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 25, 2010
OR
( )
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
__________ to __________
Commission
File Number 1-8022
|
|
CSX
CORPORATION
|
(Exact name of registrant as
specified in its charter)
|
Virginia
|
|
62-1051971
|
(State
or other jurisdiction of incorporation or organization)
|
|
|
|
(I.R.S.
Employer Identification No.)
|
|
500
Water Street, 15th Floor, Jacksonville, FL
|
|
32202
|
|
(904)
359-3200
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
(Telephone
number, including area code)
|
No
Change
|
(Former
name, former address and former fiscal year, if changed since last
report.)
|
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
( ) Smaller
Reporting Company ( )
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 379,647,450 shares of common stock outstanding on June 25, 2010 (the latest
practicable date that is closest to the filing date).
CSX
CORPORATION
|
FORM
10-Q
|
FOR
THE QUARTERLY PERIOD ENDED JUNE 25, 2010
|
INDEX
|
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Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
3
|
|
|
Quarters
and Six Months Ended June 25, 2010
|
|
|
|
and
June 26, 2009
|
|
|
|
|
|
|
|
4
|
|
|
At
June 25, 2010 (Unaudited) and December 25, 2009
|
|
|
|
|
|
|
|
5
|
|
|
Six
Months Ended June 25, 2010 and June 26, 2009
|
|
|
|
|
|
|
|
6
|
|
|
|
|
Item
2.
|
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32
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|
Item
3.
|
|
46
|
|
|
|
|
Item
4.
|
|
46
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|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
Item
1.
|
|
46
|
|
|
|
|
Item
1A.
|
|
46
|
|
|
|
|
Item
2.
|
|
47
|
|
|
|
|
Item
3.
|
|
48
|
|
|
|
|
Item
4.
|
|
48
|
|
|
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|
Item
5.
|
|
48
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|
|
|
Item
6.
|
|
48
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Signature
|
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|
49
|
CSX
CORPORATION
PART
I FINANCIAL INFORMATION
ITEM
1: FINANCIAL STATEMENTS
CONSOLIDATED
INCOME STATEMENTS (Unaudited)(a)
(Dollars
in Millions, Except Per Share Amounts)
|
|
Second
Quarters
|
|
|
Six
Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Adjusted)*
|
|
|
|
|
|
(Adjusted)*
|
|
Revenue
|
|
$ |
2,663 |
|
|
$ |
2,185 |
|
|
$ |
5,154 |
|
|
$ |
4,432 |
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and Fringe
|
|
|
721 |
|
|
|
654 |
|
|
|
1,450 |
|
|
|
1,316 |
|
Materials,
Supplies and Other (Note 1)
|
|
|
551 |
|
|
|
444 |
|
|
|
1,070 |
|
|
|
982 |
|
Fuel
|
|
|
304 |
|
|
|
185 |
|
|
|
587 |
|
|
|
376 |
|
Depreciation
|
|
|
230 |
|
|
|
227 |
|
|
|
458 |
|
|
|
450 |
|
Equipment
and Other Rents
|
|
|
89 |
|
|
|
98 |
|
|
|
189 |
|
|
|
211 |
|
Total
Expense
|
|
|
1,895 |
|
|
|
1,608 |
|
|
|
3,754 |
|
|
|
3,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
768 |
|
|
|
577 |
|
|
|
1,400 |
|
|
|
1,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
(135 |
) |
|
|
(139 |
) |
|
|
(277 |
) |
|
|
(280 |
) |
Other
Income - Net (Note 8)
|
|
|
9 |
|
|
|
10 |
|
|
|
20 |
|
|
|
13 |
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
642 |
|
|
|
448 |
|
|
|
1,143 |
|
|
|
830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense (Note 9)
|
|
|
(228 |
) |
|
|
(166 |
) |
|
|
(424 |
) |
|
|
(295 |
) |
Earnings
From Continuing Operations
|
|
|
414 |
|
|
|
282 |
|
|
|
719 |
|
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations (Note 10)
|
|
|
- |
|
|
|
23 |
|
|
|
- |
|
|
|
15 |
|
Net
Earnings
|
|
$ |
414 |
|
|
$ |
305 |
|
|
$ |
719 |
|
|
$ |
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings Per Share, Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$ |
1.08 |
|
|
$ |
0.72 |
|
|
$ |
1.86 |
|
|
$ |
1.36 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
0.06 |
|
|
|
- |
|
|
|
0.04 |
|
Net
Earnings
|
|
$ |
1.08 |
|
|
$ |
0.78 |
|
|
$ |
1.86 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings Per Share, Assuming Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$ |
1.07 |
|
|
$ |
0.71 |
|
|
$ |
1.84 |
|
|
$ |
1.35 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
0.06 |
|
|
|
- |
|
|
|
0.04 |
|
Net
Earnings
|
|
$ |
1.07 |
|
|
$ |
0.77 |
|
|
$ |
1.84 |
|
|
$ |
1.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Shares Outstanding (Thousands)
|
|
|
383,164 |
|
|
|
392,027 |
|
|
|
387,121 |
|
|
|
391,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Shares Outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming
Dilution (Thousands)
|
|
|
386,391 |
|
|
|
395,370 |
|
|
|
390,357 |
|
|
|
394,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Paid Per Common Share
|
|
$ |
0.24 |
|
|
$ |
0.22 |
|
|
$ |
0.48 |
|
|
$ |
0.44 |
|
(a) Certain
amounts have been adjusted for the retrospective change in accounting principle
for rail grinding (see Note 1).
See
accompanying notes to consolidated financial statements.
CSX
CORPORATION
ITEM
1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars
in Millions)
|
|
(Unaudited)
|
|
|
|
|
|
|
June
25,
|
|
|
December
25,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Adjusted)*
|
|
ASSETS
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
633 |
|
|
$ |
1,029 |
|
Short-term
Investments
|
|
|
56 |
|
|
|
61 |
|
Accounts
Receivable - Net (Note 1)
|
|
|
938 |
|
|
|
995 |
|
Materials
and Supplies
|
|
|
223 |
|
|
|
203 |
|
Deferred
Income Taxes
|
|
|
185 |
|
|
|
158 |
|
Other
Current Assets
|
|
|
108 |
|
|
|
124 |
|
Total
Current Assets
|
|
|
2,143 |
|
|
|
2,570 |
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
31,191 |
|
|
|
30,907 |
|
Accumulated
Depreciation
|
|
|
(8,018 |
) |
|
|
(7,843 |
) |
Properties
- Net
|
|
|
23,173 |
|
|
|
23,064 |
|
|
|
|
|
|
|
|
|
|
Investment
in Conrail
|
|
|
658 |
|
|
|
650 |
|
Affiliates
and Other Companies
|
|
|
451 |
|
|
|
438 |
|
Other
Long-term Assets
|
|
|
319 |
|
|
|
165 |
|
Total
Assets
|
|
$ |
26,744 |
|
|
$ |
26,887 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
922 |
|
|
$ |
967 |
|
Labor
and Fringe Benefits Payable
|
|
|
390 |
|
|
|
383 |
|
Casualty,
Environmental and Other Reserves (Note 4)
|
|
|
190 |
|
|
|
190 |
|
Current
Maturities of Long-term Debt (Note 7)
|
|
|
614 |
|
|
|
113 |
|
Income
and Other Taxes Payable
|
|
|
125 |
|
|
|
112 |
|
Other
Current Liabilities
|
|
|
113 |
|
|
|
100 |
|
Total
Current Liabilities
|
|
|
2,354 |
|
|
|
1,865 |
|
|
|
|
|
|
|
|
|
|
Casualty,
Environmental and Other Reserves (Note 4)
|
|
|
544 |
|
|
|
547 |
|
Long-term
Debt (Note 7)
|
|
|
7,320 |
|
|
|
7,895 |
|
Deferred
Income Taxes
|
|
|
6,650 |
|
|
|
6,528 |
|
Other
Long-term Liabilities
|
|
|
1,299 |
|
|
|
1,284 |
|
Total
Liabilities
|
|
|
18,167 |
|
|
|
18,119 |
|
|
|
|
|
|
|
|
|
|
Common
Stock $1 Par Value
|
|
|
380 |
|
|
|
393 |
|
Other
Capital
|
|
|
- |
|
|
|
80 |
|
Retained
Earnings
|
|
|
8,968 |
|
|
|
9,090 |
|
Accumulated
Other Comprehensive Loss (Note 1)
|
|
|
(787 |
) |
|
|
(809 |
) |
Noncontrolling Interest
|
|
|
16 |
|
|
|
14 |
|
Total
Shareholders' Equity
|
|
|
8,577 |
|
|
|
8,768 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
26,744 |
|
|
$ |
26,887 |
|
*
Certain amounts have been adjusted for the retrospective change in
accounting principle for rail grinding (see Note 1).
See accompanying notes to consolidated
financial statements.
CSX
CORPORATION
ITEM
1: FINANCIAL STATEMENTS
CONSOLIDATED
CASH FLOW STATEMENTS (Unaudited)
(Dollars in
Millions)
|
|
Six
Months
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Adjusted)*
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
Earnings
|
|
$ |
719 |
|
|
$ |
550 |
|
Adjustments
to Reconcile Net Earnings to Net Cash Provided
|
|
|
|
|
|
by
Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
458 |
|
|
|
451 |
|
Deferred
Income Taxes
|
|
|
79 |
|
|
|
209 |
|
Other
Operating Activities
|
|
|
79 |
|
|
|
(172 |
) |
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
57 |
|
|
|
202 |
|
Other
Current Assets
|
|
|
(52 |
) |
|
|
(83 |
) |
Accounts
Payable
|
|
|
(34 |
) |
|
|
(56 |
) |
Income
and Other Taxes Payable
|
|
|
94 |
|
|
|
(13 |
) |
Other
Current Liabilities
|
|
|
22 |
|
|
|
(117 |
) |
Net
Cash Provided by Operating Activities
|
|
|
1,422 |
|
|
|
971 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Property
Additions (Note 1)
|
|
|
(687 |
) |
|
|
(657 |
) |
Other
Investing Activities
|
|
|
68 |
|
|
|
49 |
|
Net
Cash Used in Investing Activities
|
|
|
(619 |
) |
|
|
(608 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Long-term
Debt Issued (Note 7)
|
|
|
- |
|
|
|
500 |
|
Long-term
Debt Repaid (Note 7)
|
|
|
(71 |
) |
|
|
(83 |
) |
Dividends
Paid
|
|
|
(184 |
) |
|
|
(176 |
) |
Stock
Options Exercised (Note 3)
|
|
|
16 |
|
|
|
12 |
|
Shares
Repurchased
|
|
|
(823 |
) |
|
|
- |
|
Other
Financing Activities (Note 1)
|
|
|
(137 |
) |
|
|
(177 |
) |
Net
Cash (Used in) Provided by Financing Activities
|
|
|
(1,199 |
) |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
|
|
(396 |
) |
|
|
439 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
1,029 |
|
|
|
669 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
633 |
|
|
$ |
1,108 |
|
*
Certain amounts have been adjusted for the retrospective change in accounting
principle for rail grinding (see Note 1).
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”), and together with its subsidiaries (the “Company”), based
in Jacksonville, Florida, is one of the nation's leading transportation
suppliers. The Company provides 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.
Other
entities
In
addition to CSXT, the Company’s subsidiaries include CSX Intermodal, Total
Distribution Services, Inc. (“TDSI”), Transflo Terminal Services, Inc.
(“Transflo”), CSX Technology, Inc. (“CSX Technology”) and other
subsidiaries. Intermodal
provides transportation services linking customers to railroads via trucks and
terminals. TDSI serves the automotive industry with distribution centers
and storage locations, while Transflo provides logistical solutions for
transferring products from rail to trucks. CSX Technology and other
subsidiaries provide support services for the Company.
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. These
activities are classified in other income – net because they are not considered
by the Company to be operating activities. Results of these
activities fluctuate with the timing of non-operating real estate
transactions.
Beginning
in the second quarter of 2010, the Company is no longer reflecting the
intermodal business as a separate segment. This change is a result of
the strategic business review and change in CSX’s intermodal service associated
with the start of the UMAX program as well as certain management realignments.
The UMAX program, which began this quarter, is a domestic interline container
program. CSX’s chairman now views intermodal similarly to merchandise and coal.
