form_10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(X)
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended June 26, 2009
OR
( )
|
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
(X) 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 392,190,182 shares
of common stock outstanding on June 26, 2009 (the latest practicable date that
is closest to the filing date).
CSX
CORPORATION
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FORM
10-Q
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FOR
THE QUARTERLY PERIOD ENDED JUNE 26, 2009
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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
and Six Months Ended June 26, 2009
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and
June 27, 2008
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4
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At
June 26, 2009 (Unaudited) and December 26, 2008
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5
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Six
Months Ended June 26, 2009 and June 27, 2008
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6
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Item
2.
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31
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and
Results of Operations
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Item
3.
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45
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Item
4.
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45
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PART
II.
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OTHER
INFORMATION
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Item
1.
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45
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Item
1A.
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45
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Item
2.
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46
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Item
3.
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46
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Item
4.
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46
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Item
5.
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47
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Item
6.
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48
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49
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2
CSX
CORPORATION
ITEM
1. FINANCIAL STATEMENTS
(Dollars
in Millions, Except Per Share Amounts)
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Second
Quarters
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Six
Months
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2009
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2008
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2009
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2008
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Revenue
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$2,185
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$2,907
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$4,432
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$5,620
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Expense
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Labor
and Fringe
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654
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733
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1,316
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1,478
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Materials,
Supplies and Other
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368
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513
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845
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1,018
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Fuel
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185
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537
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376
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978
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Depreciation
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229
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227
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453
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449
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Equipment
and Other Rents
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98
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112
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211
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223
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Inland
Transportation
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69
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68
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127
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131
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Total
Expense
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1,603
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2,190
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3,328
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4,277
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Operating
Income
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582
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717
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1,104
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1,343
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Interest
Expense
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(139)
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(133)
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(280)
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(252)
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Other
Income - Net (Note 8)
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10
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17
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13
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89
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Earnings
From Continuing Operations
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Before
Income Taxes
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453
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601
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837
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1,180
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Income
Tax Expense (Note 9)
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(168)
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(209)
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(298)
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(426)
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Earnings
From Continuing Operations
|
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285
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392
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539
|
754
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Discontinued
Operations (Note 11)
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23
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(7)
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15
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(18)
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Net
Earnings
|
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$308
|
$385
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|
$554
|
$736
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Per
Common Share (Note 2)
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Net
Earnings Per Share, Basic
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Continuing
Operations
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$0.73
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$0.97
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$1.37
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$1.86
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Discontinued
Operations
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0.06
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(0.02)
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0.04
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(0.04)
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Net
Earnings
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$0.79
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$0.95
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$1.41
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$1.82
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Net
Earnings Per Share, Assuming Dilution
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Continuing
Operations
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$0.72
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$0.95
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$1.36
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$1.82
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Discontinued
Operations
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0.06
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(0.02)
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0.04
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(0.04)
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Net
Earnings
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$0.78
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$0.93
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$1.40
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$1.78
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Average
Shares Outstanding (Thousands)
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392,027
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406,205
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391,594
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405,278
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Average
Shares Outstanding,
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Assuming
Dilution (Thousands)
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395,370
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415,112
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394,735
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415,161
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Cash
Dividends Paid Per Common Share
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$0.22
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$0.18
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$0.44
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$0.33
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See accompanying notes to consolidated
financial statements.
CSX
CORPORATION
ITEM
1. FINANCIAL STATEMENTS
(Dollars
in Millions)
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(Unaudited)
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June
26,
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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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$1,108
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$669
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Short-term
Investments
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70
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76
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Accounts
Receivable - Net (Note 1)
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885
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1,107
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Materials
and Supplies
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254
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217
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Deferred
Income Taxes
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159
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203
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Other
Current Assets
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160
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119
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Total
Current Assets
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2,636
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2,391
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Properties
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30,584
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30,208
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Accumulated
Depreciation
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(7,697)
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(7,520)
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Properties
- Net
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22,887
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22,688
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Investment
in Conrail (Note 10)
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622
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609
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Affiliates
and Other Companies
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405
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406
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Other
Long-term Assets
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185
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194
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Total
Assets
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$26,735
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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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$904
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$973
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Labor
and Fringe Benefits Payable
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349
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465
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Casualty,
Environmental and Other Reserves (Note 4)
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181
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236
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Current
Maturities of Long-term Debt (Note 7)
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318
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319
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Income
and Other Taxes Payable
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110
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125
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Other
Current Liabilities
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99
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286
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Total
Current Liabilities
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1,961
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2,404
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Casualty,
Environmental and Other Reserves (Note 4)
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579
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643
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Long-term
Debt (Note 7)
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7,933
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7,512
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Deferred
Income Taxes
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6,417
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6,235
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Other
Long-term Liabilities
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1,389
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1,426
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Total
Liabilities
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18,279
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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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Other
Capital
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29
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-
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Retained
Earnings
|
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8,757
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8,398
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Accumulated
Other Comprehensive Loss (Note 1)
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(735)
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(741)
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Noncontrolling
Minority Interest
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13
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20
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Total
Shareholders' Equity
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8,456
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8,068
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Total
Liabilities and Shareholders' Equity
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$26,735
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$26,288
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See accompanying notes to consolidated
financial statements.
CSX
CORPORATION
ITEM
1. FINANCIAL STATEMENTS
(Dollars in
Millions)
|
Six
Months
|
|
2009
|
2008
|
OPERATING
ACTIVITIES
|
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Net
Earnings
|
$554
|
$736
|
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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
|
454
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456
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Deferred
Income Taxes
|
212
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201
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Other
Operating Activities
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(172)
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(30)
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Changes
in Operating Assets and Liabilities:
|
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Accounts
Receivable
|
202
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(44)
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Other
Current Assets
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(83)
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(16)
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Accounts
Payable
|
(56)
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35
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Income
and Other Taxes Payable
|
(13)
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9
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Other
Current Liabilities
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(117)
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(4)
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Net
Cash Provided by Operating Activities
|
981
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1,343
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INVESTING
ACTIVITIES
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Property
Additions
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(667)
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(912)
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Purchases
of Short-term Investments
|
-
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(25)
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Proceeds
from Sales of Short-term Investments
|
-
|
280
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Other
Investing Activities
|
49
|
(1)
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Net
Cash Used in Investing Activities
|
(618)
|
(658)
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FINANCING
ACTIVITIES
|
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|
Long-term
Debt Issued (Note 7)
|
500
|
1,000
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Long-term
Debt Repaid (Note 7)
|
(83)
|
(176)
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|
Dividends
Paid
|
(176)
|
(134)
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|
Stock
Options Exercised (Note 3)
|
12
|
65
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|
Shares
Repurchased
|
-
|
(453)
|
|
Other
Financing Activities
|
(177)
|
43
|
|
|
Net
Cash Provided by Financing Activities
|
76
|
345
|
|
|
|
|
|
|
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|
Net
Increase in Cash and Cash Equivalents
|
439
|
1,030
|
|
|
|
|
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CASH
AND CASH EQUIVALENTS
|
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
669
|
368
|
|
|
Cash
and Cash Equivalents at End of Period
|
$1,108
|
$1,398
|
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 subsidiary, CSX Transportation, Inc. (“CSXT”), provides an
important 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. In May
2009, CSX sold the stock of The Greenbrier Hotel Corporation, owner of The
Greenbrier resort. For more information, see Note 11, Discontinued
Operations.
