-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IFTJyYDShAU3+5teKKHM5lcDj9IP0BnNaWvlSzBruC6s/lOhPKlt6mB5z8bffP8H lNuMVkQsqqJedrtpLkfWNA== 0000277948-00-000001.txt : 20000308 0000277948-00-000001.hdr.sgml : 20000308 ACCESSION NUMBER: 0000277948-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSX CORP CENTRAL INDEX KEY: 0000277948 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 621051971 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08022 FILM NUMBER: 562679 BUSINESS ADDRESS: STREET 1: ONE JAMES CNTR STREET 2: 901 E CARY ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047821400 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-8022 CSX CORPORATION (Exact name of registrant as specified in its charter) Virginia 62-1051971 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 901 East Cary Street, Richmond, Virginia 23219-4031 (Address of principal executive offices) (Zip Code) (804) 782-1400 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered ------------------- ------------------------------------ Common Stock, $1 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Exhibit Index can be found on page 7. On February 25, 2000, the aggregate market value of the Registrant's voting stock held by non-affiliates was approximately $4.6 billion (based on the New York Stock Exchange closing price on such date). On February 25, 2000, there were 218,584,741 shares of Common Stock outstanding. Portion of Form 10-K into which Documents Incorporated by Reference Documents are Incorporated - ----------------------------------- ------------------------------- 1. Portions of the Registrant's Annual Report to Part I, II & IV Shareholders for the fiscal year ended December 31, 1999 ("Annual Report") 2. Portions of the Registrant's Definitive Proxy Part III Statement to be filed with respect to its annual meeting of shareholders scheduled to be held on April 27, 2000 ("Proxy Statement") - 1 - PART I Item 1. Business In response to this Item, the information set forth on page 1 under the caption "Financial Highlights", page 9 under the captions "Rail Operations" and "Intermodal", page 11 under the caption "Container-shipping and Terminal Management Operations", page 13 under the caption "Contract Logistics" and pages 19-29 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Annual Report is incorporated herein by reference. Item 2. Properties In response to this Item, the information set forth on pages 19-29 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations", page 34 under the caption "Properties" and page 40 under the caption "Note 10. Properties." of the Annual Report is incorporated herein by reference. Item 3. Legal Proceedings In response to this Item, the information set forth on pages 28-29 under the captions "New Orleans Tank Car Fire Litigation" and "Environmental Management", page 46 under the caption "New Orleans Tank Car Fire" and pages 46 and 47 under the captions "Environmental" and "Other Legal Proceedings" of the Annual Report is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders in the fourth quarter of 1999. Executive Officers of the Registrant Executive officers of CSX Corporation are elected by the CSX Board of Directors and hold office until the next annual election of officers. Officers of CSX business units are elected annually by the respective Boards of Directors of the business units. There are no family relationships or any arrangement or understanding between any officer and any other person pursuant to which such officer was selected. Name and Age Business Experience During Past 5 Years - -------------------------------------------------------------------------------- John W. Snow, 60 Chairman, President and Chief Executive Officer of CSX since February 1991. Alvin R.(Pete) Carpenter, 58 Vice Chairman of CSX since July 1999. Prior to July 1999, Mr. Carpenter served as President and Chief Executive Officer of CSXT. Mark G. Aron, 57 Executive Vice President-Law and Public Affairs of CSX since April 1995. Prior to April 1995, Mr. Aron served as CSX Senior Vice President- Law and Public Affairs. Paul R. Goodwin, 57 Executive Vice President-Finance and Chief Financial Officer of CSX since April 1995.Prior to April 1995, Mr. Goodwin served as an officer of CSXT as Executive Vice President- Finance & Administration from February 1995 to April 1995, - 2 - and prior thereto as Senior Vice President-Finance. William J. Flynn, 46 Senior Vice President-Strategic Planning of CSX since December 1999. Prior to December 1999, Mr. Flynn served as an officer of Sea-Land as Vice President-Asia from April 1999 to November 1999; Vice President-Central Asia from October 1997 to March 1999; Vice President-North Asia from September 1996 to September 1997; and prior thereto as Vice President-Global Services. Andrew B. Fogarty, 55 Senior Vice President-Corporate Services of CSX since September 1997. Prior to September 1997, Mr. Fogarty served as Senior Vice President- Finance and Planning, Sea-Land, from June 1996 to August 1997; as CSX Vice President-Audit and Advisory Services from March 1995 to June 1996; and prior thereto as CSX Vice President- Executive Department. Jesse R. Mohorovic, 57 Group Vice President-Corporate Communications and Investor Relations since April 1998. Prior to April 1998, Mr. Mohorovic served as CSX Vice President-Corporate Relations from February 1995 to April 1998; and prior thereto as CSXT Vice President-Corporate Communications. James L. Ross, 61 Vice President and Controller of CSX since April 1996. Prior to April 1996, Mr. Ross served as CSX Vice President-Special Projects from October 1995 to April 1996; and prior thereto as Audit Partner with Ernst & Young LLP. Ronald J. Conway, 55 President of CSXT since July 1999. Prior to July 1999, Mr. Conway served as CSXT Executive Vice President-Operations from June 1998 to July 1999; and prior thereto as Senior Vice President-Operations of Conrail Inc. Frederick J. Favorite, Jr., 46 Senior Vice President-Finance of CSXT since February 2000. Prior to February 2000, Mr. Favorite served as Vice President-Finance, CSXT, from December 1998 to January 2000; as Vice President-Planning, CSXT, from September 1996 to December 1998; and prior thereto as Vice President-Finance, Sea-Land. Dale R. Hawk, 55 Senior Vice President-Automotive Services Group since July 1999. Prior to July 1999, Mr. Hawk served as CSXT Vice President & General Manager, Automotive Business Unit from April 1995 to July 1999; and prior thereto as CSXT Assistant Vice President-Metals Sales & Marketing. John P. Sammon, 49 Senior Vice President-Merchandise Services Group of CSXT since June 1999. Prior thereto, Mr. Sammon served as Senior Vice President-Core SVC Group of Conrail Inc. Paul D. Sandler, 52 Senior Vice President-Corporate Services of CSXT since July 1999. Prior to July 1999, Mr. Sandler served as CSXT General - 3 - Manager and Vice President, Florida Business Unit from February 1995 to July 1999; and prior thereto as CSXT Vice President-Planning. Gary M. Spiegel, 49 Senior Vice President-Operations of CSXT since July 1999. Prior to July 1999, Mr. Spiegel served as CSXT Vice President-Network Operations from June 1998 to July 1999; and prior thereto as an officer of Conrail Inc. as Vice President-Service Delivery from June 1997 to June 1998; Assistant Vice President-Service Delivery from June 1996 to June 1997; and prior thereto as Assistant Vice President-Train Operations. Michael J. Ward, 49 Executive Vice President-Coal Service Group since August 1999. Prior to August 1999, Mr. Ward served as an officer of CSXT as Executive Vice President-Coal & Merger Planning from October 1998 to August 1999; Executive Vice President-Finance and Chief Financial Officer from June 1996 to October 1998; as Senior Vice President-Finance from April 1995 to May 1996; and prior thereto as General Manager-C&O Business Unit. Robert J. Grassi, 53 President and Chief Executive Officer of CSX World Terminals since June 1999. Prior to June 1999, Mr. Grassi served as an officer of Sea-Land as Senior Vice President-Finance and Planning from August 1997 to June 1999; Senior Vice President-Atlantic, AME Services from June 1996 to August 1997; and prior thereto as Senior Vice President -Finance and Planning. Charles G. Raymond, 56 President and Chief Executive Officer of CSX Lines since June 1999. Prior to June 1999, Mr. Raymond served as an officer of Sea-Land as Senior Vice President and Chief Transportation Officer from May 1995 to June 1999; and prior thereto as Senior Vice President-Operations and Inland Transportation. Lester M. Passa, 45 President and CEO of CSX Intermodal since November 1997. Prior to November 1997, Mr. Passa served as CSXT Vice President-Commercial Integration from July 1997 to November 1997; and prior thereto as an officer of Conrail Inc. as Senior Vice President-Automotive Service Group from February 1997 to July 1997; as Vice President-Logistics & Corporate Strategy from March 1995 to February 1997; and prior thereto as Assistant Vice President-Corporate Strategy. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters In response to this Item, the information set forth on page 50, "Shareholder Information", and page 51, "Corporate Information", of the Annual Report is incorporated herein by reference. - 4 - Item 6. Selected Financial Data In response to this Item, the information set forth on page 1 of the Annual Report under the caption "Financial Highlights" is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In response to this Item, the information set forth on pages 19-29 of the Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures about Market Risk In response to this Item, the information set forth on pages 25-26 of the Annual Report under the caption "Market Risk" is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data In response to this Item, the information set forth on pages 30-49 and page 51 under the caption "Quarterly Financial Data (Unaudited)" of the Annual Report is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. - 5 - PART III Item 10. Directors and Executive Officers of the Registrant In accordance with Instruction G(3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement, except for the information regarding the executive officers of the Registrant which is included in Part I of this report under the caption "Executive Officers of the Registrant." Item 11. Executive Compensation In accordance with Instruction G(3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management In accordance with Instruction G(3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions In accordance with Instruction G(3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) Financial Statements The following consolidated financial statements and independent auditor's report, which appear on pages 30-49 of the Annual Report, are incorporated herein by reference: Consolidated Statement of Earnings for the Fiscal Years Ended Dec. 31, 1999, Dec. 25, 1998 and Dec. 26, 1997 Consolidated Statement of Cash Flows for the Fiscal Years Ended Dec. 31, 1999, Dec. 25, 1998 and Dec. 26, 1997 Consolidated Statement of Financial Position at Dec. 31, 1999 and Dec. 25, 1998 Consolidated Statement of Changes in Shareholders' Equity for the Fiscal Years Ended Dec. 31, 1999, Dec. 25, 1998 and Dec. 26, 1997 Notes to Consolidated Financial Statements Report of Independent Auditors - 6 - (2) Financial Statement Schedules The information required by Rule 3-09 is included in the Annual Report in Note 3 to the consolidated financial statements, "Investment in and Integrated Rail Operations with Conrail" and the Audited Consolidated Financial Statements of Conrail Inc., filed herewith as exhibit 99.1. The information required by Schedule II is included in the Annual Report in Note 11 to the consolidated financial statements, "Casualty, Environmental and Other Reserves." All other financial statement schedules are not applicable. (3) Exhibits 3.1 Amended and Restated Articles of Incorporation of the Registrant (incorporated herein by reference as Exhibit 3 to the Registrant's Annual Report on Form 10-K dated February 15, 1991) 3.2* Bylaws of the Registrant, as amended 4.1(a) Indenture, dated August 1, 1990, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to the Registrant's Form SE dated September 7, 1990) 4.1(b) First Supplemental Indenture, dated as of June 15, 1991, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4(c) to the Registrant's Form SE, dated May 28, 1992, filed with the Commission) 4.1(c) Second Supplemental Indenture, dated as of May 6, 1997, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-28523) filed with the Commission on June 5, 1997) 4.1(d) Third Supplemental Indenture, dated as of April 22, 1998, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the Commission on May 12, 1998) Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments that define the rights of holders of the Registrant's long-term debt securities, where the long-term debt securities authorized under each such instrument do not exceed 10% of the Registrant's total assets, have been omitted and will be furnished to the Commission upon request. 10.1 CSX Stock Plan for Directors, as amended (incorporated herein by reference to Appendix A to the Definitive Proxy Statement dated March 18, 1997)** 10.2 Corporate Director Deferred Compensation Plan, as amended (incorporated herein by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K dated February 18, 1998)** 10.3 CSX Directors' Charitable Gift Plan, as amended (incorporated herein by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K dated March 4, 1994)** 10.4 CSX Directors' Matching Gift Plan, as amended (incorporated herein by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K dated March 14, 1997)** 10.5 Form of Agreement with J. W. Snow, A. R. Carpenter, P. R. Goodwin and M. G. Aron (incorporated herein by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K dated March 3, 1995)** - 7 - 10.6 Form of Amendment to Agreement with A. R. Carpenter, P. R. Goodwin and M. G. Aron (incorporated herein by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K dated March 14, 1997)** 10.7 Form of Retention Agreement with A. R. Carpenter (incorporated herein by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K dated February 28, 1992)** 10.8 Agreement with J. W. Snow (incorporated herein by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K dated March 4, 1994)** 10.9 Amendment to Agreement with J. W. Snow (incorporated herein by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K dated March 14, 1997)** 10.10 Amendment to Agreement with J. W. Snow (incorporated herein by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K dated February 18, 1998)** 10.11* Agreement with R. J. Conway** 10.12* Employment Agreement with J. W. Snow** 10.13* Employment Agreement with A. R. Carpenter** 10.14* Employment Agreement with R. J. Conway** 10.15* Form of Stock Option Agreement** 10.16 CSX Market Value Cash Plan (incorporated herein by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K dated March 3, 1999)** 10.17 Stock Purchase and Loan Plan, as amended (incorporated herein by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K dated March 3, 1999)** 10.18* 1987 Long-Term Performance Stock Plan, as Amended and Restated Effective April 25, 1996 (as Amended through September 8, 1999)** 10.19 1985 Deferred Compensation Program for Executives of CSX Corporation and Affiliated Companies, as amended (incorporated herein by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K dated February 18, 1998)** 10.20* Supplementary Savings Plan and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies, as Amended and Restated January 1, 1995 (as Amended through September 8, 1999)** 10.21* Special Retirement Plan of CSX Corporation and Affiliated Companies, as Amended and Restated January 1, 1995 (as Amended through December 7, 1999)** 10.22* Supplemental Retirement Benefit Plan of CSX Corporation and Affiliated Companies, as Amended and Restated January 1, 1995 (as Amended through December 7, 1999)** 10.23 1994 Senior Management Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K dated March 3, 1995)** 10.24* 1990 Stock Award Plan as Amended and Restated Effective February 14, 1996 (as Amended through September 8, 1999) 10.25 Amended and Restated Credit Agreement (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on June 4, 1997) 10.26 Transaction Agreement (incorporated herein by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K filed with the Commission on July 8, 1997) - 8 - 10.27 Amendment No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC. (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 10.28 Amendment No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings, LLC. (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 10.29 Operating Agreement, dated as of June 1, 1999, by and between New York Central Lines LLC and CSX Transportation, Inc. (incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 10.30 Shared Assets Area Operating Agreement for North Jersey, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway Company, with exhibit thereto (incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 10.31 Shared Assets Area Operating Agreement for Southern Jersey/Philadelphia, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway Company, with exhibit thereto (incorporated herein by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 10.32 Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway Corporation, with exhibit thereto (incorporated herein by reference to Exhibit 10.6 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 10.33 Monongahela Usage Agreement, dated as of June 1, 1999, by and among CSX Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines LLC, and New York Central Lines LLC, with exhibit thereto (incorporated herein by reference to Exhibit 10.7 to the Registrant's Current Report on Form 8-K filed with the Commission on June 11, 1999) 12* Computation of Ratio of Earnings to Fixed Charges 13* Annual Report to Shareholders*** 21* Subsidiaries of the Registrant 23.1* Consent of Ernst & Young LLP 23.2* Consent of Ernst & Young LLP and KPMG LLP, Independent Auditors 23.3* Consent of PricewaterhouseCoopers LLP, Independent Accountants 24* Powers of Attorney 27* Financial Data Schedule 99.1* Audited Consolidated Financial Statements of Conrail Inc. for the Years Ended Dec. 31, 1999, 1998 and 1997 - 9 - * Filed herewith ** Management Contract or Compensatory Plan or Arrangement ***Except for those portions of the Annual Report which are expressly incorporated by reference in this Form 10-K, the Annual Report is furnished for the information of the Securities and Exchange Commission only and is not to be deemed "filed" as part of this Form 10-K. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CSX CORPORATION (Registrant) By: /s/JAMES L. ROSS ----------------- James L. Ross Vice President and Controller (Principal Accounting Officer) Dated: March 7, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 7, 2000. Signature Title - -------------------------------- ------------------------------------ /s/ JOHN W. SNOW* Chairman of the Board, President, - ----------------- Chief Executive Officer and Director John W. Snow (Principal Executive Officer) /s/ PAUL R. GOODWIN* Executive Vice President-Finance and - -------------------- Chief Financial Officer Paul R. Goodwin (Principal Financial Officer) /s/ ELIZABETH E. BAILEY* Director - ------------------------ Elizabeth E. Bailey /s/ H. FURLONG BALDWIN* Director - ----------------------- H. Furlong Baldwin /s/ CLAUDE S. BRINEGAR* Director - ----------------------- Claude S. Brinegar /s/ ROBERT L. BURRUS, JR.* Director - -------------------------- Robert L. Burrus, Jr. - 10 - /s/ BRUCE C. GOTTWALD* Director - ---------------------- Bruce C. Gottwald /s/ JOHN R. HALL* Director - ----------------- John R. Hall /s/ E. BRADLEY JONES* Director - --------------------- E. Bradley Jones /s/ ROBERT D. KUNISCH* Director - ---------------------- Robert D. Kunisch /s/ JAMES W. MCGLOTHLIN* Director - ------------------------ James W. McGlothlin /s/ SOUTHWOOD J. MORCOTT* Director - ------------------------- Southwood J. Morcott /s/ CHARLES E. RICE* Director - -------------------- Charles E. Rice /s/ WILLIAM C. RICHARDSON* Director - -------------------------- William C. Richardson /s/ FRANK S. ROYAL, M.D.* Director - ------------------------- Frank S. Royal, M.D. *By: /s/ PETER J. SHUDTZ ------------------- Peter J. Shudtz Attorney-in-Fact - 11 - EX-3.2 2 BYLAWS OF CSX CORPORATION (Amended as of February 10, 1999) -------------------- ARTICLE I Shareholders' Meeting SECTION 1.Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held on such date in March, April, May or June as the Board of Directors (hereinafter sometimes the "Board") may designate, either within or without the Commonwealth of Virginia. SECTION 2.Special Meetings. Special meetings of the shareholders may be called from time to time by the Board of Directors or the Chairman of the Board. Special meetings shall be held solely for the purposes specified in the notice of meeting. SECTION 3.Time and Place. The time and place of each meeting of the shareholders shall be stated in the notice of the meeting. SECTION 4.Quorum. The holders of a majority of the votes entitled to be cast on any matter shall constitute a quorum as to that matter at any meeting of the shareholders. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. Unless otherwise provided in the Articles of Incorporation of the Corporation, each shareholder shall be entitled to one vote in person or by proxy for each share entitled to vote then outstanding and registered in his name on the books of the Corporation. SECTION 5.Notice of Meeting and Record Date. Except as otherwise required by the laws of the Commonwealth of Virginia, notice shall be delivered by the Corporation not less than 10 days nor more than 60 days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the shareholder at the shareholder's address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. Notice of meetings may be waived in accordance with law. Any previously scheduled meeting of the shareholders may be postponed, by resolution of the Board of Directors at any time prior to the time previously scheduled for such meeting of shareholders. The Board of Directors may fix in advance a date to determine shareholders entitled to notice or to vote at any meeting of shareholders, to receive any dividend, or for any other purpose, such date to be not more than 70 days before the meeting or action requiring a determination of shareholders. SECTION 6.Conduct of Meeting. The Chairman of the Board shall preside over all meetings of the shareholders. If he is not present, or if there is none in office, the President shall preside. If the Chairman of the Board and the President are not present, a Vice President shall preside, or, if none be present, a Chairman shall be elected by the meeting. The Corporate Secretary shall act as secretary of the meeting, if he or she is present. If he or she is not present, the Chairman shall appoint a secretary of the meeting. The chairman of the meeting shall appoint one or more inspectors of election who shall determine the qualification of voters, the validity of proxies, and the results of ballots. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is a quorum, and may determine the date, time and place that a meeting so adjourned is to reconvene. The chairman of the meeting shall prescribe rules of procedure for the meeting and shall determine the time reasonably allotted to each speaker at the meeting. SECTION 7.Notice of Shareholder Business. At an annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who complies with the notice procedures set forth in this Section 7. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Corporate Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days before the date on which the Corporation first mailed its proxy materials for the prior year's annual meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder and (d) any material interest of the shareholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 7. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE II Board of Directors SECTION 1.Number and Election. The Board of Directors shall be elected at the annual meeting of the shareholders or at any special meeting held in lieu thereof. The number of Directors shall be fourteen. This number may be increased or decreased at any time by amendment of these Bylaws, but shall never be a number less than four. Subject to the last two sentences of this Section 2 of this Article II, no person shall be eligible for election as a Director, nor shall any Director be eligible for reelection, if he or she shall have reached the age of 70 years at the time of such election or reelection, except that the Board, in its sole discretion, may waive such ineligibility for a period not to exceed one year. Directors who are or have been employees of CSX or its affiliates, including current or former Chief Executive Officers, shall retire from the Board immediately upon leaving active service, or reaching age 65, whichever occurs first. In the case of a candidate for election as a Director who was a director of Conrail Inc. on May 23, 1997, the restrictions on eligibility for election and reelection as a Director as a result of age shall not apply for two years following their initial election to the Board. The Board, in its sole discretion, may extend such eligibility for a period not to exceed one year. SECTION 2.Notice of Shareholder Nominees. Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 2. Nominations by shareholders shall be made pursuant to timely notice in writing to the Corporate Secretary. To be timely, a shareholder's notice shall be received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Corporate Secretary the information required to be set forth in the shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in these Bylaws. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3.Quorum. A majority of the Directors shall constitute a quorum. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. SECTION 4.Removal and Vacancies. The shareholders at any meeting called for such purpose, by a vote of the holders of a majority of all the shares of capital stock at the time outstanding and having voting power, may remove any Director and fill any vacancy. Vacancies arising among the Directors, including a vacancy resulting from an increase by the Board of Directors in the number of directors, so long as the increase so created is not more than 30 percent of the number of Directors then authorized to serve on the Board, may be filled by the remaining Directors, though less than a quorum of the Board, unless sooner filled by the shareholders. SECTION 5.Meetings and Notices. Regular meetings of the Board of Directors shall be held on such dates, at such places and at such times as the Board of Directors may from time to time designate. Special meetings of the Board of Directors may be held at any place and at any time upon the call of the Chairman of the Board or of any three members of the Board of Directors. Notice of any meetings shall be given by mailing or delivering such notice to each Director at the Director's residence or business address or by telephone, telegraph, or facsimile. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the Directors are present or those not present waive notice before or after the meeting. Any action required to be taken at a meeting of the Board may be taken without a meeting if a consent in writing setting forth the action to be taken, shall be signed by all the Directors in counterpart or otherwise and filed with the Corporate Secretary. Such consent shall have the same force and effect as a unanimous vote. Any action required to be taken at a meeting of the Board may be taken by means of a conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. ARTICLE III Executive Committee SECTION 1.Designation; Chairman. The Board of Directors may designate an Executive Committee. The Chairman of the Board of Directors shall be the Chairman of the Executive Committee. SECTION 2.Authority and quorum. The Executive Committee shall have and may exercise all the authority of the Board of Directors, except as may be prohibited by Section 13.1-689 of the Code of Virginia, as it may from time to time be amended. A majority of the Committee shall constitute a quorum for the transaction of business, and the affirmative vote of the majority of those present shall be necessary for any action by the Committee. The Committee shall cause to be kept a full and accurate record of its proceedings at each meeting and report the same at the next meeting of the Board. In the absence of the Chairman of the Committee, an acting chairman shall be designated by the Committee to preside at such meeting. SECTION 3.Meetings and Notices. Meetings of the Committee may be called at any time by the Chairman of the Board or by a majority of the members of the Committee and shall be held at such time and place as shall be stated in the notice of the meeting. Notice of any meeting of the Committee shall be given by delivering or mailing such notice to each member at his or her residence or business address or by telephone, telegraph, or facsimile to him or her not less than 24 hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the members of the Committee are present or those not present waive notice before or after the meeting. Action may be taken by the Executive Committee without a meeting or at a meeting established by means of conference telephone or similar communications equipment in the manner provided by Section 5 of Article II. SECTION 4.Removal. Members of the Committee may be removed as members thereof and replaced at any regular or special meeting of the Board of Directors. ARTICLE IV Committees of the Board (other than the Executive Committee) The Board of Directors may establish such other committees as it deems appropriate, each committee consisting of at least two directors whose designation and terms of office shall be by resolution of the Board. Meetings of a committee may be called at any time by the Chairman of the Board or the Chairman of such committee. Notice of any meeting shall be given by delivering or mailing such notice to each committee member at the member's residence or business address or by telephone, telegraph, or facsimile to the member not less than 24 hours before the meeting. Any such notice shall state the time and place of the meeting. Meetings may be held without notice if all of the members of the committee are present or those not present waive notice before or after the meeting. Action may be taken by a committee without a meeting or at a meeting established by means of conference telephone or similar communications equipment in the manner provided by Section 5 of Article II. ARTICLE V Officers SECTION 1.Elected Officers. The elected officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Corporate Secretary, a Treasurer, and such other officers (including, without limitation, a Chief Financial Officer and a Chief Legal Officer) as the Board of Directors from time to time may deem proper. The Chairman of the Board shall be chosen from among the directors. All officers elected by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V. Such officers shall also have such powers and duties as from time to time may be conferred by the Board or by any committee thereof or the Chairman of the Board. The Board may from time to time elect, or the Chairman of the Board may appoint, such other officers (including, without limitation, one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board or such committee or by the Chairman of the Board, as the case may be. Any person may be elected to more than one office. SECTION 2.Election and Term of Office. The elected officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after the annual meeting of the shareholders. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, but any officer may be removed from office at any time by the Board of Directors or, except in the case of any officer or agent elected by the Board, by the Chairman of the Board. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 3.Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors and shall be the Chief Executive Officer of the Corporation. The Chairman of the Board shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to his office which may be required by law and all such other duties as are properly required of him by the Board of Directors. He shall make reports to the Board of Directors and the shareholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. SECTION 4.President. The President shall act in a general executive capacity and shall assist the Chairman of the Board in the administration and operation of the Corporation's business and general supervision of its policies and affairs. The President shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of shareholders and of the Board. SECTION 5.Vice Presidents. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him or her by the Chairman of the Board with the approval of the Board. SECTION 6.Treasurer. The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. He shall have such further powers and duties and shall be subject to such directions as may be granted or imposed upon him from time to time by the Board of Directors, the Chairman of the Board, or the Chief Financial Officer. SECTION 7.Corporate Secretary. The Corporate Secretary shall attend all meetings of the shareholders, the Board of Directors, and the Executive Committee and record their proceedings, unless a temporary secretary be appointed. He shall give due notice as required of all meetings of the shareholders, Directors, and Executive Committee. He shall keep or cause to be kept at a place or places required by law a record of the shareholders of the Corporation, giving the names and addresses of all shareholders and the number, class, and series of the shares held by each. He shall be custodian of the seal of the Corporation, and of all records, contracts, leases, and other papers and documents of the Corporation, unless otherwise directed by the Board of Directors, and shall perform such other duties as may be assigned to him by the Board of Directors or the Chairman of the Board. In case of the Secretary's absence or incapacity, the Chairman of the Board shall designate an Assistant Secretary or other appropriate officer to perform the duties of the Secretary. SECTION 8.Removal. Any officer elected, or agent appointed, by the Board of Directors may be removed by the Board of Directors whenever, in their judgment, the best interests of the Corporation would be served thereby. Any officer or agent appointed by the Chairman of the Board may be removed by him whenever, in his judgment, the best interests of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. SECTION 9.Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors or the Chairman of the Board for the unexpired portion of the term. Any vacancy in an office appointed by the Chairman of the Board because of death, resignation, or removal may be filled by the Chairman of the Board. ARTICLE VI Depositaries The money and negotiable instruments of the Corporation shall be kept in such bank or banks as the Chief Financial Officer or Treasurer shall from time to time direct or approve. All checks and other instruments for the disbursement of funds shall be executed manually or by facsimile by such officers or agents of the Corporation as may be authorized by the Board of Directors. ARTICLE VII Seal The seal of the Corporation, of which there may be any number of counterparts, shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization and the words, "Corporate Seal Virginia." The Board may also authorize to be used, as the seal of the Corporation, any facsimile thereof. ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall begin immediately after midnight of the last Friday of December, and shall end at midnight on the last Friday of December of each calendar year. ARTICLE IX Amendments to Bylaws These Bylaws may be amended or repealed at any regular or special meeting of the Board of Directors by the vote of a majority of the Directors present. They may also be repealed or changed, and new Bylaws made, by the Shareholders, provided notice of the proposal to take such action shall have been given in the notice of the meeting. * * * * * * * * * * Richmond, VA April 28, 1998 EX-10.11 3 June 19, 1998 PERSONAL AND CONFIDENTIAL Mr. Donald D. Davis Senior Vice President-Employee Relations CSX Transportation 500 Water Street Jacksonville, FL 32202 Dear Don: Thank you for the many courtesies during my recent visit to CSX and your letter of June 11, 1998. I am most anxious to begin my employment with CSX and look forward to seeing you on Monday, June 22, 1998, to begin what I am confident will be a very challenging and rewarding experience with CSX. This letter will confirm my understanding of your oral offer and your letter dated June 11, 1998. I understand that effective June 22, 1998, I shall join CSX as Executive Vice President of Operations. I understand that CSX is committing to and will be compensating me on an annual basis for 1998, 1999, and 2000 with a compensation package totaling $1,000,000 which includes base salary, annual bonus, and annual performance share awards as detailed below. ANNUAL BASE SALARY $300,000.00 paid yearly at the rate of $25,000.00 per month ANNUAL BONUS OPPORTUNITY 80% of annual earnings ($240,000.00); may be increased by an additional 25% if CSX exceeds its annual financial objectives. If deferred, at my option, in CSX stock until retirement/termination, a 25% premium will be paid in the form of CSX stock on any portion deferred. Donald D. Davis June 19, 1998 Page 2 ANNUAL PERFORMANCE AND 8,000 to 10,000 Shares of CSX SHARE AWARD stock to be awarded annually (actual award will depend on stock price at time of award to produce annual compensation of $1,000,000.00) ANNUAL STOCK OPTION GRANT 20,000 Shares of CSX stock options to be awarded annually. I also understand that other perquisites will include: Executive Automobile Program ($600.00 per month plus insurance) Mayo Clinic Annual Executive Physical Program Country Club Membership (initiation fees and annual dues at club of my choice) Executive Tax Preparation Program through my current provider CSX Hotel Discount Program (The Greenbrier and Grand Teton Lodge) Estate Planning Services through my current provider. In addition to the above, as an employee of CSX, I understand that I will receive all other employment benefits and be eligible to participate in all employment benefit plans ordinarily and customarily provided for senior executives of CSX at a comparable level in the organization. For purposes of my participation in the CSX Pension Plan, the three years of pension credit that I am entitled to receive pursuant to my Conrail Change of Control Agreement shall be credited to me. If my employment is terminated by CSX at any time prior to January 1, 2001, CSX shall provide me with severance pay and continuation of employment benefits until January 1, 2001 at the same level of total annual compensation and employment benefits as I was receiving immediately prior to the termination of my employment. Donald D. Davis June 19, 1998 Page 3 If I have accurately summarized the employment terms being offered to me by CSX, please sign a copy of this letter and return it to me. Very truly yours, /s/RONALD J. CONWAY - ------------------- Ronald J. Conway Understood and Agreed by CSX Transportation /s/DONALD D. DAVIS - ------------------ Donald D. Davis Senior Vice President- Employee Relations CSX Transportation EX-10.12 4 EMPLOYMENT AGREEMENT AGREEMENT by and between CSX Corporation, a Virginia corporation (the "Company") and John W. Snow (the "Executive") dated as of the 15th day of June, 1999. WHEREAS, Section 11 of the CSX Corporation 1987 Long-Term Performance Stock Plan ("1987 Plan") provides that the Compensation Committee of the Board of Directors of CSX Corporation ("Committee") may, in its discretion, set forth in a written agreement with Executive conditions, restrictions or limitations upon the grant of a Restricted Stock Award ("RSA") which differ from the terms set forth in the 1987 Plan; WHEREAS, the RSA grants hereunder are made pursuant to the 1987 Plan and this Agreement; NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean June 30, 1999. -------------- 2. Employment Period. The Company hereby agrees to employ the Executive, and the ----------------- Executive hereby agrees to enter into the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary thereof, or if later, until the appointment of the Executive's successor as Chief Executive Officer of the Company (the "Employment Period"). 3. Terms of Employment. (a) Position and Duties. (i) (A) During the Employment ------------------- ------------------- Period, the Executive shall serve as Chairman and Chief Executive Officer of the Company with such authority, duties and responsibilities as are commensurate with such position and as may be consistent with such position, including oversight of the integration of Conrail and succession planning, and (B) the Executive's services shall be performed in Richmond, Virginia. If elected, the Executive shall serve on the Company's Board of Directors during the Employment Period. (ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive ------------ ----------- shall receive an annual base salary ("Annual Base Salary") of no less than the base salary paid to the Executive immediately prior to the Effective Date. During the Employment Period, the Annual Base Salary shall be reviewed in accordance with the Company's current practice. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. During the Employment Period, the ------------ Executive shall be eligible to receive an annual cash bonus ("Annual Bonus") on the same basis as immediately prior to the Effective Date. (iii) Incentive Awards. In addition to the Executive's participation in stock and other long-term incentive programs of the Company, the Executive shall receive: (A) with respect to the Plan Year ending June 30, 1999, a grant of 150,000 shares of restricted Company common stock subject to the conditions described below, and (B) with respect to the Plan Year ending June 30, 2000, 100,000 shares of restricted Company stock subject to the conditions described below (the "Restricted Shares"). The Restricted Shares shall be granted to the Executive upon his certification that he has acquired since April 27, 1999, 250,000 shares of the Company's common stock. Except as otherwise provided herein, the Restricted Shares shall vest at the end of the Employment Period, or at such earlier time as provided by the Committee, provided that the Company's average free cash-flow per share on an annualized basis, as adjusted for any extraordinary events, during such period is higher than its free cash-flow per share, as adjusted for any extraordinary events, for the four consecutive quarters ending March 26, 1999. Notwithstanding the foregoing, the Restricted Shares shall vest upon a Change of Control of the Company, as defined in the Company's 1987 Plan. (iv) Retirement. The Executive shall be provided with pension benefits as in ---------- effect immediately prior to the Effective Date, provided that in determining the amount of the Executive's retirement benefits, with respect to the time the Executive remains employed by the Company, the value of the Restricted Shares as of the date of grant to the extent performance goals pursuant to Section 3(iii) have been met as of that date shall be treated as if being paid to him as a cash bonus, for the purpose of pension computation only, ratably over a 36 month period based on the value of such shares on the date of grant. (v) Other Employee Benefit Plans. During the Employment Period, except as ------------------------------- otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare, vacation, fringe benefit and other plans, practices, policies and programs as provided to him immediately prior to the Effective Date. 4. Termination of Employment. (a) Death or Disability. The Executive's --------------------------- --------------------- employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability" set forth in the 1987 Plan), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) Cause. The Company may terminate the Executive's employment during the ----- Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (c) Good Reason. The Executive's employment may be terminated by the Executive ----------- for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive, a material breach by the Company of a material term of this Agreement, after the Executive has given the Company notice thereof and a reasonable opportunity to cure. (d) Notice of Termination. Any termination by the Company for Cause, or by the ---------------------- Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's -------------------- employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for - ---------------------------------------------- --------------------------- Cause, Death or Disability. If, during the Employment Period, the Company shall - -------------------------- terminate the Executive's employment other than for Cause or Disability or the Executive's employment is terminated by reason of his death, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the highest annual bonus paid to the Executive for any of the three years prior to the Effective Date (the "Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2), shall be hereinafter referred to as the "Accrued Obligations"); and (ii) until June 30, 2002, the Company shall continue to provide medical and dental benefits to the Executive, his spouse and dependents on a basis as such benefits are provided to the Executive's successor (collectively "Medical Benefits"); (iii) the Restricted Shares shall vest immediately; and (iv) to the extent not theretofore paid or provided by the Company or deferred by Executive, the Company shall pay on a timely basis or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the ----- Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, the Restricted Shares shall vest immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall be paid or distributed to the Executive's estate or beneficiary, as applicable, within 30 days of the Date of Termination. The Accrued Obligations shall be paid in a lump sum. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits as in effect on the date of the Executive's death and the continued provision of Medical Benefits to the Executive's current spouse and dependents (as defined in the CSX Medical Plan). (c) Disability. If the Executive's employment is terminated by reason of the ---------- Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, the Restricted Shares shall vest immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall be paid or distributed to the Executive within 30 days of the Date of Termination. The Accrued Obligations shall be paid in a lump sum. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect at any time thereafter and the continued provision of Medical Benefits to the Executive and his current spouse and dependents (as defined in the CSX Medical Plan). (d) Cause; Other than for Good Reason. If the Executive's employment shall be ---------------------------------- terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, and (y) Other Benefits, in each case to the extent theretofore unpaid. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this ------------------------- Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 10(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for --------------- in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Confidential Information. (a) The Executive shall hold in a fiduciary ------------------------- capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) In the event of a breach or threatened breach of this Section 8, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 8. 9. Successors. (a) This Agreement is personal to the Executive and without ---------- the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) This Agreement shall be governed by and construed in ------------- accordance with the laws of the Commonwealth of Virginia, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John W. Snow home address If to the Company: CSX Corporation 901 E. Cary Street Richmond, VA 23219 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement does not supersede the Employment Agreement between the parties dated February 1, 1995 (the "Existing Agreement"), except to the extent that this Agreement and the Existing Agreement would provide duplicative benefits. (g) The provisions of the 1987 Plan shall apply to the extent they are not inconsistent with the terms of this Agreement, in which case the terms of this Agreement shall be controlling. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/JOHN W. SNOW ----------------------------- JOHN W. SNOW CSX CORPORATION By:/s/MARK G. ARON --------------- EX-10.13 5 EMPLOYMENT AGREEMENT AGREEMENT by and between CSX Corporation, a Virginia corporation (the "Company") and Alvin R. Carpenter (the "Executive") dated as of the 15th day of June, 1999. WHEREAS, Section 11 of the CSX Corporation 1987 Long-Term Performance Stock Plan ("1987 Plan") provides that the Compensation Committee of the Board of Directors of CSX Corporation ("Committee") may, in its discretion, set forth in a written agreement with Executive conditions, restrictions or limitations upon the grant of a Restricted Stock Award ("RSA") which differ from the terms set forth in the 1987 Plan; WHEREAS, the RSA grant hereunder is made pursuant to the 1987 Plan and this Agreement; NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean June 30, 1999. -------------- 2. Employment Period. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to enter into the employ of the Company subject to the terms and conditions of this Agreement, for up to 3 years, as determined by the Board of Directors, commencing on the Effective Date and ending not later than the third anniversary thereof ("Employment Period"). 3. Terms of Employment. (a) Position and Duties. (i) During the ------------------- ------------------- Employment Period, the Executive shall serve as a senior executive officer of the Company with such authority, duties and responsibilities as are commensurate with such position and as may be consistent with such position, including the smooth transition of leadership at CSX Transportation, Inc. (ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and CSXT and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive ------------ ----------- shall receive an annual base salary ("Annual Base Salary") of no less than the base salary paid to the Executive immediately prior to the Effective Date. During the Employment Period, the Annual Base Salary shall be reviewed in accordance with the Company's current practice. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. During the Employment Period, the Executive shall be ------------ eligible to receive an annual cash bonus ("Annual Bonus") on the same basis as immediately prior to the Effective Date. (iii) Incentive Awards. In addition to the Executive's participation in stock ----------------- and other long-term incentive programs of the Company, the Executive shall receive a grant of 150,000 shares of restricted Company common stock subject to the conditions described below (the "Restricted Shares"). The Restricted Shares shall be granted to the Executive upon his certification that he has acquired since April 27, 1999, 150,000 shares of the Company's common stock. Except as otherwise provided herein, the Restricted Shares shall vest at the end of the Employment Period, or at such earlier time as provided by the Committee, provided that the Company's average free cash-flow per share on an annualized basis, as adjusted for any extraordinary events, during such period is higher than its free cash-flow per share, as adjusted for any extraordinary events, for the four consecutive quarters ending March 26, 1999. Notwithstanding the foregoing, the Restricted Shares shall vest upon a Change of Control of the Company, as defined in the Company's 1987 Plan. (iv) Retirement. The Executive shall be provided with pension benefits as in ---------- effect immediately prior to the Effective Date, but in addition he shall receive for pension purposes only, credit for 1/36th of the value of the Restricted Shares as of the date of grant for each month actually worked pursuant to this Agreement after the Effective Date. Such amount shall be treated as if being paid as a cash bonus, for the purpose of pension computation only, ratably over a period equal to the period actually worked pursuant to this Agreement. (v) Other Employee Benefit Plans. During the Employment Period, except as ------------------------------- otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare, vacation, fringe benefit and other plans, practices, policies and programs as provided to him immediately prior to the Effective Date. 4. Termination of Employment. (a) Death or Disability. The Executive's --------------------------- --------------------- employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability" set forth in the 1987 Plan), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) Cause. The Company may terminate the Executive's employment during the ------ Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (c) Good Reason. The Executive's employment may be terminated by the Executive ----------- for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive, a material breach by the Company of a material term of this Agreement, after the Executive has given the Company notice thereof and a reasonable opportunity to cure. (d) Notice of Termination. Any termination by the Company for Cause, or by the ---------------------- Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's -------------------- employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other - --------------------------------------------------- ------------------ Than for Cause, Death or Disability. If, during the Employment Period, the - ----------------------------------- Company shall terminate the Executive's employment other than for Cause or Disability or the Executive's employment is terminated by reason of his death, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the highest annual bonus paid to the Executive for any of the three years prior to the Effective Date (the "Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2), shall be hereinafter referred to as the "Accrued Obligations"); and (ii) until June 30, 2002, the Company shall continue to provide medical and dental benefits to the Executive, his spouse and dependents on a basis as such benefits are provided to the Executive's successor (collectively "Medical Benefits"); (iii)the Restricted Shares shall vest immediately; and (iv) to the extent not theretofore paid or provided by the Company or deferred by Executive, the Company shall pay on a timely basis or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the ----- Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, the Restricted Shares shall vest immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall be paid or distributed to the Executive's estate or beneficiary, as applicable, within 30 days of the Date of Termination. The Accrued Obligations shall be paid in a lump sum. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits as in effect on the date of the Executive's death and the continued provision of Medical Benefits to the Executive's current spouse and dependents (as defined in the CSX Medical Plan). (c) Disability. If the Executive's employment is terminated by reason of the ---------- Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, the Restricted Shares shall vest immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall be paid or distributed to the Executive within 30 days of the Date of Termination. The Accrued Obligations shall be paid in a lump sum. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect at any time thereafter and the continued provision of Medical Benefits to the Executive and his current spouse and dependents (as defined in the CSX Medical Plan). (d) Cause; Other than for Good Reason. If the Executive's employment shall be ---------------------------------- terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, and (y) Other Benefits, in each case to the extent theretofore unpaid. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this ------------------------- Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 10(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for --------------- in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Confidential Information. (a) The Executive shall hold in a fiduciary ------------------------- capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) In the event of a breach or threatened breach of this Section 8, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 8. 9. Successors. (a) This Agreement is personal to the Executive and without ---------- the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) This Agreement shall be governed by and construed ------------- in accordance with the laws of the Commonwealth of Virginia, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Alvin R. Carpenter home address If to the Company: CSX Corporation 901 E. Cary Street Richmond, VA 23219 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement does not supersede the Employment Agreement between the parties dated February 1, 1995 (the "Existing Agreement"), except to the extent that this Agreement and the Existing Agreement would provide duplicative benefits. (g) The provisions of the 1987 Plan shall apply to the extent they are not inconsistent with the terms of this Agreement, in which case the terms of this Agreement shall be controlling. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ALVIN R. CARPENTER ----------------------------- ALVIN R. CARPENTER CSX CORPORATION By:/s/JOHN W. SNOW --------------- EX-10.14 6 EMPLOYMENT AGREEMENT AGREEMENT by and between CSX Corporation, a Virginia corporation (the "Company") and Ronald J. Conway (the "Executive") dated as of the 15th day of June, 1999. WHEREAS, Section 11 of the CSX Corporation 1987 Long-Term Performance Stock Plan ("1987 Plan") provides that the Compensation Committee of the Board of Directors of CSX Corporation ("Committee") may, in its discretion, set forth in a written agreement with Executive conditions, restrictions or limitations upon the grant of a Restricted Stock Award ("RSA") which differ from the terms set forth in the 1987 Plan; WHEREAS, the RSA grant hereunder is made pursuant to the 1987 Plan and this Agreement; NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean June 30, 1999. -------------- 2. Employment Period. The Company hereby agrees to employ the Executive, and the ----------------- Executive hereby agrees to enter into the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the fourth anniversary thereof (the "Employment Period"). 3. Terms of Employment. (a) Position and Duties. (i) During the Employment ------------------- ------------------- Period, the Executive shall serve as a senior executive officer of the Company with such authority, duties and responsibilities as are commensurate with such position, including managing the integration of Conrail, and as may be consistent with such position. The Executive's services shall be performed in Jacksonville, Florida. (ii)During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and CSXT and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive ------------ ----------- shall receive an annual base salary ("Annual Base Salary") of no less than the base salary paid to the Executive immediately prior to the Effective Date. During the Employment Period, the Annual Base Salary shall be reviewed in accordance with the Company's current practice. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. During the Employment Period, the Executive shall be ------------ eligible to receive an annual cash bonus ("Annual Bonus") on the same basis as immediately prior to the Effective Date. (iii) Incentive Awards. In addition to the Executive's participation in stock ----------------- and other long-term incentive programs of the Company, the Executive shall receive a grant of 100,000 shares of restricted Company common stock subject to the conditions described below (the "Restricted Shares"). The Restricted Shares shall be granted to the Executive upon his certification that he has acquired since April 27, 1999, 100,000 shares of the Company's common stock. Except as otherwise provided herein, the Restricted Shares shall vest at the end of the Employment Period, or at such earlier time as provided by the Committee, provided that the Company's average free cash-flow per share on an annualized basis, as adjusted for any extraordinary events, during such period is higher than its free cash-flow per share, as adjusted for any extraordinary events, for the four consecutive quarters ending March 26, 1999. Notwithstanding the foregoing, the Restricted Shares shall vest upon a Change of Control of the Company, as defined in the Company's 1987 Plan. (iv) Other Employee Benefit Plans. During the Employment Period, except as ------------------------------ otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare, vacation, fringe benefit and other plans, practices, policies and programs as provided to him immediately prior to the Effective Date. 4. Termination of Employment. (a) Death or Disability. The Executive's --------------------------- employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability" set forth in the 1987 Plan), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) Cause. The Company may terminate the Executive's ----- employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (c) Good Reason. The Executive's employment may be terminated by the Executive ----------- for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive, a material breach by the Company of a material term of this Agreement, after the Executive has given the Company notice thereof and a reasonable opportunity to cure. (d) Notice of Termination. Any termination by the Company for Cause, or by the ---------------------- Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's -------------------- employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for - --------------------------------------------------- ---------------------- Cause, Death or Disability. If, during the Employment Period, the Company shall - -------------------------- terminate the Executive's employment other than for Cause or Disability or the Executive's employment is terminated by reason of his death, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the highest annual bonus paid to the Executive for any of the three years prior to the Effective Date (the "Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2), shall be hereinafter referred to as the "Accrued Obligations"); and (ii) until June 30, 2003, the Company shall continue to provide medical and dental benefits to the Executive, his spouse and dependents on a basis as such benefits are provided to the Executive's successor (collectively "Medical Benefits"); (iii) the Restricted Shares shall vest immediately; and (iv) to the extent not theretofore paid or provided by the Company or deferred by Executive, the Company shall pay on a timely basis or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the ----- Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, the Restricted Shares shall vest immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall be paid or distributed to the Executive's estate or beneficiary, as applicable, within 30 days of the Date of Termination. The Accrued Obligations shall be paid in a lump sum. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits as in effect on the date of the Executive's death and the continued provision of Medical Benefits to the Executive's current spouse and dependents (as defined in the CSX Medical Plan. (c) Disability. If the Executive's employment is terminated by reason of the ---------- Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, the Restricted Shares shall vest immediately. Accrued Obligations, Other Benefits and the Restricted Shares shall be paid or distributed to the Executive within 30 days of the Date of Termination. The Accrued Obligations shall be paid in a lump sum. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect at any time thereafter and the continued provision of Medical Benefits to the Executive and his current spouse and dependents (as defined in the CSX Medical Plan). (d) Cause; Other than for Good Reason. If the Executive's employment shall be ---------------------------------- terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, and (y) Other Benefits, in each case to the extent theretofore unpaid. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this ------------------------- Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for --------------- in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Confidential Information. (a) The Executive shall hold in a fiduciary ------------------------- capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) In the event of a breach or threatened breach of this Section 8, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 8. 9. Successors. (a) This Agreement is personal to the Executive and without the ---------- prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) This Agreement shall be governed by and construed in ------------- accordance with the laws of the Commonwealth of Virginia, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Ronald J. Conway home address If to the Company: CSX Corporation 901 E. Cary Street Richmond, VA 23219 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The provisions of the 1987 Plan shall apply to the extent they are not inconsistent with the terms of this Agreement, in which case the terms of this Agreement shall be controlling. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/RONALD J. CONWAY ----------------------------- RONALD J. CONWAY CSX CORPORATION By:/s/JOHN W. SNOW --------------- EX-10.15 7 Plan Notice of Non-Qualified Stock Option Grant First_Name Last_Name Grant Date: April 27, 1999 Address_Line_1 Options Granted: Shares_Granted Address_Line_2 Option Price: $44.8125 Address_Line_3 Expiration Date: April 26, 2009 City, State Zip_Code Grant Number: Number SSN: SSN CSX Corporation ("CSX") has granted to you non-qualified stock options ("Options") to purchase CSX common stock. Your grant has been made pursuant to CSX's Plan (the "Plan"), which, together with the terms contained in this Notice, sets forth terms and conditions of your grant and is incorporated herein by reference. A copy of the Plan is available at your request from the CSX Corporate Secretary Department and can be sent to you in hard copy or via e-mail. You should review the terms of this Notice and the Plan carefully. The capitalized terms used in this Notice are defined in the Plan. Unless you notify the CSX Corporate Secretary in writing that you do not accept the Options, you will be deemed to have agreed to the terms of this Notice and the terms of the Plan. Vesting and Exercisability: Subject to the terms of the Plan, the Options will vest on April 27, 2000, and will become exercisable according to the following schedule: First Date of Shares Expiration Exercisability Exercisable Date ------------------------------------------------------------- 04/27/2002 Shares_Period_1 04/26/2009 04/27/2003 Shares_Period_2 04/26/2009 04/27/2004 Shares_Period_3 04/26/2009 In the case of a Change in Control, the Options will become exercisable immediately. Employment Requirements: The Plan sets out the terms and conditions that govern this grant in the event of your Separation from Employment. In the event of your Separation from Employment prior to April 27, 2000, a portion of the Options will vest based on the number of Completed Months of employment following the date of the grant. Each portion of the grant will be pro-rated in the same manner. As set out in the Plan, if your Separation from Employment is for any reason other than Retirement, Disability or death, you will have 30 days after Separation from Employment to exercise any vested Options that are exercisable. In the event of your Separation from Employment due to Disability or death, you or your Beneficiary or estate will have up to five years (but not later than the expiration date) to exercise any vested Options. Beneficiary designation forms may be obtained upon request from the CSX Corporate Secretary Department. If your Separation from Employment is because of Retirement, you will have until the expiration date to exercise any vested Options. Please consult the Plan for a more comprehensive explanation of termination and vesting provisions. Exercise: You may exercise these Options, in whole or in part, to purchase a whole number of vested shares at any time by following the exercise procedures established by CSX. All exercises must take place before the expiration date, or such earlier dates as established by the Plan following your Separation from Employment. An exercise of Options generates federal and applicable state income and employment tax withholding obligations. As provided in the Plan, the full purchase price of the shares being purchased through exercise of Options and the related withholding taxes for federal, state or local jurisdictions must be paid to CSX at the time of an exercise of Options. For further information regarding procedures for exercising Options, you should contact the CSX Corporate Secretary Department. Restrictions on Exercise: Your ability to exercise the Options is subject to any restrictions or requirements imposed by law or by CSX. EX-10.18 8 CSX CORPORATION 1987 Long-Term Performance Stock Plan As Amended and Restated Effective April 25, 1996 (As Amended through September 8, 1999) 1. Purpose. The purpose of the CSX Corporation Long-Term Performance Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of CSX Corporation and its subsidiaries, to furnish motivation for the achievement of long-term performance objectives by providing such persons opportunities to acquire ownership of common shares of the Company, monetary payments based on the value of such shares or the financial performance of the Company; or both, on terms as herein provided. It is intended that the Incentives provided under this Plan will be treated as qualified performance-based compensation within the meaning of Section 162(m) of the Code. The Company believes there are circumstances, however, where the provision of compensation that is not fully deductible may be more consistent with the compensation philosophy of the Company and/or may be in the Company's and its shareholders' best interests. The Company reserves the right to exercise discretion and retain flexibility in this regard and in certain circumstances to provide incentives that do not qualify as deductible under Section 162(m). 