form_10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(X)
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended March 27, 2009
OR
( )
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
__________ to __________
Commission
File Number 1-8022
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CSX
CORPORATION
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(Exact name of registrant as
specified in its charter)
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Virginia
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62-1051971
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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500
Water Street, 15th Floor, Jacksonville, FL
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32202
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(904)
359-3200
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(Address
of principal executive offices)
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(Zip
Code)
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(Telephone
number, including area code)
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No
Change
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(Former
name, former address and former fiscal year, if changed since last
report.)
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Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
(X) No ( )
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes (
) No ( )
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (check one)
Large
Accelerated Filer
(X) Accelerated
Filer
( ) Non-accelerated
Filer ( )
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
( ) No (X)
There
were 391,459,772 shares of common stock outstanding on March 27, 2009
(the latest practicable date that is closest to the filing date).
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FORM
10-Q
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FOR
THE QUARTERLY PERIOD ENDED MARCH 27, 2009
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INDEX
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Page
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PART
I.
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements
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3
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Quarters
Ended March 27, 2009
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and
March 28, 2008
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4
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At
March 27, 2009 (Unaudited) and December 26, 2008
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5
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Quarters
Ended March 27, 2009 and March 28, 2008
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6
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Item
2.
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28
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and
Results of Operations
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Item
3.
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41
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Item
4.
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41
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PART
II.
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OTHER
INFORMATION
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Item
1.
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41
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Item
1A.
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41
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Item
2.
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42
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Item
3.
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42
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Item
4.
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42
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Item
5.
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42
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Item
6.
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43
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Signature |
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44 |
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CSX
CORPORATION
ITEM
1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME
STATEMENTS (Unaudited)
(Dollars
in Millions, Except Per Share Amounts)
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First
Quarters
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2009
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2008
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Revenue
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$2,247
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$2,713
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Expense
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Labor
and Fringe
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662
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745
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Materials,
Supplies and Other
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477
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505
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Fuel
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191
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441
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Depreciation
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224
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222
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Equipment
and Other Rents
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113
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111
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Inland
Transportation
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58
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63
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Total
Expense
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1,725
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2,087
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Operating
Income
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522
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626
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Interest
Expense
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(141)
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(119)
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Other
Income (Expense) - Net (Note 8)
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(9)
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55
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Earnings
before Income Taxes
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372
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562
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Income
Tax Expense (Note 9)
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(126)
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(211)
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Net
Earnings
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$246
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$351
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Per
Common Share (Note 2)
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Net
Earnings Per Share, Basic
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$0.63
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$0.87
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Net
Earnings Per Share, Assuming Dilution
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$0.62
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$0.85
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Average
Shares Outstanding (Thousands)
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391,160
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404,351
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Average
Shares Outstanding,
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Assuming
Dilution (Thousands)
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394,101
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415,210
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Cash
Dividends Paid Per Common Share
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$0.22
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$0.15
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See
accompanying notes to consolidated financial statements.
CSX
CORPORATION
ITEM
1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars
in Millions)
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(Unaudited)
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March
27,
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December
26,
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2009
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2008
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ASSETS
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Current
Assets
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Cash
and Cash Equivalents
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$1,056
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$669
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Short-term
Investments
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73
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76
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Accounts
Receivable, net of allowance for doubtful
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accounts
of $64 and $70, respectively
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958
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1,107
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Materials
and Supplies
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250
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217
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Deferred
Income Taxes
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151
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203
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Other
Current Assets
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112
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119
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Total
Current Assets
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2,600
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2,391
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Properties
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30,399
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30,208
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Accumulated
Depreciation
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(7,637)
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(7,520)
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Properties
- Net
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22,762
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22,688
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Investment
in Conrail (Note 10)
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617
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609
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Affiliates
and Other Companies
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399
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406
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Other
Long-term Assets
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189
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194
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Total
Assets
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$26,567
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$26,288
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
Liabilities
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Accounts
Payable
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$934
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$973
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Labor
and Fringe Benefits Payable
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369
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465
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Casualty,
Environmental and Other Reserves (Note 4)
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217
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236
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Current
Maturities of Long-term Debt (Note 7)
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314
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319
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Income
and Other Taxes Payable
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116
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125
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Other
Current Liabilities
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120
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286
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Total
Current Liabilities
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2,070
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2,404
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Casualty,
Environmental and Other Reserves (Note 4)
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636
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643
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Long-term
Debt (Note 7)
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7,995
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7,512
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Deferred
Income Taxes
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6,266
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6,235
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Other
Long-term Liabilities
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1,395
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1,426
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Total
Liabilities
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18,362
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18,220
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Common
Stock $1 Par Value
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392
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391
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Retained
Earnings
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8,534
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8,398
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Accumulated
Other Comprehensive Loss (Note 1)
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(742)
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(741)
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Noncontrolling
Minority Interest
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21
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20
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Total
Shareholders' Equity
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8,205
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8,068
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Total
Liabilities and Shareholders' Equity
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$26,567
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$26,288
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See accompanying notes to consolidated
financial statements.
CSX
CORPORATION
ITEM
1. FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW
STATEMENTS (Unaudited)
(Dollars in
Millions)
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First
Quarters
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2009
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2008
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OPERATING
ACTIVITIES
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Net
Earnings
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$246
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$351
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Adjustments
to Reconcile Net Earnings to Net Cash Provided
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by
Operating Activities:
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Depreciation
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224
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225
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Deferred
Income Taxes
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79
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89
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Other
Operating Activities
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(65)
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(24)
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Changes
in Operating Assets and Liabilities:
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Accounts
Receivable
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132
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3
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Other
Current Assets
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(76)
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(13)
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Accounts
Payable
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(36)
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10
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Income
and Other Taxes Payable
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31
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84
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Other
Current Liabilities
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(86)
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9
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Net
Cash Provided by Operating Activities
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449
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734
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INVESTING
ACTIVITIES
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Property
Additions
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(309)
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(446)
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Purchases
of Short-term Investments
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-
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(50)
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Proceeds
from Sales of Short-term Investments
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-
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295
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Other
Investing Activities
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37
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12
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Net
Cash Used in Investing Activities
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(272)
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(189)
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FINANCING
ACTIVITIES
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Long-term
Debt Issued (Note 7)
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500
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1,000
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Long-term
Debt Repaid (Note 7)
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(26)
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(44)
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Dividends
Paid
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(86)
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(61)
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Stock
Options Exercised (Note 3)
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2
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36
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Shares
Repurchased
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-
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(300)
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Other
Financing Activities
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(180)
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26
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Net
Cash Provided by Financing Activities
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210
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657
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Net
Increase in Cash and Cash Equivalents
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387
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1,202
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CASH
AND CASH EQUIVALENTS
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Cash
and Cash Equivalents at Beginning of Period
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669
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368
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Cash
and Cash Equivalents at End of Period
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$1,056
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$1,570
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See
accompanying notes to consolidated financial statements.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature
of Operations and Significant Accounting Policies
Background
CSX
Corporation (“CSX”) together with its subsidiaries (the “Company”), based in
Jacksonville, Florida, is one of the nation's leading transportation
suppliers. The Company’s rail and intermodal businesses provide
rail-based transportation services including traditional rail service and the
transport of intermodal containers and trailers.
CSX’s
principal operating company, CSX Transportation, Inc. (“CSXT”), provides a
crucial link to the transportation supply chain through its approximately 21,000
route mile rail network, which serves major population centers in 23 states east
of the Mississippi River, the District of Columbia and the Canadian provinces of
Ontario and Quebec. CSX Intermodal, Inc. (“Intermodal”), one of the
nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone,
integrated intermodal company linking customers to railroads via trucks and
terminals.
Other
entities
In addition to CSXT, the rail segment
includes non-railroad subsidiaries Total Distribution Services, Inc. (“TDSI”),
Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX
Technology”) and other subsidiaries. TDSI serves the automotive industry
with distribution centers and storage locations, while Transflo provides
logistical solutions for transferring products from rail to trucks.
Technology and other support services are provided by CSX Technology and other
subsidiaries.
CSX’s other holdings include CSX Real
Property, Inc., a subsidiary responsible for the Company’s real estate sales,
leasing, acquisition and management and development activities, and Greenbrier
Hotel Corporation, formerly known as CSX Hotels, Inc., doing business as The
Greenbrier Resort. On March 19, 2009, Greenbrier Hotel Corporation,
filed for Chapter 11 bankruptcy protection and announced an asset purchase
agreement with Marriott Hotel Services, Inc. For more information,
see Note 8, Other Income (Expense) – Net.
Basis
of Presentation
In the
opinion of management, the accompanying consolidated financial statements
contain all normal, recurring adjustments necessary to fairly present the
following:
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·
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Consolidated
income statements for the quarters ended March 27, 2009 and March 28,
2008;
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·
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Consolidated
balance sheets at March 27, 2009 and December 26, 2008;
and
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·
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Consolidated
cash flow statements for the quarters ended March 27, 2009 and March 28,
2008.
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CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature
of Operations and Significant Accounting Policies, continued
Pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”),
certain information and disclosures normally included in the notes to the annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted from these interim
financial statements. CSX suggests that these financial statements be
read in conjunction with the audited financial statements and the notes included
in CSX's most recent Annual Report on Form 10-K, its most recent Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K.
Fiscal
Year
CSX
follows a 52/53 week fiscal reporting calendar with the last day of each
reporting period ending on a Friday:
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·
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The
first fiscal quarter of 2009 and 2008 consisted of 13 weeks ending on
March 27, 2009 and March 28, 2008,
respectively.
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·
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Fiscal
year 2008 consisted of 52 weeks ending on December 26,
2008.
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·
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Fiscal
year 2009 will consist of 52 weeks ending on December 25,
2009.
