CSX Corporation

views updated May 09 2018

CSX Corporation

One James Center
901 East Cary Street
Richmond, Virginia 23219-4031
U.S.A.
(804) 782-1400
Fax: (804) 782-6747
Web site: http://www.csx.com

Public Company
Incorporated: 1978
Employees: 47,314
Sales: $10.54 billion (1996)
Stock Exchanges: New York London Zurich Midwest Boston Cincinnati Pacific Philadelphia
SICs: 4011 Railroads, Line-Haul Operating; 4412 Deep Sea Freight Transportation-Foreign; 4449 Freight Transportation-Water, Not Elsewhere Classified; 6531 Real Estate Agents & Managers; 6719 Offices of Holding Companies, Not Elsewhere Classified; 7011 Hotels & Motels

CSX Corporation is a leading transportation-based holding company that operates one of the United States’s leading rail systems. The company’s rail system is the largest in the eastern United States and the third-largest in the country as a whole, trailing only those of Union Pacific Corp. and Burlington Northern Santa Fe Corp. The system, run by the company’s CSX Transportation Inc. unit, covers about 18,500 miles in 20 Southeastern, Eastern, and Midwest states and the Canadian province of Ontario. CSX also owns and operates the world’s largest containership line, Sea-Land Service Inc.; the largest U.S. barge carrier, American Commercial Lines Inc.; the nation’s only full-service intermodal transportation company, CSX Intermodal Inc.; and a leading provider of contract logistics services, including distribution, warehousing, assembly, and just-in-time delivery, Customized Transportation Inc. In addition, CSX manages extensive real estate development activities; operates several large resorts, including the Greenbrier Hotel at White Sulphur Springs, West Virginia; and holds a majority stake in Yukon Pacific Corporation, a promoter of a pipeline to transport natural gas from Alaska’s North Slope to Valdez. CSX has remained at the center of the continuing consolidation of the railroad industry, most recently entering into a mid-1997 agreement to acquire 42 percent of Conrail’s lines, mainly located in the northeastern states. In placing continued, though not exclusive, reliance on rail traffic, the company is looking back to its distant origins. CSX’s railroad, the major part of its business over the years, is the end result of a long series of consolidations involving three historic railroad systems: the Seaboard Coast Line, the Chesapeake and Ohio Railway, and the Baltimore and Ohio Railroad, which together span nearly the entire history of railroading in the United States.

History of the Baltimore and Ohio Railroad

The Baltimore and Ohio Railroad (B&O) was chartered in February 1827 by a group of leading Baltimore businessmen with one of their number, Philip E. Thomas, as the first president. Its purpose was twofold: to challenge major canals, especially the Erie Canal, for trade to the west and to provide more efficient and cheaper freight and passenger service than was then available. In Baltimore’s case this traffic passed over the National Road, which ran from Cumberland, Maryland, to Wheeling, West Virginia, on the Ohio River, with an eastward extension to Baltimore. The railroad’s construction started on July 4, 1828, at a historic celebration presided over by Charles Carroll, the last surviving signer of the Declaration of Independence. The B&O’s planners intended to use horses for motive power, but Peter Cooper’s first locomotive used on the line, the diminutive Tom Thumb, made its first successful run in 1830, ending the railroad’s need for horsepower.

Construction progress was slow, however, and the rail line from Baltimore to Wheeling wasn’t completed until December 1852. A second western extension was completed to Parkersburg, West Virginia, in 1857, with connections to local railroads providing service to Columbus and Cincinnati, Ohio and to St. Louis, Missouri. The Ohio and West Virginia connections fostered a great increase in coal traffic from mid-western mines to the east. By 1860 revenues from coal were about one-third of total rail freight revenue, a ratio that has changed little over the years. In 1990 coal provided 32 percent of CSX’s rail revenue.

The B&O played a key role in the Civil War, as did many other railroads, and the line suffered accordingly with substantial damage to track and equipment. Growth continued after the war under the presidency of John W. Garrett, who served from 1858 to 1884, providing sound management in an era when railroad mismanagement was all too common. Track mileage increased from 521 in 1865 to nearly 1,700 by 1885. As the B&O continued to expand through construction and acquisition of smaller railroads, mileage increased to 3,200 by 1900, reaching 5,100 by 1920 and achieving a peak of about 6,350 in 1935.

After Garrett’s presidency, increasing debt and an over-generous dividend policy weakened the B&O financially while speculation in the company’s stock hampered its fundraising ability. The financial panic of 1893 proved disastrous for the line, and in 1896 the B&O was placed in receivership. In the following decade and a half the reorganized railroad’s mileage and revenues increased satisfactorily, but the B&O came under the control of the Pennsylvania Railroad, which had purchased a majority of its stock after the bankruptcy. The Pennsylvania involved itself briefly in the B&O’s management, but sold its stock position in 1906 for fear of U.S. government antitrust action. Under the long presidency of Daniel Willard from 1910 to 1941, the B&O’s physical plant and service were considerably improved, and the line, which now spread through western Pennsylvania, Ohio, West Virginia, Indiana, and Illinois, enjoyed increasing prosperity until the onset of the Great Depression in the 1930s.

The 1930s saw declining revenues, layoffs, and wage reductions. In 1932 dividends on the common stock were discontinued, not to be restored until 1952. Track mileage and locomotive and equipment rosters began a long decline that would continue until the B&O came under control of the Chesapeake and Ohio Railway (C&O) in 1963. Roy B. White, however, who served as president from 1941 to 1953, inherited from Willard a first-class railroad that offered excellent service. World War II provided renewed prosperity, but the B&O faced problems during the postwar years from inflation, debt for new equipment, declines in passenger traffic, and chronic labor disputes. U.S. President Harry Truman temporarily seized the nation’s railroads in 1946 to offset a threatened nationwide strike, and similar crises occurred in 1948 and 1950.

During the B&O’s last decade as an independent company, Howard E. Simpson served as president from 1953 to 1961, and Jervis Langdon Jr., served from 1961 to 1964. Operating revenues and net income generally declined during the 1950s as did track mileage and employment. Labor costs grew because of constant union pressure for higher wages. In the late 1950s as the B&O’s traffic and revenue position worsened, the railroad began to consider the idea of a merger with a stronger partner. The C&O and the New York Central Railroad vied briefly for dominance, but in February 1961 the C&O announced that it controlled 61 percent of the B&O’s stock. In 1962 the Interstate Commerce Commission (ICC) approved the C&O’s request to take over the B&O, and on February 4, 1963, the C&O finally took control. The affiliation produced an 11,000-mile rail system, stretching from the Atlantic to the Mississippi River and from the Great Lakes to the southern edges of Virginia, West Virginia, and Kentucky, and brought to the B&O’s rescue a smaller but significantly stronger railroad, not quite as old as the B&O, but with origins that also went back to the early years of railroading.

History of Chessie System

The C&O had its beginning in a short line railroad built to provide rail traffic to farmers and merchants in central Virginia. Chartered in 1836 as the Louisa Railroad, it originally covered 21 miles from Taylorsville to Frederick Hall, Virginia. In 1850 the line’s name was changed to the Virginia Central Railroad, and by 1851 it extended eastward to Richmond, Virginia. A plan to extend westward to the Ohio River was delayed by the Civil War, during which the railroad served the Southern forces effectively but was heavily damaged. In 1867 the reorganized company changed its name to the Chesapeake and Ohio Railway Company and with financial backing from Collis P. Huntington, who subsequently became president from 1869 to 1888, the line was open from Richmond to Huntington, West Virginia, by 1873. The panic of 1873 ended in receivership for the C&O in 1875. In 1888 Huntington lost control to J. P. Morgan, who improved the railroad’s performance such that, by 1900, the C&O was a solvent, well-managed 1,445-mile line connecting Newport News, Virginia, with Cincinnati, Ohio, and Louisville, Kentucky.