Basis
of Presentation
In the
opinion of management, the accompanying consolidated financial statements
contain all normal, recurring adjustments necessary to fairly present the
following:
·
|
Consolidated
income statements for the quarters and six months ended June 26, 2009 and
June 27, 2008;
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·
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Consolidated
balance sheets at June 26, 2009 and December 26, 2008;
and
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·
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Consolidated
cash flow statements for the six months ended June 26, 2009 and June 27,
2008.
|
In
addition, management has evaluated and disclosed all material events occurring
subsequent to the date of the financial statements up to the date this quarterly
report is filed on Form 10-Q.
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 subsequent 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:
·
|
The
second fiscal quarter of 2009 and 2008 consisted of 13 weeks ending on
June 26, 2009 and June 27, 2008,
respectively.
|
·
|
The
six month periods of 2009 and 2008 consisted of 26 weeks ending on June
26, 2009 and June 27, 2008,
respectively.
|
·
|
Fiscal
year 2008 consisted of 52 weeks ending on December 26,
2008.
|
·
|
Fiscal
year 2009 will consist of 52 weeks ending on December 25,
2009.
|
Except as otherwise specified,
references to “second quarter(s)” or “six months” indicate CSX’s fiscal periods
ending June 26, 2009 or June 27, 2008, and references to year-end indicate the
fiscal year ended 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, total
comprehensive earnings equals 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 $314
million and $387 million for second quarters 2009 and 2008, respectively, and
$560 million and $740 million for six months 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 of other comprehensive income, 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 $735 million and $741 million as of June 2009 and December 2008,
respectively.
Allowance
for Doubtful Accounts
The Company
maintains an allowance for doubtful accounts on uncollectible accounts related
to freight receivables, public projects (work done by CSX on behalf of a
government agency), claims for damages and other various receivables. The
allowance is based upon the credit worthiness of customers, historical
experience, the age of the receivable and current market and economic
conditions. Uncollectible amounts are charged against the allowance account.
Allowance for doubtful accounts of $60 million and $70 million is included in
the Consolidated Balance Sheets as of June 2009 and December 2008.
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 Rail Road 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. Noncontrolling minority interest expense 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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature
of Operations and Significant Accounting Policies, continued
FASB
Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments and APB Opinion No. 28, Interim Financial Reporting,
to require disclosures about fair value of financial instruments in quarterly
reports as well as in annual reports, as previously required. For CSX, this
statement applies to certain investments and long-term debt and is effective
beginning second quarter 2009. (See Note 12, Fair Value
Measurements.)
NOTE
2. Earnings
Per Share
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
|
|
|
Second
Quarters
|
Six
Months
|
|
|
|
2009
|
2008
|
2009
|
2008
|
Numerator
(Dollars in
millions):
|
|
|
|
|
|
|
Earnings
from Continuing Operations
|
|
$285
|
$392
|
$539
|
$754
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
-
|
-
|
1
|
|
Earnings
from Continuing Operations, If Converted
|
285
|
392
|
539
|
755
|
|
Discontinued
Operations - Net of Tax (a)
|
|
23
|
(7)
|
15
|
(18)
|
|
Net
Earnings, If Converted
|
|
308
|
385
|
554
|
737
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
-
|
-
|
(1)
|
|
Net
Earnings
|
|
$308
|
$385
|
$554
|
$736
|
|
|
|
|
|
|
|
Denominator
(Units in
thousands):
|
|
|
|
|
|
|
Average
Common Shares Outstanding
|
|
392,027
|
406,205
|
391,594
|
405,278
|
|
Convertible
Debt
|
|
1,118
|
3,729
|
1,118
|
4,723
|
|
Stock
Option Common Stock Equivalents (b)
|
1,989
|
4,170
|
1,906
|
4,266
|
|
Other
Potentially Dilutive Common Shares
|
|
236
|
1,008
|
117
|
894
|
|
Average
Common Shares Outstanding, Assuming Dilution
|
395,370
|
415,112
|
394,735
|
415,161
|
|
|
|
|
|
|
|
Net
Earnings Per Share, Basic:
|
|
|
|
|
|
|
Continuing
Operations
|
|
$0.73
|
$0.97
|
$1.37
|
$1.86
|
|
Discontinued
Operations
|
|
0.06
|
(0.02)
|
0.04
|
(0.04)
|
|
Net
Earnings
|
|
$0.79
|
$0.95
|
$1.41
|
$1.82
|
|
|
|
|
|
|
|
Net
Earnings Per Share, Assuming Dilution:
|
|
|
|
|
|
|
Continuing
Operations
|
|
$0.72
|
$0.95
|
$1.36
|
$1.82
|
|
Discontinued
Operations
|
|
0.06
|
(0.02)
|
0.04
|
(0.04)
|
|
Net
Earnings
|
|
$0.78
|
$0.93
|
$1.40
|
$1.78
|
(a)
|
For
additional information regarding discontinued operations, see Note 11,
Discontinued Operations.
|
(b)
|
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.
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2. Earnings
Per Share, continued
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.
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 second quarter 2008, $102 million of face value of convertible debentures
were converted into 4 million shares of CSX common stock. There were
no conversions of convertible debentures during 2009. As of June
2009, approximately $32 million of convertible debentures at face value remained
outstanding, which are convertible into approximately 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:
|
Second
Quarters
|
|
Six
Months
|
(Dollars
in millions)
|
2009
|
2008
|
|
2009
|
2008
|
Share-Based
Compensation Expense (a)
|
$11
|
$10
|
|
$3
|
$24
|
Income
Tax Benefit
|
(4)
|
(4)
|
|
(1)
|
(9)
|
|
(a)
Share-based compensation expense may fluctuate with estimates of the
number of performance-based awards that are expected to be awarded in
future periods.
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3. Share-Based
Compensation, continued
The following table provides
information about stock options exercised.
|
Second
Quarters
|
|
Six
Months
|
(In
thousands)
|
2009
|
2008
|
|
2009
|
2008
|
Number
of Stock Options Exercised
|
492
|
1,562
|
|
566
|
3,420
|
As of
December 2008, all outstanding options are vested, and therefore, there will be
no future expense related to these options. As of June 2009, CSX had
approximately 7 million stock options outstanding. However, the impact of
options to diluted earnings per share is much smaller (see footnote b in Note 2,
Earnings Per Share for more information).
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:
|
|
June
2009
|
|
December
2008
|
(Dollars
in millions)
|
Current
|
Long-term
|
Total
|
|
Current
|
Long-term
|
Total
|
|
|
|
|
|
|
|
|
|
Casualty:
|
|
|
|
|
|
|
|
|
Personal
Injury
|
$79
|
$223
|
$302
|
|
$104
|
$258
|
$362
|
|
Occupational
|
22
|
165
|
187
|
|
32
|
172
|
204
|
|
Total
Casualty
|
101
|
388
|
489
|
|
136
|
430
|
566
|
Separation
|
15
|
64
|
79
|
|
16
|
71
|
87
|
Environmental
|
37
|
56
|
93
|
|
42
|
58
|
100
|
Other
|
28
|
71
|
99
|
|
42
|
84
|
126
|
|
Total
|
$181
|
$579
|
$760
|
|
$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 Company’s financial condition,
results of operations or liquidity in that particular period.
During the
second quarter of 2009, the Company reduced casualty reserves by a net $85
million. The majority of this reduction is related to personal injury
and asbestos and is described below. Also included in the net
reduction is a write-off of $11 million of reinsurance receivables (expected
receivables from outside insurance companies). This receivable
write-off is not included in the reserve amounts disclosed
above.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves, continued
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 the timing of
payments as well as changes in independent third party estimates, which are
reviewed by management. Most of the claims were related to CSXT
unless otherwise noted.
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 former and current 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 number, type and severity of the injury,
costs of medical treatments and uncertainties in litigation.