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Except as otherwise specified,
references to quarters indicate CSX’s fiscal periods ending March 27, 2009 or
March 28, 2008, and references to year-end indicate the fiscal year ending
December 26, 2008.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature
of Operations and Significant Accounting Policies, continued
Comprehensive
Earnings
Total comprehensive earnings are
defined as all changes in shareholders' equity during a period, other than those
resulting from investments by and distributions to shareholders (i.e., issuance
of equity securities and dividends). Generally, for CSX, that calculation
is net earnings plus or minus adjustments for pension and other post-retirement
liabilities. Total comprehensive earnings represent the activity for a
period net of related tax effects and were $246 million and $353 million for
first quarters 2009 and 2008, respectively.
While total comprehensive earnings is
the activity in a period and is largely driven by net earnings in that period,
accumulated other comprehensive income or loss (“AOCI”) represents the
cumulative balance, net of tax, as of the balance sheet date. For CSX,
AOCI is specifically the cumulative balance related to the pension and other
post-retirement adjustments and reduced overall equity by $742 million and $741
million as of March 2009 and December 2008, respectively.
New
Accounting Pronouncements and Changes in Accounting Policy
In 2007,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standard (“SFAS”) No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An amendment of ARB No. 51 (“SFAS 160”). This statement
requires that noncontrolling minority interests should be reported as equity
instead of a liability on the balance sheet. Additionally, it requires
disclosure of consolidated net income attributable to the parent and to the
noncontrolling interest on the face of the income statement. CSX has
noncontrolling minority interests primarily in its investments in Four Rivers
Transportation Inc. and The Indiana Railroad Company. For CSX, SFAS 160 is
effective beginning fiscal year 2009 and resulted in a $20 million
reclassification of noncontrolling minority interests from other long-term
liabilities to shareholders’ equity on the December 2008 consolidated balance
sheet. Income attributable to noncontrolling minority interests is
included in other income in the consolidated income statements and is not
material to CSX. Therefore, the Company did not present income
attributable to non-controlling interests separately in the consolidated income
statements.
Other
Items - Share Repurchases
Since
March 2008, CSX has completed $1.25 billion in share repurchases and has
remaining authority of $1.75 billion. The Company did not repurchase
any shares during the first quarter 2009. Any future repurchases will
be dependent upon an improvement in capital market and business
conditions.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2. Earnings
Per Share
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
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First
Quarters
|
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2009
|
2008
|
Numerator
(millions):
|
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Net
Earnings
|
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$246
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$351
|
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Interest
Expense on Convertible Debt - Net of Tax
|
|
-
|
1
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Net
Earnings, If Converted
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$246
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$352
|
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Denominator
(thousands):
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Average
Common Shares Outstanding
|
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391,160
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404,351
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Convertible
Debt
|
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1,118
|
5,717
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Stock
Options Common Stock Equivalents (a)
|
|
1,823
|
4,361
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Other
Potentially Dilutive Common Shares
|
|
-
|
781
|
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Average
Common Shares Outstanding, Assuming Dilution
|
394,101
|
415,210
|
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|
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Basic
Earnings Per Share:
|
|
|
|
|
Net
Earnings
|
|
$0.63
|
$0.87
|
|
|
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|
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Earnings
Per Share, Assuming Dilution:
|
|
|
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Net
Earnings
|
|
$0.62
|
$0.85
|
(a)
|
In calculating diluted
earnings per share, SFAS 128, Earnings Per Share requires CSX to include
the potential shares that would be outstanding if all outstanding stock
options were exercised. This is offset by shares CSX could
repurchase using the proceeds from these hypothetical exercises to obtain
the common stock equivalent. This number is different from
outstanding stock options, which is included in Note 3, Share-Based
Compensation. All stock options were
dilutive for the periods presented; therefore no stock options were
excluded from the diluted earnings per share
calculation.
|
Basic earnings per share is based on
the weighted-average number of shares of common stock
outstanding. Earnings per share, assuming dilution, is based on the
weighted-average number of shares of common stock outstanding adjusted for the
effects of common stock that may be issued as a result of the following types of
potentially dilutive instruments:
|
·
|
employee
stock options, and
|
|
·
|
other
equity awards, which include long-term incentive
awards.
|
EITF 04-8, The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share, requires CSX to include
additional shares in the computation of earnings per share, assuming
dilution. The amount included in diluted earnings per share
represents the number of shares that would be issued if all of CSX’s outstanding
convertible debentures were converted into CSX common stock.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2. Earnings
Per Share, continued
As a result, diluted shares outstanding
are not impacted when debentures are converted into CSX common stock because
those shares were already included in the diluted shares
calculation. Shares outstanding for basic earnings per share,
however, are impacted on a weighted average basis when conversions occur.
During first quarter 2008, $25 million of face value of convertible debentures
were converted into approximately 1 million shares of CSX common
stock. There were no conversions of convertible debentures during
2009. As of March 2009, approximately $32 million of convertible
debentures at face value remained outstanding, which are convertible into 1
million shares of CSX common stock.
NOTE
3. Share-Based
Compensation
CSX
share-based compensation plans primarily include performance grants, restricted
stock awards, stock options and stock plans for directors. CSX has
not granted stock options since 2003. Awards granted under the
various plans are determined and approved by the Compensation Committee of the
Board of Directors or, in certain circumstances, by the Chief Executive Officer
for awards to management employees other than senior executives. The
Board of Directors approves awards granted to the Company’s non-management
Directors upon recommendation of the Governance Committee.
Total
pre-tax expense associated with share-based compensation and its related income
tax benefit is as follows:
|
First
Quarters
|
(Dollars
in millions)
|
2009 (a)
|
2008
|
Share-Based
Compensation Expense
|
$(8)
|
$14
|
Income
Tax Expense / (Benefit)
|
3
|
(5)
|
(a)
|
In
2009, the Company reduced share-based compensation expense to reflect a
change in estimate of the number of performance-based awards
that are expected to vest.
|
The following table provides
information about stock options exercised.
|
First
Quarters
|
(In
thousands)
|
2009
|
2008
|
Number
of Stock Options Exercised
|
74
|
1,858
|
As of
December 2008, all outstanding options are vested and therefore there will be no
future expense related to these options. As of March 2009, CSX had
approximately 7 million stock options outstanding. However, the impact to
diluted earnings per share is much smaller see Note 2, Earnings Per Share for
more information.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves
Casualty, environmental and other
reserves were determined to be critical accounting estimates due to the need for
significant management judgments. They are provided for in the consolidated
balance sheets as follows:
|
|
March
27, 2009
|
|
December
26, 2008
|
(Dollars
in millions)
|
Current
|
Long-term
|
Total
|
|
Current
|
Long-term
|
Total
|
|
|
|
|
|
|
|
|
|
Casualty:
|
|
|
|
|
|
|
|
|
Personal
Injury
|
$101
|
$248
|
$349
|
|
$104
|
$258
|
$362
|
|
Occupational
|
32
|
171
|
203
|
|
32
|
172
|
204
|
|
Total
Casualty
|
133
|
419
|
552
|
|
136
|
430
|
566
|
Separation
|
16
|
67
|
83
|
|
16
|
71
|
87
|
Environmental
|
37
|
59
|
96
|
|
42
|
58
|
100
|
Other
|
31
|
91
|
122
|
|
42
|
84
|
126
|
|
Total
|
$217
|
$636
|
$853
|
|
$236
|
$643
|
$879
|
Details with respect to each type of
reserve are described below. Actual settlements and claims received
could differ. The final outcome of these matters cannot be predicted
with certainty. Considering the legal defenses asserted, the
liabilities that have been recorded, and other factors, it is the opinion of
management that none of these items, when finally resolved, will have a material
effect on the Company’s financial condition, results of operations or
liquidity. However, should a number of these items occur in the same
period, they could have a material effect on the financial condition, results of
operations or liquidity in that particular period.
Casualty
Casualty reserves represent accruals
for personal injury and occupational injury claims. Currently, no
individual claim is expected to exceed the Company’s self-insured retention
amount. To the extent the value of an individual claim exceeds the
self-insured retention amount, the Company would present the liability on a
gross basis with a corresponding receivable for insurance
recoveries. Personal injury and occupational claims are presented on
a gross basis and in accordance with SFAS No. 5, Accounting for Contingencies
(“SFAS 5”). These reserves fluctuate based upon changes in
independent third party estimates, which are reviewed by management, and are
offset by the timing of payments. Most of the claims were related to
CSXT unless otherwise noted.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves, continued
Defense
and processing costs, which historically have been insignificant and are
anticipated to be insignificant in the future, are not included in the recorded
liabilities. The Company is presently self-insured up to $25 million per injury
for personal injury and occupational-related claims.
Personal
Injury
Personal injury reserves represent
liabilities for employee work-related and third- party injuries.
Work-related injuries for CSXT employees are primarily subject to the Federal
Employers’ Liability Act (“FELA”). In addition to FELA liabilities,
employees of other CSX subsidiaries are covered by various state workers'
compensation laws, the Federal Longshore and Harbor Workers’ Compensation
Program or the Maritime Jones Act.
CSXT
retains an independent actuarial firm to assist management in assessing the
value of personal injury claims and cases. An analysis is performed by the
independent actuarial firm semi-annually and is reviewed by management. The
methodology used by the actuary includes a development factor to reflect growth
or reduction in the value of these personal injury claims. It is based largely
on CSXT’s historical claims and settlement experience. Actual results
may vary from estimates due to the type and severity of the injury, costs of
medical treatments and uncertainties in litigation.
Occupational
Occupational
claims arise from allegations of exposure to certain materials in the workplace,
such as asbestos, solvents (which include soaps and chemicals) and diesel fuels
or allegations of chronic physical injuries resulting from work conditions, such
as repetitive stress injuries, carpal tunnel syndrome and hearing
loss.