Company Perspectives:

CSX is a transportation company committed to being a leader in railroad, inland water, and containerized distribution networks.

To attract the human and financial resources necessary to achieve this leadership position, CSX will support our three major constituencies: For our customers, we will work as a partner to provide excellent service by meeting all agreed-upon commitments. For our employees, we will create a work environment that motivates and allows them to grow and develop and perform their jobs to the maximum of their capacity. For our shareholders, we will meet our goals to provide them with sustainable superior returns.

The C&O’s history during the 20th century was characterized by conservative financial management supported by strong coal revenues. In 1947 the C&O made a major acquisition of the Pere Marquette Railroad with nearly 2,000 miles of track in the Midwest, New York, and Canada, and a sound base of merchandise traffic. The Pennsylvania and New York Central Railroads controlled C&O’s stock from 1900 and 1909. During the 1920s and early 1930s control was exercised by Martis P. Van Sweringen and his brother, Oris P. Van Sweringen. From the mid-1930s, noted financier Robert R. Young owned a majority stock position, which he sold in 1954 to Cleveland investment banker Cyrus S. Eaton. By this time the C&O was a prosperous 5,000-mile line with $350 million in annual revenues and an exceptionally competent leader, Walter J. Tuohy, who had assumed the presidency in 1948. After completing the line’s dieselization in the mid-1950s, Tuohy moved aggressively to expand the C&O by acquisition, leading to the 1963 merger with the B&O.

The unification of the two railroads proceeded slowly and deliberately with a common annual report appearing in 1964 and senior administrative positions being gradually combined during the 1960s and 1970s. The continued separate operations of the lines avoided the confusion and errors that led to the failure of the Penn Central combination during the same period. It also avoided a downgrading of C&O debt securities because of the weaker financial position of the B&O before the merger, and maximized the benefits of operating two railroads whose traffic was, for the most part, complementary.

Hays T. Watkins became chairman and chief executive officer of the combined C&O and B&O in 1971. He was a strong administrator, firing President John Hanifin in 1975 for spending $2 million on tennis courts at the railroad’s resort, the Greenbrier Hotel. Watkins adopted the name Chessie System Inc. in 1972 for the combined railroads and formally became CEO of Chessie System in 1973. By the late 1970s only three percent of Chessie’s $1.5 billion revenues were from non-rail sources, and Watkins was considering diversification and expansion. In 1978 Chessie proposed to the ICC a possible merger with the slightly larger southeastern railroad system, Seaboard Coast Line Industries Inc. Like the B&O and the Chessie, the Seaboard was a consolidation of several railroads whose history also reached back into the 19th century.

History of Seaboard Coast Line

The Seaboard’s key component, the Atlantic Coast Line Railroad (ACL), began as a series of small railroads running along a northeast-southwest line parallel to the Atlantic coast and connecting communities along the “fall line,” the imaginary line joining towns at the heads of navigation of the coastal rivers. The oldest part of the ACL was the Petersburg Railroad, chartered in 1830 to run from Petersburg, Virginia, south to the North Carolina border. The corporate parent of the ACL, however, was the Richmond and Petersburg Railroad, chartered in 1836. These and similar, small independent railroads running along the fall line through Virginia, North Carolina, South Carolina, Georgia, Alabama, and Florida were joined after the Civil War in a holding company at first called the American Improvement and Construction Company, formed in 1889. In 1893 the name was changed to the Atlantic Coast Line Company. In 1902 the ACL bought a controlling share of the Louisville and Nashville Railroad (L&N) and, following a 1914 reorganization, the name was changed again to the Atlantic Coast Line Railroad Company.

In 1958 the ACL, by then a 5,300-mile railroad with revenues of about $163 million, proposed a merger with one of its southeastern competitors, the Seaboard Air Line Railroad with 4,100 miles and roughly similar revenues. The ACL, with its affiliates, the 5,700-mile L&N and the smaller Clinchfield Railroad, tapping the coal and merchandise markets of the midwest, was the stronger of the two companies. The plan however, was to merge the ACL into the Seaboard to take advantage of the Seaboard’s more modern corporate charter. The consolidation plan was filed with the ICC in 1960 but progress was slow, partly because of antitrust issues, with final approval not coming until 1967. The new company, eventually called Seaboard Coast Line Industries Inc., was the eighth-largest railroad in the United States, with revenues of about $1.2 billion.

Creation of CSX in 1980

The merger proposed in 1978 between the $1.5 billion Chessie and the $1.8 billion Seaboard offered benefits to both sides. It would give the Chessie a relatively inexpensive expansion into the booming southeast and would provide a useful capital infusion for the Seaboard, especially for its maintenance and equipment-starved L&N subsidiary. The ICC approved the merger in September 1980 and the two systems were consolidated into CSX Corporation on November 1, 1980. The Seaboard’s Prime F. Osborn III became chairman and the Chessie’s Hays T. Watkins became president. Watkins was clearly the dominant figure, becoming chairman in 1982 on Osborn’s retirement.

As in the case of the B&O and C&O, the operational consolidation of the two railroad systems proceeded gradually, again to avoid the internal stresses that had marred the Penn Central merger. It was not for another decade that all of the railroad operations of Chessie and Seaboard were consolidated under the CSX Transportation Inc. subsidiary.

Diversification in the Later 1980s

Meanwhile, diversification was in the air in the 1980s. In 1983 CSX made a deal with Southern New England Telephone Company to place a fiber optics telecommunication system along the CSX rights-of-way. A more significant diversification move in 1983 was CSX’s “white-knight” $1 billion purchase of Texas Gas Resources Corporation, with $2.9 billion in revenues, one of the United States’s largest natural gas pipeline companies with substantial gas and petroleum reserves. For CSX, with revenues of $5 billion, this was a major expansion into natural resources, adding oil and gas to its already large coal holdings. Texas Gas had as a subsidiary the American Commercial Lines Inc. (ACL), a large barge operator. On July 24, 1984, the ICC voted to allow CSX to keep and operate this shipping firm, a reversal of longstanding government policy against letting railroads own steamship or barge lines.

Continuing this precedent, the ICC in 1987 voted to approve CSX’s 1986 $800 million acquisition of Sea-Land Corporation, the largest U.S. ocean container-ship line (later known as Sea-Land Service Inc.). This purchase was a continuation of Watkins’s somewhat controversial policy of structuring CSX as an intermodal transportation company capable of serving both national and international markets. CSX became heavily involved in resort operations following its 1986 purchase of Rockresorts, Inc., owner and manager of several luxury resorts, which CSX bought from Laurance Rockefeller. Also in 1986, CSX purchased a 30 percent interest (increased to a majority stake two years later) in Yukon Pacific Corporation, which aimed to construct the Trans-Alaska Gas System to transport natural gas via pipeline from Alaska’s North Slope to Valdez. In 1987 CSX further extended its array of transportation services by forming CSX/Sea-Land Intermodal (later known as CSX Intermodal Inc.), the nation’s only transcontinental full-service intermodal company.

These acquisitions and initiatives were the last engineered by Watkins. The company’s directors became disenchanted with CSX’s low profits, declining return on investment, and stagnant stock price. Lagging rail profits, partially due to labor contracts and problems with the company’s new acquisitions, resulted in major changes in management direction for CSX. A comprehensive restructuring program was announced by Watkins in 1988, but in April 1989 John W. Snow, a former federal highway official, was appointed president and chief executive officer of the company. Watkins continued as chairman until his retirement on January 31, 1991, when that position, too, was assumed by Snow.

