Attached files
| file | filename |
|---|---|
| EX-31 - RULE 13A-14(A) CERTIFICATION - CSX CORP | exhibit_31.htm |
| EX-32 - SECTION 1350 CERTIFICATION - CSX CORP | exhibit_32.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 September 25, 2009
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 ( )
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
( ) No (X)
There
were 392,558,925 shares of common stock outstanding on September 25, 2009 (the
latest practicable date that is closest to the filing date).
1
|
CSX
CORPORATION
|
|||
|
FORM
10-Q
|
|||
|
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2009
|
|||
|
Page
|
|||
|
PART
I.
|
FINANCIAL
INFORMATION
|
||
|
Item
1.
|
Financial
Statements
|
||
|
3
|
|||
|
Quarters
and Nine Months Ended September 25, 2009
|
|||
|
and
September 26, 2008
|
|||
|
4
|
|||
|
At
September 25, 2009 (Unaudited) and December 26, 2008
|
|||
|
5
|
|||
|
Nine
Months Ended September 25, 2009 and September 26, 2008
|
|||
|
6
|
|||
|
Item
2.
|
31
|
||
|
and Results of
Operations
|
|||
|
Item
3.
|
45
|
||
|
Item
4.
|
45
|
||
|
PART
II.
|
OTHER
INFORMATION
|
||
|
Item
1.
|
45
|
||
|
Item
1A.
|
45
|
||
|
Item
2.
|
46
|
||
|
Item
3.
|
46
|
||
|
Item
4.
|
46
|
||
|
Item
5.
|
46
|
||
|
Item
6.
|
47
|
||
|
48
|
|||
(Dollars
in Millions, Except Per Share Amounts)
|
Third
Quarters
|
Nine
Months Ended
|
||||||
|
2009
|
2008
|
2009
|
2008
|
||||
|
Revenue
|
$2,289
|
$2,961
|
$6,721
|
$8,581
|
|||
|
Expense
|
|||||||
|
Labor
and Fringe
|
653
|
754
|
1,969
|
2,232
|
|||
|
Materials,
Supplies and Other
|
428
|
568
|
1,273
|
1,586
|
|||
|
Fuel
|
223
|
508
|
599
|
1,486
|
|||
|
Depreciation
|
228
|
227
|
681
|
676
|
|||
|
Equipment
and Other Rents
|
92
|
106
|
303
|
329
|
|||
|
Inland
Transportation
|
67
|
65
|
194
|
196
|
|||
|
Total
Expense
|
1,691
|
2,228
|
5,019
|
6,505
|
|||
|
Operating
Income
|
598
|
733
|
1,702
|
2,076
|
|||
|
Interest
Expense
|
(140)
|
(131)
|
(420)
|
(383)
|
|||
|
Other
Income - Net (Note 8)
|
6
|
5
|
19
|
94
|
|||
|
Earnings
From Continuing Operations
|
|||||||
|
Before
Income Taxes
|
464
|
607
|
1,301
|
1,787
|
|||
|
Income
Tax Expense (Note 9)
|
(171)
|
(227)
|
(469)
|
(653)
|
|||
|
Earnings
From Continuing Operations
|
293
|
380
|
832
|
1,134
|
|||
|
Discontinued
Operations (Note 11)
|
-
|
2
|
15
|
(16)
|
|||
|
Net
Earnings
|
$293
|
$382
|
$847
|
$1,118
|
|||
|
Per
Common Share (Note 2)
|
|||||||
|
Net
Earnings Per Share, Basic
|
|||||||
|
Continuing
Operations
|
$0.75
|
$0.94
|
$2.12
|
$2.81
|
|||
|
Discontinued
Operations
|
-
|
0.01
|
0.04
|
(0.04)
|
|||
|
Net
Earnings
|
$0.75
|
$0.95
|
$2.16
|
$2.77
|
|||
|
Net
Earnings Per Share, Assuming Dilution
|
|||||||
|
Continuing
Operations
|
$0.74
|
$0.93
|
$2.10
|
$2.75
|
|||
|
Discontinued
Operations
|
-
|
0.01
|
0.04
|
(0.04)
|
|||
|
Net
Earnings
|
$0.74
|
$0.94
|
$2.14
|
$2.71
|
|||
|
Average
Shares Outstanding (Thousands)
|
392,352
|
402,224
|
391,847
|
404,260
|
|||
|
Average
Shares Outstanding,
|
|||||||
|
Assuming
Dilution (Thousands)
|
396,333
|
408,486
|
395,268
|
412,936
|
|||
|
Cash
Dividends Paid Per Common Share
|
$0.22
|
$0.22
|
$0.66
|
$0.55
|
|||
See accompanying notes to consolidated
financial statements.
(Dollars
in Millions)
|
(Unaudited)
|
||||
|
September
25,
|
December
26,
|
|||
|
2009
|
2008
|
|||
|
ASSETS
|
||||
|
Current
Assets
|
||||
|
Cash
and Cash Equivalents
|
$1,240
|
$669
|
||
|
Short-term
Investments
|
81
|
76
|
||
|
Accounts
Receivable - Net (Note 1)
|
928
|
1,107
|
||
|
Materials
and Supplies
|
239
|
217
|
||
|
Deferred
Income Taxes
|
171
|
203
|
||
|
Other
Current Assets
|
111
|
119
|
||
|
Total
Current Assets
|
2,770
|
2,391
|
||
|
Properties
|
30,805
|
30,208
|
||
|
Accumulated
Depreciation
|
(7,765)
|
(7,520)
|
||
|
Properties
- Net
|
23,040
|
22,688
|
||
|
Investment
in Conrail (Note 10)
|
626
|
609
|
||
|
Affiliates
and Other Companies
|
411
|
406
|
||
|
Other
Long-term Assets
|
173
|
194
|
||
|
Total
Assets
|
$27,020
|
$26,288
|
||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||
|
Current
Liabilities
|
||||
|
Accounts
Payable
|
$963
|
$973
|
||
|
Labor
and Fringe Benefits Payable
|
402
|
465
|
||
|
Casualty,
Environmental and Other Reserves (Note 4)
|
179
|
236
|
||
|
Current
Maturities of Long-term Debt (Note 7)
|
316
|
319
|
||
|
Income
and Other Taxes Payable
|
121
|
125
|
||
|
Other
Current Liabilities
|
95
|
286
|
||
|
Total
Current Liabilities
|
2,076
|
2,404
|
||
|
Casualty,
Environmental and Other Reserves (Note 4)
|
580
|
643
|
||
|
Long-term
Debt (Note 7)
|
7,906
|
7,512
|
||
|
Deferred
Income Taxes
|
6,551
|
6,235
|
||
|
Other
Long-term Liabilities
|
1,218
|
1,426
|
||
|
Total
Liabilities
|
18,331
|
18,220
|
||
|
Common
Stock $1 Par Value
|
393
|
391
|
||
|
Other
Capital
|
48
|
-
|
||
|
Retained
Earnings
|
8,963
|
8,398
|
||
|
Accumulated
Other Comprehensive Loss (Note 1)
|
(728)
|
(741)
|
||
|
Noncontrolling
Minority Interest
|
13
|
20
|
||
|
Total
Shareholders' Equity
|
8,689
|
8,068
|
||
|
Total
Liabilities and Shareholders' Equity
|
$27,020
|
$26,288
|
||
See accompanying notes to consolidated
financial statements.
(Dollars in
Millions)
|
Nine
Months Ended
|
||||||
|
2009
|
2008
|
|||||
|
OPERATING
ACTIVITIES
|
||||||
|
Net
Earnings
|
$847
|
$1,118
|
||||
|
Adjustments
to Reconcile Net Earnings to Net Cash Provided
|
||||||
|
by
Operating Activities:
|
||||||
|
Depreciation
|
679
|
686
|
||||
|
Deferred
Income Taxes
|
330
|
356
|
||||
|
Contributions
to Qualified Pension Plans
|
(166)
|
(50)
|
||||
|
Other
Operating Activities
|
(150)
|
(14)
|
||||
|
Changes
in Operating Assets and Liabilities:
|
||||||
|
Accounts
Receivable
|
159
|
(76)
|
||||
|
Other
Current Assets
|
(50)
|
(4)
|
||||
|
Accounts
Payable
|
(4)
|
86
|
||||
|
Income
and Other Taxes Payable
|
39
|
54
|
||||
|
Other
Current Liabilities
|
(80)
|
35
|
||||
|
Net
Cash Provided by Operating Activities
|
1,604
|
2,191
|
||||
|
INVESTING
ACTIVITIES
|
||||||
|
Property
Additions (Note 1)
|
(1,046)
|
(1,308)
|
||||
|
Purchases
of Short-term Investments
|
-
|
(25)
|
||||
|
Proceeds
from Sales of Short-term Investments
|
-
|
280
|
||||
|
Other
Investing Activities
|
51
|
27
|
||||
|
Net
Cash Used in Investing Activities
|
(995)
|
(1,026)
|
||||
|
FINANCING
ACTIVITIES
|
||||||
|
Long-term
Debt Issued (Note 7)
|
500
|
1,000
|
||||
|
Long-term
Debt Repaid (Note 7)
|
(110)
|
(220)
|
||||
|
Dividends
Paid
|
(259)
|
(222)
|
||||
|
Stock
Options Exercised (Note 3)
|
19
|
75
|
||||
|
Shares
Repurchased
|
-
|
(1,307)
|
||||
|
Other
Financing Activities (Note 1)
|
(188)
|
36
|
||||
|
Net
Cash Used in Financing Activities
|
(38)
|
(638)
|
||||
|
Net
Increase in Cash and Cash Equivalents
|
571
|
527
|
||||
|
CASH
AND CASH EQUIVALENTS
|
||||||
|
Cash
and Cash Equivalents at Beginning of Period
|
669
|
368
|
||||
|
Cash
and Cash Equivalents at End of Period
|
$1,240
|
$895
|
||||
See
accompanying notes to consolidated financial statements.
