ESOP termination charge and certain transition
and acquisition-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 4).
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
for the rate increase as required by SFAS 109, "Accounting for Income
Taxes" ("SFAS 109").
Reconciliations of the U.S. statutory tax rates with the effective tax
rates are as follows:
1999 1998 1997
---- ---- ----
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit (4.2) 3.2 3.2
ESOP termination charge 36.3
Nondeductible transition
and acquisition-related
costs 23.9 14.9
Effect of state tax increase
on deferred taxes 9.3
Other (20.9) .3 (1.7)
----- ------ -----
Effective tax rate 42.2% 38.5% 97.0%
===== ====== =====
The Company has reached final settlements with the Internal Revenue Service
("IRS") related to all of the audits of the Company's consolidated federal
income tax returns through fiscal year 1992. 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 $38
million in 1999, $196 million in 1998 and $120 million in 1997.
Significant components of the Company's deferred income tax liabilities
(assets) are as follows:
December 31,
-------------------
1999 1998
------ ------
(In Millions)
Current assets $ (8) $ (22)
Current liabilities (133) (152)
Miscellaneous (8) (8)
------ ----
Current deferred tax asset, net $ (149) $ (182)
====== ======
Noncurrent liabilities:
Property and equipment 1,977 1,897
Other long-term assets (primarily prepaid
pension asset) 89 106
Other (mostly equipment obligations) 88 91
------ ----
2,154 2,094
------ ------
Noncurrent assets:
Nondeductible reserves and other
liabilities (221) (239)
Tax benefit transfer receivable (36) (36)
Miscellaneous (80) (32)
------ ------
(337) (307)
------ -----
Deferred income tax liabilities, net $1,817 $1,787
====== ======
8. Pension and Postretirement Benefits
The Company and its subsidiaries sponsor several qualified and nonqualified
pension plans and other postretirement benefit plans for its employees.
During 1999, the Company transferred approximately $350 million and $260
million of pension assets to NSC and CSX, respectively. NSC and CSX also
assumed certain pension obligations related to former Conrail employees.
The net effect on Conrail's financial statements as detailed in the table
below, was to reduce pension assets by $89 million. This transfer resulted
in a $35 million reduction of deferred tax liabilities and is reflected
as a capital distribution of $54 million.
The Company's pension plan was amended during 1998 to include certain
enhanced benefits for qualifying Conrail employees. The effect of the
amendment was to increase the Conrail plan's projected benefit obligation
by $59 million. The Company's pension plan was also amended during 1998 to
allow for payment of non-union supplemental retirement benefits to the
extent consistent with applicable Internal Revenue Service Tax Code
provisions. Both of these liabilities are accrued as offsets to the prepaid
pension asset which is included in "Other assets" in the balance sheet
(Note 3).
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period
ending December 31, 1999, and a statement of the funded status as of
December 31 of both years:
Other Postretirement
Pension Benefits Benefits
----------------- ----------------
(In Millions) 1999 1998 1999 1998
------ ------ ---- ----
Change in benefit
obligation
Net benefit obligation
at beginning of year $834 $707 $ 56 $ 57
Pension obligation
transferred to NSC and CSX (89) - - -
Service cost 10 13 - -
Interest cost 50 53 3 4
Plan amendments - 59 - -
Curtailment (gains)losses (15) - (4) -
Actuarial (gains)losses (97) 68 (7) 1
Incorporation of special
pension benefit reserves 176 - - -
Gross benefits paid (130) (66) (4) (6)
---- ---- ---- ----
Net benefit obligation
at end of year $739 $834 $ 44 $ 56
Change in plan assets
Fair value of plan assets
at beginning of year $1,441 $1,308 $ 9 $ 10
Pension assets
transferred to NSC and CSX (610) - - -
Actual return on plan
assets 88 211 - -
Gross benefit payments (128) (78) (1) (1)
------ ------ ---- ----
Fair value of plan assets
at end of year $ 791 $1,441 $ 8 $ 9
Funded status at
end of year $ 52 $ 607 $(36) $(47)
Unrecognized transition
asset (3) (54) - -
Unrecognized prior
service cost 10 88 - -
Unrecognized actuarial
(gains)losses (26) (371) (8) -
----- ----- ----- ----
Net amount recognized at
year end $ 33 $ 270 $(44) $(47)
===== ===== ===== ====
The following amounts have been recognized in the balance sheets as of
December 31:
Other Postretirement
Pension Benefits Benefits
(In Millions) 1999 1998 1999 1998
---- ---- ---- ----
Prepaid pension cost $ 74 $278 - -
Accrued benefit cost (41) (8) $(44) $(47)
All of the Company's plans for postretirement benefits other than pensions
have no plan assets except for the retiree life insurance plan which has $8
million and $9 million of assets in 1999 and 1998, respectively. The
aggregate benefit obligation for the postretirement plans other than
pensions is $44 million and $56 million at December 31 1999 and 1998,
respectively.
The projected benefit obligations and accumulated benefit obligations for
pension plans with accumulated benefit obligations in excess of plan assets
were $54 million and $38 million, respectively, in 1999; and $10 million
and $9 million, respectively, in 1998. The plans had no assets in either
1999 or 1998.
The assumptions used in the measurement of the Company's benefit obligation
are as follows:
Other Postretirement
Pension Benefits Benefits
1999 1998 1999 1998
---- ---- ---- ----
Discount rate 7.75% 6.50% 7.75% 6.50%
Expected return on
plan assets 9.00% 9.00% 9.00% 8.00%
Rate of compensation
increase 5.00% 5.00% 5.00% 5.00%
A 7% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2000, gradually decreasing to 6% by the year 2007.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The effect of a one percentage
point increase and (decrease) in the assumed health care cost trend rate on
accumulated postretirement benefit obligation is $1 million and $(1)
million, respectively, and would have an immaterial effect on the net
periodic postretirement benefit cost for 1999.