During
second quarter 2009, the Company reduced personal injury reserves by $78 million
based on management’s review of the actuarial analysis performed by an
independent actuarial firm. This reduction is a direct result of the
Company’s improvement in safety. Claims have shown a continued
downward trend in the number of injuries, resulting in a continual reduction of
the Company’s FRA personal injury rate. Additionally, the trend in
the severity of injuries has significantly declined.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves, continued
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. Actual results may vary from estimates due to the number, type
and severity of the injury, costs of medical treatments and uncertainties in
litigation.
During second
quarter 2009, the Company reduced its asbestos reserves by $18
million. This reserve reduction is related to approximately 1,500
claims that were deemed to have no medical merit and therefore have been
determined to have no value.
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 10 to 15 years from
general corporate funds and may fluctuate depending on the timing of payments
and associated taxes.
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 257 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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty,
Environmental and Other Reserves, continued
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.
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, changes in conditions,
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 primarily
associated with former subsidiaries’ activities, 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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5. Commitments
and Contingencies, continued
Guarantees
CSX and certain of its subsidiaries are
contingently liable, individually and jointly with others, as guarantors of
approximately $41 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. These guarantees do not include CSX’s guarantee of
applicable CSXT’s secured notes because these notes are included on CSX’s
consolidated balance sheet.
As of
second quarter 2009, the Company’s guarantees primarily related to the
following:
·
|
Guarantee
of approximately $37 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 entity 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 $4 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
second 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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5. Commitments
and Contingencies, continued
Fuel
Surcharge Antitrust Litigation
Since
2007, at least 31 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 seeking damages but has not dismissed
their request 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 court denied the railroads’ request to first proceed
with discovery relating to the appropriateness of class certification, and then
permit merits discovery only if a class is certified. The court,
however, agreed with the railroads that class certification should be decided as
early as possible, rejecting plaintiffs’ proposal that certification be
determined after the close of all discovery and close to trial.
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 Cases
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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5. Commitments
and Contingencies, continued
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 engaged in mediation sponsored by
the STB and reached a confidential settlement. The complaint has been
voluntarily dismissed.
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
purport 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.
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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6. Employee
Benefit Plans, continued
The
following table describes the components of expense/(income) related to net
periodic benefit cost:
|
|
Pension
Benefits
|
(Dollars
in millions)
|
Second
Quarters
|
|
Six
Months
|
|
2009
|
2008
|
|
2009
|
2008
|
Service
Cost
|
$8
|
$9
|
|
$16
|
$17
|
Interest
Cost
|
32
|
30
|
|
62
|
60
|
Expected
Return on Plan Assets
|
(36)
|
(36)
|
|
(71)
|
(72)
|
Amortization
of Prior Service Cost
|
-
|
-
|
|
1
|
1
|
Amortization
of Net Loss
|
7
|
6
|
|
13
|
11
|
|
Net
Periodic Benefit Cost
|
$11
|
$9
|
|
$21
|
$17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Post-retirement Benefits
|
(Dollars
in millions)
|
Second
Quarters
|
|
Six
Months
|
|
2009
|
2008
|
|
2009
|
2008
|
Service
Cost
|
$1
|
$1
|
|
$2
|
$3
|
Interest
Cost
|
6
|
5
|
|
12
|
10
|
Amortization
of Prior Service Cost
|
-
|
-
|
|
-
|
(1)
|
Amortization
of Net Loss
|
1
|
1
|
|
2
|
2
|
|
Net
Periodic Benefit Cost
|
$8
|
$7
|
|
$16
|
$14
|
In accordance
with the Pension Protection Act of 2006, 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. 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. While required minimum contributions in 2009 are estimated to
be approximately $5 million, the Company intends to pre-fund future
contributions up to $250 million, or $160 million after-tax, to its pension
plans in 2009. For further details, see Note 7, Employee Benefit
Plans, in CSX’s most recent Annual Report on Form 10-K.
18
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
7. Debt and Credit
Agreements
Total
activity related to long-term debt as of June 2009 was as follows:
(Dollars
in millions)
|
Current
Portion
|
Long-term
Portion
|
Total
Long-term Debt Activity
|
Total
long-term debt at December 2008
|
$319
|
$7,512
|
$7,831
|
2009
activity:
|
|
|
|
|
Issued
|
-
|
500
|
500
|
|
Repaid
|
(83)
|
-
|
(83)
|
|
Reclassifications
|
82
|
(82)
|
-
|
|
Other
|
-
|
3
|
3
|
Total
long-term debt at June 2009
|
$318
|
$7,933
|
$8,251
|
For fair value information related to
the Company’s long-term debt, see Note 12, Fair Value
Measurements.
Revolving
Credit Facility
CSX has a
$1.25 billion unsecured revolving credit facility with a 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 June
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 - Net
The Company
derives income from items that are not considered operating
activities. Income from these items is reported net of related
expense in other income – net on the consolidated income
statements. Other income – net consists of interest income, income
from real estate and miscellaneous income (expense). Interest income
fluctuates as a result of interest rates and balances that earn interest based
on CSX’s cash, cash equivalents and short-term investments. 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 from real estate may fluctuate as a
function of timing of real estate sales. Miscellaneous income
includes a number of items which can be income or expense. Examples
of these items are equity earnings and/or losses, noncontrolling minority
interest expense, investment gains and losses and other non-operating
activities. Other income – net consists of the
following:
|
|
Second
Quarters
|
|
Six
Months
|
(Dollars
in millions)
|
2009
|
2008
|
|
2009
|
2008
|
Interest
Income
|
$3
|
$13
|
|
$7
|
$21
|
Income
from Real Estate
|
6
|
3
|
|
7
|
33
|
Miscellaneous
Income (Expense)(a)
|
1
|
1
|
|
(1)
|
35
|
|
Total
Other Income - Net
|
$10
|
$17
|
|
$13
|
$89
|
|
(a) In
first quarter 2008, CSX recorded additional income of $30 million for an
adjustment to correct equity earnings from a non-consolidated
subsidiary.
|
Previously,
the results of operations from the Greenbrier resort were in included in other
income – net. In May 2009, CSX sold the stock of The Greenbrier Hotel
Corporation, owner of The Greenbrier resort. The results of The
Greenbrier’s operations are now presented in discontinued operations on the
consolidated income statements and all prior periods have been
reclassified. For more information, see Note 11, Discontinued
Operations.
NOTE
9. Income
Taxes
As of
June 2009 and December 2008, the Company had approximately $49 million and $57
million of total unrecognized tax benefits, respectively. For the same
periods, after consideration of the impact of federal tax benefits, $42 million
and $50 million, respectively, of net unrecognized tax benefits could favorably
affect the effective income tax rate. As of June 2009, the Company
estimates that approximately $13 million of the net unrecognized tax benefits
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.
During
second quarter 2008, the Internal Revenue Service (“IRS”) completed its
examination of tax years 2004 through 2006. As a result of this and the
resolution of other income tax matters, the Company recorded an income tax
benefit of $18 million.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
9. Income
Taxes, continued
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 interest and penalties (net of related
federal or state tax benefits or expense) associated with income tax matters in
income tax expense. As of June 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.
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. At
June 2009 and December 2008, CSX's investment in Conrail was $622 million and
$609 million, respectively.
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, and 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. Also, 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. Lastly, interest expense is recorded on long-term payables to
Conrail.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10. Related
Party Transactions, continued
Dollar
amounts of these items impacting the consolidated income statements were as
follows:
|
Second
Quarters
|
|
Six
Months
|
(Dollars
in millions)
|
2009
|
2008
|
|
2009
|
2008
|
Income
Statement Information:
|
|
|
|
|
|
Rents,
Fees and Services
|
$26
|
$27
|
|
$50
|
$53
|
Equity
in Income of Conrail
|
(7)
|
(6)
|
|
(14)
|
(12)
|
Purchase
Price Amortization and Other
|
1
|
1
|
|
2
|
2
|
Interest
Expense Related to Conrail
|
1
|
1
|
|
2
|
2
|
Income
Statement Impact
|
$21
|
$23
|
|
$40
|
$45
|
Additional
information about the investment in Conrail is included in CSX’s most recent
Annual Report on Form 10-K.
