Quarterly Report
Table of Contents

 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  
 
SECURITIES EXCHANGE ACT OF 1934
 
  
 
For the quarter ended September 27, 2002
 
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
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
901 East Cary Street, Richmond, Virginia
  
23219-4031
(Address of principal executive offices)
  
(Zip Code)
 
(804) 782-1400
(Registrant’s telephone number, including area code)
 
No Change
(Former name, former address and former fiscal year, if changed since last report.)
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 27, 2002: 213,030,402 shares.
 


Table of Contents
 
CSX CORPORATION
 
FORM 10-Q
For The Quarterly Period Ended September 27, 2002
 
INDEX
 
    
Page Number

PART I.    FINANCIAL INFORMATION
    
Item 1:
  
Financial Statements
    
    
    Quarters and Nine Months Ended September 27, 2002 and September 28, 2001
  
  3
    
    Nine Months Ended September 27, 2002 and September 28, 2001
  
  4
    
    At September 27, 2002 (Unaudited) and December 28, 2001
  
  5
       
  6
Item 2:
     
24
Item 3:
     
38
Item 4:
     
38
PART II.    OTHER INFORMATION
    
Item 6.
     
39
  
39
  
40

2


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of Dollars, Except Per Share Amounts)
 
    
Quarter Ended

  
Nine Months Ended

    
September 27,
2002

  
September 28,
2001

  
September 27,
2002

    
September 28,
2001

    
(Unaudited)
Operating Revenue
  
$
2,055
  
$
2,019
  
$
6,092
 
  
$
6,101
Operating Expense
  
 
1,779
  
 
1,737
  
 
5,283
 
  
 
5,365
    

  

  


  

Operating Income
  
 
276
  
 
282
  
 
809
 
  
 
736
Other Income
  
 
28
  
 
4
  
 
41
 
  
 
12
Interest Expense
  
 
108
  
 
129
  
 
338
 
  
 
397
    

  

  


  

Earnings before Income Taxes and Cumulative Effect of Accounting Change
  
 
196
  
 
157
  
 
512
 
  
 
351
Income Tax Expense
  
 
69
  
 
57
  
 
182
 
  
 
123
    

  

  


  

Earnings before Cumulative Effect of Accounting Change
  
 
127
  
 
100
  
 
330
 
  
 
228
Cumulative Effect of Accounting Change—Net of Tax
  
 
—  
  
 
—  
  
 
(43
)
  
 
—  
    

  

  


  

Net Earnings
  
$
127
  
$
100
  
$
287
 
  
$
228
    

  

  


  

Earnings Per Share:
                             
Before Cumulative Effect of Accounting Change
  
$
0.60
  
$
0.47
  
$
1.55
 
  
$
1.08
Cumulative Effect of Accounting Change
  
 
—  
  
 
—  
  
 
(0.20
)
  
 
—  
    

  

  


  

Net Earnings
  
$
0.60
  
$
0.47
  
$
1.35
 
  
$
1.08
    

  

  


  

Earnings Per Share, Assuming Dilution:
                             
Before Cumulative Effect of Accounting Change
  
$
0.60
  
$
0.47
  
$
1.55
 
  
$
1.07
Cumulative Effect of Accounting Change
  
 
—  
  
 
—  
  
 
(0.20
)
  
 
—  
    

  

  


  

Net Earnings
  
$
0.60
  
$
0.47
  
$
1.35
 
  
$
1.07
    

  

  


  

Average Common Shares Outstanding (Thousands)
  
 
213,041
  
 
211,871
  
 
212,548
 
  
 
211,618
    

  

  


  

Average Common Shares Outstanding Assuming Dilution (Thousands)
  
 
213,633
  
 
212,579
  
 
213,453
 
  
 
212,312
    

  

  


  

Cash Dividends Paid Per Common Share
  
$
0.10
  
$
0.10
  
$
0.30
 
  
$
0.70
    

  

  


  

 
See accompanying Notes to Consolidated Financial Statements.

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Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of Dollars)
 
    
Nine Months Ended

 
    
September 27,
2002

      
September 28,
2001

 
    
(Unaudited)
 
OPERATING ACTIVITIES
                   
Net Earnings
  
$
287
 
    
$
228
 
Adjustments to Reconcile Net Earnings to Net Cash Provided:
                   
Cumulative Effect of Accounting Change
  
 
43
 
    
 
—  
 
Depreciation
  
 
477
 
    
 
469
 
Deferred Income Taxes
  
 
102
 
    
 
76
 
Equity in Conrail Earnings—Net
  
 
(12
)
    
 
(10
)
Other Operating Activities
  
 
(5
)
    
 
(61
)
Changes in Operating Assets and Liabilities:
                   
Accounts Receivable
  
 
(133
)
    
 
15
 
Other Current Assets
  
 
(11
)
    
 
(11
)
Accounts Payable
  
 
(66
)
    
 
(74
)
Other Current Liabilities
  
 
11
 
    
 
(193
)
    


    


Net Cash Provided by Operating Activities
  
 
693
 
    
 
439
 
    


    


INVESTING ACTIVITIES
                   
Property Additions
  
 
(743
)
    
 
(628
)
Short-term Investments—Net
  
 
177
 
    
 
(35
)
Other Investing Activities
  
 
(58
)
    
 
52
 
    


    


Net Cash Used by Investing Activities
  
 
(624
)
    
 
(611
)
    


    


FINANCING ACTIVITIES
                   
Short-term Debt—Net
  
 
571
 
    
 
(127
)
Long-term Debt Issued
  
 
519
 
    
 
500
 
Long-term Debt Repaid
  
 
(1,113
)
    
 
(195
)
Dividends Paid
  
 
(65
)
    
 
(149
)
Other Financing Activities
  
 
2
 
    
 
15
 
    


    


Net Cash (Used) Provided by Financing Activities
  
 
(86
)
    
 
44
 
    


    


Net Decrease in Cash and Cash Equivalents
  
 
(17
)
    
 
(128
)
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
                   
Cash and Cash Equivalents at Beginning of Period
  
 
137
 
    
 
261
 
    


    


Cash and Cash Equivalents at End of Period
  
 
120
 
    
 
133
 
Short-term Investments at End of Period
  
 
302
 
    
 
459
 
    


    


Cash, Cash Equivalents and Short-term Investments at End of Period
  
$
422
 
    
$
592
 
    


    


 
See accompanying Notes to Consolidated Financial Statements.

4


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Millions of Dollars)
 
    
September 27,
2002

    
December 28,
2001

 
    
(Unaudited)
        
ASSETS
                 
Current Assets
                 
Cash, Cash Equivalents and Short-term Investments
  
$
422
 
  
$
618
 
Accounts Receivable, Net
  
 
955
 
  
 
878
 
Materials and Supplies
  
 
212
 
  
 
206
 
Deferred Income Taxes
  
 
122
 
  
 
162
 
Other Current Assets
  
 
199
 
  
 
210
 
    


  


Total Current Assets
  
 
1,910
 
  
 
2,074
 
Properties
  
 
18,531
 
  
 
18,151
 
Accumulated Depreciation
  
 
(5,322
)
  
 
(5,179
)
    


  


Properties—Net
  
 
13,209
 
  
 
12,972
 
Investment in Conrail
  
 
4,667
 
  
 
4,655
 
Affiliates and Other Companies
  
 
462
 
  
 
382
 
Other Long-term Assets
  
 
777
 
  
 
718
 
    


  


Total Assets
  
$
21,025
 
  
$
20,801
 
    


  


LIABILITIES
                 
Current Liabilities
                 
Accounts Payable
  
$
893
 
  
$
966
 
Labor and Fringe Benefits Payable
  
 
437
 
  
 
418
 
Casualty, Environmental and Other Reserves
  
 
248
 
  
 
250
 
Current Maturities of Long-term Debt
  
 
230
 
  
 
1,044
 
Short-term Debt
  
 
574
 
  
 
225
 
Income and Other Taxes Payable
  
 
192
 
  
 
101
 
Other Current Liabilities
  
 
174
 
  
 
299
 
    


  


Total Current Liabilities
  
 
2,748
 
  
 
3,303
 
Casualty, Environmental and Other Reserves
  
 
641
 
  
 
690
 
Long-term Debt
  
 
6,434
 
  
 
5,839
 
Deferred Income Taxes
  
 
3,650
 
  
 
3,621
 
Other Long-term Liabilities
  
 
1,176
 
  
 
1,228
 
    


  


Total Liabilities
  
 
14,649
 
  
 
14,681
 
    


  


SHAREHOLDERS’ EQUITY
                 
Common Stock, $1 Par Value
  
 
215
 
  
 
214
 
Other Capital
  
 
1,525
 
  
 
1,492
 
Retained Earnings
  
 
4,682
 
  
 
4,459
 
Accumulated Other Comprehensive Loss
  
 
(46
)
  
 
(45
)
    


  


Total Shareholders’ Equity
  
 
6,376
 
  
 
6,120
 
    


  


Total Liabilities and Shareholders’ Equity
  
$
21,025
 
  
$
20,801
 
    


  


 
See accompanying Notes to Consolidated Financial Statements.

