Item 3. Legal Proceedings
In response to this item, the information set forth on pages 34-35 of this document in "Management's Discussion and Analysis," under the caption "Legal Proceedings" is incorporated by reference.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Information omitted in accordance with General Instruction I(2)(c).
PART II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
There is no market for CSXT's common stock as CSXT is a wholly-owned subsidiary of CSX. During the years 2001, 2000 and 1999, CSXT paid dividends on its common stock aggregating $212 million, $220 million and $219 million, respectively.
Item 6.
Item 6. Selected Financial Data
Information omitted in accordance with General Instruction I(2)(a)
Item 7.
Item 7. Management's Discussion and Analysis
Information omitted in accordance with General Instruction I(2)(a). However, in compliance with said Instruction, see "Management's Discussion and Analysis" on pages 32-37.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The company is subject to risk relating to changes in the price of diesel fuel. Forward purchase agreements have been entered into with various suppliers for approximately 294 million gallons of fuel, which is approximately 50% of the 2002 requirement, at a weighted average price of 78 cents per gallon. The company is subject to fluctuations in prices for the remainder of its 2002 needs. A one cent change in the price per gallon of fuel would impact fuel expense by approximately $3 million.
CSXT participates in the CSX cash management plan, under which excess cash is advanced to CSX for investment. CSX then makes cash funds available to CSXT as needed for use in their operations, and are committed to repay all amounts due on demand should circumstances require. CSXT is charged for borrowings or compensated for investments based on returns earned by the plan portfolio. At December 28, 2001, CSXT had a $1.1 billion deficit balance relating to CSXT's participation in the CSX cash management plan, which is included in Due to Parent Company in the statement of financial position. A 1% increase or decrease in the borrowing rate would have approximately a $11 million affect on interest expense.
Item 8.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of CSXT and notes thereto required in response to this item are included herein (refer to Index to Consolidated Financial Statements on page 10).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons of the Registrant
Information omitted in accordance with General Instruction I(2)(c).
Item 11.
Item 11. Executive Compensation
Information omitted in accordance with General Instruction I(2)(c).
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information omitted in accordance with General Instruction I(2)(c).
Item 13.
Item 13. Certain Relationships and Related Transactions
Information omitted in accordance with General Instruction I(2)(c).
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
See Index to Consolidated Financial Statements on page 10.
2. Financial Statement Schedules
The information required by Schedule II is included in Note 10 to the consolidated financial statements. All other financial statement schedules are not applicable.
3. Exhibits
(3.1) Articles of Incorporation, as amended ( incorporated by reference to Exhibit 3.1 to Form 10-K dated March 8, 1996)
(3.2) By-laws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to Form 10-K dated March 14, 2000)
(4.1) Articles of Incorporation, as amended (See Exhibit 3.1)
(4.2) By-laws of the Registrant, as amended (See Exhibit 3.2)
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 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) 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, with certain schedules thereto (incorporated by reference to Exhibit 10.1 to Form 8-K dated June 11, 1999)
(10.2) 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 by reference to Exhibit 10.2 to Form 8-K dated June 11, 1999)
(10.3) 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 by reference to Exhibit 10.3 to Form 8-K dated June 11, 1999)
(10.4) Amendment No. 3, dated as of August 1, 2000, to the Transaction Agreement by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc.,
Consolidated Rail Corporation, and CRR Holdings LLC.
(10.5) Operating Agreement, dated as of June 1, 1999, by and between New York Central Lines LLC and CSX Transportation, Inc. (incorporated by reference to Exhibit 10.4 to Form 8-K dated June 11, 1999)
(10.6) 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 by reference to Exhibit 10.5 to Form 8-K dated June 11, 1999)
(10.7) 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 by reference to Exhibit 10.6 to Form 8-K dated June 11, 1999)
(10.8) 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 by reference to Exhibit 10.7 to Form 8-K dated June 11, 1999)
(10.9) 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 by reference to Exhibit 10.8 to Form 8-K dated June 11, 1999)
(21) Omitted in accordance with General Instruction I(2)(c)
(24) * Powers of Attorney
(b) Reports on Form 8-K
None
* Filed herewith
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, on the 12th day of March, 2002.
CSX TRANSPORTATION, INC.