NOTE
11. Discontinued
Operations
As previously
reported, in March 2009, Greenbrier Hotel Corporation (“GHC”), owner of The
Greenbrier resort and then an indirect subsidiary of CSX, filed for Chapter 11
bankruptcy protection in the U.S. Bankruptcy Court for the Eastern District of
Virginia, Richmond Division (“Bankruptcy Court”). In conjunction with
the bankruptcy, GHC also announced an agreement to sell the resort pursuant to
an asset purchase agreement with Marriott Hotel Services, Inc. (the
“APA”).
On
May 6, 2009, CSX sold the stock of a subsidiary that indirectly owned GHC to
Justice Family Group, LLC (“JFG”) for approximately $21 million in
cash. CSX recognized a gain on the sale of $25 million after tax in
the second quarter of 2009. The gain was calculated using cash proceeds,
net book value, deal-related costs incurred and tax
benefits. The previously reported bankruptcy financing that CSX
made available to The Greenbrier was paid down and no amounts were outstanding
thereunder at the time of the sale. On May 21, 2009, the Bankruptcy
Court entered an order dismissing GHC’s bankruptcy proceeding and terminating
the APA. CSX has no continuing obligations to finance post-sale
resort operations. CSX has retained responsibility for certain
pre-closing Greenbrier pension obligations.
This
transaction is reportable as discontinued operations under SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (“SFAS 144”). Therefore, the
gain on sale as well as losses from operations will be reported as discontinued
operations. Previously, all amounts associated with the operations of
The Greenbrier were included in Other Income. All prior periods have
been reclassified to reflect this change.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
11. Discontinued
Operations, continued
Income
statement information:
|
Second
Quarters
|
|
Six
Months
|
(Dollars
in millions)
|
2009
|
2008
|
|
2009
|
2008
|
Net
Losses From Operations, after tax
|
$(2)
|
$(7)
|
|
$(10)
|
$(18)
|
Gain
on Sale, after tax
|
25
|
-
|
|
25
|
-
|
Net
Income (Loss) From Discontinued Operations
|
$23
|
$(7)
|
|
$15
|
$(18)
|
|
|
|
|
|
|
Earnings
per Share
|
|
|
|
|
|
From
Discontinued Operations, Assuming Dilution
|
$0.06
|
$(0.02)
|
|
$0.04
|
$(0.04)
|
NOTE
12. Fair
Value Measurements
In May 2009, the FASB issued Staff
Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which requires disclosures about fair
value of financial instruments in quarterly reports as well as in annual
reports. For CSX, this statement applies to certain investments and
long-term debt and is effective beginning second quarter 2009. SFAS No. 157,
Fair Value Measurements
clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value
measurements.
Various
inputs are considered when determining the value of the Company’s
investments. The inputs or methodologies used for valuing securities
are not necessarily an indication of the risk associated with investing in these
securities. These inputs are summarized in the three broad levels
listed below.
·
|
Level
1 – observable market inputs that are unadjusted quoted prices for
identical assets or liabilities in active
markets
|
·
|
Level
2 – other significant observable inputs (including quoted prices for
similar securities, interest rates, credit risk,
etc.)
|
·
|
Level
3 – significant unobservable inputs (including the Company’s own
assumptions in determining the fair value of
investments)
|
The
Company’s investment assets are valued by a third-party trustee, consist
primarily of corporate bonds and are carried at fair value on the consolidated
balance sheet. As of June 2009, these bonds had a fair value of $115
million. All inputs used to determine fair value are considered level
2 inputs.
Long-term
debt is the only financial instrument of CSX with fair values significantly
different from their carrying amounts. The fair value of long-term debt
has been estimated using discounted cash flow analysis based upon CSX's current
incremental borrowing rates for similar types of financing arrangements which
are considered level 2 inputs.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Fair
Value Measurements, continued
The fair
value of outstanding debt fluctuates with changes in applicable interest
rates. Fair value will exceed carrying value when the current market
interest rate is lower than the interest rate at which the debt was originally
issued. The fair value and carrying value of the Company’s long-term
debt is as follows:
|
|
|
|
|
|
|
(Dollars
in millions)
|
|
|
|
June
2009
|
|
December
2008
|
Long-term
Debt Including Current Maturities:
|
|
|
|
|
|
Fair
Value
|
|
|
|
$8,568
|
|
$7,415
|
|
Carrying
Value
|
|
|
|
$8,251
|
|
$7,831
|
NOTE
13. 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 is as follows:
Second
Quarters
|
|
|
|
|
|
CSX
|
|
(Dollars
in millions)
|
Rail (a)
|
Intermodal
|
Consolidated
|
|
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
Revenues
from External Customers
|
$1,894
|
$2,522
|
$291
|
$385
|
$2,185
|
$2,907
|
$(722)
|
|
|
|
|
|
|
|
|
Segment
Operating Income
|
546
|
641
|
36
|
76
|
582
|
717
|
(135)
|
Six
Months
|
|
|
|
|
|
CSX
|
|
(Dollars
in millions)
|
Rail (a)
|
Intermodal
|
Consolidated
|
|
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
Revenues
from External Customers
|
$3,871
|
$4,887
|
$561
|
$733
|
$4,432
|
$5,620
|
$(1,188)
|
|
|
|
|
|
|
|
|
Segment
Operating Income
|
1,044
|
1,206
|
60
|
137
|
1,104
|
1,343
|
(239)
|
(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
14. 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. 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, CSXT, and parent guarantor,
CSX, is as follows:
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
14. Summarized
Consolidating Financial Data, continued
Consolidating
Income Statements
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
Quarter
Ended June 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
Operating
Revenue
|
$-
|
$1,879
|
$332
|
$(26)
|
$2,185
|
Operating
Expense
|
(63)
|
1,395
|
294
|
(23)
|
1,603
|
Operating
Income
|
63
|
484
|
38
|
(3)
|
582
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
308
|
-
|
-
|
(308)
|
-
|
Interest
Expense
|
(125)
|
(28)
|
(3)
|
17
|
(139)
|
Other
Income - Net
|
(22)
|
(3)
|
49
|
(14)
|
10
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
Before
Income Taxes
|
224
|
453
|
84
|
(308)
|
453
|
Income
Tax Benefit (Expense)
|
52
|
(179)
|
(41)
|
-
|
(168)
|
Earnings
From Continuing Operations
|
276
|
274
|
43
|
(308)
|
285
|
Discontinued
Operations
|
32
|
-
|
(9)
|
-
|
23
|
Net
Earnings
|
$308
|
$274
|
$34
|
$(308)
|
$308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended June 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
Operating
Revenue
|
$-
|
$2,501
|
$439
|
$(33)
|
$2,907
|
Operating
Expense
|
(33)
|
1,929
|
324
|
(30)
|
2,190
|
Operating
Income
|
33
|
572
|
115
|
(3)
|
717
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
421
|
-
|
-
|
(421)
|
-
|
Interest
Expense
|
(138)
|
(34)
|
(6)
|
45
|
(133)
|
Other
Income - Net
|
24
|
20
|
15
|
(42)
|
17
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
Before
Income Taxes
|
340
|
558
|
124
|
(421)
|
601
|
Income
Tax Benefit (Expense)
|
45
|
(208)
|
(46)
|
-
|
(209)
|
Earnings
From Continuing Operations