An
analysis is performed semi-annually by an independent third party and reviewed
by management. The methodology used includes an estimate of future
anticipated claims based on the Company’s trends in average historical claim
filing rates, future anticipated dismissal rates and settlement
rates.
Separation
Separation liabilities include the
estimated benefits provided to certain union employees as a result of
implementing workforce reductions, improvements in productivity and certain
other cost reductions at the Company's major transportation units since 1991.
These liabilities are expected to be paid out over the next 20 years from
general corporate funds and may fluctuate depending on the timing of payments
and associated taxes.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves, continued
Environmental
The
Company is a party to various proceedings related to environmental issues,
including administrative and judicial proceedings, involving private parties and
regulatory agencies. The Company has been identified as a potentially
responsible party at approximately 252 environmentally impaired
sites. Many of those are, or may be, subject to remedial action under
the Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, or CERCLA, also known as the Superfund Law, or similar state statutes.
Most of these proceedings arose from environmental conditions on properties used
for ongoing or discontinued railroad operations. However, a number of
these proceedings are based on allegations that the Company, or its
predecessors, sent hazardous substances to facilities owned or operated by
others for treatment or disposal. In addition, some of the Company’s
land holdings were leased to others for commercial or industrial uses that may
have resulted in releases of hazardous substances or other regulated materials
onto the property and could give rise to proceedings against the
Company.
In any
such proceedings, the Company is subject to environmental clean-up and
enforcement actions under the Superfund Law, as well as similar state laws that
may impose joint and several liability for clean-up and enforcement costs on
current and former owners and operators of a site without regard to fault or the
legality of the original conduct. These costs could be
substantial.
In
accordance with Statement of Position 96-1, Environmental Remediation
Liabilities, the Company reviews its role with respect to each site
identified at least once a quarter. Based on the review process, the
Company has recorded amounts to cover anticipated contingent future
environmental remediation costs with respect to each site to the extent such
costs are estimable and probable. The recorded liabilities for
estimated future environmental costs are undiscounted and include amounts
representing the Company's estimate of unasserted claims, which the Company
believes to be immaterial. The liability includes future costs for remediation
and restoration of sites as well as any significant ongoing monitoring costs,
but excludes any anticipated insurance recoveries. Payments related
to these liabilities are expected to be made over the next several
years.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves, continued
Currently,
the Company does not possess sufficient information to reasonably estimate the
amounts of additional liabilities, if any, on some sites until completion of
future environmental studies. In addition, conditions that are
currently unknown could, at any given location, result in exposure, the amount
and materiality of which cannot presently be reliably
estimated. Based upon information currently available, however, the
Company believes its environmental reserves are adequate to fund remedial
actions to comply with present laws and regulations, and that the ultimate
liability for these matters, if any, will not materially affect its overall
financial condition, results of operations or liquidity.
Other
Other reserves include
liabilities for various claims, such as longshoremen disability claims, freight
claims and claims for property, automobile and general
liability. These liabilities are accrued at the estimable and
probable amount in accordance with SFAS 5.
NOTE
5. Commitments
and Contingencies
Insurance
The Company maintains numerous
insurance programs, most notably for third-party casualty liability and for
Company property damage and business interruption, with substantial
limits. A certain amount of risk is retained by the Company on each
of the casualty and property programs. For the first event in any given
year, the Company has a $25 million deductible for each of the casualty and
non-catastrophic property programs and a $50 million deductible for the
catastrophic property program.
Guarantees
CSX and certain of its subsidiaries are
contingently liable, individually and jointly with others, as guarantors of
approximately $57 million in obligations principally relating to leased
equipment, vessels and joint facilities used by the Company in its current and
former business operations. Utilizing the Company’s guarantee for
these obligations allows the obligor to take advantage of lower interest rates
and obtain other favorable terms. Guarantees are contingent
commitments issued by the Company that could require CSX or one of its
affiliates to make payment to, or to perform certain actions for, the
beneficiary of the guarantee based on another entity’s failure to
perform.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5. Commitments
and Contingencies, continued
As of
first quarter 2009, the Company’s guarantees primarily related to the
following:
|
·
|
Guarantee
of approximately $49 million of obligations of a former subsidiary, CSX
Energy, in connection with a sale-leaseback transaction. CSX is, in
turn, indemnified by several subsequent owners of the subsidiary against
payments made with respect to this guarantee. Management
does not expect that CSX will be required to make any payments under this
guarantee for which CSX will not be reimbursed. CSX’s
obligation under this guarantee will be completed in
2012.
|
|
·
|
Guarantee
of approximately $8 million of lease commitments assumed by A.P.
Moller-Maersk (“Maersk”) for which CSX is contingently liable. CSX
believes Maersk will fulfill its contractual commitments with respect to
such lease commitments, and CSX will have no further liabilities for those
obligations. CSX’s obligation under this guarantee will be
completed in 2011.
|
As of
first quarter 2009, the Company has not recognized any liabilities in its
financial statements in connection with any guarantee arrangements described
above. The maximum amount of future payments the Company could be
required to make under these guarantees is the sum of the guaranteed
amounts.
Fuel
Surcharge Antitrust Litigation
Since
2007, at least 30 putative class action suits have been filed in various
federal district courts against CSXT and three other U.S.-based Class I
railroads. The lawsuits contain substantially similar allegations to
the effect that the defendants’ fuel surcharge practices relating to contract
and unregulated traffic resulted from an illegal conspiracy in violation of
antitrust laws. The suits seek unquantified treble damages (three
times the amount of actual damages) allegedly sustained by purported class
members, attorneys’ fees and other relief. All but three of the lawsuits
purport to be filed on behalf of a class of shippers that allegedly purchased
rail freight transportation services from the defendants through the use of
contracts or through other means exempt from rate regulation during defined
periods commencing as early as June 2003 and that were assessed fuel
surcharges. Three of the lawsuits purport to be on behalf of indirect
purchasers of rail services. The district court has dismissed all of
the indirect purchasers causes of action except for injunctive
relief. The indirect purchasers have appealed that decision and the
district court case has been stayed pending the appeal.
The class
action suits have been consolidated in federal court in the District of
Columbia. The railroads have asked the Court to first proceed with
discovery relating to the appropriateness of class certification, and then
permit merit discovery only if a class is certified.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5. Commitments and
Contingencies, continued
CSXT
believes that its fuel surcharge practices are lawful. Accordingly,
CSXT intends to vigorously defend itself against the purported class actions,
which it believes are without merit. CSXT cannot predict the outcome
of the private lawsuits, which are in their preliminary stages, or of any
government investigations, charges or additional litigation that may be filed in
the future. Penalties for violating antitrust laws can be severe,
involving both potential criminal and civil liability. CSXT is unable
to assess at this time the possible financial impact of this
litigation. CSXT has not accrued any liability for an adverse outcome
in the litigation. If a material adverse outcome were to occur and be
sustained, it could have a material adverse impact on the Company’s financial
condition, results of operations, or liquidity. For more information,
please refer to CSX’s most recent Annual Report on Form 10-K.
STB
Rate Case
During
2008, Seminole Electric Cooperative, Inc. (“Seminole”) filed a complaint before
the U.S. Surface Transportation Board (“STB”) against CSXT. CSXT and
Seminole were parties to a railroad transportation contract that expired on
December 31, 2008. Seminole is contesting tariff rates that went into
effect on January 1, 2009 for movements of coal to its existing and planned
facilities. Because of the preliminary nature of this case, CSXT is
not able to assess at this time the possible financial impact of the STB
proceeding. However, the Company will continue to consider and pursue all
available legal defenses in this matter.
Also
during 2008, E.I. du Pont de Nemours and Company filed a complaint before the
STB against CSXT, contesting tariff rates that went into effect on December 1,
2008 for movements of various commodities from and/or to certain of its existing
facilities. CSXT and DuPont have engaged in mediation
sponsored by the STB and have made sufficient progress in their mediation to
stay this proceeding while they attempt to reach a final agreement.
Other
Legal Proceedings
In addition to the matters described
above, the Company is involved in litigation incidental to its business and is a
party to a number of legal actions and claims, various governmental proceedings
and private civil lawsuits, including, but not limited to, those related to
environmental matters, FELA claims by employees, other personal injury and
property damage claims and disputes and complaints involving certain
transportation rates and charges. Some of the legal proceedings
include claims for compensatory as well as punitive damages and others are, or
are purported to be, class actions. While the final outcome of these
matters cannot be predicted with certainty, considering, among other things, the
legal defenses available and liabilities that have been recorded along with
applicable insurance, it is currently the opinion of CSX management that none of
these items will have a material adverse effect on the Company’s financial
condition, results of operations or liquidity. An unexpected adverse
resolution of one or more of these items, however, could have a material adverse
effect on the Company’s financial condition, results of operations or liquidity
in a particular quarter or fiscal year.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6. Employee Benefit Plans
The
Company sponsors defined benefit pension plans principally for salaried,
management personnel. The plans provide eligible employees with
retirement benefits based predominantly on years of service and compensation
rates near retirement. For employees hired after December 31, 2002,
benefits are determined based on a cash balance formula, which provides benefits
by utilizing interest and pays credits based upon age, service and
compensation.
In
addition to these plans, CSX sponsors a post-retirement medical plan and a life
insurance plan that provide benefits to full-time, salaried, management
employees hired on or before December 31, 2002 upon their retirement if certain
eligibility requirements are met. The post-retirement medical plan is
contributory (partially funded by retirees), with retiree contributions adjusted
annually. The life insurance plan is non-contributory.