2. Definitions. Whenever the following words are capitalized and used in the Plan, they shall have the respective meanings set forth below, unless a different meaning is expressly provided. Unless the context clearly indicates to the contrary, in reading this document the singular shall include the plural and the masculine shall include the feminine. a. "Beneficiary": The term Beneficiary shall mean the person designated by the Participant, on a form provided by the Company, to exercise the Participant's rights in accordance with Section 14 of the Plan in the event of his death. b. "Benefits Trust Committee": The term Benefits Trust Committee means the committee established pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust. c. "Board of Directors": The term Board of Directors or Board means the Board of Directors of CSX Corporation. d. "Cause": The term Cause means (i) an act or acts of personal dishonesty of a Participant intended to result in substantial personal enrichment of the Participant at the expense of the Company or any of its subsidiaries, (ii) violation of the management responsibilities by the Participant which is demonstrably willful and deliberate on the Participant's part and which is not remedied in a reasonable period of time after receipt of written notice from the Company or a subsidiary, or (iii) the conviction of the Participant of a felony involving moral turpitude. e. "Change in Control": The term Change in Control is defined in Section 22. f. "Code": The term Code means the Internal Revenue Code of 1986, as amended. g. "Committee": The term Committee means the Compensation Committee of the Board of Directors. h. "Company": The term Company means CSX Corporation. i. "Completed Month": The term Completed Month shall mean a period beginning on the monthly anniversary date of a grant of an Incentive and ending on the day before the next monthly anniversary. j. "Covered Employee": The term Covered Employee shall mean the chief executive officer of the Company or any other individual who is among the four (4) highest compensated officers or who is otherwise a "covered employee" within the meaning of Section 162(m) of the Code, as determined by the Committee. k. "Disability": The term Disability means long-term disability as determined under the Company's Salary Continuance and Long-Term Disability Plan. l. "Divisive Transaction": The term Divisive Transaction means a transaction in which the Participant's employer ceases to be a Subsidiary or there is a sale of substantially all of the assets of the Subsidiary. m. "Exchange Act": The term Exchange Act means the Securities Exchange Act of 1934, as amended. n. "Exercisability Requirements": The term Exercisability Requirements used with respect to any grant of options means such restrictions or conditions on the exercise of such options that the Committee may, in its discretion, add to the one-year holding requirement contained in Sections 7 and 8. o. "Fair Market Value": The term Fair Market Value shall be deemed to be the mean between the highest and lowest quoted selling prices of the stock per share as reported under New York Stock Exchange-Composite Transactions on the day of reference to any event to which the term is pertinent, or, if there is no sale that day, on the last previous day on which any such sale occurred. p. "Functional Group": The term Functional Group means a group of employees, identified by the Compensation Committee, in its sole discretion, to be subject to a common set of Performance Objectives. q. "Incentive": The term Incentive means any incentive under the Plan described in Section 6. r. "Objective Standard": The term Objective Standard means a formula or standard by which a third party, having knowledge of the relevant performance results, could calculate the amount to be paid to a Participant. Such formula or standard shall specify the individual employees or class of employees to which it applies, and shall preclude discretion to increase the amount payable that would otherwise be due upon attainment of the objective. s. "Participant": The term Participant means an individual designated by the Committee as a Participant pursuant to Section 5. t. "Performance Objective": The term Performance Objective shall mean a performance objective established in writing by the Committee within ninety (90) days of the commencement of the Performance Period to which the Performance Objective relates and at a time when the outcome of such objective is substantially uncertain. Each Performance Objective shall be established in such a way that a third party having knowledge of the relevant facts could determine whether the objective is met. A Performance Objective may be based on one or more business criteria that apply to the individual Participant, a business unit or the Company as a whole, and shall state, in terms of an Objective Standard, the method of computing the amount payable to the Participant if the Performance Objective is attained. With respect to Incentives granted to Covered Employees, the material terms of the Performance Objective shall be disclosed to, and must be subsequently approved by, a vote of the shareholders of the Company, consistent with the requirements of Section 162(m) of the Code and the regulations thereunder. The Performance Objectives for any Performance Period shall be based on one or more of the following measures, as determined by the Committee in writing within ninety (90) days of the commencement of the Performance Period: 1. The achievement by the Company or business unit of specific levels of Return on Invested Capital ("ROIC"). ROIC for the Company or business unit means its results of operations divided by its capital. 2. The generation by the Company or business unit of free cash flow. 3. The creation by the Company or business unit of specific levels of Economic Value Added ("EVA"). EVA for the Company or business unit means its ROIC less its cost of capital multiplied by its capital. 4. The creation by the Company of specific levels of Total Shareholder Return ("TSR"). TSR for the Company means total return to shareholders as measured by stock price appreciation plus dividends. u. "Performance Period": The term Performance Period means a fixed period of time, established by the Committee, during which a Participant performs service for the Company and during which Performance Objectives may be achieved. v. "Plan": The term Plan means this CSX Corporation 1987 Long-Term Performance Stock Plan as amended or restated from time to time. w. "Retirement": The term Retirement means a termination of employment after age 55 with eligibility to begin immediately receiving retirement benefits under the Company's defined benefit pension plan. x. "Separation From Employment": The term Separation From Employment means an employee's separation from employment with the Company or a Subsidiary as a result of Retirement, death, Disability, or termination of employment (voluntarily or involuntarily). A Participant in receipt of periodic severance payments shall be considered separated from employment on the day preceding the day such severance payments commenced. y. "Subsidiary": The term Subsidiary means, with respect to any corporation, or corporation more than 50% of whose voting shares are owned directly or indirectly by the Company. z. "Trust": The term Trust means the CSX Corporation and Affiliated Companies Executives' Stock Trust or such other trust or trusts which substantially conforms to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B. 422. 3. Number of Shares. Subject to the provisions of Section 19 of this Plan, the maximum number of shares which may be issued pursuant to the Incentives shall be 21,000,000 shares of the Company's common stock, par value $1.00 per share. The maximum number of such shares that may be issued pursuant to any type of Incentive shall be 17,500,000 shares. The remaining 3,500,000 shares may be issued only pursuant to grants of Incentive Stock Options, Non-Qualified Stock Options, and Stock Appreciation Rights. Such shares shall be authorized and unissued shares of the Company's common stock. Subject to the provisions of Section 19, if any Incentive granted under the Plan shall terminate or expire for any reason without having been exercised in full, the unissued shares subject thereto shall again be available for the purposes of the Plan. Similarly, shares which have been issued, but which the Company retains or which the Participant tenders to the Company in satisfaction of income and payroll tax withholding obligations or in satisfaction of the exercise price of any option shall remain authorized and shall again be available for the purposes of the Plan, provided, however, that any such previously issued shares shall not be the subject of any grant under the Plan to any officer of the Company who, at the time of such grant, is subject to the short-swing trading provisions of Section 16 of the Exchange Act. 4. Administration. a. Prior to a Change of Control, the Plan shall be administered by the Committee. The Committee shall consist of three or more members of the Board of Directors. No member of the Committee shall be eligible to receive any Incentives under the Plan while a member of the Committee. A majority of the Committee shall constitute a quorum. The Committee shall recommend to the Board individuals to receive Incentives, including the type and amount thereof, unless the Board shall have delegated to the Committee the authority and power to select persons to whom Incentives may be granted, to establish the type and amount thereof, and to make such grants. Subject to the express provisions of the Plan, the Committee shall have authority to construe any agreements entered into with any person in respect of any Incentive or Incentives, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of any such agreements and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any agreement under the Plan in the manner and to the extent it shall deem expedient to carry it into effect, and it shall be the sole and final judge of such expedience. Any determination of the Committee under the Plan may be made without notice of meeting of the Committee by a writing signed by a majority of the Committee members. The determinations of the Committee on the matters referred to in this Section 4 shall be conclusive. b. Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Committee as the Plan Administrator. Additionally, following a Change of Control, any and all final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under this Plan shall rest with the Benefits Trust Committee or its delegate in its sole judgment and absolute discretion. 5. Eligibility and Participation. Incentives may be granted only to officers and key employees of the Company and of its Subsidiaries at the time of such grant as the Committee in its sole discretion may designate from time to time to receive an Incentive or Incentives. An officer or key employee who is so designated shall become a Participant. A director of the Company or of a Subsidiary who is not also an officer or employee of the Company or of such Subsidiary will not be eligible to receive an Incentive. The Committee's designation of an individual to receive an Incentive at any time shall not require the Committee to designate such person to receive an Incentive at any other time. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Incentives, including without limitation (a) the financial condition of the Company, (b) anticipated financial results for the current or future years, including return on invested capital, (c) the contribution by the Participant to the profitability and development of the Company through achievement of established strategic objectives, and (d) other compensation provided to Participants. 6. Incentives. Incentives may be granted in any one or a combination of (a) Incentive Stock Options; (b) Non-Qualified Stock Options; (c) Stock Appreciation Rights; (d) Performance Shares; (e) Performance Units; (f) Restricted Stock; and (g) Incentive Compensation Program Shares, all as described below and pursuant to the terms set forth in Sections 3 and 7-12 hereof. With respect to Items (a)-(c), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted in any Plan Year to any Participant will be 750,000. With respect to Items (d)-(f), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted during any Plan Year to any Participant will be 150,000. 7. Incentive Stock Options. Incentive Stock Options (ISOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. ISOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options; provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. For options granted after December 31, 1986, the aggregate Fair Market Value, determined at the date of grant, of shares for which ISOs are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. Notwithstanding the provisions of Section 5 of this Plan, no individual will be eligible for or granted an ISO if that individual owns stock of the Company possessing more than 10 percent of the total combined voting power of all classes of the stock of the Company or its Subsidiaries. Any Participant who is an option holder may exercise his option to purchase stock in whole or in part upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 7, Section 12 and in Sections 14 through 16, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its Subsidiaries since the grant of such option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. For purposes of this Section 7, written notice of exercise must be received by the Corporate Secretary of the Company not less than one year nor more than 10 years after the option is granted. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; or (3) any combination of (1) and (2). 8. Non-Qualified Stock Options. NQSOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options (15 years if the NQSO grant was a 15-year grant); provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. Any Participant may exercise an option to purchase stock upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 7, Section 12 and in Sections 14 through 16, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its Subsidiaries since the grant of his option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. For purposes of this Section 8, written notice of exercise must be received by the Corporate Secretary of the Company, not earlier than one year nor later than 10 years after the option is granted; provided, however, effective for grants of options after December 31, 1998, the term of the option may be 15 years instead of 10 years. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; (3) the delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company either sale proceeds of shares sold to pay the purchase price or the amount loaned by the broker to pay the purchase price; or (4) any combination of (1), (2) and (3). Non-Qualified Stock Options (NQSOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant; provided, further, effective for grants of options after December 31, 1998, the term of the option may be 15 years instead of 10 years. 9. Stock Appreciation Rights. Any option granted under the Plan may include a stock appreciation right (SAR) by which the participant may surrender to the Company all or a portion of the option to the extent exercisable at the time of surrender and receive in exchange a payment equal to the excess of the Fair Market Value of the shares covered by the option portion surrendered over the aggregate option price of such shares. Such payment shall be made in shares of Company common stock, in cash, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine, but in no event shall the number of shares of common stock delivered upon a surrender exceed the number the option holder could then purchase upon exercise of the option. Such rights may be granted by the Committee concurrently with the option or thereafter by amendment upon such terms and conditions as the Committee may determine. The Committee may also grant, in addition to, or in lieu of options to purchase stock, SARs which will entitle the Participant to receive a payment upon surrender of that right, or portion of that right in accordance with the provisions of the Plan, equaling the difference between the Fair Market Value of a stated number of shares of Company common stock on the date of the grant and the Fair Market Value of a comparable number of shares of Company common stock on the day of surrender, adjusted for stock dividends declared between the time of the grant of the SAR and its surrender. The Committee shall have the right to limit the amount of appreciation with respect to any or all of the SARs granted. Payment made upon the exercise of the SARs may be in cash or shares of Company common stock, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. For purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company not earlier than one year nor later than 10 years after the SAR is granted. Such notice must state the number of SARs being surrendered and the method of settlement desired within the guidelines established from time to time by the Committee. The SAR holder will receive settlement based on the Fair Market Value on the day the written request is received by the Corporate Secretary of the Company. In certain situations as determined by the Committee, for purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company between the third and twelfth business days after the public release of the Company's quarterly earnings report, or between such other, different period as may hereinafter be established by the Securities and Exchange Commission. For such settlements, a Participant subject to a restricted exercise period shall receive settlement based on the highest Fair Market Value during the period described in the foregoing sentence. The Committee may not grant an SAR or other rights under this Section 9 in connection with an incentive stock option if such grant would cause the option or the Plan not to qualify under Section 422 of the Code or if it is prohibited by such section or Treasury regulations issued thereunder. Any grant of an SAR or other rights which would disqualify either the option as an ISO or the Plan, or which is prohibited by Section 422 of the Code or Treasury regulations issued thereunder, is and will be considered as void and vesting no rights in the grantee. It is a condition for eligibility for the benefits of the option and of the Plan that the Participant agree that in the event an SAR or other right granted should be determined to be void as provided by the foregoing, the Participant has no right or cause of action against the Company. 10. Performance Unit Awards and Performance Share Awards. The Committee may grant Performance Unit Awards (PUAs) and Performance Share Awards (PSAs) under which payment shall be made in shares of the Company's common stock, in cash, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. PUAs and PSAs may be awarded to individual Participants or to a Functional Group. Awards to a Functional Group shall be subject to distribution by the Chief Executive Officer of the Company, or by his designees, to individuals within such group. At the time of the grant, the Committee shall establish in writing and communicate to Participants, and to members of a Functional Group who can be identified, Performance Objectives to be achieved during the Performance Period. Awards of PUAs and PSAs may be determined by the average level of attainment of Performance Objectives over multiple Performance Periods. Prior to the payment of PUAs and PSAs, the Committee shall determine the extent to which Performance Objectives have been attained during the Performance Period or Performance Periods in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. Payment, if any, shall be made in a lump sum or in installments, in cash or shares of Company common stock, as determined by the Committee, commencing as promptly as feasible following the end of the Performance Period, except that (a) payments to be made in cash may be deferred subject to such terms and conditions as may be prescribed by the Company, and (b) payments to be made in Company common stock may be deferred pursuant to an election filed on forms prescribed and provided by and filed with the Company. A Participant may elect annually to defer to a date certain, or the occurrence of an event, as provided in the form, the receipt of all or any part of shares of Company common stock he may subsequently become entitled to receive. On forms provided by and filed with the Company, the Participant shall also specify whether, when the deferral period expires or when the restrictions below lapse, payment will be in a lump sum or installments over a period not exceeding twenty (20) years. The Committee shall prescribe the time periods during which the election must be filed in order to be effective. Elections to defer, once effective, are irrevocable. Changes regarding the date of payment, the period over which payments are to be made and the method of payment are subject to substantial penalties. However, a One-Time Change of Distribution Election may be made to change the timing or the form of payment without penalty. Any such election which changes a distribution election on "termination of employment" or "the earlier of termination or a specified age" shall be void in the event the Participant's employment terminates within twelve (12) months following the date of the election. If a Participant has made an effective election to defer the payment of shares of common stock, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant upon: a. the death of the Participant; b. the Disability of the Participant; c. the Participant's termination of employment with the Company or a subsidiary of the Company, subject to the Participant's deferral election; d. A Divisive Transaction, subject to the Participant's deferral election; or e. a Change in Control. If a former Participant who has not received distribution of his entire deferred payment under this Section is reemployed and again becomes a Participant in the Plan, he may suspend payment of any remaining amounts deferred, by notifying the Company in writing, and make a new deferral election, without penalty, with respect to those amounts and new amounts deferred so long as such change does not accelerate the timing of any payment to the Participant; provided, however, distributions shall continue if the commencement of distribution was because the Participant chose a specific age for the commencement of benefits and that age has been attained. Notwithstanding a Participant's election to defer the payment of shares of common stock pursuant to this Section 10, the Company shall make cash payments to Participants following each common stock dividend payment date equal to the dividends payable on the number of shares of Company common stock credited to the Participant's account as of the dividend record date (including shares for which an election to defer has been made and any reinvested dividends thereon). A Participant may elect to defer receipt of the cash payments pursuant to election forms prescribed and provided by and filed with the Company. Such deferred cash payments shall be credited to the Participant's account and reinvested in shares of Company common stock as of the dividend payment date. An election to defer, once effective, shall be irrevocable for the calendar year, and shall continue in effect with respect to subsequent calendar years until changed by a timely filed new election. Any dividends paid on shares of Company common stock held in the Trust shall be paid to the Trust and shall be reinvested in shares of Company common stock, or other assets equal in value, to secure the Company's obligation to pay shares of common stock to Participants in the future. 11. Restricted Stock. A Restricted Stock Award (RSA) shall entitle the Participant, subject to his continued employment during the restriction period determined by the Committee and his complete satisfaction of any other conditions, restrictions and limitations imposed in accordance with the Plan, to the unconditional ownership of the shares of the Company's common stock covered by the grant without payment therefore. The Committee may grant RSAs at any time or from time to time to a Participant selected by the Committee in its sole discretion. The Committee shall establish at the time of grant of each RSA a Performance Period and Performance Objectives to be achieved during the Performance Period. At the time of grant, the Performance Period and Performance Objectives shall be set forth either in agreements or in guidelines communicated to the Participant in such form consistent with this Plan as the Committee shall approve from time to time. Following the conclusion of each Performance Period and prior to payment, the Committee shall determine the extent to which Performance Objectives have been attained or a degree of achievement between maximum and minimum Performance Objectives during the Performance Period in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. At the time that an RSA is granted, the Committee shall establish in the written agreement a restriction period applicable to all shares covered by such grant. Subject to the provisions of the next following paragraph, the Participant shall have all of the rights of a stockholder of record with respect to the shares covered by the grant to receive dividends or other distributions in respect of such shares (provided, however, that any shares of stock of the Company distributed with respect to such shares shall be subject to all of the restrictions applicable to such shares) and to vote such shares on all matters submitted to the stockholders of the Company, but such shares shall not be sold, exchanged, pledged, hypothecated or otherwise disposed of at any time prior to the expiration of the restriction period, including by operation of law, and any purported disposition, including by operation of law, shall result in automatic forfeiture of any such shares. Except as hereinafter provided, if, during the restriction period applicable to such grant, a Separation From Employment of a Participant occurs for any reason other than death, Disability or Retirement, all shares covered by such grant shall be forfeited to the Company automatically. If the Participant's Separation From Employment is because of Retirement or death, or in the event of Disability, the Participant or his successor in interest shall be entitled to unconditional ownership of a fraction of the total number of shares covered by such grant of which the numerator is the number of whole calendar months in the period commencing with the first whole calendar month following the date of grant and ending with the whole calendar month including the date of death, Disability or Retirement, and of which the denominator is the number of whole calendar months in the applicable restriction period. Any fractional shares shall be disregarded. The Committee may, at the time of granting any RSA, impose such other conditions, restrictions or limitations upon the rights of the Participants during the restriction period or upon the Participant's right to acquire unconditional ownership of shares as the Committee may, in its discretion, determine and set forth in the written agreement. At the time of grant of an RSA, the Company shall cause to be issued and registered in the name of the Participant a stock certificate representing the full number of shares covered thereby, which certificate shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such grant, and the grantee shall execute and deliver to the Company a stock power endorsed in blank covering such shares. Such stock certificate and stock power shall be held by the Company or its designee until the expiration of the restriction period, at which time the same shall be delivered to the Participant or his designee if all of the conditions and restrictions of the grant have been satisfied, or until the forfeiture of such shares, at which time the same shall be cancelled and the shares shall be returned to the status of unissued shares. 12. Incentive Compensation Program Shares. A Participant who receives base compensation in excess of a dollar level to be determined by the Committee and who is eligible to receive an award under the Company's Incentive Compensation Program ("ICP") may elect, by filing the prescribed election form with the Company in accordance with rules established by the Committee, to receive all or part of his annual ICP award in shares of the Company's common stock, rather than cash; provided, however, the Participant must agree that his receipt of the stock will be deferred until his retirement or termination of employment, with a minimum deferral period of three (3) years. Elections to defer are irrevocable. A Participant who makes such election shall, at the time that the stock is deferred, receive an additional award of stock equal to a percentage, established by the Committee from time to time, of the amount that he elected to have deferred, but not to exceed 25% (the "Stock Premium"). The Participant's election to defer shall also apply to the Stock Premium. If a Participant made an effective election to defer the payment of shares of common stock and receive the Stock Premium, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant upon: a. the death of the Participant; b. the Disability of the Participant; c. the Participant's termination of employment with the Company or a subsidiary of the Company, subject to the Participant's deferral election and the three (3) year deferral requirement; d. a Divisive Transaction, subject to the Participant's deferral election; or e. a Change in Control. Notwithstanding any provisions of this Plan to the contrary, upon the occurrence of a Divisive Transaction, the three (3) year holding requirement of the stock premium for deferred ICP shares shall be deemed satisfied. Notwithstanding a Participant's election to defer the payment of shares of common stock pursuant to this Section 12, the Company shall make cash payments to Participants following each common stock dividend payment date equal to the dividends payable on the number of shares of Company common stock credited to the Participant's account as of the dividend record date (including shares for which an election to defer has been made and any reinvested dividends thereon). A Participant may elect to defer receipt of the cash payments pursuant to election forms prescribed and provided by and filed with the Company. Such deferred cash payments shall be credited to the Participant's account and reinvested in shares of Company common stock as of the dividend payment date. An election to defer, once effective, shall be irrevocable for the calendar year, and shall continue in effect with respect to subsequent calendar years until changed by a timely filed new election. 13. Contributions to the Trust. a. The Company shall make contributions to the Trust to secure a source of future payments with respect to Participant's deferral elections pursuant to Sections 10 and 12. The Trustee shall be responsible only for contributions actually received by it hereunder and the Trustee shall have no duty or responsibility with respect to the timing, amounts and sufficiency of the contributions made or to be made by the Company hereunder. b. The Company may make contributions to the Trust in Common Stock. c. A separate bookkeeping account (an "Account") shall be established by the Trustee for each Participant covered by the Trust pursuant to the Plan, as directed in writing by the Company. A Participant may have more than one Account. Each account is intended to represent the amount of a Participant's deferred and unpaid benefit under the related provisions of the Plan. The value of a Participant's Account at any time will equal the fair market value of the number of shares of Common Stock owed to a Participant under the affected provisions of this Plan at such time. The number of shares owed at any time will equal the number of shares of Common Stock which were originally deferred by the Participant (including any applicable Stock Premium), plus, the number of Common Stock Shares which would have been acquired if dividends subsequently declared by the Company had been paid with respect to such shares and reinvested in Common Stock. "Account" may also mean individual sub-accounts which have been or may be established under this Plan from time to time. d. Within sixty days following the close of each calendar year, or more frequently or at such other time as may be required by the Trust Agreement, the Trustee shall provide the Company and each Participant with a written statement of the Account of each Participant. 14. Separation From Employment and Divisive Transactions. If the Participant's Separation From Employment is because of Disability or death, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than five years after the date of such Disability or death, but in no event later than 10 years from the date of grant (15 years if the NQSO grant was a 15-year grant); provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan, his or his successor in interest's right to exercise any ISOs, NQSOs or SARs shall be determined as if his Separation From Employment was because of Retirement. If the Participant's Separation From Employment is because of his Retirement, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than 10 years from the date of grant (15 years if the NQSO grant was a 15-year grant). Unless the Committee deems it necessary in individual cases (except with respect to Covered Employees) to extend a Participant's exercise period, if a Participant's Separation From Employment is for any reason other than Retirement, Disability or death, the right of the Participant to exercise an ISO, NQSO or SAR shall terminate not later than one year from the date of Separation From Employment, but in no event later than 10 years after the date of grant (15 years if the NQSO grant was a 15-year grant). For any ISO, NQSO or SAR granted after December 31, 1998, the Participant must exercise within 30 days instead of one year. At the time of his Separation From Employment for any reason other than Cause, a Participant shall vest in a portion of any Incentives granted under Sections 7 (ISOs), 8 (NQSOs) or 9 (SARs) that he has held for less than one year from the date of the grant. The portion of such Incentives in which the Participants shall vest shall be determined by multiplying all shares subject to such Incentives by a fraction, the numerator of which shall be the number of Completed Months of employment following the date of grant and the denominator of which shall be twelve. A Participant who vests in any Incentives under the preceding paragraph may not exercise such Incentives prior to the satisfaction of the one-year holding requirement and the Exercisability Requirements pertaining to such Incentives. Any Incentives vested under the preceding paragraph must be exercised within one year from the date of the Participant's Separation From Employment. If the Participant's employer is a Subsidiary involved in a Divisive Transaction or if the Participant's employment is terminated with the consent of the Company (as a result of a business transaction or a reduction in force or any other circumstances approved by the Committee), the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not less than three years after the date of the closing of such Divisive Transaction or after the date the Participant's employment is terminated with the consent of the Company, but in no event later than 10 years from the date of grant (15 years if the NQSO grant was a 15-year grant); provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan, his or his successor in interest's right to exercise any ISO, NQSO' or SAR' shall be determined as if he had retired. Notwithstanding anything to the contrary in this paragraph, a Participant may not exercise such Incentives prior to satisfaction of the one year holding requirement and the Exercisability Requirements pertaining to such Incentives. In the event of a Divisive Transaction, employees of Sea-Land Service, Inc., hired by that corporation prior to January 1, 1986, shall be deemed eligible to retire upon termination of employment after age 50 with 20 years of service and eligibility to begin immediately receiving retirement benefits under the Company's defined benefit pension plan. As to PUAs or PSAs, in the event of a Participant's Separation from Employment because of his Retirement, Disability or death prior to the end of the applicable Performance Period, or if the Participant's employer is a Subsidiary involved in a Divisive Transaction prior to the end of the applicable Performance Period, payment, if any, to the extent earned under the applicable Performance Objectives and awarded by the Committee, shall be payable at the end of the Performance Period in proportion to the active service of the Participant during the Performance Period, as determined by the Committee. If the Separation From Employment prior to the end of the Performance Period is for any other reason, the Participant's participation in Section 10 of the Plan shall immediately terminate, his agreement shall become void and the PUA or PSA shall be canceled. Notwithstanding anything to the contrary in this Plan, if a Participant or former Participant (a) becomes the owner, director or employee of a competitor of the Company or its subsidiaries, (b) has his employment terminated by the Company or one of its subsidiaries on account of actions by the Participant which are detrimental to the interests of the Company or its subsidiaries, or (c) engages in conduct subsequent to the termination of his employment with the Company or its subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries then the Committee may, in its sole discretion, pay the Participant or former Participant a single sum payment equal to the amount of his unpaid benefits which were awarded and deferred under Sections 10 or 12 of the Plan; provided, however, if the deferral has been for less than three (3) years under Section 12, the Participant shall not be eligible to receive the Stock Premium. The single sum payment shall be made as soon as practicable following the date the Participant or former Participant becomes an owner, director or employee of a competitor, his termination of employment or the Committee's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Participant or former Participant under this Plan. Effective for Incentives granted after December 31, 1998, notwithstanding anything to the contrary in this Plan, if a Participant or former Participant (a) becomes associated with, recruits or solicits customers or other employees of the Company or its Subsidiaries for, is employed by, renders services to, or owns any interest in (other than any nonsubstantial interest, as determined by the Committee) any business that is in competition with the Company or one of its subsidiaries, (b) has his employment terminated by the Company or one of its subsidiaries for Cause or on account of actions, by the Participant which are detrimental to the interests of the Company or its subsidiaries, or (c) engages in, or has engaged in, conduct at the time of or subsequent to the termination of his employment with the Company or its subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries then the Committee may, in its sole discretion, except following a Change of Control, cancel all outstanding Incentives of the Participant, including immediately terminating any Options held by the Participant, regardless of whether then exercisable. 15. Incentives Non-assignable and Non-transferable. Any Incentive granted under this Plan shall be non-assignable and non-transferable other than as provided in Section 16 and shall be exercisable (including any action of surrender and exercise of rights under Section 9) during the Participant's lifetime only by the Participant who is the holder of the Incentive or by his guardian or legal representative. 16. Death of Option Holder. In the event of the death of a Participant who is an Incentive holder under the Plan while employed by the Company or one of its subsidiaries or prior to exercise of all rights under an Incentive, the Incentive theretofore granted may be exercised (including any action of surrender and exercise of rights under Section 9) by the Participant's Beneficiary or, if no Beneficiary is designated, by the executor or executrix of the Participant's estate or by the person or persons to whom rights under the Incentive shall pass by will or the laws of descent and distribution in accordance with the provisions of the Plan and of the option and to the same extent as though the Participant were then living. 17. No Right to Continued Employment. Notwithstanding any other provisions of this Plan to the contrary, it is a condition for eligibility for any benefit or right under this Plan that each individual agrees that his or her designation as a Participant and any grant made under the Plan may be rescinded and determined to be void and forfeited entirely in the absolute and sole discretion of the Committee in the event that such individual is discharged for Cause. Incentives granted under the Plan shall not be affected by any change of employment so long as the Incentive holder has not suffered a Separation From Employment. A leave of absence granted by the Company or one of its subsidiaries shall not constitute Separation From Employment unless so determined by the Committee. Nothing in the Plan or in any Incentive granted pursuant to the Plan shall confer on any individual any right to continue in the employ of the Company or one of its subsidiaries or interfere in any way with the right of the Company or such subsidiary to terminate employment at any time. 18. Funding Method. To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 19. Adjustment of Shares. a. In the event of any change (through recapitalization, merger, consolidation, stock dividend, split-up, combination or exchanges of shares or otherwise) in the character or amount of the Company's common stock prior to exercise of any Incentive granted under this Plan, the Incentives, to the extent not exercised, shall entitle the Participant who is the holder to such number and kind of securities as he would have been entitled to had he actually owned the stock subject to the Incentives at the time of the occurrence of such change. If any such event should occur, prior to exercise of an Incentive granted hereunder, which shall increase or decrease the amount of common stock outstanding and which the Committee, in its sole discretion, shall determine equitably requires an adjustment in the number of shares which the Incentive holder should be permitted to acquire, such adjustment as the Committee shall determine may be made, and when so made shall be effective and binding for all purposes of the Plan. b. Incentives may also be granted having terms and provisions which vary from those specified in the Plan provided that any Incentives granted pursuant to this paragraph are granted in substitution for, or in connection with the assumption of, then existing Incentives granted by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary corporation is a party. c. The obligations of the Company or any of its affiliated corporations and the benefit due any Participant, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the CSX Corporation and Affiliated Companies Executives' Stock Trust or any similar trust or trusts or other vehicle. d. Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Participant's benefits rests solely with the Benefits Trust Committee 20. Loans to Option Holders. The Committee may adopt programs and procedures pursuant to which the Company may lend money to any Participant who is an Incentive holder for the purpose of assisting the Participant to acquire or carry shares of common stock issued upon the exercise of Incentives granted under the Plan. 21. Termination and Amendment of Plan. a. Unless the Plan shall have been previously terminated as hereinafter provided, the Plan shall terminate on April 27, 2000, and no Incentives under it shall be granted thereafter. The Board of Directors, without further approval of the company's shareholders, may at any time prior to that date terminate the Plan, and thereafter no further Incentives may be granted under the Plan. However, Incentives previously granted thereunder may continue to be exercised in accordance with the terms thereof. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. b. Prior to a Change of Control, the Board of Directors, without further approval of the shareholders, may, on the recommendation of the Compensation Committee of the Board, amend the Plan from time to time in such respects as the Board may deem advisable; provided, however, that no amendment shall become effective without prior approval of the shareholders which would: (i) increase (except in accordance with Section 19) the maximum number of shares for which Incentives may be granted under the Plan; (ii) reduce (except in accordance with Section 19) the Incentive price below the Fair Market Value of the Company's common stock on the date of grant of the Incentive; (iii) extend the term of the Plan beyond April 27, 2000; (iv) change the standards of eligibility prescribed by Section 5; or (v) increase the maximum awards identified in Sections 7, 8, 9, 10 and 11. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. c. No termination or amendment of the Plan may, without the consent of a Participant who is a holder of an Incentive then existing, terminate his or her Incentive or materially and adversely affect his or her rights under the Incentive. 22. Change in Control. a. Notwithstanding any provision of this Plan to the contrary, upon the occurrence of a Change in Control as set forth in subsection b., below: (i) all stock options then outstanding under this Plan shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; (ii) all SARs which have been outstanding for at least six months shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; (iii) all terms and conditions of RSAs then outstanding shall be deemed satisfied as of the date of the Change in Control; (iv) all PUAs and PSAs then outstanding shall be deemed to have been fully earned and to be immediately payable in cash as of the date of the Change of Control, however, Participants may defer those case payments, as stock, into the Trust, consistent with the deferral provisions of Section 10; and (v) the three (3) year holding requirement of the Stock Premium for deferred ICP shall be deemed satisfied. b. A "Change in Control" shall mean any of the following: (i) Stock Acquisition. The acquisition, by any individual, ------------------ entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, -------- however, that for purposes of this subsection (i), the ------- following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 22(b); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 22(b); or (v) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. c. Each Participant who has elected to defer the payment of PSAs pursuant to Section 10 or an ICP award pursuant to Section 12, may elect in a time and manner determined by the Committee, but in no event later than December 31, 1996 or the occurrence of a Change in Control, if earlier, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change in Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Committee, but in no event later than ninety (90) days after becoming a Participant, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change in Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change in Control shall be invalid. d. Upon a Change of Control, the Company or Subsidiary shall, as soon as possible, but in no event more than seven (7) days following the Change of Control make an irrevocable contribution to the Trust in an amount that is sufficient to pay each Participant or beneficiary of this Plan the benefits to which Participants of this Plan or their beneficiaries would be entitled based on elections under Sections 10 and 12 (including any applicable Stock Premium), and for which the Company is liable pursuant to the terms of this Plan as of the date on which the Change of Control occurred. The amount of the Company's irrevocable contributions shall be based on the actuarial valuation and accounting for the most recent calendar year or more recent period for the Plan, as approved by the independent actuary engaged by the Company prior to the Change of Control and approved by the Benefits Trust Committee if selected or changed following a Change of Control (the "Actuary"), and shall include an amount deemed necessary to pay estimated administrative expenses for the following five (5) years. The Benefits Trust Committee shall cause such actuarial valuations or accountings to be updated, using Participant data supplied to the Actuary by the Company, through a date no earlier than the date of the initial contribution and shall notify the Company of the amount of additional contributions required as soon as practicable. 23. Compliance with Regulatory Authorities. Any shares purchased or distributed pursuant to any Incentives granted under this Plan must be held for investment and not with a view to the distribution or resale thereof. Each person who shall exercise an Incentive granted under this Plan may be required to give satisfactory assurances to such effect to the Company as a condition to the issuance to him or to her of shares pursuant to such exercise; provided, however, that the Company may waive such condition if it shall determine that such resale or distribution may be otherwise lawfully made without registration under the Securities Act of 1933, or if satisfactory arrangements for such registration are made. Each Incentive granted under this Plan is further subject to the condition that if at any time the Board shall in its sole discretion determine that the listing, registration or qualification of the shares covered by such Incentive upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Incentives or the purchase or transfer of shares thereunder, the delivery of any or all shares of stock pursuant to exercise of the Incentive may be withheld unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 24. Withholding Tax. Whenever the Company proposes or is required to issue or transfer shares of common stock under the Plan, a Participant shall remit to the Company an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability prior to the delivery of any certificate or certificates for such shares. Alternatively, to the extent permitted by applicable laws, such federal, state or local income and payroll tax withholding liability may be satisfied prior to the delivery of any certificate or certificates for the shares by an adjustment, equal in value to such liability, in the number of shares to be transferred to the Participant. Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability. 25. Non-Uniform Determinations. Determinations by the Committee under the Plan, including, without limitation, determinations of the persons to receive Incentives and the form, amount and timing of such Incentives, and the terms and provisions of such Incentives and the agreements evidencing the same need not be uniform, and may be made by the Committee selectively among persons who receive, or are eligible to receive, Incentives under the Plan, whether or not such persons are similarly situated. Without amending the Plan, Incentives may be granted to eligible employees who are foreign nationals or who are employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purposes of the Plan. Such different terms and conditions may be reflected in Addenda to the Plan. 26. Construction. The Plan shall be governed by the laws of the Commonwealth of Virginia. Addendum. Addendum I Pursuant to Sections 4a and 8 of the Plan, with respect to any Non-Qualified Stock Option ("NQSO") granted to any Participant who may be subject to taxation in The Netherlands at any time during the term of such NQSO, the Committee shall have the authority to impose additional conditions on the exercise of the NQSO. Effective for any NQSO granted after December 31, 1997, the Committee may, in addition to any other conditions specified in the option agreement, require that the NQSO is granted conditionally. Such conditions shall include that the NQSO can be exercised only with the approval of the Participant's Senior Vice President - Human Resources ("SVP-HR"). Such approval shall be granted at the discretion of the SVP-HR, which shall not be unreasonably refused. Approval may be refused for reasons which shall be set forth in the option agreement such as, but not limited to, the following: (i) termination of employment for willful or gross misconduct or receipt of notice of termination for such conduct; (ii) disclosure of confidential information; or (iii) rendering services to a competitor. Once approval has been obtained, the Participant must immediately exercise the NQSO. If approval is refused or if the NQSO is not exercised immediately upon receipt of approval, it shall be forfeited. EX-10.20 9 SUPPLEMENTARY SAVINGS AND INCENTIVE AWARD DEFERRAL PLAN FOR ELIGIBLE EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES As Amended and Restated January 1, 1995 (As Amended through September 8, 1999) TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS.................................................... 1 1.1 Account..................................................... 1 1.2 Administrator............................................... 1 1.3 Affiliated Company.......................................... 1 1.4 Award....................................................... 1 1.5 Award Deferral Agreement.................................... 1 1.6 Benefits Trust Committee.................................... 2 1.7 Board of Directors.......................................... 2 1.8 Change of Control........................................... 2 1.9 Code........................................................ 3 1.10 Committee................................................... 3 1.11 Compensation................................................ 3 1.12 Corporation................................................. 3 1.13 Deferral Agreement.......................................... 3 1.14 Distribution Option(s)...................................... 4 1.15 Divisive Transaction........................................ 4 1.16 Effective Date.............................................. 4 1.17 Eligible Executive.......................................... 4 1.18 Independent Accountant...................................... 4 1.19 Matching Credits............................................ 4 1.20 Member...................................................... 4 1.21 MICP........................................................ 4 1.22 Participating Company....................................... 4 1.23 Plan........................................................ 5 1.24 Salary Deferrals............................................ 5 1.25 Salary Deferral Agreement................................... 5 1.26 Salary Deferral Percentage.................................. 5 1.27 SMICP....................................................... 5 1.28 Subsidiary.................................................. 5 1.29 Tax Savings Thrift Plan..................................... 5 1.30 Trust....................................................... 5 1.31 Valuation Date.............................................. 5 ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS............................. 5 2.1 In General.................................................. 5 2.2 Modification of Initial Deferral Agreement.................. 6 2.3 Termination of Membership; Re-employment.................... 6 2.4 Change in Status............................................ 7 2.5 Membership Following a Change in Control.................... 7 ARTICLE 3. AWARD DEFERRAL PROGRAM......................................... 7 3.1 Filing Requirements......................................... 7 3.2 Amount of Deferral.......................................... 8 3.3 Crediting to Account........................................ 8 -ii- ARTICLE 4. SALARY DEFERRAL PROGRAM........................................ 9 4.1 Filing Requirements......................................... 9 4.2 Salary Deferral Agreement................................... 9 4.3 Amount of Salary Deferrals.................................. 9 4.4 Changing Salary Deferrals................................... 10 4.5 Certain Additional Credits.................................. 10 ARTICLE 5. MAINTENANCE OF ACCOUNTS........................................ 11 5.1 Adjustment of Account....................................... 11 5.2 Investment Performance Elections............................ 12 5.3 Changing Investment Elections............................... 12 5.4 Vesting of Account.......................................... 12 5.5 Individual Accounts......................................... 13 5.6 Action Following a Change of Control.........................13 ARTICLE 6. PAYMENT OF BENEFITS............................................ 13 6.1 Commencement of Payment..................................... 13 6.2 Method of Payment........................................... 15 6.3 Applicability............................................... 16 6.4 Hardship Withdrawal......................................... 16 6.5 Designation of Beneficiary.................................. 16 6.6 Special Distribution Rules.................................. 17 6.7 Status of Account Pending Distribution...................... 17 6.8 Installments and Withdrawals Pro-Rata....................... 17 6.9 Change of Control........................................... 18 ARTICLE 7. AMENDMENT OR TERMINATION....................................... 19 7.1 Right to Terminate.......................................... 19 7.2 Right to Amend.............................................. 19 7.3 Uniform Action.............................................. 20 ARTICLE 8. GENERAL PROVISIONS............................................. 20 8.1 No Funding.................................................. 20 8.2 Obligation...................................................20 8.3 No Contract of Employment................................... 20 8.4 Withholding Taxes........................................... 20 8.5 Nonalienation............................................... 20 8.6 Administration.............................................. 20 8.7 Construction................................................ 21 ARTICLE 9. POST-SECONDARY EDUCATION SUB-ACCOUNTS.......................... 21 9.1 Post-Secondary Education Sub-accounts....................... 21 9.2 Distribution of Post-Secondary Education Sub-accounts....... 22 9.3 Construction................................................ 23 INTRODUCTION This Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies (the "Plan") was adopted October 1, 1987 and has been subsequently amended from time to time. This restatement of the Plan is effective January 1, 1995. This Plan is generally intended to provide certain executives eligible to participate in the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies (the "Savings Plan") with an opportunity to defer a portion of their salary, and/or award(s) under the Management Incentive Compensation Program ("MICP") and/or the Senior Management Incentive Compensation Program ("SMICP") until their retirement or other termination of employment and to restore employer matching contributions lost under the Savings Plan because of the application of Sections 401(a)(17), 401(k), 401(m) and 415 of the Internal Revenue Code of 1986, as amended. Commencing with respect to MICP awards paid and salary earned after 1990, eligible executives may, if they so elect, designate all or a portion of such deferrals to be used for payment of education expenses for one or more members of their families. The Plan is unfunded and is maintained by CSX Corporation and Affiliated Companies primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees. The Plan as restated effective January 1, 1995 (and amended through December 31, 1997) reads as hereinafter set forth. ARTICLE I. DEFINITIONS ---------------------- 1.1 Account means the bookkeeping account maintained for each Member to record his Salary Deferrals, Matching Credits and the amount of Awards he has elected to defer, as adjusted pursuant to Article 5. The Account shall consist of the "Education Sub-accounts", if any, established pursuant to Article 9 and all amounts not in those accounts shall be allocated to one or more "Retirement Sub-accounts". The Administrator may establish a maximum number of "Retirement Sub-accounts" which a Member may have at any time. In addition to any Retirement Sub-accounts established by the Administrator, an additional Retirement Sub-account known as the Cash Plan Retirement Sub-account shall be established for deferrals of payments from the CSX Market Value Cash Plan. The Administrator also may establish such other sub-accounts within a Member's Account as it deems necessary to implement the provisions of the Plan. 1.2 Administrator means the Corporation. The duties of the Administrator shall be performed by a person or persons designated by the Chief Executive Officer of the Corporation to perform such duties. 1.3 Affiliated Company means the Corporation and any company or corporation directly or indirectly controlled by the Corporation. 1.4 Award means for any year (i) the amount awarded to an employee of an Affiliated Company for that year (including any special incentive award) and, in the absence of an Award Deferral Agreement with respect to such amount, payable in the succeeding year under the MICP and/or SMICP or other incentive award otherwise payable in cash as determined by the Committee; and (ii) the amount paid from the CSX Market Value Cash Plan with respect to such year and, in the absence of an Award Deferral Agreement with respect to such amount and with respect to such year, payable in cash under the CSX Market Value Cash Plan. 1.5 Award Deferral Agreement means a Deferral Agreement filed in accordance with the award deferral program described in Article 3. 1.6 Benefits Trust Committee means the committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement. 1.7 Board of Directors or "Board" means the Board of Directors of the Corporation. 1.8 Change of Control means any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation; (ii) any acquisition by the Corporation; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or (e) Liquidation or Dissolution. Approval by the of a ---------------------------- shareholders of the Corporation complete liquidation or dissolution of the Corporation or its principal subsidiary. 1.9 Code means the Internal Revenue Code of 1986, as amended from time to time. 1.10 Committee means the Compensation Committee of the Board of Directors of CSX Corporation. 1.11 Compensation means the "Base Compensation" of an Eligible Executive as defined in the Tax Savings Thrift Plan, determined prior to: (a) any Salary Deferrals under Article 4; and (b) any limit on compensation imposed by Section 401(a)(17) of the Code. 1.12 Corporation means CSX Corporation, a Virginia corporation, and any successor thereto by merger, purchase or otherwise. 1.13 Deferral Agreement means either an Award Deferral Agreement or a Salary Deferral Agreement, or both if the context so requires. A Deferral Agreement shall be a completed agreement between an Eligible Executive and a Participating Company of which he is an employee under which the Eligible Executive agrees to defer an Award or make Salary Deferrals under the Plan, as the case may be. The Deferral Agreement shall be on a form prescribed by the Administrator and shall include any amendments, attachments or appendices. 1.14 Distribution Option(s) means, with respect to each sub-account under the Plan, the election by the Member of (i) the event triggering the commencement of distribution, and (ii) the form of payment. Distribution Option elections are made on the initial Deferral Agreement with respect to any sub-account. 1.15 Divisive Transaction means a transaction in which the Eligible Executive's employer ceases to be a Subsidiary or there is a sale of substantially all of the assets of the Subsidiary. 1.16 Effective Date means October 1, 1987 or with respect to the Eligible Executives of a company which adopts the Plan, it means the date such company becomes a Participating Company. 1.17 Eligible Executive means an employee of a Participating Company, provided that: (a) For purposes of the award deferral program described in Article 3: (i) prior to January 1, 1995, such employee is employed by a Participating Company in salary grades 21 through 40 inclusive, as of December 30 of the calendar year in question; or (ii) on and after January 1, 1995 and before January 1, 1999, such employee: (A) is employed by a Participating Company and is receiving Compensation of one hundred thousand dollars ($100,000) or more per year; or (B) retired from the Participating Companies or terminated employment with the Participating Companies on account of disability as determined by the Administrator, and was receiving compensation of one hundred thousand dollars ($100,000) or more per year at the time of such retirement or termination; or (iii)on and after January 1, 1999, such employee: (A) is employed by a Participating Company and is receiving compensation of one hundred twenty five thousand dollars ($125,000) or more per year; or (B) retired from the Participating Companies or terminated employment with the Participating Companies on account of disability as determined by the Administrator, and was receiving Compensation of one hundred twenty five thousand dollars ($125,000) or more per year at the time of such retirement or termination. An employee who, in 1998, was eligible to participate because his Compensation satisfied the requirements of subsection (ii), and is excluded from participation only because of the increase in the Compensation requirement in this subsection (iii), shall continue to be eligible to participate. (b) For purposes of the salary deferral program described in Article 4, such employee is eligible for membership in the Tax Savings Thrift Plan, and; (i) Prior to January 1, 1995, such employee is employed in salary grades 21 through 40 inclusive; or (ii) Compensation of one hundred thousand dollars ($100,000) or more per year; or (iii)on and after January 1, 1999, is receiving Compensation of one hundred twenty five thousand dollars ($125,000) or more per year. An employee who, in 1998, was eligible to participate because his Compensation satisfied the requirements of subsection (ii), but is excluded from participation only because of the increase in the Compensation requirement in this subsection (iii), shall continue to be eligible to participate. (c) After January 1, 1999, the compensation amount set forth in subsections (a)(iii) and (b)(iii) may, in the discretion of the Chief Executive Officer, be adjusted no more frequently than annually, based on a review of data regarding eligibility to participate in this type of program. (d) The Chief Executive Officer of the Corporation or his designee may designate any other employee or former employee of an Affiliated Company as an Eligible Executive; provided, however, only those employees or former employees considered to be a select group of management or highly compensated may be designated as Eligible Executives under this Plan. Notwithstanding the preceding, following a Change of Control, such designations are subject to the approval of the Benefits Trust Committee. 1.18 Independent Accountant means the independent accountants engaged by the Corporation and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. 1.19 Matching Credits means amounts credited to the Account of a Member pursuant to Section 4.5. 1.20 Member means, except as otherwise provided in Article 2, each Eligible Executive who has executed an initial Deferral Agreement as described in Section 2.1. 1.21 MICP means the Participating Companies' Management Incentive Compensation Program. 1.22 Participating Company means the Corporation and any company or corporation directly or indirectly controlled by the Corporation, which the Committee designates as eligible to participate in the Plan in accordance with Section 8.6(e). 1.23 Plan means this Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies, as amended from time to time. 1.24 Salary Deferrals means the amounts credited to a Member's Account under Section 4.3. 1.25 Salary Deferral Agreement means a Deferral Agreement filed in accordance with the salary deferral program described in Article 4. 1.26 Salary Deferral Percentage means a percentage of an Eligible Executive's Base Compensation elected in a Salary Deferral Agreement, pursuant to Section 4.1 hereof, and shall be an integral percentage not in excess of fifty (50%) percent. 1.27 SMICP means the Participating Companies' Senior Management Incentive Compensation Program. 1.28 Subsidiary means a corporation more than 50% of the voting shares of which are owned directly or indirectly by the Corporation. 1.29 Tax Savings Thrift Plan means the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies, as amended from time to time. 1.30 Trust means the CSX Corporation and Affiliated Companies Benefits Assurance Trust. 1.31 Valuation Date means the last business day of each calendar month following the Effective Date. ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS ---------------------------------------------- 2.1 In General: (a) An Eligible Executive shall become a Member as of the date he files his initial Deferral Agreement with the Administrator. However, such Deferral Agreement shall be effective for purposes of deferring an Award or making Salary Deferrals only as provided in Articles 3 and 4. (b) A Deferral Agreement shall be in writing and properly completed upon a form approved by the Administrator, which shall be the sole judge of the proper completion thereof. Except as provided in Section 4.1(d), such Agreement shall provide for the deferral of an Award or for Salary Deferrals, shall specify the Distribution Options, and may include such other provisions as the Administrator deems appropriate. A Deferral Agreement shall not be revoked or modified with respect to the allocation of prior deferrals except pursuant to the establishment of an Education Sub-account as provided in Article 9. Distribution Options elected may not be modified or revoked except as provided in Section 6.1 or 6.2. (c) As a condition of membership, the Administrator may require such other information as it deems appropriate. 2.2 Modification of Initial Deferral Agreement: (a) A Member may elect to change, modify or revoke a Deferral Agreement as follows: (i) A Member may change the amount of Award he elects to defer on an Award Deferral Agreement prior to the Agreement's effective date as provided in Article 3. (ii) A Member may change the rate of his Salary Deferrals, or suspend his Salary Deferrals on account of severe financial hardship, as provided in Article 4. (iii) A Member may change the event entitling him to distribution, as designated on his election of Distribution Options, as provided in Section 6.1(c)(i). (iv) A Member may change the event entitling him to distribution as designated on his election of Distribution Options, subject to the five percent (5%) penalty described in Section 6.1(c)(ii). (v) A Member may change the form of payment, as designated on his election of Distribution Options, as provided in Section 6.2(c)(i). (vi) A Member may change the form of payment as designated on his election of Distribution Options, subject to the five percent (5%) penalty described in Section 6.2(c)(ii). (b) Notwithstanding any provision in Section 2.2(a) to the contrary, the establishment of an Education Sub-account with respect to future Salary Deferrals and Awards as provided in Article 9 shall not be deemed a change for the purposes of Section 2.2(a). 