Background
CSX
Corporation (“CSX”) together with its subsidiaries (the “Company”), based in
Jacksonville, Florida, is one of the nation's leading transportation
suppliers. The Company’s rail and intermodal businesses provide
rail-based transportation services including traditional rail service and the
transport of intermodal containers and trailers.
CSX’s
principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an
important link to the transportation supply chain through its approximately
21,000 route mile rail network, which serves major population centers in 23
states east of the Mississippi River, the District of Columbia and the Canadian
provinces of Ontario and Quebec. CSX Intermodal, Inc. (“Intermodal”), one
of the nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone,
integrated intermodal company linking customers to railroads via trucks and
terminals.
Other
entities
In addition to CSXT, the rail segment
includes non-railroad subsidiaries Total Distribution Services, Inc. (“TDSI”),
Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX
Technology”) and other subsidiaries. TDSI serves the automotive industry
with distribution centers and storage locations, while Transflo provides
logistical solutions for transferring products from rail to trucks.
Technology and other support services are provided by CSX Technology and other
subsidiaries.
CSX’s other holdings include CSX Real
Property, Inc., a subsidiary responsible for the Company’s real estate sales,
leasing, acquisition and management and development activities. These
activities are classified in other income – net because they are not considered
by the Company to be operating activities and results may fluctuate with the
timing of real estate sales. In May 2009, CSX sold the stock of a
subsidiary that indirectly owned Greenbrier Hotel Corporation, owner of The
Greenbrier resort. For more information, see Note 11, Discontinued
Operations.
Basis
of Presentation
In the
opinion of management, the accompanying consolidated financial statements
contain all normal, recurring adjustments necessary to fairly present the
following:
|
·
|
Consolidated
income statements for the quarters and nine months ended September 25,
2009 and September 26, 2008;
|
|
·
|
Consolidated
balance sheets at September 25, 2009 and December 26, 2008;
and
|
|
·
|
Consolidated
cash flow statements for the nine months ended September 25, 2009 and
September 26, 2008.
|
NOTE
1. Nature
of Operations and Significant Accounting Policies, continued
In
addition, management has evaluated and disclosed all material events occurring
subsequent to the date of the financial statements up to the date this quarterly
report is filed on Form 10-Q.
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 have been omitted from these interim financial
statements. CSX suggests that these financial statements be read in
conjunction with the audited financial statements and the notes included in
CSX's most recent Annual Report on Form 10-K, its subsequent Quarterly Reports
on Form 10-Q and any Current Reports on Form 8-K.
Fiscal
Year
CSX
follows a 52/53 week fiscal reporting calendar with the last day of each
reporting period ending on a Friday:
|
·
|
The
third fiscal quarter of 2009 and 2008 consisted of 13 weeks ending on
September 25, 2009 and September 26, 2008,
respectively.
|
|
·
|
The
nine month periods of 2009 and 2008 consisted of 39 weeks ending on
September 25, 2009 and September 26, 2008,
respectively.
|
|
·
|
Fiscal
year 2008 consisted of 52 weeks ending on December 26,
2008.
|
|
·
|
Fiscal
year 2009 will consist of 52 weeks ending on December 25,
2009.
|
|
·
|
Fiscal
year 2010 will consist of 53 weeks ending on December 31,
2010.
|
Except as otherwise specified,
references to “third quarter(s)” or “nine months” indicate CSX’s fiscal periods
ending September 25, 2009 or September 26, 2008, and references to year-end
indicate the fiscal year ended December 26, 2008.
Total comprehensive earnings are
defined as all changes in shareholders' equity during a period, other than those
resulting from investments by and distributions to shareholders (i.e., issuance
of equity securities and dividends). Generally, for CSX, total
comprehensive earnings equals net earnings plus or minus adjustments for pension
and other post-retirement liabilities. Total comprehensive earnings
represent the activity for a period net of related tax effects and were $300
million and $383 million for third quarters 2009 and 2008, respectively, and
$860 million and $1.1 billion for nine months 2009 and 2008,
respectively.
NOTE
1.
Nature of Operations and Significant Accounting Policies, continued
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 the pension and other post-retirement adjustments and reduced
overall equity by $728 million and $741 million as of September 2009 and
December 2008, respectively.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts on uncollectible accounts
related to freight receivables, public projects (work done by CSX on behalf of a
government agency), claims for damages and other various receivables. The
allowance is based upon the credit worthiness of customers, historical
experience, the age of the receivable and current market and economic
conditions. Uncollectible amounts are charged against the allowance account.
Allowance for doubtful accounts of $55 million and $70 million is included in
the Consolidated Balance Sheets as of September 2009 and December
2008.
Capital
Expenditures
Property additions, which are classified as investing activities on the consolidated cash flow statements, consisted of $1 billion and $1.3 billion for nine months 2009 and 2008, respectively. Total capital expenditures for nine months 2009 also include approximately $160 million of new assets purchased using seller financing, which are included in other financing activities on the consolidated cash flow statements. There were no purchases of new assets under seller financing agreements during 2008. For 2009, the Company plans to spend $1.6 billion for total capital expenditures.
New
Accounting Pronouncements and Changes in Accounting Policy
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162. This statement modifies the
Generally Accepted Accounting Principles (“GAAP”) hierarchy by establishing only
two levels of GAAP, authoritative and nonauthoritative accounting literature.
Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also
known collectively as the “Codification,” is considered the single source of
authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC.
Nonauthoritative guidance and literature would include, among other things, FASB
Concepts Statements, American Institute of Certified Public Accountants Issue
Papers and Technical Practice Aids and accounting textbooks. The Codification
was developed to organize GAAP pronouncements by topic so that users can more
easily access authoritative accounting guidance. It is organized by topic,
subtopic, section, and paragraph, each of which is identified by a numerical
designation. This statement applies beginning in third quarter
2009. All accounting references have been updated, and therefore SFAS
references have been replaced with ASC references.
NOTE
1. Nature
of Operations and Significant Accounting Policies, continued
Effective
beginning second quarter 2009, the Financial Instruments Topic,
ASC 825-10-65-1(a), requires disclosures about fair value of financial
instruments in quarterly reports as well as in annual reports. For
CSX, this statement applies to certain investments and long-term
debt. (See Note 12, Fair Value Measurements.)
Effective
beginning first quarter 2009, the Consolidation Topic, ASC
810-10-45-16, revised the accounting treatment for noncontrolling minority
interests of partially-owned subsidiaries. Noncontrolling minority
interests represent the portion of earnings that is not within the parent
company’s control. These amounts are now required to be reported as equity
instead of as a liability on the balance sheet. This change resulted
in a $20 million reclassification from other long-term liabilities to
shareholders’ equity on the December 2008 consolidated balance sheet and are
primarily related to CSX’s investments in Four Rivers Transportation Inc. and
The Indiana Rail Road Company. Additionally, this statement requires net
income from noncontrolling minority interests to be shown separately on the
consolidated income statements. These amounts are not material for
CSX and therefore are not shown separately.