/s/ JAMES L. ROSS ------------- James L. Ross (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title ---------- -----
/s/ John W. Snow Chairman of the Board and Director - ---------------- John W. Snow*
/s/ Mark G. Aron Director - ---------------- Mark G. Aron*
/s/ Alan F. Crown Executive Vice President - ----------------- Transportation and Director Alan F. Crown*
/s/ Andrew B. Fogarty Director - --------------------- Andrew B. Fogarty*
/s/ P. Michael Giftos Executive Vice-President and Chief - --------------------- Commercial Officer and Director P. Michael Giftos*
/s/ Paul R. Goodwin Director - ------------------- Paul R. Goodwin*
/s/ Michael J. Ward President (Principal Executive - ------------------- Officer) and Director Michael J. Ward*
/s/ Frederick J. Favorite Senior Vice-President-Finance - ------------------------- (Principal Finance Officer) Frederick J. Favorite*
/s/ Rachel Geiersbach - ----------------------- *Rachel Geiersbach (Attorney-in-Fact)
CSX TRANSPORTATION, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS -------------------------------------------------
To the Shareholder and Board of Directors of CSX Transportation, Inc.
We have audited the accompanying consolidated statements of financial position of CSX Transportation, Inc. and subsidiaries as of December 28, 2001 and December 29, 2000, and the related consolidated statements of earnings, cash flows, and retained earnings for each of the three fiscal years in the period ended December 28, 2001. 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 Transportation, Inc. and subsidiaries at December 28, 2001 and December 29, 2000, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 2001, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Jacksonville, Florida February 13, 2002
CSX TRANSPORTATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Millions of Dollars)
See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Millions of Dollars)
See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Millions of Dollars)
See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Millions of Dollars)
See accompanying Notes to Consolidated Financial Statements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All Tables in Millions of Dollars)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - --------------------
CSX Transportation, Inc. (CSXT) is a rail freight transportation company operating a system composed of approximately 23,000 route miles of track in 23 states, the District of Columbia and two Canadian provinces. Rail shipments include merchandise traffic, automobiles and related products, and coal, coke and iron ore. Merchandise traffic accounted for 57% of rail revenue in 2001, while automotive traffic accounted for 13% and coal, coke and iron ore accounted for 29%. 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.
CSXT is a wholly-owned subsidiary of CSX Corporation (CSX).
Principles of Consolidation - ---------------------------
The consolidated financial statements include CSXT 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 - -----------
CSXT follows a 52/53 week fiscal reporting calendar. Fiscal years 2001 and 2000 consisted of 52 weeks. Fiscal year 1999 consisted of 53 weeks. A 52-week fiscal year consists of four 13-week quarters; a 53-week year reports an extra week in the first quarter.
Cash and Cash Equivalents - -------------------------
Cash and cash equivalents primarily consist of cash in banks and short-term investments with an original maturity of less than 3 months.
Short-term Investments - ----------------------
Included in short-term investments is $220 million of deposits relating to the New Orleans case discussed in Note 14.
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. Track-related structures and rolling stock are depreciated using the group-life method over estimated useful lives of three to 50 years.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued
Properties, Continued - ---------------------
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 non-operating property, 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 group of assets. Where impairment is indicated, assets are evaluated and their carrying amount is reduced to fair value based on discounted net cash flows or other estimates of fair value.
Revenue & Expense Recognition - -----------------------------
Transportation revenue and expense is recognized proportionately as freight moves from origin to destination. Other revenue and expense, which relates to switching, demurrage and incidental service charges, as well as interline switching settlements, is recognized when the service is performed.
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 CSXT'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 CSXT's commitment to a formal plan of action.
Common Stock and Other Capital - ------------------------------
There have been no changes in common stock during the last three years.
Casualty Reserve Management - ---------------------------
CSXT 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 the use of 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 occupation injuries. Occupational injury, personal injury and accident liabilities amount to $435 million and $457 million at December 28, 2001 and December 29, 2000, respectively.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued
Use of Estimates - ----------------
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Significant estimates must be made in determining litigation, arbitration, casualty and environmental reserves.
Prior-Year Data - ---------------
Certain prior-year data have been reclassified to conform to the 2001 presentation.