2.3 Termination of Membership; Re-employment: (a) Membership shall cease, subject to Section 2.4, upon a Member's termination of employment; provided that if a former Eligible Executive is receiving severance payments under a Participating Company's severance pay program or is eligible to defer an Award under Article 3, he shall not be deemed to have terminated employment until the later of the date the severance payments cease or the date the Award would have been paid. Membership shall be continued during a leave of absence approved by the Participating Companies. (b) Upon re-employment as an Eligible Executive, a former Member may become a Member again as follows: (i) in the case of a former Member who prior to re-employment received the balance in his Account, by executing a Deferral Agreement under Section 2.1 as though for all purposes of the Plan the Affiliated Companies had never employed the former Member; (ii) in the case of a former Member who prior to re-employment did not receive the balance in his Account, by executing a Deferral Agreement under Section 2.1; provided his Distribution Options and beneficiary designation shall remain in effect. (c) If a former Member is reemployed as an Eligible Executive and becomes a Member again pursuant to (b)(ii): (i) upon notice to the Administrator by the Participant, distributions from a Retirement Sub-account shall cease if the commencement of distribution was because of the Member's termination of employment (including retirement); (ii) distributions from a Retirement Sub-account shall continue if the commencement of distribution was because the Member chose a specific age for the commencement of benefits and that age has been attained. Except for distributions which must continue pursuant to (c)(ii), a reemployed Member may change Distribution Option elections with respect to his Retirement Sub-accounts without penalty so long as such change does not accelerate the timing of any payment to the Member. 2.4 Change in Status: (a) In the event that a Member ceases to be an Eligible Executive with respect to Salary Deferrals but continues to be employed by an Affiliated Company, his Salary Deferrals and Matching Credits shall thereupon be suspended until such time as he shall once again become an Eligible Executive. All other provisions of his Salary Deferral Agreement shall remain in force and he shall continue to be a Member of the Plan. (b) In the event that a Member ceases to be an Eligible Executive with respect to the deferral of Awards hereunder but continues to be employed by an Affiliated Company, he shall continue to be a Member of the Plan but shall not be eligible to defer any portion of any future Awards until such time as he shall once again become an Eligible Executive. 2.5 Membership Following a Change of Control: Following a Change of Control, any membership determinations or discretionary actions pursuant to this Article 2 shall be subject to the approval of the Benefits Trust Committee. ARTICLE 3. AWARD DEFERRAL PROGRAM --------------------------------- 3.1 Filing Requirements: (a) With respect to an Award identified in Section 1.4(i), at such time as the Administrator may prescribe prior to the close of business on December 30 in any calendar year, an Eligible Executive may elect to defer all or a portion of his Award, if any, for that year. Such Award is determined and paid in the following calendar year. Such election shall be made by filing an Award Deferral Agreement with the Administrator on or before the close of business on December 30 of the calendar year for which the Award is made. In the event that December 30 does not fall on a weekday, such filing must be made by the close of business on the last prior business day. (b) With respect to an Award identified in Section 1.4(i), notwithstanding Section 3.1(a), an individual who becomes an Eligible Executive after the calendar year for which an Award is made, but prior to the first day of the month in which such Award is determined including required action by the Board, may elect to defer all or a portion of that Award in accordance with this Section 3.1(b). Such election shall be made by filing an Award Deferral Agreement during the 30 day or shorter period beginning on the date the individual becomes an Eligible Executive and ending no later than the last day of the month preceding the month in which the Award is determined. (c) With respect to an Award identified in Section 1.4(i), an Eligible Executive's election to defer all or a portion of his Award shall be effective on the last day that such deferral may be elected under Section 3.1(a) or 3.1(b) and shall be effective only for the Award in question. An Eligible Executive may revoke or change his election to defer all or a portion of his Award at any time prior to the date the election becomes effective, as described in the preceding sentence. Any such revocation or change shall be made in a form and manner determined by the Administrator. (d) With respect to an Award identified in Section 1.4(ii), at such time and in accordance with such rules as the Administrator may prescribe prior to the close of business on December 30 in any calendar year, an Eligible Executive may elect to defer all or a portion of any such Award. Awards identified in Section 1.4(ii) may not be deferred into Education Sub-accounts. (e) An Eligible Executive shall not be entitled to defer an Award on or after attaining the age, if any, which he has designated under Section 6.1(c) or 6.1(d) for the purpose of commencing distribution of his Account (or, if applicable, his Retirement Sub-account). In the event a Member establishes an Education Sub-account pursuant to Article 9, he shall not be entitled to defer all or any portion of an Award into such a Sub-account after attaining the age which he has designated for the purpose of commencing distribution from that Sub-account. (f) An Eligible Executive shall not be entitled to defer an Award if he is eligible to defer his award under another nonqualified program of deferred compensation maintained by an Affiliated Company. 3.2 Amount of Deferral: (a) With respect to an Award identified in Section 1.4(i), prior to a Change of Control, in its sole discretion, the Committee may establish such maximum limit on the amount of Award an Eligible Executive may defer for a calendar year as the Committee deems appropriate. Such maximum limit shall appear on the Eligible Executive's Award Deferral Agreement for the year. Following a Change of Control, the Committee's decision is subject to the final approval of the Benefits Trust Committee. (b) With respect to an Award identified in Section 1.4(i), the minimum amount which an Eligible Executive may defer in any year shall be the lesser of $5,000 or the maximum amount determined under Section 3.2(a) above. If an Eligible Executive elects to defer less than this amount, his election shall not be effective. (c) With respect to an Award identified in Section 1.4(ii), there shall be no minimum nor maximum amount of deferral allowed. 3.3 Crediting to Account: (a) The amount of Award which an Eligible Executive has elected to defer for a calendar year shall be credited to his Account as of the Valuation Date coincident with or next following the date the Award would have been paid to the Eligible Executive. (b) An additional credit shall be made to the Account as of the Valuation Date described in Section 3.3(a) above, determined as if the amount of Award deferred had earned the same rate of return as the CSX Cash Pool Earnings Rate from the date the Award would have been paid until the Valuation Date it is credited to the Eligible Executive's Account. In lieu of the CSX Corporation Cash Pool Earnings Rate, the Committee may designate, prior to a Change of Control, from time to time, such other indices of investment performance or investment funds as the measure of investment performance under this Section 3.3(b). Following a Change of Control, the Committee's decision is subject to final approval of the Benefits Trust Committee. ARTICLE 4. SALARY DEFERRAL PROGRAM ---------------------------------- 4.1 Filing Requirements: (a) An individual who is an Eligible Executive immediately prior to the Effective Date may file a Salary Deferral Agreement with the Administrator, within such period prior to the Effective Date and in such manner as the Administrator may prescribe. (b) An individual who becomes an Eligible Executive on or after the Effective Date may file a Salary Deferral Agreement with the Administrator during the calendar month he becomes an Eligible Executive, in such manner as the Administrator may prescribe. (c) An Eligible Executive who fails to file a Salary Deferral Agreement with the Administrator as provided in Sections 4.1(a) and 4.1(b) may file a Salary Deferral Agreement in any subsequent month of December. (d) An Eligible Executive who has not otherwise filed a Deferral Agreement shall file a Salary Deferral Agreement under Sections 4.1(a) or 4.1(b), whichever applies, in order to receive the Matching Credits described in Section 4.5, provided that such agreement need not provide for Salary Deferrals. 4.2 Salary Deferral Agreement: An Eligible Executive's Salary Deferral Agreement shall authorize a reduction in his base pay with respect to his Salary Deferrals under the Plan. The Agreement shall be effective for payroll periods beginning on or after the later of:(a) the Effective Date; or (b) the first day of the month following the date the Salary Deferral Agreement is filed with the Administrator in accordance with Section 4.1. Paychecks applicable to said payroll periods shall be reduced accordingly. 4.3 Amount of Salary Deferrals: (a) On each Valuation Date following the effective date of an Eligible Executive's Salary Deferral Agreement, his Sub-accounts shall be credited with an amount of Salary Deferral, if any, for the payroll period ending thereon, as he elects in his Salary Deferral Agreement. Such Salary Deferral for any payroll period shall be determined as the sum of his Basic Salary Deferral for such payroll period determined under subparagraph (i) and his Additional Salary Deferral for such month, determined under subparagraph (ii) as follows: (i) An Eligible Executive's Basic Salary Deferral shall be determined by multiplying his Compensation for a payroll period by the excess of his Salary Deferral Percentage over the percentage determined in subparagraph (ii) below (ii) An Eligible Executive's Additional Salary Deferral shall be determined by multiplying his Compensation for a payroll period by a percentage determined as (A) the excess of his Salary Deferral Percentage over 15%, divided by (B) .85. provided, however, that no Basic Salary Deferral shall be made under this Plan for any payroll period unless the Eligible Executive is prevented from making elective deferrals under the Tax Savings Thrift Plan for such payroll period as a result of Section 402(g) and/or 401(k)(3) of the Code, and provided further that, for the payroll period in which such Basic Salary Deferral is first made, it shall be limited to the excess of the amount otherwise determined for such payroll period under Section 4.3(a)(i) over the Eligible Executive's elective deferrals under the Tax Savings Thrift Plan for such payroll period. If applicable, Additional Salary Deferrals shall be made for each payroll period of the year to which the Salary Deferral Agreement applies, without regard to whether the Eligible Executive makes elective deferrals under the Tax Savings Thrift Plan and without regard to any Basic Salary Deferrals under this Plan. (b) An Eligible Executive shall not be entitled to make Salary Deferrals on or after attaining the age, if any, which he has designated under Section 6.1(c) or 6.1(d) for the purpose of commencing distribution of his Account (or, if applicable, his Retirement Sub-account). In the event a Member establishes an Education Sub-account pursuant to Article 9, he shall not be entitled to make Salary Deferrals into such Sub-account after attaining the age which he has designated for the purpose of commencing distribution from that Sub-account. 4.4 Changing Salary Deferrals: (a) An Eligible Executive's election on his Salary Deferral Agreement of the rate at which he authorizes Salary Deferrals under the Plan shall remain in effect in subsequent calendar years unless he files with the Administrator an amendment to his Salary Deferral Agreement modifying or revoking such election. The amendment shall be filed by December 30 and shall be effective for payroll periods beginning on or after the following January 1. (b) Notwithstanding Section 4.4(a), an Eligible Executive may, in the event of a severe financial hardship, request a suspension of his Salary Deferrals under the Plan. The request shall be made at a time and in a manner determined by the Administrator, and shall be effective as of such date as the Administrator prescribes. The Administrator shall apply standards, to the extent applicable, identical to those described in Section 6.3 in making its determination. The Eligible Executive may apply to the Administrator to resume his Salary Deferrals with respect to payroll periods beginning on or after the January 1 following the date of suspension, at a time and in a manner determined by the Administrator; provided, that the Administrator shall approve such resumption only if the Administrator determines that the Eligible Executive is no longer incurring such hardship. Notwithstanding the preceding, following a Change of Control, such action by the Administrator is subject to approval by the Benefits Trust Committee. 4.5 Certain Additional Credits: On each Valuation Date, there shall be credited Matching Credits to the Retirement Sub-account(s) of an Eligible Executive determined as follows: (a) For payroll periods prior to the inception of Basic Salary Deferrals hereunder, the greater of (b)(i) or (ii) (b) For payroll periods during which Basic Salary Deferrals are effective, the greater of (i) or (iii), minus (iv), where (i) is the employer matching contributions the Eligible Executive would have received under the Tax Savings Thrift Plan if the provisions of Sections 401(k)(3), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and (ii) is an amount determined as 3% of the Eligible Executive's additional Salary Deferrals; and (iii) is the employer matching contributions the Eligible Executive would have received under the Tax Savings Thrift Plan if his deferrals under this Plan had been contributed to the Tax Savings Thrift Plan (in addition to those amounts actually contributed to that Plan), based on "Compensation" as defined in this Plan and as if the provisions of Sections 401(a)(17), 401(k)(3), 401(m)(2), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and (iv) is the employer matching contributions made on his behalf for the applicable period to the Tax Savings Thrift Plan. No Matching Credits shall be credited to a Member's Education Sub-account. ARTICLE 5. MAINTENANCE OF ACCOUNTS ---------------------------------- 5.1 Adjustment of Account: (a) As of each Valuation Date each Account (and, if applicable, each Sub-account) shall be credited or debited with the amount of earnings or losses with which such Sub-account would have been credited or debited, assuming it had been invested in one or more investment funds, or earned the rate of return of one or more indices of investment performance, designated by the Administrator and, if applicable, elected by the Member or former Member, for purposes of measuring the investment performance of his Sub-accounts. (b) The Administrator shall designate at least one investment fund or index of investment performance and may designate other investment funds or investment indices to be used to measure the investment performance of Accounts. The designation of any such investment funds or indices shall not require the Affiliated Companies to invest or earmark their general assets in any specific manner. The Administrator may change the designation of investment funds or indices from time to time, in its sole discretion, and any such change shall not be deemed to be an amendment affecting Members' or former Members' rights under Section 7.2. (c) For purposes of Section 5.1(a), the portion of a Member's Retirement Sub-accounts attributable to Matching Credits shall be credited or debited with earnings or losses based upon the performance of "Fund E" (CSX Stock Fund) under the Tax Savings Thrift Plan. (d) As of February 1, 1989, there shall be credited to the Account of each Eligible Executive who participated in the Supplemental Benefit Plan of Sea-Land Corporation and Affiliated Companies the amount of deferred compensation under that plan as of January 31, 1989 attributable to amounts credited under that plan for the purpose of restoring contributions to a defined contribution plan which were limited by Section 415 of the Code. Such amounts shall be treated as Salary Deferrals under the Plan, and unless transferred pursuant to Section 5.3(a), shall earn the same rate of return as the CSX Cash Pool Earnings Rate. 5.2 Investment Performance Elections: (a) In the event the Administrator designates more than one investment fund or index of investment performance under Section 5.1, each Member and, if applicable, former Member, shall file an initial investment election with the Administrator with respect to the investment of his Salary Deferrals within such time period and on such form as the Administrator may prescribe. The election shall designate the investment fund or funds or index or indices of investment performance which shall be used to measure the investment performance of the Member's Salary Deferrals. The election shall be effective as of the beginning of the payroll period next following the date the election is filed. The election shall be in increments of 1%. (b) In the event the Administrator designates more than one investment fund or index under Section 5.1, each Member shall file an initial investment election each calendar year in which he defers an Award with respect to the amount deferred. The election shall be made within such time period and on such form as the Administrator prescribes and shall be in increments of 1% of the amount deferred. The election shall be effective on the Valuation Date on which the amount determined is credited to the Member's Account. (c) A Member may not elect separate investment funds or indices of investment performance with respect to each Sub-account. 5.3 Changing Investment Elections: (a) A Member may change his election in Section 5.2(a) with respect to his future Salary Deferrals, no more than once each calendar quarter, by filing an appropriate written notice with the Administrator. The notice shall be effective as of the beginning of the first payroll period following the date the notice is filed with the Administrator. (b) A Member or, if applicable, former Member may reallocate the current balance of his Retirement and/or Education Sub-accounts, thereby changing the investment fund or funds or index or indices of investment performance used to measure the future investment performance of his existing Account balance, by filing an appropriate written notice with the Administrator. Each Retirement or Education Sub-account may be reallocated separately. The election shall be effective as of the last business day of the calendar quarter following the month in which the notice is filed. No election under this Section 5.3(b) shall apply to the portion of a Member's Account attributable to Matching Credits. 5.4 Vesting of Account: Each Member shall be fully vested in his Account. 5.5 Individual Accounts: The Administrator shall maintain, or cause to be maintained, records showing the individual balances of each Account and each Sub-account. At least once a year, each Member and, if applicable, former Member shall be furnished with a statement setting forth the value of his Account and his Sub-accounts. 5.6 Action Following a Change of Control: Following a Change of Control, any action taken by the Administrator pursuant to this Article 5 is subject to the approval of the Benefits Trust Committee. ARTICLE 6. PAYMENT OF BENEFITS ------------------------------ 6.1 Commencement of Payment: (a) The distribution of the Member's or former Member's Account shall commence, pursuant to Section 6.2, on or after the occurrence of (i), (ii), (iii) or (iv) below, as designated by the Member as a Distribution Option election: (i) the Member's termination of employment with the Affiliated Companies, (ii) attainment of a designated age not earlier than age 59-1/2 (on or after January 1, 1995 age 50) nor later than age 70-1/2, (iii) the earlier of (i) or (ii) above, or (iv) the later of (i) or (ii) above. In the event a Member elects either (ii) or (iii) above, he may not elect an age less than three years subsequent to his current age. If a Member elects to defer an Award identified in Section 1.4(ii) (a payment from the CSX Market Value Cash Plan), such deferral must extend the commencement of distribution beyond December 31, 2004. A Member or former Member shall not change his Distribution Option election of the designation of the event which entitles him to distribution of his Account, except as provided in Section 6.1(c) below; provided, however, no change in Distribution Option election shall be allowed if it results in changing the deferral of commencement of distribution of an Award identified in Section 1.4(ii) to a time before January 1, 2005. For purposes of this Plan and particularly this Section 6.1(a), if the Member's employer is involved in a Divisive Transaction, the Member will not be considered to have terminated his employment with an Affiliated Company until his employment with his employer terminates. (b) Effective January 1, 1995, a Member or former Member shall, pursuant to Section 6.9, be eligible to make a Distribution Option election of the designation of the event which entitles him to distribution of his Account in the event of a Change of Control. (c) A Member or former Member may change his Distribution Option election of the designation of the events which entitle him to distribution of his Account under Section 6.1(a) and Section 6.1(b), as follows: (i) A Member or former Member may make a request in writing to the Administrator to defer the Member's designated distribution event under Section 6.1(a). The requests must be filed with the Administrator at least one year prior to when distribution would commence based on the current designation. The deferral requests must specify a distribution event described in Section 6.1(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the date that is one year after the request is filed with the Administrator. If the Member's current distribution event will occur upon his termination of employment and the Member's employment terminates within one year after the deferral request is made, the deferral request shall not be effective. A deferral request under this Section 6.1(c)(i) shall not result in a forfeiture of the Member's or former Member's Account. (ii) Notwithstanding Section 6.1(c)(i), a Member or former Member may change his designated distribution event under Section 6.1(a) or 6.1(b), no more frequently than once in any calendar year, by filing with the Administrator an amendment to his Distribution Option election on or before December 30 (or the last preceding business day if December 30 is not a weekday). The change shall be limited to those events entitling a Member to a distribution that are described in Section 6.1(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the last Valuation Date of the calendar year in which the change is filed. Unless the election complies with the requirements of Section 6.1(c)(i), or unless the provisions of Section 6.1(e) apply, an election under this Section 6.1(c)(ii) shall result in the forfeiture of five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. If the Member or former Member changes the form in which his Account is to be distributed under Section 6.2(c)(ii) at the same time as he changes his designated distribution event under this Section 6.1(c)(ii), the combined forfeitures will be five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. (d) Notwithstanding anything in this Section 6.1 or Article 9 to the contrary, a Member's Account shall be distributed upon his death. (e) A Member may not change the designation of the event which entitles him to distribution of one or more Education Sub-accounts, except that a Member may transfer the entire amount in any Education Sub-account to one or more other Education Sub-accounts and one or more of his Retirement Sub-accounts, or any combination thereof, subject to a possible forfeiture of five percent (5%) of the Sub-account so transferred, as provided in Article 9. (f) Notwithstanding the foregoing, prior to a Change of Control, the Corporation may delay payment of a benefit under this Plan to any Member who is determined to be among the top five most highly paid executives for the year the benefit under this Plan would otherwise be paid; provided, however, if a Member's payment is delayed, the benefit to which he is entitled will not decrease after the date it would otherwise be distributed. (g) Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Member's or former Member's Account rests solely with the Benefits Trust Committee. 6.2 Method of Payment: (a) A Member's or former Member's Retirement Sub-account(s) shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as soon as administratively practicable following the January 1 coincident with or next following the date the Member incurs the Distribution Option elected under Section 6.1 or his date of death, as the case may be. Matching Credits earned in respect to periods following the date of such distributable event shall be paid directly to the Member in cash as soon as practical. Notwithstanding the foregoing, a Member or former Member may make a Distribution Option election to receive distribution of his Account in semi-annual installments over a period not to exceed twenty (20) years. Installments shall be determined as of each June 30 and December 31 and shall be paid as soon as administratively practicable thereafter. Installments shall commence as of the July 1 or January 1 coincident with or next following the date the Member incurs the distributable event elected as a Distribution Option under Section 6.1, or as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the Account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). The Distribution Option election shall be irrevocable except as provided in Section 6.2(c) below. If a Member or former Member dies before payment of the entire balance of his Account, the remaining balance shall be paid in a single sum to his Beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. (b) Effective January 1, 1995, a Member or former Member shall, pursuant to Section 6.9, be eligible to make a separate Distribution Option election of the form of payment of his Account in the event of a Change of Control. (c) Notwithstanding Section 6.2(a) and Section 6.2(b), a Member or former Member may change the Distribution Option election of the form in which his Account is distributed, as follows: (i) A Member or former Member may make a one-time request to the Administrator to change the form in which his Account is to be distributed under Section 6.2(a). A Member or former Member may also make a one-time request to change the form in which his Account is to be distributed under Section 6.2(b). The request must be filed in writing with the Administrator at least one year prior to when distribution would commence based on the current designation. The requests must specify a form of distribution described in Section 6.2(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the date that is one year after the request is filed with the Administrator. If the Member's distribution event will occur upon his termination of employment and the Member's employment terminates within one year after the request is filed, the request shall not be effective. A request under this Section 6.2(c)(i) shall not result in a forfeiture of the Member's or former Member's Account. (ii) Notwithstanding Section 6.2(c)(i), a Member or former Member may change the form in which his Account is to be distributed under Section 6.2(a) or 6.2(b), no more frequently than once in any calendar year, by filing with the Administrator an amendment to his Distribution Option election on or before December 30 (or the last preceding business day if December 30 is not a weekday). The change shall be limited to those forms of distribution described in Section 6.2(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the last Valuation Date of the calendar year in which it is filed. Unless the election complies with the requirements for a one-time request under Section 6.2(c)(i), or unless the provisions of Section 6.2(d) apply, an election under this Section 6.2(c)(ii) shall result in the forfeiture of five percent (5%)of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. If the Member or former Member changes his designated distribution event under this Section 6.2(c)(ii) at the same time as he changes the form in which his Account is to be distributed under Section 6.1(c)(ii), the combined forfeiture will be five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. (d) In the event the Member's Account consists of one or more Retirement Sub-accounts and one or more Education Sub-accounts, the provisions of this Section 6.2 shall apply exclusively to the Member's Retirement Sub-accounts. A Member may not change the form in which his Education Sub-accounts are distributed, except that a Member may transfer the entire amount in any Education Sub-account to one or more other Education Sub-accounts and one or more Retirement Sub-accounts, or any combination thereof, subject to a possible forfeiture of five percent (5%) of the Sub-account so transferred, as provided in Article 9. 6.3 Applicability: In the event the Member's Account consists of one or more Retirement Sub-accounts and one or more Education Sub-accounts, the provisions of Sections 6.1(a) and 6.1(c) and 6.2 shall apply exclusively to the Member's Retirement Sub-accounts. 6.4 Account Adjustment: The obligations of the Corporation or any of its affiliated corporations and the benefits due any Member, former Member, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the Benefits Assurance Trust or any similar trust or other vehicle. 6.5 Hardship Withdrawal: (a) While employed by the Participating Companies, a Member or former Member may, in the event of a severe financial hardship, request a withdrawal from his Account. The request shall be made in a time and manner determined by the Administrator, shall not be for a greater amount than the amount required to meet the financial hardship, and shall be subject to approval by the Administrator. (b) For purposes of this Section 6.5 financial hardship shall include: (i) education of a dependent child where the Member or former Member shows that without the withdrawal under this Section the education would be unavailable to the child; (ii) illness of the Member or former Member or his dependents, resulting in severe financial hardship to the Member or former Member; (iii) the loss of the Member's or former Member's home or its contents, to the extent not reimbursable by insurance or otherwise, if such loss results in a severe financial hardship to the Member or former Member; (iv) any other extraordinary circumstances of the Member or former Member approved by the Administrator if such circumstances would result in a present or impending critical financial need which the Member or former Member is unable to satisfy with funds reasonably available from other sources. (c) Notwithstanding the preceding, following a Change of Control, any decisions or determinations by the Administrator under this Section 6.5 shall be subject to the approval of the Benefits Trust Committee. 6.6 Designation of Beneficiary: A Member or former Member may, at a time and in a manner determined by the Administrator, designate a beneficiary and one or more contingent beneficiaries (which may include the Member's or former Member's estate) to receive any benefits which may be payable under this Plan upon his death. If the Member or former Member do not designate a beneficiary or contingent beneficiary, or if the beneficiary and the contingent beneficiaries do not survive the Member or former Member, such benefits shall be paid to the Member's or former Member's estate. A Member or former Member may revoke or change any designation made under this Section 6.6 in a time and manner determined by the Administrator. 6.7 Special Distribution Rules: Notwithstanding anything to the contrary in this Plan, if (a) a Member or former Member becomes the owner, director or employee of a competitor of the Affiliated Companies, (b) his employment is terminated by an Affiliated Company on account of actions by the Member which are detrimental to the interests of the Affiliated Company, or (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company, then the Administrator may, in its sole discretion, pay the Member or former Member a single sum payment equal to the balance in his Account. The single sum payment shall be made as soon as practicable following the date the Member or former Member becomes an owner, director or employee of a competitor, his termination of employment or the Administrator's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Member or former Member under this Plan. 6.8 Status of Account Pending Distribution: Pending distribution, a former Member's Account (and, if applicable, a former Member's Sub-accounts) shall continue to be credited with earnings and losses as provided in Section 5.1. The former Member shall be entitled to change his investment elections under Section 5.3 or apply for Hardship withdrawals under Section 6.5 to the same extent as if he were a Member of the Plan. In the event of the death of a Member or former Member, his Sub-accounts shall be credited with earnings and losses as if the Sub-accounts had earned the same rate of return as the CSX Corporation Cash Pool Earnings Rate or, in the sole discretion of the Administrator, the rate of return of such other index of investment performance or investment fund which may be designated by the Administrator as a measure for investment performance of Members' or former Members' Accounts (and, if applicable, their Sub-accounts), commencing with the Valuation Date coincident with or next following the Member's or former Member's date of death. 6.9 Installments and Withdrawals Pro-Rata: In the event of an installment payment or hardship withdrawal, such payment or withdrawal shall be made on a pro-rata basis from the portions of the Member's or former Member's existing Account balance which are subject to different measures of investment performance. In the event of a hardship withdrawal, the withdrawal shall be made on a pro-rata basis from all of the Member's or former Member's Sub-accounts. 6.10 Change of Control: (a) If a Change of Control has occurred, the Corporation and Participating Companies shall contribute to the Trust within 7 days of such Change of Control, a lump sum payment equal to the greater of (i) the aggregate value of the amount each Member or former Member would be eligible to receive (determined under (b) below) as of the latest Valuation Date coinciding with or preceding the date of Change of Control or (ii) the amount determined under Section 1(h) of the Trust attributable to liabilities relating to the Plan to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 6.10 shall be determined by the Independent Accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Members' or former Members' Accounts for which information is readily available. Thereafter, the Independent Accountants shall annually determine as of a Valuation Date for each Member or former Member not receiving a lump sum payment pursuant to subsection (b) below the value of each Member or former Member's Accounts. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by the Independent Accountants, the Corporation and Participating Companies shall make a lump sum contribution to the Trust equal to the difference. (b) In the event a Change of Control has occurred, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Member or former Member not making an election under (c) below, a lump sum payment equal to the value of the Member's or former Member's Accounts (determined under Article 5) as of the Valuation Date coinciding with or next preceding the date of such Change of Control. The amount of each Member's or former Member's lump sum payment shall be determined by the Independent Accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Member's or former Member's Accounts for which information is readily available. (c) Each Member or former Member may elect in a time and manner determined by the Administrator, but in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. New Members of the Plan may elect in a time and manner determined by the Administrator, but in no event later than 90 days after becoming a Member, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Member or former Member who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. (d) Notwithstanding anything in the Plan to the contrary, each Member or former Member who has made an election under (c) above may elect within 90 days following a Change of Control, in a time and manner determined by the Benefits Trust Committee, to receive a lump sum payment calculated under the provisions of (b) above determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited by the Member or former Member. Furthermore, as a result of such election, the Member or former Member shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this subsection (d) shall be made not later than 7 days following receipt by the Corporation of a Member's or former Member's election. The Benefits Trust Committee shall, no later than 7 days after a Change of Control has occurred, give written notification to each Member or former Member eligible to make an election under this subsection (d), that a Change of Control has occurred and informing such Member or former Member of the availability of the election. ARTICLE 7. AMENDMENT OR TERMINATION ----------------------------------- 7.1 Right to Terminate: (a) Prior to a Change of Control, the Board may, in its sole discretion, terminate this Plan and the related Deferral Agreements at any time. Following a Change of Control, this Plan may not be terminated without the approval of the Benefits Trust Committee. (b) Prior to a Change of Control, the Committee may terminate an Affiliated Company's participation as a Participating Company in this Plan for any reason at any time. Following a Change of Control, an Affiliated Company may not be terminated from participation as a Participating Company without the consent of the Benefits Trust Committee. (c) Prior to a Change of Control, an Affiliated Company's board of directors may terminate that Affiliated Company's participation as a Participating Company for any reason at any time. Following a Change of Control, an Affiliated Company's participation as a Participating Company may not be terminated without the consent of the Benefits Trust Committee. (d) In the event the Plan and related Deferral Agreements are terminated, each Member, former Member and Beneficiary shall receive a single sum payment equal to the balance in his Account. The single sum payment shall be made as soon as practicable following the date the Plan is terminated and shall be in lieu of any other benefit which may be payable to the Member, former Member or Beneficiary under this Plan. 7.2 Right to Amend: Prior to a Change of Control, the Board may, in its sole discretion, amend this Plan and the related Deferral Agreements on 30 days prior notice to the Members and, where applicable, former Members. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. If any amendment to this Plan or to the Deferral Agreements shall adversely affect the rights of a Member or former Member, such individual must consent in writing to such amendment prior to its effective date. If such individual does not consent to the amendment, the Plan and related Deferral Agreements shall be deemed to be terminated with respect to such individual and he shall receive a single sum payment of his Account as soon thereafter as is practicable. Notwithstanding the foregoing, the Administrator's change in any investment funds or investment index under Section 5.1(b) or the restriction of future deferrals under the salary deferral program or award deferral program shall not be deemed to adversely affect any Member's or former Member's rights. 7.3 Uniform Action: Notwithstanding anything in the Plan to the contrary, any action to amend or terminate the Plan or the Deferral Agreements must be taken in a uniform and nondiscriminatory manner. Notwithstanding the preceding, any such action taken by the Administrator following a Change of Control is subject to the approval of the Benefits Trust Committee. ARTICLE 8. GENERAL PROVISIONS ----------------------------- 8.1 No Funding: Nothing contained in this Plan or in a Deferral Agreement shall cause this Plan to be a funded retirement plan. Neither the Member, former Member, his beneficiary, contingent beneficiaries, heirs or personal representatives shall have any right, title or interest in or to any funds of the Trust or the Affiliated Companies on account of this Plan or on account of having completed a Deferral Agreement. The assets held in the Trust shall be subject to the claims of creditors of the Corporation, and the Trust's assets Shall be used to discharge said claims in the event of the Corporation's insolvency. Each Member or former Member shall have the status of a general unsecured creditor of the Affiliated Companies and this Plan constitutes a mere promise by the Affiliated Companies to make benefit payments in the future. 8.2 Obligation: To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 8.3 No Contract of Employment: The existence of this Plan or of a Deferral Agreement does not constitute a contract for continued employment between an Eligible Executive or a Member and an Affiliated Company. The Affiliated Companies reserve the right to modify an Eligible Executive's or Member's remuneration and to terminate an Eligible Executive or a Member for any reason and at any Time, notwithstanding the existence of this Plan or of a Deferral Agreement. 8.4 Withholding Taxes: All payments under this Plan shall be net of an amount sufficient to satisfy any federal, state or local withholding and payroll tax requirements. 8.5 Nonalienation: The right to receive any benefit under this Plan may not be transferred, assigned, pledged or encumbered by a Member, former Member, beneficiary or contingent beneficiary in any manner and any attempt to do so shall be void. No such benefit shall be subject to garnishment, attachment or other legal or equitable process without the prior written consent of the Affiliated Companies. Notwithstanding the preceding, following a Change of Control, the Administrator shall not implement such action without the consent of the Benefits Trust Committee. 8.6 Administration: (a) Prior to a Change of Control, the Administrator of the Plan shall be responsible for the general administration of the Plan, claims review, and for carrying out its provisions. Administration of the Plan shall be carried out consistent with the terms and conditions of the Plan. (b) Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Administrator. (c) The Administrator shall have sole and absolute discretion to interpret the Plan, determine eligibility for and benefits due hereunder. Decisions of the Administrator regarding benefits under the Plan shall at all times be binding and conclusive on Members, their beneficiaries, heirs and assigns. Notwithstanding the preceding, following a Change of Control, final benefit determinations for Members, their beneficiaries, heirs and assigns and decisions regarding benefit claims under the Plan shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. (d) Prior to paying any benefit under this Plan, the Administrator may require the Member or former Member, beneficiary or contingent beneficiary to provide such information or material as the Administrator, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Plan. The Administrator may withhold payment of any benefit under this Plan until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. The Administrator shall provide adequate notice in writing to any Member, former Member, beneficiary or contingent beneficiary whose claim for benefits under this Plan has been denied, setting forth the specific reasons for such denial. A reasonable opportunity shall be afforded to any such Member, former Member, beneficiary or contingent beneficiary for a full and fair review by the Administrator of its decision denying the claim. The Administrator's decision on any such review shall be final and binding on the Member, former Member, beneficiary or contingent beneficiary and all other interested persons. All acts and decisions of the Administrator shall be final and binding upon all Members, former Members, beneficiaries, contingent beneficiaries and employees of the Affiliated Companies. Notwithstanding the preceding, following a Change of Control, any and all decisions by the Administrator are subject to the approval of the Benefits Trust Committee. (e) Prior to a Change of Control, the Committee in its sole discretion and upon such terms as it may prescribe, may permit any company or corporation directly or indirectly controlled by the Corporation to participate in the Plan. After a Change of Control, such permission must be approved by the Benefits Trust Committee. 8.7 Construction: (a) The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees and all rights hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by federal law. (b) The masculine pronoun means the feminine wherever appropriate. (c) The captions inserted herein are inserted as a matter of convenience and shall not affect the construction of the Plan. ARTICLE 9. EDUCATION SUB-ACCOUNTS --------------------------------- 9.1 Education Sub-accounts: (a) Notwithstanding any provision of this Plan to the contrary, with respect to amounts deferred under Salary Deferral Agreements and Award Deferral Agreements effective on or after December 31, 1990, a Member may direct the Administrator to establish a separate sub-account in the name of one or more of: (i) each of the Member's children, (ii) each of the Member's brothers, sisters, their spouses, the Member's spouse, or (iii) each of the foregoing's lineal descendants, for the payment of their expenses directly or indirectly arising from enrollment in a college, university, another post-secondary institution of higher learning or a secondary educational institution. Each sub-account established pursuant to this Section 9.1(a) shall be referred to as an "Education Sub-account." (b) The Member may instruct the Administrator to allocate all or a portion of any amount deferred under an Award Deferral Agreement in respect to an Award granted after December 31, 1990 to one or more of the Education Sub-accounts established pursuant to Section 9.1(a). (c) A Member may instruct the Administrator to allocate all or any portion of the amount he defers for periods commencing after December 31, 1990 pursuant to his Salary Deferral Agreement to one or more of the Education Sub-accounts established pursuant to Section 9.1(a). (d) Any elections pursuant to Sections 9.1(a) and 9.1(b) shall be made in whole percentages. (e) No Matching Credits shall be allocated to any Education Sub-account. 9.2 Distribution of Education Sub-accounts: (a) Amounts allocated to one or more of a Member's Education Sub-accounts shall be distributed to the Member upon the attainment of the certain age of the Member, specifically designated by the Member for this purpose with regard to that Sub-account. (b) A Member or former Member may transfer the entire amount but not less than that amount in any Education Sub-account to one or more other Education Sub-accounts, a Retirement Sub-account, or any combination thereof, by filing the appropriate form or forms with the Administrator not later than the last business day of the calendar year preceding the calendar year in which distribution of that Education Sub-account was to begin; provided, however, if such transfer accelerates the timing of the payment to the Member, there shall be a forfeiture of five percent (5%) of the Member's or former Member's Sub-account so transferred, determined as of the Valuation Date upon which the transfer is effective. In no event may a Member transfer all or any portion of the amount in a Retirement Sub-account to his Education Sub-accounts. Except as provided in this Section 9.2(b) or 9.2(c) below, a Member or former Member may not change the time or form of distribution of his Education Sub-accounts. (c) In the event that the individual for whom an Education Sub-account is established dies while funds remain in that Sub-account, a Member or former Member may transfer without penalty the entire amount but not less than that amount in that Sub-account in accordance with the provisions of (i) or (ii) below: (i) to one or more existing Education Sub-accounts and/or a new Education Sub-account established in accordance with the provisions of Section 9.1 hereof; or (ii) to a Retirement Sub-account. If a Member or former Member elects to transfer funds in accordance with (ii) and he has not previously established a Retirement Sub-account, such a Sub-account shall be established automatically and the Member or former Member promptly thereafter will be required to execute an amendment to his Deferral Agreement which shall specify the option under Section 6.1(a) which will entitle him to distribution of the Retirement Sub-account and the form of distribution under Section 6.2(a). (d) A Member's or former Member's Education Sub-accounts shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as soon as administratively practicable following the January 1 coincident with or next following the date the Member incurs the distributable event or events elected under Section 9.2(a) or his date of death, as the case may be. Notwithstanding the foregoing, a Member or former Member may elect to receive distribution of one or more of his Education Sub-accounts in semi-annual installments over a period not to exceed six (6) years. Installments shall be determined as of each June 30 and December 31 and shall be paid as soon as administratively practicable thereafter. Installments shall commence as of the June 30 or December 31 coincident with or next following the date the Member incurs the distributable event elected under Section 9.2(a) with regard to a Sub-account, or as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the applicable Education Sub-account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). If a Member or former Member dies before payment of the entire balance of all of his Education Sub-accounts, the remaining balance or balances, as the case may be, shall be paid in a single sum to his Beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. 9.3 Construction: To the extent any provision in this Article 9 is inconsistent with any other provision of this Plan, the provisions in Article 9 shall govern. EX-10.21 10 SPECIAL RETIREMENT PLAN OF CSX CORPORATION AND AFFILIATED CORPORATIONS As Amended and Restated January 1, 1995 (As Amended through December 7, 1999) TABLE OF CONTENTS Section I - INTRODUCTION........................................... 1 Section II - PARTICIPATION.......................................... 2 Section III - CREDITABLE SERVICE..................................... 2 Section IV - COMPENSATION AND AVERAGE COMPENSATION.................. 3 Section V - SPECIAL RETIREMENT ALLOWANCES.......................... 3 Section VI - FUNDING METHOD......................................... 5 Section VII - ADMINISTRATION OF SPECIAL PLAN......................... 6 Section VIII - MODIFICATION, AMENDMENT AND TERMINATION................ 7 Section IX - NON-ALIENATION OF BENEFITS............................. 8 Section X - MISCELLANEOUS PROVISIONS............................... 8 Section XI - CHANGE OF CONTROL...................................... 8 Section XII - CONSTRUCTION........................................... 11 APPENDIX I PARTICIPANTS GRANTED ADDITIONAL CREDITABLE SERVICE PURSUANT TO SECTION V(4)(b) Special Retirement Plan of CSX Corporation and Affiliated Corporations As Amended and Restated January 1, 1995 (As Amended through December 7, 1999) Section I - INTRODUCTION 1. The purpose of this retirement plan, hereinafter called the "Special Plan," is to provide an incentive for corporate officers comprising a select group of management or highly compensated employees to exert maximum efforts for the Company's success and to remain in the service of the Company until retirement. 2. The Special Plan as provided herein was originally effective as of March 1, 1983, and supersedes the Employees' Special Pension Plan of The Chesapeake and Ohio Railway Company and the Plan for Additional Annuities for Qualifying Members under the Supplemental Pension Plan of The Baltimore and Ohio Railroad Company, hereinafter called the "Former Plans." 3. The "Company" as used herein means CSX Corporation and such other of its affiliated corporations as shall adopt this Special Plan with the approval of the Compensation Committee and by action of their boards of directors for the benefit of corporate officers who are covered or may become covered by the Special Plan. 4. The term "Compensation Committee" means the Compensation Committee of the Board of Directors of CSX Corporation (the "Board of Directors"). 5. "Benefits Trust Committee" means the committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement ("The Benefits Assurance Trust"). 6. The Company's "Independent Accountant" means an independent accountant or actuary engaged by the Company and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. 7. The incentives under the Special Plan shall consist of special retirement allowances provided by the Company at retirement to certain employees, hereinafter referred to as "Participants," who shall participate as provided herein (eligibility for participation is set forth in Section II). 8. The Special Plan shall, where appropriate, refer to and have meanings consistent with all of the relevant terms of any other regularly maintained pension plan which currently provides or did provide immediately prior to March 1, 1983, retirement benefits for non-contract employees of the Company and is or was maintained by CSX Corporation or any of its affiliated corporations whose officers participate in the Special Plan. Such existing regularly maintained pension plans which provided benefits immediately prior to March 1, 1983 for employees of the Company, and covered periods of service granted in subsections 4(a) and 4(b) of Section V, or those which may be established hereafter, as amended from time to time, shall be referred to herein as the "Pension Plans." Accordingly, regardless of formal differences which may exist between the Special Plan and the Pension Plans in the use of terminology, the definitions and principles which are set forth in the Pension Plans with respect to compensation, average compensation, credited service, and similar terms shall be applied and construed hereunder in a manner consistent with the purposes of the Special Plan and the Pension Plans. In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. Section II - PARTICIPATION 1. Every person who was a Participant in the Former Plans as in effect immediately prior to March 1, 1983, shall continue as a Participant in the Special Plan on and after such date for the purpose of any applicable provisions hereof. 2. On and after March 1, 1983, Participants shall include any employees who participate in the Pension Plans and who are entitled to benefits provided under Section V, Subsection 8 hereof; provided, however, that the only benefit that such employees shall be eligible to receive under this Special Plan shall be the benefit provided in accordance with such Subsection unless they are otherwise entitled to benefits under other provisions of this Special Plan. 3. On and after March 1, 1983, additional persons eligible to be Participants shall be those specified in Section V, Subsection 4(c). Section III - CREDITABLE SERVICE 1. Creditable service under the Special Plan shall have the same meaning and apply in the same manner as creditable service under the Pension Plans, except that it shall also include any additional creditable service which may have been or which may be granted to a Participant in accordance with the provisions of Section V, Subsections 3 and 4. Provided, however, notwithstanding any provisions of the Pension Plans to the contrary, a Participant in the Special Plan who is in the employ of the Company and who does not receive compensation in any calendar month due to amounts deferred under the Company's Deferred Compensation Program, Supplementary Savings and Incentive Award Deferral Plan, and any other amounts of compensation deferred under any other arrangement approved by the Compensation Committee nevertheless shall receive creditable service under the Special Plan. 2. Notwithstanding any other provisions of this Special Plan or the Pensions Plans to the contrary, effective January 1, 1989: (a) Prior to January 1, 1992, a Participant must have been continuously employed by the Company for a period of not less than 10 years to become entitled upon retirement to receive payment of a special retirement allowance from this Special Plan in respect of any additional creditable service, pension supplement, pension or benefit granted under Section V, Subsections 3(a) or 3(b) of this Special Plan. After December 31, 1991, this Subsection (a) shall only apply to Section V, Subsection 3(b); and, (b) Prior to January 1, 1992, a Participant must have been continuously employed by the Company for a period of not less than 5 years to become entitled to receive payment of a special retirement allowance from this Special Plan in respect of any additional creditable service granted under Section V, Subsection 4(d), of this Special Plan; provided, however, a person who has already attained age 60 when he first becomes employed by the Company, and who also becomes and continuously remains a Participant from his first date of employment until attainment of age 65, shall become entitled upon retirement to receive payment of a special retirement allowance from this Special Plan in respect of any additional creditable service granted under Section V, Subsection 4(d) of this Special Plan; and (c) After December 31, 1991, a Participant must have been continuously employed by the Company for a period of not less than 10 years and must have attained age 55 to become entitled to receive a special retirement allowance from this Special Plan in respect to any additional creditable service accrued after December 31, 1991, granted under Section V, Subsection 4(d), of this Special Plan or a pension or benefit granted after December 31, 1991 under Section V, Subsection 3(a) of this Special Plan; provided, however, a Participant who has at least 5 years of continuous service and who dies while actively employed shall be entitled to the additional creditable service accrued after December 31, 1991; and, provided further, a Participant who terminates employment because of a Divisive Transaction or a workforce downsizing or with the consent of the Chief Executive Officer of CSX Corporation ("Chief Executive Officer") prior to age 55 with 10 years of continuous service shall be entitled to the additional creditable service accrued after December 31, 1991. For purposes of this Section III, Subsection 2(c), "Divisive Transaction" shall mean a transaction in which the Participant's employer ceases to be a subsidiary of CSX Corporation or there is a sale of substantially all of the assets of the subsidiary. (d) Prior to a Change of Control, in no event shall a Participant be eligible to receive a payment in respect of any benefits granted under Section V, Subsections 3(a), 3(b) or 4(d) of this Special Plan before such date as the Participant attains the earliest retirement age specified in the particular Pension Plan in which the Participant also participates, unless an earlier payment from the Special Plan is specifically authorized by the Compensation Committee. The Compensation Committee shall have full authority and sole discretion to interpret and administer the foregoing rules, and any decision made by the Compensation Committee shall be final and binding. Following a Change of Control, the same rules apply except that the Benefits Trust Committee shall have full authority and sole discretion to interpret and administer the foregoing rules. Any such decision made by the Benefits Trust Committee shall be final and binding. (e) In the event of a Change of Control, as defined in Section XI, the age 55 and length of service requirements contained in Section III, Subsection (2)(c), shall be waived for those Participants who are employed by the Company at the time of the Change of Control. Section IV - COMPENSATION AND AVERAGE COMPENSATION Compensation and average compensation under the Special Plan shall have the same meanings and apply in the same manner as those terms do under the Pension Plans, except as provided in Section V, Subsection 3(b); provided, however, that amounts deferred under the Company's Deferred Compensation Program, Supplementary Savings and Incentive Award Deferral Plan, and any other amounts of compensation deferred under any other arrangement approved by the Compensation Committee shall be included in the determination of compensation and average compensation; and further provided, that compensation and average compensation hereunder shall not be limited to the amount of $150,000, or such other amount as adjusted by regulation, as imposed by Sections 401(a)(17) and 415(d) of the Internal Revenue Code. Section V - SPECIAL RETIREMENT ALLOWANCES 1. All of the provisions, conditions, and requirements set forth in the Pension Plans with respect to the granting and payment of retirement benefits thereunder shall be equally applicable to the granting of the special retirement allowances hereunder to Participants in the Special Plan and to the payment thereof from the Company's general assets or from the Benefits Assurance Trust. Except as otherwise may be provided in this Special Plan, whenever a Participant's rights under the Special Plan are to be determined, appropriate reference shall be made to the particular Pension Plan in which such person is also a participant. Notwithstanding the preceding sentence, if a special retirement allowance under the Special Plan shall be paid to a surviving spouse in conformance with the provisions of the Pension Plans, the final installment payment hereunder shall be made only to the estate of such surviving spouse and shall not be otherwise paid, regardless of any different provision for such payment which may be prescribed in the Pension Plans. 2. All special retirement allowances being paid on March 1, 1983, under the Former Plans as they existed immediately prior to such date shall be continued and be paid hereunder, and, persons participating under the Former Plans shall continue to participate hereunder in accordance with the terms and conditions of the Former Plans and any applicable provisions of this Special Plan. 3. The Compensation Committee, upon the recommendation of the Chief Executive Officer, may grant to an officer of the Company the following benefits under the Special Plan: (a) Additional creditable service, pensions or benefits hereunder other than as provided in the Pension Plan, in recognition of previous service deemed to be of special value to the Company. (b) A pension supplement hereunder in a particular instance as determined by the Compensation Committee, to be calculated on the basis of specific instructions which may depart only for such purpose from any of the terms, conditions or requirements of the Pension Plans, notwithstanding the provisions of Section I, Subsection 5, and Section V, Subsection 1, hereof. 4. The following additional creditable service under the Special Plan shall be granted by the Company at retirement under the Pension Plans: (a) To those Participants of the "Former Plans," creditable service equal to that accrued under Section V, Subsection 4 of The Employees' Special Plan of The Chesapeake and Ohio Railway Company or under paragraphs 1, 2 and 3 of the Plan for Additional Annuities for Qualifying Members Under the Supplemental Pension Plan of the Baltimore and Ohio Railroad Company, provided that, effective upon a Participant's retirement on or after March 1, 1983, creditable service under the Special Plan and Pension Plans shall not exceed 44 years. (b) To those Participants in the Special Plan who are listed in Appendix I, and who are also participants in the Pension Plans, additional creditable service under the Special Plan will be granted as indicated for each individual as shown in Appendix I, provided that additional creditable service under the Special Plan and credited service under the Pension Plans at retirement shall not exceed 44 years. (c) On and after March 1, 1983, new admissions into the class of persons who may become Participants in the Special Plan to receive additional creditable service hereunder shall only include participants in the Pension Plans who are appointed by the Chief Executive Officer or his designee. (d) In addition to the additional creditable service granted to Participants under (a) or (b) above, beginning March 1, 1983, one year of additional creditable service shall be granted for each year of actual service (with allowances for months less than twelve) between ages 45 and 65 during which a person is a Participant. Those who become qualified as provided in (c) above shall have one year of additional credited service granted, beginning no earlier than the date they are both a Participant and at least age 45, for each year of actual service (with allowances made for months less than twelve) during which they remain a Participant, but only up to age 65. Additional creditable service granted under the Special Plan shall be combined with credited service under the Pension Plan (but only if credited service under the Pension Plans does not exceed 44 years), to result in total credited service and additional creditable service under the Pension Plans and the Special Plan which shall not exceed a maximum of 44 years. The position, compensation, and other conditions upon which a non-contract employee's participation herein is based shall be determined from time to time in the absolute discretion of the Compensation Committee. Effective December 31, 1993, there shall be no new admissions into the class of persons who may receive additional benefits pursuant to this subsection 4(d); provided, however, the Chief Executive Officer may, by express agreement, offer the additional benefits pursuant to this subsection 4(d) to selected individuals. (e) Anything to the contrary notwithstanding, any Participant in the Special Plan receiving additional creditable service under this Subsection 4, and whose responsibilities and compensation are reduced, may, in the discretion of the Compensation Committee or the Chief Executive Officer, cease to receive any further additional creditable service hereunder. (f) A Participant's accrual of additional creditable service as provided herein shall not be subject to termination except as provided in subparagraph (e) above, or upon retirement or termination of employment. (g) Prior to January 1, 1992, a Participant who receives benefits under a Salary Continuance and Long-Term Disability Plan of the Company shall continue to accrue additional creditable service hereunder subject to the same rules that are applicable in such instances under the Pension Plans. (h) It is the intent of this Section V that, for the purpose of the Special Plan, the additional creditable service provided hereunder when added to credited service under the Pension Plans or otherwise, shall not in any case exceed 44 years in the aggregate. (i) To those Participants who become qualified as provided in (a), (b) or (c) above, a special retirement allowance shall be payable under the Special Plan to such Participants or their surviving spouses equal to any amount due under the Pension Plans which is not paid in full under the Pension Plans. (j) Notwithstanding the preceding, following a Change of Control, any additional service or benefits granted under Article V, Subsection 4 shall be subject to the approval of the Benefits Trust Committee. 5. The Company shall accrue and pay under this Special Plan as an additional supplemental benefit any annual pension benefits that would have been payable under the Pension Plans as in effect on September 1, 1974, or thereafter, if Sections 415(b) and 401(a)(17) of the Internal Revenue Code, and any other relevant provisions of law that impose limitations or have the effect of limiting the accrual of benefits under the Pension Plans, had not been enacted into law, unless such additional supplemental benefit is provided by the Company through another plan created for that purpose. 6. The Company shall accrue reserves to the credit of the Special Plan in advance to cover the costs of any additional creditable service, pensions or benefits granted under Subsections 3 and 4 hereof, and such pensions or benefits or special retirement allowances reflecting such credit shall be paid under the Special Plan. Where additional creditable service is granted, upon retirement in accordance with the provisions of the Pension Plans, the Participant shall receive a special retirement allowance equal to the difference between the retirement allowance computed under the Pension Plans and the amount which would be payable if the additional credit granted hereunder had been included with the actual credited service in the computation of the retirement allowance payable under the Pension Plans. Where a pension or other benefit is granted to a Participant, such pension or benefit shall be payable as a special retirement allowance from the Special Plan. 7. In the event any Participant in the Special Plan receives as a participant in the Pension Plans, a pension or retirement benefit payable in a form other than a straight life annuity in accordance with the provisions of the Pension Plans, his special retirement allowance under this Section V shall also be payable in a similar form. Notwithstanding any other provision of this Special Plan to the contrary, certain senior executives of the Company or its affiliates (as identified by the Chief Executive Officer of the Company from time to time), will, prior to their commencement of retirement benefits under the Company's qualified pension plan, be permitted to elect to receive (or elect for a beneficiary to receive in the event of the executive's death) the actuarial present value of their benefits under this Special Plan in a lump sum. Such election shall be in accordance with rules established by the Special Plan's Administrator. For purposes of this subsection 7, the `actuarial present value' shall be determined as of the Valuation Date preceding the date of the payment of the benefit and on the basis of the UP 1984 Mortality Table, set back one year, and a discount rate equal to the interest rate promulgated by the Pension Benefit Guaranty Corporation for use in determining the sufficiency of single employer defined benefit pension plans terminating on that date. 8. The Company shall accrue and pay under this Special Plan any annual pension benefit which otherwise would have been payable under the Pension Plans but for the Participant's deferral of compensation under the Company's Deferred Compensation Program, Supplementary Savings and Incentive Award Deferral Plan, or under any other deferred compensation arrangement approved by the Compensation Committee. 