|
385
|
350
|
78
|
(421)
|
392
|
Discontinued
Operations
|
-
|
-
|
(7)
|
-
|
(7)
|
Net
Earnings
|
$385
|
$350
|
$71
|
$(421)
|
$385
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
14. Summarized
Consolidating Financial Data, continued
Consolidating
Income Statements
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
Six
Months Ended June 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
Operating
Revenue
|
$-
|
$3,839
|
$645
|
$(52)
|
$4,432
|
Operating
Expense
|
(142)
|
2,958
|
559
|
(47)
|
3,328
|
Operating
Income
|
142
|
881
|
86
|
(5)
|
1,104
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
563
|
-
|
-
|
(563)
|
-
|
Interest
Expense
|
(249)
|
(59)
|
(4)
|
32
|
(280)
|
Other
Income - Net
|
280
|
3
|
(243)
|
(27)
|
13
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
Before
Income Taxes
|
736
|
825
|
(161)
|
(563)
|
837
|
Income
Tax Benefit (Expense)
|
(214)
|
(319)
|
235
|
-
|
(298)
|
Earnings
From Continuing Operations
|
522
|
506
|
74
|
(563)
|
539
|
Discontinued
Operations
|
32
|
-
|
(17)
|
-
|
15
|
Net
Earnings
|
$554
|
$506
|
$57
|
$(563)
|
$554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
Operating
Revenue
|
$-
|
$4,845
|
$845
|
$(70)
|
$5,620
|
Operating
Expense
|
(90)
|
3,792
|
639
|
(64)
|
4,277
|
Operating
Income
|
90
|
1,053
|
206
|
(6)
|
1,343
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
792
|
-
|
-
|
(792)
|
-
|
Interest
Expense
|
(272)
|
(77)
|
(13)
|
110
|
(252)
|
Other
Income - Net
|
64
|
90
|
39
|
(104)
|
89
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
Before
Income Taxes
|
674
|
1,066
|
232
|
(792)
|
1,180
|
Income
Tax Benefit (Expense)
|
62
|
(401)
|
(87)
|
-
|
(426)
|
Earnings
From Continuing Operations
|
736
|
665
|
145
|
(792)
|
754
|
Discontinued
Operations
|
-
|
-
|
(18)
|
-
|
(18)
|
Net
Earnings
|
$736
|
$665
|
$127
|
$(792)
|
$736
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
14. Summarized
Consolidating Financial Data, continued
|
|
|
|
|
|
|
|
Consolidating
Balance Sheet
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
June
2009
|
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
|
ASSETS
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$968
|
$84
|
$56
|
$-
|
$1,108
|
|
Short-term
Investments
|
|
-
|
1
|
69
|
-
|
70
|
|
Accounts
Receivable - Net
|
|
5
|
869
|
11
|
-
|
885
|
|
Materials
and Supplies
|
|
-
|
254
|
-
|
-
|
254
|
|
Deferred
Income Taxes
|
|
10
|
146
|
3
|
-
|
159
|
|
Other
Current Assets
|
|
129
|
81
|
63
|
(113)
|
160
|
|
Total
Current Assets
|
|
1,112
|
1,435
|
202
|
(113)
|
2,636
|
|
|
|
|
|
|
|
|
Properties
|
|
6
|
29,312
|
1,266
|
-
|
30,584
|
Accumulated
Depreciation
|
|
(9)
|
(6,899)
|
(789)
|
-
|
(7,697)
|
|
Properties
- Net
|
|
(3)
|
22,413
|
477
|
-
|
22,887
|
|
|
|
|
|
|
|
|
Investments
in Conrail
|
|
-
|
-
|
622
|
-
|
622
|
Affiliates
and Other Companies
|
|
-
|
529
|
(124)
|
-
|
405
|
Investments
in Consolidated Subsidiaries
|
15,001
|
-
|
44
|
(15,045)
|
-
|
Other
Long-term Assets
|
|
51
|
77
|
100
|
(43)
|
185
|
|
Total
Assets
|
|
$16,161
|
$24,454
|
$1,321
|
$(15,201)
|
$26,735
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$122
|
$ 578
|
$ 204
|
$ -
|
$ 904
|
|
Labor
and Fringe Benefits Payable
|
31
|
286
|
32
|
-
|
349
|
|
Payable
to Affiliates
|
|
472
|
985
|
(1,390)
|
(67)
|
-
|
|
Casualty,
Environmental and Other Reserves
|
-
|
159
|
22
|
-
|
181
|
|
Current
Maturities of Long-term Debt
|
200
|
115
|
3
|
-
|
318
|
|
Income
and Other Taxes Payable
|
(4)
|
286
|
(172)
|
-
|
110
|
|
Other
Current Liabilities
|
1
|
91
|
53
|
(46)
|
99
|
|
Total
Current Liabilities
|
|
822
|
2,500
|
(1,248)
|
(113)
|
1,961
|
|
|
|
|
|
|
|
|
Casualty,
Environmental and Other Reserves
|
1
|
506
|
72
|
-
|
579
|
Long-term
Debt
|
|
6,556
|
1,371
|
6
|
-
|
7,933
|
Deferred
Income Taxes
|
|
(440)
|
6,760
|
97
|
-
|
6,417
|
Long-term
Payable to Affiliates
|
|
-
|
-
|
44
|
(44)
|
-
|
Other
Long-term Liabilities
|
|
780
|
459
|
150
|
-
|
1,389
|
|
Total
Liabilities
|
|
7,719
|
11,596
|
(879)
|
(157)
|
18,279
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
Common
Stock, $1 Par Value
|
|
392
|
181
|
-
|
(181)
|
392
|
Other
Capital
|
|
29
|
5,565
|
1,950
|
(7,515)
|
29
|
Retained
Earnings
|
|
8,756
|
7,138
|
313
|
(7,450)
|
8,757
|
Accumulated
Other Comprehensive Loss
|
(735)
|
(47)
|
(102)
|
149
|
(735)
|
Noncontrolling
Minority Interest
|
|
-
|
21
|
39
|
(47)
|
13
|
|
Total
Shareholders' Equity
|
|
8,442
|
12,858
|
2,200
|
(15,044)
|
8,456
|
|
Total
Liabilities and Shareholders' Equity
|
$16,161
|
$24,454
|
$1,321
|
$(15,201)
|
$26,735
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
14. 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
14. Summarized
Consolidating Financial Data, continued
|
|
|
|
|
|
|
Consolidating
Cash Flow Statements
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
Six
Months Ended June 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
$53
|
$1,026
|
$148
|
$(246)
|
$981
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Property
Additions
|
-
|
(644)
|
(23)
|
-
|
(667)
|
Purchases
of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
Other
Investing Activities
|
(87)
|
27
|
23
|
86
|
49
|
|
Net
Cash Provided by (Used in) Investing Activities
|
(87)
|
(617)
|
-
|
86
|
(618)
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Long-term
Debt Issued
|
500
|
-
|
-
|
-
|
500
|
Long-term
Debt Repaid
|
-
|
(81)
|
(2)
|
-
|
(83)
|
Dividends
Paid
|
(176)
|
(238)
|
(8)
|
246
|
(176)
|
Stock
Options Exercised
|
12
|
-
|
-
|
-
|
12
|
Shares
Repurchased
|
-
|
-
|
-
|
-
|
-
|
Other
Financing Activities
|
107
|
(69)
|
(129)
|
(86)
|
(177)
|
|
Net
Cash Provided by (Used in) Financing Activities
|
443
|
(388)
|
(139)
|
160
|
76
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
409
|
21
|
9
|
-
|
439
|
Cash
and Cash Equivalents at Beginning of Period
|
559
|
63
|
47
|
-
|
669
|
Cash
and Cash Equivalents at End of Period
|
$968
|
$84
|
$56
|
$-
|
$1,108
|
|
|
|
|
|
|
|
|
|
CSX
|
CSX
|
|
|
|
Six
Months Ended June 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
$391
|
$1,325
|
$(191)
|
$(182)
|
$1,343
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
Property
Additions
|
1
|
(873)
|
(40)
|
-
|
(912)
|
Purchases
of Short-term Investments
|
(25)
|
-
|
-
|
-
|
(25)
|
Proceeds
from Sales of Short-term Investments
|
280
|
-
|
-
|
-
|
280
|
Other
Investing Activities
|
(247)
|
(11)
|
220
|
37
|
(1)
|
|
Net
Cash Provided by (Used in) Investing Activities
|
9
|
(884)
|
180
|
37
|
(658)
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Long-term
Debt Issued
|
1,000
|
-
|
-
|
-
|
1,000
|
Long-term
Debt Repaid
|
(89)
|
(87)
|
-
|
-
|
(176)
|
Dividends
Paid
|
(137)
|
(162)
|
(14)
|
179
|
(134)
|
Stock
Options Exercised
|
65
|
-
|
-
|
-
|
65
|
Shares
Repurchased
|
(453)
|
-
|
-
|
-
|
(453)
|
Other
Financing Activities
|
208
|
(172)
|
41
|
(34)
|
43
|
|
Net
Cash Provided by (Used in) Financing Activities
|
594
|
(421)
|
27
|
145
|
345
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
994
|
20
|
16
|
-
|
1,030
|
Cash
and Cash Equivalents at Beginning of Period
|
298
|
55
|
15
|
-
|
368
|
Cash
and Cash Equivalents at End of Period
|
$1,292
|
$75
|
$31
|
$-
|
$1,398
|
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 commercial arrangements 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.