The
following table describes the components of expense/(income) related to net
periodic benefit cost:
|
|
Pension
Benefits
|
|
Other
Post-retirement Benefits
|
(Dollars
in millions)
|
First
Quarters
|
|
First
Quarters
|
|
2009
|
2008
|
|
2009
|
2008
|
Service
Cost
|
$8
|
$8
|
|
$1
|
$2
|
Interest
Cost
|
32
|
30
|
|
6
|
5
|
Expected
Return on Plan Assets
|
(37)
|
(36)
|
|
-
|
-
|
Amortization
of Prior Service Cost
|
1
|
1
|
|
-
|
(1)
|
Amortization
of Net Loss
|
7
|
5
|
|
1
|
1
|
|
Net
Periodic Benefit Cost
|
$11
|
$8
|
|
$8
|
$7
|
In
accordance with the Pension Protection Act of 2006 (the “Act”), companies are
required to be 94% funded for their outstanding qualified pension obligations as
of January 1, 2009 in order to avoid a scheduled series of required annual
contributions to reach 100% funding over seven years. Due to recent
market volatility and overall investment losses of pension assets for 2008, the
Company will be required to make additional contributions to maintain at least a
94% funding target. The contribution is required to be made by
September 2009. For further details, see Note 7, Employee Benefit
Plans, in CSX’s most recent annual report on Form 10-K.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
7. Debt and Credit Agreements
Total
activity related to long-term debt for first quarter 2009 was as
follows:
(Dollars
in millions)
|
Current
Portion
|
Long-term
Portion
|
Total
Long-term Debt Activity
|
Total
long-term debt at December 26, 2008
|
$319
|
$7,512
|
$7,831
|
2009
activity:
|
|
|
|
|
Issued
|
-
|
500
|
500
|
|
Repaid
|
(26)
|
-
|
(26)
|
|
Reclassifications
|
21
|
(21)
|
-
|
|
Other
|
-
|
4
|
4
|
Total
long-term debt at March 27, 2009
|
$314
|
$7,995
|
$8,309
|
Debt
Issuance
On January 14, 2009, CSX issued $500
million in one series of unsecured notes, which bear interest at 7.375% due
February 1, 2019. This series of notes is included in the consolidated
balance sheets under long-term debt. The notes may be redeemed in
whole or in part by CSX at any time. CSX expects to use approximately $300
million of the net proceeds from the sale of the notes to repay debt maturing in
the next twelve months. The balance of the net proceeds from the sale
of the notes will be used for general corporate purposes, which may include
capital expenditures, working capital requirements, improvements in productivity
and repurchases of CSX common stock.
Revolving
Credit Facility
CSX has a
$1.25 billion unsecured revolving credit facility with a diverse syndicate of
banks. The facility allows borrowings at floating rates based on the London
interbank offered rate ("LIBOR"), plus a spread depending upon ratings
assigned by Moody's Investors Service and Standard & Poor's
Ratings Group to CSX's senior, unsecured, long-term indebtedness for borrowed
money. The facility requires CSX to maintain a ratio of total debt to total
capitalization below a prescribed limit. The facility contains no
provisions that would require CSX to post collateral. As of
March 2009, this facility was not drawn on, and CSX was in compliance with all
covenant requirements under the facility. This facility expires
in 2012.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8. Other
Income (Expense) – Net
Other Income (Expense) – Net consists
of the following:
|
|
First
Quarters
|
(Dollars
in millions)
|
2009
|
2008
|
Interest
Income(a)
|
$4
|
$8
|
Income
from Real Estate Operations (b)
|
1
|
30
|
Loss
from Resort Operations
(c)
|
(14)
|
(16)
|
Miscellaneous(d)
|
-
|
33
|
|
Total
Other Income (Expense) - Net
|
$(9)
|
$55
|
(a)
|
Interest
income fluctuates based on interest rates and balances that earn interest
based on CSX’s cash, cash equivalents and short-term
investments.
|
(b)
|
Income
from real estate includes the results of operations of the Company’s
non-operating real estate sales, leasing, acquisition and management and
development activities. Income may fluctuate as a function of
timing of real estate sales.
|
(c)
|
The
resort filed for Chapter 11 bankruptcy protection in March
2009. See below for further
details.
|
(d)
|
Miscellaneous
income includes a number of items which can be income or
expense. Examples of these items are equity earnings and/or
losses, minority interest expense, investment gains and losses and other
non-operating activities. In first quarter 2008, CSX recorded
additional income of $30 million for an adjustment to correct equity
earnings from a non-consolidated
subsidiary.
|
Greenbrier
Hotel Corporation Bankruptcy Filing
On March
19, 2009, Greenbrier Hotel Corporation (“GHC”), owner of The Greenbrier resort
and subsidiary of CSX Corporation, filed for Chapter 11 bankruptcy protection in
the U.S. Bankruptcy Court for the Eastern District of Virginia. CSX has agreed
to extend up to $19 million in bankruptcy financing to GHC.
In
conjunction with the bankruptcy, GHC also announced an agreement to sell the
resort pursuant to an asset purchase agreement (“Agreement”) with Marriott Hotel
Services, Inc. (“Marriott”). The Agreement remains subject to the
approval of the Bankruptcy Court and contemplates that CSX will provide $50
million to be used in the operations of the resort after completion of the
sale. These funds are expected to be paid over a two-year period
following the closing of the transaction. In turn, Marriott would pay
GHC between $60 million and $130 million within approximately seven years, with
the actual amount depending on the timing of the payment and The Greenbrier’s
financial performance.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8. Other Income (Expense) – Net,
continued
The sale
to Marriott is expected to close later this year, but is contingent on various
closing conditions, including the ability of The Greenbrier and its unions to
negotiate labor contracts satisfactory to Marriott. It is also
subject to a Bankruptcy Court-supervised auction process in which other
qualified purchasers will have an opportunity to bid on the
resort. Currently, the bid and auction process are scheduled in June
2009.
At this
time, this transaction does not qualify for discontinued operations under SFAS
144 Accounting for the
Impairment or Disposal of Long-lived Assets due to the nature of certain
closing conditions under the Agreement. Once these conditions have
been satisfied, it is likely that the resort’s results of operations will be
reclassified into discontinued operations.
NOTE
9. Income
Taxes
As of
March 2009 and December 2008, the Company had approximately $48 million and $57
million, respectively, of total unrecognized tax benefits. After
consideration of the impact of federal tax benefits, $41 million and $50
million, respectively, could favorably affect the effective income tax
rate. The Company estimates that approximately $12 million of the net
unrecognized tax benefits as of March 2009 for various state and federal income
tax matters will be resolved over the next 12 months. Approximately
$4 million of this total will be recognizable upon the expiration of various
statutes of limitation. The final outcome of the remaining uncertain
tax positions, however, is not yet determinable.
As a
result of the expiration of statutes of limitation and the resolution of other
income tax matters during the first quarter 2009, the Company recorded income
tax and interest benefits of $13 million.
The
Company files a consolidated federal income tax return, which includes its
principal domestic subsidiaries. CSX and its subsidiaries are subject
to U.S. federal income tax as well as income tax of multiple state
jurisdictions. During 2008, the Internal Revenue Service (“IRS”)
completed examinations of tax years 2004 through 2006 as well as for
2007. The Company has appealed a tax adjustment proposed by the IRS with
respect to the 2004 through 2006 period and a related amount is included in the
uncertain tax positions above. This appeals process is expected to
last more than one year. Federal examinations of original federal
income tax returns for all years through 2007 are otherwise
resolved.
CSX’s
continuing practice is to recognize net interest and penalties related to income
tax matters in income tax expense. As of March 2009 and December
2008, the Company had a $5 million gross receivable and a $2 million gross
payable before the consideration of state tax impacts, respectively, accrued for
interest and penalties. The payable changed to a receivable due to
the expiration of statutes of limitation noted above.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10. Related
Party Transactions
Through a
limited liability company, CSX
and Norfolk Southern Corporation (“NS”) jointly own Conrail Inc.,
(“Conrail”). CSX has a 42% economic interest and 50% voting interest
in the jointly-owned entity, and NS has the remainder of the economic and voting
interests. Pursuant to APB Opinion 18, The Equity Method of Accounting for
Investments in Common Stock, CSX
applies the equity method of accounting to its investment in
Conrail.
CSX’s
income statement is impacted in several ways by the joint ownership of
Conrail. First, Conrail owns and operates rail infrastructure for the
joint benefit of CSX and NS. This is known as the shared asset area.
Conrail charges fees for right-of way usage, equipment rentals and
transportation, switching and terminal service charges in the shared asset
area. Next, because of CSX’s equity interest in Conrail, CSX also
includes a share of Conrail’s income which is recorded as a contra-expense and
reduces the total amount of expense recorded for Conrail. The purchase
price amortization primarily represents the additional after-tax depreciation
expense related to the write-up of Conrail’s fixed assets when the original
purchase price, from the 1997 acquisition of Conrail, was allocated based on
fair value. Last, interest expense is recorded on long-term payables to
Conrail.
Dollar
amounts of these items impacting the consolidated income statements were as
follows:
|
First
Quarters
|
(Dollars
in millions)
|
2009
|
2008
|
Income
Statement Information:
|
|
|
Rents,
Fees and Services
|
$24
|
$26
|
Equity
in Income of Conrail
|
(7)
|
(5)
|
Purchase
Price Amortization and Other
|
1
|
1
|
Interest
Expense Related to Conrail
|
1
|
1
|
Additional
information about the investment in Conrail is included in CSX’s most recent
Annual Report on Form 10-K.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
11. Business
Segments
The
Company’s consolidated operating income results are comprised of two business
segments: Rail and Intermodal. The Rail segment provides rail freight
transportation over a network of approximately 21,000 route miles in 23 states,
the District of Columbia and the Canadian provinces of Ontario and Quebec. The
Intermodal segment provides integrated rail and truck transportation services
and operates a network of dedicated intermodal facilities across North
America. These segments are strategic business units that offer
different services and are managed separately. Performance of the
segment is evaluated and resources are allocated based on several factors, of
which the principal financial measures are business segment operating income and
operating ratio. The accounting policies of the segments are the same
as those described in Note 1, Nature of Operations and Significant Accounting
Policies, in CSX’s most recent Annual Report on Form 10-K.