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
|
Third
Quarters
|
Nine
Months Ended
|
|||||
|
2009
|
2008
|
2009
|
2008
|
|||
|
Numerator
(Dollars in
millions):
|
||||||
|
Earnings
from Continuing Operations
|
$293
|
$380
|
$832
|
$1,134
|
||
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
-
|
-
|
1
|
||
|
Earnings
from Continuing Operations, If Converted
|
293
|
380
|
832
|
1,135
|
||
|
Discontinued
Operations - Net of Tax (a)
|
-
|
2
|
15
|
(16)
|
||
|
Net
Earnings, If Converted
|
293
|
382
|
847
|
1,119
|
||
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
-
|
-
|
(1)
|
||
|
Net
Earnings
|
$293
|
$382
|
$847
|
$1,118
|
||
|
Denominator
(Units in
thousands):
|
||||||
|
Average
Common Shares Outstanding
|
392,352
|
402,224
|
391,847
|
404,260
|
||
|
Convertible
Debt
|
1,116
|
1,390
|
1,117
|
3,612
|
||
|
Stock
Option Common Stock Equivalents (b)
|
2,417
|
3,634
|
2,076
|
4,055
|
||
|
Other
Potentially Dilutive Common Shares
|
448
|
1,238
|
228
|
1,009
|
||
|
Average
Common Shares Outstanding, Assuming Dilution
|
396,333
|
408,486
|
395,268
|
412,936
|
||
|
Net
Earnings Per Share, Basic:
|
||||||
|
Continuing
Operations
|
$0.75
|
$0.94
|
$2.12
|
$2.81
|
||
|
Discontinued
Operations
|
-
|
0.01
|
0.04
|
(0.04)
|
||
|
Net
Earnings
|
$0.75
|
$0.95
|
$2.16
|
$2.77
|
||
|
Net
Earnings Per Share, Assuming Dilution:
|
||||||
|
Continuing
Operations
|
$0.74
|
$0.93
|
$2.10
|
$2.75
|
||
|
Discontinued
Operations
|
-
|
0.01
|
0.04
|
(0.04)
|
||
|
Net
Earnings
|
$0.74
|
$0.94
|
$2.14
|
$2.71
|
||
|
(a)
|
For
additional information regarding discontinued operations, see Note 11,
Discontinued Operations.
|
|
(b)
|
When calculating diluted
earnings per share for stock option common stock equivalents, the Earnings
Per Share Topic, ASC 260, 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.
|
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:
|
·
|
convertible
debt,
|
|
·
|
employee
stock options, and
|
|
·
|
other
equity awards, which include long-term incentive
awards.
|
The Earnings Per Share Topic, ASC
260, 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 CSX’s outstanding convertible debentures were converted into CSX
common stock.
As a result, diluted shares outstanding
are not impacted when debentures are converted into CSX common stock because
those shares were already included in the diluted shares
calculation. Shares outstanding for basic earnings per share,
however, are impacted on a weighted average basis when conversions occur.
During third quarter 2008, $15 million of face value of convertible debentures
were converted into 530,000 shares of CSX common stock. There were no
material conversions of convertible debentures during third quarter
2009. As of September 2009, approximately $31 million of convertible
debentures at face value remained outstanding, which are convertible into
approximately 1 million shares of CSX common stock.
CSX
share-based compensation plans primarily include performance grants, restricted
stock awards, stock options and stock plans for directors. CSX has
not granted stock options since 2003. Awards granted under the
various plans are determined and approved by the Compensation Committee of the
Board of Directors or, in certain circumstances, by the Chief Executive Officer
for awards to management employees other than senior executives. The
Board of Directors approves awards granted to the Company’s non-management
Directors upon recommendation of the Governance Committee.
Total
pre-tax expense associated with share-based compensation and its related income
tax benefit is as follows:
|
Third
Quarters
|
Nine
Months Ended
|
||||
|
(Dollars
in millions)
|
2009
|
2008
|
2009
|
2008
|
|
|
Share-Based
Compensation Expense (a)
|
$9
|
$24
|
$12
|
$48
|
|
|
Income
Tax Benefit
|
(3)
|
(9)
|
(4)
|
(18)
|
|
|
|
(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.
|
NOTE
3. Share-Based
Compensation, continued
The following table provides
information about stock options exercised.
|
Third
Quarters
|
Nine
Months Ended
|
||||
|
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
|
|
Number
of Stock Options Exercised
|
386
|
521
|
952
|
3,940
|
|
As of
December 2008, all outstanding options are vested, and therefore, there will be
no future expense related to these options. As of September 2009, CSX had
approximately 6 million stock options outstanding. However, the impact of
options to diluted earnings per share is much smaller (see footnote b in Note 2,
Earnings Per Share for more information).
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:
|
September
2009
|
December
2008
|
|||||||
|
(Dollars
in millions)
|
Current
|
Long-term
|
Total
|
Current
|
Long-term
|
Total
|
||
|
Casualty:
|
||||||||
|
Personal
Injury
|
$78
|
$223
|
$301
|
$104
|
$258
|
$362
|
||
|
Occupational
|
22
|
165
|
187
|
32
|
172
|
204
|
||
|
Total
Casualty
|
100
|
388
|
488
|
136
|
430
|
566
|
||
|
Separation
|
15
|
61
|
76
|
16
|
71
|
87
|
||
|
Environmental
|
37
|
60
|
97
|
42
|
58
|
100
|
||
|
Other
|
27
|
71
|
98
|
42
|
84
|
126
|
||
|
Total
|
$179
|
$580
|
$759
|
$236
|
$643
|
$879
|
||
Details with respect to each type of
reserve are described below. Actual settlements and claims received
could differ. The final outcome of these matters cannot be predicted
with certainty. Considering the legal defenses asserted, the
liabilities that have been recorded, and other factors, it is the opinion of
management that none of these items, when finally resolved, will have a material
effect on the Company’s financial condition, results of operations or
liquidity. However, should a number of these items occur in the same
period, they could have a material effect on the Company’s financial condition,
results of operations or liquidity in that particular period.
During the second quarter of 2009, the
Company reduced casualty reserves by a net $85 million. The majority
of this reduction is related to personal injury and asbestos claims 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.
NOTE
4. Casualty,
Environmental and Other Reserves, continued
Casualty
Casualty
reserves represent accruals for personal injury and occupational injury
claims. Currently, no individual claim is expected to exceed the
Company’s self-insured retention amount of $25 million per injury. 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 in accordance
with the Contingencies
Topic, ASC 450, 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. Most of 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 former and current CSX subsidiaries are covered by various
state workers' compensation laws, the Federal Longshore and Harbor Workers’
Compensation Program or the Maritime Jones Act.
CSXT
retains an independent actuarial firm to assist management in assessing the
value of personal injury claims and cases. An analysis is performed by the
independent actuarial firm semi-annually and is reviewed by management. The
methodology used by the actuary includes a development factor to reflect growth
or reduction in the value of these personal injury claims. It is based largely
on CSXT’s historical claims and settlement experience. Actual results
may vary from estimates due to the number, type and severity of the injury,
costs of medical treatments and uncertainties in litigation.
During
second quarter 2009, the Company reduced personal injury reserves by $78 million
based on management’s review of the actuarial analysis performed by an
independent actuarial firm. This reduction is a direct result of the
Company’s improvement in safety. Claims have shown a continued
downward trend in the number of injuries, resulting in a continued reduction of
the Company’s FRA personal injury rate. Additionally, the trend in
the severity of injuries has significantly declined.
Occupational
Occupational
claims arise from allegations of exposure to certain materials in the workplace,
such as asbestos, solvents (which include soaps and chemicals) and diesel fuels
or allegations of chronic physical injuries resulting from work conditions, such
as repetitive stress injuries, carpal tunnel syndrome and hearing
loss.
NOTE
4. Casualty,
Environmental and Other Reserves, continued
An
analysis of occupational claims is performed semi-annually by an independent
third party and reviewed by management. The methodology used includes
an estimate 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 settlement rates. Actual claims may vary from
estimates due to the number, type and severity of the injury, costs of medical
treatments and uncertainties in litigation.
During
second quarter 2009, the Company reduced its asbestos reserves by $18
million. This reserve reduction is related to approximately 1,500
claims that were deemed to have no medical merit and therefore have been
determined to have no value.
Separation
Separation liabilities include the
estimated benefits provided to certain union employees as a result of
implementing workforce reductions, improvements in productivity and certain
other cost reductions at the Company's major transportation units since 1991.
These liabilities are expected to be paid out over the next 10 to 15 years from
general corporate funds and may fluctuate depending on the timing of payments
and associated taxes.
Environmental
The
Company is a party to various proceedings related to environmental issues,
including administrative and judicial proceedings, involving private parties and
regulatory agencies. The Company has been identified as a potentially
responsible party at approximately 263 environmentally impaired
sites. Many of those are, or may be, subject to remedial action under
the Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, or CERCLA, also known as the Superfund Law, or similar state statutes.
Most of these proceedings arose from environmental conditions on properties used
for ongoing or discontinued railroad operations. However, a number of
these proceedings are based on allegations that the Company, or its
predecessors, sent hazardous substances to facilities owned or operated by
others for treatment or disposal. In addition, some of the Company’s
land holdings were leased to others for commercial or industrial uses that may
have resulted in releases of hazardous substances or other regulated materials
onto the property and could give rise to proceedings against the
Company.
In any
such proceedings, the Company is subject to environmental clean-up and
enforcement actions under the Superfund Law, as well as similar state laws that
may impose joint and several liability for clean-up and enforcement costs on
current and former owners and operators of a site without regard to fault or the
legality of the original conduct. These costs could be
substantial.