SECOND
QUARTER 2009 HIGHLIGHTS
·
|
Revenue
decreased $722 million or 25% to $2.2 billion due to declines in volume
and lower fuel surcharge revenue.
|
·
|
Expenses
decreased $587 million or 27% to $1.6
billion.
|
·
|
Operating
income decreased $135 million or 19% to $582
million.
|
·
|
CSX
realized a $25 million after-tax gain from the sale of The Greenbrier
resort.
|
CSX
operating results reflect the impact of the ongoing recessionary environment.
Second quarter revenues of $2.2 billion were down 25% from the prior year,
primarily due to a 21% decline in volume and lower fuel surcharge recovery
associated with the sharp decline in fuel prices. Volume continued to decline
across the board, although the rate of decline in the coal market accelerated in
the second quarter (from the first quarter) due to lower demand for export coal
and high utility inventory levels. However, the other major lines of
business have stabilized since the first quarter. Despite a challenging
environment, the Company was able to achieve pricing gains predominantly due to
the overall cost advantages that rail based solutions provide to customers
versus other modes of transportation.
Despite the
challenging economy, CSX was able to reduce expenses to $587 million down 27%
from the prior year. The expense reductions were a combined result of
extensive productivity initiatives, cost-cutting efforts and a favorable
casualty reserve adjustment.
For
additional information, refer to Rail and Intermodal Results of Operations
discussed on pages 35 through 36.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In addition
to the financial highlights described above, the Company measures and reports
safety and service performance. CSX strives for continuous improvement in
these measures through training, initiatives and investment. For
example, 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 second
quarter 2009, the Company continued its focus on safety and operating
performance. Results in both Federal Railroad Administration (“FRA”)
personal injuries and train accidents improved as a result of leadership and
high levels of employee commitment to the Company’s safety programs. The
FRA personal injury index improved 6% to 1.22 in the
quarter. Reported FRA train accident frequency declined to 2.22, a
16% improvement compared to the same quarter of 2008. As mentioned
above, continued favorable historical trends on the personal injury index
directly contributed to the favorable casualty reserve
adjustment.
Key service
metrics improved significantly in the quarter. On-time train
originations and arrivals were 83% and 81%, respectively, during the
quarter. Average dwell rose slightly to 24.1 hours and average
cars-on-line declined to 218,313 primarily due to lower demand
levels. Average train velocity improved to 21.7 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 utilization 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)
|
|
Second
Quarters
|
|
|
|
Improvement
|
|
|
|
2009
|
2008
|
(Decline)
|
%
|
Safety
and Service Measurements
|
|
|
|
|
FRA
Personal Injuries Frequency Index
|
1.22
|
1.30
|
6
|
%
|
|
|
|
|
|
|
FRA
Train Accident Rate
|
2.22
|
2.63
|
16
|
|
|
|
|
|
|
|
On-Time
Train Originations
|
83%
|
75%
|
11
|
|
On-Time
Destination Arrivals
|
81%
|
65%
|
25
|
|
|
|
|
|
|
|
Dwell
|
24.1
|
23.3
|
(3)
|
|
Cars-On-Line
|
218,313
|
224,460
|
3
|
|
|
|
|
|
|
|
System
Train Velocity
|
21.7
|
20.0
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
Resources
|
|
|
(Decrease)
|
|
Route
Miles
|
21,190
|
21,224
|
-
|
%
|
Locomotives
(owned and long-term leased)
|
4,108
|
4,098
|
-
|
|
Freight
Cars (owned and long-term leased)
|
86,300
|
92,083
|
(6)
|
%
|
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)
Second
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
|
|
|
|
Rail
(a)
|
Intermodal
|
Consolidated
|
|
|
|
|
|
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
%Change
|
|
Revenue
|
$1,894
|
$2,522
|
$291
|
$385
|
$2,185
|
$2,907
|
$(722)
|
(25)
|
%
|
Expense
|
|
|
|
|
|
|
|
|
|
|
Labor
and Fringe
|
638
|
714
|
16
|
19
|
654
|
733
|
79
|
11
|
|
|
Materials,
Supplies and Other
|
324
|
462
|
44
|
51
|
368
|
513
|
145
|
28
|
|
|
Fuel
|
184
|
536
|
1
|
1
|
185
|
537
|
352
|
66
|
|
|
Depreciation
|
222
|
220
|
7
|
7
|
229
|
227
|
(2)
|
(1)
|
|
|
Equipment
and Other Rents
|
74
|
86
|
24
|
26
|
98
|
112
|
14
|
13
|
|
|
Inland
Transportation
|
(94)
|
(137)
|
163
|
205
|
69
|
68
|
(1)
|
(1)
|
|
|
Total
Expense
|
1,348
|
1,881
|
255
|
309
|
1,603
|
2,190
|
587
|
27
|
|
Operating
Income
|
$546
|
$641
|
$36
|
$76
|
$582
|
$717
|
$(135)
|
(19)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Ratio
|
71.2%
|
74.6%
|
87.6%
|
80.3%
|
73.4%
|
75.3%
|
|
|
|
(a)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as Total Distribution Services, Inc., Transflo Terminal Services, Inc.,
CSX Technology, Inc. and other
subsidiaries.