Business
segment information for first quarters 2009 and 2008 is as follows:
|
|
|
|
|
CSX
|
|
(Dollars
in millions)
|
Rail (a)
|
Intermodal
|
Consolidated
|
|
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
Revenues
from External Customers
|
$1,977
|
$2,365
|
$270
|
$348
|
$2,247
|
$2,713
|
$(466)
|
|
|
|
|
|
|
|
|
Segment
Operating Income
|
498
|
565
|
24
|
61
|
522
|
626
|
(104)
|
(a)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as TDSI, Transflo, CSX Technology and other
subsidiaries.
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized
Consolidating Financial Data
In
December 2007, CSXT sold secured equipment notes maturing in 2023 and in October
2008, CSXT sold additional secured equipment notes maturing in 2014 in
registered public offerings pursuant to an existing shelf registration
statement.
CSX has fully and unconditionally guaranteed the notes. In
connection with the notes, the Company is providing the following condensed
consolidating financial information in accordance with SEC disclosure
requirements. Each entity in the consolidating financial information follows the
same accounting policies as described in the consolidated financial statements,
except for the use of the equity method of accounting to reflect ownership
interests in subsidiaries which are eliminated upon consolidation and the
allocation of certain expenses of CSX incurred for the benefit of its
subsidiaries.
Condensed
consolidating financial information for the obligor and parent guarantor is as
follows:
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized
Consolidating Financial Data, continued
Consolidating
Income Statements
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
Quarter
Ended March 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
Operating
Revenue
|
$ -
|
$1,960
|
$313
|
$(26)
|
$2,247
|
Operating
Expense
|
(79)
|
1,563
|
265
|
(24)
|
1,725
|
Operating
Income
|
79
|
397
|
48
|
(2)
|
522
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
255
|
-
|
-
|
(255)
|
-
|
Interest
Expense
|
(124)
|
(31)
|
(1)
|
15
|
(141)
|
Other
Income (Expense)
|
302
|
6
|
(304)
|
(13)
|
(9)
|
|
|
|
|
|
|
Earnings
from Continuing Operations before
|
|
|
|
|
|
|
Income
Taxes
|
512
|
372
|
(257)
|
(255)
|
372
|
Income
Tax Benefit (Expense)
|
(266)
|
(140)
|
280
|
-
|
(126)
|
Net
Earnings
|
$246
|
$232
|
$23
|
$(255)
|
$246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended March 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
Operating
Revenue
|
$ -
|
$2,344
|
$406
|
$(37)
|
$2,713
|
Operating
Expense
|
(57)
|
1,863
|
315
|
(34)
|
2,087
|
Operating
Income
|
57
|
481
|
91
|
(3)
|
626
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
371
|
-
|
-
|
(371)
|
-
|
Interest
Expense
|
(134)
|
(43)
|
(7)
|
65
|
(119)
|
Other
Income (Expense)
|
40
|
70
|
7
|
(62)
|
55
|
|
|
|
|
|
|
Earnings
from Continuing Operations before
|
|
|
|
|
|
|
Income
Taxes
|
334
|
508
|
91
|
(371)
|
562
|
Income
Tax Benefit (Expense)
|
17
|
(193)
|
(35)
|
-
|
(211)
|
Net
Earnings
|
$351
|
$315
|
$56
|
$(371)
|
$351
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized
Consolidating Financial Data, continued
Consolidating
Balance Sheet
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
March
2009
|
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
|
ASSETS
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$928
|
$70
|
$58
|
$ -
|
$1,056
|
|
Short-term
Investments
|
|
-
|
-
|
73
|
-
|
73
|
|
Accounts
Receivable - Net
|
|
133
|
932
|
(107)
|
-
|
958
|
|
Materials
and Supplies
|
|
-
|
250
|
-
|
-
|
250
|
|
Deferred
Income Taxes
|
|
12
|
133
|
6
|
-
|
151
|
|
Other
Current Assets
|
|
67
|
84
|
69
|
(108)
|
112
|
|
Total
Current Assets
|
|
1,140
|
1,469
|
99
|
(108)
|
2,600
|
|
|
|
|
|
|
|
|
Properties
|
|
7
|
29,139
|
1,253
|
-
|
30,399
|
Accumulated
Depreciation
|
|
(9)
|
(6,857)
|
(771)
|
-
|
(7,637)
|
|
Properties
- Net
|
|
(2)
|
22,282
|
482
|
-
|
22,762
|
|
|
|
|
|
|
|
|
Investments
in Conrail
|
|
-
|
-
|
617
|
-
|
617
|
Affiliates
and Other Companies
|
|
-
|
522
|
(123)
|
-
|
399
|
Investments
in Consolidated Subsidiaries
|
14,687
|
-
|
44
|
(14,731)
|
-
|
Other
Long-term Assets
|
|
49
|
76
|
107
|
(43)
|
189
|
|
Total
Assets
|
|
$15,874
|
$24,349
|
$1,226
|
$(14,882)
|
$26,567
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$131
|
$809
|
$(6)
|
$ -
|
$934
|
|
Labor
and Fringe Benefits Payable
|
30
|
309
|
30
|
-
|
369
|
|
Payable
to Affiliates
|
|
398
|
782
|
(1,113)
|
(67)
|
-
|
|
Casualty,
Environmental and Other Reserves
|
-
|
197
|
20
|
-
|
217
|
|
Current
Maturities of Long-term Debt
|
200
|
111
|
3
|
-
|
314
|
|
Income
and Other Taxes Payable
|
(8)
|
242
|
(118)
|
-
|
116
|
|
Other
Current Liabilities
|
-
|
112
|
48
|
(40)
|
120
|
|
Total
Current Liabilities
|
|
751
|
2,562
|
(1,136)
|
(107)
|
2,070
|
|
|
|
|
|
|
|
|
Casualty,
Environmental and Other Reserves
|
1
|
557
|
78
|
-
|
636
|
Long-term
Debt
|
|
6,556
|
1,433
|
6
|
-
|
7,995
|
Deferred
Income Taxes
|
|
(354)
|
6,622
|
(2)
|
-
|
6,266
|
Long-term
Payable to Affiliates
|
|
-
|
-
|
44
|
(44)
|
-
|
Other
Long-term Liabilities
|
|
715
|
474
|
251
|
(45)
|
1,395
|
|
Total
Liabilities
|
|
7,669
|
11,648
|
(759)
|
(196)
|
18,362
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
Common
Stock, $1 Par Value
|
|
392
|
181
|
-
|
(181)
|
392
|
Other
Capital
|
|
-
|
5,564
|
1,923
|
(7,487)
|
-
|
Retained
Earnings
|
|
8,534
|
6,983
|
162
|
(7,145)
|
8,534
|
Accumulated
Other Comprehensive Loss
|
(742)
|
(48)
|
(103)
|
151
|
(742)
|
Noncontrolling
Minority Interest
|
|
21
|
21
|
3
|
(24)
|
21
|
|
Total
Shareholders' Equity
|
|
8,205
|
12,701
|
1,985
|
(14,686)
|
8,205
|
|
Total
Liabilities and Shareholders' Equity
|
$15,874
|
$24,349
|
$1,226
|
$(14,882)
|
$26,567
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized
Consolidating Financial Data, continued
Consolidating
Balance Sheet
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
December
2008
|
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
|
ASSETS
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$559
|
$63
|
$47
|
$ -
|
$669
|
|
Short-term
Investments
|
|
-
|
-
|
76
|
-
|
76
|
|
Accounts
Receivable - Net
|
|
5
|
1,046
|
56
|
-
|
1,107
|
|
Materials
and Supplies
|
|
-
|
217
|
-
|
-
|
217
|
|
Deferred
Income Taxes
|
|
11
|
187
|
5
|
-
|
203
|
|
Other
Current Assets
|
|
112
|
34
|
52
|
(79)
|
119
|
|
Total
Current Assets
|
|
687
|
1,547
|
236
|
(79)
|
2,391
|
|
|
|
|
|
|
|
|
Properties
|
|
6
|
28,958
|
1,244
|
-
|
30,208
|
Accumulated
Depreciation
|
|
(9)
|
(6,758)
|
(753)
|
-
|
(7,520)
|
|
Properties
- Net
|
|
(3)
|
22,200
|
491
|
-
|
22,688
|
|
|
|
|
|
|
|
|
Investments
in Conrail
|
|
-
|
-
|
609
|
-
|
609
|
Affiliates
and Other Companies
|
|
-
|
527
|
(121)
|
-
|
406
|
Investments
in Consolidated Subsidiaries
|
14,566
|
-
|
41
|
(14,607)
|
-
|
Other
Long-term Assets
|
|
52
|
76
|
109
|
(43)
|
194
|
|
Total
Assets
|
|
$15,302
|
$24,350
|
$1,365
|
$(14,729)
|
$26,288
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$99
|
$739
|
$135
|
$ -
|
$973
|
|
Labor
and Fringe Benefits Payable
|
40
|
366
|
59
|
-
|
465
|
|
Payable
to Affiliates
|
|
455
|
765
|
(1,153)
|
(67)
|
-
|
|
Casualty,
Environmental and Other Reserves
|
-
|
211
|
25
|
-
|
236
|
|
Current
Maturities of Long-term Debt
|
200
|
116
|
3
|
-
|
319
|
|
Income
and Other Taxes Payable
|
(2)
|
208
|
(81)
|
-
|
125
|
|
Other
Current Liabilities
|
2
|
271
|
24
|
(11)
|
286
|
|
Total
Current Liabilities
|
|
794
|
2,676
|
(988)
|
(78)
|
2,404
|
|
|
|
|
|
|
|
|
Casualty,
Environmental and Other Reserves
|
1
|
547
|
95
|
-
|
643
|
Long-term
Debt
|
|
6,058
|
1,447
|
7
|
-
|
7,512
|
Deferred
Income Taxes
|
|
(629)
|
6,591
|
273
|
-
|
6,235
|
Long-term
Payable to Affiliates
|
|
-
|
-
|
44
|
(44)
|
-
|
Other
Long-term Liabilities
|
|
1,010
|
493
|
(36)
|
(41)
|
1,426
|
|
Total
Liabilities
|
|
7,234
|
11,754
|
(605)
|
(163)
|
18,220
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
Common
Stock, $1 Par Value
|
|
391
|
181
|
-
|
(181)
|
391
|
Other
Capital
|
|
-
|
5,566
|
1,923
|
(7,489)
|
-
|
Retained
Earnings
|
|
8,398
|
6,870
|
148
|
(7,018)
|
8,398
|
Accumulated
Other Comprehensive Loss
|
(741)
|
(41)
|
(104)
|
145
|
(741)
|
Noncontrolling
Minority Interest
|
|
20
|
20
|
3
|
(23)
|
20
|
|
Total