NOTE 2. INTEGRATED RAIL OPERATIONS WITH CONRAIL
Background - ----------
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the joint 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 STB to exercise joint control over Conrail in August 1998, and their respective rail subsidiaries subsequently began integrated operations over allocated portions of the Conrail lines in June 1999.
CSXT and Norfolk Southern Railway Company (Norfolk Southern Railway), the rail subsidiary of 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 services in certain shared geographic areas for the joint benefit of CSXT and Norfolk Southern Railway for which it is compensated on the basis of usage by the respective railroads. The majority of Conrail's operations workforce transferred to CSXT or Norfolk Southern Railway, although certain operations personnel, as well as certain management and administrative employees, remain at Conrail to oversee its ongoing business activities.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 2. INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued
CSXT's Accounting for its Integrated Rail Operations With Conrail - -----------------------------------------------------------------
Upon integration, substantially all of Conrail's customer freight contracts were assumed by CSXT and Norfolk Southern Railway. As a result, beginning June 1, 1999, CSXT's operating revenue includes revenue from traffic previously moving on Conrail lines. Operating expenses reflect corresponding increases for costs incurred to handle the new traffic and operate the former Conrail lines. Effective June 1, 1999, operating expenses also 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 provided by Conrail in the shared areas operated for the joint benefit of CSXT and Norfolk Southern Railway.
As a result of the integration, a number of employees' positions at Conrail were eliminated and certain duplicate facilities were closed. Under the agreements among the parties, CSXT and Norfolk Southern Railway assumed various obligations related to these actions. During 2001, 2000, and 1999, CSXT incurred approximately $35, $42, and $66 million, respectively, of costs related to separation and relocation of Conrail employees and for lease payments on certain Conrail facilities no longer being used after the integration. These costs are reflected in "Materials, Supplies and Other" expense in CSXT's consolidated statement of earnings.
Transactions With Conrail - -------------------------
The agreement under which CSXT operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSXT'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 CSXT cover varying terms. CSXT 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 $259 million for 2002, $256 million for 2003, $262 million for 2004, $255 million for 2005, $245 million for 2006 and $4 billion for years after 2006.
At December 28, 2001 and December 29, 2000, CSXT had amounts payable to Conrail of approximately $88 million and $127 million, respectively, representing expenses incurred under the operating, equipment, and shared area agreements.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 3. WORKFORCE REDUCTION PROGRAM
CSXT recorded a charge of $53 million, $32 million after tax, in the fourth quarter of 1999 to recognize the cost of a program to reduce its non-union workforce by approximately 725 positions. A voluntary early retirement program completed in December 1999 accounted for approximately 640 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 1999, and the remainder occurred over the first half of fiscal year 2000. Early retirement benefits offered under the voluntary program accounted for $20 million of the charge and were paid from CSX's pension and postretirement benefit plans. Separation benefits were paid from cash generated by operations. Approximately half of the separation benefits were paid in 1999, with the remainder in 2000.
The company also completed a smaller, non-voluntary program that was announced in late 2000 and continued through 2001. This program resulted in approximately 220 position reductions. Expense of $5 million was recorded in each of 2001 and 2000.
NOTE 4. SUPPLEMENTAL CONSOLIDATED STATEMENT OF EARNINGS FINANCIAL DATA.
Operating expense includes the following:
NOTE 5. OTHER EXPENSE, Net
(a) Gross revenue from real estate operations was $114 million, $77 million and $95 million in 2001, 2000 and 1999, respectively.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 6. INCOME TAXES
Income tax expense information is as follows:
Income tax expense reconciled to the tax computed at statutory rates is as follows:
Deferred state income tax expense in 1999 includes $27 million for the increase in the company's effective deferred state income tax rate, which is applied to CSXT's cumulative temporary differences, as a result of the sale of certain CSX assets.
The significant components of deferred tax assets and liabilities include:
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 6. INCOME TAXES, Continued
CSXT and its subsidiaries are included in the consolidated federal income tax return filed by CSX. The consolidated current federal income tax expense or benefit is allocated to CSXT and its subsidiaries as though CSXT had filed a separate consolidated federal return. At December 28, 2001 and December 29, 2000, approximately $110 million and $45 million of income taxes due to CSX were included in Other Current Liabilities, respectively.