CSX underwent a significant change in direction between 1988 and 1990. CSX’s oil and gas businesses (with the exception of its Yukon Pacific stake) were sold in 1988 and 1989, resulting in a net gain of more than $200 million. Most of its resort properties and the telecommunications system were also sold, although CSX kept the Greenbrier Hotel and one smaller resort. A crew-reduction agreement was signed by the railroad with the United Transportation Union in 1989. This was a key step in Snow’s plan to downsize the railroad, as well as other CSX operations, in order to increase profitability. CSX also improved its share earnings by using money from the gas and oil sale to buy back about 39 percent of its outstanding common stock. In his first years as chief executive, Snow installed a new management team determined to improve shipping and real estate profits and to focus on CSX’s traditionally strong rail operations in order to earn a better return on the company’s $12 billion asset base.

Strategic Acquisitions in the 1990s

With Snow’s emphasis on improving both customer relations and profits, CSX’s position grew ever stronger through the 1990s. Revenues increased steadily, from $8.21 billion in 1990 to $10.54 billion in 1996, while net earnings reached a peak of $855 million by 1996. Snow sought to leverage this strength by making selective, strategic acquisitions that would enhance and extend the company’s core transportation operations.

In 1992 American Commercial Lines increased its barge capacity by more than one-third through the purchase of the Valley Line companies. Four years later, ACL acquired the marine assets of Conti-Carriers & Terminals Inc., adding 400 barges and eight towboats to a fleet that subsequently numbered 3,700 barges and 137 towboats. In early 1993 CSX acquired Customized Transportation Inc. (CTI), one of the leading logistics companies for the automotive industry, providing distribution, warehousing, and assembly on a contract basis for justin-time delivery systems. 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. In 1996 Sea-Land entered into a global alliance with Danish shipping company Maersk Lines involving the sharing of vessels and terminals.

The company’s acquisitions and initiatives of the early 1990s were largely overshadowed by CSX’s attempted purchase of Conrail Inc., which began in October 1996. The 1990s had already seen the mega-mergers of Burlington Northern and Santa Fe to form Burlington Northern Santa Fe and of Union Pacific and Southern Pacific (whereby Union Pacific Corp. absorbed Southern Pacific). It appeared that Conrail and CSX would form the nation’s largest railroad—including Conrail’s lucrative routes to New York City—when Conrail agreed to CSX’s $8.1 billion friendly takeover offer. But Norfolk Southern Corp.—CSX’s archrival and a fellow eastern U.S. rail power that had twice before attempted to buy Conrail—stepped in with a $9.1 billion hostile takeover bid, prompting CSX in November to raise its offer to $8.4 billion. By March 1996, after Norfolk had raised its bid twice more, CSX, Norfolk, and Conrail reached a three-way agreement for a $10.2 billion takeover, with CSX paying $4.3 billion for 42 percent of Conrail’s operations and Norfolk paying $5.9 billion for the other 58 percent. Although the outcome was less than the full merger originally sought, CSX would still gain about 4,500 miles of rail—including lines to New York, Boston, and Montreal— giving it a 23,000-mile system in 23 states and the provinces of Ontario and Quebec. Pending approval by the Surface Transportation Board which was expected sometime in 1998, CSX and Norfolk Southern would operate the two dominant railroads in the eastern United States, with CSX having a slight edge over the 21,000-mile Norfolk system and thus remaining the nation’s third-largest railroad.

An increasing concern in the rapidly consolidating railroad industry of the mid-1990s was whether the mergers were compromising the system’s safety. In the midst of CSX’s seeking of regulatory approval of the Conrail takeover, a jury in New Orleans awarded damages of $3.37 billion, including $2.5 billion in punitive damages, against CSX in relation to a 1987 chemical-car fire. This September 1997 judgement was overturned two months later by the Louisiana Supreme Court, which sent it back to a lower court for reconsideration. CSX’s safety record came under further fire when the Federal Railroad Administration issued a report in October 1997 criticizing CSX’s safety procedures. The agency had started an investigation earlier in the year, following a collision between two CSX trains which killed one employee and injured another. The company paid $750,000 in fines for violations uncovered in the inquiry. More controversially, CSX Transportation hired the Federal Railroad Administration’s safety chief shortly after release of the report, leading to criticism from safety advocates.

Assuming regulatory approval of the Conrail breakup, the consolidation of the company’s newly acquired assets was likely to be CSX’s number one priority into the 21st century. Just as the problems that resulted from the Penn Central merger led to the careful meshing of operations in previous CSX mergers, the kind of snafus encountered in the Union Pacific takeover of Southern Pacific would need to be avoided if CSX and Norfolk were to successfully divide Conrail. With the negotiation of the Conrail deal completed, the following question arose among industry observers—was railroad consolidation finally over? The next step, some felt, was the creation of two coast-to-coast giants, with CSX joining with either Southern Pacific or Burlington Northern Santa Fe and Norfolk Southern joining with the remaining partner. Whether or not further consolidation occurred, CSX was certain to remain at the center of the dynamic railroad industry.

Principal Subsidiaries

CSX Transportation Inc.; Sea-Land Service Inc.; CSX Intermodal Inc.; American Commercial Lines Inc.; Customized Transportation Inc.; CSX Technology, Inc.; The Greenbrier; Yukon Pacific Corporation; Grand Tetón Lodge Company.

CSX Corporation

views updated May 08 2018

CSX Corporation

500 Water Street, 15th Floor
Jacksonville, Florida 32202
U.S.A.
Telephone: (904) 359-3200
Fax: (904) 359-3780
Web site: http://www.csx.com

Public Company
Incorporated: 1980
Employees: 35,000
Sales: $8.61 billion (2005)
Stock Exchanges: New York
Ticker Symbol: CSX
NAIC: 482111 Line-Haul Railroads; 486210 Pipeline Transportation of Natural Gas; 721110 Hotels (Except Casino Hotels) and Motels; 551112 Offices of Other Holding Companies

CSX Corporation is a leading transportation company boasting the largest rail system in the eastern United States, assets that are operated through the company's CSX Transportation Inc. subsidiary. The rail system comprises 22,000 miles of rail lines in 23 states and two Canadian provinces, utilizing 3,700 locomotives and more than 100,000 freight cars to deliver 5.2 million carloads of merchandise, coal, and automobiles annually. Aside from CSX Transportation, there are several other principal subsidiaries that flesh out the company role as one of the country's leading transportation concerns. CSX Intermodal Inc. serves customers from origin to destination with truck and terminal operations that also include a domestic container fleet. Total Distribution Services, Inc. serves the automobile industry, providing customers with distribution centers and storage facilities. TRANSFLO, Inc. provides logistical services for transferring products from rail to truck at more than 70 facilities. The company also controls several non-transportation subsidiaries. The Greenbrier Resort Management Company owns a resort in White Sulphur Springs, West Virginia. CSX Real Property, Inc. oversees the sale, lease, and development of CSX-owned properties. CSX Technology, Inc. operates as a provider of information technology services. CSX's rail system, the major part of its business over the years, is the end result of a long series of consolidations involving three historic railroad systems: the Seaboard Coast Line, the Chesapeake and Ohio Railway, and the Baltimore and Ohio Railroad, which together span nearly the entire history of railroading in the United States.