Shareholders' Equity
|
|
8,068
|
12,596
|
1,970
|
(14,566)
|
8,068
|
|
Total
Liabilities and Shareholders' Equity
|
$15,302
|
$24,350
|
$1,365
|
$(14,729)
|
$26,288
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized Consolidating Financial
Data, continued
Consolidating
Cash Flow Statements
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
Quarter
Ended March 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
$(162)
|
$370
|
$241
|
$ -
|
$449
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Property
Additions
|
(1)
|
(299)
|
(9)
|
-
|
(309)
|
Purchases
of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
Other
Investing Activities
|
11
|
28
|
5
|
(7)
|
37
|
|
Net
Cash Provided by (Used in) Investing Activities
|
10
|
(271)
|
(4)
|
(7)
|
(272)
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Short-term
Debt - Net
|
-
|
3
|
(3)
|
-
|
-
|
Long-term
Debt Issued
|
500
|
-
|
-
|
-
|
500
|
Long-term
Debt Repaid
|
-
|
(25)
|
(1)
|
-
|
(26)
|
Dividends
Paid
|
(88)
|
-
|
2
|
-
|
(86)
|
Stock
Options Exercised
|
2
|
-
|
-
|
-
|
2
|
Shares
Repurchased
|
-
|
-
|
-
|
-
|
-
|
Other
Financing Activities
|
107
|
(70)
|
(224)
|
7
|
(180)
|
|
Net
Cash Provided by (Used in) Financing Activities
|
521
|
(92)
|
(226)
|
7
|
210
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
369
|
7
|
11
|
-
|
387
|
Cash
and Cash Equivalents at Beginning of Period
|
559
|
63
|
47
|
-
|
669
|
Cash
and Cash Equivalents at End of Period
|
$928
|
$70
|
$58
|
$ -
|
$1,056
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
Quarter
Ended March 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
$67
|
$603
|
$157
|
$(93)
|
$734
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Property
Additions
|
(2)
|
(406)
|
(38)
|
-
|
(446)
|
Purchases
of Short-term Investments
|
(50)
|
-
|
-
|
-
|
(50)
|
Proceeds
from Sales of Short-term Investments
|
295
|
-
|
-
|
-
|
295
|
Other
Investing Activities
|
(15)
|
(24)
|
35
|
16
|
12
|
|
Net
Cash (Used in) Provided by Investing Activities
|
228
|
(430)
|
(3)
|
16
|
(189)
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Short-term
Debt - Net
|
-
|
-
|
-
|
-
|
-
|
Long-term
Debt Issued
|
1,000
|
-
|
-
|
-
|
1,000
|
Long-term
Debt Repaid
|
1
|
(45)
|
-
|
-
|
(44)
|
Dividends
Paid
|
(62)
|
(81)
|
(8)
|
90
|
(61)
|
Stock
Options Exercised
|
36
|
-
|
-
|
-
|
36
|
Shares
Repurchased
|
(300)
|
-
|
-
|
-
|
(300)
|
Other
Financing Activities
|
28
|
16
|
(5)
|
(13)
|
26
|
|
Net
Cash (Used in) Provided by Financing Activities
|
703
|
(110)
|
(13)
|
77
|
657
|
|
|
|
|
|
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
998
|
63
|
141
|
-
|
1,202
|
Cash
and Cash Equivalents at Beginning of Period
|
(594)
|
55
|
907
|
-
|
368
|
Cash
and Cash Equivalents at End of Period
|
$404
|
$118
|
$1,048
|
$ -
|
$1,570
|
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The
Company provides customers with access to an interconnected transportation
network that links ports, production facilities and distribution centers to
markets in the Northeast, Midwest and southern states. The Company
serves major markets in the eastern United States and has direct access to all
significant Atlantic and Gulf Coast ports, as well as the Mississippi River, the
Great Lakes and the St. Lawrence Seaway. The Company also has access
to Pacific ports through alliances with western railroads.
The
Company transports a broad portfolio of products, such as coal, forest products,
ethanol, automobiles, chemicals and consumer electronics. Those goods are
transported across the country in a way that, compared to alternative modes of
transportation, reduces the impact on the environment, takes traffic off an
already congested highway system and reduces fuel consumption and transportation
costs.
The
global recession that intensified in late 2008 has continued to impact CSX’s
business in 2009, and rail volume will be lower for the year. Beginning in late
2008, the Company began taking aggressive actions to manage costs and right-size
resources to match demand conditions. With a mix of pricing,
productivity, prudent investment in train network and rail efficiency, the
Company believes it is positioned to take advantage of an eventual economic
recovery.
FIRST
QUARTER 2009 HIGHLIGHTS
|
·
|
Revenue
decreased $466 million or 17% to $2.2 billion due to declines in
volume.
|
|
·
|
Expenses
decreased $362 million or 17% to $1.7 billion as a result of lower fuel
expense and aggressive cost-management
efforts.
|
|
·
|
Operating
income decreased $104 million or 17% to $522
million.
|
CSX
financial results reflect the impact of the ongoing recessionary environment.
Revenue and volume declined 17% from first quarter 2008 driven by the
broad-based weakness across most sectors of the economy. The lines of business
tied to the industrial, housing construction and consumer spending markets all
experienced significant volume declines, while the energy and agriculture
related markets were less severely impacted by the current economic
conditions.
Despite a
challenging environment, CSX was able to maintain revenue per unit at levels
consistent with those in first quarter 2008. The Company’s ongoing
yield management initiatives offset lower fuel recovery associated with the
sharp decline in fuel prices. The Company was able to achieve pricing
gains predominantly due to the overall cost advantages that the Company’s rail
based solutions provide to customers versus other modes of
transportation.
For
additional information, refer to Rail and Intermodal Results of Operations
discussed on pages 33 through 36.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The
Company’s safety and train accident prevention programs rely on broad employee
involvement. The programs utilize operating rules training,
compliance measurement, root cause analysis and communication to create a safer
environment for employees and the public. Continued capital
investment in Company assets, including track, bridges, signals, equipment and
detection technology, also supports safety performance.
In first
quarter 2009, the Company continued its focus on safety and operating
performance. Results in both FRA personal injuries and train accidents
remained at historically high levels as a result of leadership and high levels
of employee commitment to the Company’s safety programs. The number of FRA
reported personal injuries increased slightly to 94, up 4% compared to the same
quarter in 2008. Reported FRA train accidents declined to 71, as the
Company reported 9% fewer accidents versus prior year. However,
Train Accident frequency increased, to 3.08 accidents per million train miles as
sharply lower business levels drove both employee man hours and train miles
lower in the quarter.
Key
service metrics improved significantly in the quarter. On-time train
originations and arrivals were 83% and 79%, respectively, during the
quarter. Average dwell rose slightly to 24.1 hours and average
cars-on-line declined to 218,863 primarily due to lower demand
levels. Average train velocity improved to 21.6 miles per hour, as
the network remained fluid. The Company aims to maintain key
operating measures and service reliability at high-levels, while reducing
resource levels in response to current business conditions.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RAIL OPERATING STATISTICS
(Estimated)
|
|
First
Quarters
|
|
|
|
Improvement
|
|
|
|
2009
|
2008
|
(Decline)
|
%
|
Safety
and Service Measurements
|
|
|
|
|
FRA
Personal Injuries Frequency Index
|
1.30
|
1.10
|
(18)
|
%
|
|
|
|
|
|
|
FRA
Train Accident Rate
|
3.08
|
2.92
|
(5)
|
|
|
|
|
|
|
|
On-Time
Train Originations
|
83%
|
79%
|
5
|
|
On-Time
Destination Arrivals
|
79%
|
69%
|
14
|
|
|
|
|
|
|
|
Dwell
|
24.1
|
22.7
|
(6)
|
|
Cars-On-Line
|
218,863
|
221,193
|
1
|
|
|
|
|
|
|
|
System
Train Velocity
|
21.6
|
20.8
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
Resources
|
|
|
(Decrease)
|
|
Route
Miles
|
21,178
|
21,225
|
(0)
|
%
|
Locomotives
(owned and long-term leased)
|
4,129
|
4,049
|
2
|
|
Freight
Cars (owned and long-term leased)
|
90,027
|
93,351
|
(4)
|
%
|
Key
Performance Measures Definitions
FRA Personal Injuries
Frequency Index – Number of FRA-reportable injuries per 200,000
man-hours.