5


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 1.    BASIS OF PRESENTATION
 
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of CSX Corporation and subsidiaries (“CSX” or the “Company”) at September 27, 2002 and December 28, 2001, the results of its operations for the quarters and nine months ended September 27, 2002 and September 28, 2001, and its cash flows for the nine months ended September 27, 2002 and September 28, 2001, such adjustments being of a normal recurring nature. Certain prior-year data have been reclassified to conform to the 2002 presentation.
 
The Company believes that the disclosures presented are accurate and not misleading, but suggests that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s latest Annual Report and Form 10-K.
 
CSX follows a 52/53 week fiscal reporting calendar. Fiscal years 2002 and 2001 consist of 52 weeks ending on December 27, 2002 and December 28, 2001, respectively. The financial statements presented are for the 13-week quarters ended September 27, 2002 and September 28, 2001, the 39-week periods ended September 27, 2002 and September 28, 2001, and as of December 28, 2001.
 
Comprehensive income approximates net earnings for all periods presented in the accompanying consolidated statement of earnings.
 
NOTE 2.    EARNINGS PER SHARE
 
Earnings per share are based on the weighted-average number of common shares outstanding for the fiscal quarters and nine months ended September 27, 2002 and September 28, 2001. Earnings per share, assuming dilution, are based on the weighted-average number of common shares outstanding adjusted for the effect of potential common shares outstanding during the period, principally arising from employee stock plans. Share information for the fiscal quarters and nine months ended September 27, 2002 and September 28, 2001 is as follows:
 
    
Quarters Ended

  
Nine Months Ended

    
2002

  
2001

  
2002

  
2001

Potential Common Shares (Dilutive) included in
                   
Calculation of Weighted Average Shares
  
0.6
  
0.7
  
0.9
  
0.7
Shares Issued for Options Exercised
  
—  
  
0.2
  
1.0
  
0.7

6


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 2.    EARNINGS PER SHARE, Continued
 
Certain potential common shares outstanding at September 27, 2002 and September 28, 2001 were not included in the computation of earnings per share, assuming dilution, since their exercise or conversion prices were greater than the average market price of the common shares during the period and, accordingly, their effect is antidilutive. These shares totaled 33.8 million at a weighted-average exercise price of $46.32 per share at September 27, 2002 and 18.8 million with a weighted-average exercise price of $43.38 per share at September 28, 2001. A substantial increase in the fair market value of the Company’s stock price could negatively impact earnings per share due to the dilutive effect of stock options and convertible debt.
 
NOTE 3.    NEW ACCOUNTING PRONOUNCEMENTS
 
In 2001, Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” was issued. Under the provisions of SFAS 142, goodwill and other indefinite-lived intangible assets are no longer amortized but are reviewed for impairment on a periodic basis. The Company adopted this standard in the first quarter of 2002 and incurred a charge of $83 million, $43 million after tax and consideration of minority interest, 20 cents per share as a cumulative effect of an accounting change, which represents the difference between book value and the fair value of indefinite lived intangible assets. These indefinite-lived intangible assets are permits and licenses that the Company holds relating to a proposed pipeline to transfer natural gas from Alaska’s north slope to the port in Valdez, Alaska. The fair value was determined using a discount method of projected future cash flows relating to these assets. The carrying value of these assets is now approximately $3 million. The adoption of SFAS 142 did not have a material effect on prior reporting periods, and will not have a material effect on future earnings. The Company does not have any other indefinite lived intangible assets.
 
NOTE 4.    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 ownership interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern operate over allocated portions of the Conrail lines.
 
The rail subsidiaries of CSX and Norfolk Southern operate their respective portions of the Conrail system pursuant to certain operating agreements. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail service in certain shared geographic areas (“Shared Asset Areas”) for the joint benefit of CSX and Norfolk Southern for which it is compensated on the basis of usage by the respective railroads.

7


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 4.    INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
 
Accounting and Financial Reporting Effects
 
CSX’s rail and intermodal operating revenue and expense includes activity from traffic moving on the territory acquired in the Conrail transaction. Rail operating expenses include an 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 in the Shared Asset Areas that Conrail operates for the joint benefit of CSX and Norfolk Southern. This expense category also includes amortization of the fair value write-up arising from the acquisition of Conrail, as well as CSX’s proportionate share of Conrail’s net income or loss recognized under the equity method of accounting.
 
Detail of Conrail Operating Fee, Rents and Services
 
    
Quarters Ended September 30,

    
Nine Months Ended September 30,

 
    
    2002    

    
    2001    

    
    2002    

    
    2001    

 
Rents and Services
  
$
86
 
  
$
84
 
  
$
260
 
  
$
261
 
Purchase Price Amortization and Other
  
 
14
 
  
 
14
 
  
 
39
 
  
 
43
 
Equity in Income of Conrail
  
 
(18
)
  
 
(15
)
  
 
(51
)
  
 
(53
)
    


  


  


  


Total Conrail Operating Fees, Rent and Services
  
$
82
 
  
$
83
 
  
$
248
 
  
$
251
 
    


  


  


  


 
Conrail Financial Information
 
Summary financial information for Conrail for its fiscal periods ended September 30, 2002 and 2001, and at December 31, 2001, is as follows:
 
    
Quarters Ended September 30,

  
Nine Months Ended September 30,

    
    2002    

  
    2001    

  
    2002    

  
    2001    

Income Statement Information:
                           
Revenues
  
$
221
  
$
223
  
$
668
  
$
685
Expenses
  
 
151
  
 
165
  
 
473
  
 
487
    

  

  

  

Operating Income
  
$
70
  
$
58
  
$
195
  
$
198
    

  

  

  

Net Income
  
$
44
  
$
35
  
$
122
  
$
127
    

  

  

  

8


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 4.    INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
 
Conrail Financial Information, Continued
 
      
September 30,
2002

  
December 31,
2001

Balance Sheet Information:
               
Current Assets
    
$
323
  
$
846
Property and Equipment and Other Assets
    
 
7,828
  
 
7,236
      

  

Total Assets
    
$
8,151
  
$
8,082
      

  

Current Liabilities
    
$
448
  
$
408
Long-term Debt
    
 
1,126
  
 
1,156
Other Long-term Liabilities
    
 
2,350
  
 
2,413
      

  

Total Liabilities
    
 
3,924
  
 
3,977
      

  

Stockholders’ Equity
    
 
4,227
  
 
4,105
      

  

Total Liabilities and Stockholders’ Equity
    
$
8,151
  
$
8,082
      

  

 
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 Conrail railroad 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.
 
As listed below, CSX has amounts payable to Conrail, representing expenses incurred under the operating, equipment and shared area agreements with Conrail. At December 28, 2001, CSX also had receivables from Conrail, principally for reimbursement of certain capital improvement costs. Conrail advances its available cash balances to CSX and Norfolk Southern under variable-rate notes, with CSX’s note maturing on March 28, 2007.
 
      
September 27, 2002

      
December 28, 2001

 
CSX Payable to Conrail
    
$
70
 
    
$
88
 
CSX Receivable from Conrail
    
 
—  
 
    
 
3
 
Conrail Advances to CSX
    
 
344
 
    
 
225
 
Interest Rates on Conrail Advances to CSX
    
 
2.11
%
    
 
2.50
%
 
Interest expense relating to the Conrail advances for the quarter and nine months ended September 27, 2002 was $2.0 million and $5.8 million, respectively. Interest expense for the quarter and nine months ended September 28, 2001 was $1.7 and $4.0, respectively.

9


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 5.    ACCOUNTS RECEIVABLE
 
The Company sells revolving interests in its rail accounts receivable to public investors through a securitization program and to financial institutions through commercial paper conduit programs. The accounts receivable are sold, without recourse, to a wholly-owned, special-purpose subsidiary, which then transfers the receivables, with recourse, to a master trust. The securitization and conduit programs are accounted for as sales in accordance with SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Receivables sold under these arrangements are excluded from accounts receivable in the consolidated statement of financial position. At September 27, 2002, the agreements provide for the sale of up to $350 million in receivables through the securitization program and $200 million through the conduit program.
 
Accounts Receivable Sold (in millions):
 
      
September 27, 2002

    
December 28, 2001

Securitization
    
$
300
    
$
300
Conduit
    
 
80
    
 
200
      

    

Total Accounts Receivable Sold
    
$
380
    
$
500
      

    

 
During the quarter ended September 27, 2002, the Company discontinued the sale of $120 million of accounts receivable included in the master trust, resulting in a $120 million increase in accounts receivable. The certificates issued under the securitization program bear interest at 6% annually and mature in June 2003. Receivables sold under the conduit program, which expires in December 2002, require yield payments based on prevailing commercial paper rates (1.92% at September 27, 2002) plus incremental fees. The Company’s retained interest in the receivables in the master trust were approximately $557 million and $466 million at September 27, 2002 and December 28, 2001, and are included in accounts receivable. Losses recognized on the sale of accounts receivable totaled $6 million and $20 million for the quarter and nine months ended September 27, 2002, respectively, and $8 million and $27 million for the quarter and nine months ended September 28, 2001, 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 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 $139 million and $100 million have been applied as a reduction of accounts receivable at September 27, 2002 and December 28, 2001, respectively.