HISTORY OF THE BALTIMORE AND OHIO RAILROAD

The Baltimore and Ohio Railroad (B&O) was chartered in February 1827 by a group of leading Baltimore businessmen with one of their number, Philip E. Thomas, as the first president. Its purpose was twofold: to challenge major canals, especially the Erie Canal, for trade to the west and to provide more efficient and cheaper freight and passenger service than was then available. In Baltimore's case this traffic passed over the National Road, which ran from Cumberland, Maryland, to Wheeling, West Virginia, on the Ohio River, with an eastward extension to Baltimore. The railroad's construction started on July 4, 1828, at an historic celebration presided over by Charles Carroll, the last surviving signer of the Declaration of Independence. The B&O's planners intended to use horses for motive power, but Peter Cooper's first locomotive used on the line, the diminutive Tom Thumb, made its first successful run in 1830, ending the railroad's need for horsepower.

Construction progress was slow, however, and the rail line from Baltimore to Wheeling was not completed until December 1852. A second western extension was completed to Parkersburg, West Virginia, in 1857, with connections to local railroads providing service to Columbus and Cincinnati, Ohio, and to St. Louis, Missouri. The Ohio and West Virginia connections fostered a great increase in coal traffic from mines in the Midwest to the East. By 1860 revenues from coal were about one-third of total rail freight revenue, a ratio that changed little over the years. More than a century later coal provided 32 percent of CSX's rail revenue.

The B&O played a key role in the Civil War, as did many other railroads, and the line suffered accordingly with substantial damage to track and equipment. Growth continued after the war under the presidency of John W. Garrett, who served from 1858 to 1884, providing sound management in an era when railroad mismanagement was all too common. Track mileage increased from 521 in 1865 to nearly 1,700 by 1885. As the B&O continued to expand through construction and acquisition of smaller railroads, mileage increased to 3,200 by 1900, reaching 5,100 by 1920 and achieving a peak of about 6,350 in 1935.

After Garrett's presidency, increasing debt and an over-generous dividend policy weakened the B&O financially while speculation in the company's stock hampered its fundraising ability. The financial panic of 1893 proved disastrous for the line, and in 1896 the B&O was placed in receivership. In the following decade and a half the reorganized railroad's mileage and revenues increased satisfactorily, but the B&O came under the control of the Pennsylvania Railroad, which had purchased a majority of its stock after the bankruptcy. The Pennsylvania involved itself briefly in the B&O's management, but sold its stock position in 1906 for fear of U.S. government antitrust action. Under the long presidency of Daniel Willard from 1910 to 1941, the B&O's physical plant and service were considerably improved, and the line, which now spread through western Pennsylvania, Ohio, West Virginia, Indiana, and Illinois, enjoyed increasing prosperity until the onset of the Great Depression in the 1930s.

The 1930s saw declining revenues, layoffs, and wage reductions. In 1932 dividends on the common stock were discontinued, not to be restored until 1952. Track mileage and locomotive and equipment rosters began a long decline that would continue until the B&O came under control of the Chesapeake and Ohio Railway (C&O) in 1963. Roy B. White, however, who served as president from 1941 to 1953, inherited from Willard a first-class railroad that offered excellent service. World War II provided renewed prosperity, but the B&O faced problems during the postwar years from inflation, debt for new equipment, declines in passenger traffic, and chronic labor disputes. U.S. President Harry Truman temporarily seized the nation's railroads in 1946 to offset a threatened nationwide strike, and similar crises occurred in 1948 and 1950.

COMPANY PERSPECTIVES

At CSX, our confidence is strong and growing in light of anticipated changes in the economic landscape, notably the increased globalization of trade and the increasing congestion on the interstate highway system. CSX plays an integral role in the nation's economic development and the growth of the global economy. Globalization has resulted in longer international supply chains that will continue to benefit CSX. A strong global economy puts more raw materials and finished goods through the 70 ocean, river and lake ports served by CSX.

During the B&O's last decade as an independent company, Howard E. Simpson served as president from 1953 to 1961, and Jervis Langdon, Jr., served from 1961 to 1964. Operating revenues and net income generally declined during the 1950s as did track mileage and employment. Labor costs grew because of constant union pressure for higher wages. In the late 1950s as the B&O's traffic and revenue position worsened, the railroad began to consider the idea of a merger with a stronger partner. The C&O and the New York Central Railroad vied briefly for dominance, but in February 1961 the C&O announced that it controlled 61 percent of the B&O's stock. In 1962 the Interstate Commerce Commission (ICC) approved the C&O's request to take over the B&O, and on February 4, 1963, the C&O finally took control. The affiliation produced an 11,000-mile rail system, stretching from the Atlantic to the Mississippi River and from the Great Lakes to the southern edges of Virginia, West Virginia, and Kentucky, and brought to the B&O's rescue a smaller but significantly stronger railroad, not quite as old as the B&O, but with origins that also went back to the early years of railroading.

HISTORY OF CHESSIE SYSTEM

The C&O had its beginning in a short line railroad built to provide rail traffic to farmers and merchants in central Virginia. Chartered in 1836 as the Louisa Railroad, it originally covered 21 miles from Taylorsville to Frederick Hall, Virginia. In 1850 the line's name was changed to the Virginia Central Railroad, and by 1851 it extended eastward to Richmond, Virginia. A plan to extend westward to the Ohio River was delayed by the Civil War, during which the railroad served the Southern forces effectively but was heavily damaged. In 1867 the reorganized company changed its name to the Chesapeake and Ohio Railway Company and with financial backing from Collis P. Huntington, who subsequently became president from 1869 to 1888, the line was open from Richmond to Huntington, West Virginia, by 1873. The panic of 1873 ended in receivership for the C&O in 1875. In 1888 Huntington lost control to J. P. Morgan, who improved the railroad's performance such that, by 1900, the C&O was a solvent, well-managed 1,445-mile line connecting Newport News, Virginia, with Cincinnati, Ohio, and Louisville, Kentucky.

The C&O's history during the 20th century was characterized by conservative financial management supported by strong coal revenues. In 1947 the C&O made a major acquisition of the Pere Marquette Railroad with nearly 2,000 miles of track in the Midwest, New York, and Canada, and a sound base of merchandise traffic. The Pennsylvania and New York Central Railroads controlled C&O's stock from 1900 to 1909. During the 1920s and early 1930s control was exercised by Martis P. Van Sweringen and his brother, Oris P. Van Sweringen. From the mid-1930s, noted financier Robert R. Young owned a majority stock position, which he sold in 1954 to Cleveland investment banker Cyrus S. Eaton. By this time the C&O was a prosperous 5,000-mile line with $350 million in annual revenues and an exceptionally competent leader, Walter J. Tuohy, who had assumed the presidency in 1948. After completing the line's move to diesel engines in the mid-1950s, Tuohy moved aggressively to expand the C&O by acquisition, leading to the 1963 merger with the B&O.

The unification of the two railroads proceeded slowly and deliberately with a common annual report appearing in 1964 and senior administrative positions being gradually combined during the 1960s and 1970s. The continued separate operations of the lines avoided the confusion and errors that led to the failure of the Penn Central combination during the same period. It also avoided a downgrading of C&O debt securities because of the weaker financial position of the B&O before the merger, and maximized the benefits of operating two railroads whose traffic was, for the most part, complementary.