The components of the Company's net periodic benefit cost for the plans are
as follows:
Other Postretirement
Pension Benefits Benefits
(In Millions) 1999 1998 1997 1999 1998 1997
---- ----- ---- ---- ---- ----
Service cost $ 10 $ 13 $ 8 $ - $- $-
Interest cost 53 53 50 4 4 4
Expected return
on assets (94) (109) (98) (1) (1) (1)
Curtailment (gain)
loss 19 - - (4) - -
Amortization of:
Transition asset (11) (18) (18) - - -
Prior service cost 4 4 3 - - -
Actuarial gain (8) (5) (6) - (1) (1)
---- ---- ---- --- -- --
$(27) $(62) $(61) $(1) $2 $2
==== ===== ==== === == ==
Savings Plans
The Company and certain subsidiaries provide 401(k) savings plans for union
and non-union employees. Under the Company's current non-union savings
plan, 50% of employee contributions are matched for the first 6% of a
participating employee's base pay and 25% of employee contributions are
matched in excess of 10% of a participating employee's base pay. Savings
plan expense related to the current non-union savings plan was $1 million
in 1999. There is no Company match provision under the union employee plan
except for certain unions which negotiated a Company match as part of their
contract provisions.
In connection with the close of the NSC-CSX 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 during 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 preferred stock for the first 6% of a
participating employee's base pay. Savings plan expense related to the ESOP
plan was $1 million in 1997. The Company had no non-union savings plan in
1998.
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.
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. Compensation expense related to the Non-union ESOP
was $2 million in 1997.
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
and paid were $3 million in 1997.
9. Stockholders' equity
Common Stock
On May 23, 1997, the NSC-CSX joint tender offer for the remaining
outstanding shares of Conrail's common and preferred stock was concluded,
and on June 2, 1997, Conrail became the surviving corporation in a merger
with Green Merger Corp. and remained the only subsidiary of Green
Acquisition Corp., an entity jointly-owned by NSC and CSX. As a result, the
remaining outstanding capital stock of Conrail was acquired by NSC and CSX
and Green Acquisition was issued 100 shares of Conrail's common stock. Any
per share data included in this report is based on Conrail's outstanding
common stock before the effects of the joint acquisition of the Company.
Employee Benefits Trust
In 1995, the Company established the Conrail Employee Benefits Trust (the
"Trust"). The Trust was intended to fund certain employee benefits and
other forms of compensation. As a result of the joint tender offer (See
Note 2) for the Company's common stock, the Trust received cash proceeds
for the common stock it held at that time. Due to the Trust holding cash
instead of the Company's common stock, the balance of the Trust at December
31, 1997, was reclassified from the stockholders' equity section of the
Company's balance sheet to the "Other assets" line item.
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 remaining shares of treasury stock at December 31, 1997, were
recorded as canceled and retired during 1998.
The activity and status of treasury stock follow:
1998 1997
--------- ---------
Shares, beginning of year 6,320,249 5,523,455
Acquired
Effects of Conrail
acquisition (6,320,249) 796,794
---------- ---------
Shares, end of year - 6,320,249
========== =========
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 all
outstanding unvested stock options, restricted shares and phantom shares
vested during 1997 (Note 3).
Undistributed Earnings of Equity Investees
"Retained earnings" includes undistributed earnings of equity investees of
$188 million, $173 million and $151 million at December 31, 1999, 1998 and
1997, respectively.
10. Other Income, Net
1999 1998 1997
---- ---- ----
(In Millions)
Interest income $19 $ 7 $13
Rental income 37 42 41
Property sales 6 21 23
Other, net 5 2 6
--- --- --
$67 $72 $83
=== === ===
11. 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 governmental agencies with respect to other
potential environmental issues. At December 31, 1999, 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 28 locations. However, based on
currently available information, the Company believes CRC may have some
potential responsibility at only 25 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 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,
1999, the Company had accrued $94 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 anticipates that much
of this liability will be paid out over five years; however some costs will
be paid out over a longer period. The Company believes the ultimate
liability for these matters will not materially affect its consolidated
financial condition.
The Company spent $9 million in 1999, $10 million in 1998 and $9 million in
1997 for environmental remediation and related costs. In addition, the
Company's capital expenditures for environmental control and abatement
projects were approximately $1 million in 1999, $8 million in 1998 and $7
million in 1997.
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 in amounts it
believes are sufficient to cover the expected payments for such actions.
CRC had 2,315 employees at December 31, 1999, approximately 78% of whom are
represented by 16 different labor organizations and are covered by 16
separate collective bargaining agreements. The Company was not engaged in
any collective bargaining at December 31, 1999.
CRC currently guarantees the principal and interest payments in the amount
of $39 million on Equipment Trust Certificates for Locomotive Management
Services, a general partnership of which CRC holds a fifty percent
interest.
12. Fair Values of Financial Instruments
The fair values of "Cash and cash equivalents," "Accounts receivable,"
"Notes receivable from NSC/CSX" and "Accounts payable" approximate carrying
values because of the short maturity of these financial instruments.
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 $1,367 million and $1,637 million at December 31, 1999
and 1998, respectively, compared with carrying values of $1,290 million and
$1,331 million at December 31, 1999 and 1998, respectively.