9. The obligations of the Company or any of its affiliated corporations and the benefit due any Participant, surviving spouse or beneficiary under this Plan shall be reduced by any amount received in regard thereto under the Benefits Assurance Trust or any similar trust or other vehicle. Section VI - FUNDING METHOD 1. The benefits provided under the Special Plan shall be financed by the Company and no contribution shall be required of Participants. The Company shall accrue reserves on its books as follows: (a) As of March 1, 1983, an amount shall be calculated with respect to the Former Plans which shall be the actuarially determined present value as of that date of all special retirement allowances payable under the Former Plans and, under a schedule approved by the Company's Independent Accountant, the reserve previously accrued will be adjusted. (b) As of March 1, 1983, the actuarially determined present value as of that date of all special retirement allowances payable under Section V, Subsection 4(b) shall be calculated and, under a schedule approved by the Company's Independent Accountant, a reserve equal to that amount established. (c) During the year 1983, there shall be accrued the amount required to allow regular interest on the adjusted reserve provided in (a) and (b) above. Each year thereafter there shall be accrued the amount required to allow regular interest on the average reserves standing to the credit of the Special Plan during the preceding year. (d) Each year the reserves shall be adjusted to reflect the payment of special retirement allowances during the year. (e) Such additional reserves shall be accrued from time to time as may be required in accordance with Section V, Subsections 3 and 4, on account of grants thereunder made after March 1, 1983. (f) There shall be accrued from time to time, as required, additional reserves on account of benefits pursuant to Section V, Subsection 6. (g) At such times as the Plan Administrator shall recommend, the reserves accrued to the credit of the Special Plan shall be adjusted on the basis of actuarial valuations to reflect the experience under the Special Plan, or amendments thereto, or changes in the rate of regular interest, or any other actuarial assumptions. 2. The Company shall provide all funds required for the administration expenses of the Special Plan. 3. The Company has established the CSX Corporation and Affiliated Companies Benefits Assurance Trust ("Trust"). Except as provided in Section XI, the Company is not obligated to make any contribution to the Trust. 4. The Special Plan is intended to be unfunded for tax purposes and for purposes of Title I of ERISA. Participants in the Special Plan have the status of general unsecured creditors of the Company, and the Special Plan constitutes a mere promise by the participating employer to make benefit payments in the future. 5. To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Special Plan shall be joint and several. Section VII - ADMINISTRATION OF SPECIAL PLAN 1. Prior to a Change of Control, the Plan Administrator for the CSX Pension Plan shall be responsible for the general administration of the Special Plan and for carrying out its provisions. 2. Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Plan Administrator as to the Special Plan. Additionally, following a Change of Control, any and all benefits determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under this Special Plan shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. Section VIII - MODIFICATION, AMENDMENT AND TERMINATION 1. The Special Plan represents a contractual obligation heretofore entered into by the Company in consideration of services rendered and to be rendered by Participants covered under the Special Plan. Prior to a Change of Control, the Company reserves the right at any time and from time to time to modify or amend in whole or in part any or all of the provisions of this Special Plan, or to terminate this Special Plan; provided, however, prior to December 1, 1991, no modification or amendment shall be made to this Special Plan unless there have been modifications or amendments to correlative provisions of the Pension Plans, and any modifications or amendments to this Special Plan shall coincide with the modifications or amendments of the Pension Plans (except nonconforming revisions to administrative provisions shall be permitted); and provided, further, that this Special Plan shall only be terminated if the Pension Plans are terminated, subject to the following limitations: (a) In the event any modification or amendment adversely affects the benefits to be received by a retired Participant and the designated surviving spouse of a retired Participant, they shall be entitled to receive for life the special retirement allowance they would have received had the Special Plan not been modified or amended, and each designated surviving spouse of a retired Participant shall become entitled to receive for life the special retirement allowance that such designated surviving spouse would have received had the Special Plan not been modified or amended. (b) In the event of the termination of this Special Plan, each retired Participant and designated surviving spouse of a retired Participant shall be entitled to receive for life the special retirement allowance they would have received had the Special Plan not been terminated, and each designated surviving spouse of a retired Participant shall become entitled to receive for life the special retirement allowance that such designated surviving spouse would have received had the Special Plan not been terminated. (c) In the event any modification or amendment adversely affects the benefit which an active Participant would have been entitled to receive if such amendment or modification had not been made, such active Participant shall, so long as he remains in the active service of the Company, only continue to accrue creditable service and benefits prospectively in accordance with the provisions of the Special Plan as so modified or amended, unless the Participant shall earlier cease to receive any additional creditable service as provided in Section V, Subsection 4(e). (d) In the event this Special Plan is terminated, each active Participant, in consideration of his continued service to the Company until the date of his termination from active employment by retirement or otherwise, shall be entitled to retain his accrued additional service, or pension or benefits as granted hereunder to such Participant, in accordance with the provisions of this Special Plan in effect on the day prior to the date of termination, unless the Participant shall earlier cease to receive any additional creditable service as provided in Section V, Subsection 4(e). (e) In lieu of paying special retirement allowances in accordance with the foregoing provisions, the Plan Administrator, at its election, may direct the discharge of all obligations to retired Participants, designated spouses of retired Participants, and active Participants by cash payments of equivalent actuarial value or through the provision of immediate or deferred annuities or other periodic payments of equivalent actuarial value, as it shall in its sole discretion determine, provided that following a Change of Control, the authority to make such decisions shall rest solely with the Benefits Trust Committee. 2. Following a Change of Control, this Special Plan may not be amended or terminated without the approval of the Benefits Trust Committee. Section IX - NON-ALIENATION OF BENEFITS 1. No benefit under the Special Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void, except as specifically provided in the Special Plan, nor shall any benefit be in any manner liable for or subject to the debt, contracts, liabilities, engagements, or torts of the person entitled to such benefit; and in the event that the Plan Administrator shall find that any active or retired Participant or designated spouse or spouse under the Special Plan has become bankrupt or that any attempt has been made to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any of his benefits under the Special Plan, except as specifically provided in the Special Plan, then such benefits shall cease to accrue and shall be determined, and in that event, the Plan Administrator shall hold or apply the same to or for the benefit of such active or retired Participant or spouse, in such manner as the Plan Administrator may deem proper. 2. Notwithstanding the preceding, following a Change of Control, the Plan Administrator shall not implement such action without the consent of the Benefits Trust Committee. Section X - MISCELLANEOUS PROVISIONS 1. Anything in the Special Plan to the contrary notwithstanding, prior to a Change of Control, if the Plan Administrator finds that any retired Participant or spouse is engaged in acts detrimental to the Company or is engaged or employed in any occupation which is in competition with the Company, and if after due notice such retired Participant or spouse continues to be so engaged or employed, the Plan Administrator shall suspend the special retirement allowance of such person, which suspension shall continue until removed by notice from the Plan Administrator; provided, however, that if such suspension has continued for one year, the Plan Administrator shall forthwith cancel such Participant's or spouse's special retirement allowance. Furthermore, if the Plan Administrator finds that any Participant has been discharged for having performed acts detrimental to the Company, then regardless of any other provision in the Special Plan, no benefit shall be payable to or on account of any such Participant's coverage under this Special Plan. Notwithstanding the preceding, following a Change of Control, the Plan Administrator shall not implement such action or make such determination without the consent of the Benefits Trust Committee. 2. The establishment of the Special Plan shall not be construed as conferring any legal rights upon any employee for a continuation of employment, nor shall it interfere with the rights of the Company to discharge any employee and to treat him without regard to the effect which such treatment might have upon him as a Participant in the Special Plan. Section XI - CHANGE OF CONTROL 1. If a Change of Control has occurred, the Company shall contribute to the Trust within 7 days of such Change of Control, a lump sum contribution equal to the greatest of: (a) the aggregate value of the amount each Participant would be eligible to receive under subsection (2), below; (b) the present value of accumulated Plan benefits based on the assumptions the Company's independent actuary deems reasonable for this purpose, as of a Valuation Date, as defined in subsection (6), below, coinciding with or next preceding the date of Change of Control, to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section XI shall be determined by the Company's independent actuaries. Thereafter, the Company's independent actuaries shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to subsection (2), below, the greater of: (i) the amount such Participant would have received under subsection (2) had such Participant not made the election under subsection (3), below, if applicable; and (ii) the present value of accumulated benefits based on assumptions the actuary deems reasonable for this purpose. To the extent that the value of the assets held in the Trust relating to this Special Plan does not equal the amount described in the preceding sentence, at the time of the valuation, the Company shall make a lump sum contribution to the Trust equal to the difference; or (c) the amount determined under Section 1(h) of the Benefits Assurance Trust attributable to liabilities relating to this Plan. 2. In the event a Change of Control has occurred, the trustee of the Benefits Assurance Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under subsection (3), a lump sum payment equal to the actuarial present value of the aggregate special retirement allowance each Participant (or any beneficiary of a Participant) has accrued as of the Valuation Date preceding the date of such Change of Control pursuant to the terms of Section V of this Special Plan. If a Participant's benefit has not commenced as of such date, such lump sum shall be determined assuming that: (a) The Participant's benefit would commence at the earliest date he would qualify for early or normal retirement under the Plan, were his employment with the Company to continue, but in no event earlier than the later of age 55 or the date of such Change on Control. (b) The Participant would qualify for an early (or normal) retirement benefit as of the date determined in (a). (c) If married, the Participant would receive his benefit under the 50% Joint and Survivor form of payment with the spouse as beneficiary; if not married, the benefit would be payable in the form of a single life annuity. The actuarial present value shall be determined on the basis of the UP 1984 Mortality Table, set back one year, and a discount rate equal to the interest rate promulgated by the Pension Benefit Guaranty Corporation for use in determining the sufficiency of single employer defined benefit pension plans terminating on the date of such Change in Control. 3. Each Participant may elect in a time and manner determined by the Compensation Committee, but in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of this Special Plan as if a Change of Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Compensation Committee, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of this Special Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 4. Notwithstanding anything in this Special Plan to the contrary, each Participant who has made an election under subsection (3), above, may elect within 90 days following a Change of Control, in a time and manner determined by the Compensation Committee, to receive a lump sum payment calculated under the provisions of subsection (2), above, determined as of the Valuation Date next preceding such payment, except that such amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Company by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit under the Special Plan. Payments under this subsection (4) shall be made not later than 7 days following receipt by the Company of the Participant's election. The Compensation Committee shall, no later than 7 days after a Change of Control has occurred, cause written notification to be given to each Participant eligible to make an election under this subsection (4), that a Change of Control has occurred and informing such Participant of the availability of the election. 5. As used in this Plan the term "Change of Control" shall mean: (a) Stock Acquisition. The acquisition, by any individual, ------------------ entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, -------- however, that for purposes of this subsection ------- (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (b) Board Composition. Individuals who, as of the date ------------------ hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (e) Liquidation or Dissolution. Approval by the shareholders --------------------------- of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. 6. For purposes of this Section XI, the term "Valuation Date" means the last day of each calendar year and such other dates as the Plan Administrator deems necessary or appropriate to value the Participant's benefits under this Special Plan, except that following a Change of Control, the Benefits Trust Committee shall have final approval of any date selected other than the last day of each calendar year. Section XII - CONSTRUCTION The special Plan and the rights and obligations of the parties hereunder shall be construed in accordance with the laws of the Commonwealth of Virginia. 02/17/2000 APPENDIX I PARTICIPANT'S GRANTED ADDITIONAL CREDITABLE SERVICE PURSUANT TO SECTION V(4)(b) EX-10.22 11 Supplemental Retirement Benefit Plan of CSX Corporation and Affiliated Corporations As Amended and Restated January 1, 1995 (As Amended through December 7, 1999) Section I - INTRODUCTION 1. The purpose of this plan, hereinafter called the "Supplemental Plan", is to provide benefit payments to individuals who are participants (or members, as the case may be) in funded, tax-qualified defined benefit pension plans maintained by CSX Corporation (the "Company") and certain of its affiliated corporations (whose participation in the Supplemental Plan is approved by the Compensation Committee of the Board of Directors of the Company ("Compensation Committee")) and which adopts this Supplemental Plan by action of its board of directors and whose benefits would otherwise be reduced by Section 415 of the Internal Revenue Code ("Code") of 1986, as amended ("Code") which imposes limitations on benefits which may be accrued under such plans ("Code Limitations"). Notwithstanding the preceding, following a Change of Control, an affiliated corporation may not become a participating employer in this Supplemental Plan without the approval of the Benefits Trust Committee. 2. This Supplemental Plan preserves and continues in effect all provisions for accruals based upon limitations of benefits imposed by Code Limitations, heretofore credited to Participants under Section V, paragraph (subsection) 5, of the Special Retirement Plan of CSX Corporation and Affiliated Corporations ("Special Plan"), the Supplemental Benefits Plan of Sea-Land Corporation and Participating Companies, and the American Commercial Lines Benefit Restoration Plan ("Predecessor Plans"). Section II - DEFINITIONS 1. Supplemental Benefit means the benefit described in Section IV of this Supplemental Plan. 2. The Supplemental Plan shall, where appropriate, refer to and have meanings consistent with all of the relevant terms of the CSX Pension Plan and any other regularly maintained funded, tax-qualified defined benefit pension plan of any other corporation affiliated with the Company whose participation in the Supplemental Plan as a participating employer is approved by the board of directors of any such affiliated corporation and by the Compensation Committee. Such existing regularly maintained defined benefit pension plans which provided benefits for employees of the Company or its affiliates prior to the Effective Date of this Supplemental Plan document, or those which may be established hereafter, as amended from time to time, shall be referred to herein as the "Pension Plan." 3. Regardless of formal differences which may exist between the Supplemental Plan and the Pension Plan or the Predecessor Plans in the use of terminology, the definitions and principles which are set forth in the Pension Plan or the Predecessor Plans with respect to compensation, average compensation, credited service and similar terms shall be construed and applied hereunder in a manner consistent with the purposes of this Supplemental Plan and the Pension Plan or the Predecessor Plans. In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. 4. "Benefits Trust Committee" means the committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement (the "Benefits Assurance Trust"). 5. Any reference to the "Company's independent actuary", "independent actuaries", "actuary" or "Actuary" means the independent actuary engaged by CSX Corporation and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. Section III - MEMBERSHIP 1. Every person who previously participated in a Predecessor Plan shall automatically be a Participant in this Supplemental Plan on and after the Effective Date. 2. Each employee who is a Participant in a Pension Plan on or after the Effective Date shall participate in this Supplemental Plan to the extent of the benefits provided herein. 3. A Participant's participation in this Supplemental Plan shall terminate coincident with the termination of such individual's participation in the Pension Plans; provided, however, in the event that the Participant shall be reassigned or transferred into the employ of the Company or any of its affiliates which also is a participating employer in this Supplemental Plan, the Participant's participation shall be continued. Section IV - SUPPLEMENTAL BENEFITS 1. All of the provisions, conditions and requirements set forth in the applicable Pension Plan with respect to the granting and payment of retirement benefits thereunder shall be equally applicable to the payment of supplemental benefits hereunder to affected Participants in the Supplemental Plan and to the payment thereof from the employer's general assets. Whenever an individual Participant's rights under the Supplemental Plan are to be determined, appropriate reference shall be made to the particular Pension Plan in which such person is also a participant. Notwithstanding the preceding sentence, if a supplemental benefit under this Supplemental Plan shall be paid to a surviving spouse or other surviving designated beneficiary in conformance with the provisions of the Pension Plans, the final installment payment hereunder shall be made to the estate of the surviving spouse or other surviving designated beneficiary. 2. Each Participant shall receive a Supplemental Benefit under this Supplemental Plan in an amount equal to the difference, if any, between (i) the Participant's monthly retirement income benefit under the provisions of the particular Pension Plan in which such person is also a participant calculated before the application of any Code Limitations and (ii) the Participant's monthly retirement income benefit determined after application of the Code Limitations. 3. Notwithstanding any other provision of this Supplemental Plan to the contrary, a Supplemental Benefit shall not be determined or paid which would duplicate a payment of benefit provided to a Participant under the Pension Plan, the Predecessor Plans or any other unfunded or funded retirement plan of the Company or any of its affiliated corporations. Further, the obligations of the Company or any of its affiliated companies and the benefit plan due any Participant, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto from the Benefits Assurance Trust or any similar trust or other vehicle. 4. A Supplemental Benefit payable under the provisions of this Supplemental Plan shall be paid in such forms and at such times as shall be consistent with the payment of the Participant's retirement income benefit under the particular Pension Plan in which such person is also a participant. Notwithstanding the foregoing, prior to a Change of Control, the Company may delay payment of a Supplemental Benefit under the Supplemental Plan to any Participant who is determined to be among the top five most highly paid executives for the year that the Supplemental Benefit payment would otherwise be paid; provided, however, if a Participant's payment is delayed, that will not decrease the total Supplemental Benefit to which he is entitled. Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Supplemental Benefit rests solely with the Benefits Trust Committee. 5. Notwithstanding any other provision of this Supplemental Plan to the contrary, certain senior executives of the Company or its affiliates (as identified by the Chief Executive Officer of the Company from time to time), will, prior to their commencement of retirement benefits under the Company's qualified pension plan, be permitted to elect to receive (or elect for a beneficiary to receive in the event of the executive's death) the actuarial present value of their benefits under this Supplemental Plan in a lump sum. Such election shall be in accordance with rules established by the Supplemental Plan's Administrator. For purposes of this subsection 5, the `actuarial present value' shall be determined as of the Valuation Date preceding the date of the payment of the benefit and on the basis of the UP 1984 Mortality Table, set back one year, and a discount rate equal to the interest rate promulgated by the Pension Benefit Guaranty Corporation for use in determining the sufficiency of single employer defined benefit pension plans terminating on that date. Section V - FUNDING METHOD 1. The Supplemental Benefit shall be paid exclusively from the general assets of the applicable employers participating in the Supplemental Plan or from the Benefits Assurance Trust which has been established to secure the payment of the obligations created herein. No Participant or other person shall have any rights or claims against the assets of the employers or against the Benefits Assurance Trust which are superior to or different from the right or claim of a general, unsecured creditor of any participating employer. 2. The Supplemental Plan is intended to be unfunded for tax purposes and for purposes of Title I of ERISA, and constitutes a mere promise by the participating employer to make benefit payments in the future. 3. The employers participating in the Supplemental Plan shall provide all funds required to pay benefits accrued and to administer this Supplemental Plan. 4. To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Supplemental Plan shall be joint and several. Section VI - ADMINISTRATION OF PLAN 1. Prior to a Change of Control, the Plan Administrator of the CSX Pension Plan shall be the "Plan Administrator" of this Supplemental Plan and shall be responsible for the general administration of the Supplemental Plan, claims review and for carrying out its provisions. Administration of this Supplemental Plan shall be carried out consistent with the terms and conditions of the Pension Plan and the Supplemental Plan. 2. Following a Change of Control, the Benefits Trust Company may remove and/or replace the Plan Administrator. 3. The Plan Administrator shall have sole and absolute discretion to interpret the Plan, determine eligibility for and benefits due hereunder. Decisions of the Plan Administrator regarding participation in and the calculation of benefits under this Supplemental Plan, shall at all times be binding and conclusive on Participants, their beneficiaries, heirs and assigns. 4. Notwithstanding Subsection 3 above, following a Change of Control, final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under this Supplemental Plan shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. Section VII - CERTAIN RIGHTS AND OBLIGATIONS 1. (a) Prior to a Change of Control the Compensation Committee may terminate the Supplemental Plan upon the termination of one or more of the Pension Plans. Prior to a Change of Control the Board of Directors of CSX Corporation may terminate the Plan at any time for any reason in any manner not prohibited by law. Following a Change of Control, this Supplemental Plan may not be terminated without the approval of the Benefits Trust Committee. (b) Prior to a Change of Control, the Board of Directors of the Company may terminate an affiliated corporation's participation as a participating employer in this Supplemental Plan for any reason at any time. Following a Change of Control, an affiliated corporation may not be terminated from participation as a participating employer without the consent of the Benefits Trust Company. (c) Prior to a Change of Control, an affiliated corporation's board of directors may terminate that affiliated corporation's participation as a participating employer for any reason at any time. Following a Change of Control, an affiliated corporation's participation as a participating employer may not be terminated without the consent of the Benefits Trust Committee. 2. The participating employers agree in the event that the Supplemental Plan is terminated: (a) Each retired Participant, surviving spouse of a retired Participant or surviving designated beneficiary of a retired Participant shall be entitled to receive the Supplemental Benefit they would have received had the Supplemental Plan not been terminated, and each surviving spouse or surviving designated beneficiary of a deceased Participant shall become entitled to receive for life the Supplemental Benefit that such surviving spouse or surviving designated beneficiary would have received had the Supplemental Plan not been terminated; and (b) Each active Participant shall be entitled to receive for life the Supplemental Benefit he or she would have received had the Supplemental Plan not been terminated, calculated on the basis of the Supplemental Benefit which had accrued at the time of termination; provided, however, that the Participant shall become entitled to such Supplemental Benefit only at the time and in accordance with the provisions of the Supplemental Plan had it continued in effect. (c) In lieu of paying a Supplemental Benefit in accordance with the foregoing provisions, the Plan Administrator, at its election, may direct the discharge of all obligations to retired Participants, surviving spouses or surviving designated beneficiaries of deceased Participants, and active Participants by cash payment of equivalent actuarial value or through the provision of immediate or deferred annuities or such other periodic payments of equivalent actuarial value, as it shall in its sole discretion determine. Notwithstanding the preceding, any such action taken by the Plan Administrator following a Change of Control is subject to the approval of the Benefits Trust Committee. 3. Anything in the Supplemental Plan to the contrary notwithstanding, if the Plan Administrator finds that any Participant, retired Participant or spouse is engaged in acts detrimental to the Company or any of its affiliated corporations, and if after due notice such Participant, the retired Participant or spouse continues to be so engaged or employed, the Plan Administrator shall suspend the Supplemental Benefit of such person, which suspension shall continue until removed by notice from the Plan Administrator; provided, however, that if such suspension has continued for one year, the Plan Administrator shall forthwith cancel such Participant's or spouse's Supplemental Benefit. Furthermore, if the Plan Administrator finds that any Participant had been discharged for having performed acts detrimental to the Company or any of its affiliated corporations, then regardless of any other provision in the Pension Plan or the Supplemental Plan, no benefit shall be payable to or on account of any such Participant's coverage under this Supplemental Plan. Notwithstanding the preceding, following a Change of Control, the Plan Administrator shall not implement such action without the consent of the Benefits Trust Committee. 4. The establishment of the Supplemental Plan shall not be construed as conferring any legal rights upon any employee for a continuation of employment, nor shall it interfere with the rights of an employing corporation to discharge any employee and to treat him without regard to the effect which such treatment might have upon him as a Participant in the Supplemental Plan. Section VIII - NON-ALIENATION OF BENEFITS To the extent permitted by applicable law, no benefit under the Supplemental Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt so to do shall be void, except as specifically provided in the Supplemental Plan, nor shall any benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefits; and in the event that the Plan Administrator shall find that any active or retired Participant, surviving spouse or surviving designated beneficiary under the Supplemental Plan has become bankrupt or that any attempt has been made to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any of his benefits under the Supplemental Plan, expect as specifically provided in the Supplemental Plan, then such benefits shall cease, and in that event, the Plan Administrator shall hold or apply the same to or for the benefit of such active or retired Participant, surviving spouse or surviving designated beneficiary, in such manner as the Plan Administrator may deem proper. Notwithstanding the preceding, following a Change of Control, the Plan Administrator shall not implement such action without the consent of the Benefits Trust Committee. Section IX - AMENDMENTS The Supplemental Plan represents a contractual obligation entered into by a participating employer in consideration of services rendered and to be rendered by Participants covered under the Supplemental Plan, and 1. Any Participant in this Supplemental Plan who remains in the active service of a participating employer shall not be deprived of his or her participation or benefit which shall accrue under the Supplemental Plan except as provided hereunder. 2. No modification or amendment may be made which shall deprive any Participant, the surviving spouse of a Participant or the surviving designated beneficiary of a Participant, without the consent of such Participant, surviving spouse of a Participant or the surviving designated beneficiary of a Participant, of any Supplemental Benefit under the Supplemental Plan to which he or she would otherwise be entitled by reason of the Supplemental Benefit standing to his or her credit to the date of such modification or amendment, and in the event of any modification or amendment which adversely affects such Supplemental Benefit, the amount of all reserves required to be accrued on the books of a participating employer shall thereupon be determined and accrued, if the same has not already been done, and such Supplemental Benefit shall become and remain a fixed liability of the participating employers for the payment of such benefits accrued to the date of such modification or amendments. 3. Subject to the foregoing, prior to a Change of Control, the Board of Directors of the Company on the recommendation of the Compensation Committee, reserves the right at any time and from time to time to modify or amend in whole or in part any or all of the Supplemental Plan. Following a Change of Control, all amendments to this Supplemental Plan are subject to the approval of the Benefits Trust Committee. Section X - CHANGE OF CONTROL 1. If a Change of Control has occurred, the Company and its participating affiliates shall contribute to the Benefits Assurance Trust within 7 days of such Change of Control, a lump sum contribution equal to the greatest of: (a) the aggregate value of the amount each Participant would be eligible to receive, under Subsection (2), below; (b) the present value of accumulated Plan benefits based on the assumptions the Company's independent actuary deems reasonable for this purpose, as of the Valuation Date, as defined in subsection (6), below, coinciding with or next preceding the date of Change of Control, to the extent such amounts are not already in the Benefits Assurance Trust. The aggregate value of the amount of the lump sum to be contributed to the Benefits Assurance Trust pursuant to this Section X shall be determined by the Company's independent actuaries. Thereafter, the Company's independent actuaries shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to subsection (2), below, the greater of: (i) the amount such Participant would have received under subsection (2) had such Participant not made the election under subsection (3), below, if applicable; and (ii) the present value of accumulated benefits based on assumptions the actuary deems reasonable for this purpose. To the extent that the value of the assets held in the Benefits Assurance Trust relating to this Supplemental Plan does not equal the amount described in the preceding sentence, (and the value of other liabilities held in the applicable segregated account of the Benefits Assurance Trust), at the time of the valuation, the Company shall make a lump sum contribution to the Benefits Assurance Trust equal to the difference. (c) the amount determined under Section 1(h) of the Benefits Assurance Trust attributable to liabilities relating to this Supplemental Plan. 2. In the event a Change of Control has occurred, the trustee of the Benefits Assurance Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under subsection (3), a lump sum payment equal to the actuarial present value of the aggregate supplemental benefit each Participant (or any beneficiary of a Participant) has accrued as of the Valuation Date preceding the date of such Change of Control. If a Participant's benefit has not commenced as of such date, such lump sum shall be determined assuming that: (a) The Participant's benefit would commence at the earliest date he would qualify for early or normal retirement under the Plan, were his employment with the Company to continue, but in no event earlier than the later of age 55 or the date of such Change of Control. (b) The Participant would qualify for an early (or normal) retirement benefit as of the date determined in (a). (c) If married, the Participant would receive his benefit under the 50% Joint and Survivor form of payment with the spouse as beneficiary; if not married, the benefit would be payable in the form of a single life annuity. The actuarial present value shall be determined on the basis of the UP 1984 Mortality Table, set back one year, and a discount rate equal to the interest rate promulgated by the Pension Benefit Guaranty Corporation for use in determining the sufficiency of single employer defined benefit pension plans terminating on the date of such Change in Control. 3. Each Participant may elect in a time and manner determined by the Compensation Committee but, in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of this Supplemental Plan as if a Change of Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Compensation Committee, (or, after a Change of Control, the Benefits Trust Committee) but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of this Supplemental Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 4. Notwithstanding anything in this Supplemental Plan to the contrary, each Participant who has made an election under subsection (3), above, may elect within 90 days following a Change of Control, in a time and manner determined by the Benefits Trust Committee, to receive a lump sum payment calculated under the provisions of subsection (2), above, determined as of the Valuation Date next preceding such payment, except that such amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Company or the applicable participating employer by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit under the Supplemental Plan. Payments under this subsection (4) shall be made not later than 7 days following receipt by the Benefits Trust Committee of the Participant's election. The Benefits Trust Committee shall, no later than 7 days after a Change of Control has occurred, cause written notification to be given to each Participant eligible to make an election under this subsection (4), that a Change of Control has occurred and informing such Participant of the availability of the election. 5. As used in this Section X, a "Change of Control" shall mean: (a) Stock Acquisition. The acquisition by any individual, entity ------------------ or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities");provided, however, that for purposes of this -------- ------- subsection (a), the following acquisitions shall not constitute a Change of Control:(i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section X(5); or (b) Board Composition. Individuals who, as of the date hereof, ------------------ constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a -------- ------- director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individuals whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Company of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section X(5); or (e) Liquidation or Dissolution. Approval by the shareholders of ---------------------------- the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. 6. For purposes of this Section X, the term "Valuation Date" means the last day of each calendar year and such other dates as the Plan Administrator deems necessary or appropriate to value the Participants' benefits under this Supplemental Plan. Following a Change of Control, the selection of a date other than the last day of the calendar year is subject to the approval of the Benefits Trust Committee. Section XI - CONSTRUCTION The Supplemental Plan and the rights and obligations of the parties hereunder shall be construed in accordance with the laws of the Commonwealth of Virginia. Section XII - EFFECTIVE DATE The Effective Date of this Supplemental Benefit Plan shall be January 1, 1989. EX-10.24 12 CSX CORPORATION 1990 Stock Award Plan as Amended and Restated Effective February 14, 1996 (As Amended through September 8, 1999) 1. Purpose. The purpose of this 1990 Stock Award Plan (the "Plan") is to further the long term stability and financial success of CSX Corporation (the "Company") by rewarding selected meritorious employees by the award of Company Stock (as hereinafter defined). The Board of Directors believes that such awards will strengthen the desire of such employees to remain with the Company, will encourage continued work of superior quality and will further the identification of those employees' interests with those of the Company's shareholders. 2. Definitions. As used in the Plan, the following terms shall have the meanings indicated: (a) "Beneficiary" means the person designated by the Participant, on a form provided by the Company, to exercise the Participant's rights in accordance with Section 10 of the Plan in the event of his death. (b) "Benefits Trust Committee" means the Committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust. (c) "Board" means the Board of Directors of the Company. (d) "Cause" means (i) an act or acts of personal dishonesty of a Participant intended to result in substantial personal enrichment of the Participant at the expense of the Company or any of its subsidiaries, (ii) violation of the management responsibilities by the Participant which is demonstrably willful and deliberate on the Participant's part and which is not remedied in a reasonable period of time after receipt of written notice from the Company or a subsidiary, or (iii) the conviction of the Participant of a felony involving moral turpitude. (e) "Change of Control" is defined in Section 9(e). (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the Committee of the Board described in Section 10. (h) "Company" means CSX Corporation, a Virginia corporation. (i) "Company Stock" means the Common Stock of the Company and rights, options or warrants for the purchase of securities of the Company which may be issued with shares of Common Stock pursuant, and subject, to plans or agreements adopted or entered into from time to time by the Company. If the par value of the Company Stock is changed, or in the event of a change in the capital structure of the Company (as provided in Section 9), the shares resulting from such a change shall be deemed to be the Company Stock within the meaning of the Plan. (j) "Company Stock Award" or "Stock Award" means a grant of Company Stock made by the Committee, or by an individual or entity operating under authority delegated by the Committee, pursuant to the provisions of the Plan. (k) "Completed Month" means a period beginning on the anniversary date of a grant of an Option and ending on the day before the next monthly anniversary. (l) "Date of Grant" means the date on which a Stock Award is granted by the Committee, or by an individual or entity operating under authority delegated by the Committee. (m) "Disability" means long-term disability as determined under the Company's Salary Continuance and Long-Term Disability Plan. (n) "Divisive Transaction" means a transaction in which the Participant's employer ceases to be a Subsidiary or a sale of substantially all of the assets of the Subsidiary. (o) "Exercisability Requirements" means, with respect to any grant of Options, such restrictions or conditions on the exercise of such Options that the Committee may, in its discretion, add to the one-year holding requirement. (p) "Fair Market Value" means the mean between the highest and lowest quoted selling prices of Company Stock per share as reported under New York Stock Exchange - Composite Transactions on the day of reference. (q) "Option" means a nonqualified stock option granted pursuant to this Plan. (r) "Participant" means an employee of the Company who is designated by the Committee, or by an individual or entity operating under authority delegated by the Committee, as eligible to be a Participant who receives a Stock Award under the Plan. (s) "Retirement" means a termination of employment at or after age 55 with eligibility to immediately begin receiving retirement benefits under the Company's defined benefit pension plan. (t) "Separation from Employment" means an employee's separation from employment with the Company or a Subsidiary as a result of Retirement, death, Disability, or termination of employment (voluntarily or involuntarily). A Participant in receipt of periodic severance payments shall be considered separated from employment on the day preceding the day such severance payments commenced. (u) "Subsidiary" means, with respect to any corporation, a corporation more than 50% of whose voting shares are owned directly or indirectly by the Company. (v) "Trust" means the CSX Corporation and Affiliated Companies Executives' Stock Trust or such other trust or trusts which substantially conforms to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 CB. 422. 3. Stock. Subject to Section 9 of the Plan, there shall be reserved for grant under the Plan an aggregate of 1,000,000 shares of Company Stock, which shall be authorized, but unissued shares. 4. Eligible Employees. All present and future officers and employees of the Company (or any Subsidiary, whether now existing or hereafter created or acquired) shall be eligible to receive a Stock Award or an Option grant under the Plan; provided, however, that no Stock Award or Option may be granted on or after December 31, 1998, to any director or to any officer as that term is defined in Rule 16a-1 of the Securities and Exchange Commission. The Committee shall have the power and complete discretion, as provided in Section 10, to select, or to delegate the selection of, eligible officers and employees to receive a Stock Award or an Option grant and the number of shares of Company Stock awarded or to be awarded pursuant to the terms of the Stock Award and the number of Options to be granted. Each Stock Award and grant of Options, by the Committee, or delegation by the Committee of authority to make Stock Awards or grant Options, shall be approved or ratified by the Board. Unless otherwise provided by its terms, the grant of a Stock Award or an Option shall not obligate the Company or any Subsidiary to pay the Participant any particular amount of remuneration or to make further Stock Awards or Option grants to the Participant at any time thereafter. The grant of a Stock Award or an Option shall not obligate the Company or any Subsidiary to continue the employment of the Participant after the Stock Award or Option grant. Following a Change of Control, no new officers or employees may be designated to receive a Stock Award or Option grant without the approval of the Benefits Trust Committee. 5. Common Stock Awards. (a) Whenever the Committee, or other individual or entity operating under authority delegated by the Committee, deems it appropriate to award Common Stock, notice shall be given to the Participant (or to the class of Participants) stating (i) the number of shares of Common Stock awarded or a formula for determining the number of shares of Common Stock awarded or to be awarded, and (ii) the terms and conditions, if any, pertaining to the award that must be satisfied by a Participant in order to receive the Common Stock. (b) The Committee may impose conditions and/or restrictions as part of a Stock Award and specify the terms or circumstances upon which restrictions and/or conditions, if any, shall lapse. (c) The Committee may at any time, in its sole discretion, accelerate the time at which any or all restrictions or conditions will lapse or remove or change any and all such restrictions or conditions previously imposed on an award of Common Stock. (d) A Participant who receives base compensation in excess of a dollar level to be determined by the Committee and who is eligible to receive an award under the Company's Incentive Compensation Program ("ICP") may elect, by the prescribed election form with the Company in accordance with rules established by the Committee, to receive all or part of his annual ICP award in shares of the Company's common stock, rather than cash; provided, however, the Participant must agree that his receipt of the stock will be deferred until his retirement or termination of employment, with a minimum deferral period of three (3) years. Elections to defer are irrevocable. A Participant who makes such election shall, at the time that the stock is deferred receive an additional award of stock equal to a percentage established by the Committee from time to time, of the amount that he elected to have deferred (the "Stock Premium"). The Participant's election to defer shall also apply to the Stock Premium. If a Participant made an effective election to defer the payment of shares of common stock and receive the Stock Premium, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant upon: (1) the death of the Participant; (2) the Disability of the Participant; (3) the Participant's termination of employment with the Company or a Subsidiary, subject to the Participant's deferral election and the three (3) year deferral requirement; (4) a Divisive Transaction, subject to the Participant's deferral elections; or (5) a Change of Control. (e) The obligations of the Company and any of its affiliated corporations and the benefit due any Participant, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the Trust or any similar trust, trusts or other vehicle. (f) Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Participant's benefit rests solely with the Benefits Trust Committee. 6. Contributions to the Trust. (a) The Company shall make contributions to the Trust to secure a source of future payments with respect to Participant's deferral elections pursuant to Section 5. The Trustee shall be responsible only for contributions actually received by it hereunder and the Trustee shall have no duty or responsibility with respect to the timing, amounts, and sufficiency of contributions made or to be made by the Company hereunder. (b) The Company may make contributions to the Trust in Common Stock. (c) A separate bookkeeping account (an "Account") shall be established by the Trustee for each Participant covered by the Trust pursuant to the Plan, as directed in writing by the Company. A Participant may have more than one Account. Each Account is intended to represent the amount of a Participant's deferred and unpaid benefit under the Plan. The value of a Participant's Account at any time will equal the fair market value of the number of shares of Common Stock owed to a Participant under this Plan at such time. The number of shares owed at any time will equal the number of shares of Common Stock which were originally deferred by the Participant, plus the number of Common Stock shares which could have been acquired if dividends subsequently declared by the Company had been paid with respect to such shares and reinvested in Common Stock, less shares actually distributed to the Participant pursuant to the Plan. Account may also mean individual sub-accounts which have been or may be established under the Plan from time to time. (d) Within sixty days following the close of each calendar year, or more frequently or at such other time as may be required by the Trust Agreement, the Trustee shall provide the Company and each Participant with a written statement of Account of each Participant. 7. Options. (a) Options will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. (b) Options will be exercisable upon the date or dates specified in an Option agreement entered into with a Participant but not earlier than one year after the date of grant of the Options and not later than 15 years after the date of grant of the Options; provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirement must be satisfied. (c) Any Participant may exercise an Option to purchase stock upon the date or dates specified in the Option agreement offered to him. In no case may an Option be exercised for a fraction of a share. Except as set forth in Section 8, no Option holder may exercise an Option unless at the time of exercise he has been in the continuous employ of the Company or a Subsidiary since the grant of his Option. An Option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to the Option until such shares have been issued. (d) For purposes of this section, written notice of exercise must be received by the Corporate Secretary of the Company, not earlier than one year nor later than 15 years after the Option is granted. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an Option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the Option is being exercised; (3) the delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company either sale proceeds of shares sold to pay the purchase price or the amount loaned by the broker to pay the purchase price; or (4) any combination of (1), (2) and (3). 8. Separation from Employment and Divisive Transactions. (a) If the Participant's Separation from Employment is because of Disability or death, the right of the Participant or his successor in interest to exercise an Option shall terminate not later than five years after the date of such Disability or death, but in no event later than 15 years from the date of grant; provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan at or after age 55, his or his successor in interest's right to exercise Options shall be determined as if his Separation from Employment was because of Retirement. (b) If the Participant's Separation from Employment is because of Retirement, the right of the Participant to exercise an Option shall terminate not later than 15 years from the date of grant. (c) Unless the Committee deems it necessary in individual cases to extend a Participant's exercise period, if a Participant's Separation from Employment is for any reason other than Retirement, Disability or death, the right of the Participant to exercise an Option shall terminate not later than 30 days from the date of Separation from Employment but in no event later than 15 years after the date of grant. (d) At the time of his Separation from Employment for any reason other than Cause, a Participant shall vest in a portion of any Option granted that he has held for less than one year from the date of the grant. The portion of such Options in which the Participants shall vest shall be determined by multiplying all shares subject to such Options by a fraction, the numerator of which shall be the number of Completed Months of employment following the date of grant and the denominator of which shall be twelve. (e) A Participant who vests in any Options under subsection (d) may not exercise such Options prior to the satisfaction of the one-year holding requirement and the Exercisability Requirement pertaining to such Options. Any Options vested under subsection (d) must be exercised within one year from the date of the Participant's Separation from Employment. (f) If the Participant's employer is a Subsidiary involved in a Divisive Transaction, or if the Participant's employment is terminated with the consent of the Company (as a result of a business transaction or a reduction in force or any other circumstances approved by the Committee), the right of the Participant or his successor in interest to exercise an Option shall terminate not less than three years after the date of the closing of such Divisive Transaction, or if a Participant's employment is terminated with the consent of the Company, but in no event later than 15 years from the date of grant; provided, however, if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan at or after age 55, his or his successor in interest's right to exercise any Option shall be determined as if he had separated from employment, and such Separation from Employment was because of Retirement. Notwithstanding anything to the contrary in this subsection, a Participant may not exercise such Options prior to satisfaction of the one year holding requirement and the Exercisability Requirement pertaining to such Options. In the event of a Divisive Transaction, employees of Sea-Land Service, Inc., hired by that corporation prior to January 1, 1986, shall be deemed eligible to retire upon termination of employment after age 50 with 20 years of service and eligibility to begin immediately receiving retirement benefits under the Company's defined benefit pension plan. (g) Notwithstanding anything to the contrary in the Plan, if a Participant or former Participant (i) becomes associated with, recruits or solicits customers or other employees of the Company or its Subsidiaries for, is employed by, renders services to, or owns any interest in (other than any nonsubstantial interest, as determined by the Committee) any business that is in competition with the Company or one of its subsidiaries, (ii) has his employment terminated by the Company or one of its Subsidiaries for Cause or on account of actions by the Participant which are detrimental to the interests of the Company or its subsidiaries, or (iii) engages in, or has engaged in, conduct at the time of or subsequent to the termination of his employment with the Company or its Subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries then the Committee may, in its sole discretion, except following a Change of Control, terminate any Options held by the Participant, regardless of whether then exercisable. 9. Options Non-assignable and Non-transferable. Any Option granted under this Plan shall be non-assignable and non-transferable other than as provided in Section 10 and shall be exercisable during the Participant's lifetime only by the Participant who is the holder of the Option or by his guardian or legal representative. 10. Death of Option Holder. In the event of the death of a Participant who is an Option holder under the Plan while employed by the Company or a Subsidiary or prior to the exercise of all rights under an Option, the Option theretofore may be exercised by the Participant's Beneficiary or, if no Beneficiary is designated, by the executor or executrix of the Participant's estate or by the person or persons to whom rights under the Option shall pass by will or the laws of descent and distribution in accordance with the provisions of the Plan and of the Option and to the same extent as though the Participant were then living. 11. Withholding Tax. Whenever the Company proposes or is required to issue or transfer shares of Company Stock under the Plan, a Participant shall remit to the Company an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability prior to the delivery of any certificate or certificates for such shares. Alternatively, in the sole discretion of the Company, to the extent permitted by applicable laws including regulations promulgated under the Exchange Act, such federal, state or local income and payroll tax withholding liability may be satisfied prior to the delivery of any certificate or certificates for the shares by an adjustment, equal in value to such liability, in the number of shares to be transferred to the Participant. Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability. 12. Effective Date of the Plan. This Plan is effective on September 12, 1990. 13. Termination, Modification. (a) Prior to a Change of Control, the Board, on the recommendation of the Committee, may terminate the Plan or may amend the Plan in such respects as it shall deem advisable. Following a Change of Control, this Plan may not be terminated or amended without the approval of the Benefits Trust Committee. A termination or amendment of the Plan shall not, without the consent of the Participant, affect a Participant's rights under any Stock Award previously granted to him. (b) Prior to a Change of Control, the Board on the recommendation of the Committee, may terminate an affiliated corporation's participation as a participating employer in this Plan for any reason at any time. Following a Change of Control, an affiliated corporation may not be added to or terminated from participation as a participating employer without the consent of the Benefits Trust Committee. (c) Prior to a Change of Control, an affiliated corporation's board of directors may, with the approval of the Committee, terminate that affiliated corporation's participation as a participating employer for any reason at any time. Following a Change of Control, an affiliated corporation's participation as a participating employer may not be terminated without the consent of the Benefits Trust Committee. 14. Change in Capital Structure or Change in Control. (a) If the number of outstanding shares of Company Stock is increased or decreased as a result of a subdivision or consolidation of shares, the payment of a stock dividend, stock split, or any other change in capitalization effected without receipt of consideration by the Company (including, but not limited to, the creation or issuance to shareholders generally of rights, options or warrants for the purchase of common or preferred stock of the Company), the number and kind of shares of stock or securities of the Company to be subject to the Plan, the maximum number of shares or securities which may be delivered under the Plan, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding and conclusive on all persons. (b) If the Company is a party to a consolidation or a merger in which the Company is not the surviving corporation, a transaction that results in the acquisition of substantially all of the Company's outstanding stock by a single person or entity, or a sale or transfer of substantially all of the Company's assets, the Committee may, subject to the approval of the Benefits Trust Committee, take such actions with respect to outstanding Stock Awards as the Committee deems appropriate. (c) Notwithstanding anything in the Plan to the contrary, the Committee may, subject to the approval of the Benefits Trust Committee, take the foregoing actions without the consent of any Participant and the Committee's determination shall be conclusive and binding on all persons for all purposes. (d) Notwithstanding any provisions of this Plan to the contrary, upon the occurrence of (i) a Change of Control as defined in subsection (e), below, and subject to an election under subsection (f), below, the three (3) year holding requirement of the Stock Premium for deferred ICP shall be deemed satisfied; (ii) a Divisive Transaction, the three (3) year holding requirement of the Stock Premium for deferred ICP shall be deemed satisfied. (e) As used in this Plan, a "Change of Control" means: (i) Stock Acquisition. The acquisition by any individual, ------------------ entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for -------- ------- purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 9(e); or (ii) Board Composition. Individuals who, as of the date ------------------ hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual -------- ------- becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individuals whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Surface Transportation Board or any successor agency or regulatory body having jurisdiction over such transactions (the "STB") (a "Business Combination"), in each case, unless, following such Business Combination; (A) all or substantially all of the individuals and entities who were the beneficial owners respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the STB (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 9(e); or (v) Liquidation or Dissolution. Approval by the shareholders --------------------------- of the Company of a complete liquidation or dissolution of the Company or its principal Subsidiary. (f) Each Participant who has elected to defer the payment of an ICP award pursuant to Section 5(e), may elect in a time and manner determined by the Committee, but in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change of Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Committee, but in no event later than ninety (90) days after becoming a Participant, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. (g) Upon a Change of Control, the Company shall, as soon as possible, but in no event more than seven (7) days following a Change of Control, make an irrevocable contribution to the Trust in an amount that is sufficient to pay each Participant or beneficiary of this Plan the unfunded portion of the benefits to which Participants of this Plan or their beneficiaries are entitled, and for which the Company is liable pursuant to the terms of this Plan as of the date on which the Change of Control occurred. The amount of the Company's irrevocable contribution shall be based on the accounting for the most recent calendar year or more recent period for the Plan, as approved by the independent actuary or accountant engaged by the Company prior to the Change of Control and approved by the Benefits Trust Committee, if selected or changed following a Change of Control (the "Actuary"), and shall include an amount deemed necessary to pay estimated administrative expenses for the following five (5) years. The Benefits Trust Committee shall cause such accounting to be updated, using participant data supplied to the Actuary by the Company, through a date no earlier than the date of the initial contribution and notify the Company of the amount of additional contributions required as soon as possible. 15. Administration of the Plan. Prior to a Change of Control, the Plan shall be administered by the Committee appointed from time to time by the Board to administer the Plan. Subject to paragraph (e) below the "Committee" shall be the Compensation Committee unless the Board shall appoint another committee to administer the Plan. The Committee shall have general authority to impose any limitation or condition upon a Stock Award the Committee deems appropriate to achieve the objectives of the award and the Plan, and in addition, and without limitation and in addition to powers set forth elsewhere in the Plan, shall have the following specific authority: (a) The Committee shall have the power and complete discretion (i) to delegate to any individual, or to any group of individuals employed by the Company or any Subsidiary thereof, the authority to grant Stock Awards under the Plan and (ii) to determine the terms and limitations of any delegation of authority, including but not limited to the maximum Fair Market Value of any Stock Award granted pursuant to such delegation, provided that no individual Stock Award granted by an individual or entity operating under authority delegated by the Committee may exceed a Fair Market Value of $50,000 ($100,000 after December 10, 1997) on Date of Grant. (b) The Committee, or other individual or entity operating under authority delegated by the Committee and to the extent permitted by the terms of such delegation, shall have the power and complete discretion to determine (i) which eligible officers or employees shall receive a Stock Award, (ii) the number of shares of Company Stock to be awarded, (iii) the time or times when a Stock Award shall be granted, (iv) whether a Stock Award shall be subject to restrictions and when or upon such other terms the restrictions shall lapse, and (v) whether arrangements to discharge a Participant's tax obligations are satisfactory and, if not, to have the Company retain from the shares of Common Stock granted that number of shares necessary to satisfy the Participant's tax liabilities arising from the Stock Award. (c) The Committee may adopt rules and regulations for carrying out the Plan. The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. (d) The Board from time to time may appoint members previously appointed and may fill vacancies, however caused, in the Committee. No member of the Committee shall be eligible to participate in the Plan or in any other plan of the Company or any Parent or Subsidiary of the Company that entitles participants to acquire stock, stock options or stock appreciation rights of the Company or any Parent or Subsidiary of the Company, if as a result of such eligibility he or she would cease to be a "disinterested person" under Rule 16b-3 with respect to the Plan. (e) Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Plan's administrator. Additionally, following a Change of Control, any and all final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under this Plan shall rest with the Benefits Trust Committee or its delegate in its sole judgment and absolute discretion. 16. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows (a) if to the Company - at its principal business address to the attention of the Secretary; (b) if to any Participant - at the last address of the Participant known to the sender at the time the notice or other communication is sent. 17. Construction. The Plan shall be governed by the laws of the Commonwealth of Virginia. Addendum. Addendum I "Pursuant to Sections 4a and 8 of the Plan, with respect to any Non-Qualified Stock Option ("NQSO") granted to any Participant who may be subject to taxation in The Netherlands at any time during the term of such NQSO, the Committee shall have the authority to impose additional conditions on the exercise of the NQSO. "Effective for any NQSO granted after December 31, 1997, the Committee may, in addition to any other conditions specified in the option agreement, require that the NQSO is granted conditionally. Such conditions shall include that the NQSO can be exercised only with the approval of the Participant's Senior Vice President - Human Resources ("SVP-HR"). Such approval shall be granted at the discretion of the SVP-HR, which shall not be unreasonably refused. Approval may be refused for reasons which shall be set forth in the option agreement such as, but not limited to, the following: (i) termination of employment for willful or gross misconduct or receipt of notice of termination for such conduct; (ii) disclosure of confidential information; or (iii) rendering services to a competitor. Once approval has been obtained, the Participant must immediately exercise the NQSO. If approval is refused or if the NQSO is not exercised immediately upon receipt of approval, it shall be forfeited. EX-12 13 Exhibit 12 CSX Corporation Ratio of Earnings to Fixed Charges (Millions of Dollars)
For the Fiscal Years Ended --------------------------------------------------------------------- Dec. 31, Dec. 25, Dec. 26, Dec. 27, Dec. 29, 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ---------- EARNINGS: Earnings Before Income Taxes $139 $773 $1,183 $1,316 $974 Interest Expense 522 506 451 249 270 Amortization of Debt Discount - 1 4 2 2 Interest Portion of Fixed Rent 151 183 197 189 184 Undistributed (Earnings) Loss of Affiliates Accounted for Using the Equity Method (58) (238) (150) (6) 3 Minority Interest - 35 41 42 32 ----------- ----------- ----------- ----------- ----------- Earnings, as Adjusted $754 $1,260 $1,726 $1,792 $1,465 =========== =========== =========== =========== =========== FIXED CHARGES: Interest Expense 522 506 451 249 270 Capitalized Interest 8 9 3 5 6 Amortization of Debt Discount - 1 4 2 2 Interest Portion of Fixed Rent 151 183 197 189 184 ----------- ----------- ----------- ----------- ----------- Fixed Charges $681 $699 $655 $445 $462 =========== =========== =========== =========== ========== Ratio of Earnings to Fixed Charges 1.1 x 1.8 x 2.6 x 4.0 x 3.2 x =========== =========== =========== =========== ==========
EX-13 14