KEY DATES

1827:: The Baltimore and Ohio Railroad is formed.
1852:: Construction of the company's first rail line, connecting Baltimore and Wheeling, West Virginia, is completed.
1900:: The railroad's rail network encompasses 3,200 miles.
1963:: The company is acquired by the Chesapeake and Ohio Railway.
1972:: The two railroads operate under a new name, Chessie System Inc.
1980:: Chessie System and Seaboard Coast Line Industries Inc. merge, creating CSX Corporation.
1983:: CSX Corp. diversifies, spending $1 billion to acquire Texas Gas Resources Corporation, one of the country's largest natural gas pipeline companies.
1986:: Sea-Land Corporation, the largest U.S.-based ocean containership line, is acquired for $800 million.
1999:: CSX and Norfolk Southern acquire Conrail Inc.
2000:: CSX sells its international shipping line business, the first step in a plan to divest SeaLand Corp.
2002:: CSX sells its domestic shipping line business.
2004:: The divestiture of the Sea-Land assets is completed with the sale of CSX World Terminal, marking the company's exit from the maritime business.
2005:: As part of a five-year growth plan, CSX increases its capital improvement expenditures.

Hays T. Watkins became chairman and chief executive officer of the combined C&O and B&O in 1971. He was a strong administrator, firing President John Hanifin in 1975 for spending $2 million on tennis courts at the railroad's resort, the Greenbrier Hotel. Watkins adopted the name Chessie System Inc. in 1972 for the combined railroads and formally became CEO of Chessie System in 1973. By the late 1970s only 3 percent of Chessie's $1.5 billion in revenues were from non-rail sources, and Watkins was considering diversification and expansion. In 1978 Chessie proposed to the ICC a possible merger with the slightly larger southeastern railroad system, Seaboard Coast Line Industries Inc. Like the B&O and the Chessie, the Seaboard was a consolidation of several railroads whose history also reached back into the 19th century.

HISTORY OF SEABOARD COAST LINE

The Seaboard's key component, the Atlantic Coast Line Railroad (ACL), began as a series of small railroads running along a northeast-southwest line parallel to the Atlantic coast and connecting communities along the "fall line," the imaginary line joining towns at the heads of navigation of the coastal rivers. The oldest part of the ACL was the Petersburg Railroad, chartered in 1830 to run from Petersburg, Virginia, south to the North Carolina border. The corporate parent of the ACL, however, was the Richmond and Petersburg Railroad, chartered in 1836. These and similar, small independent railroads running along the fall line through Virginia, North Carolina, South Carolina, Georgia, Alabama, and Florida were joined after the Civil War in a holding company at first called the American Improvement and Construction Company, formed in 1889. In 1893 the name was changed to the Atlantic Coast Line Company. In 1902 the ACL bought a controlling share of the Louisville and Nashville Railroad (L&N) and, following a 1914 reorganization, the name was changed again to the Atlantic Coast Line Railroad Company.

In 1958 the ACL, by then a 5,300-mile railroad with revenues of about $163 million, proposed a merger with one of its southeastern competitors, the Seaboard Air Line Railroad with 4,100 miles and roughly similar revenues. The ACL, with its affiliates, the 5,700-mile L&N and the smaller Clinchfield Railroad, tapping the coal and merchandise markets of the Midwest, was the stronger of the two companies. The plan however, was to merge the ACL into the Seaboard to take advantage of the Seaboard's more modern corporate charter. The consolidation plan was filed with the ICC in 1960 but progress was slow, partly because of antitrust issues, with final approval not coming until 1967. The new company, eventually called Seaboard Coast Line Industries Inc., was the eighth largest railroad in the United States, with revenues of about $1.2 billion.

CREATION OF CSX IN 1980

The merger proposed in 1978 between the $1.5 billion Chessie and the $1.8 billion Seaboard offered benefits to both sides. It would give the Chessie a relatively inexpensive expansion into the booming Southeast and would provide a useful capital infusion for the Seaboard, especially for its maintenance and equipment-starved L&N subsidiary. The ICC approved the merger in September 1980 and the two systems were consolidated into CSX Corporation on November 1, 1980. The Seaboard's Prime F. Osborn III became chairman and the Chessie's Hays T. Watkins became president. Watkins was clearly the dominant figure, becoming chairman in 1982 on Osborn's retirement.

As in the case of the B&O and C&O, the operational consolidation of the two railroad systems proceeded gradually, again to avoid the internal stresses that had marred the Penn Central merger. It was not for another decade that all of the railroad operations of Chessie and Seaboard were consolidated under the CSX Transportation Inc. subsidiary.

DIVERSIFICATION

Meanwhile, diversification was in the air in the 1980s. In 1983 CSX made a deal with Southern New England Telephone Company to place a fiber optics telecommunication system along the CSX rights-of-way. A more significant diversification move in 1983 was CSX's "white-knight" $1 billion purchase of Texas Gas Resources Corporation, with $2.9 billion in revenues, one of the United States' largest natural gas pipeline companies with substantial gas and petroleum reserves. For CSX, with revenues of $5 billion, this was a major expansion into natural resources, adding oil and gas to its already large coal holdings. Texas Gas had as a subsidiary the American Commercial Lines Inc. (ACL), a large barge operator. On July 24, 1984, the ICC voted to allow CSX to keep and operate this shipping firm, a reversal of longstanding government policy against letting railroads own steamship or barge lines.

Continuing this precedent, the ICC in 1987 voted to approve CSX's 1986 $800 million acquisition of Sea-Land Corporation, the largest U.S. ocean container-ship line (later known as Sea-Land Service Inc.). This purchase was a continuation of Watkins's somewhat controversial policy of structuring CSX as an intermodal transportation company capable of serving both national and international markets. CSX became heavily involved in resort operations following its 1986 purchase of Rockresorts, Inc., owner and manager of several luxury resorts, which CSX bought from Laurance Rockefeller. Also in 1986, CSX purchased a 30 percent interest (increased to a majority stake two years later) in Yukon Pacific Corporation, which aimed to construct the Trans-Alaska Gas System to transport natural gas via pipeline from Alaska's North Slope to Valdez. In 1987 CSX further extended its array of transportation services by forming CSX/Sea-Land Intermodal (later known as CSX Intermodal Inc.), the nation's only transcontinental full-service intermodal company.

These acquisitions and initiatives were the last engineered by Watkins. The company's directors became disenchanted with CSX's low profits, declining return on investment, and stagnant stock price. Lagging rail profits, partially due to labor contracts and problems with the company's new acquisitions, resulted in major changes in management direction for CSX. A comprehensive restructuring program was announced by Watkins in 1988, but in April 1989 John W. Snow, a former federal highway official, was appointed president and chief executive officer of the company. Watkins continued as chairman until his retirement on January 31, 1991, when that position, too, was assumed by Snow.

CSX underwent a significant change in direction between 1988 and 1990. CSX's oil and gas businesses (with the exception of its Yukon Pacific stake) were sold in 1988 and 1989, resulting in a net gain of more than $200 million. Most of its resort properties and the telecommunications system were also sold, although CSX kept the Greenbrier Hotel and one smaller resort. A crew-reduction agreement was signed by the railroad with the United Transportation Union in 1989. This was a key step in Snow's plan to downsize the railroad, as well as other CSX operations, in order to increase profitability. CSX also improved its share earnings by using money from the gas and oil sale to buy back about 39 percent of its outstanding common stock. In his first years as chief executive, Snow installed a new management team determined to improve shipping and real estate profits and to focus on CSX's traditionally strong rail operations in order to earn a better return on the company's $12 billion asset base.

STRATEGIC ACQUISITIONS

With Snow's emphasis on improving both customer relations and profits, CSX's position grew ever stronger through the 1990s. Revenues increased steadily, from $8.21 billion in 1990 to $10.54 billion in 1996, while net earnings reached a peak of $855 million by 1996. Snow sought to leverage this strength by making selective, strategic acquisitions that would enhance and extend the company's core transportation operations.