Also, Inland Transportation expense has been reclassified to Materials, Supplies
and Other. Intermodal revenue will continue to be viewed as a
separate revenue group; however, a separate income statement and operating ratio
will no longer be provided and business segment disclosures are no longer
required. All prior periods have been revised to reflect this
change.
6
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature of Operations and Significant
Accounting Policies, continued
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 25, 2010 and
June 26, 2009;
|
·
|
Consolidated
balance sheets at June 25, 2010 and December 25, 2009;
and
|
·
|
Consolidated
cash flow statements for the six months ended June 25, 2010 and June 26,
2009.
|
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 U.S. generally accepted
accounting principles (“GAAP”) 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 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 2010 and 2009 consisted of 13 weeks ending on
June 25, 2010 and June 26, 2009,
respectively.
|
·
|
The
six month periods of 2010 and 2009 consisted of 26 weeks ending on June
25, 2010 and June 26, 2009,
respectively.
|
·
|
Fiscal
year 2009 consisted of 52 weeks ending on December 25,
2009.
|
·
|
Please
note that fiscal year 2010 consists of 53 weeks ending on December 31,
2010. Therefore, fourth quarter 2010 will consist of 14
weeks.
|
Except as otherwise specified,
references to “second quarter(s)” or “six months” indicate CSX’s fiscal periods
ending June 25, 2010 and June 26, 2009, and references to year-end indicate the
fiscal year ended December 25, 2009.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature of Operations and Significant
Accounting Policies, continued
Comprehensive
Earnings
CSX reports comprehensive earnings or
loss in accordance with the Comprehensive Income Topic in
the Accounting Standards Codification (“ASC”) in the Consolidated Statement of
Changes in Shareholders' Equity. 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 (e.g., issuance
of equity securities and dividends). Generally, for CSX, total
comprehensive earnings equals net earnings plus or minus certain
reclassifications for pension and other post-retirement liabilities. Total
comprehensive earnings represent the activity for a period net of related tax
effects and were $424 million and $311 million for second quarters 2010 and
2009, respectively, and $741 million and $556 million for six months 2010 and
2009, 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 primarily the cumulative
balance related to pension and other post-retirement reclassifications. Overall
equity was reduced by $787 million and $809 million as of June 2010 and December
2009, respectively, primarily as a result of normal quarterly pension
reclassifications. In general, for CSX, AOCI is not materially
impacted by other items.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts on uncollectible amounts
related to freight receivables, public project receivables (work done by the
Company 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 $43 million and $47
million is included in the consolidated balance sheets as of June 2010 and
December 2009, respectively.
Capital
Expenditures
Property additions, which are
classified as investing activities on the consolidated cash flow statements,
consisted of $687 million and $657 million for second quarters 2010 and 2009,
respectively. Total capital expenditures for 2009 included purchases of
new assets using seller financing of approximately $160 million, for which
payments are included in other financing activities on the consolidated cash
flow statements. There were no purchases of new assets using seller
financing agreements during second quarter 2010. The Company plans to
spend $1.7 billion for total capital expenditures in 2010.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature of Operations and Significant
Accounting Policies, continued
New
Accounting Pronouncements and Changes in Accounting Policy
Change
in Accounting Principle
Effective
in the second quarter of 2010, CSX changed the accounting policy for rail
grinding costs from a capitalization method, under which the cost of rail
grinding was capitalized and then depreciated, to a direct expense method, under
which rail grinding costs are expensed as incurred. This represents a change
from an acceptable method under GAAP to a preferable method, and is consistent
with recent changes in industry practice.
The
direct expense method eliminates the subjectivity in determining the period of
benefit over which to depreciate the capitalized costs associated with rail
grinding. The application of the change in accounting principle is presented
retrospectively to all periods presented.
The
balance sheet effects of the adjustments through the beginning of fiscal year
2009 resulted in a decrease in net properties, deferred income taxes, and
shareholders’ equity by $134 million, $51 million, and $83 million,
respectively. The effect of this change is not material to the
financial condition, results of operations or liquidity for any of the periods
presented.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature of Operations and Significant
Accounting Policies, continued
The
following tables show the effects of the change in policy for rail grinding
costs on the consolidated financial statements:
2010
|
|
Consolidated
Income Statements
|
1st
Quarter
|
|
2nd
Quarter
|
|
6
months
|
|
Dollars
in Millions, Except Per Share Amounts
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
Computed
under Prior Method
|
|
Impact
of Adjustment
|
|
As
Reported
|
|
Computed
under Prior Method
|
|
Impact
of Adjustment
|
|
As
Reported
|
|
Materials,
Supplies and Other
|
$ |
516 |
|
$ |
3 |
|
$ |
519 |
|
$ |
545 |
|
$ |
6 |
|
$ |
551 |
|
$ |
1,061 |
|
$ |
9 |
|
$ |
1,070 |
|
Depreciation
|
|
229 |
|
|
(1 |
) |
|
228 |
|
|
231 |
|
|
(1) |
|
|
230 |
|
|
460 |
|
|
(2 |
) |
|
458 |
|
Total
Expense
|
|
1,857 |
|
|
2 |
|
|
1,859 |
|
|
1,890 |
|
|
5 |
|
|
1,895 |
|
|
3,747 |
|
|
7 |
|
|
3,754 |
|
Operating
Income
|
|
634 |
|
|
(2 |
) |
|
632 |
|
|
773 |
|
|
(5) |
|
|
768 |
|
|
1,407 |
|
|
(7 |
) |
|
1,400 |
|
Earnings
from Continuing Operations Before Taxes
|
|
503 |
|
|
(2 |
) |
|
501 |
|
|
647 |
|
|
(5) |
|
|
642 |
|
|
1,150 |
|
|
(7 |
) |
|
1,143 |
|
Income
Tax Expense
|
|
(197) |
|
|
1 |
|
|
(196 |
) |
|
(230) |
|
|
2 |
|
|
(228) |
|
|
(427 |
) |
|
3 |
|
|
(424 |
) |
Earnings
from Continuing Operations
|
|
306 |
|
|
(1 |
) |
|
305 |
|
|
417 |
|
|
(3) |
|
|
414 |
|
|
723 |
|
|
(4 |
) |
|
719 |
|
Net
Earnings
|
|
306 |
|
|
(1 |
) |
|
305 |
|
|
417 |
|
|
(3) |
|
|
414 |
|
|
723 |
|
|
(4 |
) |
|
719 |
|
Earnings
Per Share, Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
$ |
0.78 |
|
$ |
- |
|
$ |
0.78 |
|
$ |
1.09 |
|
$ |
(0.01) |
|
$ |
1.08 |
|
$ |
1.87 |
|
$ |
(0.01) |
|
$ |
1.86 |
|
Net
Earnings |
$ |
0.78 |
|
$ |
- |
|
$ |
0.78 |
|
$ |
1.09 |
|
$ |
(0.01) |
|
$ |
1.08 |
|
$ |
1.87 |
|
$ |
(0.01) |
|
$ |
1.86 |
|
Net
Earnings Per Share, Assuming Dilution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
$ |
0.78 |
|
$ |
- |
|
$ |
0.78 |
|
$ |
1.08 |
|
$ |
(0.01) |
|
$ |
1.07 |
|
$ |
1.85 |
|
$ |
(0.01) |
|
$ |
1.84 |
|
Net
Earnings |
$ |
0.78 |
|
$ |
- |
|
$ |
0.78 |
|
$ |
1.08 |
|
$ |
(0.01) |
|
$ |
1.07 |
|
$ |
1.85 |
|
$ |
(0.01) |
|
$ |
1.84 |
|
|
|
|
|
|
|
|
2009 |
|
Consolidated
Income Statements
|
1st
Quarter
|
|
2nd
Quarter
|
|
6
months
|
|
Dollars
in Millions, Except Per Share Amounts
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
Materials,
Supplies and Other
|
$ |
535 |
|
$ |
3 |
|
$ |
538 |
|
$ |
437 |
|
$ |
7 |
|
$ |
444 |
|
$ |
972 |
|
$ |
10 |
|
$ |
982 |
|
Depreciation
|
|
224 |
|
|
(1 |
) |
|
223 |
|
|
229 |
|
|
(2) |
|
|
227 |
|
|
453 |
|
|
(3 |
) |
|
450 |
|
Total
Expense
|
|
1,725 |
|
|
2 |
|
|
1,727 |
|
|
1,603 |
|
|
5 |
|
|
1,608 |
|
|
3,328 |
|
|
7 |
|
|
3,335 |
|
Operating
Income
|
|
522 |
|
|
(2 |
) |
|
520 |
|
|
582 |
|
|
(5) |
|
|
577 |
|
|
1,104 |
|
|
(7 |
) |
|
1,097 |
|
Earnings
from Continuing Operations Before Taxes
|
|
384 |
|
|
(2 |
) |
|
382 |
|
|
453 |
|
|
(5) |
|
|
448 |
|
|
837 |
|
|
(7 |
) |
|
830 |
|
Income
Tax Expense
|
|
(130) |
|
|
1 |
|
|
(129 |
) |
|
(168) |
|
|
2 |
|
|
(166) |
|
|
(298 |
) |
|
3 |
|
|
(295 |
) |
Earnings
from Continuing Operations
|
|
254 |
|
|
(1 |
) |
|
253 |
|
|
285 |
|
|
(3) |
|
|
282 |
|
|
539 |
|
|
(4 |
) |
|
535 |
|
Net
Earnings
|
|
246 |
|
|
(1 |
) |
|
245 |
|
|
308 |
|
|
(3) |
|
|
305 |
|
|
554 |
|
|
(4 |
) |
|
550 |
|
Net
Earnings Per Share, Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
$ |
0.65 |
|
$ |
- |
|
$ |
0.65 |
|
$ |
0.73 |
|
$ |
(0.01) |
|
$ |
0.72 |
|
$ |
1.37 |
|
$ |
(0.01 |
) |
$ |
1.36 |
|
Net
Earnings |
$ |
0.63 |
|
$ |
- |
|
$ |
0.63 |
|
$ |
0.79 |
|
$ |
(0.01) |
|
$ |
0.78 |
|
$ |
1.41 |
|
$ |
(0.01) |
|
$ |
1.40 |
|
Net
Earnings Per Share, Assuming Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations |
$ |
0.64 |
|
$ |
- |
|
$ |
0.64 |
|
$ |
0.72 |
|
$ |
(0.01) |
|
$ |
0.71 |
|
$ |
1.36 |
|
$ |
(0.01) |
|
$ |
1.35 |
|
Net
Earnings
|
$ |
0.62 |
|
$ |
- |
|
$ |
0.62 |
|
$ |
0.78 |
|
$ |
(0.01) |
|
$ |
0.77 |
|
$ |
1.40 |
|
$ |
(0.01 |
) |
$ |
1.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
June
2010
|
|
December
2009
|
|
|
|
|
|
|
|
|
|
|
Dollars
in Millions
|
Computed
under Prior Method
|
|
Impact
of Adjustment
|
|
As
Reported
|
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
|
|
Net
Properties
|
$ |
23,329 |
|
$ |
(156 |
) |
$ |
23,173 |
|
$ |
23,213 |
|
$ |
(149) |
|
$ |
23,064 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
26,900 |
|
|
(156 |
) |
|
26,744 |
|
|
27,036 |
|
|
(149) |
|
|
26,887 |
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
6,710 |
|
|
(60 |
) |
|
6,650 |
|
|
6,585 |
|
|
(57) |
|
|
6,528 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
18,227 |
|
|
(60 |
) |
|
18,167 |
|
|
18,176 |
|
|
(57) |
|
|
18,119 |
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
9,064 |
|
|
(96 |
) |
|
8,968 |
|
|
9,182 |
|
|
(92) |
|
|
9,090 |
|
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
8,673 |
|
|
(96 |
) |
|
8,577 |
|
|
8,860 |
|
|
(92) |
|
|
8,768 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
26,900 |
|
|
(156 |
) |
|
26,744 |
|
|
27,036 |
|
|
(149) |
|
|
26,887 |
|
|
|
|
|
|
|
|
|
|
Certain prior year data has been
reclassified to conform to the current presentation.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. Nature of Operations and Significant
Accounting Policies, continued
2010
|
|
Consolidated
Cash Flow Statements
|
|
3
months
|
|
6
months
|
|
Dollars
in Millions
|
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
Computed
under Prior Method
|
|
Impact
of Adjustment
|
|
As
Reported
|
|
Net
Earnings
|
|
$ |
306 |
|
$ |
(1 |
) |
$ |
305 |
|
$ |
723 |
|
$ |
(4 |
) |
$ |
719 |
|
Depreciation
|
|
|
229 |
|
|
(1 |
) |
|
228 |
|
|
460 |
|
|
(2 |
) |
|
458 |
|
Deferred
Income Taxes
|
|
|
47 |
|
|
(1 |
) |
|
46 |
|
|
82 |
|
|
(3 |
) |
|
79 |
|
Cash
Provided by Operating Activities
|
|
|
747 |
|
|
(3 |
) |
|
744 |
|
|
1,431 |
|
|
(9 |
) |
|
1,422 |
|
Property
Additions
|
|
|
(331 |
) |
|
3 |
|
|
(328 |
) |
|
(696 |
) |
|
9 |
|
|
(687 |
) |
Cash
Used in Investing Activities
|
|
|
(313 |
) |
|
3 |
|
|
(310 |
) |
|
(628 |
) |
|
9 |
|
|
(619 |
) |
|
|
2009 |
|
Consolidated
Cash Flow Statements
|
|
3
months
|
|
6
months
|
|
Dollars
in Millions
|
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
As
Previously Reported
|
|
Impact
of Adjustment
|
|
As
Adjusted
|
|
Net
Earnings
|
|
$ |
246 |
|
$ |
(1 |
) |
$ |
245 |
|
$ |
554 |
|
$ |
(4 |
) |
$ |
550 |
|
Depreciation
|
|
|
224 |
|
|
(1 |
) |
|
223 |
|
|
454 |
|
|
(3 |
) |
|
451 |
|
Deferred
Income Taxes
|
|
|
79 |
|
|
(1 |
) |
|
78 |
|
|
212 |
|
|
(3 |
) |
|
209 |
|
Cash
Provided by Operating Activities
|
|
|
449 |
|
|
(3 |
) |
|
446 |
|
|
981 |
|
|
(10 |
) |
|
971 |
|
Property
Additions
|
|
|
(309 |
) |
|
3 |
|
|
(306 |
) |
|
(667 |
) |
|
10 |
|
|
(657 |
) |
Cash
Used in Investing Activities
|
|
|
(272 |
) |
|
3 |
|
|
(269 |
) |
|
(618 |
) |
|
10 |
|
|
(608 |
) |
Other
Items
Retained
Earnings
During second quarter 2010, CSX's other
capital balance was reduced to zero as a result of share repurchases. In
accordance with the Equity
Topic in the ASC, other capital cannot be
negative. Therefore, a reclassification of $540 million was made
between retained earnings and other capital to bring the other capital balance
to zero. Generally, retained earnings is only impacted by net earnings and
dividends.