Examinations of the federal income tax returns of CSX and its principal subsidiaries have been completed through 1990. Returns for 1991 through 1998 are currently under examination. Management believes adequate provision has been made for any adjustments that might be assessed.
NOTE 7. RELATED PARTIES
At December 28, 2001, CSXT had a $1.1 billion deficit balance relating to CSXT's participation in the CSX cash management plan, which is included in Due to Parent Company in the statement of financial position. At December 29, 2000, CSXT had a $446 million deficit balance under the terms of the cash management plan. CSXT incurred interest (expense)/income of $(30) million, $(13) million, and $3 million in 2001, 2000, and 1999, respectively, relating to CSXT's participation in the plan. These amounts are included in interest expense on the statement of earnings. Under this plan, excess cash is advanced to CSX for investment and CSX makes cash funds available to its subsidiaries as needed for use in their operations. Depending on the position, CSXT and CSX are committed to repay all amounts due each other on demand should circumstances require. The companies are charged for borrowings or compensated for investments based on returns earned by the plan portfolio. The average borrowing rate for the year 2001 was 3.36%
Related Party Service Fees expense consists of amounts related to a management service fee charged by CSX; data processing related charges from CSX Technology, Inc. (CSX Technology); the reimbursement, under an operating agreement, from CSX Intermodal, Inc. (CSXI), for costs incurred by CSXT related to intermodal operations; charges from Total Distribution Services, Inc. (TDSI), for services provided at automobile ramps; and charges from TRANSFLO Terminal Services, Inc. (TRANSFLO) for services provided at bulk commodity facilities. The management service fee charged by CSX represents compensation for certain corporate services provided to CSXT. These services include, but are not limited to, development of corporate policy and long-range strategic plans, allocation of capital, placement of debt, maintenance of employee benefit plans, internal audit and tax administration. The fee is calculated as a percentage of CSX's investment in CSXT. The data processing related charges are compensation to CSX Technology for the development, implementation and maintenance of computer systems, software and associated documentation for the day-to-day operations of CSXT. CSX Technology, CSXI, TDSI, and TRANSFLO are wholly-owned subsidiaries of CSX.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 7. RELATED PARTIES, Continued
CSXT and CSX Insurance Company (CSX Insurance), a wholly-owned subsidiary of CSX, have entered into a loan agreement whereby CSXT may borrow up to $125 million from CSX Insurance. The loan is payable in full on demand. At December 28, 2001, and December 29, 2000, $125 million was outstanding under the agreement. Interest on the loan is payable monthly at .45% over the LIBOR rate, and was 2.563% at December 28, 2001 and 7.065% at December 29, 2000. Interest expense related to the loan was $6 million, $7 million and $5 million for the fiscal years ended December 28, 2001, December 29, 2000, and December 31, 1999, respectively.
CSXT participates with CSX Lines, LLC (CSX Lines), a wholly-owned subsidiary of CSX, in four sale-leaseback arrangements. Under these arrangements, CSX Lines sold equipment to a third party and CSXT leased the equipment and assigned the lease to CSX Lines. CSX Lines is obligated for all lease payments and other associated equipment expenses. If CSX Lines defaults on its obligations under the arrangements, CSXT would assume the asset lease rights and obligations of $51 million at December 28, 2001.
NOTE 8. ACCOUNTS RECEIVABLE
CSXT has an ongoing agreement to sell without recourse, on a revolving basis each month, an undivided percentage ownership interest in all rail freight accounts receivable to CSX Trade Receivables Corporation (CTRC), a wholly-owned subsidiary of CSX. Accounts receivable sold under this agreement totaled $966 million at December 28, 2001 and $947 million at December 29, 2000. In addition, through November 2001, CSXT had a revolving agreement with a financial institution to sell with recourse on a monthly basis an undivided percentage ownership interest in all miscellaneous accounts receivable. Accounts receivable sold under this agreement was $47 million at December 29, 2000. The sale of receivables have been reflected as reductions of "Accounts Receivable" in the consolidated statement of financial position. The net losses associated with sales of receivables were $78 million, $77 million, and $63 million for the fiscal years ended December 28, 2001, December 29, 2000, and December 31, 1999, respectively.