In 1992 American Commercial Lines increased its barge capacity by more than one-third through the purchase of the Valley Line companies. Four years later, ACL acquired the marine assets of Conti-Carriers & Terminals Inc., adding 400 barges and eight towboats to a fleet that subsequently numbered 3,700 barges and 137 towboats. In early 1993 CSX acquired Customized Transportation Inc. (CTI), one of the leading logistics companies for the automotive industry, providing distribution, warehousing, and assembly on a contract basis for just-in-time delivery systems. 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. In 1996 Sea-Land entered into a global alliance with Danish shipping company Maersk Lines involving the sharing of vessels and terminals.

The company's acquisitions and initiatives of the early 1990s were largely overshadowed by CSX's attempted purchase of Conrail Inc., which began in October 1996. The 1990s had already seen the megamergers of Burlington Northern and Santa Fe to form Burlington Northern Santa Fe and of Union Pacific and Southern Pacific (whereby Union Pacific Corp. absorbed Southern Pacific). It appeared that Conrail and CSX would form the nation's largest railroad, including Conrail's lucrative routes to New York City, when Conrail agreed to CSX's $8.1 billion friendly takeover offer. But Norfolk Southern Corp., CSX's archrival and a fellow eastern U.S. rail power that had twice before attempted to buy Conrail, stepped in with a $9.1 billion hostile takeover bid, prompting CSX in November to raise its offer to $8.4 billion. By March 1996, after Norfolk had raised its bid twice more, CSX, Norfolk, and Conrail reached a three-way agreement for a $10.2 billion takeover, with CSX paying $4.3 billion for 42 percent of Conrail's operations and Norfolk paying $5.9 billion for the other 58 percent. Although the outcome was less than the full merger originally sought, CSX would still gain about 4,500 miles of rail, including lines to New York, Boston, and Montreal, giving it a 23,000-mile system in 23 states and the provinces of Ontario and Quebec. Pending approval by the Surface Transportation Board which was expected sometime in 1998, CSX and Norfolk Southern would operate the two dominant railroads in the eastern United States, with CSX having a slight edge over the 21,000-mile Norfolk system and thus remaining the nation's third largest railroad.

An increasing concern in the rapidly consolidating railroad industry of the mid-1990s was whether the mergers were compromising the system's safety. In the midst of CSX's seeking of regulatory approval of the Conrail takeover, a jury in New Orleans awarded damages of $3.37 billion, including $2.5 billion in punitive damages, against CSX in relation to a 1987 chemical-car fire. This September 1997 judgment was overturned two months later by the Louisiana Supreme Court, which sent it back to a lower court for reconsideration. CSX's safety record came under further fire when the Federal Railroad Administration issued a report in October 1997 criticizing CSX's safety procedures. The agency had started an investigation earlier in the year, following a collision between two CSX trains which killed one employee and injured another. The company paid $750,000 in fines for violations uncovered in the inquiry. More controversially, CSX Transportation hired the Federal Railroad Administration's safety chief shortly after release of the report, leading to criticism from safety advocates.

Assuming regulatory approval of the Conrail breakup, the consolidation of the company's newly acquired assets was likely to be CSX's number one priority into the 21st century. Just as the problems that resulted from the Penn Central merger led to the careful meshing of operations in previous CSX mergers, the kind of snafus encountered in the Union Pacific takeover of Southern Pacific would need to be avoided if CSX and Norfolk were to successfully divide Conrail. With the negotiation of the Conrail deal completed, the following question arose among industry observers: was railroad consolidation finally over? The next step, some felt, was the creation of two coast-to-coast giants, with CSX joining with either Southern Pacific or Burlington Northern Santa Fe and Norfolk Southern joining with the remaining partner. Whether or not further consolidation occurred, CSX was certain to remain at the center of the dynamic railroad industry.

CSX IN THE NEW CENTURY

The long-awaited takeover of Conrail occurred as CSX entered a new century, ushering in a period of structural reorganization and divestitures. CSX and Norfolk Southern took control of the Conrail assets on June 1, 1999, a day greeted with a mixture of joy and trepidation. The addition of the Conrail assets made CSX the largest rail system in the East, a momentous occasion in the history of the company, but there were grave concerns both inside and outside the company about its ability to effectively absorb the new assets. The merger of Union Pacific and Southern Pacific three years earlier was not handled properly, leading to delayed shipments, lost shipments, and traffic jams that lasted for a year and a half. John Snow, CSX's chairman, president, and chief executive officer, was mindful of the potential problems, assuring industry onlookers that the company was fully prepared to integrate the Conrail assets into CSX's operations. "We don't see anything that will create a cataclysm for us like it did Union Pacific and Southern Pacific," he said in a May 17, 1999 interview with Industry Week. "We've been over it and over it. We don't foresee a lot of problems." Despite Snow's assurances, CSX struggled to smoothly take over the Conrail assets, a fate suffered by Norfolk Southern as well. Although the problems were varied, one industry insider offered a broad assessment of the difficulties that arose in the wake of the merger. "Conrail service was a tough act to follow," an executive of an intermodal services firm said in a December 13, 1999 interview with Traffic World. "It seems that CSX has problems getting loads out, that they're just sitting in congested terminals. Once they're out, they seem to get to destination. Norfolk Southern gets their loads out, but they don't get to destination on time." As CSX dealt with the logistical problems related to the Conrail acquisition, problems that would persist for years, the company reorganized and shed some of its non-railroad assets. In 1999, the company sold the international shipping line business it had acquired through the Sea-Land acquisition. The deal, which included approximately 70 container vessels, 200,000 containers, and related container terminals, was brokered with the A.P. Moller-Maersk Line, which agreed to pay $800 million for the assets. Next, the company sold its CTI Logistx business unit to TNT Post Group, N.V. in 2000, gaining $650 million from the divestiture. In 2002, CSX shed another component of its Sea-Land business, selling its domestic shipping line business. The final aspect of Sea-Land's business was sold in late 2004, when CSX World Terminals was sold to Middle East port operator Dubai Ports International. The divestiture marked CSX's exit from the maritime business. The deal, valued at $1.2 billion, included nine terminals in Asia, Australia, Europe, and Latin America that generated $226 million in annual revenue.

The divestitures enabled CSX to sharpen its focus on its mainstay railroad business, the top priority of management as it plotted the company's future course. In 2005, the company announced a five-year growth plan that earmarked greater resources for improving different parts of its rail system, a move industry pundits believed was imperative for CSX to effectively compete in the East. Part of the plan involved increasing annual capital spending from $1 billion to as much as $1.4 billion. The investment was expected to be used to expand capacity in the Northeast and Southeast on rail lines between Chicago and Florida and between Albany, New York, and New York City. As the company pressed forward with the implementation of its growth plan, it was expecting annual revenue growth of between 4 percent and 6 percent until the end of the decade.

Bernard A. Block

Updated, David E. Salamie; Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

CSX Transportation Inc.; CSX Intermodal Inc.; CSX Technology, Inc.; The Greenbrier Resort Management Company; CSX Real Property, Inc.; Total Distribution Services, Inc.; TRANSFLO Corporation.

PRINCIPAL COMPETITORS

Burlington Northern Santa Fe Corporation; Norfolk Southern Corporation; Union Pacific Corporation.