NOTE
4. Casualty,
Environmental and Other Reserves, continued
In
accordance with the Asset
Retirement and Environmental Obligations
Topic, ASC 410-30, the Company reviews its role with respect to each site
identified at least once a quarter. Based on the review process, the
Company has recorded amounts to cover anticipated contingent future
environmental remediation costs with respect to each site to the extent such
costs are estimable and probable. The recorded liabilities for
estimated future environmental costs are undiscounted and include amounts
representing the Company's estimate of unasserted claims, which the Company
believes to be immaterial. The liability includes future costs for remediation
and restoration of sites as well as any significant ongoing monitoring costs,
but excludes any anticipated insurance recoveries. Payments related
to these liabilities are expected to be made over the next several
years.
Currently,
the Company does not possess sufficient information to reasonably estimate the
amounts of additional liabilities, if any, on some sites until completion of
future environmental studies. In addition, changes in conditions, or
conditions that are currently unknown could, at any given location, result in
exposure, the amount and materiality of which cannot presently be reliably
estimated. Based upon information currently available, however, the
Company believes its environmental reserves are adequate to fund remedial
actions to comply with present laws and regulations, and that the ultimate
liability for these matters, if any, will not materially affect its overall
financial condition, results of operations or liquidity.
Other
Other reserves include
liabilities for various claims, such as longshoremen disability claims primarily
associated with former subsidiaries’ activities, freight claims and claims for
property, automobile and general liability. These liabilities are
accrued at the estimable and probable amount in accordance with the Contingencies Topic, ASC
450.
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 each of the casualty and non-catastrophic property
programs and a $50 million deductible for the catastrophic property
program.
NOTE
5. Commitments
and Contingencies, continued
Guarantees
CSX and certain of its subsidiaries are
contingently liable, individually and jointly with others, as guarantors of
approximately $42 million in obligations principally relating to leased
equipment, vessels and joint facilities used by the Company in its current and
former business operations. Utilizing the Company’s guarantee for
these obligations allows the obligor to take advantage of lower interest rates
and obtain other favorable terms. Guarantees are contingent
commitments issued by the Company that could require CSX or one of its
affiliates to make payment to, or to perform certain actions for, the
beneficiary of the guarantee based on another entity’s failure to
perform. These guarantees do not include CSX’s guarantee of
applicable CSXT secured notes because these notes are included on CSX’s
consolidated balance sheet.
As of
third quarter 2009, the Company’s guarantees primarily related to the
following:
|
·
|
Guarantee
of approximately $38 million of obligations of a former subsidiary, CSX
Energy, in connection with a sale-leaseback transaction. CSX is, in
turn, indemnified by several subsequent owners of the entity against
payments made with respect to this guarantee. Management
does not expect that CSX will be required to make any payments under this
guarantee for which CSX will not be reimbursed. CSX’s
obligation under this guarantee will be completed in
2012.
|
|
·
|
Guarantee
of approximately $4 million of lease commitments assumed by A.P.
Moller-Maersk (“Maersk”) for which CSX is contingently liable. CSX
believes Maersk will fulfill its contractual commitments with respect to
such lease commitments, and CSX will have no further liabilities for those
obligations. CSX’s obligation under this guarantee will be
completed in 2011.
|
As of
third quarter 2009, the Company has not recognized any liabilities in its
financial statements in connection with any guarantee arrangements described
above. The maximum amount of future payments the Company could be
required to make under these guarantees is the sum of the guaranteed amounts
noted above.
NOTE
5. Commitments
and Contingencies, continued
Legal
Proceedings
There were no material developments
during the quarter concerning the fuel surcharge anti-trust litigation or the
Seminole Electric Cooperative, Inc. rate case. For further details,
see Note 6, Commitments and Contingencies, in CSX’s most recent Annual Report on
Form 10-K.
In addition to these matters, the
Company is involved in litigation incidental to its business and is a party to a
number of legal actions and claims, various governmental proceedings and private
civil lawsuits, including, but not limited to, those related to environmental
matters, FELA claims by employees, other personal injury and property damage
claims and disputes and complaints involving certain transportation rates and
charges. Some of the legal proceedings include claims for
compensatory as well as punitive damages and others are, or purport to be, class
actions. While the final outcome of these matters cannot be predicted
with certainty, considering, among other things, the legal defenses available
and liabilities that have been recorded along with applicable insurance, it is
currently the opinion of CSX management that none of these items will have a
material adverse effect on the Company’s financial condition, results of
operations or liquidity. An unexpected adverse resolution of one or
more of these matters, 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.
The
Company sponsors defined benefit pension plans principally for salaried,
management personnel. The plans provide eligible employees with
retirement benefits based predominantly on years of service and compensation
rates near retirement. For employees hired after December 31, 2002,
benefits are determined based on a cash balance formula, which provides benefits
by utilizing interest and pays credits based upon age, service and
compensation.
In addition to these plans, CSX sponsors a post-retirement medical
plan and a life insurance plan that provide benefits to full-time, salaried,
management employees hired on or before December 31, 2002 upon their retirement
if certain eligibility requirements are met. The post-retirement
medical plan is contributory (partially funded by retirees), with retiree
contributions adjusted annually. The life insurance plan is
non-contributory.
NOTE
6. Employee
Benefit Plans, continued
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. The following table describes the components of
expense/(income) related to net periodic benefit cost:
|
Pension
Benefits
|
||||||
|
(Dollars
in millions)
|
Third
Quarters
|
Nine
Months Ended
|
||||
|
2009
|
2008
|
2009
|
2008
|
|||
|
Service
Cost
|
$8
|
$8
|
$24
|
$25
|
||
|
Interest
Cost
|
32
|
29
|
94
|
89
|
||
|
Expected
Return on Plan Assets
|
(37)
|
(36)
|
(108)
|
(108)
|
||
|
Amortization
of Prior Service Cost
|
1
|
1
|
2
|
2
|
||
|
Amortization
of Net Loss
|
6
|
6
|
19
|
17
|
||
|
Net
Periodic Benefit Cost
|
$10
|
$8
|
$31
|
$25
|
||
|
Other
Post-retirement Benefits
|
||||||
|
(Dollars
in millions)
|
Third
Quarters
|
Nine
Months Ended
|
||||
|
2009
|
2008
|
2009
|
2008
|
|||
|
Service
Cost
|
$2
|
$2
|
$4
|
$5
|
||
|
Interest
Cost
|
5
|
5
|
17
|
15
|
||
|
Amortization
of Prior Service Cost
|
-
|
-
|
-
|
(1)
|
||
|
Amortization
of Net Loss
|
1
|
-
|
3
|
2
|
||
|
Net
Periodic Benefit Cost
|
$8
|
$7
|
$24
|
$21
|
||
In
accordance with the Pension Protection Act (“the Act”) of 2006, companies are
required to be 94% funded for their outstanding qualified pension obligations as
of January 1, 2009 in order to avoid a scheduled series of required annual
contributions. Recent market volatility and overall investment losses of
pension assets reduced the funded status of CSX’s qualified plans; however,
required minimum contributions under funding rules for 2009 were approximately
$5 million. The Company intends to pre-fund contributions up to $250
million pre-tax, or $160 million after-tax due to likely contribution
requirements over the next several years. Through September 2009, the
Company made contributions of $166 million and currently anticipates that
additional contributions of up to $84 million may be made in the remainder of
2009. For further details, see Note 7, Employee Benefit Plans, in CSX’s
most recent Annual Report on Form 10-K.
Debt
Total
activity related to long-term debt as of September 2009 was as
follows:
|
(Dollars
in millions)
|
Current
Portion
|
Long-term
Portion
|
Total
Long-term Debt Activity
|
|
|
Total
long-term debt at December 2008
|
$319
|
$7,512
|
$7,831
|
|
|
2009
activity:
|
||||
|
Issued
|
-
|
500
|
500
|
|
|
Repaid
|
(110)
|
-
|
(110)
|
|
|
Reclassifications
|
107
|
(107)
|
-
|
|
|
Other
|
-
|
1
|
1
|
|
|
Total
long-term debt at September 2009
|
$316
|
$7,906
|
$8,222
|
|
For fair value information related to
the Company’s long-term debt, see Note 12, Fair Value
Measurements.
Revolving
Credit Facility
CSX has a
$1.25 billion unsecured revolving credit facility with a syndicate of banks. The
facility allows borrowings at floating rates based on the London interbank
offered rate ("LIBOR"), plus a spread depending upon ratings assigned by
Moody's Investors Service and Standard & Poor's Ratings Group to
CSX's senior, unsecured, long-term indebtedness for borrowed money. The facility
requires CSX to maintain a ratio of total debt to total capitalization
below a prescribed limit. The facility does not require CSX to post
collateral under any circumstances. As of September 2009, this facility
was not drawn on, and CSX was in compliance with all covenant requirements under
the facility. This facility expires in 2012.
Receivables
Securitization Facility
On
September 28, 2009, following the end of the fiscal quarter, the Company entered
into a $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. As
of the date of this filing, CSX has not drawn on this facility. Under
the terms of this facility, CSX Transportation and CSX Intermodal transfer
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. The cash received in exchange for these receivables when CSX
Trade Receivables monetizes them by selling them to third party lenders will be
recorded as debt on CSX’s consolidated financial statements.