FRA Train Accident
Rate – Number of FRA-reportable train accidents per million
train-miles.
On-Time Train
Originations – Percent of scheduled road trains that depart the origin
yard on-time or ahead of schedule.
On-Time Destination
Arrivals – Percent of scheduled road trains that arrive at the
destination yard on-time to two hours late (30 minutes for intermodal
trains).
Dwell – Amount of
time in hours between car arrival at and departure from the yard. It
does not include cars moving through the yard on the same train.
Cars-On-Line – A
count of all cars on the network (does not include locomotives, cabooses,
trailers, containers or maintenance equipment).
System Train Velocity
– Average train speed between terminals in miles per hour (does not include
locals, yard jobs, work trains or passenger trains).
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL
RESULTS OF OPERATIONS
Results of Operations
(Unaudited)
(Dollars
in Millions)
First
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
|
|
|
|
Rail
(a)
|
Intermodal
|
Consolidated
|
|
|
|
|
|
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
%Change
|
|
Revenue
|
$1,977
|
$2,365
|
$270
|
$348
|
$2,247
|
$2,713
|
$(466)
|
(17)
|
%
|
Expense
|
|
|
|
|
|
|
|
|
|
|
Labor
and Fringe
|
644
|
726
|
18
|
19
|
662
|
745
|
83
|
11
|
|
|
Materials,
Supplies and Other
|
432
|
456
|
45
|
49
|
477
|
505
|
28
|
6
|
|
|
Fuel
|
190
|
439
|
1
|
2
|
191
|
441
|
250
|
57
|
|
|
Depreciation
|
218
|
217
|
6
|
5
|
224
|
222
|
(2)
|
(1)
|
|
|
Equipment
and Other Rents
|
88
|
84
|
25
|
27
|
113
|
111
|
(2)
|
(2)
|
|
|
Inland
Transportation
|
(93)
|
(122)
|
151
|
185
|
58
|
63
|
5
|
8
|
|
|
Total
Expense
|
1,479
|
1,800
|
246
|
287
|
1,725
|
2,087
|
362
|
17
|
|
Operating
Income
|
$498
|
$565
|
$24
|
$61
|
$522
|
$626
|
$(104)
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Ratio
|
74.8%
|
76.1%
|
91.1%
|
82.5%
|
76.8%
|
76.9%
|
|
|
|
(a)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as Total Distribution Services, Inc., Transflo Terminal Services, Inc.,
CSX Technology and other
subsidiaries.
|
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Volume and
Revenue (Unaudited)
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
First
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Revenue
|
|
Revenue
Per Unit
|
|
2009
|
2008
|
%
Change
|
|
2009
|
2008
|
%
Change
|
|
2009
|
2008
|
%
Change
|
Chemicals
|
105
|
129
|
(19)
|
%
|
|
$308
|
$362
|
(15)
|
%
|
$2,933
|
$2,806
|
5
|
%
|
Emerging
Markets
|
91
|
115
|
(21)
|
|
|
134
|
161
|
(17)
|
|
|
1,473
|
1,400
|
5
|
|
Forest
Products
|
65
|
87
|
(25)
|
|
|
140
|
192
|
(27)
|
|
|
2,154
|
2,207
|
(2)
|
|
Agricultural
Products
|
109
|
109
|
-
|
|
|
249
|
235
|
6
|
|
|
2,284
|
2,156
|
6
|
|
Metals
|
48
|
92
|
(48)
|
|
|
97
|
197
|
(51)
|
|
|
2,021
|
2,141
|
(6)
|
|
Phosphates
and Fertilizers
|
60
|
91
|
(34)
|
|
|
87
|
130
|
(33)
|
|
|
1,450
|
1,429
|
1
|
|
Food
and Consumer
|
25
|
27
|
(7)
|
|
|
60
|
65
|
(8)
|
|
|
2,400
|
2,407
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Merchandise
|
503
|
650
|
(23)
|
|
|
1,075
|
1,342
|
(20)
|
|
|
2,137
|
2,065
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
415
|
440
|
(6)
|
|
|
713
|
720
|
(1)
|
|
|
1,718
|
1,636
|
5
|
|
Coke
and Iron Ore
|
16
|
23
|
(30)
|
|
|
31
|
42
|
(26)
|
|
|
1,938
|
1,826
|
6
|
|
Total
Coal
|
431
|
463
|
(7)
|
|
|
744
|
762
|
(2)
|
|
|
1,726
|
1,646
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
45
|
96
|
(53)
|
|
|
95
|
202
|
(53)
|
|
|
2,111
|
2,104
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
-
|
-
|
-
|
|
|
63
|
59
|
7
|
|
|
-
|
-
|
-
|
|
Total
Rail
|
979
|
1,209
|
(19)
|
|
|
1,977
|
2,365
|
(16)
|
|
|
2,019
|
1,956
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
186
|
253
|
(26)
|
|
|
83
|
123
|
(33)
|
|
|
446
|
486
|
(8)
|
|
Domestic
|
254
|
255
|
-
|
|
|
184
|
218
|
(16)
|
|
|
724
|
855
|
(15)
|
|
Other
|
-
|
-
|
-
|
|
|
3
|
7
|
(57)
|
|
|
-
|
-
|
-
|
|
Total
Intermodal
|
440
|
508
|
(13)
|
|
|
270
|
348
|
(22)
|
|
|
614
|
685
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
1,419
|
1,717
|
(17)
|
%
|
|
$2,247
|
$2,713
|
(17)
|
%
|
|
$1,584
|
$1,580
|
-
|
%
|
Certain data within the Merchandise
categories have been reclassified to conform to the current year’s
presentation.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
First
Quarter Results of Operations
CSX experienced significant
year-over-year volume and revenue losses caused by the broad-based weakness in
the economy. The greatest impact from the economic conditions was in
construction and consumer related markets. Despite the challenging environment,
the Company’s ongoing yield management initiatives offset lower fuel recovery
associated with the sharp decline in fuel prices.
Rail
Revenue
Merchandise
Chemicals – Continued
weakness in the housing, automotive and consumer goods markets has significantly
reduced demand for chemical products related to those
markets.
Emerging Markets –
Aggregates (which include crushed stone, sand and gravel) volume declined due to
continued softness in residential construction.
Forest Products – A
weak housing market has driven the continued decline of lumber and building
products. Paper volume continued to be soft due to electronic media
substitution and less packaging being used as a result of slower consumer
spending.
Agricultural Products
– Volume was flat as increased shipments of ethanol and corn were offset by
declines in wheat, soybeans and exports. Strength in corn and ethanol shipments
positively impacted revenue and revenue per unit.
Metals – Volume
declines were driven by weak global and domestic steel demand in the automotive
and construction industries. This weak demand, combined with the
credit crisis, caused steel producers to take capacity out of the market in an
attempt to balance supply with demand.
Phosphates and
Fertilizers – Phosphate production was down due to weak international and
domestic demand. Additionally, farmers are cutting back on levels of
phosphate and potash application in reaction to lower commodity
prices.
Food and Consumer
–Weakness in residential construction caused reduced shipments of appliances and
other consumer goods.
Coal
Volume
declines were driven by a weaker export market and lower demand from electric
utilities. The demand for electrical generation from coal was down because
of low natural gas prices and lower industrial production.
Automotive
Revenue
and volume were down due to declining new car sales resulting from the weak
economic environment and low consumer confidence.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Rail
Expense
Expenses
decreased $321 million from last year’s quarter. Significant variances are
described below.
Labor and Fringe expense decreased $82
million. This decrease was primarily driven by labor productivity
initiatives, such as employee furloughs and reduced crew overtime, and lower
incentive compensation. These decreases were partially offset by
inflation and other items.
Materials, Supplies and
Other expense decreased $24 million. This decrease was primarily
due to lower volume, decreased cost of risks, lower bad debt expense related to
improved collectability of receivables and other items. These decreases
were partially offset by increased inflation.
Fuel expense decreased $249
million due to lower fuel prices and lower volume.
Equipment and Other
Rents expense increased by $4 million. Lower volume resulted
in lower car hire expense, but was offset by lower car productivity and higher
settlement estimates with other railroads.
Intermodal
Revenue
International –
Volume was down significantly on continued import declines and slowing exports
due to the global economic recession. Revenue-per-unit was lower on decreased
fuel recovery, partially offset by long-term contract price
increases.
Domestic – Volume was
flat as continued growth in new truckload conversion and short-haul services
help offset the decline in other segments of the domestic market.
Revenue-per-unit was lower on decreased fuel recovery and a competitive trucking
pricing environment.
Intermodal
Expense
Intermodal
operating expense decreased due to lower inland transportation expense as a
result of lower volume and lower fuel expense during the first quarter of
2009.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated
Results of Operations
Other
Income
Other income decreased $64 million to a
net expense of $9 million in first quarter 2009. Last year’s quarter
was impacted by higher income from real estate sales and a $30 million non-cash
adjustment to correct equity earnings from a non-consolidated
subsidiary. These items were not repeated in 2009.
Interest
Expense
Interest
expense increased $22 million to $141 million primarily due to higher debt
balances in first quarter 2009.
Income
Tax Expense
Income
tax expense decreased $85 million to $126 million primarily due to lower
earnings in first quarter 2009 and $13 million of certain favorable tax
adjustments.
Net
Earnings
Net
Earnings decreased $105 million to $246 million and earnings per diluted share
decreased $.23 to $.62 in first quarter 2009 as a result of lower
earnings.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY
AND CAPITAL RESOURCES
Material
Changes in Consolidated Balance Sheets and Significant Cash Flows
The
following are material changes in the consolidated balance sheets and sources of
liquidity and capital, which provide an update to the discussion included in
CSX's most recent Annual Report on Form 10-K.