CSXT has retained the responsibility for servicing accounts receivable sold to CTRC. The average servicing period is approximately one month. No servicing asset or liability has been recorded since the fees CSXT receives for servicing the receivables approximates the related costs.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 9. PROPERTIES
December 28, 2001 -------------------------------------- Accumulated Cost Depreciation Net ------- ------------- --------
Road $11,035 $ 2,343 $ 8,692 Equipment 5,467 2,077 3,390 Other 142 7 135 ------- ------- -------
Total $16,644 $ 4,427 $12,217 ======= ======= =======
December 29, 2000 ---------------------------------------- Accumulated Cost Depreciation Net -------- ------------ ------------
Road $10,718 $ 2,423 $ 8,295 Equipment 5,532 2,093 3,439 Other 145 2 143 ------- ------- -------
Total $16,395 $ 4,518 $11,877 ======= ======= =======
NOTE 10. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES/(a)/
Activity relating to casualty, environmental and other reserves is as follows:
(a) Balances include current portion of casualty and environmental reserves and separation liabilities, respectively, of $148 million, $15 million and $15 million at December 28, 2001, $147 million, $15 million and $15 million at December 29, 2000 and $146 million, $20 million and $15 million at December 31, 1999.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 10. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued
CSXT 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 the use of current trends and historical data. The company believes it has recorded liabilities in sufficient amounts to cover all identified claims and an estimate 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 occupation injuries.
Separation liabilities at December 28, 2001 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. The remaining liabilities are expected to be paid out over the next 15 to 20 years.
NOTE 11. LONG-TERM DEBT
CSXT has long-term debt maturities for 2002 through 2006 aggregating $170 million, $196 million, $107 million, $110 million and $106 million, respectively.
A portion of the properties and certain other assets of CSXT and its subsidiaries are pledged as security for various long-term debt issues.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 12. 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. At December 28, 2001, the fair value of long-term debt, including current maturities, was $1.27 billion, compared with a carrying amount of $1.2 billion. At December 29, 2000, the fair value of long-term debt, including current maturities, was $1.28 billion, compared with a carrying amount of $1.26 billion. The fair value of long-term debt has been estimated using discounted cash flow analyses based upon the company's current incremental borrowing rates for similar types of financing arrangements. The fair value of all other financial instruments approximates carrying value.
NOTE 13. EMPLOYEE BENEFIT PLANS
Pension Plans - -------------
CSXT, in conjunction with CSX and its subsidiaries, sponsor defined benefit pension plans principally for salaried employees. The plans provide eligible employees with retirement benefits based principally on years of service and compensation rates near retirement. CSX allocates to CSXT a portion of the net pension expense for the CSX pension plans based on CSXT's relative level of participation. The allocated expense from the various CSX pension plans amounted to a credit of $3 million in 2001 and $2 million in 2000 and expense of $33 million in 1999. During 1999, CSXT received $109 million ($66 million after tax) in pension assets from CSX through capital contributions.
Savings Plans - -------------
CSXT maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements of CSXT and subsidiary companies. Expense for these plans was $13 million for 2001, $14 million for 2000 and $20 million for 1999.
Other Postretirement Benefit Plans - ----------------------------------
In addition to the CSX defined benefit pension plans, CSXT participates with CSX and other affiliates in two defined benefit postretirement plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The postretirement medical plan is contributory, with retiree contributions adjusted annually. The life insurance plan is non-contributory. CSX allocates to CSXT a portion of the expense for these plans based on CSXT's relative level of participation. The allocated expense amounted to $31 million in 2001, $22 million in 2000 and $20 million in 1999.
Other Plans - -----------
Under collective bargaining agreements, the company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 13. EMPLOYEE BENEFIT PLANS, Continued
Other Plans, Continued - ----------------------
assessments generally based on number of employees covered, hours worked, tonnage moved or a combination thereof. Total contributions of $285 million, $242 million and $168 million, respectively, were made to these plans in 2001, 2000 and 1999.
Certain officers and key employees of CSXT participate in stock purchase, performance and award plans of CSX. CSXT is allocated its share of any cost to participate in these plans.
NOTE 14. COMMITMENTS AND CONTINGENCIES.
