CSX Corporation

FOUNDED: 1980

Contact Information:

HEADQUARTERS: 901 East Cary Street
Richmond, VA 23219-4031
PHONE: (804)782-1400
URL: http://www.csx.com

OVERVIEW

CSX Corp. operates a 22,700-mile rail system spanning 23 eastern, southeastern, and midwestern U.S. states and the Canadian provinces of Ontario and Quebec. Rail services account for roughly three-fourths of revenues. Via 33 units throughout North America, CSX Intermodal offers hauling services that make use of various modes of transportation including trains, trucks, and ocean vessels. These intermodal services bring in 14 percent of sales. CSX Lines, which contributes 8 percent of sales, operates a fleet of 16 vessels that offer domestic container shipping services to and from the United States and Guam, Puerto Rico, Alaska, and Hawaii. International operations include terminals in Australia, Asia, the Caribbean, and Europe. Non-transportation assets include CSX Real Property and the Greenbrier, a resort based in West Virginia.

COMPANY FINANCES

Revenues for CSX fell to $8.11 billion in 2001 compared to $8.19 billion the previous year. Earnings fell from $565 million to $293 million over the same time period, causing the firm's profit margin to drop from 6.9 percent to 3.6 percent. CSX's performance had been strongest in the mid-1990s. Along with sales in excess of $10 billion, CSX posted profits of $855 million in 1996. That year, the firm's profit margin peaked at 8.1 percent, as did earnings per share, which reached $3.96; its stock reached a high of $62.44 per share and a low of $41.25 per share. In comparison, stock prices in 2001 ranged from a high of $41.30 to a low of $24.81, and earnings per share totaled __BODY__.38.

ANALYSTS' OPINIONS

Many analysts were critical of CSX's decision in 1999 to jointly acquire Conrail with rival Norfolk Southern. Two years later, this acquisition continued to undermine the outlook for CSX despite an overall upturn in the railroad industry prompted by natural gas shortages that boosted demand for coal shipments. According to a May 2001 issue of Business Week, "East Coast rails are still mired in problems related to the dismemberment of Conrail, which Norfolk Southern and CSX Corp. purchased in 1999. Standard & Poor's thinks these two major railroads overpaid for Conrail assets and will not realized positive contributions for several more years." However, CSX management attributed strong earnings in the fourth quarter of 2001 to reduced costs, which the firm was able to achieve by making better use of its Conrail assets. "Having single-line through service allowed us to eliminate several hand-offs, which saved us several days and makes our product more reliable," stated a CSX executive in a January 2002 issue of Traffic World.

HISTORY

In 1973 the Baltimore & Ohio Railroad (BOR) combined with the Chesapeake & Ohio Railroad (COR) under the control of a holding company called The Chessie System. The BOR had been created in 1827 to offer a rail and canal system between the Eastern Seaboard and the industrial centers around the Great Lakes. The COR had been taken over by J.P. Morgan in 1878 after the company suffered losses and neared bankruptcy following the Civil War. In 1980 The Chessie System, Inc. merged with Seaboard Coast Line Industries (SCL), which dated back to the 1830s, to create CSX Corp. Prime F. Osborn became chairman of the new company, while Hays T. Watkins was named president. Two years later, Watkins also took over the chairman position when Osborn retired.

Watkins diversified CSX with a series of acquisitions beginning with the 1983 purchase of Texas Gas Resources. CSX purchased AMR Commercial Lines, Inc. in 1984 and Sea-Land Corp. in 1986. CSX also entered into the leisure and lodging industry with the acquisition of Rockresorts, Inc. By 1988, however, CSX was forced to sell off many of its recent acquisitions in a corporate restructuring program developed in response to complaints about company performance. In 1989 John W. Snow replaced Watkins as president and CEO, and he immediately began divesting subsidiaries in an effort to refocus the company on its core operations.

FAST FACTS: About CSX Corporation

Ownership: CSX Corp. is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: CSX

Officers: John W. Snow, Chmn., Pres., and CEO; Paul R. Goodwin, VChmn. and CFO; Jessie R. Mohorovic, VP Corporate Communications; James A. Searle, Jr., VP Administration

Employees: 39,011

Principal Subsidiary Companies: CSX operates CSX Transportation, Inc., a leading U.S. railroad company serving the United States and Canada. Other subsidiaries include CSX Intermodal, Inc.; CSX World Terminals, LLC; and CSX Lines, LLC.

Chief Competitors: Competitors to CSX include other railway companies such as Burlington Northern Santa Fe and Canadian National Railway, as well as air and ground shipping companies like FedEx and J.B. Hunt.