Property
Transaction
During
the second quarter of 2010, the Company closed an operating property transaction
with the Commonwealth of Massachusetts. The Company received $50
million of cash related to this transaction and recorded a net book loss of $30
million pre-tax or $0.05 per share. This property is a former Conrail acquired
property. This loss is reflected in materials, supplies and
other.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2. Earnings Per Share
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
|
|
Second
Quarters
|
|
|
Six
Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Adjusted)*
|
|
|
|
|
|
(Adjusted)*
|
|
Numerator
(Dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from Continuing Operations
|
|
$ |
414 |
|
|
$ |
282 |
|
|
$ |
719 |
|
|
$ |
535 |
|
Discontinued
Operations - Net of Tax (a)
|
|
|
- |
|
|
|
23 |
|
|
|
- |
|
|
|
15 |
|
Net
Earnings
|
|
$ |
414 |
|
|
$ |
305 |
|
|
$ |
719 |
|
|
$ |
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
(Units in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Common Shares Outstanding
|
|
|
383,164 |
|
|
|
392,027 |
|
|
|
387,121 |
|
|
|
391,594 |
|
Convertible
Debt
|
|
|
997 |
|
|
|
1,118 |
|
|
|
1,019 |
|
|
|
1,118 |
|
Stock
Option Common Stock Equivalents (b)
|
|
|
2,056 |
|
|
|
1,989 |
|
|
|
2,094 |
|
|
|
1,906 |
|
Other
Potentially Dilutive Common Shares
|
|
|
174 |
|
|
|
236 |
|
|
|
123 |
|
|
|
117 |
|
Average
Common Shares Outstanding, Assuming Dilution
|
|
|
386,391 |
|
|
|
395,370 |
|
|
|
390,357 |
|
|
|
394,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings Per Share, Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$ |
1.08 |
|
|
$ |
0.72 |
|
|
$ |
1.86 |
|
|
$ |
1.36 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
0.06 |
|
|
|
- |
|
|
|
0.04 |
|
Net
Earnings
|
|
$ |
1.08 |
|
|
$ |
0.78 |
|
|
$ |
1.86 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings Per Share, Assuming Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$ |
1.07 |
|
|
$ |
0.71 |
|
|
$ |
1.84 |
|
|
$ |
1.35 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
0.06 |
|
|
|
- |
|
|
|
0.04 |
|
Net
Earnings
|
|
$ |
1.07 |
|
|
$ |
0.77 |
|
|
$ |
1.84 |
|
|
$ |
1.39 |
|
*
Certain amounts have been adjusted for the retrospective change in accounting
principle for rail grinding (See Note 1).
(a)
|
For
additional information regarding discontinued operations, see Note 10,
Discontinued Operations.
|
(b)
|
When calculating diluted
earnings per share for stock option common stock equivalents, the Earnings
Per Share Topic in the ASC 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.
|
The Earnings Per Share Topic in
the ASC requires CSX to include additional shares in the computation of earnings
per share, assuming dilution. The additional shares included in
diluted earnings per share represents the number of shares that would be issued
if all of the above potentially dilutive instruments 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 2010, $200,000 of face value of convertible debentures
were converted into 7,000 shares of CSX common stock. There were no
conversions of convertible debentures during second quarter 2009. As
of June 2010, approximately $28 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 of the Board of Directors.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
3. Share-Based Compensation,
continued
On May 4,
2010, 402,000 target performance units were granted to key members of management
under a new long-term incentive plan adopted under the CSX Omnibus Incentive
Plan. This plan provides for a three-year cycle ending in fiscal year
2012. Similar to the two existing plans, the financial target upon which
payments are based is operating ratio, which is defined as operating expenses
divided by operating revenue and is calculated excluding certain non-recurring
items. Target grants were made in performance units, with each unit being
equivalent to one share of CSX common stock, and payouts will be made in CSX
common stock. The payout range for participants will be between 0% and
200% of the original target grant based upon CSX’s attainments of
pre-established operating ratio targets for fiscal year 2012. Payouts to
certain senior executive officers are subject to a reduction of up to 30% at the
discretion of the Compensation Committee of the Board of Directors based upon
Company performance against certain CSX strategic initiatives.
As part of this plan, 134,000
time-based restricted stock units were granted to key members of
management. The restricted stock units vest three years after the
date of grant and participants receive cash dividend equivalents on the unvested
shares during the restriction period. These awards are not based upon
CSX’s attainment of operational targets.
For information related to the
Company’s other outstanding long-term incentive plans, see CSX’s most recent
annual report on Form 10-K.
Total
pre-tax expense associated with all share-based compensation and its related
income tax benefit is as follows:
|
|
Second
Quarters
|
|
|
Six
Months
|
|
(Dollars
in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Share-Based
Compensation Expense (a)
|
|
$ |
9 |
|
|
$ |
11 |
|
|
|
32 |
|
|
|
3 |
|
Income
Tax Benefit
|
|
|
3 |
|
|
|
4 |
|
|
|
12 |
|
|
|
1 |
|
|
(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)
|
2010
|
2009
|
|
2010
|
2009
|
|
|
|
|
|
|
Number
of Stock Options Exercised
|
554
|
492
|
|
913
|
566
|
As of
December 2009, all outstanding options are vested, and therefore, there will be
no future expense related to these options. As of June 2010, CSX had
approximately 5 million stock options outstanding. However, the impact of
options to diluted earnings per share is much smaller (see note (b) to the table
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
2010
|
|
|
December
2009
|
|
(Dollars
in millions)
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
Injury
|
|
$ |
78 |
|
|
$ |
199 |
|
|
$ |
277 |
|
|
$ |
85 |
|
|
$ |
215 |
|
|
$ |
300 |
|
Occupational
|
|
|
31 |
|
|
|
128 |
|
|
|
159 |
|
|
|
27 |
|
|
|
132 |
|
|
|
159 |
|
Total
Casualty
|
|
|
109 |
|
|
|
327 |
|
|
|
436 |
|
|
|
112 |
|
|
|
347 |
|
|
|
459 |
|
Separation
|
|
|
15 |
|
|
|
51 |
|
|
|
66 |
|
|
|
16 |
|
|
|
57 |
|
|
|
73 |
|
Environmental
|
|
|
37 |
|
|
|
61 |
|
|
|
98 |
|
|
|
37 |
|
|
|
60 |
|
|
|
97 |
|
Other
|
|
|
29 |
|
|
|
105 |
|
|
|
134 |
|
|
|
25 |
|
|
|
83 |
|
|
|
108 |
|
Total
|
|
$ |
190 |
|
|
$ |
544 |
|
|
$ |
734 |
|
|
$ |
190 |
|
|
$ |
547 |
|
|
$ |
737 |
|
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 available, 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. Should a number of these items
occur in the same period, however, they could have a material effect on the
Company’s financial condition, results of operations or liquidity in that
particular period.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty, Environmental and Other
Reserves, continued
During the
second quarter of 2010, the Company reduced casualty reserves by a net $9
million, most of which is related to the reduction in CSXT personal injury
reserves of $13 million as noted below.
During the second quarter
of 2009, the Company reduced casualty reserves by a net $85 million, or $0.22
per share. 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.
Casualty
Casualty
reserves represent accruals for personal injury and occupational injury claims.
During
the quarter the Company increased its self-insured retention amount for these
claims from $25 million to $50 million per injury for claims occurring on or
after June 1, 2010. Currently, no individual claim is expected to
exceed the self-insured retention amount. In accordance with the
Contingencies Topic in
the ASC, 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. These reserves
fluctuate based upon the timing of payments as well as changes in independent
third-party estimates, which are reviewed by management. The claims
relate to CSXT unless otherwise noted below. 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.
Personal
injury reserves represent liabilities for employee work-related and third-party
injuries. Work-related injuries for CSXT employees are primarily
subject to the Federal Employers’ Liability Act (“FELA”). In addition
to FELA liabilities, employees of other CSX subsidiaries or former 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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty, Environmental and Other
Reserves, continued
During
second quarters of 2010 and 2009, the Company reduced personal injury reserves
by $13 million and $78 million, respectively, based on management’s review of
the actuarial analysis performed by an independent actuarial
firm. These reductions are 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 frequency index. Additionally, the trend in the
severity of injuries has significantly declined.
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 of occupational claims is performed semi-annually by an independent
third party and reviewed by management. The methodology used includes
estimates of future anticipated incurred but not reported claims based on the
Company’s trends in average historical claim filing rates, future anticipated
dismissal rates and future settlement rates. Actual claims may vary
from these 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. Asbestos reserves were not adjusted
during 2010 as a result of the semi-annual review by the independent third
party.
Separation
Separation
liabilities represent 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.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty, Environmental and Other
Reserves, continued
Environmental
The
Company is a party to various proceedings related to environmental issues,
including administrative and judicial proceedings, involving private parties and
regulatory agencies. The Company has been identified as a potentially
responsible party at approximately 255 environmentally impaired sites. Many of
these 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. A number of these proceedings,
however, are based on allegations that the Company, or its predecessors, sent
hazardous substances to facilities owned or operated by others for treatment or
disposal. In addition, some of the Company’s land holdings were
leased to others for commercial or industrial uses that may have resulted in
releases of hazardous substances or other regulated materials onto the property
and could give rise to proceedings against the Company.
In any
such proceedings, the Company is subject to environmental clean-up and
enforcement actions under the Superfund Law, as well as similar state laws that
may impose joint and several liability for clean-up and enforcement costs on
current and former owners and operators of a site without regard to fault or the
legality of the original conduct. These costs could be
substantial.
In
accordance with the Asset
Retirement and Environmental Obligations Topic in the ASC, the Company
reviews its role with respect to each site identified at least quarterly, giving
consideration to a number of factors such as:
·
|
the
type of clean-up required;
|
·
|
the
nature of the Company’s alleged connection to the location (e.g.,
generator of waste sent to the site or owner or operator of the
site);
|
·
|
the
extent of the Company’s alleged connection (e.g., volume of waste sent to
the location and other relevant factors);
and
|
·
|
the
number, connection and financial viability of other named and unnamed
potentially responsible parties at the
location.