Financial Highlights (Millions of Dollars, Except Per Share Amounts) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------- Earnings Operating Revenue $10,811 $9,868 $10,621 $10,536 $10,304 Operating Expense 10,203 8,708 9,038 9,014 9,178 --------------------------------------------------------- Operating Income $ 608 $1,160 $ 1,583 $ 1,522 $ 1,126 --------------------------------------------------------- Net Earnings $ 2 $ 537 $ 799 $ 855 $ 618 --------------------------------------------------------- Earnings Per Share $ .01 $ 2.55 $ 3.80 $ 4.10 $ 2.99 Earnings Per Share, Assuming Dilution $ .01 $ 2.51 $ 3.72 $ 4.03 $ 2.95 - --------------------------------------------------------------------------------------------------------------- Earnings, Excluding Non-recurring Items and Cumulative Effect of Accounting Change(a)(b) Operating Revenue $10,811 $ 9,868 $10,621 $ 10,536 $ 10,304 Operating Expense 9,788 8,738 9,038 9,014 8,921 --------------------------------------------------------- Operating Income $ 1,023 $ 1,130 $ 1,583 $ 1,522 $ 1,383 --------------------------------------------------------- Net Earnings $ 339 $ 428 $ 799 $ 855 $ 727 --------------------------------------------------------- Earnings Per Share $ 1.59 $ 2.04 $ 3.80 $ 4.10 $ 3.50 Earnings Per Share, Assuming Dilution $ 1.59 $ 2.00 $ 3.72 $ 4.03 $ 3.46 - --------------------------------------------------------------------------------------------------------------- Financial Position Cash, Cash Equivalents and Short-term Investments $ 974 $ 533 $ 690 $ 682 $ 660 Working Capital Deficit $ (910) $ (616) $ (532) $ (685) $(1,056) Total Assets $20,720 $20,427 $19,957 $16,965 $14,282 Long-term Debt $ 6,196 $ 6,432 $ 6,416 $ 4,331 $ 2,222 Shareholders' Equity $ 5,756 $ 5,880 $ 5,766 $ 4,995 $ 4,242 - --------------------------------------------------------------------------------------------------------------- Other Data Per Common Share Cash Dividends $ 1.20 $ 1.20 $ 1.08 $ 1.04 $ .92 Book Value $ 26.35 $ 27.08 $ 26.41 $ 23.04 $ 20.15 Market Price -- High $ 53.94 $ 60.75 $ 62.44 $ 53.13 $ 46.13 -- Low $ 28.81 $ 36.50 $ 41.25 $ 42.25 $ 34.63 - --------------------------------------------------------------------------------------------------------------- Employees(c) Rail 31,952 28,358 27,864 28,559 29,537 Other 16,998 17,789 19,047 18,755 18,428 --------------------------------------------------------- Total 48,950 46,147 46,911 47,314 47,965 - ---------------------------------------------------------------------------------------------------------------
See accompanying Consolidated Financial Statements (a) Significant non-recurring items include the following: 1999 - A loss on the sale of international container-shipping assets and a related benefit from discontinuing depreciation of those assets from the date they were classified as "held for sale." The net effect of the loss and the depreciation benefit reduced earnings by $360 million before tax, $271 million after tax, $1.27 per share. -A charge to recognize the cost of a workforce reduction program at the company's rail and intermodal units that reduced earnings by $55 million before tax, $34 million after tax, 16 cents per share. -A gain on the sale of the company's Grand Teton Lodge resort subsidiary that increased earnings by $27 million before tax, $17 million after tax, 8 cents per share. 1998 - A net investment gain, primarily from the conveyance of American Commercial Lines LLC, the company's wholly owned barge subsidiary, to a joint venture. The gain increased earnings by $154 million before tax, $90 million after tax, 42 cents per share. -A restructuring credit to reverse certain separation and labor protection reserves established by the company's rail unit as part of a 1995 restructuring charge. The restructuring credit increased earnings by $30 million before tax, $19 million after tax, 9 cents per share. 1995 - A charge to recognize the estimated costs of initiatives to revise, restructure and consolidate specific operations and administrative functions at the company's rail and container-shipping units. The restructuring charge reduced earnings by $257 million before tax, $160 million after tax, 76 cents per share. -A net investment gain on the issuance of an equity interest in a container-shipping terminal and related operations in Asia and the writedown of various investments. The net gain increased earnings by $77 million before tax, $51 million after-tax, 25 cents per share. (b) The company recorded a charge at the beginning of fiscal year 1999 to reflect the cumulative effect on prior years of adopting a new accounting rule related to workers' compensation second injury fund assessments incurred by the company's container-shipping unit. The charge reduced net earnings for 1999 by $49 million, 23 cents per share. Had the accounting change been applied retroactively, the effect on net earnings and related per share amounts would not have been material to any fiscal year presented. (c) Employee counts are based on annual averages. Chairman's Message [PHOTO] 1999 was a difficult year for CSX Corporation. Earnings were very disappointing, and the decline in shareholder value is a matter of serious concern to us. Our company, along with railroad equities in general and a large number of leading industrial companies, under-performed the major stock market indices by a wide margin. We believe strongly that this is a transitory situation, reflecting an extraordinary time and extremely burdensome pressures in our core railroad business. We entered the year with high hopes that 1999 would see the successful integration of Conrail into our rail network, positioning us for a bright future. But despite an intense, two-year planning effort, we encountered problems that set us back temporarily. Nevertheless, the company has taken a major step forward by putting the CSX and Conrail operations together and, in the process, we have learned some important lessons that are benefiting us now and will continue to have a positive impact on our future. The strength of our company is undiminished. Our railroad assets and the network CSX now owns join together virtually every major population center in the eastern half of the United States. It is a powerful and very competitive network, vital to the nation's economic well-being and virtually irreplaceable. The customers we serve and who depend on CSX represent America's industrial, agricultural, mining, manufacturing and merchandise production base. Our people are the best railroaders in America, each one of them dedicated to a demanding but rewarding career and to achieving our ambitious goals. There is no doubt in my mind that CSX is positioned to regain earnings momentum and that the returns of the Conrail merger will start to be realized this year. The Year in Review Earnings for 1999, before accounting for one-time items, were $339 million, or $1.59 per share, down from $428 million, or $2.00 per share, in 1998. This decline is directly attributable to the difficulties encountered implementing the Conrail merger. Total revenues were up 10 percent in 1999. Spurred by a robust economy, demand for rail transportation was good in 1999. We experienced high-traffic volumes in key merchandise sectors such as autos, chemicals, agricultural, minerals, paper and forest products. Coal shipments to domestic utility plants were up slightly from a year ago, but exports continued to decline sharply. Since 1996, we have seen our annual coal export shipments drop by 52 percent as foreign producers enjoying far lower mining costs have captured a major share of this market. This dramatic shift has had a serious impact on rail-unit profitability. On the other hand, our intermodal business expanded significantly. Our new rail network provides fast-growing, high-volume parcel and consumer product shippers with unparalleled service options. This was clearly reflected in the sharp increase in intermodal revenues and profits in 1999. The new network provided near-flawless service for our most important intermodal customer, United Parcel Service, during the highly demanding 1999 holiday peak season. As the year progressed, we saw railroad profits decline and the operating ratio rise steadily, reflecting high integration "get-ready" costs in the first half and heavy spending to address the merger implementation problems in the second half. This transition spending was necessary and not unexpected, and we are seeing the expenses associated with implementation abate as the railroad returns to regular operations. Originally slated for a March 1999 launch, CSX and Norfolk Southern agreed to postpone operating our respective parts of Conrail to ensure that all operating protocols were in place and that information technology and work-order data systems were fully prepared. "Split Date" was June 1, 1999, and CSX moved forward successfully and enjoyed a relatively orderly transition for a period of several months. A big plus for us during the initial launch was the support of rail labor, and the "New Compact" forged with our unions has greatly improved working relationships. While start-up issues -- such as different traffic routings, changed dispatching patterns, new crews working at new locations -- affected network fluidity, there were no major system failures as we absorbed even higher-than-expected traffic volumes. Things turned for the worse in September. Hurricane Floyd wreaked havoc on the entire eastern half of the network. Extensive flooding, ranging from Miami to Boston, caused major track washouts, with the most extensive damage occurring on mainline routes in North Carolina and New Jersey. Operating plans for the upcoming fall traffic peak had to be revised as locomotives were stranded, and car types could not be moved efficiently to meet rising shipper requirements. The network went out of balance; key freight yards became choke points, and trains were backed up in high-volume corridors. Very costly actions had to be taken to deal with the storm and its aftermath. Needed power was leased from other railroads, manpower was shifted to troubled locations, and additional train crews were brought on to deal with the situation. Keeping the network running and successfully avoiding "meltdown" was our highest priority. By mid-December, the peak subsided, and the situation began to come under control. As we entered 2000, important operating metrics such as cars-on-line, car dwell times in yards and system velocity started to show some improvement. But we paid a heavy price for fourth-quarter congestion. Shippers were highly vocal with their complaints and moved some of their business to trucks. The impact on Wall Street was most discouraging. CSX stock plummeted in the fourth quarter to a low point for the year. While we focused primarily on the Conrail integration in 1999, we addressed opportunities in other areas and took prompt and decisive steps to protect our interests, enhance our competitiveness and strengthen the overall financial position of the company. In this regard, we can point to major accomplishments in 1999 -- completing the sale of Sea-Land's volatile international container business and reorganizing the railroad's management and operating structure. Selling Sea-Land's international business was a hard but necessary decision. Since its founding in 1956, Sea-Land has been a great company, an unquestioned industry leader and innovator. The company introduced the containerization concept to global shipping, revolutionizing the way goods move around the world. Since being acquired by CSX in 1986, Sea-Land revenues tripled, and the company established strong market positions in virtually all of the world's major trade routes. Over the years, its talented management team, led by John Clancey, has contributed much to our company, and we are fortunate to have retained a number of key executives. But recent years have seen profit margins decline as a number of strong, well-capitalized competitors entered this business. Projected worldwide vessel over-capacity and substantial, ongoing capital requirements pointed to a worrisome outlook, and we made the strategic decision to sell Sea-Land's international business assets to Danish carrier, Maersk Line. This transaction was completed in December 1999, generating net cash proceeds of approximately $750 million and transferring substantial vessel lease obligations to the buyer. We have retained those parts of the business that currently earn their costs of capital and have more certain futures. The newly formed CSX Lines, engaged in Jones Act-protected domestic shipping, and CSX World Terminals, which operates container terminals in Hong Kong and nine other overseas locations, are now independent business units. Headed by former Sea-Land senior executives Chuck Raymond and Bob Grassi, respectively, and supported by strong management teams, these companies will grow, and we are optimistic about their prospects. Importantly, the Sea-Land sale strengthens our financial position and eliminates a large degree of uncertainty that has adversely affected investor valuations of CSX. The transaction is a "win/win" for CSX and Maersk. Sea-Land international assets are in strong, familiar hands, and we are confident that the combined company will emerge as the clear leader in the international container-shipping industry. Looking forward, our strategic emphasis is overwhelmingly rail-oriented, and we are focusing sharply on maximizing the benefits of the Conrail transaction. We have a new management team at the railroad charged to achieve this goal. In July, Ron Conway was named president of CSX Transportation, succeeding A.R. "Pete" Carpenter, who is now vice chairman of CSX Corporation. Pete and I have worked closely together for many years, and we are fortunate to have the benefit of his strategic thinking and sage counsel on an array of issues affecting the future direction of the company. To accommodate the requirements of a much larger, geographically more diverse railroad, decision making has been decentralized, with operating responsibilities moving from Jacksonville headquarters to the field. Five operating regions were established in the summer, led by CSX and former Conrail executives who have many years of hands-on experience managing their respective territories. Complementing the new operating structure are four discrete service groups serving our major coal, auto, merchandise and intermodal markets. Each service group includes a senior operating executive whose primary role is to link commercial objectives to operating priorities. With operating regions and service groups working together and communicating directly on a daily basis, we are confident that service performance initiatives will be implemented with greater efficiency. Realigning the management structure and moving hundreds of key personnel to new positions was distracting to the organization, especially when accompanied by a workforce reduction program that has reduced the non-contract headcount by approximately 12 percent. But we made these hard decisions to put them behind us and position the railroad for the future. Moving Forward in 2000 We must regain shipper confidence by improving service and rooting out imbedded costs in our rail network. As we do this, we will reach our fundamental objective of building earnings momentum and accomplishing a significant turnaround in 2000. I have every reason to think we will do this, and the entire organization is galvanized to achieve this goal. As major shareholders, CSX management has a very clear incentive. Railroad performance will drive our results. I expect to see sustained improvement beginning in the second quarter as we put merger issues behind us. Transition expenses are no longer a major factor, and we will be vigorously attacking those costs that have come into the railroad over the past several years as we focused on organizing and preparing for the merger. Success in this effort, buttressed by shipper demand for transportation reflecting a continuing strong economy, should outweigh the impact of relatively high fuel costs and labor wage increases. Capital outlays for 2000 will be markedly lower at the railroad and will total approximately $1 billion for the company. From all indications, shippers understand the benefits of single-line service on our new rail network, and revenues should be up substantially this year. As we demonstrate consistent service improvements, we believe there will be a clear opportunity to increase prices in areas where our capacity is constrained and rail affords shippers distinct advantages. We do not forecast earnings but would be disappointed if the railroad's operating ratio does not improve sharply this year. Looking out further, I am convinced that an operating ratio approaching 75 percent is achievable in the not-too-distant future as we restore efficiency and capture sizeable merger synergies. Our smaller business units will contribute to the anticipated turnaround. Customized Transportation Inc., our stellar logistics unit, met all of its targets last year and should continue to grow impressively in 2000. This is a tribute to Dave Kulik and his management team, who have built this company and earned the highest respect from a customer base representing many of the great names in U.S. business. CSX Lines and CSX World Terminals also will do well as sharply focused, strong players in their markets. The Greenbrier, our world-renowned resort, had a banner year in 1999 and should continue to prosper. I want to congratulate Ted Kleisner and his outstanding staff for being honored as "The Resort of the Century" by one of the industry's most venerable and respected publications. I urge our shareholders to take every opportunity to enjoy The Greenbrier's stately grace and truly exceptional hospitality. At this writing, rail equities are under a cloud of uncertainty. The merger issues of the past several years have been exacerbated by the surprise, late-December announcement of a proposed merger between the Burlington Northern Santa Fe and Canadian National. Shipper groups have been vehement in their opposition, and a number of influential legislators have expressed concerns. The Surface Transportation Board has urged caution and set a broader standard for weighing the merits of the merger. We agree with STB Chairman Linda Morgan's position that the BNSF/CN merger must be considered in the light of its potential downstream effects on the railroad industry. The primary concerns are that mergers already underway have not yet had the time to demonstrate benefits and that this combination may force the other Class I railroads into another round of mergers during this period of great flux in the industry. CSX feels strongly that this is the wrong time for this proposed merger and has joined the Union Pacific, Norfolk Southern and Canadian Pacific in opposition to its filing. The railroad industry needs a period of stabilization to regain the confidence of shippers and investors. I would like to express my sincere appreciation to our shareholders for your support during this difficult time. The board of directors understands your concerns and has been a great help to management throughout this period. Our company is fortunate to have the benefit of their sound judgment and considerable experience. Let me close by saying that, ultimately, CSX's future rests on the talent and dedication of our 47,500 employees, to whom I am deeply indebted for their tireless efforts. Their ongoing commitment gives me great confidence that our ambitious goals will be achieved. /s/John W. Snow John W. Snow Chairman and Chief Executive Officer [PHOTO] CSX is a strong company, focused on building core rail and intermodal businesses and complemented by other solid transportation performers. Our powerful rail network serves every major population and industrial center east of the Mississippi -- and more ports than any other railroad. Powered by one of the industry's best locomotive fleets, our 23,400-route-mile rail system links 32 ocean and 18 lake ports and provides access to more than 20 river terminals. This access gives customers more choices in supply sources and the power to reach new markets, both across the nation and around the world. Our dedicated people are experts, whether they work in the field, running the railroad or intermodal operations, managing terminals, navigating containerships, or in staff functions. Building on the best of our heritage, the people throughout our company -- long-time CSXT employees, former Conrailers and Sea-Landers, our logistics experts, labor and management -- are working together to forge new traditions of teamwork and service to our customers. Our valuable customers represent industries that are essential to our nation's economy and everyday life: coal for electricity; grain feed for poultry farms; autos for personal transportation; paper and forest products for newsprint and construction materials; minerals for construction projects; phosphates and fertilizer; food and consumer products that find their way to our kitchen tables. Our goal is to be "Second to None" as a freight transportation provider. In 1999 we set the stage by completing the Conrail integration, strengthening our intermodal network, focusing our container-shipping business, and continuing to grow our contract logistics services. Each of our businesses, as described on the following pages, enters 2000 better positioned to meet the competitive challenges of today and tomorrow, deliver improved service to our customers, and enhance shareholder value. [PHOTOS] CSXT'S POWERFUL RAIL NETWORK - 23,400 ROUTE MILES STRETCHING FROM MIAMI TO MONTREAL AND FROM EAST ST. LOUIS TO BALTIMORE - IS THE LARGEST IN THE EASTERN UNITED STATES. THE CITIES WE LINK REPRESENT THE MOST IMPORTANT CONSUMER MARKETS, INDUSTRIAL CENTERS AND RAW-MATERIAL-PRODUCING AREAS OF THE COUNTRY. Review of Operations Rail Operations A new era in railroading began as CSX Transportation started operating its Conrail lines in June 1999. The integration of operations, technology and human resources would prove to be the most complex undertaking of its kind in railroad history. While the service disruptions the railroad experienced through this period were more widespread and more difficult to solve than anticipated -- even after more than two years of intensive planning -- employees at every level doubled their efforts to return service to the consistently high levels customers expect. As a result of these efforts, CSXT enters this new era better positioned to realize the benefits initially envisioned from the expanded market reach of its rail network. CSX TRANSPORTATION With 35,000 employees, a 23,400-mile network in 23 states, more than 4,000 locomotives and more than 100,000 freight cars, the new CSXT serves every major market east of the Mississippi and more ports than any railroad in the country. Our overriding goal remains: create a competitive advantage for customers -- faster transit times, greater reliability and new single-line service options between Southeastern producing markets and high-consumption markets of the Northeast and Midwest. CSXT took a major step in laying the foundation for achieving this goal as it restructured and streamlined its organization to become more customer-focused. The new regional structure, put in place during the second half of 1999, brings increased emphasis to local decision making to promote more efficient service to customers, and drives profit responsibility deeper into the organization. Key to this initiative was the creation of three new Service Groups -- Merchandise, Automotive and Coal -- which for the first time combine sales, marketing and operations professionals within the business segment. By combining all of the people responsible for developing business and planning service, the Service Groups' goals are to speed response time, more effectively deliver rail service and better satisfy customers' changing needs. While realigning the railroad along product lines, CSXT established five field operating regions to support the Service Groups. Each operating region has a central staff to manage safety, asset management, operations improvement and customer development. Connecting the new Service Groups' customer focus with the new field structure places responsibility where it belongs -- close to our customers. Major CSXT initiatives for the year 2000 target significant safety improvement, aggressive revenue growth and cost reduction, resulting in accelerating increases in productivity and operating efficiency. Further improvements to the post-integration operating plan are targeted to permit increased train speed and length and reduced car handling, making way for improving terminal productivity, crew and equipment utilization and service reliability. Capital spending will include capacity expansion at select locations to improve efficiency and service. With the integration accomplished and the market opportunities now before us, the railroad is focused on obtaining merger benefits: cost synergies and revenue growth. The quality and performance of CSXT's employees will continue to drive the company's success in the new millenium. In the quest to become "Second to None," their ideas and involvement will enable the company to meet and exceed the expectations of customers and shareholders. Intermodal Intermodal transportation -- the movement of trailers and containers on rail cars instead of by highway -- is surface transportation's fastest growing business. The Conrail transaction will hasten the trend toward rail intermodal transportation and position CSX Intermodal (CSXI) to continue to provide the nation's premier intermodal service. [PHOTOS] FROM THE PEOPLE WHO KEEP THE ENGINES RUNNING AND THE SHIPS SAILING TO THOSE WHO DESIGN OUT SERVICES AND MANAGE BACK-OFFICE OPERATIONS, OUR EMPLOYEES BRING YEARS OF EXPERIENCE AND STRONG DEDICATION TO THEIR CHOSEN PROFESSIONS. THEY ARE POWERED BY A COMMITMENT TO SERVE OUR CUSTOMERS, OUR SHAREHOLDERS, AND THE COMMUNITIES IN WHICH WE OPERATE. CSX INTERMODAL With the Conrail transaction, CSXI becomes the nation's only transcontinental intermodal service provider serving every region of the country and providing domestic and international shippers single-line, non-stop services between the Midwest, Southeast, New York and New England. CSXI also provides the industry's fastest and most reliable service between New York and Florida, two of the largest consuming markets in the nation. [PHOTO] In 1999, CSXI largely completed an ambitious $130 million capital program to nearly double terminal capacity across its network to enable accelerated annual growth in both revenue and volume. New state-of-the-art terminals were completed in hub cities of Chicago, Cleveland and Atlanta, and major terminal enhancements were made to existing terminals in the Northeast and South. As a result, CSXI captured significant new business that will increase train densities, equipment utilization and customer responsiveness. The importance of intermodal to the company and its future was reflected in 1999's financial performance. Revenue grew 48 percent to $959 million (including the addition of Conrail business), while volumes grew 58 percent to 1.65 million loads. In 1999, transcontinental volumes rebounded, as did international business originating in Asia. Operating income reached $82 million, a 148 percent increase over 1998. CSX expects intermodal to remain its fastest-growing business segment and will continue to focus on operational improvements that increase transit reliability and customer responsiveness. Container-shipping and Terminal Management Operations As 1999 drew to a close, another milestone was reached with the sale of Sea-Land's international liner business, including vessels, containers and some terminals, to A.P. Moller-Maersk Line. CSX retained Sea-Land's domestic container-shipping and international terminal management companies, with total annual revenues exceeding $1 billion. The agreement with Maersk was a natural progression of the close partnership Sea-Land and the Danish carrier had developed since forming a pioneering vessel-sharing alliance in 1991. The transaction strengthens CSX's financial position while retaining two strong, well-managed and competitive companies operating in more stable market environments. CSX LINES The newly formed container-shipping company, CSX Lines LLC, takes Sea-Land's leadership position in providing domestic ocean-liner service. The carrier operates 16 U.S.-flag vessels and 27,000 containers along six service routes between the continental United States and Alaska, Guam, Hawaii and Puerto Rico. CSX Lines also operates port terminals in Anchorage, Kodiak and Dutch Harbor, Alaska; Honolulu, Hawaii; San Juan, Puerto Rico; and Apra, Guam. Through sister companies CSXT and CSXI, customers also are offered access to key markets throughout the United States, Canada and Mexico and extensive intermodal connections within the United States. [PHOTO] CSX Lines is headquartered in Charlotte, N.C., with 20 offices throughout the continental United States, Alaska, Hawaii, Guam, and Puerto Rico. Its annual revenue is expected to exceed $700 million. The domestic ocean trades in which CSX Lines operates are stable environments. The carrier will strive to increase revenues by gaining market share through operational excellence and seamless service. A number of customer-focused improvement initiatives are underway in the areas of documentation, customer service, electronic commerce, equipment availability, vessel on-time arrival and terminal throughput operations. [PHOTOS] OUR NATION HAS ALWAYS COUNTED ON THE RAILROAD TO MOVE THE GOODS AND PRODUCTS THAT ARE ESSENTIAL TO OUR ECONOMY. TODAY, THE SUCCESS OF COMPANIES IN SOME OF AMERICA'S MOST IMPORTANT INDUSTRIES DEPENDS, IN LARGE PART, ON THE SERVICE OF RAILROADS, INCLUDING CSXT. WE TAKE THIS RESPONSIBILITY SERIOUSLY AND WORK HARD TO SATISFY OUR CUSTOMERS' CHANGING NEEDS. CSX WORLD TERMINALS The other retained Sea-Land business, CSX World Terminals LLC, operates terminals in Hong Kong, China, Australia, Europe, Russia and Latin America. The company also provides services relating to terminal depot and warehouse management, equipment maintenance and terminal systems internationally and in the United States. Headquartered in Charlotte, CSX World Terminals' annual revenue is expected to be approximately $300 million. Additionally, the company has investment income from terminal operating companies not reflected in its revenue base. [PHOTO] World container throughput is forecast to grow 10 percent per year through 2005. The drivers of this demand are world economies that are becoming increasingly trade dependent and developing countries that need modern ports to support commercial growth. A trend toward transshipments and the use of larger vessels also is influencing the flow of cargo through ports, providing additional opportunities for CSX World Terminals' services. To take advantage of this growth, CSX World Terminals will focus on developing a brand image that builds on its rich Sea-Land heritage and global reputation for expertise. The company will continue to seek process improvements to create greater efficiency and productivity at facilities it operates. Additionally, the company plans to expand development and use of proprietary, advanced technology to enhance real-time information sharing and optimize terminal utilization. Both CSX Lines and CSX World Terminals are strong businesses that are expected to earn more than their cost of capital and to grow and bring stable, incremental earnings to CSX's bottom line. With their new status as separate companies, we anticipate greater contributions to CSX's financial performance. Contract Logistics With annual revenue now approaching $500 million, Customized Transportation Inc. (CTI) is a leader in third-party logistics, offering an expanding portfolio of supply chain management solutions. From its origins in contract transportation and just-in-time support for the automotive industry, the company has diversified and developed an array of services, including logistics operations, transportation network design and management, modular assembly, in-line sequencing, and inventory procurement and management. In addition to all domestic automakers, CTI's client list includes many of the world's leading manufacturers, foreign automakers, and consumer durable companies. CTI In 1999, CTI produced record earnings, building on its impressive track record and position in a rapidly expanding industry. Third-party logistics opportunities continue to grow as many industries focus on enhancing supply chain practices and controlling operating expenses, working capital and other logistics resources. For the first time in CTI's history, more than one-half of its revenue base was derived from specialized material support and inventory services vs. providing traditional truck transportation. More than 3.5 million square feet of dedicated logistics facilities were added to the company's commercial portfolio during 1999, representing its single largest growth element. [PHOTO] The company has produced revenues and operating income growth averaging 21.6 percent and 28.2 percent, respectively, over the past five years, and anticipates favorable industry fundamentals in 2000. Additionally, CTI is beginning to realize greater market penetration associated with the new digital economy with operations supporting e-commerce initiatives of its clients. The company looks forward to another successful year in 2000. Safety and Environmental Policy CSX is committed to conducting its business in a manner that protects the environment and ensures the safety of our employees and the public. Safety is the top priority at all CSX businesses, particularly CSX Transportation, where employees at all levels are encouraged to follow the motto, "No job is so important, no service so urgent, that we cannot take time to perform work safely." The railroad's multifaceted safety program, involving extensive training and monitoring, has been successful in reducing accidents and injuries. In 1999, CSXT's train accident rate was four accidents per million train miles. The priority placed on safety by CSXT also has resulted in a dramatic 63.5 percent reduction in the rate of Federal Railroad Administration (FRA)-reportable injuries since 1989. Now, as CSXT strives to reach its goal of zero accidents and injuries, labor union leaders, rail management and rail employees are working together in a new spirit of cooperation and trust. Driving this cultural reinvention is a 40-member team, with representatives from labor and management, field and headquarters, and the FRA. That team has been identifying ways to enhance safety and create an improved work atmosphere. Emphasis on Public Safety Of equal importance is CSX's emphasis on public safety. In 1999, CSXT remained an industry leader in the area of highway-rail grade crossing safety, where collisions have decreased by more than 54 percent since 1989. This improvement is largely attributable to two factors: public education and the elimination of unneeded crossings. During 1999, CSXT employees presented public safety messages to more than 1.1 million people -- including school children, school bus and commercial truck drivers -- throughout the railroad's operating territory. In addition, CSXT has eliminated more than 2,600 unneeded crossings since 1989. In 1997, CSXT became the first railroad in the United States to adopt an FRA-endorsed program to install stalled vehicle emergency information signs system-wide. The signs prominently display CSXT's toll-free emergency number, along with a unique crossing identification number and railroad milepost location at about 24,000 crossings throughout our rail network. In June 1999, CSXT began installing emergency information signs on its portion of Conrail system at about 3,400 crossings. This action was just part of a comprehensive Safety Integration Plan developed for the integration of CSX's share of Conrail - -- a plan that was submitted to the Surface Transportation Board during the federal review period. CSXI achieved its best safety performance in its history in 1999, reducing OSHA-reportable injuries at its nationwide network of 48 intermodal terminals by more than 30 percent -- from 2.66 injuries per 200,000 man hours to 1.86. The business unit hopes to improve even more in 2000, with a goal of reducing injuries by 20 percent over 1999. At CSX Lines and CSX World Terminals, rigorous safety programs are in place aboard every vessel and at every terminal and port facility. Since 1993, the shipboard incident rate has fallen by 60 percent, while the incident rate at terminal properties has dropped 38 percent over the same period. Hazardous Materials Safety and Environmental Stewardship The nation's chemical companies rely on railroads to transport their products safely and efficiently. Since 1989, CSXT's handling of hazardous materials system-wide has increased by 62 percent -- to 430,000 carloads in 1999. Yet, the number of cars that released any portion of their contents as a result of a derailment has dropped by 60 percent -- from 30 cars in 1989 to 12 cars in 1999, or one out of every 35,800 carloads. The railroad's commitment to the safe transport of hazmats is but one part of CSXT's efforts to safeguard the environment. In the last decade, CSXT has reduced wastewater permit exceedances by over 98 percent to become one of the leaders in the industry in this category. The railroad also has developed innovative ways to recycle old, chemically treated crossties by turning them into a source of fuel. In addition, CSXT recycles enormous quantities of steel and other metals from old locomotives, freight cars and rail track. While CSXI increased its hazmat moves by 25 percent, the accident/release ratio, for both the terminals and the highway, remained less than 1 percent, in part due to extensive training and an ongoing emphasis on awareness. The "HazMat and HazCom" training program for CSXI personnel, along with the assistance of hazmat response vendors, ensures that the prevention of and quick response to such releases meet or exceed the standards set by the Federal Department of Transportation Regulations. All CSXI terminal locations keep a "spill kit" on site and are trained on proper use for first-response containment and clean-up actions. CSX Lines and CSX World Terminals adhere to the strictest standards in complying with environmental regulations. Regular shipboard emergency drills are conducted to train personnel in the latest techniques for preventing spills from entering the sea. At CSX World Terminals, containments are built around fuel storage tanks and waste oil is recycled. In 2000 and beyond, we will continue to set stringent standards for ongoing improvement in safety and environmental compliance. We owe it to our employees to provide safe working conditions, and we owe it to our customers, shareholders and the public to conduct all of our business operations safely and in a manner that protects the environment. Public Policy CSX continues to play an active role in the public policy issues that could potentially affect your company and industry. The following issues rose to the forefront in 1999 and are expected to remain prominent in 2000. BNSF/CN Merger Proposal: Late last year, Burlington Northern Santa Fe and Canadian National railroads announced their intent to combine their respective systems. As reported, the new Canadian-based holding company would result in a 50,000-mile rail network spanning all Canadian provinces and 31 states throughout the United States. It is unquestionable that the potential impacts of the transaction must be thoroughly reviewed. We believe the BNSF/CN combination is premature. We are concerned that this proposal, if allowed to go forward, will significantly divert attention from the essential job of making existing mergers in the West and East successful, and may lead to premature restructuring of the industry, very likely resulting in two North American carriers. The net result of this proposal could very well destabilize the existing balance and future viability of the U.S.-rail system. Public Policy (cont'd) Reregulation: The Staggers Rail Act, passed in 1980, marked the beginning of a renaissance that has made the nation's rail industry the envy of the world. Since 1980, U.S.-rail productivity has nearly tripled, inflation-adjusted freight rates have been reduced by more than half, and employee injuries have been reduced by two-thirds. Despite this success, a push continues on Capitol Hill to reregulate the industry. Seven proposals were introduced during the 1999 congressional session, six of which would result in greater government control over day-to-day railroad operations. Proponents of reregulation are seeking greater government involvement in relationships between railroads and their customers as well as forced access, allowing one rail carrier to operate over another's privately owned track. We are very concerned that the proposed BNSF/CN merger will be used as a vehicle to seek reregulation. If successful, reregulation can only result in a weakened rail industry resulting from less investment and deteriorating service. Mountaintop Mining: In October 1999, a U.S. District Court declared certain aspects of mountaintop coal mining in West Virginia to be in violation of the federal Clean Water Act and the federal Surface Mining and Control Reclamation Act. As a result of this precedent-setting decision, coal mining in West Virginia and throughout CSX's service territory could be threatened. Up to 100,000 industry jobs could be directly affected if this decision is upheld. CSX actively supported an effort by U.S. Senators Robert Byrd (D-W.Va.) and Mitch McConnell (R-Ky.) to prevent implementation of this ruling for a two-year period. While the effort was unsuccessful, the Senators have vowed to pursue this issue in the 2000 congressional session. Tort Reform: Adjustments to the nation's civil justice system are needed. While laws define acceptable conduct and the penalties for failing to adhere to that conduct, punitive damages alter the rule of law by allowing awards of excessive and unwarranted damages. Such a system rewards lawyers who inflame jurors and persuade them to act on emotion, rather than facts, and punishes businesses and employees by diverting funds unfairly. CSX continues to actively support various tort reform measures currently moving through Congress, including legislation to curb abuses prevalent in class action lawsuits. Community Relations: CSX supports a wide variety of community enrichment programs, with special emphasis on children, education and cultural awareness. Some recent examples include: - - The CSX Scholars Program. Developed with the National Audubon Society and the United Negro College Fund, the $1.5 million program supports environmental education. - - Success Express. CSX donated $100,000 and sponsored a special train to promote higher education and spread the word about Edward Waters College, a historically black college in Jacksonville, Fla. - - Take Stock in Children. CSX sponsored a special train to generate interest in a group that provides scholarships and mentors to children in need. - - Recreation. CSX provided $50,000 in funding for the New Orleans Park and Recreation's annual summer program, to ensure that families with three or more children could afford the registration. Employees throughout CSX serve as volunteers with community organizations and can be counted on to respond to their neighbors in times of need. Financial Information Financial Policy 18 Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Consolidated Statement of Earnings 30 Consolidated Statement of Cash Flows 31 Consolidated Statement of Financial Position 32 Consolidated Statement of Changes in Shareholders' Equity 33 Notes to Consolidated Financial Statements 34 Report of Ernst & Young LLP, Independent Auditors 49 Financial Policy CSX's Financial Principles The management of CSX Corporation reports the company's financial condition and results of operations in an accurate, timely and conservative manner in order to give shareholders the information they need to make investment decisions about the company. In this section of our annual report, financial information is presented to assist you in understanding the sources of earnings, the financial resources of the company and the contributions of the various business units. Our key objective is to increase shareholder value by improving the return on invested capital and maximizing free cash flow. To achieve these goals, managers use the following guidelines in conducting the financial activities of the company: - - Capital -- CSX business units are expected to earn returns in excess of the CSX cost of capital. Business units that do not earn a return above the CSX cost of capital and do not generate an adequate level of free cash flow over an appropriate period of time will be evaluated for sale or other disposition. - - Taxes -- CSX will pursue all available opportunities to pay the lowest federal, state and foreign taxes, consistent with applicable laws and regulations and the company's obligation to carry a fair share of the cost of government. CSX also works through the legislative process for lower tax rates. - - Debt Ratings -- The company will strive to maintain its investment grade debt ratings, which allow cost-effective access to financial markets. The company will manage its business operations in a manner consistent with meeting this objective, insuring adequate cash to service its debt and fixed charges. - - Derivative Financial Instruments -- From time to time the company may employ derivative financial instruments as part of its risk management program. The objective is to manage specific risks and exposures, not to trade such instruments for profit or loss. - - Dividends -- The cash dividend is reviewed regularly in the context of inflation and competitive dividend yields. CSX cannot always guarantee that its goals will be met, despite its best efforts. For example, revenue and operating expenses are affected by the state of the economy and the industries the company serves. In addition, changes in regulatory policy can drastically change the cost and feasibility of certain operations. Factors such as these, along with the uncertainty involved in predicting future events, should be kept in mind when reading company projections or forward-looking statements in this report. Management's Responsibility for Financial Reporting The consolidated financial statements of CSX have been prepared by management, which is responsible for their content and accuracy. The statements present the results of operations, cash flows and financial position of the company in conformity with accounting principles generally accepted in the United States and, accordingly, include amounts based on management's judgments and estimates. CSX and its subsidiaries maintain internal controls designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized by management and are recorded in conformity with generally accepted accounting principles. Controls include accounting tests, written policies and procedures and a code of corporate conduct routinely communicated to all employees. An internal audit staff monitors compliance with and the effectiveness of established policies and procedures. The Audit Committee of the board of directors, composed solely of outside directors, meets periodically with management, internal auditors and the independent auditors to review audit findings, adherence to corporate policies and other financial matters. The firm of Ernst & Young LLP, independent auditors, has been engaged to audit and report on the company's consolidated financial statements. Its audit was conducted in accordance with auditing standards generally accepted in the United States and included a review of internal accounting controls to the extent deemed necessary for the purpose of its report, which appears on page 49. Management's Discussion and Analysis of Financial Condition and Results of Operations (All references to earnings per share assume dilution) Description of Business CSX Corporation (CSX), headquartered in Richmond, Va., is a leading freight transportation and logistics services provider. In June 1999, the company expanded its core rail and intermodal operations with the integration of key portions of the Conrail Inc. (Conrail) rail system. CSX now operates the largest rail network in the eastern United States and provides intermodal transportation services across the United States and into key markets in Canada and Mexico. The sale of CSX's international container-shipping liner business in December 1999 further increases the company's focus on its core operations. CSX's goal, advanced at each of its business units, is to provide efficient, competitive transportation and related services for customers and to deliver superior value to the company's shareholders. CSX Transportation Inc. CSXT is the largest rail network in the eastern United States, providing rail freight transportation over a network of more than 23,400 route miles in 23 states, the District of Columbia and two Canadian provinces. Headquartered in Jacksonville, Fla., CSXT accounted for 52% of CSX's operating revenue and 80% of operating income, excluding non-recurring items, in 1999. CSX Intermodal Inc. CSXI is the nation's only transcontinental intermodal transportation service provider, operating a network of dedicated intermodal facilities across North America. The CSXI network, expanded through the integration of Conrail in June 1999, runs approximately 500 dedicated trains between its 48 terminals every week. CSXI accounted for 9% of CSX's operating revenue and 8% of operating income, excluding non-recurring items, in 1999. Its headquarters are located in Jacksonville, Fla. CSX Lines LLC CSX Lines was formed in 1999 to operate the domestic liner business of Sea-Land Service Inc. (Sea-Land), consisting of a fleet of 16 vessels and 27,000 containers serving the trade between ports on the United States mainland and Alaska, Guam, Hawaii and Puerto Rico. The domestic container-shipping business was retained by CSX when Sea-Land's international container-shipping operations were sold to A.P. Moller-Maersk Line (Maersk) in December 1999. CSX Lines is headquartered in Charlotte, N.C. CSX World Terminals LLC CSX World Terminals, formed in 1999, operates container-freight terminal facilities at 12 locations in Hong Kong, China, Australia, Europe and the Dominican Republic. These operations, located in areas expected to benefit from the continuing growth in world trade, also were retained by CSX when Sea-Land's international liner business was sold to Maersk. CSX World Terminals is headquartered in Charlotte, N.C. Business segment financial results for CSX Lines and CSX World Terminals will be reported beginning in fiscal year 2000. Sea-Land's consolidated operations, which included those businesses for the full year and the international liner operations for eleven and a half months, accounted for 35% of CSX's operating revenue and 15% of operating income, excluding non-recurring items, in 1999. Customized Transportation Inc. CTI is one of the nation's leading third-party logistics providers, offering inventory management, distribution, warehousing, assembly and just-in-time delivery services. Headquartered in Jacksonville, Fla., CTI is the fastest-growing unit of CSX. CTI accounted for 4% of CSX's operating revenue and 3% of operating income, excluding non-recurring items, in 1999. Non-transportation Resort holdings include the AAA Five-Diamond hotel, The Greenbrier, in White Sulphur Springs, W.Va. In December 1999, The Greenbrier was named "Resort of the Century" by Andrew Harper's Hideaway Report. CSX Real Property Inc. is responsible for sales, leasing and development of CSX-owned properties. CSX also holds a majority interest in Yukon Pacific Corporation, which is promoting construction of the Trans-Alaska Gas System to transport Alaska's North Slope natural gas to Valdez for export to Asian markets. Results of Operations
Net Earnings (Millions of Dollars, Except Per Share Amounts) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Per Per Per Description (all amounts after tax) Amount Share Amount Share Amount Share - --------------------------------------------------------------------------------------------------------------- Net Earnings Before Non-recurring Items $339 $1.59 $428 $2.00 $799 $3.72 Loss on Sale, Net of Depreciation Benefit(271) (1.27) -- -- -- -- Workforce Reduction Program (34) (.16) -- -- -- -- Net Investment Gain 17 .08 90 .42 -- -- Restructuring Credit -- -- 19 .09 -- -- Cumulative Effect of Accounting Change (49) (.23) -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Net Earnings as Reported $2 $.01 $537 $2.51 $799 $3.72 - ---------------------------------------------------------------------------------------------------------------
1999 vs. 1998 CSX follows a 52/53-week fiscal calendar. Fiscal year 1999 consisted of 53 weeks compared with 52 weeks in fiscal 1998. The company reported net earnings for 1999 of $2 million, 1 cent per share. Earnings for the prior year were $537 million, $2.51 per share. Operating income for 1999 totaled $608 million, compared with $1.16 billion in 1998. Operating revenue of $10.8 billion was 10% higher than the prior year, while operating expense of $10.2 billion was 17% higher. The higher revenue and expense levels were primarily due to the expansion of the company's rail and intermodal businesses in June 1999 with the integration of Conrail lines in the Northeast and Midwest. Financial results for 1999 and 1998 included several significant non-recurring items. The 1999 results included a loss on the sale of assets comprising the company's international container-shipping business, a charge to recognize the cost of a workforce reduction program at the rail and intermodal units, a gain on the sale of the company's Grand Teton Lodge resort subsidiary, and an adjustment to record the cumulative effect of adopting a new accounting rule related to workers' compensation second injury funds. The 1998 results included a net investment gain, primarily from the conveyance of the company's barge subsidiary to a joint venture, and a restructuring credit at the rail unit. These non-recurring items are discussed in greater detail in other sections of Management's Discussion and Analysis, and their effect on the company's net earnings and earnings per share is outlined in the "Net Earnings" table on page 20. Net earnings exclusive of these items totaled $339 million, $1.59 per share, in 1999 vs. $428 million, $2.00 per share in 1998. Operating income excluding the non-recurring items totaled $1.02 billion for 1999, compared with $1.13 billion for the prior year.
Operating Income (Millions of Dollars) 1999 - --------------------------------------------------------------------------------------------- Surface Transportation ---------------------- Inter- Container Contract Elim./ Rail modal Total Shipping Logistics Other Total - --------------------------------------------------------------------------------------------- Operating Revenue $5,623 $959 $6,582 $3,809 $484 $(64) $10,811 - --------------------------------------------------------------------------------------------- Operating Expense Labor and Fringe Benefits 2,244 64 2,308 983 180 -- 3,471 Materials, Supplies and Other 1,279 150 1,429 1,200 74 (44) 2,659 Conrail Operating Fee, Rent and Services 280 -- 280 -- -- -- 280 Building and Equipment Rent 496 123 619 546 46 -- 1,211 Inland Transportation (285) 513 228 707 126 (17) 1,044 Depreciation 469 24 493 90 12 -- 595 Fuel 317 1 318 154 12 -- 484 Miscellaneous(b) -- -- -- (61) -- 64 3 Loss on Sale -- -- -- 401 -- -- 401 Workforce Reduction Program 53 2 55 -- -- -- 55 Restructuring Credit -- -- -- -- -- -- -- - --------------------------------------------------------------------------------------------- Total Expense 4,853 877 5,730 4,020 450 3 10,203 Operating Income (Loss) $ 770 $ 82 $ 852 $(211) $ 34 $(67) $ 608 Operating Income (Loss) as Adjusted(c) $ 823 $ 84 $ 907 $ 149 $ 34 $(67) $ 1,023 - --------------------------------------------------------------------------------------------- Operating Ratio 86.3% 91.4% 87.1% 105.5% 92.9% - --------------------------------------------------------------------------------------------- Operating Ratio as Adjusted(c) 85.4% 91.2% 86.2% 96.1% 92.9% Average Employment 31,952 1,090 33,042 8,923 4,164 - --------------------------------------------------------------------------------------------- Property Additions $1,298 $ 63 $1,361 $ 86 $ 20 - ---------------------------------------------------------------------------------------------
Operating Income (Millions of Dollars) 1998 - ------------------------------------------------------------------------------------------------ Surface Transportation ---------------------- Inter- Container Contract Elim./ Rail modal Total Shipping Logistics Other(a) Total - ------------------------------------------------------------------------------------------------- Operating Revenue $4,956 $648 $5,604 $3,916 $408 $(60) $9,868 - ------------------------------------------------------------------------------------------------- Operating Expense Labor and Fringe Benefits 1,974 50 2,024 959 157 -- 3,140 Materials, Supplies and Other 1,057 117 1,174 1,285 54 (30) 2,483 Conrail Operating Fee, Rent and Services -- -- -- -- -- -- -- Building and Equipment Rent 382 81 463 596 43 -- 1,102 Inland Transportation (159) 348 189 734 103 (30) 996 Depreciation 450 18 468 130 11 -- 609 Fuel 251 1 252 141 11 -- 404 Miscellaneous(b) -- -- -- (62) -- 66 4 Loss on Sale -- -- -- -- -- -- -- Workforce Reduction Program -- -- -- -- -- -- -- Restructuring Credit (30) -- (30) -- -- -- (30) - -------------------------------------------------------------------------------------------------- Total Expense 3,925 615 4,540 3,783 379 6 8,708 Operating Income (Loss) $1,031 $ 33 $1,064 $ 133 $ 29 $(66) $1,160 Operating Income (Loss) as Adjusted(c) $1,001 $ 33 $1,034 $133 $ 29 $(66) $1,130 - -------------------------------------------------------------------------------------------------- Operating Ratio 79.2% 94.9% 81.0% 96.6% 92.8% - -------------------------------------------------------------------------------------------------- Operating Ratio as Adjusted(c) 79.8% 94.9% 81.5% 96.6% 92.8% Average Employment 28,358 786 29,144 8,690 3,399 - -------------------------------------------------------------------------------------------------- Property Additions $1,212 $ 99 $1,311 $ 54 $ 17 - --------------------------------------------------------------------------------------------------
Operating Income (Millions of Dollars) 1997 - -------------------------------------------------------------------------------------------------- Surface Transportation ---------------------- Inter- Container Contract Elim./ Rail modal Total Shipping Logistics Other(a) Total - ---------------------------------------------------------------------------------------------------- Operating Revenue $4,989 $669 $5,658 $3,991 $389 $583 $10,621 - ---------------------------------------------------------------------------------------------------- Operating Expense Labor and Fringe Benefits 1,963 56 2,019 903 153 151 3,226 Materials, Supplies and Other 878 119 997 1,191 61 262 2,511 Conrail Operating Fee, Rent and Services -- -- -- -- -- -- -- Building and Equipment Rent 349 77 426 600 45 40 1,111 Inland Transportation (158) 356 198 757 83 (35) 1,003 Depreciation 429 14 443 128 10 39 620 Fuel 299 1 300 197 13 57 567 Miscellaneous(b) -- -- -- (63) -- 63 -- Loss on Sale -- -- -- -- -- -- -- Workforce Reduction Program -- -- -- -- -- -- -- Restructuring Credit -- -- -- -- -- -- - - ---------------------------------------------------------------------------------------------------- Total Expense 3,760 623 4,383 3,713 365 577 9,038 Operating Income (Loss) $1,229 $ 46 $1,275 $ 278 $ 24 $ 6 $ 1,583 Operating Income (Loss) as Adjusted(c) $1,229 $ 46 $1,275 $ 278 $ 24 $ 6 $ 1,583 - ---------------------------------------------------------------------------------------------------- Operating Ratio 75.4% 93.1% 77.5% 93.0% 93.8% - ---------------------------------------------------------------------------------------------------- Operating Ratio as Adjusted(c) 75.4% 93.1% 77.5% 93.0% 93.8% Average Employment 27,864 800 28,664 9,105 2,334 - ---------------------------------------------------------------------------------------------------- Property Additions $ 712 $ 32 $ 744 $ 251 $ 13 - ----------------------------------------------------------------------------------------------------
(a)On June 30, 1998, CSX conveyed its wholly owned barge subsidiary to a joint venture in which it holds a 32% common ownership interest. Due to the reduction in ownership percentage, CSX has accounted for its investment in the barge company under the equity method retroactive to the beginning of fiscal year 1998. For periods prior to fiscal year 1998, the barge company was accounted for as a consolidated subsidiary, and its results appear in the Eliminations/Other category for 1997. (b)A portion of intercompany interest income received from the CSX parent company has been reclassified as a reduction of Miscellaneous expense by the container-shipping unit. This amount was $61 million, $62 million and $63 million in 1999, 1998 and 1997, respectively, and the corresponding charge is included in Eliminations/Other. (c)Excludes loss on international container-shipping asset sale (net of depreciation benefit) and surface transportation workforce reduction program in 1999. Excludes rail restructuring credit in 1998. - -------------------------------------------------------------------------------- Average Return on Assets (percent) [GRAPH] '95 '96 '97 '98 '99 4.4 5.9 4.3 2.7 0.0 - Excluding non-recurring items in 1995, 1998, and 1999, average return on assets would have been 5.6%, 2.6%, and 1.6%, respectively. Average Return on Equity (percent) [GRAPH] '95 '96 '97 '98 '99 15.5 18.9 15.2 9.2 0.0 - Excluding non-recurring items in 1995, 1998, and 1999, average return on equity would have been 19.1%, 8.9%, and 5.7%, respectively. As previously mentioned, the year-over-year increases in operating revenue and expense were due primarily to the June 1999 integration of the company's allocated portion of the Conrail rail and intermodal operations (see "Investment in and Integrated Rail Operations with Conrail"). Earnings for 1999 were adversely effected by costs related to preparation and start-up of the Conrail integration and significant costs and lost revenue due to network congestion experienced after the integration. The impact of Hurricane Floyd, higher personal injury accruals and higher fuel prices in the second half of the year also decreased earnings. Spending on Year 2000 preparations was lower in 1999 as the company completed key phases of its readiness plan near the end of the third quarter. Fixed Charge Coverage [GRAPH] '95 '96 '97 '98 '99 3.2x 4.0x 2.6x 1.8x 1.1x - Excluding non-recurring items in 1995, 1998, and 1999, fixed charge coverage would have been 3.7x, 1.8x, and 1.7x, respectively. Non-recurring items are detailed in notes (a) and (b) to the Financial Highlights on page 1. 1998 vs. 1997 Net earnings for 1998 totaled $537 million, $2.51 per share, compared with $799 million, $3.72 per share in 1997. The 1998 results included a net investment gain of $154 million, $90 million after tax, 42 cents per share, primarily from the conveyance of the company's barge subsidiary, American Commercial Lines LLC (ACL), to a joint venture. Also included in the 1998 results was a one-time restructuring credit of $30 million, $19 million after tax, or 9 cents per share, to reverse a previous charge for separation and labor protection costs. Excluding the effects of non-recurring items, net earnings would have been $428 million, $2.00 per share, in 1998 vs. $799 million, $3.72 per share, in 1997. Consolidated operating revenue totaled $9.9 billion, a decrease of $753 million, or 7%, from 1997. A significant portion of the revenue decline, $618 million, was attributable to the conveyance of the company's barge unit to a joint venture in the third quarter of 1998 and the resulting exclusion of barge activity from 1998 operating income. Due to a reduction in the company's ownership interest to 32% of the new venture, CSX accounted for its investment in the venture under the equity method retroactive to the beginning of fiscal year 1998. For periods prior to fiscal 1998, ACL was accounted for as a consolidated subsidiary. Operating revenue was down from the prior year at the rail, container-shipping, and intermodal business units. The rail unit suffered primarily from weak demand for export coal. Sea-Land's revenues were negatively impacted by the Asian economic crisis, while the intermodal unit struggled with congestion on the western rail network. CSX's operating expenses totaled $8.7 billion for 1998, down $330 million from the prior year; however, $549 million of the decline represents barge unit expenses not included in operations in 1998. Other favorable items included the $30 million restructuring credit recorded by the rail unit, lower fuel costs that benefited the company $106 million on a consolidated basis, and lower stock compensation expense resulting from the company's lower stock price. Higher operating expenses associated with changes in traffic mix at the rail unit and inbound/outbound cargo imbalances in major trade lanes at the container-shipping unit offset these favorable variances. Other income increased to $119 million from 1997's $51 million. Contributing to the increase was the $154 million net investment gain, partially offset by higher Conrail transition expenses. Business Segment Results Surface Transportation Results
Rail Traffic by Commodity* Carloads Revenue (Thousands) (Millions of Dollars) - --------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Merchandise Phosphates & Fertilizer 527 539 506 $ 318 $ 304 $ 295 Metals 319 268 264 367 307 301 Food & Consumer Products 150 135 139 184 148 147 Paper & Forest Products 505 457 471 600 508 512 Agricultural Products 326 277 269 442 380 364 Chemicals 545 444 435 913 750 762 Minerals 422 396 371 386 353 337 Government 11 6 10 28 16 24 - --------------------------------------------------------------------------------------------------------------- Total Merchandise 2,805 2,522 2,465 3,238 2,766 2,742 Automotive 553 412 387 760 540 543 Coal, Coke & Iron Ore Coal 1,614 1,651 1,714 1,476 1,503 1,567 Coke 55 60 74 51 53 65 Iron Ore 61 50 52 38 27 30 - --------------------------------------------------------------------------------------------------------------- Total Coal, Coke & Iron Ore 1,730 1,761 1,840 1,565 1,583 1,662 Other Revenue -- -- -- 60 67 42 - --------------------------------------------------------------------------------------------------------------- Total Rail 5,088 4,695 4,692 $5,623 $4,956 $4,989 - ---------------------------------------------------------------------------------------------------------------
* Certain amounts for 1998 and 1997 have been restated to conform to the 1999 presentation. 1999 vs. 1998 Rail Excluding its $53 million portion of the workforce reduction charge in 1999 and the $30 million restructuring credit in 1998, CSXT earned $823 million of operating income in 1999 vs. $1 billion in 1998. Operating revenue was 13% higher, at $5.62 billion. Operating expense rose 22% to $4.8 billion, excluding the workforce reduction charge. The 1999 results included seven months of integrated Conrail operations, distorting comparisons to 1998. Overall volumes increased due to the addition of former Conrail traffic and relatively strong demand across most service groups. The largest revenue increase was in automotive (up 41%) due to the new Conrail traffic, strong vehicle production in 1999, and the strike at major General Motors plants that adversely affected 1998 revenue. Merchandise revenue increased 17% largely due to the new Conrail traffic. Added coal revenues from the former Conrail territory were offset by continued weakness in export coal volume, resulting in a net revenue decrease of 2%. The 24% increase in rail operating expense reflects the expense associated with the new Conrail traffic, as well as significant costs incurred in starting up combined operations and addressing post-integration congestion and operating problems. In addition, Hurricane Floyd disrupted operations for up to 10 days on key portions of the CSXT system in North Carolina and New Jersey, resulting in repair costs and lost revenue. Fuel expense was $66 million higher than 1998, reflecting a 2 cent increase in the average price per gallon for the full year, and higher fuel consumption with the added Conrail traffic. Intermodal Excluding its $2 million portion of the workforce reduction charge, CSXI reported 1999 operating income of $84 million, compared with $33 million a year ago. The increase was primarily due to the significant growth in intermodal volume attributable to the new Conrail operations. Strengthening international business and improved rail service in the Western half of the country also benefited 1999. Revenue for 1999 totaled $959 million vs. $648 million in the prior year. Operating expense totaled $875 million without the workforce reduction charge, compared with $615 million in 1998. The expanded operations over portions of the former Conrail system accounted for the significant revenue and expense increases in 1999. While CSXI realized margin improvements through economies of scale, rail congestion led to lost revenue as shippers diverted some traffic to trucks. 1998 vs. 1997 Rail Excluding a one-time restructuring credit, CSXT produced operating income of $1 billion in 1998, down 19% from 1997. Operating revenue decreased slightly from the prior year, to $4.96 billion. While merchandise revenue saw modest gains on increased traffic, coal revenue declined $64 million on 4% fewer carloads. The decline in coal revenue was attributable to the strong U.S. dollar and competition from foreign coal producers, which softened the demand for export coal. Rail Operating Revenue (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $4,819 $4,909 $4,989 $4,956 $5,623 Rail Operating Expense (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $3,951 $3,782 $3,760 $3,925 $4,853 - Restructuring charge in 1995 was $196 million. Restructuring credit in 1998 was $30 million. Workforce reduction charge in 1999 was $53 million. CSXT experienced growth in several merchandise commodity groups during 1998. Agricultural product moves were up 3% due to strong demand for Midwest grain in the Southeast. Continued strength in the Southeast's construction industry was primarily responsible for the 7% increase in minerals carloads over 1997, while strong demand from U.S. steel mills in the early part of the year drove an increase of 2% in metals traffic over 1997. Phosphates and fertilizer shipments were up 7% due to continued strong export demand and strong demand from U.S. and Canadian agricultural firms. The railroad's automotive revenue was down 1% from the prior year, due in part to the estimated loss of $13 million in revenue caused by the work stoppages at two of General Motors' Flint, Mich. plants. Excluding the restructuring credit, operating expenses were up 5% from 1997 to $3.96 billion, reflecting the impact of a shift in mix to lower margin cargo, increases in certain casualty and litigation reserves, and Year 2000 preparations. Labor and fringe benefits expense increased slightly due to wage increases and additional employee training and certification, partially offset by lower stock compensation expense. The higher casualty and litigation accruals and Year 2000 costs drove materials, supplies and other expense up 20% over the prior year. Fuel expense was $48 million lower than 1997, reflecting an 11 cent decrease in the average price per gallon, while fuel consumption remained level with the prior year. The 1998 restructuring credit totaled $30 million and reflected the reversal of separation and labor protection reserves established as part of a 1995 restructuring charge to cover a planned reduction in the unit's telecommunications workforce. Under a new telecommunications contract signed in July 1998, those workforce reductions did not occur. Intermodal CSX Intermodal earned $33 million of operating income in 1998, down 28% from 1997. The decline was largely attributable to loss of business caused by service disruptions on the western rail network. Intermodal Operating Revenue (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $694 $660 $669 $648 $959 Although container and trailer volumes were 1% above 1997, operating revenue decreased 3%, to $648 million, as the average length-of-haul declined. Both domestic and international freight revenue decreased from 1997 as a result of the western rail service difficulties. Revenue from other sources declined 29% as truck operations were ceased at 13 terminals in early 1998 in connection with a restructuring of the trucking service network. The intermodal unit reported operating expense of $615 million in 1998, down 1% from 1997. Labor and fringe benefits declined 11% from 1997, reflecting lower stock compensation expense and a decrease in average employee levels during the year. Other expense categories were generally comparable to the prior year.