10


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 6.    OPERATING EXPENSE
 
      
Quarters Ended

    
Nine Months Ended

      
September 27,
2002

    
September 28,
2001

    
September 27,
2002

    
September 28,
2001

Labor and Fringe
    
$
720
    
$
707
    
$
2,165
    
$
2,202
Materials, Supplies and Other
    
 
421
    
 
417
    
 
1,298
    
 
1,267
Conrail Operating Fee, Rent and Services
    
 
82
    
 
83
    
 
248
    
 
251
Building and Equipment Rent
    
 
161
    
 
155
    
 
463
    
 
477
Inland Transportation
    
 
104
    
 
83
    
 
267
    
 
252
Depreciation
    
 
163
    
 
154
    
 
470
    
 
462
Fuel
    
 
128
    
 
138
    
 
372
    
 
454
      

    

    

    

Total
    
$
1,779
    
$
1,737
    
$
5,283
    
$
5,365
      

    

    

    

 
NOTE 7.    OTHER INCOME(1)
 
      
Quarters Ended

      
Nine Months Ended

 
      
September 27,
2002

      
September 28,
2001

      
September 27,
2002

      
September 28,
2001

 
Interest Income
    
$
7
 
    
$
11
 
    
$
22
 
    
$
37
 
Income from Real Estate and Resort Operations(2)
    
 
45
 
    
 
24
 
    
 
88
 
    
 
74
 
Net Losses from Accounts Receivable Sold
    
 
(6
)
    
 
(8
)
    
 
(20
)
    
 
(27
)
Minority Interest
    
 
(13
)
    
 
(9
)
    
 
(31
)
    
 
(27
)
Equity Income (Losses) of Other Affiliates(3)
    
 
—  
 
    
 
(1
)
    
 
(5
)
    
 
(20
)
Miscellaneous Expense
    
 
(5
)
    
 
(13
)
    
 
(13
)
    
 
(25
)
      


    


    


    


Total
    
$
28
 
    
$
4
 
    
$
41
 
    
$
12
 
      


    


    


    



(1)
 
Prior periods have been reclassified to conform to current presentation.
(2)
 
Gross revenue from real estate and resort operations was $91 million and $205 million for the quarter and nine months ended September 27, 2002, respectively, and $66 million and $187 million for the quarter and nine months ended September 28, 2001, respectively.
(3)
 
Included in equity losses of other affiliates was the $14 million write-off of an investment in a non-rail affiliate during the nine-months ended September 28, 2001.

11


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 8.    DEBT AND CREDIT AGREEMENTS
 
On March 8, 2002, the Company issued $400 million aggregate principal amount of 6.30% notes due 2012. Proceeds of the notes were applied in the refinancing of $450 million of debentures that matured in May 2002. During the nine months ended September 27, 2002, the Company issued commercial paper in the amount of $574 million at a weighted average rate of 1.92%. These borrowings were primarily used to make scheduled payments of long-term debt.
 
During the nine months ended September 27, 2002, the Company exchanged a $225 million note payable to Conrail for a new long-term note. Additionally, the note payable was increased by $119 million, for a total of $344 million. The note matures on March 28, 2007, and has been appropriately classified as long-term debt. (See Note 4)
 
NOTE 9.    DERIVATIVE FINANCIAL INSTRUMENTS
 
CSX has entered into interest rate swap agreements on the following fixed rate notes:
 
Principal / Notional
Amount (millions)

 
Interest Rate

 
Maturity

$450
 
7.45%
 
May 1, 2007
  300
 
7.25%
 
May 1, 2004
  300
 
9.00%
 
August 15, 2006
  150
 
5.85%
 
December 1, 2003
  150
 
8.30%
 
May 1, 2032
    50
 
6.46%
 
June 22, 2005
 
These agreements were entered for interest rate risk exposure management purposes and mature at the time the related notes are due. Under these agreements, the Company will pay variable interest based on LIBOR in exchange for fixed rate payments (on September 27, 2002 the variable and fixed rate weighted averages were 5.02% and 7.62%, respectively), effectively transforming the notes to floating rate obligations. Accordingly, the instruments qualify, and are designated, as fair value hedges.
 
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. The accounting for hedge effectiveness is measured at least quarterly based on the relative change in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, “Accounting For Derivative Instruments and Hedging Activities,” is recognized immediately in earnings. The Company’s interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS 133. As such, there was no ineffective portion to the hedge recognized in earnings during the current and prior year periods. Long-term debt has been increased $78 million and decreased $26 million for the fair market value of the interest rate swap agreements at September 27, 2002 and December 28, 2001, respectively.

12


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 9.    DERIVATIVE FINANCIAL INSTRUMENTS, Continued
 
The differential to be paid or received under these agreements is accrued based on the terms of the agreements and is recognized in interest expense over the term of the related debt. The related amounts payable to or receivable from counterparties are included in other liabilities or assets. Cash flows related to interest rate swap agreements are classified as “Operating Activities” in the Consolidated Statement of Cash Flows. For the quarter and nine months ended September 27, 2002, the Company reduced interest expense by approximately $8 million and $24 million, respectively, as a result of the interest rate swap agreements that were in place during that period. For the quarter and nine months ended September 28, 2001, interest expense was reduced by approximately $1 million.
 
The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties.
 
NOTE 10.    COMMITMENTS AND CONTINGENCIES
 
Purchase Commitments
 
The Company has entered into fuel purchase agreements for approximately 50% of its fuel requirements over the next three months. The Company has not entered into any fuel purchase agreements for 2003. At September 27, 2002, the agreements amount to approximately 70 million gallons in commitments at a weighted average of 78 cents per gallon. These contracts require the Company to take monthly delivery of specified quantities of fuel at a fixed price.
 
The Company also has a commitment under a long-term maintenance program for approximately 40% of the fleet of locomotives of CSX Transportation, Inc. (CSXT), a subsidiary of CSX. The agreement expires in 2025 and totals $2.6 billion.
 
Contingencies
 
Self-Insurance
 
The Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damages. It also self-insures at reasonable levels, based on its assessment of market risks and practices.
 
Casualty
 
CSX incurs claims for occupational injuries, personal injuries and accidents. Casualty reserves are estimated based upon the first reporting of an accident or personal injury, and updated as information develops. Liabilities for accidents are based upon the type and severity of the injury or claim and current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred, but not reported personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred, but not reported occupational injuries. Occupational injury, personal injury and accident liabilities amount to $633 million and $666 million at September 27, 2002 and December 28, 2001, respectively.

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Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 10.    COMMITMENTS AND CONTINGENCIES, Continued
 
Contingencies, Continued
 
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 89 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 206 sites. The 206 sites where it is participating in the study or clean-up of alleged environmental contamination include the 89 Superfund sites described above.
 
At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, owner or operator of the site), the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy of evidence connecting CSXT to the location, and the number, connection, financial position and ability to pay of other named and unnamed PRPs at the location.
 
Based upon the assessment review process, 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 September 27, 2002, and December 28, 2001 were $34 and $32 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 September 27, 2002 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.

14


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 10.    COMMITMENTS AND CONTINGENCIES, Continued
 
Contingencies, Continued
 
Sale Of International Container-Shipping Assets
 
In December 1999, CSX sold certain assets comprising Sea-Land’s international liner business to A. P. Moller-Maersk Line (Maersk). Maersk acquired vessels, containers, certain terminal facilities and various other assets and related liabilities of the international liner business. The agreement with Maersk provided for a post-closing working capital adjustment to the sales price based on the change in working capital, as defined in the agreement, between June 25, 1999, and December 10, 1999. The Company has recorded a receivable of approximately $70 million in connection with the post-closing working capital adjustment, and this amount is currently in dispute. This matter, together with certain other issues relating to contractual obligations of the Company relating to the sale of international container shipping assets, has been submitted to arbitration.
 
In addition to the disputes relating to the sale of the international container shipping assets, CSX has received a claim amounting to approximately $180 million plus interest from Europe Container Terminals bv (ECT), owner of the Rotterdam Container Terminal operated by Sea-Land prior to its sale to Maersk. ECT has claimed that the sale of the international liner business to Maersk resulted in a breach of the Sea-Land terminal agreements. ECT has refused to accept containers at the former Sea-Land facility tendered by Maersk and is seeking compensation from CSX related to the alleged breach. CSX has advised Maersk that CSX will hold it responsible for any damages that may result from this dispute. An initial arbitration hearing has been held to establish whether CSX is liable for ECT’s claim, and a ruling on that issue is expected in December 2002. Management believes that valid defenses to this claim exist. If the arbitration panel determines that there is liability, a separate hearing will be set to fix the amount of any damages.
 
Although management believes it will prevail in some or all of the Maersk and ECT disputes and arbitrations, it can give no assurance in this regard. An adverse outcome could have a material effect on the determination of the final loss on sale of Sea-Land’s International Liner business and the financial results in future reporting periods.
 