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4. Casualty, Environmental and Other
Reserves, continued
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. 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. Environmental remediation costs are included in materials,
supplies and other on the consolidated income statement.
Currently,
the Company does not possess sufficient information to reasonably estimate the
amounts of additional liabilities, if any, related to some sites, and will not
possess such information until completion of future environmental
studies. In addition, conditions that are currently unknown could, at
any given location, result in liabilities, 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 the Contingencies Topic in the
ASC.
NOTE
5. Commitments and Contingencies
Insurance
The Company maintains numerous
insurance programs with substantial limits for third-party casualty liability
and Company property damage and business interruption. 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 non-catastrophic property programs and a $50 million
deductible for casualty and catastrophic property programs.
While the Company’s current insurance
coverage is adequate to cover its damages, future claims could exceed existing
insurance coverage or insurance may not continue to be available at commercially
reasonable rates.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5. Commitments and Contingencies,
continued
Guarantees
As of June 2010, the Company was no
longer liable for the guarantee related to CSX Energy. Additionally,
the guarantee for A.P. Moller-Maersk is currently less than $1
million.
Legal
Proceedings
There
were no material developments
during the quarter
concerning the fuel surcharge antitrust litigation or the Seminole
Electric Cooperative, Inc. rate case. For
further details, see Note 7, Commitments and Contingencies, in CSX’s most recent
Annual Report on Form 10-K.
In addition to the matters referenced
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 claims
and disputes and complaints involving certain transportation rates and
charges. Some of the legal proceedings include claims for
compensatory as well as punitive damages and others are, or are purported to be,
class actions. While the final outcome of these matters cannot be
predicted with certainty, considering, among other things, the legal defenses
available and liabilities that have been recorded along with applicable
insurance, it is currently the opinion of CSX management that none of these
items will have a material adverse effect on the Company’s financial condition,
results of operations or liquidity. An unexpected adverse resolution
of one or more of these items, however, could have a material adverse effect on
the Company’s financial condition, results of operations or liquidity in a
particular quarter or fiscal year.
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, the Company sponsors a post-retirement medical plan and
a life insurance plan that provide benefits to full-time, salaried, management
employees hired on or before December 31, 2002 upon their retirement if certain
eligibility requirements are met. The post-retirement medical plan is
contributory (partially funded by retirees), with retiree contributions adjusted
annually. The life insurance plan is non-contributory.
The
Company engages independent, external actuaries to compute the amounts of
liabilities and expenses relating to these plans subject to the assumptions that
the Company selects. These amounts are reviewed by
management. The following table describes the components of
expense/(income) related to net periodic benefit cost:
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6. Employee Benefit Plans, continued
|
|
Pension
Benefits
|
|
(Dollars
in millions)
|
|
Second
Quarters
|
|
|
Six
Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
Cost
|
|
$ |
11 |
|
|
$ |
8 |
|
|
$ |
21 |
|
|
$ |
16 |
|
Interest
Cost
|
|
|
30 |
|
|
|
32 |
|
|
|
61 |
|
|
|
62 |
|
Expected
Return on Plan Assets
|
|
|
(41 |
) |
|
|
(36 |
) |
|
|
(82 |
) |
|
|
(71 |
) |
Amortization
of Prior Service Cost
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Amortization
of Net Loss
|
|
|
14 |
|
|
|
7 |
|
|
|
29 |
|
|
|
13 |
|
Net
Periodic Benefit Cost
|
|
$ |
13 |
|
|
$ |
11 |
|
|
$ |
29 |
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Post-retirement Benefits
|
|
(Dollars
in millions)
|
|
Second
Quarters
|
|
|
Six
Months
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2010 |
|
|
|
2009 |
|
Service
Cost
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Interest
Cost
|
|
|
4 |
|
|
|
6 |
|
|
|
9 |
|
|
|
12 |
|
Amortization
of Net Loss
|
|
|
2 |
|
|
|
1 |
|
|
|
4 |
|
|
|
2 |
|
Net
Periodic Benefit Cost
|
|
$ |
7 |
|
|
$ |
8 |
|
|
$ |
15 |
|
|
$ |
16 |
|
Qualified pension plan obligations are
funded in accordance with prescribed regulatory requirements and with an
objective of meeting minimum funding requirements necessary to avoid
restrictions on flexibility of plan operation and benefit
payments. The Company made pension plan contributions of $250 million
to its qualified defined benefit pension plans in 2009. At this time,
the Company anticipates that no contributions to its qualified pension plans
will be required in 2010. For further details, see Note 8, Employee
Benefit Plans, in CSX’s most recent Annual Report on Form 10-K.
NOTE
7. Debt and Credit Agreements
Total
activity related to long-term debt as of June 2010 was as follows:
(Dollars
in millions)
|
|
Current
Portion
|
|
|
Long-term
Portion
|
|
|
Total
Long-term Debt Activity
|
|
Total
long-term debt at December 2009
|
|
$ |
113 |
|
|
$ |
7,895 |
|
|
$ |
8,008 |
|
2010
activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Repaid
|
|
|
(71 |
) |
|
|
- |
|
|
|
(71 |
) |
Reclassifications
|
|
|
575 |
|
|
|
(575 |
) |
|
|
- |
|
Converted
into CSX stock
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Total
long-term debt at June 2010
|
|
$ |
614 |
|
|
$ |
7,320 |
|
|
$ |
7,934 |
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. Debt
and Credit Agreements, continued
Debt
Exchange
On March
24, 2010, CSX exchanged $660 million of notes of multiple series (the
“Existing Notes”), bearing interest at an average annual rate of 7.74% with
maturities ranging from 2017 to 2038. These Existing Notes were
exchanged for $660 million of debt securities (the “New Notes”) bearing interest
at an average annual rate of 6.22% and due April 30, 2040. In
addition, CSX paid approximately $141 million to the debtholders as cash
consideration. CSX also paid the debtholders any accrued and unpaid
interest on the Existing Notes. In accordance with the Debt Topic in the ASC, this
transaction has been accounted for as a debt exchange. As such, the
$141 million of cash consideration paid to the debtholders is included in other
long-term assets. This cash consideration and the unamortized
discount and issue costs from the Existing Notes will be amortized as an
adjustment of interest expense over the term of the New Notes. There
was no gain or loss recognized as a result of this exchange. However,
all costs related to the debt exchange and due to parties other than the
debtholders were included in interest expense during first quarter
2010. These costs totaled approximately $3 million. There
were no additional costs incurred during second quarter 2010.
In
June 2010, CSX offered to exchange the New Notes for substantially identical
notes registered under the Securities Act of 1933, as amended, pursuant to a
registration rights agreement entered into in connection with the exchange
offer. This offer will expire at 5:00 p.m. eastern
standard time on July 15, 2010, unless otherwise
extended.
For fair
value information related to the Company’s long-term debt, see Note 11, 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 CSX’s senior
unsecured debt ratings. The facility requires CSX to maintain a
ratio of total debt to total capitalization below a prescribed limit. The
facility does not require CSX to post collateral under any
circumstances. As of June 2010, 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 7. Debt
and Credit Agreements, continued
Receivables
Securitization Facility
On June
16, 2010, the Company renewed its $250 million receivables securitization
facility. The purpose of this facility is to provide an alternative
to commercial paper and a low cost source of short-term liquidity. This facility
has a 364-day term and expires on June 15, 2011. As of the date of
this filing, the Company has not drawn on this facility. Under the
terms of this facility, CSX Transportation and CSX Intermodal transferred
eligible third-party receivables to CSX Trade Receivables, a bankruptcy-remote
special purpose subsidiary. A separate subsidiary of CSX will service
the receivables. Upon transfer, the receivables become assets of CSX
Trade Receivables and are not available to the creditors of CSX or any of its
other subsidiaries. In the event CSX Trade Receivables draws under this
facility, the Company will record an equivalent amount of debt on its
consolidated financial statements.
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. Other income - net consisted of the following:
|
|
Second
Quarters
|
|
|
Six
Months
|
|
(Dollars
in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest
Income
|
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
7 |
|
Income
from Real Estate
|
|
|
8 |
|
|
|
6 |
|
|
|
15 |
|
|
|
7 |
|
Miscellaneous
Income (Expense)
|
|
|
(1 |
) |
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
Total
Other Income - Net
|
|
$ |
9 |
|
|
$ |
10 |
|
|
$ |
20 |
|
|
$ |
13 |
|
NOTE
9. Income Taxes
During
the second quarter of 2010, the Joint Committee of Taxation, which is a
committee of the United States Congress, approved the refund related to the
resolution of the 2004 – 2006 federal income tax audit. The final issue
for this audit cycle related to a dispute over the value of the donation of
appreciated property. As a result of this resolution, the Company recorded
a tax and interest benefit of $19 million. Additionally, there were
other tax expense items that partially offset this resulting in a net benefit of
$15 million or $0.04 per share in the second quarter of 2010. In addition, the
Company has reduced gross unrecognized tax benefits by $32 million. As of
June 2010 and December 2009, the Company had approximately $25 million and $50
million, respectively, of total unrecognized tax benefits. Of these total
unrecognized tax benefits and after consideration of the impact of federal tax
benefits, as of June 2010 and December 2009, $17 million and $41 million,
respectively, could favorably affect the effective income tax
rate.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
10. Discontinued Operations
The
Greenbrier
In the
second quarter of 2009, CSX sold the stock of a subsidiary that indirectly owned
Greenbrier Hotel Corporation (“The Greenbrier”) to Justice Family Group, LLC for
approximately $21 million in cash. CSX recognized a gain on the sale
of $25 million which includes a tax benefit of $3 million. In
addition, the Greenbrier incurred $2 million of losses from operations in
the second quarter of 2009.
Previously,
all amounts associated with the operations of The Greenbrier were included in
other income – net. All prior periods have been reclassified to
reflect discontinued operations. The Greenbrier had revenue of $26
million and $33 million and pre-tax income, including the gain on sale, of $17
million and $5 million during second quarter and six months 2009 through the
date of sale, respectively. There was no activity in
2010.
NOTE
11. Fair Value Measurements
The Financial Instruments Topic
in the ASC requires disclosures about fair
value of financial instruments in annual reports as well as in quarterly
reports. For CSX, this statement applies to certain investments and
long-term debt. In addition, disclosure of the fair value of pension
plan assets is only required annually.
Various
inputs are considered when determining the value of the Company’s investments,
pension plan assets and long-term debt. 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
valuation methods described below may produce a fair value calculation that is
not indicative of net realizable value or reflective of future fair values.
Furthermore, while the Company believes its valuation methods are appropriate
and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting
date.
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
11. Fair Value Measurements, continued
Investments
The Company’s investment assets consist
primarily of corporate bonds and are carried at fair value, as determined with
the assistance of a third party trustee, on the consolidated balance sheet
per the Fair Value
Measurements and Disclosures Topic in the ASC. Level 2 inputs were
used to determine fair value of the Company’s investment assets. The
fair value and amortized cost of these bonds are as follows:
|
|
|
|
(Dollars
in Millions)
|
|
|
June
2010
|
|
December
2009
|
Fair
Value
|
|
$ |
91
|
|
$96
|
Amortized
Cost
|
|
$ |
87
|
|
$91
|
Long-term
Debt
Long-term
debt is reported at carrying amount on the consolidated balance sheet and is the
Company’s only financial instrument with fair values significantly different
from its carrying amounts. The majority of the Company’s long-term debt is
valued with the assistance of an independent third
party. For those instruments not valued with the assistance of a
third party, the fair value has been estimated using discounted cash flow
analysis based upon the yields provided by the same independent third
party. All inputs used to determine the fair value of the Company’s
long-term debt qualify as level 2 inputs.