Container-shipping Results Container-shipping Traffic by Trade Lane* Loads Revenue (Thousands) Revenue Per Box (Millions of Dollars) - --------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Pacific 583 603 705 $2,611 $2,319 $2,221 $1,500 $1,386 $1,549 Atlantic 290 359 349 2,092 2,267 2,426 600 807 842 Americas 250 268 242 2,159 2,282 2,304 524 587 538 Asia/Middle East/Europe 277 273 286 2,068 2,060 2,041 563 554 576 Terminal Services and Other -- -- -- -- -- -- 622 582 486 - --------------------------------------------------------------------------------------------------------------- Total 1,400 1,503 1,582 $2,315 $2,252 $2,250 $3,809 $3,916 $3,991
* Certain amounts for 1998 and 1997 have been restated to conform to the 1999 presentation. 1999 vs. 1998 Although the sale of Sea-Land's international liner business to Maersk did not close until mid-December, the unit lost significant business in the fourth quarter of 1999 as international shippers shifted cargo bookings in anticipation of the transaction. As a result, those operations incurred an operating loss for the quarter that exceeded earnings from the retained domestic shipping and terminal management businesses. Operating results for the first nine months of the year showed marked improvement over 1998 as Pacific container volumes recovered and significant rate increases in the Asia-to-U.S. trade more than offset weakness in the Atlantic and Americas trade lanes. Despite the fourth quarter loss, 1999 operating income of $149 million, excluding a loss on the international liner sale net of a related depreciation benefit, was 12% higher than the $133 million earned in 1998. Fiscal 1999 revenue of $3.81 billion was 3% lower than 1998, reflecting the international liner disposition three weeks prior to year end and the pre-closing runoff in shipments. Similarly, operating expense of $3.66 billion, excluding the net loss on sale, was 3% lower than 1998; although higher fuel prices resulted in a 9% increase in fuel expense on consumption levels that were flat year-to-year. Container-shipping Operating Revenue (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $4,008 $4,051 $3,991 $3,916 $3,809 1998 vs. 1997 Sea-Land produced operating income of $133 million in 1998, down 52% from 1997, reflecting the negative impact of Asia's economic crisis on the container-shipping business. Operating revenue totaled $3.92 billion, a 2% decline from 1997. Asia's economic conditions caused tremendous imbalances in cargo shipments, as exports from Asian countries increased while import traffic declined. These imbalances were evidenced by a 3% increase in eastbound Pacific loads (Asia to North America), vs. a 17% decline in westbound Pacific loads. In addition, the Asia/Middle East/Europe trade lane experienced a 1% increase in westbound loads (Asia to Europe), vs. a 20% decline in eastbound loads. Compounding the impact, Sea-Land's cargo mix shifted to a higher level of lower-rated freight as imports of higher-rated discretionary goods to Asia declined. Terminal services and other revenue increased 20% from 1997's level as a result of higher volumes in Asia. Operating expenses increased 2% in 1998, to $3.78 billion. Although Sea-Land moved fewer revenue loads compared with 1997, the company actually handled more containers as a result of the increased export volume from Asia. The higher container volume drove increases of 6% in labor and fringe benefits and 8% in materials, supplies and other expense over 1997 levels. Fuel expense decreased $56 million from 1997, benefiting from a 12 cent per gallon average price reduction on a 1% increase in fuel consumption during the year. Contract Logistics Results 1999 vs. 1998 Operating income at Customized Transportation Inc. (CTI) was $34 million for 1999 compared with $29 million for 1998. Revenue of $484 million was 19% higher than the prior year, as the unit continued to benefit from strong growth in managed transportation and warehousing revenue. Prior-year revenues were negatively impacted by the General Motors plant strike. Operating expense of $450 million was 19% higher than the prior year, in line with revenue growth. Contract Logistics Operating Revenue (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $240 $316 $389 $408 $484 1998 vs. 1997 CTI's operating income for 1998 totaled $29 million, a 21% increase over 1997. Operating revenue was up 5% from 1997, to $408 million, driven by gains in the warehousing and managed transportation businesses. The General Motors work stoppages mentioned in the Rail Results section also hurt the contract logistics unit in 1998. CTI lost an estimated $18 million in revenue for the year as a result of the strike. Operating expenses increased 4%, in line with the revenue growth experienced during the year. Liquidity and Capital Resources Operating Activities Cash provided by operations for 1999 totaled $1.1 billion, up $71 million from 1998, due principally to net changes in accounts receivable and payable driven by the absorption of Conrail business and accrual of liabilities associated with the Sea-Land sale, respectively. Cash provided by operations totaled $1.0 billion and $1.6 billion in 1998 and 1997, respectively. Cash Provided by Operations (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $1,567 $1,440 $1,558 $1,000 $1,071 Investing Activities Net cash used by investing activities in 1999 totaled $582 million, vs. $870 million in 1998 and $3.3 billion in 1997. Included in the 1999 total is $751 million in net proceeds from the sale of international container-shipping assets and $49 million from the sale of the Grand Teton Lodge resort. The 1998 total included $628 million from the conveyance of the company's barge subsidiary to a joint venture. In 1997, CSX spent approximately $2.2 billion to complete the acquisition of its $4.1 billion investment in Conrail. Property additions totaled approximately $1.5 billion in 1999 and 1998, and $1.1 billion in 1997. The higher levels in 1999 and 1998 are largely due to rail and intermodal spending for locomotives and capital improvements to service the additional traffic resulting from the Conrail integration. Significant projects related to Conrail included investments in technology, a major upgrade to the B&O line between Chicago and Cleveland, and a new intermodal terminal in Chicago. Property additions for the coming fiscal year are expected to be under $1 billion, reflecting a return to more normal spending levels on the combined rail network and the disposition of Sea-Land's international liner operations. Property Additions (millions of dollars) [GRAPH] '95 '96 '97 '98 '99 $1,156 $1,223 $1,125 $1,479 $1,517 Property Additions by Segment (millions of dollars) [GRAPH] Rail Intermodal Container Shipping Contract Logistics Other $1,298 $63 $86 $20 $50 Financing Activities Financing activities provided net cash of $32 million in 1999, compared to a use of $276 million of cash in 1998. In 1997, financing activities provided $1.7 billion. While higher levels of short-term debt provided $187 million in cash for 1999, the company expects to reduce short-term debt in the early part of fiscal year 2000 with proceeds from the December 1999 sale of international container-shipping assets. Through year-end 1999, a portion of those proceeds had been used to repay short-term debt, with the remainder being invested in cash equivalents and short-term investments. In 1998, the barge subsidiary proceeds were initially used to reduce short-term debt, but borrowings were increased over the second half of the year to fund a portion of the capital spending to prepare for the Conrail integration. The issuance of debt to finance completion of the Conrail acquisition was the primary factor affecting cash from financing activities in 1997. During 1999, CSX issued $400 million of floating rate notes having a one-year maturity. These financings were intended to supplement the company's existing commercial paper program and ensure adequate liquidity over year end if financial markets experienced disruption from Year 2000 issues. In 1998, CSX issued approximately $1 billion of fixed-rate debt, principally to refinance commercial paper borrowings classified as long-term debt in the company's statement of financial position. The placement of this fixed-rate debt allowed the company to take advantage of a favorable interest rate environment to reduce the overall floating-rate exposure in its debt portfolio. In 1997, CSX issued over $2.5 billion in long-term debt primarily to finance completion of the Conrail transaction. CSX repaid $126 million of long-term debt in 1999, vs. $1.1 billion in 1998 (including the commercial paper refinancings) and $398 million in 1997. Long-term debt at Dec. 31, 1999, totaled $6.2 billion, down $236 million from year-end 1998, largely reflecting the reclassification of balances to short-term debt in anticipation of the use of the proceeds from the international container-shipping sale. The ratio of debt to total capitalization at the end of 1999 was 53%, compared with 52% at the end of 1998. CSX has $400 million of remaining capacity under a shelf registration that may be used to issue debt or other securities at the company's discretion. Cash dividends paid per common share were $1.20 for 1999 and 1998, and $1.08 in 1997. Total cash dividends of $262 million, $262 million and $235 million were paid in 1999, 1998 and 1997, respectively. Market Risk CSX does not currently use derivative financial instruments, although the company may from time to time employ them as part of its risk management program. If used, the objective is to manage specific risks and exposures, not to trade such instruments for profit or loss. CSX manages its overall exposure to fluctuations in interest rates by adjusting the proportion of fixed and floating rate debt instruments within its debt portfolio over time. At Dec. 31, 1999, CSX had approximately $1.2 billion of floating-rate debt outstanding. A 1% increase in interest rates would increase annual interest expense by approximately $12 million. While the company's container-shipping terminal management subsidiary does business in several foreign countries, a substantial portion of its revenue and expenses are transacted in U.S. dollars. For this reason, CSX does not believe its foreign currency market risk is significant. Investment In and Integrated Rail Operations with Conrail Background and Integration On June 1, 1999, CSX and Norfolk Southern Corporation (Norfolk Southern) formally began integrated operations over their respective portions of the Conrail Inc. (Conrail) rail system. This step implemented the operating plan envisioned by CSX and Norfolk Southern when they completed the joint acquisition of Conrail in May 1997 and received regulatory approval permitting them to exercise joint control over Conrail in August 1998. Under this operating plan, CSXT added approximately 4,400 route miles of track in the Northeastern and Midwestern United States and in Canada to its existing lines concentrated in the Middle Atlantic and Southeastern United States. To service the new operations, approximately 5,600 former Conrail employees joined the company. CSXT now operates a network of more than 23,400 route miles in 23 states, the District of Columbia, and two Canadian provinces. CSXT and its sister company, CSX Intermodal, employ approximately 35,000 employees across the combined system. The rail subsidiaries of CSX and Norfolk Southern operate their respective portions of the Conrail system pursuant to various operating agreements that took effect on June 1. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail service in certain shared geographic areas for the joint benefit of CSX and Norfolk Southern for which it is compensated on the basis of usage by the respective railroads. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold economic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. Financial Effects Upon integration, substantially all of Conrail's customer freight contracts were assumed by CSX and Norfolk Southern. As a result, beginning June 1, 1999, CSX's rail and intermodal operating revenue includes revenue from traffic previously moving on Conrail. Operating expenses reflect corresponding increases for costs incurred to handle the new traffic and operate the former Conrail lines. Effective June 1, 1999, rail operating expenses also include a new expense category, "Conrail Operating Fee, Rent and Services", which reflects payments to Conrail for the use of right-of-way and equipment, as well as charges for transportation, switching, and terminal services provided by Conrail in the shared areas operated for the joint benefit of CSX and Norfolk Southern. The new expense category also includes amortization of the fair value write-up arising from the acquisition of Conrail, as well as CSX's proportionate share of Conrail's net income or loss recognized under the equity method of accounting. Prior to the June 1, 1999 integration, CSX recorded its share of Conrail's net income, less amortization of the fair value write-up, and acquisition and transition expenses in other income (expense) in the consolidated statement of earnings. The integration of Conrail initially resulted in congestion and traffic delays on parts of the new CSX network and on the shared areas operated by Conrail. As a result, the company incurred increased costs and experienced lost revenues as customers directed business to other modes of transportation. Substantial progress was made during July and August in stabilizing post-integration operations and improving service; however, disruptions in the rail network caused by Hurricane Floyd in September, combined with seasonal traffic build-up from September through early December, adversely affected operating performance. Efforts have been focused on improving operations through network simplification and progress since mid-December has been encouraging. While management believes it will continue to see steady improvement across the rail network that will lead to increased customer satisfaction, the return of business diverted to other modes of transportation and improved financial performance, there can be no assurance that these objectives will be met, or met within a specified time frame. If recent operating improvements are sustained, management anticipates that the company will begin realizing many of the economic synergies envisioned from the integration of its allocated portion of the Conrail network. These synergies include revenue benefits from freight traffic that currently moves on other modes of transportation (principally trucks), as well as cost savings from better equipment utilization, more direct routing of freight traffic, fewer interchange points, and the elimination of duplicate positions and facilities. CSX and Norfolk Southern now compete for traffic located in markets formerly served solely by Conrail. As a result of this process of entering new markets, there have been changes in the historic rate and traffic patterns, including some rate reductions and traffic volume shifts. The process is being driven by market conditions and, over time, may be affected by customer satisfaction with service levels provided by the competing carriers. Conrail's Results of Operations 1999 vs. 1998. Conrail's results of operations for 1999 were significantly impacted by the changes in its business resulting from the integration with CSX and Norfolk Southern. Through May 31, 1999, Conrail's earnings include freight line-haul revenues and related expenses. Effective June 1, 1999, its major sources of revenue are derived from CSX and Norfolk Southern and consist principally of operating fees, equipment rent, and shared area usage fees. The nature of Conrail's operating expenses also has changed to reflect the new operations. As a result, meaningful comparisons of 1999 and 1998 results are more difficult. Conrail reported net income of $26 million for 1999, compared with $267 million for 1998. Operating revenues were $2.2 billion for 1999 vs. $3.9 billion for 1998, primarily reflecting the change in operations and a 2% decline in freight revenue for the five-month period prior to integration. Operating expenses totaled $2.0 billion in 1999 and $3.3 billion in 1998. The decrease reflected the change in operations in June, partially offset by higher casualty and other claims expenses. The 1999 operating expenses include net charges of $180 million, $121 million after tax, principally to reflect the method of settlement of certain casualty liabilities based on the agreement between CSX, Norfolk Southern, and Conrail, to adjust certain litigation and environmental reserves related to settlements and completion of site reviews, and to reflect the assumption of a lease obligation by CSX. Operating expenses in 1998 included a charge of $170 million, $105 million after tax, for severance benefits covering non-union employees, and other charges and reserves totaling $132 million, $82 million after tax. Conrail's operating expenses also included transition-related costs of $60 million in 1999, principally employee training and technology integration expenses, and $149 million in 1998, principally employee retention bonuses and technology integration costs. 1998 vs. 1997. Conrail reported net income of $267 million in 1998, compared with $7 million in 1997. Operating revenue totaled $3.9 billion in 1998 vs. $3.8 billion in 1997, with the increase due principally to a 4% increase in traffic volume. All market groups except automotive posted revenue increases for the year. Operating expenses totaled $3.3 billion in 1998 and $3.4 billion in 1997. Operating expenses for 1998 included non-recurring charges for non-union severance and other expenses totaling $302 million, $187 million after tax. The 1997 operating expenses included a $221 million charge associated with the termination of Conrail's Employee Stock Ownership Plan, which had no related income tax effect, as well as a charge of $173 million, $142 million after tax, for stock compensation and executive severance costs related to the change in ownership. Additional transition expenses reflected in the 1998 total include $149 million in 1998, primarily for employee stay bonuses and technology integration costs, and $114 million in 1997, primarily for investment banking, legal and consulting fees and employee stay bonuses. Excluding the effects of the acquisition-related compensation and transition costs, operating expenses increased 3% in 1998, primarily as a result of the higher traffic volume and higher casualty and other claims expenses, partially offset by lower fuel costs. Financial Condition and Liquidity. Conrail's cash provided by operations of $396 million decreased by $331 million, or 46%, in 1999, and by $157 million, or 18%, in 1998. The 1999 decrease was principally due to the change in the company's operations. The decline in 1998 reflected higher incentive compensation payments and transition-related costs. Cash generated from operations is the principal source of liquidity and is primarily used for debt repayments and capital expenditures. Debt repayments totaled $112 million in 1999 and $119 million in 1998. Capital expenditures totaled $176 million in 1999 and $537 million in 1998. The significant decline in capital spending for 1999 reflected the change in operations. Conrail had a working capital deficit of $194 million at Dec. 31, 1999, compared with a deficit of $202 million at Dec. 31, 1998. The deficit at year-end 1999 resulted from reclassifying $250 million of long-term debt to current liabilities, reflecting the maturity of the debt in June 2000. Conrail is expected to have sufficient cash flow to meet its ongoing obligations, principally from operating fees, rents, and shared area usage fees paid by CSX and Norfolk Southern. Divestitures and Joint Venture Investment Sale of International Container-Shipping Assets In July 1999, CSX entered into an agreement to sell certain assets comprising the international liner business of Sea-Land, its wholly owned container-shipping subsidiary, to A. P. Moller-Maersk Line (Maersk) for approximately $800 million, subject to certain purchase price adjustments that depended on a detailed allocation and valuation of certain categories of assets. The transaction, which also involved Maersk assuming in excess of $800 million present value of Sea-Land operating lease obligations, closed on Dec. 10, 1999. The international liner business operated approximately 75 container vessels and 200,000 containers in worldwide trades and comprised a majority of CSX's container-shipping revenue. In addition to vessels and containers, Maersk acquired certain terminal facilities and various other assets and related liabilities of the international liner business. The operating revenue associated with the assets sold was approximately $2.8 billion in 1999, $3.0 billion in 1998, and $3.2 billion in 1997. In accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," CSX classified the international liner assets as "held for sale" in July when the agreement with Maersk was signed. The company recorded a $315 million asset impairment charge in the third quarter to adjust the book value of the related property, equipment and other long-lived assets to their fair value less cost to sell. In addition, in accordance with the provisions of Statement No. 121, no depreciation was recorded on these assets after their classification as "held for sale." Based on subsequent accounting for the completed transaction, including adjustments to reflect asset allocations agreed to at closing, the company determined that the loss on sale was approximately $86 million higher than the third quarter charge. The final loss on sale of $401 million, net of a $41 million benefit from the lower depreciation expense, reduced 1999 earnings by $360 million, $271 million after tax, $1.27 per share. The agreement with Maersk provides for a post-closing adjustment to the sales price based on the final amount of working capital conveyed, and the loss includes estimates of costs to terminate various contractual obligations of the company. These matters are expected to be resolved in fiscal 2000 and will affect the final determination of the loss on sale. Net of purchase price adjustments and cash balances conveyed to Maersk at closing, the company received cash proceeds of $751 million on the sale. Through Dec. 31, 1999, a portion of the proceeds was used to reduce short-term debt, with the remainder invested in cash equivalents and short-term investments. CSX retained the container-shipping business serving the U.S. domestic trade and part of the company's international terminal operations and will manage them separately. Management reporting and performance measures for these businesses have been developed for fiscal year 2000. The company expects to revise its disclosures under FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the first quarter of 2000 to report these as separate business segments; however, it will not be practicable to provide comparative segment disclosures for prior years. Sale of Grand Teton Lodge Subsidiary In June 1999, CSX completed the sale of its Grand Teton Lodge resort subsidiary, located in Jackson Hole, Wyo., to Vail Resorts. The transaction resulted in a net investment gain of $27 million, $17 million after tax, 8 cents per share. CSX received net cash proceeds of $49 million. Conveyance of Barge Unit In June 1998, CSX conveyed its barge unit, American Commercial Lines (ACL), to a venture formed with Vectura Group Inc. (Vectura). CSX received cash proceeds of $695 million from the transaction, $67 million of which were used to repay certain outstanding debt and other obligations of ACL and to pay expenses of the transaction. As part of the transaction, NMI Holdings LLC, a wholly owned barge subsidiary of Vectura, was combined with ACL. CSX holds a 32% common interest in the venture. Operating results for 1998 include a net investment gain of $154 million, $90 million after tax, 42 cents per share, primarily from the ACL transaction. Other Matters Workforce Reduction Program CSX recorded a charge of $55 million, $34 million after tax, 16 cents per share, in the fourth quarter of 1999 to recognize the cost of a program to reduce the non-union workforce at its rail and intermodal units by approximately 800 positions. A voluntary early retirement program completed in December accounted for approximately 680 of the position reductions, with the remainder achieved through a combination of involuntary terminations and normal attrition. Approximately 75% of the retirements and separations occurred by the end of the year, with the remainder scheduled to occur over the first half of fiscal year 2000 as their job responsibilities are reorganized or transitioned to other personnel. Early retirement benefits offered under the voluntary program accounted for $24 million of the charge and will be paid from CSX's pension and postretirement benefit plans. Separation benefits are being paid from cash generated by operations. Approximately half of the separation benefits were paid in 1999. On an annualized basis, the workforce reduction program is expected to provide operating expense savings of approximately $65 million. Federal Court Decision Affecting Mountaintop Coal Mining In October 1999, a federal district court judge ruled that certain mountaintop coal mining practices in West Virginia were in violation of the federal Clean Water Act and the federal Surface Mining and Control Reclamation Act. The decision, which is currently under appeal, could adversely affect CSX's coal traffic and revenues if upheld. New Orleans Tank Car Fire Litigation In September 1997, a state court jury in New Orleans, La. returned a $2.5 billion punitive damages award against CSXT. The award was made in a class-action lawsuit against a group of nine companies based on personal injuries alleged to have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans neighborhood. In the same case, the court awarded a group of 20 plaintiffs compensatory damages of approximately $2 million against the defendants, including CSXT, to which the jury assigned 15% of the responsibility for the incident. CSXT's liability under that compensatory damages award is not material, and adequate provision has been made for the award. In October 1997, the Louisiana Supreme Court set aside the punitive damages judgment, ruling the judgment should not have been entered until all liability issues were resolved. In February 1999, the Louisiana Supreme Court issued a further decision, authorizing and instructing the trial court to enter individual punitive damages judgments in favor of the 20 plaintiffs who had received awards of compensatory damages, in amounts representing an appropriate share of the jury's award. The trial court on April 8, 1999 entered judgment awarding approximately $2 million in compensatory damages and approximately $8.5 million in punitive damages to those 20 plaintiffs. Approximately $6.2 million of the punitive damages awarded were assessed against CSXT. CSXT then filed post-trial motions for a new trial and for judgment notwithstanding the verdict as to the April 8 judgment. The new trial motion was denied by the trial court in August of 1999. On Nov. 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment notwithstanding the verdict and effectively reduced the amount of the punitive damages verdict from $2.5 billion to $850 million. CSXT believes that this amount (or any amount of punitive damages) is unwarranted and intends to pursue its full appellate remedies with respect to the 1997 trial as well as the trial judge's decision on the motion for judgment notwithstanding the verdict. The compensatory damages awarded by the jury in the 1997 trial were also substantially reduced by the trial judge. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond in the amount of $895 million, which will allow it to appeal the 1997 compensatory and punitive awards, as reduced by the trial judge. A trial for the claims of 20 additional plaintiffs for compensatory damages began on May 24, 1999. In early July, the jury in that trial rendered verdicts totaling approximately $330 thousand in favor of 18 of those 20 plaintiffs. Two plaintiffs received nothing; that is, the jury found that they had not proved any damages. Management believes this result, while still excessive, supports CSXT's contention that the punitive damages award was unwarranted. CSXT continues to pursue an aggressive legal strategy. Management believes that an adverse outcome, if any, is not likely to be material to CSX's or CSXT's financial position, although it could be material to results of operations in a particular quarterly accounting period. Environmental Management CSX generates and transports hazardous and nonhazardous waste in its current and former operations, and is subject to federal, state and local environmental laws and regulations. The company has identified 243 sites at which it is or may be liable for remediation costs associated with alleged contamination or for alleged violations of environmental requirements. Approximately 115 of these sites are or may be subject to remedial action under the federal Superfund statute or similar state statutes. Certain federal legislation imposes joint and several liability for the remediation of identified sites. Consequently, CSX's ultimate environmental liability may include costs relating to other parties, in addition to costs relating to its own activities at each site. A liability of $53 million has been accrued for future costs at all sites where the company's obligation is probable and where such costs can be reasonably estimated. However, the ultimate cost could be higher or lower than the amounts currently provided. The liability includes future costs for remediation and restoration of sites, as well as for ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates were based on information available for each site, financial viability of other potentially responsible parties (PRPs), and existing technology, laws and regulations. CSX believes it has made adequate provision for its ultimate share of costs at sites subject to joint and several liability. However, the ultimate liability for remediation is difficult to determine with certainty because of the number of PRPs involved, site-specific cost-sharing arrangements with other PRPs, the degree of contamination by various wastes, the scarcity and quality of data related to many of the sites, and/or the speculative nature of remediation costs. The majority of the year-end 1999 environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations. Total expenditures associated with protecting the environment and remedial environmental cleanup and monitoring efforts amounted to $35 million in 1999, compared with $34 million in 1998 and $36 million in 1997. During 2000, the company expects to incur preventive and remedial environmental expenditures in the range of $35 million to $45 million. Future environmental obligations are not expected to have a material impact on the results of operations or financial position of the company. Year 2000 Computer Transition In 1996, CSX and each of its transportation subsidiaries began a comprehensive plan to address the potential exposure associated with the Year 2000 computer problem. By the fourth quarter of 1999, all key phases of the company's Year 2000 readiness plan were completed and project teams made final preparations for the transition to Jan. 1, 2000. During the Year 2000 rollover weekend, no major problems surfaced. CSX believes that its readiness plan was successfully executed, key objectives were met, and project teams adequately addressed all significant Year 2000 issues. The company continues to assess technology-related problems as they occur to determine if they are Year 2000 related. Detailed contingency plans remain in place and can be implemented if any Year 2000 problems occur. However, based on the information gathered since January, CSX does not expect the Year 2000 event to cause any interruptions in business operations or to adversely effect its customers. The company has incurred total Year 2000 related costs of $70 million through the end of fiscal year 1999 and expects to incur additional costs of approximately $2 million. To provide a consistent, objective method for identifying costs of the Year 2000 plan, the company has classified expenditures as Year 2000 plan costs for reporting purposes only if they remedied only Year 2000 risks and were otherwise unnecessary in the normal course of business. The cost of the Year 2000 plan was expensed as incurred and funded by cash generated from operations. Business Outlook for 2000 CSX enters fiscal year 2000 poised to build on its core rail and intermodal businesses and complemented by other transportation interests that are solid performers. With the Conrail integration completed, the rail unit's focus in 2000 will be on delivering stronger financial performance by driving out costs, improving railroad operations and seizing growth opportunities on the expanded network. The rail and intermodal units will work to capture merger synergies and restore customer satisfaction by improving on-time performance and other key operating measures. Modest growth in the domestic economy is expected to continue in 2000, which would be favorable for CSXT; however, CSXT's export coal business shows no sign of recovering in the foreseeable future. CSXT is currently engaged in negotiations with the bargaining representatives for its union employees, who represent the majority of its employment base; the impact of these negotiations cannot be estimated at this time. CSXT will incur higher labor costs in 2000 from cost-of-living increases provided under current union contracts unless new agreements are reached. Recent fuel price increases have adversely impacted company earnings. If these price trends continue and if the company cannot pass these higher costs through to its customers, the negative impact on fiscal year 2000 earnings is likely to be significant. The sale of Sea-Land's international liner business leaves CSX less vulnerable to the highly volatile global container-shipping markets. The retained Sea-Land businesses have experienced management teams and are expected to generate reliable earnings and positive cash flow. CSX Lines expects to deliver stable quarterly earnings on annual revenues of approximately $700 million. CSX World Terminals anticipates capitalizing on identified growth opportunities and should generate fiscal year 2000 revenues of approximately $300 million. The contract logistics business expects continued double-digit growth and is working closely with the surface transportation group to develop new and creative transportation and logistics solutions for customers. Forward-looking Statements Estimates and forecasts in Management's Discussion and Analysis and in other sections of this Annual Report are based on many assumptions about complex economic and operating factors with respect to industry performance, general business and economic conditions and other matters that cannot be predicted accurately and that are subject to contingencies over which the company has no control. Such forward-looking statements are subject to uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. The words "believe," "expect," "anticipate," "project," and similar expressions signify forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements made by or on behalf of the company. Any such statement speaks only as of the date the statement was made. The company undertakes no obligation to update or revise any forward-looking statement. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities: (i) costs and operating difficulties related to the integration of Conrail may not be eliminated or resolved within the time frame currently anticipated; (ii) revenue and cost synergies expected from the integration of Conrail may not be fully realized or realized within the time frame anticipated; (iii) general economic or business conditions, either nationally or internationally, an increase in fuel prices, a tightening of the labor market or changes in demands of organized labor resulting in higher wages, or increased benefits or other costs or disruption of operations may adversely affect the businesses of the company; (iv) legislative or regulatory changes, including possible enactment of initiatives to reregulate the rail industry, may adversely affect the businesses of the company; (v) possible additional consolidation of the rail industry in the near future may adversely affect the operations and business of the company; and (vi) changes may occur in the securities and capital markets.
Consolidated Statement of Earnings (Millions of Dollars, Except Per Share Amounts) Fiscal Years Ended --------------------------------------------- Dec. 31, 1999 Dec. 25, 1998 Dec. 26, 1997 - ----------------------------------------------------------------------------------------------------------- Operating Income Operating Revenue $ 10,811 $ 9,868 $ 10,621 Operating Expense 10,203 8,708 9,038 ------------------------------------------ Operating Income 608 1,160 1,583 Other Income and Expense Other Income 52 119 51 Interest Expense 521 506 451 ------------------------------------------ Earnings Earnings Before Income Taxes 139 773 1,183 Income Tax Expense 88 236 384 ------------------------------------------ Earnings before Cumulative Effect of Accounting Change 51 537 799 Cumulative Effect on Prior Years of Accounting Change for Insurance-related Assessments, Net of Tax (49) -- -- ------------------------------------------ Net Earnings $ 2 $ 537 $ 799 - --------------------------------------------------------------------------------------------------------- Per Common Share Earnings Per Share: Before Cumulative Effect of Accounting Change $ .24 $ 2.55 $ 3.80 Cumulative Effect of Accounting Change (.23) -- -- ------------------------------------------ Including Cumulative Effect of Accounting Change $ .01 $ 2.55 $ 3.80 ------------------------------------------ Earnings Per Share, Assuming Dilution: Before Cumulative Effect of Accounting Change $ .24 $ 2.51 $ 3.72 Cumulative Effect of Accounting Change (.23) -- -- ------------------------------------------ Including Cumulative Effect of Accounting Change $ .01 $ 2.51 $ 3.72 ------------------------------------------ Average Common Shares Outstanding (Thousands) 210,616 210,860 209,979 Average Common Shares Outstanding, Assuming Dilution(Thousands) 212,696 214,196 214,445 Cash Dividends Paid Per Common Share $ 1.20 $ 1.20 $ 1.08 - ---------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows (Millions of Dollars) Fiscal Years Ended ------------------------------------------------- Dec. 31, 1999 Dec. 25, 1998 Dec. 26, 1997 - -------------------------------------------------------------------------------------------------------------- Operating Activities Net Earnings $ 2 $ 537 $ 799 Adjustments to Reconcile Net Earnings to Net Cash Provided Cumulative Effect of Accounting Change 49 -- -- Depreciation 621 630 646 Deferred Income Taxes (19) 296 190 Loss on Sale of International Container-Shipping Assets 401 -- -- Workforce Reduction Program 55 -- -- Net Investment Gains (27) (154) -- Equity in Conrail Earnings - Net 2 (141) (102) Other Operating Activities 8 (78) (28) Changes in Operating Assets and Liabilities Accounts Receivable (621) 19 (99) Other Current Assets 41 (82) (2) Accounts Payable 301 55 39 Other Current Liabilities 258 (82) 115 -------------------------------------- Net Cash Provided by Operating Activities 1,071 1,000 1,558 - ----------------------------------------------------------------------------------------------------------- Investing Activities Property Additions (1,517) (1,479) (1,125) Net Proceeds from Sale of International Container-Shipping Assets 751 -- -- Net Proceeds from Conveyance of Barge Subsidiary -- 628 -- Investment in Conrail (2) (13) (2,163) Short-term Investments - Net 94 6 (119) Other Investing Activities 92 (12) 59 -------------------------------------- Net Cash Used by Investing Activities (582) (870) (3,348) - ----------------------------------------------------------------------------------------------------------- Financing Activities Short-term Debt - Net 187 61 (209) Long-term Debt Issued 284 1,153 2,530 Long-term Debt Repaid (126) (1,132) (398) Cash Dividends Paid (262) (262) (235) Common Stock Reacquired -- (103) (11) Other Financing Activities (51) 7 (4) -------------------------------------- Net Cash Provided (Used) by Financing Activities 32 (276) 1,673 - ----------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 521 (146) (117) Cash, Cash Equivalents and Short-term Investments Cash and Cash Equivalents at Beginning of Year 105 251 368 -------------------------------------- Cash and Cash Equivalents at End of Year 626 105 251 Short-term Investments at End of Year 348 428 439 -------------------------------------- Cash, Cash Equivalents and Short-term Investments at End of Year $ 974 $ 533 $ 690 - ----------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information Interest Paid - Net of Amounts Capitalized $ 523 $ 498 $ 423 Income Taxes Paid $ 58 $ 154 $ 141 - ---------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Financial Position (Millions of Dollars) Dec. 31, 1999 Dec. 25, 1998 - --------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash, Cash Equivalents and Short-term Investments $ 974 $ 533 Accounts Receivable 1,135 898 Materials and Supplies 220 225 Deferred Income Taxes 135 128 Other Current Assets 99 200 ------------------------ Total Current Assets 2,563 1,984 ------------------------ Properties 17,526 18,678 Accumulated Depreciation (5,269) (6,033) ------------------------ Properties - Net 12,257 12,645 ------------------------ Investment in Conrail 4,663 4,798 Affiliates and Other Companies 410 448 Other Long-term Assets 827 552 ------------------------ Total Assets $20,720 $20,427 - --------------------------------------------------------------------------------------------------- Liabilities Current Liabilities Accounts Payable $ 1,197 $ 1,216 Labor and Fringe Benefits Payable 436 462 Casualty, Environmental and Other Reserves 271 283 Current Maturities of Long-term Debt 349 100 Short-term Debt 574 187 Other Current Liabilities 646 352 ------------------------ Total Current Liabilities 3,473 2,600 Casualty, Environmental and Other Reserves 767 645 Long-term Debt 6,196 6,432 Deferred Income Taxes 3,227 3,173 Other Long-term Liabilities 1,301 1,697 ------------------------ Total Liabilities 14,964 14,547 - --------------------------------------------------------------------------------------------------- Shareholders' Equity Common Stock, $1 Par Value 218 217 Other Capital 1,525 1,489 Retained Earnings 4,034 4,294 Accumulated Other Comprehensive Loss (21) (120) ------------------------ Total Shareholders' Equity 5,756 5,880 ------------------------ Total Liabilities and Shareholders' Equity $20,720 $20,427 - ---------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Changes in Shareholders' Equity (Millions of Dollars) Common Shares Accumulated Other Outstanding Common Other Retained Comprehensive (Thousands) Stock Capital Earnings Loss Total - ------------------------------------------------------------------------------------------------------------- Balance Dec. 27, 1996 216,885 $ 217 $ 1,433 $ 3,455 $ (110) $ 4,995 Comprehensive Earnings: Net Earnings -- -- -- 799 -- 799 Adjustment of Minimum Pension Liability, Net of $45 Income Taxes -- -- -- -- 87 87 ------- Comprehensive Earnings 886 ------- Dividends -- -- -- (235) -- (235) Common Stock Issued (Repurchased) - Net 1,425 1 119 -- -- 120 - ------------------------------------------------------------------------------------------------------------- Balance Dec. 26, 1997 218,310 218 1,552 4,019 (23) 5,766 Comprehensive Earnings: Net Earnings -- -- -- 537 -- 537 Adjustment of Minimum Pension Liability, Net of $54 Income Taxes -- -- -- -- (94) (94) Other - Net -- -- -- -- (3) (3) ------- Comprehensive Earnings 440 ------- Dividends -- -- -- (262) -- (262) Common Stock Issued (Repurchased) - Net (1,191) (1) (63) -- -- (64) - ------------------------------------------------------------------------------------------------------------- Balance Dec. 25, 1998 217,119 217 1,489 4,294 (120) 5,880 Comprehensive Earnings: Net Earnings -- -- -- 2 -- 2 Adjustment of Minimum Pension Liability, Net of $56 Income Taxes -- -- -- -- 99 99 ------ Comprehensive Earnings 101 ------ Dividends -- -- -- (262) -- (262) Common Stock Issued (Repurchased) - Net 1,325 1 36 -- -- 37 - ------------------------------------------------------------------------------------------------------------- Balance Dec. 31, 1999 218,444 $218 $1,525 $4,034 $ (21) $5,756 - -------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. Note 1. Significant Accounting Policies. Nature of Operations CSX Corporation (CSX) is a freight transportation company with principal business units providing rail, intermodal, container-shipping, and contract logistics services. Rail transportation services are provided principally throughout the eastern United States and accounted for slightly more than half of the company's 1999 operating revenue. Intermodal services are provided through a dedicated network of terminals and facilities across North America and accounted for nearly 10% of operating revenue in 1999. Container-shipping services were provided in the United States and more than 80 countries and territories throughout the world and accounted for more than a third of 1999 operating revenue. In December 1999, CSX sold its international container-shipping liner operations (see Note 4.), but continues to own and operate its domestic container-shipping and terminal management businesses. Contract logistics services are provided principally in the United States and accounted for nearly 5% of the company's 1999 operating revenue. Rail shipments include merchandise traffic, automobiles and related products, and coal, coke and iron ore. Merchandise traffic comprised nearly 60% of rail revenue in 1999, while automotive traffic accounted for nearly 15% and coal, coke and iron ore accounted for slightly more than 25%. Merchandise traffic includes chemicals, paper and forest products, agricultural products, minerals, metals, phosphates and fertilizer, and food and consumer products. Coal shipments originate principally from mining locations in the eastern United States and primarily supply domestic utility and export markets. Principles of Consolidation The Consolidated Financial Statements include CSX and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in companies that are not majority-owned are carried at either cost or equity, depending on the extent of control. Fiscal Year CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 1999 consisted of 53 weeks. Fiscal years 1998 and 1997 consisted of 52 weeks. A 52-week fiscal year consists of four 13-week quarters; a 53-week year reports an extra week in the first quarter. Earnings Per Share References to earnings per share in the Notes to Consolidated Financial Statements assume dilution. Cash, Cash Equivalents and Short-term Investments Cash in excess of current operating requirements is invested in various short-term instruments carried at cost that approximates market value. Those short-term investments having a maturity of three months or less at the date of acquisition are classified as cash equivalents. Materials and Supplies Materials and supplies consist primarily of fuel and items for maintenance of property and equipment, and are carried at average cost. Properties All properties are stated at cost, less an allowance for accumulated depreciation. Main-line track on the rail system is depreciated using a composite straight-line method. All other property and equipment is depreciated on a straight-line basis over estimated useful lives of three to 50 years. Regulations enforced by the Surface Transportation Board (STB) of the U.S. Department of Transportation require periodic formal studies of ultimate service lives for all railroad assets. Resulting service life estimates are subject to review and approval by the STB. For retirements or disposals of depreciable rail assets that occur in the ordinary course of business, the asset cost (net of salvage value or sales proceeds) is charged to accumulated depreciation and no gain or loss is recognized. For retirements or disposals of depreciable assets of non-rail businesses, and for all dispositions of land, gains or losses are recognized at the time of disposal. Expenditures that significantly increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. Properties and other long-lived assets are reviewed for impairment whenever events or business conditions indicate the carrying amount of such assets may not be fully recoverable. Initial assessments of recoverability are based on estimates of undiscounted future net cash flows associated with an asset or a group of assets. Where impairment is indicated, the assets are evaluated for sale or other disposition, and their carrying amount is reduced to fair value based on discounted net cash flows or other estimates of fair value. Revenue and Expense Recognition Surface transportation (rail and intermodal) revenue and expense are recognized proportionately as freight moves from origin to destination. Marine transportation (container-shipping) revenue and a corresponding accrual for the estimated cost to complete delivery are recorded when cargo first sails from its port of origin. Environmental Costs Environmental costs are charged to expense when they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. Liabilities are recorded when CSX's responsibility for environmental remedial efforts is deemed probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the company's commitment to a formal plan of action. Stock-based Compensation The company records expense for stock-based compensation in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Disclosures required with respect to the alternative fair value measurement and recognition methods prescribed by Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting for Stock-Based Compensation," are presented in Note 15 - Stock Plans. Prior-year Data Certain prior-year data have been reclassified to conform to the 1999 presentation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates in reporting the amounts of certain revenues and expenses for each fiscal year and certain assets and liabilities at the end of each fiscal year. Actual results may differ from those estimates. Comprehensive Earnings CSX reports comprehensive earnings (loss) in accordance with FASB Statement No. 130, "Reporting Comprehensive Income," in the Consolidated Statement of Changes in Shareholders' Equity. Accumulated other comprehensive loss at Dec. 31, 1999 and Dec. 25, 1998, consists of minimum pension liability adjustments ($15 million and $114 million, respectively) and foreign currency translation adjustments and other ($6 million and $6 million, respectively). Accounting Pronouncements The FASB has issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of Effective Date of FASB Statement No. 133," which postpones the effective date of FASB Statement No. 133 until fiscal quarters of all fiscal years beginning after June 15, 2000. Statement No. 133 requires companies to record derivatives on the statement of financial position, measured at fair value. The statement also sets forth new accounting rules for gains or losses resulting from changes in the values of derivatives. While CSX does not currently use derivative financial instruments, and its historical use of such instruments has not been material, the company plans to adopt this statement in the first quarter of 2001 to the extent it may apply at that time. The company would not expect the adoption of Statement No. 133 to have a material impact on its financial statements. Note 2. Change in Method of Accounting for Insurance-Related Assessments. CSX adopted the American Institute of Certified Public Accountants' Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments," (SOP No. 97-3) effective as of the beginning of fiscal year 1999. SOP No. 97-3 requires companies to accrue assessments related to workers' compensation second injury funds and is applicable to CSX with respect to certain assessments incurred by Sea-Land Service, Inc. (Sea-Land), the company's container-shipping unit. The assessments relate to employees who have experienced second injuries over periods dating back to the 1970s and are receiving a disability benefit. Previously, the assessments were charged to expense in the fiscal year they were paid. As a result of adopting SOP No. 97-3, the company recorded a non-cash charge of $78 million, $49 million after tax, 23 cents per share, to reflect the cumulative effect on prior years of the accounting change. Had the accounting change been applied retroactively, the effect on net earnings and related per share amounts would not have been material to any period presented. Note 3. Investment in and Integrated Rail Operations with Conrail. Background CSX and Norfolk Southern Corporation (Norfolk Southern) completed the acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary freight railroad system serving the northeastern United States, and its rail network extends into several midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold economic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern received regulatory approval from the Surface Transportation Board (STB) to exercise joint control over Conrail in August 1998 and subsequently began integrated rail operations over allocated portions of the Conrail lines in June 1999. The rail subsidiaries of CSX and Norfolk Southern operate their respective portions of the Conrail system pursuant to various operating agreements that took effect on June 1, 1999. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail service in certain shared geographic areas for the joint benefit of CSX and Norfolk Southern for which it is compensated on the basis of usage by the respective railroads. The majority of Conrail's operations workforce transferred to CSX or Norfolk Southern, although certain operations personnel, as well as certain management and administrative employees, remain at Conrail to oversee its ongoing business activities. As a result of the acquisition, a number of positions were eliminated and certain duplicate facilities were closed. Note 3. Investment in and Integrated Rail Operations with Conrail (cont'd). Acquisition Accounting by the Jointly Owned Entity and CSX The jointly owned entity has accounted for the acquisition of Conrail as a purchase business combination effective as of the August 1998 control date. At that time, its investment in Conrail was approximately $10.2 billion, consisting of the original $9.8 billion purchase price plus equity in Conrail's earnings, net of purchase price amortization, since the May 1997 acquisition date. This amount has been allocated to reflect the fair values of Conrail's assets and liabilities as follows (in millions): Current Assets $ 879 Property and Equipment, Net 17,832 Other Assets 1,122 Current Liabilities (1,279) Long-term Debt (1,891) Deferred Income Taxes (5,595) Other Liabilities (868) --------- Total $10,200 - ------------------------------------------------------- The jointly owned entity's purchase price allocation included a provision of $280 million for the cost to Conrail of separating non-union employees whose positions were eliminated as a result of the acquisition. CSX separately recorded liabilities totaling approximately $400 million to provide for other acquisition-related obligations it is required to fund, including separation and relocation costs for Conrail union employees, relocation costs for Conrail non-union employees, and costs associated with the closure of certain Conrail facilities. CSX increased its investment in Conrail on the statement of financial position as a result of recording these separate obligations. Under STB restrictions, CSX and Norfolk Southern did not have complete access to Conrail's properties and records and also were prevented from negotiating labor implementing agreements prior to the August 1998 control date. As a result, the amounts initially recorded by the jointly owned entity and by CSX for separation costs and other acquisition-related obligations were preliminary and were adjusted to reflect refinements identified as CSX and Norfolk Southern completed their integration of the Conrail network. These adjustments did not have a significant effect on the purchase price allocation.