New Orleans Tank Car Fire
 
CSXT’s settlement of the New Orleans Tank Car Fire Litigation was $220 million, of which approximately $135 million was funded by CSXT’s insurers, and was paid during the third quarter of 2002 to the plaintiffs’ representatives.

15


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 10.    COMMITMENTS AND CONTINGENCIES, Continued
 
Contingencies, Continued
 
Contract Settlement
 
In July, the Company received $44 million as the first of two payments to settle a contract dispute. In the quarter ended September 27, 2002, the Company recognized approximately $7 million of this first payment in other income as this amount related to prior periods. The remaining $37 million will be recognized ratably over the contract period, which ends in 2020. The second payment of $23 million is due in January 2003 and will be recognized over the contract period which ends in 2020. The results of this settlement will provide approximately $3 million in annual pretax earnings through 2020.
 
Other Legal Proceedings
 
A number of other legal actions are pending against CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of these legal actions cannot be predicted with certainty, management does not currently expect that the resolution of these matters will have a material 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 11.    BUSINESS SEGMENTS
 
The Company operates in four business segments: Rail, Intermodal, Domestic Container Shipping, and International Terminals. The Rail segment provides rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. The Intermodal segment provides transcontinental intermodal transportation services and operates a network of dedicated intermodal facilities across North America. The Domestic Container Shipping segment consists of a fleet of 17 ocean vessels and 22,000 containers serving the trade between ports on the United States mainland and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals segment operates container freight terminal facilities in Hong Kong, China, Australia, Europe, Russia and Latin America. The Company’s segments are strategic business units that offer different services and are managed separately based on the differences in these services. Because of their close interrelationship, the Rail and Intermodal segments are viewed on a combined basis as Surface Transportation operations and the Domestic Container Shipping and International Terminals segments are viewed on a combined basis as Marine Services operations.
 
The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is business segment operating income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1) in the CSX Annual Report on Form 10-K, except that for segment reporting purposes, CSX includes minority interest expense on the International Terminals segment’s joint venture businesses in operating expense. These amounts are reclassified in CSX’s consolidated financial statements to other expense. Intersegment sales and transfers are generally accounted for as if the sales or transfers were to third parties, at current market prices.

16


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 11.    BUSINESS SEGMENTS, Continued
 
Business segment information for the quarters and nine months ended September 27, 2002 and September 28, 2001 is as follows:
 
    
Surface Transportation

  
Marine Services

    
    
Rail

  
Intermodal

  
Total

  
Domestic Container Shipping

    
International Terminals

  
Total

  
Total

Quarter ended September 27, 2002:
                                                  
Revenues from external customers
  
$
1,473
  
$
306
  
$
1,779
  
$
215
    
$
64
  
$
279
  
$
2,058
Intersegment revenues
  
 
—  
  
 
7
  
 
7
  
 
—  
    
 
—  
  
 
—  
  
 
7
Segment operating income
  
 
188
  
 
39
  
 
227
  
 
22
    
 
18
  
 
40
  
 
267
Assets
  
 
12,657
  
 
520
  
 
13,177
  
 
303
    
 
949
  
 
1,252
  
 
14,429
Quarter ended September 28, 2001:
                                                  
Revenues from external customers
  
$
1,495
  
$
281
  
$
1,776
  
$
181
    
$
58
  
$
239
  
$
2,015
Intersegment revenues
  
 
—  
  
 
5
  
 
5
  
 
—  
    
 
—  
  
 
—  
  
 
5
Segment operating income
  
 
200
  
 
37
  
 
237
  
 
17
    
 
20
  
 
37
  
 
274
Assets
  
 
12,826
  
 
437
  
 
13,263
  
 
404
    
 
868
  
 
1,272
  
 
14,535
Nine Months ended September 27, 2002:
                                           
Revenues from external customers
  
$
4,497
  
$
851
  
$
5,348
  
$
565
    
$
179
  
$
744
  
$
6,092
Intersegment revenues
  
 
—  
  
 
20
  
 
20
  
 
—  
    
 
1
  
 
1
  
 
21
Segment operating income
  
 
609
  
 
105
  
 
714
  
 
32
    
 
45
  
 
77
  
 
791
Assets
  
 
12,657
  
 
520
  
 
13,177
  
 
303
    
 
949
  
 
1,252
  
 
14,429
Nine Months ended September 28, 2001:
                                           
Revenues from external customers
  
$
4,583
  
$
812
  
$
5,395
  
$
510
    
$
176
  
$
686
  
$
6,081
Intersegment revenues
  
 
—  
  
 
15
  
 
15
  
 
—  
    
 
2
  
 
2
  
 
17
Segment operating income
  
 
585
  
 
76
  
 
661
  
 
21
    
 
50
  
 
71
  
 
732
Assets
  
 
12,826
  
 
437
  
 
13,263
  
 
404
    
 
868
  
 
1,272
  
 
14,535

17


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 11.    BUSINESS SEGMENTS, Continued
 
A reconciliation of the totals reported for the business segments to the applicable line items in the consolidated financial statements is as follows:
 
    
Quarters Ended

      
Nine Months Ended

 
    
September 27, 2002

    
September 28, 2001

      
September 27, 2002

      
September 28, 2001

 
Revenues:
                                       
Total external revenues for business segments
  
$
2,058
 
  
$
2,015
 
    
$
6,092
 
    
$
6,081
 
Intersegment revenues for business segments
  
 
7
 
  
 
5
 
    
 
21
 
    
 
17
 
Elimination of intersegment revenues
  
 
(7
)
  
 
(5
)
    
 
(21
)
    
 
(17
)
Other
  
 
(3
)
  
 
4
 
    
 
—  
 
    
 
20
 
    


  


    


    


Total consolidated revenues
  
$
2,055
 
  
$
2,019
 
    
$
6,092
 
    
$
6,101
 
    


  


    


    


                                         
Operating Income:
                                       
Total operating income for business segments
  
$
267
 
  
$
274
 
    
$
791
 
    
$
732
 
Reclassification of minority interest expense for International Terminals segment
  
 
13
 
  
 
9
 
    
 
31
 
    
 
27
 
Other unallocated expenses
  
 
(4
)
  
 
(1
)
    
 
(13
)
    
 
(23
)
    


  


    


    


Total consolidated operating income
  
$
276
 
  
$
282
 
    
$
809
 
    
$
736
 
    


  


    


    


                                         
    
September 27, 2002

    
September 28, 2001

                   
Assets:
                                       
Assets for business segments
  
$
14,429
 
  
$
14,535
 
                     
Investment in Conrail
  
 
4,667
 
  
 
4,677
 
                     
Elimination of intercompany receivables
  
 
(222
)
  
 
(91
)
                     
Non-segment assets
  
 
2,151
 
  
 
1,485
 
                     
    


  


                     
Total consolidated assets
  
$
21,025
 
  
$
20,606
 
                     
    


  


                     

18


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 12.    SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES
 
During 1987, CSX Lines entered into agreements to sell and lease back by charter three new U.S.-built, U.S.-flag, D-7 class container ships. CSX has guaranteed the obligations of CSX Lines pursuant to the related charters which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission (“SEC”). The September 27, 2002, September 28, 2001, and December 28, 2001 consolidating schedules reflect CSX Lines as the obligor. In accordance with SEC disclosure requirements, consolidating financial information for the parent and obligor are as follows (amounts in millions):
 
CONSOLIDATED STATEMENT OF EARNINGS
 
    
 
CSX Corporation
 
  
 
CSX Lines
  
 
Other
  
 
Eliminations
 
  
 
Consolidated
    


  

  

  


  

Quarter ended September 27, 2002
                                      
Operating Revenue
  
$
—  
 
  
$
215
  
$
1,903
  
$
(63
)
  
$
2,055
Operating Expense
  
 
(58
)
  
 
193
  
 
1,704
  
 
(60
)
  
 
1,779
    


  

  

  


  

Operating Income (Loss)
  
 
58
 
  
 
22
  
 
199
  
 
(3
)
  
 
276
Other Income (Expense)
  
 
161
 
  
 
1
  
 
43
  
 
(177
)
  
 
28
Interest Expense
  
 
97
 
  
 
1
  
 
23
  
 
(13
)
  
 
108
    


  

  

  


  

Earnings (Loss) before Income Taxes
  
 
122
 
  
 
22
  
 
219
  
 
(167
)
  
 
196
Income Tax Expense (Benefit)
  
 
13
 
  
 
8
  
 
48
  
 
—  
 
  
 
69
    


  

  

  


  

Net Earnings (Loss)
  
$
109
 
  
$
14
  
$
171
  
$
(167
)
  
$
127
    


  

  

  


  

Quarter ended September 28, 2001
                                      
Operating Revenue
  
$
—  
 
  
$
181
  
$
1,949
  
$
(111
)
  
$
2,019
Operating Expense
  
 
(59
)
  
 
164
  
 
1,741
  
 
(109
)
  
 
1,737
    


  

  

  


  

Operating Income (Loss)
  
 
59
 
  
 
17
  
 
208
  
 
(2
)
  
 
282
Other Income (Expense)
  
 
152
 
  
 
3
  
 
22
  
 
(173
)
  
 
4
Interest Expense
  
 
116
 
  
 