Commitments - -----------
Lease Commitments
In addition to the agreements covering routes and equipment leased from Conrail, CSXT leases equipment from other parties under agreements with terms up to 21 years. Non-cancelable, long-term leases generally include provisions for maintenance, options to purchase at fair value and to extend the terms. At December 28, 2001, minimum equipment rentals under non-cancelable operating leases totaled approximately $124 million for 2002, $112 million for 2003, $92 million for 2004, $90 million for 2005, $83 million for 2006 and $517 million thereafter.
Rent expense on equipment operating leases, exclusive of the Conrail agreements, amounted to $413 million, $517 million, and $495 million in 2001, 2000, and 1999, respectively. Included in these amounts were net daily rental charges on railroad operating equipment of $289 million, $369 million and $341 million in 2001, 2000, and 1999, respectively.
Long-Term Operating Agreements
In addition to its contractual arrangement to operate specified portions of Conrail's rail system, CSXT has various long-term railroad operating agreements that allow for exclusive operating rights over various railroad lines. Under these agreements, CSXT is obligated to pay usage fees of approximately $10 million annually. The terms of these agreements range from 30 to 40 years.
Purchase Commitments
The company has entered into fuel purchase agreements for approximately 50% of its fuel requirements over the next twelve months. These agreements amount to approximately 294 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. These contracts cannot be net settled.
The company also has a commitment under a long-term maintenance program for approximately 40% of its fleet of locomotives. The agreement expires in 2024 and totals $2.7 billion. Minimum payments under this agreement are $120 million of 2002, $124 million for 2003, $125 million for 2004, $131 million for 2005, $159 million for 2006 and $2.1 billion thereafter.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 14. COMMITMENTS AND CONTINGENCIES, Continued
Contingencies - -------------
STB Proceeding
On December 21, 2001, Duke Energy Corporation filed a complaint before the U.S. Surface Transportation Board alleging that certain CSXT common carrier coal rates are unreasonably high. A similar complaint was filed by Duke against Norfolk Southern. At this time the outcome of the proceeding against CSXT is uncertain and would only apply to billings subsequent to 2001. CSXT is pursuing an aggressive legal strategy in its defense against this complaint.
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 tank car fire.
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 damage judgments in favor of the 20 plaintiffs who had received awards of compensatory damages.
On November 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment notwithstanding the verdict and effectively reduced the amount of the punitive damages verdict from $2.5 billion to $850 million. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond.
In June 2001 the Louisiana Court of Appeal for the Fourth Circuit affirmed the judgment of the trial court, which reduced the punitive damages verdict from $2.5 billion to $850 million. CSXT moved the Louisiana Fourth Circuit Court for rehearing of certain issues raised in its appeal; that motion was denied in August 2001.
CSXT then filed with the Louisiana Supreme Court an application that the court take jurisdiction over and reverse the 1997 punitive damages award. The Louisiana Supreme Court's jurisdiction in this case is discretionary. Opposing papers were filed by counsel in October 2001. If the Louisiana Supreme Court takes jurisdiction of the case, an additional round of briefing and oral argument may precede any decision by the court.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 14. COMMITMENTS AND CONTINGENCIES, Continued
New Orleans Tank Car Fire, Continued
On November 21, 2001, CSXT announced that it had reached a proposed settlement of the litigation, subject to a fairness hearing and court approval. The amount to be paid by CSXT under the proposed settlement is $220 million to resolve all claims arising out of the 1987 fire and evacuation (whether or not included in the present class-action lawsuit). A preliminary settlement agreement between CSXT and the plaintiffs' management committee on behalf of the plaintiff case has been preliminarily approved by the trial court, and has been publicly filed. CSXT incurred a charge of $60 million before tax, $37 million after tax, in the fourth quarter of 2001 to account for the expense of the settlement, net of insurance recoveries. The trial court has set April 2, 2002, as the date for a fairness hearing at which the court will consider final approval of the settlement. CSXT expects that the settlement will be finally approved shortly after that hearing . The Louisiana Supreme Court has ordered that the proceeding before it be deferred in light of the proposed settlement.
If the proposed settlement is not approved and the litigation thereby disposed of, CSXT intends to continue to pursue an aggressive legal strategy, including the pursuit of the proceedings in the Louisiana Supreme Court and, if necessary, proceedings before the United States Supreme Court.