The Company derives income from items
that are not considered operating activities. Income from these items
is reported net of related expense in other income – net on the consolidated
income statements. Other income – net consists primarily of interest
income, income from real estate and miscellaneous income (expense).
Interest
income fluctuates as a result of interest rates and balances that earn interest
based on CSX’s cash, cash equivalents and short-term
investments. Income from real estate includes the results of
operations of the Company’s non-operating real estate sales, leasing,
acquisition and management and development activities. This real
estate income may fluctuate as a function of timing of real estate
sales. Miscellaneous income includes a number of items which can be
income or expense. Examples of these items are equity earnings or
losses, noncontrolling minority interest expense, investment gains and losses
and other non-operating activities. Other income – net consisted of
the following:
|
Third
Quarters
|
Nine
Months Ended
|
|||||
|
(Dollars
in millions)
|
2009
|
2008
|
2009
|
2008
|
||
|
Interest
Income
|
$2
|
$10
|
$9
|
$31
|
||
|
Income
from Real Estate
|
11
|
3
|
18
|
36
|
||
|
Miscellaneous
Income (Expense) (a)
|
(7)
|
(8)
|
(8)
|
27
|
||
|
Total
Other Income - Net
|
$6
|
$5
|
$19
|
$94
|
||
(a) In
first quarter 2008, CSX recorded additional income of $30 million for an
adjustment to correct equity earnings from a non-consolidated
subsidiary.
Previously,
the results of operations from The Greenbrier resort were included in other
income – net. In May 2009, CSX sold the stock of a subsidiary that
indirectly owned Greenbrier Hotel Corporation, owner of The Greenbrier
resort. The results of this resort are now presented in discontinued
operations on the consolidated income statements and all prior periods have been
reclassified. For more information, see Note 11, Discontinued
Operations.
NOTE
9. Income
Taxes
As of
September 2009 and December 2008, the Company had approximately $50 million and
$57 million of total unrecognized tax benefits, respectively. For the same
periods, after consideration of the impact of federal tax benefits, $42 million
and $50 million, respectively, of net unrecognized tax benefits could favorably
affect the effective income tax rate. As of September 2009, the
Company estimates that approximately $13 million of the net unrecognized tax
benefits for various state and federal income tax matters will be resolved over
the next 12 months. Approximately $4 million of this total will be
recognizable upon the expiration of various statutes of
limitation. The final outcome of the remaining uncertain tax
positions, however, is not yet determinable.
NOTE
9. Income
Taxes, continued
During
second quarter 2008, the Internal Revenue Service (“IRS”) completed its
examination of tax years 2004 through 2006. As a result of this
examination and the resolution of other income tax matters, the Company recorded
an income tax benefit of $18 million.
The
Company files a consolidated federal income tax return, which includes its
principal domestic subsidiaries. CSX and its subsidiaries are subject
to U.S. federal income tax as well as income tax of multiple state
jurisdictions. During 2008, the Internal Revenue Service (“IRS”)
completed examinations of tax years 2004 through 2006 as well as for
2007. The Company has appealed a tax adjustment proposed by the IRS with
respect to the 2004 through 2006 period and a related amount is included in the
uncertain tax positions above. This appeals process is expected to
last more than one year. Federal examinations of original federal
income tax returns for all years through 2007 are otherwise
resolved. During the third quarter of 2009, the IRS began
its examination of the 2008 federal income tax return.
CSX’s
continuing practice is to recognize interest and penalties (net of related
federal or state tax benefits or expense) associated with income tax matters in
income tax expense. As of September 2009 and December 2008, the
Company had a $6 million and a $2 million gross payable before the consideration
of state tax impacts, respectively, accrued for interest and
penalties.
NOTE
10. Related
Party Transactions
Through a
limited liability company, CSX
and Norfolk Southern Corporation (“NS”) jointly own Conrail, Inc.
(“Conrail”). CSX has a 42% economic interest and 50% voting interest
in the jointly-owned entity, and NS has the remainder of the economic and voting
interests. Pursuant to the Investments - Equity Method and
Joint Ventures Topic, ASC 323, CSX
applies the equity method of accounting to its investment in
Conrail. At September 2009 and December 2008, CSX’s investment in
Conrail was $626 million and $609 million, respectively.
CSX’s
income statement is impacted in several ways by the joint ownership of
Conrail. First, Conrail owns and operates rail infrastructure for the
joint benefit of CSX and NS. This is known as the shared asset area.
Conrail charges fees for right-of way usage, equipment rentals and
transportation, and switching and terminal service charges in the shared asset
area. In addition, because of CSX’s equity interest in Conrail, CSX
also includes a share of Conrail’s income which is recorded as a contra-expense
and reduces the total amount of expense recorded for Conrail. Also,
purchase price amortization primarily represents the additional after-tax
depreciation expense related to the write-up of Conrail’s fixed assets when the
original purchase price, from the 1997 acquisition of Conrail, was allocated
based on fair value. Lastly, interest expense is recorded on long-term
payables to Conrail.
NOTE
10. Related
Party Transactions, continued
Dollar
amounts of these items impacting the consolidated income statements were as
follows:
|
Third
Quarters
|
Nine
Months Ended
|
||||
|
(Dollars
in millions)
|
2009
|
2008
|
2009
|
2008
|
|
|
Income
Statement Information:
|
|||||
|
Rents,
Fees and Services
|
$26
|
$31
|
$76
|
$84
|
|
|
Equity
in Income of Conrail
|
(6)
|
(6)
|
(20)
|
(18)
|
|
|
Purchase
Price Amortization and Other
|
1
|
1
|
3
|
3
|
|
|
Interest
Expense Related to Conrail
|
1
|
1
|
3
|
3
|
|
|
Income
Statement Impact
|
$22
|
$27
|
$62
|
$72
|
|
Additional
information about the investment in Conrail is included in CSX’s most recent
Annual Report on Form 10-K.
As
previously reported in March 2009, Greenbrier Hotel Corporation (“GHC”), owner
of The Greenbrier resort and then an indirect subsidiary of CSX, filed for
Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Eastern
District of Virginia, Richmond Division (“Bankruptcy Court”). In
conjunction with the bankruptcy, GHC also announced an agreement to sell the
resort pursuant to an asset purchase agreement (the “APA”) with Marriott Hotel
Services, Inc.
In May
2009, CSX sold the stock of a subsidiary that indirectly owned GHC to Justice
Family Group, LLC (“JFG”) for approximately $21 million in cash. CSX
recognized a gain on the sale of $25 million after tax in the second quarter of
2009. The gain was calculated using cash proceeds, net book value,
deal-related costs incurred and tax benefits. The previously
reported bankruptcy financing that CSX made available to The Greenbrier was paid
down and no amounts were outstanding at the time of the sale. Also in
May 2009, the Bankruptcy Court entered an order dismissing GHC’s bankruptcy
proceeding and terminating the APA. CSX has no continuing obligations
to finance post-sale resort operations. CSX has retained
responsibility for certain pre-closing Greenbrier pension
obligations.
This
transaction is reportable as discontinued operations under the subsection Impairment or Disposal of Long-Lived
Assets, ASC 360-10-45-2. Therefore, the gain on sale as well
as results from operations are reported as discontinued
operations. Previously, all amounts associated with the operations of
The Greenbrier were included in Other Income - Net. All prior periods
have been reclassified to reflect this change.
NOTE
11.
Discontinued Operations, continued
Income
statement information:
|
Third
Quarters
|
Nine
Months Ended
|
||||
|
(Dollars
in millions)
|
2009
|
2008
|
2009
|
2008
|
|
|
Net
Income (Loss) From Operations, after tax
|
$
-
|
$2
|
$(10)
|
$(16)
|
|
|
Gain
on Sale, after tax
|
-
|
-
|
25
|
-
|
|
|
Net
Income (Loss) From Discontinued Operations
|
$
-
|
$2
|
$15
|
$(16)
|
|
|
Earnings
per Share
|
|||||
|
From
Discontinued Operations, Assuming Dilution
|
$
-
|
$0.01
|
$0.04
|
$(0.04)
|
|
NOTE
12. Fair
Value Measurements
Effective beginning second quarter
2009, the Financial
Instruments Topic, ASC 825, requires disclosures about fair
value of financial instruments in quarterly reports as well as in annual
reports. For CSX, this statement applies to certain investments and
long-term debt. Also, the Fair Value Measurements and
Disclosures Topic, ASC 820, clarifies the
definition of fair value for financial reporting, establishes a framework for
measuring fair value and requires additional disclosures about the use of fair
value measurements.
Various
inputs are considered when determining the value of the Company’s investments
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
Company’s investment assets are valued by a third-party trustee, consist
primarily of corporate bonds and are carried at fair value on the consolidated
balance sheet. As of September 2009, these bonds had a fair value of
$116 million. All inputs used to determine fair value are considered
level 2 inputs.