4
  
 
29
  
 
(20
)
  
 
129
    


  

  

  


  

Earnings (Loss) before Income Taxes
  
 
95
 
  
 
16
  
 
201
  
 
(155
)
  
 
157
Income Tax Expense (Benefit)
  
 
(20
)
  
 
6
  
 
71
  
 
—  
 
  
 
57
    


  

  

  


  

Net Earnings (Loss)
  
$
115
 
  
$
10
  
$
130
  
$
(155
)
  
$
100
    


  

  

  


  

19


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 12.    SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES, Continued
 
CONSOLIDATED STATEMENT OF EARNINGS
 
      
CSX Corporation

    
CSX Lines

  
Other

      
Eliminations

    
Consolidated

 
Nine Months Ended September 27, 2002
                                              
Operating Revenue
    
$
—  
 
  
$
565
  
$
5,691
 
    
$
(164
)
  
$
6,092
 
Operating Expense
    
 
(194
)
  
 
533
  
 
5,100
 
    
 
(156
)
  
 
5,283
 
    
    


  

  


    


  


Operating Income (Loss)
    
 
194
 
  
 
32
  
 
591
 
    
 
(8
)
  
 
809
 
Other Income (Expense)
    
 
378
 
  
 
5
  
 
83
 
    
 
(425
)
  
 
41
 
Interest Expense
    
 
299
 
  
 
6
  
 
73
 
    
 
(40
)
  
 
338
 
      


  

  


    


  


Earnings (Loss) before Income Taxes and Cumulative Effect of Accounting Change
    
 
273
 
  
 
31
  
 
601
 
    
 
(393
)
  
 
512
 
Income Tax Expense (Benefit)
    
 
34
 
  
 
12
  
 
136
 
    
 
—  
 
  
 
182
 
      


  

  


    


  


Earnings (Loss) before Cumulative Effect of Accounting Change
    
 
239
 
  
 
19
  
 
465
 
    
 
(393
)
  
 
330
 
Cumulative Effect of Accounting Change
    
 
—  
 
  
 
—  
  
 
(43
)
    
 
—  
 
  
 
(43
)
      


  

  


    


  


Net Earnings (Loss)
    
$
239
 
  
$
19
  
$
422
 
    
$
(393
)
  
$
287
 
      


  

  


    


  


Nine Months Ended September 28, 2001
                                              
Operating Revenue
    
$
—  
 
  
$
510
  
$
5,920
 
    
$
(329
)
  
$
6,101
 
Operating Expense
    
 
(150
)
  
 
489
  
 
5,349
 
    
 
(323
)
  
 
5,365
 
      


  

  


    


  


Operating Income (Loss)
    
 
150
 
  
 
21
  
 
571
 
    
 
(6
)
  
 
736
 
Other Income (Expense)
    
 
389
 
  
 
6
  
 
75
 
    
 
(458
)
  
 
12
 
Interest Expense
    
 
360
 
  
 
10
  
 
94
 
    
 
(67
)
  
 
397
 
      


  

  


    


  


Earnings (Loss) before Income Taxes
    
 
179
 
  
 
17
  
 
552
 
    
 
(397
)
  
 
351
 
Income Tax Expense (Benefit)
    
 
(70
)
  
 
6
  
 
187
 
    
 
—  
 
  
 
123
 
      


  

  


    


  


Net Earnings (Loss)
    
$
249
 
  
$
11
  
$
365
 
    
$
(397
)
  
$
228
 
      


  

  


    


  


20


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 12.    SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES, Continued
 
CONSOLIDATING STATEMENT OF CASH FLOWS
 
    
CSX
Corporation

    
CSX
Lines

    
Other

      
Eliminations

    
Consolidated

 
Nine Months Ended September 27, 2002
                                              
Operating Activities:
                                              
Net Cash Provided (Used) by Operating Activities
  
$
257
 
  
$
(3
)
  
$
620
 
    
$
(181
)
  
$
693
 
    
  


  


  


    


  


Investing Activities:
                                              
Property Additions
  
 
(4
)
  
 
(16
)
  
 
(723
)
    
 
—  
 
  
 
(743
)
Short-term Investments-net
  
 
(17
)
  
 
(26
)
  
 
220
 
    
 
—  
 
  
 
177
 
Other Investing Activities
  
 
(25
)
  
 
18
 
  
 
(64
)
    
 
13
 
  
 
(58
)
    


  


  


    


  


Net Cash Used by Investing Activities
  
 
(46
)
  
 
(24
)
  
 
(567
)
    
 
13
 
  
 
(624
)
    


  


  


    


  


Financing Activities:
                                              
Short-term Debt-Net
  
 
570
 
  
 
—  
 
  
 
1
 
    
 
—  
 
  
 
571
 
Long-term Debt Issued
  
 
518
 
  
 
—  
 
  
 
1
 
    
 
—  
 
  
 
519
 
Long-term Debt Repaid
  
 
(950
)
  
 
—  
 
  
 
(163
)
    
 
—  
 
  
 
(1,113
)
Dividends Paid
  
 
(65
)
  
 
—  
 
  
 
(157
)
    
 
157
 
  
 
(65
)
Other Financing Activities
  
 
25
 
  
 
—  
 
  
 
(34
)
    
 
11
 
  
 
2
 
    


  


  


    


  


Net Cash Provided (Used) by Financing Activities
  
 
98
 
  
 
—  
 
  
 
(352
)
    
 
168
 
  
 
(86
)
    


  


  


    


  


Net Increase (Decrease) in Cash and Cash Equivalents
  
 
309
 
  
 
(27
)
  
 
(299
)
    
 
—  
 
  
 
(17
)
Cash and Cash Equivalents at Beginning of Period
  
 
156
 
  
 
52
 
  
 
(71
)
    
 
—  
 
  
 
137
 
    


  


  


    


  


Cash and Cash Equivalents at End of Period
  
$
465
 
  
$
25
 
  
$
(370
)
    
$
—  
 
  
$
120
 
    


  


  


    


  


Nine Months Ended September 28, 2001
                                              
Operating Activities:
                                              
Net Cash Provided (Used) by Operating Activities
  
$
(128
)
  
$
36
 
  
$
557
 
    
$
(26
)
  
$
439
 
    


  


  


    


  


Investing Activities:
                                              
Property Additions
  
 
—  
 
  
 
(5
)
  
 
(623
)
    
 
—  
 
  
 
(628
)
Short-term Investments-net
  
 
(35
)
  
 
—  
 
  
 
—  
 
    
 
—  
 
  
 
(35
)
Other Investing Activities
  
 
(885
)
  
 
1
 
  
 
937
 
    
 
(1
)
  
 
52
 
    


  


  


    


  


Net Cash Used by Investing Activities
  
 
(920
)
  
 
(4
)
  
 
314
 
    
 
(1
)
  
 
(611
)
    


  


  


    


  


Financing Activities:
                                              
Short-term Debt-Net
  
 
(127
)
  
 
—  
 
  
 
—  
 
    
 
—  
 
  
 
(127
)
Long-term Debt Issued
  
 
500
 
  
 
—  
 
  
 
—  
 
    
 
—  
 
  
 
500
 
Long-term Debt Repaid
  
 
(60
)
  
 
—  
 
  
 
(135
)
    
 
—  
 
  
 
(195
)
Dividends Paid
  
 
(152
)
  
 
—  
 
  
 
(24
)
    
 
27
 
  
 
(149
)
Other Financing Activities
  
 
711
 
  
 
76
 
  
 
(773
)
    
 
1
 
  
 
15
 
    


  


  


    


  


Net Cash Provided (Used) by Financing Activities
  
 
872
 
  
 
76
 
  
 
(932
)
    
 
28
 
  
 
44
 
    


  


  


    


  


Net Increase (Decrease) in Cash and Cash Equivalents
  
 
(176
)
  
 
108
 
  
 
(61
)
    
 
1
 
  
 
(128
)
Cash and Cash Equivalents at Beginning of Period
  
 
(134
)
  
 
(94
)
  
 
489
 
    
 
—  
 
  
 
261
 
    


  


  


    


  


Cash and Cash Equivalents at End of Period
  
$
(310
)
  
$
14
 
  
$
428
 
    
$
1
 
  
$
133
 
    


  


  


    


  


21


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 12.    SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES, Continued
 
      
Consolidating Statement of Financial Position
September 27, 2002

 
      
CSX Corporation

    
CSX Lines

    
Other

    
Eliminations

    
Consolidated

 
ASSETS
                                              
Current Assets
                                              
Cash, Cash Equivalents and Short-term Investments
    
$
559
 
  
$
25
 
  
$
(162
)
  
$
—  
 
  
$
422
 
Accounts Receivable, Net
    
 
51
 
  
 
30
 
  
 
1,107
 
  
 
(233
)
  
 
955
 
Materials and Supplies
    
 
—  
 
  
 
18
 
  
 
194
 
  
 
—  
 
  
 
212
 
Deferred Income Taxes
    
 
—  
 
  
 
—  
 
  
 
122
 
  
 
—  
 
  
 
122
 
Other Current Assets
    
 
5
 
  
 
4
 
  
 