In October 1996 Conrail accepted a $8.4 billion acquisition bid by CSX. Along with boosting CSX's sales to $14 billion, the merger would have allowed CSX to offer barge, container shipping, rail, and inter-modal services in more than 80 countries. It would also have secured for CSX control of 70 percent of the eastern U.S. railroad market. Management estimated economies of scale would produce $730 million in savings for CSX. The deal also appealed to Conrail, which needed to find a merger partner to reduce costs, increase services, and offer more competitive prices to consumers. However, rival Norfolk Southern, recognizing that it would become a minor player in the East if Conrail and CSX merged, fought the proposal with a higher bid of its own. As a result, Conrail's board eventually voted against the CSX takeover. By June 1998 a three-way deal had been forged. CSX acquired 40 percent of Conrail's assets while Norfolk received the remaining 58 percent when the deal was finalized on June 1, 1999.

In 1999 CSX separated Sea-Land into three distinct units: CSX World Terminals, CSX Lines, and an international container shipping unit that was purchased by Denmark-based A.P. Moller for $800 million. The firm spent the second half of the year folding its new Conrail assets into existing operations, and the integration process proved problematic. Service problems with Conrail assets persisted into 2000, which prompted CSX to restructure its rail operations management team. That year, TNT Post Group paid $650 million for CTI Logistx, a transportation logistics company that CSX had acquired in the early 1990s, and CSX used the cash to whittle down its substantial debt. In 2001 CSX created Transflo Corp. to handle the transfer of freight between railcars, truck, and ships.

STRATEGY

Shortly after its inception, CSX began to pursue a strategy of growth via diversification. In 1983, under the leadership of Hays T. Watkins, CSX paid __BODY__ billion for Texas Gas Resources Corp., a leading U.S. natural gas pipeline operation with significant gas and petroleum reserves. As a result of the deal, CSX also gained access to the American Commercial Lines, Inc. (ACL) subsidiary of Texas Gas, which was a large barge operator at the time. For CSX, the addition of oil and gas to its sizable coal holdings was a major undertaking, as was the addition of barge operations. In fact, the diversification into barge shipping was an unprecedented move for a railroad. However, in July 1984 U.S. authorities granted permission to CSX to maintain and operate American Commercial Lines, reversing longstanding regulations that prevented railroads from owning steamship or barge lines. Three years later, CSX gained approval for its $800 million-acquisition of Sea-Land Corp., the largest U.S. ocean container shipping company. At the time, Watkins' strategy of structuring CSX as an intermodal operation able to serve national and international markets was somewhat controversial; however, diversification efforts continued.

In 1986 CSX moved into resort operations with the purchase of Rockresorts, Inc. from Laurance Rockefeller. That year, it also bought a 30 percent stake in natural gas pipeline builder Yukon Pacific Corp. CSX created its CSX Intermodal, Inc. subsidiary, the first full-service intermodal company to serve more than one continent, in 1987. Despite the firm's pioneering efforts in inter-modal services, which proved to be a profitable market for many transportation firms in the 1990s, Watkins' diversification strategy left CSX struggling to integrate many of its new assets. Weak profits and low stock prices plagued CSX in the late 1980s. As a result, the firm's directors appointed John W. Snow as president and CEO in 1989. Watkins remained chairman until 1991, when Snow assumed that post as well.

Between 1988 and 1990, CSX returned its focus to railway operations with the goal of increasing profits. The majority of the firm's oil and gas holdings were divested, as were most resort properties. To lower labor costs, CSX began to reduce its crew size. CSX also boosted earnings per share by using the capital from the sale of its various holdings to repurchase roughly 40 percent of its outstanding common stock. Snow's efforts paid off during the 1990s, as sales grew from $8.21 billion in 1990 to $10.54 billion in 1996, when earnings peaked that year at $855 million.

CHRONOLOGY: Key Dates for CSX Corp.

1980:

Chessie System Inc. and Seaboard Coast Line Industries merge to form CSX Corp.