|
Volume and
Revenue (Unaudited)
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
Second
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Revenue
|
|
Revenue
Per Unit
|
|
2009
|
2008
|
%
Change
|
|
2009
|
2008
|
%
Change
|
|
2009
|
2008
|
%
Change
|
Chemicals
|
105
|
131
|
(20)
|
%
|
|
$308
|
$381
|
(19)
|
%
|
$2,933
|
$2,908
|
1
|
%
|
Emerging
Markets
|
106
|
133
|
(20)
|
|
|
147
|
191
|
(23)
|
|
|
1,387
|
1,436
|
(3)
|
|
Forest
Products
|
64
|
90
|
(29)
|
|
|
133
|
205
|
(35)
|
|
|
2,078
|
2,278
|
(9)
|
|
Agricultural
Products
|
106
|
108
|
(2)
|
|
|
233
|
246
|
(5)
|
|
|
2,198
|
2,278
|
(4)
|
|
Metals
|
45
|
96
|
(53)
|
|
|
87
|
211
|
(59)
|
|
|
1,933
|
2,198
|
(12)
|
|
Phosphates
and Fertilizers
|
74
|
90
|
(18)
|
|
|
94
|
128
|
(27)
|
|
|
1,270
|
1,422
|
(11)
|
|
Food
and Consumer
|
25
|
28
|
(11)
|
|
|
59
|
70
|
(16)
|
|
|
2,360
|
2,500
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Merchandise
|
525
|
676
|
(22)
|
|
|
1,061
|
1,432
|
(26)
|
|
|
2,021
|
2,118
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
361
|
450
|
(20)
|
|
|
639
|
777
|
(18)
|
|
|
1,770
|
1,727
|
2
|
|
Coke
and Iron Ore
|
14
|
27
|
(48)
|
|
|
23
|
47
|
(51)
|
|
|
1,643
|
1,741
|
(6)
|
|
Total
Coal
|
375
|
477
|
(21)
|
|
|
662
|
824
|
(20)
|
|
|
1,765
|
1,727
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
54
|
92
|
(41)
|
|
|
113
|
205
|
(45)
|
|
|
2,093
|
2,228
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
-
|
-
|
-
|
|
|
58
|
61
|
(5)
|
|
|
-
|
-
|
-
|
|
Total
Rail
|
954
|
1,245
|
(23)
|
|
|
1,894
|
2,522
|
(25)
|
|
|
1,985
|
2,026
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
183
|
262
|
(30)
|
|
|
81
|
137
|
(41)
|
|
|
443
|
523
|
(15)
|
|
Domestic
|
274
|
268
|
2
|
|
|
204
|
242
|
(16)
|
|
|
745
|
903
|
(17)
|
|
Other
|
-
|
-
|
-
|
|
|
6
|
6
|
-
|
|
|
-
|
-
|
-
|
|
Total
Intermodal
|
457
|
530
|
(14)
|
|
|
291
|
385
|
(24)
|
|
|
637
|
726
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
1,411
|
1,775
|
(21)
|
%
|
|
$2,185
|
$2,907
|
(25)
|
%
|
|
$1,549
|
$1,638
|
(5)
|
%
|
Certain data within Merchandise
categories have been reclassified to conform to the current year
presentation.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Second
Quarter Results of Operations
CSX
experienced significant year-over-year volume and revenue declines caused by the
broad-based weakness in the economy. The greatest impacts were felt in coal,
automotive, construction and consumer-related markets. Lower fuel recovery
associated with the sharp decline in fuel prices more than offset the Company’s
ongoing yield management initiatives.
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 in lumber and building
products. Paper volume continued to be soft due to electronic media substitution
and less packaging being used as a result of lower consumer
spending.
Agricultural Products
– Volume was down slightly as the continuing growth in ethanol was more than
offset by lower consumption of poultry and fewer east coast grain exports due to
a stronger global supply.
Metals – Volume
declines were driven by weak global and domestic steel demand in the automotive
and construction industries. This weak demand caused steel producers to continue
idling capacity 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 continuing to cut 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. Yet, basic needs markets such as food products
were less severely impacted by the current economic conditions.
Coal
Volume
declines were driven by a weaker export market and lower demand from electric
utilities. The export market decline is a result of both lower steel
production in Europe reducing the need for metallurgical coal (coal used to
produce steel), and cheaper alternative global sources for European
utilities. The demand for domestic electrical generation from coal
was down because of low natural gas prices and lower industrial
production.
Automotive
Revenue
and volume were down as lower consumer demands, inventory corrections, and
bankruptcy filings within the auto industry reduced new car
production.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Rail
Expense
Expenses
decreased $533 million from last year’s quarter. Significant
variances are described below.
Labor and Fringe expense decreased $76
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.
Materials, Supplies and
Other expense decreased $138 million due to several items including a
year over year change in casualty reserves of $70 million. Casualty
reserves are reviewed by management and outside experts twice a year. As
safety trends have continued to improve, benefits were taken in both years’
second quarters - $85 million in 2009 and $15 million in the prior year
quarter. These benefits were a result of the continuing downward
trend in the number and the severity of injuries. Additionally, there
were volume-related expense decreases, prior year proxy-related items (not
repeated in the current year) and other items.
Fuel expense decreased $352
million due to lower fuel prices and lower volume.
Intermodal
Revenue
International –
Volume continues to be down significantly on weak imports and exports due to the
global economic recession. Revenue-per-unit was lower on significantly
decreased fuel recovery, partially offset by long-term contract price
increases.
Domestic – Volume was
up slightly as truckload conversion and expanded service offerings helped offset
the decline in other segments of the domestic
market. Revenue-per-unit was lower on decreased fuel recovery and a
competitive truck pricing environment.
Intermodal
Expense
Intermodal
operating expense decreased in the second quarter of 2009, primarily driven by
lower volumes and a decline in fuel price.
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 $7 million to
$10 million due to lower average cash and investment balances as well as a lower
average rate of return. This decrease was partially offset by higher
real estate sales during second quarter 2009.
Interest
Expense
Interest
expense increased $6 million to $139 million due to higher average debt balances
in second quarter 2009.
Income
Tax Expense
Income
tax expense decreased $41 million to $168 million due to lower earnings in
second quarter 2009. This decrease was partially offset by an $18
million income tax benefit during the 2008 second quarter principally related to
the resolution of various income tax matters that was not repeated during
2009.
Net
Earnings
Net
earnings decreased $77 million to $308 million and earnings per diluted share
decreased $.15 to $.78 in second quarter 2009 as a result of lower earnings
partially offset by a $25 million after-tax gain related to the sale of The
Greenbrier resort in second quarter 2009.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of
Operations(Unaudited)
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
Rail(a)
|
Intermodal
|
Income
|
|
|
|
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
Revenue
|
$3,871
|
$4,887
|
$561
|
$733
|
$4,432
|
$5,620
|
$(1,188)
|
Expense:
|
|
|
|
|
|
|
|
|
Labor
and Fringe
|
1,282
|
1,440
|
34
|
38
|
1,316
|
1,478
|
162
|
|
Materials,
Supplies and Other
|
756
|
918
|
89
|
100
|
845
|
1,018
|
173
|
|
Fuel
|
374
|
975
|
2
|
3
|
376
|
978
|
602
|
|
Depreciation
|
440
|
437
|
13
|
12
|
453
|
449
|
(4)
|
|
Equipment
and Other Rents
|
162
|
170
|
49
|
53
|
211
|
223
|
12
|
|
Inland
Transportation
|
(187)
|
(259)
|
314
|
390
|
127
|
131
|
4
|
|
Total
Expense
|
2,827
|
3,681
|
501
|
596
|
3,328
|
4,277
|
949
|
|
Operating
Income
|
$1,044
|
$1,206
|
$60
|
$137
|
$1,104
|
$1,343
|
$(239)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Ratio
|
73.0%
|
75.3%
|
89.3%
|
81.3%
|
75.1%
|
76.1%
|
|
(a)
|
In addition to CSXT, the Rail
segment includes non-railroad subsidiaries such as Total Distribution
Services, Inc., Transflo Terminal Services, Inc., CSX Technology, Inc. and
other subsidiaries.