325
 
  
 
(135
)
  
 
199
 
      


  


  


  


  


Total Current Assets
    
 
615
 
  
 
77
 
  
 
1,586
 
  
 
(368
)
  
 
1,910
 
Properties
    
 
33
 
  
 
386
 
  
 
18,112
 
  
 
—  
 
  
 
18,531
 
Accumulated Depreciation
    
 
(29
)
  
 
(261
)
  
 
(5,032
)
  
 
—  
 
  
 
(5,322
)
      


  


  


  


  


Properties, Net
    
 
4
 
  
 
125
 
  
 
13,080
 
  
 
—  
 
  
 
13,209
 
Investment in Conrail
    
 
345
 
  
 
—  
 
  
 
4,322
 
  
 
—  
 
  
 
4,667
 
Affiliates and Other Companies
    
 
2
 
  
 
84
 
  
 
409
 
  
 
(33
)
  
 
462
 
Investment in Consolidated Subsidiaries
    
 
12,851
 
  
 
—  
 
  
 
396
 
  
 
(13,247
)
  
 
—  
 
Other Long-term Assets
    
 
995
 
  
 
17
 
  
 
331
 
  
 
(566
)
  
 
777
 
      


  


  


  


  


Total Assets
    
$
14,812
 
  
$
303
 
  
$
20,124
 
  
$
(14,214
)
  
$
21,025
 
      


  


  


  


  


LIABILITIES
                                              
Current Liabilities
                                              
Accounts Payable
    
$
109
 
  
$
89
 
  
$
855
 
  
$
(160
)
  
$
893
 
Labor and Fringe Benefits Payable
    
 
24
 
  
 
19
 
  
 
394
 
  
 
—  
 
  
 
437
 
Payable to Affiliates
    
 
—  
 
  
 
—  
 
  
 
135
 
  
 
(135
)
  
 
—  
 
Casuality, Environmental and Other Reserves
    
 
1
 
  
 
3
 
  
 
244
 
  
 
—  
 
  
 
248
 
Current Maturities of Long-term Debt
    
 
—  
 
  
 
—  
 
  
 
230
 
  
 
—  
 
  
 
230
 
Short-term Debt
    
 
570
 
  
 
—  
 
  
 
4
 
  
 
—  
 
  
 
574
 
Income and Other Taxes Payable
    
 
1,465
 
  
 
10
 
  
 
(1,275
)
  
 
(8
)
  
 
192
 
Other Current Liabilities
    
 
36
 
  
 
20
 
  
 
183
 
  
 
(65
)
  
 
174
 
      


  


  


  


  


Total Current Liabilities
    
 
2,205
 
  
 
141
 
  
 
770
 
  
 
(368
)
  
 
2,748
 
Casuality, Environmental and Other Reserves
    
 
3
 
  
 
3
 
  
 
635
 
  
 
—  
 
  
 
641
 
Long-term Debt
    
 
5,431
 
  
 
—  
 
  
 
1,003
 
  
 
—  
 
  
 
6,434
 
Deferred Income Taxes
    
 
—  
 
  
 
7
 
  
 
3,643
 
  
 
—  
 
  
 
3,650
 
Long-term Payable to Affiliates
    
 
396
 
  
 
—  
 
  
 
170
 
  
 
(566
)
  
 
—  
 
Other Long-term Liabilities
    
 
369
 
  
 
46
 
  
 
793
 
  
 
(32
)
  
 
1,176
 
      


  


  


  


  


Total Liabilities
    
 
8,404
 
  
 
197
 
  
 
7,014
 
  
 
(966
)
  
 
14,649
 
      


  


  


  


  


SHAREHOLDER’S EQUITY
                                              
Preferred Stock
    
 
—  
 
  
 
—  
 
  
 
396
 
  
 
(396
)
  
 
—  
 
Common Stock
    
 
215
 
  
 
—  
 
  
 
209
 
  
 
(209
)
  
 
215
 
Other Capital
    
 
1,525
 
  
 
73
 
  
 
8,252
 
  
 
(8,325
)
  
 
1,525
 
Retained Earnings
    
 
4,682
 
  
 
33
 
  
 
4,285
 
  
 
(4,318
)
  
 
4,682
 
Accumulated Other Comprehensive Loss
    
 
(14
)
  
 
—  
 
  
 
(32
)
  
 
—  
 
  
 
(46
)
      


  


  


  


  


Total Shareholder’s Equity
    
 
6,408
 
  
 
106
 
  
 
13,110
 
  
 
(13,248
)
  
 
6,376
 
      


  


  


  


  


Total Liabilities and Shareholder’s Equity
    
$
14,812
 
  
$
303
 
  
$
20,124
 
  
$
(14,214
)
  
$
21,025
 
      


  


  


  


  


22


Table of Contents
 
CSX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(All Tables in Millions of Dollars, Except Per Share Amounts)
 
NOTE 12.    SUMMARIZED CONSOLIDATING FINANCIAL DATA—CSX LINES, Continued
 
      
Consolidating Statement of Financial Position
December 28, 2001

 
      
CSX Corporation

    
CSX Lines

    
Other

    
Eliminations

    
Consolidated

 
ASSETS
                                              
Current Assets
                                              
Cash, Cash Equivalents and Short-term Investments
    
$
225
 
  
$
55
 
  
$
339
 
  
$
(1
)
  
$
618
 
Accounts Receivable, Net
    
 
58
 
  
 
8
 
  
 
1,036
 
  
 
(224
)
  
 
878
 
Materials and Supplies
    
 
—  
 
  
 
14
 
  
 
192
 
  
 
—  
 
  
 
206
 
Deferred Income Taxes
    
 
—  
 
  
 
—  
 
  
 
162
 
  
 
—  
 
  
 
162
 
Other Current Assets
    
 
4
 
  
 
36
 
  
 
295
 
  
 
(125
)
  
 
210
 
      


  


  


  


  


Total Current Assets
    
 
287
 
  
 
113
 
  
 
2,024
 
  
 
(350
)
  
 
2,074
 
Properties
    
 
29
 
  
 
453
 
  
 
17,669
 
  
 
—  
 
  
 
18,151
 
Accumulated Depreciation
    
 
(27
)
  
 
(286
)
  
 
(4,866
)
  
 
—  
 
  
 
(5,179
)
      


  


  


  


  


Properties, Net
    
 
2
 
  
 
167
 
  
 
12,803
 
  
 
—  
 
  
 
12,972
 
Investment in Conrail
    
 
353
 
  
 
—  
 
  
 
4,302
 
  
 
—  
 
  
 
4,655
 
Affiliates and Other Companies
    
 
2
 
  
 
85
 
  
 
326
 
  
 
(31
)
  
 
382
 
Investment in Consolidated Subsidiaries
    
 
12,641
 
  
 
—  
 
  
 
396
 
  
 
(13,037
)
  
 
—  
 
Other Long-term Assets
    
 
985
 
  
 
137
 
  
 
184
 
  
 
(588
)
  
 
718
 
      


  


  


  


  


Total Assets
    
$
14,270
 
  
$
502
 
  
$
20,035
 
  
$
(14,006
)
  
$
20,801
 
      


  


  


  


  


LIABILITIES
                                              
Current Liabilities
                                              
Accounts Payable
    
$
86
 
  
$
81
 
  
$
965
 
  
$
(166
)
  
$
966
 
Labor and Fringe Benefits Payable
    
 
17
 
  
 
13
 
  
 
388
 
  
 
—  
 
  
 
418
 
Payable to Affiliates
    
 
—  
 
  
 
2
 
  
 
123
 
  
 
(125
)
  
 
—  
 
Casuality, Environmental and Other Reserves
    
 
1
 
  
 
3
 
  
 
246
 
  
 
—  
 
  
 
250
 
Current Maturities of Long-term Debt
    
 
850
 
  
 
21
 
  
 
173
 
  
 
—  
 
  
 
1,044
 
Short-term Debt
    
 
225
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
225
 
Income and Other Taxes Payable
    
 
1,296
 
  
 
25
 
  
 
(1,220
)
  
 
—  
 
  
 
101
 
Other Current Liabilities
    
 
38
 
  
 
20
 
  
 
300
 
  
 
(59
)
  
 
299
 
      


  


  


  


  


Total Current Liabilities
    
 
2,513
 
  
 
165
 
  
 
975
 
  
 
(350
)
  
 
3,303
 
Casuality, Environmental and Other Reserves
    
 
4
 
  
 
4
 
  
 
682
 
  
 
—  
 
  
 
690
 
Long-term Debt
    
 
4,680
 
  
 
132
 
  
 
1,027
 
  
 
—  
 
  
 
5,839
 
Deferred Income Taxes
    
 
—  
 
  
 
83
 
  
 
3,538
 
  
 
—  
 
  
 
3,621
 
Long-term Payable to Affiliates
    
 
396
 
  
 
—  
 
  
 
192
 
  
 
(588
)
  
 
—  
 
Other Long-term Liabilities
    
 
525
 
  
 
48
 
  
 
685
 
  
 
(30
)
  
 
1,228
 
      


  


  


  


  


Total Liabilities
    
 
8,118
 
  
 