Long-term
debt is the Company’s only financial instrument with fair values significantly
different from their carrying amounts. The fair value of long-term debt
has been estimated using discounted cash flow analysis based upon the Company's
current incremental borrowing rates for similar types of financing arrangements
which are considered level 2 inputs.
NOTE
12. Fair
Value Measurements, continued
The fair
value of outstanding debt fluctuates with changes in applicable interest
rates. Fair value will exceed carrying value when the current market
interest rate is lower than the interest rate at which the debt was originally
issued. The fair value 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 fair value
and carrying value of the Company’s long-term debt is as follows:
|
(Dollars
in millions)
|
September
2009
|
December
2008
|
||||||
|
Long-term
Debt Including Current Maturities:
|
||||||||
|
Fair
Value
|
$9,192
|
$7,415
|
||||||
|
Carrying
Value
|
$8,222
|
$7,831
|
||||||
NOTE
13. Business
Segments
The
Company’s consolidated operating income results are comprised of two business
segments: Rail and Intermodal. The Rail segment provides rail freight
transportation over a network of approximately 21,000 route miles in 23 states,
the District of Columbia and the Canadian provinces of Ontario and Quebec. The
Intermodal segment provides integrated rail and truck transportation services
and operates a network of dedicated intermodal facilities across North
America. These segments are strategic business units that offer
different services and are managed separately. Performance of each
segment is evaluated and resources are allocated based on several factors, of
which the principal financial measures are business segment operating income and
operating ratio. The accounting policies of the segments are the same
as those described in Note 1, Nature of Operations and Significant Accounting
Policies, in CSX’s most recent Annual Report on Form 10-K. Business
segment information is as follows:
|
Third
Quarters
|
|||||||
|
CSX
|
|||||||
|
(Dollars
in millions)
|
Rail (a)
|
Intermodal
|
Consolidated
|
||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
|
|
Revenues
from External Customers
|
$1,986
|
$2,562
|
$303
|
$399
|
$2,289
|
$2,961
|
$(672)
|
|
Segment
Operating Income
|
559
|
636
|
39
|
97
|
598
|
733
|
(135)
|
|
Nine
Months Ended
|
|||||||
|
CSX
|
|||||||
|
(Dollars
in millions)
|
Rail (a)
|
Intermodal
|
Consolidated
|
||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
|
|
Revenues
from External Customers
|
$5,857
|
$7,449
|
$864
|
$1,132
|
$6,721
|
$8,581
|
$(1,860)
|
|
Segment
Operating Income
|
1,603
|
1,842
|
99
|
234
|
1,702
|
2,076
|
(374)
|
|
(a)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as TDSI, Transflo, CSX Technology and other
subsidiaries.
|
NOTE
14. Summarized
Consolidating Financial Data
In
December 2007, CSXT sold secured equipment notes maturing in 2023 and in October
2008, CSXT sold additional secured equipment notes maturing in 2014 in
registered public offerings. CSX has fully and unconditionally
guaranteed the notes. In connection with the notes, the Company is providing the
following condensed consolidating financial information in accordance with SEC
disclosure requirements. Each entity in the consolidating financial information
follows the same accounting policies as described in the consolidated financial
statements, except for the use of the equity method of accounting to reflect
ownership interests in subsidiaries which are eliminated upon consolidation and
the allocation of certain expenses of CSX incurred for the benefit of its
subsidiaries.
Condensed
consolidating financial information for the obligor, CSXT, and parent guarantor,
CSX, is as follows:
NOTE
14. Summarized
Consolidating Financial Data, continued
|
Consolidating
Income Statements
|
||||||
|
(Dollars
in Millions)
|
||||||
|
Quarter
Ended September 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Revenue
|
$
-
|
$1,971
|
$344
|
$(26)
|
$2,289
|
|
|
Operating
Expense
|
(69)
|
1,492
|
291
|
(23)
|
1,691
|
|
|
Operating
Income
|
69
|
479
|
53
|
(3)
|
598
|
|
|
Equity
in Earnings of Subsidiaries
|
343
|
-
|
-
|
(343)
|
-
|
|
|
Interest
Expense
|
(126)
|
(29)
|
(2)
|
17
|
(140)
|
|
|
Other
Income - Net
|
24
|
10
|
(14)
|
(14)
|
6
|
|
|
Earnings
From Continuing Operations
|
||||||
|
Before
Income Taxes
|
310
|
460
|
37
|
(343)
|
464
|
|
|
Income
Tax Benefit (Expense)
|
(17)
|
(169)
|
15
|
-
|
(171)
|
|
|
Earnings
From Continuing Operations
|
293
|
291
|
52
|
(343)
|
293
|
|
|
Discontinued
Operations
|
-
|
-
|
-
|
-
|
-
|
|
|
Net
Earnings
|
$293
|
$291
|
$52
|
$(343)
|
$293
|
|
|
Quarter
Ended September 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Revenue
|
$
-
|
$2,544
|
$448
|
$(31)
|
$2,961
|
|
|
Operating
Expense
|
(33)
|
1,963
|
327
|
(29)
|
2,228
|
|
|
Operating
Income
|
33
|
581
|
121
|
(2)
|
733
|
|
|
Equity
in Earnings of Subsidiaries
|
444
|
-
|
-
|
(444)
|
-
|
|
|
Interest
Expense
|
(142)
|
(38)
|
(5)
|
54
|
(131)
|
|
|
Other
Income - Net
|
62
|
16
|
(21)
|
(52)
|
5
|
|
|
Earnings
From Continuing Operations
|
||||||
|
Before
Income Taxes
|
397
|
559
|
95
|
(444)
|
607
|
|
|
Income
Tax Benefit (Expense)
|
(15)
|
(192)
|
(20)
|
-
|
(227)
|
|
|
Earnings
From Continuing Operations
|
382
|
367
|
75
|
(444)
|
380
|
|
|
Discontinued
Operations
|
-
|
-
|
2
|
-
|
2
|
|
|
Net
Earnings
|
$382
|
$367
|
$77
|
$(444)
|
$382
|
|
NOTE
14. Summarized
Consolidating Financial Data, continued
|
Consolidating
Income Statements
|
||||||
|
(Dollars
in Millions)
|
||||||
|
Nine
Months Ended September 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Revenue
|
$
-
|
$5,810
|
$989
|
$(78)
|
$6,721
|
|
|
Operating
Expense
|
(211)
|
4,450
|
850
|
(70)
|
5,019
|
|
|
Operating
Income
|
211
|
1,360
|
139
|
(8)
|
1,702
|
|
|
Equity
in Earnings of Subsidiaries
|
906
|
-
|
-
|
(906)
|
-
|
|
|
Interest
Expense
|
(375)
|
(88)
|
(6)
|
49
|
(420)
|
|
|
Other
Income - Net
|
304
|
13
|
(257)
|
(41)
|
19
|
|
|
Earnings
From Continuing Operations
|
||||||
|
Before
Income Taxes
|
1,046
|
1,285
|
(124)
|
(906)
|
1,301
|
|
|
Income
Tax Benefit (Expense)
|
(231)
|
(488)
|
250
|
-
|
(469)
|
|
|
Earnings
From Continuing Operations
|
815
|
797
|
126
|
(906)
|
832
|
|
|
Discontinued
Operations
|
32
|
-
|
(17)
|
-
|
15
|
|
|
Net
Earnings
|
$847
|
$797
|
$109
|
$(906)
|
$847
|
|
|
Nine
Months Ended September 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Revenue
|
$
-
|
$7,389
|
$1,293
|
$(101)
|
$8,581
|
|
|
Operating
Expense
|
(123)
|
5,755
|
966
|
(93)
|
6,505
|
|
|
Operating
Income
|
123
|
1,634
|
327
|
(8)
|
2,076
|
|
|
Equity
in Earnings of Subsidiaries
|
1,236
|
-
|
-
|
(1,236)
|
-
|
|
|
Interest
Expense
|
(414)
|
(115)
|
(18)
|
164
|
(383)
|
|
|
Other
Income - Net
|
126
|
106
|
18
|
(156)
|
94
|
|
|
Earnings
From Continuing Operations
|
||||||
|
Before
Income Taxes
|
1,071
|
1,625
|
327
|
(1,236)
|
1,787
|
|
|
Income
Tax Benefit (Expense)
|
47
|
(593)
|
(107)
|
-
|
(653)
|
|
|
Earnings
From Continuing Operations
|
1,118
|
1,032
|
220
|
(1,236)
|
1,134
|
|
|
Discontinued
Operations
|
-
|
-
|
(16)
|
-
|
(16)
|
|
|
Net
Earnings
|
$1,118
|
$1,032
|
$204
|
$(1,236)
|
$1,118
|
|
NOTE
14. Summarized
Consolidating Financial Data, continued
|
Consolidating
Balance Sheet
|
|||||||
|
(Dollars
in Millions)
|
|||||||
|
CSX
|
CSX
|
||||||
|
As