CSX Corporation

views updated May 29 2018

CSX Corporation

One James Center
901 East Cary Street
Richmond, Virginia 23219
U.S.A.
(804) 782-1400
Fax: (804) 782-1409

Public Company
Incorporated: 1978
Employees: 51,437
Sales: $8.21 billion
Stock Exchanges: New York London Zürich Midwest Boston Cincinnati Pacific Philadelphia

CSX Corporation is a large transportation-based holding company that operates one of the United States’s largest rail systems. The system covers about 18,800 miles in 20 southeastern, eastern, and midwest states and the Canadian province of Ontario. CSX also owns and operates the largest U.S.-flag containership line, Sea-Land Services, Inc.; and the largest U.S. barge carrier, American Commercial Lines, Inc. In addition, CSX manages extensive real estate development activities and operates several large resorts, including the Greenbrier Hotel at White Sulphur Springs, West Virginia. Oil and gas businesses acquired in the early 1980s were sold during a restructuring between 1988 and 1990, as were interests in a telecommunications network and a chain of resort properties. CSX in the early 1990s was attempting to manage its transportation business more efficiently with special attention to improving profitable rail traffic growth. In placing greater reliance on rail traffic, the company is looking back to its distant origins. CSX’s railroad, the major part of its business over the years, is the end result of a long series of consolidations involving three historic railroad systems: the Seaboard Coast Line, the Chesapeake and Ohio Railway, and the Baltimore and Ohio Railroad, which together span nearly the entire history of railroading in the United States.

The Baltimore and Ohio Railroad (B&O) was chartered in February 1827 by a group of leading Baltimore businessmen with one of their number, Philip E. Thomas, as the first president. Its purpose was twofold: to challenge major canals, especially the Erie Canal, for the trade to the West and to provide more efficient and cheaper freight and passenger service than was available. In Baltimore’s case this traffic passed over the National Road, which ran from Cumberland, Maryland, to Wheeling, West Virginia, on the Ohio River, with an eastward extension to Baltimore. The railroad’s construction on July 4, 1828, at a historic celebration presided over by Charles Carroll, the last surviving signer of the Declaration of Independence. The B&O’s planners intended to use horses for motive power, but Peter Cooper’s first locomotive used on the line, the diminutive Tom Thumb, made its first successful run in 1830, ending the railroad’s need for horsepower.

Construction progress was slow, however, and the rail line from Baltimore to Wheeling was finally completed in December 1852. A second western extension was completed to Parkersburg, West Virginia, in 1857, with connections to local railroads providing service to Columbus and Cincinnati, Ohio; and St. Louis, Missouri. The Ohio and West Virginia connections fostered a great increase in coal traffic from mid-western mines to the east. By 1860 revenues from coal were about one-third of total rail freight revenue, a ratio that has changed little over the years. In 1990 coal provided 32% of CSX’s rail revenue.

The B&O played a key role in the Civil War, as did many other railroads, and the line suffered accordingly with substantial damage to track and equipment. Progress continued after the war under the presidency of John W. Garrett, who served from 1858 to 1884, providing a basis of sound management in an era when railroad mismanagement was all too common. Track mileage increased from 521 in 1865 to nearly 1,700 by 1885. In subsequent years as the B&O continued to expand through construction and acquisition of smaller railroads, mileage grew to 3,200 in 1900; 5,100 in 1920; and reached a peak of about 6,350 in 1935.

After Garrett’s presidency, increasing debt and an over-generous dividend policy weakened the B&O financially while speculation in the company’s stock hampered its fund-raising ability. The financial panic of 1893 proved disastrous for the line, and in 1896 the B&O was placed in receivership. In the following decade and a half the reorganized railroad’s mileage and revenues increased satisfactorily, but the B&O came under the control of the Pennsylvania Railroad, which had purchased a majority of its stock after the bankruptcy. The Pennsylvania involved itself briefly in the B&O’s management, but sold its stock position in 1906 for fear of U.S. government antitrust action. Under the long presidency of Daniel Willard from 1910 to 1941, the B&O’s physical plant and service were considerably improved, and the line, which now spread through western Pennsylvania, Ohio, West Virginia, Indiana, and Illinois, enjoyed increasing prosperity until the onset of the Great Depression in the 1930s.

The 1930s saw declining revenues, layoffs, and wage reductions. In 1932 dividends on the common stock were discontinued, not to be restored until 1952. Track mileage and locomotive and equipment rosters began a long decline that would continue until the B&O came under control of the Chesapeake and Ohio Railway (C&O) in 1963. Roy B. White, however, who served as president from 1941 to 1953, inherited from Willard a first-class railroad that offered excellent service. World War II provided renewed prosperity, but the B&O faced problems during the postwar years from inflation, debt for new equipment, declines in passenger traffic, and chronic labor controversies. U.S. President Harry Truman temporarily seized the nation’s railroads in 1946 to offset a threatened nationwide strike, and similar crises occurred in 1948 and 1950.

During the B&O’s last decade as an independent company, Howard E. Simpson served as president from 1953 to 1961, and Jervis Langdon, Jr., served from 1961 to 1964. Operating revenues and net income generally declined during the 1950s as did track mileage and employment. Labor costs grew because of constant union demands for raises, to which the railroad gave in. In the late 1950s as the B&O’s traffic and revenue position worsened, the railroad began to consider the idea of a merger with a stronger partner. The C&O and the New York Central Railroad vied briefly for dominance, but in February 1961 the C&O announced that it controlled 61% of the B&O’s stock. In 1962 the Interstate Commerce Commission (ICC) approved the C&O’s request to take over the B&O, and on February 4, 1963, the C&O finally took control. The affiliation produced an 11,000-mile rail system, stretching from the Atlantic to the Mississippi River and from the Great Lakes to the southern edges of Virginia, West Virginia, and Kentucky, and brought to the B&O’s rescue a smaller but significantly stronger railroad, not quite as old as the B&O, but with origins that also went back to the early years of railroading.

The C&O had its beginning in a short line railroad built to provide rail traffic to farmers and merchants in central Virginia. Chartered in 1836 as the Louisa Railroad, it originally covered 21 miles from Taylorsville to Frederick Hall, Virginia. In 1850 the line’s name was changed to the Virginia Central Railroad, and by 1851 it extended eastward to Richmond, Virginia. A plan to extend westward to the Ohio River was delayed by the Civil War, during which the railroad served the Southern cause effectively but was heavily damaged. In 1867 the reorganized company changed its name to the Chesapeake and Ohio Railway Company and with financial backing from Collis P. Huntington, who subsequently became president from 1869 to 1888, the line was open from Richmond to Huntington, West Virginia, by 1873. The panic of 1873 ended in receivership for the C&O in 1875. In 1888 Huntington lost control to J.P. Morgan, who improved the railroad’s situation to the extent that by 1900 the C&O was a solvent, well-managed 1,445-mile line connecting Newport News, Virginia, with Cincinnati, Ohio, and Louisville, Kentucky.

The C&O’s history during the 20th century was characterized by conservative financial management supported by strong coal revenues. In 1947 the C&O made a major acquisition of the Pere Marquette Railroad with nearly 2,000 miles of track in the Midwest, New York, and Canada, and a sound base of merchandise traffic. The Pennsylvania and New York Central Railroads controlled C&O’s stock from 1900 and 1909. During the 1920s and early 1930s control was exercised by Martis P. Van Sweringen and his brother, Oris P. Van Sweringen. From the mid-1930s, noted financier Robert R. Young owned a majority stock position, which he sold in 1954 to Cleveland investment banker Cyrus S. Eaton. By this time the C&O was a prosperous 5,000-mile line with $350 million in annual revenues and an exceptionally competent leader, Walter J. Tuohy, who had assumed the presidency in 1948. After completing the line’s dieselization in the mid-1950s, Tuohy moved aggressively to expand the C&O by acquisition, leading to the 1963 combination with the B&O.