The fair
value of outstanding debt fluctuates with changes in a number of
factors. Such factors include, but are not limited to, interest
rates, market conditions, the value of similar financial instruments, size of
the transaction, cash flow projections and comparable trades. 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 of a company’s debt is a measure of its current value under present
market conditions. It does not impact the financial statements under
current accounting rules. The carrying value of a company’s debt
fluctuates with payments and/or new debt issuances. The fair value
and carrying value of the Company’s long-term debt are as follows:
|
|
|
|
(Dollars
in Millions)
|
|
|
June
2010
|
|
December
2009
|
Long-term
Debt Including Current Maturities:
|
|
|
|
|
Fair Value
|
|
$ |
8,993
|
|
$8,780
|
Carrying Value
|
|
$ |
7,934
|
|
$8,008
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized Consolidating
Financial Data
In 2007
and 2008, CSXT sold, in registered public offerings, secured equipment notes
maturing in 2023 and 2014, respectively. 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 the parent
guarantor, CSX, is as follows:
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized Consolidating Financial
Data, continued
Consolidating
Income Statements
|
|
(Dollars
in Millions)
|
|
Quarter
Ended June 2010
|
|
CSX
Corporation
|
|
|
CSX
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$ |
- |
|
|
$ |
2,337 |
|
|
$ |
352 |
|
|
$ |
(26 |
) |
|
$ |
2,663 |
|
Expense
|
|
|
(46 |
) |
|
|
1,672 |
|
|
|
295 |
|
|
|
(26 |
) |
|
|
1,895 |
|
Operating
Income
|
|
|
46 |
|
|
|
665 |
|
|
|
57 |
|
|
|
- |
|
|
|
768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
|
|
492 |
|
|
|
- |
|
|
|
- |
|
|
|
(492 |
) |
|
|
- |
|
Interest
Expense
|
|
|
(122 |
) |
|
|
(27 |
) |
|
|
(6 |
) |
|
|
20 |
|
|
|
(135 |
) |
Other
Income - Net
|
|
|
4 |
|
|
|
20 |
|
|
|
5 |
|
|
|
(20 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
420 |
|
|
|
658 |
|
|
|
56 |
|
|
|
(492 |
) |
|
|
642 |
|
Income
Tax Benefit (Expense)
|
|
|
(6 |
) |
|
|
(236 |
) |
|
|
14 |
|
|
|
- |
|
|
|
(228 |
) |
Earnings
From Continuing Operations
|
|
|
414 |
|
|
|
422 |
|
|
|
70 |
|
|
|
(492 |
) |
|
|
414 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
Earnings
|
|
$ |
414 |
|
|
$ |
422 |
|
|
$ |
70 |
|
|
$ |
(492 |
) |
|
$ |
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended June 2009 (Adjusted)*
|
|
CSX
Corporation
|
|
|
CSX
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$ |
- |
|
|
$ |
1,879 |
|
|
$ |
332 |
|
|
$ |
(26 |
) |
|
$ |
2,185 |
|
Expense
|
|
|
(63 |
) |
|
|
1,400 |
|
|
|
294 |
|
|
|
(23 |
) |
|
|
1,608 |
|
Operating
Income
|
|
|
63 |
|
|
|
479 |
|
|
|
38 |
|
|
|
(3 |
) |
|
|
577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
|
|
305 |
|
|
|
- |
|
|
|
- |
|
|
|
(305 |
) |
|
|
- |
|
Interest
Expense
|
|
|
(125 |
) |
|
|
(28 |
) |
|
|
(3 |
) |
|
|
17 |
|
|
|
(139 |
) |
Other
Income - Net
|
|
|
(22 |
) |
|
|
(3 |
) |
|
|
49 |
|
|
|
(14 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
221 |
|
|
|
448 |
|
|
|
84 |
|
|
|
(305 |
) |
|
|
448 |
|
Income
Tax Benefit (Expense)
|
|
|
52 |
|
|
|
(177 |
) |
|
|
(41 |
) |
|
|
- |
|
|
|
(166 |
) |
Earnings
From Continuing Operations
|
|
|
273 |
|
|
|
271 |
|
|
|
43 |
|
|
|
(305 |
) |
|
|
282 |
|
Discontinued
Operations
|
|
|
32 |
|
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
|
|
23 |
|
Net
Earnings
|
|
$ |
305 |
|
|
$ |
271 |
|
|
$ |
34 |
|
|
$ |
(305 |
) |
|
$ |
305 |
|
*
Certain amounts have been adjusted for the retrospective change in accounting
principle for rail grinding (See Note 1).
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized Consolidating Financial
Data, continued
Consolidating
Income Statements
|
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 2010
|
|
CSX
Corporation
|
|
|
CSX
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$ |
- |
|
|
$ |
4,489 |
|
|
$ |
717 |
|
|
$ |
(52 |
) |
|
$ |
5,154 |
|
Expense
|
|
|
(83 |
) |
|
|
3,279 |
|
|
|
610 |
|
|
|
(52 |
) |
|
|
3,754 |
|
Operating
Income
|
|
|
83 |
|
|
|
1,210 |
|
|
|
107 |
|
|
|
- |
|
|
|
1,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
|
|
889 |
|
|
|
- |
|
|
|
- |
|
|
|
(889 |
) |
|
|
- |
|
Interest
Expense
|
|
|
(248 |
) |
|
|
(55 |
) |
|
|
(12 |
) |
|
|
38 |
|
|
|
(277 |
) |
Other
Income - Net
|
|
|
10 |
|
|
|
38 |
|
|
|
10 |
|
|
|
(38 |
) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
734 |
|
|
|
1,193 |
|
|
|
105 |
|
|
|
(889 |
) |
|
|
1,143 |
|
Income
Tax Benefit (Expense)
|
|
|
(15 |
) |
|
|
(445 |
) |
|
|
36 |
|
|
|
- |
|
|
|
(424 |
) |
Earnings
From Continuing Operations
|
|
|
719 |
|
|
|
748 |
|
|
|
141 |
|
|
|
(889 |
) |
|
|
719 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
Earnings
|
|
$ |
719 |
|
|
$ |
748 |
|
|
$ |
141 |
|
|
$ |
(889 |
) |
|
$ |
719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 2009 (Adjusted)*
|
|
CSX
Corporation
|
|
|
CSX
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue
|
|
$ |
- |
|
|
$ |
3,839 |
|
|
$ |
645 |
|
|
$ |
(52 |
) |
|
$ |
4,432 |
|
Expense
|
|
|
(142 |
) |
|
|
2,965 |
|
|
|
559 |
|
|
|
(47 |
) |
|
|
3,335 |
|
Operating
Income
|
|
|
142 |
|
|
|
874 |
|
|
|
86 |
|
|
|
(5 |
) |
|
|
1,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
|
|
559 |
|
|
|
- |
|
|
|
- |
|
|
|
(559 |
) |
|
|
- |
|
Interest
Expense
|
|
|
(249 |
) |
|
|
(59 |
) |
|
|
(4 |
) |
|
|
32 |
|
|
|
(280 |
) |
Other
Income - Net
|
|
|
280 |
|
|
|
3 |
|
|
|
(243 |
) |
|
|
(27 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Income Taxes
|
|
|
732 |
|
|
|
818 |
|
|
|
(161 |
) |
|
|
(559 |
) |
|
|
830 |
|
Income
Tax Benefit (Expense)
|
|
|
(214 |
) |
|
|
(316 |
) |
|
|
235 |
|
|
|
- |
|
|
|
(295 |
) |
Earnings
From Continuing Operations
|
|
|
518 |
|
|
|
502 |
|
|
|
74 |
|
|
|
(559 |
) |
|
|
535 |
|
Discontinued
Operations
|
|
|
32 |
|
|
|
- |
|
|
|
(17 |
) |
|
|
- |
|
|
|
15 |
|
Net
Earnings
|
|
$ |
550 |
|
|
$ |
502 |
|
|
$ |
57 |
|
|
$ |
(559 |
) |
|
$ |
550 |
|
*
Certain amounts have been adjusted for the retrospective change in accounting
principle for rail grinding (See Note 1).
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidating
Balance Sheet
|
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
CSX
|
|
|
|
|
|
|
|
|
|
|
As
of June 2010
|
|
Corporation
|
|
|
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
435 |
|
|
$ |
97 |
|
|
$ |
101 |
|
|
$ |
- |
|
|
$ |
633 |
|
Short-term
Investments
|
|
|
- |
|
|
|
- |
|
|
|
56 |
|
|
|
- |
|
|
|
56 |
|
Accounts
Receivable - Net
|
|
|
4 |
|
|
|
877 |
|
|
|
607 |
|
|
|
(550 |
) |
|
|
938 |
|
Materials
and Supplies
|
|
|
- |
|
|
|
223 |
|
|
|
- |
|
|
|
- |
|
|
|
223 |
|
Deferred
Income Taxes
|
|
|
15 |
|
|
|
153 |
|
|
|
17 |
|
|
|
- |
|
|
|
185 |
|
Other
Current Assets
|
|
|
56 |
|
|
|
64 |
|
|
|
29 |
|
|
|
(41 |
) |
|
|
108 |
|
Total
Current Assets
|
|
|
510 |
|
|
|
1,414 |
|
|
|
810 |
|
|
|
(591 |
) |
|
|
2,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
8 |
|
|
|
29,857 |
|
|
|
1,326 |
|
|
|
- |
|
|
|
31,191 |
|
Accumulated
Depreciation
|
|
|
(8 |
) |
|
|
(7,196 |
) |
|
|
(814 |
) |
|
|
- |
|
|
|
(8,018 |
) |
Properties
- Net
|
|
|
- |
|
|
|
22,661 |
|
|
|
512 |
|
|
|
- |
|
|
|
23,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Conrail
|
|
|
- |
|
|
|
- |
|
|
|
658 |
|
|
|
- |
|
|
|
658 |
|
Affiliates
and Other Companies
|
|
|
- |
|
|
|
581 |
|
|
|
(130 |
) |
|
|
- |
|
|
|
451 |
|
Investments
in Consolidated Subsidiaries
|
|
|
15,920 |
|
|
|
- |
|
|
|
48 |
|
|
|
(15,968 |
) |
|
|
- |
|
Other
Long-term Assets
|
|
|
181 |
|
|
|
82 |
|
|
|
100 |
|
|
|
(44 |
) |
|
|
319 |
|
Total
Assets
|
|
$ |
16,611 |
|
|
$ |
24,738 |
|
|
$ |
1,998 |
|
|
$ |
(16,603 |
) |
|
$ |
26,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
117 |
|
|
$ |
761 |
|
|
$ |
44 |
|
|
$ |
- |
|
|
$ |
922 |
|
Labor
and Fringe Benefits Payable
|
|
|
39 |
|
|
|
314 |
|
|
|
37 |
|
|
|
- |
|
|
|
390 |
|
Payable
to Affiliates
|
|
|
1,027 |
|
|
|
310 |
|
|
|
(787 |
) |
|
|
(550 |
) |
|
|
- |
|
Casualty,
Environmental and Other Reserves
|
|
|
- |
|
|
|
172 |
|
|
|
18 |
|
|
|
- |
|
|
|
190 |
|
Current
Maturities of Long-term Debt
|
|
|
507 |
|
|
|
104 |
|
|
|
3 |
|
|
|
- |
|
|
|
614 |
|
Income
and Other Taxes Payable
|
|
|
86 |
|
|
|
307 |
|
|
|
(268 |
) |
|
|
- |
|
|
|
125 |
|
Other
Current Liabilities
|
|
|
3 |
|
|
|
100 |
|
|
|
51 |
|
|
|
(41 |
) |
|
|
113 |
|
Total
Current Liabilities
|
|
|
1,779 |
|
|
|
2,068 |
|
|
|
(902 |
) |
|
|
(591 |
) |
|
|
2,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty,
Environmental and Other Reserves
|
|
|
- |
|
|
|
442 |
|
|
|
102 |
|
|
|
- |
|
|
|
544 |
|
Long-term
Debt
|
|
|
6,049 |
|
|
|
1,268 |
|
|
|
3 |
|
|
|
- |
|
|
|
7,320 |
|
Deferred
Income Taxes
|
|
|
(302 |
) |
|
|
6,897 |
|
|
|
55 |
|
|
|
- |
|
|
|
6,650 |
|
Long-term
Payable to Affiliates
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
(44 |
) |
|
|
- |
|
Other
Long-term Liabilities
|
|
|
524 |
|
|
|
513 |
|
|
|
262 |
|
|
|
- |
|
|
|
1,299 |
|
Total
Liabilities
|
|
|
8,050 |
|
|
|
11,188 |
|
|
|
(436 |
) |
|
|
(635 |
) |
|
|
18,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, $1 Par Value
|
|
|
380 |
|
|
|
181 |
|
|
|
- |
|
|
|
(181 |
) |
|
|
380 |
|
Other
Capital
|
|
|
- |
|
|
|
5,575 |
|
|
|
1,968 |
|
|
|
(7,543 |
) |
|
|
- |
|
Retained
Earnings
|
|
|
8,968 |
|
|
|
7,844 |
|
|
|
485 |
|
|
|
(8,329 |
) |
|
|
8,968 |
|
Accumulated