1984:

U.S. authorities allow CSX to operate American Commercial Lines, reversing regulations that prevented railroads from owning steamship or barge lines

1986:

CSX pays $800 million for Sea-Land Corp., the largest U.S. ocean container shipping company

1987:

CSX creates its CSX Intermodal subsidiary

1996:

CSX bids $8.4 billion for Conrail

1999:

Norfolk Southern and CSX jointly acquire Conrail

Snow decided the firm was once again ready to begin making acquisitions, although the focus this time would be on strengthening core transportation operations. For example, the purchase of Valley Line in 1992 boosted the barge capacity of American Commercial Lines by more than 33 percent. ACL acquired the marine assets of Conti-Carriers & Terminals, Inc. in 1996, increasing its fleet size to 3,700 barges and 137 towboats. That year, CSX also began what would become a three-year effort to acquire Conrail. When the three-way deal with Norfolk Southern was completed in 1999, CSX hired Conrail executive Ronald J. Conway to oversee its rail operations. Once again, the integration of new assets proved to be problematic for CSX. On-time performance fell from roughly 80 percent in the mid-1990s to 50 percent. In April 2000, Conway was dismissed by CSX, and Snow added the management of CSX's rail operations to his CEO and chairman duties.

Along with making service improvements a top priority, Snow spearheaded a marketing and sales campaign designed to win freight transportation business back from trucking companies. In 2001 roughly $100 million in new business was attributed to this effort. Working in CSX's favor was the increase in fuel prices across North America, which placed trucking companies at a disadvantage to railroads throughout 2001.

CURRENT TRENDS

Logistics management, the coordination of shipments from sender to receiver, became an increasingly lucrative area for transportation companies throughout the 1990s. Hoping to capitalize on this trend, CSX acquired Customized Transportation, Inc. (CTI) in 1993. One of the largest logistics companies serving the automotive industry, CTI offered not only distribution services but also warehousing and assembly services for just-in-time delivery. This meant that products such as cars and car parts were stored by CTI and assembled and shipped only as needed. CTI later added service in Europe and South America to its existing U.S. operations and, in 1996, began to service new industries, including electronics, retail, and chemicals. Despite the growing popularity of logistics management services in the late 1990s and early 2000s, CSX sold CTI for $650 million in 2000 to help pay down its debt.

PRODUCTS

CSX Transportation offers rail transportation and distribution services throughout the eastern half of the United States and two Canadian provinces. CSX Inter-modal offers multi-carrier transportation services at 33 terminals throughout North America. Ocean liner services between the continental United States and Alaska, Hawaii, Guam, and Puerto Rico are provided by CSX Lines, which operates a fleet of 16 vessels. CSX World Terminals operates terminal facilities in Asia, Australia, Europe, and the Caribbean. Through its 34 percent stake in American Commercial Lines, CSX also offers marine container shipping services.

CSX CHALLENGED ON SAFETY RECORD

In September 1997, a jury serving on a case related to a CSX chemical car fire 10 years prior ordered CSX to pay damages of $3.37 billion, including $2.5 billion in punitive damages, to the plaintiff. However, two months later, the Louisiana Supreme Court overturned the ruling and sent it back to a lower court for adjustment. At roughly the same time, the Federal Railroad Administration (FRA) released a report that was critical of safety procedures at CSX. The FRA had launched an investigation of CSX in 1996 after two CSX trains collided, killing one employee and injuring another. Also that year, a CSX freight train and an Amtrak passenger train had collided in Maryland, leaving 16 people dead. Safety violations discovered during the investigation resulted in a $750,000 fine.

GLOBAL PRESENCE

Although the majority of CSX's operations are domestic, the firm does operate terminal facilities in Hong Kong, China, Australia, Europe, Russia, and the Dominican Republic.

SOURCES OF INFORMATION

Bibliography

"CSX Corp." International Directory of Company Histories. Detroit: Gale Group, 1998.

CSX Corp. Home Page, 2002. Available at http://www.csx.com.

Gallagher, John. "Freight Conversion: CSX Grabs $100 Million in New Business for System in 2001, Most From the Highways." Traffic World, 28 January 2002.

Stephens, Bill. "CSX Still Struggling; Snow Re-Assumes Reins." Trains Magazine, July 2000.

Stice, Richard. "Railroads: Picking Up Steam." Business Week, 31 May 2001.

For an annual report:

on the Internet at: http://www.csx.com/aboutus/financial/annual-report/2001/2001annualreport.pdf.

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. CSX's primary SICs are:

4011 Railroads, Line-haul Operating

4491 Marine Cargo Handling

4922 Natural Gas Transmission

6719 Holding Companies, Not Elsewhere Classified

Also investigate companies by their North American Industry Classification Codes, also known as NAICS codes. CSX's primary NAICS codes are:

333924 Industrial Truck, Tractor, Trailer and Stacker Machinery

336211 Motor Vehicle Body Manufacturing

336510 Railroad Rolling Stock Manufacturing

336611 Ship Building and Repairing

482111 Line-Haul Railroads

483211 Inland Water Freight Transportation

484121 General Freight Trucking, Long Distance, Truckload