Other Legal Proceedings
A number of other legal actions are pending against CSXT 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 adverse effect on CSXT's consolidated results of operations, financial position or cash flows. CSXT 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.
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 108 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.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 14. COMMITMENTS AND CONTINGENCIES, Continued
Environmental, Continued - ------------------------
CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at 227 sites, including the sites addressed under the 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 credit-worthiness 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 December 28, 2001 and December 29, 2000, were $32 million and $41 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The liability has been accrued for future costs for all sites where the company's obligation is probable and where such costs can be reasonably estimated. 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 December 28, 2001, environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations.
The company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, however, the company believes 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.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (All Tables in Millions of Dollars)
NOTE 15. QUARTERLY DATA (Unaudited)
(a) CSXT recorded a provision in the fourth quarter of 2001 to account for the proposed settlement of the 1987 New Orleans tank car fire litigation. This charge reduced earnings by $60 million, $37 million after-tax.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
2001 OPERATING RESULTS
Traffic By Commodity - --------------------
CSXT earned $459 million of operating income in 2001 vs. $325 million in 2000. Excluding the New Orleans Litigation Provision of $60 million, operating income for 2001 was $519 million. Operating revenue remained consistent at $6.1 billion, but operating expense decreased 2% to $5.6 billion compared to $5.8 billion in 2000.
Volume decreases associated with the economic downturn affected revenue. Only volumes for food and consumer, agricultural products and coal were up on a year-over-year basis. Volume decreases were offset by an increase of 7% in coal, coke and iron ore revenues reflecting the coal volume increases, various pricing initiatives and mix improvements. Operating expenses decreased 2% between 2000 and 2001 to $5.6 billion. The $127 million decrease was made up of decreases in Conrail operating fee, rent and services; building and equipment rent; and, fuel, being offset by the New Orleans litigation provision and increases in depreciation. Building and equipment rent decreased $104 million primarily due to reduced car hire
CSX TRANSPORTATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
2001 OPERATING RESULTS, Continued
as the railroad took cars offline and ran more efficiently. Fuel expense was $52 million or 9% lower in 2001 as compared to 2000. The 6 cent decrease in the average price per gallon resulted in $34 million of the decrease with $18 million attributable to lower fuel consumption. Conrail operating fees, rents and services decreased by $29 million due mostly to continued cost savings.
OTHER MATTERS
Integrated Rail Operations with Conrail - ---------------------------------------
Background and Integration
On June 1, 1999, CSXT and Norfolk Southern Railway Company (Norfolk Southern Railway), Norfolk Southern's rail subsidiary, formally began integrated operations over their respective portions of the Conrail rail system. This step implemented the operating plan envisioned by CSX and Norfolk Southern Railway 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 approximately 23,000 route miles in 23 states, the District of Columbia, and two Canadian provinces. CSXT employs approximately 35,000 employees across the combined system.
CSXT and Norfolk Southern Railway 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 CSXT and Norfolk Southern Railway 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.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
OTHER MATTERS, Continued
Financial Effects
Upon integration, substantially all of Conrail's customer freight contracts were assumed by CSXT and Norfolk Southern Railway. As a result, beginning June 1, 1999, CSXT's 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, operating expenses also 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 provided by Conrail in the shared areas operated for the joint benefit of CSXT and Norfolk Southern Railway.
Legal Proceedings - -----------------
STB Proceeding
On December 21, 2001, Duke Energy Corporation (Duke) filed a complaint before the U.S. Surface Transportation Board alleging that certain CSXT common carrier coal rates are unreasonably high. A similar complaint was filed by Duke against Norfolk Southern. At this time the outcome of the proceeding against CSXT is uncertain and would only apply to billings subsequent to 2001. CSXT is pursuing an aggressive legal strategy in its defense against this complaint.
New Orleans Tank Car Fire Litigation
In September 1997 a state court jury in New Orleans, Louisiana returned a $2.5 billion punitive damages award against 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 tank car fire.
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 damage judgments in favor of the 20 plaintiffs who had received awards of compensatory damages.
On November 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment notwithstanding the verdict and effectively reduced the amount of the punitive damages verdict from $2.5 billion to $850 million. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond.