The unification of the two railroads proceeded slowly and deliberately with a common annual report appearing in 1964 and senior administrative positions being gradually combined during the 1960s and 1970s. The continued separate operations of the lines avoided the confusion and errors that led to the failure of the Penn Central combination during the same period. It also avoided a downgrading of C&O debt securities because of the weaker financial position of the B&O before the merger, and maximized the benefits of operating two railroads whose traffic was, for the most part, complementary.

Hays T. Watkins became chairman and chief executive officer of the combined C&O and B&O in 1971. He was a strong administrator, firing president John Hanifin in 1975 for spending $2 million on tennis courts at the railroad’s resort, the Greenbrier Hotel. Watkins adopted the name Chessie System, Inc., in 1972 for the combined railroads and formally became CEO of Chessie System in 1973. By the late 1970s only 3% of Chessie’s $1.5 billion revenues were from nonrail sources, and Watkins was considering diversification and expansion. In 1978 Chessie proposed to the ICC a possible merger with the slightly larger southeastern railroad system, Seaboard Coast Line Industries, Inc. Like the B&O and the C&O, the Seaboard was a consolidation of several railroads whose history also reached back into the 19th century.

The Seaboard’s key component, the Atlantic Coast Line Railroad (ACL), began as a series of small railroads running along a northeast-southwest line parallel to the Atlantic coast and connecting communities along the “fall line,” the imaginary line joining towns at the heads of navigation of the coastal rivers. The oldest part of the ACL was the Petersburg Railroad, chartered in 1830 to run from Petersburg, Virginia, south to the North Carolina border. The corporate parent of the ACL however, was the Richmond and Petersburg Railroad chartered in 1836. These and similar, small independent railroads running along the fall line through Virginia, North Carolina, South Carolina, Georgia, Alabama, and Florida were joined after the Civil War in a holding company at first called the American Improvement and Construction Company, formed in 1889. In 1893 the name was changed to the Atlantic Coast Line Company. In 1902 the ACL bought a controlling share of the Louisville and Nashville Railroad (L&N) and, following a 1914 reorganization, the name was changed again to the Atlantic Coast Line Railroad Company.

In 1958 the ACL, by then a 5,300-mile railroad with revenues of about $163 million, proposed a merger with one of its southeastern competitors, the Seaboard Air Line Railroad with 4,100 miles and roughly similar revenues. The ACL, with its affiliates, the 5,700-mile L&N and the smaller Clinchfield Railroad, tapping the coal and merchandise markets of the midwest, was the stronger of the two companies. The plan however, was to merge the ACL into the Seaboard to take advantage of the Seaboard’s more modern corporate charter. The consolidation plan was filed with the ICC in 1960 but progress was slow, partly because of antitrust issues, with final approval not coming until 1967. The new company, eventually called Seaboard Coast Line Industries, Inc., was the eighth-largest railroad in the United States, with revenues of about $1.2 billion.

The merger proposed in 1978 between the $1.5 billion Chessie and the $1.8 billion Seaboard offered benefits to both sides. It would give the Chessie a relatively inexpensive expansion into the booming southeast and would provide a useful capital infusion for the Seaboard, especially for its maintenance-and equipment-starved L&N subsidiary. The ICC approved the merger in September 1980 and the two systems were consolidated into CSX Corporation on November 1, 1980. The Seaboard’s Prime F. Osborn III became chairman and the Chessie’s Hays T. Watkins became president. Watkins was clearly the dominant figure, becoming chairman in 1982 on Osborn’s retirement.

As in the case of the B&O and C&O, the operational consolidation of the two railroad systems proceeded gradually, again to avoid the internal stresses that had marred the Penn Central merger. In the 1980s diversification was in the air. In 1983 CSX made a deal with Southern New England Telephone Company to place a fiber optics telecommunication system along the CSX rights-of-way. A more significant diversification move in 1983 was CSX’s “white-knight” $1 billion purchase of Texas Gas Resources Corporation, with $2.9 billion in revenues, one of the United States’s largest natural gas pipeline companies with substantial gas and petroleum reserves. For CSX with revenues of $5 billion this was a major expansion into natural resources, adding oil and gas to its already large coal holdings. Texas Gas had as a subsidiary the American Commercial Lines, Inc., a large barge operator. On July 24, 1984, the ICC voted to allow CSX to keep and operate this shipping firm, a reversal of longstanding government policy against letting railroads own steamship or barge lines.

Continuing this precedent, the ICC in 1987 voted to approve CSX’s 1986 $800 million acquisition of Sea-Land Corporation, the largest U.S. ocean container-ship line. This purchase was a continuation of Watkins’s somewhat controversial policy of structuring CSX as an intermodal transportation company capable of serving both national and international markets. CSX became heavily involved in resort operations following its 1986 purchase of Rockresorts, Inc., owner and manager of several luxury resorts, which CSX bought from Laurance Rockefeller.

These acquisitions were the last engineered by Watkins. The company’s directors became disenchanted with CSX’s low profits, declining return on investment, and stagnant stock price. Lagging rail profits, partially due to labor contracts and problems with the company’s new acquisitions, resulted in major changes in management and direction for CSX. A comprehensive restructuring program was announced by Watkins in 1988, but in April 1989 John W. Snow was appointed president and chief executive officer. Watkins continued as chairman until his retirement on January 31, 1991, when that position, too, was assumed by Snow.

CSX underwent a significant change in direction between 1988 and 1990. CSX’s oil and gas businesses were sold in 1988 and 1989, resulting in a net gain of more than $200 million. Most of its resort properties and the telecommunications system were also sold, although CSX kept the Greenbrier Hotel and one smaller resort. A crew-reduction agreement was signed by the railroad with the United Transportation Union in 1989. This was a key step in Snow’s plan to downsize the railroad, as well as other CSX operations, to be more profitable. CSX also improved its share earnings by using money from the gas and oil sale to buy back about 39% of its outstanding common stock.

In his first years as chief executive, Snow has installed a new management team determined to improve shipping and real estate profits and to especially focus on CSX’s traditionally strong rail operations in order to earn a better return on the company’s $12 billion asset base. Recovering from inappropriate decisions during the 1980s, CSX seemed poised to reassert its historic role as a successful transportation company.

Principal Subsidiaries

American Commercial Lines, Inc.; CSX Transportation, Inc.; Sea-Land Services, Inc.; CSX Intermodal.

CSX Corporation

views updated May 21 2018

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 $1.38.

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 $1 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

Company Profiles for Students

CSX Corporation

CSX Corporation

History of the Baltimore and Ohio Railroad

History of Chessie System

Company Perspectives:

History of Seaboard Coast Line

Creation of CSX in 1980

Diversification in the Later 1980s

Strategic Acquisitions in the 1990s

Principal Subsidiaries

Further Reading

CSX Corporation

CSX Corporation

HISTORY OF THE BALTIMORE AND OHIO RAILROAD

COMPANY PERSPECTIVES

HISTORY OF CHESSIE SYSTEM

KEY DATES

HISTORY OF SEABOARD COAST LINE

CREATION OF CSX IN 1980

DIVERSIFICATION

STRATEGIC ACQUISITIONS

CSX IN THE NEW CENTURY

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

FURTHER READING

CSX Corporation

CSX Corporation

Principal Subsidiaries

Further Reading

CSX Corporation

CSX Corporation

Contact Information:

OVERVIEW

COMPANY FINANCES

ANALYSTS' OPINIONS

HISTORY

FAST FACTS: About CSX Corporation

STRATEGY

CHRONOLOGY: Key Dates for CSX Corp.

CURRENT TRENDS

PRODUCTS

CSX CHALLENGED ON SAFETY RECORD

GLOBAL PRESENCE

SOURCES OF INFORMATION

Bibliography

For an annual report:

For additional industry research:

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CSX Corp

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