432
 
  
 
7,099
 
  
 
(968
)
  
 
14,681
 
      


  


  


  


  


SHAREHOLDER’S EQUITY
                                              
Preferred Stock
    
 
—  
 
  
 
—  
 
  
 
396
 
  
 
(396
)
  
 
—  
 
Common Stock
    
 
214
 
  
 
—  
 
  
 
209
 
  
 
(209
)
  
 
214
 
Other Capital
    
 
1,492
 
  
 
57
 
  
 
8,243
 
  
 
(8,300
)
  
 
1,492
 
Retained Earnings
    
 
4,459
 
  
 
13
 
  
 
4,120
 
  
 
(4,133
)
  
 
4,459
 
Accumulated Other Comprehensive Loss
    
 
(13
)
  
 
—  
 
  
 
(32
)
  
 
—  
 
  
 
(45
)
      


  


  


  


  


Total Shareholder’s Equity
    
 
6,152
 
  
 
70
 
  
 
12,936
 
  
 
(13,038
)
  
 
6,120
 
      


  


  


  


  


Total Liabilities and Shareholder’s Equity
    
$
14,270
 
  
$
502
 
  
$
20,035
 
  
$
(14,006
)
  
$
20,801
 
      


  


  


  


  


23


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
 
RESULTS OF OPERATIONS
 
CSX follows a 52/53-week fiscal reporting calendar. Fiscal years 2002 and 2001 consist of 52 weeks ending on December 27, 2002 and December 28, 2001, respectively. The financial statements presented are for the 13-week quarters ended September 27, 2002 and September 28, 2001, the 39-week periods ended September 27, 2002 and September 28, 2001, and as of December 28, 2001.
 
Consolidated Results
 
Third Quarter 2002 Compared with 2001
 
CSX reported net earnings of $127 million, or 60 cents per share for the quarter ended September 27, 2002, as compared to $100 million, or 47 cents per share in the quarter a year ago. The increase in earnings over the prior year period resulted primarily from real estate gains included in other income and decreased interest expense, offset slightly by lower operating income.
 
Operating income was $276 million for the quarter ended September 27, 2002, a decrease of 2% compared to operating income of $282 million for the same quarter in 2001. This decrease is a result of a decline in Surface Transportation operating income. Operating revenue increased to $2.06 billion in the third quarter of 2002 from $2.02 billion in the prior year period. This 2% increase is primarily a result of improved revenue in the Marine Services segments. However, this increase was offset by higher operating expenses of $1.78 billion in the current quarter, an increase from $1.74 billion in the prior year quarter, primarily due to Marine Services results.
 
Other income was $28 million in the quarter ended September 27, 2002, as compared with $4 million reported in the same quarter of 2001. The $24 million increase primarily relates to real estate gains as well as improved resort operating results over the same period of the prior year. Interest expense benefited from refinancing at lower rates and favorable impact due to the interest rate swap program, which has converted expense related to fixed rate debt to variable. This resulted in a decrease of $21 million or 16%, from $129 million in the prior year quarter.

24


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
 
RESULTS OF OPERATIONS, CONTINUED
 
Surface Transportation Results
 
The following tables provide Surface Transportation operating results:
 
Quarters Ended September 27, 2002 and September 28, 2001
(Millions) (Unaudited)
 
    
Rail

    
Intermodal

    
Surface
Transportation

 
    
2002

    
2001

    
2002

    
2001

    
2002

    
2001

 
Operating Revenue
  
$
1,473
 
  
$
1,495
 
  
$
313
 
  
$
286
 
  
$
1,786
 
  
$
1,781
 
Operating Expense
                                                     
Labor and Fringe
  
 
629
 
  
 
624
 
  
 
16
 
  
 
15
 
  
 
645
 
  
 
639
 
Materials, Supplies and Other
  
 
295
 
  
 
312
 
  
 
46
 
  
 
41
 
  
 
341
 
  
 
353
 
Conrail Operating Fees, Rents and Services
  
 
82
 
  
 
83
 
  
 
—  
 
  
 
—  
 
  
 
82
 
  
 
83
 
Building and Equipment Rent
  
 
117
 
  
 
108
 
  
 
34
 
  
 
32
 
  
 
151
 
  
 
140
 
Inland Transportation
  
 
(93
)
  
 
(94
)
  
 
171
 
  
 
154
 
  
 
78
 
  
 
60
 
Depreciation
  
 
146
 
  
 
139
 
  
 
7
 
  
 
7
 
  
 
153
 
  
 
146
 
Fuel
  
 
109
 
  
 
123
 
  
 
—  
 
  
 
—  
 
  
 
109
 
  
 
123
 
    


  


  


  


  


  


Total Operating Expense
  
 
1,285
 
  
 
1,295
 
  
 
274
 
  
 
249
 
  
 
1,559
 
  
 
1,544
 
    


  


  


  


  


  


Operating Income
  
$
188
 
  
$
200
 
  
$
39
 
  
$
37
 
  
$
227
 
  
$
237
 
Operating Ratio
  
 
87.2
%
  
 
86.6
%
  
 
87.5
%
  
 
87.1
%
  
 
87.3
%
  
 
86.7
%
 
Nine months Ended September 27, 2002 and September 28, 2001
(Millions) (Unaudited)
 
    
Rail

    
Intermodal

    
Surface
Transportation

 
    
2002

    
2001

    
2002

    
2001

    
2002

    
2001

 
Operating Revenue
  
$
4,497
 
  
$
4,583
 
  
$
871
 
  
$
827
 
  
$
5,368
 
  
$
5,410
 
Operating Expense
                                                     
Labor and Fringe
  
 
1,900
 
  
 
1,941
 
  
 
49
 
  
 
48
 
  
 
1,949
 
  
 
1,989
 
Materials, Supplies and Other
  
 
938
 
  
 
921
 
  
 
131
 
  
 
128
 
  
 
1,069
 
  
 
1,049
 
Conrail Operating Fees, Rents and Services
  
 
248
 
  
 
251
 
  
 
—  
 
  
 
—  
 
  
 
248
 
  
 
251
 
Building & Equipment Rent
  
 
326
 
  
 
341
 
  
 
98
 
  
 
90
 
  
 
424
 
  
 
431
 
Inland Transportation
  
 
(271
)
  
 
(280
)
  
 
466
 
  
 
462
 
  
 
195
 
  
 
182
 
Depreciation
  
 
422
 
  
 
416
 
  
 
22
 
  
 
23
 
  
 
444
 
  
 
439
 
Fuel
  
 
325
 
  
 
408
 
  
 
—  
 
  
 
—  
 
  
 
325
 
  
 
408
 
    


  


  


  


  


  


Total Operating Expense
  
 
3,888
 
  
 
3,998
 
  
 
766
 
  
 
751
 
  
 
4,654
 
  
 
4,749
 
    


  


  


  


  


  


Operating Income
  
$
609
 
  
$
585
 
  
$
105
 
  
$
76
 
  
$
714
 
  
$
661
 
Operating Ratio
  
 
86.5
%
  
 
87.2
%
  
 
87.9
%
  
 
90.8
%
  
 
86.7
%
  
 
87.8
%
 

25


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
 
RESULTS OF OPERATIONS, CONTINUED
 
Surface Transportation Results, Continued
 
Rail
 
The rail segment earned $188 million in operating income for the quarter ended September 27, 2002, compared to $200 million reported in the third quarter of 2001. The $12 million, or 6%, decline resulted from lower revenue.
 
Operating revenue decreased to $1.473 billion in the current period from $1.495 billion in the same quarter of the prior year. The $22 million decrease resulted from weak coal demand, which offset gains in merchandise and automotive revenues.
 
Merchandise revenue was up $19 million or 2% over the prior year period due to volume and price increases. This increase was due to the continued strong performance of phosphates and fertilizers as well as year-over-year improvements in metals, paper and forest, and chemical volumes. Agriculture volumes were down in the quarter because of a decline in the demand for export grain. The phosphates and fertilizers, agricultural, chemicals, minerals, and emerging markets commodity groups realized yield improvements as compared to the prior year period.
 
Automotive revenue was up $11 million or 6% due to yield improvements driven primarily by favorable mix and extended linehauls. Automotive sales are favorably affected by continued dealer incentives. The continuing increase in light truck production capacity is driving volume growth.
 
Coal, coke and iron ore revenue was down $34 million versus the prior year. Coal volumes were down 6% and revenue was down 8%. Unfavorable export, metallurgical, lake, and industrial coal are a result of plant closings and reduced competitive standing of U.S. coal in international markets. Pricing and increased tons per car continue to improve revenue per car yield, but were offset by mix changes, including short-haul modal conversions to the river, and decline in higher revenue per car movements, such as export and long-haul southern utility traffic.
 
The operating ratio was 87.2% for the quarter from 86.6% for the quarter the year before. Operating expenses decreased to $1.29 billion for the quarter ended September 28, 2002, from $1.30 billion in the prior year period. This $10 million decrease is attributed to lower materials, supplies, and other and fuel expenses partially offset by increased labor and fringe benefits, building and equipment rent and depreciation.