Other Comprehensive Loss
|
|
|
(787 |
) |
|
|
(74 |
) |
|
|
(63 |
) |
|
|
137 |
|
|
|
(787 |
) |
Noncontrolling
Interest
|
|
|
- |
|
|
|
24 |
|
|
|
44 |
|
|
|
(52 |
) |
|
|
16 |
|
Total
Shareholders' Equity
|
|
|
8,561 |
|
|
|
13,550 |
|
|
|
2,434 |
|
|
|
(15,968 |
) |
|
|
8,577 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
16,611 |
|
|
$ |
24,738 |
|
|
$ |
1,998 |
|
|
$ |
(16,603 |
) |
|
$ |
26,744 |
|
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized Consolidating Financial
Data, continued
Consolidating
Balance Sheet
|
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
CSX
|
|
|
|
|
|
|
|
|
|
|
As
of December 2009 (Adjusted)*
|
|
Corporation
|
|
|
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
ASSETS
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
918 |
|
|
$ |
30 |
|
|
$ |
81 |
|
|
$ |
- |
|
|
$ |
1,029 |
|
Short-term
Investments
|
|
|
- |
|
|
|
- |
|
|
|
61 |
|
|
|
- |
|
|
|
61 |
|
Accounts
Receivable - Net
|
|
|
4 |
|
|
|
888 |
|
|
|
103 |
|
|
|
- |
|
|
|
995 |
|
Materials
and Supplies
|
|
|
- |
|
|
|
203 |
|
|
|
- |
|
|
|
- |
|
|
|
203 |
|
Deferred
Income Taxes
|
|
|
13 |
|
|
|
137 |
|
|
|
8 |
|
|
|
- |
|
|
|
158 |
|
Other
Current Assets
|
|
|
19 |
|
|
|
32 |
|
|
|
533 |
|
|
|
(460 |
) |
|
|
124 |
|
Total
Current Assets
|
|
|
954 |
|
|
|
1,290 |
|
|
|
786 |
|
|
|
(460 |
) |
|
|
2,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
4 |
|
|
|
29,565 |
|
|
|
1,338 |
|
|
|
- |
|
|
|
30,907 |
|
Accumulated
Depreciation
|
|
|
(6 |
) |
|
|
(7,011 |
) |
|
|
(826 |
) |
|
|
- |
|
|
|
(7,843 |
) |
Properties
- Net
|
|
|
(2 |
) |
|
|
22,554 |
|
|
|
512 |
|
|
|
- |
|
|
|
23,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Conrail
|
|
|
- |
|
|
|
- |
|
|
|
650 |
|
|
|
- |
|
|
|
650 |
|
Affiliates
and Other Companies
|
|
|
- |
|
|
|
566 |
|
|
|
(128 |
) |
|
|
- |
|
|
|
438 |
|
Investments
in Consolidated Subsidiaries
|
|
|
15,382 |
|
|
|
- |
|
|
|
139 |
|
|
|
(15,521 |
) |
|
|
- |
|
Other
Long-term Assets
|
|
|
46 |
|
|
|
75 |
|
|
|
87 |
|
|
|
(43 |
) |
|
|
165 |
|
Total
Assets
|
|
$ |
16,380 |
|
|
$ |
24,485 |
|
|
$ |
2,046 |
|
|
$ |
(16,024 |
) |
|
$ |
26,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
111 |
|
|
$ |
628 |
|
|
$ |
228 |
|
|
$ |
- |
|
|
$ |
967 |
|
Labor
and Fringe Benefits Payable
|
|
|
37 |
|
|
|
307 |
|
|
|
39 |
|
|
|
- |
|
|
|
383 |
|
Payable
to Affiliates
|
|
|
625 |
|
|
|
786 |
|
|
|
(962 |
) |
|
|
(449 |
) |
|
|
- |
|
Casualty,
Environmental and Other Reserves
|
|
|
- |
|
|
|
168 |
|
|
|
22 |
|
|
|
- |
|
|
|
190 |
|
Current
Maturities of Long-term Debt
|
|
|
- |
|
|
|
110 |
|
|
|
3 |
|
|
|
- |
|
|
|
113 |
|
Income
and Other Taxes Payable
|
|
|
32 |
|
|
|
182 |
|
|
|
(102 |
) |
|
|
- |
|
|
|
112 |
|
Other
Current Liabilities
|
|
|
1 |
|
|
|
97 |
|
|
|
13 |
|
|
|
(11 |
) |
|
|
100 |
|
Total
Current Liabilities
|
|
|
806 |
|
|
|
2,278 |
|
|
|
(759 |
) |
|
|
(460 |
) |
|
|
1,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty,
Environmental and Other Reserves
|
|
|
- |
|
|
|
449 |
|
|
|
98 |
|
|
|
- |
|
|
|
547 |
|
Long-term
Debt
|
|
|
6,557 |
|
|
|
1,334 |
|
|
|
4 |
|
|
|
- |
|
|
|
7,895 |
|
Deferred
Income Taxes
|
|
|
(337 |
) |
|
|
6,814 |
|
|
|
51 |
|
|
|
- |
|
|
|
6,528 |
|
Long-term
Payable to Affiliates
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
(44 |
) |
|
|
- |
|
Other
Long-term Liabilities
|
|
|
600 |
|
|
|
522 |
|
|
|
162 |
|
|
|
- |
|
|
|
1,284 |
|
Total
Liabilities
|
|
|
7,626 |
|
|
|
11,397 |
|
|
|
(400 |
) |
|
|
(504 |
) |
|
|
18,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, $1 Par Value
|
|
|
393 |
|
|
|
181 |
|
|
|
- |
|
|
|
(181 |
) |
|
|
393 |
|
Other
Capital
|
|
|
80 |
|
|
|
5,569 |
|
|
|
1,951 |
|
|
|
(7,520 |
) |
|
|
80 |
|
Retained
Earnings
|
|
|
9,090 |
|
|
|
7,393 |
|
|
|
507 |
|
|
|
(7,900 |
) |
|
|
9,090 |
|
Accumulated
Other Comprehensive Loss
|
|
|
(809 |
) |
|
|
(77 |
) |
|
|
(54 |
) |
|
|
131 |
|
|
|
(809 |
) |
Noncontrolling Interest
|
|
|
- |
|
|
|
22 |
|
|
|
42 |
|
|
|
(50 |
) |
|
|
14 |
|
Total
Shareholders' Equity
|
|
|
8,754 |
|
|
|
13,088 |
|
|
|
2,446 |
|
|
|
(15,520 |
) |
|
|
8,768 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
16,380 |
|
|
$ |
24,485 |
|
|
$ |
2,046 |
|
|
$ |
(16,024 |
) |
|
$ |
26,887 |
|
* Certain amounts have been adjusted
for the retrospective change in accounting principle for rail grinding (See Note
1).
CSX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12. Summarized Consolidating Financial
Data, continued
Consolidating
Cash Flow Statements
|
|
(Dollars
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
CSX
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 2010
|
|
Corporation
|
|
|
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
$ |
283 |
|
|
$ |
1,421 |
|
|
$ |
13 |
|
|
$ |
(295 |
) |
|
$ |
1,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Additions
|
|
|
- |
|
|
|
(648 |
) |
|
|
(39 |
) |
|
|
- |
|
|
|
(687 |
) |
Other
Investing Activities
|
|
|
(4 |
) |
|
|
(47 |
) |
|
|
12 |
|
|
|
107 |
|
|
|
68 |
|
Net
Cash Provided by (Used in) Investing Activities
|
|
|
(4 |
) |
|
|
(695 |
) |
|
|
(27 |
) |
|
|
107 |
|
|
|
(619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Debt Repaid
|
|
|
- |
|
|
|
(69 |
) |
|
|
(2 |
) |
|
|
- |
|
|
|
(71 |
) |
Dividends
Paid
|
|
|
(188 |
) |
|
|
(295 |
) |
|
|
4 |
|
|
|
295 |
|
|
|
(184 |
) |
Stock
Options Exercised
|
|
|
16 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16 |
|
Shares
Repurchased
|
|
|
(823 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(823 |
) |
Other
Financing Activities
|
|
|
233 |
|
|
|
(295 |
) |
|
|
32 |
|
|
|
(107 |
) |
|
|
(137 |
) |
Net
Cash Used in Financing Activities
|
|
|
(762 |
) |
|
|
(659 |
) |
|
|
34 |
|
|
|
188 |
|
|
|
(1,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(483 |
) |
|
|
67 |
|
|
|
20 |
|
|
|
- |
|
|
|
(396 |
) |
Cash
and Cash Equivalents at Beginning of Period
|
|
|
918 |
|
|
|
30 |
|
|
|
81 |
|
|
|
- |
|
|
|
1,029 |
|
Cash
and Cash Equivalents at End of Period
|
|
$ |
435 |
|
|
$ |
97 |
|
|
$ |
101 |
|
|
$ |
- |
|
|
$ |
633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
CSX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 2009 (Adjusted)*
|
|
Corporation
|
|
|
Transportation
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
$ |
53 |
|
|
$ |
1,016 |
|
|
$ |
148 |
|
|
$ |
(246 |
) |
|
$ |
971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Additions
|
|
|
- |
|
|
|
(634 |
) |
|
|
(23 |
) |
|
|
- |
|
|
|
(657 |
) |
Other
Investing Activities
|
|
|
(87 |
) |
|
|
27 |
|
|
|
23 |
|
|
|
86 |
|
|
|
49 |
|
Net
Cash Provided by (Used in) Investing Activities
|
|
|
(87 |
) |
|
|
(607 |
) |
|
|
- |
|
|
|
86 |
|
|
|
(608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 |
|
*
Certain amounts have been adjusted for the retrospective change in accounting
principle for rail grinding (See Note 1).
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CSX and the rail industry
provide customers with access to an expansive and interconnected transportation
network that plays a key role in North American commerce. CSX’s
network is positioned to reach more than two-thirds of Americans, who account
for about three-quarters of the nation’s consumption of
goods. Through this network, the Company transports a broad portfolio
of products, ranging from coal and new energy sources, like biodiesel and
ethanol, to automobiles, chemicals, military equipment and consumer
products.
In 2010,
CSX expects to deliver strong double-digit earnings per share
growth. This expectation is supported by strong volume and revenue
growth, including export coal shipments of about 30 million tons this year, and
strong operating ratio improvement as well. Our expectations are
based on continued, gradual economic growth and can be impacted by the strength
and sustainability of the economic recovery.
Additionally,
the Company continues to invest in its network to further enhance safety and
improve service and reliability for its customers. The Company plans
to spend $1.7 billion for total capital expenditures in 2010. To
continue these investments adequately, the Company must be able to operate in an
environment in which it can generate adequate returns and drive shareholder
value. CSX will continue to advocate for a fair and balanced
regulatory environment to ensure that the value of the Company’s rail service
will be reflected in new legislation and policy.
As an
example of the Company’s commitment to investing in its network and improving
the flow of freight, the Company launched the National Gateway, a multi-year
public-private infrastructure initiative which will significantly improve the
efficiency of the freight network between the Mid-Atlantic ports and the
Midwest. Total project costs are approximately $850 million, of which CSX
expects to contribute approximately $400 million. A portion of the public
funds needed to complete the National Gateway has been secured and CSX is
working with its state partners to apply for the additional funding needed to
complete the project. When completed, the National Gateway is
expected to reduce truck traffic and increase intermodal capacity on key
corridors without increasing the number of trains. As a result, the
Company’s customers will benefit from improved service and reliability, reduced
transport times and expanded access to rail services, and substantial public
benefits will be realized as well.
