10-QPeriod: Q3 FY2003

CSX CORP Quarterly Report for Q3 Ended Sep 26, 2003

Filed October 24, 2003For Securities:CSX

Summary

CSX Corporation reported a net loss of $103 million, or $0.48 per share, for the third quarter of 2003, a significant decline from the $127 million in earnings, or $0.60 per share, in the same period of 2002. This downturn was primarily driven by substantial one-time charges, including a $232 million provision for casualty reserves related to asbestos and other occupational injuries, and a $108 million charge from settlements with Maersk resolving outstanding disputes. Despite these charges, the core rail and intermodal operations showed resilience, with surface transportation revenue increasing slightly. However, the overall financial picture was impacted by the prior divestiture of a majority interest in CSX Lines LLC, which reduced revenue compared to the prior year. Investors should note the significant impact of these non-recurring charges on the reported net loss, while also observing the underlying operational performance of the transportation segments.

Key Highlights

  • 1CSX Corporation reported a net loss of $103 million for Q3 2003, a substantial decrease from net earnings of $127 million in Q3 2002.
  • 2The net loss per share was $0.48 for Q3 2003, compared to earnings per share of $0.60 in Q3 2002.
  • 3A significant factor contributing to the net loss was a $232 million charge for casualty reserves, including estimates for incurred but not reported claims.
  • 4CSX recognized an additional loss of $108 million related to settlements of disputes with Maersk concerning the sale of international container-shipping assets.
  • 5Surface transportation revenue saw a modest increase, rising by $37 million year-over-year, indicating stable operational performance in the core business.
  • 6The company completed the divestiture of a majority interest in its domestic container-shipping subsidiary, CSX Lines LLC, impacting year-over-year revenue comparisons.
  • 7Interest expense decreased due to lower interest rates on floating-rate debt and the positive impact of interest rate swaps.

Frequently Asked Questions

The net loss of $103 million was primarily caused by two significant non-recurring charges: a $232 million provision for casualty reserves to account for estimated future claims related to asbestos and other occupational injuries, and a $108 million charge resulting from settlements with Maersk to resolve outstanding disputes from a prior asset sale. These items overshadowed the performance of the core rail and intermodal businesses.

CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC, in February 2003. This divestiture led to a reported decrease in overall operating revenue compared to the prior year period, as the revenue from CSX Lines was no longer included. However, the core Surface Transportation segment (rail and intermodal) showed revenue growth.

Fuel expenses are a significant cost for CSX, and prices can fluctuate. While CSX had begun a fuel hedging program to mitigate some of this volatility for future periods (2004 and 2005), the company remained subject to fuel price fluctuations for the remainder of 2003. Actual fuel expenses increased year-over-year in the third quarter due to price increases.

CSX and Norfolk Southern jointly own Conrail, which operates a critical freight railroad system in the Northeastern United States. CSX participates in operating a portion of Conrail's lines and pays fees for their use. The companies are pursuing a plan to establish direct ownership of their respective portions of the Conrail system, subject to regulatory approval. Conrail's results are reported separately and contribute to CSX's overall financial picture through equity in income.