Long-term
debt increased $483 million driven by a $500 million debt issuance during first
quarter 2009. This increase was partially offset by a $21 million
reclassification to current maturities of long-term debt. For
additional information, see Note 7, Debt and Credit Agreements of this Quarterly
Report on Form 10-Q.
Cash
provided by operating activities decreased to $449 million due in part to lower
pre-tax earnings. Also contributing to this decrease were higher incentive
compensation payouts compared to last year. Additionally, cash from
investing activities decreased due to a reduction in the purchases and sales of
short-term investments partially offset by lower property additions.
Furthermore, cash provided by financing activities decreased $447 million as the
Company issued less debt, had no share repurchases and paid for seller financed
assets that were delivered in the prior year.
For 2009,
CSX plans to spend $1.6 billion of capital. CSX is continually
evaluating market and regulatory conditions that could affect the Company’s
ability to generate sufficient returns on capital investments. CSX may
revise this estimate as a result of changes in business conditions, tax
legislation or the enactment of new laws or regulations.
Liquidity
and Working Capital
The
Company ended the quarter with over $1.1 billion of cash, cash equivalents and
short-term investments. CSX also has available a $1.25 billion credit
facility with a diverse syndicate of banks that was not drawn
on.
Working
capital can also be considered a measure of a company’s ability to meet its
short-term needs. CSX had a working capital surplus of $530 million
at March 2009 and a working capital deficit of $13 million at December
2008. The favorable change is due to increased cash balances as
a result of new debt issued during the quarter.
The
Company’s working capital balance varies due to factors such as the timing of
scheduled debt payments and changes in cash and cash equivalent balances as
discussed above. As a result, the working capital balance could
return to a deficit in future periods. A working capital deficit is
not unusual for CSX or other companies in the industry and does not indicate a
lack of liquidity. The Company continues to maintain adequate current assets to
satisfy current liabilities and maturing obligations when they come
due. Furthermore, CSX has sufficient financial capacity, including
the credit facility and shelf registration statement, to manage its day-to-day
cash requirements and any anticipated obligations. The Company
maintains access to the credit markets for additional liquidity as needed. Due
to the current economic and credit market environment, CSX as well as other
investment grade debt issuers may be unable to access capital due to
lack of market demand or may experience higher interest costs.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL
ACCOUNTING ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires that management make estimates
in reporting the amounts of certain assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
certain revenues and expenses during the reporting period. Actual
results may differ from those estimates. These estimates and assumptions are
discussed with the Audit Committee of the Board of Directors on a regular
basis. Consistent with the prior year, significant estimates using
management judgment are made for the following areas:
· casualty,
environmental and legal reserves;
· pension
and post-retirement medical plan accounting;
· depreciation
policies for assets under the group-life method; and
· income
taxes.
For
further discussion of the Company’s critical accounting estimates, see the
Company’s most recent Annual Report on Form 10-K.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
Certain
statements in this report and in other materials filed with the SEC, as well as
information included in oral statements or other written statements made by the
Company, are forward-looking statements within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements include, among others, statements
regarding:
|
·
|
expectations
as to results of operations and operational
initiatives;
|
|
·
|
expectations
as to the effect of claims, lawsuits, environmental costs, commitments,
contingent liabilities, labor negotiations or agreements on the Company’s
financial condition, results of operations or
liquidity;
|
|
·
|
management’s
plans, goals, strategies and objectives for future operations and other
similar expressions concerning matters that are not historical facts, and
management’s expectations as to future performance and operations and the
time by which objectives will be achieved;
and
|
|
·
|
future
economic, industry or market conditions or performance and their effect on
the Company’s financial condition, results of operations or
liquidity.
|
Forward-looking statements are
typically identified by words or phrases such as “believe,” “expect,”
“anticipate,” “project,” “estimate,” “preliminary” and similar expressions. The
Company cautions against placing undue reliance on forward-looking statements,
which reflect its good faith beliefs with respect to future events and are based
on information currently available to it as of the date the forward-looking
statement is made. Forward-looking statements should not
be read as a guarantee of future performance or results and will not necessarily
be accurate indications of the timing when, or by which, such performance or
results will be achieved.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking
statements are subject to a number of risks and uncertainties and actual
performance or results could differ materially from those anticipated by these
forward-looking statements. The Company undertakes no obligation to update or
revise any forward-looking statement. If the Company does update any
forward-looking statement, no inference should be drawn that the Company will
make additional updates with respect to that statement or any other
forward-looking statements. The following important factors, in
addition to those discussed in Part II, Item 1A (Risk Factors) of this quarterly
report on Form 10-Q, and elsewhere in this report, may cause actual results to
differ materially from those contemplated by these forward-looking
statements:
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·
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legislative,
regulatory or legal developments involving transportation, including rail
or intermodal transportation, the environment, hazardous
materials, taxation, including the outcome of tax claims and
litigation, the potential enactment of initiatives to re-regulate the rail
industry and the ultimate outcome of shipper and rate claims subject to
adjudication;
|
|
·
|
the
outcome of litigation and claims, including, but not limited to, those
related to fuel surcharge, environmental contamination, personal injuries
and occupational illnesses;
|
|
·
|
material
changes in domestic or international economic or business conditions,
including those affecting the transportation industry such as access to
capital markets, ability to revise debt arrangements as contemplated,
customer demand, customer acceptance of price increases, effects of
adverse economic conditions affecting shippers and adverse economic
conditions in the industries and geographic areas that consume and produce
freight;
|
|
·
|
worsening
conditions in the financial markets that may affect timely access to
capital markets, as well as the cost of
capital;
|
|
·
|
availability
of insurance coverage at commercially reasonable rates or insufficient
insurance coverage to cover claims or
damages;
|
|
·
|
changes
in fuel prices, surcharges for fuel and the availability of
fuel;
|
|
·
|
the
impact of increased passenger activities in capacity-constrained areas or
regulatory changes affecting when CSXT can transport freight or service
routes;
|
|
·
|
natural
events such as severe weather conditions, including floods, fire,
hurricanes and earthquakes, a pandemic crisis affecting the health of the
Company’s employees, its shippers or the consumers of goods, or other
unforeseen disruptions of the Company’s operations, systems, property or
equipment;
|
|
·
|
noncompliance
with applicable laws or
regulations;
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39
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
·
|
the
inherent risks associated with safety and security, including the
availability and vulnerability of information technology, adverse economic
or operational effects from actual or threatened war or terrorist
activities and any governmental
response;
|
|
·
|
labor
costs and labor difficulties, including stoppages affecting either the
Company’s operations or the customers’ ability to deliver goods to the
Company for shipment;
|
|
·
|
competition
from other modes of freight transportation, such as trucking, and
competition and consolidation within the transportation industry
generally;
|
|
·
|
the
Company’s success in implementing its strategic plans and operational
objectives and improving operating
efficiency; and
|
|
·
|
changes
in operating conditions and costs or commodity
concentrations.
|
Other
important assumptions and factors that could cause actual results to differ
materially from those in the forward-looking statements are specified elsewhere
in this report and in CSX’s other SEC reports, accessible on the SEC’s website
at www.sec.gov
and the Company’s website at www.csx.com.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
There
have been no material changes in market risk from the information provided under
“Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of
CSX’s most recent Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of March 27, 2009, under the
supervision and with the participation of CSX’s Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), management has evaluated the effectiveness
of the design and operation of the Company’s disclosure controls and
procedures. Based on that evaluation, the CEO and CFO concluded that,
as of first quarter 2009, the Company’s disclosure controls and procedures were
effective at the reasonable assurance level in timely alerting them to material
information required to be included in CSX’s periodic SEC
reports. There were no changes in the Company’s internal controls
over financial reporting during first quarter 2009 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information relating to the
Company’s legal proceedings, see Note 5, Commitments and Contingencies under
Part I, Item 1 of this Quarterly Report on Form 10-Q.
For information regarding factors that
could affect the Company’s results of operations, financial condition and
liquidity, see the risk factors discussed under “Management's Discussion and
Analysis of Financial Condition and Results of Operations” in Item 7 of
CSX’s most recent Annual Report on Form 10-K. See also
“Forward-Looking Statements” included in Item 2 of this Quarterly Report on Form
10-Q. There have been no material changes from the risk factors
previously disclosed in CSX’s most recent Annual Report on Form
10-K.
ITEM 2. CSX Purchases of Equity Securities
CSX is required to disclose any
purchases of its own common stock for the most recent quarter. CSX
purchases its own shares for two primary reasons: to further its goals under its
share repurchase program and to fund the Company’s contribution required to be
paid in CSX common stock under a 401(k) plan that covers certain union
employees.
Since March 2008, CSX has completed
$1.25 billion in share repurchases and has remaining authority of $1.75
billion. The Company did not repurchase any shares during the first
quarter 2009. Any future repurchases will be dependent upon an improvement in
capital market and business conditions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
Exhibits
31* Rule 13a-14(a) Certifications
32* Section 1350 Certifications
|
101*
|
The
following financial information from CSX Corporation’s Quarterly
Report on Form 10-Q for
the quarter ended
March
27, 2009 filed
with the SEC on April
15, 2009, formatted in XBRL includes: (i)
Consolidated Income Statements for the fiscal periods ended
March 27, 2009 and March 28,
2008, (ii) Consolidated Balance
Sheets at March 27, 2009 and
December 26, 2008, (iii) Consolidated
Cash Flow Statements for the fiscal periods ended
March 27, 2009 and March 28,
2008, and (iv) the
Notes to Consolidated Financial Statements, tagged as blocks of
text.
|
* Filed herewith
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
CSX CORPORATION
(Registrant)
By: /s/ CAROLYN T.
SIZEMORE
Carolyn T. Sizemore
Vice President and
Controller
(Principal Accounting
Officer)
Dated: April
14,
2009