|
Volume and
Revenue (Unaudited)
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
Six
Months
|
|
|
Volume
|
|
Revenue
|
|
Revenue
Per Unit
|
|
|
2009
|
2008
|
%
Change
|
|
2009
|
2008
|
%
Change
|
|
2009
|
2008
|
%
Change
|
|
Chemicals
|
210
|
260
|
(19)
|
%
|
|
$616
|
$743
|
(17)
|
%
|
$2,933
|
$2,858
|
3
|
%
|
|
Emerging
Markets
|
197
|
248
|
(21)
|
|
|
281
|
352
|
(20)
|
|
|
1,426
|
1,419
|
-
|
|
|
Forest
Products
|
129
|
177
|
(27)
|
|
|
273
|
397
|
(31)
|
|
|
2,116
|
2,243
|
(6)
|
|
|
Agricultural
Products
|
215
|
217
|
(1)
|
|
|
482
|
481
|
-
|
|
|
2,242
|
2,217
|
1
|
|
|
Metals
|
93
|
188
|
(51)
|
|
|
184
|
408
|
(55)
|
|
|
1,978
|
2,170
|
(9)
|
|
|
Phosphates
and Fertilizers
|
134
|
181
|
(26)
|
|
|
181
|
258
|
(30)
|
|
|
1,351
|
1,425
|
(5)
|
|
|
Food
and Consumer
|
50
|
55
|
(9)
|
|
|
119
|
135
|
(12)
|
|
|
2,380
|
2,455
|
(3)
|
|
Total
Merchandise
|
1,028
|
1,326
|
(22)
|
|
|
2,136
|
2,774
|
(23)
|
|
|
2,078
|
2,092
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
776
|
890
|
(13)
|
|
|
1,352
|
1,497
|
(10)
|
|
|
1,742
|
1,682
|
4
|
|
|
Coke
and Iron Ore
|
30
|
50
|
(40)
|
|
|
54
|
89
|
(39)
|
|
|
1,800
|
1,780
|
1
|
|
Total
Coal
|
806
|
940
|
(14)
|
|
|
1,406
|
1,586
|
(11)
|
|
|
1,744
|
1,687
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
99
|
188
|
(47)
|
|
|
208
|
407
|
(49)
|
|
|
2,101
|
2,165
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
-
|
-
|
-
|
|
|
121
|
120
|
1
|
|
|
-
|
-
|
-
|
|
Total
Rail
|
1,933
|
2,454
|
(21)
|
|
|
3,871
|
4,887
|
(21)
|
|
|
2,003
|
1,991
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
369
|
515
|
(28)
|
|
|
164
|
260
|
(37)
|
|
|
444
|
505
|
(12)
|
|
|
Domestic
|
528
|
523
|
1
|
|
|
388
|
460
|
(16)
|
|
|
735
|
880
|
(16)
|
|
|
Other
|
-
|
-
|
-
|
|
|
9
|
13
|
(31)
|
|
|
-
|
-
|
-
|
|
Total
Intermodal
|
897
|
1,038
|
(14)
|
|
|
561
|
733
|
(23)
|
|
|
625
|
706
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
2,830
|
3,492
|
(19)
|
%
|
|
$4,432
|
$5,620
|
(21)
|
%
|
|
$1,566
|
$1,609
|
(3)
|
%
|
Certain
data within Merchandise categories have been reclassified to conform to the
current year presentation.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Six
Month Results of Operations
Consolidated
Results of Operations
Operating
Revenue
Operating revenue decreased $1.2
billion to $4.4 billion in 2009 as a result of significant volume declines and
lower fuel recovery associated with the sharp decline in fuel prices since
2008.
Operating
Income
Operating income decreased $239 million
to $1.1 billion as a result of lower operating revenue partially offset by lower
fuel expense and the Company’s continued efforts to control costs.
Other
Income
Other income decreased $76 million to
$13 million in 2009 due to lower income from real estate sales and a $30 million
benefit to correct equity earnings from a non-consolidated subsidiary in the
prior year. A lower average rate of return on cash and investment
balances also contributed to this decrease.
Interest
Expense
Interest
expense increased $28 million to $280 million primarily due to higher average
debt balances in 2009.
Income
Tax Expense
Income
tax expense decreased $128 million to $298 million primarily due to lower
earnings in 2009.
Net
Earnings
Net
earnings decreased $182 million to $554 million and earnings per diluted share
decreased $.38 to $1.40 in 2009 primarily as a result of lower earnings
partially offset by a $25 million after-tax gain related to the sale of The
Greenbrier resort in 2009.
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.
Total
long-term debt increased $421 million driven by a $500 million debt issuance
during first quarter 2009. Additionally, property additions increased $199
million due to planned capital spending. These increases were
partially offset by a $222 million decrease in accounts receivable due to volume
declines this year.
Cash
provided by operating activities decreased $362 million due in part to lower
pre-tax earnings. Also, contributing to this decrease were higher
incentive compensation payouts this year 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 $269 million as the Company paid higher dividends and paid
for seller financed assets that were delivered in the prior year.
For 2009,
the Company plans to spend $1.6 billion of capital expenditures. The
Company is continually evaluating market and regulatory conditions that could
affect its ability to generate sufficient returns on capital investments.
The Company 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
As of the end
of the second quarter, the Company had $1.2 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. With the
current cash balances, CSX intends to pre-fund future contributions up to $250
million, or $160 million after-tax, to its pension plans in
2009.
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 $675 million
at June 2009 and a working capital deficit of $13 million at December
2008. The favorable change is primarily due to increased cash
balances as a result of new debt issued during the first quarter.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
its revolving credit facility, 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.
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 may 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:
·
|
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;
|
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 June 26, 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 June 26, 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 second 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
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 common stock for the most recent quarter. CSX purchases
its 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 second
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
(a)
|
Annual
Shareholders’ meeting held May 6,
2009
|
(c)
|
There
were 399,343,121 shares of CSX common stock outstanding as of March 6,
2009 the record date for the 2009 annual meeting of shareholders, and
324,825,677 shares of CSX common stock were represented at the
meeting.
|
|
ITEM
1—Election of Directors
|
CSX
Nominee
|
Votes
For
|
|
Votes
Withheld
|
Donna
M. Alvarado
|
316,170,380
|
|
8,655,297
|
Alexandre
Behring
|
312,607,671
|
|
12,218,006
|
John
B. Breaux
|
321,422,003
|
|
3,403,674
|
Steven
T. Halverson
|
316,294,447
|
|
8,531,230
|
Edward
J. Kelly, III
|
321,652,195
|
|
3,173,482
|
Gilbert
H. Lamphere
|
312,761,669
|
|
12,064,008
|
John
D. McPherson
|
321,863,796
|
|
2,961,881
|
Timothy
T. O'Toole
|
319,154,058
|
|
5,671,619
|
David
M. Radcliffe
|
315,499,066
|
|
9,326,611
|
Donald
J. Shepard
|
316,386,492
|
|
8,439,185
|
Michael
J. Ward
|
317,714,596
|
|
7,111,081
|
|
|
|
|
ITEM
4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED
ITEM
2—Ratification of Ernst & Young LLP as the Independent Registered Public
Accounting Firm for 2009
Votes
For
|
Votes
Against
|
Abstentions
|
316,781,667
|
7,275,437
|
768,573
|
(d) None.
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
June 26,
2009 filed with the SEC on
July 15, 2009, formatted in XBRL includes: (i)
Consolidated Income Statements for the fiscal periods ended
June 26, 2009 and June 27,
2008, (ii) Consolidated Balance
Sheets at June 26, 2009 and
December 26, 2008, (iii) Consolidated
Cash Flow Statements for the fiscal periods ended
June 26, 2009 and June 27,
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:
July 14, 2009