In 2008,
Congress enacted the Rail Safety Improvement Act. The legislation
includes a mandate that all Class I freight railroads implement Positive Train
Control ("PTC") by December 31, 2015. PTC must be installed on all
lines with passenger or commuter operations as well as all main lines with over
5 million annual gross tons which transport toxic-by-inhalation hazardous
materials. Significant capital costs are anticipated with the
implementation of PTC as well as ongoing operating
expenses. Currently, CSX estimates that the total multi-year cost of
PTC implementation will be at least $1.2 billion for the
Company.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND
QUARTER 2010 HIGHLIGHTS
·
|
Revenue
increased $478 million or 22% to $2.7 billion driven by increases in
volume and core pricing gains.
|
·
|
Expenses
increased $287 million or 18% to $1.9 billion driven primarily by higher
fuel prices and a lower year over year favorable adjustment in casualty
reserves.
|
·
|
Operating
income increased $191 million or 33% to $768 million and operating ratio
improved to 71.2%, an all time
record.
|
|
|
Second
Quarters
|
|
|
Six
Months
|
|
(thousands) |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Carloads
|
|
|
1,598 |
|
|
|
1,411 |
|
|
|
3,084 |
|
|
|
2,830 |
|
(millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,663 |
|
|
$ |
2,185 |
|
|
$ |
5,154 |
|
|
$ |
4,432 |
|
Expense
|
|
|
1,895 |
|
|
|
1,608 |
|
|
|
3,754 |
|
|
|
3,335 |
|
Operating
Income
|
|
$ |
768 |
|
|
$ |
577 |
|
|
$ |
1,400 |
|
|
$ |
1,097 |
|
CSX
second quarter results reflect strong year-over-year volume and revenue growth
as compared to the level of economic activity last year. Revenue
increased 22% from the prior year, to nearly $2.7 billion, with gains across
most of the Company’s markets. These gains were driven by a 13%
increase in volume, pricing gains, and higher fuel recovery associated with the
increase in fuel prices.
While
revenue increased 22%, expenses increased by $287 million, or 18%, versus the
prior year. This increase was driven by a rise in fuel costs due to higher
fuel prices, a lower year-over-year favorable adjustment in casualty reserves,
an operating property transaction loss and higher labor-related
costs.
Beginning
in the second quarter of 2010, the Company is no longer reflecting the
intermodal business as a separate segment. This change is a result of
the strategic business review and change in CSX’s intermodal service associated
with the start of the UMAX program as well as certain management realignments.
The UMAX program, which began this quarter, is a domestic interline container
program. CSX’s chairman now views intermodal similarly to merchandise and coal.
Also, Inland Transportation expense has been reclassified to Materials, Supplies
and Other. Intermodal revenue will continue to be viewed as a
separate revenue group; however, a separate income statement and operating ratio
will no longer be provided and business segment disclosures are no longer
required. All prior periods have been revised to reflect this
change.
For additional information, refer to Results of Operations discussed on pages 36
through 38.
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. The Company 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.
During
second quarter 2010,
the Company continued to advance its efforts on safety and operating
performance. CSXT delivered the fifth consecutive quarterly year-over-year
improvement in Federal Railroad Administration (“FRA”) personal injuries in
second quarter 2010. The FRA personal injuries frequency index
improved to 1.13, a 14% improvement over 2009. Reported FRA train accident
frequency rate increased 7% to 2.78, but remained at relatively low historical
levels.
Key
service metrics in second quarter improved from first quarter levels, but were
mixed compared to 2009. On-time train originations and arrivals both
declined to 78% and 71%, respectively. Dwell time improved to 23.7 hours
from 24.1 hours in same quarter of 2009. Average train velocity
declined 4% to 20.9 miles per hour. The Company strives to sustain
key operating measures and service reliability at high levels, while increasing
operational efficiency.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Statistics
(Estimated)
|
|
|
Second
Quarters
|
|
|
|
2010
|
2009
|
Improvement/
(Decline)
|
%
|
|
|
|
|
|
|
Safety
and
|
FRA
Personal Injury Frequency Index
|
1.13
|
1.32
|
14
|
%
|
Service
|
|
|
|
|
|
|
Measurements
|
FRA
Train Accident Rate
|
2.78
|
2.59
|
(7)
|
%
|
|
|
|
|
|
|
|
|
On-Time
Train Originations
|
78%
|
83%
|
(6)
|
%
|
|
On-Time
Destination Arrivals
|
71%
|
81%
|
(12)
|
%
|
|
|
|
|
|
|
|
|
Dwell
|
23.7
|
24.1
|
2
|
%
|
|
Cars-On-Line
|
210,106
|
218,313
|
4
|
%
|
|
|
|
|
|
|
|
|
Train
Velocity
|
20.9
|
21.7
|
(4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
Resources
|
Route
Miles
|
21,123
|
21,190
|
-
|
%
|
|
Locomotives
(owned and long-term leased)
|
4,067
|
4,108
|
(1)
|
%
|
|
Freight
Cars (owned and long-term leased)
|
80,471
|
86,300
|
(7)
|
%
|
Key
Performance Measures Definitions
FRA Personal Injury
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 – Average
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 – An
average count of all cars on the network (does not include locomotives,
cabooses, trailers, containers or maintenance equipment).
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
Volume and
Revenue (Unaudited)
|
|
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
|
|
Second
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Revenue
|
|
|
|
Revenue
Per Unit
|
|
|
|
2010
|
|
|
2009
|
|
|
%
Change
|
|
|
2010
|
|
|
2009
|
|
|
%
Change
|
|
|
|
2010
|
|
|
2009
|
|
%
Change
|
|
Chemicals
|
|
|
116 |
|
|
|
105 |
|
|
|
10 |
% |
|
$ |
372 |
|
|
$ |
308 |
|
|
|
21 |
% |
|
|
$ |
3,207 |
|
|
$ |
2,933 |
|
|
9 |
% |
Phosphates
and
Fertilizers
|
|
|
80 |
|
|
|
74 |
|
|
|
8 |
|
|
|
109 |
|
|
|
94 |
|
|
|
16 |
|
|
|
|
1,363 |
|
|
|
1,270 |
|
|
7 |
|
Automotive
|
|
|
88 |
|
|
|
54 |
|
|
|
63 |
|
|
|
204 |
|
|
|
113 |
|
|
|
81 |
|
|
|
|
2,318 |
|
|
|
2,093 |
|
|
11 |
|
Emerging
Markets
|
|
|
113 |
|
|
|
106 |
|
|
|
7 |
|
|
|
167 |
|
|
|
147 |
|
|
|
14 |
|
|
|
|
1,478 |
|
|
|
1,387 |
|
|
7 |
|
Agricultural
Products
|
|
|
107 |
|
|
|
106 |
|
|
|
1 |
|
|
|
255 |
|
|
|
233 |
|
|
|
9 |
|
|
|
|
2,383 |
|
|
|
2,198 |
|
|
8 |
|
Forest
Products
|
|
|
65 |
|
|
|
64 |
|
|
|
2 |
|
|
|
150 |
|
|
|
133 |
|
|
|
13 |
|
|
|
|
2,308 |
|
|
|
2,078 |
|
|
11 |
|
Metals
|
|
|
65 |
|
|
|
45 |
|
|
|
44 |
|
|
|
140 |
|
|
|
87 |
|
|
|
61 |
|
|
|
|
2,154 |
|
|
|
1,933 |
|
|
11 |
|
Food
and Consumer
|
|
|
25 |
|
|
|
25 |
|
|
|
- |
|
|
|
59 |
|
|
|
59 |
|
|
|
- |
|
|
|
|
2,360 |
|
|
|
2,360 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Merchandise
|
|
|
659 |
|
|
|
579 |
|
|
|
14 |
|
|
|
1,456 |
|
|
|
1,174 |
|
|
|
24 |
|
|
|
|
2,209 |
|
|
|
2,028 |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
|
|
401 |
|
|
|
375 |
|
|
|
7 |
|
|
|
835 |
|
|
|
662 |
|
|
|
26 |
|
|
|
|
2,082 |
|
|
|
1,765 |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
|
538 |
|
|
|
457 |
|
|
|
18 |
|
|
|
304 |
|
|
|
285 |
|
|
|
7 |
|
|
|
|
565 |
|
|
|
624 |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
68 |
|
|
|
64 |
|
|
|
6 |
|
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,598 |
|
|
|
1,411 |
|
|
|
13 |
% |
|
$ |
2,663 |
|
|
$ |
2,185 |
|
|
|
22 |
% |
|
|
$ |
1,666 |
|
|
$ |
1,549 |
|
|
8 |
% |
Note
regarding reclassifications:
|
Automotive
has moved to the Merchandise category. Coal and Intermodal have been
stated as single totals, respectively (combined previously reported
sub-categories) and Other revenue related to Rail and Intermodal has been
combined into one Other line. All prior periods have been
revised to reflect these changes.
|
Second
Quarter 2010 Results of Operations
CSX
second quarter results reflect strong year-over-year volume and revenue growth
as compared to the level of economic activity last year. The greatest
volume increases occurred in the automotive, metals and intermodal
markets. Ongoing yield management initiative and higher fuel recovery
associated with the increase in fuel prices drove revenue-per-unit increases in
nearly all markets.
Revenue
Merchandise
Chemicals – Growth
occurred across most chemical markets reflecting the overall improvement in
demand for intermediate products used in the automotive and consumer goods
markets.
Phosphates and
Fertilizers – This market's growth was driven by increased export and
domestic phosphate shipments as well as domestic movements of potash to
meet the demand from a robust planting season.
Automotive – Strong
volume growth was due to an increase in North American light vehicle production
driven by higher sales and lower inventory levels.
Emerging Markets –
Shipments of aggregates (which include crushed stone, sand and gravel)
increased from depressed levels last year due to new business for the
Company.
36
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Agricultural Products
– Volume was relatively flat. Increased shipments of ethanol were
mostly offset by weaker demand for feed ingredients, soybeans and other
processed products.
Forest Products –
Growth in building products increased from the depressed levels of 2009,
due in part to tax incentives offered for new home purchases that ended during
the quarter. Paper products continued to see long-term, gradual volume declines
likely resulting from electronic media substitution.
Metals – Growth
was driven by rebounding steel consumption consistent with the gradual
economic recovery. Improved demand from automotive and energy markets,
combined with low inventories and reduced imports pushed domestic steel
production higher.
Food and Consumer –
Volume was flat as increased shipments of refrigerated products and canned goods
were offset by weakness in demand for appliances and alcoholic
beverages.
Coal
Growth
was driven by higher export shipments due to greater Asian demand for U.S.
metallurgical coal, partially offset by lower shipments to utility customers as
a result of continued high stockpile levels. The increase in revenue per
unit was driven by improved yield and longer length of haul.
Intermodal
Revenue
gains during the quarter were driven by volume
growth. International volume increased due to new business and higher
imports as a result of U.S. inventory replenishments. Domestic volume
continued to grow with truckload conversions and expanded service offerings like
the new UMAX program, which began this quarter. The revenue-per-unit
decline was driven by the impact of switching from a purchased transportation
arrangement to the new UMAX domestic interline program and was partly offset by
increased fuel recovery and an improved pricing environment.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Expenses increased
$287 million from last year’s second quarter. Significant variances
are described below.
Labor and Fringe expense increased $67
million. This increase was primarily driven by inflation and higher
incentive compensation costs and a 1% increase in headcount.
Materials, Supplies and
Other expense increased $107 million due to several items:
·
|
As
safety trends have continued to improve, benefits were taken in both
years’ second quarters - $9 million in 2010 and $85 million in the prior
year quarter. This resulted in a year over year increase in expense of $76
million.
|
·
|
An
operating property transaction with the Commonwealth of Massachusetts
closed in the quarter and resulted in a $30 million net book
loss.
|
·
|
Inland
transportation expense reductions of $43 million related to the new UMAX
agreement.
|
·
|
Various
other costs increased as a result of higher volume and other
items.
|
As additional
information on the property transaction noted above, during the second quarter
of 2010, the Company closed an operating property transaction with the
Commonwealth of Massachusetts. The Company received $50 million of
cash related to this transaction and recorded a net book loss of $30
million pre-tax or $0.05 per share. This property is a former Conrail
acquired property. This loss is reflected in materials, supplies and
other.
Fuel expense increased $119
million primarily due to higher prices and higher volume.
Depreciation expense
increased $3 million due to a larger asset base related to higher capital
spending, partially offset by lower depreciation rates resulting from the
previous periodic review of asset useful lives.
Equipment and Other
Rents expense decreased $9 million primarily due to current quarter’s
cost savings associated with improved asset utilization and lower lease expense,
partially offset by volume-related increases.
Consolidated
Results of Operations
Interest expense decreased $4 million to $135 million primarily due to lower
average debt balances.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other Income -
Net
Other income
decreased $1 million to $9 million driven primarily by lower average cash and
investment balances and a lower average rate of return.