of September 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
||
|
ASSETS
|
|||||||
|
Current
Assets
|
|||||||
|
Cash
and Cash Equivalents
|
$1,097
|
$82
|
$61
|
$
-
|
$1,240
|
||
|
Short-term
Investments
|
-
|
-
|
81
|
-
|
81
|
||
|
Accounts
Receivable - Net
|
3
|
897
|
28
|
-
|
928
|
||
|
Materials
and Supplies
|
-
|
239
|
-
|
-
|
239
|
||
|
Deferred
Income Taxes
|
13
|
158
|
-
|
-
|
171
|
||
|
Other
Current Assets
|
48
|
64
|
95
|
(96)
|
111
|
||
|
Total
Current Assets
|
1,161
|
1,440
|
265
|
(96)
|
2,770
|
||
|
Properties
|
4
|
29,512
|
1,289
|
-
|
30,805
|
||
|
Accumulated
Depreciation
|
(6)
|
(6,951)
|
(808)
|
-
|
(7,765)
|
||
|
Properties
- Net
|
(2)
|
22,561
|
481
|
-
|
23,040
|
||
|
Investments
in Conrail
|
-
|
-
|
626
|
-
|
626
|
||
|
Affiliates
and Other Companies
|
-
|
537
|
(126)
|
-
|
411
|
||
|
Investments
in Consolidated Subsidiaries
|
15,227
|
-
|
45
|
(15,272)
|
-
|
||
|
Other
Long-term Assets
|
53
|
96
|
67
|
(43)
|
173
|
||
|
Total
Assets
|
$16,439
|
$24,634
|
$1,358
|
$(15,411)
|
$27,020
|
||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities
|
|||||||
|
Accounts
Payable
|
$128
|
$926
|
$(91)
|
$
-
|
$963
|
||
|
Labor
and Fringe Benefits Payable
|
32
|
336
|
34
|
-
|
402
|
||
|
Payable
to Affiliates
|
503
|
638
|
(1,074)
|
(67)
|
-
|
||
|
Casualty,
Environmental and Other Reserves
|
-
|
157
|
22
|
-
|
179
|
||
|
Current
Maturities of Long-term Debt
|
200
|
113
|
3
|
-
|
316
|
||
|
Income
and Other Taxes Payable
|
101
|
208
|
(188)
|
-
|
121
|
||
|
Other
Current Liabilities
|
1
|
93
|
29
|
(28)
|
95
|
||
|
Total
Current Liabilities
|
965
|
2,471
|
(1,265)
|
(95)
|
2,076
|
||
|
Casualty,
Environmental and Other Reserves
|
-
|
509
|
71
|
-
|
580
|
||
|
Long-term
Debt
|
6,557
|
1,345
|
4
|
-
|
7,906
|
||
|
Deferred
Income Taxes
|
(358)
|
6,808
|
101
|
-
|
6,551
|
||
|
Long-term
Payable to Affiliates
|
-
|
-
|
44
|
(44)
|
-
|
||
|
Other
Long-term Liabilities
|
599
|
466
|
153
|
-
|
1,218
|
||
|
Total
Liabilities
|
7,763
|
11,599
|
(892)
|
(139)
|
18,331
|
||
|
Shareholders'
Equity
|
|||||||
|
Common
Stock, $1 Par Value
|
393
|
181
|
-
|
(181)
|
393
|
||
|
Other
Capital
|
48
|
5,567
|
1,950
|
(7,517)
|
48
|
||
|
Retained
Earnings
|
8,963
|
7,312
|
361
|
(7,673)
|
8,963
|
||
|
Accumulated
Other Comprehensive Loss
|
(728)
|
(46)
|
(101)
|
147
|
(728)
|
||
|
Noncontrolling
Minority Interest
|
-
|
21
|
40
|
(48)
|
13
|
||
|
Total
Shareholders' Equity
|
8,676
|
13,035
|
2,250
|
(15,272)
|
8,689
|
||
|
Total
Liabilities and Shareholders' Equity
|
$16,439
|
$24,634
|
$1,358
|
$(15,411)
|
$27,020
|
||
NOTE
14. Summarized
Consolidating Financial Data, continued
|
Consolidating
Balance Sheet
|
|||||||
|
(Dollars
in Millions)
|
|||||||
|
CSX
|
CSX
|
||||||
|
As
of December 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
||
|
ASSETS
|
|||||||
|
Current
Assets
|
|||||||
|
Cash
and Cash Equivalents
|
$559
|
$63
|
$47
|
$
-
|
$669
|
||
|
Short-term
Investments
|
-
|
-
|
76
|
-
|
76
|
||
|
Accounts
Receivable - Net
|
5
|
1,046
|
56
|
-
|
1,107
|
||
|
Materials
and Supplies
|
-
|
217
|
-
|
-
|
217
|
||
|
Deferred
Income Taxes
|
11
|
187
|
5
|
-
|
203
|
||
|
Other
Current Assets
|
112
|
34
|
52
|
(79)
|
119
|
||
|
Total
Current Assets
|
687
|
1,547
|
236
|
(79)
|
2,391
|
||
|
Properties
|
6
|
28,958
|
1,244
|
-
|
30,208
|
||
|
Accumulated
Depreciation
|
(9)
|
(6,758)
|
(753)
|
-
|
(7,520)
|
||
|
Properties
- Net
|
(3)
|
22,200
|
491
|
-
|
22,688
|
||
|
Investments
in Conrail
|
-
|
-
|
609
|
-
|
609
|
||
|
Affiliates
and Other Companies
|
-
|
527
|
(121)
|
-
|
406
|
||
|
Investments
in Consolidated Subsidiaries
|
14,566
|
-
|
41
|
(14,607)
|
-
|
||
|
Other
Long-term Assets
|
52
|
76
|
109
|
(43)
|
194
|
||
|
Total
Assets
|
$15,302
|
$24,350
|
$1,365
|
$(14,729)
|
$26,288
|
||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities
|
|||||||
|
Accounts
Payable
|
$99
|
$739
|
$135
|
$
-
|
$973
|
||
|
Labor
and Fringe Benefits Payable
|
40
|
366
|
59
|
-
|
465
|
||
|
Payable
to Affiliates
|
455
|
765
|
(1,153)
|
(67)
|
-
|
||
|
Casualty,
Environmental and Other Reserves
|
-
|
211
|
25
|
-
|
236
|
||
|
Current
Maturities of Long-term Debt
|
200
|
116
|
3
|
-
|
319
|
||
|
Income
and Other Taxes Payable
|
(2)
|
208
|
(81)
|
-
|
125
|
||
|
Other
Current Liabilities
|
2
|
271
|
24
|
(11)
|
286
|
||
|
Total
Current Liabilities
|
794
|
2,676
|
(988)
|
(78)
|
2,404
|
||
|
Casualty,
Environmental and Other Reserves
|
1
|
547
|
95
|
-
|
643
|
||
|
Long-term
Debt
|
6,058
|
1,447
|
7
|
-
|
7,512
|
||
|
Deferred
Income Taxes
|
(629)
|
6,591
|
273
|
-
|
6,235
|
||
|
Long-term
Payable to Affiliates
|
-
|
-
|
44
|
(44)
|
-
|
||
|
Other
Long-term Liabilities
|
1,010
|
493
|
(36)
|
(41)
|
1,426
|
||
|
Total
Liabilities
|
7,234
|
11,754
|
(605)
|
(163)
|
18,220
|
||
|
Shareholders'
Equity
|
|||||||
|
Common
Stock, $1 Par Value
|
391
|
181
|
-
|
(181)
|
391
|
||
|
Other
Capital
|
-
|
5,566
|
1,923
|
(7,489)
|
-
|
||
|
Retained
Earnings
|
8,398
|
6,870
|
148
|
(7,018)
|
8,398
|
||
|
Accumulated
Other Comprehensive Loss
|
(741)
|
(41)
|
(104)
|
145
|
(741)
|
||
|
Noncontrolling
Minority Interest
|
20
|
20
|
3
|
(23)
|
20
|
||
|
Total
Shareholders' Equity
|
8,068
|
12,596
|
1,970
|
(14,566)
|
8,068
|
||
|
Total
Liabilities and Shareholders' Equity
|
$15,302
|
$24,350
|
$1,365
|
$(14,729)
|
$26,288
|
||
NOTE
14. Summarized Consolidating Financial
Data, continued
|
Consolidating
Cash Flow Statements
|
||||||
|
(Dollars
in Millions)
|
||||||
|
CSX
|
CSX
|
|||||
|
Nine
Months Ended September 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Activities
|
||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$(75)
|
$1,721
|
$323
|
$(365)
|
$1,604
|
|
|
Investing
Activities
|
||||||
|
Property
Additions
|
-
|
(1,001)
|
(45)
|
-
|
(1,046)
|
|
|
Purchases
of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|
|
Other
Investing Activities
|
(91)
|
5
|
48
|
89
|
51
|
|
|
Net
Cash Provided by (Used in) Investing Activities
|
(91)
|
(996)
|
3
|
89
|
(995)
|
|
|
Financing
Activities
|
||||||
|
Long-term
Debt Issued
|
500
|
-
|
-
|
-
|
500
|
|
|
Long-term
Debt Repaid
|
-
|
(108)
|
(2)
|
-
|
(110)
|
|
|
Dividends
Paid
|
(264)
|
(356)
|
(4)
|
365
|
(259)
|
|
|
Stock
Options Exercised
|
19
|
-
|
-
|
-
|
19
|
|
|
Shares
Repurchased
|
-
|
-
|
-
|
-
|
-
|
|
|
Other
Financing Activities
|
449
|
(242)
|
(306)
|
(89)
|
(188)
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
704
|
(706)
|
(312)
|
276
|
(38)
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
538
|
19
|
14
|
-
|
571
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
559
|
63
|
47
|
-
|
669
|
|
|
Cash
and Cash Equivalents at End of Period
|
$1,097
|
$82
|
$61
|
$
-
|
$1,240
|
|
|
CSX
|
CSX
|
|||||
|
Nine
Months Ended September 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Activities
|
||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$501
|
$1,947
|
$12
|
$(269)
|
$2,191
|
|
|
Investing
Activities
|
||||||
|
Property
Additions
|
1
|
(1,234)
|
(75)
|
-
|
(1,308)
|
|
|
Purchases
of Short-term Investments
|
(25)
|
-
|
-
|
-
|
(25)
|
|
|
Proceeds
from Sales of Short-term Investments
|
280
|
-
|
-
|
-
|
280
|
|
|
Other
Investing Activities
|
(247)
|
92
|
148
|
34
|
27
|
|
|
Net
Cash Provided by (Used in) Investing Activities
|
9
|
(1,142)
|
73
|
34
|
(1,026)
|
|
|
Financing
Activities
|
||||||
|
Long-term
Debt Issued
|
1,000
|
-
|
-
|
-
|
1,000
|
|
|
Long-term
Debt Repaid
|
(113)
|
(102)