26


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
 
RESULTS OF OPERATIONS, CONTINUED
 
Surface Transportation Results, Continued
 
Rail, Continued
 
Labor and fringe benefits increased $5 million primarily due to wage inflation and increased healthcare costs, partially offset by headcount reductions. Building and equipment rent expense increased $9 million or 8% primarily as a result of unanticipated car hire reclaims from another railroad, which should not recur.
 
Fuel costs were down $14 million, $13 million due to lower fuel price. The net impact on operating income of reduced fuel price was $4 million, since $9 million of fuel surcharge revenue was discontinued.
 
Materials, supplies and other expense improved by $17 million as compared to the prior year quarter primarily due to reductions in personal injuries, derailment and other costs. Expenses associated with the Baltimore tunnel fire last year were offset by insurance recoveries in the same period.
 
In addition, several cost categories reflected expenses associated with train speed restrictions due to the heat orders that were put in place during the height of the Company’s maintenance program in August and part of September.
 
Intermodal
 
CSX Intermodal (“CSXI”) reported third quarter 2002 operating income of $39 million, compared with $37 million for the corresponding quarter in 2001. The $2 million increase resulted from higher revenue, offset by increased costs of operations.
 
Revenue was $313 million for the quarter ended September 27, 2002, compared to $286 million for the same quarter last year. The revenue improvement is attributable to increased volume in both international and domestic markets. Domestic shipments realized a 9% volume increase driven by strong domestic container demand and new internet trucking brokerage initiatives. The international container business realized a 10% volume increase, benefiting from strong growth of increased imports. Some pre-shipping in anticipation of the West Coast labor disruptions contributed to growth.
 
Operating expense increased to $274 million for the 2002 quarter from $249 million for the quarter a year before. This higher expense resulted primarily from higher inland transportation expense of $17 million due to higher volume.

27


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
 
RESULTS OF OPERATIONS, CONTINUED
 
Surface Transportation Results, Continued
 
The following tables provide rail and intermodal carload and revenue data by service group and commodity for the quarters and nine months ended September 27, 2002 and September 28, 2001:
 
    
Third Quarter Carloads
(Thousands)

    
Third Quarter Revenue
(Millions of Dollars)

 
    
2002

  
2001

    
% Change

    
2002

  
2001

    
% Change

 
Rail:
                                         
Merchandise
                                         
Phosphates and Fertilizer
  
113
  
101
    
12
 
  
$
73
  
$
63
    
16
 
Metals
  
83
  
81
    
2
 
  
 
104
  
 
102
    
2
 
Food and Consumer Products
  
41
  
41
    
—  
 
  
 
53
  
 
54
    
(2
)
Paper and Forest Products
  
122
  
120
    
2
 
  
 
161
  
 
161
    
—  
 
Agricultural Products
  
86
  
88
    
(2
)
  
 
116
  
 
118
    
(2
)
Chemicals
  
124
  
123
    
1
 
  
 
224
  
 
216
    
4
 
Minerals
  
21
  
23
    
(9
)
  
 
33
  
 
36
    
(8
)
Emerging Markets
  
115
  
117
    
(2
)
  
 
107
  
 
102
    
5
 
    
  
    

  

  

    

Total Merchandise
  
705
  
694
    
2
 
  
 
871
  
 
852
    
2
 
Automotive
  
124
  
119
    
4
 
  
 
195
  
 
184
    
6
 
Coal, Coke and Iron Ore
                                         
Coal
  
395
  
422
    
(6
)
  
 
382
  
 
417
    
(8
)
Coke
  
9
  
10
    
(10
)
  
 
12
  
 
12
    
—  
 
Iron Ore
  
13
  
12
    
8
 
  
 
7
  
 
6
    
17
 
    
  
    

  

  

    

Total Coal, Coke and Iron Ore
  
417
  
444
    
(6
)
  
 
401
  
 
435
    
(8
)
Other
  
—  
  
—  
    
—  
 
  
 
6
  
 
24
    
(75
)
    
  
    

  

  

    

Total Rail
  
1,246
  
1,257
    
(1
)
  
 
1,473
  
 
1,495
    
(1
)
    
  
    

  

  

    

Intermodal:
                                         
Domestic
  
252
  
231
    
9
 
  
 
178
  
 
159
    
12
 
International
  
314
  
286
    
10
 
  
 
133
  
 
121
    
10
 
Other
  
—  
  
—  
    
—  
 
  
 
2
  
 
6
    
(67
)
    
  
    

  

  

    

Total Intermodal
  
566
  
517
    
9
 
  
 
313
  
 
286
    
9
 
    
  
    

  

  

    

Total Surface Transportation
  
1,812
  
1,774
    
2
 
  
$
1,786
  
$
1,781
    
—  
 
    
  
    

  

  

    

28


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
 
RESULTS OF OPERATIONS, CONTINUED
 
Surface Transportation Results, Continued
 
    
Nine Months Loads
(Thousands)

    
Nine Months Revenue
(Millions of Dollars)

 
    
2002

  
2001

    
% Change

    
2002

  
2001

    
% Change

 
Rail:
                                         
Merchandise
                                         
Phosphates and Fertilizer
  
351
  
325
    
8
 
  
$
245
  
$
227
    
8
 
Metals
  
240
  
245
    
(2
)
  
 
302
  
 
304
    
(1
)
Food and Consumer Products
  
122
  
122
    
—  
 
  
 
161
  
 
163
    
(1
)
Paper and Forest Products
  
360
  
363
    
(1
)
  
 
479
  
 
482
    
(1
)
Agricultural Products
  
265
  
280
    
(5
)
  
 
362
  
 
377
    
(4
)
Chemicals
  
378
  
380
    
(1
)
  
 
681
  
 
673
    
1
 
Minerals
  
66
  
70
    
(6
)
  
 
101
  
 
107
    
(6
)
Emerging Markets
  
323
  
327
    
(1
)
  
 
301
  
 
290
    
4
 
    
  
    

  

  

    

Total Merchandise
  
2,105
  
2,112
    
—  
 
  
 
2,632
  
 
2,623
    
—  
 
Automotive
  
401
  
385
    
4
 
  
 
626
  
 
591
    
6
 
Coal, Coke and Iron Ore
                                         
Coal
  
1,178
  
1,291
    
(9
)
  
 
1,142
  
 
1,248
    
(8
)
Coke
  
26
  
31
    
(16
)
  
 
39
  
 
36
    
8
 
Iron Ore
  
26
  
30
    
(13
)
  
 
15
  
 
17
    
(12
)
    
  
    

  

  

    

Total Coal, Coke and Iron Ore
  
1,230
  
1,352
    
(9
)
  
 
1,196
  
 
1,301
    
(8
)
Other
  
—  
  
—  
    
—  
 
  
 
43
  
 
68
    
(37
)
    
  
    

  

  

    

Total Rail
  
3,736
  
3,849
    
(3
)
  
 
4,497
  
 
4,583
    
(2
)
    
  
    

  

  

    

Intermodal:
                                         
Domestic
  
714
  
660
    
8
 
  
 
498
  
 
457
    
9
 
International
  
870
  
835
    
4
 
  
 
367
  
 
358
    
3
 
Other
  
—  
  
—  
    
—  
 
  
 
6
  
 
12
    
(50
)
    
  
    

  

  

    

Total Intermodal
  
1,584
  
1,495
    
(6
)
  
 
871
  
 
827
    
5
 
    
  
    

  

  

    

Total Surface Transportation
  
5,320
  
5,344
    
—  
 
  
$
5,368
  
$
5,410
    
(1
)
    
  
    

  

  

    

29


Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
 
RESULTS OF OPERATIONS, CONTINUED
 
Marine Services Results
 
The following tables provide Marine Services operating results:
 
Quarters Ended September 27, 2002 and September 28, 2001
(Millions of Dollars)(Unaudited)
 
    
Domestic Container Shipping

    
International Terminals

    
Eliminations

  
Marine
Services

 
    
2002

    
2001

    
2002

    
2001

    
    2002    

  
    2001    

  
2002

    
2001

 
Operating Revenue
  
$
215
 
  
$
181
 
  
$
64
 
  
$
58
 
  
$
—  
  
$
—  
  
$
279
 
  
$
239
 
Operating Expense
                                                                   
Labor and Fringe
  
 
61
 
  
 
53
 
  
 
14
 
  
 
16
 
  
 
—  
  
 
—  
  
 
75
 
  
 
69
 
Materials, Supplies and Other
  
 
65
 
  
 
52
 
  
 
19
 
  
 
15
 
  
 
—  
  
 
—  
  
 
84
 
  
 
67
 
Building and Equipment Rent
  
 
10
 
  
 
13
 
  
 
3
 
  
 
2
 
  
 
—  
  
 
—  
  
 
13
 
  
 
15
 
Inland Transportation
  
 
33
 
  
 
25
 
  
 
3
 
  
 
1
 
  
 
—  
  
 
—  
  
 
36
 
  
 
26
 
Depreciation
  
 
5
 
  
 
6
 
  
 
3
 
  
 
2
 
  
 
—  
  
 
—  
  
 
8
 
  
 
8
 
Fuel