Conrail Financial Information Summary financial information for Conrail for its fiscal years ended Dec. 31, 1999, 1998 and 1997 is as follows: Years Ended Dec. 31, Dec. 31, - --------------------------------------------------- ------------------- 1999 1998 1997 1999 1998 - --------------------------------------------------- -------------------------------------------------------------- Income Statement Information: Balance Sheet Information: Revenues $2,174 $3,863 $3,765 Current Assets $ 669 $1,005 Income from Operations 128 515 322 Property and Equipment and Other Assets 7,714 8,039 Net Income 26 267 7 Total Assets 8,383 9,044 - --------------------------------------------------- Current Liabilities 863 1,207 Long-term Debt 1,302 1,609 Total Liabilities 4,564 5,244 Stockholders' Equity 3,819 3,800 --------------------------------------------------------------
Conrail's operating results for 1999 were significantly impacted by the changes in its business resulting from the integration with CSX and Norfolk Southern. Effective June 1, 1999, Conrail's major sources of revenue are derived from CSXand Norfolk Southern and consist principally of operating fees, equipment rent, and shared area usage fees. The nature of Conrail's operating expenses also has changed to reflect the new operations. In addition, Conrail's 1999 operating results included after-tax expenses of $121 million principally to reflect the method of settlement of certain casualty liabilities based on the agreement between CSX, Norfolk Southern and Conrail, to adjust certain litigation and environmental reserves related to settlements and completion of site reviews, and to reflect the assumption of a lease obligation by CSX. Certain of these items were considered by the joint acquisition entity in its fair value allocation of Conrail's assets and liabilities and, accordingly, were excluded in determining the equity in Conrail's net income recorded by CSX. Conrail's operating results for the years ended Dec. 31, 1998, and 1997 included certain charges related to the acquisition. The 1998 charges totaled $187 million on an after-tax basis and reflected the accrual of separation costs for non-union employees below the executive level. The 1997 charges totaled $363 million on an after-tax basis and reflected the accrual of separation costs for Conrail executives, as well as the vesting of benefits under certain stock compensation plans and the termination of Conrail's Employee Stock Ownership Plan. The jointly owned entity accounted for these costs as part of the fair value allocation and CSX accordingly excluded them in determining its equity in Conrail's net income. Excluding the charges, Conrail's net income totaled $454 million for the year ended Dec. 31, 1998, and $370 million for the year ended Dec. 31, 1997. CSX's Accounting for its Investment in and Integrated Rail Operations with Conrail Upon integration, substantially all of Conrail's customer freight contracts were assumed by CSXand Norfolk Southern. As a result, beginning June 1, 1999, CSX's rail and intermodal operating revenue includes revenue from traffic previously moving on Conrail. Operating expenses reflect corresponding increases for costs incurred to handle the new traffic and operate the former Conrail lines. Effective June 1, 1999, rail operating expenses also include a new expense category, "Conrail Operating Fee, Rent and Services," which reflects payments to Conrail for the use of right-of-way and equipment; as well as charges for transportation, switching, and terminal services provided by Conrail in the shared areas operated for the joint benefit of CSXand Norfolk Southern. The new expense category also includes amortization of the fair value write-up arising from the acquisition of Conrail, as well as CSX's proportionate share of Conrail's net income or loss recognized under the equity method of accounting. Prior to the June 1, 1999 integration, CSX recorded its share of Conrail's net income, less amortization of the fair value write-up, and acquisition and transition expenses, in other income (expense) in the Consolidated Statement of Earnings. As previously outlined, CSX and Norfolk Southern completed the joint acquisition of Conrail in May 1997. At that time, CSX's economic interest in Conrail increased to 42% from approximately 20%. Had CSX held its 42% interest in Conrail from the beginning of the fiscal year, its net earnings for the year ended Dec. 26, 1997, would have been reduced by $28 million to $771 million, $3.60 per share, reflecting additional amounts for equity in Conrail's net income, amortization of the fair value write-up, and interest on the acquisition debt. Transactions With Conrail The agreement under which CSX operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSX's option for two five-year terms. Operating fees paid to Conrail under the agreement are subject to adjustment every six years based on the fair value of the underlying system. Lease agreements for the Conrail equipment operated by CSX cover varying terms. CSX is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements. Future minimum payments to Conrail under the operating, equipment and shared area agreements total $247 million for 2000, $240 million for 2001, $248 million for 2002, $256 million for 2003, $261 million for 2004, and $4.4 billion for years after 2004. At Dec. 31, 1999, CSX had $53 million in amounts receivable from Conrail, principally for reimbursement of certain capital improvement costs and accrued vacation for former Conrail employees who joined CSX in June 1999. CSX has recorded a corresponding vacation liability and will pay the employees as they take vacation. Conrail advances its available cash balances to CSX and Norfolk Southern under variable-rate demand loan agreements. At Dec. 31, 1999, Conrail had advanced $93 million to CSX under this arrangement at an interest rate of 5.6%. CSX also had amounts payable to Conrail of approximately $105 million representing expenses incurred under the operating, equipment, and shared area agreements. Note 4. Divestitures and Joint Venture Investment. Sale of International Container-Shipping Assets In July 1999, CSX entered into an agreement to sell certain assets comprising the international liner business of Sea-Land to A. P. Moller-Maersk Line (Maersk) for approximately $800 million, subject to certain purchase price adjustments that depended on a detailed allocation and valuation of certain categories of assets. The transaction, which also involved Maersk assuming in excess of $800 million present value of Sea-Land operating lease obligations, closed on Dec. 10, 1999. The international liner business operated approximately 75 container vessels and 200,000 containers in worldwide trades and comprised a majority of CSX's container-shipping revenue. In addition to vessels and containers, Maersk acquired certain terminal facilities and various other assets and related liabilities of the international liner business. The operating revenue associated with the assets sold was approximately $2.8 billion for 1999, $3.0 billion in 1998, and $3.2 billion in 1997. In accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," CSX classified the international liner assets as "held for sale" in July when the agreement with Maersk was signed. The company recorded a $315 million asset impairment charge in the third quarter to adjust the book value of the related property, equipment and other long-lived assets to their fair value less cost to sell. In addition, in accordance with the provisions of Statement No. 121, no depreciation was recorded on these assets after their classification as "held for sale." Based on subsequent accounting for the completed transaction, including adjustments to reflect asset allocations agreed to at closing, the company determined that the loss on sale was approximately $86 million higher than the third quarter charge. The final loss on sale of $401 million, net of a $41 million benefit from the lower depreciation expense, reduced 1999 earnings by $360 million, $271 million after tax, $1.27 per share. The agreement with Maersk provides for a post-closing adjustment to the sales price based on the final amount of working capital conveyed, and the loss includes estimates of costs to terminate various contractual obligations of the company. These matters are expected to be resolved in fiscal 2000 and will affect the final determination of the loss on sale. Net of purchase price adjustments and cash balances conveyed to Maersk at closing, the company received cash proceeds of $751 million on the sale. Through Dec. 31, 1999, a portion of the proceeds was used to reduce short-term debt, with the remainder invested in cash equivalents and short-term investments. CSX retained the container-shipping business serving the U.S. domestic trade and part of the company's international terminal operations and will manage them separately. Management reporting and performance measures for these businesses have been developed for fiscal year 2000. The company expects to revise its disclosures under FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the first quarter of 2000 to report these as separate business segments; however, it will not be practicable to provide comparative segment disclosures for prior years. Sale of Grand Teton Lodge Subsidiary In June 1999, CSX completed the sale of its Grand Teton Lodge resort subsidiary, located in Jackson Hole, Wyo., to Vail Resorts. The transaction resulted in a net investment gain of $27 million, $17 million after tax, 8 cents per share. CSX received net cash proceeds of $49 million. Conveyance of Barge Subsidiary to Joint Venture On June 30, 1998, CSX conveyed its wholly owned barge subsidiary, American Commercial Lines LLC (ACL), to a venture formed with Vectura Group Inc. (Vectura). As part of the transaction, NMI Holdings LLC, a wholly owned barge subsidiary of Vectura, was combined with ACL. CSX received cash proceeds of $695 million from the transaction, $67 million of which were used to repay certain outstanding debt and other obligations of ACL and to pay expenses of the transaction. Operating results for the year ended Dec. 25, 1998, include a net investment gain of $154 million, $90 million after tax, 42 cents per share, primarily from the ACL transaction. Note 4. Divestitures and Joint Venture Investment (cont'd). Conveyance of Barge Subsidiary to Joint Venture (cont'd) CSX has a 32% common ownership in the new venture. Due to the reduction in its ownership interest, CSX has accounted for its investment in the venture under the equity method for the fiscal years ended Dec. 25, 1998 and Dec 31, 1999. For periods prior to fiscal year 1998, ACL was accounted for as a consolidated subsidiary. Note 5. Workforce Reduction Program. CSX recorded a charge of $55 million, $34 million after tax, 16 cents per share, in the fourth quarter of 1999 to recognize the cost of a program to reduce the non-union workforce at its rail and intermodal units by approximately 800 positions. A voluntary early retirement program completed in December accounted for approximately 680 of the position reductions, with the remainder achieved through a combination of involuntary terminations and normal attrition. Approximately 75% of the retirements and separations occurred by the end of the year, with the remainder scheduled to occur over the first half of fiscal year 2000 as their job responsibilities are reorganized or transitioned to other personnel. Early retirement benefits offered under the voluntary program accounted for $24 million of the charge and will be paid from CSX's pension and postretirement benefit plans. Separation benefits are being paid from cash generated by operations. Approximately half of the separation benefits were paid in 1999. Substantially all of the remaining amounts will be paid in fiscal year 2000 and are included in "Labor and Fringe Benefits Payable" in the consolidated statement of financial position.
Note 6. Operating Expense. 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Labor and Fringe Benefits $3,471 $3,140 $3,226 Materials, Supplies and Other 2,662 2,487 2,511 Conrail Operating Fee, Rent and Services 280 -- -- Building and Equipment Rent 1,211 1,102 1,111 Inland Transportation 1,044 996 1,003 Depreciation 595 609 620 Fuel 484 404 567 Loss on Sale of International Container-Shipping Assets 401 -- -- Workforce Reduction Program 55 -- -- Restructuring Credit -- (30) -- ----------------------------- Total $10,203 $8,708 $9,038 ----------------------------- Selling, General and Administrative Expense Included in Above Items $1,098 $1,165 $1,106 - ---------------------------------------------------------------------------------------------------
Note 7. Other Income. 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Interest Income $ 47 $ 52 $ 53 Income from Real Estate and Resort Operations(a) 74 47 71 Net Investment Gain(b) 27 154 -- Net Losses from Accounts Receivable Sold (31) (30) (29) Minority Interest (40) (35) (41) Net Income (Loss) from Investment in Conrail (42) (39) 34 Equity Earnings of Other Affiliates 17 27 6 Foreign Currency Loss (4) (16) (1) Miscellaneous 4 (41) (42) -------------------------- Total $ 52 $119 $51 - ---------------------------------------------------------------------------------------------------
(a) Gross revenue from real estate and resort operations was $204 million, $194 million and $206 million in 1999, 1998 and 1997, respectively. (b)The $27 million net investment gain recognized in 1999 was attributable to the sale of the Grand Teton Lodge Company. The $154 million net gain in 1998 was primarily attributable to the conveyance of the company's barge subsidiary to a joint venture. See Note 4. Note 8. Income Taxes. Earnings from domestic and foreign operations and related income tax expense are as follows: 1999 1998 1997 - ------------------------------------------------------------------------------ Earnings Before Income Taxes: -- Domestic $ 82 $564 $ 987 -- Foreign 57 209 196 --------------------------- Total Earnings Before Income Taxes $ 139 $773 $1,183 - ------------------------------------------------------------------------------ Income Tax Expense (Benefit): Current -- Federal $ 76 $ (93) $ 143 -- Foreign 31 38 35 -- State 3 (5) 16 ---------------------------- Total Current 110 (60) 194 ---------------------------- Deferred -- Federal (77) 260 168 -- Foreign 4 2 1 -- State 51 34 21 ---------------------------- Total Deferred (22) 296 190 ---------------------------- Total Income Tax Expense $ 88 $236 $ 384 - ------------------------------------------------------------------------------
Income tax expense reconciled to the tax computed at statutory rates is as follows: 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- Tax at Statutory Rates $49 35% $271 35% $414 35% State Income Taxes 7 5 19 2 24 2 Equity in Conrail Net Income (4) (3) (49) (6) (30) (2) Loss on Sale of International Container-Shipping Assets 43 31 -- -- -- -- Other Items (7) (5) (5) -- (24) (2) ----------------------------------------------------- Income Tax Expense $88 63% $236 31% $384 33% - -------------------------------------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities include: Dec. 31, 1999 Dec. 25, 1998 - ----------------------------------------------------------------------------- Deferred Tax Assets: Productivity/Restructuring Charges $ 133 $ 139 Employee Benefit Plans 309 406 Other 502 527 --------------------------- Total 944 1,072 --------------------------- Deferred Tax Liabilities: Accelerated Depreciation 3,256 3,334 Other 780 783 --------------------------- Total 4,036 4,117 - ----------------------------------------------------------------------------- Net Deferred Tax Liabilities $3,092 $3,045 - ----------------------------------------------------------------------------- The sale of certain assets comprising the international liner business of Sea-Land (Note 4.) increased the effective deferred state income tax rate which is applied to the company's cumulative temporary differences. In addition to the annual provision for deferred income tax expense, the change in the year-end net deferred income tax liability balances included the income tax effect of the changes in the minimum pension liability in 1999 and 1998, the income tax effect of the transfer of certain assets and obligations from Conrail's primary defined benefit pension plan to the CSX pension plan in 1999, and the income tax effect of accruing assessments related to workers compensation second injury funds in accordance with SOPNo. 97-3 in 1999. The company has not recorded domestic deferred or additional foreign income taxes applicable to undistributed earnings of foreign subsidiaries that are considered to be indefinitely reinvested. Such earnings amounted to $172 million and $205 million at Dec. 31, 1999 and Dec. 25, 1998, respectively. These amounts may become taxable upon their remittance as dividends or upon the sale or liquidation of these foreign subsidiaries. It is not practicable to determine the amount of net additional income tax that may be payable if such earnings were repatriated. The company files a consolidated federal income tax return, which includes its principal domestic subsidiaries. Examinations of the federal income tax returns of CSX have been completed through 1990. Returns for 1991 through 1996 are currently under examination. Management believes adequate provision has been made for any adjustments that might be assessed. Note 9. Accounts Receivable. The company sells revolving interests in its rail accounts receivable to public investors through a securitization program and to a financial institution through commercial paper conduit programs. The accounts receivable are sold, without recourse, to a wholly owned, special-purpose subsidiary, which then transfers the receivables, with recourse, to a master trust. The securitization and conduit programs are accounted for as sales in accordance with FASB Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Receivables sold under these arrangements are excluded from accounts receivable in the consolidated statement of financial position. In June 1998, the company replaced an expiring securitization program with a new program and reduced the amount of receivables sold under the conduit programs. At Dec. 31, 1999, the agreements provide for the sale of up to $350 million in receivables through the securitization program and $50 million through the conduit programs. At Dec. 31, 1999 and Dec. 25, 1998, the company had sold $347 million of accounts receivable; $300 million through the securitization program and $47 million through the conduit programs. The certificates issued under the securitization program bear interest at 6% annually and mature in June 2003. Receivables sold under the conduit program require yield payments based on prevailing commercial paper rates plus incremental fees. Losses recognized on the sale of accounts receivable totaled $31 million, $30 million, and $29 million in 1999, 1998 and 1997, respectively. The company has retained the responsibility for servicing accounts receivable transferred to the master trust. The average servicing period is approximately one month. No servicing asset or liability has been recorded since the fees the company receives for servicing the receivables approximate the related costs. The company maintains an allowance for doubtful accounts based upon the expected collectibility of accounts receivable, including receivables transferred to the master trust. Allowances for doubtful accounts of $81 million and $92 million have been applied as a reduction of accounts receivable at Dec. 31, 1999 and Dec. 25, 1998, respectively. Note 10. Properties.
Dec. 31, 1999 Dec. 25, 1998 --------------------------------------------------------------- Accumulated Accumulated Cost Depreciation Net Cost Depreciation Net - ------------------------------------------------------------------------------------------------------- Rail: Road $10,534 $2,641 $ 7,893 $10,202 $2,745 $ 7,457 Equipment 5,243 1,983 3,260 4,762 1,806 2,956 --------------------------------------------------------------- Total Rail 15,777 4,624 11,153 14,964 4,551 10,413 Container-shipping 600 339 261 2,662 1,204 1,458 Other 1,149 306 843 1,052 278 774 --------------------------------------------------------------- Total $17,526 $5,269 $12,257 $18,678 $6,033 $12,645 - -------------------------------------------------------------------------------------------------------
Note 11. Casualty, Environmental and Other Reserves.
Activity related to casualty, environmental and other reserves is as follows: Casualty and Environmental Separation Other Reserves(a)(b) Reserves(a) Liabilities(a)(c) Total - ------------------------------------------------------------------------------------------------------ Balance Dec. 27, 1996 $ 534 $117 $ 370 $1,021 Charged to Expense 277 12 -- 289 Payments (249) (30) (22) (301) - ------------------------------------------------------------------------------------------------------ Balance Dec. 26, 1997 562 99 348 1,009 Charged to Expense 309 3 -- 312 Restructuring Credit -- -- (30) (30) Payments and Other Reductions (318) (27) (18) (363) - ------------------------------------------------------------------------------------------------------ Balance Dec. 25, 1998 553 75 300 928 Charged to Expense 417 3 -- 420 Cumulative Effect of Accounting Change 78 -- -- 78 Payments and Other Reductions (333) (25) (30) (388) - ------------------------------------------------------------------------------------------------------ Balance Dec. 31, 1999 $ 715 $ 53 $ 270 $1,038 - ------------------------------------------------------------------------------------------------------
(a)Balances include current portions of casualty and other, environmental and separation reserves, respectively, of $236 million, $20 million and $15 million at Dec. 31, 1999; $244 million, $20 million and $19 million at Dec. 25, 1998; $245 million, $20 million and $33 million at Dec. 26, 1997. (b)Casualty reserves are estimated based upon the first reporting of an accident or personal injury. Liabilities for accidents are based upon field reports and liabilities for personal injuries and occupational claims are based upon the type and severity of the injury or claim and the use of current trends and historical data. The company has recorded liabilities in sufficient amounts to cover identified claims and an estimate of incurred, but not reported, claims. Future liabilities for certain occupational hazards are not subject to reasonable estimation. (c)Separation liabilities at Dec. 31, 1999, relate to productivity charges recorded in 1991 and 1992 to provide for the estimated costs of implementing workforce reductions, improvements in productivity and other cost reductions at the company's major transportation units. The remaining liabilities are expected to be paid out over the next 15 to 20 years. The remaining liability for separation costs incurred in connection with the 1999 workforce reduction program is included in "Labor and Fringe Benefits Payable" (see Note 5). The company increased casualty and other reserves by $78 million at the beginning of fiscal year 1999 to record the cumulative effect on prior years of adopting a new accounting rule (SOP No. 97-3) related to assessments by workers' compensation second injury funds. The assessments relate to disability benefits received by former employees of Sea-Land and previously were charged to expense in the fiscal year they were paid. During 1998, CSXT recorded a restructuring credit of $30 million, reflecting the reversal of certain separation and labor protection reserves established as part of a 1995 restructuring charge. These reserves were associated with planned workforce reductions that did not occur as a result of a new telecommunications contract CSXTentered into in July 1998. Note 12. Debt and Credit Agreements.
Average Interest Rates Types and Maturity Dates at Dec. 31, 1999 Dec. 31, 1999 Dec. 25, 1998 - ------------------------------------------------------------------------------------------------------- Commercial Paper 5.39% $ 800 $1,000 Notes (2002-2032) 7.53% 4,558 4,560 Equipment Obligations (2000-2014) 6.88% 940 770 Mortgage Bonds (2002-2003) 3.16% 56 72 Other Obligations, including Capital Leases (2000-2010) 7.34% 191 130 -------------------------------------------- Total 7.13% 6,545 6,532 Less Debt Due Within One Year 349 100 -------------------------- Total Long-term Debt $6,196 $6,432 - -------------------------------------------------------------------------------------------------------
CSX maintains a $2.5 billion bank credit agreement to provide financing for a portion of the Conrail acquisition and for general working capital needs. Under the agreement, the company may borrow directly from the participating banks or utilize the credit facility to support the issuance of commercial paper. Direct borrowings from the participating banks can be obtained, at the company's option, under a competitive bid process among the banks or under a revolving credit arrangement with interest either at LIBOR plus a margin determined by the company's credit rating or at an alternate base rate, as defined in the agreement. The company pays annual fees to the participating banks that may range from .06% to .15% of the total commitment, depending upon its credit rating. The credit agreement, which expires in November 2001, also includes certain covenants and restrictions, such as limitations on debt as a percentage of total capitalization and restrictions on the disposition of certain assets. At Dec. 31, 1999, CSX had commercial paper borrowings supported by the credit facility of $1.374 billion, of which $800 million was classified as long-term debt based on the company's ability and intent to maintain this debt outstanding for more than one year. At Dec. 26, 1998, the company had commercial paper borrowings of $1.187 billion, of which $1 billion was classified as long-term debt. Short-term debt totaled $574 million at a weighted-average interest rate of 5.39% at Dec. 31, 1999, and $187 million at a weighted-average interest rate of 5.82% at Dec. 25, 1998. CSX issued other debt during 1999 and 1998. In 1999, $400 million of floating rate notes with a one-year maturity were issued to ensure adequate liquidity over year end in the event that financial markets experienced disruption from Year 2000 issues. In 1998, the company issued approximately $1 billion of fixed rate notes, principally to refinance commercial paper borrowings incurred to complete the Conrail acquisition. The notes have maturities ranging from 2001 to 2028 and interest rates ranging from 5.85% to 6.80%. In addition to these financings, the company had customary borrowing and repayment activity in connection with the acquisition of equipment. In January 1999, CSX completed a shelf registration statement with the Securities and Exchange Commission that provides for the issuance of up to $800 million in debt securities and warrants, common stock, preferred stock, depository shares, or warrants for common or preferred stock. At Dec. 31, 1999, the company had $400 million of capacity remaining under the shelf registration. Excluding long-term commercial paper, the company has long-term debt maturities for 2000 through 2004 aggregating $349 million, $157 million, $584 million, $314 million and $391 million, respectively. Certain of CSX's rail unit properties are pledged as security for various rail-related long-term debt issues. Note 13. Common and Preferred Stock. The company has a single class of common stock, $1 par value, of which 300 million shares are authorized. Each share is entitled to one vote in all matters requiring a vote. At Dec. 31, 1999, common shares issued and outstanding totaled 218,444,959. The company also has total authorized preferred stock of 25 million shares, of which 250,000 shares of Series A have been reserved for issuance, and 3 million shares of Series B have been reserved for issuance under the Shareholder Rights Plan discussed below. All preferred shares rank senior to common shares both as to dividends and liquidation preference. No preferred shares were outstanding at Dec. 31, 1999. On May 29, 1998, the board of directors adopted a Shareholder Rights Plan. Pursuant to the Plan, each outstanding share of common stock also evidences one preferred share purchase right ("right"). Each right entitles shareholders of record to purchase from the company, until the earlier of June 8, 2008, or the redemption of the rights, one one-hundredth of a share of Series B preferred stock at an exercise price of $180, subject to certain adjustments or, under certain circumstances, to obtain additional shares of common stock in exchange for the rights. The rights are not exercisable or transferable apart from the related common shares until the earlier of 10 business days following the public announcement that a person or affiliated group has acquired 20% or more of the company's outstanding common stock; or 10 days following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the ownership by a person or group of 15% or more of the outstanding common stock. The board of directors may redeem the rights at a price of one cent per right at any time prior to the acquisition by a person or group of 20% or more of the outstanding common stock. Note 14. Earnings Per Share.
The following table sets forth the computation of earnings per share and earnings per share, assuming dilution. 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Numerator: Net Earnings $ 2 $ 537 $ 799 Denominator (thousands): Average Common Shares Outstanding 210,616 210,860 209,979 Effect of Potentially Dilutive Common Shares, Principally Employee Stock Plans 2,080 3,336 4,466 ------------------------------------ Average Common Shares Outstanding, Assuming Dilution 212,696 214,196 214,445 ------------------------------------ Earnings Per Share $ .01 $ 2.55 $ 3.80 ------------------------------------ Earnings Per Share, Assuming Dilution $ .01 $ 2.51 $ 3.72 - ---------------------------------------------------------------------------------------------------------------------
Certain potentially dilutive securities outstanding at Dec. 31, 1999, Dec. 25, 1998, and Dec. 26, 1997, were not included in the computation of earnings per share, assuming dilution, since their exercise prices were greater than the average market price of the common shares during the period and their effect is antidilutive. These shares totaled 15.60 million at a weighted-average exercise price of $45.80 per share for 1999, 9.60 million at $48.84 per share for 1998, and 1.96 million at $57.00 for 1997. Note 15. Stock Plans. The company maintains several stock plans designed to encourage ownership of its stock and provide incentives for employees to contribute to its success. Expense for stock-based compensation under these plans is based on the intrinsic value accounted for under the principles of APB Opinion No. 25 and related Interpretations. The company recognized compensation expense of $6 million in 1999, a net credit of $4 million in 1998, and expense of $66 million in 1997. Had compensation expense been determined Note 15. Stock Plans (cont'd). based upon fair values at the date of grant, consistent with the methods of FASB Statement No. 123, the company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below. 1999 1998 1997 - -------------------------------------------------------------------------------- Net Earnings -- As Reported $ 2 $ 537 $ 799 -- Pro Forma $ (22) $ 481 $ 791 Earnings Per Share -- As Reported $ .01 $2.55 $3.80 -- Pro Forma $(.11) $2.28 $3.77 Earnings Per Share, Assuming Dilution -- As Reported $ .01 $2.51 $3.72 -- Pro Forma $(.11) $2.24 $3.69 - -------------------------------------------------------------------------------- The pro forma fair value method of accounting was applied only to stock-based awards granted after Dec. 30, 1994. Because all stock-based compensation expense for 1999, 1998 and 1997 was not restated and because stock-based awards granted may vary from year to year, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Stock Purchase and Loan Plan The Stock Purchase and Loan Plan provides for the purchase of common stock and related rights by eligible officers and key employees of the company and entitles them to obtain loans with respect to the shares purchased. The Plan is intended to further the long-term stability and financial success of the company by providing a method for eligible employees to increase significantly their ownership of common stock. A total of 9 million shares are reserved for issuance under the Plan. In consideration for shares purchased, participants have provided down payments of not less than 5% nor more than 25% of the purchase price in the form of cash, recourse notes or equity earned in the Plan. The remaining purchase price is in the form of non-recourse loans secured by the shares issued. At Dec. 31, 1999 and Dec. 25, 1998, loans outstanding totaled $261 million and $275 million, respectively, at weighted-average interest rates of 6.6% for both years. All non-recourse loans under the Plan were originally subject to certain adjustments after a vesting period based upon targeted increases in the market price of CSX common stock. Certain of the market price thresholds were met prior to 1998, resulting in forgiveness of interest (net of dividends applied to interest) plus a portion of the principal balances of the notes. At Dec. 31, 1999, there were 143 participants in the Plan. Transactions involving the Plan are as follows: Shares (000's) Average Price(a) - -------------------------------------------------------------------------- Outstanding at Dec. 27, 1996 8,111 $46.26 Issued 138 $59.43 Exchanged, Canceled or Withdrawn (581) $22.48 -------------------------- Outstanding at Dec. 26, 1997 7,668 $45.74 Exchanged, Canceled or Withdrawn (503) $45.13 -------------------------- Outstanding at Dec. 25, 1998 7,165 $45.75 Exchanged, Canceled or Withdrawn (349) $47.50 -------------------------- Outstanding at Dec. 31, 1999 6,816 $46.93 - -------------------------------------------------------------------------- (a) Represents average cost to participants, net of cumulative note forgiveness. There were no shares issued under the Stock Purchase and Loan Plan in 1999 or 1998. The weighted-average fair value benefit to participants for a share issued under the Plan in 1997 was $19.82. This value was estimated as of the grant date using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6.1%; dividend yield of 2.2%; volatility factor of 22.2%; and expected life of six years. 1987 Long-term Performance Stock Plan and 1990 Stock Award Plan The CSX Corporation 1987 Long-term Performance Stock Plan and 1990 Stock Award Plan provide for awards in the form of stock options, Stock Appreciation Rights (SARs), Performance Share Awards (PSAs), Restricted Stock Awards (RSAs) and Incentive Compensation Program shares (ICPs) to eligible officers and employees. Awards granted under the Plans are determined by the board of directors based on the financial performance of the company. At Dec. 31, 1999, there were 3,243 current or former employees with outstanding grants under the 1987 Plan. A total of 20,413,561 shares were reserved for issuance, of which 1,465,331 were available for new grants. At Dec. 31, 1999, there were 1,276,289 shares reserved for issuance under the 1990 Plan, of which 432,729 were available for new grants. The remaining shares are assigned to outstanding stock options, SARs, RSAs and PSAs. The majority of stock options have been granted with 10-year terms and vest at the end of one year of continued employment. The exercise price for options granted equals the market price of the underlying stock on the date of grant. A summary of the company's stock option activity and related information for the fiscal years ended Dec. 31, 1999, Dec. 25, 1998, and Dec. 26, 1997, follows:
1999 1998 1997 ----------------------------------------------------------------------------- Shares Weighted-average Shares Weighted-average Shares Weighted-average (000s) Exercise Price (000s) Exercise Price (000s) Exercise Price - ----------------------------------------------------------- ------------------------ ------------------------ Outstanding at Beginning of Year 16,288 $41.73 16,171 $40.49 13,102 $35.82 Granted 3,226 $43.96 2,674 $48.43 4,182 $51.44 Exchanged, Canceled or Expired (521) $48.89 (1,505) $52.82 (31) $49.89 Exercised (683) $24.19 (1,052) $23.80 (1,082) $26.08 - ----------------------------------------------------------- ------------------------ ------------------------ Outstanding at End of Year 18,310 $42.57 16,288 $41.73 16,171 $40.49 - ----------------------------------------------------------- ------------------------ ------------------------ Exercisable at End of Year 10,038 $37.94 10,447 $36.96 9,911 $34.08 - ----------------------------------------------------------- ------------------------ ------------------------ Fair Value of Options Granted $10.92 $11.22 $12.25 - ----------------------------------------------------------- ------------------------ ------------------------
On Dec. 14, 1998, 1,297,595 stock options granted in April 1998 at an exercise price of $52.66 per share were exchanged for 1,038,076 new options at an exercise price of $41.78 per share. The following table summarizes information about stock options outstanding at Dec. 31, 1999:
Options Outstanding Options Exercisable -------------------------------------------------------------------------------- Number Weighted-average Number Outstanding Remaining Weighted-average Exercisable Weighted-average (000s) Contractual Life Exercise Price (000s) Exercise Price ------------------------------------------------- ----------------------------- $15 to $20 903 1.1 $19.18 903 $19.18 $30 to $39 4,590 3.4 $35.55 4,590 $35.55 $40 to $49 9,015 7.4 $43.64 3,941 $42.94 $50 to $57 3,802 7.1 $54.10 604 $51.43 - ------------------------------------------------------------ ----------------------------- Total 18,310 6.1 $42.57 10,038 $37.94 - -------------------------------------------------------------------------------------------
The fair value of options granted in 1999, 1998 and 1997 was estimated as of the dates of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free interest rates of 5.2%, 5.2% and 6.5%; volatility factors of 24%, 23% and 21%; dividend yields of 2.6%, 2.4% and 2.2%; and expected lives of 6 years, 5 years and 4.8 years. Under the Plans, the value of PSAs is contingent on the achievement of performance goals and completion of certain continuing employment requirements over a three-year period. Each PSA earned will equal the fair market value of one share of CSX common stock on the date of payment. At Dec. 31, 1999, there were 1,323,200 shares reserved for outstanding PSAs. In 1999, 1998 and 1997, respectively, 256,000, 518,500, and 126,600 PSAs were granted to employees. The weighted-average fair value of those shares was $41.52 for 1999, $52.00 for 1998, and $44.88 for 1997. In February 2000, the company's Board of Directors approved a plan to discontinue grants of PSA's after 1999. In connection with that plan, the final number of shares to be distributed under outstanding grants was determined. These shares will be issued to participants in 2000. During 1999, 500,000 shares were issued as RSAs to certain executives. The RSAs vest over a three or four year employment period and are contingent on the achievement of certain financial performance goals. The fair value of RSAs was $45.48 as of the date of grant. At Dec. 31, 1999, there were 56,024 SARs outstanding with a weighted-average exercise price of $16.84. In 1999, 1998 and 1997, respectively, 130,116, 77,556 and 171,377 SARs were exercised at weighted-average exercise prices of $16.77, $15.58 and $14.94. There were no grants of SARs in 1999, 1998 or 1997. Stock Purchase and Dividend Reinvestment Plans The 1991 Employees Stock Purchase and Dividend Reinvestment Plan provides a method and incentive for eligible employees to purchase shares of the company's common stock at market value by payroll deductions. To encourage stock ownership, employees receive a 17.65% matching payment on their contributions in the form of additional stock purchased by the company. Each matching payment of stock is subject to a two-year holding period. Sales of stock prior to the completion of the holding period result in forfeiture of the matching stock purchase. Officers and key employees who qualify for the Stock Purchase and Loan Plan are not eligible to participate in this Plan. At Dec. 31, 1999, there were 565,453 shares of common stock available for purchase under this Plan. Employees purchased 38,989 shares in 1999, 37,403 shares in 1998 and 35,593 shares in 1997 under the plan at weighted-average market prices of $41.53, $46.63, and $51.94 for 1999, 1998 and 1997, respectively. The company also maintains the Employees Stock Purchase and Dividend Reinvestment Plan and the Shareholders Dividend Reinvestment Plan, adopted in 1981, under which all employees and shareholders may purchase CSX common stock at the average of daily high and low sale prices for the five trading days ending on the day of purchase. To encourage stock ownership, employees receive a 5% discount on all purchases under this program. At Dec. 31, 1999, there were 5,488,329 shares reserved for issuance under these Plans. Note 15. Stock Plans (cont'd). Stock Plan for Directors The Stock Plan for Directors, approved by the shareholders in 1992, governs in part the manner in which directors' fees and retainers are paid. A minimum of 40% of the retainers must be paid in common stock of the company. In addition, each director may elect to receive up to 100% of the remaining retainer and fees in the form of common stock of the company. In 1997, shareholders approved amendments to the Plan that would permit additional awards of stock or stock options. In 1999, 13,000 stock options were granted with an exercise price of $35.31. In 1998, 13,000 stock options were granted with an exercise price of $41.25. The Plan permits each director to elect to transfer stock into a trust that will hold the shares until the participant's death, disability, retirement as a director, other cessation of services as a director, or change in control of the company. At Dec. 31, 1999, there were 898,330 shares of common stock reserved for issuance under this Plan. Note 16. Fair Value of Financial Instruments. Fair values of the company's financial instruments are estimated by reference to quoted prices from market sources and financial institutions, as well as other valuation techniques. Long-term debt is the only financial instrument of the company with a fair value significantly different from its carrying amount. At Dec. 31, 1999, the fair value of long-term debt, including current maturities, was $6.44 billion, compared with a carrying amount of $6.55 billion. At Dec. 25, 1998, the fair value of long-term debt, including current maturities, was $6.96 billion, compared with a carrying amount of $6.53 billion. The fair value of long-term debt has been estimated using discounted cash flow analysis based upon the company's current incremental borrowing rates for similar types of financing arrangements. Note 17. Employee Benefit Plans. The company sponsors defined benefit pension plans, principally for salaried personnel. The plans provide eligible employees with retirement benefits based principally on years of service and compensation rates near retirement. Plan assets consist primarily of common stocks, corporate bonds and cash and cash equivalents. In addition to the defined benefit pension plans, the company sponsors three plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The postretirement medical plans are contributory, with retiree contributions adjusted annually. The life insurance plan is non-contributory. The company's current policy is to fund the cost of the postretirement medical and life insurance benefits on a pay-as-you-go basis, as in prior years. The company uses a plan year of Oct. 1 through Sept. 30 to value its pension and postretirement plans on an actuarial basis.
Pension Benefits Postretirement Benefits -------------------------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------ Change in Benefit Obligation Benefit Obligation at Beginning of Plan Year $1,615 $1,470 $315 $345 Service Cost 51 39 9 8 Interest Cost 102 98 20 21 Transfer of Benefit Obligations from Conrail Plan 42 -- -- -- Conveyance of Barge Subsidiary -- (85) -- (18) Plan Participants' Contributions -- -- 4 4 Actuarial (Gain) Loss (170) 187 (3) (12) Benefits Paid (100) (94) (37) (33) -------------------------------------------- Benefit Obligation at End of Plan Year 1,540 1,615 308 315 Change in Plan Assets Fair Value of Plan Assets at Beginning of Plan Year 1,273 1,371 -- -- Actual Return on Plan Assets 155 54 -- -- Transfer of Assets from Conrail Plan 260 -- -- -- Conveyance of Barge Subsidiary -- (96) -- -- Employer Contributions 16 38 33 29 Plan Participants' Contributions -- -- 4 4 Benefits Paid (100) (94) (37) (33) ------------------------------------------- Fair Value of Plan Assets at End of Plan Year 1,604 1,273 -- -- Funded Status 64 (342) (308) (315) Unrecognized Actuarial Loss 29 352 23 26 Unrecognized Prior Service Cost 10 11 (2) (3) Unrecognized Transition Obligation -- 1 -- -- Fourth Quarter Activity: Special Termination Benefits - Workforce Reduction Program (23) -- (1) -- Employer Contributions to Pension Plans 5 2 -- -- Net Postretirement Benefits Paid -- -- 8 8 ------------------------------------------- Net Amount Recognized in Statement of Financial Position $ 85 $ 24 $(280) $(284) - ----------------------------------------------------------------------------------------------------------- Amount Recognized in Statement of Financial Position Consists of: Prepaid Benefit Cost $215 $ 7 $ -- $ -- Accrued Benefit Liability (161) (173) (280) (284) Intangible Asset 7 11 -- -- Accumulated Other Comprehensive Loss 24 179 -- -- ------------------------------------------- Net Amount Recognized in Statement of Financial Position $85 $ 24 $(280) $(284) - -----------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits -------------------------------------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------- Weighted-average Assumptions: Discount Rates: Benefit Cost for Plan Year 6.50% 7.50% 6.50% 7.50% Benefit Obligation at End of Plan Year 7.75% 6.50% 7.75% 6.50% Rate of Compensation Increase 5.00% 5.00% 5.00% 5.00% Expected Return on Plan Assets 9.50% 9.50% n/a n/a - --------------------------------------------------------------------------------------------------------
For plans with a projected benefit obligation in excess of plan assets at Dec. 31, 1999, the aggregate projected benefit obligation was $431 million and the aggregate fair value of plan assets was $256 million. For plans with an accumulated benefit obligation in excess of plan assets at Dec. 31, 1999, the aggregate accumulated benefit obligation was $160 million and the aggregate fair value of plan assets was $37 million. The net postretirement benefit obligation was determined using the assumption that the health care cost trend rate for medical plans was 8.5% for 1999-2000, decreasing gradually to 5.5% by 2005 and remaining at that level thereafter. A 1% change in the assumed health care cost trend rate would have the following effects: 1% 1% Increase Decrease -------------------- Effect on postretirement benefits service and interest cost $ 3 $ (2) Effect on postretirement benefit obligation 19 (17) - --------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits ----------------------------------------------------- 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Components of Net Periodic Benefit Cost Service Cost $ 51 $ 39 $ 40 $ 9 $ 8 $10 Interest Cost 102 98 98 20 21 25 Expected Return on Plan Assets (118) (101) (96) -- -- -- Amortization of Transition Obligation -- 6 5 -- -- -- Amortization of Prior Service Cost 1 1 -- (1) (4) (7) Recognized Net Actuarial (Gain) Loss 22 12 13 -- (1) 2 ----------------------------------------------------- Net Periodic Benefit Cost 58 55 60 28 24 30 Special Termination Benefits - Workforce Reduction Program 23 -- -- 1 -- -- ----------------------------------------------------- Net Periodic Benefit Cost Including Special Termination Benefits $ 81 $ 55 $ 60 $29 $24 $30 - --------------------------------------------------------------------------------------------------------------------------
During 1999, certain assets and obligations of Conrail's primary defined benefit pension plan were transferred to the pension plans of CSX and Norfolk Southern. The CSX plan received $260 million of plan assets at fair value and assumed $42 million of benefit obligations. In December 1999, pursuant to a workforce reduction initiative that offered a retirement benefit enhancement to employees electing early retirement, the company recorded a non-recurring charge that included $23 million of special termination pension benefits and $1 million of special termination postretirement benefits. As a result of the workforce reduction initiative and the sale of assets comprising the international liner business of Sea-Land, a significant number of employees participating in pension and postretirement benefit plans sponsored by CSX have terminated active employment and the plans have experienced a curtailment. Because both curtailment events occurred after the Sept. 30, 1999 measurement date, the effect of the curtailment will not be recognized in the company's financial statements until fiscal year 2000. CSX anticipates recording a net pre-tax curtailment loss of approximately $2 million in the first quarter of 2000. The conveyance of CSX's barge subsidiary to a joint venture during 1998 included various pension and postretirement benefit plans and reduced the related obligations and assets in CSX's Consolidated Statement of Financial Position. During 1999 and 1998, CSX recorded changes in its minimum pension liability. These changes did not affect net earnings, but are a component of accumulated other comprehensive loss on an after-tax basis. In 1999, the minimum pension liability decreased by $158 million, principally due to the transfer of assets from Conrail's pension plan and to higher interest rates, which increased the discount applied to pension obligations. In 1998, the minimum pension liability increased by $148 million due to lower interest rates, which reduced the discount applied to pension obligations, and to a broad decline in U.S. stock prices during the third quarter. Other Plans The company maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements. Expense associated with these plans was $28 million, $20 million, and $23 million for 1999, 1998 and 1997, respectively. Under collective bargaining agreements, the company participates in a number of union-sponsored, multiemployer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on number of employees covered, hours worked, tonnage moved or a combination thereof. Total contributions of $247 million, $235 million, and $238 million were made to these plans in 1999, 1998 and 1997, respectively. Note 18. Commitments and Contingencies. Lease Commitments In addition to the agreements covering routes and equipment leased from Conrail (See Note 3), the company leases equipment from other parties under agreements with terms up to 21 years. Non-cancelable, long-term leases generally include options to purchase at fair value and to extend the terms. At Dec. 31, 1999, minimum building and equipment rentals under these operating leases totaled approximately $247 million for 2000, $238 million for 2001, $194 million for 2002, $197 million for 2003, $176 million for 2004, and $1 billion thereafter. Rent expense on operating leases, exclusive of the Conrail agreements, totaled $1.2 billion in 1999, $1.1 billion in 1998, and $1.2 billion in 1997. These amounts include net daily rental charges on railroad operating equipment of $381 million, $258 million, and $239 million in 1999, 1998, and 1997, respectively. Purchase Commitments CSXT entered into agreements in 1998 and 1999 to purchase 140 locomotives. These orders covered normal locomotive replacement needs as well as one-time locomotive power requirements related to the integration of Conrail operations. CSXT has taken delivery of 101 of the locomotives through Dec. 31, 1999. The remaining 39 units are scheduled to be delivered in 2000. Contingencies Guarantees The company and its subsidiaries are contingently liable individually and jointly with others as guarantors of long-term debt and obligations principally relating to leased equipment, joint ventures and joint facilities. These contingent obligations were not material to the company's results of operations and financial position at Dec. 31, 1999. CSX also remains contingently liable for certain lease obligations assumed by Maersk as part of its purchase of Sea-Land's international liner business. CSX believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSX will have no further liability for these obligations. New Orleans Tank Car Fire In September 1997, a state court jury in New Orleans, Louisiana returned a $2.5 billion punitive damages award against CSXT. The award was made in a class-action lawsuit against a group of nine companies based on personal injuries alleged to have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans neighborhood. In the same case, the court awarded a group of 20 plaintiffs compensatory damages of approximately $2 million against the defendants, including CSXT, to which the jury assigned 15% of the responsibility for the incident. CSXT's liability under that compensatory damages award is not material, and adequate provision has been made for the award. In October 1997, the Louisiana Supreme Court set aside the punitive damages judgment, ruling the judgment should not have been entered until all liability issues were resolved. In February 1999, the Louisiana Supreme Court issued a further decision, authorizing and instructing the trial court to enter individual punitive damages judgments in favor of the 20 plaintiffs who had received awards of compensatory damages, in amounts representing an appropriate share of the jury's award. The trial court on April 8, 1999, entered judgment awarding approximately $2 million in compensatory damages and approximately $8.5 million in punitive damages to those 20 plaintiffs. Approximately $6.2 million of the punitive damages awarded were assessed against CSXT. CSXT then filed post-trial motions for a new trial and for judgment notwithstanding the verdict as to the April 8 judgment. The new trial motion was denied by the trial court in August of 1999. On Nov. 5, 1999, the trial court issued an opinion that granted CSXT's motion for judgment notwithstanding the verdict and effectively reduced the amount of the punitive damages verdict from $2.5 billion to $850 million. CSXT believes that this amount (or any amount of punitive damages) is unwarranted and intends to pursue its full appellate remedies with respect to the 1997 trial as well as the trial judge's decision on the motion for judgment notwithstanding the verdict. The compensatory damages awarded by the jury in the 1997 trial were also substantially reduced by the trial judge. A judgment reflecting the $850 million punitive award has been entered against CSXT. CSXT has obtained and posted an appeal bond in the amount of $895 million, which will allow it to appeal the 1997 compensatory and punitive awards, as reduced by the trial judge. A trial for the claims of 20 additional plaintiffs for compensatory damages began on May 24, 1999. In early July, the jury in that trial rendered verdicts totaling approximately $330 thousand in favor of 18 of those 20 plaintiffs. Two plaintiffs received nothing; that is, the jury found that they had not proved any damages. Management believes that this result, while still excessive, supports CSXT's contention that the punitive damages award was unwarranted. CSXT continues to pursue an aggressive legal strategy. Management believes that an adverse outcome, if any, is not likely to be material to CSX's or CSXT's financial position, although it could be material to results of operations in a particular quarterly accounting period. Self-Insurance Although the company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damage, reasonable levels of risk are retained on a self-insurance basis. A portion of the insurance coverage, $25 million limit above $100 million per occurrence from rail and certain other operations, is provided by a company partially owned by CSX. Environmental CSXT is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (PRP) at 115 environmentally impaired sites that are or may be subject to remedial action under the Federal Superfund statute (Superfund) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial. CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at 243 sites, including the sites addressed under the Federal Superfund statute or similar state statutes, where it is participating in the study and/or clean-up of alleged environmental contamination. The assessment of the required response and remedial costs associated with most sites is extremely complex. Cost estimates are based on information available for each site, financial viability of other PRPs, where available, and existing technology, laws and regulations. CSXT's best estimates of the allocation method and percentage of liability when other PRPs are involved are based on assessments by consultants, agreements among PRPs, or determinations by the U.S. Environmental Protection Agency or other regulatory agencies. At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT's alleged connection to the location (i.e., generator, owner or operator), the extent of CSXT's alleged connection (i.e., volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, and the number, connection and financial position of other named and unnamed PRPs at the location. The ultimate liability for remediation can be difficult to determine with certainty because of the number and creditworthiness of PRPs involved. Through the assessment process, CSXT monitors the creditworthiness of such PRPs in determining ultimate liability. Based upon such reviews and updates of the sites with which it is involved, CSXT has recorded, and reviews at least quarterly for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at Dec. 31, 1999 and Dec. 25, 1998, were $53 million and $75 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The liability has been accrued for future costs for all sites where the company's obligation is probable and where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the Dec. 31, 1999, environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations. The company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, however, the company believes its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition. Other Legal Proceedings A number of legal actions are pending against CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of environmental investigations, lawsuits and claims against the company cannot be predicted with certainty, management does not currently expect that resolution of these matters will have a material adverse effect on CSX's consolidated financial position, results of operations or cash flows. The company is also party to a number of actions, the resolution of which could result in gain realization in amounts that could be material to results of operations in the quarter received. Note 19. Business Segments. The company operates in four business segments: Rail, Intermodal, Container Shipping and Contract Logistics. The rail segment provides rail freight transportation over a network of more than 23,400 route miles in 23 states, the District of Columbia and two Canadian provinces. The intermodal segment provides transcontinental intermodal transportation services and operates a network of dedicated intermodal facilities across North America. Prior to the sale of its international liner operations in December 1999 (see Note 4), the container-shipping segment provided global transportation services via a fleet of 91 container ships and 220,000 containers. The contract logistics segment provides customized logistics solutions, including inventory management, distribution, warehousing, assembly and just-in-time delivery. The company's segments are strategic business units that offer different services and are managed separately based on the differences in these services. The company evaluates performance and allocates resources based on several factors, of which the primary financial measure is business segment operating income, defined as income from operations, excluding the effects of non-recurring charges and gains. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1). Intersegment sales and transfers are generally accounted for as if the sales or transfers were to third parties, that is, at current market prices. Business segment information for fiscal years 1999, 1998 and 1997 is as follows:
Surface Transportation - ------------------------------------------------------------ Container Contract Fiscal year ended Dec. 31, 1999 Rail Intermodal Total Shipping Logistics Other Total - -------------------------------------------------------------------------------------------------------- Revenue from External Customers $ 5,623 $943 $ 6,566 $3,809 $436 -- $10,811 Intersegment Revenue -- 16 16 -- 48 -- 64 Operating Income 823 84 907 149 34 -- 1,090 Assets 12,985 401 13,386 1,290 188 -- 14,864 Depreciation Expense 469 24 493 90 12 -- 595 Property Additions 1,298 63 1,361 86 20 -- 1,467 - --------------------------------------------------------------------------------------------------------
Note 19. Business Segments (cont'd).