|
(5)
|
-
|
(220)
|
|
|
Dividends
Paid
|
(227)
|
(244)
|
(20)
|
269
|
(222)
|
|
|
Stock
Options Exercised
|
75
|
-
|
-
|
-
|
75
|
|
|
Shares
Repurchased
|
(1,307)
|
-
|
-
|
-
|
(1,307)
|
|
|
Other
Financing Activities
|
546
|
(439)
|
(37)
|
(34)
|
36
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
(26)
|
(785)
|
(62)
|
235
|
(638)
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
484
|
20
|
23
|
-
|
527
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
298
|
55
|
15
|
-
|
368
|
|
|
Cash
and Cash Equivalents at End of Period
|
$782
|
$75
|
$38
|
$
-
|
$895
|
|
30
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
Company provides customers with access to an interconnected transportation
network that links ports, production facilities and distribution centers to
markets in the Northeast, Midwest and southern states. The Company
serves all major markets in the eastern United States and has direct access to
all significant Atlantic and Gulf Coast ports, as well as the Mississippi River,
the Great Lakes and the St. Lawrence Seaway. The Company also has
access to Pacific ports through commercial arrangements with western
railroads.
The
Company transports a broad portfolio of products, such as coal, forest products,
ethanol, automobiles, chemicals and consumer-related products. Those goods are
transported across the country in a way that, compared to alternative modes of
transportation, reduces the impact on the environment, takes traffic off an
already congested highway system and reduces fuel consumption and transportation
costs.
The
global recession that intensified in late 2008 has continued to impact CSX’s
business in 2009. Beginning in late 2008, the Company began taking
aggressive actions to manage costs and right-size resources. The
Company will continue to stay focused on managing costs and resources and
believes it is well positioned to take advantage of the early stages of an
economic recovery.
|
·
|
Revenue
decreased $672 million or 23% to $2.3 billion as declines in volume and
lower fuel surcharge revenue more than offset core pricing
gains.
|
|
·
|
Expenses
decreased $537 million or 24% to $1.7 billion, reflecting the Company’s
productivity gains and right-sizing
efforts.
|
|
·
|
Operating
income decreased $135 million or 18% to $598
million.
|
|
·
|
Operating
ratio improved to 73.9%, a third quarter
record.
|
CSX
experienced another quarter of significant year-over-year volume and revenue
declines caused by the broad-based weakness in the economy. Third
quarter revenues of $2.3 billion were down 23% from the prior year, driven by a
15% decline in volume and lower fuel surcharge recovery (associated with the
sharp decline in fuel prices). Year-over-year volume declines were experienced
across all markets with the exception of the domestic intermodal
segment. Despite a challenging environment, the Company continued to
achieve pricing gains primarily due to the overall cost advantages that
rail-based solutions provide to customers versus other modes of transportation.
However, lower fuel recovery more than offset the Company’s ongoing yield
management initiatives.
At the
same time, CSX was able to reduce expenses by $537 million, or 24%, versus the
prior year. These expense reductions helped partially offset the
revenue decline and were a combined result of lower fuel expense, ongoing
productivity initiatives and overall cost management efforts. Because
of the Company’s continued focus on cost control, CSX was able to achieve a
third quarter record operating ratio of 73.9%.
31
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For
additional information, refer to Rail and Intermodal Results of Operations
discussed on pages 35 through 36.
In
addition to the financial highlights described above, the Company measures and
reports safety and service performance. CSX strives for continuous
improvement in these measures through training, initiatives and
investment. For example, the Company’s safety and train accident
prevention programs rely on broad employee involvement. The programs
utilize operating rules training, compliance measurement, root cause analysis
and communication to create a safer environment for employees and the
public. Continued capital investment in Company assets, including
track, bridges, signals, equipment and detection technology, also supports
safety performance.
In third
quarter 2009, the Company continued its focus on safety and operating
performance. CSX delivered improved quarterly results in both Federal
Railroad Administration (“FRA”) personal injuries and train
accidents. The FRA personal injury index declined to 1.09, a 7%
improvement in the quarter. Reported FRA train accident frequency declined
to 2.47, a 21% improvement compared to the same quarter of 2008.
Key
service metrics improved significantly in the quarter versus a year ago.
On-time train originations and arrivals were 82% and 79%, respectively, during
the quarter. Average dwell declined slightly to 24.0 hours and average
cars-on-line declined to 214,987 primarily due to lower demand levels.
Average train velocity improved to 21.8 miles per hour, as the network remained
fluid. The Company aims to maintain key operating measures and service
reliability at high levels, while reducing resource utilization in response to
current business conditions.
32
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Third
Quarters
|
|||||
|
2009
|
2008
|
Improvement
|
%
|
||
|
Safety
and Service Measurements
|
|||||
|
FRA
Personal Injuries Frequency Index
|
1.09
|
1.17
|
7
|
%
|
|
|
FRA
Train Accident Rate
|
2.47
|
3.14
|
21
|
%
|
|
|
On-Time
Train Originations
|
82%
|
77%
|
6
|
%
|
|
|
On-Time
Destination Arrivals
|
79%
|
67%
|
18
|
%
|
|
|
Dwell
|
24.0
|
24.1
|
-
|
%
|
|
|
Cars-On-Line
|
214,987
|
226,444
|
5
|
%
|
|
|
System
Train Velocity
|
21.8
|
20.1
|
8
|
%
|
|
|
Increase/
|
|||||
|
Resources
|
(Decrease)
|
||||
|
Route
Miles
|
21,190
|
21,203
|
-
|
%
|
|
|
Locomotives
(owned and long-term leased)
|
4,092
|
4,133
|
(1)
|
%
|
|
|
Freight
Cars (owned and long-term leased)
|
85,223
|
91,833
|
(7)
|
%
|
|
Key
Performance Measures Definitions
FRA Personal Injuries
Frequency Index – Number of FRA-reportable injuries per 200,000
man-hours
FRA Train Accident
Rate – Number of FRA-reportable train accidents per million
train-miles
On-Time Train
Originations – Percent of scheduled road trains that depart the origin
yard on-time or ahead of schedule
On-Time Destination
Arrivals – Percent of scheduled road trains that arrive at the
destination yard on-time to two hours late (30 minutes for intermodal
trains)
Dwell – Amount of
time in hours between car arrival at and departure from the yard. It
does not include cars moving through the yard on the same train.
Cars-On-Line – A
count of all cars on the network (does not include locomotives, cabooses,
trailers, containers or maintenance equipment)
System Train Velocity
– Average train speed between terminals in miles per hour (does not include
locals, yard jobs, work trains or passenger trains)
33
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL
RESULTS OF OPERATIONS
Results of Operations
(Unaudited)
(Dollars
in Millions)
Third
Quarters
|
CSX
|
|||||||||||
|
Rail
(a)
|
Intermodal
|
Consolidated
|
|||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
%
Change
|
||||
|
Revenue
|
|||||||||||