Income
Tax Expense
Income
tax expense increased $62 million to $228 million due to higher
earnings. The increase in earnings was slightly offset by a net
favorable tax benefit of $15 million primarily due to the resolution of prior
years’ income tax audit.
Net
Earnings
Net earnings increased $109 million to
$414 million and earnings per diluted share increased $0.30 to $1.07 primarily
due to higher revenue partially offset by fuel, various other expenses,
including labor and fringe and taxes.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Volume and
Revenue (Unaudited)
|
|
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Revenue
|
|
|
Revenue
Per Unit
|
|
|
|
2010
|
|
|
2009
|
|
|
%
Change
|
|
|
2010
|
|
|
2009
|
|
|
%
Change
|
|
|
2010
|
|
|
2009
|
|
|
%
Change
|
|
Chemicals
|
|
|
228 |
|
|
|
210 |
|
|
|
9 |
% |
|
$ |
723 |
|
|
$ |
616 |
|
|
|
17 |
% |
|
$ |
3,171 |
|
|
$ |
2,933 |
|
|
|
8 |
% |
Phosphates
and
Fertilizers
|
|
|
159 |
|
|
|
134 |
|
|
|
19 |
|
|
|
232 |
|
|
|
181 |
|
|
|
28 |
|
|
|
1,459 |
|
|
|
1,351 |
|
|
|
8 |
|
Automotive
|
|
|
162 |
|
|
|
99 |
|
|
|
64 |
|
|
|
374 |
|
|
|
208 |
|
|
|
80 |
|
|
|
2,309 |
|
|
|
2,101 |
|
|
|
10 |
|
Emerging
Markets
|
|
|
198 |
|
|
|
197 |
|
|
|
1 |
|
|
|
297 |
|
|
|
281 |
|
|
|
6 |
|
|
|
1,500 |
|
|
|
1,426 |
|
|
|
5 |
|
Agricultural
Products
|
|
|
221 |
|
|
|
215 |
|
|
|
3 |
|
|
|
522 |
|
|
|
482 |
|
|
|
8 |
|
|
|
2,362 |
|
|
|
2,242 |
|
|
|
5 |
|
Forest
Products
|
|
|
128 |
|
|
|
129 |
|
|
|
(1 |
) |
|
|
290 |
|
|
|
273 |
|
|
|
6 |
|
|
|
2,266 |
|
|
|
2,116 |
|
|
|
7 |
|
Metals
|
|
|
126 |
|
|
|
93 |
|
|
|
35 |
|
|
|
268 |
|
|
|
184 |
|
|
|
46 |
|
|
|
2,127 |
|
|
|
1,978 |
|
|
|
8 |
|
Food
and Consumer
|
|
|
50 |
|
|
|
50 |
|
|
|
- |
|
|
|
118 |
|
|
|
119 |
|
|
|
(1 |
) |
|
|
2,360 |
|
|
|
2,380 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Merchandise
|
|
|
1,272 |
|
|
|
1,127 |
|
|
|
13 |
|
|
|
2,824 |
|
|
|
2,344 |
|
|
|
20 |
|
|
|
2,220 |
|
|
|
2,080 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
|
|
774 |
|
|
|
806 |
|
|
|
(4 |
) |
|
|
1,571 |
|
|
|
1,406 |
|
|
|
12 |
|
|
|
2,030 |
|
|
|
1,744 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
|
1,038 |
|
|
|
897 |
|
|
|
16 |
|
|
|
623 |
|
|
|
552 |
|
|
|
13 |
|
|
|
600 |
|
|
|
615 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
136 |
|
|
|
130 |
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,084 |
|
|
|
2,830 |
|
|
|
9 |
% |
|
$ |
5,154 |
|
|
$ |
4,432 |
|
|
|
16 |
% |
|
$ |
1,671 |
|
|
$ |
1,566 |
|
|
|
7 |
% |
Note
regarding reclassifications:
|
Automotive
has moved to the Merchandise category. Coal and Intermodal have been
stated as single totals, respectively (combined previously reported
sub-categories) and Other revenue related to Rail and Intermodal has been
combined into one Other line. All prior periods have been
revised to reflect these changes.
|
Six
Month Results of Operations
Consolidated
Results of Operations
Revenue
Revenue increased $722 million to $5.2 billion as a result of volume increases
associated with the gradual economic recovery, ongoing yield management
initiatives and higher fuel recovery due to an increase in fuel
prices.
Operating
Income
Operating income increased $303 million to $1.4 billion primarily due to higher
revenue partially offset by increased fuel and labor related costs.
Interest
Expense
Interest expense decreased $3 million to $277 million primarily due to lower
average debt balances. This decrease was partially offset by expenses
related to the first quarter 2010 debt exchange.
Other
Income - Net
Other
income increased $7 million to $20 million driven by higher income from real
estate activities and other miscellaneous items.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Income
Tax Expense
Income
tax expense increased $129 million to $424 million primarily due to higher
earnings in 2010.
Net
Earnings
Net
earnings increased $169 million to $719 million and earnings per diluted share
increased $0.45 to $1.84 primarily due to higher revenue partially offset by
increased fuel and labor related costs as well as increased tax
expense.
LIQUIDITY
AND CAPITAL RESOURCES
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.
Material
Changes in Consolidated Balance Sheets and Significant Cash Flows
Consolidated
Balance Sheets
Other
long-term assets increased $154 million primarily as a result of $141 million in
cash consideration paid in the exchange of debt securities (see Note 7, Debt and
Credit Agreements). Stockholder’s equity was reduced as a result of $823
million of share repurchases since December 2009.
Consolidated
Cash Flow Statements
Cash
provided by operating activities increased $451 million primarily due to higher
pre-tax earnings and lower incentive compensation payouts in 2010. More
cash was used for financing activities due to share repurhases of $823
million during 2010. Additionally, the Company received $500 million from
a debt issuance in 2009. There have been no debt issuances in
2010.
Liquidity and Working
Capital
As of the
end of the second quarter, CSX had $633 million of cash and cash
equivalents. CSX also has available a $1.25 billion credit facility
with a diverse syndicate of banks that was not drawn on. CSX uses current
cash balances for general corporate purposes, which may include capital
expenditures, working capital requirements, improvements in productivity and
repurchases of CSX common stock.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June
16, 2010, the Company renewed its $250 million receivables securitization
facility. The purpose of this facility is to provide an alternative
to commercial paper and a low cost source of short-term liquidity. This facility
has a 364-day term and expires on June 15, 2011. As of the date of
this filing, the Company has not drawn on this facility. Under the
terms of this facility, CSX Transportation and CSX Intermodal transferred
eligible third-party receivables to CSX Trade Receivables, a bankruptcy-remote
special purpose subsidiary. A separate subsidiary of CSX will service
the receivables. Upon transfer, the receivables become assets of CSX
Trade Receivables and are not available to the creditors of CSX or any of its
other subsidiaries. In the event CSX Trade Receivables draws under this
facility, the Company will record an equivalent amount of debt on its
consolidated financial statements.
Working
capital can also be considered a measure of a company’s ability to meet its
short-term needs. CSX had a working capital deficit of $211 million
as of June 2010 and a working capital surplus of $705 million as of December
2009. The decline since December 2009 is primarily due to a $508
million reclassification from long-term debt to current maturities of long-term
debt for amounts due within the next twelve months.
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. 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 and shelf registration statement, to manage its
day-to-day cash requirements and any anticipated obligations. The
Company from time to time accesses the credit markets for additional
liquidity.
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 CSX’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. The Company intends for all
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and the provisions of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements within the meaning of the
Private Securities Litigation Reform Act may contain, among others, statements
regarding:
·
|
projections
and estimates of earnings, revenues, volumes, rates, cost-savings,
expenses, taxes or other financial
items;
|
·
|
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, strategies and objectives for future operations, capital
expenditures, proposed new services and other similar expressions
concerning matters that are not historical facts, and management’s
expectations as to future performance and operations and the time by which
objectives will be achieved; and
|
·
|
future
economic, industry or market conditions or performance and their effect on
the Company’s financial condition, results of operations or
liquidity.
|
Forward-looking statements are
typically identified by words or phrases such as “believe,” “expect,”
“anticipate,” “project,” “estimate,” “preliminary” and similar expressions. The
Company cautions against placing undue reliance on forward-looking statements,
which reflect its good faith beliefs with respect to future events and are based
on information currently available to it as of the date the forward-looking
statement is made. Forward-looking statements should not
be read as a guarantee of future performance or results and will not necessarily
be accurate indications of the timing when, or by which, such performance or
results will be achieved.
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking
statements are subject to a number of risks and uncertainties and actual
performance or results could differ materially from those anticipated by any
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 any 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 further 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;
|
·
|
changes
in domestic or international economic, political or business conditions,
including those affecting the transportation industry (such as the impact
of industry competition, conditions, performance and
consolidation);
|
·
|
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;
|
·
|
the
cost of compliance with laws and regulations that differ from expectations
(including those associated with PTC implementation) and costs, penalties
and operational impacts associated with noncompliance with applicable laws
or regulations;
|
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
·
|
the
inherent business risks associated with safety and security, including the
availability and cost of insurance, 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
and benefit 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, financial and operational
initiatives;
|
·
|
changes
in operating conditions and costs or commodity concentrations;
and
|
·
|
the
inherent uncertainty associated with projecting full year 2010 economic
and business conditions.
|
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. The
information on the CSX website is not part of this quarterly report on Form
10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There
have been no material changes in market risk from the information provided under
Part II, Item 7A (Quantitative and Qualitative Disclosures about Market Risk) of
CSX’s most recent Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of June 25, 2010, 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 25, 2010, 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 2010 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information relating to the
Company’s legal proceedings, see Note 5, Commitments and Contingencies under
Part I, Item 1 (Financial Statements) of this Quarterly Report on Form 10-Q
incorporated herein by reference.
For information regarding factors that
could affect the Company’s results of operations, financial condition and
liquidity, see the risk factors discussed under Part II, Item 7
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) of CSX’s most recent Annual Report on Form 10-K. See also
Part I, Item 2 (Forward-Looking Statements) 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. The Company
purchases shares of CSX common stock to further its goals under the Company’s
share repurchase program. Additional shares are purchased to fund the
Company’s obligations under a 401(k) plan that covers certain union
employees.
During
the second quarter 2010, CSX completed $594 million of total share repurchases,
which includes $576 million of share repurchases under the Company’s share
repurchase program. The remaining shares were purchased to fund the
Company’s contribution to a 401(k) plan that covers certain union
employees. Since March 2008, CSX has completed $2 billion in share
repurchases and has remaining share repurchase authority of approximately $945
million. Future share repurchases will be based on market and business
conditions.
|
|
CSX
Purchases of Equity Securities
for
the Quarter
|
|
|
|
|
|
Second
Quarter
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(a)
|
|
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
|
|
Beginning
Balance
|
|
|
$ |
1,521,108,801 |
|
|
|
April
|
|
(March
27, 2010 - April 23, 2010)
|
|
|
2,441,000 |
|
|
$ |
54.57 |
|
|
|
2,114,000 |
|
|
|
1,405,752,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
|
|
(April
24, 2010 - May 21, 2010)
|
|
|
8,151,000 |
|
|
|
56.48 |
|
|
|
8,151,000 |
|
|
|
945,407,748 |
|
|
|
June
|
|
(May
22, 2010 - June 25, 2010)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
945,407,748 |
|
|
|
|
|
|
|
Ending
Balance
|
|
|
10,592,000 |
|
|
$ |
56.04 |
|
|
|
10,265,000 |
|
|
$ |
945,407,748 |
|
(a)
|
The
difference of 327,000 shares between the “Total Number of Shares
Purchased” and the “Total Number of Shares Purchased as Part of Publicly
Announced Plans or Programs” for the quarter represents shares purchased
to fund the Company’s contribution to a 401(k) plan that covers certain
union employees.
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
Exhibits
18 Independent
Registered Public Accounting Firm’s Preferability
Letter
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 25, 2010 filed with
the SEC on July 15, 2010, formatted in XBRL includes: (i) Consolidated
Income Statements for the fiscal periods ended June 25, 2010 and June 26,
2009, (ii) Consolidated Balance Sheets at June 25, 2010 and December 25,
2009, (iii) Consolidated Cash Flow Statements for the fiscal periods ended
June 25, 2010 and June 26, 2009, 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 15, 2010