In June 2001 the Louisiana Court of Appeal for the Fourth Circuit affirmed the judgment of the trial court, which reduced the punitive damages verdict from $2.5 billion to $850 million. CSXT moved the Louisiana Fourth Circuit Court for rehearing of certain issues raised in its appeal; that motion was denied in August 2001.
CSXT then filed with the Louisiana Supreme Court an application that the court take jurisdiction over and reverse the 1997 punitive damages award. The Louisiana Supreme Court's jurisdiction in this case is discretionary. Opposing papers were filed by counsel in October 2001. If the Louisiana Supreme Court takes jurisdiction of the case, an additional round of briefing and oral argument may precede any decision by the court.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
OTHER MATTERS, Continued
New Orleans Tank Car Litigation, Continued
On November 21, 2001, CSXT announced that it had reached a proposed settlement of the litigation, subject to a fairness hearing and court approval. The amount to be paid by CSXT under the proposed settlement is $220 million to resolve all claims arising out of the 1987 fire and evacuation (whether or not included in the present class-action lawsuit). A preliminary settlement agreement between CSXT and the plaintiffs' management committee on behalf of the plaintiff case has been preliminarily approved by the trial court, and has been publicly filed. CSXT incurred a charge of $60 million before tax, $37 million after tax, in the fourth quarter of 2001 to account for the expense of the settlement, net of insurance recoveries. The trial court has set April 2, 2002, as the date for a fairness hearing at which the court will consider final approval of the settlement. CSXT expects that the settlement will be finally approved shortly after that hearing . The Louisiana Supreme Court has ordered that the proceeding before it be deferred in light of the proposed settlement.
If the proposed settlement is not approved and the litigation thereby disposed of, CSXT intends to continue to pursue an aggressive legal strategy, including the pursuit of the proceedings in the Louisiana Supreme Court and, if necessary, proceedings before the United States Supreme Court.
Other Legal Proceedings
A number of other legal actions are pending against CSXT 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 resolution of these matters will have a material adverse effect on the consolidated results of operations, financial position or cash flows of the company. 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.
Casualty Reserve Management - ---------------------------
CSXT 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 the use of 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 occupation injuries. Occupational injury, personal injury and accident liabilities amount to $435 million and $457 million at December 28, 2001 and December 29, 2000, respectively.
Environmental Matters - ---------------------
CSXT 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 227 sites at which it is, or may be, liable for remediation costs associated with alleged contamination or for alleged violations of environmental requirements. Approximately 108 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, CSXT's ultimate environmental liability may include costs relating to other parties, in addition to costs relating to its own activities at each site.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
OTHER MATTERS, Continued
Environmental Matters, Continued
A liability of $32 million has been accrued at December 28, 2001, 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. CSXT 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 2001 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 $32 million in 2001, compared with $36 million in 2000 and $35 million in 1999. During 2002, the company expects to incur preventive and remedial environmental expenditures in the range of $35 million to $40 million. Future environmental obligations are not expected to have a material impact on the results of operations or financial position of the company.
Workforce Reduction Program - ---------------------------
CSXT recorded a charge of $53 million, $32 million after tax, in the fourth quarter of 1999 to recognize the cost of a program to reduce its non-union workforce by approximately 725 positions. A voluntary early retirement program completed in December 1999 accounted for approximately 640 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 1999 and the remainder occurred over the first half of fiscal year 2000. Early retirement benefits offered under the voluntary program accounted for $20 million of the charge and were paid from CSX's pension and postretirement benefit plans. Separation benefits were paid from cash generated by operations. Approximately half of the separation benefits were paid in 1999 with the remainder in 2000.
The company also completed a smaller, non-voluntary program that was announced in late 2000 and continued through 2001. This program resulted in approximately 220 position reductions. Expense of $5 million was recorded in both 2001 and 2000.
CSX TRANSPORTATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
OTHER MATTERS, Continued
Forward Looking Statements - --------------------------
Estimates and forecasts in Management's Discussion and Analysis and in other sections of this 10-K 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) 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; (ii) legislative or regulatory changes, including possible enactment of initiatives to reregulate the rail industry, may adversely affect the businesses of the company; (iii) possible additional consolidation of the rail industry in the near future may adversely affect the operations and business of the company; and (iv) changes may occur in the securities and capital markets.