Surface Transportation - ----------------------------------------------------------- Container Contract Fiscal year ended Dec. 25, 1998 Rail Intermodal Total Shipping Logistics Other Total - -------------------------------------------------------------------------------------------------------- Revenue from External Customers $ 4,956 $618 $ 5,574 $3,916 $378 -- $ 9,868 Intersegment Revenue -- 30 30 -- 30 -- 60 Operating Income 1,001 33 1,034 133 29 -- 1,196 Assets 11,897 217 12,114 2,453 144 -- 14,711 Depreciation Expense 450 18 468 130 11 -- 609 Property Additions 1,212 99 1,311 54 17 -- 1,382 - --------------------------------------------------------------------------------------------------------
Surface Transportation - ----------------------------------------------------------- Container Contract Fiscal year ended Dec. 26, 1997 Rail Intermodal Total Shipping Logistics Other(a) Total - --------------------------------------------------------------------------------------------------------- Revenue from External Customers $ 4,989 $634 $ 5,623 $3,991 $389 $618 $10,621 Intersegment Revenue -- 35 35 -- -- -- 35 Operating Income 1,229 46 1,275 278 24 69 1,646 Assets 11,403 218 11,621 2,576 129 626 14,952 Depreciation Expense 429 14 443 128 10 39 620 Property Additions 712 32 744 251 13 52 1,060 - ---------------------------------------------------------------------------------------------------------
(a) Other includes the company's barge operations, which were conveyed to a joint venture in 1998 and are no longer a consolidated activity (see Note 4). A reconciliation of the totals reported for the business segments to the applicable line items in the consolidated financial statements is as follows:
1999 1998 1997 --------------------------------- Revenue: Revenue from External Customers for Business Segments $10,811 $ 9,868 $10,621 Intersegment Revenue for Business Segments 64 60 35 Elimination of Intersegment Revenue (64) (60) (35) --------------------------------- Total Consolidated Revenue $10,811 $ 9,868 $10,621 - ------------------------------------------------------------------------------------------- Operating Income: Operating Income for Business Segments $ 1,090 $ 1,196 $ 1,646 Reclassification of Intercompany Interest Income (61) (62) (63) Loss on Sale, Net of Depreciation Benefit (360) -- -- Workforce Reduction Program (55) -- -- Restructuring Credit -- 30 -- Unallocated Corporate Expenses (6) (4) -- --------------------------------- Total Consolidated Operating Income $ 608 $ 1,160 $ 1,583 - ------------------------------------------------------------------------------------------- Assets: Assets for Business Segments $14,864 $14,711 $14,952 Investment in Conrail 4,663 4,798 4,244 Elimination of Intercompany Receivables (32) (36) (33) Non-segment Assets(b) 1,225 954 794 --------------------------------- Total Consolidated Assets $20,720 $20,427 $19,957 - ------------------------------------------------------------------------------------------- Depreciation Expense: Depreciation Expense for Business Segments $ 595 $ 609 $ 620 Non-segment Depreciation(b) 26 21 26 --------------------------------- Total Consolidated Depreciation Expense $ 621 $ 630 $ 646 - ------------------------------------------------------------------------------------------- Property Additions: Property Additions for Business Segments $ 1,467 $ 1,382 $ 1,060 Non-segment Property Additions(b) 50 97 65 --------------------------------- Total Consolidated Property Additions $ 1,517 $ 1,479 $ 1,125 - -------------------------------------------------------------------------------------------
(b)Non-segment assets include corporate cash and cash equivalents and assets of non-transportation businesses. Non-segment depreciation and property additions are primarily attributable to non-transportation businesses. Principal non-transportation businesses include real estate and resort operations and information technology subsidiaries serving multiple segments. Included in the consolidated financial statements are the following amounts related to geographic locations: 1999 1998 1997 - ----------------------------------------------------------------------- Revenues:(c) United States $ 8,498 $7,564 $ 8,272 Asia 1,378 1,239 1,188 Europe 516 668 721 Other 419 397 440 ------------------------------ Total Consolidated Revenues $10,811 $9,868 $10,621 - ----------------------------------------------------------------------- (c)Revenues are attributed to geographic locations based on port of origin for container-shipping operations and the location of the service provided for all other operations. More than 95% of the company's long-lived assets are located in the United States. The company does not have a single external customer that represents 10% or more of its consolidated revenue. Note 20. Summarized Financial Data - Sea-Land Service Inc. During 1987, Sea-Land entered into agreements to sell and lease back by charter three new U.S.-built, U.S.-flag, D-7 class container ships. CSXhas guaranteed the obligations of Sea-Land pursuant to the related charters which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission (SEC). The ships were not included in the sale of international liner assets to Maersk in December 1999 and the related debt remains an obligation of Sea-Land. In accordance with SEC disclosure requirements, summarized financial information for Sea-Land and its consolidated subsidiaries is as follows: Summary of Operations 1999(b) 1998 1997 - --------------------------------------------------------------------------- Operating Revenue $3,809 $3,916 $3,991 Operating Expense -- Public 3,970 3,708 3,634 -- Affiliated(a) 84 113 109 ----------------------------- Operating Income (Loss) (245) $ 95 $ 248 ----------------------------- Net Earnings (Loss) $ (326) $ (70) $ 56 - --------------------------------------------------------------------------- Dec. 31, Dec. 25, Summary of Financial Position 1999 1998 - ----------------------------------------------------------------- Current Assets -- Public $ 614 $ 597 -- Affiliated(a) 3 3 Other Assets -- Public 551 1,785 -- Affiliated(a) 122 67 Current Liabilities -- Public 310 607 -- Affiliated(a) 79 92 Other Liabilities -- Public 340 616 -- Affiliated(a) 381 627 Shareholder's Equity 180 510 - ----------------------------------------------------------------- (a)Amounts represent activity with CSX affiliated companies. Operating expense includes certain intercompany amounts which are eliminated for business segment reporting. (b)In December 1999, Sea-Land sold the assets comprising its international liner business. The company recorded a loss on the sale (net of a related depreciation benefit) that reduced operating income by $360 million and net earnings by $271 million. The operating revenue associated with the assets sold was approximately $2.8 billion, $3.0 billion, and $3.2 billion in 1999, 1998, and 1997, respectively. - -------------------------------------------------------------------------------- Report of Ernst & Young LLP, Independent Auditors To the Shareholders and Board of Directors of CSX Corporation We have audited the accompanying consolidated statements of financial position of CSX Corporation and subsidiaries as of December 31, 1999 and December 25, 1998, and the related consolidated statements of earnings, cash flows, and changes in shareholders' equity for each of the three fiscal years in the period ended December 31, 1999. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CSX Corporation and subsidiaries at December 31, 1999 and December 25, 1998, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the Consolidated Financial Statements, in 1999 the company changed its method of accounting for insurance-related assessments. /s/ERNST & YOUNG LLP Richmond, Virginia February 9, 2000 Shareholder Information Shareholder Services Shareholders with questions about their accounts should contact the transfer agent at the address or telephone number shown below. General questions about CSX or information contained in company publications should be directed to Corporate Communications at the address or telephone number shown below. Security analysts, portfolio managers or other investment community representatives should contact Investor Relations at the address or telephone number shown below. Transfer Agent, Registrar and Dividend Disbursing Agent Harris Trust Company P. O. Box A3504 Chicago, IL 60690 (800) 521-5571 e-mail: webshare@harrisbank.com CSXDirectInvest SM Harris Trust Dividend Reinvestment Department P. O. Box A3309 Chicago, IL 60690-3309 (800) 521-5571 www.csx.com/aboutus/shareholder/directinvest Shareholder Relations Karen L. Kennedy Administrator-Shareholder Services CSX Corporation P. O. Box 85629 Richmond, VA 23285-5629 (804) 782-1465 e-mail: Karen_Kennedy@csx.com Corporate Communications Elisabeth J. Gabrynowicz Director-Corporate Communications CSX Corporation P. O. Box 85629 Richmond, VA 23285-5629 (804) 782-6775 e-mail: Elisabeth_Gabrynowicz@csx.com Investor Relations Joseph C. Wilkinson Assistant Vice President-Investor Relations CSX Corporation P.O. Box 85629 Richmond, VA 23285-5629 (804) 782-1553 e-mail: Joseph_Wilkinson@csx.com Direct Stock Purchase and Dividend Reinvestment CSX provides dividend reinvestment and stock purchase plans for employees, shareholders and potential shareholders as a convenient method of acquiring CSX shares through direct purchase, dividend reinvestment and optional cash payments. CSXDirectInvest SM permits the purchase and sale of shares directly though Harris Trust, our transfer agent. Through this plan, no service charges or brokerage commissions apply to share purchases, and sales can be made with minimal charges and commissions. Initial investment for a non-shareholder is $500 plus a $10 one-time enrollment fee. You do not need to own shares of CSX stock to enroll in this plan. However, if you are a current shareholder, the initial investment and enrollment fee are waived. Other benefits of CSXDirectInvest SM include the ability to: - - Reinvest dividends automatically in CSX common stock without payment of any brokerage commissions or service charges, or you may receive dividend payments on some or all of your shares. - - Make optional cash investments with as little as $50 per month, or up to $10,000 per month, without any charges or commissions. - - Make gifts of CSX shares to others through the plan, and present them with a gift memento if desired. To obtain a prospectus or other information regarding CSXDirectInvest SM, please call or write the Harris Trust Dividend Reinvestment Department at the phone number or address above. Or, if you prefer, please visit our web site at http://www.csx.com/aboutus/shareholder/directinvest. Stock Held in Brokerage Accounts When a broker holds your stock, it is usually registered in the broker's name, or "street name." We do not know the identity of shareholders holding stock in this manner. We know only that a broker holds a certain number of shares that may be for any number of customers. If your stock is in a street-name account, you are not eligible to participate in CSXDirectInvestSM (see above). You will receive dividend payments, annual reports and proxy materials through your broker. Please notify your broker, not Harris Trust, if you wish to eliminate unwanted, duplicate mailings. Lost or Stolen Stock Certificates If your stock certificates are lost, stolen or in some way destroyed, notify Harris Trust in writing immediately. Multiple Dividend Checks and Duplicate Mailings Some shareholders hold their stock on CSX records in similar but different names (e.g. John A. Smith and J.A. Smith). When this occurs, we are required to create separate accounts for each name. Although the mailing addresses are the same, we are required to mail separate dividend checks to each account. Consolidating Accounts If you want to consolidate separate accounts into one account, contact Harris Trust for the necessary forms and instructions. When accounts are consolidated, it may be necessary to reissue the stock certificates. Dividends CSX pays quarterly dividends on its common stock on or about the 15th of March, June, September and December, when declared by the board of directors, to shareholders of record approximately three weeks earlier. CSX offers direct deposit of dividends to shareholders that request it. If you are interested, please contact Harris Trust at the address or phone number shown above. Replacing Dividend Checks If you do not receive your dividend check within 10 business days after the payment date or if your check is lost or destroyed, notify Harris Trust so payment can be stopped and a replacement check issued. Corporate Information Headquarters One James Center 901 East Cary Street Richmond, VA 23219-4031 (804) 782-1400 (http://www.csx.com) Market Information CSX's common stock is listed on the New York, London and Swiss stock exchanges and trades with unlisted privileges on the Midwest, Boston, Cincinnati, Pacific and Philadelphia stock exchanges. The official trading symbol is "CSX." Description of Common and Preferred Stocks A total of 300 million shares of common stock are authorized, of which 218,444,959 shares were outstanding as of Dec. 31, 1999. Each share is entitled to one vote in all matters requiring a vote of shareholders. There are no pre-emptive rights. At Dec. 31, 1999, there were 42,269 registered common stock shareholders. A total of 25 million shares of preferred stock are authorized. Series A consists of 250,000 shares of $7 Cumulative Convertible Preferred Stock. All outstanding shares of Series A Preferred Stock were redeemed as of July 31, 1992. Series B consists of 3 million shares of Junior Participating Preferred Stock, none of which has been issued. These shares will become issuable only when the rights distributed to holders of common stock under the Shareholder Rights Plan adopted by CSX on May 29, 1998, become exercisable. Annual Shareholder Meeting 10 a.m., Thursday, April 27, 2000 The Greenbrier White Sulphur Springs, W.Va. Shareholder House Parties at The Greenbrier Throughout the year, The Greenbrier offers Shareholder House Parties featuring discounted rates and special activities. Shareholder House Parties in 2000 are scheduled for: Easter - April 20-23 Annual Meeting - April 26-28 Memorial Day - May 26-30 For information on shareholder parties, contact Maryann Sanford, Reservations Department, The Greenbrier, 300 W. Main Street, White Sulphur Springs, WV 24986, or phone toll-free (800) 624-6070 or e-mail to The_Greenbrier@greenbrier.com. Again in 2000, The Greenbrier is pleased to extend to all shareholders a 10 percent discount on their Modified American Plan rates, applicable to one visit per year. Reservations will be accepted on a space-available basis. This offer does not apply during CSX House Parties, when rates are already discounted, or if a shareholder is attending a conference being held at The Greenbrier. Form 10-K A copy of the company's annual report to the Securities and Exchange Commission (Form 10-K) will be furnished without charge to any shareholder upon written request to Shareholder Relations, CSX Corporation, P. O. Box 85269, Richmond, Va. 23285-5629. The Form 10-K also is available on the company's web site at www.csx.com. Quarterly Financial Data (Unaudited) Year 1999 ---------------------------------- Quarter 1st 2nd 3rd 4th - ------------------------------------------------------------------ Operating Revenue $2,541 $2,616 $2,906 $2,748 Operating Income $ 276 $ 274 $ 18 $ 40 Net Earnings before Cumulative Effect of Accounting Change $ 75 $ 114 $(113) $ (25) Net Earnings $ 26 $ 114 $(113) $ (25) Earnings Per Share: Before Cumulative Effect of Accounting Change $ .36 $ .54 $(.54) $ (.12) Including Cumulative Effect of Accounting Change $ .12 $ .54 $(.54) $ (.12) Earnings Per Share, Assuming Dilution: Before Cumulative Effect of Accounting Change $ .36 $ .53 $(.54) $ (.12) Including Cumulative Effect of Accounting Change $ .12 $ .53 $(.54) $ (.12) Dividends Per Share $ .30 $ .30 $ .30 $ .30 Market Price High $45.50 $53.94 $51.63 $43.56 Low $36.00 $36.81 $41.44 $28.81 - ------------------------------------------------------------------- Year 1998 ------------------------------------ Quarter 1st 2nd 3rd 4th - ------------------------------------------------------------------- Operating Revenue $2,462 $2,490 $2,429 $2,487 Operating Income $ 278 $ 336 $ 270 $ 276 Net Earnings $ 91 $ 151 $ 187 $ 108 Earnings Per Share $ .43 $ .71 $ .89 $ .52 Earnings Per Share, Assuming Dilution $ .42 $ .70 $ .88 $ .51 Dividends Per Share $ .30 $ .30 $ .30 $ .30 Market Price High $60.31 $60.75 $46.94 $46.81 Low $49.25 $44.88 $36.50 $37.63 - ------------------------------------------------------------------- (a)First quarter 1999 consists of 14 weeks; all other quarters presented consist of 13 weeks. (b)Third and fourth quarters of 1999 reflect pretax charges of $298 million and $62 million, respectively, to recognize a loss on the sale of international container-shipping assets, net of a benefit from discontinuing depreciation on those assets from the date of the agreement to sell. The charges reduced net earnings by $236 million, $1.11 per share, and $35 million, 16 cents per share, in the respective quarters. (c)Fourth quarter 1999 includes a $55 million pretax charge for a work-force reduction program. The charge reduced net earnings by $34 million, 16 cents per share. (d)Second quarter 1999 includes a pretax gain of $27 million on the sale of the company's Grand Teton Lodge resort subsidiary. The gain increased net earnings by $17 million, 8 cents per share. (e)First quarter 1999 includes a $49 million after-tax charge to recognize the cumulative effect on prior years of adopting a new accounting rule related to workers' compensation second injury fund assessments. The charge reduced earnings per share for the quarter by 24 cents. (f)Third quarter 1998 includes a pretax net investment gain of $154 million, principally from the conveyance of the company's barge subsidiary to a joint venture, and a restructuring credit of $30 million. On a combined basis, these items increased net earnings by $109 million, 51 cents per share. Shares Outstanding as of Jan. 28, 2000: 218,410,759 Common Stock Shareholders as of Jan. 28, 2000: 49,111 Board of Directors and Officers Board of Directors Elizabeth E. Bailey(1,2,5) John C. Hower Professor of Public Policy and Management, The Wharton School, University of Pennsylvania, Philadelphia, Pa. H. Furlong Baldwin(2) Chairman, President & CEO Mercantile Bankshares Corporation, Baltimore, Md. Claude S. Brinegar(5) Retired Chief Financial Officer and Vice Chairman Unocal Corp., Menlo Park, Calif. Robert L. Burrus Jr.(4,5) Partner and Chairman McGuire, Woods, Battle & Boothe LLP, Richmond, Va. Bruce C. Gottwald(1,3,4) Chairman and CEO Ethyl Corporation, Richmond, Va. John R. Hall(3,5) Chairman of the Board of Directors Bank One Corporation Lexington, Ky. E. Bradley Jones(4) Consultant Former Chairman and CEO LTV Steel Company, Pepper Pike, Ohio Robert D. Kunisch(3,5) Senior Adviser and Former Vice Chairman Cendant Corporation, Boca Grande, Fla. James W. McGlothlin(2,4) Chairman and CEO The United Company, Bristol, Va. Southwood J. Morcott(2,4) Chairman of the Board Dana Corporation, Toledo, Ohio Charles E. Rice(1,3) Vice Chairman Corporate Development Bank of America, Jacksonville, Fla. William C. Richardson(1,5) President and CEO W.K. Kellogg Foundation, Battle Creek, Mich. Frank S. Royal, M.D.(2,3) Physician and Health Care Authority Richmond, Va. John W. Snow(1) Chairman, President and CEO CSX Corporation, Richmond, Va. Key to committees of the board 1 - Executive, 2 - Audit, 3 - Compensation, 4 - Pension, 5 - Nominating and Organization Corporate Officers John W. Snow* Chairman, President and CEO Alvin R. (Pete) Carpenter* Vice Chairman Mark G. Aron* Executive Vice President-Law and Public Affairs Paul R. Goodwin* Executive Vice President-Finance and Chief Financial Officer William J. Flynn* Senior Vice President-Strategic Planning Andrew B. Fogarty* Senior Vice President-Corporate Services William J. Ryan Senior Vice President-Human Resources Jesse R. Mohorovic* Group Vice President-Corporate Communications and Investor Relations Ellen M. Fitzsimmons General Counsel-Corporate Arnold I. Havens Vice President-Federal Affairs Craig R. MacQueen Vice President-Corporate Communications William F. Miller Vice President-Audit and Advisory Services James P. Peter Vice President-Taxes James L. Ross* Vice President and Controller Alan A. Rudnick Vice President-General Counsel and Corporate Secretary Michael J. Ruehling Vice President-State Relations James A. Searle Jr. Vice President-Administration Peter J. Shudtz Vice President-Law and General Counsel Gregory R. Weber Vice President and Treasurer * Executive officers of the corporation. Unit Officers CSX Transportation Inc. Ronald J. Conway* President Michael J. Ward* Executive Vice President-Coal Service Group Frederick J. Favorite Jr.* Senior Vice President-Finance P. Michael Giftos Senior Vice President and General Counsel Dale R. Hawk* Senior Vice President-Automotive Services Group Frank H. Nichols Senior Vice President-Employee Relations John P. Sammon* Senior Vice President-Merchandise Service Group Paul D. Sandler* Senior Vice President-Corporate Services Gary M. Spiegel* Senior Vice President-Operations CSX Intermodal Inc. Lester M. Passa* President and CEO CSX Lines LLC Charles G. Raymond* President and CEO CSX World Terminals LLC Robert J. Grassi* President and CEO CSX Technology Inc. Charles J. O. Wodehouse President Customized Transportation Inc. David G. Kulik President and CEO The Greenbrier Ted J. Kleisner President and Managing Director Yukon Pacific Corporation Jeff B. Lowenfels President and CEO EX-21 15 Subsidiaries of the Registrant Exhibit 21 As of December 31, 1999, the Registrant was the beneficial owner of 100% of the common stock of the following significant subsidiaries: CSX Transportation Inc. (a Virginia corporation), Sea-Land Service Inc. (a Delaware corporation), CSX Rail Holding Corporation (a Delaware corporation) and CSX Northeast Holding Corporation (a Delaware corporation) As of December 31, 1999, the other subsidiaries included in the Registrant's consolidated financial statements, both individually and in the aggregate, did not constitute a significant subsidiary. EX-23.1 16 EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of CSX Corporation and subsidiaries (CSX) of our report dated February 9, 2000, included in the 1999 Annual Report to Shareholders of CSX. We also consent to the incorporation by reference in each Form S-3 Registration Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-53191, and 333-68885) and in each Form S-8 Registration Statement (Registration Nos. 33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736, 33-49767, 33-57029, 333-09213, 333-73427 and 333-73429) of our report dated February 9, 2000, with respect to the consolidated financial statements of CSX incorporated by reference in this Annual Report (Form 10-K) for the fiscal year ended December 31, 1999. /s/ Ernst & Young LLP Richmond, Virginia March 1, 2000 EX-23.2 17 EXHIBIT 23.2 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of CSX Corporation and subsidiaries (CSX) of our report dated February 11, 2000, with respect to the consolidated financial statements of Conrail Inc. and subsidiaries as of December 31, 1999 which report appears in the December 31, 1999 Annual Report to Shareholders of CSX. We also consent to the incorporation by reference in each Form S-3 Registration Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-53191, and 333-68885) and in each Form S-8 Registration Statement (Registration Nos. 33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736, 33-49767, 33-57029, 333-09213, 333-73427 and 333-73429) of our report dated February 11, 2000, with respect to the consolidated financial statements of Conrail Inc. and subsidiaries as of December 31, 1999 incorporated by reference in this Annual Report (Form 10-K) for the fiscal year ended December 31, 1999. /s/ Ernst & Young LLP /s/ KPMG LLP Ernst & Young LLP KPMG LLP Richmond, Virginia Norfolk, Virginia March 1, 2000 March 1, 2000 EX-23.3 18 EXHIBIT 23.3 CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-2084, 333-53191, and 333-68885), and in the Registration Statements on Form S-8 (Nos. 33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736, 33-49767, 33-57029, 333-09213, 333-73427, 333-73429) of CSX Corporation of our report dated January 19, 1999 on the consolidated financial statements of Conrail Inc. and subsidiaries for the year ended December 31, 1998, which appears in the Annual Report on Form 10-K of CSX Corporation for the year ended December 31, 1999. /s/PRICEWATERHOUSECOOPERS LLP Philadelphia, PA March 7, 2000 EX-24 19 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and directors of CSX CORPORATION, a Virginia Corporation, which is to file with the Securities and Exchange Commission, Washington, D. C., a Form 10-K (Annual Report), hereby constitutes and appoints Paul R. Goodwin and Peter J. Shudtz his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead to sign said Form 10-K, and any and all amendments thereto, with power where appropriate to affix the corporate seal of CSX Corporation thereto and to attest said seal, and to file said Form 10-K, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 9th day of February, 2000. /s/ ELIZABETH E. BAILEY /s/ JAMES W. MCGLOTHLIN - ----------------------- ----------------------- Elizabeth E. Bailey James W. McGlothlin /s/ H. FURLONG BALDWIN /s/ SOUTHWOOD J. MORCOTT - ---------------------- ------------------------ H. Furlong Baldwin Southwood J. Morcott /s/ CLAUDE S. BRINEGAR /s/ CHARLES E. RICE - ---------------------- ------------------- Claude S. Brinegar Charles E. Rice /s/ ROBERT L. BURRUS, JR. /s/ WILLIAM C. RICHARDSON - ------------------------- ------------------------- Robert L. Burrus, Jr. William C. Richardson /s/ BRUCE C. GOTTWALD /s/ FRANK S. ROYAL - --------------------- ------------------ Bruce C. Gottwald Frank S. Royal /s/ JOHN R. HALL /s/ JOHN W. SNOW - ---------------- ---------------- John R. Hall John W. Snow /s/ BRADLEY JONES /s/ PAUL R. GOODWIN - ----------------- ------------------- E. Bradley Jones Paul R. Goodwin /s/ ROBERT D. KUNISCH /s/ JAMES L. ROSS - --------------------- ----------------- Robert D. Kunisch James L. Ross EX-27 20
5 1,000,000 YEAR DEC-31-1999 DEC-26-1998 DEC-31-1999 626 348 1,135 0 220 2,563 17,526 5,269 20,720 3,473 6,196 0 0 218 5,538 20,720 0 10,811 0 10,203 (52) 0 521 139 88 51 0 0 49 2 .01 .01
EX-99.1 21 Independent Auditors' Report The Stockholders and Board of Directors Conrail Inc.: We have audited the accompanying consolidated balance sheet of Conrail Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The accompanying consolidated financial statements of Conrail Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the two years then ended were audited by other auditors whose report thereon dated January 19, 1999, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1999 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Conrail Inc. and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/KPMG LLP /s/ERNST & YOUNG LLP KPMG LLP Ernst & Young LLP Norfolk, Virginia Richmond, Virginia February 11, 2000 REPORT OF INDEPENDENT ACCOUNTANTS The Stockholders and Board of Directors Conrail Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Conrail Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Thirty South Seventeenth Street Philadelphia, Pennsylvania 19103 January 19, 1999 CONRAIL INC. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, ----------------------- ($ In Millions) 1999 1998 1997 ------ ------ ------ Revenues - NSC/CSX (Note 2) $ 549 $ - $ - Revenues - Third parties 1,625 3,863 3,765 ----- ----- ----- Total operating revenues 2,174 3,863 3,765 ----- ----- ----- Operating expenses (Note 3) Compensation and benefits 645 1,489 1,448 Fuel 63 163 198 Material, services and rents 590 909 952 Depreciation and amortization 328 310 293 Casualties and insurance 228 230 143 Other 192 247 188 ESOP termination charge - - 221 ----- ------ ------ Total operating expenses 2,046 3,348 3,443 ------ ------ ------ Income from operations 128 515 322 Interest expense (150) (153) (170) Other income, net (Note 10) 67 72 83 ------ ------ ------ Income before income taxes 45 434 235 Income taxes (Note 7) 19 167 228 ------ ---- ---- Net income $ 26 $ 267 $ 7 ====== ====== ====== See accompanying notes to the consolidated financial statements. CONRAIL INC. CONSOLIDATED BALANCE SHEETS December 31, -------------------- ($ In Millions) 1999 1998 ------ ------ ASSETS Current assets Cash and cash equivalents $ 22 $ 138 Accounts receivable 51 580 Due from NSC/CSX (Note 2) 196 - Notes receivable from NSC/CSX (Note 2) 216 - Material and supplies 29 92 Deferred tax assets (Note 7) 149 182 Other current assets 6 13 ------ ----- Total current assets 669 1,005 Property and equipment, net (Note 4) 7,143 7,151 Other assets 571 888 ------ ----- Total assets $8,383 $9,044 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt (Note 6) 319 113 Accounts payable 59 130 Due to NSC/CSX (Note 2) 159 - Wages and employee benefits 43 403 Casualty reserves 136 139 Accrued and other current liabilities (Note 5) 147 422 ------ ------ Total current liabilities 863 1,207 Long-term debt (Note 6) 1,302 1,609 Casualty reserves 311 215 Deferred income taxes (Note 7) 1,817 1,787 Other liabilities 271 426 ------ ------ Total liabilities 4,564 5,244 ------ ------ Commitments and contingencies (Note 11) Stockholders' equity (Notes 2, 8, and 9) Common stock ($1 par value; 100 shares authorized, issued and outstanding) - - Additional paid-in capital 2,229 2,291 Unearned ESOP compensation (20) (75) Retained earnings 1,610 1,584 ------ ------ Total stockholders' equity 3,819 3,800 ------ ------ Total liabilities and stockholders' equity $8,383 $9,044 ====== ====== See accompanying notes to the consolidated financial statements. CONRAIL INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Unearned Additional Employee Preferred ESOP Common Paid-in Benefits Retained Treasury ($ In Millions Except Per Share Data) Stock Compensation Stock Capital Trust Earnings Stock ----------- -------------- ------- --------- -------- -------- -------- Balance, January 1, 1997 $ 211 $(222) $ 88 $2,404 $ (384) $1,357 $(347) Amortization 2 Net income 7 Common dividends, $.475 per share (Note 9) (40) Preferred dividends, $.541 per share (Note 9) (3) Employee benefits trust transactions, net (3) 20 Effects of Conrail acquisition, net (Notes 2) (209) (82) 594 90 (393) Employee benefits trust reclassification 274 (Note 9) Allocation of unearned ESOP 65 Other (2) 11 3 (2) ------ ------ ---- ----- ----- ------ ----- Balance, December 31, 1997 - (155) 6 3,006 - 1,324 (742) Net income 267 Common dividends (7) Common shares reclassified as unissued (Note 9) (6) (736) 742 Allocation of unearned ESOP compensation 80 Other 21 ------ ----- ----- ------- ----- ----- ----- Balance, December 31, 1998 - (75) - 2,291 - 1,584 - Net income 26 Transfer of portion of prepaid pension assets to NSC and CSX (Note 8) (54) Allocation of unearned ESOP compensation 55 Other (8) ------ ----- ----- ------ ------ ------ Balance, December 31, 1999 $ - $ (20) $ - $2,229 $ - $1,610 $ - ====== ====== ==== ====== ====== ====== =====
See accompanying notes to the consolidated financial statements. CONRAIL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, --------------------------------- ($ In Millions) 1999 1998 1997 ----- ----- ------ Cash flows from operating activities Net income $ 26 $ 267 $ 7 Adjustments to reconcile net income to net cash provided by operating activities: Transition and acquisition-related charges (Note 3) 368 159 ESOP termination charge 221 Depreciation and amortization 328 310 293 Deferred income taxes 48 (30) 89 Gains from sales of property (6) (21) (23) Pension credit (45) (63) (61) Changes in (net of effect of transition and acquisition-related items): Accounts receivable 529 33 7 Accounts and wages payable (431) (33) 42 Deferred tax assets 33 (67) 178 Due from NSC/CSX (196) Due to NSC/CSX 159 Other (49) (37) (28) ------ ----- ------ Net cash provided by operating activities 396 727 884 ------ ----- ------ Cash flows from investing activities Property and equipment acquisitions (176) (537) (439) Notes receivable from NSC/CSX (216) Proceeds from disposals of properties 6 19 25 Other (14) (32) (31) ------ ----- ---- Net cash used in investing activities (400) (550) (445) ------ ----- ----- Cash flows from financing activities Payment of long-term debt (112) (119) (238) Payment of debt consent fees (10) Net proceeds from (repayments of) short-term borrowings (99) Dividends on common stock and preferred stock (7) (43) Proceeds from stock options and other 8 ----- ----- ----- Net cash used in financing activities (112) (136) (372) ------ ----- ----- Increase(decrease) in cash and cash equivalents (116) 41 67 Cash and cash equivalents Beginning of year 138 97 30 ------ ----- ----- End of year $ 22 $ 138 $ 97 ===== ===== =====
See accompanying notes to the consolidated financial statements. CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Description of Business Conrail Inc. ("Conrail") is a holding company whose principal subsidiary is Consolidated Rail Corporation ("CRC"), the major freight railroad in the Northeast. Norfolk Southern Corporation ("NSC") and CSX Corporation ("CSX"), the major railroads in the Southeast, jointly control Conrail through their ownership interests in CRR Holdings LLC ("CRR"), whose primary subsidiary is Green Acquisition Corporation, which owns Conrail. NSC and CSX have equity interests in CRR of 58% and 42%, respectively, and voting interests of 50% each. From May 23, 1997, the date NSC and CSX completed their acquisition of Conrail stock, until June 1, 1999, Conrail's operations continued substantially unchanged while NSC and CSX awaited regulatory approvals and prepared for the integration of their respective Conrail routes and assets to be leased to their railroad subsidiaries, Norfolk Southern Railway Company ("NSR") and CSX Transportation, Inc. ("CSXT"). The operations of CRC substantially changed beginning June 1, 1999, when NSC and CSX began operating a portion of the Conrail properties under operating agreements (the "Closing Date") (Note 2). Beginning June 1, 1999, Conrail's major sources of operating revenues are operating fees and lease rentals from NSC and CSX. The composition of CRC's operating expenses also reflects this change in operations. As a result, Conrail's 1999 results reflect the freight railroad operations of CRC through May 31, 1999, and reflect Conrail's new structure and operations that commenced on the Closing Date (Note 2). Principles of Consolidation The consolidated financial statements include Conrail and majority-owned subsidiaries. Investments in 20% to 50% owned companies are accounted for by the equity method. Cash Equivalents Cash equivalents consist of commercial paper, certificates of deposit and other liquid securities purchased with a maturity of three months or less, and are stated at cost which approximates market value. Material and Supplies Material and supplies prior to June 1, 1999, (Note 2) consist mainly of fuel oil and items for maintenance of property and equipment, and were valued at the lower of cost, principally weighted average, or market. Material and supplies beginning June 1, 1999, consist of maintenance material valued at the lower of cost or market. Property and Equipment Property and equipment are recorded at cost. Additions to properties, including those under lease, are capitalized. Maintenance expense is recognized when repairs are performed. Depreciation is provided using the composite straight-line method over estimated service lives. In 1999, the overall depreciation rate averaged 3.0% for roadway and 5.8% for equipment. The cost (net of salvage) of depreciable property retired or replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is recognized. Asset Impairment Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Expected future cash flows from the use and disposition of long-lived assets are compared to the current carrying amounts to determine the potential impairment loss. Revenue Recognition Revenue prior to June 1, 1999 was recognized proportionally as a shipment moved on the Conrail system from origin to destination. Beginning June 1, 1999, the Company's major sources of revenues are from NSC and CSX, primarily in the form of rental revenues and operating fees which are recognized when earned. New Accounting Standards There were no new accounting standards issued during 1999 which the Company believes will have a material impact on its consolidated financial position, results of operations or cash flows. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain prior year data have been reclassified to conform to the 1999 presentation. 2. Related Parties Transactions Background On May 23, 1997, NSC and CSX completed their joint acquisition of Conrail stock. On June 17, 1997, NSC and CSX executed an agreement which generally outlines the methods of governing and operating Conrail and its subsidiaries ("Transaction Agreement"). On July 23, 1998, the Surface Transportation Board ("STB") issued a written opinion that permitted NSC and CSX to exercise operating control of Conrail beginning August 22, 1998. On June 1, 1999, NSC and CSX began to operate over certain Conrail lines. Commencement of Operations by NSR and CSXT On June 1,1999, the majority of CRC's routes and assets were segregated into separate subsidiaries of CRC, Pennsylvania Lines LLC ("PRR") and New York Central Lines LLC ("NYC"). PRR and NYC entered into separate but identical operating and lease agreements with NSR and CSXT, respectively, (the "Operating Agreements" ) which govern substantially all nonequipment assets to be used by NSR and CSXT and have initial 25-year terms, renewable at the options of NSR and CSXT for two 5-year terms. Payments made under the Operating Agreements are based on appraised values that are subject to adjustment every six years to reflect changes in such values. NSR and CSXT have also leased or subleased certain equipment assets at rentals based on appraised values for varying term lengths from PRR and NYC, respectively, as well as from CRC. NSC and CSX have also entered into agreements with CRC governing other Conrail properties that continue to be owned and operated by Conrail ("the Shared Assets Areas"). NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared Assets Areas. In addition, NSR and CSXT pay, based on usage, the costs incurred by CRC to operate the Shared Assets Areas plus a profit factor. Payments made by NSR and CSXT to Conrail under the Shared Assets agreements were $45 million and $43 million, respectively, of which $7 million and $5 million, were minimum rents. Payments from NSR and CSXT under the Operating Agreements and lease agreements to PRR and NYC amounted to $167 million and $124 million, respectively. In addition, costs necessary to operate and maintain the related assets under these agreements, including leasehold improvements, will be borne by NSR and CSXT. Future minimum lease payments to be received from NSR/CSXT are as follows:
$ in Millions ------------- NSR NSR CSX CSX --- --- --- --- To PRR To CRC To NYC To CRC Total ------ ------ ------ ------ ----- 2000 $ 320 $ 22 $ 231 $ 16 $ 589 2001 307 24 223 17 571 2002 318 27 229 19 593 2003 327 30 235 21 613 2004 330 32 238 23 623 2005 and Beyond 5,389 687 3,902 497 10,475 ------------------------------------------------------------- Total $6,991 $822 $5,058 $593 $13,464 -------------------------------------------------------------
Related Party Balances and Transactions "Due from NSC/CSX" at December 31, 1999, is primarily comprised of amounts due for the above-described operating and rental activities. Also included in "Due from NSC/CSX" are amounts paid by Conrail for separation payments to CRC's agreement employees that will be reimbursed by NSC and CSX as required by the Transaction Agreement. As of December 31, 1999, the accrued balances due from NSC and CSX were $91 million and $105 million, respectively. PRR and NYC have interest-bearing notes receivable, payable on demand from NSC and CSX of $123 million and $93 million, respectively, at December 31, 1999 included in the "Notes receivable from NSC/CSX" line item on the balance sheet. The interest rates on the notes receivable from NSC and CSX are variable and both 5.6% at December 31, 1999. CRC has entered into service provider agreements with both NSC and CSX, for such services as accounting and administrative processing, personal injury and environmental case handling and other miscellaneous services ("Service Provider Agreements"). Payments made to NSC under these Service Provider Agreements were $5 million and are included within the various line items of operating expenses for 1999. In addition, CRC paid a subsidiary of CSX $5 million during 1999, for rental of various facilities which it occupied subsequent to May 31, 1999. "Due to NSC/CSX" includes $64 million and $29 million, to NSC and CSX, respectively, for the services described above for 1999. "Due to NSC/CSX" also includes $42 million and $24 million payable to NSC and CSX, respectively, for CRC's vacation liability related to the portion of its work force that became NSC and CSX employees subsequent to May 31, 1999. From time to time, NSC and CSX, as the indirect owners of Conrail, may need to provide some of Conrail's cash requirements through capital contributions, loans, or advances, none of which took place as of December 31, 1999. Prior to the Closing Date, the Company interchanged freight with both NSC and CSX for transport to destinations both within and outside of Conrail's service region. The Company shares ownership interests with either one or both railroads in various transportation-related entities, all of which are immaterial to the Company's operating results and financial position. 3. Transition, Acquisition-Related and Other Items During 1999, the Company recorded net expenses of $138 million ($85 million after taxes) for adjustments to certain litigation and environmental reserves related to settlements and completion of site reviews, and in accordance with the Transaction Agreement, for the method of settlement of certain casualty liabilities based on an actuarial study and for the assumption of a lease obligation by a subsidiary of CSX. The effects of these adjustments are reflected in the "Casualties and insurance" and "Other" operating expense line items of the income statement for 1999. During the third quarter of 1998, the Company recorded charges totaling $302 million ($187 million after income taxes), primarily for severance benefits of $170 million covering certain non-union employees, and $132 million of other costs, such as the effect of changing to an actuarial method of valuing certain components of the Company's casualty reserves, primarily included in the "Compensation and benefits" and "Casualties and insurance" operating expense line items of the 1998 income statement, respectively. The charge for non-union separation benefits represents termination payments made to approximately 1,300 non-union employees whose non-executive positions were eliminated as a result of the joint acquisition of Conrail. Most of these termination payments have been made in the form of supplemental retirement benefits from the Company's overfunded pension plan. During 1999 and 1998, termination payments of $77 million and $9 million were made, respectively. During 1998 and 1997, the Company recorded charges totaling $66 million ($41 million after income taxes) and $49 million ($31 million after income taxes), respectively, representing amounts paid to certain non-union employees as incentive to continue their employment with the Company through August 22, 1998, the effective date of the STB approval of the joint acquisition of Conrail, and the subsequent transition period. During 1997, the Company recorded a charge of $221 million (no related income tax effect) for the termination of its Non-union Employee Stock Ownership Plan ("ESOP") as a result of the repayment of the ESOP note payable of $291 million and related accrued interest to the Company. The Company recorded a long-term liability of $221 million related to the ESOP termination charge, which has not required use of the Company's cash for settlement. Such liability, the balance of which is $20 million at December 31, 1999, is being reduced as the cash proceeds, held by the ESOP as a result of selling its ESOP preferred stock in the joint tender offer, are allocated to eligible ESOP participants. During 1997, the Company recorded a charge of $110 million ($103 million after income taxes) in connection with employment "change in control" agreements with certain executives, which became operative as a result of the joint acquisition of Conrail. A portion of the benefits under these agreements, $68 million, has been paid in 1998 from the Employee Benefits Trust ("EBT"). These costs are included in the "Compensation and benefits" line item of the income statement for 1997. Also, as a result of the joint acquisition of Conrail, all outstanding performance shares and all outstanding unvested stock options, restricted shares and phantom shares vested during 1997. The Company paid all of the amounts due employees under these arrangements and recorded a $63 million charge ($39 million after income taxes). These costs are included in the "Compensation and benefits" line item of the income statement for 1997. 4. Property and Equipment December 31, -------------------- 1999 1998 ----- ----- (In Millions) Roadway $ 7,410 $ 7,255 Equipment 1,573 1,593 Less: Accumulated depreciation (2,154) (2,029) ------- ------- 6,829 6,819 ------- ------- Capital leases (primarily equipment) 696 793 Accumulated amortization (382) (461) ------- ------- 314 332 ------- ------- $ 7,143 $ 7,151 ======= ======= Substantially all assets are leased to NSR or CSXT (Note 2). Conrail acquired equipment and incurred related long-term debt under various capital leases of $79 million in 1997. 5. Accrued and Other Current Liabilities December 31, -------------------- 1999 1998 ---- ---- (In Millions) Freight settlements due others $ 3 $ 42 Equipment rents (primarily car hire) 6 78 Unearned freight revenue - 59 Property and corporate taxes 97 33 Other 41 210 ---- ---- $147 $422 ==== ==== 6. Long-Term Debt and Leases Long-term debt outstanding, including the weighted average interest rates at December 31, 1999, is composed of the following: December 31, ---------------------- 1999 1998 ------ ------ (In Millions) Capital leases $ 331 $ 391 Medium-term notes payable, 6.27%, due 1999 - 30 Notes payable, 9.75%, due 2000 250 250 Debentures payable, 7.88%, due 2043 250 250 Debentures payable, 9.75%, due 2020 550 544 Equipment and other obligations, 6.87% 240 257 ------ ------ 1,621 1,722 Less current portion (319) (113) ------ ------ $1,302 $1,609 ====== ====== Interest payments were $149 million in 1999, $153 million in 1998 and $163 million in 1997. Leases The Company's noncancelable long-term leases generally include options to purchase at fair value and to extend the terms. Capital leases have been discounted at rates ranging from 3.09% to 14.26% and are collateralized by assets with a net book value of $285 million at December 31, 1999. Minimum commitments, exclusive of executory costs borne by the Company, are: Capital Operating Leases Leases -------- ---------- (In Millions) 2000 $ 74 $ 72 2001 68 61 2002 56 55 2003 51 51 2004 56 53 2005 - 2018 139 474 ----- --- Total 444 $766 ==== Less interest portion (113) ----- Present value $ 331 ===== Equipment and other obligations mature in 2000 through 2043 and are collateralized by assets with a net book value of $229 million at December 31, 1999. Maturities of long-term debt other than capital leases are $268 million in 2000, $19 million in 2001, $18 million in 2002, $19 million in 2003, $19 million in 2004 and $947 million in total from 2005 through 2043. Operating lease rent expense was $120 million in 1999, $121 million in 1998 and $122 million in 1997. 7. Income Taxes The provisions for income taxes are composed of the following: 1999 1998 1997 ---- ---- ----- (In Millions) Current Federal $(30) $173 $122 State 1 24 17 ---- --- --- (29) 197 139 ---- ---- ---- Deferred Federal 52 (27) 61 State (4) (3) 28 ---- ---- ---- 48 (30) 89 ---- ---- ---- $ 19 $167 $228 ==== ==== ==== The nondeductibility of the ESOP termination charge and certain transition and acquisition-related compensation costs for federal and state income tax purposes, has resulted in a significant difference between the Company's statutory and effective tax rates for 1997 (Note 4). A tax law was enacted during the third quarter of 1997 by a state in which CRC operates which changed the Company's method of computing taxes and resulted in a tax rate increase. Income tax expense for 1997 was increased by $22 million representing the effects of adjusting deferred income taxes for the rate increase as required by SFAS 109, "Accounting for Income Taxes" ("SFAS 109"). Reconciliations of the U.S. statutory tax rates with the effective tax rates are as follows: 1999 1998 1997 ---- ---- ---- Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit (4.2) 3.2 3.2 ESOP termination charge 36.3 Nondeductible transition and acquisition-related costs 23.9 14.9 Effect of state tax increase on deferred taxes 9.3 Other (20.9) .3 (1.7) ----- ------ ----- Effective tax rate 42.2% 38.5% 97.0% ===== ====== ===== The Company has reached final settlements with the Internal Revenue Service ("IRS") related to all of the audits of the Company's consolidated federal income tax returns through fiscal year 1992. The Company's consolidated federal income tax returns for fiscal years 1993 through 1995 are currently being examined by the IRS. Federal and state income tax payments were $38 million in 1999, $196 million in 1998 and $120 million in 1997. Significant components of the Company's deferred income tax liabilities (assets) are as follows: December 31, ------------------- 1999 1998 ------ ------ (In Millions) Current assets $ (8) $ (22) Current liabilities (133) (152) Miscellaneous (8) (8) ------ ---- Current deferred tax asset, net $ (149) $ (182) ====== ====== Noncurrent liabilities: Property and equipment 1,977 1,897 Other long-term assets (primarily prepaid pension asset) 89 106 Other (mostly equipment obligations) 88 91 ------ ---- 2,154 2,094 ------ ------ Noncurrent assets: Nondeductible reserves and other liabilities (221) (239) Tax benefit transfer receivable (36) (36) Miscellaneous (80) (32) ------ ------ (337) (307) ------ ----- Deferred income tax liabilities, net $1,817 $1,787 ====== ====== 8. Pension and Postretirement Benefits The Company and its subsidiaries sponsor several qualified and nonqualified pension plans and other postretirement benefit plans for its employees. During 1999, the Company transferred approximately $350 million and $260 million of pension assets to NSC and CSX, respectively. NSC and CSX also assumed certain pension obligations related to former Conrail employees. The net effect on Conrail's financial statements as detailed in the table below, was to reduce pension assets by $89 million. This transfer resulted in a $35 million reduction of deferred tax liabilities and is reflected as a capital distribution of $54 million. The Company's pension plan was amended during 1998 to include certain enhanced benefits for qualifying Conrail employees. The effect of the amendment was to increase the Conrail plan's projected benefit obligation by $59 million. The Company's pension plan was also amended during 1998 to allow for payment of non-union supplemental retirement benefits to the extent consistent with applicable Internal Revenue Service Tax Code provisions. Both of these liabilities are accrued as offsets to the prepaid pension asset which is included in "Other assets" in the balance sheet (Note 3). The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ending December 31, 1999, and a statement of the funded status as of December 31 of both years: Other Postretirement Pension Benefits Benefits ----------------- ---------------- (In Millions) 1999 1998 1999 1998 ------ ------ ---- ---- Change in benefit obligation Net benefit obligation at beginning of year $834 $707 $ 56 $ 57 Pension obligation transferred to NSC and CSX (89) - - - Service cost 10 13 - - Interest cost 50 53 3 4 Plan amendments - 59 - - Curtailment (gains)losses (15) - (4) - Actuarial (gains)losses (97) 68 (7) 1 Incorporation of special pension benefit reserves 176 - - - Gross benefits paid (130) (66) (4) (6) ---- ---- ---- ---- Net benefit obligation at end of year $739 $834 $ 44 $ 56 Change in plan assets Fair value of plan assets at beginning of year $1,441 $1,308 $ 9 $ 10 Pension assets transferred to NSC and CSX (610) - - - Actual return on plan assets 88 211 - - Gross benefit payments (128) (78) (1) (1) ------ ------ ---- ---- Fair value of plan assets at end of year $ 791 $1,441 $ 8 $ 9 Funded status at end of year $ 52 $ 607 $(36) $(47) Unrecognized transition asset (3) (54) - - Unrecognized prior service cost 10 88 - - Unrecognized actuarial (gains)losses (26) (371) (8) - ----- ----- ----- ---- Net amount recognized at year end $ 33 $ 270 $(44) $(47) ===== ===== ===== ==== The following amounts have been recognized in the balance sheets as of December 31: Other Postretirement Pension Benefits Benefits (In Millions) 1999 1998 1999 1998 ---- ---- ---- ---- Prepaid pension cost $ 74 $278 - - Accrued benefit cost (41) (8) $(44) $(47) All of the Company's plans for postretirement benefits other than pensions have no plan assets except for the retiree life insurance plan which has $8 million and $9 million of assets in 1999 and 1998, respectively. The aggregate benefit obligation for the postretirement plans other than pensions is $44 million and $56 million at December 31 1999 and 1998, respectively. The projected benefit obligations and accumulated benefit obligations for pension plans with accumulated benefit obligations in excess of plan assets were $54 million and $38 million, respectively, in 1999; and $10 million and $9 million, respectively, in 1998. The plans had no assets in either 1999 or 1998. The assumptions used in the measurement of the Company's benefit obligation are as follows: Other Postretirement Pension Benefits Benefits 1999 1998 1999 1998 ---- ---- ---- ---- Discount rate 7.75% 6.50% 7.75% 6.50% Expected return on plan assets 9.00% 9.00% 9.00% 8.00% Rate of compensation increase 5.00% 5.00% 5.00% 5.00% A 7% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000, gradually decreasing to 6% by the year 2007. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of a one percentage point increase and (decrease) in the assumed health care cost trend rate on accumulated postretirement benefit obligation is $1 million and $(1) million, respectively, and would have an immaterial effect on the net periodic postretirement benefit cost for 1999. The components of the Company's net periodic benefit cost for the plans are as follows: Other Postretirement Pension Benefits Benefits (In Millions) 1999 1998 1997 1999 1998 1997 ---- ----- ---- ---- ---- ---- Service cost $ 10 $ 13 $ 8 $ - $- $- Interest cost 53 53 50 4 4 4 Expected return on assets (94) (109) (98) (1) (1) (1) Curtailment (gain) loss 19 - - (4) - - Amortization of: Transition asset (11) (18) (18) - - - Prior service cost 4 4 3 - - - Actuarial gain (8) (5) (6) - (1) (1) ---- ---- ---- --- -- -- $(27) $(62) $(61) $(1) $2 $2 ==== ===== ==== === == == Savings Plans The Company and certain subsidiaries provide 401(k) savings plans for union and non-union employees. Under the Company's current non-union savings plan, 50% of employee contributions are matched for the first 6% of a participating employee's base pay and 25% of employee contributions are matched in excess of 10% of a participating employee's base pay. Savings plan expense related to the current non-union savings plan was $1 million in 1999. There is no Company match provision under the union employee plan except for certain unions which negotiated a Company match as part of their contract provisions. In connection with the close of the NSC-CSX joint tender offer for Conrail, the Company's Non-union ESOP was terminated with the repayment of the ESOP note payable of $291 million and related accrued interest during 1997, resulting in a charge of $221 million (no related income tax effect) (Notes 2 and 3). Under the Non-union ESOP, 100% of employee contributions were matched in the form of ESOP preferred stock for the first 6% of a participating employee's base pay. Savings plan expense related to the ESOP plan was $1 million in 1997. The Company had no non-union savings plan in 1998. In connection with the formation of the Non-union ESOP in 1990, the Company issued 9,979,562 of the authorized 10 million shares of its ESOP stock to the Non-union ESOP in exchange for a 20 year promissory note from the Non-union ESOP in the principal amount of approximately $290 million. In addition, unearned ESOP compensation in the same amount was recognized as a charge to stockholders' equity coincident with the Non-union ESOP's issuance of its promissory note to the Company. The debt of the Non-union ESOP was recorded by the Company and offset against the promissory note from the Non-union ESOP. The Company received debt service payments from the Non-union ESOP of $11 million in 1997. Prior to the close of the joint tender offer (Notes 2 and 3), unearned ESOP compensation was charged to expense as shares of ESOP stock were allocated to participants. An amount equivalent to the preferred dividends declared on the ESOP stock had partially offset compensation and interest expense related to the Non-union ESOP through the close of the joint tender offer. Interest expense incurred by the Non-union ESOP on its debt to the Company was $9 million in 1997. Compensation expense related to the Non-union ESOP was $2 million in 1997. Prior to its acquisition, the Company made dividend payments at a rate of 7.51% on the ESOP stock and additional contributions in an aggregate amount sufficient to enable the Non-union ESOP to make the required interest and principal payments on its note to the Company. Preferred dividends declared and paid were $3 million in 1997. 9. Stockholders' equity Common Stock On May 23, 1997, the NSC-CSX joint tender offer for the remaining outstanding shares of Conrail's common and preferred stock was concluded, and on June 2, 1997, Conrail became the surviving corporation in a merger with Green Merger Corp. and remained the only subsidiary of Green Acquisition Corp., an entity jointly-owned by NSC and CSX. As a result, the remaining outstanding capital stock of Conrail was acquired by NSC and CSX and Green Acquisition was issued 100 shares of Conrail's common stock. Any per share data included in this report is based on Conrail's outstanding common stock before the effects of the joint acquisition of the Company. Employee Benefits Trust In 1995, the Company established the Conrail Employee Benefits Trust (the "Trust"). The Trust was intended to fund certain employee benefits and other forms of compensation. As a result of the joint tender offer (See Note 2) for the Company's common stock, the Trust received cash proceeds for the common stock it held at that time. Due to the Trust holding cash instead of the Company's common stock, the balance of the Trust at December 31, 1997, was reclassified from the stockholders' equity section of the Company's balance sheet to the "Other assets" line item. Treasury Stock As a result of the acquisition of Conrail, the Company's common stock repurchase program was terminated in the fourth quarter of 1996. The activity for 1997 is related to the repurchase of common stock in connection with the repayment of $90 million of the Trust promissory loan described above. The remaining shares of treasury stock at December 31, 1997, were recorded as canceled and retired during 1998. The activity and status of treasury stock follow: 1998 1997 --------- --------- Shares, beginning of year 6,320,249 5,523,455 Acquired Effects of Conrail acquisition (6,320,249) 796,794 ---------- --------- Shares, end of year - 6,320,249 ========== ========= Stock Plans The Company has applied APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for the Conrail plans. Accordingly, no compensation cost was recognized for the Conrail fixed stock option plans prior to Conrail's acquisition. However, in connection with the acquisition of Conrail, all outstanding performance shares and all outstanding unvested stock options, restricted shares and phantom shares vested during 1997 (Note 3). Undistributed Earnings of Equity Investees "Retained earnings" includes undistributed earnings of equity investees of $188 million, $173 million and $151 million at December 31, 1999, 1998 and 1997, respectively. 10. Other Income, Net 1999 1998 1997 ---- ---- ---- (In Millions) Interest income $19 $ 7 $13 Rental income 37 42 41 Property sales 6 21 23 Other, net 5 2 6 --- --- -- $67 $72 $83 === === === 11. Commitments and Contingencies Environmental The Company is subject to various federal, state and local laws and regulations regarding environmental matters. CRC is a party to various proceedings brought by both regulatory agencies and private parties under federal, state and local laws, including Superfund laws, and has also received inquiries from governmental agencies with respect to other potential environmental issues. At December 31, 1999, CRC has received, together with other companies, notices of its involvement as a potentially responsible party or requests for information under the Superfund laws with respect to cleanup and/or removal costs due to its status as an alleged transporter, generator or property owner at 28 locations. However, based on currently available information, the Company believes CRC may have some potential responsibility at only 25 of these sites. Due to the number of parties involved at many of these sites, the wide range of costs of possible remediation alternatives, the changing technology and the length of time over which these matters develop, it is often not possible to estimate CRC's liability for the costs associated with the assessment and remediation of contaminated sites. Although the Company's operating results and liquidity could be significantly affected in any quarterly or annual reporting period if CRC were held principally liable in certain of these actions, at December 31, 1999, the Company had accrued $94 million, an amount it believes is sufficient to cover the probable liability and remediation costs that will be incurred at Superfund sites and other sites based on known information and using various estimating techniques. The Company anticipates that much of this liability will be paid out over five years; however some costs will be paid out over a longer period. The Company believes the ultimate liability for these matters will not materially affect its consolidated financial condition. The Company spent $9 million in 1999, $10 million in 1998 and $9 million in 1997 for environmental remediation and related costs. In addition, the Company's capital expenditures for environmental control and abatement projects were approximately $1 million in 1999, $8 million in 1998 and $7 million in 1997. Other The Company is involved in various legal actions, principally relating to occupational health claims, personal injuries, casualties, property damage and damage to lading. The Company has recorded liabilities in amounts it believes are sufficient to cover the expected payments for such actions. CRC had 2,315 employees at December 31, 1999, approximately 78% of whom are represented by 16 different labor organizations and are covered by 16 separate collective bargaining agreements. The Company was not engaged in any collective bargaining at December 31, 1999. CRC currently guarantees the principal and interest payments in the amount of $39 million on Equipment Trust Certificates for Locomotive Management Services, a general partnership of which CRC holds a fifty percent interest. 12. Fair Values of Financial Instruments The fair values of "Cash and cash equivalents," "Accounts receivable," "Notes receivable from NSC/CSX" and "Accounts payable" approximate carrying values because of the short maturity of these financial instruments. Using current market prices when available, or a valuation based on the yield to maturity of comparable debt instruments having similar characteristics, credit rating and maturity, the total fair value of the Company's long-term debt, including the current portion, but excluding capital leases, is $1,367 million and $1,637 million at December 31, 1999 and 1998, respectively, compared with carrying values of $1,290 million and $1,331 million at December 31, 1999 and 1998, respectively. -----END PRIVACY-ENHANCED MESSAGE-----